    [Senate Hearing 105-427]
    [From the U.S. Government Publishing Office]

    [DOCID: f:39866]
                                                            S. Hrg. 105-427

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                           ONE HUNDRED FIFTH CONGRESS

                                 FIRST SESSION

                                       on

                               H.R. 2158/S. 1034

     AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF VETERANS AFFAIRS
    AND HOUSING AND URBAN DEVELOPMENT, AND FOR SUNDRY INDEPENDENT AGENCIES,
      BOARDS, COMMISSIONS, CORPORATIONS, AND OFFICES FOR THE FISCAL YEAR
               ENDING SEPTEMBER 30, 1998, AND FOR OTHER PURPOSES

                                   __________

            American Battle Monuments Commission
          Consumer Product Safety Commission
          Corporation for National and Community Service
          Department of Defense--Civil
          Department of Health and Human Services
          Department of Housing and Urban Development
          Department of the Treasury
          Department of Veterans Affairs

          Environmental Protection Agency
          Executive Office of the President
          Federal Emergency Management Agency
          General Services Administration
          National Aeronautics and Space Administration
          National Credit Union Administration
          National Science Foundation
          Nondepartmental witnesses
          Selective Service System
          U.S. Court of Veterans Appeals

                                   __________

             Printed for the use of the Committee on Appropriations

     Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                     senate

                        U.S. GOVERNMENT PRINTING OFFICE
    39-866 CC                   WASHINGTON : 1998

    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
    Superintendent of Documents, Congressional Sales Office, Washington, DC
                                     20402
                               ISBN 0-16-056428-X

                          COMMITTEE ON APPROPRIATIONS

                         TED STEVENS, Alaska, Chairman
    THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
    ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
    PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
    CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
    SLADE GORTON, Washington             DALE BUMPERS, Arkansas
    MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
    CONRAD BURNS, Montana                TOM HARKIN, Iowa
    RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
    JUDD GREGG, New Hampshire            HARRY REID, Nevada
    ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
    BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
    LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
    LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
    KAY BAILEY HUTCHISON, Texas
                       Steven J. Cortese, Staff Director
                     Lisa Sutherland, Deputy Staff Director
                   James H. English, Minority Staff Director
                                     ------

               Subcommittee on VA, HUD, and Independent Agencies

                    CHRISTOPHER S. BOND, Missouri, Chairman
    CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
    TED STEVENS, Alaska                  PATRICK J. LEAHY, Vermont
    RICHARD C. SHELBY, Alabama           FRANK R. LAUTENBERG, New Jersey
    BEN NIGHTHORSE CAMPBELL, Colorado    TOM HARKIN, Iowa
    LARRY CRAIG, Idaho                   BARBARA BOXER, California
                                         ROBERT C. BYRD, West Virginia
                                           (ex officio)

                       Jon Kamarck, Clerk to Subcommittee
                              Carolyn E. Apostolou

                                 Minority Staff
                                Sally Chadbourne

                                C O N T E N T S

                                  ----------

                          Thursday, February 25, 1997

                                                                       Page

    Executive Office of the President: Council on Environmental
      Quality and Office of Environmental Quality....................     1
    Department of the Treasury: Community Development Financial
      Institution....................................................    27
    National Credit Union Administration.............................    63

                             Tuesday, March 4, 1997

    Corporation for National and Community Service...................    81
    U.S. Court of Veterans Appeals...................................   109
    American Battle Monuments Commission.............................   121
    Department of Defense--Civil: Cemeterial Expenses, Army..........   139
    Selective Service System.........................................   145

                            Tuesday, March 11, 1997

    Consumer Product Safety Commission...............................   155
    General Services Administration: Consumer Information Center.....   165
    Department of Health and Human Services: Office of Consumer
      Affairs........................................................   169

                            Tuesday, March 18, 1997

    Federal Emergency Management Agency..............................   193

                             Tuesday, April 8, 1997

    Environmental Protection Agency..................................   247

                            Tuesday, April 22, 1997

    Executive Office of the President: Office of Science and
      Technology Policy..............................................   433
    National Science Foundation......................................   457

                             Thursday, May 1, 1997

    Department of Veterans Affairs: Office of the Secretary..........   511

                              Tuesday, May 6, 1997

    National Aeronautics and Space Administration....................   601

                             Tuesday, May 13, 1997

    Department of Housing and Urban Development......................   665
    Nondepartmental witnesses........................................   723
        Department of Veterans Affairs...............................   723
        Department of Housing and Urban Development..................   732
        Environmental Protection Agency..............................   830
        Federal Emergency Management Agency..........................   889
        National Aeronautics and Space Administration................   896
        National Science Foundation..................................   909
        Miscellaneous................................................   923

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                          THURSDAY, FEBRUARY 25, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:38 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Burns, Stevens, Bennett, Mikulski,
    and Lautenberg.

                       EXECUTIVE OFFICE OF THE PRESIDENT

      Council on Environmental Quality and Office of Environmental Quality

    STATEMENT OF KATHLEEN MC GINTY, CHAIR

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good morning, and welcome to the VA, HUD, and
    Independent Agencies Subcommittee meeting. We will come to
    order.
        My apologies. I have spent the better part of the morning
    stuck in traffic. If this were the D.C. appropriations
    subcommittee, I would have questions on the construction
    schedule. But all I can do now is apologize to the witnesses,
    guests, and fellow members.
        This is the subcommittee's first hearing on the fiscal year
    1998 budget. I welcome the new members of the subcommittee, and
    I look forward to working with our ranking member, Senator
    Mikulski, and she probably has a story about traffic on the
    Baltimore-Washington Parkway which will exceed my story.
        I welcome our witnesses and guests.
        We will face another year of very difficult budget
    decisions as Congress continues to focus on its priorities and
    seeks to balance a budget by the year 2002. I must emphasize
    the need to continue to be proactive in consolidating and
    reforming our many Federal programs, including many under the
    jurisdiction of this subcommittee. There was much to be done
    over the last several years, but there is a lot of work still
    to be done.
        In particular, after 4 years of sharp decline, the Federal
    deficit is likely to begin to increase again, so that by 2010,
    when some of us, past baby boom and baby boomers, begin to
    retire, the deficit is going to skyrocket unless Congress makes
    meaningful policy and spending changes. It took us more than
    200 years to acquire our first trillion dollars of debt. We are
    now increasing our outstanding debt by $1 trillion about every
    5 years. This is a mortgage on America's future that is going
    to be difficult to sustain.
        I note, with interest and some concern, the President's
    budget proposes some $92 billion in budget authority for the
    departments and agencies under the VA, HUD, and Independent
    Agencies Appropriations Subcommittee jurisdiction, of which $72
    billion is discretionary spending. I would note that this
    amount represents a proposed increase of approximately $8
    billion over the current level. As I understand it, there are
    discussions underway between leaders, the Congress, the White
    House, and OMB about reaching a budget agreement. We have some
    very important spending priorities to meet in this
    subcommittee, and I will fight to assure that all of our
    programs are adequately funded, but I would have to say that
    unless some agreement is reached that is a very ambitious goal
    for our 602(b) allocation.

                               prepared statement

        This morning we will hear testimony from four of the
    independent agencies under the subcommittee's jurisdiction,
    Council on Environmental Quality, the National Credit Union
    Administration, the Neighborhood Reinvestment Corporation, and
    the community development and financial institutions fund.
    While programs covered by today's hearings are small relative
    to others in the subcommittee's portfolio, they are very
    important programs and activities that impact millions of
    Americans.
        [The statement follows:]

                       Prepared Statement of Senator Bond

        The VA, HUD and Independent Agencies Appropriations Subcommittee
    hearing will come to order. This is the Subcommittee's first hearing on
    the fiscal year 1998 budget. I welcome the new Members to the
    Subcommittee, and, as always, I look forward to working closely with
    our Ranking Member, Senator Mikulski. I also welcome our witnesses and
    guests this morning.
        The Appropriations Committee and the VA/HUD Appropriations
    Subcommittee will face another year of very difficult budget decisions
    as the Congress continues to refocus its priorities and seek to balance
    the federal budget by the year 2002. I cannot emphasize enough the need
    to continue to be proactive in consolidating and reforming our many
    federal programs, including many under this subcommittee. We have done
    much over the last several years, but there is still a lot of work to
    be done.
        In particular, after four years of sharp decline, the federal
    deficit is likely to begin to increase again so that by 2010, when the
    babyboomers begin to retire, the deficit will skyrocket unless the
    Congress makes meaningful policy changes. While it took us more than
    200 years to acquire our first trillion dollars of debt, we are now
    increasing our outstanding debt by a trillion dollars every 5 years,
    with the total national debt now standing at some $5.3 trillion. This
    means that every man, woman, and child in our Nation has an individual
    debt of almost $20,000. This is the mortgage on America's future that
    we must begin to pay off now.
        In particular, I am concerned that the President's budget proposes
    some $92 billion in budget authority for the departments and agencies
    under the VA, HUD and Independent Agencies Subcommittee, of which $72
    billion is discretionary spending. The amount proposed represents an
    increase of approximately $8 billion over the current level. And I must
    tell you, absent some very compelling reasons, it is going to be very
    difficult for this subcommittee to provide any increases over our 1997
    budget levels.
        This morning we take testimony from 4 of the independent agencies
    under the subcommittee's jurisdiction: the Council on Environmental
    Quality, the National Credit Union Administration, the Neighborhood
    Reinvestment Corporation and the Community Development Financial
    Institutions fund. While the programs covered by today's hearing are
    small relative to others under the subcommittee's portfolio, they are
    important programs and activities that impact millions of Americans.
                                    panel i
        We will hear first from Ms. Kathleen McGinty, Chair of the Council
    on Environmental Policy or CEQ, which is responsible for coordinating
    federal policy on environmental issues as well as primary
    responsibility for implementation of the National Environmental Policy
    Act (NEPA).
        The Administration is requesting a budget for CEQ for fiscal year
    1998 of $3.02 million and 23 Full-Time equivalent employees. This
    Budget Request represents an increase for CEQ of $584,000, a 24 percent
    increase over the fiscal year 1997 Appropriation and an increase of 4
    FTE's.
        I look forward to your testimony this morning.
                                    panel ii
        The second panel consists of Mr. John Hawke, Jr., the Under
    Secretary for Domestic Finance for the Department of the Treasury, and
    Ms. Kirsten Moy, Director of the Community Development Financial
    Institutions fund program. The Administration's Budget Request for the
    CDFI Fund asks for an increase of $75 million from $50 million for
    fiscal year 1997 to $125 million for fiscal year 1998. I also
    understand that the President also plans to ask for increases each year
    to bring the 5-year total to $1 billion by fiscal year 2002.
        The CDFI fund was established in the Community Development and
    Regulatory Improvement Act of 1994 to provide equity investments,
    grants, loans, and technical assistance to new and existing community
    development financial institutions such as community development banks,
    community development credit unions, community development loan funds,
    community development venture capital funds and micro-loan funds.
        CDFI funds are intended to enhance the capacity of these
    institutions to finance economic development, housing, and community
    development in distressed urban and rural communities.
        I am very concerned about the amount of the CDFI funding request,
    especially as we prioritize the funding needs of some of the primary
    programs and activities under this subcommittee, such as the renewal of
    expiring section 8 housing assistance contracts and the additional cost
    of Veterans medical care. The CDFI fund is the new kid on the block--it
    has no track record and looks like a number of other programs and
    activities that are designed to revitalize distressed communities.
        In addition, we need to see how well the CDFI funds will leverage
    other public and private investment in distressed communities and also
    to what degree any leveraged investment is being drained from other
    activities and programs currently serving distressed communities. I
    also am interested in understanding the extent to which CDFI's
    discourage traditional financial institutions from opening branches and
    lending in distressed communities. Opening special banks for distressed
    communities is not necessarily the best way to revitalize and
    incorporate these communities into, hopefully, the overall economic
    growth and revitalization of our urban and rural areas.
        I look forward to hearing your testimony

                                   PANEL III

        The third panel consists of Mr. Norman D'Amours, Chairman of
    National Credit Union Administration (NCUA), and Mr. George Knight,
    Executive Director of the Neighborhood Reinvestment Corporation.
        NCUA is responsible for the chartering and regulating of federal
    credit unions. In addition, NCUA administers an insurance fund to carry
    out a program of insurance for member accounts in federal credit unions
    and State-chartered credit unions which apply and qualify for
    insurance. There are currently some 7,200 federally chartered credit
    unions and it is estimated that approximately 4,500 State-chartered
    credit unions will be insured by NCUA by the end of 1997.
        The NCUA is self-funded through an operating fee on its member
    institutions and from reimbursements from the insurance fund for
    administration of the insurance fund.
        Second, Mr. Knight will testify on the Administration's budget
    request for the Neighborhood Reinvestment Corporation which calls for
    flat funding of $50 million for fiscal year 1998. Neighborhood
    Reinvestment was created in 1978 to help local communities establish
    working partnerships between residents and representatives of the
    public and private sectors through nonprofit entities which include
    neighborhood housing services, mutual housing associations and
    apartment improvement programs. Collectively, these nonprofits are
    known as the NeighborWorks' network.
        Neighborhood Reinvestment and the NeighborWorks' network
    have a long track record and have become a good model of how the
    federal government can spend a small amount of money and reap
    tremendous benefits. For example, as the written testimony ably states,
    $38.7 million in fiscal year 1996 appropriations allowed the
    Neighborhood Reinvestment and NeighborWorks' to leverage
    $420 million in affordable housing investments.
        Again, I look forward to the testimony.

                        STATEMENT OF FRANK R. LAUTENBERG

        Senator Bond. In the absence of Senator Mikulski, I will
    call on Senator Lautenberg for his opening statement.
        Senator Lautenberg. Thank you, Mr. Chairman. I will be
    relatively brief, and relatively brief around here may have
    different meanings for different people, but we will try.
    [Laughter.]
        I thank you for calling this hearing. I welcome Ms.
    McGinty. If I may be so familiar, Katie, you have made many
    important contributions here. We are glad to see you here
    making the case for your small department--small, but
    important.
        Mr. Chairman, the Federal Government may have a single
    agency devoted to environmental protection, but every agency
    has environmental responsibilities and interests. The
    Department of Energy spends more money on hazardous waste
    cleanup than EPA. The Navy has taken dramatic steps to reduce
    pollution at sea. And NOAA's weather satellites have provided
    dramatic scientific information on the ozone hole and global
    warming.
        Additionally, although EPA enforces Superfund, the largest
    responsible parties are not Fortune 500 companies. They are the
    Department of Defense and the Department of Energy. Given the
    many agencies involved in environmental protection, it is
    important that some organization coordinate environmental
    policy. And the Council on Environmental Quality performs that
    critical task. And it generally does a good job.
        One area where there have been problems is the processing
    for reviewing disputes under NEPA, the National Environmental
    Policy Act. I have some concerns about the process, and I am
    pleased that the President has proposed to review it, to
    reinvent it perhaps. For one thing, we need to ensure that
    environmental impact statements are easier to understand so
    that public participation can be more meaningful. It is also
    critical that the environmental impact statement process become
    a real tool in agency decisionmaking rather than a paperwork
    exercise, to justify an agency previous intention.
        I understand that the President's budget would provide
    increased funding for four new staffers, to establish primarily
    a new NEPA process. And I hope that we can find the funds to
    make that happen. I think it is a very important step. I think
    that it needs to be attended to, and I think it is a relatively
    small request to take this important step.
        So I look forward to Ms. McGinty's comments on these
    issues, and I, once again, Mr. Chairman, thank you for holding
    this hearing.
        Senator Bond. Thank you very much, Senator Lautenberg, and
    since we have been joined by the chairman of the full
    committee, I would like to call on Senator Stevens for any
    comments.
        Senator Stevens. Thank you. I have no comment.
        Senator Bond. Thank you.
        I will now welcome and turn to our ranking member, and say
    that we are looking forward to working together in another
    challenging year, and hope that we can pass one good VA, HUD,
    and Independent Agencies bill, and move on with the business.
        Senator Mikulski, welcome.

                        STATEMENT OF BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman, and
    again, I apologize for my tardiness today. We oversee the space
    program, and I wish I could do as good a job getting down from
    Baltimore on the Baltimore-Washington Parkway as our astronauts
    do fixing the Hubble.
        I would like to welcome our new members to the panel,
    Senators Craig, Harkin, and Boxer, who I know will be active
    participants, and in this, today's hearing. I am looking
    forward to hearing what Ms. McGinty has to say about the CEQ's
    effort to study the effectiveness of its authorizing
    legislation, the NEPA, and to examine proposals aimed at
    reinventing the interagency process to carry out that statute.
    As we look at so many of the issues impacting on the
    environment, interagency coordination is absolutely essential.
        I will also be looking forward to listening to Mr. George
    Knight of the Neighborhood Reinvestment Corporation, which is
    really one of the best little agencies I think we have in the
    Federal Government. It has a modest budget of $50 million, and
    really does help communities empower themselves. I think you
    and I appreciate its self-help initiatives.
        Also on the issues of the community development, the CDFI,
    we look forward to hearing what they have to say, particularly
    leveraging Federal dollars, and the role that they will play in
    microenterprise initiatives, which I know will be crucial to
    economic development in our own country. We have seen how they
    work abroad. I would like to see how they work in our inner
    cities, and hopefully they can be a tool to welfare reform.
        And last but not at all least, I welcome an old colleague,
    Congressman D'Amours, on behalf of the National Credit Union
    Administration. I am worried about the credit unions. There are
    a lot of lawsuits about credit unions. Some are in fragile
    condition. I just want to be sure that they again are a tool
    for empowerment at local levels, but yet do not leave us with
    another unfunded fiasco.
        Senator Bond. Thank you very much, Senator Mikulski. We
    will now hear first from Ms. Kathleen McGinty, Chairman of the
    Council on Environmental Quality [CEQ], which is responsible
    for coordinating Federal policy on environmental issues, as
    well as the primary responsibility for implementation of the
    National Environmental Policy Act [NEPA], which has already
    been mentioned here today.
        I note the administration is requesting a budget for CEQ in
    fiscal year 1998 of $3.02 million and 23 full-time equivalents.
    This budget request represents an increase for CEQ of over $\1/
    2\ million, or a 24-percent increase over fiscal year 1997
    appropriations and an increase of four full-time employees.
        I look forward to your testimony. Welcome, Ms. McGinty.

                         STATEMENT OF KATHLEEN MCGINTY

        Ms. McGinty. Thank you very much, Mr. Chairman and members
    of the committee. It is a pleasure to appear before you today
    to present the President's request for CEQ for fiscal year
    1998. I want to start by thanking all of you, and especially
    your staff, who have been very much available to CEQ in the
    last years to really help us do our job.
        I would like to focus today on three things: First,
    briefly, the level of our request; second, our work over the
    past year; and third, I'd like to turn to our top priority for
    the coming year, which is the reinvention of the National
    Environmental Policy Act. First, the level of our request.
        As you know, Mr. Chairman, CEQ currently operates at a
    staff level of 19 FTE's and a budget of $2.4 million. Our
    request today is for 23 FTE's, which would be $3,020,000. As
    you noted, Mr. Chairman, especially in these budget times, this
    increase in percentage terms is significant. However, I would
    like to emphasize to the committee that even at 23 FTE's, CEQ
    would still be significantly below the average in the Bush
    administration, which was 31 FTE's, and very significantly
    below CEQ's peak staffing level of nearly 70 FTE's during the
    Nixon administration.
        These resources are critical, Mr. Chairman, if CEQ is to
    take on what I will describe in a moment as our very first
    priority, the comprehensive reinvention of NEPA. Many,
    including the Western Governor's Association, industry,
    nongovernmental organizations, and others, have urged us to
    undertake this effort, and I agree with them, it is a top
    priority. But I do need resources to get that job done,
    resources that could be taken out of the daily fire fights that
    we find ourselves constantly involved in and consumed by,
    people who are senior, professional, dedicated staff who really
    can get this job done.
        As I noted, I will return to the substance of this endeavor
    in a moment. Before doing that, I want to turn briefly to some
    of CEQ's work over the past year that we anticipated in our
    meetings last year. As this committee is aware, CEQ has
    responsibility both for immediate oversight of the
    environmental impact assessment process conducted by every
    Federal agency, as well as in our capacity as the President's
    senior environmental policy advisers, policy coordination, and
    dispute resolution among agencies on environmental matters.
        First, environmental assessments. CEQ has worked hard over
    the last year to use NEPA as it was intended, to improve agency
    implementation and decisionmaking. For example, CEQ used NEPA
    to design a process that will allow us to conclude even the
    most complex habitat conservation plans, and these are the
    plans that we have developed under the Endangered Species Act
    that provide for species protection but also gives certainty to
    landowners. Through NEPA we will complete those processes for
    even the most complex HCP's in 10 months or less.
        I recently returned from Washington State, where I signed
    our latest HCP with the Governor of Washington. That HCP will
    cover 1.6 million acres, and gives the State of Washington 70
    to 100 years certainty that it has fulfilled its Federal
    Endangered Species Act obligations. We achieved that through
    NEPA.
        In addition, CEQ responded to the request of Gov. Tony
    Knowles, the Alaska delegation, members of the oil industry,
    and others, to launch a process to identify lands for possible
    oil production and environmental protection in the national
    petroleum reserve in Alaska. Because of our efforts and because
    of NEPA's ability to integrate various statutes, we will be
    able to see that process through to completion in 18 months or
    less. This builds on our effort that we achieved in just 6
    months to allow for the export of oil from the Alaska North
    Slope.
        Through NEPA, CEQ has also worked, for example, to cut
    processing times for timber salvage sales. Now, we complete
    them in 1 year instead of the 3 years that was previously
    required. We worked recently to resolve a longstanding dispute
    between the Air Force and the FAA that now allows military
    training activities again to be commenced in Alaska. And we
    provided most recently for the transfer of the Homestead Air
    Force Base in Florida to Dade County, FL, but in a way that
    will ensure that Everglades restoration is not impaired. So we
    are improving the environmental assessment process and
    implementation.
        On the policy front, CEQ has worked hard coordinating the
    agencies and resolving disputes. CEQ developed, for example,
    targeted reforms to RCRA. These reforms will avoid duplication
    between RCRA and the Clean Water Act. They were developed and
    signed into law last year, and in their implementation industry
    will save tens of millions of dollars. CEQ also worked to
    achieve an agreement that will ensure the financial viability
    of the Bonneville Power Administration, while also securing
    significant resources and sufficient resources to protect and
    restore salmon in the Columbia and Snake Rivers. This agreement
    was significant not only in substance, but also for the first
    time it opened up Federal salmon decisionmaking to the tribes
    and to State and local governments. That had not been done
    before.
        Working with the States' Attorneys General and the
    International Association of Police Chiefs, CEQ also designed a
    bill to take on environmental crimes. This bill, among other
    things, will provide for enhanced partnerships and the sharing
    of resources between Federal and State and local law
    enforcement officials.
        Finally, CEQ worked to craft significant reforms in a
    wetlands program, and now with OMB to ensure that nonstructural
    options are offered to flood victims in the wake of the recent
    flooding experiences we have seen. So CEQ has worked hard to
    ensure coordination, coherence, and efficiency in environmental
    policy matters. NEPA is an effective tool to that end.
        Turning briefly now, Mr. Chairman, to our proposal to
    reinvent NEPA, we hope to build on the progress we have made
    and that I have just discussed, as well as the new learning and
    insights we have gained as a result of our NEPA effectiveness
    study. We are already underway, working with the Western
    Governors Association; Governors Geringer and Kitzhaber most
    particularly have launched working groups in three areas:
    timber, oil and gas, and grazing. But as the committee knows,
    NEPA applies to every major Federal action, so there is much
    more to be done.
        We can use NEPA better to integrate environmental concerns,
    and we know for sure that NEPA is the tool through which we can
    provide much more access to citizens and State and local
    government. I would like to launch a multistakeholder process
    to get this done. I would like to bring in our universities and
    our best scientists and academic talent. It is indeed my top
    priority, but, Mr. Chairman, I do need additional resources to
    get the job done. I look forward to working with the committee
    to that end.
        Thank you.
        Senator Bond. Thank you very much, Ms. McGinty. Your full
    statement, of course, will be made a part of the record. We
    appreciate your summaries.

                               ELIMINATION OF CEQ

        Ms. McGinty, the first year President Clinton was in office
    he proposed eliminating CEQ as part of a streamlining effort,
    and later reversed his decision and decided to support CEQ, but
    to keep staffing at a modest level. I would note that CEQ is
    not at the lowest historical staffing level, which was 13, from
    1984 to 1989. In fact, the average staffing level, as opposed
    to the authorized level for the past 16 years, has been just
    below 19 FTE's. Can you provide us any specific examples from
    last year which would illustrate where your staffing level fell
    short?
        Ms. McGinty. Throughout the course of the last several
    years, Mr. Chairman, our staffing level has fluctuated. As you
    noted, in the beginning of the administration the proposal was
    to establish a new office in the White House to handle these
    matters. That office would have been staffed at 10 FTE's.
        Over the course of the last several years, CEQ has been
    built back up from 10 to the current level of 19 FTE's, so we
    have been on average in that range of staff, from 10 to now we
    have built back up to 19.
        Senator Bond. What work was not getting done?
        Ms. McGinty. I am sorry. For example, on the lesser levels
    of staffing we are about to present to the committee a combined
    CEQ annual report. As the committee is aware, Senator Mikulski
    has often looked to this report for the data, very important
    data, it contains.
        CEQ fell behind in preparing that report. But now we are
    finally on the verge of catching up, and we have done that by
    combining 2 years' worth of analysis into one single report.
        In addition to that, we also have just recently finished
    the NEPA effectiveness study, but that, too, was delayed by
    1\1/2\ years because of reduced funding levels.
        Senator Bond. How much of your time do you spend on putting
    out these reports? Senator Mikulski has suggested making it
    biannual. Is there that much new information every year that
    you have to come up with a new report? How much time and effort
    do you put in on that?
        Ms. McGinty. It is a significant investment of time and
    effort. What we have found, however, and we found it when we
    were lapsed 1 year in providing the report, is that
    particularly in academia and many scientists really rely on
    that annual series of data. They use it for their own studies,
    their own reports, and again, we found that out as we fell
    behind in producing that volume of data.
        It is a significant investment for us. We do take it very
    seriously, and what we have found is that there are many people
    who rely on it.

                                   PROJECT XL

        Senator Bond. You mentioned project XL in your written
    testimony, and you say it is the centerpiece of the
    administration's effort to reinvent environmental regulation,
    and the President has indicated his strong support, saying it
    marks the end of one size fits all Government regulations. When
    we look at the reality as opposed to the rhetoric, we are a
    little concerned about it.
        You testified 2 years ago the administration would be
    launching 50 initiatives in 1995. Yet today, as I understand
    it, there have only been three project approvals, and, in fact,
    of the eight original pilot XL projects announced in November
    1995, only one has been given final approval, and only three
    additional projects are in negotiation. Three of the original
    project participants have withdrawn completely, and industry
    executives have told us that EPA is too enforcement oriented
    for a voluntary program to succeed. The senior director for
    environmental affairs for Annheuser Bush, one of the eight
    pilot projects which later withdrew, said, ``we could not seem
    to get the out of the box thinking we wanted to get out of
    them.''
        What lessons have you learned over the past 2 years from
    project XL? Why have there been so many problems, so little
    progress, and specifically, what are you doing to see the
    President's commitment for alternative compliance approaches is
    carried out?
        Ms. McGinty. Senator, the project XL, as you indicate, has
    been a comprehensive effort to really try to produce a whole
    new way of achieving environmental excellence. Now, in setting
    that ambitious of a target for ourselves, we also have run into
    some significant difficulties in getting the job done. I think
    the difficulties speak really to the newness and the magnitude
    of what we are trying to take on.
        What we have done to continue to work through the program
    is to reconvene a series of meetings with various stakeholders
    to really understand the issues that they are encountering with
    the program. And they seem to boil down to two. The program
    requires that there be stakeholder participation in
    implementing the environmental performance plan. The program
    also requires that in ``throwing away the rule book,'' that a
    company be willing to achieve superior environmental
    performance.
        Both of those phrases--stakeholder participation and
    superior environmental performance, have not been well enough
    understood so that as each project has moved forward there has
    been confusion with regard to those elements of the program.
        Recently, a Federal Register notice was issued to help
    flush those conflicts out, and a stakeholder process convened
    to comment on the new suggestions that have been made. Now,
    over the next several weeks what we will do is reissue that
    Federal Register notice, taking in the comments now of
    participants in the program and try to help provide some
    clarity with regard to those two concepts that do seem to have
    proven to be difficult.
        Senator Bond. I will come back to that, because I have a
    couple of more questions on that. But let me turn now to
    Senator Mikulski.
        Senator Mikulski. Thank you, Mr. Chairman.
        Ms. McGinty, the NEPA effectiveness study identified
    certain areas, in which there was poor interagency
    coordination, conflicting regulations, inadequate public
    participation, too much paperwork, and so on. And having
    identified those, which can be true of almost any organization
    in America, your report had no navigational chart or no series
    of recommendations on how to address those individual issues.
    Do you have a specific list that you want accomplished and
    defined timetables that you want? In other words, some of these
    are more pressing than others. Would you outline your tasks and
    timetables on addressing the effectiveness study, because
    resources and staff should define mission and purpose, and
    mission and purpose is dealt with in these issues. Do you want
    to comment?
        Ms. McGinty. Yes; thank you. Starting from the
    effectiveness study and the five or six themes that came out of
    that that you just articulated, we have moved from those themes
    to try to apply them now in the first phase of this reinvention
    effort to three specific areas. The first one is timber, the
    second is oil and gas production, and the third is grazing. And
    what that means is that we want to look in those three sectors
    to see what the experience is of whether there are conflicting
    regulations, whether the public is not sufficiently involved.
    Yes?
        Senator Mikulski. Just to continue a conversational
    approach here, so rather than saying I am going to address too
    much paperwork, what you are doing, then, is taking a topic
    that actually affects a private sector, like grazing and
    timber--of which our colleagues here have intense interest in,
    and then take these four problem areas and look at a topic that
    affects private sector environmental concerns and does direct
    impact on the local community. I think that is an excellent way
    to go about it, rather than something called--not good
    coordination.
        Ms. McGinty. Instead of just generalities, we really wanted
    to get very specific, and one specific thing, for example, that
    we would like to do, and the timing and the paperwork problems
    that you mentioned, we want to give people who are seeking
    Federal leases the opportunity, the right, to come in and
    negotiate a timeframe, so that they know that the permitting
    process will take x amount of time. But they have the right to
    come in and be given that certainty. They do not have that now.
        Senator Mikulski. Let us just take the grazing issue. I
    know Senator Burns will probably have followup questions in
    this, but that is what I hope we can do, a more conversational
    approach.
        Grazing is one of your tasks to be dealt with. Do you have
    a timetable where you say at the end of this period we then
    hope we will have resolved our internal management processes to
    have dealt with creating procedures. Not necessarily to make
    everybody happy with the decisions, but at least our internals
    and our mechanisms will be in place.
        Ms. McGinty. Yes; we hope, actually, over the next several
    months, in a short timeframe, to be able to produce several
    very concrete recommendations, in the grazing sector for
    example. We will take those recommendations, and then open the
    process up. I visited extensively with Governors Geringer and
    Kitzhaber about this. The University of Wyoming and the
    University of Montana will be engaged in providing a forum for
    us to have our recommendations aired by the folks who are most
    affected.
        Senator Mikulski. Is it reasonable to expect that those
    three topics could have been dealt with by the beginning of the
    fiscal year, October 1?
        Ms. McGinty. Oh, I believe so, yes. In terms of very
    specific concrete recommendations, yes.
        Senator Mikulski. Well, I'd like to ask, Ms. McGinty, that
    when we are actually at our markup stage we would like to have
    a progress report, and then what you need to do that, because
    then, one, we will see if you have made progress, with all due
    respect, and then second, what it took to make the progress.
        Ms. McGinty. OK.
        Senator Mikulski. The second thing is FEMA. You know we are
    a FEMA-obsessed committee here because that is where all the
    natural disasters come in. FEMA, as you know, has raised
    concerns and yellow flashing lights that often environmental
    mandates, particularly emergency rehabilitation, often impede
    their efforts. We are not talking about long-range restoration.
    I wonder if you could talk about your coordination with FEMA,
    not that we waive or cavalier or swashbuckle over these regs,
    but when they are out there and we have got floods on the
    Missouri or like what we faced in Western Maryland, the
    Potomac, et cetera, you have got to make decisions and you
    cannot go through a lot of complicated environmental stuff.
        Ms. McGinty. Yes; absolutely, especially in the context of
    emergency response. We very recently were faced with this,
    especially in the wake of the flooding in California. I was
    contacted by Senator Feinstein and Congressman Fazio, who laid
    out to me that they thought their constituents were very
    concerned and confused about this, not certain that they could
    take emergency actions to respond to the flood.
        We called the relevant agencies together--FEMA, the Fish
    and Wildlife Service, the National Marine Fishery Service, EPA,
    all of them--and quickly got an analysis done that yes, in
    fact, there are emergency provisions in each one of these
    statutes, and that the conditions in California warranted the
    invocation of those emergency procedures. Within 36 hours we
    put out statements in California and the Pacific Northwest to
    make clear that the environmental statutes in no way slowed
    down or would impede emergency actions to respond to the flood.
        Senator Mikulski. I am going to offer two suggestions to
    you, and I know my time is up. It would be wonderful to spend
    the whole morning talking about this. But two things: First of
    all, hats off on the California response. But this is going to
    happen everywhere. And I am going to suggest two things. One,
    that you might want to think about SWAT teams from these
    agencies to work with FEMA exactly on that, at a significant
    senior level where decisions will have validity.
        The other is that when FEMA does its maneuvers, and they do
    them in States, and they do them in special situations, the
    earthquake maneuver and so on, their simulations, that you be
    part of that simulation. And, I think, it would be very
    innovative, so that when they simulate how to respond to save
    lives, then you are there to talk about what you would do to
    follow up to save communities. And think about that, talk to
    James Lee Witt, and, I think, it could be very innovative, and,
    I think, it would be very energizing for your staff.
        Ms. McGinty. That is an excellent suggestion. I will do
    that.
        Senator Mikulski. To have SWAT teams and maneuvers.
        Ms. McGinty. Sounds exhilarating.
        Senator Lautenberg. It sounds like they will be out there
    with flack jackets. [Laughter.]
        Senator Mikulski. I have seen several environmental issues
    in Maryland where we have had horrendous national disaster
    years, as has Senator Bond. Senator Lautenberg has very serious
    issues in New Jersey relating to chemicals.
        Anyway, enough said.
        Ms. McGinty. Thank you.
        Senator Bond. Thank you, Senator Mikulski. I feel like we
    are almost in the Defense Appropriations Subcommittee.
        Senator Mikulski. Senator Stevens is having a profound
    impact on my psyche.
        Senator Bond. That is a good idea, and you will want to go
    to Alaska, like the rest of us do this year. It is not
    required, but it is not a bad idea.
        Now let me turn to Senator Burns.

                       PREPARED STATEMENT OF CONRAD BURNS

        Senator Burns. I have a statement that I want to put in the
    record, Mr. Chairman.
        Senator Bond. Without objection, it will be so ordered.
        [The statement follows:]

                      PREPARED STATEMENT OF SENATOR BURNS

        Thank you, Mr. Chairman. Good morning, ladies and gentlemen. Mr.
    Chairman, I would like to take this opportunity to commend you on your
    prompt attention to appropriation matters this Congress. We have a lot
    of work to accomplish this year and, considering our present fiscal
    situation, it might not be easy to choose which projects to fund.
    Therefore, it is important that we begin our work quickly with close
    attention not only to the needs of Federal agencies individually, but
    to the needs of the Nation.
        For example, Mr. Chairman, I have noticed that some agencies are
    requesting more than double the amount they requested in fiscal year
    1997. Mr. Chairman, with the economy in the shape that it is, each
    Federal agency should be trying to limit their expenses, not increase
    them, because if we increase the funds for one agency, it means that
    another agency will have to accept higher cuts than it would have
    normally expected.
        And, unfortunately, Mr. Chairman, we will have to determine if each
    Federal agency is really a needed organization in today's economy. We
    must do all that we can to ensure that we do not have two or three
    agencies performing the same tasks--this only leads to confusion and/or
    double billing the Federal Government for essentially the same work. It
    is our job to ensure to the American people that we are spending their
    hard earned tax payer funds with due diligence.
        Again, thank you, Mr. Chairman, for the opportunity to comment on
    these proceedings and for your timely attention to these vital matters
    to our Nation.

        Senator Burns. Ms. McGinty, I was going to have you give me
    10 reasons why you should be funded at all. Now, I want you to
    give me 19 reasons why you should be funded at all.
        Ms. McGinty. OK. I guess I can try. One, I think that we
    need better coordination among our agencies on environmental
    matters, and that is CEQ's role.
        Two, I think we need to streamline and cut paperwork, and
    that also is CEQ's role.
        Three, I think that in many different Federal decisions
    environmental impact should be taken into account, and that,
    again, is CEQ's role.
        Four, NEPA is the statute that provides for State and local
    government participation in Federal decisionmaking.
        Senator Burns. Let us stop right there now. I will let you
    make 15 of them in writing to me.
        It just seems to me if we have, and EPA, they do not want
    to visit with any other agency, you do not want to visit with
    any other agency, no other agency wants to visit with you, I
    just feel like, because you all went to Montana and made a
    little deal, and that ain't going to fly, is it?
        Ms. McGinty. I believe we are on track with that, although
    I am very respectful of your views on this subject.
        Senator Burns. Well, you tell me how it is going to fly,
    because I will tell you what, Plum Creek has pulled out.
        Ms. McGinty. Yes; that is right. The Governor, as you might
    know, is still very much engaged, and has been working with us
    closely on it. The company is still very much engaged, and has
    worked in good faith from the beginning of this process, and
    continues today. The agencies, I think, are producing a lot of
    good work on this front.
        Senator Burns. But your groups--in other words, your
    environmental groups in Montana--are not going to allow this
    thing to move forward, and I think I said at the git-go that
    this was a pie in the sky, that it just jerks people around,
    that their lives are in the balance locally. This is policy
    that was made on a feel-good methodology, and then to come in
    here and ask for more money and more people to do more crazy
    things, it is absolutely--I do not see how you can justify it,
    Katie. And I will tell you what, and I love your smile and I
    think you are a bright young woman, but I will tell you what,
    as far as any value to the American people or to the community
    of Montana or Wyoming or Idaho, and Utah will love you, you
    tell me what value--and you go out there and you say things to
    the press that sound good, but it is just not like that. And
    you made this deal, and then you ask for more money. Boy, I
    will tell you one thing. I thought I was pretty brazen as an
    auctioneer, but I am not near as brazen as this.
        Ms. McGinty. Well, Senator, I certainly respect your
    opinion, and I certainly understand, and you have made very
    clear, and have been clear to us from the beginning with regard
    to the New World Mine proposal about your views on that. But I
    do believe that CEQ has performed a very valuable role, and
    continues to, on issues that, I believe, are also very
    important to your constituents.
        Senator Mikulski and I were just discussing what we have
    done, already, to help streamline things like grazing
    practices, and to make it easier to provide----
        Senator Burns. How many people do you have there in that
    CEQ that knows one thing about grazing? Do you have anybody
    down there from the Society of Range Management?
        Ms. McGinty. No; I do not.
        Senator Burns. That is right. You do not have one soul down
    there that can tell us diddly doo about what a cow will eat and
    what they will not, what a sheep will do and what they will
    not. Now, you might have some people down there who know the
    difference between clean water and bad water, but that is about
    all. And this is what I am saying. We have got an Agriculture
    Department. In other words, all of this is redundant.
        I am going to be right honest with you. I am going to vote
    to defund this whole thing, because you have not been honest
    with people, and I am just to the point of frustration like you
    cannot believe. People's lives are in the balance. And that is
    what I am saying. We have got people that are making policy
    that do not know diddly doo about nothing. And I am probably
    one of them.
        Ms. McGinty. Senator, it is true that CEQ is not an
    institution that has specific substantive expertise in the
    various areas. What CEQ works to do, though, it is the statute
    that says that people with expertise have to be brought into
    the decisionmaking process. NEPA is the statute that says you
    have to open the doors, you have to let the public in, you have
    to disclose what your intentions are.
        I would not presume to second-guess the technical judgment
    of a particular agency. But when you have two agencies with
    clashing technical judgment, or when you have an agency that
    does not want to let State or local government or private
    citizens participate, that is when we get involved, to try to
    help repair where there are differences or to ensure that
    people have an opportunity to participate.
        But you are exactly right. It is not an institution with a
    cadre of scientists or a cadre of economists in specific
    disciplines.
        Senator Burns. But you put a lot of weight on NEPA. Yet you
    went out there and interjected your own decision before the
    NEPA process was allowed to be completed. You do not even have
    faith in your own law in NEPA. You made that decision on the
    New World Mine before the NEPA process was completed.
        Ms. McGinty. That is absolutely true, Senator.
        Senator Burns. Well, then why?
        Ms. McGinty. Because the NEPA process is invoked when a
    Federal Government agency is going to undertake an action and/
    or when a citizen requests that a Federal Government agency
    takes an action.
        Senator Burns. But the process was in progress. Let it be
    completed.
        Ms. McGinty. The requesting company in this instance asked
    that that action cease and desist because they wanted to pursue
    an alternative course.
        Senator Burns. They are just as wrong as you are.
        Ms. McGinty. Well, the action was undertaken at their
    instance.
        Senator Burns. Well, but I am saying that they are just as
    guilty as you are.
        Senator Bond. Thank you very much, Senator Burns.
        Senator Burns. I will go upstairs and jump on Babbitt. He
    is upstairs. I will vote to pull all of your funds on this.
        Senator Lautenberg. Mr. Chairman, may I?
        Senator Bond. Senator Lautenberg.
        Senator Burns. I have no use for it.
        Senator Lautenberg. Thank you very much, Mr. Chairman.
        Ms. McGinty, when did you write the NEPA law?
        Ms. McGinty. Senator, it was written in 1969, and signed
    into law by President Nixon.
        Senator Lautenberg. Oh, so you did not write it.
        Ms. McGinty. No; I did not, sir.
        Senator Lautenberg. So, are you here defending what you
    think is a legitimate process?
        Ms. McGinty. Senator, I have come to see it as invaluable.
        Senator Lautenberg. I do not think you are so brazen. I
    think you have got to do it. You are the lawyer in this case.
    You are defending an agency in which you have deep belief. So
    stick with it.
        Now, I would like to know how many of those who made
    decisions here--perhaps you can help me--make decisions about
    defense who have never seen war. I would like to know how many
    scientists have been up in the ozone hole who are making
    decisions here? What the devil do they know about ozone holes?
    They have not been there.
        Ms. McGinty, stick to your guns. You have an important
    function to maintain there. We have agencies all over the place
    who are involved in environmental decisions. And Lord knows
    that we will save more lives and make lives more pleasant for
    millions of people if you and the others who are involved in
    environmental questions here can solve the problems that we
    have.
        I do not want my grandchildren drinking toxic or
    contaminated water or breathing toxic air. Neither do I want my
    aunt or my uncle, elderly people, breathing toxic air. You have
    got to do what you have to do. You are on the side of right.
    You are saving lives, and you have got to stick with it.
        Do you know the TRI process and the TRI program?
        Ms. McGinty. Yes; I do.
        Senator Lautenberg. You know I have some involvement with
    it. Are you aware that the toxic release inventory, on a
    voluntary basis, has saved, in the period from 1989 to present
    day or last year, 44 percent--reduced by 44 percent--toxic
    emissions in the air. It is a voluntary program.
        I can tell you in my State, which Senator Mikulski
    acknowledged, we have very serious environmental problems,
    because we are a crowded State. We have a proud industrial
    past. Unfortunately, that past has caught up with us in the
    wrong way, and as a consequence we are flooded with Superfund
    sites and toxic air problems. Our neighbors to the west are
    very generous. They deposit their contaminants all over our
    soil with no charge, by the way, I might add. The fact of the
    matter is that companies in New Jersey sprung to the idea of
    participating in this voluntary program.
        The success was enormous. Some companies save 90 percent--
    reduced by 90 percent--the toxic emissions that they were
    putting previously into the air, and many of them found that
    they had a recoverable asset going out of those smokestacks,
    and they brought them back into the shop and used them to make
    paints and other solvents and things of that nature. And they
    found out not only did they contribute to the neighborhood and
    the community, but they also contributed to their bottom line.
    So then, why should not an XL program work, if we can enlist
    the support of the private sector?
        Ms. McGinty. Senator, I have every confidence that it will,
    and, in fact, it has. There are three agreements that have been
    reached under project XL already, and some of them are huge.
    One of them in particular is the difference between the
    economic cutting edge competitiveness of an industry and
    falling behind, and that is the one with Intel. The Intel
    Corp., as you know, is involved in the development of
    semiconductors. And with computer technology constantly
    changing, the competitiveness of that industry depends on being
    able to change their production processes very rapidly. They
    can do that under XL. If it were not for XL, they would face a
    very serious competitiveness challenge.
        Now, the chairman does point to some of the challenges we
    are having in broadening the program, but I really do believe
    that is because it is a very ambitious program, and it is going
    to be tough.
        Senator Lautenberg. I want to say, for the chairman of this
    subcommittee, who has many times mentioned his interest in
    securing a budget that balances and making certain that we
    reduce our expenses wherever we can, but Mr. Chairman, I have
    got to compliment you, because you have stuck with some of the
    programs that I know you had some questions about because you
    were persuaded by the evidence that these were decent programs,
    and I commend your objectivity even as you focus on the budget
    reductions that you obviously advocate.
        Ms. McGinty, I close by just saying that I hope you
    continue doing what you do. I think you have to make the case a
    little more clearly. I think it does look redundant. We have
    EPA, and people are not quite sure in the outside world--I am
    not even sure if we on the inside world are certain about it,
    but what are the functions. But when you lay it out, and you
    say yes, there is defense, and yes, there is energy, and yes,
    there is agriculture, all these departments performing what I
    think are fundamentally excellent and required services. Can
    they do them cheaper? Perhaps. Can they do them better?
    Certainly. But I think coordination of all of these departments
    is essential, and I hope that CEQ can achieve the mark that it
    was originally designed for.
        Thank you.
        Ms. McGinty. Thank you.
        Senator Bond. Thank you, Senator Lautenberg. I appreciate
    your kind comments. I believe that we must work toward a
    balanced budget. I think there is bipartisan agreement there. I
    happen to think, as I have stated on many occasions, that this
    subcommittee has taken more than its share of cuts. We have
    some very, very important priorities with costs that are
    continuing to escalate. The housing area is one that we will be
    discussing later.
        Senator Mikulski. That is going to be a big balloon.
        Senator Bond. Is that a big enchilada?
        Senator Mikulski. The section 80 spiraling contracts.
        Senator Lautenberg. I was stuck in traffic that day.
        Senator Bond. We all may be stuck in traffic. [Laughter.]

                              SPENDING PRIORITIES

        Senator Bond. But there are some difficult problems. I
    raised the question about the budget in the beginning because I
    am not sufficiently optimistic to think that we will get a
    602(b) allocation which would accommodate all of the spending
    priorities the President recommended.
        Ms. McGinty, I want to come back to project XL. I believe
    in the concept of project XL. I do have some problems with how
    it is being implemented, and I noted in your testimony you
    seemed to think that the problem was primarily with
    understanding by the other non-Federal Government agencies that
    they just did not get it as to how XL would work. And I note
    that when 3M withdrew from project XL, the Minnesota Pollution
    Control Agency said--we were all there, it was clearly stated--
    there were elements at EPA who had not weighed in, powerful
    elements. Intel, itself, you cited as one of the examples. The
    Governors affairs manager said there were too many EPA offices,
    too many levels of regulators, they were negotiating with
    people who were not making the decisions.
        I wonder, are you listening to the people who are getting
    out of the program, the States and the private sector? Because
    frankly, there has not been a lot of progress, and there have
    been a lot more dropping out than are staying in the program.
    So there is a problem. Are you listening to the people?
        Ms. McGinty. Yes; and I think fair enough, Mr. Chairman, in
    terms of pointing not only to those who might participate in
    the program not understanding the elements of it, but the
    agency itself trying on a new suit here, and one that does not
    necessarily fit exactly right the first time around. That is
    certainly involved here, too.
        One of the things that we have seen in the program, again
    listening to participants, is that it is uneven. Some regions
    of EPA have taken this issue up and have implemented it much
    more smoothly than other regions. There seems to be some
    regions who kind of get the idea more quickly than others. So
    there are internal difficulties.
        Senator Bond. Let me ask this, and I apologize that we are
    short on time, the global environmental management initiative
    received a draft report which said that both CSI and project XL
    suffered from a lack of clear ground rules, raising serious
    questions about the viability of the programs without
    fundamental statutory reforms. The President's Council,
    Presidential Congressional Commission on Risk Assessment and
    Risk Management, says EPA needs the legal authority to provide
    flexibility. The President's Council on Sustainable Development
    says that it needs a new regulatory system with greater
    flexibility and alternative compliance legislation. In the past
    we have raised this question. It has been the position of the
    administration we get the job done without new statutory
    authority.
        It looks like the evidence is beginning to come in that
    there does need to be some statutory changes. Are you ready to
    support any such changes in alternative compliance legislation?
    Where do we stand on those issues?
        Ms. McGinty. Well, we did feel, Mr. Chairman, that it was
    important to road test some of these issues, and that is what
    we have been doing over the last year.
        I think we will get further evidence in as this work that I
    mentioned before continues, to try to elucidate, as you just
    pointed to, what are the ground rules. Frankly, it has been a
    little surprising to us that in trying to eliminate some of the
    rules, to allow people to choose their own way and get there as
    efficiently as they can, they have come back and said but we
    need at least a few more ground rules.
        So we do have some experience now, and I would look forward
    to working with you and your staff and talking about that and
    see what we might do now with this information that we have in
    hand.

                     SMALL BUSINESS REGULATORY ENFORCEMENT

        Senator Bond. Would you please let us know about the people
    who want more ground rules? I had not heard that. I would be
    interested to see that. But I really think we have gotten to
    the point where we need legislation, Amoco, Yorktown, and
    others.
        Let me ask you about the ozone fine particles. You know
    that this has raised a great deal of concern. Senator Chafee,
    chairman of the EPW Committee has even suggested EPA should
    delay the fine particle standard. We passed a little measure
    last year that I played a role in called the Small Business
    Regulatory Enforcement Fairness Act, which requires the
    participation by small business in the process, plus other
    standards to take care of the concerns of small business.
        No. 1, I am concerned about the process. Have you looked
    at, from the administration's standpoint, whether EPA's rule is
    subject to the Small Business Regulatory Enforcement Fairness
    Act? And No. 2, do you see a need for further scientific
    evidence on the benefits of the proposed standards? Everybody
    recognizes there is a scientific concern about the health
    risks. The second part of the question is from a substantive
    standpoint and an impact standpoint, do you see need for the
    delay that Senator Chafee has suggested?
        Ms. McGinty. Mr. Chairman, let me step back for a second
    and describe CEQ's role in the context of this pending
    rulemaking. What we have worked to do and will continue now as
    the comment period is still continuing but will come to a close
    in the middle-end of March, is to work with the other offices
    in the White House, and particularly OMB and the National
    Economic Council, to ensure that as comments are coming in that
    they are made available in real time to the other agencies that
    have an interest in this and that have technical expertise
    themselves to be able to review and comment.
        The second thing we will do is to provide a forum, whether
    it is State or local governments or various interested parties,
    to be able to come in and comment personally on the proposed
    rules.
        Separate and aside from that process, we will ensure that
    there is adequate time for review of the rule before it goes
    final. But at this point in time, while we are still in the
    comment period, I do not have a separate substantive judgment.
    I can assure the committee that I will be engaged as those
    reviews and judgments come in, but the rule is still pending
    and the comment period is still open on it. And so we are
    awaiting those comments coming in.
        Senator Bond. I did not catch your answer to the question
    about small business.
        Ms. McGinty. On the small business SBREFA, in terms of the
    applicability of SBREFA to a particular standard--first of all,
    let me say that SBREFA is a statute the administration
    wholeheartedly supports, and we very much welcome your
    willingness in letting us work with you last year and your
    staff working with us to put that together. So we are very much
    supportive of it.
        In terms of the applicability of the statute to a
    particular standard, to a particular proposed standard or rule,
    that is a determination that is economically involved, legally
    and technically involved. It would be on this issue as on other
    issues that are a matter of such technical expertise, I would
    not normally form a separate opinion of it. I would look to the
    agency that has expertise in that area. In this instance it
    would be a combination of EPA and the office in the White House
    that is charged specifically with these kinds of matters, which
    is the Office of Information and Regulatory Affairs. And I know
    that they have reviewed that question, and I know that they
    have come up with a determination about it. I have not
    undertaken to make a separate determination of it myself.
        Senator Bond. Senator Mikulski.
        Senator Mikulski. Ms. McGinty, again, there are many topics
    that we could cover in our conversation with you. But I think
    what is arising here is first of all there is a lack of clarity
    about what CEQ does. This is no-fault with you. Please do not
    misunderstand me. And, therefore, what are the models? Are you
    the EPA czar? Are you the equivalent of McCaffrey on the
    environment? Are you supposed to be the EPA czar? That is a
    different function.
        Are you to be more like the Office of Science and
    Technology Policy, which coordinates on certain topics like
    ozone or science education, and an advisor to the President,
    but you are not the science czar for America?
        I think we need a clarification on this, because I think it
    is more the latter model. You were not meant to be the
    environmental czar, therefore, not be held accountable for
    every environmental perceived screw-up, whether it is Interior
    or EPA or agencies within Interior or Agriculture or whatever.
        The second point here is that I recall when I first chaired
    the subcommittee, all the work with CEQ was spent producing
    this report, and often they were late, and that is what they
    did. That is all they did. And more often than not, they did
    not do it that well or in a timely fashion. And that is when
    there began doubts on what the function of CEQ was.
        Now, I believe your predecessor under Mr. Bush laid new
    groundwork and things began to move more smoothly, and now this
    is what you are doing. I think as we move forward here we need,
    and I think it is appropriate, that you articulate what your
    role is.
        If we look at the models, first of all we love czar. We
    think that somehow or another that is going to accomplish it.
    If czars worked so well we would not have had revolutions.
    [Laughter.]
        Ms. McGinty. Senator, in terms of those models, the more
    apt one, and a very apt one, is the Office of Science and
    Technology Policy. The role is to coordinate the various
    agencies, and every agency has some environmental mandate or
    mission.
        To take the Superfund Program, for example, I do not
    implement it. I do not enforce specific remedies at specific
    sites. However, I have to be concerned with the fact that we
    have got a Department of Energy and a Department of Defense
    that are themselves responsible for Superfund cleanups.
        Senator Mikulski. But Dr. Gibbons, and we will talk to Dr.
    Gibbons, neither proposes new legislation or new regulatory
    frameworks, but essentially just more efficiently coordinates
    the resources, particularly topical when they go across agency
    lines.
        Ms. McGinty. Yes; exactly. Exactly right. That is exactly
    the model.
        On Superfund, again, the reforms that we have seen to take
    land use into account when planning a cleanup, that is the kind
    of thing that comes out of a process that CEQ chairs, and we
    hear from a DOE and a DOD to share their experience under the
    Superfund Program, and we get insights. So we have ideas as to
    how to reform the programs.
        Senator Mikulski. Well, I think this is what we need to
    talk about in terms of your funding and expectations of you,
    and not hold you accountable for every faulty decision or
    perceived faulty decision in these particular areas. And I am
    afraid this is where we are drifting to, because as I
    understand, the Office of Science and Technology proposed no
    new legislation, no new regulatory framework, it did not solve
    the science problems. Dr. Gibbons is not out there finding a
    cure for cancer, for prostate cancer, but essentially advising
    the President and the Vice President on how we should organize
    our resources on life sciences, am I right?
        Ms. McGinty. Exactly right, yes. That is the model.
        Senator Mikulski. Thank you, Mr. Chairman.
        Senator Bond. Thank you, Senator Mikulski.
        Senator Bennett.
        Senator Bennett. Thank you, Mr. Chairman. I appreciate your
    willingness to let me visit a subcommittee that I very much
    enjoyed. I am sorry I had to leave because of other priorities.
        Senator Bond. Well, we miss you, and we are delighted to
    have you as a member emeritus.
        Senator Bennett. All right.
        Ms. McGinty, you and I have had some exchanges, both in
    hearings and in writing, and I appreciate the chairman's
    willingness to let me use this forum to pursue some of those
    exchanges.
        It will come as no surprise to you that I want to talk
    about the monument in southern Utah, and to lay the predicate
    again for this record. The decision to create this monument was
    made without any consultation whatsoever with any elected
    official in the State of Utah. The Governor was kept out of any
    considerations. Senator Hatch and I were both kept out of any
    consideration. Congressman Orton, in whose district it was, was
    kept out.
        I asked you in a hearing before the Energy and Natural
    Resources Committee if you would provide us, and provide me
    specifically, with all of the written background relating to
    this decision, because, as I rehearsed there, while we had the
    conversations prior to the designation of the monument, people
    from your office kept insisting this was being handled by the
    Interior Department. My conversations with the Secretary and
    people in the Interior Department show they insist that this
    was being handled by the White House and no one would admit to
    having been the lead agency or the lead staff group to advise
    the President.
        So I asked you to give me all of the background that was
    used in the decisionmaking process. And on Valentines Day I
    sent you a letter that was not necessarily a valentine saying
    that almost 6 months had gone by and I had heard nothing. And I
    received back from Shelly Fidler, Chief of Staff, a letter
    saying you were traveling but they wanted to be responsive
    immediately and apologizing for the delay, and this is what I
    got as the substance of what went into the President's decision
    to create 1.7 million acres of a national monument in Utah
    without any consultation from any elected official in Utah:
        A manual entitled ``The Ecosystem Approach, Healthy
    Ecosystems and Sustainable Economies,'' dated June 1995; a
    legal description of the Antiquities Act and what you could do
    under it; a speech given by Ray Clark, Council of Economic
    Quality of the United States, in Quebec City, dated June 16,
    1994; and then written answers to questions from other Members
    of Congress--James Hansen, that was useful, he is from Utah;
    here is a letter signed by Bruce Babbitt written to Carol
    Browner dated May 29, 1996; and questions for the record for
    Ms. McGinty from Senator Thomas and other members of the
    committee, and your response to Senator Thomas.
        Frankly, I do not consider that responsive to my letter,
    and I wanted to come here and raise this with you.
        Second, I will tell you if you do not know that a number of
    publications in Utah have submitted freedom of information
    requests for the same information and have been denied. They
    are anxious about that. They are pursuing their rights under
    the Freedom of Information Act, and feel that they have a right
    to more information about the process that was followed in the
    creation of this.
        Further, people in the press--and we all learn what we
    learn about the press, have reported names of people who were
    involved, who were consulted, who were part of the
    decisionmaking process, including people from the Southern Utah
    Wilderness Alliance and other environmental groups, the Sierra
    Club, et cetera, who were allowed access to information that
    was denied elected officials. That is, they were part of the
    process of drawing maps and making decisions concerning land
    use in this monument.
        I am not going to attack anybody. I am not going to send
    somebody to break their knees or knock out their windshields or
    scratch up their cars or do anything. I simply want to know to
    whom the President turned, or you as the President's agent, to
    whom did you turn for information on this?
        This is a very, very significant issue. It affects a very
    large number of my constituents. It is a major environmental
    effort on behalf of all of the people of the United States,
    creating one of the largest, if not the largest, national
    monument in the country, and we have no official idea who did
    it. And yet we are faced with a 3-year management plan to try,
    in the words of Leon Panetta when he called me to tell me about
    it, to pick up the pieces after the fact. It will be much
    easier for us to pick up the pieces after the fact if we have
    some understanding of the pattern, the thoughts, the
    motivations, that went into the creation of this thing in this
    particular fashion.
        So I am here to ask you once again if you will review my
    letter of February 14 where I get very specific in the things
    that I ask for, and do your best to be responsive to those
    specific requests, and however well-meaning your staff was to
    try to get you off the hook and get me something in a hurry, I
    am not really interested in copies of speeches that were 2
    years old prior to the decision the President made.
        Ms. McGinty. Thank you, Senator. There are three or four
    points I think you made. I will do my best to respond to them.
        First, in terms of the materials that were sent to you
    after your February 14 letter, they were the exact and complete
    set of materials that we sent to the committee immediately
    after the hearing, which was September 26, including in the
    hearing record, because your request was part of the hearing
    record to have those materials submitted, we submitted that
    stack of papers that is specific to the monument that you
    pointed to. That outlines the analysis. That is the complete
    analysis that was done supporting the designation of the
    monument. I tried to deliver that immediately. It was part of
    the hearing record.
        We were told at that time that the committee separately
    would make it available to each member. I suppose that did not
    happen, and so what my staff did 1 week ago was to resubmit
    those materials to your office directly. And so what you have
    there is both the materials that were directly responsive to
    your question, but just in order to not leave anything out you
    have the entire set of materials that were offered to close the
    hearing record.
        Senator Bennett. If I may, I do not consider this
    responsive to my question. I can understand why the committee
    did not circulate all of the materials to me.
        I want to know the specific analysis that went into this
    monument. I do not want general statements about the
    Antiquities Act, I do not want general statements about
    ecosystems, this was a very significant act taken by the
    President of the United States deliberately keeping a number of
    people in the dark with respect to what was going on. It
    obviously did not burst full blown from the head of Zeus. There
    was obviously a great deal of staff work that went into it.
        I want to know the names of the people who participated in
    those sessions, and I want to see the memos they created. And
    as I said to you, and will repeat again, as far as the press is
    concerned, they are now quoting people outside of the
    administration as saying they were part of the process, and I
    want either confirmation or denial of that, and the only way I
    can get that is to get a list of the names of the people who
    really were involved.
        Again, I am not going to put out a contract on somebody who
    was involved. Nobody has anything to fear. I just want to know
    the process that was followed and the people that were
    involved. This is clearly not responsive to that request.
        Ms. McGinty. Fair enough. Let me mention two things, if I
    might. One is the materials that you have there are not just
    generalities about the Antiquities Act. That package of
    materials includes the complete itemization of all of the
    archeological, geological, and cultural factors that were
    identified in the monument area, and as you know, that is
    required to be identified pursuant to the Antiquities Act. So
    the materials are very specific in terms of where those
    archeological sites are and what they are.
        Senator Bennett. I do not disagree, but they are very
    incomplete.
        I am sorry I have taken so much time, Mr. Chairman.
        Senator Bond. Senator, I apologize. We have two very
    important panels to follow. Let me just say that I think that
    Senator Bennett has made a reasonable request. To the extent
    that you and CEQ have knowledge and participated, I will be
    interested personally in reviewing your response to his
    question to, the extent that CEQ was there, who did what, and
    when. I am sure that Senator Bennett will enjoy reading about
    the Antiquities Act. I believe he wants to know who did what,
    and that will be of interest to us.
        Senator Mikulski, any further questions to Ms. McGinty?

                         ADDITIONAL COMMITTEE QUESTIONS

        Senator Mikulski. No; and I will look forward to hearing
    the followup on this conversation, and particularly the FEMA
    part, which I think offers a great opportunity for saving lives
    and saving communities.
        Ms. McGinty. Yes; thank you.
        Senator Bond. Thank you very much.
        Ms. McGinty. Thank you, Mr. Chairman.
        [The following questions were not asked at the hearing, but
    were submitted to the Council for response subsequent to the
    hearing:]
                      Questions Submitted by Senator Bond
        Question. NEPA Effectiveness Study. Recently CEQ released its
    ``NEPA Effectiveness Study.'' CEQ found that while the NEPA process
    overall is sound, at times its implementation fell short of goals. For
    example, ``interagency coordination is hampered because agencies often
    have different timetables, requirements, and modes of public
    participation;'' and ``citizens sometimes feel frustrated that they are
    being treated as adversaries rather than welcome participants in the
    NEPA process.''
        While deficiencies with the NEPA process were identified, the
    report contains no specific recommendations for change. Why?
        Answer. On the occasion of the 25th anniversary of the National
    Environmental Policy Act (NEPA), CEQ initiated a study to examine the
    effectiveness of NEPA and prospects for improvements in the NEPA
    process. In January 1997, CEQ released the findings of this study,
    ``The National Environmental Policy Act: A Study of its Effectiveness
    After 25 Years'' (hereinafter referred to as the NEPA Effectiveness
    Study).
        To summarize briefly the findings of the Study; first, NEPA works.
    Agencies must now take a ``hard look'' at the environmental
    consequences of proposed actions before they make a final decision.
    They must consult with other federal agencies and tell the public what
    they are proposing to do, invite public views on their proposals, and
    respond to those views. NEPA also calls for agencies to tell state,
    local, and tribal governments of their plans, and provides agencies
    with a mechanism to coordinate overlapping jurisdictional
    responsibilities. In large part due to NEPA, federal agencies today are
    better informed about the consequences of their actions on communities
    and are more likely to take community views into consideration. Used
    well, agency implementation of NEPA reduces conflict and saves scarce
    resources.
        Despite these successes, however, as you noted, NEPA's
    implementation at times has fallen short of its goals. In some cases,
    the NEPA process takes too long and costs too much. Agencies produce
    documents that are overly long and sometimes too technical for most
    people to use. Training for agency officials, particularly senior
    officials, is at times inadequate. Some agencies confuse the purpose of
    NEPA, acting as if the detailed statement called for in the statute is
    an end in itself, rather than a tool to enhance and improve decision
    making.
        The purpose of the NEPA Effectiveness Study was not to provide a
    detailed blueprint for change, but to give an overall assessment of the
    statute and to provide a starting point for our reinvention efforts.
    Instead detailed recommendations will be forthcoming as part of our
    NEPA Reinvention effort.
        CEQ believes that many of the deficiencies identified in the
    application of NEPA can be corrected through improvements in agency's
    NEPA processes. The first phase of the our Reinvention effort focuses
    on the grazing, timber, and oil and gas sectors to determine what types
    of process changes can be effected to increase the efficiency of NEPA.
    If we find barriers that require regulatory change, we will pursue such
    changes.
        Question. Will it be up to the individual agencies to devise
    improvements to the way they carry out the NEPA process? What guidance
    will CEQ provide to the agencies to streamline and improve the process,
    and what exactly will CEQ's role be in improving NEPA's effectiveness?
        Answer. Inasmuch as each agency has different missions and
    different planning processes, it is unlikely that a ``one-size-fits-
    all'' approach from CEQ would be productive. It is more likely to be
    successful if agencies understand the opportunities for improvement and
    make those improvements within the context of their own mission.
        Agencies are currently responsible for their NEPA compliance and
    their management of the NEPA process. Improvements will necessarily
    come from within. Reforms can be institutionalized in each agency's
    NEPA procedures, and CEQ is encouraging all the agencies to review
    their procedures with an eye toward streamlining. CEQ will consult with
    each agency as they review their NEPA procedures.
        Question. Two years ago, you testified that one of your priorities
    was reinvention of the NEPA process, including cutting processing time
    and consultation time. What specific improvements--such as the numbers
    of duplicative or inconsistent regulations which have been eliminated--
    have been made in the last two years?
        Answer. One of the most important steps in this regard was the
    elimination of duplication between the processes for complying with
    NEPA and the Endangered Species Act for Habitat Conservation Plans
    (HCP's). These are plans that permit landowners to conduct certain
    activities over a long period of time, with the certainty and stability
    of a site-specific tailored agreement. Previously, applicants were
    going through two separate processes to comply with the two statutes.
    This resulted in duplicative analyses and public hearings for the same
    actions. This duplication has now been eliminated, significantly
    reducing permit processing time for private applicants. In fact, even
    the most complex HCP can now be completed in under ten months.
        CEQ has also expended considerable effort in working with the Food
    and Drug Administration (FDA) over the past two years to streamline
    their NEPA process and reduce unnecessary submissions. According to the
    FDA, the changes being made as a result of that effort will result in
    an annual cost savings to industry of approximately $15.7 million, as
    well as improve FDA efficiency by eliminating unnecessary agency review
    costs of approximate $1 million. Equally important is that the
    regulations do not compromise the FDA's efforts to promote NEPA's
    policies and goals for better, more informed decision making.
        Similarly, CEQ worked with the Department of Energy (DOE) as they
    developed proposed revisions to their NEPA regulations. DOE's final
    rule includes several streamlining features such as: establishing new
    categorical exclusions; expanding existing categorical exclusions; and
    eliminating the preparation of extensive documentation prior to
    preparation of an environmental impact statement (EIS). In consultation
    with CEQ, DOE simplified public notification requirements and
    streamlined the requirements for the content of Findings of No
    Significant Impact. These changes, and others like them, focus
    available resources on significant environmental issues, and reduce
    costs and staff time while ensuring the environmental assessment
    process is useful to decisionmakers and the public.
        CEQ is currently working with the Air Force to find streamlining
    opportunities. One clear opportunity to save time and money is to
    eliminate the necessity to have public hearings instead of informal
    public meetings. We have pointed out to the Air Force that public
    hearings are more expensive and not required by CEQ regulations. We are
    also reviewing additional categorical exclusions which will reduce the
    amount of documentation associated with Air Force NEPA compliance. We
    are also jointly exploring opportunities for integrating analytical
    requirements, eliminating duplication of effort. We expect that these
    revised regulations will be final this summer.
        As you may recall, CEQ and the Federal Highway Administration
    (FHWA) cosponsored a conference in 1995 which focused on methods to
    streamline the NEPA process used in the development of highway
    projects. As a result of this very productive conference, the
    Department of Transportation (DOT) is developing a proposed rulemaking
    that will link NEPA and its principles to DOT's decision making
    process. The proposed rules will affect the Federal Highway
    Administration (FHWA), the Federal Railroad Administration (FRA), the
    Federal Transit Administration (FTA) and the Coast Guard. The objective
    of these DOT agencies is to develop a single NEPA regulation that will
    reduce paperwork, streamline and expedite transportation planning and
    decision making, and lead to one overall public interest decision that
    integrates social, economic and environmental effects and
    considerations, including economic development, health and
    environmental protection and community and neighborhood sustainability.
        CEQ is also working with other agencies as they amend their NEPA
    procedures, including the Department of Housing and Urban Development
    and the U.S. Army. I want to reiterate that CEQ will continue to take
    advantage of these reinvention opportunities but we hope to institute
    even more sweeping changes through our NEPA Reinvention initiative.
        Question. What specifically do you anticipate to be accomplished
    this year through the new NEPA reinvention initiative?
        Answer. We have already begun a process to examine current NEPA
    practices with regard to grazing, timber and oil and gas. Federal
    agencies that have responsibilities for NEPA issues in these three
    sectors are working cooperatively to suggest areas where improvements
    can be made.
        As you may know, the lead CEQ staff member on NEPA Reinvention is
    currently on maternity leave. As I mentioned to your staff, CEQ has
    brought on Robert Cunningham to lead our NEPA Reinvention Team. We also
    expect Ms. Mesa to return to resume her work after her leave is
    completed.
        The University of Wyoming will host a conference this week to help
    us identify additional activities we can cooperatively engage in to
    broaden the dialogue and to help us make additional progress. The
    University of Montana, as well, has offered to help us contact
    stakeholders and to use the University as a resource in our project.
    The Western Governors' Association and the Western States' Foundation,
    as well, have expressed interest in working with us to accomplish NEPA
    Reinvention.
        In addition, we are shortly to begin meetings with stakeholders to
    review the product of the initial interagency discussions and to
    solicit stakeholder input. Within several months, we also hope to begin
    discussions with the leadership of the federal agencies with
    responsibilities in our three sectors to educate them about the
    opportunities for reform that we have identified.
        Needless to say we will bring the products of all of these
    discussions with interested Senators and House Members and their
    staffs.
        By the end of this fiscal year we expect to have specific
    recommendations for some significant changes to current NEPA practices
    in the three sectors we have identified as our targets of opportunity--
    grazing, timber and oil and gas. The kind of improvements we would
    consider a success would reduce the time necessary to make decisions;
    result in more cooperation between federal agencies; reduce costs; make
    processes more transparent for the user communities; improve public
    participation; as well as other efficiency improvements that are
    identified through the examination of options.
        Question. FEMA has told my staff of their frustration of meeting
    NEPA requirements in projects resulting from Presidentially-declared
    disasters. Staff who administer disaster programs often have limited
    expertise or time to evaluate effectively and document environmental
    considerations. NEPA is often seen as significantly slowing the funding
    and construction of these very critical repair, renovation, rebuilding
    and mitigation projects following disasters. FEMA tells my staff that
    the most important support CEQ can provide to FEMA is guidance on
    measures FEMA can undertake to expedite the NEPA process. What are you
    doing to help FEMA in this regard, and will you report back to the
    Subcommittee on progress made?
        Answer. FEMA recently consulted with CEQ and we provided guidance
    to clarify that a project that has already been categorically excluded
    from NEPA documentation under FEMA's NEPA procedures can proceed
    without further documentation. We are consulting with FEMA regarding
    procedures related to several particular projects, including the Rodeo
    Channel Stabilization in Hesperia, California, the Rolling Hills storm
    drain and slope restoration in Yorba Linda, California, and certain
    projects in Hawaii. In addition, we are reviewing FEMA's NEPA program
    related to disasters generally, so as to identify possible
    opportunities for streamlining. We will be happy to report back to the
    Subcommittee on our progress later this spring.

                           DEPARTMENT OF THE TREASURY

                  Community Development Financial Institutions

    STATEMENTS OF:
            JOHN H. HAWKE, JR., UNDER SECRETARY OF TREASURY FOR DOMESTIC
                AFFAIRS
            KIRSTEN MOY, DIRECTOR

                                opening remarks

        Senator Bond. The second panel consists of Mr. John Hawke,
    the Under Secretary for Domestic Finance with the Department of
    Treasury; and Ms. Kirsten Moy, Director, Community Development
    Financial Institutions Fund Program. The administration's
    budget request for CDFI asks for an increase of $75 million,
    from the $50 million for fiscal year 1997 to $125 million to
    fiscal year 1998, and the President has indicated the intent to
    include increases for a 5-year total to $1 billion.
        This fund was established in the Community Development
    Regulatory Improvement Act in 1994, and to provide equity
    investment grants and loans, and the purpose is to enhance the
    capacity of these institutions to finance economic development
    housing and community development.
        I am concerned about the amount of funding in the CDFI
    request as we have to prioritize and deal with the other
    competing needs I am also concerned that CDFI does not have
    much of a track record. I need to understand to what degree
    leverage investment is being drained from other activities
    serving distressed communities, and how and whether CDFI is
    discouraging traditional financial institutions from opening
    branches and lending in distressed communities.
        I look forward to hearing your testimony.
        Mr. Hawke, I guess if you would begin.

                        STATEMENT OF JOHN H. HAWKE, JR.

        Mr. Hawke. Mr. Chairman, thank you very much for affording
    me the opportunity to make a brief statement in support of the
    community development financial institutions fund. CDFI has
    been a high priority of the President since the time he took
    office. It is a program with great potential for bringing the
    residents of our inner cities into the economic mainstream, an
    effort that I believe is vitally important to all of us.
        The fund's aim is to expand access to credit and financial
    services in poor urban, native American and rural communities,
    areas in which one of the biggest obstacles to economic
    development is a lack of access to private sector capital.
    Access to financial institutions is fundamental to the efforts
    of residents of these economically distressed areas to lift
    themselves out of poverty.
        When CDFI was assigned to the Treasury Department, it was
    established as an independent office reporting to the Under
    Secretary for Domestic Finance. In October 1965, Kirsten Moy
    was brought on board as Director of the fund.
        She brought to the fund a wealth of experience from her
    work as senior vice president of the real estate subsidiary of
    the Equitable Life Assurance Society of the United States, and
    portfolio manager of Equitable's Community Mortgage Fund, a
    pension fund vehicle for investments in affordable housing and
    economic development. I believe that everyone who has observed
    the great skill that she has brought to bear on this task would
    agree that we are extremely fortunate to have her in this
    position.
        In January 1996, CDFI received 268 applications for CDFI
    awards, with requests for funding 10 times the amount
    available. After a rigorous review by the fund, 32 CDFI's were
    selected to receive nearly $37 million in financial and
    technical assistance. The CDFI Fund also received 50
    applications under the Bank Enterprise Award Program, and 38
    banks and thrifts were selected to receive bank enterprise
    awards.
        Last month, the President announced the winners of the
    Presidential Award for Excellence in Microenterprise
    Development to highlight the accomplishment of entrepreneurs in
    this area. The fund has effectively promoted partnerships
    between community-based financial institutions, banks, and
    other private sector sources, leveraging scarce Federal
    resources to attract private dollars into credit-starved
    communities. That, in turn, fosters cooperation and synergy in
    efforts to revive economically distressed areas.
        For example, Senator Bond, in your State, Douglass
    Bankcorp, the oldest African-American owned bank west of the
    Mississippi is receiving $1.9 million in equity and technical
    assistance from the fund to support its expansion to serve
    Kansas City. In partnership with Kansas City Neighborhood
    Alliance, they are developing a comprehensive plan to promote
    affordable housing and small business development to foster
    market activity in low-income neighborhoods.
        In addition, Senator Mikulski, in Maryland the Bank
    Enterprise Award Program helped trigger a $10 million
    investment by NationsBank in the employment opportunities fund,
    which invests in small businesses located in or employing
    residents of the Baltimore empowerment zone.
        In this era of scarce budgetary resources, we must choose
    our priorities carefully and focus on those that have long-term
    payoffs for our economy and our society. The fund is a top
    priority of the President precisely for that reason. It uses a
    very modest amount of Federal funding as a base for attracting
    private capital, and its payoff is in the long-term health of
    our national economy by helping break the cycle of poverty,
    make our Nation more productive, and fostering higher economic
    growth.
        We have been and continue to work diligently to make the
    CDFI and the BEA programs a success.

                               PREPARED STATEMENT

        Mr. Chairman, I appreciate this opportunity to speak to
    you, and Mrs. Moy will now discuss the program in greater
    detail.
        [The statement follows:]

                    PREPARED STATEMENT OF JOHN D. HAWKE, JR.

        Mr. Chairman, distinguished members of this Subcommittee, I thank
    you for the opportunity to testify this morning on the President's
    fiscal year 1998 budget request for the Community Development Financial
    Institutions Fund.
        CDFI has been a high priority of the President since taking office.
    It is a program with great potential for bringing the residents of our
    inner cities into the economic mainstream, an effort that I believe is
    vitally important to all of us--no matter where we live or what our
    incomes may be.
        The Fund's aim is to expand access to credit and financial services
    in poor urban, rural and Native American communities, areas in which
    one of the biggest obstacles to economic development is a lack of
    access to private sector capital. Access to financial institutions is
    fundamental to the efforts of residents of these economically
    distressed areas to lift themselves out of poverty.
        When CDFI was assigned to the Treasury Department, it was
    established as an independent office reporting to the Under Secretary
    for Domestic Finance. In October 1995, Kirsten Moy was brought on board
    as Director of the Fund. She brought to the Fund a wealth of experience
    from her work as Senior Vice President of the real estate subsidiary of
    the Equitable Life Assurance Society of the United States and Portfolio
    Manager of Equitable's Community Mortgage Fund, a pension fund vehicle
    for investments in affordable housing and economic development. I
    believe that everyone who has observed the great skill she has brought
    to bear on this task would agree that we are extremely fortunate to
    have her in this position.
        Since it began operating in October 1995, the Fund has already made
    a significant contribution to increasing access to private sector
    capital, by catalyzing interest in this program. In January of 1996,
    CDFI received 268 applications for CDFI awards, with requests for
    funding ten times the amount available. After a rigorous review by the
    Fund, 32 CDFI's were selected to receive nearly $37 million in
    financial and technical assistance. CDFI also received 50 applications
    under the Bank Enterprise Award program, and 38 banks and thrifts were
    selected to receive Bank Enterprise Awards. Last month, the President
    announced the winners of the Presidential Awards for Excellence in
    Microenterprise Development to highlight the accomplishments of
    entrepreneurs in this area.
        The Fund has effectively promoted partnerships between community
    based financial institutions, banks and other private sector sources,
    leveraging scarce Federal resources to attract private dollars into
    credit starved communities. That in turn, fosters cooperation and
    synergy in efforts to revive economically distressed areas. For
    example, Douglass Bancorp, the oldest African-American owned bank west
    of the Mississippi, is receiving an investment from the Fund to support
    its expansion to serve Kansas City, Missouri. In partnership with
    Kansas City Neighborhood Alliance, they are developing a comprehensive
    plan to promote affordable housing and small business development to
    foster market activity in low income neighborhoods. In addition, the
    Bank Enterprise Award program helped trigger a $10 million investment
    by NationsBank in the Employment Opportunities Fund, which invests in
    small businesses located in, or employing residents of the Baltimore
    Empowerment Zone.
        In this era of scarce budgetary resources, we must choose our
    priorities carefully, and focus on those that have long term payoffs
    for our economy and our society. The Fund is a top priority of the
    President precisely for that reason: It uses a very modest amount of
    Federal funding as a base for attracting private capital, and its
    payoff is in the long-term health of our national economy, by helping
    break the cycle of poverty, making our nation more productive and
    fostering higher economic growth. We have been and continue to work
    diligently to make the CDFI and the BEA programs a success.
        Mr. Chairman, members of the Subcommittee, I appreciate this
    opportunity to speak to you today. Ms. Moy will now discuss the program
    in greater detail.

                            STATEMENT OF KIRSTEN MOY

        Senator Bond. Ms. Moy.
        Ms. Moy. Chairman Bond, Senator Mikulski, distinguished
    members of the subcommittee, this is my first opportunity to
    testify before you, and I appreciate it very much.
        The CDFI fund, as you mentioned, was authorized by the
    Riegle Community Development and Regulatory Improvement Act of
    1994, and its purpose was to address the critical problems of
    capital access in urban, rural, and native American
    communities.
        To this committee, the problems of access to capital are
    surely no stranger. Access to capital is an essential
    ingredient for creating and retaining jobs, developing
    affordable housing, revitalizing neighborhoods, and building
    local economies.
        The fund runs two programs. The first of these, the CDFI
    Program, stimulates the creation and expansion of a diverse set
    of private community-based for-profit and not-for-profit
    financial institutions. These CDFI's, as they are known,
    complement the role of traditional financial institutions by
    filling market niches which such institutions are not well
    positioned to serve.
        The CDFI's themselves include a broad range of
    institutions. They include community development banks,
    community development credit unions, loan funds,
    microenterprise funds, community development venture capital
    groups, and these CDFI's provide a wide range of financial
    products and services to distressed urban and rural communities
    and underserved populations. They do not only housing or
    consumer loans, but commercial loans, loans for small business,
    loans for community facilities, and many other things.
        The Bank Enterprise Awards Program, which is designed to
    work hand-in-hand with the CDFI Program, recognizes the key
    role that traditional financial institutions, banks, and
    thrifts, have played in community development lending. They
    complement the CDFI Program by strongly encouraging these
    institutions to support CDFI's, and they also incentivize
    increased lending in distressed communities by these
    organizations.
        Of the institutions recognized in the first round of the
    Bank Enterprise Award Program nearly two-thirds supported
    CDFI's, with a total of nearly $66 million in support. For many
    of these organizations, it was their first effort to support a
    community development financial institution.
        The Treasury Department, we believe, is uniquely situated
    to carry out the CDFI initiative. As the executive branch's
    leading agency in setting financial institutions' policy, the
    Treasury Department is strongly committed to increasing access
    to capital and investment in distressed communities.
        The Department does this through the efforts of the CDFI
    fund, but also through its commitment and the commitment of the
    Office of the Comptroller of the Currency, and the Office of
    Thrift Supervision, to a strong and effective Community
    Reinvestment Act.
        The Treasury Department is also strong in its support of
    Federal tax policy for such efforts as the low income housing
    tax credit.
        During the first year, as Under Secretary Hawke mentioned,
    we received and reviewed 268 applications, undertook a rigorous
    and comprehensive look at all of them, announced the selection
    of 32 CDFI's to receive approximately $37 million in awards,
    and announced the selection of 38 banks and thrifts to receive
    approximately $13 million in bank enterprise awards.
        Just last month in January, President Clinton announced the
    award winners for the Presidential Awards for Excellence in
    Microenterprise Development, a nonmonetary award program
    implemented by the fund which is designed to recognize the best
    in the business of microentrepreneurship, a growing phenomenon
    in the United States.
        I would like to remind the committee that in the midst of
    all these activities, the fund, as a startup organization, also
    managed the challenge of developing almost from the ground up
    internal controls, financial management systems, monitoring and
    evaluation functions, and a host of other organizational
    development issues. These systems we feel are critical to
    ensure the effective use of scarce public resources.
        Though the fund is young, its impact can already be seen. I
    believe that the fund has been proven particularly effective in
    six areas: Leveraging of private resources, forging linkages
    with the financial services industry, creating viable self-
    sustaining institutions that will not need to be assisted or
    subsidized forever, expanding access to the economic
    mainstream, restoring healthy marketing activity, and
    catalyzing new community development activity.
        You have already heard Under Secretary Hawke talk about
    initiatives in Kansas City and in Baltimore to forge
    partnerships and restore healthy market activity. Let me
    mention a few more examples.
        The fund's ability to leverage private sector funds in
    distressed communities is truly dramatic. The fund first of all
    requires, at a minimum, that every dollar awarded under the
    CDFI Program be matched by at least $1 of non-Federal moneys.
    But it does not stop there. In the near term over the next 2 to
    3 years, the $37 million awarded to CDFI's will, in our
    conservative estimate, leverage three to four times the amount
    of the original awards.
        Over the long term, the fund's investments are expected to
    support lending and investment in these communities of 10 to 20
    times the amount awarded.
        The CDFI fund is very focused on creating viable, self-
    sustaining institutions. The Vermont Community Loan Fund, for
    example, which is a relatively small organization at $2.5
    million of assets, finances housing, small business, and
    community facilities.
        Very importantly, the Vermont Community Loan Fund, through
    its good business practices and track record, has achieved
    notable success in attracting investments from a diverse array
    of private sector players, including individuals, religious
    institutions, foundations, and corporations. The fund's
    investment in Vermont will help the loan fund build on its
    record to expand its services to communities across the State.
        The CDFI fund is also focused on catalyzing new activity,
    we seek to use our scarce resources to jump-start new
    initiatives, not permanently subsidize them. For example, the
    fund's investment of a $1 million loan in Tlingit-Haida
    Regional Housing in Alaska will begin home mortgage lending in
    Alaska's three urban areas. These will be among the first
    sources of mortgage loans that are available and affordable to
    lower-income Alaska Natives.
        I see my time is up.

                               PREPARED STATEMENT

        Senator Bond. Ms. Moy, we will be delighted to make your
    full statement a part of the record, and we apologize if we
    have run longer than we intended.
        [The statement follows:]

                      PREPARED STATEMENT OF KIRSTEN S. MOY

        Chairman Bond, Senator Mikulski, and distinguished members of the
    Subcommittee, I would like to thank you for the opportunity to testify
    this morning on the President's fiscal year 1998 budget request for the
    Community Development Financial Institutions (CDFI) Fund which is
    within the U.S. Department of the Treasury. The President's budget
    requests $1 billion over the course of the next five years for the CDFI
    Fund. In fiscal year 1998, the request proposes $125 million to support
    the Fund's initiatives.
        The CDFI Fund, which was authorized by the Riegle Community
    Development and Regulatory Improvement Act of 1994, was created to
    address the critical problems of urban, rural and Native-American
    communities that lack access to capital. Access to capital is an
    essential ingredient for creating and retaining jobs, developing
    affordable housing, revitalizing neighborhoods, and building local
    economies. Over the past decade, much evidence has been presented that
    there are significant capital gaps in distressed communities. Given the
    unique character of the credit market in low-income communities, this
    market niche is often not recognized or well understood--making it
    difficult for conventional market players to meet the needs of this
    market without local partners. Thus, in many communities, needed
    financial products and services may be entirely lacking or may not be
    available or offered at prices that low-income people can afford.
        The CDFI Fund represents a new direction for community development
    initiatives. It leverages limited public resources to invest in and
    build the capacity of private sector institutions to finance community
    development needs in distressed communities. The Fund's efforts are
    designed to help turn dysfunctional markets in distressed communities
    into well functioning local economies--thereby stemming the tide of
    disinvestment and creating economic opportunity for residents. The Fund
    accomplishes its mission by working with community based financial
    institutions and conventional banks and thrifts. The partnerships
    formed by these players will play a key role in helping to restore the
    functioning of distressed markets, enhance capital access for these
    communities, and enable them to join the economic mainstream. The
    Fund's investments are targeted to organizations that emphasize market
    discipline and performance as a strategy for restoring markets.
        The Treasury Department is uniquely situated to carry out this
    initiative. As the Executive Branch's lead agency in setting financial
    institutions policy, the Treasury Department is strongly committed to
    increasing access to capital and investment in distressed communities.
    The Department does this through the efforts of the CDFI Fund, its
    commitment and the commitment of the Office of the Comptroller of the
    Currency and Office of Thrift Supervision to a strong and effective
    Community Reinvestment Act, and Federal tax policy including strong
    support for the Low Income Housing Tax Credit. Nearly seventy-percent
    of the Fund's awardees under the CDFI and Bank Enterprise Award
    Programs are credit unions, banks, thrifts, or bank holding companies.
    The commitment of the Department to integrate distressed communities
    into the greater financial services industry and the economic
    mainstream is key to future viability of neglected and disinvested
    neighborhoods.

                           FIRST YEAR ACCOMPLISHMENTS

        Calendar year 1996, the first full year of the Fund's operations,
    was a very exciting and significant year:
      --In January, the Fund received 268 applications for the CDFI Program
            and more than 50 applications for the Bank Enterprise Award
            Program in response to its interim regulations and Notices of
            Funds Availability issued in October 1995.
      --The Fund undertook a rigorous review process of the CDFI Program
            applicants including a thorough analysis of an applicant's
            financial and programmatic track record, financial strength and
            stability, management capacity, business development strategy,
            matching funds, and projected community development impact.
      --Secretary Rubin announced the CDFI Fund's selection of 32 CDFI's to
            receive nearly $37 million in financial and technical
            assistance.
      --Secretary Rubin announced the CDFI Fund's selection of 38 banks and
            thrifts to receive $13 million in Bank Enterprise Awards.
      --In January 1997, President Clinton announced the award winners for
            the Presidential Awards for Excellence in Microenterprise
            Development, a non-monetary award program implemented by the
            Fund which is designed to recognize the best in the business of
            entrepreneurship.
      --In the midst of these activities, the Fund also managed the
            challenges of starting up a new organization including
            developing financial systems, internal controls, monitoring and
            evaluation functions, and other organization development
            issues. As a new organization, the Fund has built many of its
            management systems virtually from the ground up, or has been in
            the process of converting transitional, temporary systems to
            permanent ones, and creating and refining needed control
            systems. These systems are critical to ensure effective use of
            scarce public resources.

                                NEED AND IMPACT

        The capital needs of urban, rural and Native-American communities
    are indeed great--but very difficult to quantify. I believe that the
    dramatic response of the private sector to the initiatives of the Fund
    provide a clear illustration of the vast unmet capital needs. In its
    first funding round, the Fund received 268 applications for the CDFI
    Program from community based organizations in need of investment
    capital and technical assistance. The requests for funding exceeded
    $300 million--approximately 10 times the amount of resources initially
    made available for the first funding round. It should be noted that
    applicants that submitted requests represent only a portion of the
    universe of organizations that are likely to be eligible for the
    program and represent only those communities that are fortunate enough
    to have a community based financial institution. The Fund also received
    applications from over 50 banks and thrifts--an excellent start for a
    program relatively unknown among the banking industry.
        Although the Fund is young, its impact can already be seen. The
    Fund has proven effective in leveraging resources, forging linkages
    with the financial services industry, creating viable self sustaining
    institutions, expanding access to the economic mainstream, restoring
    healthy market activity, and catalyzing new community development
    activity.

    Leveraging Private Resources

        The Fund's ability to leverage private sector funds into distressed
    communities is dramatic. The Fund requires, at a minimum, that every
    dollar awarded through the CDFI Program be matched by at least one
    dollar of non-Federal monies. In the near term--over the next two-to-
    three years--the $37 million in equity and debt capital awarded to
    CDFI's will conservatively leverage three-to-four times the original
    awards. Over the long term, the Fund's investments are expected to
    support lending and investment of 10-to-20 times the amount awarded.
        Self-Help of North Carolina is a national leader in community
    development finance. Yesterday, the Fund executed a $3 million grant to
    Self-Help. Over the next five years, it is conservatively projected
    that the CDFI Fund's grant and matching funds will enable Self-Help to
    provide more than $100 million to finance affordable housing and small
    business loans over and above what they could have done without the
    Fund's assistance.

    Forging Linkages with the Financial Services Industry

        In a short period of time, the Fund has been successful in forging
    key partnerships between banks, thrifts and CDFI's through the Bank
    Enterprise Awards Program. The $13.1 million in Bank Enterprise Awards
    generated nearly $66 million in equity investments and other financial
    support to CDFI's. In addition, the program generated $60 million in
    direct lending and financial services in some of the nation's most
    distressed neighborhoods. For example, the Bank Enterprise Award
    Program helped catalyze a $10 million investment by NationsBank in the
    Employment Opportunities Fund which invests in small businesses located
    in or that employ residents of the Baltimore Empowerment Zone.
    Creating Viable Self-Sustaining Institutions
        The Fund is distinctive from many other Federal initiatives because
    it focuses on the development of viable, self-sustaining institutions
    to carry out the work of financing community development. The Vermont
    Community Loan Fund, a small organization that finances housing, small
    businesses and community facilities, has achieved notable success in
    attracting investments from a diverse array of individuals, religious
    institutions, foundations, and corporations. The Fund's investment will
    help the Vermont loan fund build on its highly successful track record,
    expand its services to communities across the state, and provide new
    investment in Burlington's Old North End Enterprise Community where
    over thirty-percent of its residents live in poverty.

    Expanding Access to the Economic Mainstream

        The activities of the First American Credit Union illustrates how
    the Fund's resources will help bring under served communities into the
    economic mainstream. The credit union, which serves Native-American
    reservations throughout Arizona, New Mexico and Utah, provides basic
    financial services. These basic financial services include checking and
    savings accounts and consumer and home improvement loans--for people
    that otherwise would have no access to these services. The Fund's
    assistance will be used to expand lending and introduce ATM services to
    rural, sparsely-settled low-income communities.
    Restoring Healthy Market Activity
        Douglass Bancorporation, the oldest African-American owned bank
    west of the Mississippi, will receive an investment from the Fund to
    support its expansion to serve Kansas City, Missouri. Douglass, in
    partnership with the Kansas City Neighborhood Alliance, has developed a
    comprehensive plan to restore healthy market activity to low-income
    neighborhoods by promoting affordable housing and small business
    development.

    Catalyzing New Activity

        The Fund's philosophy is to use its scarce resources to catalyze
    and jump start new initiatives--rather than permanently subsidize them.
    For example, with the Fund's investment of a $1 million loan, Tlingit-
    Haida Regional Housing will begin home mortgage lending in Alaska's
    three urban areas. This will be among the first sources of mortgage
    loans that are affordable to low-income Alaska Natives in these
    markets.
                        SUMMARY OF FIRST FUNDING ROUNDS

        The CDFI's selected to receive investment from the Fund represent a
    broad array of institutional types--both non-profit and for-profit--and
    provide a broad range of financial products and services including
    consumer loans, affordable housing loans and investments, small
    business development, and community facilities such as day care and
    health care facilities. The group of selected CDFI's serve communities
    in 46 states and the District of Columbia. Approximately half of these
    initiatives serve predominantly urban areas, 25-percent serve
    predominantly rural areas, and the balance serve a combination of both.
    Twenty-four of the 32 awardees serve an Empowerment Zone or Enterprise
    Community.
        Through the Bank Enterprise Award Program, the Fund has made awards
    to 38 banks and thrifts located in 18 states and the District of
    Columbia that ranged in asset size from a small community bank of $21
    million to a major money-center bank of $320 billion. The awardees
    include national banks, Federal savings banks or thrifts, state-
    chartered commercial banks, and one state chartered mutual saving bank.
                the president's fiscal year 1998 budget request
        The President and Secretary Rubin strongly support the increased
    funding for the CDFI Fund. The $125 million requested for fiscal year
    1998 is proposed to be allocated as follows: $80 million to be invested
    to support CDFI's; $40 million for the Bank Enterprise Awards Program;
    and $5 million for administrative related costs. Most of the $80
    million to be used to support CDFI's will be invested directly in such
    institutions in the form of equity investment, loans, capital grants,
    and deposits. As part of its provision of assistance to CDFI's, the
    CDFI Fund intends to launch an important training initiative which will
    significantly enhance the capacity of private sector organizations to
    provide a full range of training and technical assistance services to
    CDFI's at affordable prices. In addition, a new secondary market
    initiative that the Fund will implement has the potential to leverage
    substantial new sources of private capital to support CDFI's.

                                 CDFI PROJECTS

        Senator Bond. I am going to turn to Senator Mikulski for
    questions after asking just one question to begin. We have
    heard all of these glowing reports. It is no surprise to me
    that everybody is anxious and making applications for funds,
    but--maybe my staff is not up to date--I do not find any
    evidence that a single dollar of the $32 million in CDFI funds
    has actually been obligated or leveraged on a single project.
    Has anything happened yet on this?
        Ms. Moy. Indeed it has, Senator. First of all, the money
    has all been obligated.
        Senator Bond. I mean, has any money gone out to a project?
    Has it been spent?
        Ms. Moy. Yes.
        Senator Bond. Is something happening?
        Ms. Moy. First of all, we run two programs, Senator, so
    that in the Bank Enterprise Award Program, which is a very
    important program, 75 percent of our moneys have actually been
    disbursed in that program to the participating banks, who have
    already completed their activities and who have already showed
    the impact of what they have done.
        Under the CDFI Program, we have closed one transaction to
    Self-Help in North Carolina for $3 million. We have spent the
    first year putting the systems and procedures in place to make
    sure that as we disburse this money we can monitor the impact
    and trace the actual use of the moneys.
        We now have in place our infrastructure to disburse these
    moneys. For instance, we have all the appropriate legal
    documents. In the next 4 to 6 weeks we expect to disburse all
    of the money that we can to organizations that are ready to
    receive them, which is approximately one-half of the
    organizations.
        Senator Bond. So you are saying no money under CDFI has
    actually gone out.
        Senator Mikulski.
        Senator Mikulski. Mr. Hawke, good morning. Ms. Moy, first a
    cordial welcome to you from the committee.
        I would like to just say, looking at your background, that
    we are very fortunate to have someone of such strong private
    sector experience managing the CDFI fund. I know that the whole
    issue of access to credit for low-income communities has been
    part of my life for more than 30 years, and yet, at the same
    time, I had enormous skepticism about creating the CDFI fund.
        Just very quickly, when I was a young social worker in
    Baltimore I helped start a credit union in an African-American
    community. Of course, all they had was the opportunity to
    borrow money from, really, street-corner or store-front usury
    programs. Then, working as a city councilwoman and then a
    Congresswoman, I dealt with the red-lining provisions, and then
    came the famous Community Reinvestment Act.
        When the CDFI fund was proposed, my question was, why do we
    need this? Why don't we just push the big banks to do community
    reinvestment, that was the big concern, rather than create new
    Government entities where we played banker, instead of letting
    the banks who know how to be banks be banks in communities.
        Do you follow all that?
        Ms. Moy. Yes; I think so.
        Senator Mikulski. Now, you present this really excellent
    testimony, and I have been looking at the WEB Program, the
    Women Entrepreneur Program in Baltimore, as well as the
    NationsBank effort to work with the Baltimore empowerment zone.
        Could you just tell me very briefly, because we must move
    ahead. Your testimony essentially answers many of the fears and
    concerns that I had. But if you could: These issues of linkage,
    leverage, and availability to people, like $6,000 level loans
    for women, could you tell me how this actually worked in
    Baltimore? Maybe take one of those projects on linkage and
    leverage, and tell me why the Community Reinvestment Act would
    not have met that need, or are we playing bank when maybe we
    should pursue other options?
        Ms. Moy. Those are excellent questions, and they are truly
    intertwined. The whole concept of CDFI's is that they are
    specialized, private institutions that fill niches that
    traditional financial institutions cannot fill.
        Why can't these banks fill these niches? It would be too
    easy to say that they simply do not want to do it, though in
    some cases that is true.
        Capital gaps often arise not because of risk or return, and
    not even perception. They arise for very nitty-gritty reasons
    and for very unglamorous reasons. For instance, the size of a
    transaction--you mentioned the $6,000 loan. It is not economic
    for most traditional financial institutions to make investments
    in that size because of their infrastructure and because of
    their overhead.
        Size is a common problem. Volume is a common problem.
    Financial institutions look to cookie-cutter their investments
    in order to do large volumes, which improves their profit
    margins. This is not possible with many types of community
    development loans, I have found. I have not been at it as long
    as you, Senator, but I am older than I look, and I have been at
    it for some 20 years.
        Senator Mikulski. I am not. [Laughter.]
        Ms. Moy. In the 20 years that I have been doing this in the
    private sector, I have been able repeatedly to build products
    for my company that capitalized precisely on those capital
    gaps, areas they could not serve well.
        I think the real way to make an impact is to push banks to
    do as much as they possibly can, and to work in partnership
    with CDFI's to cover the areas that they cannot.
        In virtually every instance, our CDFI's are working with
    traditional banks, and with the Bank Enterprise Award Program,
    many of them are beginning to get more support from these banks
    than they ever have.
        Senator Mikulski. So you are not in lieu of the bank?
        Ms. Moy. Oh, absolutely not. I think the private sector
    works because people specialize. People do what they do best,
    and that is what they should be doing in the private market
    system. Our CDFI's in many cases are second to none in
    delivering certain types of credit.
        In many cases, they develop an innovative product, show the
    private sector how to do it. And there are actually banks that
    are beginning to do small amounts of microenterprise lending,
    based on some of the models that have been pioneered by the
    CDFI's. The fund made a $450,000 grant to FINCA, which is a
    microenterprise organization working in Washington, DC, and in
    Baltimore. FINCA works with different local community-based
    organizations, one of them being WEB, and they have pioneered
    the peer lending----
        Senator Mikulski. Which is the Women Entrepreneurs Program.
        Ms. Moy. In Baltimore, exactly, with a peer lending model,
    and they are adapting that international model, which has had
    so much success overseas, to the domestic market, and WEB is
    one of the first groups they are working with.
        Senator Mikulski. What do they do?
        Ms. Moy. In this country, microenterprise groups do not do
    just lending. They provide significant amounts of technical
    assistance. They do a lot of handholding. They train people in
    sound business practices. They help them actually startup their
    businesses. They provide peer and other group support to small
    organizations, which inevitably run into challenges during
    their first year, and they are there to provide additional
    capital as these organizations grow.
        Mr. Hawke. If I could add just one comment, Senator
    Mikulski, the CDFI fund also functions to leverage private
    capital from sources other than ordinary banking institutions,
    so it does tap into a broader range of leveraging.
        Senator Mikulski. Like what?
        Ms. Moy. Individuals, religious organizations,
    corporations, foundations.
        Senator Mikulski. Well, thank you. I look forward to
    learning more about this. I know that my time has expired. You
    have answered many of my questions. I mean, my questions first
    of all about the CDFI fund. This is why these hearings are so
    important.
        I knew WEB was important, and I knew NationsBank was coming
    into Baltimore, but they needed a trade group, a channel, a
    fiscal channel to get the resources down to the right level.
    The reason WEB is working is not only because of the money, but
    the technical assistance. A local credit union in a church
    might be able to give microloans, but they would not have done
    the technical assistance for someone who might be opening a
    home-based business like sewing and alterations.
        Ms. Moy. Yes; many of them are in home-based businesses,
    actually.
        Senator Mikulski. I really look forward to learning more
    about it. I have a great passion for microenterprise, I've seen
    how it has worked around the world. It really fortifies me to
    hear that it is now working in Baltimore and other communities.
    I think we need to closely monitor this with lessons learned,
    but I think the fact that it is beyond the Community
    Reinvestment Act, which was kind of a mandate, this is really
    helping them fulfill a social responsibility, but in a way that
    is most effective at the street corner or neighborhood level,
    is that right?
        Ms. Moy. That is correct.
        Senator Mikulski. Well, thank you very much.
        Ms. Moy. Thank you, Senator.
        Senator Bond. Thank you, Senator Mikulski.
        I have been very much impressed by the testimony, as
    Senator Mikulski was, but I am very much concerned about the
    performance. As we put out the first $3 million, we will be
    waiting to see if it works.

                             PERFORMANCE STANDARDS

        I am going to have a series of questions about your
    standards, about how we know if it is going to work. You
    present a great vision for something that might work, and
    before we go down the path of building this $50 million to $125
    million to $1 billion, you have got to show me that this thing
    works.
        I mean, nobody can argue with the glowing testimony. It
    sounds great. But there is an awful lot I want to see about how
    this works, what the standards are. I will submit that for the
    record.
        Let me ask you here one nasty little question. How are you
    regulating CDFI to ensure that the funds are being used
    appropriately, that these entities will pose no financial risk
    to the taxpayer, and what happens to a financially troubled
    CDFI?
        Ms. Moy. Senator, I do not regard that as a nasty question.
    I think it is a fundamental question that is a very important
    one.
        The time that we have spent putting systems in place is
    precisely for this reason. I do not think anyone wants another
    program that does not work or has a troubled record. Our
    statute requires us to negotiate with each CDFI a set of
    performance goals that go right into the legal document that
    becomes the legal vehicle by which we award them moneys. They
    are required to report to us quarterly and annually on these
    goals, and we can take sanctions if they do not satisfy them.
        Among the performance goals that are negotiated are
    financial and programmatic goals, and financial covenants of
    various sorts.
        In doing so, the fund is cognizant of the individual needs
    of each organization and how it is different. At the same time,
    we require performance from everyone. The organizations that we
    selected we selected because of their impressive financial
    situation, condition, stability, management capacity and so
    forth.
        Senator Bond. Will you be doing examinations of them?
        Ms. Moy. Absolutely.
        Senator Bond. And Treasury is responsible for that? When it
    goes bad, who do we hang, you? [Laughter.]
        Mr. Hawke. Senator, I am confident that we will be
    insisting on systems being in place to achieve the objectives
    you have right from the beginning of this program.
        Senator Bond. But who do we hang out to dry?
        Mr. Hawke. This is an operation of the Treasury Department,
    Senator Bond.
        Senator Bond. So you are volunteering? You are the one? You
    are the belly button we point at?
        Mr. Hawke. Yes, sir; this is one of our bureaus. We do not
    interfere with the independence of the decisionmaking of the
    CDFI fund, but the one thing that Director Moy and I have
    talked about again and again from the very beginning of this
    program was the need not only to have systems in place to
    assure that the process of making grants was transparent and
    had integrity to it, but that the followup process was
    demanding.
        Senator Bond. You are responsible for what happens if one
    of them gets troubled. What do you do with it?
        Ms. Moy. It depends on why they are in trouble. I mean, it
    is possible for people to get into trouble through no fault of
    their own. When you constantly monitor an organization and look
    at their financials on a quarterly basis, you are generally not
    surprised by things that happen. You see trends.
        The best answer, actually, the best solution is to
    intervene before you have a problem. We certainly do not want
    to be surprised by a problem.
        Senator Bond. I just realized--do you take it over? I tell
    you what. Let me ask that you send me those answers, because we
    do have a series of questions that we would like to find out
    about, the goals, the standards, the performance objectives,
    and I am going to ask our staff, both sides of the staff to
    monitor what is actually happening, and I thank you very much
    for your testimony.
        You present a great vision of what might happen, and we
    want to see that it does.
        Senator Mikulski. And as you can see, there is both support
    and skepticism here. The skepticism is not harsh. We want to
    know what are we getting into, what our obligations are, and
    make sure it is not another hollow opportunity.
        Perhaps in following up with our staffs, you could do it in
    a case example tracing through microenterprise, what happens if
    an individual defaults, what happens if the organization is in
    trouble, et cetera, et cetera. But also, how do you work in the
    first place: The anatomy of the good news, and then what would
    happen if there is bad news. This is asked in a no-fault way,
    but we need to get to know each other.
        Ms. Moy. We would be happy to do that. Thank you, Senator.
        [The information follows:]

                                   OBJECT CLASSIFICATION SCHEDULE--DIRECT OBLIGATIONS
                                                 [Dollars in thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                                      Fiscal year
                                                                  --------------------------------------------------
                        Object classification                                        1997 proposed     1998 budget
                                                                     1996 actual    operating level      estimate
    ----------------------------------------------------------------------------------------------------------------
    Personnel compensation: Permanent positions..................             590            1,500            2,700
                                                                  --------------------------------------------------
          Total personnel compensation...........................             590            1,500            2,700
                                                                  ==================================================
    Civilian personnel benefits..................................             137              375              725
    Travel and transportation of persons.........................              97              100              200
    Transportation of things.....................................               8               25                5
    Rent, communications and utilities:
        Rental payments to GSA...................................  ...............             340              45O
        Rental payments to other agencies........................             163              100   ...............
        Communications, utilities and miscellaneous charges......  ...............              80               60
    Printing and reproduction....................................              71               80              100
    Other services...............................................           1,336              975              900
    Supplies.....................................................              48               75               80
    Equipment....................................................             346              350              280
    Grants, subsidies and contributions..........................          46,701           71,000          119,500
                                                                  --------------------------------------------------
          Total obligations......................................          49,497           75,000          125,000
                                                                  ==================================================
    Unobligated balance available, SOY...........................         (49,878)         (45,000)         (20,000)
    Unobligated balance available, EOY...........................          45,000           20,000           20,000
    Unobligated balance expiring.................................             381   ...............  ...............
                                                                  --------------------------------------------------
          Total enacted appropriations and budget estimate.......          45,000           50,000          125,000
    ----------------------------------------------------------------------------------------------------------------

                 ANALYSIS OF FISCAL YEAR 1997 APPROPRIATED LEVEL
                             [Dollars in thousands]
    ------------------------------------------------------------------------
                                                    FTE           Amount
    ------------------------------------------------------------------------
    Fiscal year 1997 Proposed Operating
     Level..................................              23         $75,000
    Fiscal year 1998 Estimate...............              35         125,000
    ------------------------------------------------------------------------

                                 DIGEST OF FISCAL YEAR 1998 BUDGET ESTIMATES BY ACTIVITY
                                                 [Dollars in thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                     Fiscal year      Fiscal year      Fiscal year
                                                                     1996 actual     1997 proposed     1998 budget
                           Budget activity                        ----------------- operating level      estimate
                                                                                   ---------------------------------
                                                                   FTE    Amount    FTE    Amount    FTE    Amount
    ----------------------------------------------------------------------------------------------------------------
    Management and administration:
        Administrative services..................................  ...     $2,760   ...     $3,650   ...     $4,500
        Administrative expenses for Direct Loan Program \1\......  ...         35   ...        350   ...      1,000
                                                                  --------------------------------------------------
            Total management and administrative expenses.........  ...      2,795   ...      4,000   ...      5,500
    Assistance to CDFI's (other than direct loans)...............  ...     30,560   ...     43,150   ...     59,500
    Direct loan subsidy..........................................  ...      3,003   ...     12,850   ...     20,000
    Incentives for depository institutions.......................  ...     13,139   ...     15,000   ...     40,000
                                                                  --------------------------------------------------
          Subtotal, operating level..............................  ...     49,497   ...     75,000   ...    125,000
    Unobligated balance available, SOY...........................  ...    (49,878)  ...    (45,000)  ...    (20,000)
    Unobligated balance available, EOY...........................  ...     45,000   ...     20,000   ...     20,000
    Unobligated balance expiring.................................  ...        381   ...  ..........  ...  ..........
                                                                  ==================================================
          Total enacted appropriations and  budget estimate......   10     45,000    23     50,000    35    125,000
    ----------------------------------------------------------------------------------------------------------------
    \1\ The amount for fiscal year 1998 is a ``not to exceed'' amount that may be used for administrative expenses
      for the Direct Loan Program.

                                     ______

               COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND
           Summary Justification of Fiscal Year 1998 Budget Estimates

                               GENERAL STATEMENT

        The CDFI Fund represents a new direction for community development
    initiatives, by using limited public resources to invest in and build
    the capacity of the private sector to address the community development
    financing needs of distressed urban and rural communities. The CDFI
    Fund's initiatives are designed to unleash large amounts of private
    capital, emphasize private sector market discipline, and take full
    advantage of private sector human talent, energy and creativity.
    Decisions about which specific projects and businesses to finance are
    left to the private sector. The effect of these efforts will be to
    address market inefficiencies which exist in distressed communities,
    restore healthy private market activity, promote entrepreneurship,
    revitalize neighborhoods, generate tax revenues, and empower local
    residents.
        Through the CDFI Program, the CDFI Fund stimulates the creation and
    expansion of a diverse set of specialized, private, for profit and
    nonprofit financial institutions known as community development
    financial institutions (CDFI's). These specialized institutions
    complement the role of traditional financial institutions by filling
    niches in the market which traditional financial institutions are not
    well positioned to serve. CDFI's cover a broad range of institution
    types, such as community development banks, community development
    credit unions, community development loan funds, community development
    venture capital funds, and microenterprise loan funds. They provide a
    wide range of financial products and services to distressed urban and
    rural communities and to low income populations, such as commercial
    loans and investments to start or expand small businesses, loans for
    first time home buyers, loans to rehabilitate rental housing, and loans
    for community facilities. The CDFI Fund will: (1) invest directly in
    CDFI's that satisfy high quality standards and raise private matching
    funds; (2) provide training and technical assistance to improve the
    capacity of CDFI's; and (3) implement secondary market initiatives
    which draw in new sources of private institutional capital to support
    the activities of CDFI's.
        In its first round under the CDFI Program, the CDFI Fund selected
    32 organizations to receive a total of $37.2 million in equity
    investments, loans, capital grants and technical assistance. But this
    barely scratches the surface of what needs to be done to achieve the
    full potential of CDFI's.
        Interest and demand for the CDFI program has dramatically exceeded
    expectations, with requests for assistance last year exceeding $300
    million. The interest demonstrated by the initial pool of applicants,
    plus continued growth and interest in new CDFI formation, indicate the
    dramatic potential for future investment for the CDFI Fund to stimulate
    expansion of the diverse CDFI industry.
        In addition to making increased direct investments in CDFI's, the
    CDFI Fund is planning to take full advantage of the potential of the
    diverse and growing CDFI field by implementing new initiatives to
    expand the Fund's tools for assisting CDFI's, and keeping the Fund on
    the cutting edge of innovation. An important new training initiative
    will significantly enhance the capacity of private sector organizations
    to provide a full range of training and technical assistance services
    to CDFI's at affordable prices. This initiative will emphasize quality
    and market discipline in the training and technical assistance services
    delivered by private sector providers. By using its resources to
    enhance capacity in this way, the CDFI Fund will build on the existing
    marketplace for these services, which will be a much more effective
    approach than if the Fund were to provide these services directly. In
    the long term, this initiative will also help ensure the maximum
    effectiveness of the CDFI Fund's future investments in an increasing
    number of CDFI's.
        While supporting the creation and expansion of new types of
    specialized private financial institutions, the CDFI Fund's programs
    also recognize the key role being played by traditional financial
    institutions--banks and thrifts--in community development lending and
    investing. In recent years, many such traditional financial
    institutions have increased their efforts to lend and invest in
    distressed communities. By offering incentives to such traditional
    financial institutions through its Bank Enterprise Awards (BEA)
    Program, the CDFI Fund builds on these trends and assists traditional
    financial institutions in enhancing their direct community development
    lending, as well as in investing in CDFI's.
        In the first round of the BEA Program, the CDFI Fund made a total
    of $13.1 million in incentive awards to 38 insured depository
    institutions. These awards supported more than $120 million in total
    community development investments by banks and thrifts. By making
    improvements in the program and by engaging in increased outreach to
    the banking and thrift industries, use of the program can be
    dramatically enhanced.
        As a new organization, in addition to refining its programs and
    developing new initiatives, the CDFI Fund is working to develop a full
    set of performance goals, measures and numerical targets in time for
    the fiscal year 1999 budget presentation. Included in this year's
    presentation is some initial thinking on possible performance measures.
                                     ______

                   activity: 1. management and administration
        Functions: Provides management, staff and other services which
    enable the Fund to develop and implement policies and programs, monitor
    investments, and provide support functions for these activities.
        Mission Statement: Management and Administration is intended to
    develop and implement the initiatives of the CDFI Fund with the highest
    possible quality and professionalism to maximize the capacity of the
    Fund to achieve its objectives.

                            [In thousands of dollars]
    ------------------------------------------------------------------------
                                                      Fiscal year
                                         -----------------------------------
                                             1996        1997        1998
                                            actual     estimate    estimate
    ------------------------------------------------------------------------
    Budget Authority \1\................       2,795       4,000       5,500
    ------------------------------------------------------------------------
    \1\ These amounts include administrative expenses for the Direct Loan
      Program.

        Performance Goal: To build a strong staff with skills and
    experience appropriate to the fund's unique activities.

    ----------------------------------------------------------------------------------------------------------------
                 Objective                            Performance measure (indicator)                Type of measure
    ----------------------------------------------------------------------------------------------------------------
    Emphasize quality, relevant          Number of staff hired to fill targeted positions that      Output.
     experience and record of             have the desired skills and professional experience.
     achievement in hiring.
                                         Contribution of staff in meeting overall performance       Outcome.
                                          goals of CDFI Fund through meeting of goals in
                                          individual performance plans.
    Build a staff reflecting             Number of staff sorted by diversity characteristics......  Output.
     appropriate diversity that can
     serve as a model for other
     organizations.
    Ongoing training and skills          Number of CDFI Fund staff members that attend training     Output.
     development of existing staff.       sessions or other educational and developmental
                                          opportunities.
    Design and implement system to       Implement internal data collection and retrieval system    Output.
     evaluate impact of Funds' programs.  on participating CDFI's.
                                         Design CDFI performance evaluation process and complete    Output.
                                          paper setting forth approach to long term impact
                                          evaluation.
    ----------------------------------------------------------------------------------------------------------------

       activities: 2 and 3. assistance to cdfi's (including direct loans)
        Functions: The Fund makes investments in quality CDFI's, by
    providing assistance in the form of equity investments, loans, capital
    grants, and deposits or shares. The form of financial assistance
    depends on the individualized needs of a CDFI as reflected in a
    realistic business plan, consistent with its ability to raise private
    matching funds in a comparable form. The Fund will also assist CDFI's
    through training and technical assistance initiatives, and by providing
    assistance to organizations that enhance the liquidity of CDFI's.
        Mission Statement: Assistance to CDFI's is intended to spur the
    creation and expansion of these specialized private financial
    institutions and to enhance both immediate private sector capacity to
    address community development financing needs in distressed
    communities, as well as to strengthen the long term capacity of these
    institutions to serve such needs and help restore healthy private
    market activity in distressed communities.

                                                 [Dollars in thousands]
    ----------------------------------------------------------------------------------------------------------------
                                                                                        Fiscal year
                                                                     -----------------------------------------------
                                                                        1996 actual    1997 estimate   1998 estimate
    ----------------------------------------------------------------------------------------------------------------
    Budget Authority (Other than Direct Loans)......................         $30,560         $43,150         $59,500
    Budget Authority (Direct Loan Subsidy) \1\......................          $3,003         $12,850         $20,000
    Direct Loan Level \2\...........................................          $6,660         $33,316         $52,521
    Direct Loan Subsidy Rates \3\ (Percentage)......................           45.09           38.57           38.08
    ----------------------------------------------------------------------------------------------------------------
    \1\ For fiscal year 1997 and fiscal year 1998 these are upper limits. The actual mix between loans and other
      forms of financial assistance will depend on the individualized needs of CDFI's as reflected in realistic
      business plans, consistent with their ability to raise private matching funds in a comparable form.
    \2\ For fiscal year 1997 and fiscal year 1998 these are upper limits, based on the assumed direct loan subsidy
      rate.
    \3\ The 45.5 percent subsidy rate for fiscal year 1996 that appears in the President's fiscal year 1998 Budget
      should actually be 45.09 percent.

        Performance Goal: To strengthen and expand the network of private
    financial institutions to address the community development financing
    needs of distressed urban and rural communities and underserved
    populations.

    ----------------------------------------------------------------------------------------------------------------
                 Objective                           Performance measure (indicator)                Type of measure
    ----------------------------------------------------------------------------------------------------------------
    To increase the cumulative number   Number of CDFI's which receive financial assistance from  Output.
     of CDFI's to which the Fund         the CDFI Fund which have not previously received such
     provides financial assistance       assistance.
     while maintaining high quality
     standards and promoting diversity.
                                        Cumulative number and percent of participating CDFI's by  Output.
                                         geographic region, institution type, urban v. rural
                                         focus.
    To implement a secondary market     Issuance of regulations and Notification of Funding       Output.
     initiative to bring increased       Availability (NOFA).
     liquidity for CDFI's.
    To implement effective training     Number of participants in training and technical          Output.
     and technical assistance            assistance programs.
     initiatives which enhance the
     capacity of CDFI's now and in the
     future.
                                        Number of CDFI's which report improved capacity as a      Output and
                                         result of participating in training and technical         outcome.
                                         assistance programs.
    ----------------------------------------------------------------------------------------------------------------

              activity: 4. incentives for depository institutions
        Functions: Through the Bank Enterprise Awards (BEA) Program, the
    Fund makes cash awards to banks and thrifts that increase their
    community development lending, investment, and provision of financial
    services. The Fund will use up to one-third of program funds for BEA.
    All insured banks and thrifts are eligible to participate.
        Mission Statement: The BEA Program is intended to provide
    incentives and rewards which assist traditional financial institutions
    in prudently enhancing their activities in distressed urban and rural
    communities, by direct lending and investing and also by investing in
    CDFI's.

                                                [In thousands of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                        Fiscal year
                                                                     -----------------------------------------------
                                                                        1996 actual    1997 estimate   1998 estimate
    ----------------------------------------------------------------------------------------------------------------
    Budget Authority................................................          13,139          15,000          40,000
    ----------------------------------------------------------------------------------------------------------------

        Performance Goal: To increase the general effectiveness and
    community development impact of the Bank Enterprise Award (BEA)
    Program.

    ----------------------------------------------------------------------------------------------------------------
                 Objective                            Performance measure (indicator)                Type of measure
    ----------------------------------------------------------------------------------------------------------------
    Simplify and reform regulation to    Incremental and cumulative number of awards..............  Output.
     improve program participation.
                                         Reforms proposed.........................................  Output.
                                         Incremental and cumulative dollars awarded...............  Output.
    Develop and propose legislative      Legislative improvements proposed........................  Output.
     improvements to the program.
    Expand the awareness of the BEA      Implementation of effective outreach program to            Outcome.
     program by working with the          appropriate regulatory entities, trade associations and
     appropriate regulators and trade     others as appropriate.
     associations.
                                         Number of applicants in program..........................  Output.
    ----------------------------------------------------------------------------------------------------------------

                           DEPARTMENT OF THE TREASURY
           Community Development Financial Institutions Fund Programs
                                 federal funds
        General and Special Funds:
        For grants, loans and technical assistance to qualifying community
    development lenders, and administrative expenses of the Fund,
    $125,000,000, to remain available until September 30, 1999, of which
    $20,000,000 may be used for the cost of direct loans, and up to
    $1,000,000 may be used for administrative expenses to carry out the
    direct loan program: Provided, That the cost of direct loans, including
    the cost of modifying such loans, shall be defined as in section 502 of
    the Congressional Budget Act of 1974: Provided further, That these
    funds are available to subsidize gross obligations for the principal
    amount of direct loans not to exceed $53,000,000: Provided further,
    That not more than $40,000,000 of the funds made available under this
    heading may be used for programs and activities authorized in section
    114 of the Community Development Banking and Financial Institutions Act
    of 1994.

                         Additional committee questions

        Senator Bond. Thank you very much, Ms. Moy and Mr. Hawke.
        [The following questions were not asked at the hearing, but
    were submitted to the Institutions for response subsequent to
    the hearing:]
                      Questions Submitted by Senator Bond
                    no track record and rushing the product
        Question. The President's Budget is requesting a substantial
    increase (150 percent in the funding for the CDFI Fund including the
    CDFI program and the Bank Enterprise Act) from $50 million in fiscal
    year 1997 to $125 million in fiscal year 1998, with an overall target
    of $1 billion by fiscal year 2002. This is a substantial increase for a
    new program, especially a new program without a proven track record or
    any experience. How do you justify this large increase?
        Answer. The requested increase in funding is justified by the great
    demand and need for the types of assistance provided by the CDFI Fund.
    The dramatic response to the CDFI Program during its first funding
    round provides an illustration--and good proxy--of the demand and unmet
    needs for the Fund's products. The Fund received 268 applications for
    the CDFI Program from organizations in need of investment capital and
    technical assistance. The requests for funding exceeded $300 million--
    approximately 10 times the amount of resources initially made
    available. The applicants that submitted requests represented only a
    portion of the universe that are likely to be eligible for assistance.
    Moreover, the Fund has received inquiries from a substantial number of
    groups expressing interest in the formation of new CDFI's. Finally, it
    should be noted that because of limited resources available to the
    Fund, those applicants that received funding received, on average, only
    60 percent of the amount requested.

                          CURRENTLY AVAILABLE FUNDING

        Question. I understand that the CDFI Fund actually obligated
    approximately $37.2 million for the CDFI program and approximately
    $13.1 million for the Bank Enterprise Act (BEA) program. How much
    additional funding does the CDFI Fund currently have available for
    funding new awards during fiscal year 1997 and when does the CDFI Fund
    plan to make this funding available?
        Answer. For funding new awards during fiscal year 1997, the Fund
    currently has available $95 million in appropriated funds. The Fund
    recently published notices in the Federal Register for its second
    funding rounds of the CDFI Program and the BEA Program (see Attachments
    1a and 1b). The CDFI Program notices indicate that the Fund intends to
    make available up to $40 million for this program which is expected to
    be fully obligated by September 30, 1997.
        By the summer, the Fund plans to issue funds availability notices
    for funding rounds for training (authorized pursuant to Section 103 of
    the Riegle Community Development and Regulatory Improvement Act of 1994
    (Public Law 103-325)) and for a secondary market initiative (authorized
    pursuant to Section 119 of the Riegle Community Development and
    Regulatory Improvement Act of 1994) totaling approximately $20 million.
    The Fund anticipates obligating the funds for these two new initiatives
    by the end of calendar year 1997.
        As required by the Fund's authorizing statute, one-third of all
    appropriated program monies must be made available under the BEA
    Program. Thus, the Fund must make available $30 million for the BEA
    Program. On March 7, 1997, the Fund published a notice in the Federal
    Register announcing the availability of $16.25 million for the second
    funding round of the BEA Program. However, if requests exceed $16.25
    million during the second funding round, the Fund intends to obligate
    as much of the $30 million as possible by September 30, 1997. The
    balance of the unobligated BEA monies will be rolled over into next
    funding round which is expected to be announced in the Federal Register
    in October 1997.
        Question. In addition, the testimony seems clear that not a single
    dollar of the $37.2 million in CDFI program funds have actually been
    obligated or leveraged on a single project or activity. If this is
    true, how do you measure the success of the CDFI program for which
    there is not data?
        Answer. The Fund has obligated $37.2 million in equity investments,
    grants and loans under the CDFI Program and disbursed or initiated
    disbursements of $13.6 million--or 37 percent--of such obligated funds.
    The Fund expects to disburse nearly all of its fiscal year 1995 monies
    by September 30, 1997. The Fund is working diligently to disburse the
    remaining awards as expeditiously as possible after the Fund and each
    awardee enters into a formal agreement that requires the institution to
    comply with performance goals that are rigorous and tailored to the
    unique elements of the institutions and the needs of the communities
    they serve and abide by other terms and conditions pertinent to the
    award. The requirements for the formal agreement are set forth in
    Section 108(f)(2) of the Riegle Community Development and Regulatory
    Improvement Act of 1994. As discussed the Fund recently published
    notices in the Federal Register for the CDFI Program and the BEA
    Program announcing the availability of funding rounds for fiscal year
    1996 and fiscal year 1997 appropriated dollars most of which it expects
    to obligate by September 30, 1997.
        Some data currently exists that allows the Fund to measure the
    success of the CDFI Program. For example, the CDFI Program has already
    demonstrated a significant ability to leverage funds from non-Federal
    sources. More than $50 million of such matching money has already been
    raised and received by the 32 organizations selected for funding in the
    first funding round of the Program. This money has, in turn, leveraged
    additional funds and resulted in a total of over $100 million raised
    and made available to finance community development activities. In
    several cases, actual development transactions have already occurred.
    For example, one of our awardees reports that the Fund's $3 million
    grant has already enabled it to effectuate $24 million in home mortgage
    and commercial lending transactions. Over the next two to three years,
    the $37.2 million in CDFI Program awards are expected to leverage three
    to four times that amount in total capital raised for these
    institutions.
        Question. In addition, how many grant agreements have actually been
    signed or entered into under the CDFI program? Please provide a list
    that describes each grant, each grant agreement, and the date on which
    the grant agreement was signed or executed, and the date and amount of
    the disbursement of any funds. Please list each BEA award by award,
    date of award and by activity.
        Answer. The Fund enters into an Assistance Agreement with each
    awardee prior to providing any assistance to such awardee. The Fund may
    provide assistance in the form of an equity investment, deposit, loan,
    grant, technical assistance, or some combination of these instruments.
    To date, the Fund has entered into ten Assistance Agreements with
    awardees under the CDFI Program. Under the BEA Program, the Fund must
    enter into an Award Agreement with each awardee prior to providing an
    award to such awardee. All awards are in the form of a grant under the
    BEA Program. To date, the Fund has entered into Award Agreements with
    all of the 38 institutions selected to receive assistance under the BEA
    Program. Please see Attachments 2a and 2b which describe each form of
    assistance provided under the CDFI Program, the date on which each
    Assistance Agreement was executed, the amount of disbursement of each
    CDFI Program award and each Bank Enterprise Award, the date on which
    each Bank Enterprise Awardee Agreement was executed, the amount of
    disbursement of each Bank Enterprise Award, and the activities for
    which such award was granted.

                     SUCCESS OR FAILURE OF THE CDFI PROGRAM

        Question. When will there be enough data and program experience to
    analyze the strengths and weaknesses and the successes and failures of
    the CDFI program? What benchmarks have you established for analyzing
    the use of CDFI program funds? What steps have you taken for program
    integrity to prevent fraud and abuse by CDFI program grantees? Has the
    CDFI Fund established post-award audit review requirements for each
    CDFI grant? If not, why not?
        Answer. The Fund will collect financial and performance data from
    CDFI Program awardees on a quarterly and annual basis. This information
    will be compiled and reported to Congress as part of the Fund's annual
    report. The Fund is taking great care to design and implement the
    systems and procedures necessary to effectively monitor and evaluate
    the use of its assistance, impact of its investments, and the financial
    and managerial soundness of the organizations it funds. To this end,
    the Fund requires awardees to report at least annually on the manner in
    which Fund assistance has been used. The Fund negotiates with each
    award winner specific performance goals and financial soundness
    covenants for non-regulated financial institutions. In this manner, the
    Fund attempts to ensure program integrity and prevent fraud and abuse
    by awardees.
        In addition, the Fund has worked closely with the Treasury
    Department's Office of Inspector General and has sought the assistance
    of consultants in developing its internal quality control systems and
    procedures.
        The Fund's Assistance Agreements with each unregulated CDFI awardee
    requires such awardees to submit audited financial statements to the
    Fund each year. In the case of regulated institutions, the Fund
    requirements seek to conform, to the greatest extent possible, with the
    financial reporting requirements of each awardee's Federal regulatory
    agency.
                              LEVERAGING OF FUNDS

        Question. What are the yardsticks used to determine whether a CDFI
    grant applicant can leverage other funds successfully? What do you look
    for in a CDFI grant applicant in assessing the ability of the grant
    applicant to meet the needs of a distressed community successfully
    (i.e. Do you look for roots in a community? Do you look for a track
    record of community development experience? Do you look for a firm
    commitment of funds?)
        Answer. CDFI Program awardees are required to raise a one-to-one
    match for each dollar of funds requested. Applicants must submit
    evidence of their ability to leverage such matching monies as part of
    their application for assistance. Firm commitments are the best
    evidence of such ability, but other factors such as strength of the
    applicant's fund raising strategy and track record are also considered.
    However, the Fund will not disburse any assistance until the requisite
    matching funds are raised. The selection criteria provide that the Fund
    give additional consideration to applicants that have firm commitments.
    The CDFI Program Regulations, at 12 C.F.R. Sec. 1805.902, state that
    ``at a minimum, a firm commitment must consist of a binding written
    agreement between an Awardee and the source of the matching funds that
    is conditioned only upon availability of the Fund's assistance and
    other such conditions as the Fund, in its sole discretion, may deem
    appropriate. Such agreement must provide for disbursal of the matching
    funds prior to, or simultaneous with, receipt by the Awardee of the
    Federal funds.''
        The matching funds represent only the initial leverage resulting
    from a CDFI Program award. Applications are evaluated, in part, by
    evaluating the potential for ongoing sources of funds that will be
    leveraged by the Fund investment. Potential sources of leverage include
    any excess match over the minimum required match, leverage of net worth
    infusion through borrowing and recycling of loan funds, and attraction
    of additional investment into specific deals to be financed by the
    CDFI.
        The Program's evaluation criteria are designed to ensure that
    Federal resources are invested prudently and in a manner that maximizes
    the potential of investing in organizations with long-term viability
    that will serve their communities on a long-term self-sustaining basis.
    CDFI awardees are selected based on track record, management capacity,
    skills and experience, quality of the business plan, ability to raise
    matching funds, and community development impact.

                          REVIEW PROCESS AND REVIEWERS

        Question. What is the review process for applications for CDFI
    program funding? What is the specific criteria used for assessing
    applications? Describe the scoring/ranking system used for reviewing
    the applications. Was the criteria applied consistently and uniformly
    for all applications?
        What was the review process for the CDFI program applications?
        Answer. The review process used to select CDFI award recipients in
    the first funding round was described in the regulations and applicable
    notice of funds availability notice (see Attachment 3), published in
    the Federal Register on October 19, 1995. The regulations and notice
    did not prescribe a scoring/ranking system for evaluating applications;
    instead those documents set forth a process similar to an investment
    analysis methodology utilized by private sector investors. CDFI award
    recipients were chosen on the basis of a wide range of factors
    including track record, management capacity, skills and experience,
    quality of the business plan, ability to raise matching funds, and
    community development impact. These criteria were applied fairly and
    consistently to all applicants.
        Winners were chosen as a result of a tiered review process. In an
    effort to conduct the review in an efficient manner, the Fund conducted
    different ``tiers'' of the process simultaneously. Tier 1 of the review
    process was intended to ensure that each applicant met the eligibility
    requirements and submitted complete application materials. Tier 2 of
    the review process was intended to ensure that each applicant meeting
    the Tier 1 requirements possessed the financial and organizational
    capacity to be a successful CDFI. The Fund actually performed each Tier
    2 review as part of a Tier 3 review since each factor under Tier 2 was
    thoroughly examined under Tier 3. Tier 3 of the review process
    considered additional factors and ultimately resulted in the selection
    of award winners.
        The selection criteria listed in the regulations were also
    reflected on the guidance sheet given to contractors and Fund staff
    that performed the qualitative reviews of applications (see Attachment
    4). The evaluation process and criteria aimed to ensure that the Fund
    invested prudently in a manner that maximized the potential of
    investing in organizations that could continue to provide capital in
    their communities on a long-term self-sustaining basis. As part of the
    Tier 3 review, 59 organizations were determined to be sufficiently
    competitive to be invited by the Fund for an interview with the final
    review panel. Of those interviewed, 32 were selected to receive an
    award. In conducting the reviews, the Fund used permanent staff, as
    well as outside experts, to supplement and complement internal staff.
        On April 4, 1997, the Fund published revisions to its interim
    regulations in the Federal Register that made modest changes to the
    review process (see Attachment 5). Sections 1805.800 through 1805.802
    of those regulations outline the evaluation and selection process.
    Without eliminating any of the evaluation factors, the revised interim
    rule restructures the process of evaluating applications described to
    expedite the process and improve efficiency.
        The current revised interim rule consolidates what had been Tier 2
    (financial and organizational capacity) and Tier 3 (other qualitative
    criteria) reviews into one set of substantive review criteria. However,
    the selection criteria originally set forth on October 19, 1995, are
    retained. The current regulations clarify that the criteria to be
    considered include the quality of the applicant's business plan and the
    extent and nature of the applicant's potential community development
    impact that will be catalyzed relative to the amount of assistance to
    be provided by the Fund. While ensuring fairness and consistency, the
    Fund will seek to implement the evaluation and selection process in a
    manner that takes into consideration the unique characteristics of
    applicants that vary by organizational type, total asset size, and
    stage of organizational development.

                            UNBIASED AWARD STRUCTURE

        Question. What safeguards have the CDFI Fund implemented to ensure
    an unbiased grant award system? For example, have any of the reviewers
    or panel reviewers for the CDFI program ever been employed by any of
    the applicant organizations or their affiliates or ever sought or
    maintained client relationships with such organizations? If yes, please
    provide details including the names of individuals, organizations and
    the dates of the affiliation or the employment.
        Answer. The CDFI Fund established a selection process with respect
    to all CDFI Program applications that was unbiased, fair, thorough and
    rigorous and included safeguards to ensure that no one person possessed
    a dispositive influence over which entities were chosen as winners. All
    Awardees under the CDFI Program were chosen by a unanimous decision of
    a panel composed of five people. The CDFI Fund evaluated factors
    including track record and financial strength; capacity, skills and
    experience of the management team; quality of the applicant's business
    plan; ability to raise non-federal matching funds; and community
    development impact.
        The CDFI Fund staff and outside contractors were used in the
    initial review stage, with each contractor reviewing one or two groups
    of applications, with groups defined on the basis of type of
    organization (and in some cases, further defined by region of the
    country). The tasks for these reviewers during the initial review stage
    was to review each application carefully in order to make
    recommendations about those applications that were potentially
    competitive and therefore should be given further consideration by the
    second-stage review panel.
        The second-stage review panel reached all of its decisions
    unanimously. This review panel made evaluations, performed due
    diligence, and unanimously determined which applicants would receive
    assistance. The decisions of the second-stage review panel were subject
    to the approval of the CDFI Fund Director.
        The Fund's Deputy Director, Steve Rohde, was an employee of the
    Local Initiatives Support Corporation (LISC), an award recipient, prior
    to joining the Fund. Mr. Rohde has not had any financial interest in
    LISC since leaving his position with the organization. Like all other
    CDFI Program winners, LISC was chosen as a result of a rigorous
    selection process in which no one person had dispositive influence. The
    review panel that ultimately selected LISC as a winner made a unanimous
    decision with respect to LISC and all other winners.
        Prior to joining the CDFI Fund, the CDFI Fund Director Kirsten Moy
    served as a member of an advisory committee in connection with the New
    York activities of the Low Income Housing Fund, a CDFI Program winner.
    As a volunteer advisor, Ms. Moy was not compensated for her service on
    the committee.
        The Deputy Director of the CDFI Fund, in consultation with
    individual reviewers, identified actual and potential conflicts of
    interest that reviewers had with respect to any applications, and the
    Deputy Director made the determination that a particular set of facts
    could lead to a conflict and, therefore, prevented an expert from
    reviewing a particular application, as follows:
        (a) Dan Lopez was a member of the Board of Directors of the Low
    Income Housing Fund and was not assigned that application.
        (b) James Paquet was on a detail from the State of Michigan to the
    CDFI Fund under the Intergovernmental Personnel Act. Mr. Paquet was not
    assigned any applications from Michigan. Instead, he was assigned a
    group of applications consisting of business loan funds in the
    Northeast region.
        (c) In the early to mid 1980's, Laura Henze Russell had been
    Executive Director of an organization now known as the Local Enterprise
    Assistance Fund, based in Boston. Ms. Russell was not assigned the
    application of Local Enterprise Assistance Fund. She was assigned a
    group of applications consisting of business loan funds from the
    Midwest and West regions.
        (d) Fredric Cooper formerly worked for The Enterprise Foundation,
    which had a relationship with the San Antonio Housing Trust Foundation,
    an applicant. Enterprise Foundation was not an applicant. Mr. Cooper
    was assigned a group of housing loan funds from the Northeast and
    Midwest.
        (e) Alan Okagaki had been an employee and subcontractor of
    Shorebank Advisory Services and a consultant to Southern Development
    Bancorporation. After an initial look at the Albina Community Bancorp
    application Mr. Okagaki informed the CDFI Fund that there was
    significant material in that application that Mr. Okagaki recognized as
    having been previously prepared by Shorebank Advisory Services. He was
    excluded from reviewing the applications of Shorebank Corporation,
    Douglass Bancorp, Louisville Development Bancorporation, Southern
    Development Bancorporation, and Albina because Shorebank Advisory
    Services had had a consulting relationship with these institutions.
        (f) In the second stage review panel, Paul Pryde, who did not
    participate in the initial stage review, recused himself from two
    applications, McAuley Institute and Community Bank of the Bay, because
    of an appearance of a conflict.

                                 GRANT REVIEWS

        Question. Did the CDFI Fund accept revisions to applications from
    certain applicants? What rules did the CDFI Fund establish with regard
    to revisions to ensure a fair process for all CDFI applicants? If
    revisions were permitted for any grant application, please provide the
    details of each revision, including all dates and contacts between the
    CDFI fund and the applicant?
        Answer. The Fund does not accept revisions to applications from any
    applicants. The Fund's regulations, at 12 C.F.R. Sec. Sec. 1805.700 and
    1806.206, provide that the Fund ``may request clarifying or technical
    information'' with respect to any application submitted to the CDFI or
    BEA Program, respectively. Consequently, when the Fund determines that
    it is appropriate and necessary for its decision making, it requests
    clarifying or technical information from applicants.
        In addition, the Fund accepts from all applicants supplemental
    information that updates previous submitted material or otherwise
    informs the Fund of changes in information previously submitted.
        Question. Did any reviewer or panel reviewer provide assistance to
    any of the applicants or their representatives with respect to the
    preparation or revision of any part of an application or for
    supplemental information provided to or requested by the CDFI Fund? If
    yes, please provide the date and details of each occurrence.
        Answer. The Fund or its reviewers did not provide assistance to any
    of the applicants or their representatives with respect to the
    preparation or revision of any part of an application or for
    supplemental information provided to or requested by the Fund. Section
    105(c) of the Riegle Community Development and Regulatory Improvement
    Act of 1994 (Public Law 103-325) states that

            [t]he Fund shall provide an outreach program to identify and
            provide information to potential applicants and may provide
            technical assistance to potential applicants, but shall not
            assist in the preparation of any application.

        Accordingly, the Fund provided an outreach program to applicants.
    Such outreach was accomplished through workshops, publications and
    other means and included general information about the Fund's programs
    and their requirements. The Fund provided outreach services to all
    interested parties on an equal basis.

                                FEDERAL REGISTER

        Question. On March 18, 1996, the CDFI Fund published in the Federal
    Register a waiver of the deadline for receipt of an application under
    the CDFI and BEA programs for certain applications. What was the nature
    and reason for this waiver? Please provide a detailed list describing
    all application materials and information which were received by the
    CDFI Fund between the original deadline of January 29, 1996 at 4:00
    p.m. and March 13, 1996.
        Answer. On March 18, 1996, the Fund published a waiver in the
    Federal Register of its January 29, 1996, 4 p.m., application deadline
    for the CDFI and BEA Programs. The Fund determined it would accept an
    application if: (1) the application was actually received by the Fund
    on January 29, 1996; (2) the application was mailed with a postmark
    date on or before January 29, 1996; or (3) the application was
    delivered to a professional courier service on or before January 29,
    1996. This waiver was based on the determination that such waiver
    promoted the achievement of the purposes of the CDFI Program and the
    BEA Program and their underlying statutes. Several factors contributed
    to the Fund's determination to grant this waiver. First, in the first
    year of implementation of these programs, it was determined to be in
    the Fund's interest to seek the broadest possible participation.
    Second, preparing an application required an extensive amount of work
    which, without the waiver, might have gone to waste merely because of a
    technical failure in the mail or delivery process. Third, given the
    fact that these programs are new, and some of the applicants had never
    previously applied to the Federal government for funding, there
    appeared to have been some confusion about the precise requirements for
    delivery of an application in a timely fashion. Finally, the effect of
    the requirement that the Fund be in receipt of an application by a
    specified time appeared to have had a disproportionate effect on
    applications from geographically remote places. Thus, strict
    enforcement of the deadline could have hindered the Fund in achieving
    its geographic diversity objectives. See Attachment 6 for a list of
    items accepted between January 29, 1996, 4 p.m., and March 13, 1996.

                                 FUTURE FUNDING

        Question. When will the CDFI Fund announce the next round of
    funding? You appear to be 4 to 5 months behind the schedule of your
    first round.
        Answer. On March 7, 1997, the Fund published a Notice of Funds
    Availability for the second round of the BEA Program (see Attachment
    1b). On April 4, 1997, the Fund published Notices of Funds Availability
    in connection with the CDFI Program (see Attachments 1a).
                  financial safety and soundness requirements
        Question. How will CDFI entities be regulated to ensure that CDFI
    funds are being used appropriately and that these entities will not
    pose a financial risk to the American taxpayer. What happens to a
    financially troubled CDFI?
        Answer. CDFI Program awardees are required to comply with numerous
    federal requirements and reporting mandates that are intended to
    protect the taxpayers' interest. In the event that an awardee does not
    comply with the aforementioned requirements, the CDFI Fund has a range
    of remedies that it may employ. These mandates or requirements include:
        (1) Compliance with government requirements including all Federal,
    state and local laws, regulations, ordinances, applicable Office of
    Management and Budget Circulars, and applicable Executive Orders;
        (2) Mandatory reporting to the U.S. Department of the Treasury
    Inspector General of the existence or apparent existence of fraud,
    waste or abuse of Federal assistance;
        (3) Provision of financial and activity reports, records,
    statements, and documents as may be requested to ensure compliance with
    the assistance agreement. An Awardee is required to provide full and
    free access to its officers and facilities and all books, documents,
    records, and financial statements relating to the use of assistance;
        (4) Compliance with all record retention requirements set forth on
    OMB Circular A-110 and, pursuant to such Circular, retention of all
    financial records, supporting documents, and statistical records
    pertinent to the assistance;
        (5) Maintenance of records necessary to disclose the manner in
    which assistance provided is used and demonstrate compliance with the
    requirements of the CDFI Program regulations and the assistance
    agreement;
        (6) Submission of quarterly reports after the end of each fiscal
    quarter in a form that is prescribed by the CDFI Fund in the assistance
    agreement;
        (7) Submission of an annual report that includes, among other
    things, information regarding the manner in which assistance or
    matching funds were used, financial condition and financial
    performance, activities and initiatives engaged in which enhance the
    awardee's ability to promote community development, the awardee's
    strategy for achieving its performance goals or enhancing its financial
    performance, and the ethnic, racial or gender composition of its
    borrowers or investees;
        (8) Compliance with the Equal Credit Opportunity Act, where
    applicable; and
        (9) Compliance with restrictions on certain insider activities.

                                DISPLACING BANKS

        Question. There has been some concern that CDFI's could indirectly
    discourage more traditional financial institutions may not feel welcome
    or may conclude that their presence is not needed. Couldn't this result
    in isolating distressed communities even more from access to mainstream
    financial resources and opportunities for economic revitalization? How
    are you monitoring this concern?
        Answer. The roles of CDFI's and traditional financial institutions
    are mutually reinforcing. CDFI's are not a substitute--and should not
    be considered a replacement--for traditional financial institutions.
    CDFI's complement the strong and active role that banks and thrifts
    should play in providing credit within distressed communities. CDFI's
    are specialized, private financial institutions that fill niches that
    traditional financial institutions cannot fill--or will not fill on
    their own. The credit needs in distressed communities are often unique
    and require innovative solutions. CDFI's are distinct from traditional
    financial institutions because they have developed specialized
    expertise in delivering certain types of credit--such as micro loans,
    financing day care or public health care facilities, or financing
    housing for people with AIDS or other special needs. In many
    communities, CDFI's have pioneered innovative new products that were
    later adopted by local banks or developed partnerships with banks to
    address unique local needs. For example, many microenterprise programs
    work with low income entrepreneurs that have credit problems or that
    don't meet standardized underwriting criteria. In these cases, the
    micro enterprise programs work with these individuals to build their
    business skills and history as credit-worthy business borrowers. After
    the borrowers have developed a track record, they are often
    ``graduated'' to become borrowers of traditional financial
    institutions. Many traditional financial institutions see their
    partnerships with CDFI's as a vehicle to reach into markets that they
    could not otherwise reach. In fact, the CDFI Fund's Bank Enterprise
    Award Program recognizes the importance of these relationships and is
    designed to foster partnerships between CDFI's, as well as promote
    increasing lending and service provision within very distressed
    neighborhoods. (Attachment 7 describes the impact and activities
    generated by the BEA Program.) In summary, CDFI's help to integrate--
    not isolate--distressed communities into the economic mainstream.
              draining of existing economic development resources
        Question. There is often a concern that there is only so many
    dollars in the private market available for economic development and
    affordable housing resource. Since there are such expectations for the
    CDFI program to leverage significant non-federal funds, has there been
    any review of where this capital is coming from, and whether it is
    likely to be drained from other funding sources traditionally used for
    community development and housing projects?
        Answer. The vast majority of matching funds received by assisted
    CDFI's are from private sector sources of capital. Of the 31
    organizations selected to receive CDFI assistance, 72 percent derived
    all of their matching funds from private sources (e.g. banks,
    corporations, foundations, individuals) and 19 percent derived between
    99 percent and 70 percent of their matching funds from private sources.
    Only three awardees raised less than 70 percent of their matching
    monies from private sources.

                              BANK ENTERPRISE ACT

        Question. The Bank Enterprise Act (BEA) has been implemented as a
    separate account under the CDFI Fund. Under BEA, traditional financial
    institutions are encouraged through BEA awards to invest, lend and
    provide other financial services in distressed communities. Isn't it
    better to encourage through the BEA the availability of traditional
    financial services and credit in distressed communities than to
    establish a new and separate banking system for these communities?
        Answer. CDFI's and traditional financial institutions both play
    complementary and important roles in serving the credit and financial
    service needs of distressed communities. In fact, the CDFI Program and
    BEA Program were crafted by Congress to work together. Specifically,
    the CDFI Program requires award recipients to obtain matching funds
    from non-Federal sources and permits monies committed by banks and
    thrifts under the BEA Program to assist in meeting that match. In
    addition, under the BEA Program, banks and thrifts that provide support
    to CDFI's are given priority consideration for BEA funding. Hence, the
    CDFI Program and the BEA Program are both critically important to
    improving access to credit and promoting revitalization and deserve
    support. Please also see answer to Question 12.

                                 STAFFING NEEDS

        Question. Please describe your staffing needs for administering the
    CDFI program. Since there are so many types of entities and activities
    involved, how will you ensure program integrity?
        Answer. The CDFI Fund is in the process of adding staff in certain
    critical areas to ensure that key functions are and/or will be
    adequately covered. Among these critical areas are program operations,
    finance and administration, and awards management. The CDFI Fund is
    seeking to hire an individual to oversee these areas as its Deputy
    Director for Operations/Chief Financial Officer. In addition, the CDFI
    Fund plans to hire, among other professional and technical staff, the
    following in each of these areas: program operations--a program manager
    who will focus exclusively on the CDFI Program and possibly someone to
    manage the CDFI Fund's training and technical assistance initiatives;
    finance and administration--a comptroller as well as a staff
    accountant; awards management--an award administrator and possibly a
    portfolio analyst.

                     GOVERNMENT PERFORMANCE AND RESULTS ACT

        Question. What are you doing to comply with the Government
    Performance and Results Act? What is your timetable to develop your
    goals, strategic plan, performance measures and outcomes?
        Answer. In the implementation of GPRA, the CDFI Fund is ahead of
    schedule for compliance. Although the first annual performance plan is
    not due until fiscal year 1999, the CDFI Fund submitted its first plan
    as part of the fiscal year 1998 budget justification which included
    performance goals, measures and outcomes--a year ahead of schedule. It
    is the policy of the Department of the Treasury to integrate the annual
    performance plan with the annual budget justification.
        In regards to the 5-year strategic plan, the CDFI Fund intends to
    have a final draft of the 5-year strategic plan in the coming weeks and
    looks forward to consultations with Congress and other stakeholders in
    developing a final plan. The CDFI Fund plans to submit its 5-year
    strategic plan to the Department and OMB in the near future. The CDFI
    Fund looks forward to utilizing this important tool to measure the
    impact and effectiveness of its programs.

                         CRITERIA FOR SELECTING CDFI'S

        Question. The testimony indicates that a wide variety of CDFI's--
    new, old, rural, urban--have been awarded assistance under this
    program. What were the most critical criteria used for selecting CDFI's
    for assistance? What is the most common weakness in an application for
    denying CDFI assistance?
        Answer. The key evaluation criteria used for selecting CDFI's for
    assistance include track record and financial strength; capacity,
    skills, and experience of the management team; quality of the
    applicant's business plan; ability to raise non-Federal matching funds;
    and community development impact. Attachment 8 discusses factors that
    tend to separate successful from unsuccessful applicants in the first
    funding round. Through the review process, the CDFI Fund found a wide
    variety of institutions working to serve the community development
    finance needs of their communities. These institutions are diverse in
    type (banks, credit unions, non-profit loan funds, microenterprise loan
    funds, venture capital organizations, lending consortia, and others),
    the types of communities they serve (urban, rural, Native American),
    the types of products and services they provide (small business loans
    and equity investments, housing loans, community facility loans,
    training and technical assistance, and others), and, finally, their
    strategies for promoting economic opportunity and revitalization.
        What these organizations have in common, however, is a deep
    commitment to serve their communities by building stronger local
    markets and catalyzing new economic activity; leveraging resources of
    private, public and non-profit sectors; building linkages with the
    financial services industry; and developing viable, self-sustaining
    financial institutions.
        Common problems shared by these institutions include: (1)
    difficulties in raising investment capital to support their activities
    because, in part, their returns may not be as high as some other
    private sector investment opportunities; and (2) the need to develop
    further their institutional capacity to expand their activities within
    the needy communities they serve. In evaluating applicants that were
    best poised to make the greatest community impact, the CDFI Fund
    observed several critical factors, including good management; the
    importance of strategic assessment and planning in charting an
    institution's activities; having sufficient net worth and a capital
    structure appropriate to the nature of the activities the institution
    is engaged in; the existence of well-functioning internal financial
    systems; and a solid portfolio review system for managing risk.
                                     ______

                                  Attachment 7
     profiles of the first round awardees under the bank enterprise award
                                    program
             community impact of the bank enterprise award program
        The Bank Enterprise Award Program (the ``BEA Program'') was
    designed to provide incentives to insured depository institutions
    (banks and thrifts) to invest in community development financial
    institutions (CDFI's) and to increase their lending and provision of
    financial services in economically distressed communities throughout
    the nation.
        Awards are determined based on the increase of eligible activities
    between two designated six-month evaluation periods. To ensure
    appropriate use of limited Federal resources, awards are disbursed only
    after the activities proposed by the institutions have been completed.
    Collectively, the bank and thrift awardees have provided nearly $66
    million in support to CDFI's and $60 million in new lending and
    financial services in economically distressed communities. The
    activities for which each of the institutions received an award are
    described in the following profiles.
        There are no statutory or regulatory restrictions or requirements
    on institutions with respect to the use of their BEA award dollars
    after the completion of proposed activities. The CDFI Fund is happy to
    report that the vast majority of the institutions receiving awards in
    the first round have indicated that they plan to use their awards to
    expand their existing community development work. These activities
    would enhance the impact of the BEA Program and are described in the
    profiles.
    Bank of America Community Development Bank, Walnut Creek, California
        Award: $1,585,510
        Rewarded activities.--Bank of America Community Development Bank
    was awarded $1,585,510 for increasing its commercial real estate,
    multi-family housing, and business lending in distressed communities
    across California. The bank made nearly $25 million in loans in
    targeted neighborhoods. Bank of America Community Development Bank
    projects that its activities will generate more than 185 units of
    affordable housing and 300 jobs.
        Post award activity.--Bank of America Community Development Bank,
    together with Bank of America, F.S.B., has pledged to invest its entire
    combined award back into the community. $1.1 million of their award
    money has been used to establish the Bank of America Leadership
    Academy, a nine-month program that provides training for senior
    management of community development organizations. The Leadership
    Academy is funded jointly by Bank of America Community Development
    Bank, Bank of America, F.S.B., and the Local Initiatives Support
    Corporation (a certified CDFI and a 1996 CDFI Program awardee); it is
    conducted by the Development Training Institute. The Academy is
    expected to run for three years and train 105 leaders of community
    organizations across the nation. An additional 20 percent of the
    combined awards will go to the Low Income Housing Fund, a certified
    CDFI and a 1996 CDFI Program awardee which provides loans for very low-
    income housing development across the country. Bank of America
    Community Development Bank is currently considering the designation of
    the balance of its award.
    Bank of America, F.S.B. Portland, Oregon
        Award: $521,735
        Rewarded activities.--Bank of America, F.S.B. was awarded $521,735
    for increasing its commercial real estate and business lending in
    targeted neighborhoods in Denver, Las Vegas, and San Antonio. The Bank
    made nearly $6.2 million in loans in needy communities. Bank of
    America, F.S.B. projects that this activity will create or retain more
    than 150 jobs.
        Post award activity.--Bank of America, F.S.B., together with Bank
    of America Community Development Bank, has pledged to invest its entire
    combined award back into the community. $1.1 million of their award
    money has been used to establish the Bank of America Leadership
    Academy, a nine-month program that provides training for senior
    management of community development organizations. The Leadership
    Academy is funded jointly by Bank of America Community Development
    Bank, Bank of America, F.S.B., and the Local Initiatives Support
    Corporation, a certified CDFI and a 1996 CDFI Program awardee; it is
    conducted by the Development Training Institute. The Academy is
    expected to run for three years and train 105 leaders of community
    organizations across the nation. An additional 20 percent of the
    combined awards will go to the Low Income Housing Fund, a certified
    CDFI and a 1996 CDFI Program awardee which provides loans for very low-
    income housing development across the country. Bank of America, F.S.B.
    is currently considering the designation of the balance of its award.
    Bank of America, Illinois, Chicago, Illinois
        Award: $514,815
        Rewarded activities.--Bank of America, Illinois was awarded
    $514,815 for increasing its affordable housing and small business
    lending activity in distressed communities on the near north, west and
    south sides of Chicago. The bank also made loans of nearly $3.7 million
    to Neighborhood Housing Services (NHS) of Chicago, Community Investment
    Corporation (CIC), and the Illinois Facilities Fund (IFF), all
    certified CDFI's. The bank's loan to NHS will be used to finance home
    improvement loans to low- and moderate-income homeowners in distressed
    neighborhoods. The loan to CIC will be used to finance multi-family
    apartment buildings in low- to moderate-income communities. The bank's
    loan to IFF will be used to support mortgages to non-profit social
    service agencies.
        Post award activity.--Bank of America, Illinois is using $150,000
    of its award to make grants to low- and moderate-income home-buyers for
    downpayment assistance. In addition, the bank made $155,000 in grants
    to NHS, CIC, and IFF, and the Southland Community Development
    Corporation, a new loan fund in the Chicago area. The bank has also
    made available a total of $75,000 in grants to smaller community
    organizations--in particular, those focused on affordable housing,
    economic development, and education of disadvantaged youth. The bank
    will also make available grants up to $500 to community organizations
    nominated by bank employees.
    Bank of Louisville, Louisville, Kentucky
        Award: $15,000
        Rewarded activities.--Bank of Louisville was awarded $15,000 for
    making an equity investment of $100,000 in the Louisville Development
    Bancorp. The Louisville Development Bancorp is a newly-established
    community development bank corporation and a certified CDFI that seeks
    to revitalize the Louisville Enterprise Community and surrounding
    neighborhoods.
        Post award activity.--Bank of Louisville plans to use its award to
    benefit the Louisville Development Bancorp in the form of a grant to
    its non-profit subsidiary.
    Central Bank of Kansas City, Kansas City, Missouri
        Award: $99,869
        Rewarded activities.--Central Bank of Kansas City was awarded
    $99,869 for increasing its deposit-taking activities and consumer and
    commercial real estate, housing, and business loans in distressed
    neighborhoods. During the first six months of 1996, this bank provided
    more than $8.3 million in loans and services. In addition to
    facilitating neighborhood redevelopment through its single- and multi-
    family housing activities, the bank made a significant loan to help a
    major manufacturer and employer remain in the community.
        Post award activity.--Central Bank of Kansas City is using its
    award to finance revitalization efforts in its neighborhood, which
    includes the distressed community designated in its BEA application.
    These efforts are focused on home improvement and rehabilitation
    lending. The award is, in part, being used to finance the
    rehabilitation of a former drug house in the neighborhood. The bank's
    $70,000 loan to a non-profit group at a concessionary interest rate
    accounts for 70 percent of the financing for this project. The bank
    expects to use the returns from this loan for other community
    development activities.
    The Chase Manhattan Bank, New York, New York
        Award: $2,699,625
        Rewarded activities.--The Chase Manhattan Bank was awarded
    $2,699,625 for making nearly $18 million in investments in 14
    organizations that finance community development. The organizations
    receiving assistance are Low-lncome Housing Fund, Greater Jamaica Local
    Development Company, Community Loan Fund of New Jersey, Capital
    District Community Loan Fund, Nonprofit Facilities Fund, Leviticus
    25:23 Alternative Fund, Bethex Federal Credit Union, Lower East Side
    People's Federal Credit Union, New Community Federal Credit Union,
    Homesteaders Federal Credit Union, BHA Residents Community Development
    Federal Credit Union, Central Brooklyn Federal Credit Union, Parodneck
    Foundation, and Enterprise Social Investment Corporation.
        Post award activity.--The Chase Manhattan Bank is using its award
    to make grants to CDFI's in its service area through its CDFI Support
    Program. These grants can be used for capital and operating expenses
    and to serve as matching funds for CDFI's applying to the CDFI Program.
    Citibank F.S.B. California Marketplace, San Francisco, California
        Award: $412,270
        Rewarded activities.--Citibank F.S.B. California Marketplace was
    awarded $412,270 for increasing its multi-family housing lending in a
    distressed neighborhood by more than $5.1 million. Citibank's efforts
    focused on financing two multi-family projects in Los Angeles developed
    by FAME Housing Development Corporation, a non-profit affiliate of the
    First African Methodist Church. Citibank also provided technical
    assistance to FAME Housing in structuring these transactions.
        Post award activity.--Citibank F.S.B. has established a loan pool
    with its award. This pool will loan funds at concessionary terms to
    community organizations for initiatives such as affordable housing and
    childcare centers in low-income communities.
    Citibank N.A., New York, New York
        Award: $227,250
        Rewarded activities.--Citibank N.A. was awarded $227,250 for
    providing investments totaling $1,515,000 to 13 organizations serving
    distressed communities throughout the United States. The organizations
    receiving investments are ACCION New York, ACCION Texas, Chicago
    Community Loan Fund, FINCA, Florida Community Loan Fund, Illinois
    Facilities Fund, Institute for Community Economics, Leviticus 25:23
    Alternative Fund, Low-Income Housing Fund, McAuley Institute, New
    Jersey Community Loan Fund, Nonprofit Facilities Fund, Northern
    California Community Loan Fund, Washington Area Community Investment
    Fund, and the National Federation of Community Development Credit
    Unions.
        Post award activity.--Citibank N.A. is using its award for
    activities that help build the capacity and skills of CDFI's. Among
    these activities is a grant to the National Association of Community
    Development Loan Funds to launch a series of courses for CDFI staff and
    board members.
    City National Bank of New Jersey, Newark, New Jersey
        Award: $162,065
        Rewarded activities.--City National Bank of New Jersey was awarded
    $162,065 for increasing its lending commitments in distressed
    neighborhoods by nearly $2 million. In the first six months of 1996,
    the bank committed loans totaling $3,367,000 to consumers and for
    commercial real estate, single-family housing, multi-family housing,
    and small businesses. City National Bank of New Jersey is a minority-
    owned national bank.
        Post award activity.--City National Bank of New Jersey has not yet
    determined the use of its award. Currently, City National Bank of New
    Jersey is applying in the second round of the BEA Program for its
    increased loans for the purchase and renovation of one- to four-family
    homes.
    Coast Federal Bank, West Hills, California
        Award: $149,709
        Rewarded activities.--Coast Federal Bank was awarded $149,709 for
    providing loans, grants, and technical assistance to the Clearinghouse
    CDFI and Los Angeles Neighborhood Housing Services. These CDFI's both
    promote the development of affordable housing in distressed
    neighborhoods throughout Southern California.
        Post award activity.--Coast Federal Bank is using its award as a
    reserve fund for affordable housing loans and is further supporting
    affordable housing in Southern California through its close
    relationships with the Clearinghouse CDFI and Los Angeles Neighborhood
    Housing Services. Bank officials serve on the governing board of each
    of the CDFI's; the bank has helped in fundraising and has made
    operating grants and in-kind contributions to each. Additionally, the
    bank is encouraging other financial institutions to support CDFI's by
    disseminating information about the BEA Program.
    Cole Taylor Bank, Wheeling, Illinois
        Award: $115,500
        Rewarded activities.--Cole Taylor Bank was awarded $115,500 for
    making $1,050,000 in loans to the Illinois Facilities Fund (IFF) and
    Chicago Community Loan Fund (CCLF), both certified CDFI's. IFF makes
    real estate loans to non-profit social service agencies. The proceeds
    from Cole Taylor Bank's loan to IFF will be used to finance projects in
    Chicago's near west and lower west sides and Humbolt Park. CCLF
    finances affordable housing and economic development projects.
        Post award activity.--Cole Taylor Bank's award has acted as an
    encouragement of further community development activities. The bank is
    currently contributing toward Neighborhood Housing Services of
    Chicago's goal of opening 20 new offices in the city. Specifically,
    Cole Taylor Bank is supporting the office in the Back of the Yards
    neighborhood by providing operational support, participating in a
    revolving loan fund for flexible and low-cost home improvement
    financing, and developing a new affordable homes construction project.
    Community Capital Bank, Brooklyn, New York
        Award: $215,461
        Rewarded activities.--Community Capital Bank provides business,
    housing, and commercial loans to projects in distressed communities
    throughout New York City. In the first six months of 1996, Community
    Capital Bank provided nearly $2.6 million in loans for small business
    development and affordable housing construction and support for
    entrepreneurial development initiatives among public housing residents.
    Community Capital Bank was awarded $215,461 for increasing its lending
    activities during this period.
        Post award activity.--Community Capital Bank, a certified CDFI, is
    using its award to increase its capacity to make loans in distressed
    communities. Activities toward this end include increasing loan staff
    and improving accounting controls with the assistance of an outside
    consultant. In addition, the award has helped the bank maintain its
    preferential interest rates on loans made to non-profit organizations.
    First National Bank of Chicago, Chicago, Illinois
        Award: $322,230
        Rewarded activities.--First National Bank of Chicago was awarded
    $322,230 for making a $1,998,200 investment in The Shorebank
    Corporation (Shorebank) and a $150,000 capital grant to Neighborhood
    Housing Services (NHS) of Chicago, both certified CDFI's. Shorebank,
    based in Chicago's south side, is a bank holding company that serves
    numerous distressed communities. First National's investment enabled
    Shorebank to acquire Indecorp and expand its service area to nine new
    neighborhoods in the south and mid-south sides of Chicago. The grant to
    NHS of Chicago will serve as a capital infusion for its revolving loan
    fund to support home improvement and rehabilitation loans and loans to
    people unable to obtain traditional mortgage financing.
        Post award activity.--First National Bank of Chicago will use
    $150,000 of its award to make ``equity-equivalent'' investments in the
    Chicago Community Loan Fund and the Chicago Association of Neighborhood
    Development Organizations' Self-Employment Loan Fund, both certified
    CDFI's. The bank expects that these investments will leverage an
    additional $300,000 for the community groups.
    First Union National Bank of D.C., Washington, District of Columbia
        Award: $274,550
        Rewarded activities.--First Union National Bank of D.C. (First
    Union) was awarded $274,550 for increasing its multi-family housing
    lending in several distressed neighborhoods. In partnership with local
    community development corporations, the bank made loans totaling more
    than $5.6 million, including financing a 177-unit apartment building.
        Post award activity.--First Union plans to use a portion of its
    award to make a loan to a local CDFI. This loan will be unusual for
    First Union but, because of the availability of the BEA award, will be
    feasible at an interest rate favorable to the CDFI. Through the CDFI,
    loan funds will be made available to other community groups for
    predevelopment costs.
    Fullerton Savings and Loan Association, Fullerton, California
        Award: $39,600
        Rewarded activities.--Fullerton Savings and Loan Association
    (Fullerton) was awarded $39,600 for increasing its single-family and
    multi-family housing lending in three distressed communities. Fullerton
    made a total of $520,000 in loans to neighborhoods located in Santa Ana
    and elsewhere in Orange County.
        Post award activity.--Fullerton used its award to make a grant to a
    local housing development non-profit organization. The grant will be
    used for the operating costs of developing affordable single-family
    infill housing in Anaheim. It will also be used, if needed, to provide
    second mortgages for the new housing.
    Gateway National Bank of St. Louis, St. Louis, Missouri
        Award: $26,038
        Rewarded activities.--Gateway National Bank, the only minority-
    owned bank to be incorporated and operated in the state of Missouri,
    was awarded $78,116 for increasing its deposit-taking and lending
    activities during the first six months of 1996. Gateway National Bank
    is located and serves neighborhoods in the northern portion of St.
    Louis.
        Post award activity.--Gateway National Bank has used its award to
    expand its capital base to meet community needs, including business and
    housing lending.
    Great Financial Bank, Louisville, Kentucky
        Award: $22,500
        Rewarded activities.--Great Financial Bank was awarded $22,500 for
    making an equity investment of $150,000 in the Louisville Development
    Bancorp. The Louisville Development Bancorp is a newly established
    community development bank corporation that seeks to revitalize the
    Louisville Enterprise Community and surrounding neighborhoods.
        Post award activity.--Great Financial Bank has used its award to
    benefit the Louisville Development Bancorp in the form of a grant to
    its non-profit subsidiary.
    Hibernia National Bank, New Orleans, Louisiana
        Award: $5,875
        Rewarded activities.--In late 1995, Hibernia National Bank
    (Hibernia) adopted two neighborhoods as part of the City of New
    Orleans' Impact Neighborhood Program. Hibernia was awarded $5,875 for
    increasing its small business lending, loans to non-profit
    organizations engaging in affordable housing activities, and technical
    assistance activities in these neighborhoods during the first six
    months of 1996. As part of this effort, Hibernia provided financial
    support to three non-profit organizations that conduct home-buyer
    training programs for residents of these targeted neighborhoods.
        Post award activity.--Hibernia has made its award available to five
    community development corporations to use as matching funds for a grant
    program sponsored by the Federal Home Loan Bank of Dallas. The $500 to
    $2,200 grants made by Hibernia will be leveraged up to a total of
    $29,900 for non-profit organizations in Baton Rouge, New Orleans, and
    Shreveport focused on affordable housing and homebuyer training.
    Household Bank, f.s.b., Wood Dale, Illinois
        Award: $88,090
        Rewarded activities.--Household Bank, f.s.b. was awarded $88,090
    for making a $588,000 investment in Sable Bancshares, a certified CDFI.
    The investment enabled Sable Bancshares to acquire the Community Bank
    of Lawndale, an African American-owned bank which serves distressed
    neighborhoods in Chicago, for the purpose of converting it into a
    community development bank. Sable Bancshares has also established a
    subsidiary, REG Community Development Corporation, to promote housing
    and business development.
        Post award activity.--Household Bank, f.s.b. plans to use its award
    for community development purposes. The use of the award is currently
    being determined through a strategic planning process.
    Key Bank of Maine, Portland, Maine
        Award: $37,500
        Rewarded activities.--Key Bank of Maine (Key Bank) was awarded
    $37,500 for making a $250,000 investment in Coastal Ventures Limited
    Partnership (CVLP), a subsidiary of Coastal Enterprises, Inc., a
    certified CDFI. The bank's investment will create jobs by providing
    venture capital to small businesses for start-up and expansion.
        Post award activity.--Key Bank plans to use its entire award for
    community development purposes. Part of the award is being used to
    support a Small Business Information Center in Lewiston, Maine in
    partnership with the U.S. Small Business Administration. An additional
    part is being used to capitalize an affordable housing loan pool in
    conjunction with other lenders.
    National City Bank of Columbus, Columbus, Ohio
        Award: $275,000
        Rewarded activities.--National City Bank of Columbus (National
    City) was awarded $275,000 for providing a $2.5 million line of credit
    to the Columbus Growth Fund, a certified CDFI, to be used to provide
    gap financing for businesses. This financing will enable businesses to
    expand and create jobs for residents of targeted neighborhoods.
    National City was the lead bank in a partnership with four other
    financial institutions to establish the Columbus Growth Fund. The City
    of Columbus is also supporting the effort by capitalizing a loan loss
    reserve for the Columbus Growth Fund.
        Post award activity.--National City has used its award to make a
    grant to the Columbus Growth Fund. The grant serves as additional
    equity for the Columbus Growth Fund, allowing it to leverage additional
    funds in the form of bank loans.
    National City Bank of Kentucky, Louisville, Kentucky
        Award: $37,500
        Rewarded activities.--National City Bank of Kentucky was awarded
    $37,500 for making an equity investment of $250,000 in the Louisville
    Development Bancorp, a certified CDFI. The Louisville Development
    Bancorp is a newly established community development bank corporation
    that seeks to revitalize the Louisville Enterprise Community and
    surrounding neighborhoods.
        Post award activity.--National City Bank of Kentucky has used its
    award to benefit the Louisville Development Bancorp in the form of a
    grant to its non-profit subsidiary.
    Nationsbank, N.A., Charlotte, North Carolina
        Award: $1,614,690
        Rewarded activities.--Nationsbank, N.A. was awarded $1,614,690 for
    making nearly $10.5 million in investments in the National Community
    Investment Fund (NCIF) and the Enterprise Social Investment Corporation
    (ESIC) and a $420,000 loan to the Low-income Housing Fund (LIHF). NCIF
    will use its support to invest in community development banks. The ESIC
    investment will expand and improve employment opportunities by
    encouraging investments in businesses that employ residents of the
    Baltimore Empowerment Zone. LIHF, a certified CDFI funded in the first
    round of the CDFI Program, will use its loan proceeds to finance non-
    profit sponsors of affordable housing.
        Post award activity.--Nationsbank, N.A. is using its award to
    expand its existing community development programs throughout the
    franchise in 16 states and the District of Columbia. These activities
    include using funds to purchase and demolish a low-rise apartment
    building in Atlanta's Martin Luther King Historic District so that
    affordable, single-family homes can be constructed to complete the
    revitalization of the block. It will also be used to establish
    community development activities in new markets including St. Louis,
    Missouri and Tampa/St. Petersburg, Florida and to subsidize below-
    market rate lending to CDFI's.
    Nationsbank, N.A. (South), Atlanta, Georgia
        Award: $1,199,275
        Rewarded activities.--Nationsbank, N.A. (South) was awarded
    $1,199,275 for making $7.8 million in investments in the National
    Community Investment Fund (NCIF) and the Enterprise Social Investment
    Corporation (ESIC) and a $312,000 loan to the Low-Income Housing Fund
    (LIHF). NCIF will use its support to invest in community development
    banks. The ESIC investment will expand and improve employment
    opportunities through encouraging investments in businesses that employ
    residents of the Baltimore Empowerment Zone. LIHF, a certified CDFI
    funded in the first round of the CDFI Program, will use its loan
    proceeds to finance non-profit sponsors of affordable housing.
        Post award activity.--Nationsbank, N.A. (South) is using its award
    to expand its existing community development programs throughout the
    franchise in 16 states and the District of Columbia. These activities
    include using funds to purchase and demolish a low-rise apartment
    building in Atlanta's Martin Luther King Historic District so that
    affordable, single-family homes can be constructed to complete the
    revitalization of the block. It will also be used to establish
    community development activities in new markets including St. Louis,
    Missouri and Tampa/St. Petersburg, Florida and to subsidize below-
    market rate lending to CDFI's.
    Nationsbank of Texas, N.A., Dallas, Texas
        Award: $1,036,035
        Rewarded activities.--Nationsbank of Texas, N.A. was awarded
    $1,036,035 for making $6.7 million in investments to the National
    Community Investment Fund (NCIF) and the Enterprise Social Investment
    Corporation (ESIC) and a $270,000 loan to the Low-Income Housing Fund
    (LIHF). NCIF will use its support to invest in community development
    banks. The ESIC investment will expand and improve employment
    opportunities through encouraging investments in businesses that employ
    residents of the Baltimore Empowerment Zone. LIHF, a certified CDFI
    funded in the first round of the CDFI Program, will use its loan
    proceeds to finance non-profit sponsors of affordable housing.
        Post award activity.--Nationsbank of Texas, N.A. is using its award
    to expand its existing community development programs throughout the
    franchise in 16 states and the District of Columbia. These activities
    include using funds to purchase and demolish a low-rise apartment
    building in Atlanta's Martin Luther King Historic District so that
    affordable, single-family homes can be constructed to complete the
    revitalization of the block. It will also be used to establish
    community development activities in new markets including St. Louis,
    Missouri and Tampa/St. Petersburg, Florida and to subsidize below-
    market rate lending to CDFI's.
    North Shore Bank, Brookfield, Wisconsin
        Award: $6,036
        Rewarded activities.--North Shore Bank was awarded $6,036 for
    increasing its single-family housing acquisition and rehabilitation
    loans in distressed neighborhoods in central Milwaukee. During the
    first six months of 1996, the bank made a total of $373,000 in loans
    for activities undertaken as part of the Milwaukee Affordable Housing
    Initiative.
        Post award activity.--North Shore Bank plans to use its award to
    assist low-income first-time home-buyers in its distressed community.
    It will do this through grants to help with downpayments and closing
    costs or by helping new homeowners purchase needed equipment to
    maintain their homes. Additionally, the bank has continued its support
    of the Milwaukee Affordable Housing Initiative and has shown further
    commitment to the central city through the completion of a new, full-
    service office on King Drive.
    Northern Trust Company, Chicago, Illinois
        Award: $88,090
        Rewarded activities.--Northern Trust Company was awarded $93,713
    for making a $624,750 investment in Sable Bancshares. The investment by
    Northern Trust Company enabled Sable Bancshares to acquire the
    Community Bank of Lawndale, an African American-owned bank which serves
    distressed neighborhoods in Chicago, for the purpose of converting it
    into a community development bank. Sable Bancshares has also
    established a subsidiary, REG Community Development Corporation, to
    promote housing and business development.
        Post award activity.--Northern Trust Company has committed its
    award as part of a package of support to Neighborhood Housing Services
    of Chicago, a certified CDFI, to open a new office in the Auburn-
    Gresham neighborhood. Northern Trust Company's support includes a $3.5
    million loan, $1.5 million in subordinated debt, and a three-year
    $150,000 grant to help meet the operating costs of the office. The new
    office will focus on renovating single-family homes in this
    neighborhood in transition.
    Northwest Bank, Oklahoma City, Oklahoma
        Award: $3,918
        Rewarded activities.--Northwest Bank was awarded $3,918 for
    providing operating grants totaling $35,618 to Neighborhood Housing
    Services (NHS) of Oklahoma City. NHS of Oklahoma City, a certified
    CDFI, promotes homeownership in targeted neighborhoods through
    assistance with downpayments, closing costs, and other administrative
    expenses.
        Post award activity.--Northwest Bank is using its award to fund
    community development activities through its Near Northwest Community
    Development Corporation. The bank participates in community development
    activities in Oklahoma City through partnerships with the city and
    local organizations. The bank is also lending in the Paseo area, a
    historic district with a large number of small multi-family housing
    units.
    Norwest Bank, New Mexico, Albuquerque, New Mexico
        Award: $5,750
        Rewarded activities.--Norwest Bank, New Mexico was awarded $5,750
    for making a $50,000 loan and a $5,000 capital grant to the New Mexico
    Community Development Loan Fund (NMCDLF). Through its partnership with
    the bank, NMCDLF will make loans to small businesses and
    microentrepreneurs.
        Post award activity.--Norwest Bank has provided its award dollars
    as a grant to NMCDLF for small and micro-business lending.
    PNC Bank, Kentucky, Inc., Louisville, Kentucky
        Award: $75,000
        Rewarded activities.--PNC Bank, Kentucky, Inc. was awarded $75,000
    for making an equity investment of $500,000 in the Louisville
    Development Bancorp. The Louisville Development Bancorp, a certified
    CDFI, is a newly established community development bank corporation
    that seeks to revitalize the Louisville Enterprise Community and
    surrounding neighborhoods.
        Post award activity.--PNC Bank, Kentucky, Inc. donated its award to
    the LCDB Enterprise Group, a non-profit affiliate of the Louisville
    Community Development Bancorp. The grant will help fund a business
    center to assist new and emerging small businesses in western
    Louisville.
    Regency Savings Bank, F.S.B., Naperville, Illinois
        Award: $77,250
        Rewarded activities.--Regency Savings Bank, F.S.B. was awarded
    $77,250 for making a $515,000 equity investment in The Shorebank
    Corporation (Shorebank). Shorebank is a bank holding company, a
    certified CDFI, that serves numerous distressed communities and is
    based on the south side of Chicago. The bank's investment enabled
    Shorebank to acquire Indecorp and expand its service area to nine new
    neighborhoods in the south and mid-south sides of Chicago.
        Post award activity.--Regency Savings Bank, F.S.B. has used its
    award to partially offset its equity investment in Shorebank.
    Republic National Bank of New York, New York, New York
        Award: $519,659
        Rewarded activities.--Republic National Bank of New York (Republic)
    was awarded $519,659 for providing loans and operating grants totaling
    $5,196,592 to 21 community development organizations. The institutions
    assisted include Bethex Federal Credit Union, Central Brooklyn Federal
    Credit Union, Corporation for Supportive Housing, Greater Jamaica Local
    Development Company, Homesteaders Federal Credit Union, Leviticus 25:23
    Alternative Fund, Local Initiatives Support Corporation, Lower East
    Side Peoples Federal Credit Union, Nonprofit Facilities Fund, Parodneck
    Foundation, Union Settlement Federal Credit Union, Washington Heights
    Inwood Development Corporation, Enterprise Foundation, and Upper
    Manhattan Community Development Credit Union.
        Post award activity.--Republic will use its award to leverage an
    additional $5 million in economic development and small business
    lending in low- and moderate-income communities. In this way, its BEA
    award will be leveraged nearly 10 times over in the form of new
    lending. The award dollars will be used to provide below market rates
    or act as a loan loss reserve for loans Republic will make to non-
    profit economic development organizations over the next few years.
    St. Francis Bank, F.S.B., Milwaukee, Wisconsin
        Award: $11,498
        Rewarded activities.--St. Francis Bank, F.S.B. was awarded $11,498
    for increasing its single-family housing acquisition and rehabilitation
    loans in distressed neighborhoods of central city Milwaukee. During the
    first six months of 1996, the bank made a total of $675,000 in loans
    for activities undertaken as part of the Milwaukee Affordable Housing
    Initiative.
        Post award activity.--St. Francis Bank, F.S.B. has used its award
    to expand its community lending efforts, including outreach to the
    Milwaukee area's Spanish-speaking residents. These efforts include
    developing new programs, marketing, and offering home-buyer seminars.
    Stock Yards Bank & Trust Company, Louisville, Kentucky
        Award: $3,750
        Rewarded activities.--Stock Yards Bank & Trust Company was awarded
    $3,750 for making an equity investment of $25,000 in the Louisville
    Development Bancorp. The Louisville Development Bancorp is a newly
    established community development bank corporation, a certified CDFI,
    that seeks to revitalize the Louisville Enterprise Community and
    surrounding neighborhoods.
        Post award activity.--Stock Yards Bank & Trust Company donated its
    award to the LCDB Enterprise Group, the non-profit affiliate of the
    Louisville Community Development Bancorp. The grant will help fund a
    business center to assist new and emerging small businesses in western
    Louisville.
    Troy Savings Bank, Troy, New York
        Award: $389,859
        Rewarded activities.--The Troy Savings Bank was awarded $389,859
    for increasing its lending within distressed neighborhoods of Troy,
    Albany, and Schenectady by $4.8 million. In the first six months of
    1996, the bank made over $8 million in loans for housing, small
    businesses, and consumer products. The bank's efforts also included
    grants and technical assistance to support first-time home-buyers in
    the region.
        Post award activity.--Troy Savings Bank has created a Small
    Business Investment Company (SBIC), whose license is currently pending
    with the U.S. Small Business Administration, to foster the growth of
    small businesses in the capital region. Through the SBIC, the bank will
    set aside $500,000, capitalized in part with its BEA award, for
    investment in businesses that agree to locate in the distressed
    communities designated in the bank's BEA application. Additionally, the
    bank is active in promoting affordable housing in its service area; it
    is one of the first institutions to participate in the Federal Home
    Loan Bank of New York's First Home Club Program, which provides funds
    to match the savings of low-income prospective home-buyers.
    Vine Street Trust Company, Lexington, Kentucky
        Award: $55,000
        Rewarded activities.--Vine Street Trust Company was awarded $55,000
    for making a $500,000 loan to Community Ventures Corporation (CVC) to
    serve Lexington's highest poverty area. Vine Street Trust Company and
    CVC will serve this area by focusing on helping low-income people
    access financing for affordable housing.
        Post award activity.--Vine Street Trust Company has decided to pass
    the award on to CVC to serve as a loan loss reserve and to cover a
    portion of CVC's operating overhead expenses.
    Wells Fargo Bank of Texas, N.A. (formerly First Interstate Bank of
            Texas), Houston, Texas
        Award: $97,500
        Rewarded activities.--Wells Fargo Bank of Texas, N.A. was awarded
    $97,500 for making investments totaling $650,000 in the Southern Dallas
    Development Corporation and the Greater Houston Small Business Equity
    Fund, Inc. Both of these certified CDFI's provide financing and
    technical assistance to small and minority-owned businesses.
        Post award activity.--Wells Fargo Bank of Texas, N.A. has not yet
    determined how it will use its award. The bank's community development
    activities include support to organizations in communities in which
    they do business, including Alliance Capital of Houston, Austin
    Community Development Corporation, Dallas Inner City Development
    Corporation, and Fort Worth Community Development Corporation. The bank
    has also supported the Local Initiatives Support Corporation's National
    Equity Fund.
                                     ______

                                  Attachment 8
     first round experience--issues that often separated competitive from
                          non-competitive applications
    Track Record, Financial Strength and Current Operations
        Is there a pattern of positive net operating income?
        Is net worth as percentage of assets reasonable in context of
    institution's activities?
        Are delinquency rates under control, in the context of type of
    lending?
        Are loss rates under control, in the context of type of lending?
        What is the fund raising track record?
        Does the organization have a good process for strategic assessment
    and planning?
        Is there a periodic portfolio review, with risk rating?
        Does organization consistently generate monthly internal
    financials?
        Are audit opinions clean, or are they qualified?
        Is there demonstrable track record of development impacts?
        Is there a track record of innovation in the marketplace?
    Capacity, Skills and Experience of Management Team
        What is the track record of accomplishment of individual management
    team members?
        What is the relationship of skills and experience to tasks of
    business plan?
        Is appropriate staff identified for new activities?
        Is there an appropriate mix of skills?
        How well do management team members work with each other?
        Is staff adequate or is it stretched too thin?
        Is there an appropriate compensation structure for attracting and
    retaining needed staff?
        What is the level of personal commitments of management team
    members?
        What is the contribution of Board?
        Are relationships between staff end Board effective?
        What is the track record and capacity of management team members to
    adapt to change?
    Quality of Business plan
        Is the business plan clear, well developed and internally
    consistent?
        What is the quality of market analysis?
        Is there clarity about future products and services?
        Is development strategy well thought out?
        Are there appropriate links between products/services, market
    analysis, and development strategy?
        Are future staffing plans adequate, with respect to number and
    skill level?
        Is there appropriate meshing between lending and technical
    assistance?
        Is pricing strategy well thought out?
        Is process and criteria for evaluating deals appropriate?
        Is risk appropriately included in evaluation?
        Is there a reasonable balance between financial and social
    objectives?
        Are projections reasonable or too aggressive?
        Are assumptions for projections clearly delineated?
        Are loss assumptions reasonable?
        Are future staffing needs appropriately reflected in projections?
        Do financial projections reconcile?
        Are projections consistent with business plan narrative?
        Do realistic projections show ongoing viability?
        Is plan viable if performance varies from projections?
        Is proposed capital structure appropriate?
        If consultant is used, is use appropriate?
    Matching Funds
        Are commitments in hand, or if not, is there a viable fund raising
    strategy?
        Are matching funds comparable in form and value to financial
    assistance requested?
        Is business plan dependent on unrealistic match?
        Does prior fund raising track record provide confidence about
    prospects for securing match?
    Community Development Impact as Return on CDFI Fund Investment
        Are community development objectives well defined and clearly
    focused?
        Is there clarity on how CDFI Fund can enhance impact?
        Is there a realistic plan to sustain impact of CDFI Fund
    investment?
        What is the prospective leverage of other resources?
        What is the scale of activity?
        What are prospects for innovation?
        What is the level of distress of target market, and are products
    suitable to address needs?
        Is institution well connected to community?
        What does track record, management, business plan quality suggest
    about development impact?
        What is the ``bang for the buck?''

                      NATIONAL CREDIT UNION ADMINISTRATION

    STATEMENTS OF NORMAN E. D'AMOURS, CHAIRMAN

                     NEIGHBORHOOD REINVESTMENT CORPORATION

    STATEMENT OF GEORGE KNIGHT, EXECUTIVE DIRECTOR
    ACCOMPANIED BY MARY LEE WIDENER, PRESIDENT, NEIGHBORHOOD HOUSING
                SERVICES OF AMERICA, INC.

                                OPENING REMARKS

        Senator Bond. Our third panel, Mr. Norm D'Amours, Chairman
    of the National Credit Union Administration, and Mr. George
    Knight, Executive Director of the Neighborhood Reinvestment
    Corporation. As we all know, NCUA is responsible for chartering
    and regulating Federal credit unions, itself funded through an
    operating fee. Second, Mr. Knight will testify on the
    administration's budget request for Neighborhood Reinvestment
    Corporation for a flat funding of $50 million, these funding
    not-for-profits known as NeighborWorks' Network.
    They have a long track record and have become a good model of
    how the Federal Government can spend a small amount of money
    and reap tremendous benefits. As the written testimony so well
    demonstrates, $38.7 million in fiscal year 1996 allowed the
    Neighborhood Reinvestment and NeighborWorks' to
    leverage $420 million in affordable housing investments.
        I look forward to the testimony. Mr. D'Amours.

                        STATEMENT OF NORMAN E. D'AMOURS

        Mr. D'Amours. Thank you, Chairman Bond and Senator
    Mikulski. Thanks for the opportunity to present our request
    today for funding limits on the NCUA's central liquidity
    facility, called the CLF, at current levels. As you know, the
    CLF is a liquidity source for credit unions. It is funded by
    its members, and can borrow from the Federal financing bank,
    even though no such borrowing has occurred in the last year.
        For fiscal year 1998 we request a $600 million limit on new
    loans, and a $203,000 limit on administrative expenditures. The
    requested loan limit has remained constant for 17 years. It
    should be noted that NCUA is not requesting an appropriation
    for the CLF, merely a limit on its borrowings.
        I am pleased to report to the subcommittee that we continue
    to streamline the CLF. The result is cost savings for Federal
    credit unions.
        Our expenses in fiscal year 1996 of $346,000 were
    significantly less than our budget limitation of $546,000. The
    fiscal year 1996 expenses are more than 50 percent below the
    CLF expenses of $767,000 for fiscal year 1993. All of CLF's net
    income in 1996 was returned to member credit unions in the form
    of capital stock dividends.
        In our estimation, the $600 million loan limit we are
    requesting is adequate to address unexpected liquidity needs in
    what is a very healthy and viable credit union system today.
    The request is less than 3.55 percent of the limit set by
    statute, which is 12 times paid in oncall capital or an amount
    of approximately $17 billion. The borrowing authority is not
    used to build up loan volumes, because by statute the proceeds
    from CLF cannot be used to expand credit union loan portfolios.
    Rather, these funds are advanced strictly to support the
    purposes stated in the Federal Credit Union Act, and in
    response to circumstances dictated by market events.
        Loan demand over the years has resulted in wide variances
    in the amount of outstanding CLF loan balances and individual
    advances. The relatively low utilization of our total authority
    can be viewed as a positive sign of credit unions' present
    financial condition. By the end of 1996, all loans were repaid
    and no direct loans were outstanding. However, because of a
    liquidity shortage involving one of the corporate credit
    unions, the CLF became an active liquidity center from December
    1994 through February 1995. In that time, we made 601 loans
    totaling $389 million. The majority, 509 of them, were
    overnight loans.
        As intended by Congress, the CLF acted successfully to
    provide liquidity and to maintain financial stability during a
    temporary liquidity shortage.
        Mr. Chairman, Senator Mikulski, we respectfully request
    that you support our authorization request in order to continue
    the NCUA's and CLF's ability to respond to such adverse
    liquidity situations. And that completes my oral statement. I
    would ask that my full statement be included in the record.
        Senator Bond. Without objection, it will be made part of
    the record.
        [The statement follows:]

                    Prepared Statement of Norman E. D'Amours

        Mr. Chairman and Subcommittee Members. I want to thank you for the
    opportunity to present our request for funding limits on the NCUA
    Central Liquidity Facility (CLF) at current levels. Appearing with me
    today are Herbert S. Yolles, President, Central Liquidity Facility;
    Robert M. Fenner, General Counsel; David Marquis, Director of our
    Office of Examination and Insurance; and William C. Poling, our Budget
    Officer. Mr. Chairman, as you know, the CLF is a liquidity source for
    credit unions. It is funded by its members and can borrow from the
    Federal Financing Bank, even though no such borrowing has occurred in
    the past year.
        For fiscal year 1998, we request a $600 million limit on new loans
    and a $203,000 limit on administrative expenditures. The requested loan
    limit has remained constant for the last 17 years. It should be noted
    that NCUA is not requesting an appropriation for the CLF, merely
    limits.
        I am pleased to report to the subcommittee that we continue to
    streamline the CLF. The result is cost savings for credit unions. Our
    expenses in fiscal year 1996 of $346,000 were significantly less than
    our budget limitation of $546,000. The fiscal year 1996 expenses are
    more than 50 percent below the CLF expenses of $767,000 for fiscal year
    1993. All of CLF's net income in 1996 was returned to member credit
    unions in the form of capital stock dividends.
        In our estimation, the $600 million loan limit is adequate to
    address unexpected liquidity needs in credit unions. The request is
    less than 3.55 percent of the limit set by statute--12 times paid-in
    and on-call capital or $17 billion. The borrowing authority is not used
    to build up loan volumes because by statute the proceeds from CLF loans
    cannot be used to expand credit union loan portfolios. Rather, the
    funds are advanced strictly to support the purposes stated in the
    Federal Credit Union Act and in response to circumstances dictated by
    market events.
        Loan demand over the years has resulted in wide variances in the
    amount of outstanding CLF loan balances and individual advances. The
    relatively low utilization of our total authority can be viewed as a
    positive sign of credit unions' present financial condition. By the end
    of 1996, all loans were repaid and no direct loans were outstanding.
    However, because of a liquidity shortage involving one of the corporate
    credit unions, the CLF became an active liquidity lender from December
    1994 through February 1995. The CLF made 601 loans totaling $389.8
    million; the majority (509) were overnight loans.
        As intended by Congress, the CLF acted successfully to provide
    liquidity and maintain financial stability during a temporary liquidity
    shortage. Mr. Chairman, we respectively request that you support our
    authorization request in order to continue the NCUA's and CLF's ability
    to respond to such adverse liquidity situations.
        Mr. Chairman and members of the subcommittee, the credit union
    movement continues to focus on its mission of involving more people in
    America's free enterprise economy. By instilling habits of thrift and
    teaching the value and workings of financial discipline, credit unions
    are still fulfilling the mandate Congress gave them over 60 years ago.
    At NCUA, our strong commitment to the future of credit unions serving
    people of limited means remains as resolute as when I last reported to
    the subcommittee.
        For fiscal year 1997, the subcommittee approved a $1 million
    appropriation to be utilized by the Community Development Revolving
    Loan Program (CDRLP), which NCUA has administered since 1987. By any
    objective standard, the CDRLP has been an overwhelming success and
    deserving of continued Congressional support. A $2 million
    authorization, the last of a four year $10 million authorization
    (Public Law 103-325), remains for fiscal year 1998.
        Since NCUA began making loans from an original $6 million
    appropriation (now a $7 million total), we have revolved $14.4 million
    in 113 separate loans to 79 low-income credit unions. In 1996 alone we
    approved $2.9 million in loans and currently we have 6 loan
    applications for $1.4 million in funding.
        The credit unions use these loans for a variety of different
    purposes from housing rehabilitation and consumer loans to micro-
    enterprise lending. We expect loan demand to increase smartly as the
    year proceeds. We have had one loss in the Revolving Loan Program for
    $35,000.
        At mid-year 1996 we recognized 298 low-income credit unions, which
    translated to a 27 percent annualized growth rate. I am proud to say
    that 13 newly state and federally chartered credit unions in 1996
    gained the low-income designation. Total assets in these financial
    cooperatives are $1.8 billion at mid-year 1996 and loan growth was 13.2
    percent. The capital ratio is a strong 11.1 percent and loan
    delinquencies (loans 60 days and more overdue) are within reasonable
    bounds at 2 percent.
        In May 1994, the NCUA adopted a new chartering and field of
    membership manual for credit unions replacing our previous version.
    These changes are set forth in Interpretive Ruling and Policy Statement
    (IRPS) 94-1 that became effective in July 1994. Changes contained in
    IRPS 94-1 allow greater flexibility for credit unions wishing to expand
    into low-income areas and make it easier for low-income credit unions
    (LICU's) to expand their fields of membership and associate themselves
    with other credit unions.
        This initiative has been one of the more important actions taken by
    the Board to encourage larger, healthy credit unions to directly reach
    out into low-income communities to give residents a non-profit
    alternative to pawn shops, check cashing outlets and the like. In this
    way people are brought into the mainstream of the U.S. economy in a
    self empowering and responsible manner.
        From July 1994 until October 1996 NCUA had granted 73 federal
    credit unions permission to open branches in these distressed
    neighborhoods and make their services available to a potential of 1.4
    million low-income residents. However, following a decision from the
    U.S. Court of Appeals for the District of Columbia and then an
    injunction from the District Court, NCUA has had to halt this
    innovative approach for providing low cost financial services to those
    who need it the most.
        The ability of credit unions to add low-income groups to their
    field of membership arises from an interpretation of the Federal Credit
    Union Act NCUA made in 1982 to allow more than one group with each
    group having a common bond be part of a credit union. The banks have
    successfully challenged this interpretation of the Act and we are
    currently waiting to see if the Supreme Court will take up an appeal.
        As I will testify before the Financial Institutions Subcommittee of
    the House Banking Committee tomorrow, NCUA believes Congress should not
    wait for the Supreme Court to rule, but change the Federal Credit Union
    Act to allow initiatives, like the one described above, to move
    forward. In doing so, Congress will also codify two essential purposes,
    or rather benefits, of the 1982 policy change: (1) by permitting
    diversity within the membership of federal credit unions, the policy
    provides a strong measure of protection against difficult economic
    conditions that affect particular groups, industries or the reality of
    military downsizing with the abatement of the cold war; and (2) it
    makes credit union service available to individuals who otherwise do
    not have access to it, such as members of groups too small to run and
    support a viable credit union on their own.
        The NCUA Board continues to explore ways to bolster low-income
    credit unions. Early last year, the Board voted unanimously to adopt a
    new interim rule permitting LICU's to immediately accept secondary
    capital funds from institutional investors. The additional capital will
    be used to support increased lending and services and provide
    additional ``matching funds'' for credit unions applying for assistance
    from the Community Development Financial Institutions Fund (Public Law
    103-325).
        The rule includes safety and soundness measures to ensure that
    depositors and participating credit unions are aware of the nature and
    risk associated with these accounts. For instance, the secondary
    capital is not insured by the federal government and this fact must be
    disclosed to investors.
        In September 1996, the NCUA Board adopted a change to our Rules and
    Regulations that removed the current cap of $120,000 for technical
    assistance, which is drawn from the earnings of the Revolving Loan Fund
    to aid LICU's. The Board believes that technical assistance is a vital
    component of the Revolving Loan Program and since 1992 we have
    disbursed 216 technical assistance grants totaling some $500,000.
        I am particularly proud of the credit union movement coming
    together for a conference held last August in Chicago. The gathering,
    known among credit unions as the ``Serving the Underserved''
    conference, was dedicated to bringing together credit unions of all
    sizes to learn how to break down the barriers keeping people from
    becoming a part of the American, free enterprise system. The conference
    was a tremendous success.
        Mr. Chairman, I want to briefly update you on the overall condition
    of our nation's credit unions and their federal insurance fund.
    Overall, the credit union industry continues to be in excellent health.
        The National Credit Union Share Insurance Fund (NCUSIF) had its
    best operating year in its 26-year history during 1996. For the second
    consecutive year (and the third year in its history), the Fund paid
    credit unions a dividend on their 1 percent deposit into the Fund. The
    equity level at October 1996 exceeded the statutory ceiling of 1.3
    percent or $1.30 per $100 in insured shares (deposits), so NCUA
    returned a dividend totaling $102.8 million to federally insured credit
    unions. We returned a $103.9 million dividend during 1995.
        Meanwhile, the number of problem credit unions (CAMEL supervisory
    rating 4 or 5) has continued to decline each year from 1,022 in 1988 to
    a record low 286 at yearend 1996. Deposits in these problem credit
    unions represented just 0.67 percent of total insured deposits in 1996,
    compared to 6 percent of the total in 1988.
        The number of credit union failures during 1996 fell to a record
    low for the third consecutive year, dropping to 19, and requiring the
    Fund to payout $2.3 million, also a record low. The previous lows were
    22 failures in 1995, requiring $11 million in member payouts.
        Since Congress established federal share insurance for credit
    unions, the insurance fund has never had a losing year. Moreover, since
    credit unions voluntarily recapitalized their insurance fund in 1985,
    its equity level has ranged between 1.25 to 1.30 percent. The current
    level is 1.28 percent, and we are projecting that it will again climb
    to 1.30 percent by yearend 1997.
        During 1996, federally insured credit unions performed admirably by
    all objective standards. The yearend 1996 call report data have just
    arrived at the agency and the preliminary data show that total industry
    assets at the 11,429 federally insured credit unions rose 6.9 percent
    to $327 billion. Capital accumulated at the rate of 11.1 percent during
    1996, the tenth consecutive year of strong capital growth. The ratio of
    capital to assets of federally-insured credit unions, now averaging
    11.4 percent of assets, is at a record-high level; net capital is 10.8
    percent--the former minus allowance for loan losses.
        Loan delinquency and net charge-offs remain very low, actually at
    or near historic lows. The delinquency rate is 1 percent of total
    loans, while net charge-offs are 0.5 percent. Profitability, as
    evaluated by the return on average assets ratio, was a healthy 1.1
    percent for last year. This gauge of profitability has remained
    unchanged over the last year; and the loan-to-share ratio now stands at
    74.6 percent compared to 71.1 percent at yearend 1995.
        In general, corporate credit unions (which act as bankers' banks to
    the 12,000 natural-person credit unions) are also in good health. The
    risk in their investment portfolios that concerned us two years ago
    when I last appeared before this panel has been reduced significantly.
    Between September 30, 1994, and September 30, 1996, corporate credit
    unions' total holdings of Collateralized Mortgage Obligations declined
    from $10.2 billion to $4.7 billion.
        There are currently 41 corporate credit unions, of which 36 are
    federally insured. While capital in corporate credit unions remains low
    compared to that in natural person credit unions, there has been an
    increasing trend toward capital accumulation, perhaps in anticipation
    of new proposed standards the NCUA Board plans to finalize in the near
    future. The ratio of reserves and undivided earnings to assets grew
    from 2.1 percent as of December 31, 1994, to 2.65 percent as of
    December 31, 1996. During that same period, total capital to assets
    rose from 4.9 percent to 7.38 percent.
        Meanwhile, our ``conflict of interest'' regulation took effect in
    January 1996. This rule eliminated any real or perceived
    inappropriateness in the relationship between the boards of directors
    at corporate credit unions and their state and national trade
    associations. I believe that significant progress has been made in the
    condition of corporate credit unions, and that proposed revisions to
    the corporate credit union regulation will provide additional
    improvements.
        Mr. Chairman, thank you again, for the opportunity to appear before
    this subcommittee and present our requests for the Central Liquidity
    Facility. I would be pleased to answer any questions.

                           STATEMENT OF GEORGE KNIGHT

        Senator Bond. We thank you for the good news request, the
    success and the no need for appropriations.
        Let me turn to another good news story: Mr. Knight.
        Mr. Knight. Thank you.
        Mr. Chairman and members of the committee, I want to
    especially thank you for last year's appropriation. As you
    noted in 1996, the $38.7 million that you appropriated was
    leveraged, in part, into $420 million, directly impacting the
    lives of 16,000 families. Of those, 4,400 were new homeowners,
    having the opportunity to start an equity stake not only in
    their homes, but also in their families' lives, their
    neighborhoods, and their cities.
        In the past I have talked a great deal about the
    neighborhood revitalization work of the
    NeighborWorks' network. During the past year we have
    focused on looking at who else benefits, and we looked
    particularly beyond the resident-borrower to the block on which
    they live, the lender, the insurer, and the city government,
    with a real focus on the local tax base impact. I am pleased to
    report we also found that the city treasurer benefits as well.
    As property values rise, the tax base strengthens, and so do
    tax revenues.

                                LESSONS LEARNED

        Looking at what we have learned in the past 20 years, I
    wanted to summarize it for you in several quick points. First,
    raising the amounts of social investment capital currently
    needed by our secondary market, Neighborhood Housing Services
    of America--and I am delighted to have Mary Lee Widener, the
    president of that unique institution here with me--is
    challenging. We are now operating at volumes of $20 million to
    $30 million a year. We need social investments that are low-
    market rate, but perceived as high risk--even though we have
    never missed a payment in 20 years. The effort to raise that
    capital is indeed prodigious.
        Second, after only 4 years of the NeighborWorks'
    Campaign for Home Ownership we have reached the 5-year goal of
    10,000 new homeowners. But I think more importantly, we have
    shown that lower-income families not only can, but want to be
    homeowners. While the portfolio is still early on those first
    8,300 owners for which we have delinquency records, the
    delinquency reports are coming in looking quite normal, if you
    will.
        Third, NeighborWorks' organizations do extend
    credit. It is an essential strategy in revitalizing a
    neighborhood. But they also are involved in a wide ranging
    number of social-service activities. And those activities are
    equally important to revitalizing a neighborhood.
        Fourth, training is terribly important, and the demand is
    tremendous. In 1993, the total of participants at the four
    neighborhood reinvestment training institutes totaled
    approximately 1,300 participants. In 1996, we had almost 2,600
    participants. Last week in Atlanta we had 750 participants
    alone.

                              EFFICIENCY MEASURES

        Fifth and finally, my board, Neighborhood Reinvestment's
    board, recently asked if we were being efficient with the
    Federal resources we are given. We looked at three issues. The
    first was were we continuing to meet the mission between 1990
    and 1996? We could have become more efficient by serving higher
    income people. However, we held the income level of the people
    served by NeighborWorks' organizations about the
    same. So we met the mission test.
        Senator Mikulski. What is that income level?
        Mr. Knight. It ranged from around 56 percent to 66 percent
    of median family income. That translates into the low $20,000
    for a family. Since many of the families we serve are single
    heads of household, that really represents a very considerable
    strain if you have a poor educational background to make
    $20,000 to $22,000 a year. That requires a $10 or $11 or $12
    an-hour job.
        Second, we looked at the leverage of the appropriation over
    the past 6 years, and indeed the private dollars leveraged have
    increased. I am pleased to report it has almost doubled from
    1990 to 1996.
        Third, we inquired into the secondary market: Were they
    able to handle and manage more aggregate assets for each dollar
    that we gave them in 1996 than in 1990? And again, the answer
    was yes, and I think a great deal of credit goes to Mary Lee,
    and to her marvelous board of trustees and the day-to-day
    operating board for that achievement.
        With that, I look forward to your questions.
        [The statement follows:]

                      Prepared Statement of George Knight

        Mr. Chairman and Members of the Committee, thank you for the
    support you have given the NeighborWorks' network and the
    Neighborhood Reinvestment Corporation. I am pleased to present the
    Corporation's request for fiscal year 1998 for $50 million. We are
    especially grateful for the fiscal year 1997 appropriation of $49.9
    million.
        In fiscal year 1996, the $38.7 million you granted Neighborhood
    Reinvestment and the NeighborWorks' network leveraged $420
    million in investment. This is a 17 percent increase over the previous
    year. The network produced almost 16,000 total units of housing, in
    addition to owning 11,000 units of affordable Mutual and rental
    housing. Of the 16,000 families, more than 4,400 families became new
    homeowners, earning an equity stake in their neighborhoods. The
    security of owning a well-insured home and the pride in paying back the
    loan creates a sense of ownership and control over the quality of the
    community. This frequently leads to action in solving the ``front-
    door'' issues of crime, cleanup, education and other quality-of-life
    concerns.
        A national system for community revitalization that focuses on
    addressing the disinvestment and decline in the nation's urban,
    suburban and rural communities has been built over the last 20 years.
    Currently, we are serving more than 420 communities. The heart of this
    system is the 172 local partnerships of residents, members of the
    private sector, and public officials that constitute the
    NeighborWorks' network.
        These NeighborWorks' organizations utilize the full
    range of community development tools to positively engage the social,
    economic and real-estate dynamics of their communities. Their mission
    is focused on turning communities once shunned into neighborhoods of
    choice for the benefit of current residents. This isn't about
    demographic change; this is about engaging lower-income families in the
    mainstream economy and engaging the mainstream financial mechanisms--of
    lenders, insurance firms and Wall Street--in lower-income communities.
        NeighborWorks' organizations serve communities
    characterized by low household income--61 percent of median for African
    Americans, 66 percent for Hispanics. NeighborWorks'
    communities are also characterized by low rates of home ownership--only
    44 percent compared to the national rate of 67 percent.
        Who else beyond families and lenders and insurance firms benefit
    from this reinvestment activity? Local taxpayers benefit as
    neighborhood real-estate markets and, thus, tax bases strengthen. In
    Savannah, Georgia's Dixon Park neighborhood, the
    NeighborWorks' organization tackled a block with 23
    properties, seven of which were severely dilapidated and unoccupied.
    After purchase, rehabilitation and sale to new homeowners, the 16
    occupied properties now show tax assessment increases of over 65
    percent. Needless to say, the seven previously dilapidated properties
    show a dramatically higher increase, with tax assessment increases
    averaging 337 percent. As a whole, tax assessments for all 23
    properties on the block increased by 109 percent--from $777,000 to $1.6
    million. Everyone benefitted. More dramatically, in declining markets
    such as New Haven, Connecticut, the NeighborWorks'
    neighborhood held its own in property values between 1990 and 1995,
    even as the city's fell 25 percent.
        Beyond the resident owner, the city treasurer and lenders, the next
    generation of families in NeighborWorks' communities also
    benefits. The assets built by lower-income families who invest in home
    ownership are a key ingredient for their future success. Children who
    grow up with a stable place to live have improved educational
    achievement,\1\ and when the time comes for college, the inter-
    generational asset transfer mechanism of a home equity loan is
    available for tuition.
    ---------------------------------------------------------------------------
        \1\ Richard Green and Michael White, Measuring the Benefits of
    Homeowning: Effects on Children, cited in ``Housing Policy Debate,''
    Volume 7, 1996.
    ---------------------------------------------------------------------------
        Does this always happen? No. It can easily be derailed by local
    organizational failure, local economic collapse and a host of other
    external macro reasons. Our experience, however, is that a difference
    can be made and measured.
        How do we sustain and increase this? Neighborhood Reinvestment's
    role is four-fold:
        (1) To work with organizations that meet basic programmatic and
    financial health thresholds to expand their capacity;
        (2) To offer intense nuts-and-bolts training to the housing and
    community development field;
        (3) To support Neighborhood Housing Services of America, Inc.
    (NHSA) with low-cost capital so that it remains a strong financial
    backstop to the NeighborWorks' system. This enables every
    responsible homeowner or would-be homeowner--no matter how poor--to
    borrow the necessary resources to maintain or secure a safe home; and,
        (4) To monitor each local NeighborWorks' organization
    for continued responsible financial and programmatic results.
        What hampers vastly greater impact?
        For local NeighborWorks' organizations, the main
    impediment is insufficient amounts of: (1) Flexible, low-cost, equity
    capital; and, (2) Funds to put loan counselors, rehab specialists and
    community intervention specialists on the streets.
        For Neighborhood Housing Services of America, the ongoing struggle
    is to create and extend multi-year social-investor incentives and
    mechanisms that will assure vastly greater sums of low-market-priced
    capital.
        What have we learned?
        (1) First, that raising social-investment capital for NHSA--
    especially in the volumes now needed--is difficult. The low market
    financial return combined with a perceived high risk, even though NHSA
    has never missed a payment, results in laborious capital-raising
    strategies. I'd be remiss to not thank the Trustee and Board leadership
    of NHSA for their incredible success in raising more than $250 million
    in investment funds.
        (2) Lower-income families want to be homeowners--and can be. Four
    years ago I informed you that a group of NeighborWorks'
    organizations were setting out to create 10,000 new homeowners,
    resulting in investment of $650 million in the subsequent five years.
    But when the tally is finalized at the end of four years, the five-year
    goal already will have been met: 10,100 new homeowners backed by at
    least $625 million invested in their homes and neighborhoods. More
    importantly, the 30-60-90 day delinquency rate is 4.70 percent,
    compared to about 3 percent for the conventional markets and 6-to-7
    percent for government loans.
        (3) Social service activities--reducing crime, providing
    alternative recreation and learning opportunities, cleaning up streets
    and vacant lots, enforcing building and health codes--all help to
    create confidence in the neighborhood as a place of choice. These
    ``front-door'' issues, when addressed, lead to spontaneous sociability
    so that the ill neighbor is cared for and not ignored, so that doors
    are knocked on for block celebrations, so that the local school is
    supported.
        (4) Training works and is in tremendous demand. Three years ago the
    four Training Institutes attracted 1,268 participants for 31,696
    contact hours. In fiscal year 1996 that had increased approximately 105
    percent for participants (2,595) and 85 percent for contact hours
    (58,606).
        (5) Financially and most importantly, this work is being done
    efficiently with federal resources. Our board of directors requested a
    report on multi-year efficiency. Balancing many factors, three measures
    were utilized (charts follow):
      --The first is the mission test: Over five years, has the
            NeighborWorks' system continued to serve lower-
            income families? The answer is yes: median incomes were 58
            percent in 1990 and rose slightly to 66 percent by 1996,
            primarily because of an increased emphasis on recruiting new
            homeowners into these distressed communities.
      --The second efficiency test measured the total investments by
            NeighborWorks' organizations against the
            Congressional appropriation. That grew from a 5:1 ratio in 1990
            to a 9:1 ratio in 1995. And the investment ratio measures only
            the real-estate-related parts of a NeighborWorks'
            organization's efforts: it ignores local social-service
            activities and does not directly capture our training efforts.
            Overall, the amount of private-sector investment leveraged by
            public-sector investment has increased steadily since 1993.
      --The third efficiency test looked at NHSA in terms of total assets
            managed compared to operating costs. That also nearly doubled
            from 1990 to 1995.
        We are grateful for your support and energetically look forward to
    a successful completion of 1997 and continued opportunities in 1998. I
    look forward to your questions.

      NHSA's Total Assets vs. Neighborhood Reinvestments's Administrative
                                  Grant to NHSA

                                                               Dollars:Ratio
    1990..............................................................27.7:1
    1991..............................................................26.4:1
    1992..............................................................29.9:1
    1993..............................................................35.8:1
    1994..............................................................33.3:1
    1995..............................................................45.9:1
    1996..............................................................48.6:1

    NeighborWorks Organizations Total Investment vs. Neighborhood
                          Reinvestment's Appropriation

                                                               Dollars:Ratio
    1990.............................................................. 5.3:1
    1991.............................................................. 5.8:1
    1992.............................................................. 6.4:1
    1993.............................................................. 7.4:1
    1994.............................................................. 8.5:1
    1995.............................................................. 9.2:1
    1996..............................................................10.8:1
                        ========================================================
                          __________________________________________________

                        [GRAPHIC] [TIFF OMITTED] T05FE25.000

      NHSA's Clients Median Household Income--As a Percentage of National
                             Median Household Income

                         [1996 National Median=$35,200]

                                                                  Percentage
    1990..............................................................    58
    1991..............................................................    59
    1992..............................................................    60
    1993..............................................................    62
    1994..............................................................    61
    1995..............................................................    65
    1996..............................................................    66

        Senator Bond. Thank you very much, Mr. Knight.
        I will turn to my ranking member, Senator Mikulski, for her
    questions.
        Senator Mikulski. Senator Bond is being very generous to
    let me go first. I have to leave for a leadership meeting, and
    I really will have some written questions for you, Mr.
    D'Amours, and again, welcome. We were colleagues on merchant
    marine and fisheries and oceanography in another life.
        Mr. D'Amours. Thank you, Senator. It is good to see you.
        Senator Mikulski. I would like to go directly to the
    Neighborhood Reinvestment Corporation. Mr. Knight and your
    staff, you know I have been a big fan of Neighborhood
    Reinvestment, and in my stewardship worked to see it move
    ahead. As it moved ahead, I became concerned about a couple of
    things. One, could your institution keep its entrepreneurial
    approach in place to meet the needs of communities, and then
    second, could you avoid becoming a comfort or complacency zone
    because you were successful.
        Now, what I would like to do is use southeast Baltimore as
    an example. Tell me how Neighborhood Reinvestment continues to
    follow the same mission, of entrepreneurship in working with
    local community leaders? Could you tell me what are the three
    goals for your involvement in the southeast Baltimore project?
    What measures are you using to determine whether you are
    successful or not?

                          GOALS FOR SOUTHERN BALTIMORE

        Mr. Knight. Our three goals are somewhat simpler to state
    than they are to achieve in a short period of time. The first
    is to strengthen home ownership; that is, to increase the
    percentage of home ownership in southeast Baltimore. We can
    look at two kinds of measures, process and absolute change. We
    can look at the process measures of how many new homeowners,
    such as the 50 new homeowners since last June, as well as what
    kind of funds we have available. USAA has put forward funds, in
    addition to many, many local institutions in Baltimore at a
    rate of about 6.5 percent. The long-term measurement, however,
    will come over time, and we have a database in place to start
    tracking the absolute change in ownership.
        Second, stabilize the community. This includes a wide range
    of activities to increase the confidence of individuals in the
    neighborhood. Among the actions to date has been to create a
    large coalition of organizations tackling a wide range of
    things. For example, encouraging local institutions to help
    finance their employees to purchase homes in the neighborhood,
    rewarding homeowners for purchasing in a neighborhood by
    providing scholarships to the local school, working with
    realtors to promote the neighborhoods and to cleanup and fix-up
    kinds of things. Again, the measurement over time will be the
    absolute change in market value.
        Third, to decrease, significantly decrease, the number of
    specific eyesore properties. At this point there are almost 100
    properties individually identified. We have, through one of our
    partners there, begun to prioritize legal action. A number of
    individual buildings have been purchased and are under
    construction. We are seeking funds to purchase more buildings.
    The absolute measurement will be the decrease in the number of
    eyesores.
        I think on all three measures, frankly, from my perspective
    we will know first from the residents whether they think it is
    going well or not.

                              HOPE VI IN BALTIMORE

        Senator Mikulski. Well, Mr. Knight, I am interested in what
    was the Neighborhood Reinvestment Corporation or the
    Neighborhood Housing Services of Baltimore's intervention. Just
    for the committee, southeast Baltimore is a wonderful
    community. I represented it as a city councilwoman, and it
    faced two converging influences, one by problems created by
    sheer demography, meaning a population aging in place, and also
    undergoing both an economic and ethnic change. But, second, it
    was steadily and gradually moving from primarily a European
    ethnic community to a multiethnic, multiracial community, and
    very nicely.
        Then, along came a HOPE VI project in Baltimore called
    Lafayette, and when the public housing came down, the Public
    Housing Authority did not stand sentry. They simply dumped
    everybody from public housing into this area with no screening
    for section 8 assistance, and, therefore, the very role of
    Government became a significant and forceful aspect of
    destabilization. Section 8, because of its inappropriate use,
    was also a tool for destabilization. And you had neighborhood
    organizations going through heartbreak, and also deinvesting
    and also leaving the community.
        Am I right in summarizing that?
        Mr. Knight. Absolutely correct.
        Senator Mikulski. And the city took no action to correct
    itself, yet the community organizations were being quite
    gallant in trying to fortify the neighborhood.
        Now, it was our suggestion that Neighborhood Reinvestment
    Corporation come in to deal with this. Could you just very
    briefly say how you have stopped the destabilization? What
    organizations from Neighborhood Reinvestment stopped the
    destabilization, and what community organizations have you
    worked with, and what were your methods?
        This was a very melancholy situation in Baltimore, Mr.
    Chairman, when the very program that I helped create called
    HOPE VI had become a destabilizing tool for one of the
    neighborhoods that I had represented--a neighborhood that had
    moved very gracefully and effectively toward racial
    integration.
        Mr. Knight. The organizations including the
    NeighborWorks' organization, the Baltimore
    Neighborhood Housing Services, to the Able Foundation, Johns
    Hopkins, a series of community based CDC's, such as east
    Fayette, SDI, a whole series of smaller property-owning or
    would-be property-owning organizations, have formed a loose
    coalition in which each continues their activity but becomes
    identified under a unifying visual umbrella, if you will,
    called Southeast Partners at Work. Working together has really
    helped to focus broader attention on this southeast
    revitalization initiative.
        Senator Mikulski. Did you create that?
        Mr. Knight. It certainly was an idea that came up in the
    meetings in southeast Baltimore that we convened, yes. We
    really see our role as the catalyst to get those kinds of
    activities moving forward.
        Mary Lee has managed to raise several million dollars in
    low-market rate interest money that has enabled a number of
    stalled construction projects to plunge forward with rapidity.
    We have also succeeded in raising some first mortgage money,
    again through the secondary market, at a rate of 6.5 percent,
    that is enabling a very attractive incentive, if you will, to
    those who would move into the neighborhood as homeowners.
        Senator Mikulski. Well, I know my time is up.
        I also understand you have been working with local realtors
    in the private sector. But as I understand it, then the major
    force from Neighborhood Reinvestment to pull together different
    groups and help these groups empower themselves by being a
    loose federation or coalition, was Neighborhood Housing
    Services. Is that not the major tool?
        Mr. Knight. Neighborhood Housing Services of Baltimore,
    yes, is the major point, around which local organizations were
    convened to take the action. Neighborhood Reinvestment staff's
    role is to convene groups, just as we did on the Navajo
    Reservation to start a new organization on the Navajo Nation.
        Senator Mikulski. Well, we could elaborate. I want you to
    know I continue to be a great supporter of Neighborhood
    Reinvestment Corporation. Going through this hopefully was
    informative for the chair, because it really shows how
    Government itself is both a tool and also a problem. And
    Neighborhood Reinvestment Corporation came in and worked with
    what was already there, and organized it in a way that began to
    stabilize it. There are lots of interesting stories, including
    men organizing midnight barbecues. You know, we had drug
    dealers, so instead of midnight basketball, the men of the
    community just would go out on weekends and barbecue. They
    would have friendship and fellowship and push those drug
    dealers off the streets.
        Mr. Knight. Thank you for your support.
        Senator Bond. Thank you, Madam Chair. I would be far more
    interested in a midnight barbecue than midnight basketball. I
    have gotten past the age when basketball is that appealing to
    me.

                                THE HOME PROGRAM

        Senator Bond. Mr. Knight, would you not say that your model
    really is one that should be a model for every community in
    administering the HOME Program? Is this not a test case for
    what we would hope that local governments would be doing with
    the flexibility we are giving them. It seems to me you are
    bringing it all together.
        Mr. Knight. We would hope so, and that is why we spend so
    much effort training others to share these techniques, with
    people from a wide variety of backgrounds. Our training events
    bring together representatives of the public sector, private
    sector, community based groups, and church groups to learn from
    each other. We think this approach is far more effective than
    vastly larger sums of money that would be spent.
        Senator Bond. Do not worry about the vastly larger sums of
    money. To the extent that we get any money, it has already been
    claimed.
        Have you worked with communities? Are there people from
    local housing authorities or appropriate community development
    people from areas which do not have a NeighborWorks'
    Program coming in to see what you are doing?
        Mr. Knight. Yes; absolutely.
        Senator Bond. Are you able to train these people and show
    them what you are doing works?

                         NAVAJO PARTNERSHIP FOR HOUSING

        Mr. Knight. Yes; we have just completed a little more than
    \1/2\ year's work with the Navajo Nation, creating the Navajo
    Partnership for Housing. It will, we hope, over the next
    several years lead to the production of 10,000 units of
    moderate housing on tribal lands, which is desperately needed.
    It is a partnership composed of many local financial
    institutions, several national institutions, including Fannie
    Mae Federal Home Loan Bank of Seattle, Zion National Bank,
    Northwest, and many local institutions and the nation, itself.
    Residents of several of their subgroupings--chapters, as they
    refer to it inside the nation--created an environment in which
    people could talk, work, and come to local solutions
    themselves.

                             rural housing concerns

        Senator Bond. Outside of the native American Nation, I am
    very much concerned about some of the problems we have in rural
    areas, and Missouri has a lot of these. I do not know if you
    have the same problems in Maryland.
        Senator Mikulski. Yes.
        Senator Bond. But rural housing needs are very challenging
    in many parts of Missouri. What is Neighborhood Reinvestment's
    experience in rural areas? Do you see the problems and the
    solutions differing, and any special approaches for addressing
    unique needs of affordable housing and community development?
    The chicken and egg problem, do you need the jobs first or the
    housing? Can you get the jobs without the housing, can you get
    the housing without the jobs? That is something that community
    and the town I live in is facing, and it has been a tough one.
        Mr. Knight. Sometimes it's a chicken and egg problem--and
    some of our responsibility, I believe--is to step forward and
    take the risk. In Colorado, in the intermountain area, we are
    affiliated with an organization called Colorado Rural Housing
    Development Corp., that works in smaller towns to basically
    create subdivisions.
        Now, that may be a glorified term for a group of 10 houses
    that are built, but someone has to assemble the land, get the
    infrastructure in, and at that point, with either local or
    statewide is financial backing, a contractor will come in and
    build those 10 homes, particularly if that organization is
    working with individuals who will purchase the homes. Once this
    process starts it gives confidence to smaller industries and/or
    employers to say now that there is housing, we will invest in
    this community.
        I just returned from Dimmit County, TX, which is about as
    rural as one can get. It is one of the poorest counties in the
    Nation, and they are doing exactly this and meeting with great
    success. Frankly, it may help one of their last private
    employers there, because now they will be able to purchase--
    this is not a giveaway--purchase a home that would meet the
    contemporary living standards of Eagle Pass, the next nearest
    town.
        Senator Bond. We will be interested to find out about that
    experience.

                                      CDFI

        I will address a question to you and Mr. D'Amours. Just
    before you testified, we heard about a new idea, the CDFI, and
    based on your experience, what kind of direction, guidance
    would you give to CDFI? What kind of pitfalls do you think they
    ought to be aware of?
        Mr. Knight. Our experience is in working with
    NeighborWorks' organizations which make basically
    the nonconventional, uneconomic loan. Our tandem lending
    approach and small rehabilitation loans allow the private-
    sector loan to work. The NeighborWorks' loan gets
    paid back, but its small size and low return makes it not
    feasible for a financial institution.
        We think there is a great need for these niche kinds of
    lending efforts. There is really at this point insufficient
    capital to do them. We do as much as we can.
        I think the ability of a secondary market like NHSA is
    frankly part of the genius in helping a local rural area. Rural
    organizations may be able to raise a pot of money once, but it
    is awfully hard the second time. If they can make loans and
    sell those loans, then they have funds to keep lending and
    reselling. Frankly, the innovation of the secondary market, has
    made a great deal of our success possible.
        Senator Bond. Thank you, Mr. Knight.
        Mr. D'Amours, I know that the NCUA administers a $7 million
    community development revolving loan program not unlike the
    CDFI. I wonder if you have any words of wisdom or suggestions
    on how the CDFI can be achieved, and how is the program working
    in your area?
        Mr. D'Amours. Thank you, Senator. As a matter of fact, the
    community development revolving loan program was passed in
    1979. I was on the House Banking Committee when we approved
    that.
        The CDFI bill, or the Riegle bill, so-called at the time,
    when he was chair of the Senate Banking Committee----
        Senator Bond. And that is a good way to get your name on a
    bill.
        Mr. D'Amours [continuing]. Passed in 1994. Right. That is a
    good way to become internalized.
        The recommendations I would have, frankly, without having
    any real authority to make them, but since you have asked,
    would be to simplify the application procedure. We know, for
    instance, out of the 268, I believe Mr. Hawke testified,
    transactions last year, 50 of them were credit unions and only
    a small handful received anything.
        At NCUA, we operate the community development revolving
    loan program very simply. The application is simple. It is only
    available to the low-income credit unions. These are credit
    unions 60 percent of which are below $10 million, a near
    majority of which are below $2 million.
        Our administrative costs at NCUA are nil. We administer
    this program as an agency program. We absorb whatever
    administrative costs, which are not very high, are connected
    with it. In the credit union situation the money gets right
    down to the people who need it most. It is done as a loan, not
    as a grant. Money of the CDFI programs are grants for credit
    unions rather than loans. Our money is repaid. We use the
    interest of that money for technical assistance aid to credit
    unions.
        I think probably in my experience, I know that a lot of the
    credit unions which could really make use, small, low-income
    credit unions which are in the inner city or in that isolated
    rural area that you are concerned about, Senator, are not
    applying for CDFI moneys because the application process is a
    little too complex, a little too complicated for their very,
    very limited resources.

                    SUPREME COURT DECISION ON CREDIT UNIONS

        Senator Bond. I appreciate your views on that.
        As I indicated, we congratulate you on the situation you
    find yourself in, that the insurance fund had its best
    operating year in its 26-year history, and the number of
    problem credit unions has continued to decline, and they show
    strong capital growth.
        As we noted, the Supreme Court granted certiorari yesterday
    on the U.S. Court of Appeals decision. What do you see the
    impact on credit unions being should the Supreme Court uphold
    the court of appeals decision?
        Mr. D'Amours. The impact over the long term would be very,
    very serious, if not devastating, depending upon how the
    district court ultimately would implement the court's decision.
        There is a partial stay in existence as to the district
    courts, Judge Jackson's injunction, which allows credit unions
    to continue serving those members they now have even though
    those members may share a single common bond.
        That injunction could conceivably and logically under the
    original court decision of the U.S. Circuit Court of Appeals be
    expanded so that they cannot serve even extant members. That
    would be absolutely devastating.
        But even if that does not occur, Senator, over the long
    period of time, what I think most people forget when they look
    at credit unions is that whatever their size, whatever their
    location, there are people in that credit union serving
    disconnected groups, perhaps, in terms of common bond, each of
    these groups being unable on their own to form sufficient mass
    to operate a separate and distinct credit union.
        These can be very low-income people, minimum-wage people,
    janitors, secretaries, part-time workers and the like, who
    would be deprived of credit union services, which are the only
    alternative these people have to the loan shark, the pawn shop,
    the rent-to-own store, and in some cases check-cashing
    operations.
        So we are very hopeful that we will prevail in the Supreme
    Court, and if we do not, or even while we are in that process,
    that both the House and Senate would look very seriously at the
    financial empowerment that credit unions provide that will be
    lost unless this challenge to the credit union common bond
    system is handled properly.
        Senator Bond. So you are saying the justification is that
    this is a necessary service that can be provided, this ability
    to go beyond what has traditionally been called a common
    association. I am a little sensitive of the term, common bond.
    [Laughter.]
        But a common association is for low-income, disadvantaged
    individuals. This is a strong justification for that.
        Mr. D'Amours. Absolutely. Common bond is nothing endemic to
    the definition of credit unions. It is something that happened
    topsy-ish as credit unions developed. It is not a part of the
    credit union definition. It is not necessary to achieve their
    purposes.
        It is being used by some, trying to be used by some as a
    limiting factor. It was never intended in our view to be a
    limiting factor, and if this effort succeeds, the effort of
    credit unions and their ability to bring people into the
    American economic free enterprise system would be lost, because
    the banks are not going to do it unless they are required to
    under CRA, and only to the extent they are required to under
    CRA.
        It would be shameful. It would be sad for America if this
    ability of the credit union financial system to reach out and
    empower people in isolated rural areas or in the inner city
    were lost.

                      MODERNIZATION OF FINANCIAL SERVICES

        Senator Bond. As Congress and the banking leaders work
    toward a modernization of financial services, and they are
    going to address the Glass-Stiegle fire walls that is going to
    be in for revision, what do you see as the future role of
    credit unions?
        Mr. D'Amours. I do not think the two are related
    whatsoever.
        Senator Bond. There will not be any impact on the members
    you serve?
        Mr. D'Amours. No, sir.
        Senator Bond. If there are broadening and consolidating
    financial services through permitting securities firms to own
    banks and banks to own securities firms, if that comes about,
    there will not be any area in which the credit unions would
    wish to participate?
        Mr. D'Amours. No, sir; credit unions are prohibited from
    investment in these kinds of areas from commercial investments,
    for the most part, from securities investments. Credit unions
    operate in an investment perspective within a narrow niche.
    Their job is to make loans, and we have been stressing that at
    NCUA.
        Senator Bond. So you would not, from a credit union
    standpoint, if a larger financial institution wanted to set up
    a credit union to serve a target area of need, you would not
    see any justification for expanding existing authority to make
    that service available?
        Mr. D'Amours. We would not want credit unions to start to
    get into the banking business, if that is what the question
    implies. Absolutely. Credit unions have their niche. They have
    filled that niche. They have been doing the job they were
    supposed to do very, very well. We do not want to be banks.
        We would welcome banks if they wanted a credit union
    charter to do what credit unions do, but we have no ambition to
    take over their work.

                         Additional committee questions

        Senator Bond. Thank you very much, Mr. D'Amours.
        Mr. Knight, we appreciate your testimony. We will leave the
    record open in case there are additional questions that members
    of the committee want to ask. Your full statements will be made
    a matter of record.
        [The following questions were not asked at the hearing, but
    were submitted to the Administration for response subsequent to
    the hearing:]
                    Questions Submitted by Senator Mikulski
        Question. What is the status of the Baltimore Progressive Federal
    Credit Union situation?
        Answer. Baltimore Progressive Federal Credit Union was liquidated
    on January 30, 1997. Its members are now eligible to receive services
    from Citadel Federal Credit Union, which offers services less than one
    mile from Baltimore Progressive's location.
        Question. What is the National Credit Union Administration doing in
    low income communities today?
        Answer. I enclose our 1996 Yearend Report on Low-Income Credit
    Unions, which describes our efforts to expand financial services to
    low-income Americans, and respectfully request its inclusion in the
    hearing record.
        Question.What is the potential impact of the pending case between
    the NCUA and the banking industry?
        Answer. As you know, the Supreme Court is hearing arguments on
    October 6, 1997, on the case challenging NCUA's interpretation of the
    Federal Credit Union Act's field of membership provision. After the
    banks suffered a number of losses at various U.S. District Courts, the
    U.S. Court of Appeals for the District of Columbia, in July, 1996,
    reversed the District Court and determined that all members of an
    occupational credit union must share a single common bond. The Appeals
    Court remanded the case for implementation to the District Court. That
    Court enjoined NCUA and all federally chartered credit unions in the
    U.S. from enrolling new groups and new members from existing groups
    that did not share a common bond with the credit union's core
    (original) membership.
        In December, the Appeals Court stayed an important part of the
    District Court's injunction. Federal credit unions, for now, can
    continue enrolling new members from existing membership groups with
    differing common bonds so long as those groups were affiliated prior to
    the District Court's October 25, 1996, injunction. However, federal
    credit unions remain barred from adding to their charters any new
    groups which do not share a common bond with their core group.
        This (in our opinion) erroneous interpretation of the common bond
    provisions of the Federal Credit Union Act could severely limit the
    viability of a federal credit union whose membership includes the
    employees of one sponsor organization, if that organization downsizes,
    relocates or goes out of business. The limitation places these credit
    unions at an unnecessary risk occasioned by a downturn in a single
    industry or sector of the economy. The NCUA Board believes that
    Congress should act now to clarify the Federal Credit Union Act on the
    question of common bond and to obviate the negative safety and
    soundness implications of court actions crippling the ability of credit
    unions to serve different groups that each have a common bond.
        Should the courts ultimately decide to force a complete roll-back
    of our 1982 policy by ordering credit unions to divest existing members
    from unrelated groups, the potential for substantial losses would be
    significant and immediate for some 3,586 federally insured credit
    unions serving 157,000 groups.
        Many of these groups have fewer than the 500 potential members
    needed, as a minimum, to organize and maintain a viable credit union.
    Thus, millions of Americans would lose or be deprived of the financial
    services they have chosen or desire, financial services Congress has
    for 63 years directed NCUA and its predecessors to make available to
    them.
        There are limited regulatory steps NCUA may be able to take in
    order to alleviate the problem for some credit unions. However, if the
    court's decision stands, only Congress can completely fix the problem.
        Since small businesses, which are usually defined as having fewer
    than 500 employees (the critical mass needed for credit union
    viability), represent the largest and fastest growing segment of the
    United States economy, a significant portion of the workforce could be
    denied access to credit union services if the Court of Appeals decision
    is not reversed. Prohibiting small business employees from joining
    existing credit unions would hamper credit unions' efforts to meet
    their statutory mandate to provide financial services to low- and
    moderate-income workers.
        According to Commerce Department data, the 6.18 million businesses
    in 1990 employed 93.48 million people. Of these 6.18 million
    businesses, 99 percent employed fewer than 500 employees (a total of 75
    million people).
        As we enter the 21st century, the changing nature of our national
    and world economies make it reasonable to expect continuous
    downsizings, mergers, and the complete elimination of companies and
    whole industries. Occupational credit unions remain extremely
    susceptible to these economic changes.
        Federal credit unions have remained healthy and have grown because
    they invested substantial capital in achieving economic strength and
    diversity through the addition of select groups. Deprived of this
    option, even without the draconian order to divest existing groups,
    many credit unions over time will suffer unbearable losses and their
    members will lose needed services. Their liquidation or merger would
    significantly affect the federal insurance fund and the health of the
    entire industry.
        The assets, shares and loans of the 3,586 multiple-group federal
    credit unions at year-end 1995 comprised a substantial portion of the
    industry's total:
        Assets.--$150 billion (approximately 78 percent of $190 billion in
    total assets held by federal credit unions.)
        Loans.--$94.6 billion (approximately 78 percent of $120.5 billion
    in total loans held by federal credit unions.)
        Shares.--$132.8 billion (approximately 79 percent of $170.3 billion
    in total shares held by federal credit unions.)
        These statistics illustrate the potentially devastating impact of
    preventing federal credit unions from continuing to add new groups or
    new members from existing select groups. As the remaining employees of
    existing select groups become older, they borrow less and save more.
    Therefore, the inability of a credit union to add sufficient numbers of
    new members will dry up the pool of younger members who tend to borrow.
    The higher rates of income generated from loans will be reduced, making
    it difficult to maintain existing rates paid on savings. The result is
    an ultimately fatal asset-liability mismatch.
        Moreover, in reliance on NCUA's 15-year multi-group field of
    membership policy, many federal credit unions have invested substantial
    sums to create an infrastructure to support select group expansion.
    Credit unions have spent millions of dollars on branch offices, data
    processing, personnel and other enhancements allowing credit unions to
    service the additional members of these groups. As people change jobs,
    move away, retire and die, and the credit union is prevented from
    adding additional members or groups, it will lose its ability to
    sustain the cost of these enhancements, adding yet more costs to an
    already deteriorating income stream.
        We expect to win the Supreme Court case, but if the case comes out
    against us, we will continue to work for a legislative solution.

                              SUBCOMMITTEE RECESS

        Senator Bond. We appreciate your patience in waiting for
    us, and with that the hearing is recessed. Thank you.
        [Whereupon, at 11:50 a.m., Thursday, February 25, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                             TUESDAY, MARCH 4, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:37 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Burns, Stevens, Shelby, Campbell,
    Mikulski, and Boxer.

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

    STATEMENT OF HARRIS WOFFORD, CHIEF EXECUTIVE OFFICER
    ACCOMPANIED BY DONNA CUNNINGHAME, CHIEF FINANCIAL OFFICER

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good morning. The VA, HUD, and Independent
    Agencies Subcommittee will come to order. This is the
    subcommittee's second hearing on the fiscal year 1998 budget
    and I welcome our witnesses and guests this morning. The
    Appropriations Committee and the VA-HUD Appropriations
    Subcommittee in particular will face another year of very, very
    difficult budget decisions as Congress continues to refocus its
    priorities and seeks to balance the budget of the Federal
    Government by the year 2002.
        I emphasize our continuing need to stay focused on
    balancing the Federal budget, including the need to continue to
    be proactive in consolidating and reforming our many Federal
    programs, including many under this subcommittee's
    jurisdiction. We have done much over the last several years,
    but there is still much to be done.
        The President's fiscal year 1998 budget in my view has not
    yet set forth a blueprint for fiscal responsibility, and
    without meaningful policy changes now the deficit will
    skyrocket by the year 2010, when many of the baby boomers begin
    to retire.
        As it applies to the current year, the President's budget
    optimistically proposes some $92 billion in budget authority
    for the departments and agencies in the VA, HUD, and
    Independent Agencies Subcommittee, of which $72 billion is
    discretionary spending. The amount proposed represents an
    increase of approximately $8 billion over the current year's
    level, and certainly we could spend all of that and more. There
    is no question that many of the activities that we have in this
    subcommittee are under great pressure.
        I would love to have available the kinds of funds the
    President proposes. But given the very real problems elsewhere
    in the budget, the significant problems faced in the defense
    budget with the costs of our ongoing activities and Bosnia,
    Kuwait, and elsewhere, the fact that the deficit in the
    President's request actually goes up for the coming year, the
    fact that our FEMA moneys are proposed to be off budget when we
    fought so hard in the past couple of years to be responsible
    and include the emergency spending authority and outlays in the
    budget and account for them, I would say that it is very, very
    optimistic to think that we would have anything like the budget
    authority that the President has proposed under the
    congressional resolution.
        I would say, therefore, absent some compelling reasons, it
    is going to be very difficult for this subcommittee as a
    practical matter to provide any increases over our 1997 budget
    levels. We will work to obtain as much authority as we can
    find, but I would have to say that this does not appear
    optimistic and does not appear promising at this point.
        This morning we take testimony from five of the independent
    agencies under the subcommittee's jurisdiction: The Corporation
    for National and Community Service, the Court of Veterans
    Appeals, the American Battle Monuments Commission, the
    cemeterial expenses for the Army, and the Selective Service
    System. These are important programs and activities and I look
    forward to their testimony.
        We will call as our first witness Mr. Harris Wofford, our
    former colleague, now Chief Executive Officer of the
    Corporation for National and Community Service. The
    administration's budget request for the Corporation for fiscal
    year 1998 totals some $546.5 million, an increase of $146
    million or 36 percent from the Corporation's enacted
    appropriation for fiscal year 1997 of $400 million.
        As we all know, the Corporation was established by the
    National and Community Service Trust Act of 1993 to provide
    opportunities for national and community service and to provide
    national service education awards. The Corporation makes grants
    by formula, competitive, and national direct, to States,
    institutions of higher education, public and private nonprofits
    and others to create service opportunities for a wide variety
    of individuals, such as students, out of school youth, and
    adults, through a variety of full time and part time national
    and community service programs.
        National service participants may receive educational
    payment awards for higher education, vocational education, job
    training, or school to work programs.
        The Corporation has many laudable and important goals, and
    certainly no one has been a stronger champion of these goals
    than my colleague, friend, and ranking member, the
    distinguished Senator from Maryland, Senator Mikulski.
    Nevertheless, there remain significant issues concerning the
    implementation of the program and the financial management of
    the controls that are being exercised.
        First, funding of what is essentially still a new and
    unproven program at $546 plus million in fiscal year 1998 is
    problematic, especially when the Congress, as I said, is
    confronting the budget deficit, especially when the
    subcommittee may be short of adequate funds for a number of
    longstanding funding priorities, such as veterans medical care
    and the renewal of section 8 contracts for low-income families,
    including the elderly and the disabled.
        In addition, there are some significant financial and
    management issues facing the Corporation. For example, the
    Corporation has submitted only one annual report, including one
    financial statement, and that report covered activities for
    fiscal year 1994. Moreover, as I understand it, the Corporation
    is currently unable to reconcile its financial accounts for
    fiscal years 1994, 1995, and 1996, to the degree that as of
    December 1996 some $38 million in AmeriCorps funding could not
    be accounted for.
        If I am wrong in that supposition, I would be pleased to be
    corrected.
        Finally, I have concerns about the mission of the
    Corporation and how it is being carried out. While the
    AmeriCorps Program has been touted as a program designed to
    help young people who perform public service pay for college,
    the program continues to have problems with the dropout rate in
    the program, the educational usage, and, most important, the
    final cost to the taxpayer of an educational award under the
    AmeriCorps Program.
        For example, a recent February 1997 GAO study on the role
    of State commissions in implementing the AmeriCorps Program has
    raised several significant concerns for me. First, the overall
    rate for the programs reviewed under the GAO study indicates
    that the median dropout rate for the program participants was
    39 percent. In other words, almost two out of every five
    participants in the program did not complete the program.
        In addition, the GAO report identified a number of concerns
    in each of the individual programs reviewed. For example, in
    the Casa Verde Builders Program in Texas, at a cost of $2.5
    million, 38 of the 64 participants, or 59 percent, ended the
    program early, with less than one-third of the participants
    earning an award and only 4 participants using an award. This
    means the program paid over $600,000 per education award.
        Using these funds for Pell grants or some other kind of
    education assistance obviously could serve a far greater number
    of families and young people in paying for education. Moreover,
    in the Casa Verde Builders Program, even if all eligible
    participants used their educational award, it would still cost
    over $106,000 per person plus $4,725 for the educational award,
    for a total cost of over $110,000. This means, excluding
    private sector contributions, the taxpayer still would end up
    paying approximately $102,000 per educational award.
        The bottom line is I am very much concerned the AmeriCorps
    Program is turning into another expensive jobs program, in
    which we are not getting any bang for our buck.
        Finally, I know that the Corporation can tell some
    impressive success stories, heartwarming stories that are
    obviously worthwhile and show laudable achievements.
    Nevertheless, there are open issues and concerns that need to
    be addressed, and unfortunately the Corporation does not have
    the tracking or accounting systems to demonstrate the successes
    and the failures of the Corporation.
        Without these systems in place to assure the controls and
    to assure that there will be successes and that there will be
    accountability for taxpayers' dollars, I would find it
    difficult to support the increase in the investment requested.
        I look forward to hearing the testimony of Mr. Wofford and
    I am optimistic that he can allay our concerns in many areas as
    we begin to address these questions.
        Now it is my pleasure to turn to my ranking member for her
    comments. Senator Mikulski.

                         STATEMENT OF BARBARA MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman. Good
    morning to both you and also to two members of this
    subcommittee, dear colleagues from the House, Senator Ben
    Nighthorse Campbell and Senator Barbara Boxer. We welcome them
    and their participation.
        I want to extend my welcome to our former colleague Senator
    Wofford, the Chief Executive of the Corporation for National
    Service, and welcome the other witnesses who will be testifying
    today.
        I know this morning we are going to have three panels to
    deal with five agencies, and I will address the agencies
    related to the Department of Defense later during their
    questioning. But we do want to give a most cordial welcome to
    General Herrling of the Battle Monuments Commission, Steve Dola
    representing DOD and the cemetery issues, and Gil Coronado, the
    Director of Selective Service, and, of course, the Chief Judge
    of the Court of Veterans Appeals.
        I would like to begin my opening statement, very briefly,
    to talk about our first panel. I believe that the chairman has
    outlined some yellow flashing lights about national service,
    but I would hope that it would not be a red light to the
    program. Yellow flashing lights are a metaphor that I use where
    we say we have to pause, proceed with caution, and analyze the
    risk as we look over the intersection and where we find
    ourselves.
        I think that national service, like any new program that
    focuses primarily in a decentralized approach, State and local,
    will have a lot of bumps on the road in terms of management.
    What we want to talk about is get back to the mission of the
    program, which was to deal with two issues: one, to rekindle a
    sense of the civic virtues that we needed around duty,
    obligation, and sense of community. But the other was to deal
    with the fact that for many young people the American dream was
    no longer available and that there was not a real opportunity
    ladder to afford higher education.
        For those of us who helped create national service, we did
    not want another program; we really wanted to launch a social
    movement. We did not want another giveaway, but we wanted to
    say for every opportunity there was an obligation. We did not
    want to talk about an entitlement society; we wanted to talk
    and function on an empowerment society.
        The whole role of national service is that by performing
    community service you earn a voucher to reduce your student
    debt, a voucher to pay for higher education. So it was based on
    essentially opportunity and obligation linked.
        The work that the volunteers do is not glamorous. It does
    involve cleanup and it focuses on public safety, the
    environment, helping with education, and focusing on many
    areas. I know that not only are heartwarming stories told, but
    that there are other issues around it.
        What I want to be sure is that we have a national service
    program. The President has talked about stimulating
    voluntarism, and later on in April there will be a bipartisan
    and I hope a nonpartisan summit on voluntarism in Philadelphia.
    Who will be there? Not only President Clinton, but President
    George Bush, who founded the Points of Light concept that our
    subcommittee under both stewardships have funded. It will have
    Colin Powell, who certainly knows what duty, obligation, a call
    to service meant, and how we can translate that into civilian
    society.
        But I believe we need to have a mechanism to operationalize
    good intentions and where there is a Federal role, but not a
    federally restrictive set of mandates. So we look forward to
    that summit and how we can continue to stimulate voluntarism,
    not only through this program but through others.
        The GAO report does raise some issues and concerns, but
    what they talk about is, though the State commissions vary,
    they are meant to vary. What we wanted to have is that each
    Governor could decide how to run this program according to
    local need. It was to be Federal resources and a State and
    locally run program, tailored to local community needs and not
    a cookie cutter approach.
        So I think that we have gotten off to an uneven start, and
    we thank Senator Wofford for ironing out a lot of the wrinkles
    that we had: No. 1, acknowledging the validity of the concerns
    that the Congress had; No. 2, taking corrective action; No. 3,
    to try to put this program on track where it is not a program
    only for today, but a program for tomorrow, that the values
    learned by participating in the program carry on long after
    someone leaves the program.
        Last, but not at all least, when we talk about the
    attrition rate we are talking about two things. One, that you
    have to be fit for duty to stay in this program, and we wanted
    the restrictions to be tough, so that if anyone had reasons for
    cause to be dismissed for, say, drug abuse, then so be it.
        The other is that we are recruiting not only yuppie college
    kids to pay off their student debt--a very worthwhile endeavor,
    I might add--by creating a sense of obligation, but we were
    also recruiting among the poor. In many instances, deep
    compelling personal reasons meant that people had to leave the
    program. So, therefore, the attrition rate is in many ways to
    be expected.
        Well, I sound like I am giving the testimony that maybe
    Senator Wofford is going to give, but I do think we really need
    to, and through this appropriations cycle, to look at where
    national service has been and correct the problem and look at
    where national service could go, and really in a bipartisan,
    nonpartisan way focusing on some clear objectives and strong
    management controls.
        So with that, I will conclude my statement.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Campbell.

                      STATEMENT OF BEN NIGHTHORSE CAMPBELL

        Senator Campbell. Thank you, Mr. Chairman.
        I am pleased to see our former Senate colleague, Senator
    Wofford, here, the Chief Executive Officer of the Corporation
    for National Service.
        In my home State of Colorado I visited the location at our
    former Lowry AFB on a couple of occasions and I believe it has
    a great deal of potential. I know that there has been some
    growing pains with it and I know it has come into some
    criticism, but generally this group in our State has helped
    low-income communities. It has tutored at-risk youth, for
    instance, and it has monitored students, helped with antigang
    initiatives, and a number of things. Similarly, I think it has
    helped homeless veterans on many occasions and I certainly
    support that.
        I guess that I have got some concerns that some of the
    other committee people have, too, that I guess could be best
    described as Senator Mikulski has. There are some yellow lights
    going off about how the budget is being handled. But I think
    generally it is a new program and generally doing very good.
        I just wanted to tell our former Senator that I am
    certainly supportive of it and hope we can iron out those
    problems and get on with it.
        Senator Bond. Thank you very much, Senator Campbell.
        Senator Boxer.

                           STATEMENT OF BARBARA BOXER

        Senator Boxer. Thank you so much, Mr. Chairman. It is
    certainly a pleasure for me to be here today. As a new member
    of this committee and this subcommittee, I am very honored.
        I wanted to mention, if I have to get up and leave in the
    middle of something, I have got a conflicting hearing on
    Superfund sites going on elsewhere in the building. So forgive
    me.
        But I really wanted to come by to extend a special welcome
    to Harris Wofford, our former colleague, who is now CEO of the
    Corporation of National Service. He is a hero of mine and his
    interest in this goes way back. I remember when I was a junior
    at college President Kennedy urged our Nation's young people to
    ask not what your country can do for you, but what you can do
    for your country, and I remember that resonating with me, and
    here we are so many years later with those same words having
    tremendous meaning.
        Once again, this challenge has been made to our Nation's
    young people through this program, and once again I am happy as
    well to see young people responding. I hope that we will not
    take away this opportunity. I believe that we can get to the
    bottom of whatever the problems are and have some strong
    bipartisan support for it.
        The Corporation for National Service plays a key role in
    helping our country and our communities address unmet needs,
    while ushering in a renewed commitment to civic responsibility.
    In my State we have over 2,300 AmeriCorps members in 48
    different sites. Members tutor children K through 12, they
    mentor teens at risk of dropping out or becoming teen parents,
    they assist local community organizations in reducing juvenile
    crime. They support local residents in identifying and
    addressing the most critical needs.
        Like Senator Campbell, I have had the privilege of visiting
    some of these programs and seeing our young people at work.
    They have become heroes in many communities, and it is just a
    joy to see that. Then they get the opportunity to go to
    college.
        So I think it is a program that has a vision, and if we are
    careful and if we do it right I think it should meet everyone's
    expectations.
        As a former local elected official, I appreciate the fact
    that there is not a cookie cutter approach to this program,
    because every community has different needs, and that is what I
    like about this program.
        So I am pleased to be here today and I look forward to
    hearing about the future plans.
        Thank you very much, Mr. Chairman, for this time.
        Senator Bond. Thank you very much, Senator Boxer.
        Senator Burns.

                           STATEMENT OF CONRAD BURNS

        Senator Burns. Move on.
        Senator Bond. Thank you very much, Senator Burns. That is
    one of your best statements yet. [Laughter.]
        Senator Burns. Coming from you, I will accept that as a
    compliment.
        Senator Bond. That is how it was meant, Senator.
        Senator Wofford, we are delighted to have you with us
    today. As you will understand, we will make your full statement
    a part of the record and would welcome your highlighting those
    items which you think ought to be called to special attention
    for this subcommittee.
        Please begin.

                          statement of harris wofford

        Mr. Wofford. Mr. Chairman, Senator Bond, Senator Mikulski,
    Senator Boxer, Senator Campbell, Senator Shelby, Senator Burns:
    I look forward to reading Senator Shelby's remarks and anything
    Senator Burns has to say now or in the future.
        I appreciate this opportunity to discuss the progress and
    the plans of the Corporation for the coming year. Our budget
    request is for $548 million for the programs authorized under
    the National and Community Service Trust Act, and these funds
    would support approximately 29,500 AmeriCorps members through
    the grant program and 1,600 members in the National Civilian
    Community Corps.
        The request includes $53 million to support the Learn and
    Service America, K through 12, and higher education programs,
    and $6 million for the Points of Light Foundation initiated by
    President Bush, which has become a special partner of ours both
    in the summit and in many other ways.
        By the way, Senator Mikulski, I am delighted to introduce
    Marilyn Smith of Maryland, who is just taking over as the
    director of the Learn and Serve America Program.
        Senator Mikulski. I was going to introduce her when I do my
    questions.
        Mr. Wofford. She was executive director of the State
    Commission in Maryland and a pioneer in service learning.
        Now, my testimony does not address the VISTA section of
    AmeriCorps or the Senior Corps programs funded under the
    Domestic Volunteers Service Act. Mr. Chairman, I appreciate
    very much your support over the years for VISTA and its 30-year
    track record as the first domestic Peace Corps, of helping
    people and communities help themselves.
        By the way, I hope the VISTA approach is, in fact, going to
    be a larger proportion of the overall AmeriCorps scheme.
        I want to make three points: First, that national service
    works. It is a proven way to leverage volunteers and help to
    solve community problems; especially the critical problems of
    children and youth.
        Second, that we are committed to achieving the highest
    levels of integrity and efficiency. We have already taken
    important steps to cut costs, increase efficiency, and develop
    a sound financial management system.
        Third, I want to outline briefly three initiatives--America
    Reads, National Service Scholars, and the Presidents'
    Philadelphia Summit, Presidents plural, as Senator Mikulski
    pointed out, to be chaired by Gen. Colin Powell. Those
    initiatives can help unleash a new wave of voluntary citizen
    action aimed at solving some of our country's most serious
    problems in a decentralized, nonbureaucratic way.
        There are very few programs that have received the same
    level of scrutiny as AmeriCorps. The conclusion of the
    evaluations and reports and the experience of communities
    across America, reflected in so many Governors' support for
    Corporation programs, is that national service works, helping
    to solve the toughest problems of education, crime, drugs,
    illiteracy, homelessness, environmental problems.
        As I detail in my written testimony, Aguirre International,
    an evaluation firm headed by President Ford's Education
    Commissioner, found significant accomplishments in every area
    in which AmeriCorps members serve. Nowhere is AmeriCorps having
    a more profound effect than in education. More than one-half of
    all AmeriCorps members work with children and youth. They
    teach, tutor, run after school programs, do drug prevention
    work, create safe havens and safe corridors, and organize
    secondary, middle school, and university students themselves to
    serve.
        Thousands of AmeriCorps members serve as mentors or are
    recruiting mentors to work one on one to help children do
    better in school. AmeriCorps members are also in the front
    lines in the fight against crime. They organize crime watch
    groups, work to reduce gang violence and help crime victims.
    Their efforts have won extraordinary praise from police chiefs
    and sheriffs around the country.
        A key to understanding AmeriCorps is the degree to which it
    leverages unpaid volunteers. Originally there was some concern,
    and there is still in some people's minds, that there is a
    contradiction between full-time service with living allowances
    and traditional unpaid volunteering, when exactly the opposite
    is the case.
        Very often, in most cases you cannot use large numbers of
    unpaid volunteers without a cadre of full-time people to make
    it possible. Right now today there are two teams of the NCCC,
    National Civilian Community Corps, who have gone right away on
    the call of FEMA, as they also do on the call of the Red Cross,
    to the disaster area in Arkansas. They help organize unpaid
    volunteers. They come quickly. They work night and day. They
    stay until the job is over.
        Because members serve full time every day, they help the
    nonprofits in which they serve to multiply the number and
    effectiveness of unpaid volunteers. Habitat for Humanity is a
    case in point. At the Habitat site in Miami, 2 dozen AmeriCorps
    members helped recruit, and worked alongside, thousands of
    community volunteers to build 50 new homes.
        Aguirre International found that each AmeriCorps member
    recruited, trained, and supervised an average of 12 unpaid
    volunteers. The hundred projects in our Learn and Serve America
    Higher Education Program have generated the service of an
    additional 27,000 volunteers. These numbers will continue to
    grow as we put extra emphasis on volunteer generation.
        National service is cost effective. Three separate
    independent evaluations have examined the costs and benefits
    and have concluded that it is a wise investment that returns
    from $1.54 to $3.90 for every dollar invested. That is one
    reason Massachusetts Gov. Bill Weld has said it is the wisest
    investment of taxpayers' money he could think of.
        On another front, AmeriCorps is living up to its GI bill
    promise of expanding educational opportunity for those who
    serve, especially those from America's hardworking middle
    class. Last year 55 percent of AmeriCorps members came from
    households with incomes of from $10,000 to $50,000. Another 21
    percent come from homes with less than $10,000 income. The
    National Service Trust has already made more than 26,000
    payments totaling $44 million to over 6,000 education and loan-
    holding entities.
        The Corporation is a lean, decentralized, and responsive
    public-private partnership that is locally based. Grants go to
    local nonprofit groups--schools, colleges, universities, faith-
    based groups--more than 430 such through AmeriCorps alone.
    These groups decide what service will be performed and they
    select and enroll the members.
        Two-thirds of these grants are made by Governor-appointed
    State commissions. The other one-third go to national
    nonprofits, such as Habitat, the Red Cross, and the Boys and
    Girls Clubs.
        National service is competitive. States compete for
    Corporation resources and local programs compete for AmeriCorps
    members. Programs that do not perform get eliminated. Since
    AmeriCorps started, 70 programs have not been renewed for
    additional funding.
        National service uses rigorous evaluation to improve
    quality. Right now 14 separate studies related to AmeriCorps
    are being conducted or planned, most by outside evaluators. In
    addition, we require every AmeriCorps program to design annual
    objectives based on measurable outcomes--reading scores raised,
    children immunized--and check their progress through the year.
    This is a cutting edge initiative in the nonprofit sector.
        All the programs of the Corporation are nonpartisan in
    spirit and in construction. By law, State commissions are
    comprised of a balance of Democrats and Republicans.
    Commissions are appointed by Governors, three-fifths of whom
    are Republican. Bipartisanship is built in.
        Perhaps no other issue has generated so much confusion and
    misinformation as the issue of costs. AmeriCorps members who
    serve their community full time for a year receive a living
    allowance that averages about $150 per week or $7,800 per year,
    going up under cost-of-living formulas to a little over $8,000
    in the coming year--not $18,000, not $27,000, not $50,000, as
    some critics have stated.
        After the corpsmember completes a year of full-time
    service, he or she earns an educational award of $4,725 to be
    used at some point over the next 7 years. There is an
    additional allotment for health care. The total base support
    for the AmeriCorps member amounts to about $13,000 in living
    allowance, health insurance, and education award.
        The total average cost from the Corporation's
    appropriations per AmeriCorps member has been a little over
    $18,000 and it is going down. The steps we have taken to cut
    costs include eliminating grants to Federal agencies, planning
    grants, and member relocation costs. We have raised the local
    match from 25 percent to 33 percent, requiring grantees with
    above-average costs to cut costs by 10 percent this last year
    and expanding the number of education awards only--a good idea
    that Senator Grassley has strongly pressed for.
        In this program, the Corporation provides education awards
    to nonprofits, religious organizations, colleges, and others
    who agree to provide the AmeriCorps member's living allowance.
    We have already approved 2,000 of these assignments, including
    a new partnership with the Boys and Girls Clubs of America to
    support 800 AmeriCorps members. The National Council of
    Churches will sponsor more than that number.
        Furthermore, last May I announced an ambitious plan for
    reducing AmeriCorps costs. We are reducing the average cost per
    member to $17,000 in program year 1997--that is including
    education award and everything--to $16,000 in 1998 and to
    $15,000 in 1999.
        This includes all of the items that I have listed above
    including recruitment, training, and all our program support.
        Senator Bond. Mr. Wofford, we turned off the light and let
    you go a little longer than the 5 minutes we had forecast. We
    do have four others to do. It has been about 15 minutes and I
    hate to do this, but we have a heavy schedule today. If you
    could wrap up.
        Mr. Wofford. I will try to wrap up fast. Thank you, Mr.
    Chairman.
        The handling of the Corporation's financial management
    problems demonstrates our commitment to change and reform. My
    top priority, shared actively by our Corporation's Board of
    Directors, is getting our financial house in order. Under the
    leadership of our new chief financial officer, Donna
    Cunninghame, we are making steady progress toward producing
    auditable books and correcting deficiencies. Our goal is to
    build a sound financial management system and make the
    preparation of auditable financial statements a routine
    operation.
        The $38 million, Mr. Chairman, that you mentioned a little
    earlier, in fact, is money that Ms. Cunninghame, tells me has
    been brought down to the neighborhood of $28 million. With some
    further adjustments it will come down more.
        Last, the three initiatives. The America Reads campaign
    launched by President Clinton, endorsed by so many Governors
    and mayors, is----
        Senator Mikulski. Senator Wofford, just to help you out
    here and move along with the chairman, and not to interrupt
    your testimony, but I have two questions related to America
    Reads and also to the Presidents', the multiple Presidents'
    summit, the Colin Powell, and perhaps we could come to those
    two issues in my question.
        Mr. Wofford. Very good.
        Senator Mikulski. And you could brief us on that and
    through that question.
        Mr. Wofford. I will await your question. That help is
    welcome, Senator Mikulski.
        I might say that the one other initiative other than the
    American Reads and the Presidents' summit is the National
    Service Scholars Program for which we are asking $10 million.
    In his commencement speech at Penn State, the President called
    for service to become part of the ethic of every school in
    America. To help make this happen in every high school, he
    announced the National Service Scholars Program, which will
    reward high school juniors and seniors who do outstanding
    service with a $1,000 college scholarship, $500 of which will
    come from the Corporation and $500 from local sponsors.
        The Corporation has contracted with a private foundation to
    administer this program, which will begin making its awards
    this spring.

                               PREPARED STATEMENT

        I will conclude by saying that national service fits the
    era in which big Government is over because the era of big
    citizens is beginning. The other side of reinventing Government
    is reinventing and reinvigorating citizenship. National service
    reduces our reliance on Government by mobilizing citizen
    action. It helps communities solve problems in their own
    ingenious ways. It strengthens the building blocks of civil
    society. It is a smart and wise investment and there are
    compelling reasons why it should be continued, not despite
    tight budget times but because of them.
        Thank you, Mr. Chairman.
        [The statement follows:]
                      Prepared Statement of Harris Wofford
        Mr. Chairman and members of the Subcommittee, I appreciate the
    opportunity to appear before you today to review the Corporation's
    progress over the last year and to report about our plans for the
    future.
        The total fiscal year 1998 budget request from this Subcommittee
    for programs authorized under the National and Community Service Trust
    Act is $546,500,000. In addition to this amount, we are seeking a
    separate appropriation of $2,500,000 from this Subcommittee for the
    Office of the Inspector General.
        These funds will provide for approximately 29,500 AmeriCorps
    members through grant programs and approximately 1,600 AmeriCorps
    members through the National Civilian Community Corps (NCCC) program.
    (Participants in the AmeriCorps*VISTA program, funded through the
    Subcommittee on Labor, HHS, Education, and Related Agencies, will bring
    the total to 35,000 AmeriCorps members.)
        The amounts requested represent an increase of $146,500,000, or 36
    percent over the fiscal year 1997 funds appropriated by this
    Subcommittee for national service. The increase is targeted to the
    America Reads initiative, the challenge to Americans to help all
    children read well and independently by the end of the third grade.
    National service's role will be specifically outlined in legislation to
    be presented to the Congress later this month.
        The budget request will cover the costs of making the current
    District of Columbia NCCC deployment site a permanent campus, expanding
    other campuses, and establishing a new campus in a region of the
    country not currently served by the NCCC. In addition, these funds
    provide an increase in support to service-learning initiatives in K-12
    schools, community organizations, and institutions of higher education
    through the Learn and Serve America program.
        For three years, national service has had proven, positive results
    in improving America's communities. National service programs have been
    ``getting things done'' and expanding educational opportunities,
    improving the environment, enhancing public safety and meeting other
    human needs. Outside experts have found that representative programs
    have achieved positive cost-benefit ratios that merit and justify your
    continued support.

                              GETTING THINGS DONE

        In the three years since the program was created, 70,000 AmeriCorps
    members have served in over 1,800 non-profit operating sites.
        A 1996 independent evaluation of AmeriCorps programs by Aguirre
    International--headed by President Ford's Commissioner of Education--
    examined the activities of one out of every ten AmeriCorps members then
    serving. Aguirre found that this small-but-representative sample of
    individuals:
      --Taught, tutored, or mentored almost 64,000 students.
      --Collected, organized, and distributed 974,000 pounds of food.
      --Helped 2,550 homeless people find shelter.
      --Developed and distributed 38,500 sets of information about drug
            abuse, HIV/AIDS, street safety, health care, and other issues.
      --Ran violence-prevention after school programs for 50,000 youth.
      --Performed energy audits for more than 18 million square feet of
            buildings.
      --Planted more than 210,000 trees.
        AmeriCorps members have similar achievements in every state over
    the last year.
        The 78 AmeriCorps sponsored by the Montana Conservation Corps
    repair the homes of elderly and low-income residents, restore and
    protect natural resources, improve the habitat of wildlife, and
    increase the public's access to natural sites. The AmeriCorps members
    also mentor at-risk youth while engaging them in service.
        The Fort Belknap Community Council's New Vision Youth Serve is a
    program supported by a Learn and Serve America K-12 grant, run by and
    for this Montana tribe. The Fort Belknap Tribal Education Department,
    College Safe Future Program, Housing Authority, Youth Council, and
    Tribal Health Department are developing a network of community service
    centers on the tribe's reservation to address public safety, human and
    environmental needs.
        The Blue Hills AmeriCorps program engages 18 AmeriCorps members in
    partnership with the Kansas City, Missouri Police Department to help
    close drug houses, reduce crime by reporting drug activity, establish
    safety corridors, and train youth and adults in conflict resolution.
    This year, Blue Hills AmeriCorps members recruited and trained 734
    volunteers to serve as school bus stop guards at 62 school bus stops.
    Over the last three years, more than 50 drug houses were closed down,
    some of which have been taken over by the city and are being
    rehabilitated as affordable single-family housing for low income
    families.
        In Birmingham, Mobile, and Montgomery, Alabama and 17 other cities
    in nine southern states--the Alliance for Catholic Education (ACE)
    provides teachers and other resources for under-resourced parochial
    school systems through a Learn and Serve America: Higher Education
    grant. ACE and the University of Notre Dame are matching every
    Corporation dollar with 13 dollars for the 1996-97 program year. ACE
    Learn and Serve members are graduates of several top college
    institutions of higher education, including Notre Dame, Duke,
    Georgetown, and Boston College.
        The 28 AmeriCorps members sponsored by the American Youth
    Foundation's St. Louis Partners for Service Education tutor and assist
    teachers in developing projects related to literacy, the environment,
    first aid, and substance abuse prevention. The AmeriCorps members have
    recruited more than 100 parents to assist in classrooms and other
    educational support activities.
        Twenty AmeriCorps members sponsored by the Notre Dame Mission
    Volunteer Program and the Sisters of Notre Dame are serving at eight
    schools, community centers, and soup kitchens across Baltimore,
    Maryland. Sharonne Henderson, a Notre Dame--AmeriCorps member who
    tutors children at City Springs Elementary School, recognized that one
    of her students had significant trouble seeing. The child was tested,
    diagnosed as having a cataract, and fitted with glasses. Ms.
    Henderson's presence, attention, and concern led to the early detection
    and treatment of this very serious condition. The Notre Dame Mission
    Volunteer program also sponsors 48 other AmeriCorps members who serve
    in Boston, Massachusetts, Cincinnati, Ohio, and Apopka, Florida.
        The 173 AmeriCorps members of the United Youth Corps of Maryland
    maintain and restore 15 state forests, parks, and wildlife management
    areas. Members rehabilitate abandoned houses and construct community
    parks in low-income Baltimore neighborhoods, tutor students with
    special needs, and serve as teachers' aids.
        In Alaska, AmeriCorps members serve in more than 30 communities to
    improve environmental education, recycling, sanitary waste management,
    early childhood education and tutoring. Members serve in rural areas
    such as Hooper Bay and Nulato.
        Students at the Cape May County (New Jersey) Technical High School
    in New Jersey are working with Habitat for Humanity in a program
    sponsored by Learn and Serve America K-12. The students build houses on
    the school property which are then transferred to lots throughout the
    area. The program was recently named a Best Practice/Star School in the
    category of Public Engagement by the New Jersey Department of
    Education--the only one of 1,000 programs under consideration to win
    that distinction.
        Twenty-four AmeriCorps members sponsored by Vermont's Northeast
    Kingdom Initiative Program are serving youth, unemployed or under-
    employed adults, and the elderly in a three-county area--one of the
    poorest and most rural areas in the nation.
        Twenty-two Kern County School District AmeriCorps members in
    California's Central Valley are tutoring 600 students in the 1996-97
    school year. Over half of the students tutored are now reading at or
    above the standard for their grade levels.
        Twenty-two AmeriCorps members in the Idaho TRIO AmeriCorps program
    have leveraged the assistance of 369 volunteers to tutor 1,997 at-risk
    K-12 students. Seventy percent of the students tutored showed
    improvement of their school performance by at least one grade. The
    AmeriCorps members have also advised 863 students regarding career
    choices and assisted 338 Idaho teachers through in-class and other
    support. AmeriCorps members were able to encourage AmeriCorps host
    agencies to contribute more than 2,169 hours to support the service of
    members. One student said of the program, ``I can feel good about
    myself. I'm proud of myself. I feel even better about my dream to go to
    college.''
        Now in its third year of operation, twenty AmeriCorps members in
    the Iowa Coalition Against Domestic Violence Program, a statewide
    AmeriCorps program, have made 12,464 contacts with victims of domestic
    abuse (250 percent of their goal), assisted over 1,000 women in
    obtaining pro se protective orders (133 percent of their goal), and
    provided 371 educational programs for Iowans ranging from elementary
    school children to senior citizens (77 percent of their goal). This
    program has been very effective in engaging another 400 non-AmeriCorps
    volunteers to provide 160,000 hours of additional services to victims
    of domestic violence. AmeriCorps members serve in similarly effective
    programs across the country, including the New Hampshire Coalition
    Against Domestic and Sexual Violence's AmeriCorps Victim Assistance
    Program. This program, and others, in New Hampshire prompted former
    Governor Stephen Merrill to state that ``the national service program
    has been a great success in the state of New Hampshire and I anticipate
    it will continue to be in the future * * *. These motivated individuals
    make AmeriCorps work for New Hampshire and I am pleased to be a partner
    in this process.''
        In addition to environmental and disaster relief work across the
    region, AmeriCorps National Civilian Community Corps (NCCC) members
    based at Colorado's Lowry Air Force Base have achieved significant
    results in Denver schools. Over the last year, the 14 corpsmembers who
    served at Denver's Capitol Hill Children's Center helped kindergarten
    students improve their language-skills test scores by an average of two
    years. Thirteen other corpsmembers served as mentors to the first-
    through fifth grade students at the Smith Renaissance Academy.
    Together, the students and corpsmembers produced a school newspaper,
    which allowed the students to develop reading, writing, and research
    skills while preparing stories about their community. An additional 14
    AmeriCorps*NCCC members served at the Columbine Elementary School,
    where they helped set up a new school building designed to house a
    program focusing on the first- and second-grade students' literacy
    skills. These NCCC members tutored students who needed special
    assistance and designed an after-school program for primary students
    and their parents.
        These examples quantify the immediate effects of national service.
    While we can measure the value of the bridge AmeriCorps members helped
    repair or estimate the cost to society had AmeriCorps members not
    tutored children in need, some benefits of the Corporation's programs
    are not immediately measurable. By instilling a sense of pride in a
    community, by establishing community volunteer programs, and helping
    prepare children for their first days of school, AmeriCorps members
    help to crack the atom of civic indifference creating a chain reaction
    whose effects transcend quantification and are felt in a myriad of
    ways.

                                  DEMOGRAPHICS

        The strongest links in this chain are the AmeriCorps members.
    AmeriCorps members mirror the diversity of the communities in which
    they serve and look like a cross-section of 21st century American
    cities. Preliminary demographic information on current participants in
    AmeriCorps grants programs and the NCCC are similar to those of the
    first and second years of the program. Approximately one in two
    AmeriCorps members are white, slightly less than one in three is
    African American, and one in six is Hispanic. Initial data shows
    approximately four percent of these current AmeriCorps members are of
    Native American, Asian or Pacific Islander heritage.
        Data about the levels of education already achieved by AmeriCorps
    members suggests an important trend: in each of the three years of
    AmeriCorps, the percentage of participants who already earned their
    bachelor's degree, spent some time in graduate school, or earned a
    graduate degree has increased. In the 1994-95 program year, these three
    categories comprised 29 percent of AmeriCorps members. The sum grew to
    35 percent in 1995-96, and preliminary data for the 1996-97 program
    year indicates another increase, to 36 percent.
        AmeriCorps expands opportunity in exchange for responsibility for
    the broad middle class. In the 1995-96 program year, 56 percent of the
    AmeriCorps members came from households with annual incomes of less
    than $30,000. (The Corporation receives no information about the
    household family income of AmeriCorps members until the end of the
    program year.)
        The Subcommittee should note that for the current, 1996-97 program
    year, all of these figures may reflect a shift in the balance between
    urban and rural communities because the Corporation has eliminated
    AmeriCorps grants to other federal agencies. Some rural programs that
    utilized AmeriCorps members and worked with local offices of the United
    States Department of Agriculture or other agencies no longer exist. The
    Corporation is making a concerted effort to restore and increase rural
    representation in the AmeriCorps program.

                              EXPANDED OPPORTUNITY

        Over the last three years, AmeriCorps has enabled 70,000 Americans
    to serve their communities in exchange for expanded opportunity.
    Approximately 45,000 of these individuals were participants over the
    first two years of AmeriCorps, and are eligible to earn national
    service education awards. The remaining 25,000--who are currently in
    the midst of their year as AmeriCorps members--will earn education
    awards when they complete their terms of service. Those who have
    completed their terms of service have seven years within which to use
    their education awards.
        The National Service Trust has already made over 26,000 payments
    totaling approximately $44 million to over 6,000 education and loan-
    holding entities. Currently, the Trust is averaging over $600,000 in
    payments weekly. This number will increase as more and more members
    avail themselves of their education award.

                                 COST--BENEFIT

        Independent evaluators have repeatedly proven that national service
    yields a positive return on investment. The authors of each study have
    cautioned that their findings probably underestimate the benefits of
    national service significantly, because the full value of safer
    streets, stronger schools, cleaner rivers, and the like are difficult
    to quantify and not seen immediately.
      --In the ``Cost-and-Benefit Study of Two AmeriCorps Projects in the
            State of Washington,'' the Northwest Regional Educational
            Laboratory concluded that every dollar invested in these
            Washington State projects yielded a return up to $2.40 in
            addition to less-easily measured benefits.
      --To analyze their significant investments as AmeriCorps private
            sponsors, the Charles A. Dana, IBM International, and James
            Irvine Foundations commissioned a team of noted conservative
            ``Chicago School'' economists to examine more than 70
            AmeriCorps sites in Austin, Texas; Columbus, Ohio; Atlanta,
            Georgia; Charlotte, North Carolina; New York City; and northern
            California. In their report called ``The Benefits and Costs of
            National Service,'' Kormendi/Gardner Partners predict that for
            every dollar AmeriCorps invests, the public will realize up to
            $2.60 or more in direct, measurable benefits.
      --The University of Minnesota, in the ``Youthworks-AmeriCorps
            Evaluation First Year Report'' on projects across Minnesota,
            found benefits up to $3.90 for each dollar invested in these
            programs.
        A study of the Learn and Serve America: K-12 completed by Brandeis
    University and Abt Associates concluded that ``on average, the programs
    in the intensive study sites produced about $3 in direct community
    benefits for every dollar in program costs.''
        When Massachusetts Governor Bill Weld swore in his State's
    AmeriCorps members this fall, he explained how ``every taxpayers'
    dollar we spend on AmeriCorps comes back threefold, when we add up the
    value of your innovative ideas, your physical labor, and all of the
    skills you'll bring to the workforce when you finish your education.''
    That's why he calls AmeriCorps ``one of the most intelligent uses of
    taxpayer dollars ever.''

                                 AMERICA READS

        These demonstrated successes led President Clinton to give national
    service a major role in the America Reads Challenge. The America Reads
    Challenge is a national campaign to ensure that every child can read
    well and independently by the end of the third grade. The President has
    proposed that money from the Corporation's budget be used so members of
    AmeriCorps may play a key role in recruiting, training, and organizing
    the new army of 1,000,000 volunteers who will tutor young children.
        The increasing complexity of today's jobs and society amplifies the
    importance of literacy. Research shows that if students cannot read
    well by the end of third grade, their chances for later success are
    significantly diminished--including a greater likelihood of dropping
    out of school and other delinquent behavior.
        Poor literacy skills are one of our nation's most serious problems.
    Recent testing by National Assessment of Educational Progress found
    that 43 percent of America's fourth grade students in public schools
    scored below the basic reading level. Education outside the classroom
    is essential to improving reading skills. A U.S. Department of
    Education study, ``Reading Literacy in the United States'', found that
    fourth-grade average reading scores were 46 points below the national
    average where principals judged parental involvement to be low, but 28
    points above the national average where parental involvement was high--
    a difference of 74 points. Reading is a skill that is developed not
    only in the classroom, but also outside of school in the home. To this
    end, America's Reading Corps will mobilize tutors to work with reading
    teachers, principals, libraries and community-based organizations to
    provide individualized after-school, weekend and summer reading
    tutoring for more than 3 million K-3 students and their parents.
        There are several parts to the America Reads Challenge, including:
    the Reading Corps, which will tutor children in grades K-3 who need
    extra help; the Parents as First Teachers program, which will assist
    parents in helping their children; expansion of Head Start programs;
    and a challenge to the private sector to work with schools as they have
    with the Department of Education's Partnership for Family Involvement
    in Education and the READ*WRITE*NOW! initiative. The Reading Corps is,
    the heart of the program that is proposed to be funded at almost $2.5
    billion over 5 years, will provide reading specialists and tutor
    coordinators to train and supervise the tutors.
        The President has asked for national service's participation
    because we are well equipped to handle this challenge. Many of our
    programs have strong track records helping children improve their
    reading skills and assist parents in becoming an essential part of
    their children's education.
        For example, the Home Instruction Program for Preschool Youngsters
    (HIPPY) has had a remarkable record of preparing children for success
    in school before their first day of kindergarten. AmeriCorps Members in
    16 States and 43 HIPPY Sites serve as resources for parents, especially
    single mothers on welfare. They make home visits every two weeks to
    help young mothers improve their basic parenting skills and provide
    their children with an enriched preschool experience. In doing so,
    AmeriCorps Members often instill in parents an interest in their
    children's education, and this interest spurs them to be more effective
    partners with their children's classroom teachers. Programs like HIPPY
    that ensure children have basic learning skills before entering the
    classroom make it more likely that the children will be able to read
    well by the end of third grade.
        In another program, Parents and Children Together in Learning
    (PACT), Learn and Serve America members through Harcum College, in Bryn
    Mawr, Pennsylvania bring parents back to school to teach them how to
    help their child read. Working with School District of Philadelphia,
    PACT trains inner-city parents to be volunteer tutors in their
    children's classrooms. PACT enrolls parents who participate in the
    program in Bryn Mawr classes for two weeks to teach them how to be a
    tutor. As a result, nearly 450 parents have improved their own skills
    while tutoring more than 4,000 children. The parents earn college
    credit for participating in the program.
        In Simpson County, Kentucky, 25 AmeriCorps members work directly
    with elementary school students to boost reading comprehension and
    nurture a love of books. The program is called SLICE (``Service
    Learning Impacting Children's Education'') and it gets results. By the
    end of the first year of the program more than 100 of the 122 tutored
    students in the county had improved their reading scores by at least
    two grade levels.
        The SLICE program exemplifies some less obvious benefits of
    AmeriCorps literacy programs. The program has been successful in
    improving the reading ability of students, and has helped develop
    community involvement in the process. Small business owners, local
    members of the American Association of Retired People (AARP), a retired
    teachers group, and even the entire staff of the local city hall have
    pitched in on the reading effort. Each SLICE AmeriCorps member recruits
    an average of 16 unpaid volunteers.
        By fostering community support, SLICE has achieved what we strive
    for in every national service program--a sustainability that is not
    dependent on any one individual or even a core group of original
    volunteers. This is how service can take root and grow to become a
    natural part of the life of a community.

                       NATIONAL SERVICE SCHOLARS PROGRAM

        The President announced the National Service Scholars Program in
    his June, 1996 commencement address at Pennsylvania State University.
    To qualify for the National Service Scholars Program, students must be
    juniors or seniors in high school who have performed community service
    for at least a year and who have been nominated by their principals.
    Recipients will receive a check for at least $1,000 for college costs,
    of which $500 will come from the National Service Trust and at least
    $500 will come from local scholarship sponsors.
        The Administration's 1998 suggested appropriations language sets
    aside $10 million for the National Service Scholars program. This is
    consistent with the mission of the National Service Trust, which was
    established as a repository for education awards for participants in
    national service programs.
        In accord with our commitment to reinventing government, a private
    501(c)(3) foundation, the Citizens' Scholarship Foundation of America,
    will administer the National Service Scholars Program. A competitive
    announcement was made in the Federal Register for this cooperative
    agreement, and the Citizens' Scholarship Foundation of America was
    chosen from a pool of seven highly qualified applicants. The Foundation
    has a 35-year history of encouraging and rewarding community service by
    youth through its Dollars for Scholars and other programs. Last year,
    the Citizens' Scholarship Foundation of America distributed close to
    $40 million in scholarships. The Corporation for National Service is
    pleased to rely on the talents of the Citizens' Scholarship Foundation
    of America to administer the National Service Scholars program.

                  THE PRESIDENTS' SUMMIT FOR AMERICA'S FUTURE

        The Presidents' Summit for America's Future will, with the
    sponsorship of private foundations, bring together people from all over
    the nation who are committed to stimulating service and community
    volunteerism to ensure our youth have access to the resources that will
    help them lead healthy, fulfilling, and productive lives. It is a
    bipartisan endeavor convened by President Clinton and former President
    Bush as honorary Co-Chairmen, retired General Colin Powell as Chairman,
    and former Secretary of Housing and Urban Development Henry Cisneros as
    Vice Chairman.
        Summit sponsors include the Robert Wood Johnson Foundation, the
    Ewing Marion Kauffman Foundation, the W.K. Kellogg Foundation, the
    David and Lucille Packard Foundation, and the Pew Charitable Trusts.
        Community delegations from more than 100 cities and rural
    communities, state delegations led by the nation's governors, and
    leading citizens from the public and private sectors will come to this
    summit with concrete commitments to increase young people's access to
    one or more of five critical resources: An ongoing relationship with a
    caring adult: mentor, tutor, or coach; safe places and structured
    activities during non-school hours to learn and grow; a healthy start;
    a marketable skill through effective education; and an opportunity to
    give back through community service.
        Commitments that have already been made include:
      --Big Brothers/Big Sisters has committed to doubling their mentoring
            relationships, reaching 200,000 matches through the year 2000.
            More important, service will become an integral part of the
            mentoring relationship and a key activity for current and
            future ``Bigs and Littles.''
      --LensCrafters will provide one million needy people, especially
            children, with free vision care by the year 2003.
      --AT&T has committed $150 million to connect the country's 110,000
            public and private elementary and secondary schools on the
            Information Superhighway by the year 2000.
      --The United States Army is taking the lead in encouraging a joint
            effort among the military services to expand opportunities for
            active-duty, reserve, and retired military personnel to
            volunteer their time as mentors and tutors in their local
            communities.
      --The National Association For Equal Opportunity in Higher Education
            (NAFEO) has promised that half of the approximately 140,000
            students enrolled in 117 Historically and Predominantly Black
            Colleges and Universities will volunteer as tutors and mentors.
      --The presidents of 21 colleges and universities, including San
            Francisco State University, the Vermont State Colleges System,
            the University of Montana, the University of Maryland College
            Park, the Community College of Denver, and the California State
            University System have committed half or more of their
            increases in work-study funds to community service initiatives
            focusing on youth literacy.
        The Corporation for National Service is working alongside the
    Points of Light Foundation in initiating and planning the Summit to
    promote the goals of the National and Community Service Trust Act, the
    mission of the Corporation, and the vision set forth in the
    Corporation's Strategic Plan.
        The Presidents' Summit for America's Future has already created a
    surge of interest from the media, community service organizations, and
    corporate sponsors nationwide. We are looking forward to working
    alongside those who will participate in the efforts coordinated at this
    Summit to increase youth's access to fundamental resources and real
    opportunity.

                              MANAGEMENT CONCERNS

        As Chief Executive Officer, my top priority--shared by the
    Corporation's Board of Directors--is putting our financial house in
    order. We are making steady progress in doing so. Our new Chief
    Financial Officer, Donna Cunninghame, and her staff are in the process
    of improving business processes and implementing appropriate management
    controls.
        Ms. Cunninghame is a Certified Public Accountant. She and her staff
    have experience in both public and private sector accounting. Ms.
    Cunninghame served as the first full-time Chief Financial Officer of
    the Resolution Trust Corporation, and achieved three clean financial
    audits from the United States General Accounting Office (GAO) during
    that time. As Chief Financial Officer of the University of Maryland
    System, Ms. Cunninghame was directly responsible for all of its
    treasury, accounting, and financial operations. Ms. Cunninghame's staff
    also has expertise developing and implementing the type of corrective
    action necessary to resolve the Corporation's problems.
        The Corporation's Inspector General, based on the work done by two
    independent auditing firms, found our fiscal year 1994 financial
    statements to be inauditable. The difficulty stemmed from the unusual
    creation of the Corporation, which merged existing service programs
    with the new service initiatives. The Corporation inherited
    organizations that had never before been required to present their
    financial data in the manner now required under the Government
    Corporation Control Act. The difficulties we had are common to most
    federal entities required to produce auditable financial statements in
    a corporate style. Though initial inauditability may be common, it is
    unacceptable. We are aggressively working to produce auditable books.
        Arthur Andersen, hired by the Corporation's Inspector General,
    produced an audibility report which identified 99 problems. Arthur
    Andersen reviewed our efforts to implement their recommendations--they
    looked at our progress on 62 issues and found 28 to be completed.
        By the time the written report of the review was issued in December
    of 1996, Ms. Cunninghame, based on her experience producing clean audit
    reports, determined that 57 items were then corrected or in the process
    of implementation. The remaining 5 of the 62 reviewed items were
    related to activities that require substantial time and effort to
    complete. We are working on correcting those problems.
        By March 1, 1997 we expect to have corrected or be in the process
    of implementing an additional 31 of the 99 items. Ms. Cunninghame has
    expressed to me her expectation that by May 1 of this year, all but two
    of the 99 problems will be corrected or in the process of
    implementation. One of those two corrections is the implementation of
    the new financial management system which we are preparing to do in
    1998. The second is a minor item that is difficult to correct now but
    will be easy to correct when the new system is in place: a process by
    which the budget obligation to pay for a purchase is entered into the
    system before a purchase order is entered. When implemented, this will
    be an automatic part of the process.
        I can report that the Corporation is making steady progress in
    establishing financial order. We are eschewing ``quick fixes'' in favor
    of systematically cleaning up data integrity problems while
    implementing appropriate managerial controls. By the time we install
    our new financial management system in 1998, the goal is that the
    underlying data will be scrubbed and reliable, business practices will
    be improved and effectively controlled, and fully auditable statements
    reflecting the Corporation's financial status should become routine.

                        CUTTING COSTS AND OTHER CHANGES

        When I spoke with you last year, I outlined an early version of the
    Corporation's agreement with Senator Grassley to reduce costs and
    address other issues of concern to our critics. Working together, we
    improved AmeriCorps by reducing expenditures and expanding the number
    of individuals who will benefit from the opportunity to serve. The
    Corporation has committed itself to lowering its cost-per-member in the
    AmeriCorps grants programs by $1,000 in each of the next three years,
    starting with the programs set to begin this fall. The AmeriCorps
    budgeted average cost for programs supported with fiscal year 1998
    funds will be $16,000, including the education award. By the fall of
    1999, the cost will be down to $15,000 per member.
        This figure includes all Corporation costs, including the
    Corporation's share of members' living allowance and benefits, the
    grant for program support, and the administration directly attributable
    to AmeriCorps grants by the Corporation and our support of the
    Governors' Commissions on National Service. (These numbers are indexed
    for inflation and assume that there will be funds appropriated to
    support no fewer than 25,000 AmeriCorps members each year.)
        Over the last year, the Corporation has made many other changes to
    improve our efficiency. We have made improvements in our grant review
    process and increased the control the Governors' Commissions on
    National Service have over program decisions.
        The Corporation has also increased our collaborations with national
    non-profit organizations, particularly by expanding the AmeriCorps
    ``education-award-only'' program.
        In this program, the Corporation provides education awards to
    individuals who are serving in traditional non-profits and whose
    service qualifies them for education awards. These non-profits include
    religious organizations, colleges and universities, and other
    institutions which have applied to the Corporation and shown they are
    able to provide living allowances and other resources for these
    AmeriCorps members.
        For example, the Boys and Girls Clubs of America are now supporting
    800 AmeriCorps members in this way, using them to engage the youth in
    Boys and Girls Clubs in community service. Currently, 2,000 AmeriCorps
    members are sponsored through this program, and the Corporation plans
    to announce agreements with non-profits which will sponsor up to 3,000
    more AmeriCorps members in coming weeks.

                          THE CAP ON NATIONAL DIRECTS

        Currently, 43 national non-profits sponsor 2,500 AmeriCorps members
    through National Direct grants. Millard Fuller, founder and President
    of Habitat for Humanity International, explained that ``as AmeriCorps
    members gain in construction skill, our Affiliates are able to expand
    the number of occasional volunteers through increased capacity to
    supervise and manage volunteers.'' Fuller later announced at a
    Washington, DC press conference that ``I want you to know that we at
    Habitat for Humanity feel privileged and honored to have the AmeriCorps
    people with us, and we want more of them, as time goes on. We love to
    be partners with you in this work, and I salute all the AmeriCorps
    people.''
        Under the Corporation's authorizing statute, one third of the
    AmeriCorps grants funds are directed to National Direct programs. In
    fiscal year 1997, this corresponds to $71.7 million; for the proposed
    fiscal year 1998 budget, this corresponds to $98.7 million. If the
    fiscal year 1997 $40 million cap on national directs is not removed,
    the shortfall of funds will prevent as many as 13 of these non-profits
    from sponsoring AmeriCorps members this fall. All current national
    direct programs--including Habitat for Humanity, the U.S. Catholic
    Conference, the National Council on Aging, the I Have a Dream
    Foundation, the Enterprise Foundation, and City Year--will have to
    compete against each other for the remaining funds. No new AmeriCorps
    national direct grants to national non-profits--such as Big Brothers/
    Big Sisters--will be possible.
        We are requesting that the fiscal year 1997 cap be eliminated and
    that no cap be put in place for fiscal year 1998.

                                REAUTHORIZATION

        The Corporation for National Service's authorization expired on
    September 30, 1996. We are now operating under the authority of the
    General Education Provisions Act (GEPA) that will expire at the end of
    September, 1997. I have met with Chairman Goodling and representatives
    of the House Committee on Education and the Workforce to begin the
    formal reauthorization process, and am scheduled to meet with Chairman
    Jeffords and members of the Senate Committee on Labor and Human
    Resources in coming weeks.
        Though it is too early to outline specific details about
    reauthorization, I expect that any plan to improve national service
    through this process will build on the key principles of the current
    national service network: flexibility, including the ability to
    redirect resources to meet new needs using proven techniques; stream-
    lining, including the importance of constantly improving efficiency;
    coordination, including maximizing cooperation among programs in a
    community; and devolution, including significant state-and local-
    control.
        I look forward to working with the Congress through both
    appropriations and reauthorization to make national service a program
    in which all Americans can take pride.
        I will be happy to answer your questions.

               AMERICORPS MEMBERS BY RACE/ETHNICITY, 1994-1997 \1\
                              [Percent of members]
    ------------------------------------------------------------------------
                                                       Fiscal years
                 Race/Ethnicity             --------------------------------
                                              1994-95    1995-96    1996-97
    ------------------------------------------------------------------------
    African-American.......................         32         27         29
    American Indian........................          2          2          1
    Asian/Pacific islander.................          3          3          3
    Hispanic...............................         15         18         16
    White..................................         49         48         42
    Other..................................  .........          2          9
    ------------------------------------------------------------------------
    \1\ 1996-97 enrollment is still underway, therefore, those data are
      incomplete.

           EDUCATIONAL ATTAINMENT BY AMERICORPS MEMBERS 1994-1997 \1\
                              [Percent of members]
    ------------------------------------------------------------------------
                                                       Fiscal years
                Education level             --------------------------------
                                              1994-95    1995-96    1996-97
    ------------------------------------------------------------------------
    Less than high school..................          9          5          8
    High school diploma....................         21         22         20
    AA degree/some college.................         41         39         36
    Bachelor's degree/some grad school.....         26         30         28
    Graduate degree........................          3          5          8
    ------------------------------------------------------------------------
    \1\ 1996-97 enrollment is still underway, therefore, those data are
      incomplete.

            HOUSEHOLD FAMILY INCOME OF AMERICORPS MEMBERS, 1994-1996
                              [Percent of members]
    ------------------------------------------------------------------------
                                                            Fiscal years
                       Income range                    ---------------------
                                                         1994-95    1995-96
    ------------------------------------------------------------------------
    $5,000 or less....................................          8          6
    $5,001 to $10,000.................................         12         15
    $10,001 to $20,000................................         16         19
    $20,001 to $30,000................................         18         16
    $30,001 to $40,000................................         12         13
    $40,001 to $50,000................................         11          7
    $50,001 to $60,000................................          7          6
    $60,001 to $70,000................................          5          5
    Over $70,000......................................         11         12
    ------------------------------------------------------------------------

                   AMERICORPS MEMBERS BY GENDER, 1994-1997 \1\
                              [Percent of members]
    ------------------------------------------------------------------------
                                                       Fiscal years
                     Gender                 --------------------------------
                                              1994-95    1995-96    1996-97
    ------------------------------------------------------------------------
    Female.................................         61         65         68
    Male...................................         39         35         32
    ------------------------------------------------------------------------
    \1\ 1996-97 enrollment is still underway, therefore, those data are
      incomplete.

                    AMERICORPS MEMBERS BY AGE, 1994-1997 \1\
                              [Percent of members]
    ------------------------------------------------------------------------
                                                       Fiscal years
                      Age                   --------------------------------
                                              1994-95    1995-96    1996-97
    ------------------------------------------------------------------------
    Under 21...............................         38         27         26
    22-29..................................         42         47         53
    30-37..................................          9         10         10
    38-45..................................          7          9          6
    Over 45................................          4          6          5
    ------------------------------------------------------------------------
    \1\ 1996-97 enrollment is still underway, therefore, those data are
      incomplete.

               FULL- AND PART-TIME TERMS OF SERVICE, 1994-1997 \1\
                              [Percent of members]
    ------------------------------------------------------------------------
                                                       Fiscal years
                                            --------------------------------
                                              1994-95    1995-96    1996-97
    ------------------------------------------------------------------------
    Full time..............................         70         78         78
    Part time..............................         30         23         23
    ------------------------------------------------------------------------
    \1\ 1996-97 enrollment is still underway, therefore, those data are
      incomplete.

                            Chief Financial Officer

        Senator Bond. Mr. Wofford, in last year's budget hearings,
    you stated you expected to shortly bring on a Chief Financial
    Officer and, in fact, you only recently filled the position.
    More recently, Arthur Andersen issued a report on December 9,
    1996, which raised serious concerns regarding your
    Corporation's progress in correcting deficiencies in financial
    systems and management controls. The report concluded, better
    than 8 months after our hearing last year, that the
    Corporation's internal controls were not adequate--I quote from
    the report:

        The Corporation's internal controls were not adequate for
    an independent auditor to perform an effective and efficient
    financial statement audit in accordance with generally accepted
    auditing standards for fiscal year 1995,

        and that

        an audit of the Corporation's fiscal year 1996 financial
    statements may not be possible because many significant
    deficiencies remain uncorrected throughout the year.

        At what point do you expect the Corporation to have
    established adequate internal controls for the independent
    auditor to perform an effective and efficient financial
    statement audit of the Corporation's financial statement, and
    when do you anticipate having auditable financial statements
    for 1995 and 1996?
        Mr. Wofford. Ms. Cunninghame came aboard as a consultant in
    October.
        Ms. Cunninghame. I came on board as a consultant August 5.
        Mr. Wofford. And in October you received a----
        Ms. Cunninghame. Recess appointment.
        Mr. Wofford [continuing]. Recess appointment, because her
    nomination did not get through in time, though the Senate
    worked hard to try to get her nomination through. She received
    a recess appointment in October and has been aggressively
    pursuing all 99 items in the Arthur Andersen auditability study
    since then.
        Her nomination is before the Senate Labor Committee this
    very week and we hope very much she will be confirmed very
    promptly.
        By May 1 we expect to have 97 of the 99 items completed or
    in the process of implementation. We expect to have the
    remaining two items completed in 1998. One relates to the
    implementation of a new financial management system and the
    other is an improvement in the procurement process which can
    occur simultaneously with the financial management system
    implementation.
        The inspector general and the Chief Financial Officer have
    discussed having an audit performed for the 1997 financial
    statements. Statements are going to be prepared for 1996 in
    order to provide beginning balances for 1997 and the auditors
    will be asked to perform a review of these balances in
    connection with their audit.
        I am very pleased that the inspector general of our agency
    and the Chief Financial Officer have established a professional
    working relationship which allows them to work together to
    strengthen the Corporation's management controls. I would be
    happy to give you a further detailed report.

                              FINANCIAL STATEMENTS

        Senator Bond. My question was when do you anticipate having
    auditable financial statements for fiscal year 1995 and 1996.
    Given the answer, I gather that you are not expecting one. Do
    you have a date when you are expecting to be able to give us
    financial statements for those 2 years?
        Mr. Wofford. We are hoping to have beginning balances for
    1997 that will permit an auditable statement for the 1997 year.
        Senator Bond. So you are not going to have one for 1995 and
    1996?
        Mr. Wofford. We are going to at some point have to have an
    agreement on the beginning balance that will permit an
    auditable statement.
        Senator Bond. Thank you.
        Mr. Wofford. We think it will be for 1997.
        The problems related to this in our Corporation were like
    those of many other Government agencies. They are compounded by
    the fact that one of the agencies, the ACTION agency, goes back
    over many years. Until very recently, as you know, Government
    agencies were not asked to produce auditable financial
    statements under the generally accepted accounting principles.
        Senator Bond. Mr. Wofford, all I asked was about the 1995
    and 1996 statements.
        I will submit the rest of my questions for the record.
        Senator Mikulski.
        Senator Mikulski. Thank you very much here.
        Mr. Wofford, could your Chief Financial Officer join you at
    the table for a moment, please?
        Mr. Wofford. Yes; indeed. Donna Cunninghame.
        Senator Mikulski. Ms. Cunninghame, good morning and we
    welcome you. We know very much that the Corporation needs a
    Chief Financial Officer. What I am going to request is not a
    detailed description of the problems that we find ourselves in,
    but I think we owe it to the committee and to the taxpayers,
    essentially a description of why we have this situation, No. 1;
    and No. 2, what is your kind of workout or work plan to resolve
    this situation, really, and presenting it to us the way an
    accountant would present it.
        We know you come from the Resolution Trust. Senator Bond
    has had extensive experience in that and we all recall with
    great melancholy what a fiasco it was and how much that cost
    the taxpayer because the financial institutions, who were
    supposed to be financial institutions, were not standing
    sentry. So it is a little intense to place the same kind of
    criterion on this nonprofit.
        Could you then essentially give us a description, not an
    excuse, an explanation, a no-fault one, about why this
    situation existed? But then, having said that, what is your
    work-through or workout plan? Is that possible for you to do?
        Ms. Cunninghame. Yes; Senator, it is. And I appreciate
    having an opportunity to share it with the committee. The
    Corporation, of course, was started October 1----
        Senator Mikulski. Remember, I have 5 minutes, so I really
    need to move on.
        Ms. Cunninghame. The basic problem is taking together a
    group of existing companies who had different accounting
    records. Whatever financial management systems they had varied.
        Senator Mikulski. Ms. Cunninghame, I am not asking you to
    describe your plan today. I am asking you to submit your plan
    in writing to the committee. I think there was a slight
    miscommunication.
        Ms. Cunninghame. I am sorry. I misunderstood that. I would
    be happy to.
        [The information follows:]
              Work Plan To Address Auditable Financial Statements
        Many concurrent efforts comprise the Corporation for National
    Service's plan for producing auditable financial statements. A brief
    review of these efforts follows.
        1. The auditability survey resulted in 99 recommendations dealing
    with five broad categories of concerns: the management control
    environment, integrity of financial data, data security, segregation of
    duties, and budgetary controls. An aggressive and sustained effort has
    been underway at the Corporation to respond to recommendations and to
    implement necessary changes that improve the Corporation's
    auditability. Arthur Anderson is conducting reviews of the Corporations
    efforts. A major phase of that review effort is just being initiated,
    and we expect to have positive responses from the auditors.
        2. A Management Control Committee has been established at the
    Corporation and the first draft of a Management Control Manual has been
    prepared and distributed to the Board of Directors for review. Training
    has begun for staff including all staff of the CFO's department, and
    exposure to the issue of management control is now part of the new
    employee orientation program.
        3. Cash reconciliation, updated above, proceeds as an important
    process for achieving the goal of auditable statements.
        4. A recommendation codifying the Corporation's approach to grants
    accounting, including issues of advances, expense recording, grant
    closeout, and grant liability calculations is being prepared for CFO
    review. This work includes a review paper by Price Waterhouse which
    offered advice on many of the issues.
        5. Information system changes have played a major part in our plan
    for auditable statements. With the current efforts to implement a grant
    review and award system within the Corporation, we are implementing a
    movement away from two separate systems for grant activity. Part of
    this effort will be the movement of all Corporation grants to the HHS
    Payment Management System (PMS) with which we are also implementing an
    electronic interface to our general ledger (GL). This all should
    greatly improve the consistency and accuracy of information in the GL
    and reduce the reconciliation burdens. At the same time, we have
    implemented an electronic interface to the GL for all payment
    transactions from the National Trust. We also are improving the process
    and the supporting documentation for the calculation of liability in
    the National Trust and the subsequent recording of that liability on
    the GL.
        6. We postponed the effort to implement a new financial management
    system, originally intended for implementation with the start of fiscal
    year 1998, by one year in order to ensure that we have an opportunity
    to improve the underlying business processes which provide a foundation
    for what is recorded in the system and because we did not feel the
    schedule could be met with the competing demands on the organization's
    resources, many of which relate to other issues of auditability and
    related system development efforts. In Conference Report H. Report 104-
    537 which accompanied H.R. 3019 making appropriations for fiscal year
    1996, Congress approved report language suggested by the Senate
    committee which ``urges the Corporation to submit a reprogramming
    proposal for up to $3,000,000 to carry out financial management system
    reforms if the Chief Financial Officer determines such additional
    resources are needed.'' We have formally requested the reprogramming of
    these funds, and we are planning the implementation of a new financial
    system during 1998.
        7. We have put a significant effort into improvements of the
    process for cost share arrangements that underlie a number of our VISTA
    programs. Weaknesses in this area had resulted in understated
    receivables in the past. We believe that this will result in
    improvement to this important area of the financial statements.

        Senator Mikulski. When do you think it would be a
    reasonable expectation for you to be able to present this
    background brief and work-through plan to the committee?
        Ms. Cunninghame. I could do that within 1 week easily,
    depending on the necessary requirements.
        Senator Mikulski. Well, I think it would be very useful if
    we had that as quickly as you could produce it with efficiency
    and accuracy for both the chairman and myself, so we can see
    this, because part of what is being discussed is not only to
    continue the existing program and expand it, but some pretty
    new programs. I think the committee will feel that before it
    can undertake anything new there has to be confidence on these
    workout issues. We thank you for that.
        Also, for the record we would need a description also about
    why the attrition rate. Again, we are not looking for excuses,
    but we are looking for crisp, clear explanations so that we
    could have this, because as appropriators we really need to
    know is our money being well spent and are we getting the
    outcome for which the program was created.
        I think if we had those two reports we could among
    ourselves discuss next steps. So we thank you and we look
    forward to that.
        [The information follows:]

                            Attrition in AmeriCorps

    Program Years One, Two, and Three

        The rate at which Members complete their term of service, or
    conversely, the rate at which they fail to do so, can be a valuable
    indicator of program health. The Corporation for National Service is
    well aware of the value of attrition rates and systematically analyzes
    program attrition and its causes. Low attrition can be indicative of
    high Member satisfaction, which in turn, suggests careful recruitment,
    good training, meaningful service projects and adequate supervision,
    among other strengths. While a high attrition rate does not point to a
    specific problem, it may be a symptom of underlying factors that
    deserve consideration.
        That said, in some cases, Members leave their service program early
    for reasons that are not indicative of programmatic problems. In the
    data provided here we provide attrition rates adjusted rates to exclude
    early exits that are not reflective of program quality.
        AmeriCorps programs, at the discretion of the program director, are
    permitted to make the determination that a Member is departing early
    because he or she faces compelling personal circumstances that make
    completing the program an unreasonable hardship.
        In addition, some Members leave their program early to take
    advantage of significant opportunities for personal development or
    growth, for example, educational or professional advancement. Although
    AmeriCorps is not a jobs program, persons who leave their service
    program to enter school, obtain employment or join the military
    constitute a positive outcome for the nation as well as for themselves.
    Because individuals in the circumstances described above do not reflect
    upon the effectiveness of their programs, we believe it appropriate to
    exclude them in determining a meaningful attrition rate.
    Overall Attrition in AmeriCorps*State/National
        Attrition in Year One (1994-1995).--Attrition in Year One was 20
    percent. This rate compares favorably with attrition rates for college
    freshmen, the Peace Corps, youth Corps and HUD Youth Apprenticeship
    programs.
        Attrition in Year Two (1995-1996).--Year Two attrition is currently
    about 18 percent, adjusted as described above. Enough Members remain
    ``on the books'' for 1995-1996 that we cannot yet provide a final
    accounting. As the attached chart suggests, the overall pattern of
    attrition has remained constant.
        Attrition in Year Three (1996-1997).--Year Three attrition is
    difficult to estimate because most programs are still in their fourth
    quarter and some are in their third. At present, nearly 90 percent of
    those who enrolled in Year Three are still serving.
    Additional Attrition Issues
        The socio-demographic patterns reported last year in our attrition
    data remain visible, as demonstrated by the two-year attrition rates by
    educational attainment. Beginning in Year Two, we began collecting
    Member income data by sample only and cannot make direct comparisons to
    the attrition x income data provided last year. However, data from our
    sample survey, which included Members who had left early, suggests
    strongly that their remains a strong relationship between family income
    and attrition, with Members from lower income backgrounds being more
    likely to leave early.

       ATTRITION RATE BY EDUCATIONAL ATTAINMENT--PROGRAM YEARS ONE AND TWO
                              [Percent of members]
    ------------------------------------------------------------------------
                                                            Fiscal years
                    Education attained                 ---------------------
                                                         1994-95    1995-96
    ------------------------------------------------------------------------
    Less than high school.............................         34         36
    GED...............................................         31         32
    Technical school..................................         21         19
    HS graduate.......................................         18         20
    Some college......................................         18         19
    Associate degree..................................         16         15
    College graduate..................................          9          8
    Graduate study....................................         12         10
    Graduate degree...................................         17         12
    ------------------------------------------------------------------------

        Senator Mikulski. Which then takes me, Senator Wofford, to
    the America Reads Program and the national summit. Could you
    tell me what is the purpose of the national summit and what you
    think, what will be the outcomes and what is the purpose and
    what role this committee or national service will play in it?
        Mr. Wofford. The President's summit was proposed originally
    by George Romney as a way to take the idea of national
    service--both large scale volunteering and national service of
    the AmeriCorps variety--out of the political football field and
    move it into a true nonpartisan structure.
        The summit is assembling delegations from some 130
    communities, cities and rural areas as well as delegations from
    all 50 States chosen by their Governors.
        Senator Mikulski. What will it do?
        Mr. Wofford. The summit is starting a 3-year campaign to
    achieve five goals for children and youth in this country that
    every parent and every grandparent wants for their children:
    one, that there be a caring adult in the life of every child
    that needs one, a tutor, a mentor, a coach, including the 1
    million tutors needed for the America Reads campaign; two,
    structured activities in safe places for every child and young
    person in this country in the nonschool hours; third, a healthy
    start--immunization and access to health care and incentives
    for healthy behaviors; four, effective education, including the
    ability to read and marketable skills acquired through school
    to work experience; and fifth, that every young person gets
    asked and has the opportunities themselves to serve.
        The process of the summit is commitments by major
    organizations of all the sectors of society and by individuals
    and communities for new action--quantum leaps and value added--
    toward those five goals.
        Senator Mikulski. That is what they are going to do?
        Mr. Wofford. Yes.
        Senator Mikulski. And then after the summit is over, who
    will be in charge or overseeing that all of this happens in
    some organized way, so we do not have just volunteer chaos?
        Mr. Wofford. We expect the Presidents to continue to work
    together. General Powell will be a very active chairman.
        Senator Mikulski. What will be the mechanism to
    operationalize----
        Mr. Wofford. The mechanism will be an organization that
    General Powell will lead, with the continuing support, we
    trust, of the Presidents. It is an organization that will both
    seek to develop large scale resources to apply to local
    organizations around the country.
        Senator Mikulski. Senator Wofford, will that be an
    organization not created by Government?
        Mr. Wofford. It will not be created by Government. I am
    personally not taking any part in the organization of that
    organization.
        It will be a new national organization created to be
    essentially an umbrella organization to coordinate those
    volunteer organizations, and the private sector entities that
    are making a substantial commitment.
        It will be a campaign based in the private sector, led by
    General Powell not trying to compete in offering service but
    trying to assemble resources from commitments from corporations
    and organizations for local groups. The community delegations
    at Philadelphia are coming with a commitment to go back to
    their communities to organize local summits to coordinate those
    campaigns locally.
        Senator Mikulski. Let me just go back to what I was trying
    to ask, Mr. Wofford, which is, I have been through good
    intention rallies before and we have some of the finest
    participants leading this, and so we just do not want it to be
    a rally where, I am going to make sure that I deliver 2,000
    meals on wheels to the elderly homebound. All of these are good
    intentions, and then if we are going to have that, like the
    commitment of a Motorola, an IBM, local corporations, scouts,
    Boy Scouts, then all I was asking was how that will be followed
    up so it is just not a photo op, it is just not a pep rally,
    and so on, and that we have a sustained saturation effecting
    communities.
        So what you are saying is that there will be an
    organization created that a very distinguished American,
    General Powell, will chair, and this will be an entirely new
    entity not created by Government or funded by Government, is
    that right?
        Mr. Wofford. He is saying that, and he is going to do that.
    It requires that same spirit----
        Senator Mikulski. But are you not the President's person on
    that?
        Mr. Wofford [continuing]. Senator Mikulski, that----
        Senator Mikulski. Are you not the President's point person
    in organizing the summit?
        Mr. Wofford. The two organizations that jointly carried the
    ball with George Romney's idea are ours, the Corporation and
    myself actively, and the Points of Light Foundation.
        Senator Mikulski. Excellent.
        Mr. Wofford. And the two of us have worked together. Ray
    Chambers, founder of the One to One Partnership, is chairman of
    our joint board steering committee for this. But General Powell
    will be carrying the ball from the summit on.
        Senator Mikulski. General Powell is saying that. Are we all
    saying that before we go to the summit?
        Mr. Wofford. General Powell said it very strongly when he
    accepted the chairmanship at the White House. In fact, he now
    says it is at least a 5-year campaign, that he will throw a
    good part of his life into seeing that we follow through.
        Senator Mikulski. And that is his commitment?
        Mr. Wofford. That is his commitment.
        Senator Mikulski. It is an extraordinary commitment.
        Mr. Wofford. And he is driving the commitment process. He
    has what he calls the sweat test. When a corporation or
    organization makes the commitment required to come to
    Philadelphia, he notches it up until he sees sweat on the
    forehead of the CEO who has offered for example to adopt 100
    schools. He says, well, what about 1,000? And until there is a
    little sweat on the forehead of the person, he has not reached
    the right notching-up point.
        Senator Mikulski. Well, that sounds great. Of course, we
    are sweating here about how we are going to fund all the
    agencies, and, therefore, we want to then be clear on what is
    the role of national service, how we can be a facilitator in
    this. I think we are looking forward to this and what will be
    the followup.
        I see that my time has expired and we will look forward to
    other conversation on the America Reads Program. Thank you very
    much and this sounds like a very, very exciting opportunity.
        Mr. Wofford. Thank you, Senator.
        Senator Bond. Thank you, Senator Mikulski.
        Senator Boxer.
        Senator Boxer. Mr. Chairman, I simply want to highlight
    something that Senator Wofford did not get a chance to go into
    in detail. As one of the authors of the Violence Against Women
    Act, I note that in Iowa 20 AmeriCorps members in the Iowa
    Coalition Against Domestic Violence have made 12,464 contacts
    with victims of domestic abuse, assisted over 1,000 women in
    obtaining protective orders, and provided 371 educational
    programs for Iowans ranging from elementary school children to
    senior citizens.
        I wanted to point out something that Steve Merrill said,
    the Governor of New Hampshire, where you took that basic idea
    and instituted it there. He said:

        The national service program has been a great success in
    the State of New Hampshire and I anticipate it will continue to
    be in the future. These motivated individuals make AmeriCorps
    work for New Hampshire and I am pleased to be a partner in the
    process.

        I think there are certain issues that just cry out for
    attention in our Nation, and with a friend helping you get
    through it it means a great deal, because when a woman is
    feeling that there is no one to help her through--and it is
    usually a woman; sometimes it is a man who is on the other end
    of violence, but about 98 percent of the time it is a woman--
    and the children are impacted and so on, you do need that
    helping hand.
        So it sounds to me like you have come up with some idea
    here. I was wondering if you had any plans to extend that
    program to other States as well.
        Mr. Wofford. You can view the whole of national service,
    Senator Boxer, as the Corporation's work as a kind of R&D--
    research and development program--in which programs are being
    tried in all 50 States. One of our jobs is to find what works
    and what does not work; to try to spread what works and to
    share the state of the art. When there is a pilot program that
    really works, such as the 11th and 12th grade kids in
    Philadelphia schools being taught to tutor 2d graders three
    afternoons a week a couple of hours one on one and it works to
    raise the reading level of the second graders and it works to
    raise their own reading level, the 11th, 12th graders----
        Senator Boxer. Talking about domestic violence, I was just
    asking you on that one because my State----
        Mr. Wofford. I am with you.
        Senator Boxer. There are so many calls from California from
    our cities to the hotline, and it seems to me we could really
    use this type of program.
        Mr. Wofford. New Hampshire is one of the very best
    programs. We convened the State executive directors of the
    State commissions. We convened, we are about to convene, the
    chairmen of those commissions.
        We try to spread the programs that work through
    publications, E-mail, etc., so that pilots perform the function
    of a pilot and you ignite the furnace. The New Hampshire
    Program is one of them we would like to spread around the
    country.
        Senator Boxer. So in our State, so if our State wants to
    have this program then they could initiate it?
        Mr. Wofford. Indeed. The executive director of your
    commission in California, Linda Forsyth, is very aware of that
    program. I am sure she has thought about it. She is in town
    right today. I know she is very interested in that subject.
    California has one of the most inventive and aggressive
    commissions, and they are the source of many of the best pilot
    programs that we are trying to spread to other parts of the
    country.
        Senator Boxer. Good, because a couple of our cities had the
    most calls to the domestic hot line.
        Thank you very much.
        Mr. Wofford. It is a major issue, and if we could
    contribute more to it, that is good.
        Senator Boxer. Thank you, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Boxer. Thank you
    very much, Senator Wofford.

                         U.S. COURT OF VETERANS APPEALS

    STATEMENT OF HON. FRANK NEBEKER, CHIEF JUDGE

                    opening statement of christopher s. bond

        Senator Bond. Next, panel No. 2. I would like to welcome
    the Hon. Frank Q. Nebeker, Chief Judge of the U.S. Court of
    Veterans Appeals. Chief Judge Nebeker will be testifying on the
    administration's fiscal year 1998 budget request for the Court
    of Veterans Appeals, which totals $9.4 million, of which
    $850,000 is for the pro bono program to provide legal
    representation to veterans without counsel.
        The overall increase of $150,000 from fiscal year 1997 is
    attributable entirely to the pro bono program. The operational
    costs of the court would be held at the fiscal year 1997 level
    by cutting costs in such areas as travel and security and
    maintenance contracts.
        I am most interested in hearing the court's assessment of
    actions being taken at the VA to address the backlog of
    benefits claims and the court's appraisal of the pro bono
    program.
        Again, Judge, as I said before, we would appreciate your
    submitting a full statement for the record. Unfortunately, we
    are growing short of time in a busy day and would welcome your
    summary and your comments.
        Judge Nebeker. I will be very brief.
        Senator Bond. Thank you very much, Judge.
        Judge Nebeker. You have obviously summarized this budget
    situation for the court and the pro bono program and I will not
    repeat it.

                                  CASE BACKLOG

        Your question was, I think, with respect to the delay or
    the backlog caused in the court's processing of cases, and
    indeed the problem has surfaced. The delay is in the area of
    getting the record on appeal together and in filing the
    Secretary's brief after the appellant has filed his or her
    brief.
        Group VII of the General Counsel's Office is the one that
    represents the Secretary before the court. They have been
    decimated by vacancies. They have been troubled by other
    personnel problems and their morale is low. They have got to
    have help. The resources were not given to them by the general
    counsel, but that matter has been brought to her attention and
    I am assured that the situation will be remedied as rapidly as
    is possible.
        Senator Bond. Thank you, sir.

                                 BUDGET SUMMARY

        Judge Nebeker. As I observed in my written statement, the
    court's budget is flat this year, the same as it was last year.
    We have to maintain--though we are cutting back on the FTE's,
    we have to maintain good service for the many pro se appellants
    who appear before the court. That is somewhat of a labor
    intensive, if you will, undertaking.
        The only other point I would like to make this morning is,
    that again we ask that in your minds as you make the
    appropriations decision, keep the court's operating budget
    separate and apart from the pro bono program, until such time
    as the pro bono program, can be authorized and made
    independent.
        We understand that must be done before the appropriation
    process does not run through the court. But the court can act
    as a conduit, provided there is not a conflict in its operating
    budget over what the program needs.
        I will not address the merits of the pro bono program, as
    they are capable of doing that themselves.
        That would conclude my comments.
        [The statement follows:]

                     Prepared Statement of Frank Q. Nebeker
        Mister Chairman and distinguished members of the committee: On
    behalf of the Court, I appreciate the opportunity to present for your
    consideration the fiscal year 1998 budget of $9,379,804 for the United
    States Court of Veterans Appeals.
        The Court's total fiscal year 1998 budget request contains the same
    dollar amount for personnel and operations as in the Court's fiscal
    year 1997 appropriation. It also includes $850,804 requested by the Pro
    Bono Representation Program (Program), which is 121.5 percent of the
    $700,000 appropriated for fiscal year 1997. The Program has provided
    its own supporting statement for its budget request.
        Last year I urged that the Pro Bono Representation Program be
    authorized and funded outside the Court's appropriation. I outlined the
    reasons for the Court's concerns with the continued inclusion of the
    Program's funding in the Court's appropriation. The Court continues to
    be of the view that such a funding method impermissibly links the Court
    to one class of litigants, and thereby exposes the Court to an
    appearance of partiality and a consequent erosion in the public's trust
    and confidence in the judicial review of veterans' claims. I ask again
    that the funding for the Program be separated from the Court's
    appropriation, not only in the budget deliberations in Congress, but in
    the actual budget enactment. To that end, I urge the authorization of
    the Program and legislation permitting its independent budget.
        Notwithstanding these reservations, and consistent with Congress'
    direction, the Court is forwarding the Program's fiscal year 1998
    request for $850,804 as an appendix to the Court's submission and,
    consistent with that direction, is including that amount in the Court's
    total fiscal year 1998 budget request. The Legal Services Corporation
    administers the grants for the Program and, according to its
    evaluations, the Program is working the way it should. The Program has
    provided its own supporting statement for its budget request, which, as
    noted, represents a 21.5 percent increase over the $700,000
    appropriated for fiscal year 1997.
        The Court has kept a flat budget by continuing a number of cost-
    saving measures, including a 25 percent reduction in the budget
    allotted for travel, with no funding requested for Court hearings
    outside Washington. Also, as I stated in my testimony last year, the
    Court now is holding its judicial conference every other year, rather
    than annually. This event focuses on continuing education for the
    Court's practitioners and is held locally. Of even more significance,
    the Court is requesting funding for only 79 full-time equivalent (FTE)
    positions in fiscal year 1998 which is a voluntary reduction of 2 FTE
    positions from the fiscal year 1997 authorized FTE level, and matches
    the fiscal year 1998 FTE target level recommended by the Office of
    Management and Budget in its implementation of the National Performance
    Review. The requested 79 FTE positions are required to maintain high-
    quality service to litigants seeking judicial review, particularly
    those who come to the Court unrepresented.
        As the Court's budget statement illustrates, in a chart the Clerk
    has compiled, after a drop in the number of appeals in fiscal year
    1994, the numbers have continued to climb in fiscal year 1995 and
    fiscal year 1996, and the upward trend seems to be continuing. The
    number of denials by the Board of Veterans' Appeals, from whose
    decisions the Court's appeals derive, increased from 6,400 appeals in
    fiscal year 1995 to 10,455 appeals in fiscal year 1996. Furthermore, as
    noted in the Court's budget submission, the statistics kept by the
    Board of Veterans' Appeals (Board) on ``denials'' do not include Board
    decisions that deny some, but not all, of the benefits sought. The
    denials in such cases are also appealable to the Court. Thus, the
    number of pending cases may continue to increase at an even greater
    rate than is predictable as a set percentage of the number of full
    Board ``denials.'' The percentage of unrepresented appeals has fallen
    from 80 percent in fiscal year 1995 to 72 percent in fiscal year 1996.
    However, this rate remains much higher than the 46 percent
    unrepresented civil appeal rate in U.S. courts of appeals. While the
    Court has, voluntarily, kept pace with the recommendations of the
    National Performance Review, which propose an 11.5 percent FTE
    reduction over six years, further reductions in staff may need to be
    re-evaluated based on the likelihood of an increased caseload and a
    percentage of pro se appellants that continues to be relatively high.
        It is my understanding that the Independent Budget Veterans Service
    Organizations (IBVSO's) have reached similar conclusions as to
    increasing caseload in the chapter on the U.S. Court of Veterans
    Appeals in their Independent Budget for Fiscal Year 1998. The IBVSO's
    document a presently rising caseload and oppose downsizing of the Court
    for that reason.
        On another matter, I am appending to this testimony a copy of my
    letter to Chairman Specter emphasizing the importance of passing Title
    II of the legislative proposal submitted last year to make the Court's
    retirement/survivor program comparable to the systems of other Article
    I Courts. As I point out in my letter, the legislative proposal was
    initially submitted in response to Congressional inquiries regarding
    the Court's caseload relative to the requisite number of judges on the
    Court and regarding the comparability of the Court's judicial
    retirement/survivor program.
        Following last year's transmittal, there was an increase in the
    number of notices of appeal filed with the Court, and a consequent
    increase in the number of pending cases. Some veterans service
    organizations have either opposed enactment of Title I or, more
    cautiously, favored a ``wait and see'' approach to it. Based on the
    increase in notices of appeal, the ``wait and see'' approach has been
    shown to be the wiser course as to Title I, and the Court recognizes
    its merit. Accordingly, the Court does not press consideration of Title
    I by the Committee.
        I am aware of no negative comments with regard to the provisions of
    Title II. I ask for your active support in obtaining enactment of Title
    II to make the Court's retirement/survivor program more comparable with
    other Article I Court programs. Because of Judge Hart Mankin's death in
    May 1996, his widow, Ruth Mankin, is now a survivor under the Court's
    survivor annuity program. Survivors under the Court's annuity program
    are at a considerable disadvantage, over time, in comparison to the
    survivors of other deceased Article I judges covered by the Survivors'
    Annuity Systems enacted to provide such benefits to them. I ask that
    you take expeditious action to enact Title II, which is estimated to
    have an actuarially insignificant cost impact.
        In conclusion, I appreciate this opportunity to present the Court's
    budget request for fiscal year 1998. On behalf of the judges and staff,
    I thank you for your past support and request your continued assistance
    and favorable report to the Appropriations Committee on our budget
    request.
                                     ______

                    The Veterans Consortium Pro Bono Program
                        revised fiscal year 1998 budget
        The Veterans Consortium Advisory Committee has revised the proposed
    fiscal year 1998 budget, to reflect the fact that we have found
    ourselves able to fill, through personnel donated by one of the
    Consortium's constituent veterans service organizations, a position
    that we had expected to have to fund out of fiscal year 1998 grant
    funds. We have also adjusted the Program budget to reflect the
    additional cost of $5,000 for an audit in compliance with OMB Circular
    A-133, required for the first time next year by LSC. The result of
    these adjustments is that the overall budgeted expenditures for fiscal
    year 1998, set in the original budget at $850,804, are reduced by
    $57,487, to a total of $793,317.
        A spreadsheet setting out the revised budget in detail is attached
    hereto as Exhibit A; a summary of significant statistical information
    regarding the Program is attached as Exhibit B. This memorandum will
    first provide an overview of the budget as revised, and then address in
    some detail the increases contemplated over the current fiscal year
    1997 budget and the changes from the fiscal year 1998 budget as
    originally proposed.

                                    OVERVIEW

        The revised budgeted expenditures of $793,317 represent an increase
    of 13.3 percent over the $700,000 appropriation for fiscal year 1997;
    but only a 6.65 percent increase over the budget on which the Program
    is currently operating, which calls for expenditures of $743,838. That
    budget figure was the amount of the appropriation we sought for fiscal
    year 1997; and although the appropriation was for a lesser amount, we
    have been able to operate on the basis of the original budget because
    there were unexpended funds from the previous fiscal year, largely the
    result of curtailed operations in fiscal year 1996 resulting from
    uncertainties as to whether the Program would be able to continue to
    operate at all.
        It is pertinent to note that the level of expenditures contemplated
    by the revised fiscal year 1998 budget happens to correspond quite
    closely to the amount of the appropriations for the Program in fiscal
    year 1994 and fiscal year 1995, namely, $790,000--and without any
    adjustment for inflation for the four-year interval from fiscal year
    1994 to fiscal year 1998. Indeed, that figure was the amount that the
    Court of Veterans Appeals contemplated would also be provided for the
    Program for fiscal year 1996: the Court requested an appropriation for
    the Program for that fiscal year of $678,000, but that lesser figure
    took into account $112,000 that had been conserved by the Program in
    prior years, and that remained available for Program expenditures in
    fiscal year 1996. The Court observed, in submitting the fiscal year
    1996 request, that ``this is a nonrecurring reduction [in the requested
    appropriation] that could not be maintained in future years without
    programmatic changes that the Court does not now anticipate would be
    desirable.''
        By reason of the overall budget reductions in fiscal year 1996,
    however, the Program wound up operating on a revised budget, covering
    both the ``A'' and ``B'' grants, of $633,931. This revised budget was
    $34,278 less than the amount actually expended in the previous fiscal
    year, $44,069 less than the $678,000 in new appropriations for the
    Program that had been in the Court's budget submission, and $156,069
    less than the $790,000 contemplated by the Court's fiscal year 1996
    budget submission. As we pointed out in our fiscal year 1997 budget
    submission, the amount on which we were operating in fiscal year 1996
    was insufficient for the Program to operate as originally envisioned,
    and we needed to make up for that year's shortfall if the Program was
    to resume operating at full steam. Mindful of budgetary exigencies,
    however, we did not then ask that the Program be restored to its full
    prior level of appropriated funding. That is, however, what we are
    asking now.
          detailed explanation of the revised fiscal year 1998 budget
        The proposed increase in expenditures from the fiscal year 1997
    budget reflects both the need to deal with the backlog of cases in the
    Case Evaluation and Placement Component, resulting from a period when
    that component was understaffed, and an anticipated continuing increase
    in the number of BVA decisions and consequent appeals to the Court and
    a corresponding increase in the Program's caseload. Thus, in the first
    six months of fiscal year 1997 we received 294 PRF's (Participation
    Request Forms), compared to 217 in the comparable period in fiscal year
    1996, and placed 120 cases with volunteer lawyers as compared to 93:
    increases of 35 percent and 29 percent, respectively.
        Since personnel costs--the salary and benefits of some of the
    individuals performing services for the Program that are reimbursed out
    of grant funds--account for the major part of the Program budget (they
    were 70.2 percent in fiscal year 1997, and are 74.5 percent in the
    revised fiscal year 1998 budget), they account for most of the increase
    as well. These personnel costs relate to a portion of the time of the
    personnel who staff the Outreach and the Education Components, and the
    entirety of the time of most of the personnel who staff the Case
    Evaluation and Placement Component (the services of the other staff
    being provided free of charge to the Program). In all instances the
    staff are actually employees of one or the other of two of the
    Consortium's four constituent organizations--National Veterans Legal
    Services Program (NVLSP) or Paralyzed Veterans of American (PVA)--which
    are reimbursed from grant funds for the appropriate portion of their
    salary and benefits. Table A shows in summary form the number of
    persons providing services for each component, and the number of Full-
    Time Equivalent (FTE) positions to be paid out of grant funds in fiscal
    year 1997 and fiscal year 1998.

                                TABLE A.--PRO BONO PROGRAM PERSONNEL AND FTE DISTRIBUTION
    ----------------------------------------------------------------------------------------------------------------
                                                                 Total No. of
                                                                   personnel        Total FTE       Total FTE to be
                             Component                          providing some    reimbursed by      reimbursed by
                                                                service to the    grant, fiscal      grant, fiscal
                                                                    program         year 1997          year 1998
    ----------------------------------------------------------------------------------------------------------------
    Outreach..................................................               6               0.17               0.21
    Education.................................................              10               0.96               1.05
    Case evaluation and placement.............................              10               7.5                8.0
                                                               -----------------------------------------------------
          Total...............................................              26               8.63               9.26
    ----------------------------------------------------------------------------------------------------------------

        A fuller breakdown by component follows.
    I. Case Evaluation and Placement Component--$575,383
        The revised fiscal year 1998 budget contemplates an increase of
    $39,262 over the fiscal year 1997 budget for the Case Evaluation and
    Placement Component (referred to in the budget spreadsheet as the
    ``Screening'' component). This is in place of the $99,249 increase
    reflected in the original fiscal year 1998 budget.
        A. Personnel.--There are three categories of personnel staffing
    this Component: lawyers, non-lawyer veterans law specialists, and
    support staff.
        Two lawyers, the Director and the Deputy Director, function full
    time as such in the Case Evaluation and Placement Component, and the
    entirety of their personnel cost is reimbursed by the Program--in one
    instance to PVA and the other to NVLSP. Thus, the lawyer FTE for this
    Component reimbursed from grant funds, in both fiscal year 1997 and
    fiscal year 1998, is 2.0.
        Veterans law specialists review the VA claims file and BVA decision
    to determine whether or not each case contains an issue that warrants
    referral to a lawyer. Veterans law specialists come from the
    constituent Veterans Service Organizations and are among the most
    experienced non-lawyer service officers these organizations have to
    offer.
        It was originally contemplated that there would be four full-time
    veterans law specialists, plus part-time help equivalent to half the
    time of a fifth, in the Case Evaluation and Placement Component in
    fiscal year 1997--two of the full time specialists being supplied, on a
    reimbursable basis, by PVA, and the other two donated by Disabled
    American Veterans (DAV) and The American Legion, respectively. However,
    in late fiscal year 1996, The American Legion recalled its specialist
    to the organization's national office and could not furnish a
    replacement until midway through the fiscal year. As a result of this
    and other personnel difficulties, the Component operated with only 3
    FTE veterans law specialists for the first five months of the year.
    This fact, combined with increased filings, had created a backlog of
    some 141 cases as of May, 1997. At the time the fiscal year 1998 budget
    was prepared, this Component had a total of 3.5 FTE veterans law
    specialists, 2.5 of them reimbursed by the Program and the other
    donated by DAV. The original fiscal year 1998 budget contemplated an
    increase of 1.5 FTE, to bring the total number of specialists
    (including one donated specialist) to five. Since the restoration of
    the American Legion's donated specialist, however, the need for one
    additional reimbursed specialist has been eliminated, and the budget
    has been reduced accordingly.
        There are three full-time administrative support staff in the Case
    Evaluation and Placement Component, all employees of NVLSP, and all
    reimbursed out of Program funds.
        The levels of salaries and benefits paid to the personnel who staff
    the Program are of necessity governed by the general personnel policies
    of the constituent organizations of which they are employees--i.e., PVA
    and NVLSP--and to which they may return in the event of termination of
    the Program or rotation of personnel by the organizations involved.
    Both of those organizations expect to increase their staff salaries
    generally by 5 percent, of which 3 percent will be an across-the-board
    cost of living increase and 2 percent will be allocated for merit
    raises. The increases are reflected in the personnel costs of all three
    Components of the Program in the fiscal year 1998 budget.
        B. Travel/Continuing Legal Education.--The revised fiscal year 1998
    budget, like the original one, includes an increased allocation of
    $1,500 for travel/CLE (to $2,500) to be used for continuing legal
    education for lawyer staff of this Component. This is largely offset by
    a reduction of $1,000 in the amount allocated for travel/CLE for the
    Education Component.
        C. Audit.--Audit costs have been increased by an additional $2,500
    in the revised fiscal year 1998 budget to reflect the Component's share
    of the increased cost of the annual audit by reason of the new LSC
    requirement, mentioned above.
        D. Property Acquisition and Contract Services.--These will decrease
    by $10,000 from the amount budgeted for fiscal year 1997. Major
    improvements to the databases will be completed in fiscal year 1997.
    II. Outreach Component--$25,157
        The revised fiscal year 1998 budget calls for a $6,537 increase
    over the fiscal year 1997 budget for the Outreach Component: $500 more
    than the original fiscal year 1998 budget. As indicated below, all but
    $1,776 of the increase is in personnel costs.
        A. Personnel.--These costs are budgeted to increase by $5,349
    because we anticipate a continued increase in recruiting needs. We
    assume a greater need for volunteer lawyers in fiscal year 1998 because
    of the known and anticipated increase in the number of BVA decisions;
    the budget also assumes that we will continue outreach efforts outside
    the Metropolitan Washington area. Personnel costs include an increase
    of 5 percent, as discussed previously under Case Evaluation and
    Placement.
        Three NVLSP lawyers devote a portion of their time to the Outreach
    Component; and that portion of their personnel cost is reimbursed by
    the Program. The aggregate lawyer FTE for the Outreach Component
    reimbursed from grant funds in fiscal year 1997 is 0.07; the FTE
    contemplated for fiscal year 1998 remains at 0.07.
        Three NVLSP non-lawyers also function for part of their time in the
    Outreach Component; and that portion of their personnel cost is
    reimbursed by the Program. The aggregate non-lawyer FTE for the
    Outreach Component reimbursed from grant funds in fiscal year 1997 is
    0.10; the FTE contemplated by the fiscal year 1998 budget is 0.14.
        B. Other.--The only change from the original fiscal year 1998
    budget to the revised one is an increase of $500 in the audit line to
    reflect the Outreach Component's share of the increased cost of the
    annual audit. The remainder of the $1,776 difference in non-personnel
    expenses between fiscal year 1997 and fiscal year 1998 reflects line
    item adjustments based on past experience.
    III. Education Component--$126,545
        The revised fiscal year 1998 budget calls for an increase of
    $12,998 over the fiscal year 1997 budget: $2,000 more than the original
    fiscal year 1998 budget.
        A. Personnel.--Personnel costs are budgeted to increase by $8,934.
        A total of 6 NVLSP lawyers function in the Education Component, and
    a portion of their personnel cost is reimbursed by the Program. We
    anticipate an increase in mentoring duties, due to the cumulative
    effect from previously assigned but still pending cases. We plan to
    contain this cost, however, by assigning more mentoring duties to
    personnel with lower personnel costs. The aggregate lawyer FTE for the
    Education Component reimbursed from grant funds in fiscal year 1997 is
    0.51; the FTE contemplated for fiscal year 1998 is 0.54.
        Four NVLSP non-lawyers function in the Education Component, and all
    four of them have a portion of their personnel cost reimbursed by the
    Program. The cost of grant administration has been increased to 25
    percent of the time of both the Grant Administrator and the
    Administrative Assistant, based on past experience and an anticipated
    increase in the Grant Administrator's time required for audit
    preparation and contract reporting. The aggregate non-lawyer FTE for
    the Education Component reimbursed from grant funds in fiscal year 1997
    is 0.45; for fiscal year 1998 it will be 0.51.
        B. Other.--As with the Outreach Component, the only change with
    respect to the Education Component, from the original fiscal year 1998
    budget, is an increase in the audit costs, by $2,000, to reflect the
    Education Component's share of the increased cost of the annual audit
    pursuant to the new LSC requirement. The remainder of the difference
    from the fiscal year 1997 budget reflects various adjustments based on
    past experience.
    IV. ``B'' Grant--$44,232
        This line assumes a total of 24 cases at a cost of $1,843 per case.
    This represents a 3 percent per case increase over the fiscal year 1997
    budget figure of $1,785 per case; it also reflects a reduction from the
    total number of budgeted cases (30) in both fiscal year 1996 and fiscal
    year 1997, as we continue to fine-tune this requirement.
    V. LSC Oversight--$20,000

                                DONATED SERVICES

        The vast majority of services rendered to the Pro Bono Program are
    donated.
        The most impressive contribution is the value of the legal services
    provided by volunteer lawyers recruited by the Program. For fiscal year
    1996, for example, the value of the pro bono representation provided by
    volunteer attorneys under the Program was estimated to be $2,255,618--
    providing, when combined with the contributions of the participating
    organizations, a return of some 3 to 1 on the appropriated federal
    funds.
        The American Legion and the DAV receive no reimbursement for the
    salary or related expenses for the full-time veterans law specialists
    they provide to the Program. Those two organizations have not reported
    the cost of providing these specialists, but it is obviously comparable
    to that of the two specialists whose costs are reimbursed from grant
    funds.
        Neither DAV nor PVA receives any reimbursement for the time spent
    by its lawyers in providing mentoring services for the Education
    Component. Together, these contributions can be conservatively
    estimated at $20,000 annually.
        None of the participating organizations receives any reimbursement
    for time spent by their representatives in connection with the
    activities of the Consortium's Advisory Committee. (The fiscal year
    1996 estimated value of that time was $101,524.)
        The total value of contributions by the participating organizations
    (with the exception of the unreported value of the contributions by the
    American Legion and DAV, mentioned above) in fiscal year 1996 was
    estimated at $202,580.

                 CONTRIBUTIONS OF EAJA FEE AWARDS BY LAW FIRMS

        As previously reported, the Program has on seven occasions since
    late 1995 received unsolicited donations from law firms (four of the
    donations being from one firm), in each case representing part or all
    of an Equal Access to Justice (EAJA) fee award recovered by the
    donating firm in a case taken under the Program. (We have also received
    a $20 contribution from a grateful veteran.) All four of the
    contributing firms are large firms; among such firms it is quite
    commonly firm policy to give away to one or another pro bono cause fee
    awards recovered in pro bono cases--generally to the organization at
    whose behest the matter was taken on. The total of such donations
    (including the $20 one) to date is $45,054.08.
        The Advisory Committee has established a special account to which
    all such contributions will be earmarked, to be used for Program
    activities for which grant funds have not hitherto been sought or
    applied. It is the Committee's view that the uses made of such donated
    funds must be ones that the donating firms would deem appropriate, and
    that would tend to elicit other donations by participating firms: thus,
    it would be counterproductive to treat the donated funds as an offset
    for appropriated funds. The Committee has decided that initially the
    earmarked funds will be used for three purposes: to fund outreach
    activities in other jurisdictions; to fund presentation of the lawyer
    training program in other jurisdictions; and, in selected cases, to pay
    expenses incurred by solo practitioners who wish to take cases under
    the Program and who would find it more feasible to participate if
    certain essential costs are defrayed by the Program.

                                   Exhibit A

    [GRAPHIC] [TIFF OMITTED] T05MA04.002

                                   Exhibit B

                                 PRO BONO PROGRAM AT THE U.S. COURT OF VETERANS APPEALS
    ----------------------------------------------------------------------------------------------------------------
                                                                                 Fiscal years
                                                                  ------------------------------------------
                                                                    1993    1994    1995    1996   1997 \1\  Program
                                                                    (9/1/  (10/1/  (10/1/  (10/1/  (10/1/96-  total
                                                                    92-9/   93-9/   94-9/   95-9/  9/30/97)
                                                                   30/93)  30/94)  30/95)  30/96)
    ----------------------------------------------------------------------------------------------------------------
    Total appeals filed at CVA \2\...............................   1,265   1,148   1,204   1,561      798     5,976
    Appeals filed Pro Se \2\.....................................   1,044     918     957   1,141      547     4,607
    Pro Bono Program application forms sent......................     853     648     812     936      565     3,812
    Veterans who filed applications for program consideration....     580     450     609     493      295     2,427
    Veterans who received free attorney..........................     231     187     201     181      120       920
    Veterans who received some form of legal assistance (but no
     representation due to program ineligibility)................     343     262     327     287      186     1,405
    Percent of program eligible veterans who received
     representation (percent)....................................     100     100     100     100      100       100
    Program cases completed during fiscal year \3\...............      52     147     199     156       88       642
    Program cases in which VA error found \3\....................      45     112     158     125       64       504
    Percent of cases in which veteran prevailed in litigation
     through program efforts (percent)...........................    86.5    76.2    79.4    80.1     72.7      78.5

    Recruited attorneys who have received training \4\...........     236     100     121     160       93       710
    ----------------------------------------------------------------------------------------------------------------
    \1\ Figures through 2nd quarter fiscal year 1997 only.
    \2\ Figures supplied by the Court (through 2/28/97 only).
    \3\ Figures do not include cases where representation was declined by the appellant, nor cases where the
      appellant died during pendency of appeal.
    \4\ Does not include 43 attorneys for whom training was waived.

    Note: Figures subject to minor revision.

                                     ______

                          Letter From Frank Q. Nebeker
                                U.S. Court of Veterans Appeals,
                                      Washington, DC, February 4, 1997.
    Hon. Arlen Specter,
    Chairman, Committee on Veterans' Affairs,
    U.S. Senate, Washington, DC.
        Dear Mr. Chairman: On June 10, 1996, I transmitted to the Chairmen
    and Ranking Minority Members of the Senate and House Committees on
    Veterans' Affairs a proposal to downsize the number of the Court's
    associate judges (Title I of the proposal) and to make the Court's
    retirement/survivor program comparable to the systems of other Article
    I Courts (Title II of the proposal). The proposal, a duplicate of which
    I again transmit with this letter, was submitted in response to
    Congressional inquiries regarding the Court's caseload relative to the
    requisite number of judges on the Court and regarding the comparability
    of the Court's judicial retirement/survivor program. The 104th Congress
    took no action on either Title I or Title II.
        With respect to Title I, I indicated in my transmittal letter that
    case filings during the fiscal year 1990-92 period had averaged 1,942
    per year but had dropped in the fiscal year 1993-95 period to an annual
    average of 1,224. At the time of my transmittal, case filings for the
    first 6 months of fiscal year 1996 were estimated to be 595 which
    suggested that fiscal year 1996 filings would be less than average
    annual filings for fiscal year 1993-95. During the last 6 months of
    fiscal year 1996, filings rose so that total fiscal year 1996 filings
    reached 1,620. For the first quarter of fiscal year 1997 the Court
    received 457 filings. I further indicated in my transmittal letter that
    cases pending at the end of each year of the fiscal year 1990-92 period
    had averaged 1,865 but had dropped to an average of 1,182 at the end of
    each year of the fiscal year 1993-95 period. At the time of my
    transmittal, it is estimated that 1,438 cases were pending. At the end
    of the first quarter of fiscal year 1997, 1,707 cases were pending. It
    should be further noted that the Board of Veterans Appeals, from which
    the Court's appeals derive, denied 6,400 appeals in fiscal year 1995
    and 10,455 appeals in fiscal year 1996.
        Several veterans service organizations either opposed enactment of
    Title I or, more cautiously, favored ``a wait and see'' approach to it.
    Enactment of Title I would result in estimated net annual savings of
    $660,900.
        With respect to Title II, my June 10, 1996, transmittal letter
    stated:

              In the matter of the retirement/survivor program, I have
            received several letters from past chairmen of the Senate
            Veteran's Affairs Committee regarding the comparability of the
            Court's program with those established for other federal courts
            and have twice responded to the invitation to provide comments
            on a Congressional Research Service Report (Dennis W. Snook &
            Jennifer A. Neisner, ``Congressional Research Service Report
            for Congress, Income Protection for Judges of Selected Federal
            Courts,'' dated December 29, 1993) (CRS report), that was
            prepared on that subject. The Court was asked to continue to
            review the matter and to advise the Committee of its findings.
            Enclosed also is a copy of the CRS report, annotated so that it
            may be used in conjunction with a memorandum dated November 14,
            1994 (Memorandum), also enclosed, prepared by the Court's
            Committee on Legislative Matters, which addresses certain minor
            deficiencies in the CRS report. The Court's review has revealed
            that each judicial retirement/survivor program has unique
            features and also that the retirement programs of other Article
            I federal courts have generally been enhanced over the last 7
            years, whereas this Court's program has generally remained
            static since its creation in 1989. The Court believes that
            certain aspects of this resulting disparity should be addressed
            in corrective legislation to make the Court's program more
            comparable with other Article I federal court retirement
            programs. Accordingly, the Proposal also provides for systemic
            reforms in the Court's retirement/survivor system that are
            designed to put the Court on a more equal footing with the
            systems provided for other Article I courts.

        I ask for your active support as Chairman in obtaining enactment of
    Title II to make the Court's retirement/survivor program more
    comparable with other Article I court programs. Because of the death of
    Judge Hart Mankin, on May 28, 1996, his widow, Ruth Mankin, is now a
    survivor under the Court's survivor annuity program. Over time, she
    will be at considerable disadvantage in comparison to widows of
    deceased Article I judges covered by the Joint Survivors' Annuity
    System. In this regard, I am hopeful that you will respond with
    expeditious action to enact Section 204 of Title II which is estimated
    to be without actuarially significant cost impact and without any
    appropriations impact. Enactment of all sections of Title II other than
    Section 204 is estimated to be without cost or appropriations impact.
        I would also ask that you consider enacting legislation that would
    change the Court's name to the United States Court of Appeals for
    Veterans Claims. Many veterans and attorneys believe that the Court is
    an administrative tribunal of the Department of Veterans Affairs rather
    than an independent judicial entity. The present name of the Court
    appears to add to that belief especially in view of the fact that the
    name, ``United States Court of Veterans Appeals'', is often reduced to
    the acronym ``CVA'', which is not readily distinguishable from ``BVA,''
    the acronym for the Board of Veterans Appeals which is an
    administrative tribunal of the Department, or ``DVA,'' the common
    acronym for the Department. It is important that the Court be perceived
    as both judicial and independent. Adoption of the name ``United States
    Court of Appeals for Veterans Claims'' should promote that perception.
    Such a change would also be consistent with action in recent years with
    respect to the names of other Article I Courts. The United States Court
    of Claims became the United States Court of Federal Claims in 1992. The
    United States Court of Military Appeals became the United States Court
    of Appeals for the Armed Forces in 1994.
        Finally, I bring to your attention one additional matter. The Court
    was created in 1988 without any antecedent structure and with no judges
    in place (Veterans' Judicial Review Act, Public Law No. 100-687, Div.
    A., 102 Stat. 4105 (Nov. 18, 1988)). All 6 of the Court's original
    associate judges assumed office within a period of approximately 1 year
    of each other. Assuming that Title I of the proposal is not enacted,
    the 15-year terms of the Court's remaining 5 original associate judges
    will expire within a period of approximately 1 year of each other. As a
    consequence, and again assuming no downsizing, I recommend that
    consideration be given to attempting to eliminate the undesirable
    dislocating effect of such a rapid turnover by permitting early
    retirement of remaining original associate judges who meet certain age
    and service requirements which, in turn, could space the sequencing of
    retirements so as to assure continuity of experience in the Court's
    judicial component. Implementation may be achievable, pursuant to 38
    U.S.C. Sec. 7298(2)(A), within existing appropriations. It should be
    noted that several Article I Courts have early retirement programs
    applicable to all their judges.
        Thank you for your consideration. I am sending the same letter and
    enclosures to Chairman Stump, and Ranking Minority Members Rockefeller
    and Evans.
                Sincerely,
                                              Frank Q. Nebeker,
                                                           Chief Judge.

                              va decision process

        Senator Bond. Thank you, Judge.
        Senator Mikulski will be rejoining us shortly.
        The committee has been concerned for a long time with the
    whole process of adjudicating claims at the Department of
    Veterans Affairs, both in terms of the time it takes and the
    quality of decisions. The VA has undertaken some initiatives to
    make improvements, such as business process reengineering.
        First, do you see any evidence that the quality of
    decisionmaking is improving at the VA?
        Judge Nebeker. Not in the cases that come before the court.
    The error rate is still approximately 50 percent. That is, 50
    percent of the cases that come to issue and are decided by the
    judges are remanded because of prejudicial error in the
    decision somewhere.
        Senator Bond. Well, 2 years ago you said the rate was in
    excess of 60 percent, so while 50 percent is not great, I guess
    there is progress, going from 60 percent to 50 percent.
        What needs to be done?
        Judge Nebeker. Well, I wish I knew. Obviously, more
    resources at the Board level, but they have got the resources.
    They have been augmented tremendously in an austere budget
    period. They have cut back to one member panel, that is, single
    member decisions, and they are putting out more decisions. As a
    matter of fact, the denial rate before the Board has gone from
    6,000 last year to 10,000 this year. We can expect that
    reverberation to affect the case load of the court in the next
    year, 6 months to 1 year.
        Senator Bond. In October 1994 at the court's third judicial
    conference, you called upon Secretary Brown to make unequivocal
    use of the powers invested in his office to ensure that
    precedent opinions are followed and the judgments in specific
    cases are met with full and prompt compliance.
        Has there been any action on that recommendation?
        Judge Nebeker. There have been a number of committees
    studying it.
        Senator Bond. Studying it?
        Judge Nebeker. Yes, sir.
        Senator Bond. Thanks.
        In addition, a commission authorized by Congress, the so-
    called Melidosian Commission, recently finalized its report on
    improving claims processing. It said the claims adjudication
    system was created by the VA to process the benefits legislated
    by Congress, but that layer upon layer of changes have been
    added to the benefits and, therefore, to the processing system
    and that there has never been a wholesale revision to bring all
    changes into a harmonious whole. Therefore, the nature of the
    product's benefits have helped lead to a system which is
    perceived as inefficient, untimely, and inaccurate.
        Do you believe Congress needs to legislate an overhaul to
    the claims processing system as contemplated, or could it be
    achieved by regulation? What is your view on the needed
    reforms?
        Judge Nebeker. Mr. Chairman, I am not in a position to
    offer an opinion respecting the operations of an executive
    branch Department, particularly one of the size of the
    Department of Veterans Affairs. I note that that Melidosian
    report pretty well echoed what I suggested 2 years ago at the
    judicial conference, which you just mentioned.
        But insofar as a court entering into the political arena of
    what ought to be done to make a particular executive branch
    program work, I am totally unqualified to do that.

                        PRO BONO REPRESENTATION PROGRAM

        Senator Bond. With respect to the proposed reprogramming of
    $950,000 to initiate the pro bono representation program, your
    testimony says:

        The court's judges continue to believe that this funding
    method links the court to one class of litigants and exposes it
    to charges of lacking impartiality, thereby degrading the
    public's trust and confidence in the judicial review of
    veterans' claims.

        The court has altered its position on the pro bono
    representation program last year after supporting its inclusion
    in the budget for several years. Would you explain what the
    status is and where this program stands and what the trust and
    confidence level may be in the judicial system?
        Judge Nebeker. Well, the program is a successful program.
    It not only--well, its major purpose is to help the pro se
    veterans. To the extent that it thereby helps the court, that
    is a windfall and a desirable windfall. We are a conduit for
    their funding and as long as we can be assured and the public
    can be assured that the court is not funding the program out of
    its own operating budget, then I think there is no real
    concern.
        But if the idea is that the court is funding a particular
    side of the litigation that appears before it, it is not unlike
    the court funding a public defender service or a prosecutor's
    office to the exclusion of the other side. It is that problem
    that we think needs to be solved, because there is an
    appearance that the court is in a position of being compromised
    where it should not be.

                                    CLOSING

        Senator Bond. Thank you very much, Judge.
        Let me see if Senator Mikulski wants to ask any questions.
    In the interest of time, I will submit the remainder of the
    questions I have for the record. I think you have covered very
    well the things we have discussed and I appreciate your
    responsiveness to the questions, as well as to the concerns
    that we have expressed.
        Senator Mikulski has said that she will submit her
    questions for the record. I appreciate very much your
    testimony.
        Judge Nebeker. Thank you very much, Mr. Chairman. I do try
    to be responsive to questions when they are asked.
        Senator Bond. It is a very pleasant trait. I certainly
    enjoy it.
                      AMERICAN BATTLE MONUMENTS COMMISSION

    STATEMENT OF GEN. JOHN P. HERRLING, U.S. ARMY
                (RETIRED), SECRETARY
        Senator Bond. I welcome our final panel: Gen. John P.
    Herrling, Secretary of the American Battle Monuments
    Commission, will be testifying on the administration's budget
    request for fiscal year 1998 for the ABMC of $23.9 million, an
    increase of $1.6 million over fiscal year 1997's appropriation
    of $22.3 million. Mr. Steve Dola, the Deputy Assistant
    Secretary for Management and Budget for the Department of the
    Army, Cemeterial Expenses, will be testifying on the
    administration's budget request for fiscal year 1998 of $11.8
    million, a $200,000 increase over to $11.6 million appropriated
    for fiscal year 1997. This funding would cover the maintenance,
    operation, and improvement of Arlington National Cemetery and
    the Soldiers and Airmen's Home National Cemetery. Finally, Mr.
    Gil Coronado, Director of the Selective Service System, will
    testify on the administration's budget request for fiscal year
    1998 of $23.9 million for the Selective Service, an increase of
    $1 million over the $22 million appropriated for fiscal year
    1997 for the Selective Service.
        With that, General Herrling.
        General Herrling. Thank you, Mr. Chairman. On behalf of the
    Commissioners of the American Battle Monuments Commission, I am
    pleased to appear before you today. Let me begin by thanking
    you and the members of this committee for the support that you
    have provided our Commission over the years.
        The special nature of the American Battle Monuments
    Commission places it in a unique and highly responsible
    position with the American people. The manner in which we care
    for our honored war dead is and should remain a reflection of
    the high regard in which we as a Nation memorialize their
    service and sacrifices.
        As you know, the American Battle Monuments Commission was
    established by Congress in 1923. It is a small, one-of-a-kind
    organization responsible for commemorating the services of the
    Armed Forces where they have served since April 6, 1917. We do
    this through the construction and maintenance of memorial
    shrines, monuments, and military burial grounds on foreign
    soil.
        The American Battle Monuments Commission operates and
    maintains 24 permanent memorial cemeteries and 28 monuments,
    memorials, and markers in 15 countries around the world. We
    have 8 World War I and 14 World War II cemeteries located in
    Europe, the Mediterranean, North Africa, and the Philippines.
    All of these cemeteries are closed to burials. In addition, we
    are responsible for the American cemeteries in Mexico City and
    Panama.
        Interred in these cemeteries are approximately 31,000 World
    War I dead, 93,000 from World War II, and 750 from the Mexican
    war, for a total of 125,000. Also we have approximately 5,000
    American veterans and others buried in the cemetery in Panama.
    In addition, we have honored another 94,000 service members on
    the Walls of the Missing, dedicated to those missing in action
    or those lost or buried at sea.
        The care of these cemeteries and memorials requires a
    significant annual program of maintenance and repair of
    facilities, equipment, and grounds. The care and maintenance of
    these facilities is labor intensive. Therefore, personnel costs
    amount to 72 percent of our budget for fiscal year 1998. The
    remaining 28 percent is required to fund our operations which
    include engineering maintenance, utilities, horticultural
    supplies, equipment, and administrative costs.
        Also, because of the permanent nature of our operations, we
    do not have the option of closing or consolidating cemeteries
    or memorials. In light of this, we have increased our efforts
    to achieve greater efficiency and effectiveness through
    automation in the operational and financial management areas.
        In addition to our overseas mission, we have been mandated
    by the Congress to construct two memorials in Washington, DC.
        On July 27, 1995, President Clinton and President Kim Young
    Sam of the Republic of Korea dedicated the Korean War Veterans
    Memorial. Last month, on February 6, we opened the Korean War
    Veterans Memorial information kiosk. This kiosk houses the
    Korean war veterans honor role, which allows friends and
    relatives to query a data base containing the names and
    information about those who died during the Korean war. With
    the opening of the kiosk, the Korean War Veterans Memorial is
    now complete.
        In May 1993, Congress authorized the Commission to build a
    national World War II memorial. The Rainbow Pool site on The
    Mall was dedicated on November 11, 1995, by President Clinton.
    Since that time a national design competition for the memorial
    was held, with over 400 entries submitted. Six finalists were
    selected for the final stage of the competition. On January 17
    of this year, President Clinton announced the winner of the
    design competition.
        As directed by the Congress, the project will be funded
    through private contributions. The American Battle Monuments
    Commission is currently working with a presidentially appointed
    World War II Memorial advisory board to raise the funds for the
    memorial.
        Our greatest challenge, Mr. Chairman, for fiscal year 1998
    will be in dealing with aging facilities and equipment. Our
    memorial cemeteries range in age from approximately 50 to 80
    years, with the Mexico City cemetery being over 140 years old.
    The permanent structures and plantings which make our
    facilities among the most beautiful memorials in the world are
    aging and require prioritized funding to maintain them at
    current standards. Therefore, we are requesting $250,000 more
    in fiscal year 1998 for maintenance and minor construction.
        In addition, much of our equipment is aging and rapidly
    reaching the end of its useful life. In order to resolve this
    problem, we are requesting an additional $200,000 to fund our
    equipment repair and replacement program. We also have small
    increases of $200,000 for supplies, $300,000 to integrate our
    financial system in compliance with OMB, GAO, and recent
    congressional directions, and $214,000 for rental of office
    space previously provided at no cost.
        In summary, since 1923 the American Battle Monuments
    Commission's cemeteries and memorials have been held to a high
    standard in order to reflect America's continuing commitment to
    its honored war dead, their families, and the U.S. national
    interest.
        The Commission intends to continue to fulfill this sacred
    trust. Our appropriation request for fiscal year 1998 is
    $23,897,000.

                               PREPARED STATEMENT

        Mr. Chairman, this concludes my statement. I will be
    pleased to respond to your questions.
        [The statement follows:]
                  Prepared Statement of Gen. John P. Herrling
        Mr. Chairman and Members of the Committee: Thank you for the
    opportunity to testify on our fiscal year 1998 Appropriation Request.
    The special nature of the American Battle Monuments Commission places
    it in a unique and highly responsible position with the American
    people. The manner in which we care for our Honored War Dead is, and
    should remain, a reflection of the high regard in which we, as a
    nation, honor their service and sacrifices.
        As you know, the American Battle Monuments Commission is a small,
    one-of-a-kind organization, that is responsible for commemorating the
    services of American Armed Forces where they have served since April 6,
    1917 (the date of U.S. entry into World War I) through the erection of
    suitable memorial shrines; for designing, constructing, operating, and
    maintaining permanent American military burial grounds in foreign
    countries; for controlling the design and construction of U.S. military
    monuments and markers in foreign countries by other U.S. citizens and
    organizations, both public and private; and for encouraging the
    maintenance of such monuments and markers by their sponsors. In
    performing these functions, the American Battle Monuments Commission
    administers, operates, and maintains twenty-four permanent memorial
    cemeteries and twenty-eight monuments, memorials, and markers in
    fifteen countries around the world.
        We have eight World War I and 14 World War II cemeteries located in
    Europe, the Mediterranean, North Africa, and the Philippines. All of
    these cemeteries are closed to burials except for the remains of the
    War Dead who may occasionally be discovered in World War I or World War
    II Battlefield areas. In addition, we are responsible for the American
    cemeteries in Mexico, established after the Mexican War, and Panama.
        Presently 124,914 U.S. War Dead are interred in these cemeteries--
    30,921 of World War I, 93,243 of World War II and 750 of the Mexican
    War. Additionally, 5,857 American veterans and others are interred in
    the Mexico City and Corozal (Panama) American Cemeteries. Commemorated
    individually by name on stone tablets at the World War I and II
    cemeteries and three memorials on U.S. soil are the 94,120 U.S. service
    men and women who were Missing in Action, or lost or buried at sea in
    their general regions during the World Wars and the Korean and Vietnam
    Wars.
        We continue to provide services and information to the public,
    friends, and relatives of those interred in, or memorialized, at ABMC
    cemeteries and memorials. This includes information about grave and
    memorialization sites as well as location, suggested routes, and modes
    of travel to the cemeteries or memorials. Immediate family members are
    provided letters authorizing fee-free passports for overseas travel to
    specifically visit a loved one's grave or memorial site. Photographs of
    headstones and sections of the Tablets of the Missing on which the
    service person's name is engraved are also available. These photographs
    are mounted on large color lithographs of the cemeteries or memorials.
    In addition we assist those who wish to purchase floral decorations for
    placement at grave or memorial sites in our cemeteries. A photograph of
    the in-place floral arrangement is provided to the donor.
        The care of these shrines to our War Dead requires a formidable
    annual program of maintenance and repair of facilities, equipment, and
    grounds. This care includes upkeep of 131,000 graves and headstones; 73
    memorial structures; 41 quarters, utilities, and maintenance
    facilities; 67 miles of roads and paths; 911 acres of flowering plants,
    fine lawns and meadows; nearly 3,000,000 square feet of shrubs and
    hedges and over 11,000 ornamental trees. Care and maintenance of these
    resources is exceptionally labor intensive, therefore, personnel costs
    account for 72 percent of our budget for fiscal year 1998. The
    remaining 28 percent is required to fund our operations, including
    unprogramed requirements resulting from natural disasters or foreign
    currency fluctuations. We do not have the option of closing or
    consolidating cemeteries. In light of this, we have increased our
    efforts to achieve greater efficiency and effectiveness, through
    automation and contracting, in the operational and financial management
    areas, where we do have control.
        This Commission fully recognizes and supports the efforts of the
    President and the Congress to improve efficiency, focus on results, and
    streamline the government overall. During fiscal year 1996, we
    completed the upgrade to our automation system and offset telephone,
    fax, and mail costs while increasing productivity. We have contracted
    with the Department of Treasury's Financial Management Services Center
    to study our accounting system, provide alternatives and
    recommendations, and design a new system, if findings warrant. We
    anticipate these recommendations will be implemented during fiscal year
    1998. In addition, we have begun development of our Strategic and
    Annual Performance Plans in accordance with the Government Performance
    and Results Act. We believe, when finalized, our plans will provide a
    comprehensive roadmap for accomplishing our mission.
        On July 27, 1995, President Clinton and President Kim Young Sam
    dedicated the Korean War Veterans Memorial. On February 6, 1997, we
    opened the Korean War Memorial Kiosk. This Kiosk houses the Korean War
    Veterans Memorial Honor Roll. This Honor Roll allows friends and
    relatives to query a data base containing the names and information
    about those who died during the Korean War. With the opening of the
    Kiosk we are pleased to be able to report to you that the Korean War
    Veterans Memorial is now complete.
        Our focus for fiscal year 1998 and for the next several years will
    be the World War II Memorial. As you know, on May 25, 1993, President
    Clinton signed Public Law 103-32 directing the ABMC to build a World
    War II Memorial. The World War II Memorial Site at the Rainbow Pool was
    dedicated by President Clinton on November 11, 1995. Since that time, a
    national design competition was held with over 400 preliminary designs
    submitted for evaluation. Six finalists were selected and announced on
    August 21, 1996. Final designs were submitted to a design jury on
    October 25. Criteria included concept, past performance, specialized
    experience and technical competence, professional qualifications and
    the capacity to accomplish the work in the required time. The jury
    interviewed the finalists and made its recommendation to the Commission
    on October 31. The World War II Advisory Board met and provided its
    advice to the ABMC on November 18. ABMC Commissioners considered the
    advice and recommendations and selected the winning design team/concept
    on November 20. On January 17, 1997, at a White House Ceremony,
    President Clinton unveiled the winning design by Friedrich St. Florian,
    former Dean of the Rhode Island School of Design, and a current
    professor at the school. Teaming up with Professor St. Florian are
    George E. Hartman, Hartman-Cox Architects, and Oehme van Sweden &
    Associates, Inc., both of Washington D.C. Leo Daly will be the
    architect--engineer of record.
        As directed by the Congress, the $100 Million memorial will be
    funded through private donations after expending the $4.7 Million that
    Congress authorized from the surcharge proceeds of World War II
    Commemorative Coin sales and the $5 Million transferred from Department
    of Defense. The American Battle Monuments Commission is working closely
    with the World War II Memorial Advisory Board to raise the funds to
    meet the planned dedication on Veterans' Day in the year 2000.
        While our attention has been focused on management improvements and
    the design and construction of the World War II Memorial, we have not
    ignored our primary mission of operating and maintaining twenty-four
    memorial cemeteries and twenty-eight monuments. The Congress has been
    instrumental in our success in maintaining its high standard of
    excellence by providing the funds required to accomplish our
    objectives, and for that we thank you.
        Fiscal year 1998 will present new challenges. For the first time in
    nine years we have repriced our foreign currency budget rates. This
    repricing, with OMB support, conforms with the Department of Defense's
    budget rates for foreign currency. With this repricing, we estimate
    that we will require $2,097,000 to satisfy foreign currency fluctuation
    requirements. This amount has been included in our budget request. In
    addition the fiscal year 1998 request provides for cost of living
    increases for our U.S. and foreign national personnel, rental expenses
    for space previously provided at no cost, funding to integrate ABMC
    financial systems in accordance with OMB, GAO, and recent Congressional
    directions, and small increases for maintenance and equipment.
        Perhaps our greatest challenge will be in dealing with aging
    facilities and equipment. Our cemetery memorials range in age from 50
    to 80 years old with Mexico City being over 100 years old. The
    permanent structures and plantings which make our facilities among the
    most beautiful memorials in the world are aging and require increased
    funding to maintain them at the current standards. Our maintenance and
    engineering budget is stretched to the limit. Accordingly, we are
    prioritizing this spending carefully. In addition, much of our
    equipment is aging and rapidly reaching the end of its useful life. We
    have requested additional funding for equipment replacement this fiscal
    year and will be implementing phased replacement in order to take
    advantage of new labor saving technology.
        Since 1923, the American Battle Monuments Commission's memorials
    and cemeteries have been held to a high standard in order to reflect
    America's continuing commitment to its Honored War Dead, their
    families, and the U.S. national image. The Commission intends to
    continue to fulfill this sacred trust.
        The American Battle Monuments Commission appropriation request for
    fiscal year 1998 is $23,897,000.
        This concludes my prepared statement. I will be pleased to respond
    to your questions.

                         Additional committee questions

        Senator Bond. Thank you very much, General.
        [The following questions were not asked at the hearing, but
    were submitted to the Commission for response subsequent to the
    hearing:]
                     Question Submitted by Senator Stevens
                 abmc special events and services to the public
        Question. Provide to each Committee Chairman a schedule of planned
    Memorial Day activities and other special events as well as information
    on public services provided by American Battle Monuments Commission
    (ABMC).
        Answer. As of 26 March 1976, ABMC provided the Chairman of each
    Senate and House Committee a listing of ABMC Special Events planned for
    1997 and a Fact Sheet on ABMC's mission and services which are provided
    to the public. These two documents are as follows:
      1997 memorial day and other events at abmc cemeteries and memorials
        The following is a list of Memorial Day, Veterans Day, D-Day
    Ceremonies, and other activities that are planned for 1997.
        Memorial Day.--Memorial Day programs are held at each ABMC
    Cemetery. Each grave site is decorated with the flag of the United
    States and that of the host country. Programs, usually including
    participation by the U.S. Ambassador to the host country, includes
    reading of the President's Memorial Day Proclamation, speakers, the
    presentation of the National Colors, wreath laying ceremonies, and
    military bands and units. The 1997 Memorial Day schedule for our
    cemeteries in Europe, Tunisia, Mexico City, Panama and Philippines, is
    as follows:

    ------------------------------------------------------------------------
                 Cemetery                       Date               Time
    ------------------------------------------------------------------------
    AISNE-MARNE (France) \1\..........  SUNDAY 25 MAY.......        10:15 AM
    ARDENNES (Belgium) \2\............  SATURDAY 24 MAY.....        10:00 AM
    BRITTANY (France) \2\.............  SUNDAY 25 MAY.......         4:30 PM
    BROOKWOOD (England) \1\...........  SUNDAY 18 MAY.......         3:00 PM
    CAMBRIDGE (England) \2\...........  MONDAY 26 MAY.......        11:30 AM
    COROZAL (Panama)..................  MONDAY 26 MAY.......         9:00 AM
    EPINAL (France) \2\...............  SUNDAY 25 MAY.......         3:00 PM
    FLANDERS FIELD (Belgium) \1\......  SUNDAY 25 MAY.......         3:00 PM
    FLORENCE (Italy) \2\..............  MONDAY 26 MAY.......        11:00 AM
    HENRI-CHAPELLE (Belgium) \2\......  SATURDAY 24 MAY.....         4:00 PM
    LORRAINE (France) \2\.............  SUNDAY 25 MAY.......        11:00 AM
    LUXEMBOURG (Luxembourg) \2\.......  To Be Announced.....  ..............
    MANILA (Philippines) \2\..........  MONDAY 26 MAY.......         4:00 PM
    MEXICO CITY (Mexico)..............  FRlDAY 30 MAY.......        12:00 PM
    MEUSE-ARGONNE (France) \1\........  SUNDAY 25 MAY.......         3:00 PM
    NETHERLANDS (The Netherlands) \2\.  SUNDAY 25 MAY.......         3:00 PM
    NORMANDY (France) \2\.............  SUNDAY 25 MAY.......        10:30 AM
    NORTH AFRICA (Tunisia) \2\........  SATURDAY 24 MAY.....        10:00 AM
    OISE-AISNE (France) \1\...........  SUNDAY 25 MAY.......         4:00 PM
    RHONE (France) \2\................  SUNDAY 25 MAY.......        10:00 AM
    ST. MIHIEL (France) \1\...........  SUNDAY 25 MAY.......         4:00 PM
    SICILY-ROME (Italy) \2\...........  MONDAY 26 MAY.......        11:00 AM
    SOMME (France) \1\................  SUNDAY 25 MAY.......         3:00 PM
    SURESNES (France) \1\.............  SUNDAY 25 MAY.......        2:30 PM
    ------------------------------------------------------------------------
    \1\ World War I American Cemeteries and Memorials.
    \2\ World War II American Cemeteries and Memorials.

        D-Day Landing Ceremonies--6 June 1997.--A commemorative program is
    held each year at a site along the Landing Beaches. The program site is
    rotated between the British, French, and American Sectors. The 1997
    program will be held in the American Sector of operations on 6 June at
    the following locations:

    Bayeux....................................  9:30 AM Liberation Monument--
                                                 Wreath Laying.
    Omaha Beach...............................  10:15 AM American cemetery--
                                                 Religious Service.
                                                11:00 AM D-Day Monument--
                                                 Wreath Laying.
                                                11:15 AM National Guard
                                                 Monument--Wreath Laying.
    Point Du Hoc..............................  11:30 AM Wreath Laying.
    Saint-Mere-Eglise.........................  12:15 PM Wreath Laying.
                                                12:45 PM Official Banquet.
    Utah Beach................................  3:00 PM Leclerc Monument--
                                                 Wreath Laying.
                                                3:30 PM Monument of 4th
                                                 Division Wreath Laying.
                                                 National Ceremony-American
                                                 Federal Monument: Raising 8
                                                 National Colors; Official
                                                 Speeches; Wreath Laying
                                                 Ceremony; Military Parade.

        Veterans Day.--Annual ceremonies are held at some of the cemeteries
    on Veterans Day, which coincides with the French holiday commemorating
    the end of World War I. Local community programs frequently include
    commemorative events at some of our cemeteries. The location and
    magnitude of the programs vary in location and size. We will provide
    dates and times for Veterans Day celebrations at a later date.
        Other Ceremonial Occasions.--Members of Congress, officials of the
    Executive Branch, high ranking diplomatic and senior representatives of
    the respective host nations and allied powers, personnel from NATO/
    SHAPE, as well as, veterans' remembrance, educational and even local
    patriotic groups frequently visit our cemeteries and memorials. These
    visits include small wreath laying ceremonies and community sponsored
    receptions to honor those Americans who fought in and liberated a
    particular town or region.
        Special Events.--Our Cemetery Superintendents serve as ambassadors
    of goodwill in the country where they are stationed. They frequently
    represent the United States at ceremonies and other community based
    programs. These include ceremonies commemorating the liberation of
    towns and villages by U.S. troops, events that honor the survivors of
    Nazi concentration camps and visits by American veterans' remembrance
    groups.

                      AMERICAN BATTLE MONUMENTS COMMISSION

    Mission
        The American Battle Monuments Commission (ABMC) is a small
    independent agency of the Executive Branch established by Congress on
    March 4, 1923 (36 U.S.C. 121-128c).
        The principal mission of the agency is to commemorate the
    sacrifices and achievements of the United States Armed Forces, where
    they have served, since April 6, 1917, the date of U.S. entry into
    World War I. This is accomplished by:
        Designing, constructing, administrating, and maintaining cemetery
    and memorial structures outside the United States. ABMC currently has
    responsibilities for 24 permanent United States memorial cemeteries,
    and 27 memorial monuments and markers.
        Controlling the design and construction of U.S. Military memorials,
    monuments, and markers on foreign soil which are sponsored by U.S.
    citizens or U.S. public or private organizations, and encouraging these
    organizations to adequately maintain them.
        Establishing memorials in the United States, when legislated by the
    Congress, and outside the United States, where U.S. forces have served,
    as the Commission determines.
      --Congress directed ABMC to establish the Korean War Veterans
            Memorial on the Mall in Washington, DC. This Memorial was
            completed and dedicated in July 1995 and is now administered by
            the National Park Service.
      --Public Law 103-94, signed by President Clinton on May 25, 1993,
            authorizes ABMC to design, erect and conduct fund raising for
            the national World War II Memorial that is to be sited on the
            Mall in Washington, DC. This national monument will memorialize
            the generation of Americans whose spirit, sacrifice, and unity
            reflect the values that have made our nation strong. This
            Memorial will also pay tribute to the many Americans who served
            in the Armed Forces and to all those who joined the war effort
            on the home front. The Commission's goal is to dedicate the
            Memorial on Veterans Day 2000. Former Senator Robert Dole, a
            World War II veteran, is now serving as Co-Chairman of the
            World War II Memorial fund raising effort.
    Services Available to the Public
        General information concerning name and location of cemetery and
    memorial sites.
        Specific information on grave and memorialization sites of War
    Dead.
        General information about travel to the military shrines
    administered by the Commission, including best routes, modes of travel,
    available accommodations, and information about historical events which
    took place in the battlefield areas in the region of the cemetery
    memorials.
        Authorization to immediate family members for issuance of fee free
    U.S. passports when visiting burial or memorialization sites of loved
    ones.
        Escort of family members to appropriate grave and memorialization
    sites when visiting cemetery memorials.
        Photographs of grave and memorialization sites, along with large
    color lithographs of the cemetery memorials.
        Assistance in placing floral decorations at grave and
    memorialization sites using funds provided by the donor.
        Maintenance of the Honor Roll database of the Korean War Veterans
    Memorial on the National Mall in Washington, DC. The Honor Roll
    commemorates those members of the United States military who died
    world-wide during the Korean War. Honor Roll Certificates may be
    obtained at the kiosk located at the Memorial or from ABMC's Washington
    office.
                                     ______

                     Question Submitted by Senator Mikulski
        Question. Provide a plan to work through the current backlog of
    engineering projects and identify a schedule which might allow American
    Battle Monuments Commission to ``buy out'' of this backlog dilemma.
        Answer. A copy of the current Master Priority Listing for all
    identified engineering projects follows below.
        There are 550 projects with a total estimated cost of slightly over
    $10 million. With considerable attention to detail, this master list
    has been carefully reviewed, revised, updated, and prioritized over the
    course of the past nine months. Accordingly, our fiscal year 1997,
    fiscal year 1998, and outyear engineering plans and programs are now
    based on this newly developed master priority list.
        Presently, ABMC hopes to apply $2M to engineering projects in
    fiscal year 1997. At this time, our President's Budget Request has
    $2.2M programmed for engineer projects in fiscal year 1998. If we do
    not experience unanticipated foreign currency fluctuations, any
    significant natural disasters, or unexpected utility or plant failures,
    we project our backlog will be reduced to $6M by the end of fiscal year
    1998. Additionally, we estimate that $700,000 in new projects must be
    added to the master list each year. Consequently, if we are able to
    continue to apply $2M annually toward engineer projects every year, it
    could still take an additional five years (fiscal year 1999 through
    fiscal year 2003) to eliminate the backlog. In order to support the
    current high standards of maintenance and repair of our facilities,
    plus improve our position with respect to energy conservation,
    productivity, and efficiency, the Commission could effectively apply up
    to an additional $1M per year above the President's Budget, for
    engineer project backlog reductions. This would allow ABMC to make a
    major reduction prior to fiscal year 2001.

               ABMC ENGINEERING BACKLOG AT START FISCAL YEAR 1997
    ------------------------------------------------------------------------
                                                         Object   Estimated
                Cemetery                   Project        class      cost
    ------------------------------------------------------------------------
    Meuse Argonne..................  Anchor Loose            25       $2,000
                                      Stones at Church
                                      Ruins at
                                      Montfaucon.
    North Africa...................  Repair of Interior      32       30,000
                                      Court Cornice.
    Aisne Marne....................  Install Automatic       25        1,000
                                      Chlorinator for
                                      Potable Water.
    Rhone..........................  Install electrical/     32        3,000
                                      heating System,
                                      Visitor Center.
    Aisne Marne....................  Drill New Deep          25      250,000
                                      Well.
    Manila.........................  Repair Hemicycle        32      100,000
                                      Roof.
    Rhone..........................  Replacement of          25        5,800
                                      Fuel Tank
                                      Visitors/Office
                                      Building.
    Aisne Marne....................  Install Water           25        1,500
                                      Softener.
    Sicily-Rome....................  Drill New Well 30       32        6,800
                                      mt. Install
                                      Pumping System.
    Meuse Argonne..................  Replace 3 ea Fuel       25       50,000
                                      Tanks, and 1 ea
                                      gas tank.
    Sicily-Rome....................  Raise and expand        25        2,018
                                      irrigation parts
                                      store room.
    Normandy.......................  Replace 1 ea gas        25       11,000
                                      tank.
    Manila.........................  Repair Water            32       30,000
                                      Purification
                                      System (Potable).
    Sicily-Rome....................  Improve Drainage        32        3,000
                                      to Soutwest
                                      corner of center
                                      mall.
    Netherlands....................  Replace One             25        8,000
                                      Gasoline Tank.
    North Africa...................  Replace curbstones      25        3,000
                                      along Burial area.
    Ardennes.......................  Install Heavy           25          750
                                      Security Door on
                                      Side of Garage.
    Florence.......................  Gradual                 25        4,000
                                      replacement of
                                      boundary hedges
                                      (North ent).
    Oise-Aisne.....................  Construct Weir on       25        1,000
                                      Stream.
    Mexico City....................  Replace Water           25        1,000
                                      Tanks.
    Florence.......................  Replace fire thorn      25        4,000
                                      hedge both
                                      entrance drives.
    Flanders Field.................  Renovate Oudenarde      25        8,000
                                      Monument.
    North Africa...................  Replacement of          25        5,750
                                      Thuya Hedges.
    Ardennes.......................  Sandblast, Repair       25        5,000
                                      and Repaint
                                      Compost Shed.
    Florence.......................  Replace old Tar         25        3,000
                                      Paper, Reservoir
                                      Roof.
    Cambridge......................  Repair Stone Steps      25       15,000
                                      at Flag Pole Base.
    Corozal........................  Improve Drainage        32       47,000
                                      System.
    Florence.......................  Install water pump      25        3,000
                                      to increase
                                      pressure.
    Oise-Aisne.....................  Replace Gutters on      25        8,000
                                      Garage/Storage
                                      Bldg in Service.
    Florence.......................  Replace 50 old          25        4,500
                                      Model Sprinklers,
                                      Burial Area.
    Epinal.........................  Install Lightning       25        1,000
                                      Protection for
                                      Sprinkler System.
    Sicily-Rome....................  Replace 50 old          25        4,500
                                      Model Sprinklers,
                                      Burial Area.
    Epinal.........................  Improve Security        25        2,000
                                      Measures of
                                      Service Area.
    Mexico City....................  Replace Four Doors      25        2,000
    North Africa...................  Maintenance of          25        1,000
                                      Flagpole,
                                      Travertine
                                      Drainage Grill.
    Cambridge......................  Repoint Steps           25        1,000
                                      around Flagpole.
    Florence.......................  Install water           25        3,800
                                      filter in both
                                      quarters.
    Aisne Marne....................  Repaint Exterior        25          500
                                      Dormer Window
                                      Frame, Visitors
                                      Bldg.
    Manila.........................  Repair Asst             25        5,700
                                      Superintendent's
                                      Roof.
    Henri Chapelle.................  Repair Leak Around      25          500
                                      Dormer in Supt's
                                      Qtrs.
    Florence.......................  Replace walkpaths       25        3,500
                                      cotto tiles, of
                                      both quarters.
    Lorraine.......................  Refurbish               25       25,000
                                      Biological Filter.
    Cambridge......................  Install handrail        25        2,000
                                      on steps plots E-
                                      F.
    Sicily-Rome....................  Resurfacing of          25        2,000
                                      Spillway Canal,
                                      Tinozzi Ditch.
    Somme..........................  Repair Hinges on        25        5,000
                                      Chapel Doors.
    Manila.........................  Caulk Joints of         32       15,000
                                      Western Hemicycle.
    Brookwood......................  Replace Gutters on      25        1,600
                                      Superintendent's
                                      Quarters.
    North Africa...................  Replace Deep Well       25        3,000
                                      Pump.
    Meuse Argonne..................  Relocate Compost        25       30,000
                                      Shed.
    Ardennes.......................  Replace Ladder in       25        1,000
                                      Reservoir.
    Sicily-Rome....................  Maintain Facings,       25        2,100
                                      roofs of all svc
                                      area buildings.
    Meuse Argonne..................  Build External          32       50,000
                                      Water Reservoir
                                      (Lake).
    Garches........................  Construct               25          534
                                      Insulating
                                      Skylight.
    Lorraine.......................  Replace Sewage          25        1,000
                                      Pump Asst Supt
                                      Qtrs.
    Lorraine.......................  Replace                 25          444
                                      Circulation Pump,
                                      New Service Bldg.
    Netherlands....................  Repair Roof of          25        1,633
                                      Transformer Bldg.
    Normandy.......................  Replace Water           25          899
                                      Heater, Supt's
                                      Qtrs.
    Ardennes.......................  Replace Drainage        25          285
                                      Pipe Asst Supt
                                      Qtrs.
    Meuse Argonne..................  Replace Sprinkler       32      350,000
                                      System.
    Netherlands....................  Construct Oil-          25       20,000
                                      Water Separator
                                      at Wash Point.
    North Africa...................  Replacement of          32       25,000
                                      Border Stone
                                      Terrace.
    Normandy.......................  Modify Low Voltage      25        6,000
                                      Electrical Panel
                                      in Pump House.
    Luxembourg.....................  Repair Asst Supt's      25       10,000
                                      Driveway.
    Florence.......................  Renovation of           32       25,000
                                      Memorial Toilets
                                      W/Handicapped Fct.
    Brittany.......................  Paint Flag Poles..      25        3,000
    Manila.........................  Replace 3               32       47,000
                                      Transformers and
                                      Upgrade Sub-
                                      station.
    Flanders Field.................  Repoint Base of         25        5,000
                                      Chapel Memorial.
    Rhone..........................  Enclose section of      32        8,000
                                      Compost Shed.
    Brookwood......................  Repair Chapel           25       15,000
                                      Decorative Grills.
    Meuse Argonne..................  Renovate Water          25       40,000
                                      Reservoir.
    Rhone..........................  Replace heating         32        8,000
                                      system in
                                      Government
                                      quarters.
    Aisne Marne....................  Install all             32       30,000
                                      Utilities at
                                      Chateau Thierry
                                      Monument.
    Manila.........................  Upgrade Electrical      32       30,300
                                      Panel (Pumphouse).
    Cambridge......................  Repair Cracks in        25        5,000
                                      Supt's Qtrs.
    Sicily-Rome....................  Renovation of           32       24,000
                                      Visitors Toilets
                                      to include
                                      handicap.
    Normandy.......................  Construct Path Way      25        2,100
                                      to Debris
                                      Disposal Area.
    Brookwood......................  Improve Drainage        25        5,000
                                      Around Chapel.
    North Africa...................  Install Kitchen         25        1,000
                                      Stovetop Exhaust
                                      Vents, Both Qtrs.
    Brittany.......................  Renovate Public         25       10,000
                                      Toilets.
    Manila.........................  Install Automatic       32       75,000
                                      Sprinkler System
                                      (Phase I).
    Somme..........................  Repair                  25        5,000
                                      Inscriptions at
                                      Bellicourt
                                      Monument.
    Florence.......................  Closing of Compost      32        6,000
                                      Pit For Needed
                                      Storage Area.
    Flanders Field.................  Replace Flagpole        25        7,000
                                      Terrace.
    Florence.......................  Replace 50 old          25        5,000
                                      Model Sprinklers,
                                      Burial Area.
    Luxembourg.....................  Construct Ramp          25        1,750
                                      Between Memorial
                                      & Plots.
    Corozal........................  Secure Fence Line.      25        3,600
    Aisne Marne....................  Neutralize/Repair       25        7,500
                                      Exposed Rebar at
                                      Chateau Thierry.
    Sicily-Rome....................  Closing of Compost      32        6,000
                                      Pit for Needed
                                      Storage Area.
    Flanders Field.................  Check Lightning         25        1,500
                                      Protection System
                                      on Chapel.
    Henri Chapelle.................  Renovate & Clean        25       10,000
                                      Colonnades
                                      Ceiling.
    Sicily-Rome....................  Replace 50 old          25        5,000
                                      Model Sprinklers,
                                      Burial Area.
    Lorraine.......................  Reconstruct             25      120,000
                                      Memorial Stairway.
    Corozal........................  Replace Roof,           25        5,000
                                      Superintendent's
                                      Qtrs.
    Aisne Marne....................  Install Oil-Water       25        2,000
                                      Separator at Svc
                                      Area Washrack.
    North Africa...................  Renovation of           32       10,000
                                      Visitors Toilets
                                      to include
                                      handicap.
    Cambridge......................  Treatment of Wood       25        2,500
                                      and Stone Work in
                                      Chapel.
    Henri Chapelle.................  Clean and Repair        25       60,000
                                      Mosaic Stars in
                                      Colonnade Ceiling.
    Rhone..........................  Handicapped toilet      32       35,000
                                      building (unisex
                                      facility).
    Brittany.......................  Improve lightning       25        5,000
                                      arrestors at
                                      Brest Monument.
    Mexico City....................  Replace Roof on         25        1,500
                                      Service Building.
    Somme..........................  Improve                 25          500
                                      Ventilation in
                                      Garage Work Shop.
    Florence.......................  Renovate Toilets,       32        8,000
                                      Visitors/Office
                                      Building.
    Oise-Aisne.....................  Paint Exterior of       25        3,000
                                      Garage/Storage
                                      Bldg in Svc Area.
    Flanders Field.................  Install Electric        25        1,500
                                      Heater in Chapel.
    Rhone..........................  New Road Signs          32       19,000
                                      Installation.
    Oise-Aisne.....................  Paint Exterior of       25        5,000
                                      Visitors/Quarters
                                      Building.
    Corozal........................  Install Deep Well       32       60,000
                                      & Reservoir.
    Aisne Marne....................  Rebuild entrance        25       50,000
                                      area and Walkways
                                      to Bldgs.
    Sicily-Rome....................  Refurbish               25        8,900
                                      Ligustrum hedges,
                                      Bare Spots, w/New
                                      Plan.
    Cambridge......................  Replace Damaged         25        2,000
                                      Stones on Court
                                      of Honor.
    Brittany.......................  Install Filters         25        1,500
                                      for Tours
                                      Monument.
    Sicily-Rome....................  Renovation              25        8,700
                                      Pittosporum
                                      Hedgerow
                                      Surrounding
                                      Center.
    Oise-Aisne.....................  Replace Gutters on      25        5,500
                                      Visitors/Quarters
                                      Building.
    Mexico City....................  Replace Roof            25        1,000
                                      Garage Area.
    Brittany.......................  Install                 25        5,000
                                      information panel
                                      at Tours Monument.
    Rhone..........................  Remodelling of          25        4,000
                                      Service Bldg
                                      Shower/Toilet
                                      Facility.
    Meuse Argonne..................  Replace Roofs on        25       90,000
                                      Garage Buildings.
    Brittany.......................  Install                 25        5,000
                                      Information Panel
                                      at Brest Monument.
    North Africa...................  Repair sinking          25        5,000
                                      curbstone in
                                      front of Office
                                      area.
    Brookwood......................  Relevel Walkways &      25       50,000
                                      Headstone beams.
    Manila.........................  Upgrade Asst            25        5,000
                                      Superintendent's
                                      Master Bath.
    Flanders Field.................  Repair Walkway at       25        1,000
                                      Oudenarde
                                      Monument at Plane
                                      Tree.
    Sicily-Rome....................  Replacement of          25        2,000
                                      office/visitors
                                      building doors.
    Garches........................  Replace Carpeting       25        4,000
                                      in Reception Area.
    Lorraine.......................  Build Handicap          32       15,000
                                      Toilet Facilities.
    Sicily-Rome....................  Replace Rain            25        2,500
                                      Gutters & Down
                                      Spouts Garage/Svc
                                      Area.
    Lorraine.......................  Install New             25      200,000
                                      Filtration System.
    Manila.........................  Paint Motor Pool        25        4,000
                                      Buildings.
    Meuse Argonne..................  Replace Lion's          25        1,500
                                      Head at Pool.
    Florence.......................  Replace Rain            25        2,000
                                      Gutters & Down
                                      Spouts Garage/Svc
                                      Area.
    Netherlands....................  Connect Qtrs to         25       20,000
                                      City Sewer.
    Garches........................  Re-waterproof           25       10,000
                                      Director's Office
                                      Roof.
    Lorraine.......................  Refurbish Memorial      25       35,000
                                      Bronze Window
                                      Frame.
    Meuse Argonne..................  Repaint Flagpoles.      25        4,000
    Lorraine.......................  Clean and Treat         25      100,000
                                      (Water-resistant)
                                      Memorial.
    Netherlands....................  Replace Sprinkler       32      300,000
                                      System and
                                      Renovate Pump
                                      Room.
    Florence.......................  Drilling of a new       32       40,000
                                      artesian deep
                                      well.
    Luxembourg.....................  Replace sprinkler,      32      220,000
                                      renovate pumproom.
    Luxembourg.....................  Install Security        25        8,300
                                      Doors on Compost
                                      Shed.
    Somme..........................  Replace sprinkler,      32      180,000
                                      renovate pumproom.
    Somme..........................  Repair Water            25        1,000
                                      Softener.
    Ardennes.......................  Replace Sprinkler       32      200,000
                                      System, renovate
                                      pumproom.
    Normandy.......................  Install                 32        5,000
                                      Information Panel
                                      at Pointe du Hoc.
    Saint Mihiel...................  Replace sprinkler,      32      200,000
                                      renovate pumproom.
    Rhone..........................  Install Drainage        25        8,000
                                      line in Lower
                                      Grave Plots area.
    Henri Chapelle.................  Replace Sprinkler       32      230,000
                                      System and
                                      Renovate Pump
                                      Room.
    Henri Chapelle.................  Replace Kitchen         25       23,000
                                      Cabinets, Both
                                      Quarters.
    Meuse Argonne..................  Construct an Oil-       25        2,000
                                      Water Separator
                                      at Wash Rack.
    Oise Aisne.....................  Replace Storage         25       40,000
                                      Bldg & Apron.
    Manila.........................  Water Purification      32      170,000
                                      System
                                      (Irrigation).
    Aisne Marne....................  Replace Roof on         25       15,000
                                      Compost Shed.
    Aisne Marne....................  Treat Wood Frame        25        5,000
                                      of Compost Shed.
    Henri Chapelle.................  Repair Roof of          25        1,000
                                      Transformer Bldg.
    North Africa...................  Renovation of           32       10,000
                                      Visitors Toilets
                                      to include
                                      handicap.
    Meuse Argonne..................  Reset Coping            25        3,000
                                      Stones on
                                      Memorial
                                      Retaining Wall.
    Aisne Marne....................  Repaint Flagpoles.      25        3,000
    Luxembourg.....................  Replace Rusted          25        2,500
                                      Stained Glass
                                      Window Hinges,
                                      Chapel.
    Sicily-Rome....................  Replace Bedroom/        25        6,000
                                      living room
                                      ceiling Supt's
                                      Qtrs.
    Lorraine.......................  Repaint Memorial        25        3,000
                                      Ceiling.
    Somme..........................  Repair Dry Rotted       25        7,000
                                      Doors, Mechanical
                                      Shop & Garage.
    Saint Mihiel...................  Inspect deep well       25       10,000
                                      (100 meters
                                      depth).
    Manila.........................  Refinish Pea            25        6,000
                                      Gravel Base
                                      Overlay--Cabanatu
                                      an.
    Henri Chapelle.................  Renovate water          25       70,000
                                      reservoir.
    Ardennes.......................  Construct Public        32       15,000
                                      Handicapped
                                      Toilet.
    Cambridge......................  Install Handicap        32       10,000
                                      Toilets.
    North Africa...................  Extension of            32       11,500
                                      Sprinkling System
                                      To Semi-Circular
                                      Dr.
    Henri Chapelle.................  Reconstruct Public      25       45,000
                                      Toilets/install
                                      handicap facil.
    Aisne Marne....................  Build Public            25       30,000
                                      Toilets (include
                                      handicap toilets).
    Luxembourg.....................  Replace Furnace,        25        8,000
                                      Garage Bldg.
    Rhone..........................  Repaint Exterior        25        8,000
                                      of Service Area
                                      Bldg & Qtrs.
    Luxembourg.....................  Replace 2 ea fuel       25       12,000
                                      tanks (both Qtrs).
    Oise Aisne.....................  Replace 1 ea fuel       25       25,000
                                      tank (VB/Qtrs), 1
                                      ea Gasoline Ta.
    Saint Mihiel...................  Replace 2 ea Fuel       25       20,000
                                      tanks, 1 ea Gas
                                      Tank.
    Manila.........................  Construct an Oil        32        4,000
                                      Storage Building.
    Aisne Marne....................  Replace 2 ea            25       15,000
                                      (Visitors Bldg/
                                      Qtrs) fuel tanks.
    Henri Chapelle.................  Replace 4 ea Fuel       25       30,000
                                      Tanks.
    Ardennes.......................  Replace 4 ea Fuel       25       36,000
                                      Tanks & 1 ea Gas
                                      Tank.
    Sicily-Rome....................  Renovation and          32        3,500
                                      modification of
                                      Pump House roof.
    Brittany.......................  Replace 4 ea Fuel       25       36,000
                                      Tanks & 1 ea Gas
                                      Tank.
    Flanders Field.................  Replace heating         25        4,000
                                      system--nursery.
    Henri Chapelle.................  Rewire Buildings        25       30,000
                                      vic Collonades.
    Sicily-Rome....................  Install auto            32        2,000
                                      irrigation system
                                      front of
                                      res'vation.
    Aisne Marne....................  Check Lightning         25          500
                                      Arrestor System
                                      at Memorial.
    Flanders Field.................  Insulate Qtrs           25          500
                                      Attic.
    Cambridge......................  Renovate Toilets        25        5,000
                                      in Visitors Bldg.
    Corozal........................  Upgrade Sprinkler       32        3,000
                                      System.
    Epinal.........................  Install Road Signs      25        1,000
    Normandy.......................  Extend Sprinkler        25        2,000
                                      System to Nursery
                                      Area.
    Saint Mihiel...................  Remove electric         25        1,000
                                      cable and fuel
                                      tank pipes at
                                      Qtrs.
    Florence.......................  Rent platform to        25        3,000
                                      paint Flagpole &
                                      clean Pylon.
    Aisne Marne....................  Replace Heating in      25       15,000
                                      Garage &
                                      Refectory (Svc
                                      Area).
    Flanders Field.................  Restructure             32      110,000
                                      Service Area.
    Oise Aisne.....................  Repaint Entrance        25          500
                                      Gates.
    Sicily-Rome....................  Extension of            32        2,500
                                      boiler room
                                      entrance Asst
                                      Supt Qtrs.
    Suresnes.......................  Repair Perimeter        25       12,000
                                      Fence (5th and
                                      6th phases).
    Somme..........................  Reset Stone on          25        1,500
                                      South-West Chapel
                                      Gate.
    Henri Chapelle.................  Replace High Volt.      25       20,000
                                      Transformer and
                                      Change Amperage.
    Corozal........................  Replace Roof,           25        5,000
                                      Chapel.
    Somme..........................  Paint the               25        1,000
                                      Lettering on
                                      Entrance Wall &
                                      Chapel.
    Flanders Field.................  Replace 3 ea Fuel       25       20,000
                                      Tanks.
    Henri Chapelle.................  Inspect deep well       25       10,000
                                      (100 meters
                                      depth).
    Sicily-Rome....................  Install Security        25        5,650
                                      Grilles, Supt's
                                      Qtrs.
    Suresnes.......................  Repaint iron work       25        6,000
                                      on Fence (5th and
                                      6th phases).
    Epinal.........................  Replace Roof Tiles      25       45,000
                                      on All Service
                                      Bldgs.
    Saint Mihiel...................  Repoint Stairs and      25        2,000
                                      Walls at Montsec
                                      Monument.
    Sicily-Rome....................  Replace entrance        32        5,000
                                      doors both
                                      residences.
    Henri Chapelle.................  Construct               32      100,000
                                      Visitor's Room
                                      and Office.
    Ardennes.......................  Replace Window          25          500
                                      (Insulating) in
                                      Workers Refectory.
    Netherlands....................  Engrave MIA name        25        6,750
                                      (J. Howell) on
                                      Wall of Missing.
    Manila.........................  Upgrade Canteen         25        5,000
                                      (Replace Roof &
                                      Ceiling).
    Meuse Argonne..................  Improve Crew            25        2,000
                                      Latrines/
                                      Lunchroom in
                                      Service Area.
    Epinal.........................  Improve Heating in      25        5,000
                                      Service Area.
    Luxembourg.....................  Restructure Staff       25        4,000
                                      Area in Service
                                      Area.
    Sicily-Rome....................  Install Security        25        5,000
                                      Grilles, Asst.
                                      Supt's Qtrs.
    Somme..........................  Install                 25          500
                                      Thermostatic
                                      Valves on Pump
                                      Room Radiators.
    Meuse Argonne..................  Install Chemical        25       10,000
                                      Toilets at
                                      Sommepy Mounument.
    Netherlands....................  Replace Calcified       25        6,000
                                      Water Lines in
                                      Qtrs.
    Sicily-Rome....................  Extension of the        32       12,000
                                      Cemetery Office,
                                      renovation of WC.
    Meuse Argonne..................  Install all             32       50,000
                                      utilities at
                                      Sommepy Monument.
    Somme..........................  Repaint Map at          25          500
                                      Bellicourt
                                      Monument.
    Epinal.........................  Resurface Roof of       25       15,000
                                      Pump House.
    Manila.........................  Upgrade                 25        5,000
                                      Superintendent's
                                      Guest Bath.
    Brittany.......................  Clean Tours             25          250
                                      Monument.
    Brittany.......................  Reset Stones at         25       50,000
                                      Entrance Gate.
    Brookwood......................  Construct Toilet        32       40,000
                                      Facilities/
                                      Enlarge Office &
                                      Break.
    Sicily-Rome....................  Convert two doors       25        1,700
                                      into windows,
                                      Asst Supt Qtrs.
    Ardennes.......................  Replace Furnace in      25        5,000
                                      Service Bldg.
    Ardennes.......................  Modify Fire             25       10,000
                                      Hydrant System/
                                      Sep From
                                      Sprinkler Sys.
    Normandy.......................  Install Heating         32        9,000
                                      System in #2 Work
                                      Shop.
    Rhone..........................  Enclosing of            32        1,000
                                      Garage Annex.
    Suresnes.......................  Extend Office.....      32       75,000
    Suresnes.......................  Install Curtain         32        3,000
                                      Rods & Curtains
                                      in Qtrs.
    Suresnes.......................  Replace Curtains        32        2,000
                                      and Drapes in
                                      Visitors Bldg.
    Manila.........................  Repave Roads            32      120,000
                                      (Phase I).
    Suresnes.......................  Repair/Repaint          25       50,000
                                      West Perimeter
                                      Fence (Behind
                                      Cem.).
    Normandy.......................  Replace Expansion       25        1,000
                                      Joints in
                                      Reflecting Pool.
    Saint Mihiel...................  Replace Roof of         25        1,500
                                      Green House.
    Florence.......................  Replace Roses,          25        4,000
                                      Office/Visitors
                                      Bldg/Flagpole
                                      Area.
    Cambridge......................  Insulate Attic in       25        3,000
                                      Both Quarters.
    Aisne Marne....................  Repaint Reservoir       25          500
                                      Roof.
    Flanders Field.................  Replace Zinc            25          500
                                      Flashing on Edge
                                      Visitor's Bldg
                                      Roof.
    North Africa...................  Replace Air             25        6,000
                                      Conditioner
                                      Units, Dual
                                      System (7 ea).
    Aisne Marne....................  Repair Leaks in         25        5,000
                                      Structure
                                      Drainage System,
                                      Chapel.
    Lorraine.......................  Repair Gutters on       25        1,000
                                      Compost Shed.
    Henri Chapelle.................  Replace roof tiles      25        3,000
                                      on Service
                                      Building.
    Corozal........................  Replace Roof,           25        4,000
                                      Public Rest Rooms.
    Lorraine.......................  Replace Gutters,        25       15,000
                                      Downspouts and
                                      Zinc Flashing.
    Oise Aisne.....................  Install Wall            25          500
                                      Insulation In
                                      Attic Next to
                                      Master BR.
    Oise Aisne.....................  Refinish Entrance       25          500
                                      Floors in
                                      Quarters.
    Rhone..........................  Replace of Five         32        3,000
                                      Window Shutters,
                                      Supt's Qtrs.
    Epinal.........................  Repaint Interior        25        1,500
                                      of Supt's Qtrs.
    Brittany.......................  Install Burglar         25        5,000
                                      Alarms in Both
                                      Qtrs.
    Somme..........................  Install Security        25        1,500
                                      Railing in Qtrs
                                      Attic.
    Florence.......................  Replace Cemetery        25        1,600
                                      Wooden Benches.
    Meuse Argonne..................  Modify Lightning        25        9,000
                                      Arrestors at
                                      Sommepy Monument.
    Henri Chapelle.................  Repaint Reservoir       25        2,000
                                      Domes.
    Ardennes.......................  Install Security        32        8,000
                                      Alarms.
    Corozal........................  Replace Electrical      25       15,000
                                      System, Chapel.
    Ardennes.......................  Water Proof Pump        32        2,000
                                      House Ceiling.
    Normandy.......................  Install Security        32        6,500
                                      System in Service
                                      Area.
    Oise-Aisne.....................  Repair Memorial         25        5,000
                                      Roof to Stop
                                      Water
                                      Infiltration.
    Sicily-Rome....................  Put Aggregate           32       11,000
                                      Stone Tiles North
                                      Garden.
    Normandy.......................  Install Window          25        2,000
                                      Security Bars in
                                      Service Area.
    Normandy.......................  Replace                 25        8,000
                                      Orientation Table
                                      Security Railing.
    Brittany.......................  Install Rolling         25       11,000
                                      Shutters and
                                      Screens at Both
                                      Qtrs.
    Florence.......................  Lower, & Level          25       37,000
                                      Turf Below Height
                                      of Cross 1st Pha.
    Aisne Marne....................  Renovate                25        2,800
                                      Electrical Wiring
                                      in Compost Shed.
    Henri Chapelle.................  Insulate Storage        25        7,000
                                      Room/Install
                                      Radiator (Svc.
                                      Area).
    Ardennes.......................  Replace Two             25       15,000
                                      Rolling Doors and
                                      Enclose Staircase.
    Manila.........................  Replace Handrails       32       12,300
                                      to Memorial
                                      Public Restrooms.
    Suresnes.......................  Replace Service         25          500
                                      Building Locking
                                      System.
    Cambridge......................  Transform Long-         25       15,000
                                      Step Stairway.
    Saint Mihiel...................  Replace Heating         25        1,500
                                      Pipes in Boiler
                                      Room.
    Sicily-Rome....................  Place Aggregate         32        2,000
                                      Stone Tiles
                                      Memorial Toilet.
    Normandy.......................  Reforest                32       10,000
                                      Peripheral Areas
                                      (Replace Black
                                      Pines).
    Brittany.......................  Construct Handicap      32       15,000
                                      Access Ramp for
                                      Chapel.
    Oise-Aisne.....................  Construct               32       15,000
                                      Handicapped
                                      Facilities
                                      (Modify Toilet).
    Florence.......................  Motorize 3 Roll-up      25        4,000
                                      Doors, Service
                                      Group Area.
    Epinal.........................  Replace Fuel            25          500
                                      Gauges (3 ea).
    Epinal.........................  Replace 110v            25          500
                                      Transformer &
                                      Distribution Box.
    Suresnes.......................  Relocate Gasoline       25       10,000
                                      Pump/Storage Tank
                                      to Svc. Area.
    Manila.........................  Replace                 32       20,000
                                      Underground Fuel
                                      Storage Tanks.
    Suresnes.......................  Upgrade Electrical      25       10,000
                                      Power in North
                                      Service Area.
    Garches........................  Construct Handicap      25        2,000
                                      Access Ramp.
    Garches........................  Modify Toilet for       25        2,000
                                      Handicapped
                                      Access.
    Sicily-Rome....................  Renovation and          32        5,000
                                      modification of
                                      Generator Room.
    Meuse Argonne..................  Install Water           25        2,000
                                      Softener in
                                      Visitors Building.
    Netherlands....................  Replace Stone           25        2,000
                                      Steps Around
                                      Flagpole.
    Netherlands....................  Replace Venetian        25        4,000
                                      Blinds in
                                      Visitors Bldg
                                      Office.
    Sicily-Rome....................  Build Concrete Bed      25        3,000
                                      for Canal Running
                                      into Reservoi.
    Netherlands....................  Replace Roll-up         25        3,500
                                      Door in Mower
                                      Bldg.
    Netherlands....................  Paint Floor in          25        1,000
                                      Service Area.
    Flanders Field.................  Sand/Seal Wooden        25        1,000
                                      Floor in
                                      Visitor's Bldg.
    Manila.........................  Renovate Guard          25        5,000
                                      House.
    Meuse Argonne..................  Rebronze Doors of       25        1,500
                                      Montfaucon
                                      Monument.
    Oise Aisne.....................  Repoint Rear Wall       25          500
                                      of Memorial (3rd
                                      phase/3.
    Aisne Marne....................  Clean and treat         25        1,000
                                      chimneys &
                                      windows
                                      (limestone).
    Florence.......................  Replace Pebble          32       36,000
                                      Mall Paths with
                                      Pebble Tiles.
    Aisne Marne....................  Repair Cracked          25        1,000
                                      Stones on
                                      Flagpole Base.
    Aisne Marne....................  Repair South-Side       25       10,000
                                      Bronze Door Frame.
    Saint Mihiel...................  Repair and Paint        25        1,000
                                      Perimeter Fence.
    Sicily-Rome....................  Renovation of           25        8,000
                                      Lathhouse
                                      Building.
    Somme..........................  Repaint Perimeter       25        1,000
                                      Fence at Cantigny
                                      Monument.
    Somme..........................  Reset or Grind          25        1,000
                                      Stone in Flagpole
                                      Base.
    Suresnes.......................  Clean the Cornice       25       10,000
                                      of Memorial.
    Manila.........................  Install Automatic       32       45,000
                                      Sprinklers (Phase
                                      II).
    Suresnes.......................  Replace                 25        1,000
                                      information board.
    Ardennes.......................  Replace Damaged         25       10,000
                                      Bricks, Exterior
                                      Wall of Vis. Ctr.
    Henri Chapelle.................  Replace 3 stones        25        2,000
                                      in Wall of
                                      Missing.
    Florence.......................  Build Retaining         32       90,000
                                      Wall in Front of
                                      Dam.
    Lorraine.......................  Repair Path to          25        2,000
                                      Overlook.
    Henri Chapelle.................  Repaint Pump Room.      25        2,500
    Saint Mihiel...................  Repaint exterior        25        3,000
                                      walls of Qtrs.
    Florence.......................  Install Alarm           25        2,400
                                      System On
                                      Entrance Cemetery
                                      Bridge.
    Somme..........................  Repair stone            25        4,500
                                      damage in
                                      Perimeter Wall.
    Aisne Marne....................  Repair and Paint        25        6,000
                                      Perimeter Fence.
    Netherlands....................  Retile Floor in         25        2,000
                                      Visitors Bldg
                                      Office.
    Manila.........................  Drill New Well....      32       90,000
    Lorraine.......................  Repair and Paint        25       15,000
                                      Chain-link
                                      Perimeter Fence.
    Epinal.........................  Repair Perimeter        25        1,000
                                      Fence.
    Somme..........................  Repaint                 25          750
                                      Transformer
                                      Building.
    Florence.......................  Install Floor           32        1,500
                                      Tiles Service
                                      Group Building.
    Aisne Marne....................  Repair Retaining        25        1,500
                                      Wall of Memorial.
    Ardennes.......................  Repair Concrete         25        2,000
                                      Pavement Next to
                                      Compost Shed.
    Flanders Field.................  Repoint Perimeter       25        2,000
                                      Wall.
    Sicily-Rome....................  Replace Capstone        25        2,000
                                      on Boundary Walls.
    Meuse Argonne..................  Repair and Repoint      25        2,000
                                      Perimeter Wall.
    Oise Aisne.....................  Repoint and Repair      25        2,000
                                      Perimeter Wall.
    Saint Mihiel...................  Repoint and Repair      25        7,000
                                      Perimeter Wall.
    Manila.........................  Repave Roads            32      125,000
                                      (Phase II).
    Suresnes.......................  Relevel Headstone       25       45,000
                                      Beams.
    Saint Mihiel...................  Install                 32        5,000
                                      information panel
                                      at Montsec
                                      Monument.
    Meuse Argonne..................  Construct garage        32       10,000
                                      at Asst Supt Qtrs.
    Rhone..........................  Resurface               32       40,000
                                      Visitors' Parking
                                      Lot.
    Aisne Marne....................  Repair/Repaint          25        4,000
                                      Basement Windows,
                                      Chateau Thierry.
    Henri Chapelle.................  Repair Stone Wall       25        3,000
                                      and Gate Near
                                      North Parking
                                      Area.
    Brookwood......................  Spread Additional       25        5,000
                                      Gravel on
                                      Walkways.
    Manila.........................  Install Automatic       32        4,000
                                      Gate Opener (Main
                                      Entrance).
    Meuse Argonne..................  Relevel 2 steps at      25          500
                                      Montfaucon
                                      Monument.
    Netherlands....................  Clean Copper            25          500
                                      Sulfate Stains
                                      from Statue Stone
                                      Base.
    Flanders Field.................  Regild Door of          25        1,000
                                      Chapel.
    Rhone..........................  Resurface of            32       16,000
                                      Service Road.
    Epinal.........................  Repair Cemetery         25       10,000
                                      Roads.
    Henri Chapelle.................  Repair Roads and        25        3,000
                                      Walkways.
    Meuse Argonne..................  Repair Chapel           25       20,000
                                      Service Road.
    Manila.........................  Replace/Install         32       30,000
                                      Electric Aluminum
                                      Garage Bay Door.
    Netherlands....................  Resurface               25       35,000
                                      Perimeter Road.
    Suresnes.......................  Reconstruct             25      100,000
                                      Memorial Terrace/
                                      cracked retain.
                                      wall.
    Somme..........................  Install Stone Road      25          500
                                      Sign at
                                      Bellicourt
                                      Monument.
    Rhone..........................  Replacement of          32        7,500
                                      Fence from NE to
                                      SW Side of
                                      Cemeter.
    Somme..........................  Install Stone Road      25          500
                                      Sign at Cantigny
                                      Monument.
    Meuse Argonne..................  Resurface Roads         32       60,000
                                      and Walkways with
                                      Asphalt.
    Henri Chapelle.................  Replace Remaining       25        1,000
                                      Single-Pane
                                      Window in Attic.
    Manila.........................  Construct               32       25,000
                                      Perimeter Road.
    Luxembourg.....................  Replace rug in          25          500
                                      Visitors Bldg.
    Brittany.......................  Replace Wooden          25       10,000
                                      Gates w/Aluminum.
    Meuse Argonne..................  Resurface               25       15,000
                                      Esplanade at
                                      Montfaucon
                                      Monument.
    Manila.........................  Construct Road to       32       25,000
                                      Compost Area.
    Somme..........................  Resurface all           25       70,000
                                      Walkways.
    Somme..........................  Resurface Parking       25      100,000
                                      Area at
                                      Bellicourt
                                      Monument.
    Lorraine.......................  Resurface Roads         25       75,000
                                      and Walkways.
    Luxembourg.....................  Resurface Cemetery      25       90,000
                                      Walkways.
    Aisne Marne....................  Rebuild other           25       40,000
                                      roads (Water
                                      Res'v'r & Compost
                                      Shed).
    Epinal.........................  Resurface Cemetery      32      150,000
                                      Walkways.
    Meuse Argonne..................  Extend Roof of          32       25,000
                                      Memorial to
                                      Eliminate Water
                                      Seepage.
    Aisne Marne....................  Resurface Parking       25       50,000
                                      Area/Walkways at
                                      Chateau Thierry.
    Aisne Marne....................  Rebuild road in         25       60,000
                                      Belleau Wood.
    Netherlands....................  Replace Curtains/       25        5,000
                                      Reupholster
                                      Furniture in Vis
                                      Ctr.
    Aisne Marne....................  Repair Drainage         25        5,000
                                      Problem and
                                      Repoint Memorial
                                      Steps.
    Somme..........................  Refinish Floor in       25        2,000
                                      Visitors Center
                                      (Entrance Foyer).
    Saint Mihiel...................  Clean Montsec           25      150,000
                                      Monument.
    Meuse Argonne..................  Repair Terrace in       25       30,000
                                      Front of
                                      Montfaucon
                                      Monument.
    Epinal.........................  Replace Gravel in       25          500
                                      Front of Chaumont
                                      Tablet.
    Epinal.........................  Reasphalt Entrance      25       75,000
                                      Road.
    Brittany.......................  Replace Asphalt         25        6,000
                                      Pavement at Tours
                                      Monument.
    Brittany.......................  Replace Sidewalk        25        2,000
                                      to Public Toilets.
    Oise-Aisne.....................  Reasphalt Interior      25       40,000
                                      Walkways.
    Ardennes.......................  Repoint Memorial        25       40,000
                                      Podium and Steps.
    Oise-Aisne.....................  Replace Outside         25        1,000
                                      Entrance Lights--
                                      VB & Qtrs.
    Netherlands....................  Renovate Pump           25        8,000
                                      System for
                                      Reflecting Pool.
    Ardennes.......................  Repair and              25       20,000
                                      Maintain Asphalt
                                      Service Roads.
    Ardennes.......................  Repair Back Wall        25        5,000
                                      of Compost Shed.
    Ardennes.......................  Rebuild Wash Rack       25        5,000
                                      w/Oil-Water
                                      Separator.
    Normandy.......................  Resurface 4             25       60,000
                                      Cemetery Walkways.
    Normandy.......................  Repair Beach Path.      25       25,000
    Normandy.......................  Replace Cubicle         25       10,000
                                      Partitions in
                                      Public Toilets.
    Normandy.......................  Engrave 2 Stone         32        1,500
                                      Pillars at Garden
                                      of the Missing.
    Normandy.......................  Repair Employee         25        2,000
                                      Parking Lot
                                      (Service Area).
    Normandy.......................  Repair Cemetery         25       12,000
                                      Access Road
                                      Surface.
    Normandy.......................  Repair 300m of          25        1,000
                                      Access Road's
                                      Shoulders.
    Normandy.......................  Replace 2 Water         25        6,000
                                      Softeners.
    Normandy.......................  Repair Roads/           25       14,000
                                      Parking Lot/
                                      Walkways at Pt du
                                      Hoc.
    Netherlands....................  Replace Museum          25        5,000
                                      Glass Shields
                                      with Safety Glass.
    Cambridge......................  Replace Curb            25        2,000
                                      Stones at Parking
                                      Lot.
    Oise-Aisne.....................  Resurface East-         25       10,000
                                      West Axis
                                      Walkways.
    Oise-Aisne.....................  Repaint Basement        25        1,500
                                      of Visitor's/Qtrs
                                      Bldg.
    Oise-Aisne.....................  Paint Interior of       25        1,000
                                      Visitors
                                      Reception Room.
    Oise-Aisne.....................  Renovate Toilets        25        1,500
                                      of Visitors Bldg.
    Oise-Aisne.....................  Repair Service          25        3,000
                                      Access Road.
    Oise-Aisne.....................  Install Cabinets        32        2,000
                                      and Sink in
                                      Refectory.
    Suresnes.......................  Refurbish Bronze        25        1,500
                                      Base of Flagpoles.
    Meuse Argonne..................  Paint Interior of       25        1,000
                                      Service Area
                                      Garage.
    Meuse Argonne..................  Replace Water           25          750
                                      Softener in
                                      Supt's Qtrs.
    Normandy.......................  Resurface Gravel        25        1,000
                                      Walkways, Garden
                                      of the Missing.
    Cambridge......................  Resurface Cemetery      25       30,000
                                      Roads.
    Brittany.......................  Paint Exterior of       25       16,000
                                      Five Buildings.
    Brittany.......................  Install False           25        3,500
                                      Ceiling and
                                      Radiators in
                                      Garage Bay.
    Brittany.......................  Replace Toilets in      25        6,500
                                      Visitors Bldg.
    Brookwood......................  Replace Driveway        25        5,000
                                      at Qtrs.
    Cambridge......................  Resurface Parking       25       10,000
                                      Lot Road Near
                                      Visitors Bldg.
    Luxembourg.....................  Refinish Pews and       25        1,000
                                      Kneelers in
                                      Chapel.
    Garches........................  Replace Worn            25        5,000
                                      Carpeting (Phase
                                      2).
    Aisne Marne....................  Clean & treat           25        2,000
                                      Stone on Qtrs and
                                      Visitors Bldg.
    Normandy.......................  Repair Perimeter        25        3,000
                                      Fence.
    Luxembourg.....................  Replace Visitors        25        8,000
                                      Building Furnace.
    Saint Mihiel...................  Improve water           25       40,000
                                      supply, clean
                                      deep well.
    Somme..........................  Improve Water           25      300,000
                                      Supply (Drill New
                                      Well).
    Aisne Marne....................  Replace Gutters on      25          500
                                      Compost Shed.
    Ardennes.......................  Replace Gutters on      25        1,000
                                      Compost Shed.
    Lorraine.......................  Repaint Roof of         25          750
                                      Public Toilet
                                      Facility.
    Henri Chapelle.................  Replace gutters of      25        1,000
                                      Service Building.
    Lorraine.......................  Repaint Roof of         25        1,000
                                      Visitors Building.
    Saint Mihiel...................  Seal Asphalt            25        4,000
                                      Parking Area at
                                      Montsec Monument.
    Ardennes.......................  Replace Memorial        25       50,000
                                      Furnace.
    Lorraine.......................  Seal Parking Lot        25        1,000
                                      in Service Area.
    Netherlands....................  Repair Rain Water       25        2,000
                                      Drains.
    Netherlands....................  Inspect and Repair      25        8,000
                                      Service Area
                                      Roofs.
    Normandy.......................  Replace Roofs Both      25       25,000
                                      Quarters.
    Normandy.......................  Replace Annex           25        1,000
                                      Building Roof
                                      Gutters.
    Lorraine.......................  Replace Gutters on      25       10,000
                                      Visitors Bldg and
                                      Public Toilet.
    Suresnes.......................  Treat Chapel            25       12,000
                                      Ceiling with
                                      Preservative.
    Cambridge......................  Improve                 25        2,000
                                      Maintenance Shop
                                      in Service Area.
    Suresnes.......................  Install urinal and      25        2,000
                                      sink in Service
                                      Area.
    Aisne Marne....................  Replace gas tank        25       20,000
                                      and pump, Service
                                      Area.
    Oise Aisne.....................  Extend Roof of          25        3,000
                                      Garage to Create
                                      a Lean-to Storage.
    Henri Chapelle.................  Improve water           25       40,000
                                      supply, clean
                                      deep well.
    Saint Mihiel...................  Install Paving          25        2,000
                                      Stones at
                                      Memorial.
    Somme..........................  Renovate Perimeter      25        2,000
                                      Fence w/ Post
                                      Lead Anchors.
    Netherlands....................  Enclose Compost         32       10,000
                                      Shed.
    Cambridge......................  Enclose Compost         32       10,000
                                      Shed.
    Epinal.........................  Construct Interior      32        5,000
                                      Dividing Walls in
                                      Compost Shed.
    Epinal.........................  Install                 32       15,000
                                      Recirculation
                                      System for Both
                                      Pools.
    Normandy.......................  Install curbstones      32       45,000
                                      access road.
    Oise Aisne.....................  Install heating in      32          250
                                      Visitors Bldg
                                      Attic.
    Epinal.........................  Construct staff         32       50,000
                                      facility area.
    Ardennes.......................  Paint Mechanic          25          500
                                      Workshop in
                                      Service Bldg.
    Epinal.........................  Paint Floor in          25        1,000
                                      Workshop.
    Normandy.......................  Improve Shed            25       15,000
                                      Service Area #2.
    Aisne Marne....................  Install New             25       50,000
                                      Service Building.
    Cambridge......................  Resurface Walkways      32      150,000
                                      to Eliminate
                                      Gravel.
    Aisne Marne....................  Emplace Concrete        32        2,000
                                      Borders Around
                                      Traffic Island.
    Somme..........................  Install Fence           32       30,000
                                      Around Grassy
                                      Area at
                                      Bellicourt Mon.
    Ardennes.......................  Install Thermostat      25        2,000
                                      Valves in Qtrs.
    Lorraine.......................  Install Hand            32        1,000
                                      Dryers in
                                      Visitor's Toilets.
    Aisne Marne....................  Renovate Basement       25       35,000
                                      Rooms for
                                      Caretaker's
                                      Office.
    Normandy.......................  Improve toilets         32      100,000
                                      facilities,
                                      Pointe du Hoc.
    Suresnes.......................  Widen and               25       60,000
                                      Resurface
                                      Cemetery Walkways.
    Lorraine.......................  Repair, Resurface       25       55,000
                                      Memorial Area
                                      Walkways.
    Normandy.......................  Repair & Install        32       15,000
                                      Automatic Gate
                                      Main Entrance.
    Garches........................  Enlarge Parking         25        1,000
                                      Area.
    Aisne Marne....................  Relocate Offices        25        3,000
                                      in Visitors
                                      Building.
    Saint Mihiel...................  Relocate Entrance       25        1,000
                                      Gate at Qtrs.
    Saint Mihiel...................  Install Gate on         25        3,000
                                      Access Road to
                                      Montsec Monument.
    Lorraine.......................  Replace Ceiling in      32        1,500
                                      Supt's Office in
                                      Visitors Bldg.
    Lorraine.......................  Install Sprinkler       32       10,000
                                      System for Meadow
                                      Area.
    Epinal.........................  Construct Heated        32        5,000
                                      Chemical Storage
                                      Shed.
    Normandy.......................  Construct               32       50,000
                                      Replacement
                                      Storage Building.
    Netherlands....................  Construct               32       30,000
                                      Permanent Stone
                                      Handicapped Ramps.
    Ardennes.......................  Install 1.5m Chain      32       30,000
                                      Link Fence Around
                                      Perimeter.
    Ardennes.......................  Construct Truck         32        5,000
                                      Loading Ramp in
                                      Compost Area.
    Ardennes.......................  Construct               32       10,000
                                      Retaining Wall in
                                      Compost Area.
    Normandy.......................  Tile Wood Working       32        3,000
                                      and Mechanic Shop
                                      Floors.
    Normandy.......................  Install 4 Metal         32        5,000
                                      Gates in Overflow
                                      Parking Area.
    Suresnes.......................  Install Air-            32        3,000
                                      compressor in
                                      North Service
                                      Area.
    Ardennes.......................  Relocate Youth          25       10,000
                                      Statue.
    Meuse Argonne..................  Replace Perimeter       25        5,000
                                      Fence.
    Netherlands....................  Install Upstairs        25        1,000
                                      Toilet in Supt's
                                      Qtrs.
    Epinal.........................  Install second          32        2,500
                                      toilet in Both
                                      Qtrs.
    Epinal.........................  Renovate Kitchens       25       15,000
                                      in Qtrs.
    Netherlands....................  Paint Garage            25          500
                                      Floors in Both
                                      Qtrs.
    Normandy.......................  Paint Basement          25          500
                                      Walls and Floor
                                      of Memorial.
    Aisne Marne....................  Repaint Basement        25        1,000
                                      and Garage Floor,
                                      Visitors Bldg.
    Ardennes.......................  Replace Sidewalk        25        5,000
                                      in Front of Supt
                                      Qtrs.
    Saint Mihiel...................  Repaint basement        25        1,000
                                      in Qtrs.
    Normandy.......................  Replace kitchen         25       20,000
                                      cabinets, both
                                      Quarters.
    Meuse Argonne..................  Install 2 Bedrooms      32       10,000
                                      in Asst Supt Qtrs.
    Henri Chapelle.................  Construct Veranda       32       50,000
                                      both Qrts.
    Cambridge......................  Install a Veranda       32       13,000
                                      at Supt's Qtrs.
    Brookwood......................  Enlarge and             32       50,000
                                      improve Supt's
                                      Qtrs.
    Netherlands....................  Install Rolling         32        1,250
                                      Shutter in Supt
                                      Qtrs vic Veranda.
    Epinal.........................  Install Two Hand        25          500
                                      Dryers in
                                      Visitors Bldg.
    Netherlands....................  Install Hand            25          750
                                      Dryers in Public
                                      Toilets.
    Henri Chapelle.................  Install Hand            25          500
                                      Dryers in Public
                                      Toilets.
    Cambridge......................  Replace carpeting       25        2,000
                                      in Asst Supt Qtrs.
    Aisne Marne....................  Sand and Varnish        25        5,000
                                      Floors in Qtrs.
    Ardennes.......................  Replace Wall to         25        5,000
                                      Wall Carpeting in
                                      Both Qtrs.
    Ardennes.......................  Renovate bathroom       25        1,000
                                      in Supt Qtrs.
    Netherlands....................  Install New             25        3,000
                                      Carpeting in
                                      Asst. Supt's Qtrs.
    Brittany.......................  Renovate bathrooms      25        5,000
                                      in Qtrs (Bathtub
                                      & Sink).
    Netherlands....................  Renovate upstairs       25        1,500
                                      bathroom in
                                      Supt's Qtrs.
    Normandy.......................  Renovate bathroom       25        1,000
                                      in Asst Supt's
                                      Qtrs.
    Aisne Marne....................  Renovate Kitchen        25        2,000
                                      in Qtrs (Tile &
                                      Paint).
    Epinal.........................  Renovate Bathrooms      25       10,000
                                      in Both Qtrs.
    Normandy.......................  Install Dormer          25       10,000
                                      Windows, Asst
                                      Supt's Qtrs.
    Epinal.........................  Construct Veranda       32       50,000
                                      in both Qtrs.
    Epinal.........................  Construct Front         32        5,000
                                      Porch Overhang
                                      for Supt's Qtrs.
    Ardennes.......................  Construct Veranda       32       50,000
                                      Both Qtrs.
    Ardennes.......................  Renovate Attic in       32       35,000
                                      Asst Qtrs &
                                      Construct
                                      Staircase.
    Ardennes.......................  Tile Basement           32        5,000
                                      Floor in Both
                                      Qtrs.
    Ardennes.......................  Replace Kitchen         25        1,000
                                      Floor Tiles in
                                      Asst Supt's Qtrs.
    Normandy.......................  Renovate Attic in       32       15,000
                                      Asst Supt Qtrs.
    Normandy.......................  Construct Garage        32       15,000
                                      in Supt Qtrs.
    Normandy.......................  Tile Storage Area       32        3,000
                                      Floors Both Qtrs.
    Normandy.......................  Extend Garage--         32        5,000
                                      Asst Supt Qtrs.
    Oise-Aisne.....................  Renovate Bathrooms      25        4,000
                                      in Supt's Qtrs.
    Ardennes.......................  Repaint Interior        25        2,000
                                      of Asst Supt Qtrs.
    Suresnes.......................  Renovate Supt's         25        5,000
                                      Qtrs Bathroom.
    Brookwood......................  Construct               32       20,000
                                      Extension of
                                      Entrance to
                                      Supt's Qtrs.
    Cambridge......................  Sandblast Chimney       25          152
                                      on Visitors
                                      Building.
    Lorraine.......................  Repair Furnace in       25          306
                                      Service Area.
    Garches........................  Construct Fire          25        2,500
                                      Escape.
    Aisne Marne....................  Resurface Road,         25      100,000
                                      Belleau Wood
                                      Towards Lucy (1.1
                                      km).
    Aisne Marne....................  Construct               25        5,000
                                      Handicapped Ramp
                                      to Visitors Bldg.
    Flanders Field.................  Replace Well Head       25        1,500
                                      Hatch.
    Flanders Field.................  Renovate Oudenarde      25        1,000
                                      Monument Bunker.
    Flanders Field.................  Improve Drainage        25        2,000
                                      vic Visitors Bldg
                                      Walkway.
    Netherlands....................  Replace Damaged         25       12,000
                                      Stones Around
                                      Memorial.
    Netherlands....................  Replace Sidewalk        25        1,500
                                      at Supt's Qtrs.
    Netherlands....................  Improve Attic           25        3,000
                                      Insulation Both
                                      Qtrs.
    Normandy.......................  Install Handrail        32        3,000
                                      Utah Beach Fed
                                      Monument
                                      Staircase.
    Oise Aisne.....................  Sand & Varnish          25        1,500
                                      Hardwood Floors
                                      in Visitors Bldg.
    Oise Aisne.....................  Paint Small Metal       25        2,000
                                      Storage Bldg,
                                      Pump Rm,
                                      Reservoir.
    Somme..........................  Construct Water         32       50,000
                                      Reservoir & Pump
                                      House.
    Suresnes.......................  Repaint Boulevard       25        3,000
                                      Fence Near Qtrs.
    Suresnes.......................  Improve Drainage        25       15,000
                                      System (4 Blocked
                                      Drains).
    Brittany.......................  Install New             25       10,000
                                      Drainage Field
                                      Asst Supt Qtrs.
    Normandy.......................  Replace Electric        25        1,000
                                      Hand Dryers in
                                      Public Toilets.
    Netherlands....................  Clean Back Side of      25        9,000
                                      Wall of Missing.
    Brookwood......................  Replace Gas             25        2,500
                                      Furnace, Supt
                                      Qtrs.
    Normandy.......................  Paint Garage Floor      25        2,000
                                      in Service Bldg.
                                    ----------------------------------------
          Grand Total..............  ..................  ......   10,191,671
    ------------------------------------------------------------------------

                          DEPARTMENT OF DEFENSE--CIVIL

                           Cemeterial Expenses, Army

    STATEMENT OF STEVEN DOLA, DEPUTY ASSISTANT SECRETARY
                FOR MANAGEMENT AND BUDGET, OFFICE OF THE
                ASSISTANT SECRETARY OF THE ARMY FOR CIVIL
                WORKS
        Senator Bond. We will now go to Mr. Steve Dola.
        Mr. Dola. Thank you very much, Mr. Chairman. I appreciate
    the opportunity to appear before the subcommittee today and
    testify, as you pointed out, in support of the fiscal year 1998
    Cemeterial Expenses, Department of the Army budget request.
        Senator Bond. Let me say we have a letter from Secretary
    Lancaster, a good friend, who points out that we have managed
    to schedule a conflict for him, and we appreciate the fact that
    you are able to attend and sorry that we conflicted with a
    hearing on the House side. So thank you very much for being
    here.
        Mr. Dola. Mr. Chairman, Secretary Lancaster very much
    wanted to be here in person. As you know, he is defending the
    water resources program over in the House this morning.
        As you indicated, our budget request is $11,815,000 and it
    will finance operations at both Arlington and Soldiers' and
    Airmen's Home National Cemeteries. The full-time permanent
    positions in 1998 will be 117, down from a total of 121 in 1997
    and 128 authorized in 1996. We have three programs: operation
    and maintenance, administration, and construction.
        The operation and maintenance program, $8,779,000, will
    provide for the cost of daily operations necessary to support
    an average of 20 services daily and for maintenance of
    approximately 630 acres. This program supports 111 of the 117
    full-time permanent positions in 1998. We plan to perform the
    same amount of work contractually that previously was performed
    by civil servants and direct the contractors to take on
    additional tasks that need to be accomplished. Grounds
    maintenance, tree and shrub maintenance, custodial services,
    guide service, and information receptionists and headstone
    setting, realignment and cleaning are major functions performed
    by contract personnel.
        The administration program, $599,000, provides for
    essential management and administrative functions, to include
    staff supervision of Arlington and Soldiers' and Airmen's Home
    National Cemetery.
        The construction program funded--requested at $2,437,000,
    provides $1,175,000 to replace the Custis Walk, $810,000 to
    construct Columbarium access roads, and $350,000 to continue
    the graveliner program and other minor items.
        Finally, with regard to the Columbarium, the 11,286 niche
    capacity of Columbarium phase 3, currently under construction,
    will bring the total niches in the Columbarium complex to
    31,286. Phase 1, completed in 1984, phase 2, completed in 1991,
    each provided 10,000 niches. The North Court will be completed
    in October 1997 and the South Court will be completed in June
    1998.
        At this time there remain only about 2,000 niches in phase
    2, so we are right on time with the additional capacity.
        For that, Mr. Chairman, and for the subcommittee's support
    of past appropriations for the Columbarium, Arlington National
    Cemetery and the Army are very grateful. We have a sound budget
    request for 1998 and we again ask for your support and
    approval.

                               PREPARED STATEMENT

        That completes my summary, Mr. Chairman.
        Senator Bond. Thank you very much Mr. Dola.
        [The statement follows:]

                       Prepared Statement of Steven Dola

                                  INTRODUCTION

        Mr. Chairman and members of the subcommittee: I appreciate the
    opportunity to appear before the subcommittee in support of the fiscal
    year 1998 appropriation request for Cemeterial Expenses, Department of
    the Army. With me today are Mr. John C. Metzler, Jr., Superintendent of
    Arlington National Cemetery, and Mr. Rory D. Smith, Budget Officer,
    also from Arlington National Cemetery. We are appearing on behalf of
    the Secretary of the Army, who is responsible for the operation and
    maintenance of Arlington and Soldiers' and Airmen's Home National
    Cemeteries.

                        FISCAL YEAR 1998 BUDGET OVERVIEW

        The request for fiscal year 1998 is $11,815,000; $215,000 more than
    the fiscal year 1997 appropriation. The funds requested are sufficient
    to support the work force, to assure adequate maintenance of the
    buildings, to acquire necessary supplies and equipment, and to provide
    maintenance standards expected at Arlington and Soldiers' and Airmen's
    Home National Cemeteries and include:
      --$1,175,000 for replacement of the historic Custis Walk;
      --$810,000 for construction of access roads associated with
            Columbarium Phase III; and
      --$200,000 to further expand contracts for enhancing the appearance
            of the cemetery while implementing government-wide streamlining
            plans.
        The first item is a significant commitment to complete a capital
    improvement project, which, when completed, will eliminate the heaving
    and cracks which affect 75 percent of the walkway.
        The second item will allow the cemetery to make full utilization of
    Columbarium Phase III.
        The third item continues the initiative begun in fiscal year 1996.
    In fiscal year 1996 these contractual services were increased by
    $230,000, in fiscal year 1997 they were increased by an additional
    $165,000, and in fiscal year 1998 they will be increased by $200,000.
    Additional work will be performed by these contractors that was not
    done before and total personnel are being reduced from 128, to 121 and
    117, respectively.
        The funds requested are divided into three programs, Operation and
    Maintenance, Administration, and Construction. The principal items in
    each program are as follows:
        The Operation and Maintenance Program, $8,779,000, will provide for
    the cost of daily operations necessary to support an average of 20
    interments and inurnments daily and for maintenance of approximately
    630 acres. This program supports 111 of the cemetery's total 117 FTE's.
    Contractual services, including estimated costs associated with the
    million dollar grounds maintenance contract, the $775,000 information
    and guide service contract, $410,000 of contract tree and shrub
    maintenance, and a $210,000 custodial contract, are estimated to cost
    $2,947,000.
        The Administration Program, $599,000, provides for essential
    management and administrative functions to include staff supervision of
    Arlington and Soldiers' and Airmen's Home National Cemeteries. Funds
    requested will provide for personnel compensation, benefits and the
    reimbursable administrative support costs of the cemeteries.
        The Construction Program, $2,437,000, provides funds as follows:
    $1,175,000 to replace the historic Custis Walk, $810,000 to construct
    roads that originally were included as part of Phase III of the
    Columbarium, $50,000 of minor road repair, $350,000 for the graveliner
    program, and $45,000 to prepare the final design for the Wash Stand/
    Fuel Island project.

                                    FUNERALS

        In fiscal year 1996, there were 3,325 interments and 1,733
    inurnments; 3,500 interments and 1,900 inurnments are estimated in
    fiscal year 1997; and 3,500 interments and 1,900 inurnments are
    estimated in fiscal year 1998.

                                   CEREMONIES

        Arlington National Cemetery is this Nation's principal shrine to
    honor the men and women who served in the Armed Forces. It is a visible
    reflection of America's appreciation for those who have made the
    ultimate sacrifice to maintain our freedom. In addition to the
    thousands of funerals, with military honors, held there each year,
    hundreds of other ceremonies are conducted to honor those who rest in
    the cemetery. Thousands of visitors, both foreign and American, visit
    Arlington to participate in these events. During fiscal year 1996,
    about 2,700 ceremonies were conducted and the President of the United
    States attended the ceremony on Veterans Day and Memorial Day.
        During fiscal year 1996, Arlington National Cemetery accommodated
    approximately 4 million visitors, making Arlington one of the most
    visited historic sites in the National Capital Region. This budget
    includes $35,000 for a study to develop an estimating procedure and
    reliable estimates of the kinds of visitors that Arlington National
    Cemetery serves. This increased orientation to our ``customers'' is
    consistent with the Government and Performance Results Act and the
    National Performance Review.

                             CONSTRUCTION PROJECTS

    New projects in fiscal year 1998
        Custis Walk.--The Custis Walkway was constructed in 1879 and is
    2,500 feet long. Approximately 75 percent of the walkway is affected by
    heaving and cracks, requiring visitors to exercise additional care
    while using the walkway. The design for restoration/replacement has now
    been completed using fiscal year 1995 appropriations in the amount of
    $250,000. Construction funding of $1,175,000 is included in the fiscal
    year 1998 budget submission.
        Columbarium.--Columbarium roads associated with the Phase III
    increment are planned in fiscal year 1998 costing an estimated
    $810,000.

    Construction project underway

        Columbarium Phase III.--On July 1, 1996, construction of one of two
    courts comprising Phase III of the Columbarium began, the contract for
    construction of the second court was awarded on February 7, 1997, and
    the construction cost is estimated to be $3,227,100. Construction funds
    were appropriated in fiscal year 1996 and 1997, respectively. The
    11,286 niche combined capacity of the Phase III increment will bring
    the total niches in the Columbarium Complex to 31,286. Phase I,
    completed in 1984, and Phase II, completed in 1991, each provided
    10,000 niches. The additional 1,286 niche capacity of Phase III was
    achieved by increasing the square footage or ``foot print'' of each of
    the Phase III courts by 10 percent. In addition to providing more
    niches, the larger ``foot print'' permits inclusion of a needed rest
    room and mechanical/storage area into the North court of Phase III, and
    makes more efficient use of the site.

                    RECENTLY COMPLETED CONSTRUCTION PROJECTS

        Amphitheater.--The repair of damage done by rainwater leaks at the
    Amphitheater and restoration of deteriorated marble there which were
    begun in July 1994 are now complete. The work included replacing
    waterproofing membranes; cleaning, patching and repointing stonework;
    replacing deteriorated marble and balusters; replacing benches,
    railings, drinking fountains, trash receptacles, signage and flagstone
    paving. The Memorial Amphitheater Restoration Project now provides a
    fitting place for ceremonies where public honor and recognition are
    accorded national heros.
        Facility Maintenance Complex.--A new facility maintenance complex
    was constructed to replace buildings constructed in the 1930's. The
    facility maintenance complex consists of work and storage areas for
    three divisions (Facility Maintenance, Horticulture, and Field
    Operations), in three separate buildings. There is another building for
    warehouse operations and a building for the administrative functions
    associated with all of these operations.
        McClellan Gate.--The work associated with restoration of the
    McClellan Gate has been recently completed. Work included removal and
    resetting of stone including some stone replacement, structural
    repairs, repointing, patching and cleaning of the entire arch, a new
    concrete ring foundation, new copper roofing and flashing, repair and
    painting of the iron gate, and new granite cobblestone paving around
    the arch.

                             CLAIMS AND SETTLEMENTS

        The status and disposition of claims associated with projects and
    contracts at Arlington National Cemetery is summarized in the following
    paragraphs.
        In our letter of December 5, 1996, we informed the Subcommittee of
    our plan to make final payment to the construction contractor on the
    Facility Maintenance Complex under the terms of a settlement agreement
    reached with the contractor and final payment to the contractor was
    made on January 14, 1997.
        Last year, we reported that a claim for differing site conditions,
    submitted by the construction contractor for the demolition of the old
    temporary Visitors Center and development of that land (Sections 54 and
    55) into gravesites, was formally denied. The contractor appealed the
    decision to the U.S. Court of Federal Claims on December 19, 1996.
        Two claims from a previous grounds maintenance contractor have been
    received. Settlement of a claim related to a defective contract option
    in a previous grounds maintenance contract was reached in the amount of
    $98,000. A claim alleging defective specifications in an interim
    grounds maintenance contract is expected to be litigated in June or
    July 1997.

                                  MASTER PLAN

        The new Master Plan, which currently is undergoing review within
    the Army Secretariat, will identify projects and policies to respond to
    the challenges confronting Arlington National Cemetery. These
    challenges include an aging infrastructure, declining availability of
    space for initial interment, and the need to preserve the dignity of
    the cemetery while accommodating substantial public visitation. The
    future projects envisioned in the Master Plan will not begin to be
    implemented until we are into the next century. Projects and policies
    must be measured against funding to be made available in the budget and
    appropriations processes. Detailed planning and engineering studies
    necessary to establish the cost, feasibility, and responsiveness of
    individual capital projects to the Master Plan challenges would be
    programmed and proposed to Congress, after review and consideration by
    the Administration, at the appropriate times.

                         ARMY--INTERIOR LAND TRANSFERS

        Public Law 104-201, the National Defense Authorization Act for
    Fiscal Year 1997 (``1997 Authorization Act''), which was enacted on
    September 23, 1996, includes two land transfer provisions in Section
    2821 relating to Arlington National Cemetery.
        Section 29 Land Transfer.--The first part of Section 2821 of the
    1997 Authorization Act instructs the Secretary of the Interior to
    transfer to the Secretary of the Army certain lands found in Section 29
    of Arlington National Cemetery. The land found in Section 29 is
    currently divided into two zones: the 12 acre Arlington National
    Cemetery Interment Zone and 12.5 acre Robert E. Lee Memorial
    Preservation Zone. The transfer encompasses the Arlington National
    Cemetery Interment Zone and the portions of the Robert E. Lee Memorial
    Preservation Zone that do not have historical significance and are not
    needed for the maintenance of nearby lands and facilities.
        The Secretary of the Interior is to base his or her determination
    of which portion of the Preservation Zone will be transferred primarily
    on a cultural resources study that will consider whether archeological
    resources are likely to be located on the land, whether portions of the
    property are eligible for inclusion in the National Register of
    Historic Places, and whether property has forest cover that contributes
    to the setting of the Preservation Zone. The cost of the study,
    estimated at $85,000, will be split evenly between the Department of
    Interior and Department of the Army. In addition, the Secretary of the
    Interior will provide the Committee on Armed Services of the Senate and
    the Committee on National Security of the House of Representatives with
    environmental and cultural resource information and analysis.
        The transfer, which is to be carried out under the Interagency
    Agreement Between the Department of the Interior, the National Park
    Service, and the Department of the Army, dated February 22, 1995, is to
    occur not sooner than 60 days after the Secretary of the Interior has
    submitted the information and analysis to the Committees. The Secretary
    of the Interior must provide the information and analysis to the
    Committees no later than October 31, 1997.
        Visitors Center/Old Administration Building.--The second part of
    Section 2821 of the 1997 Authorization Act instructs the Secretary of
    the Interior to transfer to the Secretary of the Army 2.43 acres of
    land and the Visitors Center, which is constructed on the land. In
    return, the Secretary of the Army will transfer to the Secretary of the
    Interior .17 acres of land and the Old Administration Building, which
    is constructed on the site. Section 2821 provides the authority by
    which this agreed-upon exchange of lands may take place.

                                   CONCLUSION

        The funds included in the fiscal year 1998 budget are necessary to
    permit the Department of the Army to continue the high standards of
    maintenance Arlington National Cemetery deserves. I urge the
    Subcommittee to approve this request.
        Mr. Chairman, this concludes my remarks. We will be pleased to
    respond to questions from the Subcommittee.

                            SELECTIVE SERVICE SYSTEM

    STATEMENT OF GIL CORONADO, DIRECTOR
        Senator Bond. Mr. Coronado, we know you had some conflicts
    in your schedule today, we congratulate you on your sense of
    timing. It reminds me of the trapeze artist who lets go without
    seeing the other bar and it arrives right on time. That
    demonstrates excellent planning, and we are delighted to
    welcome you today.
        Mr. Coronado. Thank you, Mr. Chairman.
        Senator Bond. Please proceed.

                                OPENING REMARKS

        Mr. Coronado. Mr. Chairman, I am delighted to appear before
    you and the other distinguished members of this subcommittee. I
    have a written statement that I would like to submit for the
    record.
        Senator Bond. We will accept the statement in full, it will
    go into the record, and we would invite you to summarize what
    you think are the most important parts.
        Mr. Coronado. Yes, sir; we are grateful to the subcommittee
    and the Congress for continuing to provide us with the funds
    necessary to carry out our mission. As you know, in November
    1994 the Department of Defense revised its mobilization
    timetables and we are now in the process of adjusting to that.
    At the same time, we are moving forward with modernization of
    our data processing capabilities and we are trying to enhance
    service in every area.

                         SERVICE TO AMERICA INITIATIVE

        As you consider our fiscal year 1998 appropriation, I know
    that to function in an era of Government downsizing, the
    Selective Service System cannot merely dwell on its proud past,
    nor depend exclusively on the threat of future crisis. This
    agency must demonstrate that America benefits from its work
    each and every day. So in the spirit of the national
    performance review, we are broadening our agency's direction.
    We have enthusiastically embarked upon a new initiative that we
    call Service to America, while continuing to meet our statutory
    responsibilities.
        We have reached out in close cooperation with the
    Department of Defense and the Corporation for National Service.
    We are informing young men about service opportunities today in
    the Armed Forces and in our Nation's communities. With Service
    to America, we proudly continue our time-honored purpose in a
    new way.
        We want to fully implement Service to America, and our
    fiscal year 1998 request of $23.9 million is a slight increase
    for the very first time in 4 years. Slightly over one-half of
    the increase is for the printing, mailing, processing, and
    staffing of the Service to America initiative, and the balance
    is, of course, to offset pay raise costs.
        Service to America, Mr. Chairman, is a solid example of
    Federal agencies working together to achieve common goals and
    provide better, more efficient service to the public. It is
    also relevant to our Nation's new bipartisan emphasis on
    voluntarism. We have been in touch with Gen. Colin Powell as he
    spearheads with former President Bush the Presidents' Summit
    for America's Future. We have suggested ways that our agency's
    capabilities can be adapted to support programs and initiatives
    sparked by the upcoming Philadelphia summit.
        The General responded recently. He was happy to receive our
    suggestions and his staff is now considering our proposals.
        I strongly urge that you fund this innovative, modest
    adjustment to our acknowledgment program, a program that was
    born from an original concept in 1993, suggested by Senator
    Mikulski. With your support and this 4-percent increase in our
    agency's budget, we can move forward with an endeavor that has
    great benefits for America and coincides with our Nation's new
    bipartisan emphasis on voluntarism.
        Mr. Chairman, members of this committee, I am proud of what
    Selective Service does for America. I hope you share in this
    pride as I answer your questions about our fiscal year 1998
    budget request.
        Thank you.
        [The statement follows:]
                       Prepared Statement of Gil Coronado
        I am delighted to appear before you and the other distinguished
    members of this Subcommittee, and to update you on the good things
    happening at the Selective Service System (SSS).
        The President's Budget requests this Agency be funded at a level of
    $23.9 million in fiscal year 1998. This amount represents a slight
    increase in Selective Service funding for the first time in four years.
    Why the increase? In part, it is related directly to the
    Administration's support of our new ``Service to America'' initiative,
    an endeavor I hope the members of this Subcommittee will support.

                     SELECTIVE SERVICE SYSTEM FISCAL HISTORY
                            [In millions of dollars]
    ------------------------------------------------------------------------
                                                          Obligations/year
                                                       ---------------------
                        Fiscal year                        1982      Actual
                                                         dollars    dollars
    ------------------------------------------------------------------------
    1982..............................................       19.6       19.6
    1983..............................................       22.0       22.8
    1984..............................................       23.0       24.8
    1985..............................................       24.5       27.4
    1986..............................................       22.7       26.0
    1987..............................................       22.2       26.1
    1988..............................................       21.0       25.4
    1989..............................................       20.9       26.2
    1990..............................................       19.6       25.6
    1991..............................................       19.5       26.6
    1992..............................................       19.3       27.4
    1993..............................................       19.4       28.5
    1994..............................................       16.6       24.8
    1995..............................................       14.9       22.8
    1996..............................................       14.4       22.9
    Estimated:
        1997..........................................       13.7       22.9
        1998..........................................       13.9       23.9
    ------------------------------------------------------------------------

        In the past year, more than a million-and-a-half men followed the
    example of young Jerry Lewis, Jr., of Rankin, Texas. In February 1996,
    Jerry was the 35 millionth man to register with Selective Service since
    the requirement was reinstated in 1980. As America's young men comply
    with the law, they demonstrate to the men and women who serve in the
    all-volunteer military that the U.S. population stands behind them,
    committed to serve, should the preservation of our national security so
    require.

                        AGENCY CONTINUES TO BE EXAMINED

        Much Congressional and media interest has focused on the SSS since
    the early 1990's because of: (1) the end of the Cold War; (2)
    Department of Defense (DOD) analyses that addressed many intangible
    elements associated with maintaining a standby system of conscription;
    (3) the Administration's reviews and policy decisions by the President;
    and, (4) a 1994 change in DOD's forecast for manpower requirements. DOD
    now anticipates that the first draftees will be needed six months after
    a crisis begins. In light of this, the SSS adjusted its programs and
    streamlined its staffing. The resulting changes enable SSS to work
    better and more efficiently, and conform with Administration guidelines
    promulgated by the National Performance Review. Simultaneously, the SSS
    has had several examinations of its mission and structure. Currently
    (since January 1997), the General Accounting Office (GAO) is studying
    possible alternative methods of registration at the request of three
    Members of Congress who believe that personal registration is no longer
    necessary. GAO's review will summarize the merits of the current
    program and present the pros and cons of alternatives.

                       IMPACT OF NEW INDUCTION TIMETABLES

        In February 1995, the President forwarded to Congress the
    Administration's position emphasizing the need to maintain the SSS and
    peacetime registration. It also reaffirmed the Department of Defense's
    position to keep the SSS in its present configuration. The DOD revised
    its mobilization timetables to reflect post-Cold War scenarios, with
    first inductees now required 193 days after mobilization for a national
    emergency. We had anticipated the new timetables, and began right-
    sizing a few years ago. We reduced several programs and streamlined the
    organization. On the other hand, the shift to new mobilization
    timetables for inductees increased our operational workload by adding
    new planning and training requirements. To conduct a more deliberate
    build-up to a draft during a future national emergency, extensive new
    plans are being developed and training on them must be accomplished.
    Additionally, we must revise our procedures, regulations, and
    documentation to reflect a new, graduated or ``time-phased response''
    to deliver preexamined draftees for induction 193 days after
    Mobilization Day. This work is progressing smoothly.

                       PLANNING AND PERFORMANCE MEASURES

        Working closely with the Office of Management and Budget and
    following National Performance Review mandates, the SSS has tailored
    its goals and objectives to produce result-oriented performance
    measures and improve service to America. This is described in our six-
    year draft Strategic Plan.
        For example, we continue in our commitment to reinvent the SSS to
    improve operations, enhance customer service, and increase efficiency.
    Our measures of performance effectiveness are: qualitative improvements
    within specific time frames, more accurate and faster turnaround of
    data, solid levels of personnel staffing, and total customer
    satisfaction. Each of these issues is also outlined in our draft fiscal
    year 1997-2002 Strategic Plan, which represents our road map to the
    21st Century. Part of the Agency's strategy is to form partnerships
    with other Federal government agencies, to work together to achieve
    common goals and provide better, more efficient service to the public.
    Selective Service provides essential administrative support services,
    such as computer matching and automation, especially where there is a
    requirement to have access to a data base of more than 36 million young
    men. Currently we provide automation services to the Department of
    Defense, the Department of Health and Human Services, the Census
    Bureau, the Department of Justice, and the Corporation for National
    Service. Similarly, at SSS, we obtain some administrative services from
    other agencies. As an example, we out source for accounting, employee
    assistance, health, payroll and personnel support programs as a means
    to enhance internal productivity and limit costs.
        In sum, we are committed to reshaping SSS to meet the demands of
    the 21st Century. We are actively embracing other creative alternatives
    to accomplish our statutory missions, and we continue to investigate
    new and better ways to do business.

                            REGISTRATION IMPROVEMENT

        Since public awareness of the requirement that men register
    influences registration, and because a high rate of compliance fosters
    fairness and equity in any future draft, the SSS has initiated several
    programs:
      --Radio and television public service announcements (PSA's) in
            English and Spanish were developed and distributed to stations
            nationally. These high-quality PSA's have received laudatory
            comments from viewers around the country.
      --Many governors and local officials issued proclamations supporting
            SSS registration. Eighteen states have laws which parallel
            Federal laws and require men to register with SSS as a
            prerequisite for receiving state loans, educational assistance,
            or employment. Several other states have similar legislation
            pending.

                 HEALTH CARE PERSONNEL DELIVERY SYSTEM (HCPDS)

        HCPDS is the Agency's standby system to conscript health care
    personnel during a national emergency. The plans and procedures for the
    registration and classification of health care personnel are complete
    and have been placed on the shelf as Congress directed. Conscription of
    health care personnel can be implemented, should the Congress
    authorize, and the President so direct. In 1994, the Department of
    Defense extended the time-line for delivery of health care personnel by
    six months. Development of plans to comply with this extension will be
    complete this fiscal year.

                  AUTOMATED DATA PROCESSING (ADP) INITIATIVES

        Increasing demands for speedy services dictate the need to improve
    productivity through advanced ADP technologies. A number of initiatives
    were started last year and are making a difference in fiscal year 1997.
    A new I-CASE Tools software package, which automates computer program
    development, is aiding us in our business process improvement work.
    Also, we are making good use of enhanced scanning equipment and an
    Intelligent Character Recognition System, which have enabled the Agency
    to file registration data faster and without loss of accuracy. In
    addition to improving business processes and registration compliance
    statistics, the Agency is moving to a more modern computer technology,
    new reengineering projects, and revised methods of registrations. For
    example, SSS will be looking at shifting from mainframe technology to
    small computer technology to reduce operating and maintenance costs.
    After an internal cost-benefit analysis, we will validate findings with
    the General Service Administration, and work with a contractor to
    implement the necessary changes.

                         SERVICE TO AMERICA INITIATIVE

        While continuing to meet our statutory responsibilities, and with
    strong Administration support, we have enthusiastically embarked on a
    new initiative which we call ``Service to America.'' President Clinton
    recently acknowledged it as ``a noble and worthwhile effort sure to
    increase civic mindedness and opportunities in our country.'' The idea
    is simple. With your support, the SSS registration process will serve
    dual functions in American society. In our routine communication with
    all new registrants in America, we encourage them to serve America
    today. In close cooperation with the Department of Defense and the
    Corporation for National Service, we are informing young men about
    opportunities today in the U.S. Armed Forces and about community
    service through the Corporation for National Service. On the
    acknowledgment card they receive from us in the mail, we encourage them
    to explore options for voluntary service to the Nation.
        This ancillary service is meaningful, appropriate, reinvigorating
    and exciting. With ``Service to America,'' this Agency proudly
    continues to fulfill its time-honored purpose in a creative way. We
    historically focused the attention of America's young men on meeting
    national wartime needs, and now we also remind them to volunteer for
    other civic opportunities in peacetime. Thus, the Selective Service
    System is and will remain ready for tomorrow's national emergency, as
    it serves America's needs today.
        We want to implement fully the ``Service to America'' initiative.
    Our fiscal year 1998 budget submission requests $23.9 million. This is
    a slight increase for the first time since fiscal year 1993. About half
    of this $1 million increase would fund five additional full-time
    equivalents and offset the increased costs of printing, mailing, and
    processing a larger acknowledgment card. It would also allow a portion
    of the new card to be a detachable mail-back postcard. On it, new
    registrants would indicate their interest in military or community
    service. In turn, we would process the returning information into
    timely, accurate, high quality recruiter leads for the U.S. Armed
    Forces and the Corporation for National Service. The balance of the
    funding increase would offset 1998 pay raise costs.
        The ``Service to America'' initiative is another good example of
    interagency cooperation that benefits the public. It is also relevant
    to our Nation's new bipartisan emphasis on volunteerism. We have been
    in touch with General Colin Powell as he spearheads, with former
    President Bush, the President's Summit for America's Future.'' We
    suggested ways that this Agency's capabilities can be adapted to
    support programs and initiatives sparked by the upcoming Philadelphia
    Summit. The General responded recently. He was happy to receive our
    suggestions and his staff is now considering our proposals.
        The four percent budget increase for Selective Service, requested
    by the President for fiscal year 1998, demonstrates the Administration
    is in agreement with the ``Service to America'' initiative. I strongly
    urge that you fund this innovative and modest adjustment to our
    acknowledgment program. With your support, we can move forward with
    this endeavor that has great benefits for America, and parallels our
    Nation's new, bipartisan emphasis on volunteerism.
        Mr. Chairman and members of the Subcommittee, I am proud of what
    Selective Service does for America. I hope you share in this pride.

                              ABMC INFRASTRUCTURE

        Senator Bond. Thank you very much, Mr. Coronado.
        Let me start with General Herrling. What do you estimate
    the future infrastructure needs and costs to be for the AMBC?
        General Herrling. Sir, today I estimate our infrastructure
    costs as far as repair and maintenance and the backlog thereof
    to be in the area of about $10 million. If we do not receive
    some help to try to defray some of that cost, I can only see
    that growing in future years.
        Senator Bond. So this is a one-time cost, or what is the
    annual cost? Are we talking about a one-time cost?
        General Herrling. Sir, it would average somewhere around
    $2.0 million a year for construction, repair and maintenance.
    We have tried to make inroads into the backlog. In fact, in
    fiscal year 1993 and 1994 Senator Mikulski added $1 million and
    $250,000 to our budget and we were able to make serious inroads
    into that backlog.
        Now, over the last 4 or 5 years it has built up again.
        Senator Bond. I know that one of the problems we face in
    dealing with overseas responsibilities is the fluctuation in
    foreign currency. What is the best approach for meeting the
    foreign currency market fluctuations? What are you doing to
    deal with that?
        General Herrling. Sir, in this, the fiscal year 1998
    appropriation, we have asked for $2.1 million to cover foreign
    currency fluctuation costs. That seems consistent with the
    past. The 1 year that it was not provided for in the budget, in
    1996, we got into a deficit position, and were short $700,000.
    So I had to go into my operational account to make up the
    difference for the foreign currency fluctuation.
        We have used our best judgment on what current fluctuation
    needs will be for both this year and in 1998.

                                RESPONSIBILITIES

        Senator Bond. Thank you, sir.
        Turning to Mr. Dola, what are your primary responsibilities
    with regard to the Arlington National Cemetery and the
    Soldiers' and Airmen's Home National Cemetery?
        Mr. Dola. As Secretary Lancaster's Deputy, my primary
    responsibilities with regard to Arlington and Soldiers' and
    Airmen's Home National Cemeteries are program formulation and
    budget oversight. The budget request is to operate and maintain
    both of those cemeteries, the entire works: scheduling,
    orchestrating and supporting, the funerals there, operating and
    maintaining the grounds, and providing for infrastructure needs
    that may occur, such as the Columbarium, the restoration of the
    Memorial Amphitheater, and other projects that are coming down
    the road.
        Senator Bond. The Columbarium. What are the other
    infrastructure needs with respect to those? What kind of
    funding do you expect to be requiring in the future?
        Mr. Dola. As you know from our budget, Mr. Chairman, we are
    asking for $2.4 million for construction, and in the next 5
    years we would be expecting on the order of $2.5 million per
    year. The larger issue will occur after that period, where we
    would anticipate that the construction needs could perhaps
    double that amount on an annual basis to take care of things
    that we see in our master plan down the road.

                     COSTS OF SERVICE TO AMERICA INITIATIVE

        Senator Bond. Mr. Coronado, what costs are you envisioning
    in the Selective Service on the Service to America initiative?
        Mr. Coronado. For Service to America, Mr. Chairman, it is
    $506,000.

                          FUTURE OF SELECTIVE SERVICE

        Senator Bond. There are questions being addressed by the
    GAO on the need to maintain the Selective Service in view of
    the success of the Volunteer Army. What do you see as the
    future of Selective Service, and if you had to forecast the
    outcome of this review what would you forecast? What do you
    think it should be?
        Mr. Coronado. It is my understanding that the GAO is at our
    agency, according to them, at the request of three Members of
    Congress to look at alternative methods of registration. So I
    do not believe the future of this agency is in jeopardy. I
    believe that this has been discussed and rediscussed by the
    Congress, studied by the National Security Council, the
    Department of Defense, and the administration. The majority of
    the people involved in these studies and discussions have
    decided SSS must remain ready and voted for maintaining a
    strong third tier of our Nation's defense. I am optimistic
    about the future of this agency inasmuch as it represents
    something very important to all of us.
        Senator Bond. Thank you very much, Mr. Coronado.
        Let me turn to Senator Mikulski for her questions.
        Senator Mikulski. Thank you.
        Gentlemen, each one of you plays a very important role, one
    in registering young people should we need to mobilize; and
    then after service a way to pay tribute to that. General
    Herrling--I am going to have a question for each one. First of
    all, we have been very blessed that the head of the American
    Battle Monuments Commission has always been a very
    distinguished American, and we thank you for taking on that
    responsibility.

                        ABMC INFRASTRUCTURE AND BACKLOG

        I just want to follow upon what Senator Bond raised, which
    is I am very concerned about the backlog in terms of
    maintenance, and I think we would welcome either a plan or kind
    of a work-through schedule. I do not want to call it a workout,
    but a work-through schedule, where in an organized and
    systematic way, dealing with those that are most at risk, then
    through, and how we could bring ourselves up to date so that we
    actually are not only funding current operating expenses, but
    essentially really having an organized, systematic way of
    working this down.
        Do you think that is a possibility, to be able to give that
    to us?
        General Herrling. Yes; I do, Senator. In fact, I am
    prepared to provide for the record a priority list of our
    maintenance, which includes some 550 projects at this point. As
    I mentioned earlier, it totals about $10 million.
        Now, through this fiscal year and hopefully if funded at
    the requested level for 1998, I will be able to work that
    backlog down somewhere in the range of $6 million. We will use
    our priority list, which includes some 550 projects, and start
    working down it. As you know, each year other projects are
    added to it.
        But I think with a modest increase each year, over maybe
    the next 5 years, I could whittle that down to something that
    is very manageable.
        Senator Mikulski. Well, this Senator is certainly not going
    to suggest a management plan to a U.S. Army General. But we
    might want to go to those that are most severely distressed,
    like a barbell approach, and then those that are beginning to
    be telltale, frayed and tattered, so that by beginning to
    intervene now they are not on that cascading slope. Some of
    those expenditures are quite low.
        So we look forward to working with you on this, and thank
    you.
        A question then for Mr. Coronado. You spoke about the
    Service to America and what I had asked. Do you want to just
    very quickly say what that is?
        Mr. Coronado. Absolutely. Senator, I want to thank you
    personally for having brought this up in 1993. The
    opportunities to interface with other agencies. How can we do
    something to better serve the American public? Very basically,
    we are in contact with 1.9 million young men each year. What we
    have done is to redesign the registration acknowledgment card
    and are asking men to serve America today as volunteers, either
    through the Armed Forces--or through AmeriCorps--and the card
    shows 1-800 numbers--for DOD and AmeriCorps. We are promoting
    Service to America in close cooperation with these agencies,
    who have voiced a very, very strong and very positive reception
    to this adjunct effort. We communicate this simple message to
    America's youth, at no additional cost, Mr. Chairman.
        However, for fiscal year 1998, we are asking for a slight
    increase in funding to redesign the whole process.
        Senator Mikulski. So what you are saying is that Selective
    Service does three things: one, it registers young men for the
    draft should they need to be mobilized; but simultaneously, you
    alert them to two opportunities for service now. One, if they
    are ready to sign up for the U.S. military, here is the number
    to call and go for it. The other is if you choose to begin to
    manifest a patriotic feeling, you can also do it in your local
    community by being a scout leader or big brother, and then that
    is the other 800 number that you call.
        But it is a way of reaching out to young men to say, we do
    have an obligation, but you also have a great opportunity for
    immediate service, either in the military or by being a good
    citizen in your neighborhood.
        Is that what we are talking about?
        Mr. Coronado. That is exactly correct, Senator Mikulski. In
    my travels throughout the country, we find that there is a lack
    of communication with our young people. This is one effort to
    get them to think about service to America, either in the
    military or in their local communities.

                    RESULTS OF SERVICE TO AMERICA INITIATIVE

        Senator Mikulski. I know my time has expired, but can you
    tell, have there been any concrete results that you can talk
    about that, because of this methodology, x number of young men
    have said military, x number have said local volunteerism?
        Mr. Coronado. This new methodology was implemented 2 days
    ago, so we have no direct results yet. And, it is doubtful that
    with a 1-800 number we would really be able to measure it. It
    is our hope, it is our desire, that we will get the additional
    funds for fiscal year 1998, and then we could include the
    business reply card that would come back to us. It would give
    us an accurate listing of the men who volunteered for the
    military versus the ones who want to serve in the local
    community. At a later date we would be very, very happy to
    share that with you.
        Senator Mikulski. OK.
        Well, Mr. Chairman, I know my time has expired. I want to
    thank Mr. Dola. Four million people visit Arlington. Four
    million people come to Arlington to, of course, visit the
    Kennedy grave and pay our respects to America's heros. I think
    that is an extraordinary, just an extraordinary number of
    visitors. We do not want to call it tourism. They are not
    coming to tour. They are coming to express a feeling, and that
    is an exceptional feeling.
        We look forward to running this place because, in addition
    to providing proper interment and burial services, you have
    this other management responsibility which I think is
    significant. You probably are visited--and please do not
    confuse my vocabulary in any way with demeaning the special
    nature, but you are visited more than a national park, many of
    the national parks.
        I would just hope that we really provide some type of
    understanding of the support that you need, so that you do that
    and at the same time meet the mission, the very honorable and
    sacred mission for which you were established.
        Mr. Dola. Senator Mikulski, we appreciate the understanding
    of this subcommittee for the sacred trust that we try so very
    hard to discharge in a way the subcommittee and Congress and
    the American people will be proud of. We thank you for the
    support that we have had in the past and hope that we will
    merit it in the future.
        Senator Mikulski. Thank you, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Mikulski.
        We are very pleased to be joined by the chairman of the
    full committee, Senator Stevens.

                            STATEMENT OF TED STEVENS

        Senator Stevens. Thank you. I just dropped by to say hello,
    to see what was occurring in terms of this area of your
    jurisdiction, Mr. Chairman.

                          ABMC INFORMATIONAL SERVICES

        I am concerned about the Battle Monuments Commission
    activities. What kind of really informational services do you
    have to let people know where these monuments and memorials and
    cemeteries are overseas?
        General Herrling. Senator Stevens, we have quite an
    extensive program to keep next of kin, friends, and interested
    people informed on just those subjects. Anybody can call or
    write to our office and we will provide them with a letter that
    gives them information concerning their request. We will also
    provide them with general information pamphlets on the
    cemetery. We will tell them how to get there from an airport or
    railroad station. We will have the superintendent, in some
    cases, go to the railroad station or airport to pick up and
    bring the next-of-kin to the cemetery.
        So we provide all that information through correspondence
    daily. We receive probably hundreds of letters every week on
    just that sort of request.

                     ABMC MEMORIAL DAY AND OTHER CEREMONIES

        Senator Stevens. And what do you do to organize the various
    ceremonies on our national days, like Memorial Day or Veterans
    Day, over there?
        General Herrling. Sir, each one of our cemeteries has a
    ceremony on Memorial Day and also on Veterans' Day. It will
    usually involve the U.S. Ambassador to that country as well as
    distinguished military and civilians who live and work in that
    country. They are formal ceremonies. The military, who are
    still stationed throughout Europe, will provide the color
    guards, firing squads, the buglers, to make it truly a
    remembrance type of a ceremony.
        I believe we do this very well and we pretty much mirror
    what is done here in the States for those national holidays.
        Senator Stevens. Many of us travel abroad about that time.
    I remember I was asked to speak in The Netherlands at
    Margraten.
        General Herrling. Margraten.
        Senator Stevens. But I do not remember ever--I have been
    here quite a while, but I do not remember ever anyone sending
    me a notice of where there would be events. I want to ask that
    you undertake the task of sending, at least to the chairman of
    the committees of both the House and the Senate, notice of what
    type of ceremony is going to take place at the monuments and
    memorials under your jurisdiction during the year. I think we
    ought to have a little more attention to paying our respects at
    those areas when we do go overseas.
        I am not asking you for it any more than just once a year,
    to say these are the events that will take place and to offer
    opportunity to our people to visit these sites. I find them
    very rewarding when I visit them, but I do not know how many
    people do that.
        Would you do that for us?
        General Herrling. Senator, we would be delighted. We would
    be delighted to provide that information to members of
    Congress.
        Senator Stevens. Good. Thank you very much. I appreciate
    it.
        Senator Bond. Thank you very much, Senator Stevens.
        Thank you, gentlemen, for joining us today. We will keep
    the record open for questions that other members of the
    committee may have. We do appreciate the opportunity to work
    with you. Our staff will be in contact with you on any further
    questions that may arise and we urge you, as always, to feel
    free to contact the staff. John Kamarck is our new head of the
    staff for this committee and I hope that you will feel free to
    call on him and other members of the staff if you have
    additional views or comments that may be necessary.

                              SUBCOMMITTEE RECESS

        Thank you, and the hearing is recessed.
        [Whereupon, at 11:15 a.m., Tuesday, March 4, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                            TUESDAY, MARCH 11, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:38 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond and Mikulski.

                       CONSUMER PRODUCT SAFETY COMMISSION

    STATEMENT OF ANN BROWN, CHAIRMAN
    ACCOMPANIED BY:
            MARY SHEILA GALL, COMMISSIONER
            THOMAS H. MOORE, VICE CHAIRMAN

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. The subcommittee will come to order.
        This morning we are very pleased to be able to take
    testimony from three agencies with responsibilities to the
    American consumer, including protecting citizens from injury
    and death associated with consumer products and providing them
    with important information on subjects as diverse as preparing
    a will and eating healthfully.
        The Consumer Product Safety Commission, represented by
    Chairman Ann Brown, is requesting an appropriation of $45
    million, an increase of $2.5 million over the current year. The
    Consumer Information Center, represented by Director Teresa
    Nasif, is requesting $2.1 million. And the Office of Consumer
    Affairs, represented by Director Leslie Byrne, is requesting
    $1.8 million.
        For the most part, these budget requests would fund current
    services without major enhancements in agency operations.
    However, even funding marginal increases necessary for normal
    inflationary adjustments will be tough in the budgetary
    environment in which we are operating.
        If you have had representatives at previous hearings, you
    will know that this committee is blessed with some very
    difficult problems, particularly with respect to the costs of
    HUD and the section 8 contracts.
        Moreover, it will come as no surprise to some of you that I
    continue to have very strong concerns about the redundant role
    of the Office of Consumer Affairs and question why the office
    should be continued. We tried, unsuccessfully, to fulfill the
    President's commitment to streamlining Government activities
    and reducing duplication in the last two appropriations cycles
    by eliminating the Office of Consumer Affairs. And, while I
    received no calls or letters from constituents or consumer
    groups in opposition, the administration insisted on funding
    the organization in fiscal years 1995 and 1996. This was
    disappointing to me.
        In my view, OCA's role has become obsolete as most Federal
    agencies have consumer affairs officers or individuals
    responsible for consumer issues.
        In addition, I have been concerned that in attempting to
    create a role for itself in the last 2 years, OCA has succeeded
    in creating yet another duplicative activity through the
    consumer HelpLine.
        OCA was without a director for several years. Ms. Byrne,
    you are the newly installed director and you will be given the
    opportunity to defend your agency. I have worked with you in
    the past and have great respect for your abilities. It is the
    agency, not the people, that I am concerned about. I will
    require a lot of convincing.
        Now let me turn to my ranking member, Senator Mikulski.
        Good morning, Senator.

                        STATEMENT OF BARBARA A. MIKULSKI

        Senator Mikulski. Thank you, Mr. Chairman and good morning
    to you and to all members of the panel.
        Each and every one of you have worked closely with me in a
    variety of capacities, of course, with both Ms. Brown and Ms.
    Nasif in the committee and with Ms. Byrne when she was a
    Congresswoman, a cousin from the other side of the Potomac who
    knows about the bridges.

                               PREPARED STATEMENT

        Mr. Chairman, in the interest of moving ahead and hearing
    the witnesses, I ask unanimous consent that my statement be
    placed in the record and I look forward to hearing the
    testimony and their answers to our questions.
        Senator Bond. Without objection. Thank you.
        [The statement follows:]

                 Prepared Statement of Senator Barbara Mikulski

        Thank you, Mr. Chairman. I know that we have a lot to go through
    this morning so I will be brief.
        We will be hearing testimony from six of the independent agencies
    within the jurisdiction of the VA-HUD Subcommittee: The American Battle
    Monuments Commission, Cemeterial Expenses of the Army, the Consumer
    Information Center, the Consumer Product Safety Commission, the Office
    of Consumer Affairs, and the U.S. Court of Veterans Appeals.
        Collectively, these agencies are requesting $92,091,000 for fiscal
    year 1996 which is an increase of $3.7 million or 4.2 percent above the
    fiscal year 1995 enacted level. The fiscal year 1996 budget request for
    these agencies represents a mere fraction of the $91.2 billion in total
    funding requested by the President for all agencies within this
    Subcommittee's jurisdiction. The relative size of their budget
    requests, however, should in no way diminish the importance of the
    services that these agencies perform.
        The witnesses before us are responsible for commemorating the
    achievements and sacrifices of United States Armed Forces, operating
    and maintaining that sacred area that is Arlington Cemetery, protecting
    and informing America's consumers, and helping to ensure that veterans'
    benefit claims are appropriately and adequately reviewed. This is
    important work, Mr. Chairman.
        My time here this morning is limited, so I will not be able to hear
    all of the witnesses. Let me welcome all of you before the Subcommittee
    as we begin our review of the President's fiscal year 1996 budget
    request. Let me also echo what Senator Bond has said regarding our
    budgetary situation. A freeze at current levels is probably the best
    this Subcommittee can hope for.
        One final thought before we turn to the witnesses. You know, Mr.
    Chairman, the new majority in Congress seems determined to visit some
    version of regulatory reform upon the American people. You are directly
    involved in this effort as the co-Chairman of the regulatory Reform
    Task Force appointed by the Majority Leader here in the Senate.
        I hope that you and many of our colleagues will pay close attention
    to the leadership that Ann Brown has brought to the Consumer Product
    Safety Commission. As Chairman of the CPSC, Ann Brown has streamlined
    and revitalized what had become a dormant agency under previous
    administrations. She has made consumer protection more effective--not
    by making the Federal government more invasive--but instead, working
    cooperatively with consumers and businesses to minimize the risk of
    death and injury from consumer products. Under Ann Brown's leadership,
    the CPSC seeks voluntary compliance if it is at all possible and takes
    mandatory action only when necessary.
        As we consider the issue of regulatory reform here in the Congress,
    Mr. Chairman, we should be looking to the CPSC to see just how the
    Federal government can be made more effective at protecting our
    citizens by ensuring that they are better informed and encouraging
    businesses to pay more attention to safety in their products.
        Thank you, Mr. Chairman. And now, let's here from the witnesses.

                             STATEMENT OF ANN BROWN

        Senator Bond. Now we will turn to the chairman, Ann Brown.
        Ms. Brown. Thank you. Mr. Chairman and members of the
    subcommittee, I am Ann Brown, Chairman of the Consumer Product
    Safety Commission, known as CPSC.
        With me today are Commissioner Mary Sheila Gall and Vice
    Chairman Thomas H. Moore and members of the commission staff.
        I am pleased to have this opportunity to testify in support
    of our fiscal year 1998 appropriation request.
        For the information of any new members, I want to explain
    very briefly who we are and what we do. The Commission was
    established in 1973 by Congress as a five, now a three member
    independent agency with the mission to protect the public
    against unreasonable risks, injury and death from consumer
    products.
        We enforce five Federal statues--the Consumer Product
    Safety Act, the Flammable Fabrics Act, the Poison Prevention
    Packaging Act, the Hazardous Substances Act, and the
    Refrigerator Safety Act. All told, we have jurisdiction over
    15,000 different kinds of consumer products which are found in
    and around the home.
        These products are involved in more than 21,000 deaths and
    over 29 million injuries with a total cost in excess of $200
    billion annually to the Nation.
        At the outset, I want to express our appreciation for our
    fiscal year 1997 appropriation of $42.5 million, the full
    amount requested in the President's budget. These funds are
    being used effectively to protect the American people against
    unreasonable risk of injury or death from dangerous or
    defective consumer products.
        I am especially proud of our Baby Safety Shower Program and
    I want to show a very short tape about it.
        [A videotape was shown.]
        Senator Mikulski. Ms. Brown, how long is this tape?
        Ms. Brown. It goes on for 1 more minute.
        Senator Mikulski. This is a busy day and we do have three
    witnesses.
        Senator Bond. That's all right. It came out of her time.
    [Laughter.]
        Ms. Brown. Then please let me continue.
        In fiscal year 1998, we are requesting an appropriation
    increase to $45 million, an increase of $2.5 million to
    continue and expand our vital work. In preparing our budget, we
    carefully reviewed the needs and contributions of all our three
    operating divisions.
        As a result, we are proposing important investments above
    current service levels in most of these areas. These
    investments total $1.1 million. They include funding of a
    larger number of product incident investigations, support for
    hazard reduction initiatives, including a major effort on fire
    hazards, an innovative compliance investigation program, and
    certain information technology efforts critical to efficient
    agency operations.
        These modest programs requested for 1998 are more than
    justified by our record of accomplishment.

                              PREPARED STATEMENTS

        CPSC has made vital contributions to the 20-percent decline
    in annual deaths and injuries. Past agency work in
    electrocutions, children's poisonings, children's cribs, power
    mowers, and fire safety helps save the Nation almost $7 billion
    annually in health care, property damage, and other societal
    costs--more than 100 times CPSC's annual budget, or about $155
    million in savings for each $1 million of the agency's 1998
    request.
        [The statements follow:]

                        Prepared Statement of Ann Brown

        Mr. Chairman, and members of the Subcommittee, I am Ann Brown,
    Chairman of the Consumer Product Safety Commission (CPSC). With me
    today are Commissioner Mary Sheila Gall, Vice Chairman Thomas H. Moore
    and members of the Commission staff.
        I am pleased to have this opportunity to testify in support of our
    fiscal year 1998 appropriation request.
        For the information of the new members of the Subcommittee, I want
    to explain briefly who we are and what we do. The Commission was
    established in 1973, by Congress as a five, now three, member
    independent agency with a mission to protect the public against
    unreasonable risk of injury or death from consumer products. We enforce
    five federal statutes, the Consumer Product Safety Act, the Flammable
    Fabrics Act, the Poison Prevention Packaging Act, the Hazardous
    Substances Act and the Refrigerator Safety Act. All told, we have
    jurisdiction over 15,000 different kinds of consumer products which are
    found in and around the home. These products are involved in more than
    21,000 deaths, and over 29 million injuries with a total cost in excess
    of $200 billion annually to the nation.

                             RECENT ACCOMPLISHMENTS

        At the outset, I want to express our appreciation for our fiscal
    year 1997 appropriation of $42.5 million, the full amount requested in
    the President's budget. These funds are being used effectively to
    protect the American people against unreasonable risk of injury or
    death from dangerous or defective consumer products.
        I want to tell you just a few of the ways in which we have used the
    taxpayers' hard earned dollars to safeguard their health and safety.
      --In fiscal year 1997 we have negotiated 106 voluntary corrective
            actions involving 17.2 million consumer product units that
            violated mandatory safety standards or presented a substantial
            risk of injury to the public.
      --Also in fiscal year 1997, in partnership with the Customs Service,
            we stopped 2.8 million dangerous product units from reaching
            store shelves.
      --We recently issued a rule to alleviate the tip-over hazard of
            large, multiple tube fireworks. Spectators have been killed
            when these devices fell over and fired horizontally. The new
            rule becomes effective this month, well before the fireworks
            season.
      --In fiscal year 1996 we tested several brands of imported, non-
            glossy vinyl miniblinds and found they contained amounts of
            lead which would be harmful to young children. When we
            presented these results to the miniblind industry, the
            manufacturers voluntarily agreed to change the composition of
            these products to eliminate the lead.
      --In cooperation with the Gerber Products Company, we continued our
            campaign this year to promote baby safety events across the
            country. To demonstrate this program I want to show you a brief
            excerpt from the CBS Morning News, which broadcast a segment on
            the kickoff of our program.
        Mr. Chairman, these are just a few of the ways we have used our
    resources to advance consumer product safety in fiscal year 1996 and
    97.
                           FISCAL YEAR 1998 PROGRAMS

        In fiscal year 1998, we are requesting an appropriation increase to
    $45 million, an increase of $2.5 million, to continue and expand our
    vital work. In preparing our budget, we carefully reviewed the needs
    and contributions of our three operating divisions, hazard
    identification and reduction, compliance, and information and
    education. As a result we are proposing important investments above
    current service levels in most of these areas to enhance our ability to
    prevent and reduce the deaths and injuries related to consumer
    products.
        These investments total $1.1 million. They include funding of a
    larger number of product incident investigations, support for hazard
    reduction initiatives (including a major effort on fire hazards), an
    innovative compliance investigation program, increased consumer
    information outreach, and certain information technology efforts
    critical to efficient agency operations.
        In the hazard assessment and reduction area, funding would increase
    by $443,000, with one-third required to maintain current hazard
    reduction activities. The remainder of the increase, $325,000, funds
    critical enhancements in two areas: a partial update of the agency's
    child anthropometric measurements (measurements of children's physical
    dimensions, which are critical to analysis of their injuries); and
    several initiatives to address the nation's high fire death rate.
    Nationally, there were 470,000 residential structure fires in 1993.
    Fire is a leading cause of accidental home deaths among children
    younger than five years old.
        Even though efforts by the agency and the nation's fire prevention
    community have resulted in a steady decline in residential fires, this
    nation's fire death rate remains one of the highest among
    industrialized nations. Past CPSC actions in this area involving, for
    example, cigarette-resistant mattresses and upholstered furniture,
    heating equipment, flame resistant children's sleepwear, and smoke
    detectors have contributed to the general decline in fires and fire
    deaths, and show that the agency can be effective in reducing fire
    hazards.
        The fire-related hazards project continues our 1997 work on
    upholstered furniture, mattresses and bedding, revisions to the apparel
    flammability standard, and fire/gas codes and standards. New activities
    will be undertaken to evaluate the effectiveness of the Commission's
    safety standard on cigarette lighters and to address an emerging
    hazard, fires started by children using multi-purpose lighters. Fire
    investigation training for certain CPSC staff in our field offices is
    also recommended.
        In the Compliance program, we are requesting an increase of about
    $600,000 to enhance the Special Investigations Unit initiative. This
    recently established unit serves to identify and remedy previously
    unidentified and/or technically complex hazards. We believe that much
    of the agency's future work and effectiveness will involve addressing
    more technically complex hazards. The requested funds begin to develop
    the necessary tools to address such hazards. This includes a critically
    important effort to link and integrate agency and non-agency databases
    and the application of rapid product testing and evaluation techniques.
    Advances in this effort will benefit safety work throughout the agency.
        For fiscal year 1998, the information and education program's
    dollars increase by $196,000, with most of the funds necessary to
    maintain the current consumer information efforts in support of agency
    hazard reduction and compliance efforts. An increase of $22,000 will
    allow greater use of cost-effective video news releases to reach the
    public with product recall and other safety information.
        We know the Subcommittee has been especially concerned about the
    level of management expense at the CPSC. Accordingly, I want to inform
    you about a change I instituted in all CPSC programs. I have made it a
    policy that managers must be working supervisors, sharing the
    substantive work with our staff. Recognizing the Subcommittee's desire
    to reduce administrative expenses, we have worked to do so, and have
    achieved a 21 percent decrease since 1989. Only 19 percent of our
    fiscal year 1998 budget funds administrative needs, down from 24
    percent in 1989.
        The modest program increases requested for fiscal year 1998 are
    more than justified by our record of accomplishment. CPSC has made
    vital contributions to the 20 percent decline in annual deaths and
    injuries related to consumer products that occurred between 1980 and
    1993. Past agency work in electrocutions, children's poisonings,
    children's cribs, power mowers, and fire safety helps save the nation
    almost $7 billion annually in health care, property damage, and other
    societal costs--more than 100 times CPSC's annual budget or about $155
    million in savings for each $1 million of the agency's 1998 request.
    The agency expects its 1993 standard to make cigarette lighters child
    resistant to save over $400 million in societal costs and prevent up to
    100 deaths annually. Similarly, the agency expects its work in curbing
    carbon monoxide (CO) poisoning to reduce societal costs by one billion
    dollars annually. CPSC removal of dangerous fireworks from the
    marketplace prevents about 14,000 injuries each year.
        As you know, Mr. Chairman, I stress a cooperative, non-adversarial
    approach to business whenever possible. My first priority is to achieve
    voluntary compliance with our laws and rules. For this reason, I am
    particularly proud of our record of working cooperatively with
    industry. Since I became Chairman in 1994, the CPSC has developed 27
    voluntary standards with manufacturers, while issuing only 10 mandatory
    regulations, a ratio of almost 3-1 voluntary to mandatory standards.
        I have also emphasized my belief in the product safety triangle,
    where business, consumers and government each have an equal role to
    play. The Commission should not become overly invasive. We cannot and
    should not attempt to protect consumers from every possible risk of
    injury from consumer products. There are limits to what government can
    achieve.
        In this connection, Mr. Chairman, I want to tell you what we have
    done to implement your bill, S. 942 (Public Law 104-121), the Small
    Business Regulatory Enforcement Fairness Act.
        First, on October 9, 1996, the Commission adopted a regulation
    establishing a CPSC Small Business Ombudsman and a Small Business
    Enforcement Policy. The Ombudsman, Clarence Bishop, who is also Deputy
    Executive Director, has answered more than 700 calls on a special toll-
    free hotline from small businesses seeking product safety information.
    Over 80 percent of the callers received a personal response to their
    inquiry from our staff within 3 business days. This service helps small
    businesses get important information quickly, and, at the same time,
    furthers public safety.
        Second, we have scrupulously followed the Congressional review
    procedures set forth in the law. We have issued four rules since the
    Act's effective date--none of which were ``major'' rules. In each
    instance, we submitted the required reports to Congress and the General
    Accounting Office on a timely basis.
        Third, we are near completion of a compliance guide for our
    February, 1997, revisions to the fireworks fuse burn time regulation,
    which were unanimously supported by industry and safety groups. Our
    Economics staff concluded in its regulatory flexibility analysis that
    these changes will benefit small businesses by making it easier for
    them to comply with the fuse burn time standard.
        Finally, consistent with the purpose of your legislation, in June
    1996, we co-sponsored a Small Business Conference with the
    International Consumer Product Health and Safety Organization. More
    than 130 representatives of small businesses participated in panels
    designed to assist them in complying with our laws and regulations.
                   reduced funding limits commission programs
        As you know, in a concurrent submission to this Subcommittee and
    the OMB in September 1996, the Commission requested a budget of $49.7
    million for fiscal year 1998. The OMB reduced our budget request to $45
    million. Although this reduction of $4.7 million seems small, it will
    have a negative impact on our efforts to protect the health and safety
    of American children and families.
        For example, we proposed to invest $800,000 to update the
    Commission's 20 year old child anthropometry data. This information is
    essential for effectively addressing product hazards to children. Due
    to the rejection of this request, our effort in this area will have to
    be spread over several years, thereby hampering our efforts to protect
    one of our most vulnerable populations, children.
        Earlier in my testimony I mentioned our program to reduce deaths
    and injuries from household fires. We requested $500,000 for this
    project, but due to the budget reduction, we will be able to invest
    only half that amount in fiscal year 1998. The continuing high cost of
    fires justifies a greater investment and more innovative activities.
    The increased funds would have provided a mix of research and action
    items to address the many complex aspects of the fire problem. These
    items could include a cost-benefit evaluation of fire suppression
    devices, research to refine our knowledge of the causes of fire deaths
    to help identify appropriate prevention strategies, and the
    investigation of new product-specific hazards. These efforts would have
    provided a broader, more inclusive attack on the nation's fire
    problems. Since we were denied these funds, we will not be able to
    protect the public as well as we could from death and injury due to
    fire hazards.
                 investment in information technology is needed
        In the past, agency funds invested in information technology have
    saved many thousands of hours of staff time for the Commission,
    improving our effectiveness and efficiency enormously. We have used
    these funds to develop discrete databases, to network the agency's
    computer system, and to move our data systems from a mainframe computer
    located at another federal agency to our own local network.
    Unfortunately, our fiscal year 1998 budget request would barely
    maintain our capabilities in this area. The proposed funding level
    leaves no resources to implement further technological advances, and
    only permits minimal investment to meet the new requirements of the
    recent Freedom of Information Act amendments (which require that most
    requested material be in electronic format and available over the
    Internet).
        An additional investment of $1,000,000 would allow us to respond
    faster and better to product hazards, saving more lives and preventing
    more injuries, and would help us implement the new FOIA law. As you
    know, CPSC is a data-driven agency that carries out its mission with a
    sense of urgency, since quick action by the agency saves lives. To
    provide even greater benefits to American consumers, we would like to
    establish an integrated information system at the agency that would
    give staff access to a much larger universe of product safety data and
    would improve the speed with which staff could gain access to that
    data.
        This system would integrate the agency's databases, and other data
    and documents not included in our current databases, allowing CPSC
    employees to get all the information the agency has on a particular
    product hazard using one quick and easy information request. Currently,
    gathering all such information can take weeks.
        Let me give you an example. Last year, CPSC's Compliance Office
    became aware of the suffocation death of a toddler who had been trapped
    in a cedar chest. To discover whether similar incidents had occurred in
    the past, the compliance officer searched each database in the agency
    individually, which took approximately two hours of staff time. Without
    recent improvements in information technology, she would have conducted
    these searches manually, which could have taken days, if not weeks.
        However, our system only allowed her to search for information that
    was available in certain discrete databases, which includes less than
    50 percent of all the information that has been developed by the agency
    since its establishment. If we had an integrated database, this same
    search could have been conducted in a matter of minutes, instead of
    hours, and would have represented a complete review of all information
    developed by the Commission, not just what is in currently available
    databases.
        In this particular case, the compliance officer did identify
    additional deaths of children who had become entrapped in a cedar chest
    manufactured by the same company. This data enabled us to reach
    agreement with the company to repair 12 million cedar chests currently
    in the hands of consumers. However, if it had been necessary for the
    staff to obtain more information before action could be taken, such as
    staff reports on toy chest entrapments or product safety assessments
    conducted by staff years ago on similar products, it would have taken
    weeks or months to locate the information through a manual search of
    Commission files and archives. Meanwhile, unrepaired chests would
    remain with consumers, threatening the safety of millions of children.
        This demonstrates that the benefits of an additional investment in
    CPSC information technology will far outweigh the slight increase in
    our appropriation.

                                   CONCLUSION

        In conclusion, Mr. Chairman, the CPSC is a great value to the
    American people. By every rational cost-benefit measure we save the
    taxpayer many times our budget in deaths, injuries and property damage
    prevented. Accordingly, we urge you to appropriate not only the full
    amount requested, we also hope you can find an additional $1 million,
    within the Subcommittee's budget allocation, and within the framework
    of the President's balanced budget for necessary enhancement of our
    information technology.
                                     ______

                     Prepared Statement of Mary Sheila Gall

        I support the request of the Commission for $45 million for fiscal
    year 1998. Since my vote was against the original request to the Office
    of Management and Budget and Congress, I want to explain to the
    Subcommittee why I now support the budget request.
        In July 1996 I opposed the staff-proposed fiscal year 1998 budget
    of $49.9 million. I did so with reluctance, since many of the proposals
    to increase funding lay in areas such as additional laboratory
    equipment and other infrastructure expenditures that I have
    traditionally supported. My opposition to this budget proposal stemmed
    mainly from the fact that it proposed to spend 17 percent more in
    fiscal year 1998 than the request made by the Commission for fiscal
    year 1997. I recognize the importance of the mission and the operations
    of the Commission, but that importance must be balanced by the
    necessity to keep planning for future expenditures closer to probable
    increases.
        I supported certain portions of the staff-proposed budget. Current
    services needed to be funded and the cuts of fiscal year 1996 had to be
    restored. The Commission's accounting system needs modernizing and
    additional money for training is essential. But I did not agree that
    all of the proposed expenditures were as worthy as others. For example,
    I support increased expenditures to reduce fire deaths and injuries,
    but did not believe that several of the projects contained in the staff
    proposal represented a wise use of Commission resources. Similarly, the
    $40,000 proposed project to evaluate recall effectiveness struck me as
    less than crucial. Finally, many of the staff-proposed spending
    increases could be deferred to subsequent fiscal years.
        I am pleased to support the Commission's budget request contained
    within the President's budget request. This Commission performs a
    valuable public service by seeking to prevent injuries and death
    associated with the use of consumer products. I think that this
    Committee should note that, while many agencies within its jurisdiction
    seek benefits that will accrue in the distant future, the Commission's
    activities prevent deaths and injuries in the near term. This
    observation does not mean that the activities of those agencies are
    unimportant, but the immediacy of the benefits that this Commission's
    activities confer upon the American public ought to be a factor when
    this Subcommittee considers the appropriation request of this
    Commission along with the appropriations requests made by other
    agencies.
        The details of the Commission's fiscal year 1998 Budget Request
    have been set forth in the Chairman's Statement and I have nothing to
    add to that portion of her Statement.

                         Additional committee questions

        Senator Bond. Thank you very much, Chairman Brown.
        [The following questions were not asked at the hearing, but
    were submitted to the Agency for response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

                                   cpsc fte's
        Question. CPSC currently has on-board approximately 455 staff; your
    FTE ceiling is 487 FTE, and your fiscal year 1998 request would fund
    480 FTE. How much could we save if you did no hiring, and maintained
    staff at the current level of 455?
        Answer. First, the agency is no longer at the 455 employee level.
    Current employment is 460 and climbing. We have announcements
    outstanding to bring us up to 480 employees very shortly. We are
    aggressively hiring new employees because our product safety work has
    been hurt by staff vacancies caused by 1996 budget uncertainties and
    funding delays. Staff has been doing a tremendous job of covering for
    the vacant positions but productivity will soon suffer without
    additional staff support.
        Second, CPSC is already about half the size it was in 1980, and we
    have worked very hard to keep productivity up despite reduced staff
    resources. Since our specialized and highly skilled workforce is our
    chief asset (comprising 75 percent of our entire budget), cutting staff
    time further would reduce our product safety work now and for many
    years to come. While an FTE cut of 5 percent to 455 would reduce salary
    costs by about $1 million, this savings would be more than offset by a
    significant erosion in our life-saving safety work. Past work by the
    agency shows savings to society of at least $155 million each year for
    every $1 million spent on the agency.
        Finally, CPSC has already cut down on agency administrative support
    as much as we can. Since 1994, due to budget and FTE reductions, we cut
    support staff and contracted out such administrative functions as
    copier, mail and library services. Any further reductions in
    administrative staff would not be prudent given the size of our agency
    and our management needs. Therefore, most additional staff cuts would
    come from our programmatic work. In short, staff reductions would
    translate into fewer investigations, fewer product recalls, and fewer
    interceptions of hazardous products entering the country.

                                1998 PRIORITIES

        Question. What would you list as your top three priorities for
    fiscal year 1998?
        Answer. All of CPSC's efforts make a vital contribution to reducing
    the nation's $200 billion annual cost associated with product hazards.
    Our top priorities for 1998 are:
        1. Maintaining our current safety program in 1998. This requires
    funding of approximately $2 million ($1.2 million for salary and space
    costs, $300,000 for a Year 2000 compliant accounting system, $300,000
    for increased retirement costs and $200,000 to implement new FOIA
    requirements).
        2. Pursuing new safety initiatives to reduce fires, update the
    nation's child measurement database, and expand the Special
    Investigations Unit initiative. These initiatives are critical to our
    efforts to further reduce the nation's high fire death rate, increase
    protections for children from product hazards, and improve our ability
    to identify and remedy technically-complex product hazards. These
    programs require funding of approximately $1 million.
        3. Information technology investment. The agency has increased its
    product safety productivity in part by using information technology.
    Without further investment, aging information systems jeopardize our
    ability to pursue current activities and dim the possibilities of
    future gains in productivity. We would need about $1 million to
    properly upgrade and improve current systems to meet future workload
    and to make greater reductions in deaths and injuries.

                             MULTI-PURPOSE LIGHTERS

        Question. Your budget request proposes several new program
    initiatives, including $283,000 to address the nation's high death and
    injury rate from fire. Your budget justification indicates in 1998 CPSC
    will undertake activities to address fires started by children using
    multi-purpose lighters. How did this particular issue emerge as a top
    priority for fiscal year 1998? What specifically do you propose to do
    with the requested funds, and what particular activities do you
    anticipate in fiscal year 1998 to address the issue (such as
    regulations or working with industry on a voluntary basis)?
        Answer. Multi-purpose lighters are lighters with long nozzles that
    are most commonly used to light charcoal or gas grills, fireplaces and
    pilot lights on gas appliances. In 1997, the Commission considered a
    petition requesting that multi-purpose lighters be child-resistant. The
    Commission granted that petition and initiated a new rulemaking
    activity by issuing an Advance Notice of Proposed Rulemaking to require
    these lighters to be child-resistant. The Commission noted that a
    standard may be needed to reduce the fire hazard to children under 5
    years of age starting fires while playing with this product.
        The Commission is aware of 67 incidents since 1988 involving fires
    started by children under age 5 using multi-purpose lighters. These
    fires resulted in 10 deaths and 26 injuries. Children under age 5
    typically are incapable of dealing with a fire once started. This puts
    them and their families at special risk of injury. Almost all of the 10
    fatalities were the children who started the fires. For example, a 4-
    year-old girl died last September when she set her day bed on fire
    while playing with a multi-purpose lighter.
        Multi-purpose lighters are relatively new products which were
    introduced to the U.S. market in 1985. Since then sales have increased
    steadily. One million units were sold in 1985; in 1996, 20 million
    units were sold. With increasing sales and the attractiveness of these
    lighters to young children, the Commission is acting to address the
    fire hazard before the deaths and injuries increase.
        In 1998, the Commission will continue working with a contractor to
    build surrogate lighters and to test several different multi-purpose
    lighters to determine how child-resistant they are for children under
    age 5. These results will be used to prepare a cost/benefit analysis
    for the proposed regulation.
        The Commission will decide whether to issue a proposed standard in
    1998 and will participate in the development of a voluntary standard if
    the industry decides to initiate action to address this problem
    voluntarily.

                    CIGARETTE LIGHTERS/COST BENEFIT ANALYSIS

        Question. I'd like to understand better how the agency does cost-
    benefit analyses. In your statement, you say that CPSC's 1993 standard
    to make cigarette lighters child resistant saves over $400 million in
    societal costs. Please explain the basis for this estimate, and more
    generally the process for conducting cost-benefit studies.
        Answer.

    Cigarette Lighter Standard

        Prior to this standard, fires started by children under 5 years of
    age playing with cigarette lighters resulted in 150 deaths, 1,200
    injuries, and $70 million in property damage annually, for a total
    societal cost of about $900 million (about $750 million in fatality
    costs, over $60 million in injury costs, and about $70 million in
    property damage).
        The child resistant features of lighters are expected to reduce
    incidents by up to 70 percent, resulting in $500 million dollars of
    benefits. Taking into account the estimated $90 million in added costs
    to comply with the standard, the estimated net benefits to society are
    about $400 million per year.

    Cost-Benefit Analysis at CPSC

        Under several of the Acts enforced by CPSC, prior to promulgation
    of a new regulation, the Commission must find that the benefits
    expected from a rule bear a reasonable relationship to the costs. In
    developing a safety regulation, CPSC examines the benefits and costs of
    alternative ways of addressing consumer product hazards. The process
    involves identifying the extent to which specific remedies will reduce
    product-related injuries and deaths. It also includes identification
    and estimation of the full range of costs to society of each potential
    remedial action.
        The benefits of a regulation include preventing injuries, deaths,
    and (sometimes) property damage from hazardous products. CPSC's Injury
    Cost Model estimates direct costs (e.g., medical, foregone earnings)
    and indirect costs (e.g., pain and suffering) of injuries reported
    through the National Electronic Injury Surveillance System and other
    injury data sources.
        The costs to society of addressing a product hazard include the
    cost of modifying a product design to make it safer or sometimes simply
    modifying the product labeling or packaging. Also the Agency takes into
    account estimated effects of increased consumer prices and product
    utility. In developing a rule, the estimated benefits are compared to
    the estimated costs; other economic factors that are not readily
    quantifiable are also considered (e.g., small business effects, effects
    on competition).

                        GENERAL SERVICES ADMINISTRATION

                          Consumer Information Center

    STATEMENT OF TERESA NASIF, DIRECTOR
        Senator Bond. Now we will hear from Director Nasif.
        I apologize if I have mispronounced your name. If you
    would, tell us the proper pronunciation and present your
    testimony. Thank you.
        Ms. Nasif. It's Nasif, yes, as you said it.
        Mr. Chairman and members of the subcommittee, thank you for
    the opportunity to present the fiscal year 1998 budget request
    for the Consumer Information Center.
        With me today is Bill Early, Director of Budget of the
    General Services Administration.
        Established more than a quarter century ago, CIC continues
    to successfully carry out its vital mission mandate of helping
    Federal departments and agencies inform the public about health
    and safety issues, developments in Federal programs, and the
    impact and effects of Federal research and regulatory actions.
        Today, many elements of the CIC program remain the same: an
    essential mission mandate; a commitment to serve the American
    public; and the firm support of the administration and this
    committee.
        However, the CIC Program is going through a time of change
    that reflects a new environment in Government and in customer
    behavior. Overall, Federal agencies have reduced the scope of
    their publishing activities due to budget constraints, and the
    American public is placing fewer orders for merchandise,
    including information, by mail.
        CIC is meeting these challenges in two ways. First, we have
    redoubled efforts to identify private sector partners who share
    Federal information goals and can provide resources to stretch
    limited Federal dollars. Second, CIC has set up telephone
    ordering systems for both the consumer information catalog and
    its listed publications.
        CIC has implemented a toll free number--1-888-8PUEBLO--for
    citizens to call to receive a copy of the catalog. Also, I am
    pleased to report that, beginning with the spring 1997 edition,
    all copies of the catalog will include a telephone number for
    placing publication orders at the Pueblo facility.
        Citizens pay for these calls, thereby sharing in the
    expense of the program. Making access easier and quicker will
    encourage more Americans to take advantage of the wealth of
    information available from the Federal Government.
        CIC remains in the forefront of Federal electronic
    dissemination. The public will access the CIC Internet web site
    more than 3 million times in fiscal year 1997. This is a
    threefold increase since its inception in fiscal year 1995.
        While Americans can now access CIC either electronically or
    by phone, our address, Pueblo, CO, 81009, remains one of the
    best known addresses in the country where Americans order
    millions of publications published by more than 40 Federal
    departments and agencies.
        The Government Printing Office facility in Pueblo provides
    order fulfillment services for tens of thousands of orders
    received weekly as a result of the promotion that we do. During
    fiscal year 1996, consumers ordered 7 million publications from
    CIC, and in the years ahead we will continue our efforts to
    make helpful information available to all citizens, whether
    they are seeking it by computer or by mail.
        We are very committed to maintaining a vigorous publication
    distribution program in recognition of the fact that most
    Americans still continue to receive their information primarily
    through traditional print channels.
        Our ongoing efforts to identify and obtain valuable Federal
    information, our media and marketing programs, our centralized
    distribution system, and our widely acclaimed electronic
    information activities all combine to make CIC an essential
    source for citizens needing vital consumer information from
    their Federal Government.
        Mr. Chairman, we trust that the committee will agree that
    CIC is a valuable Federal program and that you will look
    favorably upon our request.
        Thank you.
        Senator Bond. Thank you very much, Director Nasif.
        [The statement follows:]

                       Prepared Statement of Teresa Nasif

        Mr. Chairman and Members of the Subcommittee, thank you for the
    opportunity to present the fiscal year 1998 budget request of the
    Consumer Information Center (CIC).
        Established more than a quarter of a century ago, the Consumer
    Information Center continues to successfully carry out its vital
    mission mandate: Help federal departments and agencies inform the
    public about health and safety issues, developments in federal
    programs, and the impact and effects of federal research and regulatory
    actions. To ensure that the public is made aware of and has easy access
    to this information, CIC promotes the information through a dynamic
    media and marketing program and disseminates it through print and
    electronic outlets.
        Today, many elements of the CIC program remain the same: An
    essential mission mandate; a commitment to serve the American public;
    and the firm support of the Administration and this Committee. However,
    the CIC program is going through a time of change that reflects a new
    environment in government and in customer behavior. Overall, federal
    agencies have reduced the scope of their publishing activities due to
    budget constraints. And the American public is placing fewer and fewer
    orders for merchandise, including information, by mail.
        CIC is meeting these challenges in two ways: First, we have
    redoubled efforts to identify private sector partners who share federal
    information goals and can provide resources to stretch limited federal
    dollars. For example, CIC has forged an alliance with the Metropolitan
    Life Insurance Company's Consumer Education Center to help educate
    consumers by developing publications on such diverse topics as starting
    a business, planning for college, making a will, and doing your taxes.
    And second, CIC has set up telephone ordering systems for both the
    Consumer Information Catalog and its listed publications. In
    partnership with GSA's Federal Information Center Program, CIC has
    implemented a toll-free number (1-888-8 PUEBLO) for citizens to call to
    receive a copy of the Catalog. IRS will place the number in a message
    on the back of one million tax refund check envelopes and CIC will use
    the number in our new television public service ads to be released in
    May 1997.
        Also, I am pleased to report that, beginning with the spring 1997
    edition, all copies of the Catalog will include instructions for
    placing publication orders by telephoning the Pueblo facility at 719-
    948-4000. Citizens pay for these toll calls, thereby sharing in the
    expense of the program. Making access easier and quicker will encourage
    more Americans to take advantage of the wealth of information available
    from the federal government.
        And CIC remains in the forefront of federal electronic
    dissemination as more and more schools, libraries, and families are
    accessing information through the Internet. The public will access the
    CIC website more than 3 million times in fiscal year 1998, a threefold
    increase since its inception in fiscal year 1995. In recognition of the
    value of CIC's website, plans are underway to display CIC's Home Page
    address at the top of the newly revised ``Blue Pages'' listing of
    government agencies that will be in thousands of local telephone
    directories nationwide. This is part of the Administration's effort to
    make government more easily accessible to citizens.
        While Americans can now access CIC information electronically and
    order publications by phone, ``Pueblo, Colorado 81009'' remains one of
    the best known addresses in the country where Americans order millions
    of publications published by more than 40 federal departments and
    agencies. The Government Printing Office facility in Pueblo provides
    warehousing and order fulfillment services for tens of thousands of
    orders received weekly as a result of the Catalog, media mentions, and
    marketing promotions done by CIC. During fiscal year 1996, consumers
    ordered seven million copies of federal publications from CIC. In the
    years ahead, CIC will continue its efforts to ensure delivery of
    services to all citizens and to make helpful information available to
    all citizens whether they are seeking information by computer or mail.
    We are very committed to maintaining a vigorous publication
    distribution program in recognition of the fact that most Americans
    still continue to receive their information through traditional print
    channels.
        CIC's ongoing efforts to identify and obtain valuable federal
    information, its media and marketing programs, its centralized
    distribution system based in Pueblo, Colorado, and its widely acclaimed
    electronic information activities--all complement each other and
    combine to make CIC an essential source for citizens desiring unbiased
    and vital consumer information from their federal government. CIC
    remains uniquely positioned among federal agencies to perform the
    services it has so effectively delivered to the American public since
    1970.
        Mr. Chairman, again I thank you for the privilege of being here
    today on behalf of the Consumer Information Center to present its
    budget request for fiscal year 1998. We trust that the Committee will
    agree that CIC is a valuable federal program and that it will look
    favorably upon our request. At this time, I would be pleased to answer
    any questions you may have.

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                           Office of Consumer Affairs

    STATEMENT OF LESLIE L. BYRNE, DIRECTOR AND SPECIAL
                ASSISTANT TO THE PRESIDENT
        Senator Bond. Now we will hear from Director Byrne.
        Ms. Byrne. Thank you, Chairman Bond and Senator Mikulski.
    Thank you for giving us this opportunity. We have submitted our
    formal statement for the record, but I would like to make some
    brief comments.
        Senator Bond. Thank you. All of your statements will be
    made a part of the record in full. I should have mentioned that
    earlier.
        Ms. Byrne. Thank you, Mr. Chairman.
        Because we have received a generous offer from a group who
    purport to be Nigerian Government officials, we will not need
    an appropriation for fiscal year 1998 and we will turn money
    back to the Treasury. [Laughter.]
        They say they find themselves with a somewhat embarrassing
    surplus of 28.6 million U.S. dollars as a result of an
    intentionally overinvoiced contract. They have graciously
    offered us 30 percent if we will bank the entire sum for them
    in the United States and supply them with several items of
    personal information, including our bank account numbers.
        Their letter closes with, ``Let honesty and trust be our
    watchwords,'' so it must be legitimate. [Laughter.]
        Although this scam is almost laughably transparent, Mr.
    Chairman, it is a prime example of the type of fraud based on
    illegal use of personal information that we have focused much
    of our consumer education, policy development, and coordination
    efforts on at OCA in the last year.
        We are the only agency with White House responsibility to
    coordinate and monitor Federal consumer programs, identify
    consumer needs, and educate and advocate for consumers.
        Because we are nonregulatory, we have no mixed mission or
    restrictions on our role to represent consumers.
        Mr. Chairman, you have our budget request before you. It
    shows that we understood what this committee was saying last
    year about cutting the cost of Government, reducing its size
    and making it more efficient. We are reorganizing, using
    technology to make us more productive, helping consumers in a
    faster, cheaper, and better way, including our HelpLine with
    the new database that allows us to track consumer complaints
    and developing web links with the Federal Trade Commission and
    other agencies.
        Our emphasis is on providing consumers the tools to help
    themselves because it is far cheaper and more efficient than
    fixing problems after the fact.
        For every one of these Nigerian frauds or other frauds like
    them, even if the authorities can catch the perpetrators, the
    likelihood is that they will only retrieve 10 cents on every
    dollar lost. So education and information are the key to
    protecting consumers and they are the ones who can protect
    themselves the best.
        Because of the shift in our economy, we are looking at a
    White House conference on consumer issues. We have gone from an
    industrial based economy to a service and information economy.
    Our consumer laws really are there for tangible things, for
    products. We have yet to wrestle with the greater questions of
    how to protect somebody from a European travel scam as opposed
    to a product that is faulty.
        So we want a national focus on this new paradigm through
    this White House conference.
        Our long-term goals are very simple--to create a fair shake
    marketplace through disclosure of information, choice, access,
    and redress. These are the principles of good consumerism.
        We plan to recognize organizations that adopt these
    principles.
        Finally, Mr. Chairman, we plan to continue working with
    members of Congress, this committee, and other agencies on
    specific consumer information and education issues, in town
    meetings, in joint seminar formats on topics such as privacy,
    fraud, financial management--a growing concern--and a new
    concern, military families, with these being targeted for
    fraudulent efforts.
        Thank you, Mr. Chairman for your attention.
        [The statement follows:]

                     Prepared Statement of Leslie L. Byrne

        Mr. Chairman and distinguished members of the Subcommittee, I am
    pleased to come before you today to present our fiscal year 1998
    budget, to review the progress USOCA has made toward addressing the
    concerns expressed by this committee, and to share our plans for the
    coming year.
        Our fiscal year 1998 budget request is for $1,800,000 and 13 Full-
    Time Equivalent staff positions.
        Our Agency's Mission remains unique. Our charge is to be the
    consumer advocate within the Executive Branch, both domestically and in
    the international marketplace. Because USOCA is non-regulatory, it is
    our singular conviction that we can better protect consumers by giving
    them the tools they need to protect themselves, through education and
    information. This becomes an even more important concept in an era of
    deregulation.
        This Committee has rightly expressed its concern about government's
    role, outdated and costly regulations, duplication of efforts, and the
    need for a smaller but more effective government. We at USOCA have
    heard your message loud and clear. In listening to the concerns of the
    American people, we have also heard loud and clear that they want
    consumer education and protection that must be strengthened, not
    endangered.
        To meet this committee's and the public's concerns, we continue to
    re-tool USOCA's organizational structure. I am in the process of
    reorganizing staff and functions to be more responsive. We are
    currently developing our performance measurement standards and
    indicators to meet GPRA's September 1997 deadline. Through these
    initiatives, we are becoming a more results oriented agency whose
    progress towards the goal of consumer education and information will be
    accurately measured. To further fulfill our mission, USOCA is
    reenergizing the Consumer Affairs Council (as mandated by Executive
    Orders 11583 and 12160). This will allow government agencies to reduce
    duplication and avoid redundancies in consumer policy.

                                   PRIORITIES

        USOCA continues to focus its efforts in three primary areas of
    consumer concern: privacy; fraud; and the integrity of the marketplace.
    We addressed these areas through information and education with special
    emphasis on underserved populations. We are also working to improve
    responsiveness by both government and industry to consumer complaints
    and inquires. Based on these three areas, real accomplishments were
    gained during fiscal year 1997 and specific initiatives are identified
    for fiscal year 1998.

                               PRIVACY PROTECTION

        The public's desire for protection from intrusiveness grows and
    touches every institution. Government agencies, multimillion-dollar
    corporations, ``mom and pop'' operations, are being more vigorously
    challenged in their information gathering. Consumers want to be told,
    in language they can understand, why information is being collected,
    what will be done with it, and who will have access to it. People want
    to be sure the information they give is pertinent to transactions, and
    will not be used or sold for other purposes without their prior
    approval. All of us want to be able to see what is being collected
    about us and to have an uncomplicated way to correct errors and/or
    include explanations.
        Because of increased data collection and technology, we are seeing
    a national increase in identity theft. USOCA continues its cyber-fraud
    prevention efforts by informing the public on ways to protect
    themselves from identity theft and securing personal information on the
    Internet. Using traditional media such as print articles, press
    releases, T.V., speeches, brochures, etc., we have reached hundreds of
    thousands of Americans with information they can use to protect their
    personal information. We want to expand these efforts in fiscal year
    1998 by establishing and maintaining a web-site with this information.
        On the international front, the absence of a U.S. privacy policy is
    at odds with our European trading partners stance on the issue of
    privacy. American companies may face self-imposed trade barriers if
    USOCA cannot continue its work in harmonizing global marketplace
    privacy protection guidelines.
        A major illustration of USOCA's work in this area was as a catalyst
    in alerting the nation to the fact that personal information about
    consumers was being gathered and often used for purposes other than
    those for which the information was volunteered. Our work with industry
    improved communication between providers and consumers on this issue.
    We have persuaded many corporations to give the public a choice about
    how their personal information is used--by permitting consumers to
    determine whether or not the information they give a company will be
    shared with other companies, (for example, information on credit
    applications). At the same time, USOCA organized a working group of
    Federal agency representatives to examine the issues and privacy policy
    options. During our National Consumers Week Kickoff Conference in
    October 1995 at the White House, this group, called the Privacy Task
    Force, released the Federal Privacy Principles--guidance for industry,
    government, and individuals about how to protect personal privacy.
        In 1997-98, USOCA and the Privacy Task Force will continue working
    with government agencies and the private sector (both domestic and
    international) to refine and adapt the Privacy Principles, for
    implementation, particularly by users of the information superhighway.
    Increasingly, the World Wide Web and other electronic tools are being
    used for consumer purchases of products and services and interactions
    with government. The success of electronic commerce and the Internet
    depends on consumers belief in the security and integrity of this new
    medium. To achieve the full potential of the electronic marketplace,
    consumers want to be protected from a loss of control of personal
    information and, in the worst case, fraud. With personal, financial,
    health and other sensitive information going directly into computer
    data bases for storage, retrieval and manipulation, the need for
    consumer confidence in the security and control of that information is
    critical.
        It is USOCA's belief that the need for information by government
    and industry can be balanced with consumers' desire to preserve their
    privacy and control the use of personal data. Our goal is to protect
    consumers while encouraging growth and innovation in the use of
    telecommunications and information management technology. We find that
    industry shares our belief that a balance can be struck without
    unnecessary and burdensome regulation.
        We will continue to work with industry, government and consumers to
    achieve this goal. To lead by example we are developing a program to
    publicly recognize those who contribute to the protection of consumer
    privacy. This honor would be an award presented annually to various
    business, non-profit, government, and consumer organizations for
    outstanding efforts in privacy protection, particularly in areas where
    technological advancements encroach on personal privacy.

                           CONSUMER FRAUD PREVENTION

        USOCA continues its efforts to raise consumer awareness about
    fraud. Scams and fraud cost consumers over $100 billion annually in
    America. A new and growing target of fraud is military families. USOCA
    is working with the military personnel and their spouses to reduce the
    number of families harmed by these scams.
        Additionally, the growing use of credit and debit cards, of
    telephone and of Internet for purchasing goods and services, multiplies
    opportunities for fraud and increases the need for consumer education.
    USOCA is working closely with major credit card companies, media, trade
    associations, and consumer organizations to promote extensive consumer
    education campaigns. In addition, USOCA will continue to work with the
    Department of Treasury and other agencies overseeing electronic
    commerce to ensure that consumers know how to protect themselves from
    fraud. Again our proposed web site will allow the public to
    electronically access USOCA publications and information directly.
    Because the problems of consumer fraud require constant attention, we
    will publish an updated version of our popular pamphlet, ``Too Good To
    Be True.'' This newest edition of the publication will be the
    centerpiece of an anti-fraud campaign in 1998.

                   TELECOMMUNICATIONS AND TELEMARKETING FRAUD

        Currently, USOCA's policy development efforts focus primarily on
    the profound changes that technological advances in telecommunications
    and information management have wrought in the marketplace. These
    changes acutely affect consumers, with potential for both good and ill,
    and create a need for government and industry to find means to balance
    the consumer/provider interests and promote probity and fairness in the
    marketplace.
        For example, as a result of consumer complaints to USOCA's toll-
    free National Consumer HelpLine, our office, in cooperation with the
    Federal Trade Commission (FTC) and the Federal Communications
    Commission (FCC), convened a series of industry/consumer/government
    meeting on abuses in the telephone information services industry. The
    initial meeting, held early in fiscal year 1996, alerted the industry
    and Federal regulatory agencies to significant problems with ``pay-per-
    call'' information services, despite recent legislation. Subsequently,
    a second USOCA-convened meeting was held to develop proposals for
    voluntary action on these problems. A third meeting produced major
    changes in the industries ethical guidelines. With the passage of The
    Communications Act of 1996 and the proposed legislation,
    ``Telemarketing Fraud Punishment and Prevention Act of 1996'', Congress
    may further authorize regulatory action that will resolve some of the
    problems consumers are experiencing. Prevention still remains the best
    antidote to fraud.
                outreach and serving the underserved populations
        Outreach is a critical element in the success of USOCA's mission,
    especially to consumers who have traditionally been underserved: the
    disabled, frail, elderly, geographically isolated, ethnically diverse.
    Through consumer dialogues we have worked with neighborhood leaders to
    discuss the concerns and problems of consumers in their communities.
    Most importantly, community leaders have given us their recommendations
    on how government and the private sector can improve the delivery of
    consumer information to diverse communities.
        USOCA is successfully recruiting leaders from ethnic communities to
    advise this office on consumer issues that affect diverse communities.
    Our goal is to build an ``early warning system'' with these groups to
    keep consumer problems from becoming larger, which leads to regulations
    or legislation that could be avoided if people can find redress early
    on.
        USOCA has provided consumer education materials and conducted
    workshops at a variety of conferences and seminars sponsored by
    organizations representing the elderly and citizens with disabilities.
    In the first quarter of fiscal year 1997, USOCA developed a working
    group to discuss and formulate an agenda regarding consumer issues of
    particular concerns to the 49 million Americans with disabilities.
    USOCA is committed to encouraging marketers and employers to recognize
    consumers with disabilities as deserving of consumer rights as fully
    abled people.
        Town meetings and seminars are being planned around the theme,
    ``Real People--Real Challenges.'' The aim of these fora is to provide
    an opportunity for traditionally underserved communities to discuss
    their consumer concerns. USOCA also plans to convene consumer education
    opportunities for youth in major cities throughout the country .
        Outreach to youth will include educational programs and projects to
    raise public awareness and to generate support for personal financial
    literacy for our children and young adults. By working with
    organizations such as the JumpStart Coalition for Personal Financial
    Literacy, which includes the National Institute for Consumer Education
    of Eastern Michigan University and the American Financial Services
    Association, USOCA will expand its mission by encouraging ``responsible
    use of credit'' and ``planning for savings, spending and investing to
    meet current and future needs'' among America's consumers under the age
    of 18.
        National Consumers Week (NCW) observed annually during the last
    week in October, is a signature event of the United States Office of
    Consumer Affairs and the nation. It is a major promotional event that
    highlights consumer education by informing consumers about their rights
    and responsibilities in the marketplace.
        Representatives from business, all levels of government,
    educational institutions, consumer organizations and media use this
    unique opportunity to encourage dialogue with consumers about a variety
    of important issues. With coast-to-coast involvement, planning and
    execution of NCW activities is a year-round undertaking. Recruitment of
    NCW public/private partnerships, follow-up activities, coordination
    with the Executive Branch and the White House, preparation of written
    materials and the development of various reports and documents are
    crucial to the success of NCW. This year's NCW theme is `` A Fair Shake
    Marketplace.''
        A White House Conference on Consumer Issues is being planned for
    October 1998. Our economy has changed from industrial based to service
    and information based. The nation's response to the new challenges this
    creates for consumers, has been slow. USOCA is proposing a new look at
    consumerism brought about by this profound shift in the economy. The
    consumer rights associated with tangible products are more difficult to
    ascribe to non-tangibles like services and information. We are using
    our resources for a national focus on this new paradigm.
        Communications.--USOCA has maintained a moderate communications
    operation. Due to the current budget shortfall USOCA has ceased to
    publish its newsletter. The newsletter circulation included hundreds of
    consumer groups, professional associations and media outlets. Within
    the fiscal year 1998 request, we plan to restore the newsletter to
    semi-annual publication.
        Another trademark event for USOCA has been the Constituent Resource
    Exposition (EXPO). Traditionally held for each new Congress, EXPO has
    served as an educational event for congressional staff where they meet
    representatives of Federal Agencies, discuss agency programs, and
    obtain pertinent information which enabled them to better respond to
    constituent requests in the Member's districts. This event helped
    eliminate Federal waste and red tape caused by misdirection of
    constituent complaints and queries.
        Again because of budget issues, USOCA has decided to take a
    different approach to reaching congressional staff members to
    disseminate information--a method which may prove to be more efficient
    and cost-effective. USOCA is working to conduct workshops in
    partnership with the Congressional Research Service (CRS) for Senators,
    Members of Congress and their staffs. At these workshops, USOCA's much
    requested publication, the Congressional Liaison Handbook (CLH) will be
    distributed. The CLH directs staff to appropriate agency consumer and
    congressional liaison officials.
        The primary tool with which USOCA has traditionally used to reach a
    broad cross-section of the population is the Consumer's Resource
    Handbook. This award winning resource is one of the most popular
    publications produced by the Federal government. It is filled with
    valuable information and ``Buying Smart'' tips for consumers to assist
    them in making informed choices and avoiding pitfalls such as fraud in
    the marketplace. Just as important are its listings of both private and
    public sector resources for consumer information and problem
    resolution. Keeping this information relevant to consumer problems in
    the marketplace, as well as complete and accurate requires more than
    checking addresses and telephone numbers.
        USOCA has in place the staff, expertise, knowledge, skills and
    interaction with industry, government agencies, consumer organizations
    and individual consumers needed to produce this Handbook. Any other
    agency handling this would assume research, training, and production
    costs well above the costs incurred by this office.
        There is a significant amount of work that could be done in 1997 on
    the 1998 edition of the Handbook. For example, the inclusion of E-mail
    addresses and web sites available for complaint handling. Currently, we
    are working with the FTC on a single Web-link to Federal web sites, at
    the address, consumer.gov, for which the Handbook's index would serve
    to guide consumers through the maze of Federal, state and local
    agencies with jurisdiction over consumer problems. To do this
    effectively there is considerable work to do to make the index more
    user-friendly in the Internet environment.
        Funding for the Handbook, as well as other consumer education
    publications have been accomplished through public and private
    contributions. Gift acceptance authority is extremely important to
    ensure that adequate numbers of these publication are updated and
    available to consumers. In addition to the Handbook, four significant
    publications/studies scheduled for fiscal year 1998, such as,
    ``Protecting Your Privacy,'' ``Too Good To Be True 2000--A Consumer
    Guide to Avoiding Fraud in the New Century,'' and ``Improving Customer
    Service'' will require research, editing, design, printing, and
    distribution.

                     RAPID RESPONSE FOR CONSUMER COMPLAINTS

        The National Consumer HelpLine is a toll free number available in
    every state and U.S. territory offering a rapid response to consumer
    complaints through referrals and consumer information. It is staffed
    four hours a day by USOCA's professional staff, including its director,
    who refer or answer questions on the spot. We call back anyone who
    leaves a message during non-staffed hours. HelpLine is serving as the
    central federal clearinghouse for consumer complaint handling. Through
    the HelpLine, we make our decades of experience with consumer issues
    available to all Americans.
        Calls are logged into a database to help USOCA keep abreast of new
    trends such as fraudulent schemes in telemarketing, sweepstakes, and
    pay-per-call and long distance telephone billing. It tracks consumer
    complaints on automobile repair, home maintenance, warranties, stock
    fraud and returned merchandise. Other areas generating frequent calls
    are credit reporting and credit harassment, direct marketing and mail
    order complaints, insurance, mobile homes, Social Security and
    Medicare, student loans, and airlines.
        It provides a window on the public's reaction to developments in
    the marketplace long before the media or researchers can identify them.
    Dialogues with companies, trade associations, consumers and regulatory
    agencies have followed. In some cases, due to the industry being made
    aware of consumer problems, action has been taken to eliminate the need
    for new regulations. This is in keeping with the President's initiative
    to eliminate unnecessary regulations.

                                DOMESTIC POLICY

        USOCA has no regulatory authority but it directly impacts proposed
    legislation and regulations being considered by Congress and the
    Administration. USOCA is regularly solicited for input or comments on
    proposed legislation, regulations and reports. While the demand for
    USOCA review has increased over the last decade the number of employees
    has dramatically decreased. USOCA has been involved with such complex
    issues as privacy, emerging technology, the global marketplace, anti-
    terrorism, debt and credit, and fraud.
        USOCA is the sounding board on consumer issues for buyers, sellers,
    all levels of government, neighborhood groups, and consumer
    organizations. We are the consumer's voice in the decisions of
    government and the impact of proposed legislation and regulations on
    their lives.

                              INTERNATIONAL POLICY

        Representing the interests of U.S. consumers in international
    forums, USOCA provides support to the President's consumer advisor as
    head of the U.S. delegation to the Committee on Consumer Policy of the
    Organization for Economic Cooperation and Development (OECD). The U.S.
    has taken a leading role in the areas of product safety, lowering
    tariff barriers for services and consumer redress in the international
    marketplace. The U.S. has encouraged OECD to adopt the use of new
    technology on global warning systems for product safety and consumer
    fraud.
        The world stands at the doorstep of a great expansion of cross-
    border consumer transactions. Interest in the changing global
    marketplace and how it affects consumers is widespread among
    businesses, consumer advocacy groups, educators and world leaders. As
    consumer policy issues are increasingly internationalized, the need for
    effective mechanisms for the exchange of critically important consumer
    information, product safety, and efforts to counteract fraud and
    deception in the marketplace becomes more urgent.
        USOCA's role is vital as head of the U.S. Delegation to the
    Committee on Consumer Policy of OECD in order to fully represent
    America's consumer interests. It is viewed by our OECD partners as a
    beacon of leadership particularly for countries just becoming free
    market economies. Newly emerging nations from the former Soviet
    Republics want to study our governmental and nongovernmental structures
    as they seek to develop national consumer policy in a free market
    setting. USOCA also assists visiting delegations from other nations
    that wish to study our consumer protection system and our unique
    network of citizen run consumer organizations.

                            interagency coordination

        USOCA chairs and coordinates the Consumer Affairs Council and
    provides staffing. The Consumer Affairs Council was established as a
    body of senior consumer policy officials designated by the heads of
    Federal departments and agencies to provide leadership, coordination
    and effective management to consumer protection and policy initiatives.
    It has been used effectively in recent years to coordinate cross-
    cutting initiatives, such as National Consumers Week, The Constituent
    Resource Exposition (EXPO), and the Consumer Resource Handbook
    publications and distribution. We intend to also use the Council as a
    means to raise standards of customer service and achieve greater
    consistency in consumer policy implementation government-wide.

                                   CONCLUSION

        Mr. Chairman, this is a conservative budget. With the support of
    this committee, USOCA can fulfill its mission to empower every American
    to make the best choices in the marketplace. With our emphasis on
    education and information we arm the public with the tools they need to
    avoid the frauds, scams, charlatans and con-artists. We can give them
    the peace of mind and security to enter into new marketplaces, whether
    cross borders or in cyberspace and most importantly assure families
    redress if things go wrong. The subcommittee's choice is clear: help
    us, help your constituents or rely on after-the-fact remedies like more
    laws, more regulation, and more police trying to catch the crooks. Even
    when law enforcement is successful, it only recoups a small fraction of
    the money lost to our citizens and honest and ethical businesses. Mr.
    Chairman, we can do better.
        I would like to thank the Subcommittee for allowing me to express
    these views and I would be glad to answer any questions you have for
    me.

          SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT [SBREFA]

        Senator Bond. Thank you very much, Director Byrne.
        Let me turn to some questions. Let me begin, Chairman
    Brown, with a question that is near and dear to my heart as
    author of the Small Business Red Tape Relief Act, also known by
    the mind-numbing, eye-glazing acronym of SBREFA. I appreciate
    your attention to that legislation. The law requires agencies
    to establish a policy or program to provide for penalty
    reductions or waivers where appropriate to accommodate the good
    faith efforts of small businesses to comply with agency
    regulations.
        What steps has your agency taken toward instituting such a
    program? When do you see it up and running?
        Ms. Brown. We have it up and running now because we have
    long been sensitive to the needs of small business. In fact, in
    June 1996, the agency sponsored, with the Small Business
    Administration, a very well attended conference on small
    business and consumer product safety. At that conference, we
    announced the designation of a CPSC small business ombudsman,
    who will help direct calls from small business operators and
    insure appropriate followup.
        So far, through direct contact with CPSC staff, we have
    helped more than 700 small business persons comply more easily
    with our product safety guidelines. We, therefore, helped them
    to manufacture safe products.
        Requests to our ombudsman for assistance average about 90
    calls per month and represent 35 States and foreign countries.
    Our goal is to provide expert assistance to every small
    business within 48 to 72 hours of when they call CPSC for help.
    To date we have been about 80 percent successful in meeting our
    goal.
        Senator Bond. I appreciate that good work.
        Is there a waiver program in place? Do you impose fines for
    violations of your regulations?
        Ms. Brown. Yes; Clarence Bishop is the small business
    ombudsman and perhaps you would like him to answer that.
        Mr. Bishop. Good morning, Mr. Chairman.
        Senator Bond. Good morning.
        Mr. Bishop. Good morning, Senator Mikulski.
        Senator Mikulski. Good morning.
        Mr. Bishop. Yes, sir; we do have a waiver program in place
    through our compliance department, although we have not had to
    use it to date.
        Senator Bond. What would be the normal range of fines that
    you would impose?
        Ms. Brown. We are going to pass your question one more
    time. This will be David Schmeltzer, head of our Department of
    Compliance.
        Mr. Schmeltzer. Good morning.
        Our statute provides for civil penalties of up to $1.5
    million. We are directed to consider the size of the business
    when levying the fines, and we always do. We have about 15
    fines per year, and when we deal with small businesses, first
    we try to explain to them how to meet the regulations. If there
    are violations, then we take into consideration the size of the
    company and the appropriate figure. All of these cases are
    resolved through settlement procedures.
        Senator Bond. Rather than carry on the discussion further,
    we would appreciate having a report on the fines, what you are
    doing and how, and particularly if there are small businesses
    involved.
        Thank you very much.
        [The information follows:]

                         Penalties for Small Businesses
        The Commission staff has authority to pursue civil penalties
    against firms who fail to report a product hazard to the Commission
    under section 15(b) of the CPSA, 15 U.S.C. Sec. 2064(b). Since 1990, it
    may also pursue penalties against firms who knowingly violate the
    safety standards of the FHSA, FFA and PPPA.
        The Commission has always placed an emphasis on seeking voluntary
    compliance with our laws first. When product hazards exist, our first
    effort is to obtain corrective action. Some of these violations are
    committed out of ignorance, others because the firms choose not to put
    time and money into complying with the law. Civil penalties are used
    sparingly and generally only pursued against repeat violators.
        The purposes of a civil penalty are to deter the firm from future
    violations of our safety standards and to deter others from such
    violations. Under our laws, the Commission must consider a number of
    factors in deciding whether to pursue civil penalties. In determining
    whether a civil penalty is appropriate and the amount of the penalty,
    the Commission's laws require the agency to consider the risk of injury
    presented by the product and ``the size of the business of the person
    charged'' along with other factors. (See, section 20(b) of the CPSA, 15
    U.S.C. 2069(b)). The staff also examines the level of sophistication
    and knowledge of the firm involved and the gravity of the violation.
    Reporting Violations
        The staff received 239 section 15(b) reports in fiscal year 1996
    and investigated many other products. The staff's primary focus was on
    corrective action and the vast majority of the cases were resolved by
    voluntary corrective action plans with no penalty. In fiscal year 1996,
    the agency obtained penalties from 5 firms who failed to report under
    section 15(b) of the CPSA. None of these 5 firms were small businesses.
    In addition, an agreement was reached with one firm which did not
    result in a civil penalty.
    Regulated Products
        In fiscal year 1996, the staff discovered hundreds of violations of
    the Commission's safety standards. When the staff learned of a
    violation of a regulation, it advised the firm of the violation,
    addressed the hazard, and sought to bring the firm's products into
    conformance by working with that firm.
        Out of the hundreds of violations found, the staff obtained only 4
    (3 were small businesses) penalties and initiated two federal court
    actions for penalties against firms for regulated product violations in
    fiscal year 1996. (The Commission reduced one of those penalties to
    $5,000 from a negotiated penalty of $10,000 because of the small size
    of the firm involved.)
        The two Federal Court actions initiated in fiscal year 1996 were
    against a fireworks importer and a children's products importer. Each
    had more than ten violations and had not taken reasonable steps to
    correct the violations. U.S. v. Big Save International Corp. (C.D.
    Cal., No. 96-5318), and U.S. v. Shelton Fireworks, (W.D. Mo., No. 96-
    6131-CV-SJ-1) (23 violations). Both firms are small businesses.
        During the last several years, the staff has worked with many small
    businesses who are repeat violators to bring them into future
    compliance without civil penalties. Toward that end, the staff has used
    meetings, inspections, and compliance agreements. It has also put civil
    penalty cases ``into abeyance.'' (This means the firm is informed that
    we could seek penalties, but do not plan to do so if the firm does not
    commit future violations.)
    Ability to Pay
        Although the Commission's laws refer to the size of the business
    charged, as the factor to consider, the staff also takes into account
    the firm's ability to pay in determining the appropriate amount of any
    civil penalty and the payment terms. In three cases involving smaller
    firms, the staff has structured the payment of penalties so the penalty
    amount will send a strong message, but the payments are spread over
    time to allow the firm to continue as a viable concern.

                              Civil Penalty Report

                                 [Final orders]

                                                            Fiscal Year 1996
    Burlington Coat Factory (FFA)...........................        $250,000
    Cosco, Inc. (Sec. 15(b), CPSA)..........................     \1\ 725,000
    JBI, Inc. (Sec. 15(b), CPSA)............................         225,000
    National Media (Sec. 15(b), CPSA).......................         150,000
    Premier \2\ (FHSA)......................................      \1\ 75,000
    Shrdlu, d.b.a.\2\ (FFA).................................           5,000
    Singer Sewing Co. (Sec. 15(b), CPSA)....................         120,000
    SKR Resources, Inc.\2\ (FHSA)...........................      \1\ 40,000
    Taito America Corp. (Sec. 15(b), CPSA)..................          50,000
                        --------------------------------------------------------
                        ____________________________________________________
          Total.............................................       1,640,000
                        ========================================================
                        ____________________________________________________
    Other remedies: McDonalds, Inc. Sec. 15(b), CPSA........   \3\ 5,000,000
    Referred to Department of Justice:
        Big Save International Corporation \2\
        Shelton Fireworks \2\

    \1\ Structured Payment Schedule.
    \2\ Small Business--CPSC follows 15 U.S.C. 632 which states that the
    business must meet the criteria of being independently owned and
    operated and not dominant in its field of operation. In addition, the
    Small Business Administration sets size standards for various industries
    which are published in 13 CFR Part 121. Industries are identified by
    their Standard Industrial Classification (SIC) Code and their maximum
    size to be considered small is determined by either annual receipts or
    number of employees. If the industry is not listed in the CFR, the
    default size standard is $5 million in annual receipts.
    \3\ Program.
    ---------------------------------------------------------------------------

                                  CPSC BUDGET

        Senator Bond. Chairman Brown, you have indicated that the
    budget request is modest. But even a 6-percent increase, to $45
    million, over the current year when overall funding is likely
    to be held flat is difficult. What lower priority items would
    you eliminate or reduce if we had to hold you at a level
    funding.
        Ms. Brown. Level funding meaning the $42.5 million?
        Senator Bond. Yes.
        Ms. Brown. That would be extremely difficult for us, of
    course, because there would be a reduced level of safety, I
    think, to the American people. We would have a problem even in
    holding level. That does not mean that we would be holding
    level. Many of our information technologies, which is very
    important, much of that would not be able to be done.
        Senator Bond. In the budget process, sometimes you have to
    make hard choices. Rather than strangling every program,
    sometimes it is better to cut the lower priority program.
        Is there a lower priority program?
        Ms. Brown. At this point, I will have to get back to you
    and think about that because we are on such a bare bones budget
    now, as we are, that I just cannot think of any. We have
    already reduced. We have put our two laboratories together. I
    am thinking that there are so many things we have done. We have
    cut down on training of our personnel.
        I am not trying to be evasive, Mr. Chairman.
        Senator Bond. I understand, but that is something we would
    like for you to think about in case the worst happens.
        [The information follows:]

                          Effect of Budget Request Cut
        Any cuts to CPSC's budget would simply not be cost-beneficial. CPSC
    delivers more than $155 million in savings to the American public for
    every $1 million invested in the agency. Furthermore, the work of the
    agency has been a major factor in the 20 percent decline in annual
    deaths and injuries related to consumer products that occurred between
    1980 and 1993. Any cuts to CPSC's budget at this point would reduce
    this tremendous return on investment for consumers and would place more
    families at risk from dangerous products.
        Limiting CPSC's 1998 funding to the 1997 level of $42.5 million is
    approximately equivalent to a $2 million budget cut.\1\ But CPSC is
    already half the size it was in 1980, while our mission has grown
    substantially.\2\ To accommodate these reductions, we cut staff and
    trimmed away spending. We are now a lean and efficient operation.
    Therefore, any further budget reduction would cut directly into our
    safety programs.
    ---------------------------------------------------------------------------
        \1\ The agency needs a minimum of $2 million over 1997 funding if
    it is to fund non-discretionary cost increases occurring in 1998. This
    includes $1.2 million for increased salary and space costs, $300,000 to
    make its accounting system Year 2000 compliant, and $500,000 to fund
    proposed increased retirement contributions and carrying out of Freedom
    of Information Act amendments.
        \2\ CPSC's budget has fared worse than most other health and safety
    agencies. For example, from 1981 to 1996, EPA's budget increased 25
    percent and FDA's budget increased 56 percent while CPSC's budget
    decreased 45 percent.
    ---------------------------------------------------------------------------
        A $2 million budget reduction would force cutbacks in new safety
    initiatives planned for 1998 and in current safety work. The very
    difficult decisions of exactly which life-saving initiatives to
    sacrifice if this were necessary can not be made until we are much
    closer to new fiscal year.
        We believe that any cut in CPSC's budget at this time would rob the
    American public of essential safety benefits. Injuries from consumer
    products presently cost this country $200 billion each year. Past
    successes by the agency show that we can reduce deaths and injuries
    without expensive and intrusive interventions. The additional funds
    requested for 1998, $2.5 million, are small. Judging by recent
    accomplishments, this modest investment will deliver almost $400
    million in benefits to U.S. consumers. This small investment will keep
    one of the country's best working assets in good working order and
    build a better future for American families.
        When the subcommittee receives its budget allocation, if cuts are
    indeed necessary, we will certainly work with the subcommittee staff to
    identify those that would result in the least damage to our mission.

        Senator Bond. Senator Mikulski.
        Senator Mikulski. Thank you very much, Mr. Chairman.
        I have no questions for Ms. Nasif. But I do want to thank
    you for the excellent and continued work that you have done.
        We have had these conversations now for many years, and I
    must say that all of the literature that comes out of your shop
    is really I think remarkably received by the taxpayer. Often
    they wonder if they give us $1, we're going to spend $2 and at
    the end of the day have nothing to show for it that means
    anything in their day to day lives.
        The practical information that you disseminate, whether it
    is on how to buy a car or how to buy long-term care insurance
    is wonderful. I have looked at all of those. The very excellent
    check lists were helpful.
        I, myself, used your guide in looking for long-term care
    insurance because I was ready for purchasing that product. Like
    any other consumer, I wanted to know what specifically I could
    turn to.
        I could go over many issues like that. So I thank you.
        I know you face many financial challenges because you must
    be ready for the electronic world. But most people still will
    get their information through a printed form. So we look
    forward to working with you.
        Ms. Nasif. Thank you, Senator.

                       FRAUD PERPETRATED AGAINST ELDERLY

        Senator Mikulski. Congresswoman Byrne, I have a question
    about HHS consumer affairs.
        What does your organization do to protect people against
    fraud in those areas that are vulnerable in HHS service
    delivery areas? I am thinking about Medicare scams, for
    instance. You know, there are so many scams going on now among
    senior citizens, whether it is in products, though not the
    dangerous ones that Ms. Brown so effectively oversees--that
    privacy of information is absolutely important and I understand
    that.
        But there are a lot of scams going on in the area of
    Medicare and health care, et cetera. Are you involved in that?
        Ms. Byrne. What we try to do is go out to the communities
    of seniors and make them aware of these scams. One of the
    things we find is that we hear about them after the fact, after
    the widow has been deprived of $70,000, not once over a scam
    but once she gets on a sucker list it's again and again and
    again. She has been proven vulnerable in one instance. There
    are actual lists that are published, shared among the scam
    artists that allow them to go back to her.
        So what we are trying to do with education and information
    is get information out into the hands of seniors.
        Senator Mikulski. And how do you do that?
        Ms. Byrne. We do it through AARP and all of the other
    organizations. We work very closely with senior organizations,
    such as the Senior Citizens Council, the AARP, in educating
    their members. We do media campaigns in senior citizen areas
    that are heavily populated. We send out alerts when we find out
    a particular scam is in a neighborhood, for example. That is
    all to that effort of getting information to the consumer.
        The other, the back end to that is through our HelpLine and
    this kind of first alert that we have, we are able to notify
    law enforcement agencies when there is a scam going on directed
    toward senior citizens or anyone else. So when they call us, we
    go after them.
        Senator Mikulski. Thank you. I think everybody wonders what
    is--not really your personal job--what is the job of your
    agency.
        Ms. Byrne. Right.
        Senator Mikulski. I really think that where there is need
    there is greed, and where there is greed there is scam; and
    where there is scam, there is scum.
        Ms. Byrne. That's right.
        Senator Mikulski. That's the way I see it.
        Ms. Byrne. You got it.
        Senator Bond. Let me jot that down.
        Senator Mikulski. It's need/greed, scam/scum.
        I would hope that, instead of looking with a broad brush
    across agencies, really that agency, particularly with the
    senior population that is so vulnerable, is so helpful.
        Ms. Brown, regarding your agency, you are now talking about
    a new fire prevention, death prevention initiative. Could you
    tell us--and I know my time is short----
        Senator Bond. Take your time.

                                CPSC INITIATIVES

        Senator Mikulski [continuing]. Where did that come from?
    Where did that idea come from? That then takes me to a second
    question, which is are you moving the Consumer Product Safety
    Commission to what I call a risk based strategy focus. I mean,
    in other words, looking at those consumer vulnerabilities that
    are most likely to affect most of the American people.
        Ms. Brown. The way that we figured out the fire initiative
    is because that is where the major deaths, injuries, and
    property damage occur. So we are always a data driven agency.
    We have a fine data system, a hospital emergency room system.
    We are driven by the fact that we must prioritize. We must
    prioritize in this era of limited resources and that must be
    done based on where the greatest injuries and deaths occur.
        We have three new initiatives, to reduce fire deaths and
    injuries, consideration of a multipurpose lighter standard,
    evaluation of our child resistant cigarette lighter standard,
    and investigator training for CPSC investigators. All of those
    were arrived at because that is where we see the largest number
    of injuries and deaths.
        Senator Mikulski. And what are the other top two?
        Ms. Brown. The other top two apart from fire?
        Senator Mikulski. Uh-huh.
        Ms. Brown. Those would be children's injuries and deaths,
    which are, of course, always important to us, and sports
    injuries. All of those were arrived at when we looked at our
    data and we saw where is the greatest need.
        Senator Mikulski. Let me say just one word about fire. I
    know that it is one of the terrible problems in my communities
    in Maryland. Once again we just suffered the death of three
    children, and we would hope that you are also going to be
    coordinating with FEMA and the national association. FEMA has
    the firefighters. I will get back to floods in a minute. We
    hope you do work across agency lines in this area.
        What we hope and what we tried to get FEMA to do and EPA--
    this committee has been around management--is not to go after
    individual boutique issues that capture the headlines--and I'm
    not saying you do, but we all know how that goes--but to focus
    on where most people are at risk, whether it is to scams and
    being defrauded, such as buying the hearing aid that is going
    to solve all of your problems, all those sorts of things. That
    is important.
        It is very important to me that we coordinate with other
    agencies. The issue of firefighting and fire prevention is an
    intensely local, block by block issue. How will you be
    coordinating there?

                          WORKING WITH OTHER AGENCIES

        Ms. Brown. We are already working with the Fire
    Administration on many of our fire efforts and other efforts as
    well. They are funding some work that we are doing on stoves
    and burners.
        We work very closely with FEMA, as well, as we have during
    this flood. They are giving out all of our material about how
    people will reenter a house and the dangers that lurk when
    people reenter a house that has been flooded.
        I have a list of the agencies with which we cooperatively
    work. I would be delighted to submit that for the record so
    that you can see that one of our major goals is to work
    cooperatively across Government, both in Government and outside
    of Government with industries and other organizations. It
    really is a way to aggrandize your resources. I would like to
    submit that for you.
        Senator Mikulski. Thank you.
        [The information follows:]

                 Working with Other Agencies and Organizations

        CPSC works with many Federal agencies and private organizations in
    many ways to advance safety programs and to maximize the effect of CPSC
    safety efforts. These relationships have proven very productive to the
    agency and the American public because they provide greatly expanded
    resources to the problem of hazard reduction at little cost. We are
    always careful not to duplicate services of other organizations, but to
    complement and augment one another. CPSC offers other agencies unique
    abilities to identify hazards and analyze hazards, and at times,
    suggest practical ways to reduce hazards. For example, CPSC has the
    best system in the world for collecting information about hospital
    emergency room visits--The National Electronic Injury Surveillance
    System (NEISS). Many agencies purchase services from NEISS to obtain
    data about injuries within their jurisdiction. In one example of such
    an arrangement, NEISS is providing children's injury data to the
    Department of Transportation for its work on children and airbags.
        The reduction of fire hazards provides an excellent example of how
    CPSC works with other organizations. CPSC has a long and productive
    relationship with local and State fire organizations. CPSC depends on
    fire data, collected by local fire departments and coordinated at the
    State level through the National Fire Incident Reporting System, to
    provide essential support for our regulatory mission. In addition,
    special in-depth field investigation projects regarding fire incidents
    almost always rely on close coordination with local fire departments.
    Examples of such projects include cigarette lighters, upholstered
    furniture open-flame fires, smoke detectors, and range fires.
        CPSC has also worked with local fire departments and community
    groups to develop community-based smoke detector programs. Recently,
    under a program organized by CPSC, 5,000 smoke detectors were
    distributed and installed by firefighters or trained volunteers in 10
    cities, targeted to vulnerable populations.
        CPSC also works with many national organizations to address fire
    hazards:
        The U.S. Fire Administration (USFA) collects and provides essential
    data on residential fires to CPSC, stimulates new technology, and
    conducts public education campaigns relating to fire. USFA has provided
    supporting funds for CPSC projects on Range Fires, Smoke Detectors, and
    Home Electrical Wiring Systems.
        The National Institute of Standards and Technology (NIST) performs
    basic and applied research in the fire sciences, provides their
    facilities for CPSC special fire testing, and serves as a comprehensive
    resource for standards information. NIST is providing fire test
    facility support for our current project on Fire Safety Devices.
        The Centers for Disease Control and Prevention (CDC) provide
    programs and grants to expand community awareness in the field. CPSC
    staff participates in the CDC Healthy People 2000 Work Group on Fire
    Prevention, and CPSC has provided funding in support of their fire
    prevention initiative.
        The Congressional Fire Services Institute (CFSI) was a member of
    the Steering Committee of our National Smoke Detector Project.
        CPSC communicates with other agencies that have regulatory
    authority and conduct research in areas beyond CPSC jurisdiction such
    as the Federal Aviation Administration (aircraft), the Occupational
    Safety and Health Administration (workplace), the National Highway
    Traffic Safety Administration (automotive), and the Department of
    Housing and Urban Development (manufactured housing).
        The private sector organization, the National Fire Protection
    Association (NFPA), also collects and provides CPSC residential fire
    data in addition to developing and publishing this country's national
    fire codes and voluntary standards, investigating major fires, and
    conducting public information and education programs.
        In October of 1996, the Commission signed a Memorandum of
    Understanding with the International Association of Arson Investigators
    (IAAI) through the Commission's Special Investigations Unit (SIU). The
    IAAI is a non-profit technical and educational organization comprised
    of volunteers through various government organizations, such as ATF,
    insurance investigators and certified fire investigators. This
    cooperative effort allows both organizations to work together toward
    the common goals of improving public fire safety, sharing technical
    information and training fire investigators. In addition, the IAAI
    publishes bi-monthly Commission recalls to notify IAAI members of fire
    hazards associated with potentially defective consumer products.
        CPSC works cooperatively with many other public and private
    organizations on a variety of product safety efforts. Federal agencies
    we have worked with include:
      --Centers for Disease Control (data collection on a wide-range of
            injuries)
      --Customs Service (import surveillance to prevent entry of unsafe
            products)
      --Department of the Army (share information and expertise on injury
            prevention, baby safety events, lead in playground equipment)
      --Consumer Information Center (distribution of CPSC safety
            publications)
      --Department of Energy (chemical emissions from consumer products)
      --Department of Housing and Urban Development (injury prevention in
            housing)
      --Department of Health and Human Services (injury prevention, data
            collection)
      --Department of Interior (playground safety in National Parks)
      --Department of Justice (data collection)
      --Environmental Protection Agency (indoor air, lead poisoning,
            chemicals)
      --Federal Emergency Management Agency (injury prevention in disaster
            situations)
      --Federal Trade Commission (data sharing on consumer protection legal
            actions)
      --Food and Drug Administration (poison prevention)
      --Fire Administration (fire safety and fire education programs)
      --Indian Health Service (injury prevention, fire safety)
      --National Highway Traffic Safety Administration (bicycle safety)
      --National Institutes of Health (toxins and carcinogens in consumer
            products)
      --National Institutes of Standards and Technology (product safety
            testing)
      --Office of Consumer Affairs (coordination of numerous safety
            matters)
      --Occupational Safety and Health Administration (data collection)
      --Small Business Administration (small business concerns,
            implementation of CPSC Small Business Ombudsman program)
        We work cooperatively with a large number of non-Federal groups to
    disseminate injury prevention information, gather injury data, develop
    safety standards, and ensure compliance with safety regulations,
    corrective actions, and recalls. These groups include:
      --American Academy of Pediatrics
      --American Association of Retired Persons
      --American Nurses Association
      --American Red Cross
      --Association of Food and Drug Officials
      --Better Business Bureau
      --Businesses (such as Gerber Foods who is co-sponsoring the Baby
            Safety Shower effort)
      --Coalition for Consumer Health and Safety
      --Consumer Federation of America
      --Dana Alliance for Brain Initiatives
      --Danny Foundation
      --Defense Research Institute (Defense attorneys)
      --D.C. Bar Association
      --International Association of Chiefs of Police
      --National Association of Consumer Agency Administrators
      --National Consumers League
      --National Safety Council
      --National Safe Kids Campaign
      --National 4-H Council
      --Salvation Army
      --Snell Foundation (Bicycle Helmets)
      --Society of Academic Emergency Medicine
      --State Attorneys Generals
      --State and local coroners, medical examiners, health departments,
            and consumer protection offices
      --Trade Associations (Outdoor Power Equipment Institute; Coalition
            for Automatic Garage Door Openers, Gas Water Heater
            Association, Toy Manufacturers of America, etc.)
      --Voluntary product standard setting organizations (ASTM; the
            American National Standards Association; Underwriters
            Laboratories; National Electrical Code and Building Code
            groups)

        Senator Bond. I have to step out very briefly to meet with
    some constituents. I am going to ask that Senator Mikulski
    continue this hearing.
        Senator Mikulski. And if I am done?
        Senator Bond. I will be back shortly. I have some more
    questions. This will be very brief.
        If you will forgive me, I will turn the gavel over to you.
        Senator Mikulski [presiding]. Ms. Brown, have you had any
    involvement in the air bag controversy?
        Ms. Brown. No, we have not.
        Senator Mikulski. Has anyone called you--let's wait for the
    bells to finish ringing.
        [Pause.]

                                 AIR BAG SAFETY

        Senator Mikulski. Has the Department of Transportation
    contacted you on the air bag issue?
        Ms. Brown. We have had some directives from them about what
    they are doing, just information.
        Senator Mikulski. Well, you see, nobody knows what they are
    doing. This is a very prickly situation. There is a great deal
    of concern about the safety of air bags. You have just
    indicated the concern about the special risks to children in
    the home. But there is a special risk in that home on wheels,
    called an automobile. Given commuters and day care every day,
    our little kids spend a lot of time in cars. We are finding
    that they are at risk, either from their child seats, et
    cetera, and now the air bags. There is the air bags controversy
    not only for what it means to children but what it means to,
    essentially, people my size, and where that air bag releases,
    hits you, and so on.
        There is a great deal of confusion, uncertainty, and
    apprehension about what the Department of Transportation is
    doing. I am not blaming this on you, of course.
        Ms. Brown. It is not in our jurisdiction.
        Senator Mikulski. But you are the Consumer Product Safety
    Commission with incredible expertise and really significant
    data. Your database I think should not be minimized because it
    contains risk based information and lots of ideas even for the
    private sector to improve itself.
        My question is this. Given that, do you know anything about
    this? Does your agency have any data on the air bag
    controversy? Do we know where the risks are?
        It would seem to me that you, you meaning your agency,
    would play a significant role. First of all, you probably know
    more about what happens to children other than pediatricians
    and parents. Am I right in that?
        Ms. Brown. Absolutely. You are.
        Senator Mikulski. We had that marvelous conversation on
    playground equipment.
        Ms. Brown. It is both my area of expertise, coming into the
    agency as a child safety expert, and, of course, what our
    agency has concentrated on.
        The problem with air bags or with anything in cars is it is
    not legally within our jurisdiction. However, our very
    excellent data, the NEISS system, which gets reports of
    hospital emergency room injuries every day, has done work for
    the National Highway Traffic Safety Administration on motor
    vehicle injuries. So they do use our data.
        But we are not involved in the air bag controversy per se.
    Many people call me, Senator Mikulski, because I, too, am
    small, and they ask me what are you doing in your own car.
        I, therefore, did my own personal, little survey and told
    people that you have to be at least 10 inches away from your
    air bag in your steering wheel. I also had found out some
    information on how to get extenders on pedals. That I just did
    as something personal to help my other short friends.
        But this is an area that is very serious and I do know that
    there is a lot of concern out in the Nation. We specifically do
    collect air bag data specifically for NHTSA.

                           CPSC SHOULD WORK WITH DOT

        Senator Mikulski. Ms. Brown, I am going to ask you because
    of the confidence I have in your agency and in your
    considerable database, to reach out to Secretary Slater. We
    have to really deal with this air bag controversy.
        I am glad people know that they can call you. I go to
    senior citizen meetings and they ask me the same question,
    partly because I have the same personal geography, so to speak,
    as they do. But it shouldn't be member-to-constituency groups
    of 30 people only. I am absolutely convinced that the
    Department of Transportation has not brought in the total
    expertise that is available within its own Government.
        I know that Secretary Slater, I hope, will be moving on
    this.
        I am going to really recommend that you call Secretary
    Slater and that you have a list of all the agencies that have
    been involved in the subject of children--and there are also
    parallels to frail elderly or the short elderly--that could be
    used here, and that you recommend whatever task force they have
    that they use the best information. Let's get out there with
    this information. It could be a new line of commercial
    products, exactly as you said. People may laugh about a pedal
    extender, but if you are 5 foot 2 inches and automobiles are
    built for people structured like Clint Eastwood, it gets to be
    very difficult for us.
        I don't want to turn this into an air bag hearing, but I am
    deeply concerned about the sluggish way we are moving toward a
    relationship with the private sector and the consumers on this
    very significant issue, and perhaps even about talking about
    additional consumer products that would enable people to be
    more safe. Let me include here also the information on where do
    you put your baby's car seat--all of those kinds of things.
    Right now, if we have a driving grannie, then maybe grannie
    needs to be in the back seat.
        I could go on and on here.
        Ms. Brown. Senator, I did want to mention also that we have
    asked for funds to do some anthropometric work. That sounds
    exotic. But what it really is is the measurement of children.
    More work to upgrade this would be very helpful to NHTSA in
    moving forward to do some greater calculations on car seats.
    Education is fine, but I think you've hit it on the head. In
    every field of products, it is very important to have as much
    as possible safety built into the product.
        Senator Mikulski. From what I understand from the private
    sector, particularly those involved in the automobile industry,
    they are waiting for the Department of Transportation to give
    them some guidance on the direction in which they want to go.
        I will tell you what I fear--the wholesale dismantling of,
    in particular, passenger air bags out of fear rather than out
    of science and out of technology. I truly believe the genius of
    the American private sector for both liability reasons as well
    as good citizenship, and ultimately profit, to be able to come
    up with solutions. But right now they need the guidance of DOT.
    Knowing what you all know about children, I think it would be
    enormously important for there to be a task force. It is
    disturbing to me that with DOT there is not a relationship on
    this issue.
        Ms. Brown. I'll call Secretary Slater this afternoon.
        Senator Mikulski. Thank you very much and good luck with
    that.
        Again, many, many thanks.

                          CONSUMER'S RESOURCE HANDBOOK

        Senator Bond [presiding]. Thank you, Senator Mikulski.
        Director Nasif, in 1997, the Congress gave the CIC the
    responsibility for producing the Consumer's Resource Handbook.
    Can you give us an estimate of the resources you might require
    to produce the report in fiscal year 1998 if Congress should
    decide to maintain responsibility for the handbook at CIC?
        Ms. Nasif. The President's budget does provide for the
    transferring back to the Office of Consumer Affairs
    responsibility for the Consumer's Resource Handbook for fiscal
    year 1998. It is my understanding that the resources required,
    whether by OCA or by the Consumer Information Center, would be
    in the neighborhood of about $1.50 per publication. I believe
    the estimate for printing would be under $1. The estimated cost
    for CIC distribution is about $.54. So if 250,000 were produced
    and distributed, it would be about $400,000 for the total cost.
        In the past, OCA has been very successful in leveraging the
    support of the consumer community and other Federal agencies as
    well as the private sector in helping to cover the costs of the
    Consumer's Resource Handbook. Traditionally, what is done is
    that the committee provides a foundation of funding for the
    Consumer's Resource Handbook and then the Director of the
    Office of Consumer Affairs invites other Federal agencies, as
    well as corporate and other private sector organizations, to
    contribute resources to cover the costs of the publication.
        So it really is a very joint effort in coming up with the
    funds to successfully print and distribute the handbook.

                    DISSEMINATING INFORMATION ELECTRONICALLY

        Senator Bond. Can consumers order publications from the CIC
    web site? Do you see a demand for this? Do you see a day when
    you would move to distributing all of CIC's publications
    electronically?
        Ms. Nasif. Currently we are working toward consumers being
    able to order right off our web site, and we are actually
    working with the Government Printing Office to make it a
    reality. About 50 percent of the publications in the CIC system
    are actually GPO sales documents. So it is not something that
    CIC can proceed ahead with on our own. But we are working with
    them.
        GPO is putting into place an interactive system so that the
    public can order from their web site. As soon as they have
    perfected and debugged that system, we will work to have it
    applied to CIC in the Pueblo facility.
        Of course, the main concern of all of us interested in
    electronic commerce is maintaining the privacy and the
    confidentiality of credit card information, which must go
    through the Internet web site.
        We are fortunate that we are part of the General Services
    Administration because the agency is a leader in the emerging
    technologies that do safeguard that kind of personal
    information. So we will be working within GSA as well.
        As far as whether the day will come when all consumers will
    be ordering from the web site as opposed to writing to Pueblo,
    I don't think so. Given the explosive growth of the Internet
    and especially the World Wide Web, it seems that certainly this
    country is going down that path. However, we are totally
    committed to maintaining our print program because we know that
    the majority of Americans depend on printed publications to get
    their information.
        So we are looking forward to maintaining a dual track and
    keeping both programs going.
        Senator Bond. Well, as long as this consumer is still
    around, there will be demand for the printed material.
        Senator Mikulski. And with big print. [Laughter.]
        Senator Bond. Yes; maybe the next generation will be all
    electronic, but not me.
        Ms. Nasif. The day will come we are told.
        Senator Bond. I don't believe that.
        Ms. Nasif. I know I am not ready for it. I am holding on to
    those publications as best I can.
        Senator Bond. Thank you very much, Director Nasif.

                            USOCA HELPLINE DATABASE

        Director Byrne, one of the things, obviously, where I have
    already indicated my concern is for the duplication of effort.
    I previously served as a consumer affairs counsel in the
    attorney general's office. It seems that every State has at
    least one, if not several, entities that are providing consumer
    information and warning. I happen to know of a man who was one
    of the unfortunate ones who managed to get burned twice by the
    Nigerian scam, a man who had some money that he no longer has,
    but he had enough that he was still hit with it, indeed hit
    twice.
        Obviously we cannot stop all scams. We have not gotten the
    message out. To what extent do you work with States and others
    who have the same responsibility you do?
        Ms. Byrne. Mr. Chairman, last March Money magazine did a
    compendium of all the State and local government efforts in
    consumer protection and found that there had been, over the
    last several years, a 60-percent cut in State and local offices
    in their efforts.
        One of our jobs is in just taking up the slack. What we
    find in the calls that we are getting is that people don't know
    where to turn. Their local offices have sometimes been closed
    down. Their 800 numbers have been disconnected. We often tell
    them to call their attorney general because they don't know
    where to turn.
        Oftentimes with these 1-800 numbers and the other agencies
    that are available, the consumer finds himself in Dante's third
    ring of hell. They push from voice-mail to voice-mail without
    ever getting a real person on the line. All they needed was a
    simple question answered.
        We hope that we provide that kind of answer, that kind of
    help to consumers because what we are finding is that we are
    not getting the kind of coverage that we would hope in State
    and local governments.
        Senator Bond. I think some of us in Congress are getting
    those calls as well.

                         MEASURING OCA'S EFFECTIVENESS

        Is there any measurement or any impact that you can
    identify that your agency has that others do not have? When you
    are providing information, I know it is difficult to determine
    what impact you are having. But have you developed any means of
    measuring the impact of your agency?
        Ms. Byrne. One of the things we have implemented with the
    HelpLine is a database that we can track people and how they
    are getting responded to. If we refer them to another agency,
    what was the response from that other agency?
        As the Special Assistant to the President, besides being
    the Director of the Office of Consumer Affairs, I head up the
    Consumer Affairs Council for all the Federal agencies and all
    their consumer components. I feed that information back to them
    so that they'll know if their agency has been doing a good job.
        We can measure now the outcomes which we were not able to
    do prior to my arrival, the outcomes of these calls that are
    being made. How many people actually got their money back? How
    many people actually got their question answered? How many
    people actually avoided a scam because that is the data that we
    are now keeping that we were not keeping 3 months ago.
        Senator Bond. We would be interested to see that
    information.
        But isn't the HelpLine duplicative of the GSA's Federal
    Information Center?
        Ms. Byrne. Mr. Chairman, when I served in Congress, I
    thought that they were the same thing. I really was not clear
    in my own mind what each did. But what I find right now is that
    the Federal Information Center is referring calls to us because
    they don't know what to do with them.
        Congressional offices are calling us because they don't
    know where else to turn. Also consumers are calling us because
    they don't know where else to turn.
        It is different to be a vocal yellow pages, if you will,
    for Federal agencies than it is to give help. It is my
    understanding that the Federal Information Service is a
    vocalized yellow pages for Federal agencies. If you know where
    you are going, you can get the right number.
        But most people, when they call for help, don't know who to
    call. They are swimming through the alphabet soup of Government
    agencies.
        Senator Bond. The FIC I understand has a staff of over 100
    personnel who are supposed to assist citizens with consumer
    problems utilizing the Consumer Resource Handbook. Are they not
    doing the job?
        Ms. Byrne. We have in our agency, in the Office of Consumer
    Affairs, over 25 to 30 years experience in every imaginable
    consumer issue you can think of. To have that kind of expertise
    willing to talk to consumers is much different than just trying
    to give somebody a phone number.
        I don't think the Federal Information Center is as
    equipped, just through lack of experience, to deal with these
    consumer inquiries. We have a very specific task.
        [The information follows:]

        U.S. General Services Administration Federal Information Center

             PROVIDING SERVICE TO CITIZENS AND GOVERNMENT AGENCIES
                                  INTRODUCTION

        Established in 1966, the Federal Information Center (FIC) is a
    single point of contact for people who have questions about Federal
    agencies, programs, and services. The FIC currently responds to about 2
    million calls per year via its nationwide, toll-free number: 800-688-
    9889 (800-326-2996 for TTY users). The FIC is open for public inquiries
    from 9 a.m. to 8 p.m., eastern time, Monday through Friday, except
    Federal holidays.
        The FIC program is operated by a contractor that maintains the call
    center in Cumberland, Maryland, and uses about 80 staff-years to
    accomplish its tasks. The program's annual budget is about $3.2
    million, or approximately $1.50 per call: This includes all contractor
    expenses, payments to FTS2000 for the `800' service, and Government
    support and oversight.

                              SERVICE TO CITIZENS

        The information specialists either answer directly, refer the
    caller to the correct office, or research the inquiry to provide a
    suitable response.
        The most frequent public inquiries have to do with workplace issues
    (safety, discrimination, wages, etc.), State-government matters,
    immigration and naturalization, Federal taxes, Federal employment,
    savings bonds, Government publications, housing-related concerns, FCC
    matters, and disaster assistance. Many other inquiries relate to such
    consumer matters as product safety and reliability, advertising, food
    products, banking, and motor vehicles.
        The metropolitan areas from which the largest number of telephone
    calls come are Los Angeles, New York, Miami, Chicago, Atlanta, Dallas/
    Fort Worth, Houston, San Francisco, San Diego, and Tampa/St.
    Petersburg.
        The staff responds to 2-3 inquiries a day from Congressional
    offices who call for their constituents.
        Citizens may discuss their inquiries with senior staff members who
    have a combined total of decades of consumer contact and research
    ability. Citizens usually start their inquiries by talking to junior
    staff members who have been trained to differentiate between calls they
    should refer to the senior staff members and those they should answer
    themselves.
               a sampling of specific services to other agencies
        Copyright Office, Library of Congress.--Since about 1975, have
    distributed copyright forms to individuals and answered basic questions
    about copyrights. In fact, the FIC distributes more forms to
    individuals than the Copyright Office itself.
        Bureau of Land Management, Department of the Interior.--Since about
    1980, have assisted in the dissemination of information about the wild
    horse and burro program.
        U.S. Marshals Service, Department of Justice.--Started partnership
    in July 1995 to inform the public about acquiring property seized by
    law enforcement agencies. In December 1996, expanded partnership by
    including GSA's Consumer Information Center.
        Passport Office, Department of State.--In 1995 and 1996, expanded
    existing level of expertise on passport matters and responded to
    passport inquiries referred from the New York, Miami, and Seattle
    passport offices.
        Authentication Office, Department of State.--Beginning in November
    1996, expanded the assistance available to persons wanting information
    on certifying documents.
        Consumer Information Center, General Services Administration.--Have
    assisted in the distribution of the Consumer Information Catalog since
    1970. Beginning in January 1997, received requests for the Catalog on a
    separate toll-free telephone number.
        Travel and Transportation Policy, General Services
    Administration.--Starting in November 1996, have served as the main
    source for print or electronic copies of the per diem rates issued by
    GSA.
        U.S. Forest Service, Department of Agriculture.--In late summer of
    1995, removed excess workload from their campground reservation line by
    answering callers who were requesting information instead of wanting to
    make reservations.
                     reference materials in use at the fic
        Principal reference tool is the FIC's own electronic data base,
    which lists more than 100,000 points of contact (telephone numbers,
    addresses, electronic access) by agency and subject. The data base also
    includes the Catalog of Federal Domestic Assistance and many agency
    fact sheets. GSA and the FIC contractor are working with the Government
    Printing Office to place the FIC's data base on CD-ROM, sell it to the
    public, and distribute it to all Government Depository Libraries.
        Printed periodicals such as the Federal Register and the Code of
    Federal Regulations.
        Printed agency materials such as the Consumer's Resource Handbook,
    the Budget of the United States Government, and agency telephone
    directories.
        Printed materials from private sources such as the Encyclopedia of
    Associations; directories of key officials in Federal, State, and local
    governments; and directories that list foreign travel information.
        Regular and frequent use of government and private information
    accessed through the World Wide Web.

        Senator Bond. But you have had this HelpLine for how long,
    2 years?
        Ms. Byrne. Yes, sir.

                           CONSUMER RESOURCE HANDBOOK

        Senator Bond. You are proposing to expand substantially the
    1998 edition of the Consumer Resource Handbook. Why are you
    doing that? What precisely do you have in mind? What is the
    precise cost and who will pay the additional mailing costs?
        Ms. Byrne. We have proposed that we increase the number of
    printings for the Consumer Handbook, that we focus more on how
    people can get their questions answered through e-mail, through
    web sites. We have a whole, new, growing area of complaints,
    which is hardware. People's printers, people's computers don't
    work right. The help lines that are put up by these companies
    are not responsive.
        So we need to focus in on what is happening in the
    marketplace. That is our job. So we are going to expand those
    sections.
        Also there is consumer debt, how to avoid bankruptcy, the
    difference between a debit card and a credit card--this last is
    causing a great deal of confusion in the marketplace right now.
    These are areas that we want to highlight and expand in the
    handbook.
        We do it by asking other agencies who have interests here
    to help us with this. We have asked the Securities and Exchange
    Commission, through their efforts on decreasing consumer debt,
    to help us with those sections.
        This is a cooperative effort. But because we have been in
    the business for so long we know where to go to get the help
    within the Government. We also have a lot of support within
    industry and the marketplace in this product.
        So they are willing to help with the costs.
        Senator Bond. Do you accept corporate contributions for
    this?
        Ms. Byrne. We have a gift fund, as you know, ordinarily,
    and we would accept corporate help in producing and printing
    the book.

                     USOCA TRAVEL FUND FOR FISCAL YEAR 1998

        Senator Bond. Your testimony refers to the OCA's role in
    representing U.S. consumers in international fora. What
    international travel is planned for fiscal year 1997 and fiscal
    year 1998 and at what cost?
        Ms. Byrne. We have domestic travel to do seminars and town
    meetings at the cost of about $10,000 for the entire year. We
    have two international fora in which we participate, which is
    OECD. Right now we are working on international parameters for
    electronic commerce, so that when people step into this brave,
    new world of the Internet that we all think is coming, they
    will have a sense of security, trust, and safety about it.
        Right now, on the world marketplace that is not true. So we
    are looking at what we can do through these various mechanisms
    to enhance consumer safety in electronic commerce.
        Senator Bond. So what would be the cost of that?
        Ms. Byrne. That is $10,000 also. We are looking at like
    $20,000 in travel.
        Senator Bond. OK. Thank you.
        Senator Mikulski, have you any further questions?
        Senator Mikulski. No, Mr. Chairman. I look forward to
    working with our witnesses.
        Senator Bond. All right. Thank you very much.

                         Additional committee questions

        Our thanks to each of you for presenting your testimony. We
    appreciate it and we look forward to working with you all in
    the months to come.
        [The following questions were not asked at the hearing, but
    were submitted to the Office for response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

        Question. How much are you spending on the HelpLine? Are the costs
    of the calls being paid for by the White House, or OCA?
        Answer. Calls to the National Consumer HelpLine through the White
    House telephone grid average $1,100 per month or a cost of $0.08 per
    minute based on the rate which was negotiated for all national 800
    number lines serviced under the carrier Sprint. The HelpLine is
    currently staffed four hours daily by full-time staffers on a rotating
    basis, for an average total of 2.5 FTE's. All costs associated with the
    HelpLine are paid with funds appropriated to USOCA.
        Question. OCA plans to expand substantially the 1998 edition of the
    Consumer Resource Handbook, Why is an expansion necessary, who has
    suggested you do so, what precisely do you have in mind, and what is
    the proposed cost? What will be the additional mailing cost? Do you
    have plans to reduce mailing costs, for example by using newspaper-
    weight paper?
        Answer. The next edition of the Consumer Resource Handbook produced
    by USOCA will expand its Consumer Tips section to include information
    on dealing with child care as a consumer issue, more specific
    information on car leasing, home based businesses, investing and
    pension protection. Additional directory listings for computer and
    computer software companies will be included. E-mail addresses will be
    added to all listings when available. We will delete out-of-date-
    information. The new listings are the suggestions from consumers,
    government agencies, and businesses. We do not anticipate a substantial
    increase in weight, therefore, the printing and mailing costs will be
    virtually the same as they have been for the last three fiscal years.
    Our mailing costs are controlled by CIC, but we continue to ``shop''
    for the lowest price. The use of newspaper-weight paper had been tried
    in the past. USOCA received negative responses from the public because
    the Handbook is used as reference and needs to stand up to continued
    use.
        Question. Last year, we learned that OCA discontinued using the
    Consumer Information Center to mail out the Consumer Resource Handbook,
    at a cost of $2.52 per copy more than what it would cost using CIC. In
    fiscal year 1998, do you intend to use CIC to mail out the Handbook
    should the Congress agree that OCA retain responsibility for producing
    the Handbook?
        Answer. USOCA does plan to continue to use the Consumer Information
    Center in fiscal year 1998, as long as they can provide us with the
    lowest audited mailing prices.
        USOCA mails a few thousand copies at the first class rate in
    response to requests from Congress, Governors and Lt. Governors,
    Attorneys General, district offices of Congressmen and Senators and
    other officials, and corporate and community offices when they request
    rush delivery. This special service has been provided since Mrs.
    Virginia Knauer was the USOCA Director under president Reagan.
        Question. OCA has the authority to accept corporate contributions
    for the Consumer Resource Handbook. How much do you plan to receive in
    corporate contributions in fiscal year 1998? What did the contributions
    total in fiscal year 1996?
        Answer. Last September Congress eliminated USOCA's gift acceptance
    authority in the Omnibus Appropriations Bill. Currently, USOCA is in
    the process of regaining its gift acceptance authority through the
    President's Supplemental Appropriations Bill. When USOCA receives its
    gift acceptance authority USOCA anticipates approximately $100,000 from
    private sources.
        USOCA received $2,000 from private sources for the Consumer
    Resource Handbook in fiscal year 1996, before the gift acceptance
    authority expired. These monies cannot be spent until the gift
    authority is restored. Non-public funds were used to sponsor National
    Consumer's Week events around the country totaling approximately
    $25,000. USOCA utilizes in-kind contributions from various consumer
    organizations and private sources in partnership for consumer education
    events and conferences.
        Question. Your budget indicated you plan to revive the Consumer
    Newsletter. How much will this cost, and why is reviving this
    necessary?
        Answer. USOCA has over 10,000 names and addresses of grassroots
    consumer groups; national, state and local consumer organizations;
    businesses; government; and interested parties in its newsletter
    database. The Consumer Newsletter fulfills USOCA's mission by
    informing, educating and warning interested parties about issues and
    events they need to be aware of. In addition, consumers often want to
    know how USOCA views an issue, what other Federal agencies are doing
    about a particular issue and what's new on the consumer horizon. The
    Consumer Newsletter serves this purpose and helps reduce duplication of
    effort by other agencies. The estimated cost for a quarterly newsletter
    is approximately $30,000 per year.
        Should you require additional information please let us know. We
    will be more than happy to assist you.

                              SUBCOMMITTEE RECESS

        Senator Bond. This hearing is recessed.
        [Whereupon, at 10:30 a.m., Tuesday, March 11, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                            TUESDAY, MARCH 18, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:34 a.m., in room SD-562, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Campbell, Mikulski, and Boxer.

                      FEDERAL EMERGENCY MANAGEMENT AGENCY

    STATEMENT OF JAMES L. WITT, DIRECTOR
    ACCOMPANIED BY:
            GARY D. JOHNSON, CHIEF FINANCIAL OFFICER
            GEORGE OPFER, INSPECTOR GENERAL

                     OPENING STATEMENT OF CHRISTOPHER BOND

        Senator Bond. Good morning. The subcommittee hearing will
    come to order.
        The subcommittee meets today to review the budget request
    of the Federal Emergency Management Agency, and we are pleased
    to welcome the Director, James Lee Witt, and his team. Welcome,
    Mr. Witt. We appreciate all the work that FEMA has done to
    respond quickly to the most recent spate of disasters. As we
    all know, there were devastating tornadoes, flooding along the
    Ohio River, something we know too well just west of the
    Mississippi, and in the Northwest. I know that you personally
    have visited a number of the disaster areas. Our hearts and our
    thoughts go out to the victims of these disasters and we pray
    for the speedy recovery of their communities.
        FEMA is requesting a 1998 budget of $3.2 billion, of which
    $374 million would fund the operating programs, $100 million
    would fund the emergency food and shelter program, and $2.7
    billion would fund the disaster relief account. The amount
    requested for the operating programs represents a slight
    reduction below the current year, while the disaster program
    would increase $1.4 billion more than the current year
    appropriation.
        While FEMA's responsiveness is commendable, I do not think
    it has been balanced with fiscal responsibility. I continue to
    be very troubled by the management of FEMA's multibillion
    dollar disaster relief fund, which has never been audited, and
    I am very concerned about the request that is pending before
    the committee. Currently FEMA has more than 500 open disasters
    on the books dating back to 1989 with costs totaling $22
    billion. More than $4.5 billion remain to be obligated for
    these open disasters and this does not include the costs of the
    most recent Ohio flooding disasters and the tornadoes. This is
    a very significant amount of expenditures.
        The number of major disaster declarations in the 1992-96
    period has increased 54 percent above the preceding 5-year
    period and FEMA's calculation of 5-year historical average cost
    of disaster relief for fiscal year 1998, excluding the
    Northridge earthquake, is $2.3 billion, an increase of 28
    percent over last year's 5-year average of $1.8 billion.
        Now, FEMA has acknowledged that the escalation in cost is
    due not only to the increase in large-scale disasters, but also
    because ``The scope of Federal disaster assistance has
    expanded, the Federal role and response has expanded
    considerably, and State and local governments are increasingly
    turning to the Federal Government for assistance.''
        It seemed to me that FEMA has significant mission creep. It
    is no longer simply to come in when States and local
    governments are overwhelmed, which was the intent of the
    Stafford Act. Indeed, FEMA itself has said, ``The current
    system of disaster relief tends to discourage States and local
    governments from assuming primary responsibility for initiating
    appropriate mitigation, preparedness, response, and recovery
    measures before a disaster strikes.''
        And FEMA's role seems to be forever expanding, illustrated
    by the spate of disaster declarations for snow removal in the
    last 5 years. There have been no snow disasters declared from
    1979 to 1993, some 14 years, and there have been calls for FEMA
    to reimburse the State of New York for costs related to the TWA
    disaster.
        To my knowledge, the disaster relief program is the only
    program in the Federal Government that does not have to
    consider fiscal constraints whatsoever. FEMA's other programs
    do not compete with this program for funding, so there is no
    incentive within the agency to exercise prudent stewardship of
    this fund.
        When disaster relief funds have fallen short, Congress has
    responded quickly time and again to FEMA's request for
    additional funds in an effort to meet the needs of disaster
    victims expeditiously, and to provide this aid we have slashed
    low income housing and other programs to offset the costs. We
    have cut other VA-HUD programs totaling $8 billion under my
    chairmanship to pay for disaster assistance in the past 2
    years. Yet, we have learned that some of these funds have gone
    to such questionable projects as golf courses and the planting
    of shrubbery.
        Recently FEMA was, as we learned from the news media,
    considering expending $500,000 to replace a bottle village,
    which some have named folk art and others have called an
    eyesore, damaged in the Northridge earthquake and eligible for
    FEMA funding since it happened to be placed on the Register of
    Historic Places. I was glad to learn that Friday you made the
    right decision and decided against funding this project.
        Following the Northridge earthquake, about $400 million has
    gone to one university, UCLA, clearly an institution with
    strong revenue generating capabilities. We need to review
    whether we can continue to make such expenditures in this era
    of belt tightening.
        We have learned about some of these expenditures through
    inspector general's reports and press accounts since FEMA
    budgets do not provide documentation beyond very broad
    categories of the specific projects being funded. In fact, FEMA
    centrally has no information on the numbers, costs, or status
    of the public assistance projects currently underway. There are
    literally thousands of such projects underway.
        The Agency's responsiveness to disasters is truly laudable,
    and I join with others who commend you, Mr. Witt, and the
    Agency for moving quickly. But suggestions and even directives
    from Congress to submit proposals to reform this program to be
    fiscally responsible have gone unheeded or have apparently been
    treated someplace in the administration as low priority at
    best.
        In September 1993, the administration's ``National
    Performance Review'' report called for, by March 1995, a
    comprehensive plan, including proposed executive orders and
    legislation to develop objective disaster declaration criteria
    and comprehensive Federal policies to reduce the Federal costs
    of disaster assistance. To my knowledge, this commitment has
    been ignored.
        A series of GAO and inspector general reports have been
    issued over the past 2 years at the request of this committee.
    They have outlined a number of options for reducing disaster
    relief costs, including establishing more explicit and
    stringent criteria for providing Federal disaster assistance,
    eliminating public assistance grants for revenue producing
    private nonprofits, shortening the appeals process from three
    levels to one, making marinas, golf courses, trees, and shrubs,
    except in parks, ineligible, and clarifying the criteria
    related to the standards to which damaged facilities should be
    restored. For the most part, these recommendations have not
    been acted upon.
        Our efforts time and again to get this Agency to propose
    plans for implementing those recommendations and reducing
    excessive costs have been stonewalled. We discussed these
    issues in the hearings for the past 2 years. We have been
    through this before. This is not new. This is not a surprise.
    We included a requirement in the fiscal year 1997 committee
    report for a proposal for reform, including a request for
    necessary legislation, if that is required, and we included a
    statutory requirement in the fiscal year 1997 VA-HUD bill. To
    date, these directives have not been fully met.
        Now, we received a draft report on March 12 which was a
    about 45 days late in response to the statutory requirement in
    the fiscal year 1997 VA-HUD bill for a plan to reduce disaster
    expenditure. The report is still in draft form. It falls short
    of the mark and it outlines options. That is not what we had in
    mind. You knew and we knew what the options were. We do not
    need to be told what the options are again. We want specific
    suggestions and recommendations.
        In response to questions submitted at last year's hearing,
    you said:

        FEMA is committed to implementing all the inspector
    general's recommendations in principle. We believe that our
    disaster criteria initiative, which will contain disaster
    payment thresholds, as well as declaration thresholds, will
    comprise the major portion of reforms called for by both the
    GAO and the FEMA inspector general and lay the foundation for
    substantial long-term Federal cost share reductions.

        Now, the draft report is completely silent on the issue of
    disaster criteria. It does not propose an implementation plan
    for the inspector general's recommendations. It only repeats
    some of the options that the inspector general and the GAO have
    proposed in the past.
        The report does not address the issue of State cost shares.
    While States are required to cost share in the disaster relief
    program, I understand FEMA does not enforce its own regulations
    and require cost shares to be put forth at the beginning of a
    project. Apparently the State of California has not
    appropriated one dime--one dime--to match the $5 billion in
    FEMA-funded projects. Because the cost share is not required up
    front, the State has little incentive to control and reduce
    costs.
        In addition, last year we received testimony from the GAO
    that:

        FEMA's criteria for determining the extent of permanent
    restoration for public facilities and for determining the
    eligibility of certain private nonprofit facilities are
    ambiguous. FEMA relies on States to ensure that expenditures
    are limited to eligible items.

        Regrettably, I have seen absolutely no evidence that these
    massive loopholes have been closed.
        While some management improvements have been made in such
    areas as centralizing processing, reconciling the disaster
    relief fund so it can be audited for the first time in fiscal
    year 1998, and other administrative reforms which have reduced
    costs marginally, the commitments that have been made to us and
    that we have directed you to fulfill to address the disaster
    criteria have not been met, and the really hard choices have
    not been made.
        Let me be quite clear. I am a strong supporter of FEMA
    getting to a disaster site quickly and dispensing aid to needy
    individuals as soon as possible. I am a supporter of helping
    communities rebuild so they can get on with their lives. But I
    am not a supporter of using the disaster relief fund to gold-
    plate revenue generating facilities and to finance golf courses
    in wealthy communities. And I cannot condone fiscal
    irresponsibility.
        Last year, at the suggestion and at the implied request of
    FEMA, we did go forward with some of the language that had been
    added in the Senate to limit disaster relief. Let me be quite
    clear, Mr. Witt. We expect you to come forth with a
    comprehensive plan. We want to know where it is, and if we do
    not have one in place by the time this bill comes out of
    committee, I will strongly consider working with my colleagues
    to implement our own system. Something has got to be done. You
    all have had a couple of years now since we started requesting
    and talking about this to come forward, and if you do not do it
    or at least suggest to us how it can be done, we may have to do
    it for you because the scope and the amount of these disaster
    requests is out of hand.
        Now, I am also very concerned about the supplemental
    request that we understand the administration will be
    submitting. It is my understanding that FEMA currently
    anticipates requirements totaling $2.9 billion in fiscal year
    1997. Yet, the administration will request about $1 billion,
    according to the latest rumors, of which some portion would be
    in a contingency fund. How we will pay for the supplemental and
    the additional requirements coming due in fiscal year 1998
    totaling some $5.9 billion will be an enormous challenge.
        There are also very serious problems with the
    administration's proposals for funding future disasters through
    a contingency fund. Mr. Witt, this is nothing but a gimmick. I
    could not take that to the floor with a straight face. My
    colleagues rightly would pound me about the head, and we expect
    better from OMB and from FEMA. This is a very irresponsible
    fiscal gimmick. The proposal to treat these funds off budget is
    just not going to work. The Congress has made its position very
    clear.
        The fiscal year 1998 5-year historical average annual cost
    to FEMA disaster relief is $2.3 billion. We know that close to
    this level of funds will be needed next year and these funds
    need to be budgeted.
        In addition, the contingency fund concept gives entirely
    too much discretion to the administration to distribute these
    funds with virtually no oversight of Congress. I have been in
    the executive branch, and I would love to have a honey pot to
    go around and hand out money. It makes you feel good. People
    love you. You come in town with free money, and it is great.
    Love to do that. Nothing is more fun. Unfortunately, that is
    not how Government should work. There should be explicit
    standards and criteria. We do not have those.
        We also have questions about the proposed $50 million
    predisaster mitigation fund you have requested. We have seen no
    details for this request or any proposal on how we would pay
    for it. Moreover, there is $1.4 billion in existing
    postdisaster hazard mitigation funds currently unobligated. So,
    there are significant questions about why States are not
    spending these funds and how the proposed new program would be
    more effective.
        There are a number of very important issues to be
    addressed, including the status of the flood insurance fund,
    the level of Treasury borrowing in that program, the future of
    chemical stockpile emergency preparedness programs, and FEMA's
    progress in developing performance measures for the States
    through performance partnership agreements and assessing
    States' capabilities in disaster response.
        In closing, Mr. Witt, you have earned well deserved
    accolades for the many improvements in FEMA's responsiveness in
    the last 4 years. You have done an excellent job personally and
    made great personal commitments to be there and to have your
    people on the ground, but the steps that we must take for
    fiscal responsibility are not there. They have got to be put in
    place, and I would hope that you would suggest to us and help
    us work out how they are put in place rather than have us do it
    a cappella because one way or the other, it is going to be
    done.
        I am now going to turn to my distinguished ranking member,
    Senator Mikulski.

                         STATEMENT OF BARBARA MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman.
        I want to welcome FEMA Director James Lee Witt. I want to
    applaud your work with streamlining FEMA and making it a more
    effective and efficient Agency.
        The chairman raises some very important fiscal questions,
    but I would like to go back to 5 years ago when FEMA itself was
    a disaster, when our readiness and our response was a national
    embarrassment. We were not ready in most States to respond to
    disaster. All 50 States were very uneven in their preparedness,
    and those often at most risk were the least prepared. We
    remember with great sadness what happened in Florida when the
    very nature of what occurred overwhelmed the capacity of even
    the Governor to estimate what damage that he had. Thanks to
    you, Mr. Witt, you then have made us fit for duty in readiness
    and response.
        But I recall that there were three R's to what we had
    talked about for FEMA. It was called readiness, response, and
    rehab. The rehab now is what is being discussed by the
    chairman, and I believe that those are very serious concerns.
        But I think we also need to note that it was under your
    leadership that many of the recommendations of the National
    Academy of Public Administration about how to improve FEMA in
    its work in saving lives and saving communities were followed.
    So, we thank you for implementation of the National Association
    of Public Administrators' recommendations about bringing down
    the artificial wall between the old cold war, civil defense
    approach and the new realities of a risk-based strategy.
        I believe that FEMA does do what it was supposed to do,
    which is save lives and save communities. Now we are called
    upon, because we have now done the first two R's and done them
    very well, to focus on the third R which is rehabilitation, or,
    in some instances, reengineering. In other words, in
    communities that are most at risk for flood or hurricane, what
    are the things that could be done beforehand that would prevent
    future disaster funds for request.
        I believe the chairman's concerns are valid and I think you
    would agree with them.
        But thank you for the first two R's, readiness and
    response, saving lives, saving communities. Now we will move to
    the issues related to rehabilitation and reengineering, if you
    will, of those disaster-prone areas, and we will come back and
    talk about that.
        I also want to talk about the issue of mission creep. I
    know that they are of concern to you, but I know that every
    time a disaster occurs, that FEMA is under tremendous pressure
    both from a Governor and its two Senators for you to show up,
    to be able to be there to provide disaster assistance.
    Everybody likes the photographs, the helicopters landing, going
    out there to show where people feel powerless, at least that
    our response is not.
        I believe that that is where that is coming when we talk
    about the lack of matching funds and so on. I believe there
    needs to be work done with the National Governors Association
    really on what are clear triggers that bring you in and also a
    real commitment on their cost sharing.
        The chairman's concerns are valid, but I believe you are
    placed under extraordinary pressure not only by the White House
    to respond with compassion and effectiveness, but by the
    Governor and the two Senators in those areas to really be able
    to do that. So, I believe that much work needs to be done, but
    I do not believe the work to be done is a one-sided effort.
        The other is this whole issue of what this committee has
    borne because FEMA is in it. We all recall after the tremendous
    problems in California, this subcommittee was called upon to
    fund the entire disaster relief and out of the HUD account. We
    never quite recovered from that in terms of our appropriations.
    Again, the chairman's concerns are quite valid, but I think we
    need to talk about not a honey pot, but really a specific way
    of having the resources that, therefore, are not charged
    against this committee.
        I like the chairman am very reluctant to put big ticket
    items off budget. I would agree that it should not, but I am
    not quite sure what is the best thinking because we cannot
    appropriate for every disaster that might affect the United
    States of America.
        I know Senator Glenn, when he chaired Government Ops, was
    looking at this. I would hope Government Ops would give us some
    recommendations as well as ours.
        I believe Senator Bond is quite serious when he says if you
    do not come up with the recommendations, we will. I would
    prefer we could do it together and that we could do it not only
    with OMB but with the Governors because I think now is the time
    to say thank you for response, thank you for readiness. Let us
    now go on to the rehabilitation aspects, and most of all, the
    other R which is called fiscally responsible. I think then we
    will really have had a holistic approach to this.
        Thank you and I look forward to talking with you about the
    national issues as well as some in Maryland.

             GETTING GOVERNORS INVOLVED IN DISASTER PROGRAM CHANGES

        Senator Bond. Thank you very much, Senator Mikulski.
        I would agree with you that the Director and the Agency
    come under great pressure not only from the White House but
    from Governors and Senators. There is nothing like having a
    solid wall behind you to stiffen your back and help you say no
    if we can get Congress to act, in cooperation with the
    administration and the Governors, on specific criteria. It
    takes some of the pressure off of Mr. Witt and the Agency.
        Senator Mikulski. That is right. Mr. Chairman, you were a
    Governor and by all accounts, a very excellent Governor. That
    is one of the reasons the people of Missouri sent you for your
    first term, and an excellent Senator why they sent you for your
    second term.
        I really do think the Governors have to come in on this,
    and maybe you and I could actually meet with them as well.
        Senator Bond. We will make a decision here that you and I
    will request of the National Governors Association their views
    on this. I will ask our staff to prepare that.
        Senator Mikulski. I think that will be excellent.
        Senator Bond. We will start with something, but we are
    really awaiting the word from the administration because you
    are the people who do it and you know how it works or does not
    work.
        So, with that, forgive me for taking up some time. Let me
    turn to Senator Boxer. Good morning, Senator Boxer.

                           STATEMENT OF BARBARA BOXER

        Senator Boxer. Good morning, Mr. Chairman. Good morning,
    Senator Mikulski, and good morning, James Lee Witt.
        I want to say that I have come to know James Lee Witt
    almost too well and his wonderful staff. It seems that we pick
    ourselves up from one disaster and we have got another one in
    my magnificent State, having gone through so many of these,
    both as a Member of Congress where I had one terrible
    earthquake in San Francisco where we are still picking up, if
    you will, the pieces because FEMA at that time simply did not
    have the ability to respond.
        I remember very well that when I came here, Mr. Chairman,
    the faith and trust in FEMA was almost nonexistent, and I have
    to say to James Lee Witt--and I know that not every single
    Senator is going to agree with you on every decision you make.
    No two people could agree on everything, and you and I have not
    agreed on everything either, of course, as I fight for my
    State. This is the natural course of events.
        What you have done for your country is just fantastic
    because you have taken an Agency that was in the depths and you
    have brought it up and you have made people understand that we
    can respond with a sense of fairness and a sense of urgency and
    a sense of efficiency.
        Mr. Chairman, I do not have a statement for you, but what I
    would like to do is respond to some of the issues that were
    raised, I understand, by you before I came in.
        I want to say something about earthquakes in general, Mr.
    Chairman. You and I have experienced floods in our States and I
    have had that awful experience. Earthquakes are very different
    than any other disaster because the damage is not readily seen
    at first, and that is the reason why we have moving estimates.
    That is the reason why Governor Wilson has not yet made the
    match because we still do not have the final answer on the
    number. So, these things happen and they look strange, but I
    would urge you to realize that it is a very, very different
    thing.
        If you look at the California Seismic Safety Commission,
    what they said about Northridge--and I will quote--``Much of
    the damage was hidden under fireproofing and finishes.'' So,
    you do not find out. You see a little crack. It does not look
    like anything and then you get in there and you realize the
    incredible damage.
        Also, on UCLA, it is, in fact, a public supported
    university and it is a major medical center, so it is a public
    institution.
        I would agree with you, Mr. Chairman. I voted for the
    McCain amendment to end the practice of funding golf courses
    and so on. I think we really need reform and I will join with
    you in doing that. You and I have gone through enough disasters
    to understand that we know who really needs the help and we
    want to be able to provide it.
        First of all, I am so privileged to be with both of you.
    You are such leaders in this area, and I hope that as a result
    of my experience I can help you and I can work with you in
    making the reforms we need and still be able to respond to
    people in need.
        With that, I want to say to you that what is very
    interesting in California now, people are talking in the flood-
    prone areas about ways that they cannot rebuild in flood-prone
    areas. I think it is happening in California. People are
    realizing you just cannot keep going back and making people
    whole. We have to have policies here that recognize there are
    certain areas that you are never going to be able to secure
    from flooding and so on.
        So, I am very pleased and privileged to be on this
    subcommittee. I want to work with all of you and James Lee Witt
    the best that I can. I want to thank you very much for this
    opportunity.
        Senator Bond. Thank you very much, Senator Boxer. Certainly
    you have had the experience with disasters that exceeds that
    which we have had in our State, but we have had quite a bit of
    experience with it too. That is why we think the Agency is so
    important.
        Now we will turn to the leader of that Agency with all the
    attention. Mr. Witt, welcome.

                           STATEMENT OF JAMES L. WITT

        Mr. Witt. Mr. Chairman, members of the committee, thank you
    very much. I am pleased to be here with you this morning to
    discuss FEMA's appropriations. Also with me this morning is
    Gary Johnson, our Chief Financial Officer. I hope that together
    we can be responsive to your questions. We have a capable team
    behind us who can respond to any specific questions.
        Each year it seems like we start out at appropriation
    hearings discussing where we have been and what we have been
    doing. Mr. Chairman, you briefly laid out what we have faced
    over the last few weeks. I do not think I have ever seen a
    January like the one we had this year. We had floods in the
    West, in the States of California, Washington, Oregon, Idaho,
    and Nevada. At the same period, we had blizzards in the
    Midwest, tornadoes in Alabama and Georgia, preceding the floods
    in Ohio, Indiana, West Virginia, Kentucky, and Tennessee, and
    tornadoes in Arkansas. We had 59 fatalities in this last round
    of disasters.
        I will be brief so that we have time to answer your
    questions.
        I think, Mr. Chairman, that you and the members of this
    committee have seen the difference that mitigation makes in a
    community that has been hit by a disaster. The reason that FEMA
    is requesting $50 million for the predisaster mitigation
    program is to try to bring the insurance industry and local and
    State governments into the fold to help us to eliminate and
    high-risk areas. The fact that every $1 we spend in the area of
    predisaster mitigation can save $2 in future taxpayer dollars
    is well documented. I think that we need to change the
    direction we are going as far as dealing with disaster costs.
        I totally agree with your view that the costs of disasters
    have escalated and need to be controlled. We need to redefine
    what we fund and what we do not fund. We should target our
    funding to address the health and safety of individuals and
    communities. We will work with you and this committee, Mr.
    Chairman, to develop language for legislation in that area.
        The idea of reducing risk is very prevalent. I have talked
    to many Governors, including Governor Voinovich of Ohio, just
    this past week, Governor Underwood of West Virginia, the
    Governor of Tennessee, other Governors at press conferences and
    those with whom we toured communities. They all support
    preventive measures to keep from repeating disaster costs in
    communities where we can mitigate that particular risk. I think
    that is the direction that we need to head in.
        Disaster costs have escalated despite the fact that over
    the past 4 years, we have declared only 24 more disasters than
    during the previous administration. We have also denied 56
    requests for disaster declarations during that time period.
        Therefore, it is important that we look at the
    implementation of the disaster program and how we work with the
    States and local communities on predisaster programs. All of
    the staff and I recognize the need for a new direction, and we
    are working very diligently to make it happen.

                               PREPARED STATEMENT

        I am very proud of what we have accomplished to date,
    including the cost-cutting measures that we have taken. We have
    been very, very busy, and I do not apologize for what we have
    not been able to do. We are making a difference in communities
    as they rebuild and in people's lives. I am very proud that we
    have been able to cut costs related to the application process.
    I am proud of FEMA and I am proud of the employees. They are
    very dedicated and they work very hard, Mr. Chairman.
        [The statement follows:]

                      Prepared Statement of James L. Witt

        Good morning Mr. Chairman, members of the subcommittee. I'm pleased
    to be with you this morning to discuss the appropriation needs of the
    Federal Emergency Management Agency (FEMA) for fiscal year 1998.
        I am joined today by Gary Johnson, our Chief Financial Officer, and
    together I hope we can be responsive to any questions you might have
    regarding our request. Also with me are the rest of our executive
    management team who can help me in responding to specific questions, if
    needed.
        It seems that each year we are talking about incredible events that
    we could never forecast. In the past it has been historic flooding in
    the Midwest, a huge earthquake in southern California, a tragic bombing
    in Oklahoma City, or any number of hurricanes that have devastated
    parts of our east coast with troubling frequency.
        I mention all these events as ones we could not forecast. But just
    because we can't see an event coming doesn't mean we can't lessen its
    impact. We can make a difference. And it's my hope that in fiscal year
    1997 and fiscal year 1998, we at FEMA will begin to suggest a new path
    we can take.
        We need to do more, much more, from this day forward, to reduce the
    risks facing our communities. We can't stop an earthquake or a
    hurricane, but we can build better and stronger. We have to get this
    message across. We have to break this cycle.
        Disasters are no longer unusual or singular events. Their
    frequency, and their degree of devastation, demand that we raise our
    own expectations about what we can do. We need to set higher standards
    in building our communities. We have to make our mission of protecting
    public health and safety a shared goal. We can do better. And we know
    that.
        Yes, we do a great deal in the area of mitigation right now.
    Section 404 of the Stafford Act has been a great success in towns like
    Arnold, Missouri, Memphis, Tennessee and Miami, Florida. All of these
    places have suffered from devastating natural disasters and have
    undertaken mitigation measures to reduce the future risk to their
    communities. Actions including moving structures out of the floodplain,
    seismic retrofit of critical facilities and floodproofing of
    residences.
        But we shouldn't have to wait for problems to happen. While some
    FEMA programs already have made significant strides in mitigation
    ranging from our work on building codes to the U.S. Fire
    Administration's leadership on the use of sprinkler systems, much of
    our most significant work in reducing risks can only be triggered by a
    disaster. Foresight, planning, intelligent preparedness work, cannot be
    rewarded under our current disaster assistance program--nature has to
    force our hand.
        The strong message of what communities can do to strengthen codes,
    to make schools and public facilities safer, to lessen the impact of
    these events, has to be heard outside of this committee room, outside
    of the walls of FEMA, outside of the emergency management community,
    and insurance roundtables.
        The idea of reducing the risks has to enter the mainstream. No one
    knows better than the members of the appropriations subcommittees in
    each chamber, that the losses from recent disasters are neither small
    nor rare.
        That is why we are seeking $50 million in pre-disaster mitigation
    funding to begin a program of forging coalitions to create disaster-
    resistant communities. And we do mean coalitions where everyone plays
    an important part.
        If pre-disaster mitigation is considered ``a FEMA program'', then
    it's a failure. This has to be a program that leverages the resources
    and energy of other Federal agencies, States and local governments, and
    especially the private sector, and brings them in as partners. They
    have to recognize their stake in this; they too have to provide the
    leadership.
        We believe many State and local governments are ready and willing
    to join us. The business community and the voluntary community are
    ready to join in. We think this program will demonstrate their
    commitment and resolve. It's my belief that this is the ultimate route
    for reducing disaster costs.
        We must continue to be good stewards of the funds you provide for
    disaster response and recovery. We must continue to re-invent the ways
    we deliver assistance that help to save resources and provide better
    customer service.
        But we also believe that pre-disaster mitigation, along with the
    enormous amount of post-disaster mitigation work we accomplish, is the
    path to increased safety and reduced costs. I hope you'll provide us
    the opportunity to continue these efforts.
        The resources you have already provided have allowed us to begin to
    provide important tools to State and local governments to assess their
    risks and to begin to establish a framework for building, and
    retrofitting, smarter and safer:
      --Just this month we have completed the initial development of the
            first nationally-applicable tool to estimate losses from a
            natural hazard (at this point, earthquakes, but we hope to make
            this an all-hazard system) and to demonstrate the impact of
            mitigation actions.
      --This year we will complete and issue nationally-applicable
            technical guidelines for the seismic rehabilitation of existing
            buildings--this is critical. For example, the replacement cost
            for bridges averages about $135 per square foot, while the
            retrofitting for seismic strengthening averages about $38 per
            square foot.
      --This year, in partnership with the U.S. Geological Survey (USGS),
            we will be issuing the 1997 update of the NEHRP (national
            earthquake hazard reduction program) recommended provisions for
            seismic regulations for new buildings. This update is
            incorporating information based on new USGS spectral response
            maps.
      --And this year we will continue our partnership work in developing a
            proposed international building code. My visit to Kobe, Japan
            following that devastating earthquake in 1995 impressed upon me
            the need for international standards. We have much to share and
            we also have much to learn.
        I have gone on at some length on the matter of mitigation, or risk
    reduction, because we at FEMA are not satisfied to pride ourselves on
    fast response or long-term recovery programs. We want to do less of
    that response and recovery business--and I hope every member of the
    committee will take this message back to your States and districts.
        You can provide the kind of leadership that will put risk reduction
    into the mainstream, to make it a fundamental part of community
    development and community life.
        This year we are asking for $2.4 billion for the disaster relief
    fund (DRF) to ``clean up'' all of our disaster requirements as we move
    into fiscal year 1998. That's a large sum, but it represents our
    estimate of the remaining costs of years of disaster activity. Such an
    appropriation would allow us to meet our commitments to hundreds of
    communities who are still recovering and rebuilding from the
    devastating impacts of disasters.
        Congress has been generous in providing assistance for disaster
    relief. But we all realize that being locked in a culture of
    supplemental spending is not a prudent approach for any of us who work
    in this arena. For this reason the President's budget proposes that
    Congress appropriate $5.8 billion as a contingency fund for the
    emergency requirements for disasters and designate that amount as an
    emergency funding requirement.
        These funds would be available only to the extent that the
    President designates them as emergency funding requirements and only 15
    days after notifying Congress that the funds have been so designated.
    This approach is similar to that taken by Congress and the President in
    the Emergency Supplemental Appropriations Act of 1994, Public Law 103-
    211.
        This proposal is designed to avoid the numerous emergency
    supplemental appropriations that historically occur each year and would
    support the six agencies, including FEMA, involved with significant
    disaster responsibilities.
        I also want to report to you on the progress we have made in
    improving our disaster response and recovery programs. Since we met
    last year we have worked to implement the commitments we made to the
    committees. And we have taken actions on suggestions the committees
    have recommended.
        One significant area of improvement has been our ability to manage
    more closely disasters from previous years. These are the disaster
    events that initially persisted due to their scope and complexity, but
    then remained open far too long. You may remember I told the committees
    that disaster close-out was a top priority for me because of the
    potential cost savings.
        This effort is beginning to pay off. During the last year, FEMA
    closed out 16 disasters. Since February of 1994, we closed out 415
    human services programs, resulting in a reconciliation of more than
    $1.8 billion to the disaster relief fund from disasters declared as
    long ago as fiscal year 1975. Of the $1.8 billion reconciled, over $400
    million were returned to the disaster relief fund. This reduced the
    Federal Government's interest obligation accordingly.
        Our use of our 1-800 Teleregistration System has greatly reduced
    our costs to take an application for assistance. Where our on-site
    costs used to average close to $60 per application, teleregistration
    has brought that down to $19 per application.
        Along with, and as a result of our careful auditing practices, we
    have also been pursuing an aggressive debt collection process. Up to
    this point, we've collected close to $4 million in debts.
        We have taken all of these steps because we are aware of the
    obligations that come with the large appropriations that have been
    entrusted to FEMA. And the cost savings in these areas are an important
    part of the Government-wide effort to achieve the President's goal of a
    balanced budget.
        The recent draft report we sent to the committees on FEMA's
    improvements in financial management details the efforts we have made
    in grants management, non-specific disaster spending and additional
    steps we have taken to prudently manage disaster funds.
        We are streamlining our disaster relief procedures by proposing the
    elimination of one appeal level for the public assistance program. We
    are also making other procedural adjustments that will reduce costs now
    and in the out years.
        In fact, this year we are undertaking a complete reengineering of
    our infrastructure system. We are looking at it from start to finish to
    determine what parts of our program make sense and what parts need to
    be changed. This comprehensive approach will result in further
    improvements and savings.
        One of our logistics management initiatives has been the disaster
    information systems clearinghouse (DISC). The DISC deploys standard
    equipment packs to disaster field offices within 24 hours, recaptures
    the equipment after it is used at the disaster site, refurbishes and
    repacks it as necessary, and returns it to the inventory for the next
    disaster.
        Since August of 1995 through January of this year, the DISC process
    has filled orders for more than 4,400 personal computers, 900 printers,
    250 fax machines, and 2,800 cellular phones from disaster field
    offices. If this equipment had been bought new off the shelf the cost
    of just these four items, considered to be staples of the modern
    workplace, would have exceeded $10 million.
        Concurrent with that work, and in response to the appropriations
    conference report, I convened an Agency-wide task force which has been
    reviewing all aspects of our work and exploring areas where we can cut
    costs. Because of the significance of this project, I wanted to have
    our partners at the State and local level play a role in developing
    this report.
        But we can give you a few examples of some of the options we are
    considering with our State and local partners both in terms of
    regulatory changes at FEMA and legislative changes to the Stafford Act.
    Some of the regulatory options would propose to:
      --Eliminate eligibility of publicly owned facilities which are rented
            out to private enterprise for revenue generation, including
            sports arenas, commercial space, or industrial parks.
      --Eliminate funding for tree and shrub replacement. FEMA currently
            has an interim policy that prohibits funding replacement of
            trees and shrubs on otherwise eligible public properties. A
            formal policy will be circulated to the States for review.
      --Eliminate building contents or cultural objects. Eliminate
            assistance for cultural and decorative objects such as
            paintings, statues, antique airplanes or trains or fire trucks,
            etc.
        The legislative options discussed in our report would:
      --Abolish or restructure the community disaster loan (CDL) program.
            Although used infrequently, the CDL often becomes a grant
            rather than a loan because of the forgiveness feature. In fact,
            $4 has been forgiven for every $1 collected.
      --Eliminate funding for revenue-producing publicly owned recreational
            facilities such as yacht harbors, golf courses, and stadiums.
      --Require that all private non-profit (PNP's) applicants go through
            the Small Business Administration (SBA) loan program prior to
            applying for public assistance. This would encourage PNP's to
            mitigate potential disaster losses and equalize the treatment
            of private and public utilities.
      --Eliminate funding for rural utilities service electrical and
            utility cooperatives due to their commercial nature and the
            availability of rural utilities service or Small Business
            Administration loans. Since the cooperatives are eligible to
            obtain loans, they should be required to do so first, rather
            than automatically qualifying for a grant.
        These are all options that should contribute to an informed public
    dialogue on disaster costs. But it should be remembered that the report
    has one strong conclusion that harkens back to the mitigation message:

              If the only solutions implemented involve shifting the burden
            within the society rather than a reduction of actual risk of
            loss, everyone--taxpayers, insurance policy holders, municipal
            bonds, etc. will lose.

        Moving from theory to the all too real world, it has, once again,
    been a very difficult year in natural disasters. The hurricane season
    was severe once again, with Hurricane Fran being especially widespread
    in its impact. And we also experienced more State-wide flooding in
    California and an extremely harsh winter in the Northwest that
    compounded problems from the flooding of the previous year.
        There are other commitments from last year that we have kept that I
    would like to review. As promised last year, we have published for
    comment a proposed rule addressing eligible costs for snow emergencies.
    Based on the comments we have received and the recent experiences in
    several States, we will likely publish a new proposed rule in the near
    future.
        Fortunately, this winter has not been as severe in the East as the
    last, but we have had important snow declarations in Minnesota and the
    Dakotas that have been, perhaps, even more extreme.
        In these snow declarations we have maintained our policy of only
    clearing primary routes to protect public health and safety. We have
    also worked to hold States more accountable for their work in disaster
    preparedness and response and recovery work. The steps they have taken
    in self-assessment of their programs is helping to establish a clear
    base-line of capabilities at the State level.
        Additionally, our new budget will, as in fiscal year 1997, continue
    to support State Hazard Mitigation Officers. Again, this consistency
    will help to bring the emphasis on risk reduction into the mainstream.
    And this work is taking place within the context of the Performance
    Partnership Agreement (PPA). The PPA has streamlined our assistance to
    States and has simplified our processes and encouraged State
    initiatives.
        I will also continue to work with EPA and DOT to have all of us
    work closer in the area of hazardous materials. The more we can mesh
    our efforts, perhaps even consolidating our funding streams, the better
    it will be for the States and the front line responders.
        My earlier discussion on building hazard-resistant communities
    should sound familiar in some respects, because it is building upon
    another Governmental success story: the National Flood Insurance
    Program.
        Both the compliance provisions of the Flood Reform Act of 1994, and
    our own ``Cover America'' marketing campaign have moved us up to nearly
    3.5 million policies in place.
        The coming year will bring forth more information, from studies
    that the reform act mandated, to tell us what we can do with rate
    structures, and what the impacts of any changes would be to communities
    and the program itself.
        But even in a time of higher borrowing by the flood fund, it is
    important to ask what the Nation's resistance to risks and disasters
    would look like without the NFIP? It would mean no flood maps, little
    mitigation, weaker codes, bad zoning, more Federal disaster spending,
    and more private and public losses of all kinds.
        The NFIP is, in microcosm, an example of risk reduction as a
    mainstream approach: policies that are sold by local agents, policies
    that are required by local lending institutions, and communities that
    enforce sound flood plain management in exchange for the availability
    of affordable flood insurance.
        This budget for fiscal year 1998 also contains a request for $100
    million for the Emergency Food and Shelter Program. At a time when
    great changes are affecting national social service programs it is
    vitally important that a supplemental program such as EFS, that assists
    the private non-profits ability to provide emergency help, be
    maintained at this level.
        As with our other efforts, the EFS program encourages coalitions
    within communities and leverages funds to help people in greatest need.
        I am also concerned with the health and safety of our employees
    nationwide and you will see line items that reflect this concern.
        Throughout these constant challenges of hard work and long hours
    under the most difficult conditions, FEMA employees performed with
    dedication and grace. One of the most pleasant parts of my job is
    reading the customer service surveys that disaster applicants fill out.
    Their level of satisfaction is extraordinarily high, but it's the
    personal touches that grab my attention.
        On many of these surveys, people take the time to tell us that not
    only was their service swift, but it was sympathetic and courteous.
    That people were treated with dignity. FEMA employees put a good and, I
    believe, true face on Government service. I'm very proud of that.
        In summary, this year's budget is not a wish list, but operates
    within budgetary constraints. It is a prudent and sensible spending
    plan that looks to the future rather than holding on to the past. It
    has one message:
        We can't go on as we have; from this day forward we have to start
    reducing the risks we face.
        During my tenure at FEMA the appropriations committees have not
    simply provided us the resources to do our job, but have offered the
    encouragement and support that have heightened our morale and
    contributed to our success. On behalf of all the employees at FEMA, I
    thank you for that support.
        I hope that in fiscal year 1998 we can continue that tradition.
        Thank you for your time and attention. I'd be pleased to answer any
    questions you might have.

                         STATUS OF DISASTER RELIEF FUND

        Senator Bond. Thank you very much, Mr. Witt.
        Let me turn to the status of the disaster relief fund
    first. What is the current balance in the disaster relief fund
    and when do you project the fund will be depleted?
        Mr. Johnson. Mr. Chairman, as of last Friday the
    unobligated balance in the disaster relief fund was $2.295
    billion. Without the assistance that is included in the
    supplemental request pending at the White House, we would
    project right now that we would be unable to meet obligations
    this year by about $442 million. Without the supplemental
    appropriation, we will be forced sometime this spring to
    revisit how we allocate our moneys for our public assistance
    type projects to ensure that we have dollars available to meet
    individual victims' needs.
        Senator Bond. With almost $2.3 billion you would run out
    this spring?
        Mr. Johnson. We estimate that by the end of the fiscal
    year, Mr. Chairman, we would be short $442 million to meet
    obligations against requirements. By spring, we would have to
    begin to adjust how we would allocate money to the open
    disasters to ensure that we have dollars available for
    immediate needs of victims.
        Senator Bond. Mr. Witt, why are the current projections
    exceeding the projections contained in the congressional budget
    justification which showed a yearend carryover of $100 million?
    Are the most recent spate of disasters the reason?
        Mr. Witt. I think so, yes, Mr. Chairman.
        Senator Bond. It's not Northridge?
        Mr. Witt. Yes, sir; partly.
        Senator Bond. How much has that Northridge estimate gone up
    this year?
        Mr. Johnson. Mr. Chairman since the budget submission was
    forwarded to you, the obligations and projections for
    Northridge went up about $200 million.
        Senator Bond. What is required to meet the cost of all open
    disasters and those projected for the balance of the year? In
    other words, to wipe the slate clean, what is your best
    estimate of the total amount needed? And will the
    administration request this amount in the supplemental?
        Mr. Witt. I believe, Mr. Chairman, it was $2.4 billion when
    the budget was submitted.
        Senator Bond. $2.4 billion?
        Mr. Witt. Yes, sir.
        Senator Bond. I had heard the current reestimate was $2.9
    billion.
        Mr. Johnson. That's correct, Mr. Chairman, based on more
    current forecasting that we have done since the budget request
    was prepared. It has escalated up to about $2.9 billion.
        Senator Bond. Since we have not gotten the supplemental
    request yet, can we expect that $2.9 billion will be in the
    supplemental request?
        Mr. Johnson. No, Mr. Chairman. I do not think you will see
    that. I think you will probably see a supplemental request on
    the order of $979 million. The rationale for that is that they
    are looking toward our budget request for fiscal year 1998 of
    $2.4 billion to address prior year requirements, along with the
    $320 million requested for 1998 requirements.
        Senator Bond. Well, there are going to be needs for 1998
    too. Why do we not go ahead? We know it is there. It does not
    make a lot of sense to me that we put off to another year--
    where we are going to have tremendous budget pressures--the
    request for the things that you know you are going to need now.
    That just does not make any sense.
        Mr. Witt. I think OMB had intended that the central fund
    would help meet those requirements in 1998.

         estimates for recent ohio river flooding and tornado disasters

        Senator Bond. Oh, yes; that is the contingency fund? Take
    it off budget. Yes; that will work.
        What is the status of the most recent Ohio River flooding
    and the tornado disasters? Do you have any cost estimates on
    this?
        Mr. Witt. No, sir; the water has just now receded and we
    are following through with the preliminary damage estimates for
    public assistance. I do not have the total figure for the
    checks that were sent out for individual assistance programs
    yet, but we will provide it to you with the estimates on the
    public assistance.

                              COSTS FOR NORTHRIDGE

        Senator Bond. Can you give us some idea why the cost
    estimates for Northridge have increased from $6.1 billion a
    year ago to $7.8 billion? Senator Boxer touched on some of
    these. I would appreciate any expansion that you would like to
    make on that.
        Mr. Witt. The cost has increased because of the findings of
    the architectural and engineering studies completed for the
    rebuilding of large projects. It has become very evident that
    when we gave the early estimates on Northridge the extent of
    the damages was hidden. The actual cost of repairing those
    buildings that were condemned or red-tagged in California is
    much more than we had anticipated.
        For example, when I was at Cal State University, workers
    removed sheetrock from the wall and it revealed 6-inch steel
    torn in half in the foundation of the building. Of course, we
    could not know the extent of the damage until it was torn out
    and the foundation examined.
        Senator Bond. Thank you, Mr. Witt. We will come back later.
        I turn to Senator Mikulski.

                             FUNDING FOR DISASTERS

        Senator Mikulski. Thank you very much, Mr. Chairman. I have
    a set of questions I would like to ask, one of which, of
    course, goes to the Maryland situation.
        First, let us talk, though, about some national issues. How
    do you best think we need to fund disaster relief? This is not
    a general question for a general answer. You focused on this.
    You see how OMB is essentially pushing this over for a few
    years, but essentially how do you think we should do this? Or
    if you do not have a recommendation specifically today, what do
    you think you will be able to tell the committee on how we
    could be able to do that?
        Mr. Witt. In light of the data my staff has put together
    regarding historical averages faced over the past years, we
    have determined that the 5-year average cost, less Northridge,
    has been pretty consistent.
        I think it is very important that we not only have the
    funds to be able to respond and recover, but as the chairman
    said earlier and as we all agree we have to get control of the
    cost of disasters. We all need to sit down realistically and
    say ``This is what is going to be needed to address future
    disasters.''

                              DISASTER CLOSE-OUTS

        Senator Mikulski. But what is the process by which we are
    going to arrive at this? Are we going to have clear criteria
    for what we get into, specific cost sharing by the States, the
    issue related to rehabilitation? I understand there are 500
    open disasters currently on the books, some dating back to
    1989, some small, but they are not small if you have been hit
    by a tornado. Are they open because of the ongoing
    rehabilitation efforts?
        Mr. Witt. First of all, it has been a top priority of mine,
    of our Chief Financial Officer, and of the inspector general to
    close out the old disasters. Gary, what is the total to date
    for disaster close-outs?
        Mr. Johnson. $1.8 billion in human services programs with
    recoveries of over $400 million back into the fund.
        Senator Mikulski. I did not understand that answer, sir. I
    am sorry. The microphones are----
        Mr. Witt. We have closed out over 100 old disasters that
    were opened back in the 1970's during Hugo, and other
    disasters. We have also put a top priority on reconciling the
    disaster fund, and Gary has done a really great job on this.

                   CRITERIA FOR REHABILITATION FROM DISASTERS

        Senator Mikulski. Let us then go to the whole issue of
    rehabilitation as compared to reengineering. This seems to be a
    subject of great dispute about what do you rehab to. Do you
    rehab to its former state? Do you say that if a hurricane hit
    your very expensive project but not a project necessarily to
    declare health, safety, economic viability of a community? What
    do you think should be the criteria for the rehabilitation
    expenditures, and have you been involved with HUD in this
    because I understand that is also one of the dynamics? What is
    HUD's criteria for that?
        Mr. Witt. FEMA's criteria is if a structure has suffered
    more than 50 percent damage, then we do a cost-benefit analysis
    to determine whether it is realistic to repair that structure
    or to rebuild that structure. In most cases, it has proved to
    be better to rebuild it rather than repair it, particularly if
    it is a high-risk facility such as one that has never been
    retrofitted against earthquakes, or one that is located in a
    floodplain.
        I have not worked with HUD regarding their criteria, but I
    will be happy to talk to Andrew and work with him on this
    issue.

                          FLOOD MITIGATION IN MARYLAND

        Senator Mikulski. Well, Mr. Director, I am very proud of
    what happened in Maryland after the disaster--first of all,
    during the disaster when we were hit by so much floods in which
    the Potomac overflooded, businesses were wiped out along the
    Potomac. There is one area in Cumberland that was so
    heartbreaking in which three automobile dealers that were lined
    up one after the other lost their entire business and
    inventory, and our readiness and response really did save
    lives. And we thank you for your response.
        Also, as you know, the Hagerstown water supply went out. We
    had to take in water by the National Guard to make sure that
    nursing homes, schools, and others at risk had fresh water.
        After the flood, at my request Governor Glendening
    established a flood mitigation task force, chaired by the
    Speaker of the House, cochaired by the Army Corps of Engineers,
    and Maryland Emergency Management to look at what could be done
    so that we would not be faced with such dire economic impact
    again on local communities. I believe that that is a model
    where local people, working with Federal resources, came up
    with a series of specific recommendations on how their home
    would not be flooded out, their business would not be flooded
    out, and the community would be safe.
        What I would like to know is then what is your response to
    even the procedure that we did? Do you think that is a national
    model?
        And then No. 2, based on that, what do you think you could
    do to respond to Maryland and what criteria you would be using
    to save lives, save communities, but then ultimately, so that
    if we ever have those terrible floods again, we do not have to
    turn to FEMA because of the homework and Federal investments we
    are making now.
        Mr. Witt. The flood task force that Governor Glendening put
    together and that we all worked on is a very good example of
    what needs to be done nationwide, not only to address floods
    but to address whatever risk a particular State is facing. The
    ideas works very well in conjunction with what FEMA wants to do
    with hazard mitigation in developing disaster-resistant
    communities. If we can identify high risks up front and start
    eliminating those risks before a disaster happens, then the
    cost of a disaster when it happens will be less. This is
    something that has been proven time and time again. So, it is
    important that we try to cut the cost by cutting the risk.
        I have had round table discussions with private industry,
    including mortgage lending institutes, and representatives from
    the insurance industry. They want to start investing in
    communities by helping to eliminate the risks faced by those
    communities. It is to their benefit as well as the economy of a
    community. We can do a lot working together on these task
    forces and I think it will make a significant difference in the
    long term.
        Senator Mikulski. Well, Mr. Witt, I have met with those
    families. I met with the business people and said we would do
    all we could not only to get them back on their feet but that
    they would not face these terrible risks again.
        I met with a mother whose family nearly lost their lives
    and promised that mother--and the little boy lost his catcher's
    mit, but happy that we did not lose his life--that we would
    take specific steps along the Potomac, whether it was related
    to the relocation of housing, whether it was also retrofitting
    a water plant.
        What do you see as your criteria for responding to that? In
    Maryland what projects do you think could be pursued to do this
    type of reengineering and rehabilitation?
        Mr. Witt. My staff met with Dave McMillion this week on the
    task force recommendations regarding mitigation activities for
    Maryland. The criteria for any mitigation project is whether it
    is cost effective to do this. Does the cost analysis support
    the activity?
        The criteria for establishing the disaster-resistant
    community concept is very similar to what we have in the flood
    insurance program. We have 18,000 communities that belong to
    the flood insurance program, but those communities that belong
    to the program have to comply with building standards for
    future building in that community. If you can get a community
    to build better and safer, complying with standards established
    to be a disaster-resistant community, this would make a
    difference.
        Senator Mikulski. So, we can look forward to help in those
    areas related to housing, the issues relating to waterproofing
    the wastewater treatment program, and issues like that?
        Mr. Witt. The projects that they presented to me in the
    report I read were very good projects, and they showed that it
    was cost effective to do those projects.
        Senator Mikulski. Thank you, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Boxer.

                               HAZARD MITIGATION

        Senator Boxer. Thank you, Mr. Chairman.
        Mr. Witt, I understand that the largest single cost to FEMA
    has been public building repairs from earthquakes, and we
    discussed that a little as to the fact that they're hidden at
    first and once you get behind the sheetrock, it's a nightmare.
        The President has proposed in your budget a $50 million
    program to work with State and local agencies--and this may
    dovetail on what Senator Mikulski was talking about--on steps
    to lessen the damage in future disasters--this mitigation idea.
    Has your experience with Northridge helped shape this program,
    and if so, in what way?
        Mr. Witt. Absolutely. If you remember, prior to Northridge,
    the State had a program that they were working on to retrofit
    the bridges in California for seismic resistance. Every single
    bridge that they had already retrofitted stood up to the
    earthquake. The bridges that had not been retrofitted
    collapsed. The cost of rebuilding those bridges--that
    infrastructure--was very, very expensive.
        Even the public buildings that had been retrofitted and the
    private buildings that had been retrofitted to the new
    California building code survived that earthquake with very
    minimal damage.
        Another good example is that house in Hollywood. Every
    house on the block had major damage or was almost destroyed
    except one. The owner spent $1,000 on that house, doing the
    work himself. He never even had a single pane of glass broken
    in his house. He did not even have to ask for any assistance.
    That is the type of thing that can make a difference.
        Senator Boxer. I hope also what we do through these
    programs is let the States know that we want them to pay
    attention to this and not leave the deadline wide open because
    the States have to work with us on this because as Senator
    Mikulski has talked about, we have these disasters that we do
    not close out. I just do not think it is a message we want to
    send. I think the States, even though it is hard, have to come
    with a match. Of course, it is small compared to what they are
    going to get out of it, but we have to have some reasonable
    expectation that by a date certain, they are going to apply for
    this program. Do you not agree?
        Mr. Witt. Absolutely. California is a good example. The
    State of California has not only been hit by earthquakes but
    fires and three floods. The State staff has been overwhelmed in
    California.
        But what we are doing now is important. Last year you
    appropriated $3 million to support State hazard mitigation
    officers to work on mitigation projects. We are also working
    with the States to put in place a statewide mitigation plan
    which will prioritize mitigation projects before a disaster
    ever happens. That will make a significant difference. Instead
    of a State having to establish a hazard mitigation team and
    then follow through trying to prioritize projects, we will be
    able to help a great deal.
        Senator Boxer. Good. One second.
        [Pause.]

                        DISASTER COST-CUTTING PROPOSALS

        Senator Boxer. I wanted to just make sure that I remembered
    this correctly. A couple of years ago we passed an amendment
    that I wrote in EPW that gave States permission to use their
    highway funds for retrofit prior to a disaster. So, we are
    trying to help. In other words, if we can get those highway
    funds on a regular basis used to retrofit highways and bridges,
    it is going to be a big help, and we are starting to see that
    happen in California.
        Well, I understand you will be presenting a number of cost-
    cutting proposals as part of your recommended changes to
    disaster legislation. Senator Bond and I both serve on the
    Environment and Public Works Committee which has jurisdiction
    over this legislation. Without telling us all the different
    things that you are doing, at what point do you expect to have
    this legislation ready for us to take a look at?
        Mr. Witt. I am going to have it in the chairman's hands
    before this bill goes to the floor.
        Senator Boxer. So, you expect soon?
        Mr. Witt. Yes; I will see to it myself.

                DISASTER ASSISTANCE FOR RECREATIONAL FACILITIES

        Senator Boxer. OK.
        My last question had to do with the recreational
    facilities. As I mentioned in my opening remarks, I feel that
    Senator Bond has hit on a very important point. We have so many
    things we need to do and then we look at some of the more
    frivolous things that we perhaps do.
        However, I want to make a point that if something like the
    Los Angeles Coliseum which is a publicly owned facility is hit,
    that becomes a major economic loss to a community. So, I am
    just hoping that as you look at these areas where we can save
    funds, we just cannot say all recreation because in many cases
    these sports facilities are economic engines for communities
    and they are publicly owned. So, I hope that there would be
    some discernment when we look at the whole area of recreation.
        Mr. Witt. Authorization for types of spending from the
    disaster relief fund has changed over the years.
        I agree with the chairman that it is time to revisit this
    area. I think if it is a revenue-producing entity, such a
    publicly owned piece of property that is rented out to a group
    that is operating that facility, then that group needs to look
    at getting a low-interest SBA loan. I think we seriously should
    look at that.
        I think we should concentrate on the health and safety of a
    community and of individuals. I think that is absolutely
    essential and should come first.
        Senator Boxer. Thank you.

                                DISASTER APPEALS

        Senator Bond. Thank you very much, Senator Boxer.
        Mr. Witt, going back to your discussion with Senator
    Mikulski about the open cases, I gather a lot of these are kept
    open because there are three levels of appeals for disaster
    projects and for disasters. Apparently there is no disincentive
    to States to continue to appeal and appeal and appeal. No. 1,
    they have three levels. Why is any more than one needed? What
    percentage of appeals are sustained? What additional cost?
    There has got to be a way we can clean this mess up, is there
    not?
        Mr. Witt. Mr. Chairman, I totally agree with you and with
    the inspector general's report on this. We want to have one
    level of appeal. I was astounded to find, Mr. Chairman, that we
    pay for the appeals.
        Senator Bond. So, it is a free bite at the apple. You can
    keep coming back and going and going and going.
        Mr. Witt. There is no disincentive at all. If a State loses
    an appeal, it should pay for it.

                               SEISMIC ALGORITHM

        Senator Bond. Somewhere along the line, there is the
    beginning of some criteria on that.
        Let me jump back to one on this seismic algorithm. I am not
    sure I understand what a seismic algorithm is, but I gather it
    has cost us about $900 million because the program was designed
    to expedite disaster aid, and instead of just repairing the
    damage, you have said the funds can be used for an improved
    project involving construction of a new building on a different
    site.
        Under what authority did you implement the program? Do you
    think that FEMA can create without congressional authority the
    opportunity to launch a major new project like this? Does
    Congress not have a role to play in establishing a brand new
    program like this?
        Mr. Witt. Yes, sir; Mr. Chairman. I did not do it to
    circumvent anything that Congress had not approved. The
    algorithm is basically an outgrowth of what we have in place
    with the mitigation program. I did coordinate the concept with
    the inspector general and with our General Counsel to make sure
    that I did not violate any laws, and they assured me that I was
    not doing so.
        The algorithm was put in place to evaluate whether it was
    more cost effective to do an alternate project than it was to
    rebuild the existing project.

                   DISASTER ASSISTANCE FOR SPORTS FACILITIES

        Senator Bond. Let me go to disaster criteria. My colleague
    from California mentioned possible damage to the Los Angeles
    Coliseum. If that were completely wiped out, I think it would
    cost less than what we put in to UCLA by about a factor of
    five.
        But we have some brand new sports facilities in St. Louis,
    marvelous facilities. We even imported a California quarterback
    to try to improve the performance there. [Laughter.]
        These are revenue-generating facilities, and we live along
    the New Madrid fault. You are well aware of the New Madrid
    fault.
        Before something happens to a sports facility anywhere, do
    you think it would be proper if we met with the Governors
    administration and said to those local organizations,
    governments owning sports facilities, you better have
    insurance, you better take some steps to cover them because in
    the future if one of these major revenue facilities comes
    tumbling down, we are not going to be able to provide the
    relief to the otherwise incapable of paying for it? Is this
    something that you would recommend?
        Mr. Witt. I totally support that, Mr. Chairman.

                        TIMETABLE FOR DISASTER CRITERIA

        Senator Bond. I have a list of all of our discussions. When
    we asked about formulating disaster criteria, you said we are
    pretty close to having something concrete. In last year's
    questions, you said we are--2 years ago, we are going to define
    objective criteria. In September 1996, you said that FEMA is in
    the process of developing a new approach. We intend to present
    options early in the 105th Congress.
        Having these things as we go to the floor may not be early
    enough. Where are they and will they include criteria to ensure
    that States use their own capabilities to handle disasters not
    declared by the President?
        Mr. Witt. Yes, sir; they will.
        Senator Bond. And when do you think we might see those?
        Mr. Witt. Mr. Chairman, if you want it before it goes to
    the floor, I will do my very best to get it to you.
        Senator Bond. We have been asking for this, and seriously,
    if we are going to work on this, we ought to work on this at
    the committee level. I do not want to write this. I do not want
    the committee to have to write this. We have been called on to
    do enough legislating, but if we are going to have to do it, I
    would like to have that before we go to markup so we can see
    your recommendations.
        Mr. Witt. OK.
        Senator Bond. Thank you, Mr. Witt.
        Senator Mikulski.

                           INSTITUTIONALIZING REFORM

        Senator Mikulski. Mr. Chairman, I have only a very few
    questions.
        What we are trying to get here is a momentum. I will tell
    you the objective that I see is, No. 1, I would like to be able
    to institutionalize the reforms that came under your
    administration. Because this committee is spread out over such
    a wide variety of authorizing committees, this might with some
    consensus be able to institutionalize those reforms.
        The second part of that is I believe is both the disaster
    contingency fund, which is a significant issue, and then the
    difference between rehabilitation, restoration, and
    reengineering for want of another word. After the flood waters
    go down, after the hurricane debris is picked up, after the
    earthquake and aftershocks are over, what do we do?
        I recall when we were dealing with the San Francisco
    earthquake, the whole idea of restoration of some historic
    buildings was so phenomenal that it would have been difficult
    to undertake. Therefore, that is different from rehabilitation
    to make sure that housing for ordinary people or small
    businesses are helped back in business. So, you see
    rehabilitation is an issue.
        The second is restoration and then the third is what are
    the steps that we could take during rehabilitation that really
    prevent some of the risk-prone aspects from--in other words,
    where we know there is risk, where we know that a facility is
    risk prone, either through engineering, relocation, all those
    techniques that the corps and others can tell us that we can
    take so in the process of rehabbing, three raindrops later we
    are not back in the flood business. I am not being cynical
    here.
        I think that last part takes a lot of clarification because
    what we face is where people want restoration. In many ways,
    that is just not fiscally possible.
        No. 2, even though some projects are desirable from a local
    community's standpoint, they might not be fiscally feasible
    from a Federal standpoint.
        I know during the last debate, Senator McCain showed great
    sensitivity to Maryland when we were talking about marinas.
    Some marinas are private yacht clubs, and I am sorry if anybody
    loses their yacht. But in Maryland those marinas were small
    business, primarily small boats or where watermen keep their
    boats and so on. So, you see, part of it is not to describe
    something like a marina, but it is: What is the impact on the
    local community? What is the real economic impact? If you take
    20 of those marinas and knock them out up and down the 3,000
    miles of the Chesapeake Bay, that is not a big ticket item, but
    that is 20 small businesses.
        Anyway, that is the kind of criteria that we are looking
    for. One, what brings you in? What do you pay for it once you
    do come in? And No. 3, once the emergency is over, what
    business is FEMA in? Rehab, restoration, reengineering, all of
    the above, none of the above, and so on. This is a great
    opportunity to institutionalize reform and lay the groundwork
    for others.
        I know that you have been out on the road. It has been an
    enormously trying time for you and a great sacrifice for your
    family too, to just have to be able to pick up and go. I just
    want to say thank you.
        Do you have any comments you want to make on what I have
    just said?
        Mr. Witt. I think it is very important to develop the
    disaster criteria and that is what we are trying to do. Mr.
    Chairman and members of the committee, I blame no one but
    myself for not having everything done on time. What Senator
    Mikulski is talking about is important, that legislation be put
    in place so that whether I am here at FEMA or someone else is
    here, that something is institutionalized. I wholeheartedly
    agree with you, Senator. We have to do this.
        Senator Mikulski. I think you really need to task a group
    within your organization to do this for whatever is your own
    management mechanism and to work with us, and then we will be
    consulting with the House. You have got three of us
    particularly with the chairman of the House committee, Mr.
    Bond, and myself are in risk areas because of flood or
    hurricane, earthquake, and so on.
        Mr. Chairman, I have no further questions, but I think we
    have got some momentum going here today.
        Senator Bond. I think so. How about July 4?
        Mr. Witt. Sounds good.
        Senator Bond. Let us do that by July 4. OK?
        Mr. Witt. Yes, sir.
        Senator Mikulski. Even if we do not have campaign finance
    reform by that date, maybe we could have FEMA finance reform.
        Senator Bond. These are going to be some unpopular
    decisions.
        Mr. Witt. Yes, sir.
        Senator Bond. How do you plan to deal with these? Is that
    going to make it difficult for you to come forward with the
    recommendations?
        Mr. Witt. It will probably be very difficult, but I think
    we can deal with this working with organizations such as the
    Governors Association, NEMA, and NCCEM. I think they
    understand, Mr. Chairman, that dollars are limited and that in
    the future, we are going to have to put those dollars to the
    best use that we possibly can. I think it is feasible and I
    think we can do it.

                        INSURANCE FOR PUBLIC FACILITIES

        Senator Bond. So long as FEMA is willing to cover a
    community's disaster losses, it seems to me there is not much
    of an incentive for the community to purchase insurance
    coverage for public facilities, and in some instances people
    say that FEMA is a lot more generous than the insurance company
    would be. Does it not make sense to get those priorities in
    line and make sure that we are not discouraging the purchase of
    private insurance?
        Mr. Witt. Yes, sir; it does.
        Senator Bond. Do you have any empirical data as to how
    insured versus FEMA-covered facilities fare?
        Mr. Witt. Public facilities?
        Senator Bond. Yes.
        Mr. Witt. I do not have the data now but we are looking at
    trying to get the States and local governments away from being
    self-insured and try to move them toward the direction of
    insuring public facilities.
        Senator Bond. That would be part of the proposal?
        Mr. Witt. Yes, sir.
        The important thing is, if we can work with them and give
    them some kind of an incentive such as a better cost share
    where they do insure public facilities, then it would help
    eliminate the long-term disaster cost.

                                STATE COST SHARE

        Senator Bond. I need to go back to this question of project
    cost share upfront. We heard earlier today that California has
    not come up with its cost share because they do not know what
    the total cost is, but if we have already paid out billions of
    dollars, they are getting some cost. Is not the failure to have
    this upfront cost a bit of a disincentive for States to control
    costs if they do not have to come up with the cash in advance?
        Mr. Witt. A lot of States--of course, you are very familiar
    with this--legislatures meet every 2 years instead of every
    year. So, it is difficult sometimes for States to come up with
    that upfront cost-share match. The percentage of the cost-share
    match they share in with the local subgrantee varies. Some
    States pick up the full cost share, while some States pick up
    12\1/2\ percent, and then the county or city will pick up the
    other 12\1/2\ percent. It varies across the whole country.
        A lot of States will hold their cost share until the final
    inspection is done and then finish paying the total amount of
    the project.

                   ELIGIBILITY OF PRIVATE, NONPROFIT ENTITIES

        Senator Bond. I think that is something we might want to
    address.
        Last year the GAO issued a report called ``Improvements
    Needed in Determining Eligibility for Public Assistance.''
    GAO's recommendations include clarifying the criteria for
    certain private, nonprofit facilities and in the September 20
    letter you told me that policy changes for revenue-generating
    private nonprofits were under consideration. Do you have any
    recommendations on that yet?
        Mr. Witt. Yes, sir, Mr. Chairman. We will include those
    recommendations in the report we are preparing for you. If it
    is a private entity that is revenue producing then it should
    apply for SBA loans instead of grants.

                               HAZARD MITIGATION

        Senator Bond. Let me turn to the hazard mitigation efforts.
    Your 404 hazard mitigation grant program is funded through the
    disaster relief program. States are entitled to receive funds
    equal to 15 percent of FEMA disaster relief assistance in the
    State. There is approximately, I understand, $1.4 billion
    unobligated.
        What is the problem with it and what do you propose to do
    about it? Are the funds not needed?
        Mr. Witt. Yes, sir; they are very much needed.
        We have been working with State directors on a hazard
    mitigation task force to identify how we can speed the process
    up, what we need to do to be more accountable, and to be less
    bureaucratic and get rid of the redtape.
        Most States go through an environmental review process
    which we then review. The process goes from the State to the
    region to FEMA headquarters. We have been pushing the
    responsibility to work directly with the State down to the
    regional level.
        We are also looking at HUD and other agencies to see how
    they do environmental assessments and reviews in order to put
    in place the best procedures.
        We have been working on the States' capability to
    prioritize these projects as well. Last year you graciously
    gave us money to support a person in each State to work
    strictly on these mitigation projects. We are working now with
    the States on the 409 mitigation statewide plans that are going
    to help a great deal, as will changes in the cost-effectiveness
    review process changes.
        When a State has a disaster--and they have had many--they
    are often bogged down in disaster recovery and response
    activities and they do not have time or staff to concentrate on
    mitigation at that point. We really need to emphasize
    mitigation as a community being rebuilt, not later.
        We are looking at the possibility of putting a sunset
    clause in the legislation that we are going to provide to you.
    If a State cannot obligate funds and get its projects done in 2
    years, then it would lose the money. We just cannot continue to
    drag projects out year after year.

                CRITERIA FOR PERFORMANCE PARTNERSHIP AGREEMENTS

        Senator Bond. All right. So, with $1.4 billion remaining
    unobligated--it struck me that we are asking for $50 million
    more when we have got a great big pot of money that has not
    been utilized. Well, I guess we will see your legislative
    proposals on that.
        FEMA's budget includes $147 million for State grants, the
    so-called performance partnership agreements. When you first
    proposed them 2 years ago, your Agency indicated there would be
    new criteria for awarding State grants. What are those
    criteria?
        Mr. Witt. Under the PPA, which has been in place for 2
    years, States have the flexibility to design programs with FEMA
    to meet the risks that they face in their State. We have been
    working with the States in developing a self-assessment process
    which will be used to establish a baseline of capability in
    those States.
        We are tying this baseline assessment into FEMA's GPRA
    developmental activities.

                             INCENTIVES FOR STATES

        Senator Bond. Are there specific performance measures so
    you know whether the State is getting the job done? How do you
    hold them accountable? Are there any rewards for States that do
    the good jobs or disincentives for the ones that do not get it
    done?
        Mr. Witt. One incentive to do a better job or to have a
    statewide disaster fund set up could be a favorable cost share
    should the State have a disaster that warrants a declaration.
    Also, if a State has a mitigation program in place with a
    mitigation fund established it could be used in State-declared
    disasters, not only in the federally declared disasters. Those
    are some incentives that we are trying to work into the changes
    that we are going to implement.
        Senator Bond. That would require statutory authorization to
    do that?
        Mr. Witt. Yes, sir.

                    STATUS OF NATIONAL FLOOD INSURANCE FUND

        Senator Bond. Again, we would be anxious to see your
    recommendation on that because that certainly would seem to
    make some sense.
        What is the status of the flood insurance fund in light of
    the recent flooding? What is the current level of borrowing? Is
    there any danger you would exceed the $1.5 billion statutory
    limit on borrowing?
        Mr. Witt. Mr. Chairman, with the rash of floods that we
    have had recently, I am concerned that even with the additional
    $500 million in borrowing authority in 1997, the limit has not
    kept pace with changes over the years in the flood insurance
    program. We have $370 billion in coverage now compared to the
    $8 billion in coverage that we had back in 1974, but we will
    still only have a $1 billion borrowing authority in October. I
    think we are up to $800 million in borrowing now and we are now
    assessing how many policies and claims we have to pay in this
    recent rash of floods.
        Senator Bond. Are we looking at another overhaul of the
    flood insurance program? It sounds to me like it would take at
    least 2 years of normal operation just to get that back, would
    it not?
        Mr. Witt. Yes, sir; at least.

                          REQUIREMENTS FOR DAM SAFETY

        Senator Bond. Dam safety is something that is very
    important to Missouri and we worked hard to put that in the
    water resources development authorization bill last year. Why
    does FEMA not request any funds for the requirements of the new
    dam safety legislation? Are these a priority for you?
        Mr. Witt. Yes, sir; they are. We are planning to spend
    $432,000 for the dam safety program from the flood program. We
    are developing an implementation plan for a national dam safety
    program as well.
        Senator Bond. Will you be seeking reprogramming or anything
    more on that program? Do you have the money to carry it out?
        Mr. Witt. We have the $432,000 to get the implementation
    program in place and determine what other moneys we will need
    for the national dam safety program.

                           STATE AND LOCAL ASSISTANCE

        Senator Mikulski. Mr. Chairman, I just have two other
    things that I wanted to submit to the record. One is a letter
    from the Maryland Emergency Management Agency talking about our
    need to continue to focus our interest on the SLA, State and
    local assistance account, which, of course, is the one that
    really enhances our response and readiness.

           MARYLAND REPRESENTATION IN FALLEN FIREFIGHTERS FOUNDATION

        Another question goes to the fact that we are very proud of
    the Fire Academy in Maryland. The Maryland State Firemen's
    Association has played a major role in putting the Fallen
    Firefighter Memorial Program together which you know is so
    touching. We understand that this year you have turned over the
    Fallen Firefighters Foundation, and we are asking if you would
    ensure that the Maryland Firefighters Association has a seat at
    the table in the foundation.
        Mr. Witt. Yes, ma'am.
        Senator Mikulski. Because they really provide so much of
    the core support to the foundation.
        Mr. Witt. Yes, ma'am.
        Senator Mikulski. I thank you for that.
        Thank you very much, Mr. Chairman, and I look forward to
    working with you in advance on the solutions to the really
    significant issues we have raised today. Thank you.

                       INSPECTOR GENERAL RECOMMENDATIONS

        Senator Bond. Thank you, Senator Mikulski.
        Very briefly I understand Mr. George Opfer, the FEMA
    inspector general, is here and I would like to invite him
    forward since we have been referring to him all morning on the
    recommendations that he has made. I gather the FEMA inspector
    general requests a slight increase from about $4.67 million to
    $4.8 million.
        I will just ask you, Mr. Opfer, what problems face FEMA
    over the next few years and any recommendations you have for us
    that would improve program integrity at FEMA.
        Mr. Opfer. I think, Mr. Chairman, that we are working quite
    well with the Agency. Shortly after the Northridge earthquake,
    there was a change in the philosophy both within the inspector
    general's office and the Agency itself when Director Witt
    requested the inspector general's office to immediately respond
    to disasters.
        That was a change that really was not very common in the
    inspector general's community, not only in FEMA but in all the
    agencies--a change in the atmosphere where you have an
    inspector general's office trying to work with the management
    and going out to disasters on the scene so you can give upfront
    advice and try to become very proactive.
        The Agency itself, as you know, is relatively small in
    comparison to other Federal agencies as far as the amount of
    money that is passed through to States and what is given out in
    disasters. Also, the inspector general's office in itself is
    very small. So, we try to marshal our resources with the other
    Federal communities to establish a task force.
        We have been very successful in trying to weed out any sort
    of corruption in the disaster programs because we do not want
    the people to become victims twice--from the disaster and from
    people scheming to take Federal dollars.
        In the 2\1/2\ years that I have been in the Agency, I have
    seen quite a change as far as program managers and the Director
    requesting the inspector general's assistance in looking at
    programs. We are trying to provide service similar to a
    management consultant, where rather than doing a full audit or
    a full inspection, we can look at a program or look at issues
    which might be before the Director at the beginning stages, and
    provide recommendations that could possibly prevent any future
    problems in that area.
        Senator Bond. You mentioned fraud possibly perpetrated on
    the victims of disaster. Do you find any other general problems
    relating to fraud, abuse, or mismanagement?
        Mr. Opfer. We find a correlation between the larger
    disaster where more Federal money is put into a disaster area
    and the potential or increased, chance for different schemes or
    questionable activities.
        We have been working with the insurance industry to see
    what information we can get as they are responding to disasters
    and marshal our resources with them. We also work with the
    State and local officials, including the Attorneys General, to
    get information in areas such as consumer fraud where we do not
    have jurisdiction. We want to make sure that we are marshaling
    all the resources that are available both at the State and
    local level.
        Senator Bond. Well, thank you very much for your testimony
    and for your good work.
        Mr. Witt, any closing comments or thoughts you wish to
    share with us?
        Mr. Witt. Mr. Chairman, thank you for your support. We will
    work very hard with you, Mr. Chairman, and the committee to
    institutionalize those changes we discussed by July 4.

                         Additional committee questions

        Senator Bond. We will expect that by July 4 and look
    forward to working with you.
        [The following questions were not asked at the hearing, but
    were submitted to the Agency for response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

                         status of disaster relief fund
        Question. What is the current balance in the Disaster Relief Fund,
    and when do you project the fund will be depleted?
        Answer. As of March 31, $2.1 billion remained unobligated in the
    Disaster Relief Fund. Absent a supplemental appropriation, it is
    projected that by late spring, as the unobligated balance nears $500
    million, FEMA will need to begin adjusting how we allocate money to the
    open disasters to ensure that we have dollars available for the
    immediate needs of victims and for emergency measures.
        Question. Please explain, and provide a break-out for, why your
    current projections for the Disaster Relief Fund in fiscal year 1997
    exceed the projections contained in the Congressional budget
    justification--which showed a year-end carryover of $100 million.
        Answer. When the President's budget was prepared in early January,
    the projected unobligated balance in the Disaster Relief Fund for the
    end of fiscal year 1997 was $107 million. By mid-March, this same
    balance showed a deficit of $442 million. During this time period, FEMA
    had undertaken a major effort to refine its projected costs and unmet
    requirements. The increase of $549 million in projected obligations can
    be attributed to the following:

                            [In millions of dollars]

    Northridge:.......................................................   200
    1996 declarations.................................................    74
    Other prior year disasters........................................   268
    1997 activity.....................................................     7

        Question. Why have the cost estimates for the Northridge Earthquake
    escalated from $6.1 billion one year ago to $7.8 billion today--an
    increase of $1.7 billion? Please describe precisely what accounts for
    this increase. To what extent does the increase in Northridge estimates
    account for the fund's shortfall in fiscal year 1997?
        Answer. The original cost estimate for the Northridge Earthquake
    was prepared prior to the development of the detailed cost estimates
    for the general acute care hospitals and other structures, the final
    estimates for the repair and retrofit of the historic Los Angeles City
    Hall, construction cost increases in the Los Angeles area, and the
    consequential increase in mitigation funding (which is calculated as a
    percentage of the estimated total program costs). These factors raised
    the estimated costs for the Northridge earthquake by $1.7 billion as
    summarized below:

                            [In millions of dollars]

    Safeguarding hospitals (seismic algorithm)........................   940
    Los Angeles City Hall.............................................   130
    Safeguarding other structures.....................................   100
    Rebuilding Hospitals to EERI standard.............................   250
    Rise in LA construction costs since 1994..........................   105
    Increased Section 404 Mitigation Ceiling..........................   230
    Reduced Administrative Costs......................................   -50
                            -----------------------------------------------------------------
                            ________________________________________________
          Total....................................................... 1,705

        The higher estimated cost for the Northridge earthquake is one
    factor in FEMA's revised estimated shortfall for fiscal year 1997.
                               seismic algorithm
        Question. How much of the increase in the Northridge estimates is
    attributable to the ``seismic algorithm?'' Under what authority did
    FEMA implement this program? Do you think it is appropriate that FEMA
    has the authority to implement a program of this kind with such sizable
    resource implications, with virtually no formal approval process from
    the Congress? Do you plan to use this algorithm in other disasters? How
    are you measuring the success (or failure) of this pilot program?
        Answer. The Seismic Hazard Mitigation Program for Hospitals (SHMPH)
    was piloted and implemented under the authority of Sec. 406(c)(2).
        FEMA rebuilt the hospitals to a higher safety standard under the
    authority of Section 406(e)(1) of the Stafford Act, which defines
    eligible costs in rebuilding structures:
            ``(e) Net Eligible Cost. (1) General rule.--For purposes of
            this section, the cost of repairing, restoring, reconstructing,
            or replacing a public facility or private nonprofit facility on
            the basis of the design of such facility as it existed
            immediately prior to the major disaster and in conformity with
            current applicable codes, specifications and standards
            (including floodplain management and hazard mitigation criteria
            required by the President or by the Coastal Barrier Resources
            Act (16 U.S.C. 3501 et seq.)) shall, at a minimum, be treated
            as the net eligible cost of such repair, restoration,
            reconstruction, or replacement.'' Emphasis Added
        This higher rebuilding standard for the area hospitals serves two
    goals: it reduces the level of damage expected from future earthquakes,
    and it helps ensure that acute care hospitals can continue to function
    in the aftermath of a future disaster, especially to treat disaster
    victims.
        The cost increase attributed to the seismic mitigation program for
    hospitals was $940 million and included the repair and mitigation of
    all 20 affected hospitals. This increase is less than half of the $2
    billion requested by two of the hospitals alone.
        FEMA believes that mitigation should be integrated into the
    rebuilding from disasters. After an event occurs, communities tend to
    be more receptive to undertaking mitigation measures, and mitigation
    goals can more easily be attained by enhancing reconstruction
    standards.
        Congress has a vital role to play in implementing a program with
    major resource implications. For Northridge specifically, FEMA included
    the projected spending for these infrastructure projects in its two
    supplemental budget requests for Northridge, both of which were
    approved by Congress.
        FEMA took into careful consideration the Congress's opinion as
    stated in a March 21, 1996 letter to Director Witt signed by
    Congressmen Jerry Lewis and Bob Livingston and Senators Kit Bond and
    Mark Hatfield. This letter applauded the use of the algorithm and
    encouraged FEMA to use the Earthquake Engineering Research Institute
    (EERI) to further evaluate these projects.
        Because many hospitals were closed due to damage, the algorithm was
    specifically designed to address rebuilding after the Northridge
    earthquake. When the detailed estimates were first being developed, it
    became apparent that reaching closure on hospital repairs would be
    extraordinarily time consuming and contentious due to the complexity of
    the facilities and differences in professional judgment of architects,
    engineers and other technical specialists. To reach a timely solution
    at a reasonable cost, a consortium of professional experts developed
    the algorithm for calculating the costs of repairing damages and
    providing hazard mitigation measures. This algorithm produces a repair
    and retrofit program that is consistent with hazard mitigation goals.
        The success or failure of this seismic program will be measured by
    the ability of the hospitals to withstand a future earthquake (or other
    catastrophic event) and continue functioning.
        We discussed this program with Members of Congress and their
    staffs, particularly those Members chairing or ranking on the relevant
    Committees of the House or Senate and in the affected areas. We believe
    the SHMPH is a prudent expenditure from the Disaster Relief Fund (DRF)
    since it will avoid future DRF expenditures and, more importantly,
    provide public health and safety services after the next earthquake.
        A central concept of the algorithm, that is the arithmetical
    computation of disaster assistance in damaged critical facilities, is
    that it expedites recovery and diminishes confrontational exchanges
    between the Federal sector and disaster victims. Nevertheless, the
    SHMPH is not presently contemplated for use in other earthquake
    disasters.
        Since mitigation is frequently a long-term investment, declarations
    of success (or failure) would be premature at this point. Expenditures
    under the SHMPH, however, are being tracked so that avoided costs can
    be estimated after the next earthquake.
                  report to congress on reducing expenditures
        Question. The fiscal year 1997 VA-HUD appropriations act required
    FEMA to propose a plan to reduce disaster relief expenditures. The
    Subcommittee recently received a draft report, about 45 days late and
    still not final. The draft report includes only some of the proposed
    recommendations of the GAO and the I.G. Why were the other
    recommendations--such as eliminating alternate projects, and changing
    the so-called 50 percent rule which triggers full-scale replacement of
    a damaged facility--taken off the table? Please explain which other
    options were considered and rejected, and why, and the cost-savings
    associated with the rejected options.
        Answer. In developing the Report to Congress on Reducing Disaster
    Relief Expenditures, a broad range of options were considered,
    including all of the recommendations of the General Accounting Office
    and the FEMA Inspector General. Some of the GAO and IG recommendations
    were determined not to be feasible at this time. For example,
    eliminating alternative projects may provide an incentive for State and
    local officials to rebuild facilities even if they no longer serve the
    public welfare, in order to receive the grant award. Elimination of the
    50 percent rule which triggers replacement would be inconsistent with
    the National Flood Insurance Program and may impact negatively on
    mitigation.
        Two other approaches recommended by the Inspector General--the
    disaster tax return system of assistance and block grants--will be
    studied for potential applicability in the future.
        Specific cost savings for these options have not been identified.
        Question. Some of the proposed changes undoubtedly will be
    unpopular with certain constituents. Will this impede your ability to
    proceed with the changes and how do you plan to deal with these
    impediments?
        Answer. We are currently in the process of consulting with our
    partners on potential policy changes. In general, they recognize that
    governmental resources at all levels are becoming more limited, and
    there is a need to reduce disaster relief expenditures.
        To the extent possible, we have tried to focus on prudent ways of
    reducing disaster costs without impeding service delivery. For example,
    streamlining the public assistance program will not only save dollars
    but will actually improve customer service. We are also trying to
    reduce total costs through a pre-disaster mitigation program, rather
    than simply shifting the costs to another level of government.
        We recognize that there may be some measures, particularly those
    which reduce eligibility, which may be unpopular with our constituents.
    In those cases, we will work with our constituents and Congress to
    develop appropriate legislative solutions.
                               disaster criteria
        Question. Two years after the initial commitment, FEMA has not made
    any changes to the disaster criteria. What changes--and when--will you
    be proposing to the declaration process?
        Answer. In the fall of 1996, FEMA established a Panel on Disaster
    Cost Savings to examine, among other things, the issue of declaration
    criteria. Upon analysis and consultation with our partners, we have
    concluded that the high costs in the disaster program are driven by the
    number of large major disasters and broad eligibility criteria, rather
    than the number of declarations.
        While we believe that the current declaration criteria continue to
    be appropriate, we can reduce costs by streamlining activities and
    targeting eligibility. However, factors used to judge severity,
    magnitude and impact are being updated to reflect current dollars, and
    procedures for conducting Preliminary Damage Assessment are being
    reengineered.
        Question. How will the new criteria ensure that states use their
    own capability to handle disasters that should not be declared by the
    President?
        Answer. The current criteria involve making a judgment on whether
    the severity, magnitude, and impact warrant Federal assistance to
    supplement the State's capability. FEMA provides grants to State and
    local governments through the Performance Partnership Agreement grants
    for the purpose of developing the capability to handle disasters.
        Question. The number of disaster declarations has increased 54
    percent in the last 5 years, compared to the previous 5-year period,
    partly due to FEMA's more liberal interpretation of the law. Don't you
    believe disaster declaration criteria would bring some much-needed
    discipline to this program?
        Answer. The increase in total number of declarations is greatly
    influenced by the number of fire suppression grants in recent years, as
    well as a documented increase in severe weather events. Over the years,
    the Congress has changed the statute to be more liberal in its eligible
    benefits. Restricting eligible costs would achieve long-term savings in
    the disaster program.
                                  state-share
        Question. Why isn't FEMA enforcing its own regulation to require
    states to demonstrate they have their project cost-share upfront? Isn't
    your policy of not requiring this upfront commitment a disincentive for
    states to control costs? What is FEMA doing to ensure that recipients
    of disaster assistance are satisfying their cost-sharing requirements?
        Answer. Current disaster assistance regulations do not require a
    specific timing for the payment of the State's portion of the non-
    Federal share. A FEMA/State Agreement, which is executed between the
    Governor and the FEMA Regional Director immediately following a major
    disaster declaration, specifies the portion of the non-Federal share
    that will be paid by the affected State. At the end of a disaster
    contract, States are required to certify that they have paid their
    share of a project's costs as agreed to in the FEMA/State Agreement.
        Consistent with the intent of the Robert T. Stafford Disaster
    Relief and Emergency Assistance Act (Public Law 93-288, as amended),
    current FEMA policy includes in the Agreement a provision for a
    Federal/State cost-share arrangement. FEMA believes that States have an
    incentive to control costs, because they are making a contribution to
    recovery efforts. FEMA only obligates and makes available to the State
    the Federal share of the estimated costs of a project (usually 75
    percent). Therefore, in order to complete a project, the remainder of
    the funds must come from either the grantee or the subgrantee. If a
    project is not completed, the Federal share will be deobligated and any
    Federal funds that were already disbursed must be repaid by the
    grantee.

                                   INSURANCE

        Question. What measures is FEMA taking to see that public
    facilities are insured against the most probable perils they face?
    Should disaster assistance be reduced for public facilities in
    vulnerable communities that could have been insured but were not, as is
    currently done with flood insurance?
        Answer. As a condition for receiving Public Assistance grants,
    insurance must be purchased and maintained to cover future damages for
    any insurable hazard to any public facility for which FEMA funding is
    provided. If the facility is insured at the time of a disaster, FEMA
    will fund damages not already covered by insurance.
        Establishing the vulnerability of communities for hazards other
    than floods is a difficult task. While some areas of the country have
    established vulnerability to earthquakes, participation in earthquake
    insurance programs has been limited due to the expensive nature of the
    program. For example, in California, the State Insurance Commissioner
    has ruled that earthquake insurance is not reasonably available because
    it is not affordable. FEMA's regulations state that the Agency shall
    not require greater types and extent of insurance than are certified by
    the State Insurance Commissioner. Consequently, FEMA has been unable to
    require the purchase of earthquake insurance in California as a
    condition of Public Assistance grant funding.

                           SNOW DISASTER DECLARATIONS

        Question. In your draft report, FEMA said it would, ``publish
    revised regulations to ensure that FEMA is consistently only paying for
    those snow removal costs that are extraordinary and significantly
    beyond the states normal capability and resources.'' When will these
    regulations be revised? How do you define costs that are extraordinary
    and significantly beyond states normal capability and resources?
        Answer. In October 1996, FEMA published a proposed rule that
    specified the work and costs that would be eligible for assistance in
    the event of a major disaster declaration for a snowstorm. The proposed
    rule stated that eligible work would be the clearance of snow from one
    lane in each direction on ``snow emergency routes'' or their
    equivalent, and from routes to critical facilities. The rule did not
    address declaration criteria or the measurement of States'
    capabilities.
        Based on comments received on the proposed rule and FEMA's
    experiences in three snow declarations in January 1997, FEMA has
    decided to withdraw the October 1996 rule and publish a new proposed
    rule. This new proposed rule will establish declaration criteria and
    cost eligibility to ensure that assistance is only granted when the
    situation is truly beyond a State's capability and resources. As
    published in the Semi-annual Agenda of Rulemaking, the proposed rule
    for snow disasters will be published between April and November of
    1997.

                               COMMUNITY CENTERS

        Question. Last year, in response to questions for the record, you
    stated that FEMA would more precisely define community centers in order
    to clarify which of these facilities FEMA considers eligible. Has this
    been done? If not, when?
        Answer. FEMA has published draft Policy No. 4511.050A, ``Private
    Nonprofit Community Center Eligibility.'' The draft policy provides a
    more specific definition of community centers than the definition found
    at 44 CFR 206.221(e)(6), and includes examples of both eligible and
    ineligible community centers. In particular, the policy more
    specifically defines criteria such as: (1) open to the general public;
    and (2) established and primarily used as a gathering place for a
    variety of social, educational enrichment, and community service
    activities.
        This draft policy is currently in the internal approval process.
    Pending its final approval, FEMA considers and rules on eligibility
    applications in the Private Nonprofit Community Center category on a
    case-by-case basis.

                               GRANTS MANAGEMENT

        Question. When will FEMA have in place the new grants management
    system? Will it ensure that FEMA funds are spent effectively,
    efficiently, and according to law?
        Answer. The Office of Financial Management, assisted by the
    Logistics Management Institute (LMI), has recently completed a thorough
    assessment of the grants management process for all of the Agency's
    disaster and non-disaster grant programs. An Agency-wide Team, reviewed
    and documented the current processes, identified issues and made
    recommendations for improving the grants management processes used in
    each of FEMA's disaster grant programs. A report, summarizing the
    reengineering process and the Team's recommended solutions covering the
    full cycle of the grants management process will be finalized in the
    near future.
        In general, the Teams recommendations include instituting
    procedures that will enable FEMA to more effectively comply with
    federal regulations on grants administration and financial management;
    track grants from application through close-out, including timely
    financial reports and program performance monitoring. Once FEMA
    management formally accepts the recommendations of the Team, the Office
    of Financial Management (OFM) will secure a charter for managing the
    implementation of appropriate changes and developing an improved grants
    management system in the Agency. It is anticipated that the Agency will
    begin initiating some recommendations immediately and that a detailed
    action plan will be developed this summer. The development of this plan
    will include close coordination with other FEMA Directorates to assure
    that it is all inclusive and takes into consideration other disaster
    program initiatives. It should be noted, however, that it is expected
    that FEMA management will consider additional improvements and
    alternatives as the Agency begins implementing the recommended changes.
        FEMA will realize several benefits by implementing the Team's
    recommendations. The Agency can not only expect to more effectively
    comply with federal regulations governing grants administration and
    financial management, but also to improve the Agency's ability to
    provide oversight and manage the disaster grant programs. Including the
    other cross-cutting disaster program improvements, along with the need
    for external coordination and significant internal training must be
    accomplished prior to seeing long term results. Full implementation of
    the Agency's improved grants management system is expected to take
    between two-three years.

                              DISASTER CLOSE-OUTS

        Question. Why do you have disasters open that go back to 1989? Why
    can't you close-out disasters within two years or less? What is the
    average length of time to close out a disaster? What does FEMA believe
    is a reasonable time to close-out a disaster? Wouldn't a shorter period
    enhance fiscal responsibility and accountability? How long does the
    insurance industry take to close-out major projects, and why couldn't
    FEMA follow an insurance industry model? Couldn't FEMA deobligate
    significant amounts of disaster relief funds if it closed out disasters
    in a more timely manner?
        Answer. FEMA funding is made available to the disaster-affected
    State as a grantee and further transferred to the sub-grantee in
    accordance with the Office of Management and Budget's requirements for
    Grants management. Public Assistance grants are governed by FEMA's
    regulations, also known as the common rule. The intent of the rule is
    to allow the States more discretion in administering Federal programs
    in accordance with their own procedures. Because these grants are for
    reimbursable costs, the grantee must make an accounting to FEMA for all
    eligible costs on each approved large project. Final payments are made
    only after the approved work is completed and certified by the State.
        Large, complex projects that require extensive design and
    construction phases in addition to compliance with all codes,
    regulations, standards and local permitting procedures can be extremely
    time-consuming. As a result, disaster close-outs are often delayed by
    these large projects. However, FEMA has made significant progress in
    closing out disasters. For example: in fiscal year 1993, FEMA closed
    out seven (7) disasters; in fiscal year 1994, FEMA closed out 31
    disasters; in fiscal year 1995, FEMA closed out 42 disasters; and in
    fiscal year 1996, FEMA closed out 16 disasters.
        As part of our Business Process Reengineering effort, FEMA is
    considering several options--including looking at insurance industry
    methods--to determine if we can adopt a more rapid settlement approach,
    based on accurate cost and scope estimates, and additional means of
    providing incentives to complete work as quickly as possible.

                                 FAST-TRACKING

        Question. Following the Northridge Earthquake, FEMA used a system
    referred to as ``Fast tracking'' to deliver assistance to individuals,
    which involved providing aid to applicants prior to inspecting homes. I
    understand a very high proportion of those receiving aid were deemed
    ineligible and FEMA is attempting to recover those ineligible costs.
    Will you be using this method again? Do you believe it is appropriate
    that FEMA has such discretion to dispense federal aid without following
    appropriate and prudent procedures? Are you using fast-tracking now?
        Answer. The extent of the damage and the densely populated
    geographic areas impacted by the Northridge Earthquake indicated that
    FEMA would receive an unprecedented number of applications for disaster
    assistance. In an effort to help the greatest number of disaster
    victims as quickly as possible, FEMA assisted applicants from areas
    where the damage was most pervasive on a expedited basis; prior to
    inspecting the applicant's home.
        To identify the most heavily damaged areas, FEMA used computer
    mapping of Modified Mercali Intensity (MMI) readings. ``Fast-track''
    checks were then mailed to disaster assistance applicants only if: (1)
    the applicants resided in a zip code that corresponded with the four
    MMI zones of most intense seismic activity (67 zip codes were
    identified); and (2) the applicant indicated that they had experienced
    real property damage when they registered with FEMA. Recipients of
    ``fast-track'' assistance were notified at the time of their
    application that a subsequent housing inspection would take place, and
    that if they were found to be ineligible for assistance, they would be
    required to return their assistance grant to FEMA.
        Each home was subsequently inspected, the degree of damage was
    assessed, and the determination of eligibility for housing assistance
    was evaluated. Recipients found to be ineligible for assistance were
    required to return their checks. The rate of confirmed eligibility for
    those households assisted before inspection was 90 percent.
        The fast-track method of expediting assistance helped thousands of
    severely impacted disaster victims significantly more quickly than
    standard procedures could accommodate. During the seven-week period the
    fast-track system was implemented (from January 21-March 9, 1994) FEMA
    issued 152,573 checks totaling $400,486,000 of assistance.
    Approximately one-third of these applicants, 48,302, were provided
    assistance via the fast-track system. It should be noted, however, that
    recipients of ``fast-track'' assistance represent only 7 percent of the
    total number of applicants who registered for assistance.
        Although the fast-track process resulted in some ineligible
    recipients, FEMA believes it was appropriate to implement the fast-
    track system, given the unique circumstances of the Northridge
    earthquake. FEMA is not currently using the ``fast-track'' system, but
    would not rule out its use in the future under appropriate emergency
    conditions.
                              ADMINISTRATIVE COSTS

        Question. Last year, in response to questions submitted for the
    record, FEMA stated it would propose a rule requiring grantees to
    provide a full accounting of their administrative costs associated with
    public assistance grants. To date, FEMA has taken no action to clarify
    the rules governing administrative costs, or to ensure that grantees
    properly account for administrative costs. Why? Also, FEMA stated it is
    planning to promulgate a proposed rule that would require small project
    expenditures to be accounted for and excess funds returned to FEMA. Why
    hasn't this been done?
        Answer. Last year, in response to recommendations from the General
    Accounting Office (GAO) and the FEMA Inspector General (IG), FEMA
    proposed to develop a regulation that would require an accounting of
    grantee administrative costs. Prior to drafting such a rule, FEMA
    determined that the statutory administrative expenses were also
    intertwined with both State disaster management costs, and indirect
    costs that may be claimed in connection with Federal grants. Therefore,
    FEMA is conducting studies to determine the complete picture of the
    costs to States to manage a disaster recovery effort. The goal is to
    develop a single cost factor that will cover all administrative
    expenses, both direct and indirect.
        In response to further recommendations in the subject GAO and IG
    reports, FEMA began to examine the impacts of a regulation that would
    require refund of overpayments on ``small projects.'' Concurrently,
    FEMA embarked on a 12-month process to study existing Public Assistance
    procedures, develop new procedures, and implement the procedures in
    actual disasters. Because these changes may affect the concept of small
    projects as it was originally envisioned in 1988, we have delayed
    proposing a rule change.
                public assistance/business process reengineering
        Question. FEMA has underway a ``BPR'' effort to streamline the
    public assistance program. When will this be complete? What specific
    changes do you envision at this time? What sort of cost-savings might
    we expect?
        Answer. A draft report on the proposed reengineered process was
    issued on April 7, 1997, to FEMA regional offices, the National
    Emergency Management Association (NEMA), and various project
    participants for comment and feedback prior to issuing a final report.
    The final report on the Public Assistance Reengineering project is
    scheduled to be completed on April 30, 1997. The next phase of the
    project moves beyond redesign in concept and into actual
    implementation. This will include development of a pilot test
    implementation plan, a pilot set-up and pilot test and a pilot
    evaluation, prior to full-scale implementation. We anticipate
    conducting a pilot-test and evaluation within the next six months.
        Some of the changes envisioned in the proposed redesign include:
      --Pre-identify and pre-educate potential applicants;
      --Provide applicants with alternatives for accessing the Public
            Assistance application process;
      --Use Preliminary Damage Assessment (PDA) data to make initial
            obligations to the State for immediate emergency funding needs,
            rather than relying on additional site inspections;
      --Establish deadline for State reconciliation of emergency work
            costs;
      --Require a more detailed and deliberate application for permanent
            restorative work to include a schedule of damaged sites,
            location, damage description, preliminary cost estimate, and
            insurance coverage;
      --Establish a FEMA single point of coordination for applicants and
            States;
      --Capture damage information one time, at the source, and
            electronically if possible;
      --Move decision-making and project review closer to the customer;
      --Empower the States to validate small projects (under $46,000)
            without always requiring a Federal inspection;
      --Process large projects (over $46,000) or complex projects through
            inspection and field review by certified FEMA/State inspection
            teams;
      --Focus on organizing work around the applicant and developing
            ``projects'' that best meet their recovery needs;
      --Institute a settlement approach (based on an accurate scope and
            cost estimate) versus actual cost reimbursement to avoid
            revisiting cases multiple times;
      --Provide incentives to complete permanent work as quickly as
            possible and to submit documentation within a reasonable time-
            frame; and
      --Strictly adhere to and enforce time frames such as project
            completion deadlines, deadlines for submittal of documentation,
            appeal submittal deadlines, and appeal resolution deadlines.
        The expected benefits of the redesign include quantitative
    reductions in time and costs that will enhance and strengthen
    qualitative aspects of FEMA's relationship with the States and
    applicants. Benefits include: Reduced processing time; reduced
    administrative costs; more efficient allocation of resources; reduction
    in job redundancy; improved tracking; fewer de-obligations; and fewer
    appeals.

                        HAZARD MITIGATION GRANT PROGRAM

        Question. FEMA's Sec. 404 hazard mitigation grant program is funded
    through the disaster relief program. States are entitled to receive
    funds equal to 15 percent of FEMA disaster relief assistance in the
    state. Currently, more than $1.4 billion remains unobligated. Has there
    been an increase in section 404 mitigation activity since the federal
    cost share was raised and the formula was revised to increase the
    amount made available?
        Answer. There has been a significant increase in Section 404 hazard
    mitigation grant program activity since the Federal cost share was
    raised and the formula was changed to increase the amount of funding
    made available. The reasons for this have been two-fold: First, States
    and Territories receive an increased amount of total available dollars
    for mitigation. For example, in the Midwest Floods alone, total
    available HMGP funds increased by approximately five times. Secondly,
    changing the cost share from 50 percent federal to 75 percent federal
    funding has made grants more attainable for State and local
    participants.
        It is essential to note that nearly 67 percent of the remaining
    funds (approximately $776 million) stems from three unique disaster
    situations:
      --The State of California accounts for approximately $642 million of
            this figure. In that State, numerous sizable disasters
            (including multiple flood events, wildfires, and the most
            costly disaster in U.S. history, the Northridge Earthquake)
            have occurred in the last several years. This tremendous
            workload has greatly strained the State's ability to identify,
            review, and process available monies in a timely fashion to
            meet mitigation, response and recovery needs.
      --Similarly, the Virgin Islands accounts for approximately $50
            million of the outstanding HMGP balance, due in large part to
            the fact that the islands were struck by two powerful
            Hurricanes--Marilyn and Bertha--within a year.
      --Finally, Hurricane Fran, which caused Presidentially declared
            disasters in seven States, accounts for another $84 million in
            unobligated funds. The outstanding balance of HMGP funds for
            these disasters is not unusual, in that the event occurred only
            recently (last Fall).
        These three unique situations account for over $776 million of the
    unobligated HMGP funds. They are not due to recurring programmatic
    obstacles.
        It also should be noted that FEMA has taken substantial action in
    recent years to improve the management of the HMGP in order to speed
    the obligation of funds. For example, this fiscal year an additional $3
    million was made available to States to improve implementation of
    Hazard Mitigation Programs. To improve National Environmental Policy
    Act (NEPA) compliance reviews, FEMA published an expanded list of NEPA
    categorical exclusions which have significantly reduced the time
    required for environmental review for approximately 50 percent of the
    projects submitted by States for HMGP funding. FEMA has developed a new
    process to streamline project cost-effectiveness determinations which
    emphasizes quick determination of lower and upper bound estimates to
    allow State staff to focus resources on potentially eligible projects.
    In addition we have provided substantial new training sessions to both
    FEMA Regional staff and State Hazard Mitigation staff. All of these
    activities are expected to greatly speed the HMGP process in the
    future.
        Question. FEMA is proposing a new $50 million pre-disaster
    mitigation program. Why would this program be used more by the states
    than mitigation activities authorized under sec. 404?
        Answer. Section 404 funds are only available if a disaster has been
    declared; therefore, mitigation actions are generally limited to
    declared area(s).
        This means that States must absorb a cost-share associated with
    mitigation activities at the very same time that they must identify
    resources to pay for the tremendous costs of disaster response, which
    is often prohibitive. Through the Pre-Disaster Mitigation Program,
    however, communities will be able to thoughtfully plan and budget for
    their contribution to eligible risk reduction activities. They will
    also have the time to work with other elements of the community,
    including the private sector, to leverage additional funding and
    resources against their own. These advantages will help ensure that
    Pre-Disaster Mitigation Program funds are used effectively to reduce
    our nation's risk from natural hazards.
        Question. FEMA funds some mitigation work using public assistance
    funds (sec. 406) and sometimes in combination with sec. 404 funds. Is
    this appropriate and in accordance with the Stafford Act? What is FEMA
    doing to clarify whether mitigation should occur under sec. 406 versus
    sec. 404?
        Answer. When Congress amended Public Law 93-288, the Disaster
    Relief Act of 1974, in 1988 (upon enactment of Public Law 100-707) the
    legislation was amended to: (1) add new section 404, which authorized
    hazard mitigation funding; and (2) revise the authority of what is now
    Section 406 to add the reference at subsection 406(e)(1) that
    prescribed hazard mitigation criteria.
        The use of Section 406 alone or in combination with Section 404 is
    both appropriate and consistent with explicit Stafford Act authorities.
    Section 406(e)(1) allows for ``hazard mitigation criteria'' to be
    included in funding determinations for discrete public assistance
    projects. A Section 404 project may affect several Section 406 public
    assistance projects, as well as the community at large. If a Section
    404 project ties into and augments the mitigation elements of a Section
    406 project, it is neither an inconsistent nor an inappropriate use of
    Stafford Act funding. There is no indication in the Stafford Act that
    these two hazard mitigation authorities cannot be used in conjunction
    with each other, and FEMA believes that it has implemented these two
    hazard mitigation authorities consistent with the congressional intent
    behind their simultaneous enactment.
        To clarify the use of these two authorities, FEMA has issued
    policies that distinguish between the mitigation scenarios in which
    either Section 404 or 406 can be invoked. FEMA has also assembled a
    404/406 Mitigation Task Force, which will provide additional
    clarification as specific instances require.
        Question. When will you submit your legislative proposal for this
    new $50 million plan? How many projects do you anticipate will be
    funded, and what will be the criteria for participation? How will you
    maximize the use of this relatively modest sum for mitigation projects?
        Answer. The legislative proposal will be included in the package
    containing cost eligibility changes that we are planning to send to you
    in July of this year. We will try to fund as many projects as we can in
    order to achieve some balances among the geographic spread, the types
    of risks and hazards, and the categories of mitigation measures carried
    out. We will be testing criteria for participation with the pilot
    effort this fiscal year, and proposed criteria will be formalized
    through regulations authorized by the legislation being drafted. In
    addition to criteria that relates to risk reduction requirements, we
    will also be looking at leveraging non-Federal resources in order to
    maximize the modest amount of funds requested.
        Question. We understand that mitigation saves money, but we have
    seen no quantification of the extent to which mitigation reduces future
    disaster relief costs. Has an assessment been done to provide some
    baseline for cost-savings? If not, when will it be done?
        Answer. Over the last several years, the need for an assessment of
    mitigation cost savings has become apparent. At this time, we are in
    the process of planning a project to perform a macro-economic analysis
    of mitigation. We plan to initiate a study of the cost-effectiveness of
    a broad spectrum of mitigation measures (such as building codes and
    acquisition/relocation projects) before the end of fiscal year 1998.
    Because this analysis will take time to complete, we commissioned a
    smaller report on the cost-effectiveness of mitigation that is
    scheduled for release in the next two weeks. This report includes a
    brief explanation of many of the types of mitigation which have
    produced useful effects. It also includes 16 ``case studies,'' which
    were chosen to provide multi-hazard examples of a variety of mitigation
    techniques across a wide geographical distribution. A copy is attached
    for your reference.
                       performance partnership agreements
        Question. FEMA's budget includes $147 million for state grants
    through the so-called ``performance partnerships'' agreements. Two
    years ago, when FEMA first proposed performance partnerships, the
    agency indicated there would be new criteria for awarding state grants.
    Please explain what those criteria are.
        Answer. A driving force behind the Performance Partnership
    Agreement (PPA) is to make performance a consideration in the awarding
    of annual pre-disaster grants to the states. The PPA is a five-year
    agreement designed to implement the strategic planning concepts of
    GPRA. A June 1, 1998 deadline has been set for all state PPA's to be
    modified to reflect measurable performance indicators.
        FEMA Regions continue to consider annual performance as criteria
    for annual cooperative agreement grant funding. Risk, need and special
    projects also continue to be considerations in how funds are divided
    among the states.
        Question. What are the specific performance measures states are
    held to under these new performance partnership agreements, and how are
    states held accountable for meeting these measures? How are high-
    performing states rewarded?
        Answer. Performance measures under the PPA are jointly developed by
    the State and FEMA. The measures vary depending on the unique
    circumstances of the state and objectives set as part of that states
    strategic planning. Eventually, states will be held accountable by
    making long-term PPA performance a criteria for annual CA funds. In
    addition, FEMA is exploring options for rewarding states for pre-
    disaster performance in mitigation and increasing their disaster
    capability through post-disaster grants. Another option under
    consideration is a more favorable cost-share on public assistance
    disaster grants.
        Question. How are performance partnerships used to encourage states
    and local governments to undertake mitigation activities to reduce the
    risk of losses to public facilities?
        Answer. The PPA is developed around the four functions of emergency
    management: preparedness, mitigation, response and recovery. Each
    function has partnership and state objectives and strategies for
    accomplishing the objectives. Mitigation is a major focus of the PPA
    objectives and strategies and is an area FEMA is working to encourage
    through future incentives.
        Question. Other than reducing administrative burdens and providing
    a single funding stream, how are the performance partnerships any
    different from the old grant process under the comprehensive
    cooperative agreements?
        Answer. The PPA was developed to replace FEMA's comprehensive
    cooperative agreement (CCA) process. Under the PPA, states have more
    flexibility in the use of funds in exchange for accountability of
    performance; while the states, not FEMA, propose how the funds will be
    spent, annual activities must clearly reflect state priorities and
    needs and contribute to the achievement of long-term state objectives
    in the PPA. Under the old CCA, FEMA determined how the funds were to be
    spent and there were no established long-term objectives that annual
    CCA activities worked towards accomplishing.
        Question. What is the status of FEMA's ability to assess states'
    capacities to respond to disasters? What means do you use to make these
    assessments? Has the I.G. deemed whether your method is adequate and
    appropriate? How can you rely on states' self-assessments to make
    determinations on capabilities? In your opinion, how many states
    currently have a reliable assessment of their capability to respond to
    disasters?
        Answer. FEMA is currently developing the capability assessment
    process to assess the capabilities of State and local governments to
    effectively respond to catastrophic disasters. The Program Elements
    Guide (PEG) is the principal tool that FEMA is currently developing to
    accomplish this task. This tool categorizes emergency management
    activities into the following 13 components: (1) Laws and Authorities;
    (2) Hazard Identification and Risk Assessment; (3) Hazard Management;
    (4) Resource Management; (5) Planning; (6) Direction, Control and
    Coordination; (7) Communications and Warning; (8) Operations and
    Procedures; (9) Logistics and Facilities; (10) Training; (11)
    Exercises; (12) Public Education and Information; and (13) Finance and
    Administration. It was recently favorably reviewed by representatives
    from the National Emergency Management Association (NEMA), an
    organization of State Directors of Emergency Management. It is
    anticipated that the PEG will be finalized by April 21, 1997. The
    Inspector General's office has participated in the briefings on
    capability assessment and the implementation schedule.
        The capability assessments will be completed for all States during
    fiscal year 1997, and FEMA will submit a report to the Congress by
    October 1, 1997, on the status of State capabilities and the Emergency
    Management Partnership to respond to major disasters. FEMA will not be
    relying entirely on State self-assessments. It is our intention that
    there be substantial Federal involvement in as many of the State
    assessments as possible this year, given timing, staffing and funding
    restraints. Many of the States have conducted capability assessments
    over the course of time, but these have not been developed in a
    standardized format; therefore, it is difficult to draw substantive
    conclusions on these efforts. The goal of the FEMA capability
    assessment process is to create an assessment system that will be
    acceptable to all States and will result in a reliable and consistent
    national evaluation of the state of readiness in the nation.

                                      GPRA

        Question. Under the Government Performance and Results Act (GPRA),
    FEMA is required to develop a mission statement and strategic plans.
    I'm very concerned with mission creep at FEMA over the last several
    years. The mission creep is evident in the fact that there's been a 54
    percent increase in the number of major disaster declarations in the 5-
    year period fiscal year 1992-96, compared to fiscal year 1987-91. Where
    FEMA used to confine itself to responding when state and local
    governments were overwhelmed, FEMA's new role seems to be about being
    all things to all people. What process are you using to develop your
    mission statement and strategic plan, and who are you consulting with
    to ensure it meets the intent of Congress?
        Answer. FEMA was one of the first federal agencies to develop a
    strategic plan back in December 1994. The strategic plan's mission
    statement and its goals were developed even earlier and served to guide
    the agency's 1993 reorganization. In its June 1996 report, entitled,
    ``Executive Guide--Effectively Implementing the Government Performance
    and Results Act,'' Congress's General Accounting Office (GAO)
    highlighted FEMA's reorganization around its mission statement and
    strategic goals.
        In 1993, FEMA's new Director refocused the agency on meeting its
    mission and aligning its activities to better serve the public. As part
    of its first agency-wide strategic planning effort, FEMA
    comprehensively reviewed its programs and structures and initiated a
    major reorganization in November 1993. By more closely aligning its
    activities, processes, and resources with its mission, FEMA appears
    today to be better positioned to accomplish that mission.
        As a result of experience gained through the GPRA pilot phase FEMA
    realized that agency-wide training on the concept of GPRA and strategic
    planning would be necessary. To date, training has been conducted for
    over 400 managers and staff agency-wide. The training effort includes a
    two-day workshop in each of the 10 regions for our regional staff and
    our State partners.
        FEMA is in the process of updating its strategic plan, and making
    it more precise, measurable and consistent with GPRA requirements. FEMA
    established a GPRA Steering Committee, made-up of representatives from
    throughout the agency, to oversee the process. FEMA is not proposing
    any changes to its current mission statement (in fact, the
    Congressional Institute and National Academy of Public Administration
    which trained congressional staff on GPRA used FEMA's mission statement
    as a model). Our six strategic goals have been reduced to three draft
    goals which we believe represent FEMA's statutory mandates.
        A significant part of FEMA's mission is to lead and support the
    national emergency management system. Therefore, performance measures
    for FEMA's draft new strategic goals will reflect how well the national
    system is performing. We believe the information we need to measure our
    performance already exists in the public and private sector. We expect
    to have draft performance measures identified by May 1997.
        FEMA's primary stakeholders are the State governments and the State
    emergency managers and the National Emergency Management Association in
    particular. We have discussed the direction of our strategic planning
    efforts with the States and NEMA and shared draft documents. We will
    continue to consult with them throughout the process and ask for final
    comments before the plan is finalized. FEMA has also shared its draft
    strategic plan with Federal agencies such as EPA, Transportation, SBA,
    Army Corps of Engineers, etc., to ensure a complimentary approach to
    GPRA.
        FEMA has already briefed two congressional committees and will be
    making more consultations to discuss all aspects of proposed changes to
    the agency's strategic plan, including, options for performance
    measures.
        The Agency is on track to have the updated plan and new performance
    measures, as well as the GPRA required fiscal year 1999 Performance
    Plan completed this summer in advance of the September 30 deadline.

                                     CSEPP

        Question. In January, GAO presented preliminary findings of a
    review conducted on CSEPP, a joint Army/FEMA program to improve
    emergency response capabilities in the communities near the chemical
    weapons storage sites. GAO found that while $420 million has been
    appropriated to date, local communities still lack critical items 9
    years after the program's inception and there are long-standing
    management weaknesses at the federal level, including unclear roles and
    responsibilities.
        Why has so little progress been made with the $420 million spent to
    date? What is the status of negotiations with the Army over the future
    of the CSEPP program. What role does FEMA believe it ought to play in
    this program? Who should be held accountable for the lack of progress
    in this program?
        Answer. FEMA has discussed with GAO the validity of the draft
    report's finding that emergency preparedness capability has been unduly
    slow in the communities surrounding the eight chemical weapons storage
    sites. We anticipate that the final report may differ from the draft
    somewhat, since it is demonstrable that considerable progress has been
    made in CSEPP emergency preparedness. States are significantly better
    prepared to respond to a chemical incident today than even two years
    ago. Alert and notification systems have been installed to warn the
    public, in-place communications systems will allow on- and off-post
    responders to communicate effectively, and, through Federally-funded
    public education programs, the public is continually informed of
    protective action measures to be taken in case of a chemical accident.
        FEMA recognizes that not all anticipated emergency preparedness
    equipment has been purchased and/or installed, and, as a result, full
    programmatic capability has not yet been attained in all sites.
    However, many sites have completed the purchase and installation of
    necessary equipment, and are nearing the maintenance phase. While not
    all equipment is in place, operational capability has been attained for
    most benchmark items at each site. Thus, while capability will
    undeniably improve, employable capability exists in nearly every case.
        There have been issues requiring resolution between FEMA and the
    Department of the Army regarding the day-to-day management of CSEPP.
    However, while we recognize that perceptions exist in some quarters
    that the issues are affecting program delivery, both FEMA and the Army
    have worked very closely to ensure the uninterrupted delivery of
    program services. Given the different operating styles of FEMA and the
    Army, it is reasonable to expect periodic problems to arise with
    program delivery. As they have with previous programmatic or stylistic
    differences, both FEMA and the Army have been taking positive steps
    toward resolving those issues and believe that they will be resolved
    shortly for the maximum benefit of the program. It is worthy of note
    that FEMA Director James Lee Witt and Secretary of the Army Togo West
    are personally involved in resolving these issues expeditiously.

                                ARSON INITIATIVE

        Question. In the fiscal year 1997 operating plan, FEMA proposed a
    reprogramming of $775,000 for participation in the President's National
    Arson Prevention Initiative, which was established in response to the
    rash of church burnings last year. Can you tell me precisely what
    FEMA's role is in this initiative, what has been accomplished so far,
    and whether additional funds are requested in fiscal year 1998 to
    continue participating in the President's initiative?
        Answer. In June 1996, the President asked FEMA Director Witt to
    lead a National Arson Prevention Initiative and coordinate available
    public and private sector resources to combat arson nationally.
    Although prompted by the tragic series of fires at houses of worship,
    the Initiative is intended to address the larger problem posed by arson
    in this country. FEMA has been joined in this effort by the Departments
    of Justice, the Treasury, Housing and Urban Development, Education,
    Agriculture, and the Corporation for National Service. Governors in
    States most affected by the church burnings have rallied in their
    support of arson prevention and they, with local leaders throughout the
    country, have been strong partners in the Initiative.
        Each of the major law enforcement, crime prevention, education,
    church, and voluntary groups and organizations have been tremendous
    contributors to the Initiative. In addition, eight national fire
    service organizations pledged their memberships in the fight against
    arson including the Alliance for Fire and Emergency Management
    (International Society of Fire Service Instructors), the International
    Association of Arson Investigators, the International Association of
    Black Professional Fire Fighters, the International Association of Fire
    Chiefs, the International Association of Fire Fighters, the National
    Fire Protection Association, the National Association of State Fire
    Marshals, and the National Volunteer Fire Council.
        Recognizing that arson is a local problem that requires local
    solutions, FEMA's role in the Initiative has been to facilitate
    community arson prevention efforts and apply public and private
    resources to their best effect. Provided for the record is a copy of
    ``Fire Stops With You--The National Arson Prevention Initiative: Six
    Month Report to the President.'' This report details the interagency
    and intergovernmental accomplishments of the Initiative from June
    through December 1996.
        The Initiative entered a new phase in January. FEMA is piloting the
    creation of community-based arson prevention coalitions in three cities
    in the Southeast and one city in the Northeast. The cities that are
    participating include Macon, Georgia, Nashville, Tennessee, Charlotte,
    North Carolina, and Utica, New York. The experiences of these
    communities in forming a coalition and actively engaging their
    residents in arson prevention will serve as models for communities
    across the country. Three of the pilot cities will ``launch'' their
    coalitions nationally as part of a series of events occurring during
    National Arson Awareness Week, May 4-10, 1997. As part of that week,
    arson prevention grant awards of $12,000 will be made to every State
    ($5,000 to each territory and the District) to encourage and support
    Statewide arson public education and awareness effort.
        Efforts on the full range of arson prevention topics also continue.
    In partnership with the Department of Justice, a series of Statewide
    arson prevention conferences will be conducted over the next several
    months in seventeen States. Additionally, development of training and
    public education materials on juvenile firesetters is underway. Between
    July 1996 and March 1997, the National Arson Prevention Clearinghouse
    received nearly 15,000 telephone calls and distributed approximately
    half a million packets of information.
        The National Arson Prevention Initiative has resulted in a
    framework to support State and local governments that capitalizes on
    available resources from a variety of sources and has resulted in
    increased understanding and awareness of the problem. Individuals have
    begun to recognize the impact that arson has on their lives and have
    become involved in preventing it within their communities. This
    Initiative will be institutionalized and will serve as the umbrella
    strategy for the Agency's overall arson efforts within the U.S. Fire
    Administration. Funding requested for fiscal year 1998 will continue to
    support vital training, public education, and technical assistance
    efforts, as well as the continuance of the National Arson Prevention
    Clearinghouse and the coalition-building efforts.
                    mt. weather emergency assistance center
        Question. In the fiscal year 1997 operating plan, FEMA indicated
    the need to renovate and expand building 430 at MWEAC to accommodate a
    rapidly expanding demand for additional training class rooms and
    conference areas, at a cost of $1.67 million. At the time, FEMA said
    ``we are currently evaluating options to fund this requirement later
    this fiscal year. Should sufficient funds be available, we will forward
    to you the required reprogramming request.'' What is the status of your
    evaluation? Do you anticipate a reprogramming request? Are any funds
    requested in fiscal year 1998 for renovations at Mt. Weather? When will
    there be a long-term plan for the Mt. Weather facility, and why should
    any renovations take place prior to the completion of such a plan?
        Answer. The Office of Financial Management is conducting a mid-year
    review of all FEMA spending plans. Upon completion of the review, a
    final determination will be made as to the distribution of fiscal year
    1997 funds held for prior year obligations. The expansion of the Mt.
    Weather Training Center has already been determined a high priority
    candidate for any funds that may become available. If funds are
    determined to be available, a reprogramming request will be forwarded.
        Mt. Weather has been selected as the initial participant in FEMA's
    Working Capital Fund (WCF) and in fiscal year 1998, will complete the
    transition to a fully operational mode, continuing to provide office,
    conference, training and billeting accommodations for FEMA and other
    Federal agencies. Currently Mount Weather supports seven internal
    customers and several external Federal tenants. While an aggressive
    marketing plan has been implemented to attract new customers, the
    fiscal year 1998 anticipated income will not fund extensive building
    renovations. Some building maintenance projects such as roof repair,
    road maintenance, painting and concrete repair are planned and will be
    funded through the collections of the WCF.
        Mt. Weather has become a hub of emergency activity since it was
    restructured in 1993 to support the all-hazards mission of the agency.
    A population explosion has occurred during the last 4 years, moving
    from a daily workforce of about 400 employees to one of more than 900.
    The Conference and Training Center (CTC) activity has expanded
    dramatically from fewer than 6,000 students/conferees in 1993 to more
    than 18,000 in fiscal year 1996.
        Much of this growth is attributed to the decision to locate fixed
    disaster operations at Mt. Weather. Six major disaster functions have
    been established at the Facility that include: the National Processing
    Service Center-Virginia; Satellite Teleregistration Center; Disaster
    Finance Center; Disaster Information Systems Clearinghouse; Disaster
    Personnel Operations Division; and the Agency Logistics Center. On a
    day-to-day basis, Mount Weather supports about 250 new disaster CORE
    positions that did not exist in 1993.
        This changed environment requires careful strategic planning to
    support current operations and to accommodate the growth that is likely
    to occur with the implementation of an aggressive marketing effort. As
    part of the strategic planning, a capital expansion plan, based upon an
    assessment of the Agency's operational requirements over the next 5
    years, has been prepared. This plan includes six projects that will
    provide additional space and capability to include major building
    renovations, expansion of training facilities and infrastructure
    improvements.

                           NATIONAL PROCESSING CENTER

        Question. What is the status of the new National Processing Center
    in Hyattsville, MD? How many staff have been hired at Hyattsville, and
    how many additional staff are anticipated?
        Answer. The Hyattsville National Processing Services Center build-
    out is nearing completion and FEMA and the General Services
    Administration (GSA) are entering into final lease negotiations. While
    these deliberations are taking place, FEMA has initiated recruitment
    actions for 66 of the 112 baseline staffing positions at the facility
    and has established a Human Resources Management recruiting office on-
    site. The Human Resources Management Office will also be responsible
    for the recruitment of surge staff that will provide additional
    operational staffing capacity on a disaster by disaster basis.
    Occupancy of the facility will occur as soon as the lease between FEMA
    and GSA is signed, which is expected to occur sometime during the month
    of June.

                                     INEEL

        Question. In the fiscal year 1997 operating plan, FEMA proposed
    funding for the Idaho Nuclear Engineering Laboratory (INEL) out of
    funds set aside by the Congress for pre-disaster mitigation activities,
    even while the conference report stipulated that no such funds be spent
    until the agency develop a comprehensive pre-disaster mitigation plan.
    Even more astounding in the agency's proposal was the fact that in
    answers to questions proposed by Congressman Jerry Lewis last year,
    FEMA said, ``We advised [INEL] that they should discuss research with
    the National Science Foundation. With limited resources for hazard
    mitigation, it is our opinion that additional research and testing
    facilities are not needed at this time. The money could be better spent
    by taking existing research and putting it into application for use by
    state and local governments to reduce the damages to life and property
    from natural disaster.'' Why did FEMA reverse itself and propose
    funding INEL's research proposal? What is the status of the
    International Multi-hazard Mitigation Partnership to be created by
    INEL, and what is this partnership intending to accomplish?
        Answer. FEMA's response to Chairman Lewis' question regarding the
    Idaho National Engineering and Environmental Laboratory (INEEL) was
    based on an initial proposal presented by INEEL. Later, INEEL changed
    the proposal significantly, to emphasize the concept of a private--
    public partnership to promote full-scale environmental hazard
    simulation. INEEL informed FEMA that many private sector potential
    partners were prepared to make significant contributions to this
    initiative if FEMA would step forward and provide an initial financial
    contribution. FEMA technical staff carefully analyzed the revised
    proposal and consulted many of our mitigation partners. The analysis
    and discussion with our partners, underscored some of the benefits of a
    full-scale wind storm simulation facility.
        FEMA recognizes the need to move towards a greater emphasis on
    disaster loss mitigation through the development of policies and
    procedures that may either prevent future losses or reduce their
    magnitude. FEMA has also identified the need for a greater coordinated
    effort in the area of Private-Public partnerships. This need is
    greatest in the area of windstorm mitigation. The FEMA--Department of
    Energy agreement is designed to result in the creation of a new
    mitigation partnership called the International Multi-Hazard Mitigation
    Partnership (IMMP).
        Since the benefits derived under the IMMP will be diffused across a
    broad spectrum, FEMA expects INEEL to identify a broad spectrum of
    technical and financial support. The Agency's continued involvement in
    the IMMP is predicated on a broad coalition being constituted. It
    expects that its financial contribution will be leveraged against the
    contributions of others, particularly the private sector that will reap
    much of the benefit from the testing that will occur at this facility.
    FEMA`s future financial contributions should not be the primary source
    of funding for the IMMP or the construction and use of any proposed
    testing facilities.
        In an effort to advance the IMMP, FEMA agreed to provide an initial
    financial contribution of $1 million dollars. To date, INEEL has
    contributed a similar amount of funds, in both cash and services. To
    ensure accountability, FEMA is providing funding in four installments.
    Presently, the IMMP has received and spent $731,000. The remaining
    funding of $269,000 is proposed to come from the fiscal year 1997 Pre-
    disaster Mitigation Program. These funds have recently been obligated
    based on Congressional concurrence with FEMA's proposed Predisaster
    Mitigation Program spending plan.

                                 MOBILE ASSETS

        Question. Last year, FEMA identified 10 actions considered to be of
    highest priority for upgrading its mobile response actions. While no
    funds were requested by the administration, the Congress appropriated
    $3.4 million in fiscal year 1997 for the first of these 10 actions.
    What is the total cost associated with the remaining ``high priority''
    actions, and are any funds requested in fiscal year 1998, and if not,
    why not? How much is requested to maintain the Mobile Emergency
    Response System (MERS)? What is the status of the baseline capability
    assessment of MERS, which was due at the end of calendar 1996? What did
    the baseline assessment reveal? What are the costs in the next 5 years
    required to maintain adequately the MERS system?
        Answer. The projected cost associated with the remaining high
    priority actions is $18.85 million. While the fiscal year 1998 budget
    submission was made prior to the initiation of the baseline assessment
    of the MERS, the annual budget requested $5.75 million for the
    Operation and Maintenance of the MERS. This supports the costs of
    electricity, water, heating oil or gas, trash collection, vehicle/
    equipment maintenance, spare parts, maintenance contracts for unique
    equipment and systems, facility maintenance, and training.
        Following completion of the initial phase of the baseline
    capability assessment of MERS in December 1996, a summary of the
    assessment was provided in the Report to Congress. The second phase of
    the baseline assessment will continue in 1997 and the results will be
    used to reprioritize any request included in the fiscal year 1999
    Budget submission. The baseline assessment determined the priority for
    the replacement/upgrade of MERS vehicles and equipment. In addition, a
    list of vehicles and systems no longer required to support the FEMA
    All-Hazard Mission was developed. These vehicles and systems are to be
    declared excess to the needs of MERS and offered to other elements
    within FEMA and through GSA to other Federal Departments and Agencies
    for their use.
        The projected O&M budget of $5.75 million is adequate to maintain
    the MERS if limited or no replacement/upgrade of vehicles or systems is
    accomplished. To insure the replacement/upgrade of those systems
    identified by the baseline assessment is accomplished over the next 5
    years, the additional funds estimated are: fiscal year 1998: $5.15M;
    fiscal year 1999: $5.45M; fiscal year 2000: $4.75M; fiscal year 2001:
    $3.5M. Following these replacements/upgrades, an additional $1.5
    million per year should be programmed to allow for the replacement/
    upgrade of other vehicles, equipment, or systems that will become non-
    maintainable.
                                     ______

                    Questions Submitted by Senator Campbell

                          fire suppression declaration
        Question. I understand that it is FEMA's responsibility to make a
    Fire Suppression Declaration to get aid to communities in fighting
    wildfires. Is it possible to streamline this process so communities can
    get the help they need in a shorter amount of time?
        Answer. The Fire Suppression Assistance program provides assistance
    to any State for suppression of any fire on publicly or privately owned
    forest or grassland which threatens such destruction that would lead to
    a major disaster declaration.
        The entire process, described below, is accomplished in an
    expedited or streamlined manner, normally by telephone, and many times
    a FEMA decision is rendered within an hour upon receipt at national
    headquarters. FEMA can respond to a State's request for Fire
    Suppression Assistance 24 hours a day.
        The program is administered on a real time active ``incident fire''
    basis, under which the Governor or authorized representative submits a
    request for assistance to FEMA's Regional Director at the time a
    ``threat of a major disaster'' exists. The Region contacts headquarters
    with the State's request, the Regional recommendation, and the U.S.
    Forest Service's Principal Advisors assessment of the fire situation.
    FEMA then evaluates the following factors in order of priority to
    determine the approval of a Fire Suppression Assistance grant:
      --The location of the fire and continued threat to life and improved
            property.
      --The existence of high fire danger conditions: humidity, wind speed
            and direction.
      --The availability of State and local resources.
      --The existence of two or more fires in the same area.
        To facilitate program delivery, FEMA has updated the Fire
    Suppression Assistance manual, which should be ready for distribution
    in June of 1997.

                          PUBLIC-PRIVATE PARTNERSHIPS

        Question. Following the Buffalo Creek wildfire and the flooding
    that resulted in Colorado, I understand that FEMA produced some
    educational materials for homeowners. The JANUS group paid for
    production while Rotary Clubs distributed the material. Is FEMA looking
    at this excellent model of a public-private partnership in other areas
    of its responsibility?
        Answer. For the past year and a half, FEMA has been actively
    exploring opportunities to partner with the business sector to develop
    and distribute educational materials and better coordinate and
    communicate with the business sector during and after disasters.
    Director Witt has sponsored several roundtable discussions with
    business and constituency groups to explore partnership opportunities.
    FEMA is currently working with insurance industry representatives on
    several task forces seeking ways we can work together to provide better
    service to mutual customers, and is in the final stages of developing a
    local-based emergency management pilot project designed to include the
    business sector in emergency management planning and operational
    activities at the local level. FEMA has also worked closely with the
    business sector in managing donations of goods and services to
    communities and individuals impacted by disasters.

                               DROUGHT ASSISTANCE

        Question. During and after the devastating drought in the
    Southwest, it seemed to take a long time to get relief to communities
    and individuals in need. Has FEMA considered changing its policy on
    dealing with drought problems as rapidly as it already does with higher
    profile emergencies such as hurricanes?
        Answer. Unlike the immediate devastation usually caused by a
    hurricane, droughts develop and inflict damage over an extended period
    of time. In response to the Drought of 1996, FEMA formed a task force
    to coordinate Federal response to drought affected States by
    identifying needs, applicable programs and barriers to programs, and
    outlining suggestions of the participants for improved drought
    management. At the urging of the Western Governors' Association (WGA)
    Drought Task Force, a Memorandum of Understanding was signed early this
    year which identifies the United States Department of Agriculture
    (USDA) as the lead Federal agency on drought issues. USDA volunteered
    to be the lead agency because agriculture is most severely affected by
    drought. Currently, a Coordinating Council is being formed by the WGA,
    which will include other relevant Federal agencies, including FEMA, to
    address drought on an event-by-event basis and to also establish long-
    term planning, mitigation and response policies for droughts.

                              HAZARDOUS MATERIALS

        Question. Some of the nation's major highways run through Colorado.
    This places our citizens at risk as hazardous materials routinely move
    through our state. Do you feel confident that FEMA is prepared to deal
    with emergencies resulting from accidents involving these hazardous
    materials?
        Answer. Initial response to a hazardous materials incident is a
    state and local government responsibility. In Colorado, the State
    Highway Patrol has responsibility for hazardous materials response.
    This organization is well trained and equipped to respond to most
    hazardous materials transportation emergencies. In the event that an
    incident should be severe enough to require a presidential disaster
    declaration, FEMA, in partnership with the Environmental Protection
    Agency (EPA) would respond under the Federal Response Plan. The Federal
    Response Plan has been successfully used in past disasters and I am
    confident that it would save lives and property in the case of a severe
    hazardous materials spill.
                                     ______

                      Questions Submitted by Senator Craig

                                LANDSLIDE POLICY

        Question. Please clarify what policy, if any, the federal
    government has related to disaster assistance for landslides. Please
    differentiate between FEMA assistance during an incident period as it
    relates to actual slide damage and FEMA assistance either during or
    after the incident period as it relates to potential land slides and
    damage.
        Answer. The FEMA policy related to assistance when landslides
    occur, has remained substantially unchanged since 1984, although it was
    recently (November 30, 1995) republished in a format that FEMA has
    adopted for all disaster assistance program policies. The policy is
    best explained as it relates to two different types of work, emergency
    protective measures, and permanent repair of damaged facilities.
        Eligible emergency protective measures are defined as work
    necessary to alleviate an immediate threat to public health and safety
    or improved property that is the result of a slide caused by the
    declared disaster. When such a slide results in an immediate threat,
    that threat may be reduced by removal of slide material or by temporary
    stabilization. Such emergency work may also be completed if the
    disaster event causes an immediate potential of a slide that would
    damage improved property or endanger public health and safety.
    Emergency protective measures could also include work completed during
    the incident period to reduce immediate threats. The basic eligibility
    question to be answered in both situations is whether the threat is a
    result of the disaster and not a condition that existed before the
    disaster.
        When an eligible facility has been damaged by a landslide, work to
    stabilize the slide is only eligible when it is integral to the
    eligible repair of the damaged facility and when the site is not
    unstable due to a pre-existing condition. The applicant must first
    correct any pre-existing condition before the facility repair will be
    approved by FEMA.
              fema coordination of long term flood recovery plans
        Question. As I understand it FEMA is currently responsible for
    coordinating the response phase of a disaster. Is any agency
    responsible during the recovery phase of federal disaster efforts? In
    your opinion, could FEMA be the lead agency in the recovery phase? If
    so, how would you direct your agency to handle the responsibility?
        Answer. FEMA has been working with the primary Federal departments
    and agencies involved in the Federal Response Plan (FRP) to determine
    if, and how best to integrate recovery into the FRP. The complexity
    arises from the significant difference between response and recovery
    operations. Different authorities, Federal agencies and programs are
    involved during disaster recovery. The full recovery effort may take a
    considerable period of time, and continue long after FEMA field
    operations have been concluded. The State and local role in recovery is
    much more critical because that is where mitigation priorities are
    determined and implemented.
        FEMA has the clear responsibility under statute and executive
    orders to lead and coordinate the Federal response to an emergency or
    major disaster. Normal disaster response includes many of the recovery
    efforts we now engage in for the full range of disasters, including
    floods. At present, FEMA addresses recovery issues on a case by case
    basis with our State and Federal counterparts to determine: (1) what
    recovery efforts are appropriate; (2) who should participate; and (3)
    what resources are available. FEMA's long-term goals to reduce the
    impacts of future disasters can often be implemented by focusing on
    increased mitigation efforts during the recovery phase. In addition,
    during this year's Midwest floods, FEMA was asked by President Clinton
    to establish a Long-Term Recovery Task Force to coordinate the Federal
    effort. This approach may serve as a model for our future efforts;
    however, to do this effectively additional personnel and financial
    resources should be required. Normally, FEMA would transition out of
    the recovery process as quickly as possible to free up critical
    manpower and resources for other disasters, and to permit State and
    local authorities to assert themselves in carrying out their recovery
    responsibilities.
        We acknowledge that specific Federal programs may continue as an
    integral component of the long-term recovery effort. These programs
    would operate under their own authorities and program guidelines.

         PRE-DISASTER MITIGATION/INTERNATIONAL MULTI-HAZARD MITIGATION
                                  PARTNERSHIP

        Question. The President's budget request includes funding for pre-
    disaster mitigation. Would you please tell the subcommittee what
    specifically that funding is intended to accomplish?
        Answer. Specifically, our priority goal is to reduce the impact of
    natural hazards on public facilities eligible for disaster assistance
    under the Stafford Act.
        Question. Do you feel there is a need for additional technical
    knowledge to help understand the science of how physical structures
    react to disasters?
        Answer. FEMA recognizes the need to improve our understanding of
    how structures react to natural hazard events. Improved understanding
    may either prevent future losses or reduce their magnitude. For this
    reason, FEMA's National Mitigation Strategy (NMS) has identified
    applied research and technology transfer as one area for further work.
        Question. Do you feel there is a role for the national laboratories
    in the pre-disaster mitigation program? What is that role?
        Answer. The Department of Energy's National Engineering and
    Environmental Laboratories have a long history of developing and
    transferring state-of-the-art technologies throughout the public and
    private sectors. The laboratories have been involved in studying the
    effects of natural hazards for many years, such as the effects of high
    winds and earthquakes on nuclear facilities. Currently the laboratories
    have numerous initiatives underway in the area of natural hazards
    mitigation. As examples, the Idaho lab is implementing the
    International Multihazard Mitigation Partnership, intended to promote
    full-scale simulation of natural hazards on structures and the Oak
    Ridge lab has formed a partnership with the Roofing Industry Council On
    Wind Impacts (RICOWI) to study the effects of high winds from tornadoes
    hurricanes on roofing systems.
        Question. Could you explain FEMA's position on the need for full-
    scale testing of physical structures against simulated environmental
    phenomena?
        Answer. There is a broad agreement, both inside and outside
    government, that a full scale wind test facility may improve our
    understanding of the performance of buildings, structures, and
    infrastructure when exposed to high winds associated with hurricanes,
    coastal storms, gust fronts, thunderstorm downbursts, and limited
    tornado scenarios.
        FEMA and the Department of Energy have an inter-agency agreement to
    establish a mitigation partnership called the International Multi-
    Hazard Mitigation Partnership (IMMP). The IMMP shall work to achieve
    relevant goals of the National Mitigation Strategy, specifically the
    coordination of applied research and the implementation of research
    results and public education. The IMMP will emphasize wind hazard
    mitigation and utilize the Idaho National Engineering and Environmental
    Laboratory (INEEL) as its applied research instrument.
        Since the benefits derived under the IMMP will be diffused across a
    broad spectrum, FEMA and INEEL believe there must be a broad coalition
    of technical and financial support. FEMA's continued partnership with
    INEEL is predicated on such a broad coalition being established.
    Therefore, FEMA expects that its financial contribution will be
    leveraged against the contributions of others and that the agency's
    future financial contributions will not be the primary source of
    funding for the IMMP or the construction and use of any proposed test
    facilities.
                                     ______

                    Questions Submitted by Senator Mikulski

                        MARYLAND FLOOD TASK FORCE REPORT

        Question. What commitments if any has FEMA made to assist with the
    projects recommended in the Task Force Report?
        Answer. FEMA has committed to working with the State of Maryland in
    order to define statewide mitigation priorities relative to the
    projects and measures identified in the Western Maryland flood
    mitigation report. Prioritization will be based upon costs, projected
    benefits, the effectiveness of the measures, and any other criteria
    which the State believes need to be included. This is a critical step
    in the process of carrying out the mitigation measures and actions
    delineated in the report since the estimated cost of them is, at this
    point, well beyond even those resources available nationwide.
        Question. What time-line has FEMA committed to providing any
    assistance to Maryland for projects outlined in the Flood Task Force
    Report?
        Answer. Two of the projects have already been approved for hazard
    mitigation grant program funds: (1) the floodproofing of the Hancock
    waste water pumping station and (2) floodproofing of the Friendsville
    water treatment plant.
        Question. Will any of the localities be eligible for a greater
    match from FEMA than 75 percent?
        Answer. Matching for hazard mitigation grants is set at 75 percent
    Federal/25 percent State by the Stafford Act.

                        FLOOD INSURANCE CLAIM PROCESSING

        Question. What steps have been taken in the last year by FEMA to
    improve flood insurance claim processing?
        Answer: While there are no published industry guidelines, the
    private insurance industry accepts average claims closure of 60 days.
    They expect 90 percent of all claims to be closed in 90 days. The NFIP
    processing compares very well with private industry. Our record is
    above private industry standards when you consider NFIP's losses are
    much more severe and more difficult to adjust than windstorm losses
    sustained by private industry in similar events.
        In fact, private industry standards for claims check processing is
    7 days from receipt of proof of loss. The average claims check
    processing time for the NFIP is 3 days. Additionally, the standard for
    claims adjustments averages 45 days from receipt of notice of loss. The
    NFIP average is 31 days.
        Ninety-two percent of the National Flood Insurance Program (NFIP)
    policies are written by private insurance companies participating in
    the Write Your Own (WYO) Program under an agreement with the Federal
    Insurance Administrator. The agreement calls for the WYO Companies to
    handle flood insurance as they would any other line of business.
        When a claim is presented by the policyholder, the WYO company
    handles the claim as if it were any other line of business they write.
    Depending on their own rules, they will allow the agent to assign the
    claim to an independent adjuster or the company will make the
    assignment themselves, either to an independent or staff adjuster.
        The other 8 percent of the NFIP policies are handled by the NFIP
    Servicing Agent, National Con-Serv Incorporated (NCSI). These flood
    policies are written through an insurance agent, but there is no
    private company involved. The Federal Insurance Administration (FIA)
    has staff on site to oversee the claims and policy operations.
        At the time of a disaster, the WYO companies or NFIP Servicing
    Agent decide whether to set up a claims office in the area of the
    flooding. This generally depends on how many claims each entity expects
    from the flooding event. Some of the WYO Companies have contracts with
    independent insurance adjusting firms to handle the flood claims;
    others rely on the local agents' knowledge of competent local adjusters
    to handle the claims; and others assign the claims, or some of them, to
    staff adjusters.
        It should be remembered that the NFIP is an insurance operation and
    must deal with an insurance contract that spells out what is covered
    (paid) and under what circumstances. An adjuster is assigned to
    determine what coverage is available to the insured, what the true
    damages are, and what the values of the damaged items are. In order to
    do this, the adjuster must write a building estimate and help the
    insured compile a damaged contents list. All of this activity takes
    some time and may require several visits to the same structure to
    conclude the loss.
        When a homeowner reports a fire claim under his homeowners policy,
    it is assigned to an adjuster, generally a staff adjuster, who has a
    backlog of about 30 claims, assigned to him over a period of a month.
    In a flood catastrophe, the adjuster is assigned about 30 claims, or
    more, all at once. Some structures are not ready to be inspected,
    either because they are not completely dry or actually have flood
    waters in them. Some dwellings are secondary dwellings, and the
    insureds are not in the area. In hurricane catastrophes, some areas are
    inaccessible, either because the roads/bridges are washed out or it is
    too dangerous for anyone other than emergency or repair people to
    enter.
        The FIA has Computer Sciences Corporation under contract to act as
    the NFIP Bureau and Statistical Agent. One of their duties is to employ
    experienced, knowledgeable property insurance ``general adjusters''
    (GA's) to be in the field to help the company and the NFIP Servicing
    Agent adjusters with claims handling in general and with specific
    coverage questions. The GA's also conduct reinspections of claims to
    determine if the rules and regulations of the NFIP are being followed.
        Also, the FIA has seven claims professionals who oversee various
    aspects of the claims process and are available to give guidance to the
    companies, contractors and adjusters. They also handle claims appeals
    that deal with technical issues. The FIA staff go into the field to
    help in the overall claims process and to give support to the Federal
    Coordinating Officer (FCO) at the Disaster Field Office (DFO). The FCO
    is also supported by the NFIP Bureau and Statistical Agent staff in the
    aftermath of a Presidentially declared disaster.
        Finally, to improve NFIP claims processing, the Bureau and
    Statistical Agent holds adjuster workshops all over the United States.
    The adjuster workshops teach what is expected by the NFIP on claims
    handling processes and also claims coverage. Some of these workshops
    are done in conjunction with workshops put on by the larger independent
    claims adjustment firms or for staff adjusters of individual WYO
    Companies. In fiscal year 1996 FEMA conducted 33 workshops.

                               MITIGATION EFFORTS

        Question. Director Witt, like you, I am an advocate for strong
    mitigation efforts that take a proactive approach to reducing the
    impact from nature's fury. At last year's hearing, you mentioned that
    FEMA was working on Memoranda of Understanding (MOU's) with the States
    to establish a statewide mitigation plan within each State where they
    identify their high-priority mitigation projects. What is the status of
    the MOU's? What are the State plans looking like--are the standards
    consistent with FEMA's view of what standards States should meet?
        Answer. After last year's hearings, a workgroup composed of both
    FEMA and State representatives met and determined that there are
    several existing FEMA/State documents beyond MOU's that can serve as
    tools for resolution and clarification of issues. These documents range
    from formal long-term agreements (such as the Performance Partnership
    Agreements), to extremely detailed operational documents (such as the
    Hazard Mitigation Grant Program Administrative Plan).
        Because of the existence of these other tools, FEMA and the
    National Emergency Management Association decided to leave it up to
    each State whether or not they wish to develop a separate MOU with FEMA
    in order to capture high-priority mitigation projects and other
    critical pieces of information that could streamline State mitigation
    activities. FEMA's Regional Offices are currently working with the
    individual States to determine their interest in developing separate
    MOU's.
        Question. FEMA's budget request for fiscal year 1998 includes $50
    million for a pre-disaster mitigation program. Has the program been
    authorized? If not, what is the status of FEMA's attempt to get the
    program authorized? Will the program take into account lessons learned
    in past mitigation work by FEMA and local communities? What are the
    eligibility criteria for communities seeking funding? Will communities
    that have received post-disaster mitigation money in the past be
    eligible for funds? Has FEMA done an analysis of how much money could
    be saved by doing needed pre-disaster mitigation?
        Answer. There is presently no statutory authority for the pre-
    disaster mitigation program for which FEMA has requested $50 million in
    fiscal year 1998 appropriations. However, by July 4 we will be
    submitting draft legislation to amend the Stafford Act to authorize a
    pre-disaster hazard mitigation program.
        In designing the Pre-Disaster Mitigation Program (using the $2
    million already provided by the Congress in fiscal year 1997), FEMA
    considered lessons learned from Federal, State and local mitigation
    activities in order to ensure the success of the program. For example:
      --Historically, the most successful mitigation actions have been
            those which involved persons and organizations from across the
            community. That is why the Pre-Disaster Mitigation Program will
            encourage communities to bring all the necessary players to the
            table from the very beginning to develop a consensus regarding
            mitigation needs and priorities.
      --In many areas, the support of the private sector has been critical
            in gaining the necessary resources and support for mitigation
            work, and in ensuring that the subject mitigation actions
            protect the economic health and vitality of target communities.
            That is why FEMA's Pre-Disaster Mitigation Program will place
            such a heavy emphasis on bringing in private sector partners
            (such as insurance companies, financial institutions, and area
            manufacturers) at an early stage.
      --Communities often have difficulty managing unreasonable
            administrative requirements associated with Federal programs.
            At FEMA, we are committed to reducing paperwork and
            bureaucratic red-tape in the delivery of this new mitigation
            program.
      --Both past experience and research have demonstrated that mitigation
            is a ``dollars and cents'' issue (i.e., incentives are
            necessary to effectively encourage mitigation at the State and
            local levels). This is the reason why the Pre-Disaster
            Mitigation Program will leverage State, local and private
            sector contributions with Federal project funding.
        While these are but a few examples of how we plan to use ``lessons
    learned'' from past experience, they demonstrate that we are trying to
    avoid past mistakes and maximize our successes in implementing this new
    program at FEMA.
        The communities selected to participate in the program will be
    chosen according to a number of factors, including: their level of
    risk; the degree to which the proposed pre-disaster mitigation actions
    and processes will reduce that risk; and the ability to transfer the
    processes, approaches, or technologies to similar at-risk communities
    throughout the United States. In addition, communities will be selected
    according to the proposed level of commitment of State, local, and
    private sector partners (i.e., time, funding and resources brought to
    the table). This should help maximize the ``bang for the buck''
    realized for each taxpayer dollar invested through the Pre-Disaster
    Mitigation Program. Communities will not be disqualified or lowered on
    the priority list simply because they have experienced past disasters
    and have received prior mitigation funding from FEMA.
        The actual level of cost-savings resulting from this program are
    difficult to quantify at this time, since the return on the Federal
    investment will be highly project-specific, and will vary upon the
    amount of non-Federal contribution to each activity. However, we have
    found that mitigation measures return, on average, more than $2 for
    every $1 invested. This demonstrates that an investment in pre-disaster
    mitigation now will result in real cost-savings over the long-term to
    the American taxpayer.

                     FITNESS FOR DUTY/PREPAREDNESS TRAINING

        Question. What is the status of FEMA's work with states on
    developing a plan to evaluate state capability that gauges fitness for
    duty, and not just written reports?
        Answer. FEMA is currently working with our partners to develop a
    formal system that will enable us to assess the effectiveness of State
    and local capabilities. The goal is to create an assessment system that
    will be acceptable to all States and will result in a reliable and
    consistent national evaluation of the state of readiness in the nation.
    Our intent is to have the capability assessment tool tie into and
    complement the States' strategic plans developed as a part of their
    performance partnership agreements developed cooperatively by FEMA and
    the State and local emergency management departments and agencies. We
    expect that we will soon be able to provide an objective appraisal of
    their capabilities and progress.
        It is intended that States will use these Mitigation Assistance
    funds to enhance their capabilities to implement mitigation, and
    provide assistance to local governments to implement mitigation. As a
    result, these funds should have minimized any impact that reduced SLA
    support would have on State mitigation programs.
        Question. The budget request asks for $11.3 million less for
    Preparedness, Training and Exercises. I understand that some of this is
    due to limiting development, revision, and dissemination of field
    courses. How will this impact the ability of FEMA to ensure we have
    adequate fitness for duty training?
        Answer. Nearly 80 percent of the $11.3 million reduction results
    from the redistribution of funds that support the Mt. Weather Emergency
    Assistance Center from the Preparedness, Training and Exercises
    activity to users/customers of the facility. A shift to decentralized
    counter-terrorism programs results in the reduction of approximately 17
    percent of the total reduction. Lastly, less that a two percent
    reduction applied to training activities. This $200,000 reduction will
    somewhat reduce centrally-developed materials which support field
    delivery of training, and will defer two course development/revision
    projects. FEMA has not taken any steps that will reduce fitness for
    duty training, either for our State and local partners, or for in-house
    personnel.
        Question. The Maryland Emergency Management Agency and the National
    Emergency Management Association have contacted me about the negative
    impact experienced at the local level by reductions in the State and
    Local Assistance Grants (SLA). My understanding is that there was a
    $2.9 million cut to SLA for deficit reduction purposes, and that FEMA
    has requested additional money for the account to bring it back up to
    fiscal year 1996 levels. What impact has the cut had on States'
    response and recovery and hazard mitigation efforts?
        Answer. FEMA's fiscal year 1998 budget request for SLA is at the
    same level as the fiscal year 1997 appropriation. This request includes
    funding in support of implementing counter-terrorism activities and
    improving HAZMAT emergency preparedness. FEMA also has several other
    programs that provide assistance, directly or indirectly, to State and
    local governments for the development and enhancement of emergency
    management capabilities.
        The decrease in SLA funds should have had no impact on States'
    mitigation efforts. In fiscal year 1997, FEMA provided an additional $3
    million to States for the purpose of enhancing their capabilities to
    implement hazard mitigation efforts. These Mitigation Assistance funds
    were distributed equally among all 56 States and Territories.
    Additionally, FEMA provides risk-based funds to States that have an
    identified hurricane or earthquake hazard (in fact, during 1997 FEMA
    doubled the funding it provides to hurricane-prone States). Both of the
    Hurricane and Mitigation Assistance funds are provided to States as
    elements of the Mitigation Assistance Program, which is part of the
    FEMA/State Performance Partnership Agreement/Cooperative Agreements
    (PPA/CA) process.
        Our current approach emphasizes development of partnerships with
    State and local emergency management departments and agencies that will
    allow greater flexibility to better meet their needs. FEMA provides
    grants to the States and encourages the locals to work through their
    States to ensure a coordinated effort in working towards the objectives
    identified in their Performance Partnership Agreements. These
    partnerships are based on the expectation, and the confidence, that
    giving the States greater control over the process will enable the
    States and their subdivisions to perform more effectively and
    efficiently. We are developing a nationwide capability assessment
    process in fiscal year 1997 which will allow us to provide an objective
    appraisal of the level of capability among all pieces of the emergency
    management partnership nationwide, and our progress.

                DISASTER RELIEF (FEMA REPORT ON REDUCING COSTS)

        Question. During consideration of last year's VA-HUD bill, FEMA was
    directed to submit a report within 120 days proposing steps to reduce
    disaster relief costs. The draft of this report was delivered to staff
    last week. What has FEMA done to reduce disaster relief costs? How
    effective have these efforts been in reducing costs?
        Answer. As indicated in FEMA's March 13, 1997 Report to Congress
    entitled ``Improving Management Controls in the Disaster Relief Fund,''
    major steps have been taken in the administration of disaster programs
    that have not only helped contain costs, but have also resulted in
    better and more timely service to our customers. Chief among these
    steps is the central processing of our Human Services Programs. We no
    longer establish Disaster Application Centers throughout the declared
    areas or a separate processing center for each disaster--which can be
    very costly in terms of staff and equipment. Rather, disaster victims
    are encouraged to call a toll-free number to register for assistance,
    and all applications are processed at one of three National Processing
    Service Centers. In a similar fashion, a single Disaster Finance Center
    has been established to aggregate disaster payments and reduce overhead
    costs.
        Administrative improvements have been accomplished in many other
    areas to streamline our operations and reduce costs. These include the
    establishment of a Disaster Resources Board to review and monitor
    funding for those support functions needed to support all disasters,
    and reinvigorated efforts for disaster debt collection and disaster
    close-outs.
        FEMA also has a major initiative underway to streamline the Public
    Assistance Program, and has proposed measures to reduce program costs
    by limiting eligibility for certain types of assistance. These measures
    were addressed in a separate March 13, 1997 Draft Report to Congress,
    entitled ``Reducing Disaster Relief Expenditures.'' That report has
    been transmitted to our State partners in emergency management for
    review and comment.
        However, a number of the recommendations from that report are
    already in the process of being implemented.
      --A final report with recommendations to streamline the Public
            Assistance Program will be issued by late April, and measures
            to streamline the program will be pilot tested by early summer.
      --A proposed rule was published in October 1996 to limit appeals from
            three to two. FEMA is now in the process of preparing a final
            rule to reduce the number of appeals.
      --A massive training effort was undertaken in the past year to train
            Public Assistance Inspectors to ensure that the program is
            implemented efficiently and consistently. Over the past two
            years over 1,000 inspectors have been trained.
      --On February 20, 1997 FEMA issued an interim policy stating that
            trees and shrubs would no longer be an eligible cost under the
            Public Assistance Program. On March 10, 1997 a formal policy
            disallowing trees and shrubs was sent to all FEMA regions and
            to States for review and comment.
      --FEMA is in the process of preparing legislative changes that would
            implement many of the other recommendations of the draft
            report.
        It is difficult to calculate the cost savings of many of our
    administrative or program improvements, though we do have specific cost
    figures on some of these measures. FEMA, in a study two years ago,
    calculated that using teleregistration rather than Disaster Application
    Centers for the Human Services Programs has reduced the cost per
    application from $59 to under $14. FEMA's accelerated disaster close-
    out effort has resulted in closing out 415 Human Services Programs,
    with a reconciliation of more than $1.8 billion in the Disaster Relief
    Fund. Of this amount nearly $403 million in obligation authority was
    returned to the Fund.
        Measures to streamline the Public Assistance Program, and to
    restrict types of assistance, are still in the early stages of
    development and implementation so their effectiveness has not yet been
    measured. Cost-savings could potentially be great if substantive
    measures are taken to refocus this program on essential governmental
    facilities and the protection of life and property.
        Question. Which of the options for reducing costs outlined in the
    FEMA report can realistically be implemented in the next 1-2 years?
        Answer. Those recommendations which do not require statutory change
    could be implemented in the next 1-2 years.
        Question. What is FEMA's time-line for implementing the options
    noted in the FEMA report?
        Answer. Those recommendations which can be done without statutory
    change can be implemented within the next 1-2 years. FEMA will also be
    submitting a legislative proposal by July, 1997 to implement those
    recommendations which require statutory change.
        Question. What is the status of work on clarifying the criteria for
    disaster declarations?
        Answer. In the Fall of 1996, FEMA established a Panel on Disaster
    Cost Savings to examine, among other things, the issue of declaration
    criteria. Upon analysis and consultation with our partners, we have
    concluded that the high costs in the disaster program are driven by the
    number of large major disasters and broad eligibility criteria, rather
    than the number of declarations.
        We believe that the current declaration criteria continue to be
    appropriate, and, in order to reduce costs, have placed major focus on
    streamlining activities and targeting eligibility. However, factors
    used to judge severity, magnitude and impact are being updated to
    reflect current dollars and procedures for conducting Preliminary
    Damage Assessment are being reengineered.

               CHEMICAL STOCKPILE EMERGENCY PREPAREDNESS PROGRAM

        Question. FEMA and the Army have been working jointly on the
    Chemical Stockpile Emergency Preparedness Program (CSEPP). I know there
    has been some dispute over the management of the program, and the
    funding of some programs and activities that didn't necessarily fit the
    mission of the program. What is the status of FEMA's involvement with
    the CSEPP program?
        Answer. There have been issues between FEMA and the Department of
    the Army regarding the day-to-day management of CSEPP that require
    resolution. However, while we recognize that there is a perception in
    some quarters that the issues are affecting program delivery, both FEMA
    and the Army have worked very closely to ensure the uninterrupted
    delivery of program services. Given the different operating styles of
    FEMA and the Army, it is reasonable to expect periodic problems to
    arise with program delivery. As they have with previous programmatic or
    stylistic differences, both FEMA and the Army have been taking positive
    steps towards resolving these issues and believe that they will be
    resolved shortly for the maximum benefit of the program. It is
    important to note that FEMA Director James Lee Witt and Secretary of
    the Army Togo West are personally involved in resolving these issues
    expeditiously.
        Question. What are some improvements that you think both the Army
    and FEMA could make to ensure that we are getting the most bang for the
    taxpayers buck, and to make sure we are sticking to the mission of the
    program?
        Answer. With respect to program funding, of over $536 million
    requested to date by the States to support the program, only $240
    million has been provided. In many instances, this difference is the
    direct result of the Federal government's insistence that only projects
    consistent with CSEPP policy be funded. Thus, while in some instances
    States and local governments continue to make budgetary requests which
    exceed programmatic needs, FEMA is confident that strong program
    oversight has minimized the approval of these excess or extravagant
    projects.

                          NATIONAL DAM SAFETY PROGRAM

        Question. The National Dam Safety Act was signed by the President
    in October. This program to help States prevent dam failures seems like
    a prudent investment toward protecting people and property below dams,
    especially considering there are over 1,800 unsafe dams in the country.
    There are 55 high hazard dams in Maryland alone--many of which don't
    have effective emergency warning plans. The issue of effective warning
    systems was raised after the flooding at Port Deposit, Maryland last
    year. What is FEMA doing to implement the Dam Safety Act Program?
        Answer. After the National Dam Safety Act was signed into law, FEMA
    developed a work plan, which established a mechanism and process for
    implementing the new legislation. The work plan consists of nine
    sections:
      --Establish an Interagency Committee on Dam Safety (ICODS).--ICODS
            was originally established in 1980 under Executive Order 12148
            and operated under a Charter published in the Federal Register
            on August 28, 1985. Now that the National Dam Safety Act has
            codified the ICODS, the group's charter is being revised to
            reflect its new status.
      --Develop and Complete the Implementation Plan for the Dam Safety
            Program.--A task force, including representatives from FEMA,
            the Departments of Agriculture, Defense and Interior, the
            Federal Energy Regulatory Commission, and the States, has been
            formed to accomplish this initiative. To date, the Task Force
            has met three times and the assignments made to members have,
            to date, progressed on schedule. The Task Force is on course
            for completion of the implementation plan by the deadline
            established in the National Dam Safety Act.
      --Training for State Dam Safety Officials.--An ICODS training
            subcommittee has been revived, and members are now working on
            developing a list of priorities for new training courses. In
            addition, FEMA recently developed two new courses: (1) Dam
            Safety Emergency Action Plan Development for Dam Owners; and
            (2) Dam Safety Emergency Action Plan Exercise Development for
            Dam Owners. If the funds that were authorized for training are
            appropriated by the Congress, the dissemination of new training
            opportunities will escalate.
      --Establish Goals, Objectives, Priorities, Schedules, and Regulations
            for Implementing the National Dam Safety Program.--The Task
            Force, in a largely parallel effort, is developing information
            on goals, objectives, priorities and schedules necessary to
            prepare the needed regulations. All activities are on schedule
            at this time.
      --Provide Recommendations on Establishment of the National Dam Safety
            Review Board.--The Act specifies the composition of this Board,
            and the Task Force is in the process of developing
            recommendations to present to the FEMA Director on the
            feasibility, desirability and viability of forming this Board.
      --Develop and Implement a Program of Technical and Archival
            Research.--This assignment is being accomplished at two levels:
            (1) the ICODS Subcommittee on Research has been established and
            will identify research needs both at the Federal and non-
            Federal level; and (2) the National Performance of Dams Program
            (located at the Center on the Performance of Dams at Stanford
            University) has been established as an outreach mechanism to
            obtain information and data on dams.
      --Prepare a Biennial Report to Congress on the Status of the National
            Dam Safety Program for Fiscal Year 1996-97.--FEMA has been
            providing biennial reports to the President and Congress since
            1980. This process will continue. The 1996-97 report will be
            ready to transmit to Congress and others by December 31, 1997.
      --Report to Congress on the Availability of Dam Insurance.--We have
            solicited information from the Federal Insurance Administration
            and the Insurance Industry, and are in the process of analyzing
            available data. This report should be ready by April 30, 1997.
      --Develop a Staffing Plan for Implementing the National Dam Safety
            Program.--At this time, two FTE are dedicated to the Program.
            No change in the staffing level is anticipated for fiscal year
            1998.
        Question. I understand that one dam failure last year alone caused
    $5.5 million in damages and the death of one woman. What amount of
    disaster relief funds have been spent by FEMA as a result of dam
    failures over the past five years?
        Answer. While dam failures may have resulted from some incidents,
    they have not been the principal cause of any recent major disaster
    declarations. FEMA's charting of the causes of natural disasters
    generally reflects the weather event (hurricane, storms, tornadoes,
    etc.) which was the initial cause of the declaration.

        COORDINATION EFFORTS WITH COUNCIL ON ENVIRONMENTAL QUALITY (CEQ)

        Question. I know that FEMA works in partnership with other
    agencies. Working in partnerships with other agencies can help produce
    a more effective and efficient government approach to disaster
    readiness, response, recovery, and mitigation. What is FEMA doing to
    coordinate with the Council on Environmental Quality (CEQ) to make sure
    that environmental mandates don't impede relief efforts?
        Answer. FEMA has historically coordinated with CEQ as we developed
    improved environmental compliance methodologies or as complex and
    controversial issues have arisen. Of special note is the fact that CEQ
    recently hired an individual to act as primary point of contact with
    FEMA. This provides a mechanism to better interact with CEQ as we
    continue to improve the process to evaluate and minimize environmental
    impacts of our activities while ensuring environmental mandates do not
    impede relief efforts.
        FEMA, in coordination with CEQ, has undertaken several significant
    initiatives recently which have helped reduce potential impediments of
    environmental compliance. The most significant initiatives include:
      --FEMA has revised its environmental regulations at 44 CFR adding to
            its list of Categorical Exclusions activities requiring minimal
            environmental review and documentation. This has reduced
            environmental review requirements by as much as 50 per cent for
            some Agency programs.
      --FEMA has provided a National Environmental Policy Act (NEPA)
            training course to over 300 FEMA and State Emergency Management
            staff Nationwide to enhance the capabilities of individuals
            involved in environmental review. This has served to provide
            the State Agencies who administer many of FEMA's programs with
            the ability to identify and resolve environmental issues early
            in the relief effort or project development phase.
      --FEMA has hired seven Regional Environmental Officers to coordinate
            environmental issues in the field. This is a significant step
            in the process of decentralization of environmental review that
            will allow for improved coordination between FEMA, other
            federal agencies, and State and local officials on
            environmental issues related to disaster relief efforts.
        Question. I suggested to CEQ Chairman Katie McGinty at their
    hearing in February that FEMA, CEQ and other relevant agencies develop
    SWAT teams that can rapidly determine emergency provisions in
    environmental regulations so that relief efforts won't be unduly
    delayed while FEMA is trying to save lives. What can you commit FEMA to
    doing regarding this coordination of SWAT teams? What can FEMA do to
    involve CEQ in its simulation maneuvers?
        Answer. It is very important to note that provisions within the
    Stafford Act and FEMA's regulations are in place to ensure that
    environmental requirements will never delay FEMA's immediate efforts to
    save life or property. The issue of streamlining environmental review
    requirements by utilizing emergency provisions and through coordination
    with other Federal agencies is an issue which is more relevant in FEMA
    undertakings for which there is sufficient time to plan and evaluate an
    action.
        One of the primary responsibilities of the recently created
    position of Regional Environmental Officer is to coordinate
    environmental issues immediately following a disaster event. This
    includes being located at the Disaster Field Office to coordinate with
    relevant agencies such as the Environmental Protection Agency, the Army
    Corps of Engineers, and the U.S. Fish and Wildlife Service in order to
    streamline implementation of the requirements of the environmental laws
    that these agencies administer. FEMA will continue to further define
    the roles of the Regional Environmental Officers and work with CEQ to
    ensure coordination of relevant agencies, an approach which is
    consistent with the ``SWAT'' team concept.

                              SUBCOMMITTEE RECESS

        Senator Bond. The subcommittee stands in recess until April
    8, at 9:30 a.m., when we will take testimony from the EPA.
        [Whereupon, at 10:58 a.m., Tuesday, March 18, the
    subcommittee was recessed, to reconvene at 9:30 a.m., Tuesday,
    April 8.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                             TUESDAY, APRIL 8, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:34 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Burns, Shelby, Craig, Mikulski,
    Leahy, Lautenberg, and Boxer.

                        ENVIRONMENTAL PROTECTION AGENCY

    STATEMENT OF CAROL M. BROWNER, ADMINISTRATOR
    ACCOMPANIED BY:
            FRED HANSEN, DEPUTY ADMINISTRATOR
            SALLYANNE HARPER, ACTING CHIEF FINANCIAL OFFICER
            AL PESACHOWITZ, ASSISTANT ADMINISTRATOR, OFFICE OF
                ADMINISTRATION AND RESOURCES MANAGEMENT
            JONATHAN Z. CANNON, GENERAL COUNSEL
            DAVID GARDINER, ASSISTANT ADMINISTRATOR, OFFICE OF POLICY,
                PLANNING AND EVALUATION
            ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, OFFICE OF WATER
            TIMOTHY FIELDS, ACTING DEPUTY ASSISTANT ADMINISTRATOR, OFFICE
                OF SOLID WASTE AND EMERGENCY RESPONSE
            MARY NICHOLS, ASSISTANT ADMINISTRATOR, OFFICE OF AIR AND
                RADIATION
            STEVE HERMAN, ASSISTANT ADMINISTRATOR, OFFICE OF ENFORCEMENT
                AND COMPLIANCE ASSURANCE
            LYNN R. GOLDMAN, ASSISTANT ADMINISTRATOR, OFFICE OF PREVENTION,
                PESTICIDES AND TOXIC SUBSTANCES
            ROBERT J. HUGGETT, ASSISTANT ADMINISTRATOR, OFFICE OF RESEARCH
                AND DEVELOPMENT
            WILLIAM A. NITZE, ASSISTANT ADMINISTRATOR, OFFICE OF
                INTERNATIONAL ACTIVITIES
            NIKKI L. TINSLEY, ACTING INSPECTOR GENERAL
            JULIE ANDERSON, ACTING ASSOCIATE ADMINISTRATOR, OFFICE OF
                CONGRESSIONAL AND LEGISLATIVE AFFAIRS
            MARY LOUISE UHLIG, ACTING ASSOCIATE ADMINISTRATOR, OFFICE OF
                REGIONAL OPERATIONS AND STATE/LOCAL RELATIONS
            PHILIP LANGRIGAN, EPA CONSULTANT, CHILDREN'S OFFICE
            J. CHARLES FOX, ASSOCIATE ADMINISTRATOR, OFFICE OF REINVENTION
            W. MICHAEL MC CABE, REGIONAL ADMINISTRATOR, EPA REGION, III
            KATHRYN S. SCHMOLL, COMPTROLLER
            ELIZABETH CRAIG, DIRECTOR, BUDGET DIVISION

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good morning. The subcommittee will come to
    order.
        We meet this morning to take testimony from the
    Environmental Protection Agency on its fiscal year 1998 budget
    request. The request totals $7.6 billion, an increase of $845
    million, or 12 percent over the current budget. Today, we are
    pleased to welcome EPA Administrator Carol Browner, Deputy
    Administrator Fred Hansen, and other EPA officials.
        While most agencies in the VA-HUD portfolio have budget
    requests which would maintain current services at best, EPA
    would enjoy increases in virtually every programmatic area
    under the President's proposal with the exception of clean
    water State revolving funds. Not surprisingly, I do not believe
    EPA's proposal is realistic in the budget environment in which
    we are operating.
        Overall spending available to this subcommittee for
    Veterans Affairs and Housing and Urban Development, EPA, NASA,
    and other areas may not be significantly more than a freeze at
    the current year's level. Yet to maintain current health care
    service for veterans, at last $500 million above last year's
    level would be needed. About $5.6 billion would be needed to
    maintain existing low-income housing contracts scheduled to
    expire next year, and a total of $5 billion will be needed to
    meet FEMA disaster assistance requirements this year and next
    year. Clearly, we have to be looking closely at all aspects of
    EPA's budget requests to ensure that dollars are targeted to
    those areas offering the largest opportunity for risk
    reduction.
        Quite frankly, EPA's budget proposal is disappointing. Last
    year, Deputy Administrator Hansen testified that EPA's fiscal
    year 1998 budget process would be based on a new system,
    bringing together risk-based planning, budgeting, and
    accountability. But there is no evidence that such a process
    was employed to develop the budget for the coming year. It
    seems to me that no hard choices were made to discontinue lower
    priority programs or to reduce costs through program
    efficiencies.
        Despite internal EPA analyses dating back to 1987 that
    found that Superfund sites rank relatively low in risk compared
    to such problems as air pollution and pesticide residue on
    foods, EPA's budget proposes a 50-percent increase, $700
    million for the Superfund program. The proposal seems based
    entirely on a campaign commitment made by the President in
    Kalamazoo, MI, to double the pace of cleanups. If EPA were
    truly applying a relative risk methodology to its budget
    process, I am convinced this program would not merit a 50-
    percent increase.
        While the Superfund budget would increase dramatically, the
    clean water State revolving fund, a program which works well
    and for which tens of billions of dollars are needed, would be
    cut by $275 million. Rumor has it that EPA offered up this
    program to be cut as an offset to the Superfund increase. If
    additional funds are to be found within our allocation, my
    highest priority within EPA will be to restore the cut to the
    clean water SRF program.
        Now, the General Accounting Office has done a little study
    in the high-risk series. It has found that Superfund is 1 of 25
    Government programs which is high risk, subject to fraud,
    waste, abuse, and mismanagement. It is not just the GAO. This
    program has been criticized by many, many in this room, I dare
    say, over the years because it lines the pockets of lawyers
    while sites get studied and studied and studied. Legislative
    reforms have been blocked. But until legislative reforms are
    enacted, I cannot support any increase in this program. If we
    get this program reformed so it cleans up sites, call me
    immediately. I can be reached day or night when a proposal to
    reform Superfund is adopted.
        EPA's fiscal year 1997 budget showed outyear budget
    projections of $1.4 billion through the year 2000 for the
    Superfund program. Yet now we are told $2.1 billion is
    imperative for each of the next 2 years. Indeed, top officials
    at EPA have been quoted in the press warning about the dire
    consequences of not fully funding the President's request for a
    50-percent increase. Why all of a sudden this program became
    EPA's highest priority has not been fully explained. How EPA
    would manage to spend prudently 50 percent more in the program
    has not been explained. Which specific sites will be funded, at
    what cost and when has not been explained. It appears that the
    methodology used to support the Superfund request is flawed,
    and uses inflated cost assumptions, according to the
    Congressional Budget Office.
        Finally, I note that skepticism abounds over the Superfund
    proposal. Senator Chafee, chairman of the authorizing
    committee, has stated:

        That Superfund remains a fundamentally flawed program.
    Cleanups still take too long, many cleanups are still too
    costly, and there is still too much litigation. It would be
    unwise and irresponsible for Congress to authorize a
    significant increase in funding for this program until we
    complete the task of reauthorization and can be sure that the
    money will be used to accelerate the pace of cleanup and
    protect our citizens.

        And the Association of State and Territorial Solid Waste
    Management Officials, in testimony, states:

        We do not know whether there is enough pending work for the
    full $700 million in additional funds requested in fiscal year
    1998, nor that the infrastructure exists to spend it
    effectively.

        Other items in EPA's budget request rekindle debates of the
    past. For example, $149 million is requested for the climate
    change action plan, a 73-percent increase over current spending
    even while the global environment management initiative
    recently reported that voluntary programs are not affected. In
    its recent report, GMI stated programs which depend for their
    success on cooperation, voluntariness, and trust still do not
    fare well. To date, the Green Lights Program, which would enjoy
    the largest proportion of the requested increase, has achieved
    a relatively small amount of greenhouse gas reductions and
    participants have not upgraded as much floor space as
    anticipated.
        Also, an earmark of $100 million is requested for Boston
    Harbor, more than double what was approved in the VA-HUD bill
    last year. While the clean water State revolving funds which go
    to every State on a fair share basis would be cut by $275
    million. Several new initiatives have been proposed with scant
    detail, including an urban livability initiative and a new
    right to know initiative announced by the President in
    Kalamazoo.
        Outside of the budget proposal, we have other concerns.
    While this committee has strongly supported efforts to provide
    more flexibility and reduce oversight on the States, and the
    National Academy of Public Administration recommended 2 years
    ago, recent reports raise concerns about EPA's relationship
    with the States. While EPA promised there would be a new
    partnership, it appears that the marriage is on the rocks. Ms.
    Browner, the Environmental Council of States told you after
    your interview with the New York Times in December, in which
    you criticized State enforcement efforts:

        States are very concerned about what appears to be a
    retreat on your part from the partnership relationship which
    has been carefully, and in some instances painfully built over
    the past 4 years. State commissioners are disappointed to be
    the objects of your apparent lack of trust.

        In addition, there are significant problems with EPA's so-
    called reinvention efforts. Ms. Browner, in our hearings 2
    years ago you told Senator Mikulski:

        We would like nothing better than to see an integration of
    our underlying statutes. I believe we can achieve almost exact
    same results through programs such as the common sense
    initiative. We want to focus our energy on those kind of
    concrete on-the-ground changes. Our reinvestment effort CSL
    project XL will in the end achieve as important results as the
    kind of legislation which you speak of.

        Unfortunately, it appears that project XL and the common
    sense initiative hardly have lived up to the promises made.
    Earlier this year the petroleum industry withdrew from the
    common sense initiative, and the auto industry apparently said
    it would remain a part of CSI until work it has done is
    completed. CSI participants have told us that little has been
    accomplished in the way of meaningful reforms, and too much
    emphasis has been placed on reaching absolute consensus.
        As to project XL, which has been called the centerpiece of
    the administration efforts to reinvent environmental
    regulations, 2 years ago EPA claimed it would be launching 50
    initiatives in 1995. Yet today there have been only three
    project approvals. Bill Sugar, senior director of environmental
    affairs for Anheuser Busch in St. Louis, one of the eight pilot
    XL projects selected in November 1995, has said we could not
    seem to get the out of the box thinking we wanted to get out of
    them.
        EPA recently announced the creation of an Office of
    Reinvention. We look forward to hearing about how this new
    office will reinvigorate these initiatives and get them on the
    track. I would note that the enterprise for the environment
    project under Bill Ruckelshaus' stewardship, is nearing
    completion. EPA has been an active participant in that project,
    and I particularly commend Fred Hansen for the many hours he
    has devoted to it. E4E is intended to offer recommendations for
    an improved environmental management system, including
    legislative recommendations. We are anxiously awaiting the
    final report and recommendations of E4E, and hope to see
    positive bipartisan recommendations to address some of the
    current problems.
        In closing, it is my hope that EPA's appropriation can be
    resolved in an expeditious nonpartisan manner, and that we can
    work together to address some of the problems we are seeing and
    achieve the most effective allocation of resources. We look
    forward to your testimony, and now it is my pleasure to turn to
    my ranking member, Senator Mikulski.

                        STATEMENT OF BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman, and I
    want to welcome Administrator Browner here today, and her team.
    I note that this is Ms. Browner's fifth appearance before this
    subcommittee, and I want to take this opportunity to thank her
    for her efforts and her leadership over the last 5 years.
        I also note that Ms. Browner's tenure has not been
    uneventful. Budget cuts and Government shutdowns have not made
    it easy to do her job or easy for the people who work at EPA to
    do their job. In addition, often a climate of hostility toward
    environmental protection in the Congress as a whole,
    particularly the authorizing committees, has not necessarily
    been the most constructive climate to move our agenda. I
    believe that EPA has survived these challenges, and has taken
    many initiatives to make the long-term changes that are
    necessary to keep up with a changing world.
        I would agree that we need to do more in better management
    and more in better use of technology. I happen to believe that
    environmental protection goes hand in hand with economic growth
    and job creation. Protecting our environment does create jobs,
    and not destroy them. New economic opportunities and markets
    flow from environmental protection services and technology
    which hopefully generate jobs in our own country, and even give
    us an opportunity for global exports with both exporting our
    knowledge, our services, and our technology, an area I would
    like to pursue in our questions.
        Also, Maryland has benefited from the Environmental
    Protection Agency in the bipartisan support for the Chesapeake
    Bay, going back to Richard Nixon, to Senator Mathias, who
    really is the father of the Bay Program, until now. Cleaning up
    the Bay is not only good environment, but it is sure very good
    for Maryland economy. Watermen, commercial fishermen, economic
    development, and a host of other businesses depend upon a clean
    bay to earn a living. The Chesapeake Bay Program is an
    investment in cleaner environment and a healthier economy.
        I also want to talk about two other aspects in our
    questioning that I think will generate jobs, and then, also,
    another to save lives. Administrator Browner, I look forward to
    hearing from you more on the brownfields initiative. The
    brownfields legislation was recently passed by my own Maryland
    General Assembly. We are now looking forward to how brownfields
    could be an absolute tool to helping clean up some of the toxic
    areas around Baltimore that would then leave us new land, and,
    therefore, new opportunity in the very empowerment zone to
    attract jobs.
        We also note the President's child's health initiative,
    which though might not generate jobs, sure saves lives. We note
    again in my own home State of Maryland the rise in lung and
    respiratory illness gives me enormous pause, particularly the
    rise if asthma among children and the onslaught of adult asthma
    among adults is really of concern. This does not seem to have a
    genetic base, but it certainly does seem to have an
    environmental base. And for the little kids in Baltimore that
    we are trying to get in school and having them read by the time
    they are in the third grade, we want to make sure that this is
    an initiative that we want to hear more about, and is not just
    a photo op, just not a press release, and it is not a throw-a-
    line at press conference, but a real initiative.
        I must say that in the budget, though, I am deeply
    concerned about the cut in the State water revolving fund. This
    has been a very important tool when I was both the chairman and
    now as ranking. We get more requests for special projects from
    our colleagues in the Senate around the need to have more water
    infrastructure, and as you know, Ms. Browner, infrastructure in
    our cities is really aging.
        So we look forward to working with you. We want to look at
    how we can reduce costs, and we also want to hear more about
    project XL, the commonsense initiative, and how you have
    continued to implement the NAPA project.
        So I welcome you, fellow or sister resident from downtown
    Tacoma Park, one of the garden spots in Maryland, and look
    forward to your testimony.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Burns.

                           STATEMENT OF CONRAD BURNS

        Senator Burns. Thank you very much, Mr. Chairman. I do not
    have much of a statement. It would not make any difference
    anyway. There are a couple of areas that I cannot get my hands
    on. I got in late last night, and I cannot get my hands on
    them, but I am going to look at them very shortly. We had a
    list of all this money that goes to foreign countries to do
    something that comes out of the EPA. I do not know what it
    does, but I know there is a chunk of it. I would rather spend
    it in this country, to be honest with you.
        I am sensitive to ground water. I want to give you a little
    figure here, and I will tell you why. We in the West get very
    sensitive about our water. I got a daughter that graduates
    medical school in June. Her advice to me right now is very
    economical; however, she says after June 7 it goes up sharply.
    But she said, you know, the increase in the average life span
    of an American has gone up rather sharply since World War II.
    The medical profession cannot take but maybe 5 or 10 percent
    credit for that advance. The rest of it goes as how we handle
    our water, because more life-shortening diseases are waterborne
    than any other disease. So we are sensitive to that, and I want
    to look at it.
        You have also requested 100 more people in each one of your
    regions for EPA people, I think, and this is what I read in a
    newspaper, I think, the Casper Star. Well, anyway, it is always
    a big surprise, but the President has got it in his budget, and
    that should be you, I would imagine. I would want to change the
    emphasis of enforcement to people who help in compliance rather
    than a hammer. I want to carrot people, I do not want hammer
    people. And if I heard anything on small business hearings, and
    we had two of them in Montana and Wyoming over this last break,
    it is that.
        There are people who are willing to comply, but will not
    say much to anybody for the simple reason the way they have
    been treated in the past, and we have got to turn that around
    some way or another, and I do not know how we do it, but that
    is where I am going to place my emphasis, and I will get a hold
    of this other stuff later on.
        Thank you very much, Mr. Chairman
        Senator Bond. Thank you, Senator Burns.
        Senator Lautenberg.

                        STATEMENT OF FRANK R. LAUTENBERG

        Senator Lautenberg. Thank you, Mr. Chairman. I am pleased
    to see Administrator Browner here to talk about the EPA budget
    for 1998. I believe that the President's budget places the
    proper priority on protecting the environment by increasing
    funds for several Environmental Protection Agency programs. It
    also follows through on his pledge to offer a balanced budget
    while advancing the goals that Americans share in continuing
    programs to protect our Nation's environment.
        In poll after poll you will see that people will say I am
    willing to pay more if it goes to environmental cleanup. I want
    to know that it goes directly there, but they are willing to do
    it because that is the one legacy that all of us agree--that we
    ought to be giving our children a better environment in future
    generations.
        I am particularly impressed by the fact that the
    President's budget recognizes the importance of speeding the
    cleanup of our Nation's most hazardous wastesites. After 16
    years, the Superfund Program is now primarily in the
    construction rather than the study phase, and since
    construction is generally more expensive than studies, the need
    for funding is growing. Level Superfund spending would mean
    slower cleanups and a hampered ability to protect our
    neighborhoods and ground water from hazardous waste.
        The President's budget provides an additional $700 million
    for Superfund. It is a 50-percent increase, bring the total
    Superfund spending to over $2 billion. This increased spending
    is the first phase of funding that will allow an additional 250
    Superfund sites to be cleaned up by the year 2000. We will
    double the pace of that cleanup. The fact that the President's
    budget seeks to spend more on Superfund is a good sign. It
    means that we now have a handle on our hazardous waste
    problems, and that we are on the verge of making significant
    progress in expediting the cleaning of hazardous wastesites.
        Some have said that providing additional money to Superfund
    would simply be throwing more money at the problem. Well, in
    1993, I was one of the leading critics who claimed that
    Superfund was severely broken and needed fixing. In fact, in
    his first inaugural address President Clinton committed to
    changing Superfund so that money would go toward cleanup of
    hazardous wastes instead of paying lawyers. Since that time, I
    believe the administration's reform efforts have moved
    Superfund much closer to the goals of faster, fairer, and more
    efficient cleanups.
        It bears noting that these reforms do not reflect only the
    goals of the present administration; rather, Ms. Browner's
    administrative reform efforts were based on studies and task
    force recommendations developed under Administrator Bill Riley,
    a Bush appointee. And as a result of their reform efforts,
    Superfund is no longer in need of drastic overhaul.
        At the same time, I am in negotiation with the
    administration and Senators Baucus, Smith, and Chafee on
    improving Superfund, and I am confident that we can reach
    agreement on the issues that separate us and end up with a bill
    that will meet the goals of faster, fairer, more efficient
    cleanups, and we will receive the support of both parties, the
    various stakeholders, and the administration.
        Whether we fail or not in this ambitious goal, whether it
    takes the Congress one session or two, the President's budget
    recognizes a necessary and proper increase in EPA's budget so
    that we can speed the cleanup of our Nation's most hazardous
    wastesites. Seventy-five percent of the sites have proven
    health impacts, and holding funding hostage while we in
    Washington referee fights between the insurance industry and
    polluters and States and communities is not a position that I
    find appealing.
        I want to again thank Administrator Browner for her hard
    work, her leadership, and I look forward to hearing her
    testimony and her continued service.
        Senator Bond. Thank you, Senator Lautenberg.
        Senator Shelby.

                         STATEMENT OF RICHARD C. SHELBY

        Senator Shelby. I have just got a few remarks.
        Ms. Browner, welcome again to the committee.
        I believe overall that EPA has changed a lot of things for
    the better in this country: clean air, water, you name it, we
    can go on and on. But I want to associate myself with the
    remarks of Senator Burns that I believe your administration, if
    it were guided from the top down, could do a lot of things
    maybe with a velvet glove, a softer glove, and get notice to a
    lot of people that they have got to comply rather than a
    vicious attack on them. I think it would help the Agency and
    the image of the Agency.
        Having said that, I want to support you where I can. But I
    do not believe that everything is money. A lot of it is
    management. A lot of it is administration. I know it takes some
    money, but we are in some tight money situations up here. The
    chairman alluded to that earlier in his opening statement. But
    all of us are having to do basically more with less money, and
    I think EPA might have to do that.
        But I commend you for a lot of good things that I believe
    you are doing. I believe you are committed to the health, clean
    air, and water for people, and water is very, very important.
    Air is very, very important. You do not have to have asthma to
    know that. We all know it. But people with asthma or touches of
    it realize it more than some of us. But think about how you can
    do more with less, how you can be a top-flight administrator
    with less dollars, with fewer dollars, and I think you would
    hit it off not only here but with the American people, because
    overall your purpose is good.
        Thank you.
        Senator Bond. Thank you very much, Senator Shelby.
        Now, Administrator Browner, you have heard all of our
    views. We are ready to hear your testimony.

                         STATEMENT OF CAROL M. BROWNER

        Ms. Browner. Thank you, Mr. Chairman and members of the
    subcommittee, for this opportunity to testify before you on the
    1998 budget request for the Environmental Protection Agency. I
    am proud to be joined by colleagues at the Agency, including
    the new Associate Administrator for Reinvention, Chuck Fox, and
    Dr. Phil Langrigan, who has joined us in our work to create an
    Office of Children's Health.
        As we approach the 21st century, EPA faces many stiff
    challenges in our mission to the public health and the
    environment, including the air, the water, the land, the food
    they eat. We believe that Americans want us to meet these
    challenges, that they want clean, healthy air to breathe, they
    want to know their tap water is safe to drink, and that the
    food they buy is safe to eat. They want us to rid the Nation of
    its toxic waste dumps and to prevent the further pollution of
    America's neighborhoods.
        Americans want their children protected from environmental
    hazards. They want to pass on to their children a safe and
    healthy environment. And they have come to expect that we can
    do the job of protecting their health, their environment, and
    provide for the Nation's economic growth and security. We
    firmly believe, as I think all here believe, that environmental
    protection goes hand in hand with economic progress, that a
    healthy environment is, in fact, vital to the long-term
    economic success of the Nation, and vice versa. Indeed, this
    has been our history.
        EPA celebrates its 27th anniversary this year. Over the
    past 27 years, we have made tremendous strides in cleaning up
    our environment. While we have taken these efforts to reduce
    pollution, America's gross domestic product has nearly doubled.
    Over the past 4 years in particular, President Clinton has
    shown that it is possible to bring down the deficit, restore
    the Nation's economic health, and at the same time strengthen
    protection of public health and the environment.
        The budget request we make today totaling $7.6 billion
    expands on that commitment and that promise. It calls for an
    increase of nearly $850 million over this year's appropriated
    levels, most of which would be used to fund the President's
    call to action to clean up the worst environmental problems
    millions of Americans face in their own community. We are
    talking about doubling our record pace of cleanups at the
    Nation's worst toxic wastesites, and ridding our country of 500
    more Superfund sites by the end of the year 2000. We want to
    expand on our brownfields initiative, so that we can help the
    communities across the country clean up literally thousands of
    old, abandoned industrial sites and return them to productive
    use.
        Additionally, this budget request increases funding for
    expansion of the public's right-to-know about toxic pollution
    in their neighborhoods, without imposing any new reporting
    requirements on anyone. It also means tougher, more aggressive
    criminal enforcement against those who actually pollute our
    air, our water, and our land.

                                NEW LEGISLATION

        On another front, this requested increase enables EPA to do
    its part to implement two major new environmental laws passed
    by Congress last year. Both enjoyed broad bipartisan support:
    The Safe Drinking Water Act amendments of 1996 and the new Food
    Quality Protection Act, are two shining examples of how
    Congress and the administration can work together to protect
    the public health and our environment.
        Under the Safe Drinking Water Act amendments, EPA will
    undertake a variety of new efforts to improve the way we set
    and enforce drinking water standards, protect drinking water
    supplies, help communities upgrade their facilities, and
    provide timely and important information to consumers. The new
    law is a model for regulatory reform. It gives EPA flexibility
    to act on contaminants of greatest risk, and to analyze cost
    and benefits while keeping the public health as the paramount
    concern.
        Under the Food Quality Protection Act, EPA will be adding a
    new level of protection from harmful pesticides in our food.
    The budget includes funds to set a single health-based child-
    first standard for pesticides and all foods.

                          CHILDREN AS A HIGH PRIORITY

        In addition to funding these new, high-priority items, the
    EPA budget request for 1998 supports a greater overall emphasis
    on protecting children. Since the President came to office we
    have tried to put children at the focal point of our mission,
    because they are among the most vulnerable to environmental
    threats. Their bodies, their brains, are still developing.
    Relative to their body weight they consume more of certain
    types of foods and fluids, and breathe more air than adults.
    When we set public health and environmental standards, we will
    do so after taking into account the unique vulnerabilities of
    our children.
        We believe that by doing all of this we will be ensuring
    that everyone is protected. All of these initiatives, Mr.
    Chairman, will be enhanced by our efforts to continue
    reinventing the way EPA works. We are determined to carry out
    our action plan in the most commonsense, cost-effective ways.
    We are resolved to strengthening our partnerships with States
    and tribes, and to providing them more flexibility in how they
    reach the environmental goals we all share.
        We intend to improve our success at reducing redtape,
    adopting alternative strategies so long as they produce
    superior environmental results.
        In closing, Mr. Chairman, this budget will take us further
    down the road toward our goal of a cleaner, safer, and
    healthier environment. It is a budget that says to our citizens
    we can put our fiscal house in order without sacrificing our
    basic values; we can protect both the health of our economy,
    the health of our children; we can have both economic progress
    and environmental protection that is second to none.
        Thank you, Mr. Chairman, and I am happy to answer any of
    your questions.
        [The statements follow:]

                     Prepared Statement of Carol M. Browner

        Mr. Chairman, I appreciate the opportunity to be here before you
    and the Members of your Subcommittee to present the President's 1998
    Budget Request for the U. S. Environmental Protection Agency. This
    request is $7.6 billion and 18,283 FTE's. President Clinton showed
    during his first term that it is possible to reduce the deficit,
    restore the nation's economic health, and protect public health and the
    environment, and he believes in continuing on that course. The
    President and I believe strongly that a healthy environment and a
    strong economy go hand in hand.
        This budget focuses on the environmental challenges of the 21st
    Century by strategically expanding EPA's resources for protecting the
    air we breathe, the water we drink, and the land on which we live. By
    protecting the environment we protect the health of millions of
    Americans, particularly our children, who are often the most vulnerable
    to environmental health risks. Everything we do to clean our air, water
    and soil, and to make the environment more healthy, we do for them.
        The President is requesting an increase for EPA of nearly $850
    million over this year's appropriated levels. When you add the
    additional resources that our agency will be redirecting from other
    areas, this budget contains a total of more than $900 million in new,
    high priority investments for environmental protection and public
    health.
        Last August, the President presented America with a ``call to
    action'' to deal with the most pressing environmental problems faced by
    our nation's communities. Of this year's budget increase, $736 million
    will fund these high priority initiatives, including an acceleration of
    Superfund cleanups, a revitalization of communities through Brownfields
    cleanups, a commitment to expand the public's access to information
    about toxic pollution in their neighborhoods, and a strengthening of
    criminal enforcement against polluters.
        This budget proposes $2.1 billion for Superfund, including a $650
    million increase over 1997 to meet the President's pledge to nearly
    double the pace of toxic waste cleanups. This increase is the first of
    two installments of the $1.3 billion planned to accomplish this goal,
    which will result in the cleanup of another 500 sites by the end of the
    year 2000. Twenty-seven million Americans live near a Superfund site. A
    commitment to clean up these sites means that millions of Americans who
    live near the nation's worst toxic waste sites will start off their
    21st Century in healthier neighborhoods free of toxic impacts. Cleaning
    up toxic waste sites will not only ensure the health of our citizens,
    but will generate jobs and economic development through returning
    damaged areas of our country to productive use.
        This budget also proposes a major expansion of the Brownfields
    initiative with a $50 million increase to the budget, as part of a
    program to ensure cleanup of approximately 5,000 sites by the year
    2000. Restoring these areas through a partnership with communities and
    the Department of Housing and Urban Development will result in economic
    revitalization for communities throughout the country, where scores of
    abandoned commercial properties will be re-developed and put back into
    commercial use.
        Americans have a right to information about toxic pollution in
    their neighborhoods. This budget proposes an additional $35 million for
    an initiative to expand the information available to people about toxic
    threats to their families--without imposing more reporting requirements
    on anyone. Informed, involved citizens will always make far better
    decisions than some distant bureaucracy. Information on toxics will be
    available to American citizens through a comprehensive monitoring
    system with computer links to schools, libraries, and home computers.
        The President has also made a commitment to a more aggressive
    criminal enforcement effort against those who pollute our air, our
    water, and our land. This budget requests a modest funding increase to
    enhance the training available for state, local, and tribal officials
    who work at the grassroots of environmental law enforcement.
        On another front, this budget contains a $36 million increase to
    enable EPA to implement two major new environmental laws passed by
    Congress last year: the Safe Drinking Water Act Amendments and the new
    Food Quality Protection Act. Those bipartisan legislative successes
    show how the Congress and the Administration can work together to serve
    the American people by enhancing the safety of the water we drink and
    the food we eat.
        Under the Safe Drinking Water Act Amendments, EPA will undertake a
    variety of new efforts to improve the way we set and enforce drinking
    water standards, protect drinking water supplies, help communities
    upgrade their facilities, and provide timely and important information
    to consumers. The new law is a model for regulatory reform. It gives
    the EPA flexibility to act on contaminants of greatest risk and to
    analyze costs and benefits, while keeping the public health as the
    paramount concern.
        Under the Food Quality Protection Act, EPA will be adding a new
    level of protection from harmful pesticides in our food. The budget
    includes funds to set a single, health-based, children-first standard
    for pesticides in all foods, along with the resources necessary to re-
    evaluate some 9,000 different pesticides to assure safety and to
    provide better information to the public. By carrying out this act, we
    will help families to have the safest possible food on the dinner
    table.
        In addition to our commitment to helping implement this new
    legislation, the President's budget supports the broad goals of
    protecting children from environmental health threats, revitalizing the
    environmental and economic health of cities, and strengthening
    partnerships with state, local and tribal governments.
        Because children may face significant, long-term, and unique
    threats from environmental toxics, we are taking a comprehensive
    approach to providing children with the strongest possible health
    protection. Children are more at risk from toxics because their systems
    are still developing. Relative to their body weight, children consume
    more of certain types of food and fluids and breathe more air than
    adults. We are addressing these concerns in programs across the Agency
    with an initiative called ``Assessing Health Risks to Children.'' This
    budget dedicates $15.5 million to this initiative. Through focusing
    activities such as standards-setting and scientific research on
    children, we will invest in the health of those Americans who will live
    most of their lives in the next century.
        This budget recognizes that states and tribes play a central role
    in protecting the environment. To strengthen our partnership with them,
    the President requests an increase in the State and Tribal Assistance
    Grants account from $674 million to $715 million. Because tribes face
    some of the greatest environmental challenges today, this increase
    includes $31 million in additional funds to tribes.
        The Administration recognizes the unique circumstances facing
    states and tribes when it comes to environmental protection. Last year,
    Congress enacted the President's proposal for EPA's Performance
    Partnership Grants, which allows states and tribes to combine several
    categorical grants into a single multi-media grant. These grants give
    states and tribes more flexibility to reach environmental goals, and
    they allow less-extensive EPA oversight for States that show strong
    performance. Last year, 20 states took advantage of the flexibility you
    provided in our fiscal year 1996 appropriation. In 1997, we expect at
    least 13 more to use this same flexibility. As more states recognize
    the benefits of these grants, we expect most, if not all, of them to
    participate in this program. We are confident that Performance
    Partnership Grants will continue to reap environmental benefits while
    they streamline grant administration and strengthen our partnerships
    with states and tribes.
        An important part of our partnerships with local governments
    involves helping communities upgrade their drinking water
    infrastructure. This budget proposes $725 million in capitalization
    grants for the new Drinking Water State Revolving Funds, which make
    low-interest loans to municipalities to help them meet the requirements
    of the new Safe Drinking Water Act Amendments. Combined with last
    year's levels, the states will ultimately receive $2 billion to help
    provide all Americans with safe, clean drinking water.
        Through specific initiatives such as the Project XL and the Common
    Sense Initiative, we are reinventing the way EPA does business. Forging
    productive relationships with industry, environmental groups, and
    concerned citizens is a common thread through all that we do at EPA. In
    Project XL, industries are able to adopt alternative strategies to
    current regulations, so long as they produce superior environmental
    results. Industry has responded positively to this initiative. One
    example is Intel's new computer chip manufacturing plant in Arizona. An
    agreement with EPA provides for Intel to reduce overall pollution at
    the plant, as well as inform and involve local residents on
    environmental matters through frequent and regular public meetings. In
    return, Intel gains regulatory flexibility to continue to adapt its
    operations quickly and efficiently in a competitive and rapidly
    changing industry.
        The Common Sense Initiative (CSI) is another commitment to build
    effective partnerships. Through this initiative, EPA is working with a
    variety of stakeholders who have voluntarily come together to explore
    comprehensive environmental strategies for entire industries. The
    future of environmental protection rests on cooperative relationships
    among all stakeholders. CSI can demonstrate how interested sectors can
    work together for the dual goals of environmental protection and
    economic productivity.
        Agency-wide, our reinvention efforts have been bolstered by the
    Government Performance and Results Act (GPRA). Our new processes will
    link planning, budgeting, and accountability to improve EPA's ability
    to focus on targeted environmental results. In 1996 EPA was a major
    player in efforts across the Federal Government to pilot GPRA planning
    activities. We had six of the roughly 70 government-wide accountability
    pilots. In 1997 we have put in place nearly 50 internal Agency pilots
    to help strengthen our ability to manage for results. We believe GPRA
    is a positive tool that can help us reach our most important goal:
    providing the highest level of environmental protection for our
    ultimate customer--the American people.
        Let me conclude by saying that since the start of this
    Administration, we have tried to put children at the focal point of
    EPA's mission. We know that by protecting the most vulnerable among us,
    we will be protecting everyone. This is a budget for America's
    children--and for a cleaner, safer and more healthy environment. It is
    a budget that says to America: ``We can put our fiscal house in order
    without sacrificing our basic values. We can protect both the health of
    our economy and the health of our children.'' The President has made a
    commitment to both goals. With this budget we can carry that commitment
    into the next century.
        I will be happy to answer any questions you have at this time.
                                     ______

       Prepared Statement of Peter F. Guerrero, Director, Environmental
       Protection Issues, Resources, Community, and Economic Development
                      Division, General Accounting Office

        Mr. Chairman and Members of the Subcommittee: We appreciate the
    opportunity to present this statement for the record, which discusses
    the Environmental Protection Agency's (EPA) efforts to improve its
    methods of establishing priorities, allocating resources, and measuring
    performance. As you know, EPA is currently developing a new approach
    for managing its strategic planning, budgeting, and accountability
    processes. The new approach, known as the planning, budgeting, and
    accountability system, responds to the National Academy of Public
    Administration's (NAPA) April 1995 recommendation that EPA improve and
    integrate its management processes.\1\
    ---------------------------------------------------------------------------
        \1\ ``Setting Priorities, Getting Results: A New Direction for
    EPA,'' NAPA (Apr. 1995).
    ---------------------------------------------------------------------------
        In response to this Subcommittee's continuing interest in how EPA
    sets priorities and helps to manage the nation's environment, we
    reviewed the status of EPA's efforts to (1) establish an Office of
    Planning, Analysis, and Accountability to develop and implement an
    integrated planning, budgeting, and accountability system and (2)
    ensure that the agency has comprehensive scientific and environmental
    data and appropriate environmental measures of progress in carrying out
    its strategic planning, budgeting, and accountability processes. Our
    testimony today is based on the preliminary results of our ongoing work
    for the Subcommittee. A final report on our work will be provided to
    the Subcommittee this summer.
        In summary, our preliminary findings are as follows:
        In March 1996, the EPA Administrator announced plans to create a
    new Office of Planning, Analysis, and Accountability. The office was
    established in January 1997. In the interim, an EPA work group composed
    of employees on temporary assignment started to develop the new
    planning, budgeting, and accountability system. However, the work group
    was not fully staffed, and the development of the new system is still
    in the early stages. The new Office of Planning, Analysis, and
    Accountability will not be fully staffed before July 1997.
        EPA faces long-term challenges to obtain the scientific and
    environmental data needed to fully support its new system. Although
    much environmental information has already been collected, many gaps
    exist and the data are often difficult to compile because divergent
    data collection methods have been used. Likewise, much effort is still
    required to identify, develop, and agree on a comprehensive set of
    environmental measures to link the agency's activities to changes in
    environmental conditions. Without environmental measures, EPA has to
    rely solely on administrative measures, such as the number of permits
    issued or inspections made, to measure its performance or success.

                                   BACKGROUND

        In an April 1995 report, the National Academy of Public
    Administration recommended that EPA establish specific environmental
    goals and strategies to attain them, and use comparative risk analyses
    to select priorities and develop strategies for specific programs. NAPA
    also said that EPA should consolidate its planning and budgeting
    functions, use the budget process to allocate resources to the agency's
    priorities, and establish accountability by setting and tracking
    benchmarks and evaluating performance. The NAPA study's recommendations
    are similar to the requirements for federal agencies established by the
    Government Performance and Results Act of 1993 (GPRA). Under GPRA,
    agencies must establish, by September 30, 1997, strategic plans and
    annual performance plans, including annual performance goals and
    performance measures.
        In response to NAPA's recommendations, in July 1995, EPA created a
    task force to study ways to improve the agency's management processes.
    In its report, the task force recommended an integrated system composed
    of strategic planning, budgeting, and accountability processes. In the
    planning process, EPA was to develop a strategic plan that would be
    based on the agency's goals. During the budgeting process, each goal in
    the strategic plan would be considered, and an annual performance plan
    would be prepared showing the agency's progress to date and plans for
    future expenditures. During the accountability process, EPA would
    determine progress under the annual plans and use the data on progress
    to make corrections in the strategic and annual performance plans.
        In March 1996, the EPA Administrator and Deputy Administrator
    endorsed the task force's recommendations for developing an integrated
    planning, budgeting, and accountability system and directed that the
    recommendations be implemented. In making a commitment to substantially
    revise the agency's management systems, EPA officials recognized that
    the effort would take several years to complete. The EPA Administrator
    and Deputy Administrator also announced plans to create a new office by
    January 1997 to consolidate the agency's planning, budgeting, and
    accountability processes. In the interim, a work group composed of
    employees on temporary assignment was established to begin developing
    the new system.

                EPA IS IN THE PROCESS OF STAFFING ITS NEW OFFICE

        In January 1997, the EPA Administrator approved the structure and
    staffing plans for the new office, called the Office of Planning,
    Analysis, and Accountability. The interim work group that had been
    assigned to develop the new system was detailed to the new office to
    continue its work. The work group has 21 employees, fewer than half the
    number that EPA had planned for the group.
        The new office is authorized 49 employees. As of the end of March
    1997, EPA had published job announcements to fill 26 of the new
    positions. EPA officials told us that these announced positions, which
    are open only to current EPA employees, will be filled in May 1997. The
    remaining positions, which are to be announced governmentwide, are not
    likely to be filled before July 1997. The officials told us that the
    office was not fully staffed when it was established because time was
    required to determine the most appropriate types of skills and work
    experiences needed and to implement a competitive process for selecting
    staff.
        Given the office's limited staffing, the development of an
    integrated system is in the early stages. For example, EPA is reviewing
    the agency's former accountability process to find out what did and did
    not work well, contacting other federal agencies to determine how they
    account for progress in meeting their goals, and examining reporting
    systems in the agency's program offices to identify their potential use
    in the new system. EPA hopes to have the accountability component in
    place by September 1999. According to EPA officials, the development of
    the new budgeting component will begin after the agency completes its
    strategic plan in September 1997. They said that EPA's fiscal year 1999
    budget will be structured along the lines of the goals in the strategic
    plan.
        Thus far, the work group members have spent most of their time
    developing a strategic plan, which is required by September 30, 1997,
    under GPRA. An important part of the new strategic planning process is
    the selection of goals and objectives that can be used to guide the
    agency's actions and to measure its performance. Although EPA is making
    progress toward developing its strategic plan, it has not completed two
    studies that are intended to identify the most appropriate goals for
    the agency and to provide the latest scientific information on
    environmental risk.\2\ EPA officials told us that the September 30,
    1997, strategic plan will be updated, as appropriate, to reflect the
    final results of these studies, which are likely to be completed in
    late 1997 or early 1998.
    ---------------------------------------------------------------------------
        \2\ One of the studies, EPA's National Environmental Goals Project,
    is being performed to establish a set of long-range national
    environmental goals with realistic and measurable milestones for the
    year 2005. The other study, the Integrated Risk Project, is being
    performed to rank the relative risk of environmental problems, and to
    develop methodologies that EPA can use to make future risk rankings.
    ---------------------------------------------------------------------------

      EPA MUST OVERCOME INFORMATION CHALLENGES TO IMPLEMENT ITS NEW SYSTEM

        Although EPA continues to expand and improve the environmental data
    it compiles, it still needs to fill data gaps; improve the quality of
    its data; integrate information systems; and build the capability to
    compile, organize, and analyze the data in ways useful to EPA managers
    and stakeholders. In addition to the measures of outputs or program
    activities that it currently relies on to assess its performance, EPA
    is working to develop environmental measures that enable the agency to
    evaluate the impact of its programs on the environment and determine
    whether they are achieving the desired results.
            epa's environmental data and systems need to be improved
        The need to assess EPA's performance in terms of changes in
    environmental conditions substantially increases the demand for high-
    quality environmental data. Such data are also needed to identify
    emerging problems so that they can be addressed before significant
    damage is done to the environment. Despite EPA's efforts to improve the
    quality of its data, these data are often unreliable, and the agency's
    many disparate information systems are not integrated. These
    shortcomings have been raised in various external and internal reports
    on EPA, including the Vice President's report on reinventing
    government.\3\
    ---------------------------------------------------------------------------
        \3\ ``Reinventing Environmental Regulation,'' National Performance
    Review (Mar. 16, 1995).
    ---------------------------------------------------------------------------
        In its April 1995 report, NAPA also identified the lack of high-
    quality data on environmental conditions as a particularly important
    problem for EPA. NAPA specifically noted the limited amount of
    information based on the real-time monitoring of environmental
    conditions. Without monitoring data, EPA must rely on estimates and
    limited, site-specific data. NAPA also concluded that much remains to
    be done to improve the overall management of environmental information
    in the agency. It noted that EPA had over 500 information systems and
    that program offices, which are responsible for their own data, use
    different methods and definitions to gather data. Furthermore, EPA
    relies on data compiled by other federal agencies and the states.
    According to NAPA, these agencies and the states also use divergent
    methods of collecting data.\4\
    ---------------------------------------------------------------------------
        \4\ In ``Environmental Protection: EPA's Problems With Collection
    and Management of Scientific Data and Its Efforts to Address Them''
    (GAO/T-RCED-95-174, May 12, 1995), we testified that our previous
    reports had identified long-standing data quality and data management
    problems at EPA.
    ---------------------------------------------------------------------------
        More recently, a 1996 EPA report concluded that the agency needs to
    redesign its many disparate fiscal and environmental data systems so
    that it and others can measure its success in meeting environmental
    goals and determine the costs of doing so.\5\ The agency's difficulty
    in demonstrating its performance or the impact of its actions is
    illustrated by the findings of a team of agency personnel, which was
    formed in 1995 to evaluate the agency's needs for environmental
    information. The team identified various problems with the information
    needed to report on environmental goals, such as gaps in the data and
    inconsistencies in the methods of collecting and/or reporting data
    across states or federal agencies. Specific examples include the lack
    of (1) national reporting on risk reduction at waste sites, (2)
    reliable data on the nature and cause of pesticide poisonings, (3)
    effective reporting on progress in improving the nation's water
    quality, and (4) complete data on air pollutants.
    ---------------------------------------------------------------------------
        \5\ ``Managing for Results,'' EPA's Planning, Budgeting, and
    Accountability Task Force (Feb. 23, 1996).
    ---------------------------------------------------------------------------

              EFFORTS TO DEVELOP ENVIRONMENTAL MEASURES NEED FOCUS

        EPA and the states are devoting considerable attention to
    developing environmental indicators or measures for use in assessing
    programs' performance and better informing the public about
    environmental conditions and trends. Some efforts are just starting,
    while some of the agency's program and regional offices and some states
    have begun to use these measures in reporting on their programs'
    performance. Although EPA and state officials believe that
    environmental measures are more useful than measures of activities for
    assessing programs' performance, they recognize that scientific and
    technical issues have to be addressed before indicators that really
    measure environmental conditions and trends can be widely used.
    Developing and using environmental indicators for an entire program
    presents significant challenges.
        The scientific and technical challenges include identifying (1) a
    range of health or environmental conditions that can be measured and
    (2) changes in these conditions that can be linked to a program's
    activities. These tasks are especially difficult because natural
    causes, such as changes in weather patterns, and other factors outside
    a program's control can affect environmental conditions. In some cases,
    data or indicators are not available for a specific aspect of the
    environment because of high costs or technical difficulties. Thus, it
    could be some time before EPA is able to develop and use a set of
    environmental indicators that accurately reflect the impact of its
    programs or their results.
        According to EPA officials, the agency's and the states' efforts to
    develop and use environmental measures have been valuable but
    disparate. Furthermore, at a conference convened by EPA in September
    1996 to better coordinate these efforts, as well as in interviews
    conducted by EPA staff to prepare for the conference, regional and
    state representatives cited several concerns. They said, for example,
    that (1) clarification is needed on EPA's and the states' direction in
    developing goals and indicators, (2) the qualities of a good indicator
    are not well understood, and (3) determining whether the best
    indicators have been chosen will take many years. The representatives
    also believed that the data and resources needed to develop and use
    environmental indicators are inadequate.
        An additional challenge will be to reach agreement within EPA and
    among its stakeholders on the specific environmental indicators that
    will be used to measure performance. A consensus may be difficult to
    reach because of the potential for debate on what is important about
    individual programs and whether a relatively small number of measures
    can adequately reflect the effects of an agency's or a program's
    activities. EPA will need a set of measures common to all the states to
    report to the Congress and the public on the agency's performance and
    the state of the nation's environment. At the same time, the
    development of national measures, to the extent that such measures
    drive the implementation of environmental programs, will reduce the
    states' flexibility to tailor the programs to meet local needs and
    conditions, a major concern of the states. Reporting on new measures
    will also increase the states' costs unless other reporting
    requirements are eliminated or reduced.
        In May 1995, EPA signed an agreement with state leaders to
    implement a new system of federal oversight for state environmental
    programs. This new National Environmental Performance Partnership
    System (NEPPS) fundamentally changes EPA's working relationship with
    the states because it places greater emphasis on the use of
    environmental goals and indicators, calls for environmental performance
    agreements between EPA and individual states, and provides
    opportunities for reducing the agency's oversight of state programs
    that exhibit high performance in certain areas. As of March 1997, about
    half of the states had signed performance partnership agreements to
    participate in the system.
        EPA's Office of Regional Operations and State/Local Relations is
    developing a set of core performance measures, including some
    environmental indicators, that the agency's regional offices are to use
    in negotiating annual work plans and agreements with the states. The
    core measures are to be focused and limited in number, representing
    measurable priorities for each of EPA's national program managers. They
    are to serve as the minimum measures in performance agreements with the
    states, which may develop additional measures to represent their own
    environmental or programmatic issues. In addition, a particular core
    measure may not be required if a state can demonstrate that the measure
    does not apply or cannot be addressed. According to EPA, its national
    program managers will finalize their core measures in April 1997 and
    its regional staff will begin negotiations with the states to
    incorporate the measures into the agreements for fiscal year 1998. At
    this point, it is too soon to know how extensively EPA's regional
    offices will be negotiating measures that reflect programs' direct
    effects on human health and the environment.
                                     ______

       Prepared Statement of Stanley J. Czerwinski, Associate Director,
      Environmental Protection Issues, Resources, Community, and Economic
                Development Division, General Accounting Office

        Mr. Chairman and Members of the Subcommittee: We appreciate this
    opportunity to provide a statement for the record for use in the
    Subcommittee's hearing on the Environmental Protection Agency's (EPA)
    fiscal year 1998 appropriation. As you requested, we have reviewed
    certain aspects of EPA's contracts and assistance agreements \1\ that
    are used to accomplish the work of the Superfund program. Specifically,
    we are providing information on (1) the total amount of unspent
    obligated funds remaining on completed contract work orders and
    assistance agreements and the EPA offices and regions primarily
    responsible for administering these funds and (2) the timeliness of
    EPA's recovery of such funds.
    ---------------------------------------------------------------------------
        \1\ Assistance agreements include grants, cooperative agreements,
    and interagency agreements. Grants provide financial assistance to
    organizations to carry out a program without substantial federal
    involvement. Cooperative agreements provide financial assistance and
    require substantial federal involvement to carry out a program.
    Interagency agreements transfer funds between federal agencies.
    ---------------------------------------------------------------------------
        In summary, we found the following:
      --As of December 1996, about $249 million in unspent obligated funds
            was potentially available to be recovered on over 6,000
            completed work orders and assistance agreements. EPA's Office
            of Solid Waste and Emergency Response and its regional offices
            located in Atlanta, New York, and Philadelphia administer most
            of the funds.
      --In the early 1990's, EPA recognized the need to take more timely
            action to recover unspent funds. However, according to the
            agency's Inspector General, EPA's offices responsible for
            managing contracts and assistance agreements were not provided
            sufficient resources to do so, while carrying out their other
            responsibilities. Consequently, in 1994, EPA created the
            Superfund Deobligation Task Force to respond to a growing
            backlog of completed work orders and assistance agreements, and
            the associated unspent funds. Since fiscal year 1994, the task
            force has recovered over $400 million. However, the task force
            is not keeping up with a growing backlog of completed work
            orders and assistance agreements because it is composed of
            part-time members who perform these activities only when their
            primary job responsibilities enable them to do so.

                                   BACKGROUND

        EPA relies heavily on contracts and assistance agreements for the
    Superfund program, which was created to clean up the nation's most
    hazardous waste sites. EPA relies on contractors to accomplish the work
    of the program, including (1) cleaning up hazardous waste sites, (2)
    supervising cleanups performed by others, and (3) providing technical
    and scientific support to the program. Contracts are generally used to
    obtain the services of private businesses when EPA manages the work.
    Assistance agreements are generally used to support the activities of
    states, nonprofit organizations, and universities in the Superfund
    program. From fiscal years 1990 through 1996, Superfund contracts
    accounted for $5 billion, or 57 percent, of the $8.8 billion that EPA
    obligated for all contracts awarded during that period. From fiscal
    years 1990 through 1995, the most recent period for which information
    is available, EPA entered into 620 Superfund assistance agreements
    valued at about $387 million.
        EPA issues individual work orders to describe the specific tasks
    and requirements to be completed on contracts. When a new work order is
    awarded or a new assistance agreement is entered into, EPA obligates an
    amount equal to the estimated cost of the work. As work progresses, EPA
    releases funds to contractors or the recipients of assistance
    agreements and liquidates its obligations. In many instances, the
    amount of funds obligated exceeds the amount eventually needed to pay
    the contractor or other entities for the completed tasks and other
    requirements. In such cases, the unspent funds may be deobligated and
    recovered when all work has been completed or when the specified period
    of performance has expired. Before recovering unspent funds, EPA
    reviews the completed contract or assistance agreement to ensure that
    all appropriate payments have been made. EPA leaves between 10 to 15
    percent of the total expenditures made under the contract or assistance
    agreement as a reserve to cover any additional costs, as determined by
    a final audit. Recovered funds are to be used for other Superfund
    activities, since congressional appropriations for the Superfund
    program remain available for use until expended.
        EPA contracting officers or grant specialists are responsible for
    reviewing the costs of the work and performing other closeout
    activities. The maximum amount of time allowed for closing out
    contracts according to the Federal Acquisition Regulation is 36 months
    from the date the contracting officer receives evidence of the
    project's completion. Similarly, EPA's Final Closeout Policy for
    Assistance Agreements specifies that assistance agreements be closed
    within 180 days after completion.

     SUBSTANTIAL UNSPENT FUNDS COULD BE RECOVERED FROM INACTIVE SUPERFUND
                      CONTRACTS AND ASSISTANCE AGREEMENTS

        Using EPA's data systems,\2\ we identified contract work orders and
    assistance agreements having unspent obligations for work that has been
    completed or for which the specified performance period has expired.
    Our analysis of the data shows that about $249 million in unspent funds
    are potentially available for recovery, mostly on contracts and
    agreements administered by the Office of Solid Waste and Emergency
    Response and three EPA regional offices. As shown in table 1, hundreds
    of work orders or agreements were completed prior to 1991.
    ---------------------------------------------------------------------------
        \2\ The EPA data systems that we used include (1) the Contracts
    Information System, (2) the Financial Information System, (3) the
    Grants Information and Control System, and (4) the Management and
    Accounting System. We did not verify the accuracy or reliability of the
    data systems.

      TABLE 1.--BALANCES OF UNSPENT OBLIGATIONS BY CONTRACT AND ASSISTANCE
                             AGREEMENTS' COMPLETION
    ------------------------------------------------------------------------
                                              No. of orders/
                   Fiscal year                  assistance        Unspent
                                                agreements      obligations
    ------------------------------------------------------------------------
    1981-84.................................               7        $100,945
    1985-87.................................              30       1,542,836
    1988-90.................................             886      16,871,139
    1991-93.................................           2,477      68,923,588
    1994-96.................................           2,682     161,484,102
                                             -------------------------------
          Total.............................           6,082     248,922,610
    ------------------------------------------------------------------------

        We found that each of EPA's 10 regional offices and various
    headquarters offices currently have unspent balances obligated for work
    that has been completed. (See app. I.) Completed work orders and
    agreements administered by the Office of Solid Waste and Emergency
    Response total over $54 million in unspent funds. In addition, such
    funds total over $43 million in region 2 (New York), over $18 million
    in region 3 (Philadelphia), and over $30 million in region 4 (Atlanta).
    These four agency units account for approximately $145 million, or
    about 58 percent, of the $249 million potentially available for
    recovery.
        EPA officials told us that the Office of Solid Waste and Emergency
    Response has a large amount of unspent funds because the Superfund
    Deobligation Task Force, thus far, has given higher priority to
    recovering funds in EPA's regions. However, the director of the task
    force told us that more emphasis will be placed on headquarters' units
    during fiscal year 1997. He also told us that EPA regions located in
    the eastern part of the United States, such as regions 2, 3, and 4,
    typically award a greater number of Superfund contracts and assistance
    agreements than other regions and, therefore, have more unspent funds
    on work orders and agreements.

              TIMELY ACTIONS HAVE NOT BEEN TAKEN TO RECOVER FUNDS

        EPA has experienced a continuing problem in recovering unspent
    funds on completed Superfund work orders and assistance agreements. To
    address this problem, EPA created a Superfund Deobligation Task Force,
    which has succeeded in recovering nearly $400 million in unspent funds
    since fiscal year 1994. Nevertheless, the backlog of completed work
    orders and assistance agreements with unspent funds continues to grow,
    as additional work orders and assistance agreements are completed.
    Consequently, on October 1, 1996, the agency implemented a policy that
    allows EPA offices to use the funds they recover for their own
    Superfund activities, rather than returning them to the agency for
    redistribution. However, thus far, this incentive has not resulted in
    increased recoveries of funds.

    Recovering Unspent Funds Is a Long-Term Problem
        In December 1990 hearings before the Subcommittee on Oversight and
    Investigations, House Committee on Energy and Commerce, we said that
    EPA's failure to recover unspent funds increased the government's need
    to borrow; increased the agency's vulnerability to fraud, waste, and
    abuse; and resulted in missed opportunities to obtain interest payments
    due the government from overpayments to contractors.\3\ A few years
    later, EPA's Inspector General reported that, as of March 1993,
    contracts awarded under the Superfund program still had balances of
    over $100 million in unspent obligated funds that were no longer needed
    for their original purposes.
    ---------------------------------------------------------------------------
        \3\ ``EPA's Contract Management: Audit Backlogs and Audit Follow-Up
    Problems Undermine EPA's Contract Management'' (GAO/T-RCED-91-5, Dec.
    11, 1990).
    ---------------------------------------------------------------------------
        According to the Inspector General's report, EPA had experienced
    delay in recovering unspent funds because it had given a low priority
    and few resources to closing contracts, which involves ensuring that
    all goods and services have been received, evaluating performance, and
    resolving all outstanding issues or problems. The report stated that
    EPA's Contract Management Division had requested, but not received,
    additional resources to carry out these responsibilities in a more
    timely manner.
        In addition, according to the Inspector General's report on
    assistance agreements,\4\ EPA officials stated that competing
    priorities for staff resources also has resulted in untimely closings
    of Superfund assistance agreements. Officials of EPA's Grants
    Administration Division, which administers the agreements, stated that,
    while closeout functions are important, the division places more
    emphasis on entering into new assistance agreements than on closing old
    ones.
    ---------------------------------------------------------------------------
        \4\ ``Final Report of Audit on EPA's Controls Over Assistance
    Agreements,'' EPA's Office of Inspector General (Sept. 28, 1995).
    ---------------------------------------------------------------------------
    EPA's Task Force Has Recovered Substantial Funds
        To handle a backlog of completed work orders and assistance
    agreements, in 1994 EPA established a Superfund Deobligation Task
    Force. The task force is composed of about 30 part-time members,
    representing several headquarters offices and each of EPA's 10 regional
    offices. Members review individual contract work orders to identify
    completed projects, determine the amount of unspent funds available for
    deobligation, and prepare requests to deobligate and recover the unused
    funds. The task force gives priority to work orders and assistance
    agreements with the largest potential recovery of funds.
        After the task force identifies unspent funds, EPA takes action to
    deobligate and recover them, except for an amount held in reserve
    pending a final audit of the actual costs of the work. If the reserve
    funds are not sufficient to cover the final costs, as determined by the
    audit, EPA uses current-year appropriated funds to pay the difference.
        Since fiscal year 1994, the task force has recovered over $400
    million. However, we found that substantial funds remain on work orders
    and assistance agreements that were completed years earlier. For
    example, our analysis shows that 3,400 work orders and assistance
    agreements were completed more than 3 years earlier, the maximum amount
    of time that the Federal Acquisition Regulation and EPA's regulations
    allow for closing out contracts and assistance agreements. Funds
    totaling approximately $87 million, or about 35 percent, of the $249
    million that we identified were associated with these orders and
    assistance agreements. If the work orders or assistance agreements are
    not closed within the time specified, EPA is required to do so as soon
    as possible.
        Furthermore, while the task force has recovered substantial funds,
    it apparently is not keeping up with a growing backlog of completed
    work orders and assistance agreements. For example, in a May 1, 1996,
    statement for the record to the Subcommittee on VA, HUD, and
    Independent Agencies, House Committee on Appropriations, we said that
    unspent funds on completed work orders totaled $164 million as of March
    1, 1996.\5\ Our analysis shows that as of January 1, 1997, such unspent
    funds had grown by $13 million, an increase of about 8 percent.
    ---------------------------------------------------------------------------
        \5\ ``Environmental Protection: Selected Issues Related to EPA's
    Fiscal Year 1997 Appropriation'' (GAO/T-RCED-96-164, May 1, 1996).
    ---------------------------------------------------------------------------
        Task force officials told us that during fiscal year 1996, they
    spent less time on recoveries than they had during the previous 2
    fiscal years. The task force recovered $160 million in fiscal year
    1994, $170 million in fiscal year 1995, but only $67 million in fiscal
    year 1996. According to task force officials, fewer staff resources
    were provided and fewer funds were recovered during fiscal year 1996
    because higher priority was given to other work requirements of the EPA
    units providing the part-time task force members.
        These officials also told us that EPA does not have records showing
    the amount of time that members spend on their task force activities
    but noted that it is not unusual for competing priorities to severely
    limit the staff resources that are available. The officials also told
    us that EPA has never performed an analysis to determine the resources
    needed to eliminate the agency's backlog and to keep pace with new
    completed work orders and assistance agreements.
        The director of the task force told us that EPA intends to continue
    with its task force approach. He acknowledged, however, that other
    options may be considered if sufficient progress is not made in
    achieving timely recoveries of unspent funds. Among such options are
    adding resources to the EPA organizations responsible for managing and
    auditing contracts and grants so that they may be closed in a more
    timely manner.

    New Incentive Policy
        EPA believes that a new policy, initiated on October 1, 1996, may
    result in additional recoveries by providing more incentive to
    headquarters and regional task force members to identify, deobligate,
    and recover funds on completed work orders and assistance agreements.
    Until fiscal year 1997, recovered funds were placed in a central pool
    and then distributed on the basis of national Superfund priorities. As
    of October 1, 1996, the funds remain with the offices recovering them
    to meet the offices' Superfund cleanup needs. EPA officials told us
    that this new policy might achieve better results by providing greater
    incentive to EPA offices to deobligate and recover unspent funds. The
    officials acknowledged, however, that under the new policy, task force
    members must still find time to perform the recovery activities while
    meeting other work requirements having higher priority within their
    organizational units.

                                  CONCLUSIONS

        The recovery of substantial unspent funds on completed Superfund
    contract work orders and assistance agreements could help EPA in
    meeting its responsibilities for cleaning up Superfund hazardous waste
    sites. Although the agency has taken actions to recover such funds, it
    has not succeeded in eliminating a substantial backlog of completed
    work orders and assistance agreements while keeping pace with annual
    additions to the backlog. Consequently, EPA is not achieving timely
    recoveries of these funds, as required by agency policy and the
    applicable federal contracting regulation.

                                 RECOMMENDATION

        To recover unspent funds on inactive Superfund contract work orders
    and assistance agreements, we recommend that the Administrator of EPA
    develop a strategy for identifying, deobligating, and recovering
    unspent funds within the period specified for contracts by the Federal
    Acquisition Regulation, and for assistance agreements by EPA's Final
    Closeout Policy for Assistance Agreements.

                                AGENCY COMMENTS

        EPA officials, including the Director of the Budget Division,
    Office of the Comptroller, generally agreed with the information
    contained in this statement for the record. They also agreed that a
    strategy was needed for recovering unspent funds within the period
    specified by Federal Acquisition Regulations and EPA's regulations. We
    have incorporated clarifying comments provided by EPA where
    appropriate.

                                   Appendix I

         FUNDS AVAILABLE FOR DEOBLIGATION FROM SUPERFUND WORK ORDERS AND
        ASSISTANCE AGREEMENTS BY EPA ORGANIZATION AS OF DECEMBER 2, 1996
    ------------------------------------------------------------------------
                                                    No. of
                                                   orders/
                                                  assistance     Estimated
                  EPA organization                agreements     recovery
                                                    to be
                                                 deobligated
    ------------------------------------------------------------------------
    Region 1...................................          229      $7,668,938
    Region 2...................................          589      43,569,654
    Region 3...................................          423      18,983,622
    Region 4...................................          590      30,651,835
    Region 5...................................          452      18,905,755
    Region 6...................................          247      11,504,173
    Region 7...................................          243       8,764,694
    Region 8...................................          190      12,931,893
    Region 9...................................          275      14,986,054
    Region 10..................................          175      11,218,870
    Office of Research and Development.........          704       5,061,885
    Office of Solid Waste and Emergency
     Response..................................        1,088      54,905,483
    Office of Policy, Planning, and Evaluation.          113       1,802,992
    Office of Administration and Resources
     Management................................          497       4,751,486
    Office of Enforcement and Compliance
     Assurance.................................          132       2,086,980
    Miscellaneous..............................          135       1,128,296
                                                ----------------------------
          Total................................        6,082     248,922,610
    ------------------------------------------------------------------------

                          PROPOSED SUPERFUND INCREASE

        Senator Bond. Thank you very much, Madam Administrator.
        To go back to the points that I raised in my opening
    questions, EPA's most significant budget proposal is for
    Superfund, where there is a 50-percent increase proposed. The
    amount requested, $2.1 billion, is the highest ever requested,
    at a time when budget constraints are tighter than ever. In the
    fiscal year 1997 budget EPA requested, and the Congress
    provided, a $1.4 billion Superfund budget. Last year EPA
    projected outyear Superfund budgets of $1.4 billion through the
    year 2000. Now EPA claims a budget of $2.1 billion for each of
    the next 2 years is imperative. What I would like to know is
    what occurred between the preparation of last year's budget and
    the President's trip to Kalamazoo at which a decision was made
    to increase the budget by 50 percent for fiscal year 1998 and
    1999, and why did this program suddenly become a much higher
    priority for EPA?
        Ms. Browner. The Superfund Program, the cleanup of the
    Nation's worst toxic dump sites, has long been a priority for
    the EPA. Since I came to EPA almost 4\1/2\ years ago, this
    program has taken almost more of my time than any other
    program. It is a large undertaking. It is one that is important
    to literally thousands of communities across the country.
        We have made progress in this program, that we would all
    agree has had its share of problems. I am the first to say that
    and I have said it for 4 years. I have worked hard to change
    the day-to-day management of this program, and I think you can
    see the effects. In the last 4 years we have cleaned up more
    sites than had been cleaned up in the entire 12 years prior to
    that. This is an example of how we are getting the job done
    faster, fairer, and more efficiently. We looked at the number
    of large toxic dump sites that would be ready to go into the
    final cleanup phase. This phase takes approximately 2 years,
    and we have a growing number of such sites. With additional
    money we could get these done on an expedited basis. We could
    give these communities back the productive use of these sites.
    It is just that simple. We have moved the sites through the
    early phases of the program. We now have in excess of 600 sites
    where either construction or design is underway. In other
    words, in the next 2 years we will have candidates ready to do
    the final 2 years of work if the dollars are there. It is that
    simple. There is nothing else going on.
        Senator Bond. Well, we all like to see progress, but quite
    frankly, as you indicated earlier, the program is matured. One
    of the reasons that we are able to move forward is because
    there has been 12 years of study, and we are at the position
    where more sites are ready to go into the construction phase.
        But is it not true that Superfund sites rank relatively low
    on a risk continuum, and that EPA could achieve substantially
    greater risk reduction by applying $650 million to other EPA
    programs such as the air program?
        Ms. Browner. Mr. Chairman, we are responsible for
    implementing more than a dozen national environmental laws.
    They each speak to different problems. In the case of
    Superfund, I think Congress ought to speak to the needs of
    individual communities, of the people who live next to a toxic
    dump site, who want their children to be able to play and drink
    the ground water, and who want a quality of life free of toxic
    contamination. In looking at the needs of those communities, in
    looking at our desire to be responsive to the needs of those
    communities, this is the best investment we can make. Let us
    get the job done.
        We can all spend a lot of time talking about why it took us
    so long to get here. I think we would all agree, there were
    problems. The truth of the matter is, today we have the sites
    ready to go. Why not get it over with and give these
    communities back their neighborhoods?

                       SUPERFUND: NEW YORK TIMES ARTICLE

        Senator Bond. Well, you will recall you were questioned
    about this previously in the Sunday New York Times of March 21,
    1993. There was a very thoughtful article calling environmental
    policy misguided. Quote:

        These experts say in the last 15 years environmental policy
    is too often evolved largely in reaction to popular panics, not
    in response to sound scientific analysis, of which
    environmental hazards present the greatest risks.

        It goes on to state:

        That as an example few experts question the value of
    spending roughly $3 billion each year on new sewage treatment
    plants. Many experts, however, question the wisdom of spending
    billions of dollars to protect people from traces of toxic
    compounds,

        To which you responded in that article, quote,

        The President is aware of this dilemma, and there is
    leadership in this administration for trying to change the way
    we do business in every aspect of governing, including
    environmental protection. We have to allow for change to occur
    as new information becomes available. This is not an area where
    a solution will fit forever.

        And then the article goes on to say almost everyone
    involved, including community and local environmental groups,
    agrees that the toxic waste program stands as the most wasteful
    effort of all.
        Ms. Browner. That is a quote from me?
        Senator Bond. No.
        Ms. Browner. That does not sound like me.
        Senator Bond. I said the article went on to say that. I
    would like your response based on what purports in the New York
    Times article to be the state of scientific thinking. How do
    you respond to the priority for putting money into Superfund?
        Ms. Browner. I apologize. I think it is an older article,
    and I am not familiar with it at this point. I would be more
    than happy to look at it.
        Senator Bond. We will be happy to share it with you.
        Ms. Browner. I can tell you that from day one of coming to
    EPA I believed, the President believed, that we had to change
    the way Superfund functioned on a day-to-day basis, and that is
    why we have instituted literally dozens of administrative
    reforms. It is why we have been able to reduce the amount of
    time it takes to clean up a site. It is why we have been able
    to reduce the amount of money that is necessary to clean up a
    site. It is why we have been able to take out the small parties
    that no one thinks should be trapped in the Superfund net. It
    is why we have been able to come up with better technologies
    and presumptive remedy. There are a whole host of changes that
    result in a very different program today than yesterday.
        In terms of the people who live in these communities, in
    terms of their experiences of these sites, in terms of the
    health effects and the environmental effects, which they deal
    with on a day-to-day basis, getting the job done is probably
    the most important thing we can do for these people at this
    point in time, and that is why we seek an increase in the
    budget. This would allow us to complete 500 sites by the end of
    the year 2000 to give these neighborhoods a future.
        Senator Bond. Thank you, Madam Administrator. In the words
    of General MacArthur, I shall return.
        Senator Mikulski.

                             BROWNFIELDS INITIATIVE

        Senator Mikulski. Thank you, Mr. Chairman.
        Ms. Browner, as you know, one of my great passions is
    really to be able to generate jobs, believing that the best
    social program is a job. And our urban areas are so hard hit in
    the ability to do so. This is why I am tremendously interested
    in the brownfields initiative. The Maryland General Assembly
    has just passed legislation. We are recommending funds for a
    substantial brownfields initiative. And I am very much
    interested in knowing how the brownfields initiative will work,
    and No. 2, how will EPA be working with urban areas,
    particularly those that have urban or enterprise zone like my
    own hometown, what will that mean in terms of your initiative,
    coordination with HUD, working with the mayor and the county
    executive on the ground to make sure we not only clean up a
    lemon, but in the process create a whole new lemonade stand?
        Ms. Browner. That is precisely what we have been doing.
    Approximately 3 years ago, after meeting with mayors from
    across the country, it became clear to me that these brownfield
    sites were something we needed to address. Within our existing
    budget resources, we began a modest program of providing
    relatively small dollars to allow communities and cities to
    assess the nature of contamination and bring in those who would
    both clean up and redevelop the sites. This program turned out
    to be far more successful than anyone could have imagined on
    the front end. That is why we are here today asking for an
    increase in the dollars that we can make available to local
    communities across the country.
        What we have seen at the brownfield sites that we funded in
    the early phase of the program is really quite remarkable. We
    have seen in community after community that when a site is
    cleaned up, businesses are reopened, jobs are created, and a
    tax base is restored. What we want is to replicate that in
    many, many more communities.
        The increase that we seek, $50 million, is in addition to a
    base of $37 million. That would allow for a total of $87
    million for this program. It would allow us to dramatically
    increase the number of assessment grants. We currently make
    $200,000 assessment grants to cities. It would allow us to
    create a revolving loan fund for cleanup at 106 pilots. We have
    found sometimes a little bit of money is needed on the front
    end. We could make a grant that would then be loaned out and it
    would be repaid.
        Senator Mikulski. How will it work, like, in a city? How
    will it work in a city?
        Ms. Browner. In an individual city they would receive a
    grant, as they can right now. There would be more available. A
    certain percentage of those would be available in the
    empowerment zone communities. They would be able to take that
    money, go out and do an assessment of the sites that they think
    are appropriate for redevelopment. They would bring in the
    developers, bring in the banks, bring in the lenders, and
    actually see the job of cleanup restoration.
        Senator Mikulski. In the communities?
        Ms. Browner. Yes.

                             CHESAPEAKE BAY PROGRAM

        Senator Mikulski. Will you be coordinating with Housing and
    Urban Development on this initiative so that we are actually
    working to leverage each other, because the chairman said
    without limited resources in the subcommittee and cuts in HUD,
    as well, we need to make sure that every dollar of EPA money
    and HUD money is actually working for empowerment so that
    people can move from work to welfare and move to work.
        Let us then go on to the Chesapeake Bay Program, which I
    know is of your great interest. The bay program has been in
    existence for 10 years, and does seem to show cleanup results.
    But yet, at the same time, oyster and crab harvest have been
    declining in the bay. My question is, First of all, and I am
    sure you would agree, you do not want to see our watermen
    become as much of an endangered species as our oysters and our
    crabs. How is the Chesapeake Bay Program now going to move from
    research to results, from research to focusing on how to
    maintain both water quality, but also deal with the species
    decline of oysters and crabs and clams in the bay?
        Ms. Browner. The primary focus of the Chesapeake Bay
    Program is working out in the field. For example, we have found
    working with farmers to deal with nitrogen control practices,
    that to be a tremendous problem throughout the region. Working
    a field in terms of habitat restoration, the States, the
    District, and EPA have made a commitment to restoring habitat
    along the bay and along the streams that feed into the bay. I
    think, at this point in time, it is fair to say we have moved
    beyond the research phase and are out in the field. As
    important as the environmental protections are, so are the
    economic realities of the bay. I think the bay is a good
    example of how we can achieve both a better environmental
    protection and an economic growth.
        But it is not without its challenges. This is an area that
    is experiencing tremendous growth, and that is probably our
    single greatest challenge. We have to continue to work in the
    partnership from Pennsylvania all the way down to EPA to find
    the commonsense, cost-effective, and on-the-ground solutions
    that we are now implementing.
        Senator Mikulski. Thank you, Mr. Chairman. I see my time is
    up.
        Ms. Browner, I look forward to EPA issuing the proposed
    cluster rule for the paper industry that has had a great impact
    on those jobs in western Maryland, Westvaco. Westvaco is the
    only thing we have got going in western Maryland now with the
    close of the Bausch & Lomb.
        Ms. Browner. As you know, we have probably spent hundreds
    of hours in meetings with both industry, community
    representatives, and States' officials. We do anticipate
    sending that to OMB in the course of this month for their
    interagency review.
        Senator Mikulski. Thank you.
        Thank you, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Shelby.

                                NAAQS PROPOSALS

        Senator Shelby. Thank you, Mr. Chairman.
        Administrator Browner, do you agree that the American
    people have a basic right to know the scientific basis for the
    EPA's rulemaking proposals?
        Ms. Browner. Yes.
        Senator Shelby. Has the data used to support the ozone and
    particulate matter rule been made available to the public? In
    other words, the information?
        Ms. Browner. There has been a 4-year public process
    reviewing the science that underlies our proposal.
        Senator Shelby. What does that mean?
        Ms. Browner. That means there were many, many meetings of
    the Science Advisory Board held in the public. There are more
    than 250 peer-reviewed published scientific reports that have
    been made available to the public. We have not had this kind of
    extensive scientific review and public discussion. This is not
    an EPA internal review; this is external.
        Senator Shelby. Excuse me. Did you say you have not had it
    before?
        Ms. Browner. This kind of review.
        Senator Shelby. You have not had this type of scientific
    review?
        Ms. Browner. Not of this magnitude. We began this 4 years
    ago when I first came to EPA.
        Senator Shelby. OK.
        Ms. Browner. To just explain one thing briefly, we have
    dramatically changed in the last 4 years both how we do our
    scientific review and how we subject our science to peer
    review: whether it be our own internal science or science we
    looked at from outside of the Agency. We have dramatically
    increased the number of peer-review panels we use.

                             NAAQS: SCIENTIFIC DATA

        Senator Bond. Do you believe that your basic decisions
    regarding health should have a scientific basis?
        Ms. Browner. Absolutely.
        Senator Shelby. Has EPA, Administrator Browner, received
    any Freedom of Information requests for this information
    regarding your scientific data?
        Ms. Browner. Senator Shelby, with all due respect, I think
    I know the question you are asking. So if I might say what I
    think the question is then maybe I can answer it a little bit
    more directly.
        Senator Shelby. You go right ahead.
        Ms. Browner. There have been some who have raised a
    question about some of the data that underlies some of the
    published peer reviewed studies in the 200-plus studies that we
    and our external peer-review panel relied on in reaching a
    scientific proposal regarding a health standard for air. Those
    data bases, one of which is at Harvard, another of which is
    with the American Cancer Society, underlie those studies. We
    have encouraged both Harvard and the American Cancer Society to
    make those databases public.
        Senator Shelby. Excuse me just 1 minute. Do you have those
    databases?
        Ms. Browner. No; we do not.
        Senator Shelby. You do not have what they came up with?
        Ms. Browner. What the scientific community does in this and
    any other effort of this type is look at the scientific studies
    that are done.
        Senator Shelby. Absolutely.
        Ms. Browner. We have all of the peer-reviewed studies.
        Senator Shelby. Excuse me just 1 minute. But you at EPA, as
    the Administrator, you commissioned these people----
        Ms. Browner. No.
        Senator Shelby. You do not, to do these studies?
        Ms. Browner. Not necessarily, no.
        Senator Shelby. Well, did you in any of these cases? Did
    you commission or encourage the American Society to do a study
    in this regard?
        Ms. Browner. No; we did not commission or encourage the
    American Cancer Society to collect this data or to do a
    particular study. No; we did not.
        Senator Shelby. But have you requested from them as the
    Administrator the data in which they based their decisions?
        Ms. Browner. The American Cancer Society.
        Senator Shelby. I know who they are. I just asked you a
    question. Have you requested from them as the Administrator the
    data on which they based their decision?
        Ms. Browner. The American Cancer Society does not have any
    decision. They have a database that any scientist with an
    appropriate scientific research question can access. They have
    a written protocol. Anyone can access it.
        Senator Shelby. Do you have that.
        Ms. Browner. No; do we have the protocol? We would be more
    than happy to get it for you, certainly. It is a written
    protocol of what a scientist should do.
        Senator Shelby. Would you get that and furnish it to the
    committee and to this Senator?
        Ms. Browner. Yes, we would be more than happy to.
        [The information follows:]

                           Cancer Prevention Study II

                                  DESCRIPTION

        Cancer Prevention Study II (CPS-II) is a prospective mortality
    study of approximately 1.2 million American men and women, begun in
    1982. Participants were recruited into the study in all fifty states,
    the District of Columbia, and Puerto Rico by approximately 77,000
    volunteers for the American Cancer Society. Many of the participants
    were friends, neighbors, or acquaintances of the volunteers. Enrollment
    was restricted to adult members (age 30 or older) of families in which
    at least one household member was 45 years or older.
        Each participant completed a four page confidential questionnaire
    and returned it in a sealed envelope. Baseline questions included
    personal identifiers, height, weight, demographic characteristics,
    personal and family history of cancer and other diseases, use of
    medicines and vitamins, menstrual and reproductive history (women),
    occupational exposures, dietary habits, alcohol and tobacco use and
    various questions regarding exercise and behavior. For males, the
    questionnaire covered 376 items, and for females, 395 items.
        During the first six years of follow up (September 1, 1982 to
    August 31, 1988), each participant's vital status was determined at two
    year intervals through personal inquiries by the volunteers. Volunteers
    were asked to check whether their enrollees were alive or dead and to
    record the date and place of all deaths. Death certificates were
    subsequently obtained from State Health Departments and coded by a
    nosologist according to a simplified system based on the International
    Classification of Disease, 9th revision (92 categories). For deceased
    persons whose death certificates mentioned cancer, clinical information
    was sought from cancer registries, physicians and hospitals to verify
    the primary cancer site and histologic type.
        The CPS-II study population is being traced beyond 1988 using
    computerized linkage with the National Death Index (NDI), a database of
    all deaths in the U.S. NDI provides ACS with a list of deceased
    persons, their dates of death, states of death, and death certificate
    numbers. With this information, ACS National is able to obtain most
    death certificates directly from the State Health Departments. Vital
    status follow-up at completion of the 1991 follow-up is shown in Table
    1.
        Follow up of CPS-II is expected to continue for many years (See
    Figure 1) to maximize the information obtained from this valuable
    study.

                            CPS-II NUTRITION SURVEY

        In the Fall of 1992 and 1993 we recontacted approximately half of
    the CPS-II Study population (men and women age 50-74 in 21 states) and
    obtained updated information on nutrition and other cancer risk factors
    on approximately 90,000 men and 100,000 women. The 21 States (26
    Divisions) participating in this survey were California, Connecticut,
    Florida, Georgia, Illinois, Iowa, Louisiana, Maryland, Massachusetts,
    Michigan, Minnesota, Missouri, New Mexico, New Jersey, New York, North
    Carolina, Pennsylvania, Utah, Virginia, Washington, and Wisconsin.
        Our objective is to establish ongoing cancer incidence follow-up
    for the CPS-II Nutrition Survey cohort through linkage with state
    cancer registries. We then will be able to study the association of
    many factors (e.g. diet, lifestyle, environment) reported in both 1982
    and 1992 with cancer incidence. Because we will continue our mortality
    follow-up of the entire CPS-II cohort (through linkage with the NDI),
    we also will be able to study the association between reported risk
    factors and survival.
        A new questionnaire will be sent to the CPS-II Nutrition Survey
    cohort in the Fall of 1997. This questionnaire will update information
    on exposures and will also capture self-reported cancer incidence.

                                  PUBLICATIONS

        As of March 1997, 56 scientific papers on CPS-II had been published
    or were about to be published in peer-reviewed journals. CPS-II is also
    discussed extensively in two reports by the U.S. Surgeon General on The
    Health Consequences of Smoking (1989), and The Benefits of Quitting
    Smoking (1990). A list of references is attached.

                                ONGOING ANALYSES

        Staff in the Epidemiology and Statistics Program are currently
    conducting a series of analyses on CPS-II. These include analyses of
    diet, hormones, and other risk factors for selected common fatal
    cancers, analyses of risk factors for fatal breast and prostate cancer,
    and updated dose-response analyses between smoking and mortality.
    Collaborative studies are underway with the National Cancer Institute,
    the Centers for Disease Control, and several universities.

                              CPS-II PUBLICATIONS

    In Press
        1. Heath CW, Lally CA, Calle EE, McLaughlin JK, Thun MJ.
    Hypertension diuretics, and anti-hypertensive medications as possible
    risk factors for renal cell cancer. Am J Epidemiol, 1966.
        2. Kahn HS, Tatham LM, Rodriguez C, Calle EE, Thun MJ, Heath CW.
    Stable behaviors associated with adults' 10-year change in body mass
    index and likelihood of gain at the waist. Am J Public Health, 1996.
        3. Thun MJ, Day-Lally C, Myers DG, Calle EE, Flanders WD, Zhu BP,
    Namboodiri MM, Heath CW. Trends in tobacco smoking and mortality from
    cigarette use in Cancer Prevention Studies I (1959-1965) and II (1982-
    1988). In: National Cancer Institute, Smoking and Tobacco Control,
    Monograph 6: Changes in Cigarette-Related Disease Risks and Their
    Implication for Prevention and Control. Washington, DC: National
    Institutes of Health.
        4. Thun MJ, Myers DG, Day-Lally C, Namboodiri MM, Calle EE,
    Flanders WD, Adams SL, Heath CW. Age and the exposure-response
    relations between cigarette smoking and premature death in Cancer
    Prevention Study II. In: National Cancer Institute, Smoking and Tobacco
    Control, Monograph 6: Changes in Cigarette-Related Disease Risks and
    Their Implication for Prevention and Control. Washington, DC: National
    Institutes of Health.
        5. Thun MJ, Heath CW. Changes in mortality from smoking in two
    American Cancer Society prospective studies since 1959. Prev Med.
    Published
        1. Calle EE, Mervis CA, Thun MJ, Rodriguez C, Wingo PA, Heath CW.
    Diethylstilbestrol and risk of fatal breast cancer. Am J Epidemiol
    1996;144:645-52.
        2. Cardenas VM, Thun MJ, Austin H, Lally CA, Clark WS, Greenberg
    RS, Heath CW. Environmental tobacco smoke and lung cancer mortality in
    the American Cancer Society's Cancer Prevention Study II. Cancer Causes
    Control, 1997;8:57-64.
        3. Miracle-McMahill HL, Calle EE, Kosinski AS, Rodriguez C, Wingo
    PA, Thun MJ, Heath CW. Tubal ligation and fatal ovarian cancer in a
    large prospective cohort study. Am J Epidemiol 1997;145:349-57. Calle
    EE, Mervis CA, Thun MJ, Rodriguez C, Wingo PA, Heath CW.
    Diethylstilbestrol and risk of fatal breast cancer. Am J Epidemiol
    1997; 144:645-52.
        4. Rodriguez C, Tatham LM, Thun MJ, Calle EE, Heath CW. Smoking and
    fatal prostate cancer in a large cohort of adult men. Am J Epidemiol
    1997;145:466-75.
        5. Collaborative Group on Hormonal Factors in Breast Cancer. (Calle
    EE, Heath CW, Jr., Miracle-McMahill HL, collaborators). Breast Cancer
    and Hormonal Contraceptives: Further Results. Contraception 54, No.3
    (Supplement), 1996.
        6. Collaborative Group on Hormonal Factors in Breast Cancer. (Calle
    EE, collaborator). Breast cancer and hormonal contraceptives:
    collaborative reanalysis of individual data on 53,297 women with breast
    cancer and 100,239 women without breast cancer from 54 epidemiological
    studies. Lancet 347:1713-27, 1996.
        7. Doll R. Cancers weakly related to smoking. Br Med Bull
    1996;52:35-49.
        8. Peto R, Lopez AD, Boreham J, Thun M, Heath C, Jr, Doll R.
    Mortality from smoking worldwide. Br Med Bull 1996;52:12-21.
        9. Steenland K, Thun MJ, Lally CA, et al. Environmental tobacco
    smoking and ischemic heart disease in the American Cancer Society CPS-
    II cohort. Circulation 1996;94:622-628.
        10. Steenland K, Lally C, Thun M. Parity and coronary heart disease
    among women in the American Cancer Society CPS-II population.
    Epidemiology 1996;7:641-643.
        11. Soucie JM, Coates RJ, McClellan W, Austin H, Thun M. Relation
    between geographic variability in kidney stones prevalence and risk
    factors for stones. Am J Epidemiol 1996;143:487-95.
        12. Willis DB, Calle EE, Miracle-McMahill HL, Heath CW. Estrogen
    replacement therapy and risk of fatal breast cancer in a prospective
    cohort of postmenopausal women in the United States. Cancer Causes
    Control 1996;7:449-57.
        13. Thun MJ, Day-Lally CA, Calle EE, Flanders WD, Heath CW. Excess
    mortality among cigarette smokers: Changes in a 20-year interval. Am J
    Public Health 1995;85:1223-1230.
        14. Thun MJ, Heath CW. Aspirin use and reduced risk of
    gastrointestinal tract cancer in the American Cancer Society
    Prospective Studies. Prev Med 1995;24:116-118.
        15. Rodriguez C, Calle EE, Coates RJ, Miracle-McMahill HL, Thun MJ,
    Heath CW. Estrogen replacement therapy and fatal ovarian cancer. Am J
    Epidemiol 1995;141:828-835.
        16. Pope, CA, Thun MJ, Namboodiri MM, Dockery DW, Evans JS, Speizer
    FE, Heath CW. Particulate air pollution as a predictor of mortality in
    a prospective study of U.S. adults. Am J Respir & Crit Care Med
    1995;151:669-674.
        17. Holmberg L, Ekbom A, Calle EE, Mokdad A, Byers T. Parental age
    and breast cancer mortality: a cohort study of 384,000 women.
    Epidemiology 1995:6:425-427.
        18. Calle EE, Mervis CA, Wingo PA, Thun MJ, Rodriguez C, Heath CW.
    Spontaneous abortion and risk of fatal breast cancer in a prospective
    cohort of U.S. women. Cancer Causes Control 1995;6:460-468.
        19. Calle EE, Miracle-McMahill HL, Thun MJ, Heath CW. Estrogen
    replacement therapy and risk of fatal colon cancer in a prospective
    cohort of postmenopausal women. J Natl Cancer Inst 1995;87:517-523.
        20. Thun MJ, Aspirin, NSAIDS, and digestive tract cancers. Cancer
    Metastasis Rev 1994;13:269-277.
        21. Soucie JM, Thun MJ, Coates RJ, McClellan W, Austin H.
    Demographic and geographic variability of kidney stones in the United
    States. Kidney Int 1994;46:
        22. Thun MJ, Calle EE, Myers DG, Heath CW. Response. Hair coloring
    products: safe or still suspect? J Natl Cancer Inst 1994;86:943-944.
    (Correspondence.)
        23. Calle EE, Miracle-McMahill HL, Thun MJ, Heath CW. Cigarette
    smoking and risk of fatal breast cancer. Am J Epidemiol 1994;139:1001-
    1007.
        24. Thun MJ, Altekruse SF, Namboodiri MM, Calle EE, Myers DG, Heath
    CW. Hairdye use and risk of fatal cancers in women. J Natl Cancer Inst
    1994;86:210-215.
        25. Thun M, Namboodiri M, Calle EE, Heath CW. Nonsteroidal
    antiinflammatory drugs in skin cancer revisited: Response. J Natl
    Cancer Inst 1993;85:581. (Correspondence).
        26. Calle EE, Martin LM, Thun MJ, Miracle HL, Heath CW. Family
    history, age, and risk of fatal breast cancer. Am J Epidemiol
    1993;138:675-681.
        27. Thun MJ, Namboodiri MM, Calle EE, Flanders WD, Heath CW.
    Aspirin use and risk of fatal cancer. Cancer Research 1993;53:1322-
    1327.
        28. Calle EE, Terrell DD. Utility of the National Death Index for
    ascertainment of mortality among Cancer Prevention Study II
    participants. Am J Epidemiol 1993;137:235-241.
        29 Halperin Mt, Gillespie BW, Warner KE. Patterns of absolute risk
    of lung cancer mortality in former smokers. J. Natl Cancer Inst
    1993;85:457-464.
        30. Thun MJ, Calle EE, Namboodiri MM, Flanders WD, Coates RJ, Byers
    T, Boffetta P, Garfinkel L, Heath CW. Risk factors for fatal colon
    cancer in a large prospective study. J Natl Cancer Inst. 1992;84:1491-
    1500.
        31. Peto R, Lopez AD, Boreham J, Thun M, Heath C. Mortality from
    tobacco in developed countries: indirect estimation from national vital
    statistics. Lancet 1992;339:1268-1278.
        32. Lee PY, Silverman MK, Rigel DS et al. Level of education and
    the risk of malignant melanoma. J Am Acad Dermatol 1992;26:59-63.
        33. Thun MJ, Namboodiri M, Heath CW. Aspirin use and reduced risk
    of fatal colon cancer. N Engl J Med 1991;325:1593-1596.
        34. Shopland DR, Eyre HJ, Pechacek TF. Smoking-attributable cancer
    mortality in 1991: is lung cancer now the leading cause of death among
    smokers in the United States? J Natl Cancer lnst 1991;83:1142-1148.
        35. Garfinkel L, Boffetta P. Association between smoking and
    leukemia in two American Cancer Society prospective studies. Cancer
    1990;65:2356-2360.
        36. Garfinkel L, Boffetta P. Smoking and Estrogen-Related Sites
    Data from American Cancer Society Studies. In Smoking and Hormone
    Related Disorders. N. Wald, J. Baron (Eds.). Oxford, England: Oxford
    Medical Publications, 1990.
        37. Stellman SD, Garfinkel L. Proportions of cancer deaths
    attributable to cigarette smoking in women. Women Health, 1989;15:19-
    28.
        38. Garfinkel L, LaVerda N. Dietary patterns of nurses. Proc of 5th
    National Conference on Cancer Nursing. American Cancer Society, 1989.
        39. Stellman, SD. Brief Reports: The case of the missing eights--An
    object lesson in data quality assurance. Am J Epidemiol, 1989;129:857-
    860.
        40. Boffetta P, Stellman SD, Garfinkel L. A case-control study of
    multiple myeloma nested in the American Cancer Society prospective
    study. Int J Cancer 1989;43:
        41. Stellman SD, Garfinkel L. Patterns of artificial sweetener use
    and weight change in an American Cancer Society prospective study.
    Appetite (suppl. II) 1988;85-91.
        42. Stellman SD. Sweetener usage in America. A brief history and
    current usage patterns. In G.M. Williams (Ed.), Sweeteners: Health
    Effects. Princeton, NJ: Princeton Scientific Publishers. 1988:1-18.
        43. Stellman SD, Boffetta P, Garfinkel L. Smoking habits of 800,000
    American men and women in relation to their occupation. Am J Ind Med
    1988;13:43-58.
        44. Boffetta P, Stellman SD, Garfinkel L. Diesel exhaust exposure
    and mortality among males in the American Cancer Society prospective
    study. Am J Ind Med 1988;14:403-415.
        45. Garfinkel L, Stellman SD. Mortality by relative weight and
    exercise. Cancer 1988;62:1844-1850.
        46. Garfinkel L, Stellman SD. Smoking and lung cancer in women:
    findings in a prospective study. Cancer Res 1988;48:6951-6955.
        47. Stellman SD, Garfinkel L. Patterns of reported age: Lack of
    digit bias. JAMA 1987;257:2593-2594. (Correspondence).
        48. Garfinkel L, Stellman SD. Cigarette smoking among physicians,
    dentists, and nurses. CA cancer J Clin 1986;36:2-8. (Reprinted in World
    Smoking & Health 1986;11:2-9).
        49. Stellman SD. Cigarette yield and cancer risk: Evidence from
    case-control and prospective studies. In: Zaridze D, Peto R, Eds.
    Tobacco: A major international health hazard. International Agency for
    Research on Cancer, Lyon, IARC 1986;74:197-209.
        50. Stellman SD, Garfinkel L. Artificial sweetener use and one-year
    weight change among women. Prev Med 1986;15:195-202.
        51. Stellman SD, Garfinkel L. Smoking habits and tar levels in a
    new American Cancer Society prospective study of 1.2 million men and
    women. J Natl Cancer Inst 1986;76:1057-1063.

                 OTHER IMPORTANT PUBLICATIONS USING CPS II DATA

        U.S. Department of Health and Human Services. Reducing the Health
    Consequences of Smoking. 25 Years of Progress. A Report of the Surgeon
    General. U.S. Department of Health and Human Services, Public Health
    Service, Centers for Disease Control, Center for Chronic Disease
    Prevention and Health Promotion, Office on Smoking and Health. DHHS
    Publication No. (CDC) 89-8411, 1989:140-152.
        U.S. Department of Health and Human Services. The Health Benefits
    of Smoking Cessation. A Report of the Surgeon General. U.S. Department
    of Health and Human Services, Public Health Service, Centers for
    Disease Control, Center for Chronic Disease Prevention and Health
    Promotion, Office on Smoking and Health. DHHS Publication No. (CDC) 90-
    8416, 1990:75-84.
        Smoking and Health in the Americas. A 1992 Report of the Surgeon
    General, in collaboration with the Pan American Health Organization.
    DHHS Publication No. (CDC) 92-8419. 1992.
        Peto R, Lopez AD, Boreham J, Thun M, Heath C. Mortality from
    smoking in developed countries 1950-2000. New York, NY: Oxford
    University Press; 1994.
      guidelines for collaboration with the epidemiology and surveillance
               research department of the american cancer society
        The following criteria will be used by the American Cancer Society
    (ACS) to evaluate collaborative proposals by external researchers
    involving use of ACS databases for epidemiologic analysis.
        1. A written proposal must be submitted describing the project, its
    intent, public health importance, and methodology.
        2. The scientific question must be important, biologically
    relevant, and timely.
        3. ACS data must be suitable to study the topic.
        4. ACS must have confidence in the ability of the collaborator(s)
    to work productively with its staff.
        5. Higher priority will be given to analyses that concern common
    cancers or other issues of direct value to ACS.
        6. Priority will be placed on cancer-oriented research. The number
    of studies addressing only endpoints other than cancer will be limited
    at any given time.
        7. It is (highly) preferable that the collaborator(s) complete most
    of the research at the ACS Home Office in Atlanta.
        8. Scientific papers must be jointly authored by the collaborators
    and ACS Epidemiology and Surveillance Research staff.
        9. The timing of the analysis will depend upon the need for and
    availability of support staff to assist in the project. Projects which
    can provide funds to reimburse ACS for computer programming will
    receive special consideration.
         epidemiologic collaboration using american cancer society data
    Title of Epidemiologic Research Project:
    ________________________________________

                               TERMS OF AGREEMENT

        1. This epidemiologic research project involves active professional
    collaboration between the American Cancer Society (ACS) and ______.
        2. The agreement will cover the work outlined in the written
    proposal submitted for the project, as later amended in writing by
    mutual agreement, if applicable.
        3. The project is planned to be completed within______ months
    beginning ______ and ending ______.
        4. The investigator(s) will complete most of the project work at
    the ACS Home Office in Atlanta.
        5. Work space and equipment will be provided for ______ external
    collaborators at the ACS Home Office during the planned project period.
        6. Any scientific papers submitted for publication as an outcome of
    this project will be jointly authored by the collaborators and ACS
    Epidemiology & Surveillance Research staff.
        7. ACS Epidemiology research analyst staff support will be provided
    to assist with the project for a total of ______ hours.
        8. ACS will be reimbursed for computer programming by the
    collaborator for hours at the rate of ______ per hour.
    Work under this agreement will be governed by the following principles:
        1. In addition to providing data necessary for analysis, ACS staff
    will participate in development of the study protocol and in the
    analysis and publication of study results. In this process, the
    collaborating groups will reach mutually agreeable decisions regarding
    data to be analyzed, protocols to be followed, and participation in
    data analysis.
        2. Access to ACS data will be contingent upon acceptance of the
    terms of this agreement by all collaborating parties and upon
    assurances of confidentiality for all personal identifying material in
    the data. When the research project is completed, all original data
    materials (tapes, printouts, etc.) will either be destroyed or returned
    to ACS.

    Signed:
    __________________________________________________
    Clark W. Heath, Jr., M.D.      Date
    Vice President for Epidemiology
      and Surveillance Research
    American Cancer Society

    __________________________________________________
    Name:               Date
    Title:
    Institution:

                       NAAQS: PROTOCOL FOR ACCESSING DATA

        Senator Shelby. Have you commissioned or have you
    encouraged the National Academy of Sciences to do some
    scientific studies regarding this?
        Ms. Browner. Again, there are 250 scientific peer-review
    published studies. Each study came through a process on its own
    of peer review. Once that was completed, and some of those
    extend over a 10-year period, the body of the science was then
    subject to an external peer review. So you have peer review of
    peer review of peer review.
        We have encouraged both the American Cancer Society and
    Harvard to make public those underlying databases. We have
    encouraged that and we have written to them. Mary Nichols, the
    Assistant Administrator for Air and Radiation, has written to
    them asking them to make those public. It is important to
    understand that these are peer-reviewed published scientific
    studies that then were peer reviewed again by an independent
    panel. The panel, which is made up of industry, university
    scientists, and others, then formed the scientific basis of the
    proposal we have made to the American people on public health
    protection.
        Senator Shelby. Again, do you believe that people that may
    be questioning some of your decisions in various areas as the
    Administrator of EPA would have a right to the data in which
    you base your decision?
        Ms. Browner. The American Cancer Society has an absolute
    protocol, as does Harvard, for allowing people to access that.
    We have encouraged them to go beyond that, to just put it out
    in the public. We agree with you.
        Senator Shelby. Very important, because it goes to what you
    base your decisions on, is it not?
        Ms. Browner. What we based our proposal on--there was no
    decision yet--there is a proposal.
        Senator Shelby. But there has been decisions in the past on
    various things. And you base them, or try to I hope, on a
    scientific basis?
        Ms. Browner. The process I have used the last 4 years in
    setting a public health standard or in adopting a regulation,
    is to understand the body of science that is available.
        Senator Shelby. Absolutely.
        Ms. Browner. Each statute asks us to do something a little
    bit different, so we have to take that into account. Once we
    understand the body of science, it is then and in most
    instances, subjected to a peer review.
        Senator Shelby. We understand.
        Ms. Browner. From that flows a proposal, which we take
    public comment on. This is where we are today in the air
    process. No final decision has been made and will not be made
    until we have completed review of the 16,000 comments we
    received. That is not pages; that is the number of comments.
    Some of those comments may be hundreds of pages, which we are
    now committed to reviewing and being informed by.
        Senator Shelby. I understand what you are going through. I
    know my time is up. If I could just take 10 seconds.
        But, again, the scientific data that would support the new
    particulate matter rule, do you believe that other people that
    would be affected by this in America are entitled to the same
    information, and would you make sure that people that request
    it from you get this information to evaluate the basis on which
    you make these proposals, to see if they are real or if they
    are flawed? That was my question.
        Ms. Browner. The two databases, the American Cancer Society
    and the Harvard database are the databases there have been
    questions about. They are available for valid research
    purposes. You can file with either institution a request to
    access it.
        Senator Shelby. But do you have that information?
        Ms. Browner. No; we do not have the databases.
        Senator Shelby. So you make a decision just on their
    findings, and you do not go back to their basis of their
    information? I am troubled by this.
        Ms. Browner. We use a 4-year process to evaluate published,
    peer-reviewed scientific studies.
        Senator Shelby. You still have not answered my question. I
    have got another round. I will be back.
        Senator Bond. Senator Shelby, I know this is an extremely
    important area. I apologize, but we do want to make sure that
    everybody has a shot at it.
        Senator Shelby. My time is up.
        Senator Bond. Yes; Senator Boxer.

                               BUDGET PRIORITIES

        Senator Boxer. Secretary Browner, I am just going to step
    back for 1 minute and say that--Mr. Chairman, thank you. Excuse
    me for coming after the hearing started. I had to give a talk
    down the hall in another meeting.
        Just stepping back and wearing my budget committee hat, it
    seems to me, as we look at the overall budget in these very
    tight times, that we have got to make some pretty tough
    decisions about where our priorities lie. And what the
    administration did in this budget, pretty boldly I think, is
    take out--is to target a few areas and say, you know what, this
    is important to the American people.
        Now, one of those is your Agency, EPA. And as I look from
    the perspective of my State and the country, I think it is
    right.
        Now, that does not mean that when you throw money at
    something, it necessarily has results. We have got to make sure
    that, if we do that, we have results. I am extremely impressed
    with what I see you have been doing in the past.

                               BROWNFIELDS SITES

        Senator Boxer. I think what the people of my State want,
    and I think it is true across the country--and I will give an
    example of these contaminated strawberries as just an example--
    of where people, if they demand anything at all--we know they
    want the country to defend its borders and to act in the
    national security interest of the Nation, but a lot of the
    enemies they face in their daily lives are not knowing if they
    can take their kid to the corner hamburger stand, if you will.
        And I have met more than one parent who has had that
    experience, done it 100 times and the 101 they lost a child
    from E. coli. And when a mother cannot turn on the tap water
    and give her child clean water, this is something they do not
    ask us to do, they demand.
        So I think, just overall, the fact that this administration
    would recognize this as a priority is very important. And I
    want to be as supportive as I can.
        Now, certainly one of the reasons is that we have a great
    number of Superfund sites in my home State. Over 40 percent of
    Californians live within 4 miles of a Superfund site. We have
    96 Superfund sites, the third highest of any State, seven
    natural resource damage sites--that is, sites where the
    environment has been damaged by the release of hazardous
    substances--more than any other States. And we have got to have
    brownfields.
        And I would echo what Senator Mikulski said, when you have
    these abandoned brownfield sites, it means there are fewer job
    opportunities, you have neighborhood blight, and increased
    pressure of urban sprawl. And the city of San Francisco alone
    has over 5,000 of these sites.
        So, to me, when we spend funding to clean it up, we are
    making a major--we are making major progress, should that
    cleanup go forward, if you will, toward economic redevelopment,
    for jobs and toward a future that we will all be proud of. So
    my question to you, I want to make sure everything we do is
    based on science. I want to make sure everything is based on
    reality. I want to make sure, to the greatest extent possible,
    everything we do is based on consensus, which you are so good
    at. So in terms of these cleanups, do you feel comfortable in
    asking for these increases and that we are not going to see
    this funding go toward attorneys?
        I do not have anything against attorneys. I happen to be
    married to one. My father was one. My son is one. But I
    honestly feel, we give you money, we want cleanup. We do not
    want court cases. So can you make us feel more comfortable as
    we hopefully come through with some of this--I hope we come
    through with all of it; I do not know if we will--that we are
    going to see a dramatic improvement, we are going to see these
    Superfund sites cleaned up by the year 2000, we are going to
    see these brownfields sites cleaned up?
        Ms. Browner. This money is for cleanup. Let me say this the
    easiest way: we now have a universe of 600-plus sites that are
    candidates that may beready to go, or just about ready to go,
    into the final 2-year phase, which is the construction cleanup
    phase. The lawyers are essentially done.
        When we give you the numbers, it is based on the candidate
    list we have and our belief that, within this level of
    resources and the kind of experts we need to get it done, we
    can deliver to you 500 sites, with the money, if we have the
    money, by the end of the year 2000.
        The lawyer part of this happens in an earlier phase. For
    these particular 600-plus candidate sites, out of which will
    come the 500, we are essentially done with the lawyers.
        Senator Boxer. And brownfields, you feel the same way?
        Ms. Browner. I think that brownfields is a great example of
    how we avoided, in many instances, the lawyer problem up front.
    We sat down with the American Bar Association, and with the
    American Banking Association, and together crafted legal
    agreements, to avoid any problems that could have flowed.
        Senator Boxer. And just to finish this part, and then I
    will wait to the next round. Eighty-two percent of your
    increase would go toward these Superfund sites.
        Thank you.

                       FISCAL YEAR 1997 SUPERFUND BUDGET

        Senator Bond. Thank you very much, Senator Boxer.
        Administrator Browner, my first question to you was why the
    knowledge of the progress on Superfund sites, which led to a
    projection of $1.4 billion in spending in the fiscal year 1997
    budget, changed. I do not believe I got an answer for that, so
    I will ask you to submit that for the record.
        Senator Bond. My second question was why the Superfund
    program merits a higher priority on the scientific risk
    continuum than other areas. I do not believe the answer was
    responsive to the question and I would invite you to submit
    that answer in writing for the record.

                           SUPERFUND: REAUTHORIZATION

        Let me try another area. In the February 1997 GAO report,
    which stated that Superfund was a high-risk program, vulnerable
    to mismanagement, waste, fraud and abuse, have you not----
        Ms. Browner. We may not have seen this final report. I
    apologize.
        Senator Bond. It is dated February 1997.
        Ms. Browner. We have seen this one. There are several GAO
    reports. Some we have seen and some we have not.
        Senator Bond. Yes; all right. This one was titled ``High
    Risk Series, February 1997 Superfund Program Management,'' 1 of
    25. We have the luxury in this committee of handling the high-
    risk Superfund Program, the entire Department of HUD, which is
    high risk, and the NASA contracting agency. This has been our
    year. But I would call your attention to this.
        The report does say that the program is vulnerable to
    mismanagement, waste, fraud, and abuse. The report said:

        That although EPA has been addressing weaknesses in
    contract management, the Agency remains vulnerable to
    overpaying its contractors and not achieving the maximum
    cleanup work with its resources.

        GAO also found that EPA pays its cleanup contractors a
    higher percentage of total contract costs to cover
    administrative expenses rather than ensuring the maximum amount
    of available funds go to the actual cleanup. And I would like
    to know why, with the demonstrated problems in Superfund, we do
    not have a priority on reauthorization, correction of the
    statutory deficiencies, and codification of the program reforms
    prior to the request for an increase.
        Ms. Browner. Mr. Chairman, I have spent the better part of
    3 years asking the U.S. Congress to rewrite the Superfund law.
    I have probably testified on proposals to rewrite that law more
    than any other. I had reached an agreement with everyone, from
    the Chemical Manufacturers Association to the Sierra Club, on
    what a rewrite of that program could be. That was more than 3
    years ago. Unfortunately, it did not come to pass.
        Elections happend. Things changed. I accepted that. We are
    back at it again this year. I will be meeting again this week
    on both the House and the Senate side, asking the committees of
    jurisdiction to please work with us in a bipartisan, consensus-
    based manner, as we did on drinking water and on food quality.
        Food quality took more than 20 years, but this body,
    working with the administration, did it. There is no reason we
    cannot do it again on Superfund. There is absolutely no reason
    we cannot see this law rewritten in the next several months and
    see it move through the congressional process. We are ready,
    willing, and able to be at the table to write the legislation
    to see the law changed.
        However, we do not think that the funding increase that we
    seek should be held hostage to a legislative rewrite,
    particularly, since we have been about this now for the better
    part of almost 4 years and have been unable to succeed.
        Senator Bond. Madam Administrator, I am running out of
    time. I would be happy to ask you to submit any further
    comments on that for the record. But let me point out that when
    the leadership went to the White House and asked to put
    Superfund on the fast track, the Vice President said that they
    were not ready to do so. We know that you have worked for a
    long time to do it. We are waiting for your proposals. We are
    not holding anything hostage.
        We have a simple request that rather than pouring money
    into a program which has been criticized by probably one-half
    the people in this room, and the GAO says is vulnerable to
    mismanagement, waste, fraud, and abuse because of the statutory
    scheme in which it operates, that we need to work together to
    see your proposal, to get your proposal first, and to sit down
    and work on it, to make sure that we are putting money into
    cleanup rather than into continued litigation problems and the
    possible waste and abuse that has been identified.
        Ms. Browner. Mr. Chairman, if I may, I know my time is up.
    But we have gone to the relevant committee chairmen and asked
    how they would like to proceed with getting it done this year.
    They have suggested that rather than us crafting another bill,
    they would like to work with us. I think that is important for
    the record to reflect. That has been our understanding of their
    request to us.
        If we have misunderstood something and they want a bill,
    then we will deliver you another bill. But I believe, at this
    point in time, we are more likely to get this done, after 4
    years of trying, if we just get in a room, close the doors and
    hammer out our differences. Now, if they want a bill, if that
    is what they are telling you, then tell me, and we will deliver
    you a bill. We have written a bill.
        What we need now is an honest dialog, in the same way we
    had it on drinking water and we had it on food safety. There is
    a way to do this, and that is what I am committed to.
        Senator Bond. Well, I share your commitment. And we need to
    get it done, because we need to make sure that the money goes
    to cleanups and that the program works as efficiently as
    possible.
        Senator Mikulski.

                                SUPERFUND REFORM

        Senator Mikulski. Thank you. Mr. Chairman, I am sorry that
    Senator Lautenberg had to leave because of a pressing hearing
    on the issues around tobacco, a longstanding public health
    commitment of his. But I believe that Senator Lautenberg did
    state and has said to me privately that he is working on a
    Superfund reform effort with Senator Chafee, the driving force
    in the environmental authorizing committee, and that they were
    close to arriving at, if not a consensus, at least a workable
    framework to bring to the full Senate for discussion and
    amendment. And I think it might be useful if we then got a real
    read on where that negotiation was going.
        If they are stalled out, as you feel, that is one
    situation. If they are moving, then that is optimistic. If they
    are stalled out, then I think it is important that the
    authorizers and Ms. Browner, and perhaps you and I, get into a
    room to jump start the Superfund. But I do believe that there
    has been very serious and methodical work on both cleaning up
    Superfund sites, but also cleaning up our cumbersome Superfund
    site process, which is costly and lends itself to needless
    litigation and often excessive payments.
        Am I right in this Ms. Browner?
        Ms. Browner. From our perspective, the process is not
    stalled. I will be meeting on both the House and the Senate
    side later this week. I hope to come to closure on the Senate
    side on what steps will be taken, when they will be taken, how
    they will be taken, and who will be in the room. We had very
    productive meetings with Senator Smith and with Senator Chafee
    prior to the recess.
        Senator Mikulski. You know what is happening here is Bond
    raised the question. You are answering Bond and it is on my
    nickel. [Laughter.]
        Ms. Browner. I do not think the process is stalled.
        Senator Bond. We will give you a few cents change, Senator
    Mikulski.
        Senator Mikulski. Can I get a few cents change?
        Ms. Browner. From my perspective, the process is not
    stalled. If Senator Chafee or Senator Smith believes the
    process is stalled, then I am very disappointed, since we are
    working in good faith.

                          INTERNATIONAL PROGRAM VISION

        Senator Mikulski. And I do not know if it is stalled
    either. I just know that we are working on, each, different
    sets of assumptions here.
        Now, I would like to come back to two areas of interest of
    mine, one being the international effort. And, Ms. Browner, I
    know you have a very modest international office, and I am not
    for building up the Agency, but I do believe very strongly that
    there is an international effort in exporting our knowledge,
    our services and our technology. In conversations with me from
    the private sector, there have been concerns that your
    international office--and these are not my words but the words
    given to me--are a lot of guys sitting around in khakis who
    like to fly around the world, going to conferences and sitting
    at head tables, talking about how the world ought to clean up.
        My question to you is, while you are grappling with such
    compelling issues like Superfund, do you have a vision and a
    plan for this international office to really be a mechanism by
    which we really promote not only environmental knowledge but
    this opportunity, and are you connected to the Department of
    Commerce in being able to achieve that?
        Ms. Browner. We think there is a tremendous opportunity for
    the export of American environmental technology. The world
    market for environmental technology is growing dramatically.
    There is no reason why the United States should not be No. 1 in
    that export market. We are not, unfortunately, No. 1. There are
    other countries that now surpass us.
        Part of our international work is in partnership with the
    Department of Commerce and others to ensure that our
    technologies and our environmental technology firms are able to
    access those foreign markets. Last year there was a lot of
    discussion about our environmental technology initiative. In
    the budget, we are requesting $10 million for technology
    verification.
        This is one of the most important things we can do for
    these technology firms. When they go to other countries, the
    first thing that is asked of us is, what does EPA think? If
    they can demonstrate they have our verification, then it makes
    their product and their technology that much more interesting.
        Senator Mikulski. Ms. Browner, have you given an explicit
    direction to your international office that this must be a
    focus, and require from them a strategy, a plan of action,
    targeted opportunities either in sectors or in geographic
    areas?
        Ms. Browner. Yes.
        Senator Mikulski. Why is it that we do not sense a momentum
    in that?
        Ms. Browner. Well, I think the challenge is large. Other
    countries, quite frankly, are extremely aggressive. They put a
    large amount of resources into pushing their technology in
    other countries, far more, I think, than we probably do. We
    also do work in conjunction with the Department of Commerce,
    which saw some of their budget cuts targeted to these areas.
        But certainly we see it as a priority which is, you know,
    twofold. First, we get the opportunity for American businesses,
    and second, we all solve a pollution problem. Pollution does
    not recognize political boundaries and some pollution problems
    in other parts of the world may ultimately affect us. So we see
    it as twofold, a pollution reduction and a technology
    advancement.
        Senator Mikulski. I know my time is up. I am supportive of
    the AMI initiative.
        Senator Bond. You have got a couple of seconds.
        Senator Mikulski. I agree with that.
        Ms. Browner. Thank you.
        Senator Mikulski. And I would really like to be able to
    have, for me, really what is this strategy and plan of action,
    so that we can look at how we can support it and become more
    aware.
        Ms. Browner. OK.
        Senator Mikulski. Many thanks.
        Ms. Browner. Thank you.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Shelby.
        [The information follows:]

                   Strengthening EPA'S International Programs

                                  INTRODUCTION

        In the Report accompanying EPA's fiscal year 1997 appropriations
    bill, the Senate stressed the important role EPA's international
    programs play in fulfilling the Agency's environmental mission: ``The
    Committee recognizes that the protection of the U.S. environment
    depends in part on the environmental protection efforts of other
    countries * * *. The Committee encourages the integration of EPA's
    international goals more coherently into its principal mission and
    objectives.''
        To this end, the Senate Appropriations Committee directed EPA to
    report to Congress by March 1, 1997 on its measures to strengthen its
    international program. The Committee specified that EPA's report should
    address: (a) the integration of international considerations into EPA's
    primary objectives (Section II); (b) the prioritization of
    international activities (Section III); the role of other Federal
    agencies in international environmental activities and their
    relationship to EPA's Office of International Activities (Section IV);
    and (d) the value to the American people of EPA's international
    programs (Section V).
        This report responds to that Congressional directive. Structured
    according to the specific request from Congress, the report contains a
    separate section for each of the four elements identified by the
    Committee. It concludes with a section describing measures EPA is
    taking to strengthen the Agency's international programs.

                            ACHIEVING EPA'S MISSION

        EPA leads the nation's efforts to protect and preserve public
    health and the vitality of natural ecosystems in this country. The
    Agency is committed to achieving these goals by reducing risks to human
    health and the environment, preventing pollution, and fostering
    environmentally sound and sustainable economic development in a cost-
    effective and efficient manner.
        International cooperation is a key element in EPA's ability to
    achieve this mission. The U.S. faces significant challenges in
    protecting the health of its citizens and its natural resources from
    environmental hazards. In today's world, since pollution does not honor
    national boundaries, overcoming these challenges requires the
    cooperation of other countries. Some examples:
      --Cross-border air, water and waste pollution from Mexico, Canada and
            other areas affect the health, environment and well-being of
            American citizens living along borders as well as other areas
            of the United States.
      --Improper use of chemicals abroad can affect the safety of food and
            other products imported into the United States.
      --Health and environmental benefits resulting from the multi-billion
            dollar U.S. investment by industry under the Clean Air Act to
            reduce emissions of stratospheric ozone depleting compounds
            could be undermined by failure to control production or use of
            these chemicals in other countries, such as China, India or
            Russia.
      --Pollution of the marine environment in the Wider Caribbean Region
            \1\ can damage U.S. fisheries and coral reefs and jeopardize
            tourism and other livelihoods.
    ---------------------------------------------------------------------------
        \1\ The Wider Caribbean includes the Gulf of Mexico, the Straits of
    Florida and the Caribbean Sea. These shared waters are bordered by the
    United States, Mexico, Belize, Honduras, Nicaragua, Costa Rica. Panama,
    Colombia, Venezuela, Guyana, Suriname, French Guiana, and all of the
    Caribbean islands.
    ---------------------------------------------------------------------------
      --Pollution of the oceans and irreversible loss of species and
            habitat worldwide damage natural systems critical to our well-
            being and quality of life, and deprive us of commercially
            valuable and potentially life-saving genetic materials.
      --The long-range transport of persistent organic pollutants like DDT,
            chlordane and polychlorinated biphenyls (PCB's) can adversely
            affect health and environment in the United States.
        Every major EPA program area has an important and indispensable
    international component. The Air Office must concern itself with the
    transboundary fluxes of pollutants such as sulfur dioxide; the
    Pesticides Office must establish safe tolerances for the import of food
    to ensure food safety and share information on certain pesticide
    exports and regulatory decisions; the Office of Solid Waste must ensure
    the safe import and export of waste; the Office of Enforcement and
    Compliance Assurance must work with foreign countries, for example, to
    stop the smuggling of ozone-depleting chemicals; the Office of General
    Counsel works with USTR on such issues as reformulated gasoline and to
    defend EPA's regulations when these are challenged at the World Trade
    Organization (WTO); the Office of Policy, Planning and Evaluation must
    examine how non-environmental policies, such as trade policies, affect
    EPA's regulations; and the Office of Water must deal with ocean dumping
    and pollution of international watercourses such as the Great Lakes. It
    is absolutely clear, therefore, that EPA's work to protect human health
    and the environment in the United States has an essential international
    component that cannot be considered independently from EPA's other
    work.
        Within EPA, the Office of International Activities (OIA) leads
    these international efforts working in close cooperation with other
    parts of the Agency. As described by the General Accounting Office in
    its report of September 1996,\2\ OIA ``serves as the focal point and
    catalyst for the agency's international agenda, providing leadership
    and coordination on behalf of EPA's Administrator.'' OIA is essential
    to a strong and efficient international program at EPA. Centralizing
    certain core international functions prevents costly duplication and
    facilitates the mobilization of Agency program and regional office
    resources in support of U. S. environmental goals and objectives. As
    chief advisor to the EPA Administrator on international issues, OIA
    plays a particularly important role with respect to cross-cutting
    programs and projects and ensures that the Agency speaks with one voice
    on critical policy matters. OIA also serves as EPA's principal point of
    contact on international environmental matters with the Department of
    State, the U.S. Agency for International Development, the Department of
    Commerce and other federal departments, and oversees the Agency's
    international travel and visitors programs.
    ---------------------------------------------------------------------------
        \2\ ``International Environment: U.S. Funding of Environmental
    Programs and Activities,'' Report to the Chairman, Committee on Foreign
    Relations, U.S. Senate, United States General Accounting Office, GAO-
    RCED-96-234, September 1996, Page 22.
    ---------------------------------------------------------------------------

        ----------------------------------------------------------------

        EXCERPT FROM THE U.S. GENERAL ACCOUNTING OFFICE--SEPTEMBER 1996

        EPA is the nation's chief technical and regulatory agency for
    environmental matters. As such, it plays a major role not only in
    domestic environmental protection activities but in international
    environmental programs and activities as well * * *. EPA's
    international programs also serve important U.S. economic, foreign
    policy, and security interests.

        ----------------------------------------------------------------

        Consistent with EPA's Five-Year Strategic Plan \3\ and the National
    Environmental Policy Act, EPA has taken steps to incorporate essential
    international activities into the Agency's programs. Program and
    regional offices now have a point of contact for international
    activities. OIA also facilitates a network of regional coordinators to
    better mobilize the scientific and technical expertise available
    through the Agency's regions and laboratories. The reduction of global
    and regional environmental risks is one of twelve environmental goals
    identified in EPA's draft ``National Environmental Goals for America''
    report. In addition, corresponding goals, objectives and measures for
    international activities are being developed as part of the ``planning,
    budgeting, analysis, and accountability'' process that is currently
    being introduced in the Agency. The Agency's goal is to link budget
    decisions with priorities in a more formal, structured way, and to
    measure results.
    ---------------------------------------------------------------------------
        \3\ ``The New Generation of Environmental Protection: EPA's Five-
    Year Strategic Plan,'' Office of the Administrator, U.S. Environmental
    Protection Agency, EPA 200-B-94-002, July 1994.
    ---------------------------------------------------------------------------
        EPA has been very successful in advancing the U.S. international
    environmental agenda. With new planning and management tools, and
    enhanced cooperation with the Congress and other partners, the Agency
    can do an even better job in meeting today's challenges. This will
    require, among other things, developing well-targeted international
    activities within major programmatic areas.

                            SETTING CLEAR PRIORITIES

        The Agency recognizes the importance of ensuring that its
    international activities contribute to its primary mission. To that
    end, the Agency has developed a set of criteria to help determine the
    relative priority of EPA's proposed international efforts for planning
    and budgeting purposes. As part of its implementation of the Government
    Performance and Results Act (Public Law 103-62) and the restructuring
    of its planning, budgeting, analysis, and accountability processes, the
    Agency is also developing a results-oriented process for evaluating the
    effectiveness of its international programs.

    Criteria
        EPA has identified the following criteria to better determine the
    relative priority of international efforts within the Agency. Proposed
    programs and activities are weighed according to the degree to which
    they:
      --Protect U.S. public health and the environment from transboundary
            or global environmental risks;
      --Fulfill statutory and treaty obligations and respond to
            congressional mandates and court-ordered deadlines;
      --Contribute directly to U.S. domestic environmental programs by
            increasing the effectiveness or lowering the cost of
            environmental protection in the United States (e.g., through
            the acquisition of new research, data or technology);
      --Advance broader U.S. foreign policy, economic or national security
            objectives as defined by Congress and the Administration; and
        Take advantage of EPA's unique expertise and experience in the most
    cost-effective manner possible.

    Evaluation and Monitoring
        Responding to the Government Performance and Results Act of 1993,
    EPA is increasing its efforts to measure the environmental results of
    its activities, including those in the international arena. The Agency
    has begun to develop measurable outcomes for environmental programs at
    the national and programmatic levels. The ``National Environmental
    Goals for America'' report, released recently in public draft form,
    defines broad goals to improve the nation's environment. Included in
    this report are a series of proposed milestones to indicate progress
    toward achievement of the proposed national environmental goals. To
    achieve the milestones, Federal agencies, states, tribes, communities,
    industries and individuals must work collectively to implement
    programs, monitor results and report successes and deficiencies. The
    draft Goals Report includes a chapter on the global environment that
    proposes specific, measurable milestones within defined time frames for
    achieving international environmental objectives. EPA will implement
    programs to help achieve the global environmental goal and related
    milestones and will monitor the progress of these programs.
        EPA is developing specific goals, objectives and outcome measures
    to indicate environmental achievements across the Agency. Each major
    program of the Agency, including international activities, is required
    to define subordinate programmatic goals and measures and employ
    monitoring and evaluation techniques for positive environmental
    results. If these evaluation and monitoring efforts suggest that
    statutory changes would be beneficial, EPA will report these findings
    to Congress for its consideration. Our overriding objective is to
    provide the best protection possible for U.S. citizens and natural
    resources, consistent with the full range of U.S. political, economic
    and environmental interests.

                    COOPERATION WITH OTHER FEDERAL AGENCIES

        EPA's environmental mandate and expertise make it uniquely
    qualified to represent the nation's environmental interests abroad.
    While the Department of State is responsible for the conduct of overall
    U.S. foreign policy and other agencies are also involved in the
    international environmental arena, only EPA has environmental expertise
    as its primary mission and focus of expertise. The following summarizes
    EPA's cooperative relations with other U.S. agencies.

        ----------------------------------------------------------------

    Major Global Environmental Treaties:
        1996-Protocol Relating to the London Dumping Convention \1\
        1992--Framework Convention on Climate Change \1\
        1992-Convention on Biological Diversity
        1989--Basel Convention on the Control of Transboundary Movements of
    Hazardous Wastes and Their Disposal
        1987--Montreal Protocol on Substances that Deplete the Ozone Layer
    \1\
        1985--Vienna Convention on the Protection of the Ozone Layer \1\
        1982--United Nations Convention on the Law of the Sea
    Principal North American Environmental Agreements:
        1992--North American Agreement on Environmental Cooperation \1\
        1991--Canada-United States Air Quality Agreement \1\
        1983--Agreement Between the States and Mexico on Cooperation for
    the Protection and Improvement in the Border Area \1\
        1983--Convention for the Protection and Development of the Marine
    Environment of the Wider Caribbean Region \1\
        1978--Great Lakes Water Quality Agreement \1\

        \1\ Ratified/given final approval by U.S.

        ----------------------------------------------------------------

        Under the Foreign Relations Act of 1979 (Public Law 95-426), as
    amended, the Department of State is given primary coordination and
    oversight responsibility for all major science and technology
    agreements and activities between the United States and foreign
    countries, international organizations, or commissions of which the
    United States and one or more countries are members. Relations between
    EPA and the Department of State cut across several offices/bureaus in
    both organizations. For example, EPA works closely with the Bureau for
    Oceans, Environment and Scientific Affairs (OES), the offices of the
    Legal Adviser, International Organizations, Economic Affairs, and
    regional bureaus. OIA at EPA and the OES at State serve as principal
    points of contact for overall coordination.
        EPA plays a large role in the negotiation of international
    environmental agreements and programs and, at the request of the State
    Department, sometimes leads U.S. delegations. The degree and level of
    responsibility for policy development and treaty negotiation on
    environmental agreements varies by issue between EPA and the Department
    of State. The policy development necessary for negotiation and
    implementation of these agreements is invariably dependent upon EPA
    expertise and support. This expertise is especially critical with
    respect to ensuring consistency with our domestic environmental
    policies and regulatory programs.
        Recognizing that international agreements are only as effective as
    their implementation, the Agency also draws on its statutory authority
    and unique technical and policy expertise to assure the effectiveness
    of these agreements, both within the United States through the
    promulgation of appropriate regulations and abroad through technical
    assistance and training. EPA's policy leadership and technical
    cooperation programs under the Montreal Protocol, London Ocean Dumping
    Convention and Framework Convention on Climate Change, for example,
    have been critical to the success of those international agreements.
    The Agency is now playing a similar role in preparing for negotiations
    on a global convention on persistent organic pollutants (POP's) and
    existing negotiations on prior informed consent (PIC) for the export of
    certain banned or severely restricted chemicals.
        EPA recently signed a Memorandum of Agreement with the Department
    of Defense and Department of Energy to formalize on-going cooperation
    in the area of ``environmental security''. Responding to the
    recommendation of EPA's Science Advisory Board that EPA ``recognize
    that global environmental quality is a matter of strategic national
    interest,'' \4\ the agreement will facilitate inter-agency cooperation
    in responding to emerging environmental threats to the health and
    safety of U.S. citizens, U.S. foreign policy interests and
    environmental problems associated with the legacy of the Cold War. EPA
    is offering its unique technical expertise in such areas as
    environmental monitoring and assessment, emergency planning and
    response, risk assessment, environmental technology development and
    transfer, and the investigation of international environmental crimes.
    ---------------------------------------------------------------------------
        \4\ ``Beyond the Horizon: Using Foresight to Protect the
    Environmental Future,'' Science Advisory Board, U.S. Environmental
    Protection Agency, EPA-SAB-EC-95-007, Page 6.
    ---------------------------------------------------------------------------
        EPA has often been asked by the State Department and Defense
    Department to provide leadership on critical political and security
    issues. For example, EPA officials and experts were an important part
    of the U.S. team that promoted scientific and technical cooperation as
    an effective tool for reducing Cold War tensions with Eastern Europe
    and the Soviet Union. EPA chaired the U.S. delegation to the historic
    NATO environmental conference in 1993 that included former Soviet bloc
    countries for the first time.
        EPA and the many components of the Department of Commerce work
    together closely on a range of different issues, including many science
    and technology issues. OIA has the lead for coordinating with the
    Department of Commerce on international issues, including
    responsibility for organizations carrying out EPA's activities under
    the Export Enhancement Act of 1992. The Act mandated EPA participation
    on the Environmental Trade Working Group (ETWG) of the Trade Promotion
    Coordinating Committee (TPCC), an inter-agency working group chaired by
    the Secretary of Commerce to coordinate the government's overall trade
    promotion activities. OIA represents EPA on the sub-cabinet TPCC
    Deputies' Committee and, along with the International Trade
    Administration at Commerce, co-chairs both the ETWG and the ETWG
    ``Advance Team''.
        The Department of Commerce and other trade promotion agencies often
    look to EPA for information on international environmental needs and
    market opportunities. Cooperative activities among these agencies have
    also led to joint economic and environmental benefits for the United
    States. Joint funding for environmental training of foreign officials,
    for example, has helped strengthen environmental management
    capabilities worldwide while leading to over $150 million in sales for
    small and medium-sized companies in the U.S.

        ----------------------------------------------------------------

           excerpt from the epa science advisory board--january 1995
        Recognizing that the United States is part of a global ecosystem
    that is affected by the actions of all countries, EPA should begin
    working with relevant agencies and organizations to develop strategic
    national policies that link national security, foreign relations,
    environmental quality, and economic growth.

        ----------------------------------------------------------------

        EPA also works extensively with the National Oceanic and
    Atmospheric Administration (NOAA) and the U.S. Coast Guard on
    international environmental scientific and policy issues related to the
    protection of our coasts, marine environment and atmosphere. At the
    Coast Guard's request, for example, EPA's international office chairs
    an inter-agency work group tasked with negotiating an international
    agreement on air pollution standards for ships through the
    International Maritime Organization. EPA provides technical and policy
    guidance to the Coast Guard on other vessel safety and pollution
    prevention matters, for example, problems associated with anti-fouling
    paint used on ship hulls.
        OIA serves as EPA's primary point of contact and liaison with the
    U.S. Agency for International Development (U.S. AID). Specifically,
    drawing on expertise from throughout EPA, OIA administers a number of
    inter-agency agreements for environmental assistance. Under the Support
    for Eastern European Democracy Act and the Freedom Support Act, for
    example, OIA coordinates the provision of technical assistance,
    training, information exchange, and demonstrations in building
    environmental institutions and human resource capabilities in Central
    and Eastern Europe, Russia and the New Independent States. OIA also
    coordinates similar inter-agreements with respect to capacity-building
    in Central America and Asia.
        EPA works extensively with the Office of the U.S. Trade
    Representative (USTR), particularly its Office of Environment and
    Natural Resources, to ensure that U.S. international trade policies are
    mutually supportive, reflecting the Administration's continuing
    commitment to sustainable economic growth. For example, through the
    Agency's participation in the negotiation of both the North American
    Free Trade Agreement and the World Trade Organization and in the
    Committees created by both sets of agreements, EPA has worked with USTR
    to ensure that U.S. obligations under international trade agreements do
    not hamper the ability of federal and state governments to maintain
    high levels of domestic environmental protection. The two agencies also
    work together to ensure that EPA's rules, regulations and other
    programs are consistent with U.S. obligations under international trade
    agreements. EPA is represented on the subcabinet Trade Policy Review
    Group (TPRG) and the Trade Policy Staff Committee (TPSC), coordinated
    by USTR and responsible for the development of U.S. international trade
    policy.

        ----------------------------------------------------------------

         THE MURMANSK INITIATIVE: SUCCESSFULLY APPLYING THE CONCEPT OF
                           ``ENVIRONMENTAL SECURITY''

        EPA, the Department of Defense and other agencies are working with
    Russia and Norway to upgrade and expand a low-level liquid radioactive
    waste (LLW) processing facility in Murmansk, Russia. Designed to halt
    possible sea disposal of LLW from the decommissioning of Russia's
    nuclear submarine fleet, the project is introducing an innovative U.S.
    technology employing special filtering, containment and processing
    techniques.

        ----------------------------------------------------------------

        EPA has participated in all of the work leading up to the Report of
    the WTO Committee on Trade and Environment (WTO/CTE) to the Singapore
    Economic, Ministerial in December 1996. The WTO/CTE was created with
    strong support from the U.S. in order to provide, among other things, a
    mechanism to help ensure that the international trade rules are
    environmentally sensitive. EPA, together with State and USTR, also
    leads U.S. delegations to meetings of the OECD Joint Experts Group on
    Trade and Environment.
        Finally, EPA works closely with a number of other agencies with
    environmental, health or safety mandates, including the departments of
    Labor, Transportation, Agriculture, Interior, Health and Human Services
    and the Food and Drug Administration.

                        BENEFITS TO THE AMERICAN PEOPLE

        EPA's international environmental programs help protect the health
    and environment of American citizens. They enlist the cooperation of
    other nations in reducing transboundary and global environmental
    threats to the United States and reduce the cost of the nation's
    environmental protection. They also serve the nation's broad foreign
    policy, economic and national security interests.
    Reducing Environmental Threats Along Our Borders
        Over half of the U.S. population lives in the 19 States that form
    our borders with Mexico and Canada. Nowhere are the benefits of EPA's
    international programs more apparent than along our common borders with
    Mexico and Canada and in the Arctic and Wider Caribbean Region.
        EPA's cooperative programs with Mexico, along with the Agency's
    role in negotiating the North American Free Trade Agreement (NAFTA),
    have led to specific environmental gains in both countries. The
    construction of wastewater treatment facilities in Mexico is helping
    solve decades-old problems affecting human health and the environment
    in California, Arizona, New Mexico, and Texas. Joint air pollution
    efforts under the 1983 Border Environment Agreement will help reduce
    respiratory and other health problems in U.S. cities along the border,
    as well as their Mexican ``sister'' cities (e.g., Ciudad Juarez,
    Tijuana). Coordinated enforcement efforts are reducing illegal waste
    dumping and other pollution on both sides of the border. Working
    closely with the Department of Health and Human Services, the
    Department of the Interior and the Department of Agriculture, EPA will
    play a leading role in implementing ``Border XXI'', a new five-year
    program for protecting health and environment along the border (See
    box).
        Long-standing cooperation with Canada has resulted in corresponding
    environmental gains along our northern border. Benefitting from the
    Great Lakes Water Quality Agreement and other cooperative agreements,
    mercury levels in fish in Lakes Michigan, Huron and Erie have dropped
    by more than 75 percent since 1970. Phosphorous loadings into Lake Erie
    decreased by more than 50 percent over the same time period, improving
    water quality and raising fish stocks. EPA and Environment Canada are
    working closely with public and private interests on both sides of the
    border to eliminate health and environmental risks from persistent
    organic pollutants in the Great Lakes.
        U.S. and Canadian efforts to achieve the goals of the U.S.-Canada
    Air Quality Agreement resulted in reductions of sulfate wet deposition
    over eastern North America by over 20 percent of 1979 levels. U.S. and
    Canadian federal, British Columbia provincial and Washington state
    agencies are cooperating to achieve shared goals for the Puget Sound-
    Straits of Georgia Basin eco-region. Their top four priorities are
    minimizing habitat loss, protecting marine plants and animals,
    minimizing introduction of non-native species, and creating marine
    protected areas. Joint contingency planning with Mexico and Canada is
    helping prevent and ensure appropriate response capabilities for
    chemical accidents or other hazardous spills along inland borders.
        Finally, the U.S. and its NAFTA partners have determined that some
    transboundary issues related to Mexico and Canada are better addressed
    on a regional scale through the Commission for Environmental
    Cooperation (CEC), which was established under the North American Free
    Trade Agreement side agreement. For instance, the three parties have
    developed regional actions plans for DDT, mercury, PCB's and chlordane,
    and are negotiating procedures to notify and mitigate transboundary
    environmental impacts. They are also considering a conservation
    strategy for North American migratory songbirds. The CEC has
    facilitated cooperation among the North American nations on other
    issues such as environmental enforcement; development of a North
    American pollutant release inventory; regional greenhouse gas emissions
    trading; and regional implementation of global environmental
    agreements.

    Reducing Global and Regional Environmental Risk
        Global threats have local effects since they can affect the health
    and well-being of every U.S. citizen. Depletion of the stratospheric
    ozone layer increases the amount of the sun's ultraviolet radiation
    reaching the earth's surface, thereby increasing risk of skin cancer,
    cataracts and suppression of human immune systems. Pollution of the
    oceans originating in other countries threatens health and environment
    along U.S. coasts. Similarly, the United States is vulnerable to the
    impacts of climate change caused by global greenhouse gas emissions.
    Even with stabilization of emissions by the year 2100, global
    temperatures would continue to rise for several decades and sea level
    for centuries. Loss of biological diversity is damaging the health of
    ecosystems and depleting the world's commercially valuable and
    potentially life-saving genetic materials. The global ramifications of
    the nuclear accident at Chernobyl underscored U.S. vulnerability to the
    results of environmental mismanagement in other countries.
    Environmental problems like ozone depletion and water pollution also
    have adverse economic effects for industries like agriculture and
    fishing.

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       BORDER XXI: PROTECTING U.S. HEALTH AND ENVIRONMENT ALONG THE U.S.-
                                 MEXICO BORDER

        EPA will play a leading role in implementing ``Border 21'', the
    next five-year phase of the binational program to address
    environmental, public health and natural resource issues along the
    U.S.-Mexico border. EPA's goal is to make border communities safe and
    cleaner for the more than 10 million people who live there. Underlying
    principles for the plan include enhanced public participation, greater
    involvement of tribal nations and state agencies, and enhanced
    coordination and integration of effort among federal agencies and
    between federal and state agencies.
        Objectives of the plan include: (1) reducing and responding to
    health problems from exposure to chemical, physical and biological
    agents; (2) building or upgrading wastewater and drinking water
    systems; (3) reducing air pollution in innovative ways, including
    expansion of monitoring and control programs; (4) expanded tracking of
    trans-border shipments of hazardous and toxic substances; (5) expanded
    use of pollution prevention and recycling practices; (6) improved
    emergency response procedures; (7) intensified enforcement of
    environmental and health protection laws in both countries; and (8)
    increased public access to information, including environmental data.
        To achieve maximum environmental results under this program, EPA is
    using implementation of Border XXI as a pilot under the Government
    Performance and Results Act.

        ----------------------------------------------------------------

        Drawing on its policy and technical expertise, and in accordance
    with its statutory authority, EPA plays a leading role in negotiating
    and implementing international agreements and programs on global and
    regional environmental problems directly affecting the United States.
    The Agency was a leading policy and technical voice in the
    international negotiations on the Montreal Protocol on Substances that
    Deplete the Ozone Layer. EPA was a key participant on the U.S.
    delegation to many technical working group meetings, and had lead
    responsibility for domestic implementation of the Protocol through the
    promulgation of regulations under the Clean Air Act. The Agency is also
    instrumental in carrying out U.S. responsibilities related to the
    provision of technical assistance to developing-country Parties to the
    Protocol. EPA is now leading the inter-agency effort to reduce illegal
    exports and imports of chlorofluorocarbons (CFC's) through enforcement
    cooperation with other countries.
        EPA also provides policy and technical leadership in international
    efforts to implement the Framework Convention on Climate Change,
    particularly through the President's Climate Change Action Program, and
    international agreements to prevent and reduce pollution of the marine
    environment from dumping, vessels and land-based sources. The recent
    agreement under the London Convention to ban the sea disposal of
    radioactive and industrial wastes, for example, helps protect U.S.
    coastal areas, fisheries and human health. Through U.S.G. activities
    like the U.S. Country Studies Program and the United States Initiative
    on Joint Implementation (USIJI), EPA assists developing countries in
    identifying innovative, cost-effective ways to reduce greenhouse gas
    emissions. Increasing private sector investment in developing countries
    while enhancing environmental and human health benefits are goals of
    the USIJI, the Country Studies Program and related programs. The
    Country Studies Program is expanding its analytic activities with the
    fifty-five participating countries to support the negotiations,
    including assisting up to ten additional countries in assessing the
    extent of emissions reductions achievable through implementation of
    ``win-win'' or ``no regrets'' measures. These activities stimulate the
    development and diffusion of clean, energy-efficient technologies in
    developing countries and reduce the need to achieve the same greenhouse
    gas reductions in the United States.

        ----------------------------------------------------------------

     EXCERPT FROM THE NATIONAL ACADEMY OF PUBLIC ADMINISTRATION--APRIL 1995

        EPA's role as protector of the national interest in environmental
    matters would require it to work with other nations on problems
    affecting the United States and the world.

        ----------------------------------------------------------------

        EPA has been a global leader in international efforts to control
    the long-range transport of persistent organic polychlorinated
    biphenyls (PCB's). The Agency recently helped secure international
    consensus on the need for a legally binding convention on these
    pollutants. Such a convention will enlist the cooperation of nations in
    limiting the production of chemicals long banned or restricted for use
    in the United States and whose continued use abroad poses a threat to
    health and environment in this country. EPA has also played a major
    role in international agreement on prior informed consent (PIC) for the
    transboundary movement of certain toxic chemicals and pesticides, and
    for a Biosafety Protocol to the Biodiversity Convention seeking to
    construct an international regime for trade in living modified
    organisms.
        Similarly, EPA has a key role on implementing the Global Programme
    of Action on Land-Based Sources of Marine Pollution adopted at the
    Washington Conference in 1995, and in negotiations on a Land-Based
    Marine Pollution Protocol under the Cartagena Convention for the Wider
    Caribbean Region. The development and implementation of effective
    controls on land-based sources of marine pollution such as outfalls and
    runoff will go far toward advancing important U.S. environmental and
    economic interests. Clean beaches and healthy coral reefs, for example,
    are very important to the tourist, fishing and recreation industries.
        EPA's international programs on safe pesticide use are helping to
    improve the quality of the U.S. food supply. Many off-season fruits and
    vegetables are imported from developing countries whose environmental
    inspection and regulatory systems are considerably less stringent than
    those in the U.S. By working with foreign environmental protection
    agencies and agricultural producers, EPA is able to promote safer
    pesticide use and food production practices in countries producing a
    significant amount of export crops for the U.S. market. Since 1991, for
    example, EPA has provided technical assistance on pesticide management
    to many countries in Central America. Much of the produce grown in
    Central America is intended for the U.S. market.

    Elevating the Quality and Reducing the Cost of Environmental Protection
            in the United States
        The United States is a world leader in environmental protection,
    with significant expertise residing in both the public and private
    sectors. Cooperative research and regulatory development enables the
    United States to share the costs of environmental protection efforts
    and to benefit from scientific and technological breakthroughs in other
    countries, thereby elevating the quality and reducing the cost of
    environmental protection in the United States.

        ----------------------------------------------------------------

           learning lessons from abroad: the polish biosolids project
        EPA's international technology and assistance projects not only
    help solve pressing environmental problems abroad; they can also
    identify innovative approaches for use in the United States. Over the
    last three years, for example, EPA has used AID-funding to work with
    the Government of Poland in demonstrating the use of biosolids (sewage
    sludge) in revegetating and detoxifying land contaminated by coal
    mining and smelter wastes. The successful results of this small-scale
    demonstration could help introduce the use of this low-cost and
    effective technique in the U.S.

        ----------------------------------------------------------------

        Cooperative research with several countries, including Canada,
    Germany, Sweden, Japan, China, and India, has yielded valuable
    information to the United States at a fraction of the cost of
    collecting and analyzing the data here. In a cooperative study with
    China, for example, EPA was able to assess the loss of lung function in
    children due to their exposure to coarse and fine air-borne particulate
    matter. Joint testing with Germany on the development of thermal
    destruction techniques for hazardous waste saved the U.S. taxpayer
    millions of dollars and accelerated the U.S. domestic program in this
    area three to four years. Shared testing through the Organization for
    Economic Cooperation and Development (OECD) of over 700 high production
    volume chemicals greatly reduces the cost and administrative burden of
    chemical testing in the United States. OECD's long-standing Test
    Guidelines harmonization program for toxic chemicals data has been
    expanded to explicitly consider pesticides data, thereby leading to
    even greater resource savings for national regulatory agencies and
    industry as well as more consistent scientific and regulatory
    conclusions. Cooperation with the European Union is helping to enhance
    the effectiveness of ecolabeling as a market-based, environmental
    policy tool.

        ----------------------------------------------------------------

                   RUSSIA: PROTECTING OUR SHARED ENVIRONMENT

        Environmental cooperation with Russia plays a critical role in
    reducing global and transboundary risks affecting health and the
    environment in the United States. Russia is the largest source of
    industrial and radioactive pollution in the Arctic. It possesses the
    world's largest forested area and a considerable share of the world's
    biological diversity. It is also the world's third largest emitter of
    greenhouse gases and the largest remaining producer of ozone-depleting
    substances. EPA's cooperative programs with Russia have helped:
      --Leverage the funding needed to achieve significant emission
            reductions of CO2 and other greenhouse gases over
            the next few years;
      --Cease Russia's dumping of low-level radioactive waste in the
            Arctic, thereby enabling Russia to comply with the London
            Dumping Convention (see related box on Murmansk);
      --Reform major components of Russia's environmental management
            system, particularly for air pollution;
      --Introduce low-cost, innovative technologies to reduce and prevent
            pollution; and
      --Achieve measurable improvements in environmental quality in the
            Moscow area and in several other Russian cities, including
            Volgograd and Nizhnii Tagil.
        EPA's cooperative programs have helped strengthen U.S. ties with
    strategically vital nation.

        ----------------------------------------------------------------

        EPA is also working with many developed countries in sharing
    environmental management expertise on new, non-regulatory mechanisms
    for protecting the environment. Other countries are extremely
    interested in our experience with voluntary, non-regulatory programs
    like the Common Sense Initiative, an industry sector approach to
    environmental protection. In addition, as EPA moves away from the
    medium-by-medium approach of the past toward a more integrated view of
    the environment, it can learn much from the experience of other
    countries that have already applied such techniques. Swedish and Dutch
    authorities, for example, have been implementing multi-media systems of
    environmental protection for many years. Similarly, experience in
    Germany and other countries in rehabilitating derelict industrial sites
    offers valuable lessons for the ``Brownfields'' program in the U.S.
        EPA ``know-how'' and experience is in great demand throughout the
    world. One very cost-effective way to assist other countries in
    designing and implementing environmental protection strategies is
    through EPA's international visitors program. In 1996, for example, EPA
    hosted over 1,200 visitors from 109 countries. These typically brief
    stops at EPA enable environmental professionals from other countries to
    meet and exchange ideas with their counterparts in the United States.
    Such visits often serve as a springboard for building or strengthening
    environmental institutions abroad and set the foundation for mutually
    beneficial future exchanges.
    Serving Broader National Objectives
        As emphasized by the General Accounting Office in its recent review
    of international environmental programs across the U.S. government,
    ``EPA's international programs also serve important U.S. economic,
    foreign policy, and security interests.'' \5\ Working closely with
    other U.S. agencies, for example, EPA has actively supported regional
    cooperation under the auspices of the Middle East Peace Process
    Multilateral Working Group, including bringing together regional
    parties to cooperate on reducing risks from pesticides, small community
    wastewater, and preventing and responding to chemical accidents or oil
    spills.
    ---------------------------------------------------------------------------
        \5\ GAO Report, Page 22.
    ---------------------------------------------------------------------------

        ----------------------------------------------------------------

     EXCERPT FROM THE ENVIRONMENTAL TECHNOLOGIES TRADE ADVISORY COMMITTEE--
                                   JUNE 1996

        Widely recognized as the leading source of environmental regulatory
    and management expertise worldwide, EPA is frequently approached by
    foreign governments and organizations for assistance in establishing
    the environmental regulatory and management capabilities that can drive
    the demand for U.S. technologies.

        ----------------------------------------------------------------

        The Agency's emphasis on community-based environmental management
    plays an important role in encouraging the development of more
    responsible, participatory decision-making in countries around the
    world. Reduced environmental problems can relieve pressures for illegal
    immigration, promote economic and political stability, and serve other
    national security interests.
        Technical cooperation has also played an important role in foreign
    policy initiatives in Latin America and with Mexico, China, India,
    Russia, and South Africa. Finally, EPA's technical assistance and
    training programs create demand--and markets--for environmental
    technologies and expertise, thereby enhancing commercial opportunities
    for U.S. business and industry and creating high-wage jobs for American
    citizens.
        Senior private sector individuals and groups have recently
    reaffirmed the key role EPA's international technology and capacity-
    building programs play in creating commercial opportunities for U.S.
    suppliers of environmental technologies and expertise. In so doing,
    they have differentiated the export assistance (supply-side) role of
    the Department of Commerce, Export-Import Bank and other export
    promotion agencies from EPA's role in creating demand for U.S.
    technologies and expertise through the development of environmental
    standards, institutions and human resource capabilities. EPA's short-
    term technical assistance to the Royal Thai Government, for example,
    not only helped solve a pressing health and environmental problem in
    the Mae Moh Valley, it also led to the sale of almost $200 million for
    U.S.-made air pollution monitoring and control equipment.
        International harmonization of good laboratory practices, test
    guidelines and mutual acceptance of data for industrial chemicals and
    pesticides means more efficient data development by industry and
    greater assurance of the quality of data EPA uses in responding to
    statutory requests for risk and risk benefit assessments. The mutual
    acceptance of data for risk assessment purposes must now be expanded
    beyond countries of the Organization for Economic Cooperation and
    Development to include emerging markets in Asia and Central and Eastern
    Europe. EPA's efforts to promote the upward harmonization of
    environmental standards also protect U.S. business and industry from
    unfair trade advantages through lax or non-existent environmental
    controls in other countries.
             conclusion: strengthening epa's international programs
        EPA has long been a central player in the formulation and
    implementation of U.S. international environmental policy. The direct
    benefit to U.S. citizens and natural resources resulting from this
    involvement underscores the importance of ensuring an active and
    continuing international presence. EPA is working to strengthen its
    ability to lead and support U.S. efforts to prevent and control
    environmental pollution at the regional and global level. In addition
    to the priority setting, evaluation and monitoring measures described
    earlier, EPA is undertaking the following steps to strengthen its
    international programs.

                           EMPHASIZING RISK REDUCTION

        Consistent with recommendations of the EPA Science Advisory Board
    (SAB) \6\ and the recommendations of the National Academy for Public
    Administration (NAPA),\7\ EPA is putting much greater emphasis on the
    potential for risk reduction in setting priorities. The SAB called
    particular attention to top-ranked risks to the natural ecology and
    human welfare, all of which have significant international
    implications. By making better use of good science and balancing
    numerous environmental, social, economic, political and scientific
    considerations, the Agency is working to ensure that its limited
    resources are devoted to the areas of greatest risk.
    ---------------------------------------------------------------------------
        \6\ ``Reducing Risk: Setting Priorities and Strategies for
    Environmental Protection,'' Science Advisory Board, U.S. Environmental
    Protection Agency, SAB-EC-90-021, September 1990.
        \7\ ``Setting Priorities, Getting Results: A New Direction for
    EPA,'' A National Academy of Public Administration Report to Congress,
    April 1995, Page 12.
    ---------------------------------------------------------------------------
        Responding to the NAPA recommendations, the Agency is also making
    better use of science, strategic planning, budgeting, and
    accountability in the planning and implementation of its international
    programs. The following steps will ensure more rigorous evaluation of
    the risks associated with different international environmental
    problems as well as better use of this information in making Agency
    decisions:
      --Evaluation of all existing international commitments in light of
            the relevant risks to U.S. health and ecosystems;
      --Establishment of a more formal mechanism for evaluating future
            international involvements against the criteria outlined in
            section III.A of this report; and
      --Comparative examination of the Agency's international activities,
            with accompanying investments and disinvestments.\8\
    ---------------------------------------------------------------------------
        \8\ Coordinated by EPA's Office of International Activities, this
    effort will review all program and regional office involvements
    internationally.
    ---------------------------------------------------------------------------
    Strengthening Internal Coordination
        EPA is committed to improve internal coordination within the Agency
    in planning and implementing its international activities. The Agency
    currently uses a variety of mechanisms to tap the best expertise
    available within the Agency and to ensure effective integration between
    domestic and international programs. Overall coordination of programs
    through the Office of International Activities ensures policy
    coherence, integration and efficiency, particularly on cross-cutting
    environmental issues and programs.
        Consistent with the overall restructuring of the Agency's planning,
    budgeting and accountability procedures, EPA will institutionalize an
    annual planning process for its international activities. Under this
    process, OIA will coordinate an agency-wide effort to develop an annual
    activity plan describing the various project areas for the coming
    fiscal year. These activities will include short-term and long-term
    projects and major upcoming events.This process will ensure that
    international activities are reflected adequately in the Agency's
    overall strategic plan, and incorporated into the specific workplans of
    the various program and regional offices. This process will help EPA
    prioritize its international activities and provide a forum for
    assessing the results of the previous year's activities. It will also
    lead to the necessary disinvestments.

        ----------------------------------------------------------------

           excerpt from the general accounting office--september 1996
        EPA's Office of International Activities serves as the focal point
    and catalyst for the agency's international agenda, providing
    leadership and coordination on behalf of EPA's Administrator.

        ----------------------------------------------------------------

        In addition to the international contact points for many program
    and regional offices, OIA has recently: (1) created a strategic
    planning team of senior managers and staff, (2) undertaken a program to
    identify specific milestones for EPA's international work, and (3)
    reassigned one of its senior staff to work full-time on strategic
    planning. The person is working with program and regional offices in
    developing appropriate goals, objectives and milestones for
    international activities under the Agency's new planning, budgeting,
    accountability and analysis system. OIA will also lead an EPA-wide
    strategic planning process to apply the criteria described earlier to
    prioritize among existing and new activities and to begin the process
    of linking budget decisions to priorities.
        Finally, with respect to internal coordination, EPA is taking steps
    to ensure greater accountability and streamline the international
    travel process for Agency officials traveling abroad and to improve the
    efficiency of its international technical cooperation programs. The
    Agency has begun developing, for example, a set of generic ``technology
    diffusion'' modules to disseminate information and training on selected
    U.S. environmental management techniques. Coordinated closely with
    complementary programs in the non-profit and private sector, and
    building on the success of existing domestic programs, the modules will
    cover priority environmental management techniques (e.g., risk
    assessment, pollution prevention), sectors (electronics, pulp/paper)
    and problems (chemical safety, urban air pollution).
    Improving External Coordination
        EPA cannot achieve its environmental mission on its own. One of the
    most effective ways of strengthening EPA's international program is
    through building and maintaining effective partnerships with its many
    stakeholder organizations. It must also leverage its limited resources
    through closer cooperation with other federal agencies, state and local
    governments, foreign governments, and international organizations. Such
    collaborative efforts will bring benefits to the American people
    through wise allocation of funds that avoid duplication of effort and
    tap into the wealth of expertise that other organizations offer.
        EPA is working to leverage resources for environmental purposes
    (e.g., lead abatement, methane recovery) and improve the lending
    practices of the World Bank and other multilateral funding and
    development institutions. Accounting for approximately $35 billion of
    development assistance in developing and transition countries, lending
    institutions play an influential role in shaping international
    financial practices.
        EPA is looking for additional ways to better enlist the expertise,
    creativity and resources of the U.S. private sector in achieving U.S.
    environmental objectives abroad. The private sector can benefit, for
    example, from EPA's extensive network of contacts and detailed
    understanding of environmental needs and market opportunities
    worldwide. To protect EPA's credibility and international reputation
    for objectivity and to ensure that EPA's activities in this area are
    carried out in a way consistent with the Agency's domestic
    environmental mandate, EPA has developed the following set of
    operational guidelines for ensuring that this work is carried out
    consistent with the Agency's statutory authority and environmental
    mission:
      --What is the environmental rationale for the activity?
      --Is the program or project an appropriate activity for public sector
            involvement?
      --Is the activity appropriate for EPA as opposed to another federal
            agency?
      --Does EPA's involvement imply endorsement or favoritism for
            participating private sector parties?
      --Can EPA's participation in the activity be conducted
            professionally, impartially and objectively?
      --Does EPA's role in the activity jeopardize the Agency's ability to
            fulfill its domestic regulatory or enforcement
            responsibilities?
      --How were private sector parties selected for participation in the
            project?
        Finally, EPA is making better use of regional offices and their
    international program managers to enlist greater cooperation of States
    and other public and private sector groups in the international arena.
    State and city-based managers and organizations often have more to
    offer to foreign groups seeking to benefit from U.S. expertise and
    experience. The Agency is also working to strengthen its ties with
    environmental, conservation and consumer organizations and other non-
    governmental organizations (NGO's). EPA's Office of Communication,
    Education and Public Affairs maintains ongoing dialogue with a wide
    variety of these organizations, including those working on
    international issues.
        Taken together, the steps discussed in this report should
    strengthen EPA's commitment to international cooperation, and ensure
    that the Agency's international goals are pursued in the most efficient
    and cost-effective way possible. Most importantly, active EPA
    international engagement will result in greater protection against
    pollution for U.S. citizens and natural resources. These measures
    should also serve broader U.S. foreign policy, economic and security
    interests well. Working closely with the Congress, federal agencies,
    the private sector, and other partners, EPA leadership can continue to
    make a difference in the United States and around the world.

                              NAAQS: CLEAN AIR ACT

        Senator Shelby. Thank you, Mr. Chairman.
        Administrator Browner, you used the phrase, I believe, a
    few minutes ago, and correct me if I misquote you, that we need
    to have an honest dialog--I believe that was your phrase--
    dealing with all of this.
        Ms. Browner. Yes, on Superfund.
        Senator Shelby. And I hope that we will.
        As I said earlier, the EPA, along with numerous Federal
    agencies, States, corporate America, and the citizens of this
    Nation, should be congratulated on a lot of the accomplishments
    that have occurred over the years. Numerous constituents, the
    same people that have supported prior clean air regulations,
    have come to me and others with their concern. A lot of people
    are troubled by rushing pellmell into new particulate
    standards. Has the 1990 Clean Air law been implemented in all
    of its respects?
        Ms. Browner. The 1990 Clean Air Act is built on a law that
    has been in existence since the mid-1970's.
        Senator Shelby. I know that.
        Ms. Browner. We are continuing with the implementation.
        Senator Shelby. Implementing it.
        Ms. Browner. Yes; we are basically on target. There are
    many components to the law. For example, in toxic air
    emissions, we have achieved the single largest reduction in the
    last 4 years in the history of the United States because of our
    implementation work.
        Senator Shelby. We have come a long way, have we not?
        Ms. Browner. We should all be very proud. But the job is
    not done.
        Senator Shelby. But we have not completely implemented the
    1990 amendments to the Clean Air Act, have we?
        Ms. Browner. One of the provisions in the 1990 amendments
    is a 5-year review of the public health standards. We are in
    the process of taking public comment on our review of two of
    the six public health standards. We have not proposed to change
    three of the six, and one we did not review.
        Senator Shelby. Your new proposals have come under attack
    by a lot of sources.
        Ms. Browner. I think it is fair to say that some in
    industry do not like them.
        Senator Shelby. Not just industry. It has been sharply
    criticized by a lot of the State Governors, municipal leaders
    and business organizations. And, also, I have been recently
    made aware that these rules have also been criticized, Ms.
    Browner, by other Federal agencies, such as the Council of
    Economic Advisors, the Department of Science and Technology
    Policy, the Department of Commerce, the Small Business
    Administration, and the Department of Agriculture have also
    expressed concern about the scientific basis and--let me
    finish--and the massive cost for implementing these
    regulations. Yet, your Agency is continuing full speed ahead.
        Why, Administrator Browner, should not the concerns of
    these other Federal agencies and departments be investigated
    and heard, proven or disproved, prior to the implementation of
    these regulations? And are you going to ask that these agencies
    be made part of the process?
        Ms. Browner. They are part of the process. And they have
    been, dating back to, in some instances, several years and, in
    all instances, last fall.
        I would like to go back to the question of Governors. You
    suggest that all Governors oppose strengthening.
        Senator Shelby. I did not say all; I said a lot of
    Governors.
        Ms. Browner. A lot of Governors also support strengthening
    the public health standards in the way that we have
    recommended, including Governor King, Governor Weld, Governor
    Whitman, and Governor Romer. There are a number of Governors
    who believe that it is important to strengthen the public
    health protections. We take all of the Governors' comments into
    account, whether they be supportive or not.
        Senator Shelby. You named four or five; you are going to
    consider those other 45 you did not name, I hope?
        Ms. Browner. We did not hear from all 50 Governors.
        Senator Shelby. But I bet you heard from more than four or
    five.
        Ms. Browner. I was just pointing out that there were some
    who had been supportive of our proposal and there were some who
    had not been.
        Senator Shelby. Sure. You were naming the ones who
    supported you.
        Ms. Browner. My response is in keeping with what you had
    said.
        It is absolutely appropriate when any agency, be it EPA or
    another agency, makes a proposal. That is exactly what happened
    here. We would have an opinion if the Department of Agriculture
    wanted to do something. We would have questions that we would
    want to see answered.
        Senator Shelby. Absolutely.
        Ms. Browner. The Office of Management and Budget runs what
    is called an interagency process that brings all of the various
    Federal agencies and departments to the table for a vigorous
    debate and discussion. That is what happened in this instance.
    It was vigorous, without a doubt.
        At the end of the day, a decision was made by the Office of
    Management and Budget to clear our proposal for public comment.
    While we have been in a public phase and while we are reviewing
    all of the comments we have received, we have stayed in a
    discussion across the Federal Government, seeking to understand
    the concerns, the questions and the points of view that others
    may have, and speak to them. This is an ongoing process and
    will continue until a final decision is reached.

                            OZONE NAAQS: CEA LETTER

        Senator Shelby. I want to ask you this, and tell me if this
    is correct. I have been told that EPA has stated that the total
    national cost of implementing the ozone rule would be $2.5
    billion; is that correct? Is it about like that?
        Ms. Browner. We projected a range of costs. The range is
    from $500 million to $2.5 billion.
        With all due respect, Senator, I do need to remind you that
    the law is very clear. The Clean Air Act, which you all rewrote
    in 1990, is very clear in telling us this is not a cost/benefit
    decision. It is a public health decision. Cost/benefit, which
    we did, because we thought it was an important thing, is
    somewhat speculative. Until you sit down and sort out
    community-by-community, State-by-State, and industry-by-
    industry, and determine where you can get the most cost-
    effective pollution reductions, you cannot do more than give a
    range.
        Senator Shelby. Sure. Now, let me remind you of this. I
    have also been told that the Council of Economics Advisors has
    stated that the cost of full attainment of just the ozone rule
    could be $60 billion--or $57.5 billion more than what was
    estimated by EPA. Now, somebody is way off on their numbers.
        Ms. Browner. Yes.
        Senator Shelby. Now is it EPA or is it the Council of
    Economic Advisors?
        Ms. Browner. I presume you are referring to a draft memo.
    We have docketed that memo. It is in the public record, because
    we think it is an important memo. We did not receive it from
    the Council of Economic Advisors.
        Senator Shelby. Did you disregard the memo and its
    contents?
        Ms. Browner. I am trying to explain to you what we did. We
    subsequently wrote a letter to the chairman of the CEA, asking
    for all of the backup documentation and any analysis they may
    have done. We want to make it part of the public record so we
    could fully consider it.
        Senator Shelby. OK.
        Ms. Browner. To the best of my knowledge, we have not
    received that backup documentation. I personally placed a phone
    call to the chairman of the council, asking for the backup
    documentation, because we want to consider it. All we have is
    what you have, which is a three- or four-page memo stamped
    draft. It was produced after our proposal was made public in
    November. When it was brought to our attention by a reporter,
    not by the CEA, we docketed it and asked the CEA for all of the
    backup documentation. CEA did not give us the memo.
        Senator Bond. Thank you very much, Senator Shelby.
        Senator Shelby. Thank you, Mr. Chairman.
        Ms. Browner. But the concerns are concerns that should be
    taken into account. That is why we have asked for backup
    documentation.
        Senator Bond. Thank you, Administrator.
        Senator Shelby. Thank you, Mr. Chairman.
        Senator Bond. Senator Boxer..

                             CLEAN AIR ACT REVIEWS

        Senator Boxer. Thank you, Mr. Chairman.
        Administrator Browner, to pick up on the Clean Air
    minidebate between you and Senator Shelby. As I understand it,
    we have gained great benefit from the Clean Air Act over the
    last 25 years. It was a bipartisan act with great bipartisan
    support. And as I understand the law, you did not just get
    involved and say, OK, it is time for more stringent standards.
    Did not the courts say that you had to look at the standards
    and see whether, in fact, they were the proper standards for
    the health and safety of our people?
        Ms. Browner. The law requires EPA to review the six most
    commonly found air pollutants on a 5-year basis. EPA reviews
    the best available science and determines whether or not the
    current public health standards adequately protects the
    American people.
        For a variety of reasons, not the least of which was you
    did have a time when the White House was very hostile to EPA,
    EPA had not done this for the better part of 10 years. When I
    came to EPA, we were sued by the American Lung Association
    because we had not been doing these things on schedule. We
    agreed that we should be. It is what the law said. It is what
    the Congress had promised the American people. We settled the
    lawsuit by laying out a schedule on which we would fulfill our
    obligation to review these standards.
        We were also threatened with a lawsuit on the other
    standard, ozone. In that case, the lawsuit was eventually
    withdrawn because we made a public promise, through a Federal
    Register notice, to similarly undertake the review that the
    statute has required of us. That is why you now have two that
    we have proposed and have taken public comment on whether or
    not we should change.
        We also did three more reviews. There are six of these. We
    have done five reviews. Three of them we are not proposing to
    change. Two of them we are proposing to change. And one we did
    not review. It is lead. And the reason we did not review it is
    because, in many ways, our work is done on that side of things.
        Senator Boxer. So I think it is important, Mr. Chairman,
    that we understand that it was Congress, in a bipartisan
    fashion, that crafted the Clean Air Act, and that a court has
    now ordered EPA to take a look at these standards. And I feel
    that the legitimate question is, are you going to base your
    final decision on science? That is quite legitimate. And I
    support that. But we are supposed to consider the health of the
    people when we set these standards, by our own laws, unless we
    decide to change it, which I would hope we would not do.
        And as I understand it, we are talking about saving lives
    here. And the latest estimate is 15,000 lives, as I understand
    it.
        Ms. Browner. That is for the fine particles. In the case of
    ozone, we are talking about literally hundreds of thousands of
    respiratory illnesses, asthma attacks avoided and aggravated
    asthma cases avoided. Large numbers of people, particularly
    children or senior citizens, should we finalize the standards
    as we propose them, will receive tremendous public health
    benefits and protections.

                            SAFE DRINKING WATER ACT

        Senator Boxer. Speaking of children, the Safe Drinking
    Water Act--I sit on the authorizing committee, as you know--and
    the Safe Drinking Water Act, I was very proud of. And there
    were two amendments that got included that I was involved in.
    One dealt with consumer confidence reports.
        Ms. Browner. Yes.
        Senator Boxer. So every year people find out what is in
    their water. And then the other is that when we set drinking
    water standards, we set them at levels that protect children
    and other vulnerable populations. You have asked for an $8
    million increase in research funding, and I am hopeful that
    some of that will go toward children.
        Ms. Browner. Yes.
        Senator Boxer. Is that an accurate assumption?
        Ms. Browner. Yes; we have made our public health standards-
    setting program focus on the children, whether it be drinking
    water, air, or whatever. Therefore, we are increasing budget
    and research dollars, so that we can better understand the
    environmental effects on the health of our children.
        Senator Boxer. And, in addition, the implementation of the
    consumer confidence reports, you will be able to----
        Ms. Browner. We are on track.
        Senator Boxer [continuing]. Make sure that that happens?
        Ms. Browner. Yes.
        Senator Boxer. I have written a bill, and Jim Moran is
    going to carry it on the House side, called the Children's
    Environmental Protection Act. And it really builds on this
    progress we made in the Safe Drinking Water Act, where we are
    now seeing that when we set any type of standard, it really
    ought to be not for the--with all due respect--the 165-pound
    guy, who is the strongest among us, but to look at the most
    vulnerable.
        Because, you know, even if you look at air bags today, one
    of the problems is they set that standard on the air bag for a
    175-pound male who was not strapped in. Well, you take a
    littler person, some of whom are sitting at this dais, and it
    is a little bit of a force here for us, which could wind up
    leaving us without a very important part of our body, such as
    our head. [Laughter.]
        So I think it is important that when we set these standards
    we not go for the strongest, but, in fact, look at the most
    vulnerable. Therefore, everyone is protected, not just a select
    group.
        Ms. Browner. I agree.
        Senator Boxer. You know, a survival-of-the-fittest kind of
    approach.
        I would love to have your reaction--I know you have not
    seen the final draft of our bill, but, in theory, would you
    support taking that same idea that we applied in safe drinking
    water and applying it more broadly?
        Ms. Browner. I have issued guidance to all of the offices
    at EPA to take into account children in every decision we make.
    And we would certainly welcome the opportunity to review your
    legislation.
        Dr. Phil Langrigan, who was one of the authors of the
    National Academy of Sciences report on children and pesticides,
    has recently joined us to assist us in this effort of putting
    children first and foremost when we make public health and
    environmental decisions for the country. We would appreciate
    the opportunity to look at your legislation.
        Senator Boxer. Mr. Chairman, I will hold for a final round.
        Senator Bond. Thank you very much, Senator Boxer..
        Senator Leahy.

                                 MERCURY STUDY

        Senator Leahy. Thank you, Mr. Chairman.
        Madam Administrator, good to see you here, as it is when we
    see you in Vermont.
        You seem to be spending a lot of time on the question of
    air quality, and I think that is wise. Everyone has to take
    some responsibility for controlling pollution in their own
    communities. I look at my own State of Vermont, which has some
    of the strongest environmental laws in the country, but even
    though we have strong standards within our own borders, we have
    become a dumping ground for a lot of other States. We have
    imposed very high environmental standards on ourselves. We pay
    the price of maintaining those. But then we are faced with an
    uphill battle when the pollution we are striving to control
    just silently creeps through the air, comes across borders, and
    then is dropped in Vermont--pollution that is caused by other
    States but it comes and hits us.
        Now, we are concerned about that. Acid rain taught us that
    our tough laws on the environment were not enough to protect
    us.
        Now, I think it is safe to say that Vermonters are proud
    that you serve as our Administrator. You have made a lot of
    efforts to address pollution transport. I commend you for
    proposing new regulations on ozone and particulates. Acid rain
    demonstrated that sulfur dioxide can go hundreds of miles. So,
    too, can Ozone and particulates, which can cause up to 15,000
    premature deaths a year. These are intricately related to
    whatever kind of deregulation we do in the electric utility
    industry. Our own legislature is debating that issue right now.
        But I think the deregulation of the utility industry adds a
    level of urgency to your proposed ozone and particulate
    standards. Some, and some even on this committee, have
    challenged the science behind the standards. I have reviewed
    the citations of the studies that back up the EPA rules. They
    are remarkable. The bibliography alone of science that supports
    these regulations, I think, is over 100 feet long. The science
    behind the standards is comprehensive. It is objective.
        Now, because there is sound science behind these proposed
    rules, I am puzzled by the EPA's attempt to postpone the
    release of another study on mercury. The Science Advisory Board
    recently recommended the release of this report. I hope that
    you will do just that. The effects of transport of mercury will
    be important information to know as we go forward with utility
    restructuring.
        This report is 1,700 pages long. And it contains state-of-
    the-art information. In February, the Science Advisory Board
    joined a long list of scientists in saying the report should be
    released. I wonder why it is that when the Agency's mercury
    report is supported by equally compelling and sound science as
    the ozone and particulate standards, the Agency has not
    released it. Can you tell me when it may be released to the
    public?
        Ms. Browner. Yes; we are currently involved in the peer-
    review process. The Science Advisory Board met in March to
    review the analysis that has been done and the underlying
    science that has been provided. We expect to hear back from
    them in writing. We do not have the Science Advisory Board's
    final report, but we expect to have it by the end of the
    summer.
        Depending on what they tell us in that report, we will make
    the appropriate adjustments and would expect to see release,
    hopefully, by the end of the year. It really depends on how
    much we get back.
        Senator Leahy. By the end of 1997?
        Ms. Browner. It depends on how much we get back from the
    Science Advisory Board. Since they have not put it in writing
    yet, we do not know. They were complimentary of the work that
    we had done. However, they do need to give us a written report,
    and we are awaiting that.
        Senator Leahy. If the SAB recommends a release, will you
    release it?
        Ms. Browner. Certainly.

                         LAKE CHAMPLAIN MANAGEMENT PLAN

        Senator Leahy. Now, when you were here last year, you and I
    discussed EPA's commitment to the Lake Champlain management
    plan. And you have cited the Lake Champlain program as a model
    for how we can bring together all the parties, develop plans,
    and find solutions to watershed issues. And I agree with you on
    that. Two of your regional offices have approved the management
    plan. Your Assistant Administrator for Water has reaffirmed the
    Agency's commitment to implement the pollution prevention and
    restoration plans. I do not see this in your fiscal year 1998
    request.
        Can you tell me what actions your Agency will take to
    support the implementation of the management plan and what kind
    of resources we can expect from the EPA over the next 5 years?
        Ms. Browner. We will continue to work, as I think we have
    to facilitate the relationships among the 31 member management
    team that has been developed. There are many other Federal
    agencies, as you are well aware, who participate in this and
    provide funding. We believe that that funding and perhaps some
    additional dollars we may be able to make available will allow
    us to continue our work.
        Senator Leahy. Well, as you can imagine, you and I probably
    have a lot more discussions on this. The Lake Champlain
    management plan is a particular favorite of mine.
        Ms. Browner. Yes.
        Senator Leahy. Any time you would like to come up, Mr.
    Chairman, we would love to show it to you.
        Senator Bond. I enjoyed my last visit up there, when we
    went up there with the agriculture committee. You were a
    gracious host.
        Senator Leahy. Please come again. Thank you.
        Senator Bond. It is a beautiful, beautiful lake.
        Thank you very much, Senator Leahy.
        Would you check--Senator Craig wanted to ask some
    questions--is he ready?
        Senator Leahy. Mr. Chairman, I might note that you have
    been very helpful to those in both New York and Vermont and all
    others who use Lake Champlain in the past. And I appreciate
    that.
        Senator Bond. Last year's bill looked as if somebody had
    put a Vermont glitch in the computer that printed it.
    [Laughter.]
        We noted that.
        Senator Leahy. Do not get that glitch out of the computer.
        Senator Bond. And we are trying to get the computer fixed
    this year. [Laughter.]

                             PM AND OZONE STANDARDS

        I will go ahead. Senator Craig is not available. I will go
    ahead on several questions.
        Thank you, Senator Leahy.
        I would note, following up on Senator Shelby's comments,
    that we have received letters with regard to the PM and ozone
    standards from over 30 mayors and elected officials. Both
    houses of the Missouri General Assembly have passed resolutions
    raising questions and concerns about the standards. When they
    agree on a final resolution, we will share that one with you.
        Ms. Browner. Thank you.
        Senator Bond. I also will ask, for the record, but I wanted
    to tell you in person, that we are concerned about the cost
    figures you used on the operable units. The Congressional
    Budget Office told my staff the average cleanup cost in 1994-95
    was $5.6 million, and with a 20-percent growth factor, to $6.6
    million for each operable unit. Yet EPA is assuming a $10
    million cost per operable unit.
        We also would need to see a list of the specific projects
    to be funded under Superfund, including a risk-based ranking
    and estimated cost for each, along with a project start date
    and whether you are going to continue to use the risk-based
    ranking.
        Ms. Browner. Yes.
        Senator Bond. We also have questions about staff to manage
    and the contracting capacity to carry out these additional
    things. I will submit those for the record and ask you to
    respond to those.
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        Ms. Browner. We have given some of those lists to your
    staff already. We have given to you a list of 600 candidates.
    We can work with you on that list.
        Senator Bond. Yes; we have a broad universe of science. We
    want the specifics.
        Ms. Browner. Right. We can do that.
        Senator Bond. And we will work with you to get that and
    share that with the committee.
        Ms. Browner. Good.

                            EPA/STATE RELATIONSHIPS

        Senator Bond. Let me turn to your relationship with the
    States. As you will recall, we have discussed here before the
    National Academy of Public Administration, 2 years ago,
    recommended that EPA turn more responsibility over to the
    States. We are hearing from the States that despite your claims
    to wanting to develop a partnership, the efforts to foster the
    partnership are disintegrating. A recent Inside EPA article
    states,

        State officials are becoming increasingly concerned that
    Hansen and Browner are not living up to their rhetoric
    regarding a new partnership between the Agency and the States.
    They see a trend of EPA walking away from the partnership
    process.

        Why is there an appearance that the relationship with the
    States is collapsing? Is EPA committed to working with the
    States and devolving the responsibility?
        Ms. Browner. Absolutely, we are committed to working with
    the States. I think one of the earlier quotes you referenced
    talked about how we had begun this in the last 4 years. This is
    not small. This is not easy. No two States are the same. No two
    State legislatures are the same. No two State Governors feel
    the same about these issues.
        We look to the States to manage a variety of Federal
    responsibilities on a day-to-day basis. In most instances, it
    works quite successfully. There will inevitably be times when
    there are challenges in individual States. We have found that
    if we can sit down and talk through these challenges, we can
    reach a resolution. I will give you just one recent example.
        The State of Texas is not a State with which we are
    expected to be able to find resolution. The State passed a
    piece of legislation that raised concerns in our minds and in
    our lawyers' minds, about whether or not they could adequately
    fulfill their responsibilities under Federal statutes,
    responsibilities we had delegated to them.
        We had a lot of meetings. Fred Hansen had meetings. Steve
    Herman had meetings. Approximately, 2 weeks ago, we agreed that
    there is a way to allow them to meet the needs of their State
    legislation, but to honor the Federal statutes.
        Similarly, in Utah.
        Senator Bond. May I interrupt just to ask one last question
    on this round. Mr. Hansen abruptly pulled back last month a
    draft agreement to establish a process for reviewing and
    improving innovative regulatory reform projects conceived by
    the States. This brought a lot of surprise and disappointment
    to the State officials. They were very much concerned and
    upset.
        Why did the process break down? What specific problems did
    you have with the draft agreement? And where do you see the
    possibility for this going forward?
        Mr. Hansen. Mr. Chairman, for the record, I am Fred Hansen,
    Deputy Administrator.
        It was with great reluctance that I took the step to pull
    that draft agreement back. But, upon review, what was at issue
    is that the States and we both agree on the need to be able to
    move ahead with good, innovative approaches. The language that
    was included in the draft agreement went well beyond what I
    think both of us felt were the types of projects that would be
    brought forward under that agreement. As a result, it raised
    very legitimate concerns in other people's minds about whether
    or not that agreement was too broad.
        We and the States have agreed to be able to, in fact,
    redraft an agreement. The Administrator and I met with the
    ECOS, the Environmental Commissioners of the States, governing
    body and agreed to, in fact, be able to relaunch that effort.
    Our staffs have been meeting and things are progressing. I
    cannot tell you today that it has been agreed to, but there has
    been very real progress made in making sure that what was the
    intent of the States and what was our intent can be captured in
    such an agreement.
        Senator Bond. Thank you very much, Mr. Hansen.
        Senator Boxer, if you do not mind, I would like to turn now
    to Senator Craig, since he missed out on that last round.
        Senator Craig, welcome.

                                      WIPP

        Senator Craig. Mr. Chairman, thank you very much.
        Administrator Browner, let me thank you for coming before
    us this morning. I apologize for being in and out and not
    hearing all of your testimony or comments. I will direct my
    questions specific ally to a couple of activities that EPA is
    involved in at the moment that are giving us considerable
    consternation.
        Specific to my State of Idaho, but also very true across
    the country, is the concern for our ability to deal with
    transuranic waste. Last year, the Senate passed a Sense of the
    Senate, in a very strong bipartisan vote, to expedite your
    activities in the overall oversight and certification of the
    WIPP facility in Carlsbad, NM. Time is important. We gave you
    authority and we gave you time, and you are not meeting those
    schedules.
        Now, let me comment first, then you will have ample time to
    comment. The Sense of the Senate suggested that you be able to
    open it by November of this year. Now you have asked for an
    extension of at least 1 year, arguing that you need more
    information. In fact, you have gone back to DOE, requesting
    more information. The Sense of the Senate, in essence,
    suggested that you run parallel tracks with your certificate of
    completeness. Why?
        To get the time sequence down, so that we could cope with
    and respond to a national need. In fact, we gave EPA authority
    in this area largely to solve some problems. I helped move the
    legislation, along with Senator Domenici, that allowed you
    greater flexibility to deal with your role in that area. In
    fact, it was new authority.
        My simple question to you is, why the extension? Why the
    request for more time? Why are you suggesting that it will be
    now May 6, or somewhere near that, of 1998, instead of the
    Sense of the Senate direction that you open it by November of
    this year by completing your work using parallel tracks? Can
    you respond to that with detail?
        Ms. Browner. We will be more than happy to respond with all
    of the different model requests and model runs that we are
    awaiting from DOE in writing. But, to step back and speak
    broadly, we are in dialog with DOE about the information we
    need to make the determination. I think we have explained that
    from when DOE completes its work, it would take us
    approximately 1 year to complete our work.
        Senator Craig. That is why the Congress reacted last year
    by saying parallel the tracks so that it would not take 1 year.
        Ms. Browner. Yes.

                               TRANSURANIC WASTE

        Senator Craig. Because we have a Federal court order
    requiring the transuranic waste begin to move in a timely
    fashion; therefore, we need to expedite with certainty.
        Ms. Browner. Yes; we have been attempting to move as much
    as possible in parallel tracks. We are still awaiting some
    information from the Department of Energy. We have no reason to
    think they are not going to be forthcoming. I want to suggest
    there is a problem. We are in dialog with one another.
    Secretary Pena and I have spoken recently about this. I think
    we are going to meet later this week or next week again about
    this. Once we have that, we will do an analysis and go through
    a public notice and comment. At which point, we will then
    evaluate the comments and come to a conclusion.
        We share your desire to get this done expeditiously. We are
    doing it quicker than I think anyone imagined we would.
    However, there is this issue of more information.
        If you would like, we will explain the modeling.
        Senator Craig. No; I understand the modeling. In fact, I
    know more about this issue than I would like to know. What I am
    concerned about is timely action.
        Ms. Browner. Yes.
        Senator Craig. Because many of us believe what you are
    doing is duplicative of what has already been done. But we
    understand the political waltz that has to go on here to
    satisfy certain requirements. We also understand the
    criticality of public appreciation for safety and for
    completeness. I was of the latter, thinking that EPA did not
    necessarily have to have a role, but we played that game out
    with you all. We have given you that authority. We just cannot
    live with an extension of time that takes us well into 1998,
    with no certainty that we will even get there at that point.
        This facility, by most scientists' and engineers'
    knowledge, has been ready to open for several years. And it is
    a phenomenally costly environment we are dealing with.
        Ms. Browner. You have given us a responsibility to review
    this. We do take that seriously. We are doing it expeditiously.
    But in order to fulfill the responsibility of review, there are
    certain steps we will have to follow.
        Senator Craig. Yes.
        Ms. Browner. We are doing that as quickly as possible.
        Senator Craig. Have you, then, changed the time schedule,
    or do you feel you can stay on track when you are announcing
    now, in 1998?
        Ms. Browner. We believe we will be able to make what is
    called a completeness determination in the next couple of
    months. From that point, it would take us no more than 1 year
    to give you the certification.
        Senator Craig. Completeness by when, May 1998?
        Ms. Browner. No; this is a completeness for what DOE has to
    provide to us. A completeness determination will be done by the
    end of May.
        Senator Craig. Of this year?
        Ms. Browner. Yes.
        Senator Craig. 1997?
        Ms. Browner. Yes.
        Senator Craig. And then another year following that, into
    1998?
        Ms. Browner. At the most, it will take us 1 year.
        Senator Craig. At the most. OK.
        Ms. Browner. We are required to go through a public notice
    and comment period. The comment period will be 120 days.
        Senator Craig. And it was with that sensitivity,
    Administrator Browner, that this Congress acted 1 year ago,
    suggesting that you do parallel tracking to speed up the time.
        Ms. Browner. We are doing that.
        Senator Craig. You are doing that?
        Ms. Browner. As DOE makes information available, we analyze
    it. So we are moving parallel.
        Senator Craig. Well, we are going to two-track you on this
    and stay with you on it. My Governor has just written to the
    President. DOE is under a Federal court order to respond in a
    timely fashion.
        Ms. Browner. Yes; we are aware of that.
        Senator Craig. We expect them to comply. If they do not
    comply, I would not be surprised if my State would once again
    have to shut its borders to the movement of naval spent fuel.
    And that brings the ships at sea to a halt. I do not think you
    need that as your burden. I do not want that to happen. But my
    State is very insistent. They have waited long enough for this
    repository to open so that we can start a major movement of
    transuranic waste to a safe storage facility.
        Mr. Chairman, I am out of time?
        Senator Bond. Yes.
        Senator Craig. Thank you.
        Senator Bond. I think Senator Boxer. said she had just a
    few minutes. So let me turn to Senator Boxer..
        Senator Boxer. Yes; I have 3 minutes. I will be glad to
    yield.
        Senator Craig. No; why don't you go ahead, Senator, and
    then I will come back with one more question.

                                 METHYLBROMIDE

        Senator Bond. I will come back to you, Senator.
        Senator Boxer. Five minutes ago I had to be somewhere, but
    I will be fast.
        Mr. Chairman, there is a river on the Mexico-California
    border called New River. It is one of the most polluted in the
    entire world. And I know you smiled when you thought about
    going up to Vermont to see the beautiful lake. I would not even
    want to take you down there. I hope that we can make some
    progress on this cleanup. I went down there to look at it, and
    it just bubbles up filth and dirt and foam and chemicals. And
    the good people who go in there to try and clean it up or to do
    any sort of river work have to wear astronaut's gear. And it is
    extraordinary.
        I went down there. I was promised EPA would clean it up.
    And they have begun to do that. I just want to make sure that
    you are still committed to this cleanup and that this year we
    will see some more cleanup done there.
        Ms. Browner. Absolutely.
        Senator Boxer. Excellent. And I would hope that I could go
    back there and see a little less filth. Because it was an
    experience you could never, ever, ever forget. So I am going to
    take you up on that and monitor that.
        In terms of methylbromide and the ozone layer and all the
    problems, because I represent such a diverse State, we have so
    much agriculture. There are countries that will not take
    produce that has not had methylbromide sprayed on it. My
    question is, how are we doing in the search for substitutes?
    Because there is no way anybody that I know of is going to do
    away with one product the world is still using, and then we
    cannot ship our produce anywhere. So how are we doing? Do we
    have a commitment to search for substitutes to methylbromide?
        Ms. Browner. Yes; and there have been dollars made
    available through the EPA budget to form groups out in the
    field that are looking at how to manage in terms of moving away
    from the use of methylbromide. The Department of Agriculture
    has had almost $55 million over the course of a 3- or 4-year
    period, which looks at alternatives in doing its work.
        We are still working in this area, and appreciate all of
    the cooperation we are receiving both at the State and local
    level and from the farming organizations across the country.
        Senator Boxer. So what is your commitment to finding a
    substitute?
        Ms. Browner. We all want to find a substitute. The work is
    underway. We are working diligently. The Department of
    Agriculture industry is working diligently to find a
    substitute. Everyone wants to find a substitute.
        Senator Boxer. I am just saying that unless we do that, we
    are not going to phase out methylbromide until we have a
    substitute. That is my own particular view. I just think that
    is a prevailing view, period. Because there is no point in it,
    when you have got everybody else using it, unless we have a
    substitute that works. It is a real crisis situation for our
    farmers.
        Ms. Browner. I do not think anyone, scientists, the
    scientific community or otherwise is suggesting that there will
    be one alternative to methylbromide in all of its many uses.
    There has been some progress made in the varieties of pest
    control tools which can manage pests currently controlled with
    methylbromide. It does take a series of steps. But work will
    continue in finding a substitute. There is a tremendous amount
    going on there.

                                SOUTH LAKE TAHOE

        Senator Boxer. Mr. Chairman, last point. I look forward to
    working with you on my South Lake Tahoe export pipeline. I know
    there were reasons why we could not resolve that problem. And
    members of Congress and I are very concerned. If we want to
    avoid a catastrophic bill and serious harm to Lake Tahoe, I
    hope we can work together this year. So I look forward to
    working with you on what you think is the right approach. And I
    want to thank you so much for your courtesy.
        Senator Bond. Senator Boxer., let me emphasize that the
    concerns that you bring are very important concerns. We look
    forward to working with you and the EPA to address the New
    River concern, methylbromide, and South Lake Tahoe. These are
    all very important issues, and very valuable members of this
    committee bring to our attention. I think Senator Leahy has
    already achieved success. Some of the rest of us have farther
    to go.
        And now, turning back to another issue that is very
    important to this committee, as well as to the distinguished
    Senator from Idaho, Senator Craig.

                                  WIPP REVIEW

        Senator Craig. Thank you very much, Mr. Chairman.
        Administrator Browner, I just have a couple of additional
    questions that are reasonably short. But let me suggest to you
    that May 1998 as a time line that gets talked about for the
    opening of the WIPP facility in Carlsbad is an unacceptable
    time line for this Senator and for a good many members of
    Congress, and we would much prefer you try to find a date
    earlier than that.
        Now, we understand the process you have to go through, and
    that is why the Congress acted with the urgency that it did 1
    year ago--knowing that we did not want to shortcut the process,
    we just wanted to engage you along the way at a quicker time
    than would otherwise play out if there was not an expression of
    urgency as it relates to this environmental concern.
        Ms. Browner. Senator, if I might, for the record, provide
    for the record, a list of what we have been doing on the
    parallel track. That might be helpful.
        Senator Craig. I would appreciate that.
        [The information follows:]

                     WIPP: EPA Activity on Site Evaluation
        The Waste Isolation Pilot Plant (WIPP) Land Withdrawal Act (LWA),
    as amended, requires that EPA make a determination as to whether WIPP
    meets the Radioactive Waste Disposal Regulations at 40 CFR Part 191.
    The LWA requires that EPA make this determination by rulemaking under
    Section 553 of the Administrative Procedures Act (APA). This
    requirement imposes certain procedural and substantive obligations upon
    the Agency in making this determination. EPA is currently proceeding
    with rulemaking activities in accordance with the provisions of the
    WIPP Compliance Criteria at 40 CFR Part 194.
        EPA is taking every step to facilitate the certification decision
    with the Department of Energy (DOE) since the original application was
    submitted on October 29, 1996. Almost weekly over the past six months,
    the Agency has been sending people to New Mexico to work with DOE and
    their science advisor, Sandia National Laboratory. EPA is reviewing
    their extensive records to ensure that the Agency understands what was
    done, and that DOE understands our concerns and information needs
    required to fulfill the regulations.
        EPA has completed its review of the original application which DOE
    submitted on October 29, 1996. EPA has sent DOE three requests for
    additional information to fulfill the regulatory requirements of 40 CFR
    Part 194. The first letter, sent on December 19, 1996, identified
    completeness and technical sufficiency issues and identified required
    information that was not included; the second letter, sent on February
    18, 1997, provided clarification for resolving an issue raised in the
    December 19, 1996 letter regarding Sandia National Laboratory's record
    center; and the third letter, sent on March 19, 1997, identified
    technical sufficiency issues requiring additional information to
    fulfill the regulatory requirements. EPA believes that the information
    requested in these letters is absolutely essential for the Agency to be
    able to make a certification determination that withstands the scrutiny
    of a reviewing court under the Administrative Procedures Act (APA).
        While DOE was fulfilling the December 19, 1996 request, the Agency
    continued its extensive review of the application. EPA met with key
    stakeholders to provide them an opportunity to inform the Agency of
    their comments early in the process, and held a series of public
    hearings to solicit additional public comment. Since that letter was
    sent, DOE has been periodically submitting responses to the requests
    and the Agency has been reviewing those as quickly as possible once
    received.
        Following the close of EPA's public comment period on DOE's
    application on March 17, 1997, and while DOE is responding to the
    remaining information requests, the Agency is, in parallel, drafting
    sections of its proposed certification rulemaking where we have
    sufficient information. The Agency will continue to draft proposed rule
    sections as DOE submits information to fulfill the requests in the
    above mentioned letters.
        In addition, the Agency is reducing the complexity and amount of
    time required for internal Agency review of the certification decision.
    EPA will propose to the Office of Management and Budget to expedite the
    time required for interagency review required under Executive Order
    12866.
        Accomplishing all this work in parallel will allow the Agency to
    publish a proposed rule 2\1/2\ months after DOE submits all the
    information required to fulfill the requirements of 40 CFR 194 (as
    identified in the March 19, 1997 letter from EPA to DOE). Following
    proposal, a four month public comment period will begin as required by
    40 CFR 194.62. Upon completion of the public comment period, EPA will
    need 3\1/2\ months to accomplish an expedited rulemaking process
    including responding to public comments, completing the technical
    support, drafting the final rule and completing the intra- and
    interagency review [see schedule below]. In total, it will take the
    Agency 10 months to complete the final certification decision once DOE
    has submitted the required information.

                 EPA Schedule for a WIPP Certification Decision

                                                                        Days
    EPA Analysis of DOE Final Submission, Complete Proposal and
        Technical Support.............................................    44
    Expedited Intra/Interagency Review Process........................    31
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................    75

        EPA will propose the certification decision 2\1/2\ months after the
    last piece of information required to fulfill the requests in the March
    19, 1997 letter is received.
                                                                        Days
    Public Comment Period.............................................   120
    Respond to Comments, Finalize Technical Support Documents and
        Complete Final Rule...........................................    74
    Expedited Intra/Interagency Review Process........................    31
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................   225

        EPA will complete final rule on certification decision 7\1/2\
    months after the proposed rule, which is 10 months after DOE submits
    the last piece of information to fulfill the requests in the March 19,
    1997 letter.

                            NATIONAL MINING STRATEGY

        Senator Craig. I think the citizens of my State would
    greatly appreciate that.
        Could you please explain to me what your Agency is doing in
    the area of developing a national mining strategy? Now, I say
    this with this concern--because I know that your Agency is
    involved. What is your authority for this work? And what have
    been your expenditures to date in this area? And the third
    question would be, what is your budget request for fiscal year
    1998 as it relates to your participation in a national mining
    strategy of this administration?
        Ms. Browner. As you pointed out, there are many other
    Federal agencies and departments that have a role to play in
    mining activities in the United States. Our focus is largely
    threefold. First, we look at the impacts on water quality,
    second, impacts on air quality issues, and finally, impacts on
    waste issues.
        If I might, with the leave of the chairman, ask Bob
    Perciasepe, who is the Assistant Administrator for Water, to
    speak to what we are doing in this area. He has been taking the
    lead within EPA on the interagency work.
        Senator Bond. We welcome Mr. Perciasepe.
        Mr. Perciasepe. Thank you. For the record, I am Bob
    Perciasepe, Assistant Administrator, Office of Water.
        Senator Craig. You probably better come up, Bob, and use
    the microphone.
        Mr. Perciasepe. Yes; I am coming up so that they can hear
    me.
        Senator, as the Administrator said, EPA has a number of
    programs which impact the mining industry, Superfund, RCRA, the
    Clean Water Act, and the Clean Air Act. We are working inside
    the Agency to try to make sure that those efforts are
    coordinated. We are also reaching out to the mining industry,
    to the States and to others as to how a strategy might be
    pulled together.
        I would say that our expenditures are just nominal, ongoing
    staff work to come up with a strategy. We have not finalized
    the strategy yet. We had a meeting just a couple of weeks ago,
    with a couple of the assistant administrators, to talk through
    what the staff has found. We have shared their findings with
    outside stakeholders.
        What the long-term consequences of a strategy would be
    inside EPA's coordination, and then with the other agencies has
    yet to be determined. There is not a specific budget request in
    1998, other than our ongoing work, which we have many programs
    that impact mining. Thus, we think it is a good idea to try to
    coordinate our efforts and to do it with the industry.
        Senator Craig. I appreciate the need to coordinate. I
    believe mining is an important industry of our country, but it
    has to be done in an environmentally sound and safe way. We are
    on the verge of overkill--not in the cleanliness--current rule
    and regulation is doing quite well there. The problem is that
    we have mines operating in Idaho that now have as many as 10
    Federal and State agencies overviewing them. They spend all of
    their time with Federal or State agencies and no time
    underground. And I know of three State agencies, so that leaves
    five to six Federal agencies.
        We really do not need that kind of excessiveness. And a
    coordinated strategy that allows certain agencies to do that,
    and has the capability of playing dual roles, as long as there
    is reasonable oversight, makes good sense. And I am less
    critical of your expenditure and more interested in the work
    you get done to get a strategy, so that we can move away from
    this kind of regulatory overburden that is very close to being
    excessive. We have a tremendous exodus from our shores right
    now of the industry for a lot of reasons. This happens to be
    one of the reasons.
        Now, that is perfectly satisfactory to some people. But
    when I see thousands of high-paying jobs leaving our country
    and our mineral and metals base leaving our country, and
    Government cannot get its act together, that is an additional
    concern that I think we have got to deal with. So I am
    concerned and I am very interested in the dollars and cents you
    spend, and the fact is that you have a targeted effort at
    getting the job done.
        Ms. Browner. Senator, if we might, we would be more than
    happy to keep you informed on both the work we are doing
    internally and across the administration, in the coordinated
    strategy. However, I think equally important is the work across
    the administration. The administration recognizes that you have
    a variety of Federal agencies and departments that get a piece
    of this, in looking at it more broadly. We would be more than
    happy to keep you informed as we proceed.
        [The information follows:]

                            Mining Strategy: Status

        Addressing the environmental impacts of mining activities requires
    the coordination of a number of statutory authorities under which EPA
    operates, as well as extensive coordination with other Federal agencies
    with jurisdiction in the mining area. The principal environmental
    statutes that EPA has used to regulate releases to the environment as a
    consequence of mining over the last decade are the Clean Water Act
    (CWA) and the Comprehensive Environmental Response, Compensation, and
    Liability Act (CERCLA). The Resource Conservation and Recovery Act
    (RCRA) has been used by the Agency to examine the environmental impacts
    of mining. In addition, EPA's role in the National Environmental Policy
    Act (NEPA) process has been important in mine site evaluation and
    planning.
        In an effort to better address the statutory and regulatory
    complexities involved in mining activities, EPA's former Deputy
    Administrator, Robert Sussman, directed EPA's Office of Water in 1994
    to lead a multi-program, cross-organizational workgroup to draft an
    Agency-wide mining framework. The workgroup was comprised of staff from
    EPA's Regional offices, the Office of General Counsel (OGC), the Office
    of Solid Waste and Emergency Response (OSWER), the Office of
    Enforcement Compliance and Assurance (OECA), and other affected
    programs.
        Currently in a Final Draft Form, the Hardrock Mining Framework
    identifies recommendations that will help EPA implement a multi-media,
    multi-statute approach to dealing with the environmental concerns posed
    by hardrock mining. The Framework focuses on understanding and
    improving the use of existing EPA authorities with a clear recognition
    of the role of other stakeholders. Building effective working
    relationships with other mining stakeholders is a key element of EPA's
    efforts to improve the effectiveness of its own programs. In developing
    the Framework, EPA solicited input from a number of mining
    stakeholders, including other Federal agencies, States, Tribes, local
    government, industry, and environmental groups.
        While the Agency continues to work to improve coordination within
    the Agency, EPA also recognizes the importance of working in
    conjunction with other Federal and State agencies to address the
    environmental concerns posed by hardrock mining. One example where
    interagency coordination is presently taking place is an effort to
    develop an interagency strategy to address abandoned mine sites on
    federally managed lands. The workgroup is comprised of staff from EPA,
    Department of Interior, and Department of Agriculture. The Agency
    agrees that any future efforts will require a similar level of
    coordination among affected parties.

                         NEW LEGISLATION IMPLEMENTATION

        Senator Craig. Mr. Chairman, one last comment to the
    Administrator, because I think she understands the urgency of
    it. But I want her to know that there are a lot of Senators who
    are watching, and appreciate the urgency of it.
        As you know, last year, with the Food Quality Protection
    Act, we, in essence, abolished the Delaney clause and, at the
    same time, recognize that there were new standards that needed
    to be set for the protection of food, food quality, crop
    production, and all of that. I will be submitting a number of
    questions for the record for you to respond to, so that we can
    keep this thing on track. What we do not need is 2 or 3 years
    of reg writing, and keeping an industry in limbo.
        It took us two decades here to get to a proper handling of
    the Delaney clause. We think we have done it. And now we need a
    new mode of operation for what I think we all recognize is
    probably one of the most important industries of our country to
    produce a quality food product of the kind that it does, and to
    be able to do that in a competitive environment. I think
    Senator Boxer.'s references are a part of all of that concern
    that we get it done and that we have scientifically acceptable
    tolerance levels for crop production, and that we are able to
    respond to it.
        So, Mr. Chairman, I will be submitting some questions to
    the record that we will send to the Administrator.
        Senator Bond. Thank you very much, Senator Craig. We will
    keep the record open for those questions. I will have a number
    of my own.
        Madam Administrator, do you have a response?
        Ms. Browner. Yea; just one just very briefly. I might call
    the attention of the Senator to the fact that in the budget
    request before you, we are asking for additional dollars to
    honor the implementation activities that we think are necessary
    to keep on track and stay on schedule with both the Food
    Quality Act and drinking water. In fact, we ask that we be
    allowed to spend $35 million just for the implementation of the
    new Food Quality Act. That does not speak to the other
    components of our pesticide program, only to the
    implementation. Similarly, we ask that we be allowed to spend
    $48 million in drinking water.
        In both instances, these are dramatic increases off of the
    base from the prior year.
        Senator Craig. Thank you.
        Ms. Browner. As far as I know, we have not missed any
    deadlines and any statutory deadlines under either of these
    statutes. We are on time.
        Senator Craig. And we do not want you to.
        Ms. Browner. Neither do we. I would just point out to you
    that we are not asking for new dollars. We have redirected them
    internally.
        Senator Craig. Yes; I understand that.
        Ms. Browner. We have looked at things that we do not think
    we should be doing anymore, and we have moved them over so we
    can honor the commitments that we have all made under these
    statutes.
        Senator Craig. Thank you.
        Senator Browner. Thank you, Mr. Chairman.

                           NAAQS: STATE GRANT REQUEST

        Senator Bond. Thank you very much, Madam Administrator.
        Let me turn now to some other areas. We talked earlier
    about the proposed standards for ozone and PM fine
    particulates, and you talked about the importance of this.
    There is that one study, which has been discussed, that
    suggests averting 20,000 premature mortalities. I am concerned
    that your budget does not reflect the commitment to carrying
    out the air quality standards. There is only a 3-percent
    increase for grants to the States to administer the air
    program.
        We have talked about the importance of the States in this
    process. And if there is to be a major task of the magnitude
    envisioned by these new standards, do you think that an
    inflationary-only increase in the air grants to the States
    would be adequate to implement it?
        Ms. Browner. In fact, in terms of the money to the States
    for their air work, there are some redirects. Thus, in the case
    of fine particles, the recognition that we will all need to
    install a fine monitoring network we do provide for an increase
    in funding. I believe, we provide $11.2 million to the States
    under the statute. We provide a match of approximately $7
    million. We can detail for you how we take into account what
    may be required of the States--when we reach a final decision
    on the proposed standards.
        Senator Bond. Well, some of the moneys that you are
    reprogramming, are they not for programs that are still
    required under the Clean Air Act? I mean if you are talking
    about shifting some money around to deal with perhaps the
    particulate matter standards, as I understand it, you are
    talking about taking away from other programs.
        Ms. Browner. Here is an example of where, quite frankly, we
    have made some progress and we do not need to continue the same
    level of funding. It is the toxic air emissions and the MACT
    standard work. We are recommending a redirection in excess of
    $1 million. We are on target to do the work we are supposed to
    do under the Clean Air Act. We have sort of caught up with the
    backlog. Thus, we are recommending to Congress a redirection
    from that program to other higher-priority areas.

                                     CWSRF

        Senator Bond. Turning now to the clean water State
    revolving funds, the only major disinvestment EPA is proposing
    for fiscal year 1998 is the clean water State revolving funds.
    I spoke with Mr. Perciasepe at hearings last year. I commend
    him on the progress we are making. And I expressed my interest
    in seeing that we move forward on this program. It works
    effectively. There is a tremendous need for the dollars. EPA's
    own estimate of the cost of needed wastewater treatment
    construction is about $140 billion nationwide.
        Could you tell me why EPA chose to cut the program by 20
    percent, $275 million? And can you put to rest the rumors that
    the program was cut as an offset to the increase in Superfund?
        Ms. Browner. It was not cut as an offset to anything. Our
    commitment has been to see this very, very successful State
    revolving fund revolve at $2 billion. That was the President's
    commitment when he took office. It is in excess of what
    President Bush committed to in his work on clean water, because
    we think there should be a Federal cost share in these
    programs.
        In fiscal year 1998, the amount of money that will be in
    the clean water funds across the country will be $25 billion.
    This program is reaching a level of maturity, and we should all
    be proud of that. Money has been lent out. It is being repaid.
    The bonds have been leveraged. More money is coming in. The
    State matches are in. Thus, the size of these funds has grown
    dramatically. With the budget request we make, we are on track,
    to honor the revolving level at $2 billion, and to see the very
    important projects for which this money goes be successfully
    completed.
        Senator Bond. Well, that does not answer my point. Because
    we know there--as I said, there is $140 billion worth of needs.
    I think we were looking at a target of--was it $10 billion, I
    think, that we--excuse me, I was thinking of the drinking water
    fund.
        Ms. Browner. Yes.
        Senator Bond. But there are 140 billion dollars' worth of
    needs out there, and your outyear projections shows the funding
    going along, being cut and then going back up in fiscal year
    1999. Why does that make sense? I mean, granted, there is a lot
    of money in the pipeline. There is supposed to be a lot of
    money in the pipeline. It is supposed to be paid back, because
    there is such a need. Why the dip in the funding and then
    reinstatement of the funding request later?
        Ms. Browner. What you are seeing is a growth in the total
    dollar amounts available in each State to be loaned for the
    construction. The percentage of funds made up from the Federal
    appropriation is decreasing. This is because other things are
    coming into play. The size of the fund is growing, but you do
    have State matches. You have the leveraged bonds, which have
    grown dramatically. We would be more than happy to provide
    information for the record, to show you that given what the
    States have available to do the job, there is a growth in the
    dollars out there.
        It is a success story that we should all be proud of. It is
    not only a success story from the Federal Government's point of
    view. The States have done an important piece of this. In
    addition, local governments are, in fact, repaying the fund so
    other local governments can now get a loan.
        [The information follows:]

                        CW-SRF Fiscal Year 1998 Funding
        The attached charts show: (1) the projected cumulative
    capitalization of the Clean Water SRF through fiscal year 1998 and
    associated loan activity; (2) the relative contribution of the various
    components of SRF capitalization for 1990, 1992, and 1996; and (3)
    projected cumulative financial assistance provided by the Clean Water
    SRF through the year 2026 (in constant 1996 dollars).

    SRF CUMULATIVE CAPITALIZATION AND LOAN ACTIVITY--REPORT YEAR ENDING JUNE
                                       30
                             [In billion of dollars]
    ------------------------------------------------------------------------
                                                        Cumulative
                   Fiscal year               -------------------------------
                                              Capitalization       Loans
    ------------------------------------------------------------------------
    1992....................................               9               7
    1993....................................              11               8
    1994....................................              15              11
    1995....................................              19              14
    1996....................................              22              17
    1997 \1\................................              23              20
    1998 \1\................................              25              23
    ------------------------------------------------------------------------
    \1\ Projected

    Note: Dollars not adjusted for inflation

                SRF CAPTILIZATION--REPORTING YEAR ENDING JUNE 30
                         [Percentage of Capitalization]
    ------------------------------------------------------------------------
                                                          Fiscal year
                                                  --------------------------
                                                     1990     1992     1996
    ------------------------------------------------------------------------
    Interest earnings............................  .......        1        4
    Loan principal repayments....................  .......        1        5
    Leveraged bonds..............................       14       22       25
    State match..................................       16       14       12
    Federal capitalization grants................       70       62       54
    ------------------------------------------------------------------------

                                                                     [GRAPHIC] [TIFF OMITTED] T05AP08.000

        Senator Bond. I agree with all of that. But does your
    budget not project more money in fiscal year 1999 to go into
    the clean water revolving fund?
        Ms. Browner. Yes; it does show an increase.
        Senator Bond. OK. You are just taking it down this year and
    bringing it back up next year. That does not seem to be a
    normal phaseout to me.
        Ms. Browner. Mr. Chairman, if I might. On the question of
    the $100 million, which you have mentioned several times, was
    it taken from this fund to fund Superfund? It was not.
        If you look at the increases in water across the Agency,
    what you see is that we have made some important increases to
    provide the water quality necessary to this country. For
    example, we have moved money to allow us to deal with the Safe
    Drinking Water Act Amendments, the new legislation, to increase
    nonpoint-source funding, to do the work with the States on the
    total maximum daily loading. What you see are some
    redirections.
        At the end of the day, I think the question for all of us
    is, are we making the most sensible use of dollars in terms of
    what the States need to be doing and what we do in partnership
    with the States? There are some redirections in our budget,
    because we have some new requirements that Congress has
    directed us to undertake that we agree with, that we think are
    important, and that we had to fund. That is what we did in our
    budget.

                          GPRA: BUDGET PRIORITIZATION

        Senator Bond. Moving on to the planning and budgeting area.
    NAPA recommended EPA overhaul its budget process to allocate
    resources to highest-risk-based priorities. And as I said, Mr.
    Hansen testified about EPA's proposed system. He stated ``the
    new system would be in place to formulate the 1998 budget.'' Is
    it in place? Can you point to some specific examples, how it
    impacts the 1998 budget, and does it result in a risk-based
    reprioritization of activities across the agency?
        Mr. Hansen. Thank you, Mr. Chairman.
        Yes, we believe that it has been implemented. Obviously, it
    is still in the process of full implementation. However, we
    have, in fact, made numerous decisions throughout the Agency's
    budget, in preparation for 1998 and will continue to do so.
    This is a key part of our effort to be able to set long-term-
    priority goals, to be able to have multiyear goals and annual
    goals, and to be able to build a prioritization process to
    better reflect the very priorities at the highest-risk areas
    and the highest areas of need.
        This fits very well within that context and the Government
    Performance and Results Act [GPRA]. Also, we believe that the
    efforts we have underway, comply with GPRA. The Administrator
    and I believe these are steps that we ought to be taking with
    or without GPRA. This is being accomplished through our new
    structure. Sallyanne Harper, our Acting Chief Financial Officer
    who is here at the table, has established the process for being
    able to plan, analyze, and to hold accountable our systems.

                         RISK DECISIONS IN 1998 BUDGET

        Senator Bond. I will return to Senator Craig, but I have
    one followup question on this.
        How does your Agency's decision to increase the Superfund
    Program by 50 percent and the climate change action plan by 73
    percent reflect this budget discipline which was supposed to be
    imposed and you said it is imposed on planning, budgeting, and
    accountability? Do not the dollars spent on Superfund provide
    significantly less opportunity for risk reduction compared to
    other EPA programs?
        Mr. Hansen. Mr. Chairman, first, regarding Superfund, and
    having been one of the authors of the Reducing Risk Report that
    came from the Science Advisory Board, this report is oftentimes
    one of the things that is referenced in relationship to whether
    Superfund is the highest risk.
        We have concluded that when one looks at risk, one needs to
    look at it both from the standpoint of the citizens who are
    directly affected and those who are closest to that site. To
    them, it is a very high risk, as opposed to being able to look
    across the whole of other environmental priorities. The
    commitment we, as an administration, have is an obligation and
    a need to be able to move ahead on those very sites that are,
    in fact, directly affecting 1 in 4 Americans that live within 4
    miles of a Superfund site.
        In terms of greenhouse gases and our climate change action
    plan, we believe very strongly that the voluntary programs that
    are included within a good, nonnormal, command and control,
    regulatory, nonregulatory in the traditional sense program
    addresses a very real issue that needs to be moved forward.
    Consequently, it has. I think many people, certainly, the 2,500
    scientists and others would agree is one of the most pressing
    of problems and one of the highest of environmental priorities.
        Senator Bond. Are you telling me that the risk to the
    people living in the vicinity of Superfund sites is a real and
    significant scientifically based risk, or is it a perception of
    the problem?
        Mr. Hansen. Mr. Chairman, of the Superfund sites, 60
    percent have documented health effects associated with those
    sites and 40 percent have potential health effects associated
    with the direct contamination from those sites. So yes, it is
    clearly a direct, not a perceived health effect.
        Obviously, one must look at each site to determine how
    serious the risk actually is. However, there are direct
    documented health effects associated with those Superfund
    sites.
        Senator Bond. Well, I think I would like to see that system
    and see how you have----
        Mr. Hansen. We would be happy to.
        Senator Bond. But I have already asked for the listing of
    the project sites. We want to know where there are specific
    scientifically identified risks and how you came to those
    conclusions and those recommendations.
        Mr. Hansen. Certainly.
        [Clerk's note.--The information on the Superfund can be
    found in the VA-HUD Subcommittee files.]

                                   SALMON, ID

        Senator Bond. Senator Craig.
        Senator Craig. Mr. Chairman, thank you.
        Carol, this is an observation more than it is a question,
    because it is a frustration. And it deals with the ozone and
    fine particulate matter standards that you are proposing. And I
    want to paint a picture for you, because it speaks to the
    application of the problem and the need for greater flexibility
    than you might have anticipated in some areas.
        I was recently in a community in Idaho called Salmon, ID.
    It is in Lemhi County. Lemhi County is as big as New Jersey,
    Rhode Island, Connecticut, and Delaware put together. And it is
    over 85 percent public land. In other words, undeveloped
    grasslands and timberlands. About one-half of it is national
    forests. This little community once had three sawmills and
    three tepee burners--open-air burning--and a burning operation
    out at the local city dump. None of those exist any more and
    have not existed now for a good number of years.
        And yet, under your new PM-2.5, they cannot meet the
    particulate standards without investing a tremendous amount of
    money--and, to them, a tremendous amount of money--we are
    talking of a community of 3,000 people and a county of ranchers
    widely dispersed. They cannot meet the standard without the
    expenditure of over $500,000. And that would largely go into
    the paving of streets and alleys in a city where many of the
    streets are gravel and alleys are gravel.
        Now, coupled with, is the new management by match--I call
    that Bruce Babbitt's new burn policy on forest lands, as
    management by match--they are even concerned that they would be
    out of compliance at increasing levels over an extended period
    of time if the Forest Service actually actively engages in some
    reasonable management by fire. And I accept that to some
    extent. But without that, by just moving the standards to where
    you are suggesting they go--and I am not disputing that--this
    city is out of compliance, this little community----
        Here is the addition of insult to the injury. I am told--
    and I visited with the mayor at length about it--because he
    said it this way. He said,

        Senator, it is not that we do not want to comply. It is
    that I cannot ask my taxpayers to comply. I cannot ask for that
    kind of money to do that when we have other critical needs.

        Now, this is a community where health is not a factor. The
    greatest factor in health is that the nearest hospital of any
    high-level medical application is 150 miles away, over a
    mountain pass. And their concern about $500,000 expenditure for
    these particulate standards is wasteful, when they have lived
    all of their lives under these conditions. And, in fact, the
    conditions have dramatically improved over the last several
    decades because of the existing law.
        How do we solve that problem?
        Ms. Browner. I apologize. I am not familiar with this
    county. I am aware of some counties.
        Senator Craig. No; I did not expect you to be. But this is
    a typical example of many of the rural environments of the
    West, where dust is a normal part of the environment during
    certain periods of the year.
        Ms. Browner. I agree.

                                     PM-2.5

        Senator Craig. And then when you add to it auto traffic on
    gravel roads that have not been paved and will never be paved
    because it is economically unfeasible to pave them, and then
    you put in a rural community environment, we have got some
    problems. And then you add, on top of that, in the wintertime,
    heating by wood, and you have got bigger problems. Because
    wood, in an environment like that, where the forests are next
    door, makes all the right sense in the world for a form of
    space heating.
        Ms. Browner. What I would like to do, with your lead, is to
    look at the information we have on this particular area and to
    have our air expert sit down with some of your people and the
    city or the mayor.
        Senator Craig. Sure.
        Ms. Browner. We recognize that, in seeking to provide a
    level of public health protection for fine particles, PM-2.5 is
    tiny. However, it is almost as if we are talking about a new
    pollutant. The work that has been done on coarser particles,
    such as PM-10, is really work on a different sort of pollutant,
    thus PM-2.5 is tiny when compared to PM-10. However, the health
    data shows us that PM-2.5 can result in large numbers of
    premature death.
        In looking at how we will actually reduce the levels of
    pollution, we see that when we look nationally, that for about
    40 percent of the areas that might not today be able to meet a
    PM-2.5 standard, they would be able to do so through
    technologies that we have on line. These technologies are
    coming into place and some are already in place. For 60 percent
    of the areas, we are going to have to work literally area by
    area and community by community, to shape the appropriate plans
    and the strategies for reducing the pollution levels to meet a
    public health standard.
        We would be more than happy, we have done this with several
    other communities and States already, to sit down and
    understand better what are the particular sources or what may
    be the sources there, and then to look at what may be the cost-
    effective, commonsense strategies.
        Senator Craig. Well, it is important to remember in these
    contexts, this is a community without smog. It does not exist.
        Ms. Browner. Yes; and PM is not smog.
        Senator Craig. It is a beautiful, open-air environment of
    probably what most citizens of our country, if they walked into
    it, would think they are in the wilderness and say, oh, my
    goodness, is not this a beautiful area.
        Ms. Browner. Yes.
        Senator Craig. And yet they still fall out.
        Ms. Browner. We are dealing with two different issues here.
    I do not believe that we think Idaho has an ozone problem. We
    think the concern is, as you stated originally, the fine
    particles.
        Senator Craig. Yes; it appears to be that would be the
    greater case.
        Ms. Browner. It is not the smog issue. It is the particle
    issue.
        Senator Craig. That is right.
        Ms. Browner. There is some good news in that, as you say,
    you do not have smog and you do not have an ozone problem.
        Senator Craig. Yes.
        Ms. Browner. I think we would tend to agree with that.

                                 FINE PARTICLES

        Senator Craig. This community would rather spend $500,000
    on a helicopter for a life flight, so that they could really
    deal with human health and safety than to spend $500,000 paving
    roads that have been graveled for the last 50 years. They do
    not understand the problem. Because a community of that size,
    and as poor as that community is, has a choice, with limited
    dollars, they have to make some very real tradeoffs at times.
    What they are afraid is that they lose that flexibility.
        Ms. Browner. If we could just take one more moment, Mr.
    Chairman, and ask Mary Nichols, the Assistant Administrator for
    the Office of Air, who may know a little bit more about this
    particular situation than I know.
        Ms. Nichols. Well, I am not familiar with Salmon, ID.
        Senator Craig. No; I would not expect you to be.
        Senator Bond. Ms. Nichols, would you take a seat and speak
    into the microphone so that we can get that recorded. Thank
    you.
        Ms. Nichols. I am Mary Nichols, Assistant Administrator for
    Air and Radiation.
        I was just out visiting five Western States, along with the
    Director of the Western Governors' Association. I did not get a
    chance to go to Idaho.
        Senator Craig. Well, you are getting a sense, though, of
    our concerns, sure.
        Ms. Nichols. I have heard similar comments. Being from
    southern California, where we have windblown dust problems, I
    am very familiar with this issue, and it is a serious concern.
    A bit of good news, perhaps, is that, focusing on fine
    particles, which we believe are the ones which are more
    directly related to more serious health effects, in fact,
    eliminates most of the road dust concern. That is, the smaller
    particles generally are caused by automobiles and industrial
    pollution rather than by dust.
        Senator Craig. Yes.
        Ms. Nichols. However, there are areas where it simply is
    very difficult to find effective controls for the PM-10. We are
    looking, through a Federal advisory committee which
    Administrator Browner directed us to impanel, at whether there
    are some innovative ways we can implement the Clean Air Act. We
    are looking not only to find other technologies but, frankly,
    to find other ways to work with communities to develop plans to
    address their overall particulate and ozone problems in a more
    comprehensive and more cost-effective way.
        Some interesting ideas are coming out of that process. We
    would be happy to come and talk to your staff.
        Senator Craig. I would appreciate that. I mean Salmon is
    not unique. It is just a good example of a variety of
    communities of that character across the Western States that,
    on occasion, in a seasonal way, have problems. They have had
    those problems long before the human species existed there. But
    we happened along and then we put regulations on top of them.
    And then, all of a sudden, those regulations start costing real
    money, and in communities where their priorities conflict with
    those.
        Because they just cannot understand the value of that, when
    yes, 30 years ago, at certain times of the year, you had a bit
    of dust and you had a bit of smoke, maybe not by their own
    doing, but by the doing of Mother Nature or by others. And we
    have got to demonstrate some flexibility in those communities.
    Because there is no base of economy to justify them spending
    that kind of money. Or at least that is their guesstimate now,
    based on an early analysis of what this could mean to them.
        Ms. Nichols. Right. And we do fortunately have some time to
    actually work through those issues and try to get better
    information.
        Senator Craig. Great. Thank you.
        Mr. Chairman, thank you for your patience.

                                  NAPA STUDIES

        Senator Bond. Thank you very much, Senator Craig.
        Administrator Browner, going back to the NAPA studies,
    which I like to do from time to time, that study found that EPA
    had no systematic way of performing program evaluations to
    determine what programs are accomplishing their stated goals
    and objectives, and that it was difficult to make rationale,
    informed budget decisions without it. I would be interested to
    know what EPA has done to establish a centralized routine of
    systematic program evaluation as part of the budget process.
        And I would be happy to hear from Deputy Administrator
    Hansen. That seems to be in his ball park.
        Mr. Hansen. Thank you, Mr. Chairman.
        Again, I stress that Administrator Browner and I have felt
    that the concepts are contained within our planning, budget
    analysis, and accountability office, that they address those
    very issues that you have just referenced and that NAPA
    originally recommended. These are tremendously important. We
    believe that the absolute key to this type of work is being
    able to understand exactly what we are delivering in all of our
    program areas, and being able to evaluate that, being able to
    have that as an element of our budgeting.
        We are in the beginning stages of that process. We believe
    we have made very real progress. We have additional steps to
    take.

                               CSI AND PROJECT XL

        Senator Bond. Thank you.
        Let me turn now to project XL and the commonsense
    initiative. I expressed my concerns in the opening statement. I
    thought you might want to address those and find out what
    lessons you have learned over the last 2 years, why there have
    been so many problems, what specifically are you doing to see
    that the President's stated commitment to alternative
    compliance approaches is being carried out, and is there
    alternative compliance legislation needed?
        Ms. Browner. First, I want to speak to the commonsense
    initiative. The work on an industry-by-industry and sector-by-
    sector basis has produced some very, very important results. It
    has not been without its difficulties, in terms of its history,
    the relationships between industry and local communities, State
    representatives and others. What we did for the first time ever
    was bring everyone together and build a level of dialog, a
    level of trust.
        I think you had suggested that the automobile and the
    petroleum industries had withdrawn from CSI. They have, in
    fact, committed to continue in the process. I am not suggesting
    that they may not want to revisit that at some point. Again, it
    is not without its challenges. However, we are very proud of
    the dialog and the work that is being done.
        Each of them is different. We took the time and the
    resources to bring in an outside evaluator to look at this
    program, to review whether or not this was working, what could
    make it better and what lessons were learned. The evaluator
    found and what the evaluator shared with us and the CSI council
    is that, in each instance, the individual sectors believe they
    are making progress. No two are alike, but then no two sectors
    are alike.
        So we are committed to continuing our sector-by-sector
    approach, building on the success of the dialogs on the work
    heretofore.
        In terms of project XL, we are actually doing the difficult
    work, on a project-by-project basis, of finding out how to go
    beyond current requirements, to actually get better
    environmental performance. We have projects that are now up and
    running, showing us that you can go further.
        I joined Intel in announcing their project. This is a
    facility that is literally acres. When we are done and when
    Intel and the community groups that are working together on
    this project are done, its emissions will be less than 1
    neighborhood gas station. This is not a small undertaking.
        In terms of legislation, I would encourage you, as I think
    you suggest that you are inclined to do, to look to E4E and the
    work that Bill Ruckelshaus is doing. We have been extremely
    active participants in that process. Fred Hansen, I think, has
    attended all of the meetings. I have spoken with Mr.
    Ruckelshaus on several occasions. We believe there is a real
    sense within that group of how to really fashion any
    legislative recommendations that may be forthcoming, and we
    would encourage all to await the outcome of that process.
        I think they are hoping to wrap up their work in the next
    several months. That is the target they are on. I know the last
    time I spoke to Bill Ruckelshaus, that was certainly what he
    thought was when they could be able to conclude their work.

                                  E4E PROGRAM

        Senator Bond. I am very supportive of the E4E program. I
    have urged them to go forward. It is not my sense that they are
    going to come up with specific legislative proposals, but that
    they will come up with general principles. But nevertheless,
    whether they come up with proposals or not, and we are most
    anxious to see their report, the question to you is do we need
    alternative compliance legislation? Right now, you have got the
    ball.
        Ms. Browner. At this point in time, I do not think we need
    alternative compliance legislation, and I will explain why.
        Senator Bond. Well, the Amoco, you could not do the Amoco
    project in Virginia.
        Ms. Browner. Well, Amoco is a good example of the kind of
    analysis that you have to go through to understand the
    shortcomings of an individual statute. In the case of Amoco, I
    think the lessons learned from Amoco are demonstrated in Intel,
    where you actually were able to go out and figure out how to do
    something to speak to the air issues to get greater
    environmental progress, and to provide flexibility in exchange
    for that environmental progress. So we learned from Amoco.
        I would suggest to you that it is not accurate, and I do
    not think you are saying this but I think someone said this,
    that somehow or another Amoco shows you that the whole system
    is flawed. We learned from Amoco, and we have moved on from
    Amoco in a very real and concrete manner.
        What I think you did in drinking water in actually looking
    at an individual statute, understanding what the goals of that
    program are for the people of this country, and how best to
    provide appropriate flexibility will at the end of the day be
    the best way to deal with these challenges. Each of these
    statutes are fundamentally different. They seek to speak and
    look to fundamentally different challenges. I think trying to
    speak across them will prove to be all but impossible in the
    short run, and it may well be that E4E will give us some
    guidance and advice on how to do that. However, we will get the
    greatest progress in the new generation of environmental
    programs and solutions by going into the guts of existing
    statutes and working within them to craft the new solutions.

                                 GREEN PROGRAMS

        Senator Bond. Well, I do not in any way downgrade or deny
    what apparently is and will be happening at Intel. I think that
    is great. The fact remains it is one of three out of 50 we were
    expecting, and we want to know--if you think there is no
    legislation necessary, then I would expect the pace to pick up
    very significantly. And I am asking the question do you need
    legislation, because something seems to be holding the program
    up. That is the reason I asked it.
        Let me move now to the green programs. The climate change
    action plan was issued in October 1993 to meet the goal of
    stabilizing greenhouse gas emissions at 1990 levels by year
    2000. As I understand it, the program was designed to reduce
    greenhouse gas emissions by 109 million metric tons of carbon
    equivalent relative to 1990 levels. Yet EPA has achieved only
    .6 MMTCE reduction through 1996. Given that 0.6 out of 109
    million goal, why do you think that we can make much more
    significant progress? Why should we provide additional
    assistance to that plan?
        Ms. Browner. When the President announced the
    administration's plan, the commitment, and the recognition were
    that if we would stabilize in the year 2000 at 1990 levels we
    would need a 110 million metric ton reduction. We will not make
    that. We will not make that in part because we have had growth.
    Thus, we actually need greater reductions than were originally
    forecasted. Also, we have not had the financial resources. We
    have not had the appropriation levels to allow us to do the
    kind of work that would have resulted in greater reductions. It
    is just that simple.
        We take the money that is appropriated in the Climate
    Change Action Plan Program and work in a variety of ways. Many
    are the kind of new generation tools that have been encouraged,
    that we have been encouraged to utilize in terms of forming
    partnerships with businesses and finding more commonsense,
    cost-effective solutions to pollution. We use that money to go
    out and do that work, and it does result in very real
    reductions in the kind of climate change gases and other things
    that we are worried about.
        Mary, do you have the specific numbers?
        Ms. Nichols. This is Mary Nichols again. The most recent
    assessment that has been done by the interagency group on this
    shows that if the full 1997 enacted levels are maintained that
    we would achieve 80 million metric tons by the year 2000. This
    is about 75 percent of what was originally projected to be
    needed. As the Administrator indicated, our estimates were
    wrong, because there has been more growth than was projected.
    However, we do project that if the funding that the President
    sought was restored that we could make up the 25 million metric
    ton shortfall by the year 2005. In other words, we would meet
    the goal that we had actually set for ourselves through the
    green programs based on what we are actually achieving today in
    terms of companies installing energy-efficient equipment.
        Senator Bond. But you would agree that to date reduction
    has been 0.6 in MMTCE?
        Ms. Nichols. Yes; that is just one of the programs of the
    total.
        Ms. Browner. There are many programs.
        Ms. Nichols. I am giving you the totals for the Climate
    Change Action Plan Green Program. One of those was the .6. I
    frankly cannot remember which one it was.
        Senator Bond. We would like to see the analysis.
        Ms. Nichols. Sure. We will be glad to provide that to you.
        [The information follows:]

                   Greens Programs: Greenhouse Gases Removed
        The Administration's analysis of the full impact of the Climate
    Change Action Plan programs, which is being coordinated by CEQ, is
    still underway. Comprehensive, draft results will soon be completed, at
    which time they will be immediately provided to the Committee. At the
    same time, the results will be available for public comment via a
    Federal Register notice. It is expected that these results will be
    available before the end of May. After receiving comments and
    conducting any further analysis, the results will be finalized and
    published later this summer in the United States' second submission to
    the Framework Convention on Climate Change.
        Nevertheless, it is clear that EPA's partnership programs are
    successfully overcoming market barriers (such as the lack of reliable
    information) to investments in economically attractive technologies
    that reduce greenhouse gas emissions. Despite a 40 percent
    Congressional budget cut in fiscal year 1996 and fiscal year 1997,
    EPA's partnership programs prevented the emission of over 6 million
    metric tons of carbon equivalent, or mmtce during the past year, equal
    to the pollution from over 3 million cars. In the past year, program
    partners and consumers also saved over $750 million on their energy
    bills due to CCAP programs, helping to prove in yet another way that
    pollution prevention is a contributor to economic growth.
        It is the nature of these programs that their benefits will
    accumulate rapidly, now that solid foundations have been laid. Just as
    the pollution savings last year doubled the savings from the previous
    year, the pollution prevention from these programs is expected to
    double again in 1998. This is due to the more than 3,000 strong
    partnerships that EPA has formed with corporations, small businesses,
    universities, hospitals, utilities, and state and local governments.

        Senator Bond. We provided 96 million in 1996 and 86 million
    in 1997. You say with that we will get 75 percent of the way
    toward the goal?
        Ms. Nichols. Yes, that is right.
        Senator Bond. I would be interested in seeing that, thank
    you, if you would provide that analysis.
        Ms. Browner. Certainly.

                                     SBREFA

        Senator Bond. Madam Administrator, what specifically are
    you requesting for any additional requirements or burdens
    associated with the Small Business Regulatory Enforcement
    Fairness Act, known as SBREFA, or the Red Tape Relief Act.
        Ms. Browner. Each of what we would refer to as the large
    component programs, such as air, water, waste, pesticides, and
    toxic substances, have a responsibility under the law as they
    move through a rulemaking to comply with the small business
    aspects: bring the panels in where appropriate and work in
    partnership with the small business community. So those are
    managed in each of the program budgets.
        In addition, we have asked our Office of Policy, Planning
    and Evaluation to provide an across-the-Agency management of
    the requirements under SBREFA to ensure that we are doing
    everything that is important, not just in terms of the letter
    of the law, but in the spirit of the law. There is included in
    their budget a dollar amount of $200,000 or more to provide
    that coordination. That is in addition to what is in each
    programmatic area.

                                  PEER REVIEW

        Senator Bond. Finally, in a recent report GAO was critical
    of EPA's implementation of the peer-review policy. GAO
    attributed the uneven implementation to inadequate
    accountability and oversight to ensure that all relevant
    products are properly peer reviewed, and confusion among EPA
    staff and management about what peer review is, its importance
    and benefits, and how and when it should be conducted.
        Ms. Browner, when you came into office you claimed peer
    review would be top priority. We agreed with that. You
    instituted a peer-review policy. Could you articulate precisely
    what the peer-review policy is, why its implementation has been
    uneven, why the top science official in the Agency, Dr.
    Huggett, was not the responsible official for the Agencywide
    implementation, and how will you ensure that adequate oversight
    of peer review is exercised?
        Ms. Browner. There are generally speaking, two ways in
    which peer review is important to the work we do at EPA.
    Obviously, within our Office of Research and Development the
    sort of traditional scientific analysis research done by the
    Agency peer review is extremely important. Under Dr. Huggett's
    leadership, that office has installed a peer-review policy that
    has been praised by many in the scientific community as taking
    our peer review to a new level.
        We also do science in our individual program areas. The
    Office of Water undertakes scientific analysis in conjunction
    with our Office of Research and Development. In some instances
    they do science beyond what our Office of Research and
    Development might be doing, particularly in the case of an
    individual rulemaking or regulatory action. This is true for
    all of the large programs such as air, waste, pesticides, and
    toxic substances.
        In each of those programmatic areas, we have also directed
    the development of peer-review programs to ensure that peer-
    review panels are used where appropriate. Given the fact that
    we have these two general areas where peer review can occur, I
    felt it was important to have Fred Hansen provide the
    leadership across the Agency to ensure that we were using this
    very important tool of peer-review practices. My sense is, and
    if I might ask Mr. Hansen to speak more specifically, that when
    GAO looked at this what they found is within the Office of
    Research and Development a very good program, and a program
    that was up and running. GAO also feels that we needed to
    similarly bring along the programmatic peer-review programs,
    and that is what we have been focusing our efforts on.
        I might just point out that in fiscal year 1997 we had 231
    panels of scientists reviewing our work. They reviewed almost
    3,500 studies, just to show you how many times we are going to
    external peer review panels. This is no small undertaking on
    our part.
        Mr. Hansen. Just briefly, two things. First, we believe
    very strongly that if peer review is not done where the science
    is actually done we will not have as much engagement in exactly
    the best peer review and processes to ensure that the overall
    goals are achieved. That is why we believe it is important to
    have peer review done in all the places that science is done.
        Second, what the Administrator has just indicated has not
    happened within the program offices as well as we think is
    necessary. In January of this year, to be able to carry out the
    Administrator's requirement, I have asked Dr. Robert Nuggett,
    Assistant Administrator of the Office of Research and
    Development, to do two things. One, provide a level of training
    throughout the Agency to ensure that all of our people who are
    involved in science understand exactly what it is to be able to
    conduct all the details of peer review. Not because they did
    not have a general understanding of its process. Two, ensure
    that peer review is applied to all products that are worked on
    by the EPA, and if there are any deficiencies, that they are
    either worked out between Assistant Administrators, between Dr.
    Huggett and that Assistant Administrator, or brought ultimately
    to me for any resolution.
        We take peer review very, very seriously. We think that it
    is the backbone of our good science.

                                CLOSING REMARKS

        Senator Bond. Thank you, Mr. Hansen.
        Ms. Browner, we will leave the record open. If you have
    comments on the many points that were raised and not fully
    explored, we will have questions that we ask for you to respond
    to and would welcome any comments you have.
        In closing, I would note that it appears to me that if you
    are really applying a relative risk methodology to the budget,
    I just do not believe that Superfund would get a 50-percent
    increase. To me, let us be honest, I think this request is
    driven not by the merits but more by politics, because while
    the Superfund budget would increase dramatically, the clean
    water State revolving fund, a program which works well and for
    which tens of billions of dollars are needed, would be cut by
    $275 million----
        Ms. Browner. No; it is $100 million.
        Senator Bond. It released funds early in the year. It is
    $275 million. It is a cut, in any event.
        Ms. Browner. We will agree with you that $100 million was
    redirected. We would like to discuss with you the other $175
    million, because we do not understand where that number comes
    from, with all due respect.
        Senator Bond. Well, it is cut. We believe it is cut $275
    million.
        The GAO has found that Superfund is one of the 25
    Government programs which is high risk, subject to fraud,
    waste, abuse, and mismanagement. We look forward to working
    with you to reform a program which has been criticized for
    years, and when we get the reforms enacted I will be happy to
    talk with you about it. But as I note, even the States and the
    State officials responsible are skeptical that the dollars can
    be effectively and efficiently utilized.

                         Additional committee questions

        So we will continue to work on that, and before I close I
    ask unanimous consent of all of my colleagues on the committee
    to keep the record open to include testimony from the GAO on
    Superfund and NAPA related issues.
        Hearing no objection, it is so ordered. [Laughter.]
        [The following questions were not asked at the hearing, but
    were submitted to the Agency For response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

                         SUPERFUND OUTYEAR PROJECTIONS

        Question. EPA's budget proposal assumes that 76 percent of the
    sites currently in the construction and design phases of the Superfund
    ``pipeline'' would be completed by 2000, leaving less than 500 sites in
    the ``pipeline.'' Yet your outyear budget projections for fiscal year
    2000 through 2002 show $1.4 billion a year. Given that the number of
    sites left to be cleaned up would be cut in half, why is EPA projecting
    $1.4 billion outyear budgets?
        Answer. The Agency estimates that approximately 18 fund-lead
    remedial action starts will occur after the fiscal year 1998 and fiscal
    year 1999 accelerated cleanup initiative is completed in the year 2000.
    In addition, the Agency's budget estimates the Superfund program will
    list 30 sites per year on the National Priorities List (NPL). In other
    words, 30 sites per year are entering the Superfund ``pipeline'' which
    will result in more than 600 sites by fiscal year 2001. Resources at
    the current fiscal year 1997 level in 2000 and beyond will be necessary
    to maintain a steady progress of sites through the entire site
    remediation process.

                       SUPERFUND GAO REPORT ON HIGH RISK

        Question. In a February 1997 report, GAO reported that Superfund
    was a high risk program--vulnerable to mismanagement, waste, fraud and
    abuse. In light of GAO's high-risk designation, how could the Congress
    have any confidence that the funds you are requesting would be spent
    prudently and effectively?
        Answer. GAO's high risk report acknowledges EPA's efforts to
    correct past contract management problems and commends those efforts.
    Some of the contracts management improvements the Superfund program has
    made include: (1) reducing program management costs from a high of 20
    percent at the start up of the Alternative Remedial Contracting
    Strategy (ARCS) contracts to a national average of 8.4 percent for
    fiscal year 1995 and fiscal year 1996, (2) increasing management
    emphasis on obtaining independent government cost estimates and
    establishing improved cost tracking systems to provide better
    historical cost data bases, and (3) instituting improved invoice review
    processes. Over the past few years, EPA has focused increased attention
    on strengthening its management of Superfund contracts and will
    continue to do so in the future.

              SUPERFUND GAO REPORT ON CONTRACT MANAGEMENT WEAKNESS

        Question. GAO's recent report said ``although EPA has been
    addressing the weaknesses in contract management, the agency remains
    vulnerable to overpaying its contractors and not achieving the maximum
    cleanup work with its resources.'' GAO found that EPA pays its cleanup
    contractors a high percentage of total contract costs to cover
    administrative expenses rather than ensuring the maximum amount of
    available funds is going toward the actual cleanup. What plans does EPA
    have to address these contract management weaknesses?
        Answer. As discussed in the Agency's response to the GAO's high
    risk report, we take exception with many of GAO's findings. Our own
    internal regional reviews have shown that the agency has made
    significant strides to establish the practice in which independent
    government cost estimates (IGCE's) are performed for all work
    assignments and sufficient negotiation documentation exists in cases
    where costs different from those in the IGCE's are accepted. Additional
    actions we are taking in this area include sharing best practices and
    expertise in preparing IGCE's among the regions and instituting an
    improved cost tracking and reporting system under the Response Action
    Contracts (the follow on to the ARCS contracts). In addition, the high
    program management percentages cited by GAO were due in large measure
    to the lack of work assigned to these contractors in fiscal year 1996.
    Fiscal year 1996 was clearly an atypical year due to the budget
    situation and it is misleading to make projections based on this data.
    We continue to emphasize the need to control and minimize program
    management costs under all of our cleanup contracts and to monitor
    these costs very closely.

                            SUPERFUND DEOBLIGATIONS

        Question. In testimony provided for the record today, GAO states
    that $250 million in unspent obligations are potentially available to
    be recovered on over 6,000 completed work orders in the Superfund
    program. Once deobligated, these funds could be applied to ongoing and
    new cleanup activities. EPA's fiscal year 1997 and fiscal year 1998
    projections include only $50 million and $20 million, respectively, in
    deobligations. What accounts for the difference between EPA's projected
    deobligations of $70 million over the next two years, and GAO's
    estimate of $250 million?
        Answer. Differences in methodology account for the variances in
    EPA's and GAO's estimate of deobligations over the next two year. GAO
    assumes that all unliquidated funds in completed ``work orders'' are
    available for deobligation. GAO's estimate does not take into account
    the fiduciary reserves that EPA and States hold in their contracts to
    cover costs associated with contract closeout. EPA's deobligation
    estimate assumes that prudent reserves will be maintained to cover
    closeout costs. However, the Agency is working diligently to deobligate
    inactive funds where appropriate.

                        SUPERFUND PACE OF DEOBLIGATIONS

        Question. Why has EPA been slow to deobligate these funds? Couldn't
    your budget request be reduced by enhancing your efforts to deobligate
    the full $250 million available?
        Answer. The Agency has moved aggressively to deobligate inactive
    funds. In 1994, the Agency established a taskforce to promote prompt
    and effective deobligation of Superfund funds that had not been fully
    utilized. In the three full years of this deobligation effort, a total
    of $397 million have been deobligated (fiscal year 1994 $160 million,
    fiscal year 1995 $170 million, fiscal year 1996 $67 million). These
    efforts will continue in fiscal year 1997 with a special emphasis on
    expired contracts and grants. Due to fiscal year 1997 efforts and the
    need for fiduciary reserves to cover contract closeout costs, the
    majority of the contract dollars identified by GAO will not be
    available in fiscal year 1998.

                         SUPERFUND DEOBLIGATION EFFORT

        Question. What level of resources are you devoting to this
    deobligation effort, and how much do you need to deobligate the full
    amount available?
        Answer. The President's budget provides adequate resources to
    headquarters and regions to process all appropriate deobligations. The
    Agency has established a deobligation task force with representatives
    from five headquarters offices and all Regions and issued guidance on
    processing deobligations. The task force works with programmatic,
    contracting, grants, and finance personnel to process all appropriate
    deobligations. Due to the need for fiduciary reserves to cover contract
    closeout costs, the Agency does not believe an increase in personnel
    would result in deobligation of the full amount identified by GAO.

                        SUPERFUND CLEANUP: AVERAGE COSTS

        Question. EPA has claimed its administrative reforms result in a 20
    percent reduction in the cost of cleanups. Yet in the model EPA
    developed to support the requested level of resources, EPA used a
    pricing factor of the average cleanup cost for fiscal year 1987-95 with
    60 percent cost growth. Why would you have assumed such cost growth if
    in fact you are seeing 20 percent savings?
        Answer. The 20 percent cost savings is based on Record of Decision
    (ROD) estimates of construction costs. In calculating the average
    Remedial Action (RA) cost, the program applies a cost adjustment, a
    cost growth factor. The construction cost estimates in the ROD are made
    on average 3 years in advance of actual construction. Cost adjustments
    related to new information discovered during the design of the project
    and time are reasonable and standard engineering practice. This
    adjustment is a fixed percentage and would apply to any ROD estimate.
    It has no effect on the cost savings exhibited in the last several
    years worth of ROD estimates.

                    SUPERFUND COST OF CLEANUPS CBO ESTIMATES

        Question. CBO tells my staff that the average cleanup cost (``ROD''
    cost) for fiscal year 1994-95 was $5.6 million, and applying 20 percent
    cost growth would be appropriate, for a total cost of $6.72 million.
    Why, then, is EPA assuming a $10 million cost for remedial actions?
        Answer. The $10.0 million average remedial action cost figure was
    used because it represents the average of ROD estimates plus a cost
    growth for ROD's signed post the Superfund Amendments and
    Reauthorization Act of 1986. Applying a recent two year average of
    estimated remedial action costs would under estimate the resources
    required to complete construction at these sites.

                              SUPERFUND SITE DATA

        Question. EPA's budget estimates are based on the number of sites
    in the queue and historical cleanup costs, not real data on specific
    sites. Why?
        Answer. Budget estimates, which are based on real data, are used
    because it is difficult to say with certainty 18 months prior to the
    beginning of a fiscal year which specific sites will begin
    construction. Averages based on historical performance provide
    reasonable indicators for resource and time requirements.

                       SUPERFUND SITE DATA: RISK RANKING

        Question. Does EPA have a list of specific projects to be funded in
    fiscal year 1998, including a risk-based ranking, an estimated cost for
    each, along with a projected start-date?
        Answer. The Agency has a list of candidate sites with planned
    remedial action starts in fiscal year 1998. These sites have not yet
    been ranked using the Agency's risk ranking system. These sites do have
    planned start dates and cost estimates. It should be noted that the
    cost estimates would be used in generating the average remedial action
    cost used for the budget projection. A list and total cost estimate of
    the planned projects was provided to the Senate Appropriation's
    Committee staff on April 3, 1997.
        Question. If EPA does not yet have such a list, how can we be sure
    that EPA could actually spend the dollars requested?
        Answer. EPA does have a candidate list and a projection for the
    cost to complete construction. This list and a total cost estimate was
    provided to the Senate Appropriation staff on April 3, 1997. Site
    specific cost estimates were not provided due to the procurement
    sensitivity of the data.

                     SUPERFUND RISK-BASED PRIORITY SETTING

        Question. Would EPA continue to use its risk-based priority setting
    process in Superfund?
        Answer. Yes. The Agency intends to continue the risk ranking
    process to ensure that the worst sites are addressed first.
        Question. Given that virtually all sites ready to go to
    construction would be funded, why would this be necessary?
        Answer. While it is true that most sites would be funded, it is
    important that the Agency continue to address the highest risk sites
    first.

                             SUPERFUND STATE COSTS

        Question. States are required to put up 10 percent of the cleanup
    cost. Have you checked with the States to determine whether they could
    afford their share of the cleanup costs?
        Answer. The Agency is continuing to work with the States to address
    strategies for cost share on the candidate sites. Possible
    considerations, in lieu of lump sum payment, are phased payments and
    in-kind services.
                superfund fiscal year 1997 projected start dates
        Question. EPA projects there will be 58 sites in fiscal year 1997
    ready-to-go to construction, but unfunded because of budget shortfalls.
    However, about a third of these sites are not projected to be ready
    until the fourth quarter. Isn't it true that projected start-dates
    often slip?
        Answer. While projected start dates can slip, the Agency's best
    information indicates that the 58 sites will be ready for construction
    this fiscal year.

                    SUPERFUND 900 SITES COMPLETION SCHEDULE

        Question. EPA has indicated the additional funds requested would
    enable it to complete 900 sites by the year 2000, instead of 650
    construction completes committed to in 1991. Over the life of the
    program, there have been about 423 construction completions to date.
    How will EPA achieve another 477 completions--more than the total
    number completed in 15 years--in less than three years?
        Answer. Current analyses of the Superfund site cleanup pipeline
    show that 147 sites are in design and 482 sites are in construction.
    This provides a universe of 629 sites that are potential candidates to
    achieve the 477 completions needed to reach the President's 900
    construction completion goal. With the resources requested over two
    years (fiscal year 1998 and fiscal year 1999), the Agency will be able
    to provide project managers and funding necessary to move these sites
    to construction completion.

                          SUPERFUND ADEQUATE STAFFING

        Question. Are there sufficient staff to manage and contracting
    capacity to carry out these additional cleanups?
        Answer. The President's Budget requests an additional 100 full-time
    equivalents (FTE) to support the 900 construction completions goal.
    This will provide the necessary staff to support the accelerated number
    of cleanups projected. Recently the Agency awarded a new set of
    remedial action contracts. These contracts provide ample contract
    capacity over the next five years to accommodate the estimated number
    of construction projects.
        Question. While EPA's budget indicates an additional 130 FTE would
    go to Superfund, I understand that the budget is adequate to fund only
    44 of those. How can you say you've requested enough staff to oversee a
    doubling of the program?
        Answer. The Superfund budget supports full funding of all FTE's.

                            SUPERFUND ATSDR FUNDING

        Question. Why isn't EPA requesting increases for the other agencies
    who support the Superfund program--such as the Agency for Toxic
    Substances and Disease Registry?
        Answer. Most of the increases are requested for cleanup activities
    that our other Federal agency partners don't perform. However, the
    Agency is requesting $6.0 million in funding for the Agency for Toxic
    Substances and Disease Registry (ATSDR) to specifically support the
    President's 900 Superfund completion goal. ATSDR will address community
    concerns regarding how the implementation of cleanup designs affect
    their health ad surrounding environment. The other federal agencies do
    not play as active a role in remedial site cleanup. Their
    responsibilities focus on research, worker safety training, and
    emergency response. The President's 1998 budget requests total funding
    of $152.1 million for other Federal agencies who support the Superfund
    program.

                 SUPERFUND REDUCED FUNDING AFFECT ON 900 SITES

        Question. If the Congress were to provide the $1.4 billion
    originally projected for fiscal year 1998, how many ``ready-to-go''
    projects would carry into fiscal year 1999?
        Answer. The Agency expects to carry over 50 to 55 fund-lead sites
    from fiscal year 1997 to fiscal year 1998. Eighty fund lead projects
    are planned in the fiscal year 1998 budget. If the Agency's Superfund
    budget remains at the $1.4 billion level, it is estimated that over 100
    fund-lead sites will carryover into fiscal year 1999.

                                METHYL PARATHION

        Question. What is the status of EPA's efforts to cleanup homes
    contaminated by the illegal application of methyl parathion?
        Answer. As of April 18, 1997, the Agency was responding to 3,687
    homes with reported methyl parathion spraying. The Agency has sampled
    2,629 of the 3,687 homes, relocated 503 of the households, totaling
    2,239 residents. Of the 2,629 homes sampled, 57 are completely clean
    and 195 residents have been returned to their homes. Twenty-five
    businesses require cleanup of which 4 have been cleaned.
        Question. How much has been expended to date and how much
    additional funding will be required in fiscal year 1997?
        Answer. To date, the Agency has issued $33.0 million to address the
    cleanup of methyl parathion application. The Agency expects to issue
    another $32.0 million by the end of the fiscal year.
        Question. Some have questioned whether this activity is an
    appropriate use of the Superfund budget. Has EPA General Counsel made a
    determination on whether such expenditures are appropriate?
        Answer. The Agency's Office of General Counsel has concurred on all
    the decision documents prepared outlining the Agency's response to the
    methyl parathion public health.

                        METHYL PARATHION DELIBERATE USE

        Question. Some Louisiana residents have been accused of
    deliberately having their homes sprayed with methyl parathion ``to take
    advantage of a federal offer to renovate their homes,'' according to
    The Washington Post (March 10, 1997). Is this accurate?
        Answer. The EPA Office of Inspector General (OIG) has presented
    (April 16, 1997) three cases of suspected fraudulent claims relating to
    methyl parathion application to the U. S. Attorney's Office in New
    Orleans, Louisiana. The OIG is currently awaiting a prosecutive
    decision. There have been several arrests made by the EPA Criminal
    Investigations Division regarding the illegal application of this
    substance.
        Question. How will the costs associated with those emergency
    removals be recovered to the Superfund trust fund?
        Answer. The costs associated with the emergency removals will
    probably never be recovered to the Superfund trust fund. The
    individuals suspected of submitting fraudulent claims live well below
    the poverty level and are not likely to be subjects of Department of
    Justice (DOJ) civil actions. The OIG has been working with Agency
    officials to set up controls to identify fraud indicators and is
    providing the DOJ with the most egregious case identified to create a
    deterrent effect.

                 EPA-STATE PARTNERSHIP: REGULATORY FLEXIBILITY

        Question. In President Clinton's 1996 state of the union address he
    said ``We must challenge business and communities to take more
    initiative in protecting the environment and we have to make it easier
    for them to do it.'' Yet EPA has taken the position that all requests
    for state regulatory flexibility projects must meet the criteria for
    superior environmental performance. Why? What incentive is there for
    attempting innovative regulatory programs if a fundamental requirement
    is superior environmental performance--as opposed to simply the most
    efficient and effective means of meeting environmental requirements?
        Answer. Although significant improvement has occurred over the last
    25 years in the U.S. environment, much remains to be done. In
    traditional regulatory program areas such as air and water, many areas
    of the country do not meet standards, and areas of environmental
    concern continue to grow. Given projected population growth and
    anticipated economic growth, continuous environmental improvement has
    become an approach that many companies and communities endorse--to
    ensure a sustainable future. For example, the three companies that have
    signed Project XL agreements have identified ``win-win'' solutions for
    both the company and the environment, agreements through which an
    innovative approach can achieve superior results and also save money
    for the company. The Aspen Project, a broad-based consensus effort,
    concluded that requiring superior environmental performance in exchange
    for regulatory flexibility in Project XL was the best way to achieve
    sustainable development.
        Many opportunities exist to improve environmental protection
    through innovations that are straight forward, technically achievable,
    and non-controversial--and most of these innovations will also provide
    environmental benefits. In some cases, innovations may be designed
    primarily to improve the cost effectiveness of achieving environmental
    goals; these projects must ensure there is no adverse impact on
    environmental protection, public access to information, and public
    access to the decision making process.

                 EPA-STATE PARTNERSHIP DIMINISHED REGIONAL ROLE

        Question. Ms. Browner, two years ago you said ``I think the most
    important thing that we can do, and do it immediately, is diminish the
    oversight of the regions of the states' actions. We do not need to be
    in there second guessing them at every turn.'' Can you tell me how the
    regional oversight has been diminished, and how the role of the regions
    has changed in the past two years?
        Answer. EPA is successfully working with the states to reshape the
    federal-state relationship to develop true partnerships between the
    federal government and states to provide the best possible
    environmental management system. The Environmental Protection Agency is
    currently in the second year of working with the states under the
    National Environmental Performance Partnership System (NEPPS). NEPPS is
    a program that evaluates environmental problems and program needs.
    NEPPS Agreements and Grants are based upon state specific measurements
    of results. The Performance Partnership Agreements and Grants are
    voluntary, and are flexible enough to either encompass a broad range of
    environmental programs or they can focus on single programs as defined
    by the state.
        Regional oversight of a state's environmental programs can be
    significantly reduced through NEPPS by the state and the regional
    office agreeing on what the state's annual accomplishments should be. A
    series of performance measures has been developed by each of the
    Agency's programs to assist the regions and states in negotiating
    Performance Partnership Agreements. These performance measures were
    reviewed by the Environmental Commissioners at their Spring meeting in
    March 1997, and received their endorsement. This program is succeeding
    in reducing oversight by changing the fundamental relationship between
    the EPA Regions and the states from one of federal oversight to a true
    partnership.
        At last year's EPA-States Meeting, attended by state environmental
    commissioners and EPA senior management, and at the last EPA Annual
    Planning Meeting, a common theme was the need for more assistance from
    regions to states to make a real working partnership effective. The
    regions held discussions with states that revealed states and tribes
    highly value the technical assistance and applied science capabilities
    EPA brings to difficult environmental problems. Many states highly
    value EPA's technical, programmatic, scientific, and legal assistance
    in dealing with permit review and enforcement in both non-delegated and
    delegated programs.
        EPA has focused on work-sharing with state and local governments
    through several new approaches. In addition to NEPPS, the Agency is
    working with states and local governments through such efforts as
    Regional Geographic Initiatives, XL, compliance assistance, and
    technical assistance. We are trying to maximize state and Federal
    resources by dividing the work, moving away from counting
    administrative actions, and moving toward using environmental results
    as our indicator of progress and success. Our role is to address
    problems that state programs cannot or do not have the appropriate
    skill-set to handle.
        Many geographic, tailor-made solutions are more labor-intensive and
    may require more time and resources, especially in the short-term.
    According to a report done by ECOS magazine, 23 states reduced their
    resources devoted to environmental management from fiscal year 1995 to
    fiscal year 1996. In addition, states continue to expect EPA to deal
    with federal facilities and emergency response, cross-state boundary
    issues, and international issues. States need the talents of many
    specialists, who are brought together through project-specific teams.
    This is especially true for the regional labs who provide extensive
    technical support. States have begun to ask us to help fill their gaps
    with technical assistance and direct support.
        EPA has reduced oversight where appropriate, maintained oversight
    where we are statutorily obligated to do so, and redirected efforts
    towards new activities, often at the request of states, tribes,
    industry, and the general public. Oversight reduction has been ongoing
    for the last few years. Some oversight is and will continue to be
    necessary; just as direct federal action will continue to be necessary
    in some cases.
        It is important to note that while we have indeed shifted resources
    to many new activities, we still have activities we are statutorily
    required to undertake. We have a legal obligation to ensure national
    standards and implement programs the states have elected not to take
    on. We also have a unique role with tribes in carrying out our Trust
    responsibilities. If we discover that reduced oversight in a particular
    state leads to less diligent enforcement, for example, EPA will
    exercise the appropriate federal responsibility to ensure a level
    playing field across state boundaries and take needed action to remedy
    the situation.

                          NAAQS PARTNERSHIP AIR GRANTS

        Question. Ms. Browner, while you have professed great commitment to
    the EPA's proposed new standards for ozone and fine particles--claiming
    they would result in averting 20,000 premature mortalities--your budget
    does not seem to reflect that commitment. EPA's budget request provides
    a very marginal--3 percent--increase for air grants to the states. How
    can states undertake the multitude of tasks required to implement these
    proposed rules with the budget you've requested?
        Answer. In fiscal year 1998 much of the work involving the new air
    quality standards for ozone and fine particles will remain with EPA.
    Development of implementation policies and guidance materials will be a
    principal priority of the Office of Air and Radiation for fiscal year
    1998. Once the new standards are promulgated, States will have 3 years
    to submit their plans addressing how they will attain the new
    standards. The due date for these plans is presently anticipated to be
    July, 2000.
        The initial state need in addressing the new PM fine standard will
    be to develop and implement a monitoring network to measure the ambient
    levels of fine particles. In EPA's fiscal year 1997 and fiscal year
    1998 budget, the Agency has included funds to begin the establishment
    of fine particle monitoring networks. Initial efforts are primarily
    aimed at laboratory equipment and other infrastructure needs. Once EPA
    promulgates a fine particle standard and a subsequent federal reference
    method for ambient monitoring, greater emphasis will be placed on the
    purchase and siting of monitoring equipment.
        We are currently working with the states to examine the states'
    total needs for implementing programs to meet these new standards.

                          NAAQS PARTNERSHIP AIR GRANTS

        Question. Ms. Browner, while you have professed great commitment to
    the EPA's proposed new standards for ozone and fine particles--claiming
    they would result in averting 20,000 premature mortalities--your budget
    does not seem to reflect that commitment. EPA's budget request provides
    a very marginal--3 percent --increase for air grants to the states. How
    can states undertake the multitude of tasks required to implement these
    proposed rules with the budget you've requested?
        Answer. In fiscal year 1998 much of the work involving the new air
    quality standards for ozone and fine particles will remain with EPA.
    Development of implementation policies and guidance materials will be a
    principal priority of the Office of Air and Radiation for fiscal year
    1998. Once the new standards are promulgated, States will have 3 years
    to submit their plans addressing how they will attain the new
    standards. The due date for these plans is presently anticipated to be
    July, 2000.
        The initial state need in addressing the new PM fine standard will
    be to develop and implement a monitoring network to measure the ambient
    levels of fine particles. In EPA's fiscal year 1997 and fiscal year
    1998 budget, the Agency has included funds to begin the establishment
    of fine particle monitoring networks. Initial efforts are primarily
    aimed at laboratory equipment and other infrastructure needs. Once EPA
    promulgates a fine particle standard and a subsequent federal reference
    method for ambient monitoring, greater emphasis will be placed on the
    purchase and siting of monitoring equipment.
        We are currently working with the states to examine the states'
    total needs for implementing programs to meet these new standards.

                          NAAQS AIR GRANTS PM FUNDING

        Question. In addition, in your agency's proposed fiscal year 1998
    budget you have set aside only $10.9 million in grants for state and
    local air agencies for particulate matter monitoring, which is
    something they'll need to start right away. However, much of that is
    simply reprogrammed money--taking funds away from other important air
    programs, such as ozone or PM 10 monitoring. Aren't these programs
    still required under the Clean Air Act? If so, how are the states going
    to pay for them?
        Answer. EPA's fiscal year 1998 budget, $10.9 million would provide
    for the implementation of fine particle monitoring networks. This
    amount is an $8.2 million increase over the amount available for fiscal
    year 1997. Of this $8.2 million, $4.0 million would be funds over and
    above the total amount appropriated for fiscal year 1997. The
    remainder, $4.2 million is reprogrammed from other activities that were
    either completed in fiscal year 1997 or can be delayed in order to
    expedite the implementation of the fine particle network. Two
    activities comprise the $4.2 million. In fiscal year 1996 and fiscal
    year 1997, $2.2 million was directed towards the establishment of data
    delivery systems that would enhance the transmission of emissions
    inventory data from the States into EPA's emission inventory data
    systems. With this 2 year effort completed, we are able to redirect
    these funds to the fine particle network. The remaining $2 million
    comes from the total funds available to the Photochemical Assessment
    Monitor Stations (PAMS) program. In fiscal year 1997, $14.7 million was
    available for PAMS; for fiscal year 1998, we are able to redirect $2.0
    million of those funds to the fine particle network. The $2 million
    reduction in PAMS funding is brought about by reducing the sampling
    frequency at certain PAMS sites. Reduced sampling frequency saves both
    in FTE's as well as reductions in supply costs and equipment
    replacement costs. Reducing the sampling frequency while reducing the
    total data collected, does not impact the integrity of the data or our
    ability to shows trends in air quality levels.

                        NAAQS AIR GRANTS MACT STANDARDS

        Question. One area of great concern is the release of hazardous air
    pollutants. For that reason, the Clean Air Act calls upon EPA to
    develop a series of standards to curb these emissions--MACT standards.
    We understand that you have a MACT Partnership Program under which
    state and local air agencies have such expertise. However, if the Clean
    Air Act gives the responsibility for developing the standards to EPA,
    why is it that under your proposed allocation of air grants to state
    and local air agencies for fiscal year 1998 you plan to make these air
    agencies use their own grant funds to help you. Since the Act calls
    upon EPA to carry out this function, shouldn't the agency use its own
    budget for that and leave state and local air grants for other
    activities for which state and local agencies are primarily
    responsible?
        Answer. The Agency does not require states and local agencies to
    use their grant funds to help us develop rules but rather offers them
    an opportunity to participate in the process. The MACT Partnership
    program brings together the knowledge, skills and resources of all
    major stakeholders in the development of MACT standards under Section
    112 of the CAA. This has been necessary because frequently stakeholders
    want issues addressed that go beyond our basic mandate to create MACT
    standards (e.g., our efforts to bring emission averaging into the MACT
    program or providing alternatives to specific state rules). As a part
    of this program, we involve state and local personnel in the initial
    thinking and planning about a MACT standard. The state and local
    agencies generally want to participate and have agreed that we can
    identify an appropriate portion of their grants for this purpose. This
    allows them to share data and information among themselves and EPA and
    to develop their interest in the completion of a MACT standard, along
    side with the industry affected by the standard. The goal is to provide
    the best possible ways for state and local interests to be incorporated
    into the final MACT standard. This involvement (and the grants) are not
    associated with the main work in developing a MACT standard; state and
    local personnel decide independently if they want to participate in
    such efforts. While we have successfully developed MACT standards that
    will assure the reduction in emissions of hazardous air pollutants by
    nearly 1 million tons per year, we have many additional such standards
    to develop. By providing grant resources for the MACT partnership
    program, we ensure state and local agencies can participate in the
    development of these standards, an essential aspect of the consensus-
    based MACT partnership program.

                  EPA-STATE PARTNERSHIP OROSLR REORGANIZATION

        Question. EPA recently announced it was closing its office of
    Regional Operations and State & Local Support. Responsibility for state
    and local relations is moved to the Intergovernmental Affairs office.
    How will you ensure state and local issues don't get lost among
    Congressional relations responsibilities?
        Answer. EPA is not closing its Office of State and Local Relations.
    The functions performed by this office are vital to the Agency. The
    Agency is combining the Office of State/Local Relations with the Office
    of Congressional Affairs. A senior level political appointee will head
    the state and local relation functions. The Associate Administrator for
    Intergovernmental Relations--the most senior person with responsibility
    for state and local relations--will report directly to the
    Administrator. We expect these changes to improve the relationships
    between EPA, the states, and local officials and we fully intend to
    actively solicit and consult our state partners.

                          EPA-STATE PARTNERSHIP NEPPS

        Question. In the past two years, EPA has been working with states
    to implement a new National Environmental Performance Partnership
    System, in which states are to be assessed based on their performance,
    not on how many permits they issue or reports they write. In order to
    implement NEPPS successfully, states need to shift resources to the
    development of environmental indicators.
        To what extent has EPA allowed states to ``disinvest'' in
    traditional activities such as reporting requirements in order to
    redirect resources to the environmental indicators development?
        Answer. All of the Agency's Media offices have been encouraged to
    develop environmental core measures that move away from traditional
    activity measures and in the direction of direct measures of
    environmental status/condition. The Offices of Water, Air and
    Radiation, Pesticides and Toxic Substances, Solid Waste and Emergency
    Response, and Enforcement and Compliance Assurance have completed draft
    core measures. The intent is for these core measures, once finalized
    and adopted by the Agency, to be used by EPA's regions in negotiating
    Performance Partnership Agreements with the states, and to give the
    states some idea where EPA is heading so they, in turn, can begin to
    develop their own core measures. Once EPA has the core measures in
    place--including expanded use of environmental indicators--more
    traditional reporting requirements will be significantly reduced.
        For example, the Office of Water has developed a set of 18
    environmental indicators designed to measure surface water and drinking
    water quality nationally. Nine of these indicators are also on the list
    of eleven core measures being developed by the Office of Water. In
    piloting some of these environmental indicators with states, the Office
    of Water agreed in some cases to reduce other reporting requirements to
    free up state resources needed to work on the new approach. As more of
    the core measures get implemented, and more states start switching to
    the new approach, EPA can begin eliminating older reporting
    requirements that have been replaced and/or are no longer needed.
        To specifically address state reporting requirements, in December
    of 1996, EPA convened the State Reporting Requirements Reduction
    Workgroup, co-chaired by Michael O'Connor, Commissioner of the Indiana
    Department of Environmental Management; Bob Perciasepe, EPA Assistant
    Administrator for Water; and Mike McCabe, Regional Administrator of
    EPA's Region 3. Nine states are represented on the workgroup: Colorado,
    Delaware, Indiana, Maryland, Massachusetts, Missouri, New Jersey,
    Oklahoma, and Utah. So far, the workgroup has met twice and heard
    presentations from Massachusetts and Florida on how they have worked
    with EPA to reduce reporting burdens in their states. The workgroup has
    drafted, and is circulating for members' comment, a set of principals
    for guiding EPA/State decisions about what should be reported, versus
    what reporting can be eliminated. The workgroup hopes to finalize the
    principles in the next three months and turn its attention to
    implementing them in the fiscal year 1998 National Environmental
    Performance Partnership System agreements. In one example of reductions
    already achieved, the State of Florida and EPA Region 4 reported
    reducing Florida's solid waste and superfund reporting requirements by
    50 percent in the process of negotiating Florida's fiscal year 1997
    Performance Partnership Agreement. Other examples are being collected
    by the workgroup.

                   EPA-STATE PARTNERSHIP ENVIRONMENTAL GOALS

        Question. Have differences arisen between state and EPA
    environmental goals? If so, how have they been resolved?
        Answer. At this time we know of no significant differences between
    EPA and state environmental goals. Most of the differences are in the
    approach or program strategy to be used, rather than in disagreement
    with environmental goals. The negotiation of Performance Partnership
    Agreements resolves differences through joint planning and priority-
    setting by state and EPA regional officials, taking into account
    national environmental goals, program guidance and individual
    performance measures, regional and state analyses of environmental
    status and trends, and program performance. Each EPA Regional
    Administrator is charged with working with National Program Managers
    and state environmental officials to ``harmonize'' state and national
    objectives in the Performance Partnership Agreements. States are also
    expected to involve stakeholders in the discussion of environmental
    goals and priorities.

                    EPA-STATE PARTNERSHIP NEPPS EFFICIENCIES

        Question. Are anticipated costs and other efficiencies being
    realized in the new performance partnership grants?
        Answer. Since we have not yet completed the first full fiscal year
    of implementing Performance Partnership Grants (PPG's), we do not have
    much information about efficiencies realized thus far. As a
    fundamentally new approach to state grants and state-EPA relations,
    many procedural and policy issues emerged during this first year that
    had to be resolved. Nonetheless, we made remarkable progress putting
    PPG's in place. As of April 1, 1997, EPA had awarded one or more fiscal
    year 1997 PPG's to 33 different states; 21 PPG's went to environmental
    agencies, 2 to health agencies, and 13 to agricultural agencies.
        Although difficult to quantify, all state agencies with PPG's
    should be realizing at least some administrative savings. They can now
    submit a single grant application combining several programs and are no
    longer required to account separately for multiple grants.
        The other PPG's are also funding more integrated environmental
    protection efforts, involving joint state-EPA goal and priority setting
    based on environmental conditions, strategies that address the most
    pressing problems, and negotiated performance measures. Only a few
    modest resource shifts were made this year. Many state and EPA
    officials found the process more difficult than negotiating traditional
    grants. However, most believe the benefits of this more comprehensive
    and flexible approach are worth the effort and expect PPG's to be
    easier in the future.

                EPA-STATE PARTNERSHIP CORE PERFORMANCE MEASURES

        Question. What is the status of the development of core performance
    measures under NEPPS?
        Answer. EPA and the states, working together, have defined for each
    media program--air, water, waste, toxics, and enforcement--a set of
    core performance measures to be used by the regions and the states in
    negotiating Performance Partnership Agreements. Core performance
    measures are the principle long-term gauge of state and national
    progress in protecting human health and the environment. These
    measures, supplemented by other data routinely reported by the states,
    provide the ``performance'' element in the Performance Partnership
    Agreements. EPA and state environmental officials have jointly
    developed a framework and a set of definitions for core performance
    measures which are compatible with GPRA, and the National Environmental
    Goals Report. Each media office has proposed a set of core measures
    which track with their program goals and objectives, and are consistent
    with the framework and definitions. EPA and the states will continue to
    further refine these measures together, moving towards expanded use of
    environmental indicators. The framework, definitions, and examples of
    the measures are publicly available via EPA's home page.

                     EPA-STATE PARTNERSHIP NEPPS MANAGEMENT

        Question. Given the dissolution of the Office of Regional
    Operations and State & Local Support, who will be responsible for
    managing NEPPS?
        Answer. EPA is currently evaluating options for how the National
    Environmental Performance Partnership System (NEPPS) will be managed.
    EPA believes that NEPPS is a crucial reinvention program that will
    strengthen the state-EPA partnership. A final decision about
    organizational placement will be made in the next few months.

                 PLANNING, BUDGETING, AND ACCOUNTABILITY (PBA)

        Question. Can you point to some specific examples of how it [the
    proposed planning, budgeting, and accountability system] impacted the
    1998 budget? Did it result in a risk-based reprioritization of
    activities across the agency, and disinvestments in low priority
    activities?
        Answer. EPA is engaged in a far-reaching effort to fundamentally
    change past approaches to planning, budgeting, performance measurement,
    and accountability. Our goal is to make better use of scientific
    information in setting priorities, improve the link between long-term
    environmental planning and resource management, and implement a new
    accountability system to assess accomplishments and provide feedback
    for future decisions. This effort will take several years to be fully
    in place.
        In fiscal year 1998, EPA expanded its GPRA pilot programs designed
    to bring together environmental goals and specific desired outcomes.
    These programs also serve as the prelude to full implementation of
    goal-based budgeting, complete with analytic criteria (including risk)
    and accountability measures, for fiscal year 1999. Together with a
    strategic plan and an annual performance plan, the Agency will submit a
    budget for fiscal year 1999 incorporating the principles and spirit of
    the GPRA.
        In fiscal year 1999, risk-based criteria, statutorily mandated
    tasks, and improved efficiency in government performance will be the
    bases for reprioritization of activities across the Agency. EPA will
    learn from its fiscal year 1997-98 GPRA pilot programs the best
    approaches to evaluating the work we do, providing resources, and
    measuring the results.

                        PBA AFFECT ON FUNDING DECISIONS

        Question. How does the agency's decision to increase the Superfund
    program by 50 percent and the Climate Change Action Plan programs by 73
    percent reflect the budget discipline which was supposed to be imposed
    by the new planning, budgeting, and accountability system? Don't
    dollars spent in Superfund provide relatively little opportunity for
    risk reduction, compared to other EPA programs?
        Answer. EPA continues to make fundamental changes to planning,
    budgeting, performance measurement, and accountability. As the Agency
    fully integrates these changes into the budget process over the next
    several years, decisions will be based on priorities at the highest
    risk areas and at the highest areas of need. The fiscal year 1998
    budget does begin to implement the need for a more risk-based and need-
    based budget through the support of the Superfund program and the
    Climate Change Action Plan programs.
        Superfund sites pose a risk to human health and the environment and
    additional funding for the Superfund program offers the opportunity to
    address the direct risk for those individuals who live close to a site.
    These risks include concerns about exposures from multiple pathways,
    multiple chemicals, and non-cancer risks. By increasing funds for
    Superfund, the budget supports the commitment to clean up sites for the
    one in four Americans who live within four miles of a Superfund site.

                                   PBA STATUS

        Question. GAO, in testimony submitted for today's hearing record,
    found that the overall framework for the new [Planning, Budgeting, and
    Accountability] system has been developed, but critical details are
    missing, such as the Integrated Risk Project to rank the relative risk
    of environmental problems. When will these missing elements be in
    place?
        Answer. The Agency is currently evaluating various approaches to
    incorporate relative risk analyses into our strategic planning process.
    There are several activities underway, including the Integrated Risk
    Project of the EPA Science Advisory Board (SAB). However, it is not yet
    possible to incorporate any results from the SAB's project as there is
    not yet an available public draft of their efforts. The Agency,
    however, does plan to consider the methods and results of the
    Integrated Risk Project to incorporate into future year planning
    processes. Currently, the Agency is using some very preliminary
    relative risk analyses as a first step in this initial strategic
    planning process. The nature and amount of risk information that is
    available varies by program area. Over time, we plan to continuously
    improve this information and revise our strategic plans accordingly.

                     PBA SCIENTIFIC AND ENVIRONMENTAL DATA

        Question. GAO also found that EPA faces long-term challenges to
    obtain the scientific and environmental data needed to fully support
    the new systems. What are EPA's plans to address this issue?
        Answer. EPA is committed to developing results oriented performance
    measures that will provide relevant information to the public on
    protection of public health and the environment. EPA plans to address
    the long-term challenges to obtain the scientific and environmental
    data by identifying the most important data gaps associated with its
    strategic objectives and to invest as needed in gathering and/or
    analyzing data required to fill these gaps. Each program office is
    expected to invest adequate resources to do this. However, there may be
    crosscutting areas where data needs can be met by Agency-wide efforts
    to gather and analyze data. EPA is very conscious of the cost of
    developing environmental outcome information and the reporting burden
    it places on EPA and potentially our partners. Thus, the Agency will
    emphasize using existing data collected by EPA, other Federal agencies
    and the States to measure the effectiveness of our program activities.
    We will seek to acquire new data and information only when it is
    critically needed to measure program effectiveness; in so doing, we
    will consult with State, Tribal and local governments, as well as the
    regulated community, to identify and collect data in the most efficient
    manner possible.
           center for environmental information and statistics (ceis)
        Question. EPA recently announced the creation of a center for
    environmental information and statistics. This comes in response to
    NAPA's recommendations. NAPA found a lack of adequate, high quality
    data on environmental conditions and the need for an independent office
    to analyze and disseminate such data. NAPA recommended such a center
    conduct a comprehensive assessment to determine what types of
    information EPA needs to make good policy decisions, and to identify
    what types of information EPA no longer needs to collect.
        Answer. EPA agreed with the NAPA findings concerning weaknesses in
    the Agency's environmental data quality, and with the NAPA
    recommendation to create a CEIS.

                                 CEIS STRATEGY

        Question. What is EPA's strategy for the proposed new center, when
    will the comprehensive assessment NAPA recommended be conducted, and
    how will you ensure that the need for better, more reliable data does
    not result in increased reporting burdens on states and the regulated
    community?
        Answer. The strategy for CEIS operation during the remainder of
    fiscal year 1997 is to focus on an ambitious, but achievable agenda
    using budget resources redirected from OPPE environmental information
    and statistics functions, and to a lesser extent, from certain OARM
    data management functions and other parts of EPA. The early CEIS agenda
    will include a few, key products that define and illustrate the CEIS
    role. Examples include:
      --An integrated, multimedia state of the environment report,
            addressing environmental issues for which EPA has, or shares
            lead federal responsibility and aimed at EPA's historical
            audiences for information on environmental quality, status and
            trends; and
      --A comprehensive assessment of the environmental information needs
            of EPA audiences to identify priorities for improving data
            quality, integration and access.
        The CEIS environmental information needs assessment will also aid
    in identifying low priority data collections that become subject to
    burden reduction activities under the Agency's BRITE (Burden Reduction
    Information Technology Executive task force) program. The AA for OPPE,
    working with the CIO, has lead Agency responsibilities for both CEIS
    needs assessment and BRITE, thus ensuring close coordination between
    the two programs.

                              CEIS APOLITICAL USES

        Question. NAPA said the center ``should be free of political
    interference, and should not participate in political advocacy or
    regulatory activities.'' Yet the agency has indicated the center will
    be used to help implement the President's Right-to-Know initiative--
    clearly a very political initiative created at the political levels of
    EPA with the White House. Can you assure us the Center will not be used
    for political purposes?
        Answer. EPA strongly believes that to be successful, both the CEIS
    and EMPACT must earn reputations as objective, reliable environmental
    information sources, known for the clear presentation of environmental
    information, as well as for fair and balanced interpretation and
    analysis. The purpose of the President's Right-to-Know initiative,
    known as EMPACT (Environmental Monitoring for Public Access and
    Community Tracking), is to work with at least 75 major, U.S. urban
    areas to provide the public with more timely and accessible,
    environmental monitoring information. The motivation for EMPACT is to
    improve the science and effectiveness of environmental monitoring. EPA
    has also explicitly stated that the objectives for the program include
    making environmental data understandable and promoting fair and
    unbiased data interpretation. EPA will use peer review of products and
    balanced stakeholder involvement in implementing both CEIS and EMPACT
    to ensure the credibility of the environmental information they make
    available.

                          CEIS ORGANIZATIONAL LOCATION

        Question. Why is the Center under the control of the Policy Office,
    rather than the Chief Information Officer, as recommended by NACEPT in
    its report on managing information resources?
        Answer. The CEIS will enhance EPA's presentation of environmental
    information mainly by providing comprehensive, multimedia analysis and
    interpretation of environmental quality, status and trends. OPPE is the
    natural placement for CEIS by virtue of its long history as EPA's
    office for multimedia analysis. Because the CEIS will rely heavily on
    the CIO for the information technology and infrastructure necessary to
    integrate and manage environmental data, the CEIS will function as an
    OPPE/CIO partnership, with the CEIS located in OPPE to advance its
    important, substantive analytical role.

                       CEIS NACEPT REPORT RECOMMENDATION

        Question. NACEPT stated that ``integrated information--the
    strategic tool for the Agency's new place-based approach--will not be
    available unless one individual in the Agency is charged with managing
    information resources as their sole responsibility''. Why hasn't EPA
    followed NACEPT's recommendation that the CIO be charged solely with
    information resources management?
        Answer. Long before the passage of the Information Technology
    Management Reform Act, EPA named a Chief Information Officer to perform
    enterprise-wide information management responsibilities. With the
    passage of the new law, EPA has heightened the importance of the Chief
    Information Officer by vesting in this position the full authorities of
    the new law. The Chief Information Officer has sole responsibility for
    the Agency's information management planning process, Strategic Plan,
    policy formulation, and architecture. The CIO's authority has been
    further strengthened with responsibilities for investment planning and
    for reengineering review imposed by the new law.
        Within the parameters of this centralized authority, the Chief
    Information Officer relies on senior officials in EPA's program and
    regional offices to develop and implement information management
    programs in support of their environmental statutes and regulations.
    This centralized/decentralized operating framework has traditionally
    worked well in EPA because it yields centralized authority on policy
    and infrastructure requirements, while allowing day-to-day
    responsibilities for data systems and management to occur at
    operational levels more closely associated with the nature of the
    environmental program.
        EPA is highly sensitive to the need for more integrated
    environmental information highlighted by the NACEPT committee, and its
    Chief Information Officer is leading a number of efforts to evaluate
    and improve the Agency's ability to deliver integrated information. The
    CIO's authority is enhanced by the Agency's Executive Steering
    Committee for IRM, which serves as the Chief Information Officer's
    board of directors for agencywide information management directions,
    cross-media efforts, and IRM investment planning. The Executive
    Steering Committee is composed of the senior officials in each of EPA's
    program offices, along with representatives from our regional offices
    and state environmental agencies. EPA's place-based and community-based
    efforts are overseen by the Executive Steering Committee, under the
    direction of the CIO. Thus, EPA is moving forward with a clear effort
    and management framework for meeting the integrated information needs
    identified by NACEPT.

                              CEIS BUDGET REQUEST

        Question. What is the budget request for the Center in fiscal year
    1998? When will a center director be named?
        Answer. Because the decision to create the CEIS was made after the
    fiscal year 1998 President's budget was submitted to Congress, EPA's
    budget did not include a specific CEIS budget request. The fiscal year
    1998 resource needs for CEIS will be addressed as the Agency works with
    Congress to develop EPA's fiscal year 1998 operating plan. EPA will
    seek to fund CEIS by redirecting OPPE base resources, and, to a lesser
    extent, by redirecting resources from OARM and other parts of the
    Agency. Some of the Agency resources redirected to CEIS will include a
    portion of those funding EMPACT, to support the important CEIS role in
    the EMPACT program. EPA will name a CEIS director before the CEIS
    organization plan is finalized in late spring.

                             PBA PROGRAM EVALUATION

        Question. NAPA found that EPA has no systematic way of performing
    program evaluations to determine whether programs are accomplishing
    their stated goals and objectives. Without this information, it is
    difficult to make rational, informed budget decisions. What has EPA
    done to establish centralized, routine, systematic program evaluation
    as part of the budget process?
        Answer. EPA is currently developing a new process to substantially
    change the way the Agency makes decisions with regard to planning and
    budgeting. This process is driven by a set of environmental goals and
    results-oriented environmental outcomes that are associated with these
    goals. The process integrates the Agency's planning and budgeting
    processes and establishes a program performance evaluation and
    accountability system that will ensure compliance with the Government
    Performance and Results Act. At the foundation of this planning-
    budgeting-accountability process will be clearly identifiable links
    between the Agency's goals; objectives for achieving those goals;
    performance measures to assess progress in meeting objectives;
    activities designed to attain desired environmental outcomes; and
    resources used in support of those activities. EPA has formalized these
    links by creating the Office of Planning, Analysis and Accountability
    (OPAA) within the Office of the Chief Financial Officer.
        Two primary responsibilities of OPAA are the development of an
    Agency-wide Strategic Plan that incorporates the goals and objectives
    we have identified as essential in achieving desired outcomes, and an
    accountability system that will enable us to evaluate program
    performance and related costs in terms of goals and objectives. This
    will be done systematically by focusing on accomplishments relative to
    the commitments made in annual performance plans, which will constitute
    the body of Agency budget submissions. Annual performance reports will
    evaluate environmental and managerial results and relate them to
    resources expended, and the results will support future decision-making
    on program direction and budgets. In the future, this system is
    intended to integrate other ongoing evaluation efforts, including
    regular internal program assessments, Federal Managers' Financial
    Integrity Act monitoring and reporting, and Agency financial
    statements, to provide comprehensive information for management.
                     project xl and common sense initiative
        Question. How will the new Office of Reinvention EPA recently
    established improve the effectiveness of Project XL and the Common
    Sense Initiative? What specific changes do you envision?
        Answer. The Office of Reinvention (OR) will enhance the
    effectiveness of Project XL (XL) and the Common Sense Initiative (CSI)
    within EPA in four ways:
        First, we expect the reorganization to improve the ability of the
    Agency to coordinate across the reinvention programs and ensure that
    resources are used in the most efficient and effective manner possible.
        Second, the true purpose of reinvention is to implement new
    approaches to environmental protection. While XL and CSI are different
    in their approach to reinvention, common ideas and themes will continue
    to emerge. OR will track these ideas, look for the best opportunities
    to test and refine them in reinvention programs, and work to
    incorporate them into Agency regulatory or policy decisions. The
    ``lessons learned'' will be shared among the reinvention programs.
        Third, establishment of OR will improve the Agency's ability to
    make operational and policy decisions that move the XL and CSI programs
    forward. As programs with significant implications that cut across
    Agency divisions, XL and CSI repeatedly face the difficult task of
    facilitating cross-agency decision making on an ad hoc basis. OR will
    provide structure and authority to cross-agency actions on reinvention
    programs.
        Fourth, OR will be involved with other Agency reinvention efforts
    such as the Environmental Leadership Program and the One-Stop Reporting
    Program. The office will be able to bring the experiences and successes
    of these efforts to XL and CSI to foster continuous improvement.

             PROJECT XL AND CSI ALTERNATIVE COMPLIANCE LEGISLATION

        Question. After the problems you have encountered with Project XL,
    why do you not agree that alternative compliance legislation is needed?
        Answer. GEMI's critique stated that successful reinvention programs
    had common characteristics of clear goals developed with input from
    direct participants, the provision of significant flexibility in how to
    achieve set ends, and trust among participants. They go on to state
    that without statutory provisions, initiatives take a lower priority,
    and require consensus-based decisions to be effective. GEMI suggests
    that having statutory authority would remedy the lack of these
    characteristics in XL and CSI, and would overcome the weak incentives
    and risks of litigation of these two reinvention initiatives.
        EPA disagrees that legislative action would serve to remedy the
    majority of criticisms that have been directed at Project XL or CSI.
    These criticisms not easily resolved by legislation. Most suggestions
    can be implemented without legislation and some may evolve and change
    as our learning in these areas expands. While the characteristics of
    clear, shared goals, flexibility to achieve set ends, and trust are
    important if reinvention programs are to be successful, legislation is
    not required to accomplish any of those criteria.
        Both XL and CSI are undergoing substantial efforts currently to
    redefine program objectives and goals, with substantial input from
    stakeholders of all types. As these dialogues continue, a greater level
    of support and an understanding of the expected outcomes of these
    programs is developing. This is an ongoing, dynamic process; one that
    is necessary at the program level regardless of statutory authority.
    EPA has found there is substantial room for flexibility within the
    existing framework of our legal authorities.
        It is important to recognize that Project XL is not intended to be
    an alternative compliance system; rather it is a laboratory within
    which we can test new approaches to environmental protection, which if
    successful can be used to change and improve our current system. EPA
    has not believed it needed separate statutory authority to run a pilot
    program of temporary duration (50 projects). Our experience with XL to
    date is that we have been able to test the concepts proposed by project
    sponsors and still remain within our statutory authorities. Using our
    existing statutory framework has important advantages.
      --First, it engages the very staff that wrote the rules that are
            being challenged in thinking about new ways of doing business.
            This is the most effective way to accomplish one of the biggest
            goals of reinvention--cultural change. Clearly, the
            Administrator has established XL and CSI as Agency priorities.
            But it is the rethinking of the traditional approaches as rules
            and policies get developed where cultural change and staff buy-
            in actually happen.
      --Secondly, by conducting pilot projects within the confines of
            existing statutory authorities, it is easier to transfer the
            successful ideas out of the reinvention programs into that
            existing current system in a way that is acceptable to states,
            industry, and stakeholders.
        Finally, EPA agrees that there is a need to better articulate and
    develop incentives for participation of project sponsors in XL.
    However, EPA questions the need for legislation to provide those
    incentives. EPA will actively be exploring ideas on ways to provide
    clear benefits to those who are willing to provide leadership and make
    the investments necessary to pilot change in the way we do business.
          project xl and csi presidential commissions recommendations
        Question. How will EPA see that the recommendations of these
    Presidential Commissions are implemented?
        Answer. EPA is establishing a new Office of Reinvention which will
    be responsible for managing changes to traditional regulatory
    approaches. This new office, under the leadership of an Associate
    Administrator, will be responsible for ensuring follow-up to the many
    policy recommendations from the President's Council on Sustainable
    Development, Presidential/Congressional Commission on Risk Assessment
    and Risk Management, and other groups. Much of the specific follow-up
    work will be done by the line operating programs in the Agency, and it
    will be the job of the Office of Reinvention to provide overall
    direction and coordination across the Agency.

               PROJECT XL AND CSI GLOBAL ENVIRONMENTAL MANAGEMENT

        Question. According to a report by the Global Environmental
    Management Initiative, called ``Industry Incentives for Environmental
    Improvement: Evaluation of U.S. Federal Initiatives,'' EPA's voluntary
    programs have not been terribly effective. GEMI looked at CSI, Project
    XL, the 33-50 program, and the sulfur dioxide emissions trading
    program. With the exception of emissions trading, GEMI found these
    programs ``do not address most of the important problems with the
    pollution control system nor do they appear to contribute significantly
    to improving environmental quality or safety.'' What implications do
    these findings have for Project XL and CSI?
        Answer. Project XL and the Common Sense Initiative (CSI) were
    created in recognition that there are many visions for a future system
    of environmental protection, and that different approaches for
    exploring these visions make sense. EPA did not identify specific
    innovations or outcomes from these reinvention programs, choosing
    instead to allow sponsors and sectors the freedom to suggest their own
    ideas. It was reasoned that industry, along with stakeholders, would
    know where the biggest problems in our current system lie. The GEMI
    report voices a criticism of this approach, advocating that EPA take a
    more aggressive approach in directing these programs.
        In Project XL, there still exists an open invitation for project
    proposals, with specific emphases on innovative technology and
    pollution prevention. EPA has, however, been working with environmental
    policy opinion leaders from states, industry, and environmental NGO's
    to strategically identify the types of XL projects that will help us
    achieve the desired environmental protection system of the future.
        CSI has almost 40 projects in the six participating industrial
    sectors. These projects, which have been identified by the external
    stakeholders, run the gamut from alternative regulatory systems,
    permitting reform, community outreach, and pollution prevention to
    reporting reforms and technical assistance. CSI continues to rely upon
    the external stakeholders on each sector subcommittee to establish
    goals to help direct the efforts of their industrial sector. The CSI
    Council works with the sector subcommittees to assure that the
    individual sector goals support the vision of the Common Sense
    Initiative--cleaner, cheaper, smarter solutions to environmental
    management.
        EPA is confident that individual XL and CSI projects currently
    being implemented and under development do contribute to improving
    environmental quality and safety both by producing superior
    environmental performance and by testing new approaches to
    environmental protection.

                         PROJECT XL AND CSI GEMI REPORT

        Question. GEMI said ``It is difficult to make any non-statutory
    program work'' and, ``there is no short-cut, no way around the
    difficult task of trying to legislate a better system.'' Has the report
    influenced your views as to the need to legislate an alternative
    compliance system?
        Answer. GEMI's critique stated that successful reinvention programs
    had common characteristics of clear goals developed with input from
    direct participants, the provision of significant flexibility in how to
    achieve set ends, and trust among participants. They go on to state
    that without statutory provisions, initiatives take a lower priority,
    and require consensus-based decisions to be effective. GEMI suggests
    that having statutory authority would remedy the lack of these
    characteristics in XL and CSI, and would overcome the weak incentives
    and risks of litigation of these two reinvention initiatives.
        EPA disagrees that legislative action would serve to remedy the
    majority of criticisms that have been directed at Project XL or CSI.
    These criticisms not easily resolved by legislation. Most suggestions
    can be implemented without legislation and some may evolve and change
    as our learning in these areas expands. While the characteristics of
    clear, shared goals, flexibility to achieve set ends, and trust are
    important if reinvention programs are to be successful, legislation is
    not required to accomplish any of those criteria.
        Both XL and CSI are undergoing substantial efforts currently to
    redefine program objectives and goals, with substantial input from
    stakeholders of all types. As these dialogues continue, a greater level
    of support and an understanding of the expected outcomes of these
    programs is developing. This is an ongoing, dynamic process; one that
    is necessary at the program level regardless of statutory authority.
    EPA has found there is substantial room for flexibility within the
    existing framework of our legal authorities.
        It is important to recognize that Project XL is not intended to be
    an alternative compliance system; rather it is a laboratory within
    which we can test new approaches to environmental protection, which if
    successful can be used to change and improve our current system. EPA
    has not believed it needed separate statutory authority to run a pilot
    program of temporary duration (50 projects). Our experience with XL to
    date is that we have been able to test the concepts proposed by project
    sponsors and still remain within our statutory authorities. Using our
    existing statutory framework has important advantages.
      --First, it engages the very staff that wrote the rules that are
            being challenged in thinking about new ways of doing business.
            This is the most effective way to accomplish one of the biggest
            goals of reinvention--cultural change. Clearly, the
            Administrator has established XL and CSI as Agency priorities.
            But it is the rethinking of the traditional approaches as rules
            and policies get developed where cultural change and staff buy-
            in actually happen.
      --Secondly, by conducting pilot projects within the confines of
            existing statutory authorities, it is easier to transfer the
            successful ideas out of the reinvention programs into that
            existing current system in a way that is acceptable to states,
            industry, and stakeholders.
        Finally, EPA agrees that there is a need to better articulate and
    develop incentives for participation of project sponsors in XL.
    However, EPA questions the need for legislation to provide those
    incentives. EPA will actively be exploring ideas on ways to provide
    clear benefits to those who are willing to provide leadership and make
    the investments necessary to pilot change in the way we do business.

                             STATUTORY INTEGRATION

        Question. About two years ago, this Committee directed EPA to
    examine options for better integrating its statutory authorities. In
    response, EPA established a team to explore options for bringing about
    integration. Yet following the establishment of the Enterprise for the
    Environment Initiative, EPA decided ``E4E'' would serve as the vehicle
    for fulfilling this Committee's request for analysis of statutory
    integration. This is not what we intended. When will EPA report to the
    Committee on the findings of its statutory integration task force?
        Answer. The rationale for having E4E serve as the vehicle for
    fulfilling the Committee's request on statutory integration was that it
    will be more fruitful to discuss integration of authorities in the
    broader context of policy changes being considered by E4E, rather than
    have EPA's work on statutory integration stand in isolation from, or
    appear to be in competition with, E4E's related work. To do otherwise
    would run counter to the Committee's request that the Agency coordinate
    with and provide support to E4E, in addition to using it for additional
    stakeholder input on improving our programs and authorities. We would
    be happy to brief Committee staff on our work on statutory integration,
    either before release of the final E4E report, or after Committee staff
    have reviewed the E4E product.

                                 GREEN PROGRAMS

        Question. EPA's budget request includes a 73 percent increase for
    the Climate Change Action Plan--the so-called ``green programs''--for a
    total of $149 million. The Green Lights program would more than double
    to $52 million. The Green Lights program has been in existence for
    about 6 years and there are now over 2,300 partners. The purpose of the
    program is to promote the use of energy efficient lighting
    technologies. At what point will EPA begin proposing a phase out of
    this program due to ``market saturation''?
        Answer. The current budget cuts have limited the Agency's ability
    to achieve its goal of overcoming the barriers in the marketplace that
    will allow the markets themselves to provide greater energy efficiency
    and reduce pollution. Because the funding cuts are hindering EPA in its
    ability to achieve these market transformation goals, the cuts are also
    postponing the point at which EPA will be able to reduce funding for
    the programs. The timing of phasing out of all CCAP programs, including
    Green Lights, will depend in large part on whether or not full funding
    levels are restored in the near term.
        The Green Lights program has been extremely successful at
    increasing energy savings and pollution prevention, in spite of reduced
    funding. The attached chart shows the rapid increase in annual
    pollution prevention from the program over time. These program results
    are based on detailed reporting from partners on completed projects. As
    can be seen in the chart, the program is gaining momentum as its
    pollution prevention achievements climb rapidly. This is because, even
    though the program is successful, there remains a large untapped
    potential. The 6 billion square feet of floorspace owned by the
    program's 2,300 partners represents only 7 percent of total U.S.
    commercial and industrial floorspace. Although partners are already
    preventing over 5 billion pounds of carbon dioxide emissions every
    year, significant opportunity remains.
        In addition, EPA's commitment does not end with recruiting
    partners. In fact, that is just the beginning of affecting real change.
    In the Memorandum of Understanding between EPA and its partners, the
    Agency agrees to provide technical support as the partners fulfill
    their commitments within 5 years of signing. The Agency considers its
    growing reputation as a dependable source of unbiased information to be
    an essential component of the program's current and future success.
        EPA is currently tracking energy efficient lighting product markets
    to assist with overall monitoring and evaluation of the Green Lights
    program. The Agency is developing a plan to identify criteria by which
    decisions can be made for determining the proper exit strategy from the
    market. This is consistent with recommendations in a 1997 Office of the
    Inspector General (OIG) report.\1\ For the CCAP partnership programs
    that were evaluated, the OIG found that the Agency was demonstrating
    ``good management practices,'' including good planning, progress
    evaluation, and program adjustment (p. 11). The OIG also recommended
    that management develop plans for evaluating market transformation and
    determining when resources should be reduced for individual programs
    (p. 31).
    ---------------------------------------------------------------------------
        \1\ EPA Office of the Inspector General, ``Risk Reduction Through
    Voluntary Programs,'' Audit Report No. E1KAF6-05-0080-7100130, 3/19/97.
    ---------------------------------------------------------------------------
        It should be noted that a significant portion of the increased
    funding (i.e., the referenced $52 million) is targeted for the Energy
    Star Buildings program (CCAP Action # 1). Launched in 1995, this
    important program builds on the success the Green Lights program has
    had in developing solid partnerships and establishing EPA's credibility
    within the private sector. Beyond lighting, the Energy Star Buildings
    program engages partners in a more aggressive and challenging agreement
    to improve total energy performance throughout buildings. This can
    provide significant pollution prevention benefits. In fact, the energy
    used in U.S. commercial and industrial buildings is responsible for as
    much carbon dioxide emissions as all of the cars, light trucks, jeeps,
    and minivans in the U.S. today. Energy Star Buildings partners can
    cost-effectively eliminate about one-third of their energy use and
    pollution.
        Providing full funding of the CCAP at this time will allow the
    buildings programs to expand their partnerships in line with original
    expectations. With the additional funding, the Green Lights and Energy
    Star Buildings programs will (1) increase recruiting by 100 percent
    (focussing on a broader range of sector specific opportunities), (2)
    enhance customer support by 100 percent for existing partners so that
    they can perform better upgrades more quickly, (3) enhance outreach on
    the environmental and economic benefits of improved building
    technologies, (4) provide technical information on a broader set of
    newer technologies of interest to State and Local governments such as
    high efficiency traffic signals, (5) complete more comprehensive
    program evaluation efforts, and (6) develop the foundations for
    including the design and construction of new commercial buildings
    within the programs.
        Question. What is the long-term strategy for the green programs?
        Answer. Over 2,500 of the world's best climate scientists recently
    concluded that the threat of global warming must be taken seriously.
    More than 2,400 economists endorse the U.S. taking action to slow
    climate change.
      --The Intergovernmental Panel on Climate Change (IPCC), drawing on
            the work of more than 2,500 scientists, concluded in 1995 that
            global temperatures are expected to rise 2 to 6 degrees
            Fahrenheit in the next century, and that ``the balance of the
            evidence suggests a discernible human influence on global
            climate'' that is already apparent.
      --The IPCC concluded that greenhouse gas emissions can be reduced by
            as much as 30 percent from anticipated future levels by more
            fully using cost-effective technologies.
      --More than 2,400 economists (including eight Nobel prize winners)
            agreed, saying in a statement this year that: ``There are many
            potential policies to reduce greenhouse gas emissions for which
            the total benefits outweigh the total costs.'' These measures,
            they said, ``would slow climate change without harming American
            living standards'' and ``may, in fact, improve U.S.
            productivity in the longer run.'' (Statement attached).
        The recent scientific evidence and the endorsement by over 2,400
    economists that many cost-effective policies exist to reduce greenhouse
    gasses makes fully funding the Climate Change Action Plan programs more
    compelling than ever before because, the CCAP programs are beginning to
    do precisely what these experts call for. By providing information,
    helping establish markets for new technologies, and promoting new
    arrangements for private financing, the CCAP programs are accelerating
    the adoption of this money-saving and pollution-preventing technology
    by large and small American businesses, schools, hospitals and other
    non-profits, and homeowners and consumers.
        Recent research at leading centers for economic research
    demonstrates that these programs are highly effective. In 1996, a study
    by Resources for the Future concluded that, in addition to prices, the
    Green Lights program makes a ``significant contribution to the
    diffusion of high efficiency lighting in commercial office buildings *
    * *.'' \2\ Also in 1996, a study by Stephen DeCanio of the Department
    of Economics at the University of California at Santa Barbara concluded
    that: ``By speeding the dissemination of information about energy-
    saving technologies, programs such as Green Lights can offer win-win
    benefits to taxpayers, consumers, and shareholders.'' \3\ Nevertheless,
    the programs are being restrained by funding cuts that have limited
    their effectiveness.
    ---------------------------------------------------------------------------
        \2\ Morgenstern, Resources for the Future, ``Does the Provision of
    Free Technical Information Really Influence Firm Behavior? '' 5/96.
        \3\ DeCanio and Watkins, UCSB Department of Economics, ``Investment
    in Energy Efficiency: Do the Characteristics of Firms Matter? '' 7/96.
    ---------------------------------------------------------------------------
        Rapid deployment of this energy-efficiency technology will be even
    more critical in the future. The U.S. and many other countries will
    meet in December 1997 to discuss the next phase of actions under the
    Framework Convention on Climate Change. Reflecting the recent
    scientific evidence on climate change risks, and because current non-
    binding approaches under the Convention are not working to fully
    accomplish their goals, more than 100 nations agreed last year that the
    new agreement should move from non-binding emissions goals to legally-
    binding emissions targets. The U.S. position is that binding emissions
    obligations must be set at realistic and achievable levels, with
    adequate lead time and flexible implementation tools (emissions
    budgets, banking and borrowing, international emissions trading, and
    joint implementation). The U.S. position also includes commitments by
    developing nations, culminating in binding emissions targets for all
    nations.
        If binding emissions targets are adopted in December 1997, rapid
    deployment of the currently available, money-saving technology to
    produce and use energy more efficiently will be more important than
    ever. It will be one of the keys to meeting these targets at the lowest
    possible cost for the private sector and the U.S. economy as a whole.
        Restoring Climate Change Action Plan funding to the President's
    request will allow EPA to fully implement its programs to achieve the
    highest possible rate of adoption of these technologies by American
    firms, non-profit institutions, and individual consumers. But if
    funding for the CCAP programs remains at reduced levels, many of these
    technologies will remain on the shelf or be adopted by only a fraction
    of the potential users. Consumers energy bills and other costs will be
    unnecessarily high. The productivity and competitive position of U.S.
    businesses will suffer. Americans will lose far more as investors,
    employees, and consumers than these programs cost.

    [GRAPHIC] [TIFF OMITTED] T05AP08.022

                                  ENFORCEMENT

        Question. Despite all the rhetoric about the supposed inadequacy of
    EPA's enforcement budget in fiscal year 1996, in the operating plan EPA
    actually proposed reprogramming $4 million out of the fiscal year 1996
    enforcement budget. Why did EPA cut enforcement? Couldn`t the carryover
    have been reprogrammed into other enforcement activities?
        Answer. In fiscal year 1996 EPA did not cut Enforcement. The
    resource levels provided in the original fiscal year 1996 Operating
    Plan fully funded projected Enforcement FTE. The hiring, promotion and
    bonus freezes, implemented during the fiscal year 1996 appropriation
    process, held on-board levels and personnel compensation and benefits
    costs below levels projected in the Operating Plan. The Enforcement
    program is especially sensitive to these personnel factors given that
    almost 75 percent of the program's budget within the Environmental
    Programs and Management appropriation is payroll.
        Once the freezes were lifted, the Enforcement program began to hire
    additional personnel in areas such as criminal investigation and data
    systems support. However despite this activity, actual on-board levels
    remained below levels provided in the fiscal year 1996 Operating Plan.
        However, in fiscal year 1997 the Agency fully funded the Enacted
    Operating Plan level of Enforcement FTE. Despite the many uncertainties
    faced in the previous year, the Enforcement program was able to
    accomplish its goals and objectives in fiscal year 1996 without the
    reprogramming of carryover funds.

                    ENFORCEMENT: RECORD ENFORCEMENT ACTIONS

        Question. According to a February press release, EPA had a record
    number of criminal enforcement actions in 1996, despite claiming that
    the ``environmental cop was off the beat.'' How did EPA manage to have
    record numbers of criminal enforcement actions in fiscal year 1996?
        Answer. During fiscal year 1996, EPA was subject to a series of
    continuing resolutions which placed the Agency under spending and
    hiring restrictions for approximately seven months, including several
    weeks in which the Agency was shutdown. During this time, EPA's
    criminal program continued to carry out its enforcement
    responsibilities. Criminal investigators were ``essential'' employees
    under the furlough and resources were provided for basic program
    operations throughout the continuing resolutions. However, efforts to
    open new criminal cases were limited by available travel resources. The
    program focused primarily on cases already in the criminal enforcement
    pipeline, in which ``front-end'' investigative activities were
    completed in prior years. EPA brought many of these cases to closure in
    fiscal year 1996, allowing the Agency to report record numbers of
    criminal enforcement actions despite the budget circumstances.
        However, EPA staff who work in civil enforcement were more directly
    affected by the fiscal year 1996 budget situation. Staff who normally
    interact with states on enforcement issues, conduct inspections,
    administrative actions, and develop civil referrals, were not able to
    carry out their work during the furlough and their activities were
    significantly disrupted under the continuing resolutions.

                   ENFORCEMENT: COMPLIANCE ASSISTANCE PROGRAM

        Question. While EPA's overall EPM enforcement budget would increase
    7 percent to $237 million, there is no increase requested for
    compliance assistance. According to Agency documents:
        The enforcement program recognizes that most businesses and
    regulated facilities want to comply with the law. Often, however, they
    need help with understanding environmental requirements and coming into
    compliance with them. This is particularly true of small businesses.
    The enforcement program's compliance assistance program helps the
    regulated community to understand and come into compliance with the
    law.
        Why is there no increase in the relatively modest ($20 million)
    compliance assistance program?
        Answer. In 1998 the Agency's enforcement program will continue to
    conduct a broad spectrum of outreach and technical assistance to the
    regulated community in concert with the States. By 1998 the ground work
    for the Enforcement's Compliance Assistance Program, such as policy and
    strategy development, will have been completed and the program will
    direct resources at implementation. Also, states are increasingly
    providing compliance assistance. All 50 states have a Clean Air Act
    State Small Business Assistance Program and many are now expanding into
    other media. The Enforcement program is investing additional resources
    in 1998 in helping the states develop their compliance assistance
    programs.
        By 1998 the Agency will have Compliance Assistance Centers up and
    running for eight industry sectors. The goal is for these centers to be
    self-sufficient.
        The compliance assistance tools that the Agency is developing for
    use by the industry sectors are building upon themselves. EPA is able
    to apply lessons learned in developing tools for one sector to another
    sector, producing cost savings. The Agency's approach is to complete
    work on a set of sectors before moving onto the next thereby
    efficiently utilizing the Agency's resources.

                          ENFORCEMENT: SBREFA FUNDING

        Question. What specifically is requested for the additional
    requirements associated with the Small Business Regulatory Enforcement
    Fairness Act?
        Answer. To support the requirements of SBREFA, the fiscal year 1998
    Budget requests three workyears and two hundred thousand dollars for
    the Office of Policy, Planning and Evaluation (OPPE).
        OPPE projects that there will be fifteen SBREFA panel processes in
    fiscal year 1998, which will require approximately 20 FTE in agency
    personnel and $125,000 in travel and $150,000 in contract support of
    panel requirements.

                                     NAAQS

        Question. Last November EPA proposed new standards for ozone and
    fine particles which are highly controversial. Recent press reports
    have stated that there were deep divisions with the administration over
    EPA's proposal. According to one account, OSTP Director Jack Gibbons
    called on EPA to delay its ozone proposal, saying EPA should look more
    closely at the health benefits from improving compliance with the
    current standard. In addition, staff memos at the Council of Economic
    Advisors said ``the incremental health risk reduction for more
    stringent standards is small, while the cost are high.'' Treasury
    Department staff challenged the health benefits. And the Small Business
    Administration urged EPA to follow the requirements of the Small
    Business Regulatory Enforcement Fairness Act.
        Ms. Browner, why did EPA seemingly ignore these significant
    concerns from within your own administration? Do you have plans to
    address other agencies concerns about the costs and benefits?
        Answer. The Clean Air Act requires that EPA establish ambient
    standards based on selecting a level that protects the public health
    with an adequate margin of safety. While preparation of a regulatory
    impact analysis that includes an estimate of the costs and benefits
    associated with the proposed standards is part of the review process,
    these costs cannot be considered in the final decision on what the
    standard should be. EPA's decision is to be based solely on protection
    of public health.
        In addition, as we move forward on responding to the comments
    received on the proposed standards and developing final standards, EPA
    is working with all of the other Departments and Agencies to address
    their issues and concerns. There are weekly meetings of an Interagency
    technical staff work group and of a higher level Interagency policy
    work group to have regular discussion of these issues. This process
    will continue through until the final standards are issued.
        Finally, although the Agency disagrees with the SBA's
    interpretation of SBREFA, we are voluntarily complying with all
    procedures for consultation with small businesses.

                           NAAQS SBREFA REQUIREMENTS

        Question. When does EPA plan to comply with the SBREFA
    requirements, which called for consultation with small businesses on
    the costs of the regulation, prior to the proposal of major rules?
        Answer. As you know, SBREFA amended the Regulatory Flexibility Act
    (RFA) to add a requirement that EPA convene a Small Business Advocacy
    Review Panel for any rule that requires preparation of an initial
    regulatory flexibility analysis (IRFA) under section 603 of the RFA. As
    explained further below, EPA did not convene a panel because EPA
    determined that an IRFA is not required for rules like the NAAQS that
    do not apply to small businesses or other small entities. As the RFA's
    ``Findings and Purposes'' section (Public Law 96-354 section 2) makes
    clear, Congress enacted the RFA in 1980 out of concern that agencies
    were writing one-size-fits-all regulations that, in fact, did not fit
    the size and resources of small entities or their relative contribution
    to the problem being addressed. To change this practice, Congress
    required agencies, when developing a rule, to focus on the small
    entities that would have to comply with the rule's requirements and
    consider ways of easing or even waiving those requirements as they
    would apply to small entities. That purpose cannot be served in the
    case of rules like the NAAQS that do not have requirements that apply
    to small entities.
        As a rulemaking subject to notice-and-comment rulemaking
    requirements, the NAAQS proposals are subject to the RFA. The RFA
    requires that an agency prepare an IRFA describing ``the impact of the
    proposed rule on small entities,'' unless the agency certifies that the
    rule ``will not, if promulgated, have a significant economic impact on
    a substantial number of small entities'' (RFA sections 603(a) and
    605(b)).
        At the heart of whether EPA was required to convene a panel prior
    to proposing the NAAQS is the question of what ``impact'' an agency
    must assess for an IRFA or a certification. Is an agency supposed to
    assess a rule's impact on the small entities that will have to comply
    with the rule, or the rule's impact on small entities in general,
    whether or not they will be subject to the rule? In the NAAQS case, the
    question arises because of the Congressionally-designed mixture of
    Federal and State responsibilities in setting and implementing the
    NAAQS.
        NAAQS rules establish air quality performance standards that States
    decide how to meet. Under section 110 of the Clean Air Act (CAA), every
    State develops a State implementation plan (SIP) containing the control
    measures that will achieve the NAAQS. States have broad discretion in
    the choice of control measures. In short, it is State rules, not the
    NAAQS themselves, that may establish control requirements applicable to
    small entities, depending on each State's strategy for meeting the
    NAAQS. See Virginia v. EPA, No. 95-1163, slip op. at 20 (D.C.Cir. March
    11, 1997), quoting Union Electric v. EPA, 427 U.S. 246, 269 (1976)
    (``section 110 left to the states `the power to determine which sources
    would be burdened by regulations and to what extent' '').
        To properly interpret ``impact'' under the RFA, EPA looked at the
    RFA's stated purpose, its requirements for regulatory flexibility
    analyses, its legislative history, the amendments made by SBREFA, and
    case law. All of these traditional tools of statutory construction
    point in one direction--that an agency need only assess the impact of a
    rule on the small entities that will be subject to the rule's
    requirements, because the purpose of a regulatory flexibility analysis
    is to identify what rule requirements will apply to what kinds of small
    entities and how those requirements may be eased or even waived for
    small entities, consistent with the objectives of the statute
    authorizing the rule. Since NAAQS rules do not establish requirements
    that apply to small entities, they cannot be eased or waived as they
    apply to small entities. They thus do not impose the kind of ``impact''
    that the RFA was intended to address.
        This interpretation of ``impact'' flows from the express purpose of
    the RFA itself. In the ``Findings'' section of the 1980 law enacting
    the RFA, Congress expressed concern that agencies were writing rules
    with big businesses in mind, but applying those rules uniformly to big
    and small businesses (Public Law 96-354, section 2(a)). Congress noted
    that it is generally easier for big businesses (and governments) to
    comply with regulations, and that small businesses are, therefore, at a
    competitive disadvantage in complying with one-size-fits-all rules.
    Congress also noted that small entities' relative contribution to the
    problem a rule is supposed to solve may not warrant applying the same
    requirements to large and small entities alike. In the RFA itself,
    Congress therefore stated:
        ``It is the purpose of this Act to establish as a principle of
    regulatory issuance that agencies shall endeavor, consistent with the
    objectives of the rule and of applicable statutes, to fit regulatory
    and informational requirements to the scale of the businesses,
    organizations, and governmental jurisdictions subject to regulation.
    [Public Law 96-354, section 2(b).]''
        The RFA sections governing initial and final regulatory flexibility
    analyses reflect this statement of purpose. RFA sections 603 and 604
    require that initial and final regulatory flexibility analyses identify
    the types and estimate the numbers of small entities ``to which the
    proposed rule will apply'' (sections 603(b)(3) and 604(a)(3)).
    Similarly, they require a description of the ``projected reporting,
    record keeping and other compliance requirements of the proposed rule,
    including an estimate of the classes of small entities which will be
    subject to the requirement'' (sections 603(b)(4) and 604(a)(4)). At the
    heart of the analyses is the requirement that agencies identify and
    consider ``significant regulatory alternatives'' that would
    ``accomplish the stated objectives of applicable statutes and which
    minimize any significant economic impact of the proposed rule on small
    entities'' (sections 603(c) and 604(a)(5)). Among the types of
    alternatives agencies are to consider are the establishment of
    different ``compliance or reporting requirements or timetables'' for
    small entities and exempting small entities ``from coverage of the
    rule, or any part'' of the rule (section 603(c)(1) and (4)). Regulatory
    flexibility analyses are thus to focus on how to minimize rule
    requirements on small entities.
        Since finding that a rule will not have ``a significant economic
    impact on a substantial number of small entities'' exempts a rule from
    the requirement for regulatory flexibility analyses, it makes sense to
    interpret ``impact'' in light of that requirement. As described above,
    regulatory flexibility analyses are to assess how a rule will apply to
    small entities and how its requirements may be minimized with respect
    to small entities. In this context, ``impact'' is appropriately
    interpreted to mean the impact of a rule on the small entities subject
    to the rule's requirements.
        The Federal courts have so held. In 1986, the United States Court
    of Appeals for the D.C. Circuit ``conducted an extensive analysis of
    the RFA provisions governing when a regulatory flexibility analysis is
    required and concluded that no analysis is necessary when an agency
    determines `that the rule will not have a significant economic impact
    on a substantial number of small entities that are subject to the
    requirements of the rule' '' United Distribution Companies v. FERC, 88
    F.3d 1105, 1170 (D.C. Cir. 1996) (citing and quoting Mid-Tex Elec. Co-
    op v. FERC, 773 F.2d 327, 342 (D.C. Cir. 1985) (emphasis added by
    United Distribution court)). The Mid-Tex petitioners had claimed that
    the RFA is intended to apply to all rules that affect small entities,
    whether the small entities are directly regulated or not. After
    reviewing the requirements for regulatory flexibility analyses, the
    Mid-Tex court concluded that ``The relevant `economic impact' was the
    impact of compliance with the proposed rule on regulated small
    entities. Reading section 605 [the provision exempting a rule from the
    regulatory flexibility analysis requirement if the agency certifies the
    rule will have no significant economic impact on a substantial number
    of small entities] in light of section 603 [the provision governing
    initial regulatory flexibility analyses], we conclude that an agency
    may properly certify * * * when it determines that the rule will not
    have a significant economic impact on a substantial number of small
    entities that are subject to the requirements of the rule.'' Mid-Tex,,
    773 F.2d at 342.''
        Congress let this interpretation stand when it recently amended the
    RFA in enacting SBREFA. If it had disagreed with the court's decision
    it would have revised the relevant statutory provisions or otherwise
    indicated its disagreement when it enacted SBREFA. Since SBREFA's
    passage, the United Distribution court has reaffirmed the Mid-Tex
    court's interpretation.
        In fact, SBREFA reinforces the conclusion that the RFA is aimed at
    rules that establish requirements that small entities must meet.
    Section 212(a) of SBREFA requires that an agency issue a ``small entity
    compliance guide'' for ``each rule * * * for which an agency is
    required to prepare a final regulatory flexibility analysis under
    section 604'' of the RFA. The guide is ``to assist small entities in
    complying with the rule'' by ``explain[ing] the actions a small entity
    is required to take to comply'' with the rule (SBREFA section 212(a)).
    Obviously, it makes no sense to prepare a small entity compliance guide
    for a rule that does not apply to small entities, so SBREFA stands as
    further confirmation that regulatory flexibility analyses are intended
    to address rules that establish requirements small entities must meet.
        Given the Federal/State partnership for attaining healthy air, the
    proposed NAAQS, if adopted, will not establish any requirements
    applicable to small entities. Instead, any new or revised standards
    will establish levels of air quality that States will achieve by
    adopting plans containing specific control measures for that purpose.
    NAAQS rulemakings are thus not susceptible to regulatory flexibility
    analysis as prescribed by the amended RFA. They establish no
    requirements applicable to small entities, and thus afford no
    opportunity for EPA to fashion for small entities less burdensome
    compliance or reporting requirements or timetables or exemptions from
    all or part of the rules. Moreover, since NAAQS are not applicable to
    small entities, there would be no point in issuing small entity
    compliance guides under SBREFA for them. For these reasons, EPA
    appropriately certified that the ozone and PM NAAQS rulemaking actions
    will not, if promulgated, have a significant economic impact on a
    substantial number of small entities within the meaning of the RFA.
    Since the Agency certified the proposals, it was not required to
    convene a panel for them.
        At the same time, EPA recognizes that the proposed NAAQS standards,
    if promulgated, would begin a process of State implementation that
    could eventually lead to small entities having to comply with new or
    different control measures, depending on the implementation plans
    developed by the States. Under these circumstances, EPA believes that
    the best way to take account of small entity concerns regarding any new
    or revised NAAQS is to work with small entity representatives and
    States to provide information and guidance on how States can address
    small entity concerns when they write their implementation plans. This
    approach is sensible and appropriate given that the Clean Air Act does
    not allow EPA to dictate how States must regulate to attain any new or
    revised NAAQS.
        In line with this approach, as part of the Regulatory Impact
    Analyses it prepared for the proposed NAAQS, EPA analyzed how State
    plans for implementing the proposed standards might affect small
    entities. The analyses were necessarily general and speculative, since
    they depended on projections about what States might do several years
    in the future. Nevertheless, they provide as much insight as possible
    at this point in the NAAQS process.
        The Agency also took steps to ensure that small entities' voices
    are heard and considered in the NAAQS rulemakings themselves. With Jere
    Glover, Chief Counsel for Advocacy of the Small Business Administration
    (SBA), we convened outreach meetings modeled on the SBREFA panel
    process to solicit and convey small entities' concerns with the
    proposed NAAQS. Two meetings were held as part of this process, on
    January 7 and February 28, with a total attendance of 41
    representatives of small businesses, small governments, and small
    nonprofit organizations. Both meetings were attended by representatives
    of SBA and the Office of Management and Budget (OMB), as well as EPA
    staff. A report will be produced based on these meetings to ensure that
    small entity concerns are part of the rulemaking record when the Agency
    makes its final decision on the proposals.
        In light of States' pivotal role in NAAQS implementation, EPA is
    also undertaking a number of additional activities to guide, assist and
    encourage the States to be sensitive to small-entity impacts as they
    implement any new or revised NAAQS. With the Small Business
    Administration, EPA is conducting interagency panels to collect advice
    and recommendations from small-entity representatives on how states
    could lessen the impacts on small entities. If it promulgates new or
    revised NAAQS, EPA will issue materials in two phases to help States
    develop their implementation plans. In view of States' discretion in
    implementing the NAAQS, these materials will mostly take the form of
    guidance, which is not subject to the RFA. But regardless of the form
    such materials might take, we intend to employ panel procedures before
    issuing them for public comment. These procedures will include the
    following steps: assessing to the extent possible any potential impact
    on small entities of NAAQS implementation by the States; conducting
    small-entity outreach on those issues; preparing an interagency panel
    report on small entities' concerns and recommendations with respect to
    implementation issues; and completing an analysis of any potential
    small entity impacts in light of the panel report. The Agency will then
    consider whether to change the materials in light of the report.
        To supplement the input we receive from the aforementioned panel
    process, EPA is augmenting its Federal Advisory Committee Act (FACA)
    process to add more small-entity representatives to the subcommittee on
    NAAQS implementation. These representatives have formed a small-entity
    caucus to develop and bring to the subcommittee a focused approach to
    small-entity issues. These new subcommittee members are also part of
    the larger group involved in the aforementioned panel process, and we
    are encouraging them to work together to share the views of the larger
    group with the FACA subcommittee. In this way, EPA hopes to promote the
    consideration of small entity concerns and advice throughout the NAAQS
    implementation process.

                              NAAQS CASAC CONCERNS

        Question. I understand that EPA's Clean Air Scientific Advisory
    Committee is urging EPA to revamp its particulate research strategy,
    including putting resources into the issue of whether there is a link
    between exposure to fine particles and premature mortality. CASAC
    believes EPA's research budget request of $26 million is inadequate.
    What are you doing to address CASAC's concerns?
        Answer. The Clean Air Scientific Advisory Committee (CASAC)
    reviewed two draft documents, ``Particulate Matter Research Needs for
    Human Health Risk Assessment'' and ``Particulate Matter Research
    Program Strategy'' at a public meeting on November 18 and 19, 1996.
    During this meeting a number of constructive comments were provided by
    individual CASAC members, and on March 12, 1997 a letter providing
    CASAC summary comments was provided to the Administrator. In some areas
    the CASAC provided general comments (e.g., use of the risk assessment
    framework to identify and prioritize research and allocate resources to
    the effort; research resources are insufficient), and in other areas
    there was a consensus on specific research priorities (e.g., that
    epidemiological research on links between long-term exposure to
    particulate matter (PM) and life shortening and other long-term health
    effects was among the highest priorities). Beyond a consensus view in
    these few areas, however, the opinions of the members varied and the
    committee did not achieve a consensus on an overall set of priorities.
        The PM research strategy is being revised to incorporate
    suggestions provided by CASAC regarding general structural,
    presentation, and context issues. The comments of individual members
    will be carefully considered and revisions will be made where
    appropriate to reflect the many constructive suggestions. More
    importantly, the core issue of the document is the prioritization of
    research issues and, in the final document, the Agency will incorporate
    the consensus recommendations of CASAC regarding highest priority
    research areas. Specifically, the Environmental Protection Agency (EPA)
    will emphasize: (1) research to elucidate mechanisms of PM-associated
    mortality and morbidity to determine the biological plausibility of
    effects associated with PM exposures; (2) epidemiological research on
    links between long-term exposure to PM and life shortening and other
    long-term health effects; (3) research to examine linkages between
    health effects and personal exposures to physical-chemical subclasses
    of PM; (4) research to refine our understanding of exposure-dose-
    effects relationships to particles, alone and in combination with other
    air pollutants; and (5) research to provide a better understanding of
    personal exposure to PM, especially of individuals thought to be most
    susceptible. All these areas were identified in the draft research
    strategy, and EPA's research program in these and other areas will
    provide a solid basis for the next National Ambient Air Quality
    Standards review. Research also will be conducted in other areas, such
    as the development of a Federal Reference Method, consistent with the
    need to improve the scientific and technical basis for implementation
    of PM standards.
        Regarding CASAC comments on the level of resources allocated to PM
    research, the ORD Strategic Plan identifies PM as one of six highest
    priority research areas, clearly underscoring the importance the Agency
    places on PM research. The fiscal year 1998 PM total President's Budget
    request represents an increase of between 200 and 300 percent above the
    fiscal year 1995 PM resources. With the requested fiscal year 1998
    resources EPA is in a position to make substantial headway in
    addressing critical PM research issues in the next several years, and
    the fiscal year 1998 request is consistent with the need to conduct PM
    research.
        The Agency cannot and does not expect to attack this problem alone.
    We are working with other Federal agencies (such as, the National
    Oceanic and Atmospheric Administration, etc.) through the Committee on
    Environmental and Natural Resources, the private sector (through our
    cooperative ventures with the Health Effects Institute and outreach to
    industry), and with other countries, such as Canada, the Netherlands,
    and other European countries, all of whom have begun to take this
    important problem into consideration under new regulations and
    guidelines, and have increased their research. With this multi-
    participant approach and its own strong research program, EPA can
    provide a leadership role to ensure that critical research needs are
    met.

                 COMMUNITY RIGHT-TO-KNOW--KALAMAZOO INITIATIVE

        Question. EPA is proposing $35 million for a new ``right-to-know''
    initiative. How is this initiative different from the existing Toxics
    Release Inventory program?
        Answer. The Environmental Monitoring for Public Access and
    Community Tracking (EMPACT) program will provide at least 75 of the
    largest metropolitan areas (by population) in the U.S. with access to
    information regarding local environmental characteristics and relevant
    scientific and technical tools to understand and interpret the
    information. EMPACT is a program founded on collaboration across the
    Environmental Protection Agency (EPA) Program Offices and Regions, as
    well as with the United States Geological Survey (USGS) and the
    National Oceanic and Atmospheric Administration (NOAA) (partner EMPACT
    agencies). EMPACT will: incorporate improved and updated technology
    solutions for real- or relevant-time environmental measurement and
    monitoring; ensure that the information is useful and timely for
    families and communities; facilitate easy public access to
    comprehensive environmental data; and provide effective tools for
    communicating and interpreting environmental data. The Toxics Release
    Inventory (TRI) program is a national data base identifying facilities,
    chemicals manufactured and used at those facilities and the annual
    accidental and routine releases of these materials. TRI data will be
    included in the collections of information provided to EMPACT
    communities.
        Question. What type of information will be made available through
    this new program and how will it be made available?
        Answer. There are two distinct tracks for providing information
    through EMPACT. One track is the delivery of existing environmental
    monitoring information. Currently, the public is presented with a
    myriad of conflicting information that is of questionable quality and
    clarity and typically dated. The first track of EMPACT will provide the
    EMPACT cities with the best available data from USGS, NOAA (partner
    agencies in EMPACT) and EPA. Existing, easily understood information
    will be disseminated through the Internet. This track will gradually be
    phased out, to be replaced with a second track. At this point, EMPACT
    agencies will work with communities to identify opportunities to
    upgrade existing monitoring and data collection activities and provide
    the information in a format that is easily understood. This will result
    in the widespread use of real-time measurement and communication
    technologies. The experience gained by the EMPACT cities will be
    leveraged for the development of a framework that will enable the
    transfer of these technologies to other interested cities and
    communities.
        Question. To what extent has EPA consulted with citizens to assess
    the type of information which would be useful?
        Answer. During these early planning stages of EMPACT, EPA has
    relied on information provided by the Regions relevant to the types of
    information that would be useful to the 75 candidate cities. There is
    currently under development a formal plan that outlines an approach for
    interactions with the citizens, cities and states. The plan will
    facilitate consultation with citizens to assess the type of information
    which would be useful and desirable.
        Question. How will the areas be selected?
        Answer. The 75 metropolitan areas have been identified on the basis
    of population (source: Census Bureau). In addition, we are exploring
    metropolitan areas that are not represented by the top 75 cities.
        Question. How will you ensure that the information which is
    provided in a context to make it relevant and meaningful?
        Answer. A number of partners will be engaged to accomplish the goal
    of providing information in a context that is relevant and meaningful.
    EMPACT is currently reviewing options for collaborations with the
    private sector, focus groups in communities and non-profit
    participation.

                                urban livability

        QUESTION. IN THE FISCAL YEAR 1997 BUDGET, EPA PROPOSED A NEW
    initiative called ``Sustainable Development Challenge Grants,'' for
    which $5 million was appropriated. EPA has requested $15 million in
    fiscal year 1998. According to agency material on the program, these
    grants ``will be catalysts that challenge communities to invest in a
    sustainable future, recognizing that sustainable environmental quality,
    economic prosperity, and social equity are inextricably linked.'' What
    has been accomplished to date with this program?
        Answer. In fiscal year 1996, EPA received over 600 proposals.
    Approximately 75 percent of the proposals had an urban focus, 25
    percent rural. To date seven projects have received grant funding and
    EPA anticipates that three more grants will be awarded shortly.
        This year, in addition to completing award of the fiscal year 1996
    grants, EPA has prepared a Federal Register notice calling for
    proposals for Sustainable Development Challenge Grants. We expect to
    solicit proposals in April 1997 with proposals due three months from
    the date of publication in the Federal Register. After receipt and
    review of the proposals, EPA expects to make grant decisions in October
    1997.

                     URBAN LIVABILITY VS. CHALLENGE GRANTS

        Question. In the fiscal year 1997 operating plan, EPA proposed a
    new initiative called ``Urban Livability'' and $5.5 million is
    requested for this program in fiscal year 1998. ``The program is
    designed to provide cities with tools and information to develop
    community-based solutions to pressing environmental issues.'' The
    challenge grants are to ``catalyze community-based projects to enhance
    environmental quality.'' Other than the urban emphasis, how is the new
    initiative different from challenge grants?
        Answer. The sustainable development challenge grants are
    complimentary to the urban livability initiative. The primary activity
    within the urban initiative is to identify generic urban environmental
    problems. EPA currently plans to use pilot cities (one in 1997 and
    three in 1998) as the ``real-world'' basis for the urban initiative. By
    bringing together other federal agencies, local governments, and
    private sector partners in the pilot programs, together, EPA and its
    partners will use either existing tools or develop new tools to propose
    solutions that can be replicated in urban areas across the country.
    Funds from the grant program can be used to support urban livability
    initiatives in pilot areas but also may be used to provide seed money
    to encourage community based development of solutions for site-specific
    projects that solve environmental problems, encourage economic
    development, and foster clean urban environments while removing
    barriers to development and economic growth.

            URBAN LIVABILITY AND PERFORMANCE PARTNERSHIP AGREEMENTS

        Question. Why is yet another initiative necessary? Why not allow
    states to fund such projects as part of their performance partnership
    agreements, rather than having a new EPA program?
        Answer. The urban livability initiative is necessary in order to
    develop a unified national program that cities and localities can look
    to for a tool bag of strategies and solutions to common urban
    environmental problems that can be used in urban areas across the
    country. EPA will use a pilot city approach to assist in identifying
    the environmental issues and will work hand-in-hand with partners and
    stakeholders to develop strategies and tools and to propose solutions
    to urban environmental problems while encouraging economic development
    and removing barriers to economic development and growth.
        EPA will use part of the requested funding to develop the tools and
    information needed to carry out the urban livability initiative. EPA
    will use the other part of the funding to stimulate state and local
    efforts to address urban environmental problems. We expect that State
    and local governments will look to the urban livability initiative as a
    model and in the future, may use performance partnership grants, other
    federal grant funds, and state, local and nongovernmental resources to
    carry out urban livability initiatives. In allocating funds to pilot
    areas, EPA will give priority to those areas that demonstrate
    commitment by targeting other resources.

                     ADVANCED MEASUREMENT INITIATIVE (AMI)

        Question. EPA proposed a new initiative in the fiscal year 1997
    operating plan called the Advanced Measurement Initiative. EPA
    requested $1 million in fiscal year 1997 and additional $4 million in
    fiscal year 1998. The program is intended ``to accelerate the
    application of advanced technologies to enhance environmental
    measurement and monitoring capabilities,'' such as remote sensing.
        What specific roles will other agencies plan in this initiative,
    and are they committed to this program?
        Answer. A key part of the initiative is to work in partnership with
    other agencies that have developed relevant technologies and
    demonstrated related applications and techniques. In the first phase of
    AMI, EPA, NASA and DOE have held and will hold workshops to assess
    environmental needs of the Agency, and to demonstrate applications of
    advanced technologies.
        AMI will also work with other agencies as sponsors or partners in
    pilot applications to identify and potentially adapt technologies. A
    significant role of each agency in these partnerships will be to verify
    techniques that will produce information that each agency will need,
    accept and deem credible. The specific roles and commitments of a
    partner agency will depend upon each AMI project.
        Question. What will you do with just $4 million to develop these
    existing technologies to meet EPA's needs?
        Answer. AMI will apply the $4 million and leverage the investment
    of other agencies to identify, adapt and apply existing innovative
    environmental monitoring and observation tools. EPA will invest
    resources to conduct a small number of applications to demonstrate the
    technical and institutional uses of these technologies, verify
    acceptable methods, and determine lessons to implement other advanced
    technologies throughout EPA in the future.
        Question. Given the states are responsible for a significant amount
    of environmental monitoring, what role will they play in the selection
    and prioritorization of projects?
        Answer. EPA appreciates that the states are responsible for a
    significant amount of environmental monitoring and recognizes that
    implementation of advanced technologies and improved techniques will
    involve state participation. In the process of project selection, AMI
    will include state representatives in the peer review
        Question. When do you expect these technologies will be made
    available for environmental monitoring?
        Answer. The ability to apply advanced technologies depends largely
    on two factors: (1) the maturity of the technology, and (2) the ability
    of the organization to incorporate the technology into its standard
    operating procedures. Each factor has its own development timeframe,
    but one may not always want to address both factors in parallel. In
    general, AMI does not feel it is wise to tackle institutional issues
    before a technology demonstrates a significant potential.
        AMI estimates that the projects will involve technical and
    institutional issues involving technology verification and acceptance
    in approximately 1-5 years. Availability will depend upon the projects
    that are selected and the technical and institutional factors involved.
    The sooner the technologies are verified and the institutional issues
    are resolved to accept information from new sources, the sooner EPA can
    expect a proliferation of environmental monitoring technologies from
    the private sector.

                       STAR AWARDS BY STATE AND CATEGORY

        Question. Please provide a state-by-state breakdown of STAR awards
    by category (focused RFA's, Exploratory Research Grants Program, and
    the Graduate Fellowship Program).
        Answer. Following are a series of tables which identify the total
    STAR Program awards by state for fiscal year 1995 and fiscal year 1996.
    The dollar values listed below are total commitments by EPA for new
    1995 and 1996 grants, and include future increments of funding. In
    addition to the below listing, partner funding of nine jointly-funded
    grants increases the funding by approximately $1.37 million. In
    addition to the listing below, there are 55 partner-funded grants
    resulting from our joint solicitations. The total funding of those
    grants is approximately $18.84 million.

                           RESEARCH FUNDING BY STATE

        Question. Please provide a table listing the distribution of all
    EPA research funding by state for the two most recent years this data
    is available.
        Answer.

    ----------------------------------------------------------------------------------------------------------------
                                                                   Fiscal year 1995            Fiscal year 1996
                                                             -------------------------------------------------------
                                                                Number        Amount        Number        Amount
    ----------------------------------------------------------------------------------------------------------------
    RFA's...................................................          87     $26,029,758         144     $77,672,873
    Exploratory.............................................          87      26,609,795          51      18,849,648
                                                             -------------------------------------------------------
          Total.............................................         174      52,639,553         195      96,522,621
    ----------------------------------------------------------------------------------------------------------------

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                              Fiscal year 1995 RFA award       Fiscal year 1995       Fiscal year 1996 RFA award       Fiscal year 1996
                                             ----------------------------     Exploratory awards     ----------------------------     Exploratory awards
                      State                                              ----------------------------                            ---------------------------
                                                  No.         Funding         No.         Funding         No.         Funding         No.         Funding
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Alabama.................................  ..........  ..............           1        $118,996           2        $783,779  ..........  ..............
    Alaska..................................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    Arizona.................................           2        $425,258  ..........  ..............           3       1,329,755           2        $793,068
    Arkansas................................  ..........  ..............  ..........  ..............           1         538,785           1         481,991
    California..............................           8       1,859,809          15       4,301,399           7       4,795,847           9       3,139,106
    Colorado................................           5         885,616           5       1,223,136          11       7,062,624           3       1,340,300
    Connecticut.............................  ..........  ..............  ..........  ..............           1         572,710           2         697,735
    Delaware................................  ..........  ..............           1         334,455  ..........  ..............  ..........  ..............
    District of Columbia....................           5       1,192,341           2         232,227           2         375,000  ..........  ..............
    Florida.................................           1         407,769           2         478,512           4       2,558,883  ..........  ..............
    Georgia.................................           4       1,123,855           1         189,104           5       1,934,686           1         264,669
    Guam....................................  ..........  ..............  ..........  ..............           1         353,723  ..........  ..............
    Hawaii..................................  ..........  ..............           1         420,636  ..........  ..............  ..........  ..............
    Idaho...................................  ..........  ..............           1         323,920  ..........  ..............           1         280,133
    Illinois................................           3         779,964           2         705,442           1         350,000  ..........  ..............
    Indiana.................................           1         100,000           1       3,000,000           2       1,834,141           1         356,212
    Iowa....................................           1         635,257           4         763,496           5       2,011,271  ..........  ..............
    Kansas..................................           1         220,000  ..........  ..............           2         804,697  ..........  ..............
    Kentucky................................           2         676,200  ..........  ..............           1         475,760           1         346,543
    Louisiana...............................  ..........  ..............           1         362,823  ..........  ..............           1         165,436
    Maine...................................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    Maryland................................           2       1,119,824           1         242,538           7       5,678,816  ..........  ..............
    Massachusetts...........................           7       2,561,985           6       1,726,798          14       5,965,627           6       2,695,438
    Michigan................................           2         287,802  ..........  ..............           5       2,159,811           2         765,794
    Minnesota...............................           3         835,000  ..........  ..............           5       3,105,350  ..........  ..............
    Mississippi.............................  ..........  ..............           3         541,531           2       1,197,259  ..........  ..............
    Missouri................................  ..........  ..............           1         267,000           1         190,000  ..........  ..............
    Montana.................................  ..........  ..............  ..........  ..............           1         329,735  ..........  ..............
    Nebraska................................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    New Hampshire...........................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    New Jersey..............................           2         549,950           2         668,961           3       1,309,690  ..........  ..............
    New Mexico..............................           1         184,998           1         155,609  ..........  ..............           1         500,000
    New York................................           5       2,296,666           6       1,834,844          11       4,333,999           1         335,507
    Nevada..................................  ..........  ..............  ..........  ..............           1         767,805           1         288,645
    North Carolina..........................           5       1,321,400           3         714,781          15       7,704,339           3       1,138,428
    North Dakota............................  ..........  ..............  ..........  ..............           2         485,285           1         374,925
    Ohio....................................           4       1,249,784           4       1,245,662           2         922,347           1         488,000
    Oklahoma................................           1         244,955  ..........  ..............           3         836,654  ..........  ..............
    Oregon..................................           2         896,975           5       1,372,345           2       1,844,846           2         824,802
    Pennsylvania............................           5       1,241,481           5       1,598,032           8       3,412,653           1         218,643
    Puerto Rico.............................  ..........  ..............           2         477,292  ..........  ..............  ..........  ..............
    Rhode Island............................           1         125,972  ..........  ..............           1         165,081  ..........  ..............
    South Carolina..........................           1         465,300  ..........  ..............           1         484,376           1         372,642
    South Dakota............................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    Tennessee...............................           1         139,327  ..........  ..............           1       1,697,105           1         359,300
    Texas...................................           4       1,580,992           6       1,707,244           4       1,519,918           2         579,170
    Utah....................................           1         330,000  ..........  ..............           1         353,103           1         315,706
    Vermont.................................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    Virginia................................           3         779,990           2         529,763           1         283,737           3         963,642
    Washington..............................           3       1,351,378           1         259,064           4       6,680,650           2         763,813
    West Virginia...........................  ..........  ..............  ..........  ..............  ..........  ..............  ..........  ..............
    Wisconsin...............................           1         160,000           1         401,130           1         463,117  ..........  ..............
    Wyoming.................................  ..........  ..............           1         413,055  ..........  ..............  ..........  ..............
    --------------------------------------------------------------------------------------------------------------------------------------------------------

                           RESEARCH FUNDING BY STATE

        Questions. Please provide a table listing the distribtuion of all
    EPA research funding by state for the two most recent years this data
    is available.
        Answer:

    ----------------------------------------------------------------------------------------------------------------
                                                              Fiscal year 1995 awards      Fiscal year 1996 awards
                                                           ---------------------------------------------------------
                             State                             No. of                       No. of
                                                            fellowships   Total dollars  fellowships   Total dollars
    ----------------------------------------------------------------------------------------------------------------
    Alabama...............................................  ...........  ..............  ...........  ..............
    Alaska................................................  ...........  ..............  ...........  ..............
    Arizona...............................................  ...........  ..............            6        $168,160
    Arkansas..............................................  ...........  ..............  ...........  ..............
    California............................................           11        $320,326           20         528,984
    Colorado..............................................            5         134,076           10         263,470
    Connecticut...........................................            6         192,328            3         102,000
    Delaware..............................................  ...........  ..............  ...........  ..............
    D.C...................................................  ...........  ..............  ...........  ..............
    Florida...............................................            2          58,759            3          75,931
    Georgia...............................................            1          25,344            2          58,716
    Guam..................................................  ...........  ..............  ...........  ..............
    Hawaii................................................            1          29,341            1          19,954
    Idaho.................................................  ...........  ..............  ...........  ..............
    Illinois..............................................            7         235,212            6         167,952
    Indiana...............................................            1          26,192            1          32,090
    Iowa..................................................            2          58,520  ...........  ..............
    Kansas................................................  ...........  ..............            1          31,270
    Kentucky..............................................  ...........  ..............  ...........  ..............
    Louisiana.............................................  ...........  ..............  ...........  ..............
    Maine.................................................  ...........  ..............  ...........  ..............
    Maryland..............................................            2          57,150            4         118,415
    Massachusetts.........................................            5         169,682           10         321,884
    Michigan..............................................            6         167,878            3         127,746
    Minnesota.............................................            3          85,260  ...........  ..............
    Missouri..............................................  ...........  ..............            2          53,146
    Montana...............................................  ...........  ..............  ...........  ..............
    Nebraska..............................................            1          24,310  ...........  ..............
    New Hampshire.........................................  ...........  ..............            2          68,000
    New Jersey............................................            2          58,700            1          31,032
    New Mexico............................................            2          48,152  ...........  ..............
    New York..............................................           12         348,459            6         190,881
    Nevada................................................            1          23,623            1          25,138
    North Carolina........................................            4         108,420            6         165,608
    North Dakota..........................................  ...........  ..............  ...........  ..............
    Ohio..................................................            1          38,405            1          29,302
    Oklahoma..............................................            1          26,742            2          53,163
    Oregon................................................            4         138,881            1          27,047
    Pennsylvania..........................................            5         176,025  ...........  ..............
    Puerto Rico...........................................  ...........  ..............  ...........  ..............
    Rhode Island..........................................            1          26,891  ...........  ..............
    South Carolina........................................            2          50,066  ...........  ..............
    South Dakota..........................................  ...........  ..............  ...........  ..............
    Tennessee.............................................  ...........  ..............            2          60,011
    Texas.................................................            6         174,354            4         124,935
    Utah..................................................  ...........  ..............            1          24,532
    Vermont...............................................  ...........  ..............  ...........  ..............
    Virginia..............................................            2          53,162            2          53,654
    Washington............................................            1          37,333            3          85,159
    West Virginia.........................................  ...........  ..............            1          29,366
    Wisconsin.............................................            3          87,118            1          24,466
    Wyoming...............................................  ...........  ..............            1          24,741
    ----------------------------------------------------------------------------------------------------------------

                                     ORD GRANTS AND COOPERATIVE AGREEMENTS BY STATE
    ----------------------------------------------------------------------------------------------------------------
                                                                         Fiscal year 1995        Fiscal year 1996
                                  State                              -----------------------------------------------
                                                                      Awards   Total dollars  Awards   Total dollars
    ----------------------------------------------------------------------------------------------------------------
    ALASKA..........................................................       2         728,146       1          15,000
    ALABAMA.........................................................      12       2,718,648      11       3,214,170
    ARKANSAS........................................................       5         641,797       1          75,000
    ARIZONA.........................................................       9       1,916,547       4       2,001,427
    CALIFORNIA......................................................      78      17,280,805      44       9,774,089
    COLORADO........................................................      24       4,661,485      17       5,082,973
    CONNECTICUT.....................................................       3         278,224       3         310,886
    D.C.............................................................      95      18,137,464      68      13,600,494
    DELAWARE........................................................       2         165,836       1         105,489
    FLORIDA.........................................................      20       2,984,099      12       2,367,274
    GEORGIA.........................................................      23       5,536,950      19       3,317,351
    HAWAII..........................................................       3         245,629       1         140,373
    IOWA............................................................      10       2,281,144       8       1,959,372
    IDAHO...........................................................       5         769,249       3         265,400
    ILLINOIS........................................................      14       2,058,854       4         720,236
    INDIANA.........................................................       8       1,516,134       5       1,324,533
    KANSAS..........................................................       7       4,844,816       4       1,284,755
    KENTUCKY........................................................       6      11,374,961       4         320,956
    LOUISIANA.......................................................      14       5,868,190       7       1,094,240
    MASSACHUSETTS...................................................      43      13,281,796      28       5,642,964
    MARYLAND........................................................      14       2,675,171       8       2,960,597
    MAINE...........................................................       2       2,667,400       3         277,644
    MICHIGAN........................................................      25      14,600,089      19       5,859,039
    MINNESOTA.......................................................      14       2,024,859       8       2,488,114
    MISSOURI........................................................       6         632,727       1          89,000
    MISSISSIPPI.....................................................      10       1,322,523       5         901,568
    MONTANA.........................................................       2         204,697      44      10,261,042
    NORTH CAROLINA..................................................      79      21,280,549       3         492,094
    NORTH DAKOTA....................................................       2       1,098,183       1         100,135
    NEBRASKA........................................................       2          79,031      14       3,071,019
    NEW HAMPSHIRE...................................................       3         499,983       3         418,541
    NEW JERSEY......................................................      17       7,842,262       3         616,669
    NEW MEXICO......................................................       5         569,596      21       2,194,661
    NEVADA..........................................................       8       1,062,743      27       3,154,601
    NEW YORK........................................................      34       4,803,501       5         936,110
    OHIO............................................................      43       7,704,762      14       3,776,980
    OKLAHOMA........................................................       4         666,666      15       2,315,102
    OREGON..........................................................      23       6,175,135       3         322,153
    PENNSYLVANIA....................................................      28       3,979,698       1         133,512
    RHODE ISLAND....................................................       3         724,623       2         690,919
    SOUTH CAROLINA..................................................       2         489,911      14       1,672,581
    TENNESSEE.......................................................       6         856,075       1         126,804
    TEXAS...........................................................      33       9,259,608       1          54,150
    UTAH............................................................       3       1,030,000      14       2,664,152
    VIRGINIA........................................................      12       1,333,426       4         500,916
    VERMONT.........................................................       1          50,846       1         128,930
    WASHINGTON......................................................      19       2,548,920      14       2,664,152
    WISCONSIN.......................................................      14       1,610,517       4         500,916
    WYOMING.........................................................       2         476,667       1         128,930
                                                                     -----------------------------------------------
          TOTALS....................................................  ......      68,945,214  ......      78,335,658
    ----------------------------------------------------------------------------------------------------------------

                                 EPSCOR AWARDS

        Question. Please provide a summary of recent EPSCoR Awards
        Answer. The table below summarizes all EPA EPSCoR Awards for fiscal
    years 1993 through 1995. Resources appropriated to EPA for the EPSCoR
    program for fiscal years 1996 and 1997 will be awarded to new proposals
    submitted in response to the 1996 December EPSCoR program announcement.

    ------------------------------------------------------------------------
                                                                EPA funding
           Lead institution/participating institutions            amount
    ------------------------------------------------------------------------
                        Fiscal year 1993

    University of Alabama/Auburn University.................        $400,000
    University of South Carolina/Clemson University.........         400,000

                        Fiscal year 1994

    University of Nevada, Reno/University Nevada Las Vegas,
     Desert Research Institute..............................         394,000
    North Dakota State University/University of North Dakota         394,000
    University of Puerto Rico/International Institute of
     Tropical Forestry......................................         394,000
    University of Idaho/Idaho State University..............         394,000
    University of Kansas....................................         394,000

                        Fiscal year 1995

    University of Louisville/Eastern Kentucky University....         326,667
    University of Wyoming...................................         326,667
    University of Mississippi/Jackson State University......         326,667
    ------------------------------------------------------------------------

                                 EPSCOR REPORT

        Question. The report accompanying the fiscal year 1997 VA, HUD and
    Independent Agencies Appropriations bill directed the EPA to report to
    Congress within 6 months on the Agency's Experimental Program to
    stimulate Competitive Research. Please provide the Committee with the
    status of the report, and indicate any particular challenges
    encountered thus far.
        Answer. The report to Congress on the Experimental Program to
    Stimulate Competitive Research (EPSCoR) program is in the final stages
    of review within the Administration. There have been no significant
    challenges or problems identified in EPA during the writing and review
    process.

                              EPSCOR NSF MODELING

        Question. Last year's Senate report also directed the EPA to model
    its EPSCoR program after the National Science Foundation's EPSCoR
    program and to coordinate the structure and selection process with the
    NSF. Please indicate steps the EPA has taken to coordinate the
    structure and selection process of EPA EPSCoR with the NSF EPSCoR. What
    Impact has this had on the program? What future steps toward this goal
    are expected?
        Answer. EPA's EPSCoR program is modeled after the NSF's EPSCoR
    program. NSF provided guidance on the development of the Agency's first
    planning grants as well as assistance in the preparation of the first
    solicitation for implementation proposals. In addition, like NSF's
    program, EPA's program consists of two parts, a Strategic Improvement
    Plan (SIP) and individual Science and Engineering Environmental
    Research (SEER) project proposals designed to advance the state of
    knowledge in environmental science and engineering. All applications
    received in response to a solicitation are evaluated through a two-
    stage, competitive merit-review process. The first stage involves the
    evaluation of individual SEER projects for technical merit by science
    and engineering peer reviewers. The results of the first stage review
    of the SEER's are used by the peer reviewers to evaluate the complete
    EPSCoR application which includes the SIP and the corresponding SEER's.
    This evaluation becomes the basis for guiding Agency approval or
    disapproval for funding decisions on the EPSCoR applications. As a
    follow up to this effort, EPA staff have also participated in a number
    of NSF's EPSCoR application reviews which has enhanced the Agency's
    selection process. In addition, EPA is a member of the EPSCoR
    Interagency Coordinating Committee (EICC) which was established by NSF
    in July 1992 to coordinate EPSCoR activities of six other federal
    agencies. The committee provides a forum which deals with all aspects
    of the EPSCoR Program. EPA will continue to work with NSF and the EICC
    to develop a sound program to support the EPSCoR states.

                          EPSCOR FUNDING DISTRIBUTION

        Question. Of the total amount of research contracts and grants
    provided by the EPA in fiscal year 1995, 8 percent of the funds went to
    18 EPSCoR States and the Commonwealth of Puerto Rico combined. For
    fiscal year 1994, this number was approximately 6.5 percent.
        Given the localized nature of many environmental problems, does EPA
    feel this distribution of research funds is sufficient to meet
    environmental concerns and solve environmental problems in all regions
    of the country? Is this distribution of funds due to a lack of proposal
    submissions from the EPSCoR states, or is it due to a significantly
    lower success rate for these states?
        Answer. EPA's Office of Research and Development (ORD) has
    developed a risk-based strategic plan to direct the overall ORD
    research program to focus on environmental problems presenting the most
    significant risks, but where the uncertainty about the magnitude is
    high. All aspects of ORD's research program are focused on these high
    risk areas in order to provide significant contributions to addressing
    the Nation's environmental problems and to ensure that the results have
    the broadest possible application.
        We have analyzed the distribution and success rates for
    applications submitted to the STAR Program in fiscal year 1996 from
    both EPSCoR and non-EPSCoR states. Interpretation of this information
    at the state level is very difficult because the applications are
    submitted by individuals at different institutions within each state,
    and the range of both applications per state and success rate per state
    is very large. In fiscal year 1996 a total of 1,950 applications was
    received; 324 from 19 EPSCoR eligible participants, with an average of
    17 applications/state, and a range 4-41, and 1,626 from 34 non-EPSCoR
    states, with an average of 48 applications/state, range 1-166. The
    success rate for EPSCoR participants averaged 7 percent with a range
    from 0-18 percent, while the success rate for non-EPSCoR states
    averaged 10 percent with a range 0-33 percent. Because both the number
    of applications per state and the success rate per state varies so
    widely it is not possible to determine a difference between the two
    groups in fiscal year 1996. Furthermore, as discussed in the EPSCoR
    Report to Congress, under the STAR Program in fiscal year 1995 and
    fiscal year 1996 the number of awards, the number of states and the
    number of institutions have all increased.

                                STAR PEER REVIEW

        Question. Also, last year's Senate report encouraged the EPA, as
    part of the STAR Program, to ``give special consideration to proposals
    for EPSCoR States that successfully meet the Agency's peer review
    requirements and are identified in the Agency's competitive award
    process. Will this be reflected in the 1997 Graduate Fellowship awards
    and other aspects of the STAR Program?
        Answer. In accord with prior guidance from Congress, EPA is working
    diligently to improve the quality of its research. We have instituted a
    peer review process for the STAR Program that is patterned after that
    of the NSF. Consequently, we have made our primary consideration
    scientific merit of the application.
        During the past two years, ORD has developed a Strategic Plan which
    guides decisions about research priorities. Using this plan we focus on
    research that deals with environmental issues that pose high risk but
    where there is great uncertainty about the magnitude of the risks;
    leads to new methods and models that can be used broadly across Agency;
    and develops risk reduction and pollution prevention methods where
    order-of-magnitude improvements are possible.
        Finally, we look at ways in which the STAR Program complements
    research that we are doing in EPA laboratories, and the balance of the
    STAR Program in terms of distribution of awards by discipline,
    geographic area, etc.
        As discussed in the previous response and in the EPSCoR Report to
    Congress currently under review, the steps we have taken to ensure
    impartial peer review and relevancy to the EPA mission have permitted
    EPSCoR states to compete effectively for STAR awards.

                                     SBREFA

        Question. How has your agency allocated its personnel and financial
    resources to meet the requirements of SBREFA?
        Answer. The Administrator has delegated agency management of SBREFA
    to the Regulatory Management Division in the Office of Policy, Planning
    and Evaluation. As required by the Act, the agency has named a Small
    Business Advocacy Chair. Additionally, three employees support SBREFA
    compliance activities. All program offices have designated personnel as
    SBREFA coordinators for their respective offices. The program offices
    meet with the Small Business Advocacy Chair regularly to coordinate
    SBREFA implementation.
        OPPE projects that there will be fifteen SBREFA panel processes in
    fiscal year 1998, which will require approximately 20 FTE in agency
    personnel and $125,000 in travel and $150,000 in contract support of
    panel requirements.

                       SBREFA PENALTY REDUCTIONS PROGRAM

        Question. The law requires agencies that regulate small businesses
    to establish a policy or program to provide penalty reductions or
    waivers, where appropriate, to accommodate the good faith efforts of
    small businesses to comply with agency regulations. What steps has your
    agency taken toward instituting such a program? When will this program
    be up and running?
        Answer. Section 223 requires each agency to develop within one year
    of SBREFA's enactment a policy or program providing for reductions or
    waivers of civil penalties for violations of statutory or regulatory
    requirements by small entities under appropriate circumstances. EPA has
    several policies which implement the section 223 requirement. The
    Agency's Policy on Compliance Incentives for Small Businesses (Small
    Business Policy) and a similar policy aimed at municipalities provide
    for civil penalties to be reduced or waived for small entities which
    discover first-time violations through on-site, government-supported
    compliance assistance programs or self-audits, where the entity
    promptly discloses and corrects the violation and meets certain other
    criteria. In a statement made on the Senate floor during congressional
    consideration of SBREFA, Senator Christopher Bond used EPA's Small
    Business Policy as an example of the kind of policy sought by the
    section 223 requirement. Vol. 142 No. 46, 142 Cong Rec S 3242 (Friday,
    March 29, 1996). In addition to that policy, EPA has issued a final
    audit policy entitled ``Incentives for Self-Policing: Discovery,
    Disclosure, Correction and Prevention of Violations'' which creates
    incentives for all entities, including small entities, to voluntarily
    discover, disclose and correct violations of environmental regulations.

                              SBREFA REG FLEX ACT

        Question. Could you share with the committee recent examples of
    your agency's compliance with SBREFA will (has) enhanced your agency's
    compliance with the Reg Flex Act?
        Answer. Prior to the passage of SBREFA, the Agency's reg flex
    policy was to perform a reg flex analysis on all rulemakings that were
    determined to have any impact on any small entities. With the passage
    of SBREFA, the Agency has reviewed guidelines to determine which rules
    will have ``a significant impact on a substantial number of small
    entities'' and, therefore, will be subject to a reg flex analysis. This
    review has established a policy that proposed rules that meet the
    ``significant impact on a substantial number'' threshold will have a
    reg flex analysis performed.
        Prior to passage of SBREFA, EPA performed a wide variety of
    outreach activities to small entities. SBREFA Sec. 609 amendments
    requiring Small Business Advocacy Review Panels have formalized many of
    these activities by structuring outreach to small entities in the
    rulemaking process. EPA engages in outreach activities on any
    rulemaking that may have an impact on small entities. This outreach has
    helped determine that, at this time, 15 rules are listed on EPA's
    Provisional Panel list for small business input into the rulemaking
    process. Our first panel, Non Road Diesel Engines, convened on March
    25, 1997. We will convene several more panels in the upcoming months.
        The Agency has reviewed existing procedures for compliance with
    Sec. 610 of the Reg Flex Act. The Agency has previously performed
    Sec. 610 review as part of Sec. 602 Unified Agenda requirements. EPA
    will now publish in the Federal Register a separate listing of rules
    subject to Sec. 610 review.

                  SBREFA SMALL BUSINESS ADVOCACY REVIEW PANEL

        Question. What process has your agency implemented to determine
    whether a Small Business Advocacy Review Panel should be established
    prior to publication of a proposed rule?
        Answer. The first steps of the process are actually designed to
    determine whether a panel must be convened. Unless the Agency certifies
    that a rule will not have a significant impact on a substantial number
    of small entities, a panel must be convened. Accordingly, the program
    office responsible for the rule must identify the rule's potential
    impact on small entities as soon as possible, and consider ways of
    structuring the rule to avoid any undue burden on small entities. To
    the extent the program office is successful in designing the rule to
    avoid any significant impact on a substantial number of small entities,
    a panel need not be convened.
        If it is determined that a rule may have a significant impact on a
    substantial number of small entities, the program office will proceed
    with the next steps of the panel process, which include identifying and
    initiating discussions with representatives of small entities
    potentially affected by the rule.
        Because of this process, the program office may still learn as a
    result of further consultations with small entity representatives or
    further analysis that the rule will not have a significant economic
    impact on a substantial number of small entities, and thus that neither
    an initial regulatory flexibility analysis nor a panel is required.

                              SBREFA REVIEW PANELS

        Question. Have review panels been convened to review any
    forthcoming rules?
        Answer. We are currently engaged in one panel which involves a
    forthcoming rulemaking on Non-Road Diesel Engines, and are beginning a
    panel process on the National Ambient Air Quality Standards Phase 1
    Guidelines. We will be moving to convene panels on several other rules
    in the next few months.

                             NAAQS PM-10 REQUEST

        Question. Could you tell the Subcommittee how much of EPA's fiscal
    1998 funding request will be used for PM 2.5 monitoring and how much
    will be used for additional PM 2.5 health effects research?
        Answer. The Agency has requested the following for PM 2.5
    monitoring and research:

                            [In millions of dollars]

                                                                 Fiscal year
                                                                1998 request

    Environmental Program Management Account:
        PM 10 monitoring..............................................   0.1
        PM 2.5 monitoring.............................................   1.2
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................   1.3
                            =================================================================
                            ________________________________________________
    State and Tribal Assistance Grants:
        PM 10 monitoring..............................................   6.6
        PM 2.5 monitoring.............................................  10.9
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................  17.5
                            =================================================================
                            ________________________________________________
    Science and Technology Account:
        Generic PM research \1\.......................................  12.6
        Specific PM 2.5 research......................................   8.3
        Research grants \2\...........................................   5.7
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................  26.9

    \1\ Generic PM research includes activities that are applicable to both
    PM-10 and PM 2.5 pollutants but could not be segregated.
    \2\ For fiscal year 1998 research grants have not yet been awarded but
    are expected to be predominantly for PM 2.5 research.
    ---------------------------------------------------------------------------

                      NAAQS MONITORING AND RESEARCH REPORT

        Question. How does the 1998 funding request for PM compare with
    amounts expended for PM-10 monitoring and research over the past three
    fiscal years? Have any of these monies been expended for PM 2.5
    research or monitoring? If so how much?
        Answer. The table below shows the Agency's funding request for PM
    for fiscal 1998 compared to the previous three years for PM-10 vs. PM
    2.5 and for monitoring versus research. We expended funding in fiscal
    1995-97 for PM 2.5 monitoring methods development and testing. In
    fiscal 1997 the Agency is providing funding to states to begin to
    purchase laboratory equipment and other infrastructure needs for
    monitoring.

                            [In millions of dollars]
    ------------------------------------------------------------------------
                                                    Fiscal year
                                     ---------------------------------------
                                                            1997      1998
                                        1995      1996    estimate   request
    ------------------------------------------------------------------------
    Environmental Program Management
     Account:
        PM 10 monitoring............       0.4       0.4       0.2       0.1
        PM 2.5 monitoring...........       0.4       0.8       1.1       1.2
                                     ---------------------------------------
          Total.....................       0.8       1.2       1.3      1.30
                                     =======================================
    State and Tribal Assistance
     Grants:
        PM 10 monitoring............       5.5       5.5       6.1       6.6
        PM 2.5 monitoring...........  ........  ........       2.7      10.9
                                     ---------------------------------------
          Total.....................       5.5       5.5       8.8      17.5
                                     =======================================
    Science and Technology Account:
        Generic PM research \1\.....       6.4       6.1       8.3      12.6
        Specific PM 2.5 research....       4.3       7.2       7.6       8.3
        Research grants \2\.........  ........  ........       3.2       5.7
                                     ---------------------------------------
          Total.....................      10.6      13.2      19.1      26.6
    ------------------------------------------------------------------------
    \1\ Generic PM research includes activities that are applicable to both
      PM-10 and PM 2.5 pollutants but could not be segregated.
    \2\ For fiscal year 1995 and 1996, the actual allocation of research
      grant resources are included in the figures for PM 10 and PM 2.5
      research. For fiscal year 1997 and 1998 research grants have not yet
      been awarded but are expected to be predominately for PM 2.5 research.

                          NAAQS BASIC RESEARCH FUNDING

        Question. There has been a realignment of resources in the Agency's
    research program over the past few years to enhance the basic research
    program, primarily through the STAR initiative. Please outline the
    extent to which any and all research performed by the EPA laboratories
    in support of NAAQS standard setting for criteria pollutants has
    declined in the last four fiscal years?
        Answer. The Agency has pursued a balanced research program to
    ensure that we take full advantage of the Agency's strong in-house
    capability (complemented by the procurement of services from
    contracts), as well as engaging university and private sector
    scientists through grants and cooperative agreements. This approach is
    determined by the research requirements and how to best address those
    research requirements. Funding for the National Ambient Air Quality
    Standards (NAAQS) by the Office of Research and Development (ORD)
    laboratories has remained proportional.
        The Science to Achieve Results (STAR) Program reflects the Agency's
    commitment of engaging the participation of the nations's best
    scientists in the implementation of the Agency's research program.
    However, STAR is not a basic research program. Through the STAR
    Program, ORD works with the Agency's National Program Managers to
    develop the Requests for Applications (RFA's) in particular research
    problem areas that are of importance to the Program Offices. The STAR
    program supports the Agency's mission.

                    NAAQS RESEARCH FISCAL YEAR 1997 FUNDING

        Question. Describe how the $18.8 million appropriated in fiscal
    year 1997 for PM research was allocated between PM 2.5 research and
    monitoring.
        Answer. The total Particulate Matter (PM) (both PM 2.5 and PM-10)
    research budget in the Environmental Protection Agency's fiscal year
    1997 enacted budget is $19.1 million. (The $18.8 million mentioned
    above refers to the total extramural research dollars in the fiscal
    year 1997 budget.) All of these funds are for research.
        The total research allotted to PM 2.5 breaks as follows. The PM 2.5
    non-grants research portion is $7.6 million, which includes $6.7
    million for PM exposure assessment monitoring and PM monitoring
    methods, $0.225 million for mechanism and dose work, $0.35 million for
    assessments, and $0.3 million for controls. The research grants, which
    will predominantly address PM 2.5, will total $3.2 million. However,
    the PM-10 research includes research on the total population of PM,
    both fine (PM 2.5) and coarse (PM-10), not just coarse PM.
        The Agency's Office of Air and Radiation (OAR) conducts specific PM
    monitoring and, therefore, these monitoring efforts are not included
    within the research budget. In fiscal year 1997, the PM 2.5 monitoring
    efforts includes $1.1 million under the Environmental Program
    Management account and $2.7 million for State and Tribal Assistance
    Grants.

                         NAAQS FISCAL YEAR 1998 FUNDING

        Question. How are the fiscal 1998 funds requested for PM proposed
    to be allocated between EPA and the states? How much will go to the
    EPA's Office of Air and Radiation and how much will go to the Agency's
    Office of Research and Development? Will any of these monies filter
    down to state agencies to install PM 2.5 monitoring systems?
        Answer. Of the total PM budget for fiscal 1998 budget request of
    $73.9 million, $28.5 million is directed to states in assistance
    grants, $18.8 million is proposed for the Office of Air and Radiation
    (including Regional air activities) and $26.6 million is proposed for
    the Office of Research and Development. Of the $28.5 million for state
    assistance grants, $10.9 million will be targeted towards establishing
    a PM 2.5 monitoring network.

                          NAAQS PM RESEARCH INCREASES

        Question. With respect to PM 2.5 health effects research, one of
    the members of the Clean Air Scientific Advisory Committee (CASAC)
    stated that EPA would be well advised to embark on a targeted research
    effort for PM 2.5. He has suggested a 3.5 year effort funded at a level
    of $30 million per year for research only. If the Agency had funding at
    this level, what aspects of PM 2.5 health effects research would you
    propose to enhance?
        Answer. The overarching mission of the Environmental Protection
    Agency's (EPA's) particulate matter (PM) research program is to provide
    an improved scientific basis for future regulatory decisions concerning
    public health risks posed by airborne particles, alone and in
    combination with other air pollutants. EPA is finalizing a research
    strategy, ``Particulate Matter Research Program Strategy: Health,
    Exposure, Assessment and Risk Management Issues,'' targeted to fill
    specific knowledge gaps identified in the Air Quality Criteria Document
    and subsequent PM Research Needs Document. The areas of research that
    need to be addressed to effect these decisions and implementation
    activities are as follows: (1) biological mechanisms, including
    characterization of particle characteristics, both alone and in
    combination with other air pollutants, associated with effects,
    dosimetry and other factors affecting susceptibility, and exposure-
    dose-response relationships; (2) population exposures to ambient,
    indoor and personal PM, especially of important subpopulations (e.g.,
    children, the elderly, individuals with pre-existing disease) by
    developing and applying improved exposure methodologies and models; (3)
    regional and temporal variability in particle characteristics and
    toxicity; (4) the morbidity and mortality associated with ``real
    world'' short- and long-term exposure to PM and important co-pollutants
    such as ozone, through epidemiology, including development of new
    methods and evaluation of existing data; (5) atmospheric chemistry of
    PM to support fate and transport modeling to support regulatory
    implementation; (6) source contributions to ambient PM concentrations
    and the availability, performance and cost of risk management options
    to meet ambient PM standards; (7) improved particle measurement methods
    to characterize atmospheric PM; and (8) consultation and support to
    enable state, Regional, and international air pollution control
    organizations to perform risk assessments and apply risk management
    approaches with less uncertainty. The fiscal year 1998 budget request
    of $26.6 million will address these areas.

                          NAAQS PM 2.5 MONITORING COST

        Question. With respect to PM 2.5 monitoring, what is EPA's
    estimated costs of installing air quality monitoring systems for all of
    the PM 2.5 nonattainment counties identified by EPA in its proposal? At
    the rate that the Agency is requesting funds for this fiscal year, how
    long do you project that it will take to fund the nationwide monitoring
    program?
        Answer. EPA's monitoring proposal allows for monitoring coverage in
    most metropolitan areas as well as areas that might violate the
    standards. The estimated cost of the proposal for installing and
    operating this network of 1,200 monitoring sites is $70.8 million over
    four years. These costs will be shared by EPA and states. We project
    the nationwide monitoring network will be completed in the year 2000.

                         NAAQS HUMAN HEALTH PROTECTION

        Question. Given the paucity of monitoring data and research, what
    assurances do we have that the proposed NAAQS standards would be
    protective of human health as required by the Clean Air Act?
        Answer. With regard to the availability of fine particle monitoring
    data, over 20 studies have examined fine particle exposures directly
    (using fine particle monitor data, including PM 2.5, from over 50
    cities), and showed associations with serious health effects. EPA used
    fine PM data from two cities (Philadelphia and Los Angeles) in
    performing its exposure and risk assessments. These assessments showed
    significant benefits associated with a fine PM standard. These studies
    and assessments were submitted to the Clean Air Scientific Advisory
    Committee (CASAC) for their review. In its closure letter to the
    Administrator on the PM Staff Paper, CASAC noted that there was a
    consensus, ``that a new PM 2.5 [PM less than 2.5 microns in diameter]
    NAAQS be established, with nineteen [of 21] Panel members endorsing the
    concept of a 24-hour and/or annual PM 2.5 NAAQS.'' (Wolff, 1996) This
    advice from CASAC reflects the Panel members judgments with regard to
    the current scientific basis for making regulatory decisions concerning
    PM standards in the context of this review of the standards and their
    conclusion that such standards are necessary to protect the public
    health with an adequate margin of safety.

                            NAAQS SBREFA PROCEDURES

        Question. Putting aside for a moment our disagreement on NAAQS,
    Mary Nichols' February 11 letter stated that ``regardless of the
    ultimate composition of the implementation materials [meaning they
    would be a mix of rules and guidance], we [the EPA] intend to employ
    RFA/SBREFA procedures before issuing any proposed guidance or rules
    concerning implementation of revised NAAQS.'' Am I correct in assuming
    EPA will comply with the letter and spirit of SBREFA when it enters the
    ``implementation'' phase?
        Answer. Yes, EPA plans to continue to follow both the letter and
    spirit of SBREFA as it develops implementation materials. We will
    follow SBREFA panel procedures regardless of the form these materials
    take. For that portion of the materials that is in the form of
    nonbinding guidance, our following of SBREFA procedures is a voluntary
    effort going beyond what SBREFA requires, since the RFA only applies to
    rules as defined in that act. Our intention is to work with small
    businesses to make sure we address their concerns in developing that
    guidance, which the States will ultimately use as they develop their
    plans to attain the NAAQS. To the extent that the materials include
    rules that would have a significant impact on a substantial number of
    small entities, our following of SBREFA procedures for those rules will
    be in fulfillment of the SBREFA panel requirement. In either case, we
    will follow SBREFA procedures to make sure small-business concerns are
    addressed as we develop these materials.

                                NAAQS AND SBREFA

        Question. Because it is unclear what portion of implementation will
    be issued by rulemaking versus guidance, how can the agency comply with
    SBREFA on the one hand and employ ``SBREFA-like'' procedures on the
    other?
        Answer. For that portion of the materials that is in the form of
    guidance, our following of SBREFA procedures is a voluntary effort
    going beyond what SBREFA requires, since SBREFA does not apply to
    guidance that does not have the force and effect of a rule. It is in
    this case that we consider our efforts ``SBREFA-like.'' Our intention
    is to work with small businesses to make sure we address their concerns
    in developing that guidance, which the States will ultimately use as
    they develop their plans to attain the NAAQS.
        To the extent that the materials include rules that would have a
    significant impact on a substantial number of small entities, our
    following of SBREFA procedures for those rules will be in fulfillment
    of a formal SBREFA requirement. In either case, we will follow SBREFA
    procedures to make sure small-business concerns are addressed as we
    develop these materials.

                          FOOD QUALITY PROTECTION ACT

        Question. The recently passed Food Quality Protection Act places
    great emphasis on ensuring that the nation's food supply is safe for
    infants and children. In fact, the new law requires USDA to collect
    data on children's consumption patterns in consultation with EPA so
    that your agency can use actual real world information rather than
    hypothetical assumptions when assessing risk. For EPA decisions to be
    science-based, it is very important that accurate and scientifically
    valid data be used.
        USDA has requested $6 million in the Administration's budget
    request to conduct a new children's food intake survey. What is your
    opinion of the need for this survey and what are your plans for
    ensuring that EPA and USDA do consult to ensure that the information
    collected by the children's survey and USDA's broad Continuing Survey
    of Food Intakes by Individuals is accurate and usable to EPA?
        Answer. EPA has been and continues to be very supportive of USDA's
    programs to improve information on food consumption, particularly
    children's consumption patterns. The need to improve dietary
    assessments for children was originally identified by the National
    Academy of Sciences in its report titled ``Pesticides in the Diets of
    Infants and Children''. One of the major needs identified in fulfilling
    this goal is better data defining the dietary habits of infants and
    children. The major source of food consumption data used by the Agency
    to conduct dietary risk assessments is that generated by USDA. In its
    efforts to update existing data, EPA will use the Continuing Survey of
    Food Intakes by Individuals (CSFII) 1994-1996 survey data to provide
    up-to-date information on food consumption, which reflects changes in
    eating patterns which have occurred due to population behavioral
    changes and changes in ethnic distribution. However, the number of
    children sampled in the CSFII 1994-1996 survey is not sufficient to
    provide an acceptable projection of children's consumption patterns.
    Therefore, EPA has requested that USDA increase the sampling of
    children in the CSFII 1994-1996 to increase confidence in the dietary
    risk assessments for children.
        EPA has already met with USDA--Agriculture Research Service (ARS)
    to discuss the number of children in the survey, timing, and the data
    collection protocol for the survey. EPA and USDA are committed to
    continued communication to ensure that reliable data to assess the risk
    of pesticide exposure to children from foods is developed.
        The supplementary children's survey is specifically designed to
    address the need for greater representation of children in the CSFII
    1994-1996. It is critical that this data is collected in a timely
    manner using a protocol identical to the one used in the 1994-1996
    survey in order to ensure that the data can be combined, increasing our
    ability to accurately and defensibly estimate children's exposure.
    Failure to adhere to the protocol will jeopardize our ability to use
    the combined survey.
        The larger data set will greatly improve the predictive power of
    the survey as a risk assessment tool. The Food Quality Protection Act
    (FQPA) mandates tolerance reassessments for all existing pesticides
    within ten years. A timely supplementary survey will permit EPA to use
    the data in the particularly complex assessments that EPA will conduct
    early in the process, because of the requirement to reassess the
    ``worst-first.''
        According to USDA, ARS intends to begin the supplemental survey in
    fiscal year 1998. The results will be available for EPA's use in fiscal
    year 2000. USDA's proposed schedule is sufficient to meet EPA's needs.
    EPA and USDA staff have also begun detailed discussion of the design of
    USDA's next CSFII.

                            TRI PHASE II AND SBREFA

        Question. I am concerned about a rulemaking that is currently at
    OMB, TRI Phase II and how the agency may have tried to skirt the
    requirements of the Small Business Regulatory Enforcement Fairness Act
    (SBREFA) and the Paperwork Reduction Act--both of these were supported
    by the President. I understand that this proposed TRI rulemaking was
    issued on June 27, 1996--just two days before SBREFA became effective.
    It would appear that the agency was trying to avoid some of the
    requirements of SBREFA by hastily proposing this rule. For instance,
    convening small business panels to discuss the rule. Also, the
    Paperwork Reduction Act requires the Agency take all ``practical steps
    to develop separate and simplified requirements for small businesses
    and other small entities.'' Can you tell me what the agency has done to
    comply with both SBREFA and the Paperwork Reduction Act for this
    rulemaking?
        Answer. EPA's rulemaking record for the TRI Facilities Expansion
    Rule (TRI-Phase II) clearly demonstrates that EPA did not ``hastily
    propose this rule.'' EPA has been working with TRI stakeholders since
    1992 to identify appropriate sectors for inclusion in this core Right-
    to-Know Program. A review of EPA's outreach, screening process, and
    rulemaking record indicate a thorough and lengthy sector selection
    process. EPA scheduled issuance of the proposed rule for TRI Phase II
    long before the SBREFA requirements came into effect. TRI Facility
    Expansion has been included in the Agencies Annual Regulatory Plan and
    Semi-annual Regulatory Agenda as far back as November 1992. EPA
    conducted a public meeting on Facility Expansion in May 1992. In the
    May 1996 Regulatory Agenda, EPA indicated that the proposed rule would
    be issued in May 1996. However, EPA delayed issuance of the proposal to
    accommodate additional meetings and stakeholder discussions requested
    by various sectors including Chemical Distribution and Hazardous Waste.
    EPA issued its proposed rule on June 27, 1996, not to avoid the
    requirements associated with SBREFA, but to avoid the delays associated
    with repeating its outreach effort. EPA's issuance of this proposal on
    June 27, 1996 reflects a balancing of the Agency's commitment to hear
    from all stakeholders prior to proposal with its obligation to respond
    to President Clinton's August 1995 Directive calling for expedited
    expansion of the TRI program.
        At proposal, EPA provided a number of alternatives for reporting
    and facility coverage for the proposed sectors. As a result, the Agency
    did not take a specific position on whether the rule would have a
    significant impact on a substantial number of small entities. Instead,
    EPA chose to prepare an initial regulatory flexibility analysis and
    presented the analysis for public comment in conjunction with the
    proposed rule. EPA carefully evaluated and considered all comments that
    were provided to the Agency on this issue. EPA believes that its
    sensitivity to small business concerns in developing the proposal, its
    proposal of alternatives, and other provisions such as small facility
    exemptions already built into the program and EPA's commitment to
    assist small businesses with their compliance with the program, more
    than satisfy the provisions of the Regulatory Flexibility Act (RFA) in
    effect at the time of the proposal.
        Notwithstanding the Agency's intention to certify pursuant to
    section 605(b) of the RFA that the rule will not have a significant
    economic impact on a substantial number of small entities, EPA remains
    committed to minimizing small entity impacts when feasible and to
    ensuring that small entities receive assistance to ease their burden of
    compliance. Consequently, in developing the final rule EPA has chosen
    to consider all of the elements of a final regulatory flexibility
    analysis as set forth in section 604. In addition, as noted above, EPA
    will be preparing compliance guides and offering assistance to small
    businesses in complying with the rule.
        With regard to the Paperwork Reduction Act (PRA), EPA believes that
    it has and will continue to work on simplification of reporting
    requirements for small businesses and other small entities. EPA has
    already provided an abbreviated reporting form for facilities with
    relatively low annual reportable amounts, has provided a hotline and
    training sessions for technical assistance, is developing sector
    specific reporting guidance, and provided facility specific, pre-
    printed forms and user friendly software packages. In addition to these
    efforts, EPA will convene a stakeholder process to review additional
    options to reduce reporting burdens.
        Question. What steps have you taken to simplify requirements for
    small business and other entities in this rulemaking?
        Answer. ``The best available information'' required to be reported
    to the TRI, as identified by the Emergency Planning Community Right-to-
    know Act (EPCRA), are based on facility specific data. TRI data is
    information which some reporting facilities may use to operate in an
    efficient and responsible manner. By its nature, some of the
    information is simple and straightforward. For many small businesses,
    only portions of the form need to be completed. The basic requirement
    of the TRI program is that covered facilities submit annual reports on
    their releases, management and transfers of listed toxic chemicals to
    EPA and their respective States. In comparison to many other regulatory
    programs which involve numerous requirements in addition to record-
    keeping and reporting, such as meeting performance standards and/or
    complying with prescribed management practices, the TRI program
    requires only the reporting of information.
        Nevertheless, over the course of the Phase II rulemaking, including
    development of the proposed rule, EPA has taken a number of steps to
    reduce the economic impacts that might be imposed by the rule on both
    small and large entities. For the industries EPA proposed to add to the
    program, the Agency took steps to eliminate reporting burdens for
    distinct facility operations where information was not expected to be
    generated. For example, EPA proposed an exemption from reporting for
    coal extraction activities by facilities in the coal mining group, SIC
    code 12, which simplifies threshold and reporting calculations for
    these facilities. EPA proposed this exemption because it concluded that
    coal extraction activities are not likely to involve the manufacture,
    process, or otherwise use of toxic chemicals above threshold levels,
    and thus facilities operating primarily extractive operations would
    likely not be filing reports.
        In addition to measures such as the examples discussed above, the
    rule will incorporate a number of existing features of the TRI program
    that are designed to reduce burdens on small entities. The statute
    specifically exempts facilities with fewer than ten full-time employees
    or the equivalent. In addition, EPCRA only requires reports from
    facilities which manufacture or process more than 25,000 pounds, or
    otherwise use more than 10,000 pounds, of a chemical in a year.
    Further, facilities that would report as released or otherwise managed
    less than 500 pounds may take advantage of short-form reporting (TRI
    Form A) unless exceeding a 1-million pound alternate threshold for the
    manufacture, process, or otherwise use of a listed toxic chemical. The
    burden of this short form is only two-thirds that of filing the longer
    form R. Moreover, facilities reporting smaller amounts of chemicals may
    report in ranges rather than making more precise calculations. These
    features of the TRI program have a significant burden-reducing impact
    for small entities. For example, there are approximately 9,000 total
    facilities in SIC code 5169 (Chemical Distributors) but only 2,800,
    have ten or more employees. Of these 2,800 only 720 are expected to
    exceed the manufacture, process, or otherwise use threshold for one or
    more chemicals. Therefore, TRI, through its `` built in'' small
    business exemptions, would exempt over 8,000 or 92 percent of the
    Chemical Distributors. Moreover, of the estimated 720 reporting
    facilities, some will be eligible for short-form reporting under the
    alternate threshold, while others will be eligible for range reporting,
    both of which will lower the burden of reporting for the covered
    facilities. In addition, EPA has deferred the reporting associated with
    this rule until January 1, 1998 to facilitate development of sector
    specific guidance and training for small entities.
        Question. Did you conduct a regulatory flexibility analysis for
    this regulation?
        Answer. In accordance with the Regulatory Flexibility Act (RFA) and
    the Agency's longstanding policy of considering whether there may be a
    potential for adverse impacts on small entities, the Agency has
    evaluated the potential impacts of the rule on small entities. At
    proposal, EPA chose not to certify that the rule as proposed would not
    have a significant economic impact on a substantial number of small
    entities. EPA chose to develop an initial regulatory flexibility
    analysis for the proposed rule and provided that analyses to the public
    for comment. For the final rule, EPA certified that the rule will not
    have a significant economic impact on a substantial number of small
    entities. While EPA will, therefore, not be required by the RFA to
    perform a final regulatory flexibility analysis for the final rule, EPA
    has chosen to assess the impact of the rule on small entities, and is
    considering all the elements required in a final regulatory flexibility
    analysis.
        Question. Since there seems to be so many problems with this
    rulemaking, why not pull it back and take the time to get the necessary
    input from small businesses and follow the SBREFA procedures?
        Answer. EPA does not believe that there are significant problems
    with this rulemaking. EPA has conducted extensive outreach with the
    potentially regulated community prior and subsequent to issuance of the
    proposed rule. EPA has considered and evaluated all the issues raised
    by commenters and stakeholders. While EPA may not agree with some
    conclusions reached by some of the commenters, EPA has explained its
    reasoning in response to each of the comments raised. However, not
    agreeing with all these commenters or stakeholders does not mean that
    the Agency has not considered all comments raised nor does it mean that
    there are problems with the rule. As with any rulemaking, there can be
    a difference of opinion about various issues. EPA conducted a lengthy
    and thorough analysis of many different industry groups. EPA deferred
    addition of industry groups where significant questions existed
    relating to TRI reporting and EPA carefully weighed the standards
    provided in and consistent with the statute in deciding to add the
    industry groups included in the final rule. EPA's intentions to expand
    industries covered under TRI have been well publicized for many years.
    SBA and EPA's Office of Small Business Ombudsman have been informed and
    have conducted several meetings where EPA has participated to inform
    industry and industry advocates of the Agency's intent and progress.
    This action fulfills the President's August 8, 1995, directive to
    expedite an open and transparent rulemaking to expand the TRI program's
    industry coverage.

                             TRI PHASE II GAO STUDY

        Question. As you know, the conferees in the fiscal year 1997
    appropriations bill addressed the concerns about expanding the TRI
    program. GAO is currently studying this issue and how the program can
    be improved. We do not yet have the GAO report, how many small
    businesses would be impacted by this rulemaking?
        Answer. Each facility which must file even one report is defined as
    an ``affected'' facility. The Agency estimates that the 6,400
    facilities affected by the rule, i.e. those which must file even one
    report, are owned and operated by approximately 4,800 parent companies.
    Of these 4,800 companies, up to 3,600 of these qualify as small based
    on the applicable SBA size standards.
        Question. Wouldn't it make more sense to wait for the GAO report to
    find out how this program is working before doing additional
    expansions?
        Answer. EPA believes that expanding TRI to include additional
    industries actually addresses one of the fundamental recommendations
    made in GAO's 1991 report, which found that the TRI program was highly
    successful with regard to the chemicals and industries covered at that
    time, but should be expanded to cover more chemicals and industries.
    EPA agrees with GAO's earlier assessment and believes that this action
    will support GAO's recommendation to expand the TRI program to cover
    more chemicals and industries.
        Question. What is the timing of all future expansions?
        Answer. EPA has not established a schedule for any additional
    rulemakings that would add industries to TRI. However, EPA requested
    comments on industries that were not included in the proposed
    rulemaking and committed to considering any comments on those and other
    industries at some point in the future. Many comments were received
    that requested EPA consider the addition of other industries. EPA
    issued an ANPR (61 FR 51322, October 1, 1996) concerning the possible
    collection of additional data elements regarding chemical use.
    Following a series of public meetings and evaluation of public comment,
    EPA will determine whether and how to proceed on that initiative.

                          TRI PHASE II SBA OBJECTIONS

        Question. Last December, Jere Glover, the Small Business
    Administration's Chief Counsel for Advocacy, requested that EPA
    consider the need to include chemical wholesalers and petroleum bulk
    distributors--which are primarily small business facilities that EPA's
    own data indicates release fairly insignificant amounts of pollutants.
    Apparently OIRA also objects to EPA's rule, having extended its review
    of the rule. In light of the objects raised by OIRA and SBA, why is EPA
    unwilling to alter a rule that imposes significant impacts on these
    small businesses without commensurate environmental benefits?
        Answer. EPA does not believe that the addition of the petroleum
    bulk distribution and chemical wholesaling industry segments will
    impose significant impacts on small business. For many facilities
    within these industry groups, EPA believes that estimated impacts may
    greatly overstate the level of impacts that facilities will actually
    face. Many of the facilities within the affected industry segments
    conduct reasonably simple and routine activities which will not require
    the facility to calculate all elements for the TRI reporting form, for
    which costs are based. Further, EPA believes addition of these sectors
    will add significantly to the available public information on the use,
    management, and disposition of toxic chemicals and thus EPA believes
    addition of these industry segments will contribute significant
    environmental benefits. EPA also believes that, based on available
    information, facilities within this industry are comparable to
    facilities within the current reporting sector and are likely to
    provide similar information, thereby furthering the purpose of
    community right-to-know. While these industry segments have relatively
    high numbers of entities meeting SBA's size standards for small
    businesses (up to 500 employees in some cases), some facilities within
    these segments manage large volumes of TRI listed chemicals and
    mixtures containing TRI chemicals in a manner that may result in
    releases and transfers of toxic chemicals and in reports being
    submitted to EPA, the states and the public. EPA believes this
    information is relevant to the purposes of EPCRA and important for
    communities that are trying to assess the impact that industrial
    facilities have on their local environment.

                            TRI PHASE II ADJUSTMENTS

        Question. If these facilities released significant amounts of
    pollutants, I would be among many members of Congress urging EPA and
    the businesses involved to take action to correct the situation. But
    Mr. Glover's letter reveals that EPA overestimated the potential
    releases from some facilities by a factor of 100 and had ``inexplicable
    deleted all records of zero releases from the analysis,'' resulting in
    ``misleadingly higher average release figures.'' Has EPA taken this
    adjustment into consideration?
        Answer. Reporting from these industry segments is significant for
    community right-to-know purposes given the volume of toxic chemicals
    handled and managed by them. Absent addition of these industry
    segments, communities may not have any information on the use and
    disposition of toxic chemicals of concern to them.
        Further, EPA shared the background information for the data
    relating to chemical distribution facilities with SBA and engaged in
    extensive discussions with SBA; however, EPA does not agree with Mr.
    Glover's interpretation of EPA's use of some of the data in question.
    EPA did not use the data in question either to identify the chemical
    distribution industry as a candidate for consideration, or to select
    this industry for addition.
        SBA's statement that EPA overestimated potential releases by a
    factor of 100 is a reference to a report for a single chemical at a
    single facility, which later submitted a revised estimate for that
    chemical. This revision was submitted by the facility in December 1996
    for 1993 activities. The state currently is investigating the
    legitimacy of the revision. However, EPA has already incorporated this
    revision into its analyses. EPA has not revised any analyses that
    excluded reports of zero releases. However, again because these
    analyses were not used in connection with EPA's decision to add the
    chemical distribution industry, neither the reports of zero releases
    nor the 1996 revision from the facility would affect the bases for
    EPA's decision.
                     information resources management (irm)
        Question. How much money is EPA investing in information management
    activities? How much is in the program base? How much additional
    resources does this budget add? Where are the new resources being
    invested?
        Answer. In the 1998 President's Budget, EPA is investing $469.6
    million in its information management activities. The program base for
    information management activities in the Agency's 1997 operating plan
    is $463.4 million. EPA is increasing its information management
    activities by $6.2 million from 1997 (1.3 percent). The increase
    supports the following activities: the President's Community Right-to-
    Know: Kalamazoo Initiative; fixing Year 2000 software problem; building
    regional capacity to support data sharing/data warehousing with the
    states and tribes; and the acquisition and upgrade of the Agency's
    personal computers, servers, and storage capacity requirements.

                                 IRM MANAGEMENT

        Question. How are the Agency's information resources being managed?
    Who is responsible for the overall quality and integrity of EPA's
    information resources? How do they discharge this responsibility? Who
    decides what goes out on Internet? What standards of quality do they
    apply?
        Answer. The Agency's Chief Information Officer (CIO) is responsible
    for developing the information policies that guide the management of
    information resources in EPA. EPA operates in a decentralized
    information management model (i.e., each EPA national program office
    has budget authority and provides certain program-specific information
    management support directly to its operating divisions). Within this
    decentralized model, the CIO retains responsibility for developing and
    implementing Agency-wide information policies. The CIO is also
    responsible for establishing and implementing an Agency IRM strategic
    plan and for providing various centralized information services such as
    management of EPA's National Data Center.
        The CIO executes the information policy function through an Agency-
    wide directives clearance process. This process is guided and informed
    by EPA's Executive Steering Committee for Information Resources
    Management (ESC for IRM). All major Agency programs and functions are
    represented on the ESC for IRM. Additionally, the ESC for IRM
    membership includes representatives of EPA's Regional Offices and
    senior managers of state environmental agencies. Working in conjunction
    with the ESC for IRM, the CIO manages and discharges the Agency's IRM
    policy and management function, including the development of policies
    and standards for data quality and accuracy. Because many Agency
    functions rely on high quality scientific data to effectively protect
    public health and the environment, EPA's Office Research and
    Development is also a leader in developing data quality standards and
    practices for the Agency.
        The information holdings for the Internet are approved by a
    Division Director (usually a Senior Executive Service rank) or higher
    (i.e., Office, Deputy Assistant Administrator, or Assistant
    Administrator) before they are posted to the EPA Internet site. The
    standards used for information released to the Internet are similar to
    those required for publication in other formats such as CD-ROMS, paper,
    bulletin boards, or fax. The quality of the information or data is
    often dictated by the source of the information, be it from a State
    Agency or the official submission from a regulated entity. Most of our
    national systems have data quality edit checks to ensure some level of
    data quality, which varies depending on the data field and the source
    of the data element. EPA's programs have an extensive quality assurance
    program in the design and extract of its databases to assure that
    public databases offer the official data that is contained in our
    national systems.

                                 IRM INVENTORY

        Question. Does the Agency have an inventory of all the information
    resources, public documents and software tools that it has produced,
    endorsed or funded?
        Answer. EPA's portion of the Federal government-wide Government
    Information Locator Service (GILS) provides a high-level inventory of
    the Agency's major publicly available information resources. This
    inventory is available and easily searchable via the Internet, both
    from EPA's website, and from the Government Printing Office's Access
    website.

                            IRM PUBLIC RIGHT TO KNOW

        Question. Since the Agency has emphasized the importance of public
    right to know, what steps are being taken to obtain an understanding of
    the average citizen? How much research and analysis of public
    information needs has EPA conducted? How much has it spent on such
    efforts? Have those efforts established the priority needs of the
    average citizen or have they identified the areas of potential
    interest?
        Answer. Many of our public right to know efforts have been directed
    to the understanding of the average citizen. EPA realizes its customer/
    user community is a wide and diverse group of citizens. Much of our
    work reflecting right to know efforts have been undertaken with EPA's
    State partners. Regional Office staff have also been engaged to discern
    what the public wants. Staff, who directly support Freedom of
    Information Act requests (FOIA), have been consulted so that right to
    know efforts are responsive to FOIA requests. EPA has held
    presentations and focus groups with industry and not-for-profit
    organizations to hear from them what data is being sought by the
    public. Recently, EPA's NACEPT Committee's IRM Subcommittee held public
    meetings on the types of information needed by different types of
    constituent groups.
        In the development and deployment of GILS, EPA held focus group
    meetings in various cities in the United States to understand average
    citizens' interests and requirements. The meetings included average
    citizens as well as environmental and information technology experts.
    Six meetings were held, and a survey conducted, at a cost of
    approximately $5,000.
        This spring and summer, EPA will undertake more directed focus
    groups with the participation of major citizen groups, such as
    children, students, parents, industry representatives, and researchers
    to better understand and hear their needs. Hands on ``lab'' experiences
    are being planned to better understand what the citizens want.
        Understanding citizen needs is also obtained from direct feedback
    to EPA's Internet site. Those comments and feedback submissions are
    provided to the data holders and appropriately addressed. User
    requirements are part of any system development effort. Having a better
    understanding of the citizens' concerns and needs for right to know
    have always been part of program office system design efforts. As part
    of system life cycle costs, they have been part of system development
    efforts that have not been specifically tracked or captured. EPA does
    not track the costs of such efforts, but it estimates that it expends a
    small but growing percentage of its public access budget on such
    research. Constant interaction with the public from the FOIA process
    and from our Internet comments and feedback is a vital step in our
    process for constant improvement to meeting our customer needs. Focus
    group meetings are being conducted in Washington, DC, New York, and
    North Carolina. They all involve hands-on observation of users from ten
    distinct user communities. The total cost is approximately $105,000.

                            PAPERWORK REDUCTION ACT

        Question. What is the current OMB estimate of paperwork burden
    imposed by EPA reporting requirements? What steps will EPA be taking to
    reduce burden as required by the Paperwork Reduction Act (PRA)?
        Answer. As of March 31, 1997, the estimate is 105,664,834 hours. To
    comply with requirements of the Paperwork Reduction Act (PRA) and a
    January 13, 1997 directive issued by the Office of Management and
    Budget (OMB), EPA recently completed a thorough review of its
    information collections with the objective of reducing paperwork burden
    in the aggregate by 25 percent over three years. On April 14, the
    Agency submitted to OMB a comprehensive burden reduction plan.
        As the plan indicates, EPA's information collection and
    distribution functions are going through a period of significant
    change. The Agency is committed to improving data collection, making it
    more useful to the Agency's many constituencies, and thus allowing
    information to serve as a more powerful tool for protecting the
    environment. This commitment is reflected in three different but
    related activities currently underway.
        First, the Agency is in the process of reducing the paperwork
    burden that was in place as of October 1, 1995. By October 1, 1998, EPA
    expects to reduce its October 1, 1995 paperwork burden, by 21.8 million
    hours, or 21 percent of its baseline burden inventory. However the
    reduction is offset by 30.3 million hours of new rule requirements
    coming on line during that period of which the agency is projecting an
    additional reduction of 4.1 million hours. Of the twenty-one
    collections with burden hours greater than one million, sixteen will
    have significant reductions during the three years covered by the plan,
    and two additional ones are scheduled for reductions in 1999 or 2000.
    All-in-all, EPA projects its 10/1/98 burden will rise to 108.5 million
    hours, from its 10/1/95 baseline of 104 million hours.
        Many of the new rules involve information requirements that enhance
    a community's right-to-know. Right-to-know information is environmental
    information presented directly to the public, enabling citizens and
    communities to make informed environmental decisions and providing a
    strong incentive for businesses to improve environmental management
    practices. EPA now has about 15 right-to-know collections, including,
    for example, drinking water notifications, reporting on releases and
    transfers of toxic chemicals, and disclosures by home sellers of lead-
    based paint hazards.
        Under the Paperwork Reduction Act of 1995, ``third-party''
    information, a large subset of this community right-to-know
    information, must be counted as ``burden'' within the Agency's
    information collection budget, even though this information is never
    actually ``collected'' by EPA. By the end of fiscal year 1998,
    community right-to-know information will total at least 26.7 million
    hours, or nearly 25 percent of EPA's total burden.
        The third way that EPA's information collection and distribution
    efforts are changing is through a senior level Burden Reduction and
    Information Technology Executive (BRITE) task group. The Agency is
    looking comprehensively across programs and fundamentally rethinking
    why information is collected, how, and from whom, and then identifying
    ways to improve the process from the ground up. In particular, through
    the BRITE process the Agency is (1) looking at ways to introduce and
    expand the use of electronic recordkeeping and reporting, and (2)
    studying different ways to improve the efficiency of EPA's information
    collection system.
        Because many major environmental programs involve compliance roles
    for both EPA and States, a complex mosaic of information collection
    responsibilities has developed over time. Therefore, a recurrent theme
    in EPA's burden reduction effort is partnership with States in
    implementation of reporting innovations. Coordinated State-EPA action
    is essential for successful implementation of reporting reform, and EPA
    is fully committed to this continuing deliberative process.
        Question. Is EPA prepared to offer legislative proposals to modify
    existing environmental statues where needed to meet the PRA targets?
        Answer. EPA has not identified any specific legislative proposals,
    but will continue to look at this option as it identifies further
    burden reduction opportunities.

                            IRM REPORTING EFFICIENCY

        Question. Will EPA's burden reduction strategy include efforts to
    reduce duplication between EPA programs?
        Answer. Yes, EPA has initiatives underway to improve system
    efficiency in collecting, managing and sharing environmental
    information. EPA's Locational Data Improvement Project and Key
    Identifier Initiative will consolidate information about facilities
    into one standard set of data common to all programs. Through the One
    Stop Reporting Initiative, EPA is working with States to develop a
    coherent overall environmental reporting and data management system
    that effectively serves all stakeholders (the public, regulators, and
    industry). This involves, in part, eliminating redundancies among
    environmental information collections at all levels of government, as
    well as streamlining and improving processes for more efficient
    information management.
        Question. Will it include efforts to adjust reporting obligations
    based on a company's good compliance record?
        Answer. Yes, EPA is investigating further opportunities to build
    upon the successful approach adopted by the Office of Water for the
    Discharge Monitoring Report. On April 16, 1996, EPA issued Interim
    Guidance for reducing the frequency of monitoring and reporting by
    permittees under the NPDES program. Under this guidance, any facility
    that can demonstrate an excellent compliance history, and an ability to
    reduce pollution beyond requirements in existing permits may qualify
    for reduced paperwork burden. Further reductions may be granted for
    facilities that also increase their levels of ambient monitoring and
    share this information with other stakeholders. EPA estimated this new
    approach will result in a 26 percent reduction in burden, or 4.7
    million burden hours, when the program is fully implemented.

                               IRM DATA SECURITY

        Question. What steps is EPA taking to make sure that increased
    public access will not compromise important trade secrets? What steps
    are you taking to build ``firewalls'' between public data readily
    available to on-line access and trade secret data that EPA is obligated
    to protect? Computer networks now allow competitors around the world to
    put together pieces of ordinary data to reveal trade secrets about how
    products are made: what steps are you taking to prevent this problem?
    How are you working with other agencies, such as the FBI, on preventing
    the use of public data to conduct economic espionage?
        Answer. EPA does not post confidential business information (CBI),
    as defined by regulation, on the public access Internet server.
    Databases that are publicly available are screened for CBI information
    and those data elements that are CBI are not modeled for the database
    that would be released to the Internet. Thus, the database copy on the
    Internet does not contain such sensitive data or information.
        Another important category of data is enforcement sensitive
    information. The Office of Enforcement and Compliance Assurance
    provides technical assistance in screening the databases offered on the
    Internet for enforcement sensitive data fields. These data elements are
    not part of the database that is Internet-available.
        While economic espionage is of great concern to EPA, EPA has not
    worked with other federal agencies, such as the FBI, on this particular
    issue. EPA is currently discussing how to handle economic espionage
    problems and concerns with different and diverse industry groups.

                        IRM MISUSE OF ENVIRONMENTAL DATA

        Question. If EPA is made aware of the misuse or the
    mischaracterization of environmental data by third parties, what steps
    is EPA prepared to take to stop such behavior and prevent its
    reoccurrence in the future?
        Answer. The misuse and mischaracterization of environmental data by
    a third party is difficult to control. EPA has its own Internet site
    with proper security and controls. Our Internet site with the domain of
    ``www.epa.gov'' gives the public the assurance that the information
    found from our registered site is the government's information. EPA
    takes great effort to provide descriptions of the purpose and intent of
    data releases on the Internet. EPA's data holdings and information
    offerings provide an explanation as to what the data represents; from
    whom and when this information was obtained or released. Providing a
    thorough description of EPA data and information offerings in the form
    of data dictionaries and registered records is another of EPA's efforts
    to protect the misuse of environmental data.
        Without examples of specific data misuse, it is difficult to answer
    precisely what actions the Agency would take to alleviate the problem.
    It is in EPA's best interest to provide a level, fair, and objective
    information base for the use of environmental information by any and
    all parties who are trying to protect the environment and public
    health. EPA's users are many and quite diverse. It is EPA's intent to
    provide all parties with complete and accurate environmental
    information on the Internet. Of course, ultimately citizens are free to
    provide their interpretations of EPA's data. When EPA is aware of any
    egregious misuse of its data, it attempts to provide clarity in
    appropriate forums.

                           IRM AND STATE-MANAGED DATA

        Question. Since most environmental data collected under EPA
    programs is assembled by state governments, should the principal
    decisions about what to collect and how to manage the data be made at
    the state level? Should EPA be the principal data manager or one of
    several users of state-managed data?
        Answer. The decisions about what environmental data to collect are
    shared between EPA and the states. Data to document compliance with
    Federal regulations and to ensure accountability under EPA-state
    delegation agreements are logically defined by EPA. The states, the
    regulated community and the public are consulted by EPA in defining
    these requirements. The states are also consulted on the methods for
    aggregating and reporting data to EPA. In addition to EPA-mandated
    reports, a few states require reports that go well beyond Federal law.
    Finally, the states both define and finance a large portion of all
    ambient environmental monitoring.
        Most data obtained from those subject to environmental regulations
    are collected by states operating under delegated agreements with EPA.
    The principal exceptions are the Toxic Release Inventory and the
    Biennial Report under the Resource Conservation and Recovery Act. For
    this reason, decisions about data management are increasingly being
    made by states within the framework of the minimum Federal requirements
    established by EPA. The expanding role of the states in data management
    reflects both changes in information technology and an increase in the
    resources and management attention that the states devote to data
    management. This trend also reflects EPA efforts to strengthen its
    partnership with states in this area.
        EPA's One Stop Reporting Program is developing new data sharing
    partnerships with states that have a demonstrated commitment to
    comprehensive data management reforms. The One Stop program emphasizes
    data sharing based on common data standards and appears to offer
    increased efficiency to both the states and EPA. Both EPA and the
    participating states believe that this approach will also reduce the
    reporting burden on industry and enhance public access to environmental
    information.
        In fiscal year 1996, EPA selected five states to receive $500,000
    One Stop Reporting grants: Massachusetts; New Jersey; Missouri; Utah;
    and Washington. In a highly competitive process that attracted
    applications from 31 states, EPA has just selected an additional eight
    states to receive similar grants in fiscal year 1997: Pennsylvania;
    West Virginia; Georgia; Minnesota; Mississippi; Texas; New Mexico; and
    Oregon. Each One Stop state agrees to adopt data management reforms
    including the integration of data around common data standards,
    reduction of reporting burden, enhanced public access, inclusive
    stakeholder participation, strengthened accountability for data
    management, and over the long term, universal access to electronic
    reporting.
        The priority states now assign to data management and data sharing
    is evident in the portion of total reform costs being financed by the
    One Stop states. Although figures vary widely, the typical One Stop
    state is investing $2 to $3 million dollars of state funds annually
    whereas the Federal contribution is a one-time grant of only $500
    thousand.

                            NRC ADDITIONAL NPL SITES

        Question. It has come to the Committee's attention that EPA is
    proposing to place tens or perhaps even hundreds of additional sites on
    the NPL if those sites are cleaned up under the jurisdiction of the
    Nuclear Regulatory Commission (NRC) to NRC's recently developed
    radiological clean up standards. These facilities include universities
    and research organizations with small reactors, radiopharamaceutical
    manufacturers, nuclear power plants, large teaching organizations and
    biotechnology companies. It is my understanding that EPA is under no
    statutory obligation or judicial directive to issue its own regulations
    in this area. Could you please describe for the Subcommittee, NRC's
    response to EPA's proposal to place its licensees on the Superfund
    list.
        Answer. While EPA is not required to set clean-up standards under
    the Atomic Energy Act (AEA), EPA has clear authority to establish
    generally applicable cleanup standards and to provide guidance for
    Federal agencies. NRC and the Department of Energy (DOE), under the
    AEA, must ensure, through licensing requirements and other
    restrictions, that activities at regulated facilities do not exceed
    EPA's generally applicable standards. At this time, EPA is coordinating
    development of cleanup standards with DOE and NRC. However, given NRC's
    proposal to promulgate a rule less protective than what EPA would
    prefer, EPA may reconsider its policy under a separate statute (CERCLA)
    of not listing NRC sites on the Superfund National Priorities List
    (NPL).
        EPA did work extensively with NRC during the development of NRC's
    standards. NRC's proposed rule was considered by EPA to be adequately
    protective of human health and the environment. Throughout the
    rulemaking process, EPA indicated to NRC that a dose limit of higher
    than 15 millirem a year (which EPA estimates corresponds to a risk of
    approximately 3.010-4), and the absence of requirement to
    protect groundwater that could be used as drinking water, might not be
    considered protective. EPA did not know that NRC intended to make
    changes from its proposal until November, 1996. EPA's concerns were
    heightened in April upon review of NRC's draft proposed rule which
    includes an ``alternative criteria'' that would allow the dose limit at
    some sites to be as high as 100 millirems per year (which EPA estimates
    corresponds to a risk of approximately 2.010-3).
        The number of NRC licensee sites that could be added to the NPL is
    dependent upon many factors including the degree of risks posed by the
    site and State concurrence on listing. A precise determination of the
    number of sites that could be listed cannot be determined at this time.
    The probable universe from which the sites which could be listed are as
    follows:

        Total Large NRC Sites \4\ : 275
    ---------------------------------------------------------------------------
        \4\ U.S. EPA Sites Report, July, 1996, unpublished.
    ---------------------------------------------------------------------------
      --Estimated number of large NRC licensee sites.
      --These are sites associated with nuclear fuel cycle and rare earth
            extraction.

        Large NRC Sites Not on the Site Decommissioning Management Plan
    (SDMP) \5\ : 240
    ---------------------------------------------------------------------------
        \5\ EPA expects that only a small fraction of these sites would be
    listed on the NPL.
    ---------------------------------------------------------------------------
        Large NRC Sites on the SDMP: 35
        SDMP sites that are on the NPL: 3

        Other Sites on the SDMP \6\ : 51
    ---------------------------------------------------------------------------
        \6\ U.S. Nuclear Regulatory Commission. November 1995. Site
    Decommissioning Management Plan. NUREG-1444 Supplement 1. Office of
    Nuclear Material Safety and Safeguards. Division of Waste Management.
    ---------------------------------------------------------------------------
      --The draft NRC decommissioning rule dated March 28, 1997 page 31,
            discusses a list of sites that may have ``extensive soil
            contamination (albeit at relatively low levels) and have been
            placed in the Site Decommissioning Management Plan.'' NRC
            indicates that these sites warrant specific attention regarding
            their decommissioning.

                          NRC ADDITIONAL SITE CLEANUP

        Question. In your Superfund budget request--is the cost of cleaning
    up these additional sites included in the budget request?
        Answer. As the final resolution of the issue between EPA and NRC is
    uncertain, no change in budget priorities has been made to prepare for
    EPA response at these sites. If NRC finalizes the regulation in its
    current form, EPA would reconsider listing these sites. However, it is
    premature to assume that EPA must now absorb this additional workload,
    pending actual finalization of the regulation.

                      NRC DUPLICATIVE REGULATORY SITUATION

        Question. In this era of shrinking federal budgets, agencies are
    being asked to do more with less. In light of NRC's oversight and
    separately implemented cleanup program for these sites, do you believe
    the cost and inefficiency of this duplicative regulatory situation can
    be justified?
        Answer. EPA is committed to ensuring that cleanups are protective
    of human health and the environment. Under CERCLA, EPA may choose not
    to respond to certain types of releases if existing regulatory or
    authority under other Federal statutes provides for an appropriate
    response. In its current form, the NRC regulation may not be adequately
    protective of human health and the environment, forcing EPA to
    reconsider its policy of exempting NRC sites from listing on the NPL.
        We hope that NRC will recognize the inefficiency that might occur
    and promulgates a standard that provides the public with the same level
    of protection from radiation that the public receives from other
    chemicals.

                      PULP AND PAPER INDUSTRY CLUSTER RULE

        Question. As proposed in 1994, the new water and air standards for
    the pulp and paper industry, known as the Cluster Rule, would have had
    a devastating affect on this important U.S. industry. As a consequence,
    many members of Congress wrote to you and your staff to express very
    serious and specific reservations. As I understand it, the agency may
    be moving to address these concerns, but a firm date for promulgation
    never seems to be forthcoming. In view of the fact that the U.S. pulp
    and paper industry's capital planning is being held hostage to this
    rule, can you give us some idea of why promulgation has been delayed so
    long and when we can hope to see the rule finalized?
        Answer. This regulation is the first one of its kind to integrate
    analyses of technologies to control both air and water pollution. It is
    also the first to consider an incentives program to encourage mills to
    go beyond the requirements of the Federal regulations and commit to
    improvements toward a low-flow, minimum impact mill of the future.
        What you describe as a significant delay in our schedule to
    promulgate the rule is largely the result of two factors: (1) our
    ground-breaking efforts, involving extensive stakeholder participation,
    to build an incentives program using existing authorities that will be
    a powerful impetus to continuous environmental improvement, and (2) the
    reiterative analytical process that is necessary to consider the
    combined effects of the air and water rules. While this approach has
    resulted in a longer developmental process, EPA is optimistic that the
    lessons we are learning through this process will serve us well through
    this rulemaking and future ones. EPA expects to transmit the rule for
    OMB review in early May 1997.
               pulp and paper industry cluster rule participation
        Question. I understand that in a July 1996 Federal Register notice,
    you indicated that EPA was considering offering regulatory incentives
    for mills willing and able to go beyond the requirements of the final
    cluster Rule. I applaud this approach and hope that the final rule will
    contain a program that provides meaningful rewards for companies
    willing to make the kind of large investments contemplated by your
    original proposal. Since this is precisely the kind of regulatory
    reform initiative many of us support, please share your latest thinking
    with respect to ways in which you will make this program attractive
    enough to gain the widest participation possible.
        Answer. It is our firm belief that many mills are interested in
    improving their environmental performance. Our main goal in the
    incentives program is to provide the necessary flexibility, in the form
    of additional time, for mills to plan for and install improved
    pollution prevention technologies. In addition, we are exploring a
    variety of rewards for mills that achieve standards beyond baseline
    BAT. These incentives include public recognition and consideration of
    their advanced performance in our routine permitting and compliance
    monitoring. We believe many mills will choose to pursue the flexibility
    offered in this package.
                pulp and paper industry cluster rule incentives
        Question. I think it is critical that the final rule contain a
    meaningful incentives program. Do any of your problems stem from
    hesitation regarding the authority you have to offer such incentives?
        Answer. We believe we have the statutory authority to provide an
    effective incentives program. We have explored the mix of options
    available for using regulations, policy and guidance to provide the
    strongest incentives program without tying the hands of the States who
    are our co-regulators. We are currently working out the final details
    of this incentives program.
                                     ______

                     Questions Submitted by Senator Shelby

                            FQPA OFFICE OF MINOR USE

        Question. Will the FQPA mandated Office of Minor Use be in place by
    September 1997?
        Answer. Yes, section 31(a) of FIFRA, as amended by FQPA, requires
    EPA to ``assure coordination of minor use issues through the
    establishment of a minor use program within the Office of Pesticide
    Programs.'' The Agency has been coordinating minor use issues for many
    years. To implement FQPA, EPA's Office of Pesticide Programs is
    developing an organized unit which will include a home for the minor
    use program. The program will establish policies and coordinate all
    minor use pesticide issues within EPA, with other agencies and with all
    interested parties.

                                FQPA MONITORING

        Question. What distinction does EPA make when monitoring
    domestically manufactured products as compared to imported products?
        Answer. EPA makes no distinction between domestic and imported
    pesticides. They must all be registered with EPA and comply with
    identical sets of requirements. All registrants of pesticides subject
    to FIFRA, whether manufactured domestically or outside of the United
    States, must report to EPA the types and amounts of pesticides
    produced, sold or distributed, beginning 30 days after production
    begins and annually thereafter. All products must be registered by EPA
    for their specific use before they can be legally applied, and must
    have an established tolerance or exemption from tolerance if used on
    food or feed commodities. FDA and USDA monitors pesticide residues on
    foods for both domestic and imported commodities. Any food found in the
    U.S. with illegal pesticide residues would be declared adulterated and
    subject to seizure by FDA.

                               FQPA FOREIGN DATA

        Question. Is EPA willing to accept data collected and verified in
    other countries when registering a domestic product? For instance,
    conditions, trials and field work on Canadian canola, peas and lentils
    is very similar to the U.S. situation.
        Answer. EPA has reviewed and accepted data generated in other
    countries to support some registration decisions. EPA will continue to
    do so provided those data are collected under conditions similar to
    those in the U.S. and as long as they meet U.S. standards. EPA will
    continue to work with Canada to harmonize pesticide registration data
    requirements so our farmers have similar pest control tools and are not
    at a competitive disadvantage.

                      FQPA SECTION 18 EMERGENCY EXEMPTIONS

        Question. Section 18's (Emergency Exemptions) are of vital
    importance to production agriculture. Are the timely issuances of
    Section 18's a high priority for agency resources both during and after
    final implementation of the Food Quality Protection Act (FQPA)?
        Answer. Making timely decisions on emergency exemptions has been
    and will continue to be a high priority for EPA. In fact, the first
    decisions which were reviewed and completed under the new requirements
    of the FQPA were emergency exemptions. EPA remains committed to making
    timely decisions on emergency exemptions even though the resources and
    complexities involved with these decisions has substantially increased.

                        FQPA SECTION 18 LEVEL OF REVIEW

        Question. Given the stress on agency resources being created by the
    implementation of the FQPA, does the agency now require the same level
    of review for Section 18's as for full registrations? If so, why is
    this being done since Section 18's result in diminished exposure and
    are time limited tolerances?
        Answer. Emergency exemptions involving food uses have always
    required a significant level of review. Section 18's are primarily only
    allowed when progress can be shown toward a full Section 3 registration
    and the safety finding of ``no unreasonable harm'' can be met. EPA has
    always used the toxicological and environmental fate data submitted for
    the Section 3 to help make the Section 18 decision. FQPA did not change
    the provisions of FIFRA Section 18's or the need for quick responses.
    The additional effort for FQPA is that today we must make and publish a
    formal tolerance determination.
        Section 18's do not result in diminished exposure, only in a
    shorter time span of exposure. Conceivably, many people may be exposed
    for several years to pesticides permitted under emergency exemptions.
    For example, if a Section 18 pesticide is used on corn, people eating
    that corn will be exposed for a shorter time frame but it would be the
    same level of exposure. Therefore, EPA must still consider all of the
    toxicological endpoints of concern, the amount of exposure and what the
    potential risk is to each exposed populations (i.e., adults, children,
    etc.). As a petition to address an emergency situation, the difficulty
    sometimes is that EPA must make a decision in an accelerated time frame
    (the target is fifty days but some situations require EPA to respond
    within a few days).

                   FQPA NEW PRODUCT AND NEW USE REGISTRATIONS

        Question. If the agency is giving up high priority to Section 18's
    and also using up resources for a complete level of review, is this
    decision resulting in a slow down of new product and new use
    registration? If so, is this wise since new and safer products could,
    therefore, be delayed for market use?
        Answer. New active ingredients and ``reduced risk'' chemicals
    continue to receive a high level of priority. While the Agency
    experienced an initial slow down in the 3 months following passage of
    the FQPA, EPA has recently approved a significant number of Section
    18's and new active ingredient registrations. Because these actions are
    given high priority, EPA does not expect that new and safer products
    will be delayed in getting to market. In fact, in the first six months
    of fiscal year 1997, EPA has made more decisions on new active
    ingredients then the historical average.
        Additionally, prior to FQPA, the Biopesticide and Pollution
    Prevention Division (BPPD) was created to focus their efforts on safer
    biopesticides and biopesticides in general. Their processes were well
    implemented prior to FQPA, therefore, there was very little if any slow
    down in their new product and new use registrations due to FQPA. BPPD
    has registered 10 new biological active ingredients (AI's) under FQPA,
    one of which is BT corn, and will register an additional 6-8 new AI's
    in the next six months.

                     FQPA PRIORITIZATION TOP FIVE PRODUCTS

        Question. By forcing companies to prioritize only their top five
    products due to agency resource problems, isn't the agency adversely
    impacting the marketing of new active ingredients and new label for
    existing products for minor uses?
        Answer. EPA established the priority setting policy a year prior to
    passage of FQPA. It does not limit the number of applications which can
    be submitted, rather, it helps industry identify which applications are
    of greatest importance to them and to consumers. The purpose of the
    policy is to align Industry priorities with EPA's workload, and has
    proven to be an important management tool. EPA believes the priority
    planning system has enabled the agency to better manage the resources
    and, in fact, has increased the number of registration decisions for
    new uses and active ingredients. The priority setting process does not
    impact the approval of new pesticides because registrants have never
    had applications for more than two or three new pesticides pending at
    one time. Thus, each company always can make new pesticides their top
    priority with room for other applications as well. Likewise, many minor
    uses are considered priorities in the que. Further, EPA makes IR-4
    minor use tolerance petitions a high priority for review.

                            FQPA DEFAULT TOLERANCES

        Question. In considering whether to establish a tolerance, in
    absence of data on aggregate exposure to a pesticide residue, the
    agency has indicated it will create artificial percentages to represent
    aggregate exposure. This appears to be inconsistent with Section
    405(b)(2) (C) and (D) of the FQPA statute. Under the FQPA, an
    adjustment for aggregate exposure appears to be warranted only when
    there is ``available information'' which evidences a need for an
    adjustment.
        If the agency is spending time on the development of defaults in
    the absence of information, this would appear to be another reason for
    an overload of the agency resources resulting in delays in moving
    products to the market. It may also result in a system which may be at
    odds with the law. Has the agency given consideration to this problem
    and why has it continued to use theoretical defaults in the absence of
    ``available information?''
        Answer. EPA bases all determinations on available information. We
    have an obligation to use the best scientific methodology in evaluating
    the non-food exposures when considering a pesticide for registration,
    an emergency exemption or reregistration. EPA employs default
    assumptions only when information regarding the exposure to the
    pesticide is incomplete. If EPA knows that a pesticide has non-food
    exposures, we believe that it would be inappropriate to act as if such
    exposures are not occurring simply because we don't have rigorous data
    to calculate the precise level of exposure. Instead we will use
    protective but defensible estimates of such non-food exposures in our
    assessments.
        For example, if EPA has information showing a pesticide is
    registered for use in and around the home, EPA believes that
    ``available information'' shows that residential exposure is occurring.
    In the absence of residential exposure data for the exact pesticide
    being evaluated, EPA will attempt to estimate exposure using available
    data. In many instances, for residential exposure, EPA scientists will
    use residential exposure data from other similar pesticides and
    calculate a reasonable exposure value from that data.
        EPA will work to review all available information to refine our
    risk assessments, which could, in fact, lower our exposure estimates
    and allow the approval of additional uses. This approach may be helpful
    in areas where complete data have not been submitted.
        Given the requirements of the law, not using some reasonable value
    representing our best scientific judgement would result in indefinite
    denials of applications while precise data were generated, a process
    which in many cases could delay decisions for a period of many months
    or years.

                         ENVIRONMENTAL SELF-AUDIT LAWS

        Question. Alabama currently has legislation before the State House
    and Senate regarding environmental audit laws. As you are aware,
    environmental audit laws, which have been adopted in 20 states and are
    before 19 state legislatures, help determine the status of a company's
    compliance with federal, state and local regulations. The audits
    generally serve as a basis for corrective actions, remedial programs
    and lead to an improvement in environmental practices. Realizing that
    budgets stretch only so far and the funds for inspection and audits are
    limited, states should be praised for creating a process that
    encourages companies to implement self-audits and then any corrective
    problem.
        While recently EPA has taken small measures to recognize the value
    of environmental audits, why isn't your agency more supportive of the
    states efforts?
        Answer. EPA supports environmental self-auditing and has an
    incentives policy of its own to encourage auditing and other forms of
    self-policing. Nonetheless, EPA opposes audit privilege and immunity
    legislation. Audit privilege invites secrecy, instead of the openness
    needed to build public trust in industry's ability to self police. EPA
    believes that audit privilege greatly complicates criminal and civil
    discovery, and frustrates public access to information. While EPA
    supports penalty mitigation as an incentive for voluntary disclosure
    and correction of violations, EPA believes that to immunize serious
    violations discourages companies from making the investments in
    pollution control necessary to prevent such violations. These are among
    the reasons that audit privilege and immunity laws are strongly opposed
    by law enforcement, state and local officials, citizens, and public
    interest groups.
        Question. Isn't one of the purposes of early detection compliance
    with the law?
        Answer. Yes. EPA's Self-Policing Policy, ``Incentives for Self-
    Policing: Discovery, Disclosure, Correction and Prevention of
    Violations,'' issued on December 22, 1995, encourages early detection
    of environmental problems and their prompt correction. Unlike many
    immunity laws, EPA's policy encourages a high standard of care to
    prevent environmental problems from occurring in the first instance and
    to ensure that those who comply in a timely manner are not
    competitively disadvantaged by those who do not.
        Question. Why is early detection of environmental hazards bad?
        Answer. Early detection of environmental hazards is good in that it
    allows facilities to remediate any environmental damage sooner than if
    the facility waits until the hazard is discovered by a regulatory
    agency or the public. That's why EPA's Self-Policing Policy encourages
    early detection and correction of environmental hazards in exchange for
    reduced penalties.
        Question. Why wouldn't the EPA support creative innovative state
    programs that promote compliance with the law and early detection of
    possible environmental hazards?
        Answer. EPA does support state programs that promote compliance
    with the law and early detection of possible environmental hazards. EPA
    opposes certain state audit privilege and immunity laws precisely
    because they do not promote compliance with the law, but instead
    interfere with law enforcement and with the public's right to know.
        As an alternative to audit privilege, EPA supports efforts by state
    environmental agencies, such as Pennsylvania and Florida, to develop
    penalty mitigation policies with criteria for self audits that are
    consistent with EPA's. Indeed, the EPA has encouraged the development
    of policies that offer penalty mitigation incentives for environmental
    auditing. EPA's Self-Policing Policy is working well to encourage
    environmental auditing and voluntary compliance without the adverse
    consequences to law enforcement and the public's right to know of a
    privilege and immunity bill. As of April 1997, 120 companies had
    disclosed violations at more than 400 facilities under the federal
    policy, proving that environmental auditing can be encouraged without
    blanket amnesties or audit privileges.
        Moreover, federal laws and regulations establish clear standards
    that states must meet to obtain approval to administer federal
    environmental programs. To meet the minimum federal requirements for
    adequate enforcement authority for program approval, states with audit
    laws must retain the ability to obtain penalties and injunctive relief
    for violations, as well as the ability to obtain information needed to
    identify violations or determine compliance status. In analyzing the
    impact of state audit laws, the EPA stands ready to consult with state
    officials to ensure the adequacy of enforcement authority in federally-
    approved state programs. In working with the states, the EPA relies on
    a policy issued February 14, 1997, ``Statement of Principles, Effect of
    State Audit Immunity/Privilege Laws on Enforcement Authority for State
    Programs,'' which articulates the minimum requirements for adequate
    enforcement and information gathering authority for the purpose of
    approving programs in states with audit privilege or immunity laws.
        Question. It seems as though EPA's stance on this matter promotes
    an adversarial relationship with the very states and business that are
    attempting to comply with your agency's regulations. Why?
        Answer. Recently, Administrator Browner met with representatives
    from several states and had a very positive discussion regarding EPA's
    concerns with audit privilege and immunity statutes. Since then, EPA
    has met with the states of Texas and Michigan to work out changes to
    those audit privilege and immunity statutes that would enable the
    states to meet Federal legal requirements. EPA is ready and willing to
    meet with any other states to discuss amendments to existing or pending
    audit statutes for that purpose.
                                     ______

                      Questions Submitted by Senator Craig

                                  WIPP SAFETY

        Question. If WIPP is deemed to be acceptable, will it be safer to
    store waste at WIPP or where it is currently being stored?
        Answer. The waste is currently being stored primarily at ten sites
    throughout the country and, at present, poses no immediate threat to
    public health. However, the dangers with the type of waste
    (transuranic) proposed for disposal at the Waste Isolation Pilot Plant
    (WIPP) is that it is radioactive and will be for tens of thousands of
    years.
        Leaving the waste stored above ground will subject the waste
    containers to degradation from the weather, as well as leave them
    vulnerable to natural or other disasters. The current method of storage
    for transuranic waste is a medium-term fix, not a long-term solution.
    The advantage of a facility such as the WIPP is that, if it is proven
    to comply with the U.S. Environmental Protection Agency's (EPA's)
    disposal regulations, the facility would provide long-term protection
    to public health and the environment.

                                   WIPP COST

        Question. What has been the cost to the federal government to date
    and what is the status of construction at WIPP?
        Answer. EPA defers to DOE for information regarding both the total
    cost of the WIPP facility and the status of construction.

                              WIPP COST OF REVIEW

        Question. Do you have adequate resources to conduct a review of the
    application? What additional resources do you need, if any?
        Answer. Yes, EPA has adequate resources to conduct the review of
    the application in a timely manner. No additional resources are needed.

                            WIPP COMPLETENESS REVIEW

        Question. What is the process of the review you are conducting or
    will conduct, and what is the schedule to complete this review?
        Answer. The WIPP Land Withdrawal Act (LWA), as amended, requires
    that EPA make a determination as to whether WIPP meets the Radioactive
    Waste Disposal Regulations at 40 CFR Part 191. The LWA requires that
    EPA make this determination by rulemaking under Section 553 of the
    Administrative Procedures Act (APA). EPA is currently proceeding with
    rulemaking activities in accordance with the provisions of the WIPP
    Compliance Criteria at 40 CFR Part 194.
        The Agency is taking every step to facilitate the certification
    decision. We are reducing the complexity and amount of time required
    for internal Agency review of the certification decision, and would
    like to expedite the time required for interagency review. We estimate
    that once DOE has provided all the required information identified in
    our March 19, 1997 letter to the Department, the Agency will produce a
    final certification decision within a minimum of 10 months. The
    expected certification decision of the DOE WIPP application is
    currently April 1998. This date is subject to change depending, in
    part, on the planned DOE delivery to EPA of the confirmatory
    verification test of the performance assessment by early July, 1997.
        It is the Agency's goal to make a technically and legally
    defensible decision since it is likely that any decision will be
    subject to litigation. If EPA's final determination is not legally
    defensible, and it is overturned in court, the possibility of WIPP
    opening could be significantly delayed.

                         WIPP COMPLETENESS REVIEW START

        Question. Is there any prohibition as to when you can begin your
    evaluation of the Completeness Certification Application in 40 CFR
    194.1?
        Answer. There are no prohibitions identified in 40 CFR 194.11
    [Section 40 CFR 194.1 identified in the question addresses the purpose,
    scope and applicability of the 194 regulation, while 40 CFR 194.11
    addresses completeness and accuracy of compliance applications]
    regarding when EPA can begin review of completeness following DOE's
    submission of the WIPP Compliance Certification Application (CCA). In
    fact, the Agency began review of the CCA immediately following receipt
    of the CCA on October 29, 1996. The Agency informed DOE on December 19,
    1996, that additional information was required for a complete
    application. Since that time, the Department has periodically provided
    information to fulfill that request. The Agency received the last
    installment of information on that request and, as promised by
    Administrator Browner, will make a completeness determination in May,
    1997.

                         WIPP CERTIFICATION EVALUATION

        Question. How would you characterize EPA's evaluation for
    certification--is it a technical review of the application?
        Answer. EPA is conducting a technical review of DOE's application.
    This review is designed to determine whether DOE has demonstrated a
    reasonable expectation of compliance with the disposal standards in 40
    CFR 191. Reasonable expectation is demonstrated by compliance with the
    criteria identified in 40 CFR 194.

                          WIPP APPLICATION COMPLETION

        Question. The application was filed at the end of October, 1996. To
    date, your reviews of the application have not been for the purposes of
    certification but for purposes of determining whether the application
    is complete--is that correct? What is the definition of complete and is
    that consistent with the definition found in 40 CFR 194.1?
        Answer. No. EPA has conducted both its technical and completeness
    reviews simultaneously and has been doing so since receipt of DOE's
    application on October 29, 1996.
        A complete application, as defined in EPA's Compliance Application
    Guidance (EPA 402-B-95-014), is one which addresses each of the
    requirements of 40 CFR 194 in such a manner as to warrant further
    scrutiny, so that EPA, DOE, and the public do not invest major
    resources in a rulemaking proceeding for an incomplete document. A
    completeness determination is a preliminary step in a more extensive
    administrative process and is consistent with the process identified in
    40 CFR 194.11 [as previously noted, 40 CFR 194.1 addresses the purpose,
    scope and applicability of the 194 regulations, while 40 CFR 194.11
    addresses completeness and accuracy of the application].

                        WIPP REVIEW COMPLETION SCHEDULE

        Question. Would EPA please provide the Subcommittee with its
    schedule for a timely completion of review of the WIPP application
    within the next two weeks?
        Answer. The Agency is taking every step to facilitate the
    certification decision. We are reducing the complexity and amount of
    time required for internal Agency review of the certification decision,
    and would like to expedite the time required for interagency review.
        EPA would like to publish a proposed rule approximately 2\1/2\
    months after DOE submits all the information EPA requested to fulfill
    the requirements of 40 CFR 194 (as identified in the March 19, 1997
    letter from EPA to DOE). Following proposal, a four month public
    comment period will begin as required by 40 CFR 194. Upon completion of
    the public comment period, EPA will need a minimum of 3\1/2\ months to
    accomplish an expedited rulemaking process including responding to
    public comments, completing the technical support, drafting the final
    rule and completing the intra and interagency review. In total, it will
    take the Agency a minimum of 10 months to complete the final
    certification decision once DOE has submitted the required information.
    The expected certification decision of the WIPP application is
    currently April, 1998, although subject to change depending, in part,
    on the planned delivery to EPA of the confirmatory verification test of
    the performance assessment by early July, 1997.

                           WIPP INFORMATION FROM DOE

        Question. Does EPA recognize a difference in the review process
    between requests to DOE for information related to a completeness
    determination and other additional requests for information which are
    for technical sufficiency or of a general nature?
        Answer. Yes. The Agency has specified the difference in its letters
    to the Department. The Agency sent a letter to DOE on December 19,
    1996, which identified areas of completeness and technical sufficiency;
    it also identified areas where necessary supporting documentation to
    demonstrate compliance with the regulatory requirements of 40 CFR 194
    was lacking. Enclosed with the letter were separate attachments for
    items of completeness and technical sufficiency. The December 19, 1996,
    letter was the only one which identified additional information needs
    related to completeness.

                        WIPP COMPLETENESS DETERMINATION

        Question. Is EPA's failure to issue a completeness determination
    based on requests for information of technical sufficiency?
        Answer. No. It is based solely on those items identified in the
    December 19, 1996, letter where additional information is required for
    purposes of completeness.

                 WIPP REVIEW: REASONABLE EXPECTATION STANDARDS

        Question. Does your review conform to the reasonable expectation
    standards contained in 40 CFR 191 and 194? Please be specific as to how
    this might relate to any requests for additional information relating
    to parameter evaluations, parameter variance determination and
    confirmatory performance assessments.
        Answer. Yes. Regarding the parameter values chosen by DOE, EPA
    reviewed the available record on all of the approximately 1,500
    parameters used in the WIPP performance assessment. Section 40 CFR
    194.23 requires, among other things, for ``detailed descriptions of
    data collection procedures, sources of data, data reduction and
    analysis, and code input parameter development.'' From our review, EPA
    identified 58 parameters which could have a significant impact on the
    results but the supporting data could not be found, the data did not
    support the values chosen, or the connection between the data and the
    chosen value was unclear. Questions about the values chosen for many of
    these parameters were also raised by DOE's own peer review groups, the
    National Academy of Sciences, the Congressionally appointed
    Environmental Evaluation Group and public commenters.
        EPA has asked DOE to resolve the discrepancies between the
    information available in the record and the parameter values chosen.
    Where that cannot satisfactorily be accomplished, EPA will evaluate the
    data and provide parameter value(s) to DOE. The parameter variance
    determination was one tool which EPA used to determine whether each of
    those 58 parameters did indeed play a significant role in the results.
    If the results showed that a parameter did not play a significant role
    in the results, that parameter was dropped from consideration. EPA has
    already provided DOE a partial list of parameter values in an April 17,
    1997, letter. Since this exercise has resulted in changes to some of
    the parameters which play a significant role in the results of the
    performance analysis. EPA has requested a confirmatory verification of
    the performance assessment to be completed by DOE using the parameter
    values which EPA believes more adequately reflect the available data.
        As stated earlier, EPA's goal is to make a final determination
    which is both technically and legally defensible.

               WIPP AND SANDIA NATIONAL LABORATORY COMPUTER COSTS

        Question. Is EPA planning to duplicate all of the computer codes
    developed by Sandia National Laboratory? Will you use these codes to
    determine whether or nor the ultimate findings made by DOE are
    supportable?
        Answer. No. EPA has not, nor does it plan to duplicate any of the
    computer codes developed by Sandia National Laboratory.
        EPA has and will conduct exercises to verify that the computer
    codes developed by DOE produce reasonable and stable results. This is
    accomplished through benchmarking of the DOE codes against existing,
    commercially available codes used for similar purposes.

                     TECHNOLOGY NEUTRAL RECORDS OF DECISION

        Question. I understand the Department of Energy's Environmental
    Management Program is proposing to perform Superfund Records of
    Decision that are technology neutral. This approach is proposed so that
    private industry can bring competitive technologies to bear on DOE
    problems, based solely on the required cleanup end state for the site.
        Given EPA's promotion of consensus-based remedy selection, could
    you comment on how you think the public and state regulators would
    respond to technology neutral RODS? Has DOE requested EPA comment on
    this approach? What is your response to a technology neutral ROD
    approach?
        Answer. The Agency is not familiar with the term ``technology
    neutral'' ROD's. However, your explanation of the concept of signing
    ROD's that rely on performance of a remedy is quite challenging and on
    the surface may seem deceptively easy. What follows are some issues
    that any performance-based ROD process would need to address.
        The circumstances found at Superfund sites vary, both in the
    characteristics of the contaminants and in the different trade-offs
    that accompany any technology applied at the site. Such trade-offs can
    include different possible uses of the land after cleanup, different
    levels of emissions during cleanup, different time frames to complete
    cleanup, different levels of long term reliability and maintenance, and
    different costs. Each of these factors, along with others, is
    considered during the selection of remedy process identified in the
    National Contingency Plan. Equally important is the NCP's open
    decision-making process that incorporates community views. The Agency
    has learned that full involvement of the community in making decisions
    at sites leads to a successful, supported cleanup. It is this
    involvement that would have to be incorporated into any consideration
    of this concept in the long run.
        However, there are opportunities for flexible approaches (e.g.,
    treatment that offers similar performance relative to most NCP
    criteria) that should be considered within the context of an open
    consensus based decision making process.
        Selecting only end-of-the-line performance in a remedy would appear
    to bury many of the important lessons we have learned over the past 15
    years. For example, in 1991 the Superfund program began a series of
    program reforms, one of which directly relates to the concept you set
    forth. The reform called for treatability studies, which review the
    capability of new, innovative technologies to accomplish a hazardous
    waste cleanup, to be conducted prior to selection of a remedy. The
    reform addressed citizen concerns about technology selection after a
    ROD is signed. We have learned that it is most efficient and cost
    effective to ``compete'' new technologies in advance of signing a ROD.
        More recently, EPA issued a presumptive approach for cleanup of
    ground water contamination in fiscal year 1996. This approach calls for
    developing a complete response to contaminated ground water based on
    incremental results (i.e., performance) of technologies put in place.
    This approach provides an iterative process for response that ensures
    both protection of human health and the environment and is a cost
    effective, appropriate response to ground water contamination at sites.
        While DOE and EPA staff apparently have had some preliminary
    limited discussions, DOE has not formally requested EPA comment on this
    approach at this time.

                             TECHNOLOGY DEVELOPMENT

        Question. The Department of Energy's Environmental Management
    Technology Development Program has a new technology development
    initiative to advance implementation of recently developed and
    demonstrated cleanup technologies. Is your agency working with the DOE
    to ensure the deployment benefits are passed on to DOD and private
    sector cleanup sites?
        Answer. Yes, EPA is working with DOE to coordinate the deployment
    of new technologies. EPA is participating as a member of DOE's
    Environmental Management Advisory Board-Technology Development and
    Transfer Committee. EPA also participates with DOE, DOD, and other
    federal agencies in the Federal Remediation Technologies Roundtable.
    The Roundtable was created to exchange information on site remediation
    technologies, and to consider cooperative efforts that could lead to
    greater application of innovative technologies. These collaborative
    efforts have led to technology development and demonstration
    partnerships with industry and a unified federal approach to assessing
    and documenting technologies.
        Question. What is your agency doing to encourage the use of
    innovative and alternative technology in the cleanup industry?
        Answer. EPA is actively involved in encouraging the use of
    alternative and innovative technology. Under the Office of Solid Waste
    and Emergency Response (OSWER), the Technology Innovation Office
    operates to reduce barriers for new treatment and site characterization
    technologies. The use of innovative treatment technologies has
    increased over the past several years and in the Superfund program,
    approximately one-third of the treatment technologies chosen for source
    control may be considered as innovative.
        OSWER is assisting private developers by publishing market studies
    and hosting marketplace conferences (in cooperation with DOE and other
    agencies) to better define the near-term demand for innovative
    technologies. To inform site managers about current technology
    capabilities, OSWER has developed two computer-based systems with
    information about vendors who supply treatment, as well as
    characterization and monitoring technologies, to the marketplace. The
    data bases allow site managers to identify potentially applicable
    technologies and the vendors who supply them. OSWER is also sponsoring
    an American Academy of Environmental Engineers project to publish peer-
    reviewed design manuals to give consulting engineering firms access to
    state of the art information on the applicability of technologies to
    various contamination problems. In an effort to pool risks associated
    with technology development, OSWER and EPA's Office of Research and
    Development are jointly leading an effort with other agencies and
    several Fortune 500 companies to jointly develop and evaluate treatment
    technologies. The Remediation Technologies Development Forum (RTDF)
    harnesses the intellectual and financial resources of the agencies and
    companies to develop technologies of mutual interest. This pooling of
    effort reduces the financial burden and risk of technology research on
    any one organization. EPA leads another collaborative effort to
    evaluate characterization and monitoring technologies. The Consortium
    for Site Characterization provides developers with an independent
    evaluation of their technology's performance. The RTDF and Consortium
    efforts will accelerate the evolution of new methods and their
    acceptance by federal and state regulators as well as technology users.
        EPA's Superfund Innovative Technology Evaluation (SITE) program has
    been evaluating new treatment technologies for over a decade. Under
    SITE, the agency enters into cooperative agreements with vendors to
    demonstrate and evaluate technology performance.
        OSWER has issued a policy directive affirming our commitment to
    technology innovation. The directive provides additional flexibility to
    support the development, demonstration, and application of treatment
    technologies, particularly those which address groundwater
    contamination and those which involve potential cost saving by treating
    wastes in situ. We also see the potential for significant benefits in
    productivity and cost savings through increased use of field
    measurement and monitoring methods. Our policy directive supports
    broader use of such approaches. We also hope to bring our increased
    regulatory flexibility together with desirable attributes of federal
    facilities to act as test beds for innovative technology development
    and demonstration.
        EPA produces a vast amount of information describing markets and
    assessing new treatment and site characterization technologies. The
    Technology Innovation Offices's homepage at HTTP://CLU-IN.COM is
    dedicated to the exchange of information related to new technologies
    for soil and ground water cleanup.
        Question. Would a centralized national effort to demonstrate
    deployability of new cleanup or monitoring technology be a worthwhile
    goal for the country?
        Answer. At the present time, there are several different agency
    efforts to demonstrate and promote new cleanup and monitoring
    technology. Many of these efforts currently involve extensive
    coordination among federal agencies. A summary of these programs may be
    found in the Roundtable publication, Accessing the Federal Government:
    Site Remediation Technology Programs and Initiatives. An advantage to
    having separately administered efforts is the ability of the sponsoring
    agency to tailor their program to their own particular cleanup needs
    while avoiding the possibility of a bottleneck which could result from
    a centralized effort.

                          CLEANUP CONTRACTOR LIABILITY

        Question. Should a contractor's liability be based on the
    consequences of their performance? In other words, should the
    contractor be held to a professional standard of negligence rather than
    one of strict, joint and severable liability?
        Answer. Under current law, response action contractors are uniquely
    situated, in that they are not liable under CERCLA unless the release
    is caused by conduct of the response action contractor that is
    negligent, grossly negligent, or which constitutes intentional
    misconduct. 42 U.S.C. Sec. 9619(a)(2). EPA has not proposed any
    deviation from this standard.
                   cleanup contractor liability orphan shares
        Question. Who should hold the liability for hazardous waste
    generation and orphaned sites for government-owned and operated
    facilities, the government or the operating contractor?
        Answer. The Federal government is responsible for compliance and
    cleanup at Federally owned facilities so these are not ``orphan
    sites''. Where EPA has authority under a given statute to initiate an
    enforcement action against an owner or operator at a Federal facility
    and the contractor fits the statutory or regulatory definition of an
    operator, EPA can hold Federal agency, the contractor-operator or both
    liable. Determinations whether to hold the Federal agency or the
    contractor-operator liable are made by EPA regional offices based upon
    site-specific factors, such as whether the contractor is believed to
    have contributed to the contamination at the facility.
        EPA's policy on contractor vs. government agency liability is
    described in a document titled ``EPA Enforcement Policy for Private
    Contractor Operators at Government-Owned/Contractor-Operated (GOCO)
    Facilities'', issued January 7, 1994. A copy is attached.

                           SUPERFUND REAUTHORIZATION

        Question. I congratulate you for the well-intentioned
    administrative reforms you have sought to implement in the federal
    Superfund program, and also for your public statements about the need
    for fundamental statutory changes to increase the pace of cleanups.
        According to engineering and construction firms engaged in
    environmental remediation work around the country, the pace of cleanups
    has slowed significantly during the lengthy, ongoing debate over
    comprehensive reauthorization legislation.
        The administration proposed a $650 million increase for the
    Superfund program in its fiscal year 1998 budget request yet has not
    seen fit to offer comprehensive reauthorization legislation during this
    Congress.
        What assurance can you provide that the Administration will work
    with Congress to enact comprehensive reauthorization legislation before
    the end of the current fiscal year?
        Answer. Over the past several weeks, Senate Committee staff, the
    Administration, and a broad based group of stakeholders have been
    involved in extensive discussions of the issues and concerns
    surrounding reauthorization of the Superfund law. These discussions are
    intended to build a common understanding of the issues that require
    legislative action. During this time, I have met with several members
    of the Environment and Public Works Committee to stress the importance
    of enacting Superfund reauthorization quickly. In the House, similar
    discussions to identify issues that may require legislative action are
    underway.
        I am encouraged by the discussions to date, and have directed EPA
    staff to continue to build the kind of consensus-based agreement that
    is a requisite to revision of this law. It is the responsibility of
    Congress to move legislation forward, so I am not in a position to
    ensure enactment of legislation this year. We remain committed to
    working in a bipartisan fashion with Congress and Superfund
    stakeholders in good faith efforts to develop responsible legislative
    reform of Superfund this year. That reform must continue to build upon
    the successes of the current Superfund program and be rooted in common
    sense.
                                     ______

                     Questions Submitted by Senator Bennett

                PRICE COALBED METHANE PROJECT EIS NEPA OVERSIGHT

        Question. What is EPA's role in the administration of the National
    Environmental Policy Act?
        Answer. The Environmental Protection Agency (EPA) has two major
    roles in the administration of the National Environmental Policy Act
    (NEPA). The first role is mandated by section 309 of the Clean Air Act,
    and requires EPA to review certain federal actions including all
    environmental impact statements, comment to the lead agency in writing,
    and make the comments available to the public. It further directs the
    Administrator of EPA to refer to the Council on Environmental Quality
    (CEQ) any `` * * * legislation, action, or regulation * * * '' that the
    Administrator determines to be `` * * * unsatisfactory from the
    standpoint of public health or welfare or environmental quality * *
    *.''
        The second role played by EPA is under a memorandum of
    understanding with CEQ whereby EPA is responsible for accepting
    environmental impact statements for filing from federal agencies and
    publishing each week in the Federal Register a Notice of Availability
    that starts the official comment period for the documents.
        Question. What is the relationship between EPA and CEQ with regard
    to NEPA oversight?
        Answer. The Environmental Protection Agency (EPA) and the Council
    on Environmental Quality (CEQ) have worked closely together through the
    years in the overall administration of the National Environmental
    Policy Act (NEPA). CEQ is responsible for NEPA oversight and for
    issuing regulations and guidance to federal agencies to support their
    compliance with the Act. EPA is responsible for reviewing individual
    projects subject to the environmental impact statement requirements of
    NEPA and, where necessary, referring environmentally unsatisfactory
    projects to CEQ. The two agencies coordinate their activities to avoid
    duplication of effort while working to protect the environment from
    unanticipated adverse impacts from federal actions.
        Question. Which agency is ultimately responsible for the
    administration of NEPA?
        Answer. The Council on Environmental Quality is ultimately
    responsible for the administration of NEPA.

                 PRICE COALBED METHANE PROJECT EIS EPA COMMENTS

        Question. Is it routine for EPA to comment on the substantive
    aspects of Environmental Impact Statements prepared by other agencies?
        Answer. It is routine for EPA to comment on the substantive aspects
    of environmental impact statements (EIS's) prepared by other agencies.
    Section 309 of the Clean Air Act directs the Agency to do so, to
    comment in writing on the EIS's, and to make those comments public.
    When we believe that a project is so environmentally unsatisfactory
    that it is a candidate for referral to the Council on Environmental
    Quality, we comment to that effect when we review the draft EIS to
    ensure that the responsible federal agency understands our concerns
    about the project.

                PRICE COALBED METHANE PROJECT EIS UTAH WILDLIFE

        Question. What sources of information did EPA rely on to base its
    comments on the management of wildlife in Utah?
        Answer. Sources of information used by EPA included the concerns
    raised in the draft environmental impact statement (DEIS) prepared by
    Bureau of Land Management, telephone conversations with the Utah
    Division of Wildlife Resources (UDWR) staff, and the Utah Division of
    Wildlife Resources' draft comments on the DEIS. The EPA lead reviewer
    believed that the comments raised valid concerns, and EPA's comments
    supported the UDWR's concerns.

               PRICE COALBED METHANE PROJECT EIS WILDLIFE EXPERT

        Question. Please identify the wildlife expert employed by EPA which
    provided the information by which Ms. Campbell relied upon to make the
    assertions in the December 30 letter.
        Answer. The potential for significant impact to wildlife in the
    project is discussed in the draft environmental impact statement
    (DEIS). After reviewing the document, Mike Strieby, the EPA Review Team
    Leader, contacted the Utah Division of Wildlife Resources (UDWR) to
    discuss concerns raised by review of the document, since the Gordon
    Creek Wildlife Management Area is managed under an existing Habitat
    Management Plan approved by the UDWR Habitat Council. The management
    goals under this plan, jointly administered by UDWR and the Bureau of
    Land Management (BLM), are `` * * * to manage habitats for optimum
    numbers and diversity of wildlife species with special emphasis on
    deer, elk, and moose, and to allow regulated public access for
    consumptive and nonconsumptive uses that do not unduly impact habitat
    or wildlife during crucial periods'' (page 3-42, DEIS).
        EPA requested a copy of UDWR's comments and, based on discussion
    with UDWR, review of its draft comments, and EPA's own review of the
    draft EIS, the Lead Reviewer for EPA concluded that the Price Coal Bed
    Methane project goals conflicted with the Habitat Management Plan for
    the same area. UDWR in its January 2, 1997, letter to BLM also made
    this same point.
        Question. Were comments or suggestions provided to EPA by other
    agencies or commissions of the federal government regarding the impacts
    of the Gordon Creek Wildlife Management Area prior to December 30,
    1996?
        Answer. Neither comments nor suggestions were provided to EPA by
    other agencies or commissions of the federal government regarding the
    impacts of the Gordon Creek Wildlife Management Area prior to December
    30, 1996.
        Question. Did EPA seek or receive information from any nonprofit or
    private organization regarding the DEIS and the impacts on wildlife?
        Answer. EPA did not seek information from any nonprofit or private
    organization during its review of the draft EIS. Unsolicited comments
    were received from the Moab Sportsman's Club concerning wildlife
    impacts. These comments were consistent with the concerns expressed by
    the Utah Department of Wildlife Resources; they were not specifically
    used in EPA's review.

             PRICE COALBED METHANE PROJECT EIS WILDLIFE MANAGEMENT

        Question. How long has EPA been responsible for wildlife
    management?
        Answer. In the review of environmental impact statements, EPA
    examines the analyses in the document and comments in its areas of
    jurisdiction and expertise, as directed by the Council on Environmental
    Quality's NEPA implementing regulations. More broadly, section 309 of
    the Clean Air Act directs EPA to review the document to determine
    whether it is unsatisfactory from the standpoint of public health or
    welfare or environmental quality. EPA considers terrestrial and aquatic
    habitat concerns to be important elements of environmental quality, and
    consequently does include comments on habitat issues in its comments.
    The comments, however, are advisory in nature and EPA cannot
    unilaterally require another federal agency to follow its
    recommendations concerning wildlife management. EPA does believe,
    however, that its concerns should be addressed for the public record in
    the final EIS.
        Question. Does EPA have statutory authority to supersede wildlife
    management practices and/or the recommendations of states?
        Answer. EPA does not have direct statutory authority to impose
    wildlife management practices on federal agencies or states.

               PRICE COALBED METHANE PROJECT EIS CATEGORY RATING

        Question. I understand that EPA has procedures to evaluate the
    adequacy of information in EIS's and a category rating system. Where is
    that system described?
        Answer. The category rating system is described in EPA's ``Policies
    and Procedures for the Review of Federal Actions Impacting the
    Environment,'' which was published on October 3, 1984. This document
    was a revision of the original ``Environmental Review Manual'' dated
    March 1, 1975.
        Question. What are the categories?
        Answer. The rating system used in the review of draft environmental
    impact statements (DEIS's) is an alpha-numeric system that rates both
    the environmental impact of the action and the adequacy of the impact
    statement. The categories for environmental impact are (1) LO (Lack of
    Objections), (2) EC (Environmental Concerns), (3) EO (Environmental
    Objections), and (4) EU (Environmentally Unsatisfactory). The
    categories for document adequacy are ``1'' (Adequate), ``2''
    (Insufficient Information), and ``3'' (Inadequate). Ratings that
    include an ``EU'' on project impact or ``3'' on document adequacy are
    candidates for referral to the Council on Environmental Quality if the
    final EIS does not demonstrate that the project will not be
    unsatisfactory from the standpoint of public health or welfare, or
    environmental quality.

                PRICE COALBED METHANE PROJECT EIS EPA AUTHORITY

        Question. What is the basis of EPA authority to rate an EIS
    prepared by another agency as adequate or inadequate?
        Answer. Section 309 of the Clean Air Act directs EPA to review and
    comment in writing on the environmental impact of projects subject to
    the environmental impact statement (EIS) requirements of the National
    Environmental Policy Act (NEPA), and to make those comments public at
    the conclusion of the review. It further directs the Administrator to
    refer to the Council on Environmental Quality any proposed projects
    when the Administrator determines that the proposed project is
    unsatisfactory from the standpoint of public health or welfare or
    environmental quality.
        EPA provides a rating to the lead federal agency which summarizes
    EPA's level of concern. The EPA review is primarily concerned with
    identifying and recommending corrective action for the significant
    environmental impacts associated with the proposal. Review of the
    adequacy of the information and analysis contained in the draft EIS's
    is done to support this objective.

                     PRICE COALBED METHANE PROJECT EIS OEPR

        Question. What is the Office of Ecosystem Protection and
    Remediation? What is the mandate of this office? What is its annual
    appropriation? How many FTE's are employed by this office?
        Answer. The Office of Ecosystem Protection and Remediation was
    formed as part of Region VIII EPA's reorganization in October of 1995.
    Parts of the previous Hazardous Waste Management Division and the Water
    Management Division were reorganized to form this new office. The new
    organization moved away from a statutory/media organization to a
    functional/strategic principle structure based upon EPA's July, 1994
    Five Year Strategic Plan. The guiding principles behind the
    reorganization included:
      --Ecosystem Protection
      --Pollution Prevention
      --Partnerships with State, Tribal, Federal and Small/Regulated
            Communities
      --Improved Science
      --Multi-Media/Sector Strategies and Results
      --Enhanced Communication and Public Involvement
      --Enhanced Regional Strategic Planning and Implementation
      --Reinventing Management.
        The Office of Ecosystems Protection and Remediation is responsible
    for the identification, characterization, and remediation of
    contaminated areas and sites under CERCLA authorities. This
    organization is also the focal point for ecosystems protection
    coordination and priority setting in the Region. Included in the
    ecosystems protection activities, are mine waste, NEPA, community based
    environmental protection, wetlands, water quality standards, non-point
    source, total maximum daily loads, stormwater permitting, watersheds,
    Clean Lakes, salinity, water quality monitoring, groundwater
    activities, source water protection for drinking water, and whole
    effluent toxicity.
        Of the funds that Region VIII received in the fiscal year 1997
    enacted operating plan, $32,978.2 thousand was provided to the Office
    of Ecosystem Protection and Remediation to manage on behalf of the
    Regions. These ``extramural'' funds are for the following purposes:
                                                                  Dollars in
                                                                   thousands

    Superfund Site Response & Technical Enforcement Budgets....... $11,011.4
    Superfund Site Specific Response Funds........................  10,034.2
    Oil Spill Funds...............................................     205.5
    Regional Geographic Ecosystem Protection Initiatives..........     870.3
    Regional Wetlands Program Funds...............................      34.4
    Non-point Source/319 State Grants.............................   8,564.6
    Water Quality Management Cooperative Agreements...............     729.6
    Wetlands State/Tribal Grants..................................   1,528.2

        Of the above amount, $11,727.1 thousand has been provided
    to the Ecosystem Protection Program to manage on behalf of the
    Region. These funds are:
                                                                  Dollars in
                                                                   thousands

    Regional Geographic Ecosystem Protection Initiatives..........    $870.3
    Regional Wetlands Program Funds...............................      34.4
    Non-point Source/319 State Grants.............................   8,564.6
    Water Quality Management Cooperative Agreements...............     729.6
    Wetlands State/Tribal Grants..................................   1,528.2

        Region VIII is allocated 616 FTE in fiscal year 1997, of which
    155.7 are allocated to the Office of Ecosystem Protection and
    Remediation. The Ecosystem Protection Program received 49.2 of the
    155.7 FTE.

                 PRICE COALBED METHANE PROJECT EIS OEPR MANDATE

        Question. Does EPA's Office of Ecosystem Protection and Remediation
    share a similar mandate within other federal agencies?
        Answer. The Region is not aware of another federal agency organized
    similarly, although our Regional structure is similar to a number of
    other EPA Regions. The United States Forest Service, and the Bureau of
    Land Management, however, do look at problems with managing their lands
    in a holistic fashion and thus use an ecosystem scale to frame their
    decisions. EPA Region VIII in organizing the Ecosystem Protection
    Program recognized that environmental problems are often multi-media in
    nature, and set up a structure with staff trained in many different
    media programs that could respond to the complex environmental problems
    that exist in communities today.

             PRICE COALBED METHANE PROJECT EIS ECOSYSTEM PROTECTION

        Question. Please define ecosystem protection.
        Answer. EPA encourages ecosystem management and economic
    development that promotes the health and productivity of natural
    systems. Ecosystem protection is the use of our statutory mandates to
    maintain those ecological functions and processes that are vital for
    ecosystems and the services that they provide to humans. This
    protection is focused on specific geographic areas with an emphasis on
    coordination among federal, state, tribal and local agencies.
        Question. Describe the role of the states in providing protection
    to ecosystems.
        Answer. States have an important role in ecosystem protection
    through management of the lands and programs under their control and
    implementation of their statutory authorities.
        Question. Does EPA ecosystem protection supersede the role of the
    states or other federal agencies such as the National Park System, the
    U.S. Fish and Wildlife Service or the Bureau of Land Management?
        Answer. The success of ecosystem protection ultimately depends on
    the cooperation among all the stake-holders. Consequently, EPA's
    efforts do not supersede the role of other state or federal programs
    and, in fact, complement those protective actions.
                                     ______

                      Questions Submitted by Senator Leahy

                               SAB MERCURY REPORT

        Question. If the Science Advisory Board recommends that the mercury
    report be released, will the EPA release it?
        Answer. The EPA is committed to fulfilling the requirements of the
    Clean Air Act and to providing Congress with the information it has
    requested by submitting the Report to Congress on Mercury. If the
    Science Advisory Board (SAB) is in agreement with the science of the
    Mercury Study, then the EPA is prepared to make the necessary
    revisions, obtain the required Administration clearance and release the
    report.
        Question. After that recommendation, what steps need to be taken
    before the report is made final?
        Answer. First, the comments and suggestions made by the SAB will be
    reviewed by EPA staff scientists responsible for the study. They will
    assess the effort needed to respond to the comments and provide EPA
    management with a summary of the required analyses, a technical plan to
    complete such analyses, an estimate of resources and a schedule.
    Depending on the extent of the SAB comments, the revisions may need to
    be reviewed by a sub-group of SAB committee members if the committee
    members request such a review. After final revisions and internal EPA
    clearance, the report will be submitted to the Office of Management and
    Budget (OMB). The OMB will then coordinate a Federal interagency
    review, which for this report has typically involved about twelve
    Departments or agencies. The report will likely be revised a final time
    in response to the interagency review, cleared by OMB and then
    submitted to Congress.
        Question. During the February meeting of the SAB mercury review
    panel, several of the questions that EPA initially raised in referring
    the study to the SAB were addressed, what remaining questions remain
    for the SAB to reach conclusion on?
        Answer. The EPA posed about 40 detailed questions, which covered a
    wide variety of scientific issues, to the SAB review committee. The SAB
    panel was very diligent in its review and discussed all of these
    questions during the 2-day February 1997 meeting. Thus, EPA believes
    that of the initial charge, there are no remaining questions for the
    SAB to reach conclusion on. However, EPA is still waiting for the
    written SAB response presenting their assessment.
        In addition, there was a second charge also posed to the SAB which
    asked for their help in convening an independent review panel to assess
    data which will be forthcoming from two ongoing studies of human
    exposure to mercury through fish consumption. However, this effort will
    not take place until sometime in the future, at which point EPA will
    again seek the advice of the SAB.

                      AIR QUALITY REGULATION OF UTILITIES

        Question. In Assistant Administrator Mary Nichols's March 28, 1997
    letter to Representative Markey, EPA stated that ``if environmental
    control costs are not appropriately internalized in the cost of
    electricity generation, retail competition could result * * * in
    increases in overall emissions.'' The letter goes on to recommend a cap
    and trade system where it is necessary and appropriate to protect
    public health and welfare. What steps has EPA taken to implement such a
    system?
        Answer. EPA is working with regional bodies such as the Ozone
    Transport Commission (OTC) and the Ozone Transport Assessment Group
    (OTAG) to facilitate cap and trade approaches which offer flexible,
    low-cost approaches to emissions reduction. EPA assisted the OTC in the
    development of a model NOX cap and trade rule for that 13-
    state region. Moreover, at the request of the OTC, EPA is modifying its
    Emissions Tracking System (ETS) and Allowance Tracking System (ATS)
    software to accommodate the OTC's need for seasonal data on
    NOX emissions from electric power plants and other large
    industrial combustion sources to record NOX allowance
    trades. EPA has also encouraged states to adopt a cap and trade
    approach for NOX emission reductions in the 37-state OTAG
    region.
        EPA is committed to reducing long-distance transport of
    NOX, which contributes to exceedences of the public health
    standard for ozone in downwind areas. On April 16, 1997, EPA Assistant
    Administrator Mary D. Nichols wrote to OTAG Chair Mary Gade stating the
    Agency's preliminary conclusion that at least 26 states will be
    required to make NOX reductions because of their
    contributions to pollution transport. EPA intends to address this
    matter in a formal rulemaking after we receive OTAG's technical
    analyses and final recommendations, which are scheduled to be completed
    in June of this year. Through SIP calls, EPA can establish a maximum
    amount of NOX emissions for each of the states that
    contribute to pollution transport. We can, and will, strongly recommend
    to those states that they meet their statewide limits through a
    coordinated, regional cap and trade mechanism. We believe states will
    find such a mechanism attractive because of its flexibility and cost-
    effectiveness. While we can recommend a particular implementation
    approach, EPA cannot require states to employ it. As long as states
    achieve the necessary emission limits, states have the discretion to
    choose the specific means of implementation.
        Question. What areas of the country do you foresee as being
    impacted to the extent necessary to implement a cap and trade system to
    protect public health?
        Answer. EPA notes that the 48 contiguous states are already subject
    to a market-based cap and trade system for sulfur dioxide under Title
    IV of the Clean Air Act Amendments of 1990. EPA believes that this same
    area could be affected by a cap and trade system for pollutants such as
    NOX. A nationwide cap and trade system for NOX
    emissions would reduce background levels of NOX
    (facilitating attainment and maintenance of the ozone standard) and
    would provide a level playing field for all power plants.
        Question. What other market-based alternatives are there to address
    the competitive advantage of older, higher emitting power plants?
        Answer. The problem of older, higher emitting power plants could be
    addressed through a uniform emission limit that is fuel-neutral and
    output-based. Market forces would help to determine the mix of
    compliance strategies chosen. However, because such an approach would
    apply uniformly to all power plants without regard to differential cost
    effectiveness, EPA believes that such an approach would be less cost-
    effective than a cap and trade approach for the same degree of emission
    reductions. With regard to cap and trade, there are a number of
    possible variations in approach. Allowances could be distributed either
    through an allocation process or through an auction. If allowances are
    allocated, the allocation could be made in a variety of ways. For
    example, allocations could be made according to historic emissions or
    according to a performance standard that applies equally to all
    sources.
        Question. Are there current estimates of how much ozone, fine
    particulate, mercury, and other pollution would be reduced if these
    power plants were required to comply with new source performance
    standards upon reaching a certain age, say 30 or 35 years?
        Answer. The Agency has not conducted an analysis of reductions in
    ozone, fine particles, and mercury if power plants were required to
    comply with new source performance standards upon reaching a certain
    age. However, under EPA's Clean Air Power Initiative (CAPI), the Agency
    projected large reductions of ozone, fine particles, and mercury from
    electric power plants using a cap and trade approach.
        Question. Finally, what recommendations did the EPA make to the
    Department of Energy in crafting the Administration's utility
    restructuring legislation?
        Answer. In response to a congressional request, EPA recently
    indicated that the Clean Air Act and other statutes provide Federal and
    State regulators with considerable authorities designed to address the
    environmental problems contributed to, or caused by, electric
    generating plants, but that because these authorities are not
    integrated to address the many environmental problems related to the
    electric power generation industry, they are not as economically
    efficient as they could be, and they create unnecessary levels of
    uncertainty which are bad for industry and government alike. EPA has
    indicated to DOE that it strongly supports increased competition in the
    electric generation sector. We believe that the economic benefits of
    competition can be achieved along with protection of public health and
    the environment and that in the long run competition will be good for
    both the environment and the consumer. EPA recommended the following
    legislative principles to ensure that the transition period will not
    result in unacceptable environmental degradation:
        Emission Caps.--For a competitive electric market to work
    efficiently, we need to internalize the cost of pollution from this
    sector. We believe that this can best be accomplished with legislative
    language that gives us the specific authority to cap utility emissions
    at levels that will adequately protect public health and welfare. This
    provision is important to our current efforts to meet ambient air
    quality standards and toxics loadings, but will be equally important to
    any future requirement to limit carbon dioxide emissions under a global
    climate change agreement.
        Consumer Information.--In a competitive market, consumer
    information is essential to informed choice and an efficient
    marketplace. EPA believes that the environmental characteristics of
    electricity generation should be clear and publicly available.
        Energy Efficiency.--The new market must support and recognize the
    economic and environmental benefits of energy efficiency and demand
    side management. EPA favors a mechanism which ensures the viability of
    this important resource.
        Renewable Energy.--A healthy renewable energy sector must be
    maintained in the United States to meet both our environmental and
    energy security needs. A market for clean power is essential for the
    future.
        Federal Power Act.--EPA believes that the FERC, in regulating
    interstate power markets, should include environmental impacts along
    with other economic considerations.
        Stranded Cost Recovery.--With respect to stranded cost recovery, we
    believe that States should be discouraged from allowing ratepayer
    subsidies that would prolong the lives of inefficient, dirty generating
    plants that could not survive without those subsidies in a competitive
    marketplace.

                       AIR QUALITY FERC OPEN ACCESS RULE

        Question. When the Administration concluded last year that utility
    restructuring would not result in an increase in air pollution, it
    assumed that new regulations for ozone and particulates would be in
    place. If opponents of the proposed regulations succeed in derailing
    these standards, will the environmental impact of competition in the
    utility industry conducted for the FERC ``open access'' rule be
    reviewed?
        Answer. While the OTAG process is taking longer than expected,
    OTAG's final analysis and recommendations are expected in June 1997.
    EPA is committed to moving forward with a rulemaking to address
    pollution transport related to ozone after we receive OTAG's analysis
    and recommendations. Reduction of precursor transport is likely to be a
    major strategy for implementation of a fine particulate standard, if
    promulgated. EPA believes that the potential exists for emissions to
    increase as a result of industry restructuring if actions are not taken
    to reduce emissions of NOX and fine particulate precursors.

                          AIR QUALITY CEQ COMMITMENTS

        Question. When the ``open access'' rule was made last year, the
    Administration delayed actions to mitigate potential air pollution
    increases from utility restructuring by deferring to the Ozone
    Transport Assessment Group (OTAG). The Council on Environmental Quality
    committed EPA to a series of actions if the OTAG process fails.
    Although OTAG has produced valuable analytical work on ozone transport,
    it does not appear to be approaching consensus on mitigation actions.
    What specific plans, separate from the OTAG process, do you have to
    meet the commitments made last June by CEQ to protect against these
    increases?
        Answer. At this time EPA remains hopeful that the OTAG process will
    reach a consensus on a solution to the NOX transport
    problem. In the meantime, as indicated in answers to earlier questions,
    EPA has assured the OTAG states that the agency will issue a rulemaking
    on ozone transport this summer after receiving OTAG's final
    recommendations. In the event that the OTAG process does not achieve a
    consensus solution, FERC has committed to initiate a notice of inquiry
    into potential mitigation measures related to its open access rule.
    Moreover, should EPA find it necessary to impose federal implementation
    plans (FIP's) to address the NOX transport problem, FERC has
    agreed to undertake a rulemaking on mitigation strategies.

                        AIR QUALITY ACID RAIN REDUCTIONS

        Question. Under the clean air sub-goal of controlling acid rain, a
    25-40 percent reduction is sought in the eastern U.S. by 2005. What is
    the current level of reduction since 1980?
        Answer. A recent wet deposition trend analysis indicated that wet
    sulfur deposition (``acid rain'') decreased 10 to 25 percent in 1995
    over large areas of the eastern U.S. as compared to the 1983 to 1994
    trend line. These decreases are considered substantial in magnitude and
    spatial extent. Another analysis which examined dry deposition data
    indicated that dry sulfur deposition decreased by 30 percent in the
    eastern U.S. between 1989 and 1995.
        Question. What areas of the eastern U.S. have seen the greatest and
    least reductions?
        Answer. With implementation of Phase I of the Acid Rain Program,
    Northern New England and the Mid-Atlantic region saw the largest wet
    sulfur deposition reductions in 1995, between 20 and 25 percent from
    the 1983 to 1994 trend line. 1995 data showed the largest decreases in
    and downwind of the Ohio River Valley. Wet sulfur deposition increased
    by 7.5 percent in the western U.S. Wet nitrogen deposition increased
    slightly by almost 5 percent in the eastern U.S. and increased by
    almost 4 percent in the western U.S. Another analysis indicated that
    dry sulfur deposition was reduced by 30 percent in 1995, relative to
    1989 levels; results were similar across the eastern U.S.
        Question. How do the EPA activities to reach the 2005 goal account
    for potential increased demand for electricity under utility
    restructuring?
        Answer. Because sulfur dioxide emissions are capped by Title IV of
    the Clean Air Act Amendments of 1990, any increase in electricity
    demand would not affect total SO emissions in the long term.
    Any increase in electricity generation would need to be offset by
    sources reducing their in emission rates to meet the Title IV
    SO cap.
                    noX fiscal year 1998 funding
        Question. In the fiscal year 1998 request, an additional $681,000
    is requested to address NOX issues in the Northeast. Where
    will these funds be allocated?
        Answer. The Agency has requested an increase of $414,620 to address
    NOX issues in Northeast. This money will support salaries
    for 2 EPA employees in Headquarters and 3 employees in the Regions. The
    remaining of $181,780 covers increased workforce costs in the base.
        Question. What activities will be undertaken with these additional
    funds?
        Answer. These funds will be used to continue development and
    implementation of an emissions tracking system and an allowance
    tracking system for the Ozone Transport Commission's (OTC)
    NOX budget program. The NOX budget program is the
    result of a collaboration between interested states in the Northeast to
    reduce NOX from stationary sources using a cap and trade
    approach. EPA has offered to track NOX emissions and
    allowances for the OTC by modifying and expanding the existing Acid
    Rain data system used to track sulfur dioxide allowances and nitrogen
    oxide emissions.

                   SAFE DRINKING WATER ACT NATIONAL MEETINGS

         Question. In the fiscal year 1998 request under the Safe Drinking
    Water Act amendments of 1996, new prevention approaches, EPA states
    that the Agency plans to hold national meetings in 1997 to scope out
    partnership duties and to identify current and new operator training
    and certification programs. How many of these meetings will be in the
    Northeast and what locations and dates is EPA considering?
        Answer. The Agency has already formed its operator certification
    partnership and has held one meeting in Washington, D.C. on March 25
    and 26, 1997. Another meeting has been scheduled in Washington, D.C. on
    June 5 and 6, 1997. The partnership will decide at the end of this
    meeting when and where the next meeting should be held. In establishing
    the partnership, the Agency has tried to obtain representatives from
    various interests and from different geographic locations, including
    one member from the Northeast.
        The partnership will provide advice to the Agency, through the
    Drinking Water Advisory Council, as it develops information and
    guidelines to meet new Safe Drinking Water Act requirements. A draft of
    the guidelines will be circulated widely for comment before it is
    finalized. We have not made any definite plans to hold stakeholder
    meetings to review the guidelines as yet, however, if we do so, we will
    consider holding a meeting in the Northeast.

                   SAFE DRINKING WATER ACT STATE SOURCE WATER

        Question. The 1996 SDWA amendments also expanded authorization for
    source water protection. When will EPA guidance for this program be
    made available? Which states have used 1997 state revolving funds for
    state source water assessments? Under the current program or under the
    1996 amendments will states be able to use SDWA funds to purchase land
    or easements for source water areas? Are there areas where this has
    already been done? What is the process for using SDWA funds for this
    type of activity?
        Answer. The draft guidance for State source water assessment and
    protection programs, which was developed in consultation with many
    stakeholders, was released by EPA on April 4, 1997 to the public. As
    part of its ongoing discussions, EPA will convene a meeting of New
    England States on May 28th in Worcester, Massachusetts and May 29th in
    Concord, New Hampshire. We plan to publish the final guidance on or
    before the statutory deadline of August 6, 1997.
        In the final Drinking Water State Revolving Fund (DWSRF)
    Guidelines, EPA strongly encouraged States to determine the level of
    activities that needed to be undertaken in order to complete source
    water assessments in the State, and then utilize necessary funds, up to
    10 percent from the 1997 DWSRF capitalization grant. The most recent
    survey of States in April 1997 showed that approximately three-quarters
    of the States plan to use funds for source water assessments. As EPA
    reviews the State capitalization grant applications, States' actual use
    of the assessment set aside will be tracked and EPA will ask States
    that do not intend to use the set-aside to demonstrate how they intend
    to meet the requirement to complete their source water assessment
    programs.
        Under Section 1452(k)(1)(A)(I), States may make loans to public
    water systems to ``acquire land or a conservation easement from a
    willing seller or grantor, if the purpose of the acquisition is to
    protect the source water of the system from contamination and to ensure
    compliance with national primary drinking water regulations.'' The
    final DWSRF Guidelines provides the States with the flexibility to use
    loan repayments from land acquisition and source water projects for
    future projects of a similar nature if the State so chooses, or the
    State may direct these repayments into the DWSRF project fund. This
    flexibility would allow States the option to develop a long-term
    program to fund land acquisition and source water projects.
        To date, no DWSRF funds have been used for land acquisition or
    conservation easements, or source water projects. Only one State,
    Georgia, has received its capitalization grant. Georgia's intended use
    plan (IUP) indicated that it will use 6 percent of its capitalization
    grant for source water assessments, but no fiscal year 1997 funds are
    planned for source water protection loan activities. Prior to the SDWA
    Amendments of 1996, public water systems purchased land and easements
    in order to protect source waters. For example, Seattle, Washington,
    and Portland, Oregon purchased the entire watershed that supplies water
    to their public water system.
        Prior to awarding DWSRF funds under Section 1452(k)(1)(A)(I), EPA
    must approve a State's capitalization grant, which includes the
    Intended Use Plan (IUP), and the State must develop a workplan which
    provides specific details on how the State will use these (k)(1)(A)(I)
    loans. Once a State has an approved workplan, it may make the loans to
    public water systems consistent with the IUP and work plan, and as
    permitted by State law, regulations and procedures.

                     BROWNFIELDS INITIATIVE IN RURAL AREAS

        Question. The Administration requests a significant funding
    increase for the Brownfields initiative in fiscal year 1998. How much
    of this funding increase is targeted towards rural Brownfields sites?
    Where are these located and what type of industry is involved? Has the
    EPA worked with the U.S. Forest Service to identify potential
    Brownfield pilot sites in the Northeast?
        Answer. The selection process for the Brownfield assessment pilots
    is competitive, based on an objective set of criteria. The funding
    increase for the Brownfield initiative in fiscal year 1998 does not
    have a targeted amount that will go toward rural Brownfield sites.
    There are currently 14 rural and small town pilots, which have
    populations of less than 50,000, of the existing 78 pilots. They are
    located and have the following types of industry involved:
      --Burlington, VT (Commercial and Industrial)
      --Bonne Terre, MO (Mining)
      --Cape Charles, VA (Eco-Industrial Park)
      --Concord, NH (Railyard, Maintenance Sheds, Gas and Steam Plants, and
            Factories)
      --Chippewa County, MI (Former DOD Base)
      --Emeryville, CA (Widespread Groundwater Contamination, source
            unknown)
      --Murray City, UT (Smelter)
      --Panhandle Health District, ID (Smelter)
      --Lima, OH (Industrial Park)
      --Prichard, AL (Volatile Organic Carbon in Drinking Water and
            Semivolatile Organic Carbon in Soil)
      --Navajo Nation, AZ (Wood Processing)
      --Phoenixville, PA (Iron and Steel)
      --West Jordan, UT (Mining, Smelting, Sugar, Copper, Lead, Zinc, and
            Silver Industries)
      --Rome, NY (Lead in Soil and Chlorinated Solvent in Groundwater).
         EPA is in the process of forming a Partnership Agenda with other
    Federal Agencies. The U.S.D.A. and Forest Service have participated in
    our meetings and contributed to the Agenda. The Forest Service is
    currently working with the Cape Charles, VA Brownfield pilot. The
    National Park Service's Urban Resources Program is meeting with EPA
    Region 9 to identify potential links with Brownfield pilots.

                           LAKE CHAMPLAIN ACTION PLAN

        Question. In two recent letters on implementation of the Lake
    Champlain Action Plan, EPA has committed itself to implement the
    pollution prevention and restoration plans. The July 22, 1996 letter
    from Assistant Administrator Perciasepe mentioned ``significant
    resources that can be devoted to the special problems faced by Lake
    Champlain.'' What programs has EPA used to target problems in Lake
    Champlain?
        Answer. The Agency continues to be a partner in the Lake Champlain
    Basin Program, and, in cooperation with the States, has used a variety
    of programs to support activities in the Basin through technical
    assistance, grants for base State programs, and targeted project
    grants. The programs that have supported activities are: the Clean
    Water Act (CWA) including State Revolving Fund (Title VI), Construction
    Grants (Title II), Nonpoint Source Grants (Section 319), Wetland
    Program Grants, Pollution Control Grants (Section 106), Water Quality
    Cooperative Agreements and Appropriation earmarks.
        Question. Over the past five years, how much funding has gone to
    Lake Champlain though these programs?
        Answer. Since fiscal year 1993, over 60 million dollars has been
    provided through these programs to support work in the Lake Champlain
    Basin.
        Question. Of that funding, which funds were through state revolving
    funds or state delegated programs?
        Answer. Over the past five years, $41 million has been provided
    through the Clean Water State Revolving Fund to support programs in the
    Lake Champlain area. While not included in the figure above,
    substantial resources from the Clean Water Act, Section 106 Pollution
    Control grants have benefitted the Lake through base program permitting
    and enforcement.

                 LAKE CHAMPLAIN MANAGEMENT PLAN ANNUAL FUNDING

        Question. If EPA were to create a dedicated Lake Champlain
    initiative to address the actions identified for EPA participation in
    the Lake Champlain Management Plan, what level of annual funding would
    be required and which EPA programs would be drawn upon?
        Answer. EPA will continue to support water quality protection
    efforts in the Lake Champlain Basin, including providing active
    participation on the management conference and working with the States
    to direct available grant funds to activities in the Basin as
    determined by State priorities. EPA participation in the Plan will
    continue to involve technical staff support and support to State
    agencies through available water quality grant programs such as the
    Nonpoint Source Grant program, the Clean Water State Revolving Fund,
    Wetlands Program grants, and Water Quality Cooperative Agreements.

                     NATIONAL INVASIVE SPECIES ACT OF 1996

        Question. In his July 22, 1996 letter, Mr. Perciasepe also
    mentioned EPA's support of the National Invasive Species Act of 1996.
    With the passage of NISA, what activities is EPA undertaking to address
    invasive species?
        Answer. EPA is one of the participating agencies serving on the
    Aquatic Nuisance Species Task Force. The Task Force is responsible for
    coordinating inter-governmental actions to reduce the risks from
    nuisance species. Much of the task force work has focused on control of
    ballast water and review of control programs for nuisance species
    (e.g., round goby, ruffe).
        Various EPA programs are addressing invasive species. A number of
    EPA's Regions are involved in inter-agency working groups within their
    regions to address nuisance species in the context of NISA. EPA's
    Office of Research and Development has developed risk assessments for
    nuisance species as part of their effort to develop ecological risk
    assessment guidelines for biological agents. NISA Sec 1202(I)(2) calls
    for EPA, in conjunction with NSF and the Task Force, to develop an
    annual call for research proposals to study dispersal containments for
    nuisance species.
        The Chesapeake Bay Program has completed an Implementation Plan for
    managing the introduction of non-indigenous aquatic species. The plan
    is intended to minimize the economic and/or ecological risks associated
    with first time introduction of non-indigenous aquatic species. In the
    Great Lakes, EPA has begun a project that will focus on prevention and
    control, ecological impacts, geographic extent, and information/
    outreach. The Gulf of Mexico Program will be initiating a strategic
    assessment process to evaluate the effectiveness of current programs
    and the needs of program shareholders to reduce and prevent the
    introduction of undesirable, non-indigenous species (including ballast
    water). The Gulf Program will support through financial and technical
    assistance Gulf state and local efforts to reduce and prevent the
    introduction of undesirable, non-indigenous species (including ballast
    water). EPA chairs the Washington State Exotic Species Work Group which
    has developed an Implementation Plan for addressing marine exotic
    species in Puget Sound. The Agency is also working closely with the
    British Columbia Exotic Species Work Group in developing a similar
    implementation plan.
        Question. Has EPA identified funds within the Clean Lakes program
    to address this issue?
        Answer. The Clean Water Act (CWA) Section 314 Clean Lakes program
    has not been funded for several years. EPA has encouraged States in its
    Nonpoint Source Program guidance to use Section 319 Nonpoint Source
    grants to fund eligible watershed management activities that might have
    been funded in previous years under Section 314.

                        LAKE CHAMPLAIN PROJECTS FUNDING

        Question. What other lakewide projects were funded in the fiscal
    year 1997 budget or the fiscal year 1998 request?
        Answer. Our 1998 request does not include targeted funding for
    lakewide projects, though our request includes a number of State grant
    programs (such as Nonpoint Source, Wetlands Program, and Water Quality
    Cooperative Agreements) under which such projects can be funded at the
    State's discretion. In addition, activities included in a state's
    Nonpoint Source Plan are eligible for funding under the Clean Water
    State Revolving Fund. Our 1997 request, likewise, did not include
    targeted lake projects, though the appropriation included earmarks
    (along with the earmark for Lake Champlain) for Five Island Lake, Lake
    Hollingsworth, and for Skaneatles, Owasco and Otisco Lakes.
        Question. What EPA programs were they funded under?
        Answer. These projects were not funded under existing EPA grant
    programs, but rather were explicitly directed in the 1997 Appropriation
    conference report.

                               GREAT WATER BODIES

        Question. In the fiscal year 1998 request, $37 million is requested
    for the Great Water Bodies program component. What activities are
    conducted under this program and where are funds allocated?
        Answer. The Great Water Bodies program component, within the Office
    of Water, is comprised of the Chesapeake Bay Program Office, the Great
    Lakes National Program Office and the Gulf of Mexico Program Office.
        The Chesapeake Bay Program Office (CBPO): The Agency requests a
    total of $19,683,000 and 16.8 total workyears in 1998 for the
    Chesapeake Bay Program. The Chesapeake Bay Program (CBP) will develop,
    implement and monitor interstate management plans for pollution
    prevention and control activities to improve the water quality habitat
    in the Bay Region. This will be accomplished by integrating efforts for
    addressing point and nonpoint sources of pollution from air, water and
    land-based sources through the watershed and airshed approach and by
    coordinating with both state and Federal natural resources agencies,
    local governments, land managers and various stakeholders.
        The CBP will evaluate, and communicate the progress of these
    interstate plans by using quantifiable environmental goals and
    indicators for the nutrient, toxics, habitat, living resources and land
    stewardship aspects of the program. New efforts, and possibly
    corrective measures, will likely be implemented based on the results of
    the 1997 Nutrient Reduction Strategy Reevaluation, and its
    recommendations for achieving the year 2000 nutrient reduction goal.
    Recommendations will be made to the Chesapeake Executive Council for
    new or refined goals and strategies to improve water quality and living
    resources conditions of the Bay. Expanded public awareness programs and
    public access to Bay restoration information will be a major focus.
    This will be accomplished through regular public reports, continued
    maintenance of Internet information resources, and the maintenance of
    the Chesapeake Information Management System in accordance with a
    directive of the Chesapeake Executive Council. These communications
    will be aimed at providing information on the State of the Bay and what
    citizens can do to reduce pollution at the source.
        The CBP will work directly with state and local governments to meet
    the commitments of the ten tributary strategies for nutrient reduction
    adopted from 1994-1996. Increased efforts will be made to further
    involve and expand the role of local governments in the CBP. Some of
    these efforts will be aimed at improving nutrient reductions at
    Publicly Owned Treatment Works (POTW's). Implementation of nonpoint
    source projects on farmlands and urban areas will continue to yield
    nutrient reductions meant to meet tributary specific and Bay-wide
    environmental goals. New technologies and approaches will be supported
    for point and nonpoint source controls to close the gap between goals
    and current progress. In addition, efforts will focus on linking air
    deposition sources of nitrogen and toxics pollution to the health of
    the Bay and developing cost effective control strategies.
        EPA will continue to address the commitments of the Chesapeake Bay
    Basinwide Toxics Reduction and Prevention Strategy of 1994. The 1998
    obligations include: implementation of management actions (reduction,
    prevention, protection, assessment) for designated geographical areas;
    revision of the basinwide toxics loading and release inventory;
    establishment of reductions goals for atmospheric deposition, urban
    stormwater, and acid mine drainage loadings to the Bay; establishment
    of water quality and/or sediment quality criteria for the designated
    Bay Toxics of Concern; implementing Business for the Bay, a pollution
    prevention program; and reporting progress on implementing the
    Strategy.
        By funding identified fish passage projects, CBP will work to
    achieve the five and ten-year goals for stream miles opened to
    migratory fish. Efforts will be increased to ensure that the 1998 goal
    of the reopening of 582 miles of migratory fish spawning habitat will
    be met. Most of these projects will include funding from both private
    and public sources. In addition, wetlands, stream and forest
    restoration, oyster reef habitat restoration and the implementation of
    a riparian forest buffer policy will yield progress toward restoring
    critical habitat in the basin.
        The Great Lakes National Program Office (GLNPO): The Agency's Great
    Lakes program includes $13,326,400 and 46.2 workyears in the Great
    Lakes National Program Office. EPA's Great Lakes Program utilizes a
    multimedia approach to Great Lakes ecosystem management, emphasizing
    geographic targeting, risk-based prioritization and coordinated
    cooperative efforts on the parts of states, tribes, other Federal
    agencies, industry, non-governmental organizations, and Canada. The
    Program monitors Lake ecosystem indicators; manages and provides public
    access to Great Lakes data; helps communities address contaminated
    sediments in their harbors; supports local protection and restoration
    of important habitats; promotes pollution prevention through activities
    and projects such as the 1997 Canada-U.S. Binational Toxics Strategy;
    and provides assistance to implement community-based Remedial Action
    Plans (RAP's) for Areas of Concern and for development and
    implementation of Lakewide Management Plans. Fiscal year 1998 Lake
    indicator activities will include reporting results of modeling
    scenarios from the monitoring of Lake Michigan air, water, sediments,
    and biota (the Lake Michigan Mass Balance Study), supporting the Great
    Waters provision of the Clean Air Act and Sec. 118 of the Clean Water
    Act. This will enable the Agency and its partners to determine how to
    further reduce Great Lakes pollutants. Principal LaMP and RAP
    activities will include implementation of remedial actions to address
    toxics in targeted Areas of Concern and other priorities under the
    LaMP's for Lakes Ontario, Michigan, Erie, and Superior.
        The Gulf of Mexico Program Office (GMPO): The fiscal year 1998
    allocation for the Gulf of Mexico Program within the Coastal
    Environmental Management (CEM) program element is $4,292,300 and 13.8
    workyears. The Gulf of Mexico Program priorities are to protect the
    Gulf of Mexico from the deleterious effects of nutrient enrichment;
    reduce adverse health effects resulting from the consumption of raw
    shellfish harvested from the Gulf of Mexico; protect and restore
    essential Gulf of Mexico habitats; reduce the ecological and economic
    impact on living resources in the Gulf of Mexico by reducing/preventing
    the introduction of undesirable, nonindigenous species; improve the
    ability of the American public to participate in the protection of
    public health and the environment by increasing the quality and
    quantity of general environmental education, outreach, and data
    availability programs.
        In fiscal year 1998 the Gulf of Mexico Program will establish a
    quantitative goal for nutrient loadings from the Mississippi River
    Basin into the Gulf of Mexico through a broad-based, shareholder
    process. Activities to support this objective are to provide support to
    the states of Louisiana and Mississippi in monitoring nutrient loads
    from major tributaries and sources and in implementing innovative,
    prevention approaches to reduce nutrient loading to surface waters; to
    coordinate nutrient modeling efforts among state and federal agencies
    and develop the modeling/decision support capacity to target future
    actions and report environmental progress; and to support targeted
    state and federal education and communication efforts to foster
    voluntary actions by industries and landowners to reduce nutrient
    pollution.
        By fiscal year 2005, the Gulf of Mexico Program will reduce adverse
    health effects resulting from the consumption of raw shellfish
    harvested from the Gulf by increasing the number of shellfish beds
    available for safe harvesting by 10 percent in five coastal estuaries.
    Activities in fiscal year 1998 will include: Barataria-Terrebonne,
    Louisiana and Mobile Bay, Alabama shellfish growing water restoration
    implementation plan completion and project implementation started;
    shellfish assessment planning and implementation for three additional
    Gulf estuaries will be initiated, one for each year fiscal year 1999,
    fiscal year 2000, and fiscal year 2001.
        By 1999, the Gulf of Mexico Program will establish the scope of
    efforts and quantitative goals for the protection and restoration of
    essential habitat. Activities in fiscal year 1998 will include to
    initiate a strategic assessment process to evaluate the effectiveness
    of current programs and the needs of Program shareholders to protect
    and restore essential habitat; to support through financial and
    technical assistance Gulf state and local efforts to target specific
    habitat areas for protection and restoration.
        By 1999, the Gulf of Mexico Program will establish the scope of
    efforts and quantitative objectives for the reduction and prevention of
    impacts resulting from the introduction of undesirable, nonindigenous
    species. Activities in fiscal year 1998 are to initiate a strategic
    assessment process to evaluate the effectiveness of current programs
    and the needs of Program shareholders to reduce and prevent the
    introduction of undesirable, nonindigenous species (including ballast
    water); to support through financial and technical assistance Gulf
    state and local efforts to reduce and prevent the introduction of
    undesirable, nonindigenous species.
        By 2005, the Gulf of Mexico Program will provide effective
    communications of Gulf-related environmental issues and activities to
    every Gulf coastal county and parish. Activities in fiscal year 1998
    are to develop and distribute environmental curricula support programs
    for primary and secondary school systems; to support state and
    community-led environmental information centers in each of the five
    Gulf states; to develop more effective community access to Gulf marine
    research and science through the Gulf Information Network.

                      LIVING MACHINE: WASTEWATER TREATMENT

        Question. Last month EPA released a report to Congress on the
    ``Living Machine'' Wastewater Treatment Technology. Do you believe that
    the 11-week period of observation at the Maryland facility which was
    used as the basis for this report, is representative or typical of the
    long-term performance of the facility? Might an analysis during a more
    stable period of the plant's operation have yielded different results?
        Answer. The 11-week independent testing period at the Frederick,
    MD, facility was scheduled to be run during a period of steady-state
    operating conditions while the facility ran at design capacity flow
    rates. The disruption in performance that resulted from the switch in
    chemical usage was discussed in detail in the Interim Report issued on
    the Frederick, MD, project in September 1995 (EPA 832-B-96-002) and was
    also summarized in our recent Response to the Appropriations
    Subcommittee.
        While the project steady-state operations and performance during
    the 11-week test period were disrupted somewhat by a switch from
    acetate to methanol as a carbon source for denitrification, this impact
    was not significant. It had no apparent effect on the follow-on 3-week
    evaluation of the treatment performance of treatment trains with vs
    without the floating vegetation cover on the open tanks. When the data
    generated during the test period were plotted in our Response, along
    with the data generated by the grantee, the performance levels were
    very close prior to and after the period of disruption.
        The cause of the disruption in performance was taken into account
    when EPA developed our findings--that the AEES ``Living Machine'' has
    the potential to produce an effluent with: 5-day biological oxygen
    demand (BOD5) <10mg/1, Total Suspended Solids (TSS) <10mg/1,
    Ammonia >1mg/1, Nitrate-Nitrogen (NO3) >5mg/1, Total
    Nitrogen (TN) <10mg/1, and fecal coliforms <200 cfu/100ml--which would
    satisfy all of the specified treatment goals for the Frederick, MD,
    project, except Total Phosphorus (TP). As a result, if the testing had
    occurred during a more stable period of plant operations, the Agency
    doubts that the final conclusions drawn from the results of the testing
    would have been any different.

                       LIVING MACHINE: ACCURATE REPORTING

        Question. The report states that the Maryland Living Machine ``did
    not meet any of its treatment goals during the study period, with the
    exception of TSS.'' Wouldn't a more accurate reporting of the facility
    be that except for the 11-week period during which EPA studied, the
    plant reliably met its goals for BOD, COD and TSS in its final year of
    operation?
        Answer. The Response to Congress on the AEES ``Living Machine'' as
    well as the earlier Interim Report on the Frederick, MD, facility
    stated that during the 11-week independent testing period, the facility
    ``did not meet any of its treatment goals during the study period, with
    the exception of TSS'' because this is a matter of fact relative to the
    11-week testing period. Since the Interim Report only addressed the 11-
    week testing period results and was drafted in 1995, it could not
    address the facility's performance during its final year of operation.
    Still, this report concluded that the AEES ``Living Machine'' has the
    potential to produce an effluent with: BOD5 <10mg/1, TSS
    <10mg/1, Ammonia <1mg/1, NO3 >5mg/1, TN <10mg/1, and fecal
    coliforms <200 cfu/100ml--which would satisfy all of the specified
    treatment goals for the Frederick, MD, project, except TP. While the
    final version of the Response to Congress also makes a similar
    statement about the 11-week testing period performance, the report
    clearly states in the conclusions that the ``Living Machine,'' in the
    present configuration, can reliably meet process goals for removal of
    BOD5, TSS, and Ammonia, can produce an effluent with fecal
    coliforms at <200 cfu/100ml, and has the potential to achieve target
    removal requirements for nitrate and total nitrogen. The report also
    presents graphics demonstrating this fact for the Frederick, MD,
    system's final year of operation. No original target COD goals were
    established by the grantee for the Frederick, MD, facility.

                           LIVING MACHINE PEER REVIEW

        Question. Because of the anomalies that existed during the 11-week
    study period, a peer review of the report might provide further insight
    into the reliability of the data and its interpretation. Will you agree
    to have the report peer reviewed?
        Answer. The Interim Report on the Frederick, MD, facility which
    reported the results of the EPA 11-week independent testing effort was
    both formally and informally peer reviewed. Input provided by our
    reviewers was carefully addressed in putting together the final version
    of the ``Interim Report'' that was published and has been circulated to
    interested parties. The report and peer review procedures we employed
    were subjected to a detailed audit by the Agency's review of our peer
    review processes earlier this year. The Response to Congress report was
    intended to provide EPA's response to questions regarding the status of
    the four demonstration projects and future funding recommendations. It
    relied heavily upon the earlier, peer-reviewed ``Interim Report on
    Frederick, MD, Facility'' and data supplied by the grantee in progress
    reports. The Agency felt it was not necessary to subject the Response
    to Congress report to formal peer review, but did seek informal review
    by EPA Headquarters, the EPA/ORD-Cincinnati laboratory, EPA Regional
    staff, and the grantee prior to finalizing the document.

                             LIVING MACHINE UPDATES

        Question. The report includes information from the first four
    months of steady-state operations at the South Burlington Vermont
    Living Machine. Although already reflecting improved performance, the
    numbers do not show the degree of stability that has been achieved
    since that time. Despite the cold Vermont winter, the Living Machine
    has met every target in the last few months. Does EPA intend to supply
    Congress with updates to this report that describe the ongoing
    improvements to effluent treatment?
        Answer. EPA currently intends to prepare a final report in the form
    of an Emerging Technology Assessment of the AEES ``Living Machine'' and
    related technologies based upon all of the data generated by the four
    demonstration projects, as well as from previous pilot-scale projects,
    vendors, and other sources. The Agency plans to have a draft of this
    document available by the end of September 1997. The document will be
    thoroughly peer reviewed and opportunities will be provided for input
    and comment by all interested parties. Copies of this document will be
    provided to Congress.

                LIVING MACHINE WASTEWATER TREATMENT INTANGIBLES

        Question. In determining the cost/benefit of EPA regulations and
    standards the Agency must often weigh intangibles such as quality of
    life, and improved health. The Living Machine has intangibles of its
    own that do not appear to be addressed in the report. Operating a
    wastewater plant which uses fewer chemicals than standard plants and
    incorporates natural biological decay processes is more environmentally
    friendly and raises awareness about the issues of waste treatment
    facing communities. The South Burlington plant in particular has
    developed an extensive educational program which has introduced school
    students from throughout the area to the problem of waste management.
    Students have gone on to conduct experiments of their own using mini-
    Living Machines which they take back to their classrooms to study.
    Shouldn't EPA incorporate these qualities into its analysis of the
    Living Machine, as it does when weighing the benefits of regulatory
    policies? What other steps is the Agency taking to raise awareness
    about waste management, and could the Living Machine be incorporated
    into those activities?
        Answer. The Agency is requesting that the grantee provide better
    documentation of the additional values as a part of their efforts to
    document the benefits of the technology.
        Claims made by the developers of the AEES ``Living Machine''
    technology that the technology cleans wastewater to advanced treatment
    standards using ``natural solar powered greenhouse based technology
    without chemicals'' were addressed in the Response to Congress report
    as misleading--the available data indicates that these systems use
    about the same mechanical energy sources (at the same levels) and the
    same chemicals as many of the conventional biological wastewater
    treatment systems. In addition, EPA found that the sludge volume
    produced by these systems appears to be only slightly less than a
    conventional extended aeration treatment process which is inconsistent
    with earlier claims made in promotional materials about the technology.
        However, EPA agrees that the environmentally friendly atmosphere
    created as a part of the AEES ``Living Machine'' and related
    technologies offer special opportunities for interface with the public
    about issues associated with wastewater management. While the Agency's
    efforts to date have focused on evaluating the treatment performance of
    the technology, we hope to see our grantee more fully explore and
    document these opportunities as part of their project documentation.
    Based in part on this information, to the degree possible, EPA will
    attempt to address this issue in our Emerging Technology Assessment
    Report.
        EPA has developed numerous materials (fact sheets, primers, videos,
    technical reports, etc.) as well as worked closely with groups such as
    the Water Environment Federation, the National Small Flows Clearing
    House, the National Water Research Institute, the National Academy of
    Sciences, universities, and others to address a wide variety of waste
    management issues and outreach materials. Once the Agency has
    adequately documented the actual performance capabilities of the AEES
    ``Living Machine,'' we will be able to appropriately represent this
    alternative approach to wastewater treatment in future editions of
    these materials.

                           LIVING MACHINE SUPPLEMENT

        Question. The Massachusetts Foundation of Excellence in Marine and
    Polymer Sciences has provided EPA with more updated figures on the cost
    of building and operating a Living Machine. While I understand that EPA
    has not yet had the opportunity to analyze this new data, I believe
    this information could provide valuable insight into the comparative
    costs of operating a Living Machine versus a conventional system.
    Considering the developments in the performance of the South Burlington
    plant and the new information on operating and construction costs, I
    think that a supplement to the report would be appropriate and helpful
    for the most accurate understanding of this technology when EPA has had
    an opportunity to properly review the new data. Will you provide such a
    supplement to the recipients of the original report when the more
    recent data has been reviewed?
        Answer. The supplemental cost data provided by the Massachusetts
    Foundation of Excellence in Marine and Polymer Sciences (MFEMPS) was
    not adequately documented to allow a detailed evaluation. MFEMPS has
    agreed to provide us with a more detailed basis for the cost savings
    that they have projected as well as schematics to help facilitate a
    detailed evaluation. MFEMPS is proposing to have a cost evaluation
    conducted by one of its Technical Advisory Group members who is well
    respected within the wastewater treatment industry. The Emerging
    Technology Assessment Report will include an independent cost
    evaluation section prepared by personnel with an extensive background
    in both conventional and natural treatment systems and in conducting
    cost evaluations of wastewater treatment alternatives. The Agency has
    suggested to MFEMPS that these two cost evaluation efforts be closely
    coordinated if not merged. Copies of the Emerging Technology Assessment
    Report with the cost evaluation section will be provided to Congress.
                                     ______

                   Questions Submitted by Senator Lautenberg

                                 ATSDR FUNDING

        Question. Ms. Browner, as you know there has been considerable
    criticism by my colleagues that Superfund sites are not a significant
    health risk. The work and evaluations by ATSDR have proven those
    allegations to be false. But despite the proposed increase in funding
    for Superfund, the non-EPA programs funded out of Superfund, NIEHS,
    ATSDR, and Justice, receive essentially no increase or decreases. ATSDR
    has been doing risk assessments and health studies at Superfund and
    non-Superfund sites including Hoboken and Toms River, New Jersey. It
    does not appear that ATSDR can keep up with its workload or its ability
    to fund state programs on critical environmental health issues. Without
    additional funding, most of the state health departments that depend
    for site epidemiological work may be cut off. Why does the
    Administration not fund this program to a level more commensurate to
    its importance to public health?
        Answer. ATSDR is a valuable partner for EPA at priority Superfund
    sites--particularly at sites moving into the remedy selection/
    construction phase. The fiscal year 1998 Budget provides $64 million
    for ATSDR which is a $6 million increase over the fiscal year 1997
    request. As stated, ATSDR's assessments can, and are, used to
    effectively communicate the risks and threats being addressed by
    Superfund cleanups. However, our investments must focus on our efforts
    to actually remove the threats we know to exist at the Nation's worst
    sites. Notwithstanding ATSDR's importance to safeguarding public
    health, EPA needs the additional funding to meet its construction
    completion goals which will prevent populations from exposure to
    hazardous waste.

                        ATSDR FUNDING: IMPACT ON STATES

        Question. How many states will have their grants lowered or
    discontinued under the President's proposal?
        Answer. EPA does not provide direction to ATSDR on state supported
    public health programs. Nevertheless, EPA has provided ample funding to
    ATSDR in fiscal year 1998 to continue providing steady support for
    state sponsored public health activities.

                                 NIEHS FUNDING

        Question. One of the major criticisms of Superfund, is the high
    cost of technology needed for remedial actions. There has been research
    on innovative technologies that have significantly brought down costs.
    For instance, the National Institute of Environmental Health Sciences,
    NIEHS, through UC-Berkeley developed and tested a stream injection
    technology for removing solvents and liquid from soils that is 60 times
    more efficient than pump and treat methods. Despite this work and other
    work around the country funded by NIEHS, the President's request is a
    $7 million cut at the same time Superfund's budget increases $700
    million. What was the rationale for cutting this program?
        Answer. NIEHS conducts valuable basic research on the effects of
    hazardous waste on human health. However, the President has committed
    EPA to achieve cleanup results at NPL Superfund sites. In fiscal year
    1998, the Superfund program funding must focus on the physical
    construction of cleanup remedies at hundreds of waste sites around the
    country. Currently the program has 490 sites with construction underway
    and more than 880 sites have final remedy decisions signed. Superfund
    resources are being focused to achieve the maximum number of site
    cleanups to protect as many people as possible from the health effects
    of exposure at Superfund sites.
        The President's request of $48.5 million is consistent with past
    requests. It supports both the basic research program ($25.5 million)
    and the worker safety training ($23.0 million).

                       SUPERFUND FISCAL YEAR 1998 REQUEST

        Question. Senator Chafee has gone on record opposing the increase
    in Superfund spending. Why do you think the increase is appropriate and
    necessary now?
        Answer. Through a progression of events including program
    maturation and administrative reforms to speed up our process, we now
    find ourselves in a situation where more projects are ready to begin
    cleanup than we are able to fund. Our projections indicate that unless
    the Superfund budget is increased, our existing backlog of projects
    awaiting cleanup funds will grow.

                             SUPERFUND SITE CLEANUP

        Question. How many sites are ready for cleanup now that you
    couldn't fund if Superfund were flat-leveled at fiscal year 1997
    funding level?
        Answer. Under the risk-based prioritization of sites, the Agency
    ranked 65 fund lead sites which are, or will be, ready for funding
    during fiscal year 1997. Of this, seven have already been funded and 2-
    3 more sites are expected to be funded in priority order. This will
    leave approximately 55 sites unfunded at the end of fiscal year 1997.
    The backlog of sites is expected to continue to grow in future years if
    budgets are maintained at current funding levels. The fiscal year 1998
    budget includes the $650 million needed to address this backlog and to
    accelerate sites to construction completion by the end of calendar year
    2000. If we do not receive these funds, over 100 fund lead sites which
    would have otherwise started their final phase of cleanup will not be
    funded in fiscal year 1998 (the backlog would be expected to grow from
    55 sites to over 100). Additionally, the Superfund program would not be
    able to attain the 250 site completions that the two-year ``900 Sites''
    investment would fund and most of the 55 ranked projects unfunded at
    the end of fiscal year 1997 would not be completed. Each project start
    and completion not funded represents at least one community not
    protected or risks to public health and the environment not addressed.

                        RESEARCH LAB: EDISON, NEW JERSEY

        Question. I understand that the Administration considered funding
    to build a modern laboratory in Edison, New Jersey to perform critical
    environmental analysis for Region II. As you know, my state has the
    largest number of Superfund sites as well as other serious air, water,
    and waste problems. I feel that it is vitally important that the
    scientists in Region II have modern equipment and facilities with which
    to assess these problems. Do you agree?
        Answer. EPA strongly supports the construction of a modern
    analytical laboratory at the Edison Facility. This project has been,
    and continues to be, a top priority for the Agency and ranks high
    within its master plan.

                 LEAKING ABOVE GROUND STORAGE TANKS: REGULATION

        Question. In the conference report which accompanied the VA, HUD,
    and Independent Agencies Appropriations for fiscal year 1997, the
    conferees recognized that leaking above ground storage tanks storing
    petroleum or petroleum products can pose a serious threat not only to
    communities neighboring these tank farms, but also to the ground water
    underneath and surrounding these facilities. Furthermore, the conferees
    expressed their concern that EPA has yet to take substantive action on
    recommendations made by the General Accounting Office in two reports
    regarding the safe regulations of these tanks.
        Ms. Browner, can you please elaborate on what the Environmental
    Protection Agency has done to address the gaps identified in these two
    GAO reports? Specifically, what action has EPA undertaken to enhance
    the regulation of these tanks in the area of secondary containment,
    overfill protection, testing, inspection, compatibility, installation,
    corrosion control, and structural integrity of petroleum tanks in
    excess of 42,000?
        Answer. Part 1. GAO Recommendations. EPA has begun to implement the
    1989 GAO recommendations, and has made great progress on such
    implementation, notably with training activities, but also in all other
    areas. Specifics follow:
        Actions to Strengthen the Inspection Program. EPA has completed its
    survey of approximately 30,000 facilities, has analyzed the results and
    is currently issuing the results of the survey. The information from
    the survey will be used for a number of purposes including assistance
    in targeting high risk facilities for inspections within our existing
    targeting process, and risk-based rulemaking.
        Developing Instructions to Perform and Document Uniform
    Inspections. A workgroup with representatives from EPA Regions and
    Headquarters oil program and compliance offices developed a
    comprehensive Inspector Training course with the goal of achieving
    national consistency in the inspection, documentation, and enforcement
    of the prevention and response requirements of 40 CFR part 112. The
    material developed for the Inspector Training course includes national
    checklists and procedures for documenting inspection results. There are
    checklists for prevention and response requirements that include
    flexibility for regional conditions and various types of regulated
    facilities. The course also includes a national approach to target
    inspections.
        Better Training for Inspectors. EPA Order 3500.1 establishes the
    basic training requirements to ensure that inspectors are properly
    trained to conduct themselves in a safe and professional manner and
    build enforcement cases. The order requires three types of inspector
    training: Occupational Health and Safety Curriculum (OSHA) training
    levels appropriate to hazards encountered; Basic Inspector Curriculum
    for instruction in litigation, entry and information gathering tools,
    evidence, records review for compliance inspections/field
    investigations; and, Program Specific Curriculum with specific training
    in the legal, programmatic, and technical subjects for 40 CFR part 112.
        In addition to the requirements for the hours and courses described
    in the above inspector training, all new inspectors must complete a
    number of facility inspections with a trained inspector prior to
    conducting inspections alone. The number of inspections is related to
    the various types of facility types in a Region and the type of
    inspections being conducted.
        The course has been taught in EPA Region VIII and will be given in
    selected Regions to accommodate attendance by surrounding Regions.
    Depending on funding, EPA plans to conduct three or four Inspector
    Training courses a year until all inspectors are trained and then
    conduct the course on a periodic basis as needed.
        Part 2. The Cooperative Program. In addition, EPA is preparing to
    publish in the Federal Register a proposal to implement an Oil
    Cooperative Program. Instead of a traditional regulatory approach, EPA
    will recommend, as a first step, the initiation of a public process to
    develop a voluntary action or cooperative program, i.e., the Oil
    Cooperative Program. In this program, aboveground storage tank (AST)
    facility owners and operators would take action to implement applicable
    industry standards where no regulations exist to achieve program goals.
    The program goals for companies participating in the Oil Cooperative
    Program include one or more of the following: (1) adopting appropriate
    prevention standards and upgrading equipment as necessary; (2)
    monitoring and/or implementing leak detection to identify new leaks;
    (3) addressing known contamination and implementing steps to minimize
    off-site migration (which may involve appropriate aspects of risk-based
    corrective action); and/or (4) reporting actions underway to address
    contamination to appropriate government agencies. The Agency favors a
    cooperative, rather than a regulatory approach at this time in order to
    provide greater flexibility in addressing contamination at the vast
    range of oil storage facility types, sizes, and locations. A
    cooperative program could focus more directly on facilities that pose
    the greatest threat to public health and the environment.
        Factors that support the development of a cooperative program
    include: (1) the universe of large AST facilities is easily defined and
    represented by several large trade associations; (2) the Cooperative
    Program is consistent with the Agency's goal of developing and
    promoting innovative approaches to achieve environmental goals; (3)
    clear, achievable goals are apparent (i.e., to clean up contamination
    and prevent future release); (4) flexible approaches are available to
    address the problem, thus allowing participants to implement the
    Program in a tailored manner appropriate to their circumstances; (5)
    EPA is committed to providing technical assistance; and (6) there are
    established industry and State practices and standards that can be used
    as a basis for constructing a comprehensive program.
        In keeping with the Agency's initiatives to develop innovative,
    common-sense approaches to environmental problems, a cooperative
    prevention and cleanup program can be an important first step in
    addressing the environmental problem presented by contamination from
    AST facilities. Industry representatives have expressed their support
    for such a program as a more cost-effective, flexible alternative than
    traditional regulation. EPA believes it will be successful, provided
    that it has the full commitment of those involved.
                 leaking above ground storage tanks: voluntary
        Question. In EPA's 1996 Report to Congress under section 4113(a) of
    the Oil Pollution Act of 1990, the ``EPA Liner Study,'' EPA recommended
    a voluntary rather than a regulatory program to prevent leaks from
    above ground petroleum storage tanks and their piping. It is my
    understanding the Agency considers this voluntary program an initial
    step toward alleviating the public and environmental risks associated
    with these types of leaks.
        Ms. Browner, what measures will EPA use to assess the success or
    failure of this voluntary program?
        Answer. EPA plans to develop these measures in consultation with
    stakeholders.
        Question. What are the specific goals of the program?
        Answer. The goals for companies participating in the Oil
    Cooperative Program include one or more of the following: (1) adopting
    appropriate prevention standards and upgrading equipment as necessary;
    (2) monitoring and/or implementing leak detection to identify new
    leaks; (3) addressing known contamination and implementing steps to
    minimize off-site migration (which may involve appropriate aspects of
    risk-based corrective action); and/or (4) reporting actions underway to
    address contamination to appropriate government agencies.
        Question. What action will EPA take should the voluntary program
    not achieve its goals?
        Answer. We believe that a cooperative approach is the appropriate
    first step towards addressing potential risks from AST facilities. I
    would also add, however, that while we are very hopeful that a
    voluntary approach will succeed, this approach does not preclude
    development of a regulatory program in the future if warranted. We
    believe that our risk-based cooperative approach is the most
    appropriate course of action at this time because it will allow us to
    gather the information we need to determine if additional measures,
    such as regulation, are necessary. A cooperative approach also comports
    with our overall Agency focus on promoting innovative, common-sense
    approaches to environmental problems through cooperative initiatives
    with regulated industries.
        Question. Finally, what strategies does EPA intend to take to
    prevent leaks from above ground petroleum tank facilities which do not
    participate in the voluntary program?
        Answer. To prevent leaks from facilities that do not participate in
    the Program, EPA will pursue strategies designed to provide incentives
    for those facilities to voluntarily take action to prevent leaks.
    Incentives might include public recognition, technical assistance and
    cost savings, and reduction of liability.
                                     ______

                     Questions Submitted by Senator Harkin

                    OZONE TRANSPORT ASSESSMENT GROUP (OTAG)

        Question. Since its first meeting in May, 1995, Iowa has been a
    member of the Ozone Transport Assessment Group (OTAG). This consortium
    of 37 states, in addition to industries, utilities and
    environmentalists was created to address the difficult problem of ozone
    transport at a regional level. I recognize the difficulty many states
    have in complying with the ozone standards in the 1990 Clean Air Act
    and understand the frustration they face knowing that many of their air
    problems are beyond their control due to pollutants being transported
    from other states. However, I am also concerned that the northwestern
    OTAG states, including Iowa, may be unfairly required to implement
    stricter air pollution controls which would have very little, if any,
    positive effect on nonattainment areas.
        I understand that the Alpine Geophysics model shows that the five
    northwestern OTAG states do not contribute significantly to the ozone
    transport problem. Is that true?
        Answer. EPA intends to base any ``significant contribution''
    decisions for the OTAG states on a weight-of-evidence analysis of all
    modeling and monitoring information. The Alpine Geophysics model is
    only one piece of information for consideration.
        Based upon all of the technical materials presented to date,
    including the first two rounds of OTAG modeling, on April 16, 1997, EPA
    formally notified the OTAG that our preliminary view of the available
    data do not appear to support the need for additional emission
    reductions for several states. These are Arkansas, Florida, Iowa,
    Kansas, Louisiana, Minnesota, Nebraska, North Dakota, Oklahoma, South
    Dakota, and Texas. Of course, EPA intends to fully evaluate additional
    OTAG information from subsequent modeling runs as well as respond to
    final OTAG control recommendations.

                              OZONE IOWA SPECIFIC

        Question. Do you know of any model, which looks at Iowa as a whole,
    shows the state adding to the ozone transport problem of the eastern
    states?
        Answer. The modeling performed by Alpine Geophysics included Iowa
    ``as a whole'' along with four other states. The results indicate
    contributions to ozone in ``downwind'' states of up to 2-3 ppb. To our
    knowledge, there is no modeling that looks at Iowa alone.
                    ozone transport federal register notice
        Question. Although the OTAG process will not be completed until
    this summer, the EPA has announced that later this month it will
    publish a notice in the Federal Register notifying states of its
    intention to implement new clean air regulations. Why has EPA decided
    to do this instead of waiting a few extra months for OTAG to complete
    its work? After so much energy, time, and federal money was expended on
    the OTAG process, doesn't it seem appropriate to wait for the group's
    results before issuing new proposed regulations?
        Answer. In an April 16, 1997, letter from Mary Nichols, Assistant
    Administrator for Air and Radiation, to Mary Gade, Chair of Ozone
    Transport Assessment Group (OTAG), EPA announced a revised schedule for
    taking rulemaking action. Based upon the excellent progress that the
    OTAG has made to date, the EPA has decided not to publish a notice this
    spring notifying states of planning deficiencies. Because OTAG's
    schedule for completing their work is consistent with the timeframe for
    the planned EPA actions, EPA believes it makes sense to condense the
    two-step proposal process we had planned into a single notice this
    summer in order to take maximum advantage of OTAG's technical work and
    its deliberations. The states and other stakeholders have been working
    very hard to complete their technical analyses of the impacts of ozone
    transport as well as solutions for mitigation. These analyses are the
    best that have been done in this country.

                             OZONE TRANSPORT STATES

        Question. Requiring ``transport'' states to comply with new
    regulations may also be premature. Under Phase I of the Clean Air Act,
    states with the worst air problems were supposed to establish plans
    determining how they would address their air problems. These states
    have not met this obligation. It is not until Phase II that
    ``transport'' states, such as Iowa, were supposed to be discussed. What
    are your thoughts on beginning Phase II before Phase I was completed?
        Answer. The EPA presumes that Phase I and II refer to the steps for
    SIP development described in Agency policy guidance issued on March 7,
    1995. This established an alternative 2-phased process which provided
    ozone nonattainment areas flexibility in the attainment planning
    efforts for the most polluted areas of the Eastern U.S. The policy
    called for the establishment of a collaborative process among States,
    known as Ozone Transport Assessment Group (OTAG), to assess ozone
    transport and develop regional solutions. Under phase I, states were to
    submit rules to ensure that their areas were making progress toward
    attainment. The full attainment plans are due under phase II which is
    currently reaching completion. Thus EPA is not beginning Phase II
    before completing Phase I. The EPA intends to wait on the OTAG
    information and recommendations before taking any action. As previously
    stated, it is questionable whether ``western fringe'' states such as
    Iowa will be involved in any control efforts.

                               OZONE FREE STATES

        Question. Shouldn't states like Iowa and the other ``ozone-free''
    states be logically exempted from the new clean air guidelines since
    they would not significantly help the eastern states but would under
    the regulation bear a significant regulatory cost?
        Answer. Before making decisions on how best to deal with this major
    air pollution issue, Ozone Transport Assessment Group (OTAG) and the
    Environmental Protection Agency (EPA) believe it is important to
    understand and characterize as accurately as possible the extent and
    impact of transported ozone and its precursors throughout the eastern
    United States. The OTAG air quality modeling system provides the most
    complete, scientifically credible tools and data available for the
    assessment of interstate transport. The OTAG modeling domain, which
    includes 37 States and the District of Columbia, was based upon
    technical considerations such as the need to include major emission
    sources that might affect high ozone formation and transport in the
    East. Inclusion of Iowa and the other four States who label themselves
    as ``ozone-free'' States (North Dakota, South Dakota, Minnesota, and
    Nebraska) in this OTAG study region does not automatically mean that
    these States will need to implement additional control measures as part
    of the regional strategy to mitigate ozone transport. Only those States
    that significantly contribute to nonattainment, or interfere with
    maintenance, of the ozone standard downwind will be required to reduce
    emissions.
        In an April 16, 1997 from Mary Nichols, Assistant Administrator for
    Air and Radiation, to Mary Gade, Chair of OTAG, EPA provided its
    preliminary assessment, based on OTAG data and other information, of
    which States will need to make additional reductions in ozone
    precursors in order to reduce regional ozone transport. In regards to
    Iowa, North Dakota, South Dakota, Minnesota, Nebraska, and 6 other
    States, EPA's preliminary view is that the OTAG data do not appear to
    support the need for additional reductions. However, we believe that it
    is necessary to evaluate additional information, and more appropriate
    to wait for final recommendations from OTAG, in order to determine if
    additional emissions reductions will be needed from these States to
    address ozone transport.

                    SMALL BUSINESS ENVIRONMENTAL ASSISTANCE

        Question. Small business plays a vital role in our economy, and are
    subject to a multitude of environmental regulations. Small businesses
    have the smallest capacity to comprehend complex rules and to determine
    least cost methods to meet those requirements. EPA is beginning to move
    in the right direction by working to simplify regulations so small
    businesses can better work with them and to providing assistance
    through programs such as each state's Clean Air Act Small Business
    Assistance Programs. However, many additional entities are involved
    such as Small Business Development Centers and NIST Manufacturing

    Extension Programs.
        The Small Business Pollution Prevention Center at the University of
    Northern Iowa has developed ways to work cooperatively with a variety
    of others which try to reduce a pollution generated by small business.
    The center performs a combination of roles such as producing easy to
    understand cook book type guides for specific processes and industries
    targeting those involving a large number of small operators and which
    generate significant wastes such as dry cleaners, printers and vehicle
    maintenance facilities as contemplated in the Small Business Regulatory
    Enforcement and Fairness Act.
        Question. I would appreciate your views on the needs for centers
    such as the one that exists at the Small Business Pollution Prevention
    Center at the University of Northern Iowa and the role that it plays in
    translating EPA requirements into a form understandable to small
    businesses and communicating back to EPA about the difficulty that
    businesses face in meeting specific EPA requirements?
        Answer. The Iowa Center as well as other organizations such as the
    Northeast Waste Management Officials Association, and the Solid and
    Hazardous Waste Education Center at the University of Wisconsin play a
    valuable role in developing state-specific compliance and pollution
    prevention guides that complement the federal compliance guides that
    are being developed by the Office of Compliance. EPA sees such state
    organizations as the appropriate providers of site-specific and/or on-
    site assistance to small business. The larger state organizations such
    as Iowa's have also played an important role in developing tools and
    guides that other organizations within a given state and across state-
    programs can use. Our goal is to make it easier for state and regional
    centers to supplement plain-language guides and other compliance
    assistance tools for federal rules with similar information on state
    rules.
        In addition, we see an important need for our work to feed and
    encourage cooperation between the broad and growing range of state and
    local service providers such as the state Clean Air Act Section 507
    Small Business Assistance Programs, the Small Business Development
    Centers, the NIST Manufacturing Extension Partnerships, the regulatory
    agencies and the state pollution prevention programs.
        The EPA's Small Business Ombudsman's Office has found the Iowa
    Waste Reduction Center to be very effective in carrying out an outreach
    program to inform and assist small businesses to understand and comply
    with environmental regulatory requirements. The Center not only offers
    advice and information but, if necessary, offers ``hands on''
    assistance to bring about voluntary compliance. It also promotes and
    advocates pollution prevention policies that help alleviate future
    environmental degradation problems.
        Over the past five years, the Ombudsman has awarded annual ``Peer
    Match'' grants to the University of Northern Iowa for the Waste
    Reduction Center to familiarize other State assistance programs with
    its successful operating procedures. This involved hands-on training at
    the Center in Iowa, as well as, Center personnel traveling to ``Peer
    Match'' States to provide on-site assistance. Our evaluation reports
    indicate that the ``Peer Match'' assistance was most beneficial in
    helping other States develop effective programs.
        In addition, the Agency's Small Business Ombudsman awarded a grant
    to the Waste Reduction Center to develop Environmental Auditing
    Assessment Guidance material for small businesses to use in reviewing
    their environmental compliance requirements. We have been most pleased
    with the professional treatment given to this undertaking. Good, sound,
    self-initiated environmental auditing programs will lead to additional
    voluntary compliance, as well as a greater sensitivity to environmental
    problems and issues.

                   SMALL BUSINESS POLLUTION PREVENTION CENTER

        Question. One example of a feedback mechanism relates to the Center
    informing EPA of the difficulty that service stations had in handling
    used oil filters. Happily, EPA changed its rules in this area. These
    seemingly narrow issues are exactly what can both create consternation
    in small business people and add to their cost. Shouldn't EPA be doing
    more to create centers like the one at the University, to strengthen
    those that already exist and to actively seek feedback to find easier
    ways to meet environmental objectives at lower cost?
        Answer. There is an important distinction between the national
    Compliance Assistance Centers program that EPA's Office of Compliance
    is supporting and the state-programs such as the Iowa Waste Reduction
    Center. The Office of Compliance has supported the establishment of
    four national compliance assistance centers for the metal finishing,
    auto service and repair, printing and agriculture sectors. These
    centers are communications-based rather than physical locations and
    serve the entire nation rather than a particular state or region. These
    national Centers provide readily accessible information on federal
    regulatory requirements to small businesses via the Internet and toll-
    free numbers. They complement and support programs such as the Iowa
    Waste Reduction Center in two important ways:
      --They complement the on-site and state-specific work that Iowa
            conducts by providing a place for small businesses to get ``the
            basics'' on federal regulatory requirement as well as by
            alerting small business to the additional services of state and
            local programs; and
      --They support state programs such as Iowa's by providing easy access
            to sector-specific compliance assistance tools they can use in
            their own work with small businesses. EPA is expanding its
            support of national Centers, based on industry demand, to
            establish Centers for the printed wiring board manufacturing,
            chemical manufacturing, local government and transportation
            sectors.
        In addition, EPA has several grant programs that support programs
    like the pollution prevention program at the University of Iowa. These
    include the Pollution Prevention Incentives to States Grants, which has
    been in existence since 1990 as well as some newer efforts.
        The Office of Compliance now uses a portion of the TSCA Enforcement
    Grants funding to support state operation of comprehensive compliance
    monitoring and assistance program on a facility-wide and industry
    sector basis. Most recently, EPA is in the process of distributing
    funding pursuant to Section 215 of SBREFA. Under this project $1
    million will go to the states to develop compliance guides and tools
    that integrate state and federal rules to enhance a small businesses
    understanding of their total regulatory requirements.
              small business compliance assistance center funding
        Question. I am pleased that EPA recently designated a painting and
    coating compliance assistance center at the University of Iowa to work
    on that process which is used by many industries. It was unique in that
    it targeted a process rather than a specific industry. However, don't
    you believe that, given the size of the area involved, additional
    funding would be appropriate, comparable to the industry specific
    compliance assistance centers?
        Answer. We funded a project at the University that would develop
    various tools for technical assistance providers to use in their
    client-relationships with painting facilities. The Office of Compliance
    (OC) has an existing Metal Finishing Resource Center that has been
    expanded to serve the organic coatings side of that industry. This
    Center will work very closely with the University of Iowa and plans to
    assist in the development and distribution of Iowa's products.
        While the Compliance Assistance Centers that OC supports do
    distribute tools for technical assistance providers this is just one of
    their functions. The OC program has supported the development of
    communications-based centers (e.g. via the Internet or toll-free
    numbers) that do several key things:
      --Provide easy access to federal regulations, interpretations and
            guidance.
      --Distribute compliance tools that can be used directly by small
            businesses or by those assistance providers that serve small
            business.
      --Develop process-specific training modules to improve assistance
            providers understanding of the industries they serve.
      --Enable information exchange among businesses through ``chat rooms''
            and ``on-line conferences.''
      --House databases of technologies and pollution prevention ideas.
      --Provide easy access to vendors, state and local assistance
            providers and other resources for additional compliance
            assistance.

                  POLLUTION PREVENTION AND FEDERAL GOVERNMENT

        Question. Pollution Prevention is vital to ensuring the health of
    our nation's citizens, in protecting the environment and in saving
    dollars, especially by avoiding the cost of waste disposal and future
    environmental cleanups. As you know, pollution prevention involves
    reducing, avoiding, or eliminating the use of toxins and the generation
    of hazardous waste and pollution at the point of production itself. The
    best way to avoid harming the environment is to prevent pollution
    before it is created.
        As President Clinton pointed out, the federal government should set
    the example for the rest of the country in applying pollution
    prevention strategies in order to protect our health and the
    environment
        Pollution prevention should be a key element of good government.
    Federal Agencies should find ways of using more environmentally
    friendly products and methods in order to save tax payer dollars.
    Often, with a relatively small investment now, the federal government
    can avoid having to pay far higher costs of cleaning up the environment
    and meeting environmental compliance rules in the future.
        Question. Which federal agencies and facilities have complied with
    the deadlines of Executive Order 12856, which requires each federal
    agency and facility to establish a pollution prevention plan?
        Answer. Executive Order 12856 directs that all Federal agencies
    with facilities meeting any regulatory threshold for reporting under
    EPCRA (``covered facilities'') to develop a strategy for implementation
    of the Executive Order. Seventeen Federal agencies meet the threshold
    provided by Executive Order 12856 and have prepared formal pollution
    prevention strategies. In a document entitled ``Meeting the Challenge:
    A Summary of Federal Agency Pollution Prevention Strategies,'' EPA has
    compiled agency strategies and prepared an overview of each agency's
    commitment to the various provisions of the Executive Order.
        The Executive Order also directs that covered facilities prepare
    pollution prevention plans for implementing agency strategies and
    provisions of the Order at the facility level; these plans were to be
    completed by the end of December 1995. Federal facilities covered by
    the Executive Order are not required to submit their plans to EPA but
    they must be available upon request by the public or EPA. Over 2,400
    Federal facilities meet the threshold for preparation of the plans. The
    Department of Defense (DOD) has directed all DOD facilities to prepare
    those plans, whether or not they are ``covered facilities''. EPA has
    provided extensive training to assist Federal facilities in preparing
    their pollution prevention plans and estimates that a majority of
    facilities required to prepare the plans have done so.
        While there is no provision established by the Order for
    determining compliance, EPA regional staff use compliance inspections
    and other facility visits to request and informally review copies of
    the facility plans.

                        POLLUTION PREVENTION STRATEGIES

        Question. Has EPA found that individual agencies and facilities are
    adequately funding the pollution prevention strategies established by
    these plans?
        Answer. EPA does not track specific funding allocations related to
    implementation of Executive Order 12856.
        As directed by Executive Order 12088, however, EPA reviews agency
    environmental budget requests and has recently amended its FEDPLAN
    guidance on those requests to include projects required to comply with
    the specified deadline requirements of Executive Order 12856 in the
    ``Class 1'' category of funding requests. This revision will be
    implemented for fiscal year 1998. These projects are compliance/
    enforcement related and the Class 1 designation signifies a vital
    project. The amended guidance will allow facility funding requests for
    projects outlined in agency pollution prevention strategies and
    facility pollution prevention plans to be designated as Class 1 and
    thus receive more favorable consideration during the budget allocation
    process. In addition, EPA's FEDPLAN guidance also allows Class 1
    designations for pollution prevention projects that are necessary to
    bring a facility into compliance or prevent non-compliance in the
    following fiscal year.

                   POLLUTION PREVENTION CONGRESSIONAL SUPPORT

        Question. I understand that, at times, implementing pollution
    prevention plans requires a short term cost increase to an agency or
    facility in order to realize longer-term savings in the costs of
    complying with environmental laws and regulations. It is my hope that
    federal agency and facility budget staff will see the fiscal wisdom of
    paying for good pollution prevention practices. In EPA's view, what
    budgeting rules or policies should be established by the Congress or
    the Administration in order to further encourage implementing federal
    pollution prevention plans?
        Answer. While EPA does not have any specific recommendations, our
    experience indicates that those agencies that have been most effective
    in implementing pollution prevention plans and strategies are those
    where agency budget policies include life cycle considerations and
    recognize the economic benefit of pollution prevention as well as the
    ability of pollution prevention projects to meet or exceed the
    requirements set forth in many environmental regulations.
        In addition, within the Executive Branch process, EPA has provided
    comment to the General Services Administration on proposed changes to
    the Federal Acquisition Regulation to meet the requirements of
    Executive Order 12856. Section 3-303(c) of the Executive Order
    recognizes that changes would be necessary to ensure that acquisition
    and procurement goals established in the Order were carried out. Under
    the Executive Order, these changes are expected to be completed in
    fiscal year 1997.

                    POLLUTION PREVENTION IMPROVED COMPLIANCE

        Question. I understand that during this Administration, the
    compliance levels for the federal procurement and acquisition rules
    that encourage pollution prevention strategies have improved
    significantly. However, there is still room for further improvement. Is
    EPA devoting adequate resources toward achieving improved compliance?
    What is the level of support? What resources are needed for the coming
    fiscal year?
        Answer. In response to Executive Order 12873 on Federal
    Acquisition, Recycling, and Waste Prevention, EPA proposed guidance for
    federal agencies which establishes a set of principles to help federal
    agencies incorporate environmental preferability into their procurement
    practices. The Environmentally Preferable Products Program (EPP) is
    budgeted in fiscal year 1998 at $677.6 thousand. EPA also has a number
    of pilot projects underway to apply the guidance's principles to
    specific product categories. The pilot projects EPA has initiated focus
    on cleaning products with the General Services Administration and
    building construction and renovation with the Department of Defense.
    The Cleaning Products Pilot Project is a cooperative interagency effort
    which has established a framework for identifying and comparing the
    relevant environmental attributes of cleaning products. The DOD-EPA
    construction and renovation pilot has focused initially on using the
    procurement process to encourage contractors to use environmentally
    preferable products in parking lot construction and will extend to
    integrating environmental considerations into the renovation of the
    Pentagon. Other agencies are beginning pilots which will demonstrate
    how third party certification programs can assist federal agencies in
    assessing environmental preferability.

                              SUBCOMMITTEE RECESS

        Senator Bond. And with that, the subcommittee stands in
    recess until April 22, when we will take testimony from the
    National Science Foundation and OSTP.
        The hearing is recessed.
        [Whereupon, at 12:30 p.m., Tuesday, April 8, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                            TUESDAY, APRIL 22, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:33 a.m., in room SD-192, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Burns, and Mikulski.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Science and Technology Policy

    STATEMENT OF JOHN GIBBONS, DIRECTOR

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good morning. The hearing comes to order. The
    subcommittee meets today to review the budget request of the
    Office of Science and Technology Policy and the National
    Science Foundation.
        We welcome Dr. John Gibbons, the President's science
    advisor, and Dr. Neal Lane, the Director of the National
    Science Foundation. OSTP's budget request totals $4.932
    million, the same as fiscal year 1997 enacted level. The NSF's
    budget request for fiscal year 1998 is $3.367 billion, a $97
    million or 3-percent increase over enacted fiscal year 1997
    level.
        I am very pleased to be able to convene this hearing today
    on the Office of Science and Technology Policy and the National
    Science Foundation. I do not guess we need to remind you of the
    strong support this subcommittee has provided for the Nation's
    scientific endeavors, certainly under Senator Mikulski's
    leadership as well as in the last couple of years.
        Some of you may have heard that my fellow Missourian Harry
    Truman once commented that he needed a one-handed economist so
    his advisors would not be able to say, but on the other hand.
        Senator Burns. Economists are like that. [Laughter.]
        Senator Bond. You will have your time, Senator Burns, but I
    now have one on you.
        Support for science is where we do not need a one-handed
    economist. Economists generally agree that investment in
    research and development provides a positive return to the
    economy, although they may disagree on exactly how much return,
    or how to measure the rate of return, and we agree with the
    general principles of economists on this one. Research and
    development are good investments, and we will have some
    questions to find out how you are prioritizing those
    investments.
        We know that you Dr. Gibbons and Dr. Lane agree with it. We
    acknowledge and applaud the efforts you have made to
    communicate the wonder and awe that scientific endeavors can
    inspire in the American public, particularly in Americas' young
    people.
        As one who normally drives a car pool with a bunch of high
    school sophomores once a week, I am fascinated that they are
    paying attention to the scientific accomplishments that are
    reported in the news media. We have seen great coverage, this
    morning's television focusing on Hale-Bopp, the Washington Post
    Magazine covering everything from the smallest bacteria to the
    far reaches of the universe, and I think that is exciting and
    very healthy.
        As chair of the subcommittee I have a particular interest
    in exploring the Federal investment in biotechnology,
    particularly as it applies to agricultural sectors, plant
    genetics.
        I think it is imperative to maintain the long-term
    sustainability and competitiveness of U.S. agriculture, and I
    agree with Dr. Gibbons that plant genome research is vital to
    this effort. I know I can count on both OSTP and the National
    Science Foundation to help organize, direct, coordinate, and
    support the efforts that are beginning in this important area.
        And on the other hand, this is another very difficult year
    for this subcommittee. We have human-scale problems, ranging
    from medical care for veterans to housing for low-income
    Americans to relief for victims of disasters, which also
    unfortunately are occupying the headlines in the top of the
    news.
        We are not far enough along in the budget process to have
    an allocation for this subcommittee to know how much money we
    will be dealing with, so it is premature to be able to discuss
    absolute levels of funding that may be available for these
    critical science accounts.
        Our purpose today is to discuss with both of you the
    priorities for this Nation's scientific enterprise and how
    those priorities are reflected in your agency's activities. We
    are particularly interested in the implementation of the
    results act, which requires agencies to think strategically
    about their goals and to measure their performance against
    goals they have set.
        Although we appreciate the difficulty of setting goals in
    basic scientific research, where the goal is to explore the
    unknown, we have to ask that you hold yourselves and that you
    be accountable and responsible to us for how we spend those
    Federal dollars.
        It is a pleasure now to call on my distinguished ranking
    member, Senator Mikulski, for her opening statement. Senator
    Mikulski.

                         STATEMENT OF BARBARA MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman, and I
    would like to welcome our two witnesses today, Dr. Lane of the
    National Science Foundation, and Dr. Gibbons, the Director of
    the Office of Science Technology Policy for the President.
        Mr. Chairman, I have long been an advocate for Federal
    investments in research and in development, and several years
    ago a report was issued by various councils on competitiveness
    that outlined 13 critical technologies that would be needed in
    the 21st century, the type of work that you have just outlined
    that will be so important for not only agriculture but its
    ultimate impact on the value-added agriculture for people.
        The report noted how we should link our science and our
    engineering to the development of technology, and give us and
    develop manufacturing in this country that would allow us to
    have products to export overseas.
        Everyone knows that for some time I have been concerned
    about how the fact the United States of America wins the Nobel
    Prize, and yet other nations win markets. Therefore, I
    encouraged the National Science Foundation to examine how it
    organized itself and encouraged it to increase funding for
    basic research, always focusing on basic research, but in
    strategic areas, what were the needs of this country to be able
    to develop and move ahead.
        The aim was not to reduce basic research, but to develop a
    navigational chart of strategic areas in which funds could be
    focused. Therefore, in the course of our testimony, I will want
    to know exactly where we have been moving in that particular
    area.
        I want to hear what progress has been made in developing
    national goals to stimulate not only new ideas, but new
    opportunities for economic growth through research and
    development. I want to hear what the agencies are doing to
    encourage public-private partnerships, and how public
    investment is leveraging private sector research and also,
    ultimately, leading to private sector jobs.
        Mr. Chairman, I am not calling for an industrial policy,
    but I am calling for a national set of the focus. I understand
    that the National Science Foundation no longer highlights these
    strategic interests, and I will be interested in knowing how
    they are moving ahead.
        I also understand that Dr. Gibbons in his testimony has
    referred to the gap between university research and private
    sector product development as the valley of death. We want to
    make sure that there is no valley of death between the creating
    of new ideas and new products, but that we really work to have
    a broadbased set of policies that create a canyon of
    opportunity.
        I know I am using agriculture and western metaphors, but I
    will come back to my own Chesapeake Bay one. We need a
    navigational chart to make sure that we go from a clipper ship
    economy to a microchip economy, and I look forward to working
    with you and our colleagues, who I esteem very much in this
    endeavor.
        Thank you.
        Senator Bond. An inspiring metaphor, Senator Mikulski.
    [Laughter.]
        Now we will turn to Senator Burns for equally lofty
    comments.

                           STATEMENT OF CONRAD BURNS

        Senator Burns. Mine will not be lofty, Mr Chairman. In
    fact, the working relationship that we have had both in the
    authorizing committee and in the Appropriations Committee with
    Jack Gibbons and Neal Lane has been one that I think has been a
    very good one. We will probably argue about priorities, but we
    never argue about the need of science and technology and the
    role that the Government plays and the dollars that the
    taxpayers invest in science and technology.
        I am struck by the comment of the ranking member, Ms.
    Mikulski, that we win the Nobel Prizes and other countries get
    the markets. Maybe we better get some scientists in trading. We
    send lousy traders to these negotiations. That is what we have.
    We better get on the street and know how to sell a product and
    know when to make a deal and when not to make a deal, and that
    is where we fall down quite a lot.
        I just want to congratulate Jack and Dr. Lane in our
    working relationship. We want to do that. I would just like for
    my statement to be made part of the record, and I think we
    should hear from them.
        Thank you very much.

                           STATEMENT OF JOHN GIBBONS

        Senator Bond. Now I would like to call forth Dr. John
    Gibbons, Director of the Office of Science and Technology
    Policy and Dr. Neal Lane, Director of the National Science
    Foundation. We would like to ask both of you gentlemen to give
    your statements, and the questions will be directed in many
    instances to one or both of you so we can hear your ideas
    together. So with that, Dr. Gibbons.
        Dr. Gibbons. Thank you, Senator. I am delighted to appear
    before you, Senator. I must say at the outset how much I have
    appreciated the strong support, the bipartisan support of this
    committee over the years with respect to science and technology
    in our Nation's future. There are a lot of discomforting things
    in this job, but your support is a very comforting thing to me.
        As I was preparing for today I was recalling some of the
    events that were transpiring a little over 1 year ago in which
    there were serious talks of draconian cuts in research. There
    was acrimonious debate about the role of Government in our
    Nation's life, especially the public-private cooperation and
    partnerships in science and technology, but I am really
    optimistic that much of this is behind us, that we are slowly
    but surely moving toward reestablishing the more traditional
    broad bipartisan support for science and technology.
        But having said that, I think there are as many struggles
    ahead of us as there are opportunities. We talk about
    opportunities in a report I sent to the Congress about 1 week
    ago. It is a biennial report on the status of science and
    technology. It is a very enthusiastic report because it relates
    the enormous progress we are making, but also the number of
    extraordinary opportunities ahead of us.
        But our central concern still is our fiscal challenge. The
    heaviest pressure of getting our budget balanced is on the
    discretionary part of our national budget, which is only one-
    sixth of the total. In that sense, nothing should be immune
    from very close scrutiny. In my view, science and technology
    stands out as one of those proven public investments that is so
    key to our national strength, and so essential to enabling our
    future, that it merits very special nurturing. At the same
    time, it must not escape the same kind of scrutiny that all of
    these programs must receive.
        As you said, Mr. Chairman, we have an extraordinarily well-
    proven high rate of return of public investments in research.
    Probably one-half of our economy, our economic growth over the
    last one-half century, is relatable to our research, and it has
    shown up in our national security, our economy and jobs, our
    health, and our environment. All of these directly benefit from
    those investments.
        We are now in our fifth year of moving toward that budget
    balance. At the same time, it is the fifth year in which the
    President has proposed a modest increase in support of our
    research budget. We have budgeted for 1998 an increase in R&D
    of about $1.6 billion over fiscal year 1997, to a total of
    about $75 billion as scored by OMB. This represents about a 3-
    percent increase in our civilian R&D activities and a
    significant increase in our fundamental science support within
    the Department of Defense.
        What the budget does is, it boosts basic research, so key
    to our future. It emphasizes peer-reviewed university-based
    research because you get the double hit of training new
    scientists along with the research.
        It gives new support to technologies to benefit the
    revolution in the new information age that we are immersing
    ourselves in. It gives greater support for bringing that same
    kind of information technology to our classrooms, which can so
    greatly profit by having this kind of infusion and newness.
        It puts greater investments in science and technology to
    ensure our continued economic leadership and job creation. It
    gives incentives to lever private sector investments in
    research by providing ways to tease greater private investments
    in this direction.
        It increases environmental research. I was thinking about
    that this morning. With the great floods in the upper Midwest,
    we are now suffering about $1 billion a week from natural
    disasters in the United States. The word natural is getting a
    little unusual, because I think people are getting to be part
    of that so-called natural system.
        It increases our support for health, food, and safety
    research. It sustains support for our civil space program. It
    promotes science and technology for national security,
    especially the long-term support base.
        Balanced against our imperative to balance the budget, I am
    satisfied that we are on target.
        Of course, there are calls for larger increases in the
    budget, and I would be delighted. It makes me very happy to
    hear of these calls, but to turn a phrase, happiness cannot buy
    money. Would I like to see an increase in Federal funding for
    research? You bet I would. So would the President, and so would
    all three of you.
        Would strengthening Federal support for science and
    technology support our economic and other national security
    issues? Of course, but the constraints on Federal research
    funding are driven by that need to balance the budget, and we
    must keep that in mind as we go ahead.
        I would be delighted to argue for increasing research to
    track our national economic growth. Until we find that we can
    secure ourselves fiscally, I think that would be premature
    judgment.
        Finally, in the face of these enduring constraints on our
    funding, we have to find ways to stretch our effectiveness. I
    would say there are three ways before I close. First, increase
    productivity of our Federal agency-sponsored research. We can
    talk about this during the question period, Mr. Chairman. I
    think OSTP's work has been to more closely integrate the work
    of the agencies across these agency boundaries, where you can
    get much greater from the whole than the sum of the parts
    separately, so we are working within the Federal administration
    family.
        The second thing is that we want to strengthen the national
    innovation system, not just the Federal system. The Federal
    system is only about 39 percent of the total national R&D. That
    means encouraging greater private sector investment with tax
    policies, with partnering, strengthening university-Government
    relationships, which are stretched and need work. I will be
    happy to recount some of that for you, increasing our State-
    Federal collaboration, and we have a new activity going on now
    with the National Governors' Conference. We are seeking greater
    international cooperation where it makes sense for us,
    especially in very expensive research and in basic research
    where the information is so broadly shared.
        The third area is introducing more effective
    accountability, and you mentioned this earlier this morning,
    Mr. Chairman. We are working hard on the Government Performance
    and Results Act, especially as it relates to research and, of
    course, this can get very difficult, as you pointed out, when
    you are working in basic research. Sometimes you have to wait
    20 years to find out how important it was or was not.
    Nonetheless, we are working hard in that area, because more
    effective accountability on the outcomes measures are really
    important for us.

                               PREPARED STATEMENT

        And finally, Mr. Chairman, as you pointed out, we are
    asking for the same people and dollars in this coming year,
    which we hope the committee will look favorably upon.
        Thank you.
        [The statement follows:]

                     Prepared Statement of John H. Gibbons

        Mr. Chairman, Members of the Committee, I am pleased to appear
    before you today to discuss the Office of Science and Technology
    Policy's (OSTP) budget request for fiscal year 1998.
        As we approach the turn of the century, it seems appropriate to
    take stock of the Nation's science and technology (S&T) enterprise, and
    to look to the opportunities that lie ahead as well as the challenges
    that we face. The Information Age is bringing changes to our society
    that are only beginning to unfold. Already, new communications
    technologies are transforming the way we work, where we work, and what
    we need to know to be successful in tomorrow's competitive environment.
    Five years ago ``Internet'' was still a word known mostly to those in
    S&T. Today, it is the backbone of a new industry and a window to a
    tremendous world of information for all segments of our society, from
    business executives to school children.
        The rapid economic growth of other nations means a future with
    greatly expanded markets for U.S. goods and services. Our ability to
    move our ideas, our goods, and ourselves swiftly to any place on the
    planet, with the help of new technologies, enhances our ability to
    share in the growth of global wealth. The increasing availability of
    these same capabilities throughout the world also means greater
    competition; it means increasing pressures on our shared environment,
    health, and natural resources; and it means more diverse dangers to our
    security from threats such as terrorism and the spread of nuclear and
    other materials of mass destruction.
        The President's key goals for our country include competing
    aggressively in the global market place, preserving our environment and
    managing our Nation's resources in a sustainable manner, safeguarding
    our national security from emerging threats, and maintaining the
    technological innovation that has contributed to our economic
    prosperity and quality of life. Achieving these goals requires a
    sustained commitment to our S&T investments. Therefore, this year, as
    in the previous four, the President has called for increasing our
    national commitment to support S&T.
        Just as we struggle with the increasingly difficult choices that a
    balanced budget requires, we also must focus on the importance of
    sustaining our investment in the future. Funding for S&T, like funding
    for education, is a high-leverage investment in our continued peace and
    prosperity. Support for such investments has traditionally been a
    matter of bipartisan agreement. It is imperative that we build common
    ground in support of a shared vision--a commitment to keep America the
    world's leader in S&T.

                   RECENT ADVANCES IN SCIENCE AND TECHNOLOGY

        Over the past year there have been numerous scientific and
    technological advances, reminding us of how much there is yet to know,
    and of the potential of S&T to further enrich and improve our lives. I
    will mention just a few such recent advances.
      --In December 1996, the U.S. Department of Energy, in cooperation
            with Intel Corporation, announced the completion of the world's
            first 1-trillion-calculations-per-second computer--breaking the
            teraflop goal. This computer was developed as part of the
            Department's Accelerated Strategic Computing Initiative, which
            is pioneering technology to ensure the safety and reliability
            of the U.S. nuclear stockpile. This accomplishment is the
            culmination of years of effort to reinvent computing, organized
            within the Federal government as a multiagency consortium
            called the High Performance Computing and Communications (HPCC)
            Initiative. Instead of focusing on a single computer processor,
            which would have been extremely difficult and expensive, the
            U.S. program resulted in an entirely new computer technology
            called parallel computing. Parallel computing allows the
            biggest computers in the world to be assembled from mass-
            produced microprocessors, which were originally developed for
            use in desktop and home PC's. This new computing power is
            valuable in a variety of applications, including the simulation
            of disease progression, the projection of severe weather
            systems, the mapping of the human genome, the improvement of
            highway safety, and the development of environmental
            remediation methods to reclaim polluted lands.
      --Scientists are unraveling the complex interactions that exist
            between HIV and the human immune system. We now have a much
            better understanding of how HIV gains entry into cells. NIH-
            supported scientists have discovered two new cell-surface
            proteins that act as ``cofactors,'' along with the CD4 receptor
            that assists HIV, in binding and infecting immune cells. This
            information will be extremely useful in developing new
            approaches to control AIDS. In addition, the use of powerful
            triple drug therapies is having a remarkable impact on the
            number of deaths caused by HIV. Such deaths are down 13 percent
            from last year, although the number of infected persons in the
            population remains high.
      --Two NIH-funded groups, using different but related genetic
            techniques, reported an important advance in neuroscience:
            employing sophisticated monitoring equipment, researchers were
            able to detect activity in individual brain cells as the mice
            investigated their surroundings and created a mental map of
            their environment. This work provides a window into how human
            memory functions.
      --A group at the Massachusetts Institute of Technology has succeeded
            in using a Bose-Einstein condensate (BEC) to make the world's
            first ``atom laser,'' which fires a narrow beam of coherent
            ``matter waves'' with about a million atoms per pulse. Coherent
            beams of atoms could eventually allow much finer measurements
            and manipulations, such as moving atoms around one by one, or
            ``writing'' atoms into semiconductors.
      --In a stunning scientific advance that contributes to our
            fundamental understanding of the origins of life, in August of
            1996 a team of researchers announced that they had decoded the
            first complete genetic blueprint of a microorganism from the
            third major branch of life on earth, a microbe named
            Methanococcus janaschii. The finding will allow scientists to
            understand more about the operation and function of the cell,
            while bringing them closer to understanding the nature of
            ancestral cells from which life stemmed early in the planet's
            history. In the years ahead, this gene sequencing achievement
            holds dramatic prospects for commercial applications in
            biotechnology, for the development of renewable energy sources,
            and for cleaning the environment.

                   THE NATIONAL RESEARCH INVESTMENT PORTFOLIO

        Overall, the Federal government invests approximately 2.5 percent
    of the Federal budget annually (roughly $75 billion) to generate new
    knowledge, new technologies, and new scientists and engineers. The
    return on investments in S&T as a whole for our Nation has been
    impressive: half of our economic productivity growth in the last fifty
    years is attributable to technological innovation and to the science
    that supported this innovation.
        The Administration's fiscal year 1998 budget supports the cutting-
    edge research of the Federal government's mission agencies by
    augmenting stable funding levels with targeted increases that include:
      --A 2.6 percent increase in the National Institutes of Health budget,
            to fund high-priority research areas such as HIV/AIDS-related
            illnesses, breast cancer, minority health initiatives, disease
            prevention, and spinal cord research.
      --A 3 percent increase in the funding of science, engineering, and
            education R&D at the National Science Foundation.
      --A five-year, 1 billion dollar increase in NASA's space science
            budget, funding research into the origins of the universe and
            the possibility of life beyond Earth.
      --An almost 8 percent increase in the basic research budget of the
            Defense Department.
      --A $1.4 billion appropriation (exclusive of funding for facilities
            construction) for the Department of Energy's Stockpile
            Stewardship Program, which supports the research that will
            allow us to assure the reliability and safety of our nuclear
            stockpile without resorting to nuclear testing.
      --An almost 5 percent increase in basic science research programs at
            the Department of Energy.
      --A $289 million increase in funding for university-based research to
            strengthen the University-Government partnership and a $497
            million increase in peer reviewed R&D programs.

                        SHAPING THE TWENTY-FIRST CENTURY

        A bipartisan consensus has emerged around the view that we must
    create, not simply a Federal research program, but a truly national S&T
    enterprise--one in which Federal investments stimulate and leverage the
    S&T efforts of state and local governments, of private industry, of
    universities and of our international collaborations. In a tight budget
    environment, these partnerships are essential, and will be a
    cornerstone of our S&T enterprise in the coming years.
        The long-standing Federal partnership with universities has made
    our Nation the world's leading generator of new knowledge and of
    fundamental insights that lead to new industries, breakthrough medical
    therapies, and a more sophisticated defense. We are also placing an
    increased emphasis on partnerships with industry, in which the Federal
    government shares the costs and the risks of advances that promise a
    large benefit to society. An example is the Partnership for a New
    Generation of Vehicles initiative, in which seven federal agencies and
    twenty national laboratories have partnered with the Big Three
    automobile manufacturers in R&D projects aimed at improving auto
    safety, emissions, and fuel efficiency.
        Increasingly, we are also seeing research at the frontier of
    scientific knowledge become more sophisticated and more costly. Federal
    investments in international collaborations have provided an effective
    way in which we not only can share the burden of these expensive
    programs, but we can benefit from the expertise and know-how of the
    others. The International Space Station, the Large Hadron Project at
    CERN, and the Gemini Telescopes in Chile and Hawaii are excellent
    examples of how we can leverage our domestic investments and priorities
    by collaborating with our international partners.
        Other Federal partnerships include grass roots projects that bring
    people and technology together. One such venture, the Technology
    Innovation Challenge Grant Program, has already lead to the creation of
    dozens of partnerships linking school systems with businesses,
    universities, parks, and museums to develop creative uses for
    information technologies. Partnerships such as these extend the
    benefits of our Nation's investment in S&T.

                                THE OSTP MISSION

        In support of our Nation's S&T priorities, OSTP has two primary
    responsibilities: advising the President on S&T; and providing
    leadership and coordination for our government's role in the national
    S&T enterprise.
        In the 1950's, in response to Soviet advances highlighted by the
    launch of Sputnik, President Eisenhower saw the need for expert S&T
    counsel, and he invited MIT President James Killian to serve as the
    head of the first President's Science Advisory Committee, an OSTP
    predecessor. Since then our Nation's Presidents have drawn on the
    expertise of our office for S&T policy advice, and I see this as a
    contribution that will continue to grow in value as the challenges we
    face become increasingly complex.
        Within our agency, a small staff of professionals analyzes
    developments at the frontiers of scientific knowledge, and aids the
    President in shaping policy. OSTP also provides scientific and
    technical information and recommendations to the Vice President, the
    White House Offices, the Executive Branch Agencies, and to Congress.
        A second responsibility of OSTP is to provide leadership and
    coordination across the Administration. OSTP plays this role for a
    range of Administration S&T priorities, including national security and
    global stability, environment, science, and technology. The National
    Science and Technology Council (NSTC) has been an invaluable partner
    with OSTP in developing interagency evaluations and forging consensus
    on many crucial S&T issues.

                    NATIONAL SCIENCE AND TECHNOLOGY COUNCIL

        To meet the Administration's priority S&T goals we must combine the
    efforts and the expertise of multiple agencies. OSTP personnel support
    the work of the NSTC, a Cabinet-level Council that sponsors interagency
    initiatives to advance key S&T objectives. Our distributed system of
    research funding also places a premium on coordination between
    complementary agency programs. The NSTC, now in its fourth year, is
    improving such coordination.
        NSTC membership includes Cabinet Secretaries, heads of S&T
    agencies, and key White House officials with significant S&T
    responsibilities. In the process of generating specific budgetary and
    policy recommendations, the NSTC routinely reaches beyond the federal
    government to seek input from a wide spectrum of stakeholders in the
    public and private sectors.
        An important objective of the NSTC is to guide individual agency
    budget priorities for R&D and to orient the S&T spending of each
    Federal mission agency toward achieving national goals. To meet this
    objective, the NSTC has established nine goal-oriented committees, each
    of which is chaired jointly by a senior agency official and an OSTP
    Associate Director. These standing committees, along with ad hoc
    working groups within the NSTC, provide an effective forum to resolve
    cross-cutting issues such as interagency review of the future role of
    the U.S. national laboratories, or the Federal response to the threat
    of emerging infectious diseases.
        Current interagency S&T initiatives include:
      --The National Bioethics Advisory Commission, a multiagency-supported
            commission composed of experts and community representatives,
            established by the President to ensure ethical conduct in human
            biological and behavioral research.
      --A three-year, $300 million Next Generation Internet Initiative to
            create the foundation for the networks of the 21st century, by
            connecting more than 100 of our universities and national labs
            at speeds that are 100-1,000 times faster than today's
            Internet--with the capacity for secure, reliable transmission
            of voice, video, and virtual reality data.
      --A multiagency task force to conduct a comprehensive review of the
            University-Government partnership. This review will examine
            which components of the university system may be under stress,
            and will determine what the U.S. Government role should be in
            addressing these issues.
      --An Intelligent Transportation Initiative to support traffic control
            centers that can manage the operation of major roads by
            providing real-time information that will drastically cut
            accident rates, produce an estimated 15 percent savings in
            travel time, and result in significant productivity gains for
            business and industry.
      --An Emerging Infectious Diseases Initiative to develop more
            effective systems of surveillance, prevention, treatment, and
            response to these growing domestic and international health
            threats.
      --An interagency antiterrorism body, the Technical Support Working
            Group, to coordinate the development of new technologies to
            counter the modern terrorist threat.
      --An Environmental Modeling and Research Initiative to allow, for the
            first time, a comprehensive evaluation of our Nation's
            environmental resources and its ecological systems, thus
            producing a sound scientific base to support natural resource
            assessment and decision-making.
      --A variety of educational technology projects and classroom
            telecommunications links, funded by major Federal agencies, to
            reflect the President's unwavering support for improving the
            educational and training opportunities of the workforce of
            tomorrow.
      --A multiagency Children's Initiative to assess the current scope of
            research on children and adolescents, to identify significant
            gaps in the research agenda, and to develop recommendations for
            needed efforts and linkage in the research and policy
            development.
        the president's committee of advisors on science and technology
        As Assistant to the President for Science and Technology, I co-
    chair the President's Committee of Advisors on Science and Technology
    (PCAST). John Young, former President and CEO of Hewlett-Packard Co.,
    serves as the other co-chair. PCAST is a distinguished assembly of
    scientists, academics, and industrial leaders. It serves as the
    highest-level private sector S&T advisory group for both the President
    and the NSTC. This past year, issues examined by PCAST included the
    health of our research universities, the government's investment role
    in technology, prevention of deadly conflict, University-Government
    partnerships, sustainable development, and the Federal research and
    development role in learning technologies.

                              OSTP BUDGET REQUEST

        I ask today for your continued support of OST's role in
    coordinating S&T policy for the Executive Branch and for our Nation at
    large. OSTP's budget request of $4,932,000 for fiscal year 1998 will
    maintain the ability of our agency to serve both the public and this
    President to the fullest extent. This is the same figure as our request
    for fiscal year 1997.
        Since personnel costs constitute the largest portion of OSTP's
    budget, wherever possible the fiscal year 1998 request reflects a
    reduction of administrative expense in keeping with the
    Administration's goal of creating a leaner, more efficient government.
    The request for fiscal year 1998 reflects our commitment to operate
    cost-effectively while retaining the most vital element of our agency--
    our high-caliber personnel.

                              1996 ACCOMPLISHMENTS

        Before concluding, it is appropriate that I take some time to
    provide a sample of OSTP's accomplishments over the past year. (We have
    submitted for the record a document fully summarizing our fiscal year
    1996 accomplishments.) OSTP, working with the NSTC, has been
    instrumental in shaping our Nation's S&T policy; not only as it relates
    to Federal S&T activities, but also to partnerships between the Federal
    government and states, universities, industry, and our international
    colleagues.
        Environment.--OSTP continued its focus on improving the efficiency
    and coordination of on-going agency and interagency environmental R&D
    activities. OSTP fostered an interagency effort, NSTC's Committee on
    Environment and Natural Resources (CENR), to integrate the Nation's
    environmental monitoring and related research. CENR will provide an
    integrated scientific information base to support natural resource
    assessment and decision-making. Many of today's monitoring programs are
    designed with the goal of providing information on single-agency
    missions, and tend to focus on a single source or issue. By integrating
    these monitoring and research activities, the Nation can begin to
    assess the status of resources and their multiple uses in the context
    of entire ecosystems.
        OSTP staff helped develop a strategy for national earthquake loss
    reduction to focus scarce research and development dollars on the most
    effective means of saving lives and property and of limiting the social
    disruptions from earthquakes. This Administration is strongly committed
    to reducing losses from natural disasters by supporting programs for
    observing, documenting, understanding, assessing, and predicting the
    potential consequences of natural hazards.
        Following a series of workshops held across the country with more
    than 1,000 key stakeholders, OSTP hosted a White House Conference to
    discuss ways to implement the National Environmental Technology
    Strategy. The required improved efficiency in our technological
    infrastructure is being achieved through collaboration among industry,
    academia, and communities to develop long-term goals, measure
    performance on multiple scales, and implement complementary policies to
    encourage high levels of innovation. Anticipating future needs is
    critical to achieving successful improvements in efficiency.
        OSTP played a key role in a number of domestic and international
    science assessments. In climate change research, OSTP continued its
    role in coordinating scientific and technical assessments to support
    the U.S. delegation to the Framework Convention on Climate Change. A
    planning framework for Federal research related to the human health and
    ecological effects of endocrine disrupting chemicals was developed and
    an inventory of related on-going Federal research programs was
    completed.
        Technology.--OSTP led the effort to reshape agency research
    programs in information technology through the NSTC Committee on
    Computing, Information, and Communications. This group designed and is
    leading the Next Generation Internet (NGI) initiative, launched in
    October 1996. The NGI initiative is a three year, $300 million
    investment that will create the foundation for the networks of the 21st
    century.
        OSTP continued its active role in the Administration's education
    technology programs. OSTP has provided broad support for the
    President's Technology Initiative, launched in February 1996, which has
    included public/private partnership activities such as NetDays, Tech
    Corps, Cyber Ed, and the Technology Literacy Challenge (TLC). The TLC
    program challenges communities to form local partnerships of school
    systems, colleges, universities, and private businesses, to develop
    creative new ways to use technology for learning. In fiscal year 1997,
    24 finalists were awarded grants to communities in 16 states. An
    interagency team under NSTC, developed a set of research priorities
    which shaped agency R&D funding for education technology.
        OSTP, through both its Technology and its National Security and
    International Affairs divisions, provided technical support for the
    White House Commission on Aviation Safety and Security. OSTP is also
    coordinating the new interagency research program on advanced air
    traffic management, developed in response to the Commission's
    recommendations.
        Other OSTP efforts included: (1) providing continued leadership for
    the Partnership for a New Generation of Vehicle program; (2) developing
    an integrated plan for R&D in transportation and launching a number of
    implementation efforts; (3) initiating a project to streamline and
    coordinate the regulatory permitting of construction projects by
    developing model regulations and standards; and (4) initiating
    cooperative agreements with the Departments of Energy and Agriculture
    to evaluate the near- and long-term potential for biomass to serve as a
    major fuel source for electricity generation and for converting biomass
    fuels for transportation. This effort led to three pilot biomass energy
    projects in 1996.
        OSTP played a leadership role in the broad interagency review and
    revision of the National Space Policy released last September. OSTP has
    ongoing White House oversight responsibility for the International
    Space Station and Space Shuttle programs, national R&D strategies for
    satellite technology, launch vehicle systems in international trade,
    and global communications technologies. OSTP supported the President in
    commissioning an independent review of the Space Shuttle program, which
    reaffirmed the operational safety of the Space Shuttle. OSTP
    coordinated the White House response to the discovery that life may
    have existed on ancient Mars and organized the Vice President's Space
    Science Symposium in December. OSTP worked with OMB to define a stable
    and balanced budget for NASA that continues to support our ongoing
    mission priorities while enhancing our commitment to science. OSTP
    continues to co-chair with the National Economic Council, an
    interagency and international process designed to transform the current
    intergovernmental organizations INTELSAT and INMARSAT into competitive,
    fully-private satellite communication firms.
        Science.--OSTP led the effort to ensure that basic research budgets
    were given high priority in the fiscal year 1998 budget request and in
    the outyears. OSTP also led an effort to follow up on the results of
    the Presidential Decision Directive (PDD) on reforming DOD, DOE, and
    NASA national laboratories. This effort indicated that substantial
    progress has been made in meeting the goals of the PDD, but much
    remains to be done.
        OSTP initiated the first Presidential Early Career Award for
    Scientists and Engineers. This award was given to sixty young
    scientists who have made outstanding scientific contributions and who
    have the leadership potential to keep our Nation on the cutting edge of
    scientific and engineering advancement. OSTP also initiated the first
    Presidential Award for Excellence in Science, Math, and Engineering
    Mentoring, given to ten individuals and to six institutions that have
    demonstrated a high degree of commitment to promoting diversity in the
    S&T community.
        Working with the NSTC, OSTP staff developed the Children's
    Initiative, which addresses the need to better tie Federal actions that
    impact children to sound science. As the Initiative develops it will
    identify research gaps in a variety of areas relating to the health and
    well-being of children and promote tighter linkages to policy making.
    Other accomplishments related to children include the OSTP, DPC, NSF,
    and DoEd collaboration on how to improve the performance of our
    Nation's eighth graders in math.
        The Presidential Advisory Committee on Gulf War Veterans'
    Illnesses, for which OSTP had White House responsibility, released to
    the President its final report that evaluated a number of potential
    causes for illnesses reported by Gulf War veterans, and contained
    numerous recommendations on how we can improve the treatment of these
    veterans and how we can prevent similar problems in future conflicts.
    An interagency response to the Committee's report was delivered to the
    President on March 7, 1997. OSTP also launched the National Bioethics
    Advisory Commission and was instrumental in arranging for appropriate
    levels of funding. The Commission was recently charged by the President
    to address the legal and ethical issues associated with cloning human
    embryos.
        National Security and International Affairs.--OSTP coordinates, in
    conjunction with the National Security Council, both the national and
    international aspects of U.S. efforts to dispose of worldwide stocks of
    excess weapons-grade plutonium. OSTP played a key role in the
    successful October 1996 conference of experts on plutonium disposition
    that was called for by the April 1996 Nuclear Safety and Security
    Summit. OSTP co-chairs a joint U.S.-Russian Plutonium Disposition
    Steering Committee, which oversees the government-to-government
    collaboration in this area and delivered the first-ever joint study of
    plutonium disposition options last September. This committee continues
    to meet and to coordinate both studies and demonstration projects.
        OSTP provided technical analyses and advice to the White House
    during negotiation of the Comprehensive Test Ban Treaty (CTBT), and
    OSTP has led the interagency effort to ensure that existing U.S.-
    operated global seismic networks will be adequately supported to
    fulfill the international CTBT verification mission assigned to them
    under the Treaty. More generally, OSTP has provided important S&T
    policy perspectives in a variety of key national security areas
    including aviation security, critical infrastructure protection, the
    banning of antipersonnel landmines, counterterrorism, information
    warfare, and ballistic missile defenses.
        To more effectively address the growing global threat of emerging
    and reemerging infectious diseases, at the President's direction OSTP
    took the lead in forming an interagency task force to address this
    issue. The Task Force has initiated activities to strengthen disease
    surveillance, prevention, and response, including the development of a
    global disease surveillance network.
        OSTP has worked successfully to expand U.S. S&T relationships with
    important trading partners and economies in transition to strengthen
    benefits to our national security, economic, and scientific goals.
    Through the Gore-Chernomyrdin Commission OSTP played a lead role in the
    effort to develop guidelines for intellectual property rights
    protection for government agreements and contracts with Russia, to
    reach agreement on a plan to promote the use of the Internet in Russia,
    and to build support for the U.S. Civilian Research and Development
    Foundation for the Independent States Forum of the Former Soviet Union.
    OSTP has also supported international S&T efforts to address policy
    priorities through other high level bilateral commissions with South
    Africa and Egypt, and through the evolving Sustainable Development
    Forum with China. S&T partnerships have been strengthened with Japan,
    such as in the creation of an Earthquake Disaster Mitigation
    Partnership, and OSTP is participating in negotiations over an S&T
    agreement with the European Union.
        OSTP has also taken the U.S. Government lead in several
    multilateral fora as a way to promote U.S. interests and maximize the
    value of U.S. S&T investments. OSTP worked closely with the technical
    agencies and OMB to coordinate the U.S. Government's negotiating
    position on such international projects as the Large Hadron Collider,
    the Human Frontier Science Program, and the International Thermonuclear
    Experimental Reactor. OSTP promoted the creation of a follow-on
    mechanism to the OECD Megascience Forum. In Asia, OSTP led U.S.
    participation in the APEC Science and Technology Ministerial, and in
    Latin America, OSTP had a lead in organizing the first-ever meeting of
    S&T Ministers. Both fora have launched S&T initiatives that are useful
    in promoting U.S. S&T interests in these regions.
        Mr. Chairman and Members of the Committee, I hope that this brief
    overview has conveyed to you the extent of this Administration's
    commitment to advancing S&T in the national interest, and the
    importance of OSTP's role in the national S&T enterprise.
        Regardless of party affiliation, we can all agree that investments
    in S&T are investments in our Nation's future. I look forward to
    achieving bipartisan support for a national S&T strategy that will
    combine the resources of industry, academia, non-profit organizations,
    and all levels of government to advance knowledge, promote education,
    strengthen institutions, and develop human potential.
        I ask not only for your support for OSTP's fiscal year 1998 budget
    request but also want you to know how much I appreciate the long-
    standing bipartisan support of the committee for OSTP and for the S&T
    research enterprise. I would be happy to answer any questions that you
    have.
                                     ______

        Appendix A. Reports Issued By The NSTC During Calendar Year 1996
        1. Interagency Assessment of Potential Health Risks Associated with
    Oxygenated Gasoline, NSTC Committee on Environment and Natural
    Resources, February 1996.
        2. Meeting the Challenge (A Research Agenda for America's Health,
    Safety, and Food), NSTC Committee on Health, Safety, and Food, February
    1996.
        3. United States Antarctic Program, NSTC Committee on Fundamental
    Science, April 1996.
        4. Strategy for National Earthquake Loss Reduction, NSTC Committee
    on Environment and Natural Resources, April 1996.
        5. NSTC Accomplishments B Calendar Year 1995, NSTC Executive
    Secretariat, May 1996.
        6. Human-Centered Transportation Systems Brochure, NSTC Committee
    on Transportation, May 1996.
        7. Assessing Fundamental Science Report, NSTC Committee on
    Fundamental Science, July 1996.
        8. Program Guide to Federally-Funded Environment and Natural
    Resources, NSTC Committee on Environment and Natural Resources, June
    1996.
        9. Environmental Technologies Testing and Demonstration Sites: A
    federal Directory, NSTC Committee on Environment and Natural Resources,
    September 1996.
        10. Our Changing Planet: The fiscal year 1997 U.S. Global Change
    Research Program, NSTC Committee on Environment and Natural Resources,
    September 1996.
        11. Committee on Environment and Natural Resources Brochure, NSTC
    Committee on Environment and Natural Resources, September 1996.
        12. The Federal Research and Development Program in Materials
    Science and Technology, NSTC Committee on Technological Innovation,
    November 1996.
        13.High Performance Computing and Communications (HPCC) Advancing
    The Frontiers of Information Technology, NSTC Committee on Computing,
    Information, and Communications, November 1996.
        14. The Health and Ecological Effects of Endocrine Disrupting
    Chemicals: A Framework for Planning, NSTC Committee on Environment and
    Natural Resources, November 1996.
                                     ______

         Appendix B. Reports Issued By PCAST During The First Clinton
                                 Administration
        Report of the PCAST Panel on U.S.-Russian Cooperation to Protect,
    Control, and Account for Weapons-Useable Nuclear Materials (May 1995).
        The U.S. Program of Fusion Energy Research and Development (July
    1995).
        Science and Technology Principles (September 1995), Report to the
    President on Academic Health Centers (November 1995).
        Principles of the U.S. Government's Investment Role in Technology
    (June 1996).
        Report on Research Universities (June 1996).
         Report on Preventing Deadly Conflict (November 1996).
        Report on Sustainable Development (January 1997).

                         ADDITIONAL COMMITTEE QUESTIONS

        [The following questions were not asked at the hearing, but
    were submitted to the Office for response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

                         RESULTS OUT VERSUS DOLLARS IN

        Question. As you know, we in Congress are very interested in the
    Government Performance and Results Act, which we've shortened to ``the
    Results Act.'' Given the focus of the Results Act, it might be more
    important to look at what is coming out of the federal investments in
    R&D in terms of results, and not just at the dollars going into the
    program. The Council on Competitiveness recently issued a report
    entitled ``Endless Frontier, Limited Resources,'' setting scientific
    priorities and defining a more realistic, pragmatic framework for
    allocating federal resources. In recent years, the National Academy of
    Sciences has also issued several reports which require setting
    priorities with the federal science and technology budget.
        What role does the Office of Science and Technology Policy play in
    setting national scientific priorities? Is OSTP involved in developing
    guidance to R&D agencies on how to measure for results and the setting
    of appropriate outcomes for R&D programs?
        Answer. The Office of Science and Technology Policy (OSTP) plays
    both a leadership and a coordination role in setting national
    scientific priorities and in mobilizing scientific expertise to
    accomplish national goals. OSTP advises the President of the United
    States on policy and budget formulation in matters in which science and
    technology are important elements. OSTP also coordinates the
    development and implementation of the Administration's domestic and
    international science, research, and technology policies, programs, and
    budgets in support of the President's goals for strengthening the
    economy and creating jobs, improving education and health care,
    enhancing the quality of the environment, harnessing information
    technology, and maintaining national security. More information about
    national scientific priorities and OSTP's role in both setting and
    communicating them can be found in Science in the National Interest
    (1994), Building a Scientific Basis to Ensure the Vitality and
    Productivity of U.S. Ecosystems (1995), National Security Science and
    Technology Strategy (1995), Technology in the National Interest (1996),
    and Meeting the Challenge: A Research Agenda for America's Health,
    Safety, and Food (1996). The Administration's biennial report to the
    Congress: Science and Technology Shaping the Twenty-First Century
    (1997) provides a comprehensive overview of the substance and process
    of OSTP's role in guiding the development of science and technology
    policy.
        OSTP is involved in developing guidance for R&D agencies and is
    working with them in partnership with the Office of Management and
    Budget (OMB) on the important tasks of strategic planning, goal
    setting, and creating performance plans with meaningful, reasonable,
    and measurable target outcomes. Recognizing both the importance and the
    challenge of designing a planning and assessment methodology for
    fundamental science that would satisfy the requirements of the Results
    Act (1993), OSTP took the initiative in 1994 to conceive and initiate
    the Assessment Process under the auspices of the National Science and
    Technology Council (NSTC). The NSTC Assessment Process involved senior
    scientific managers from ten major R&D agencies, OMB, and OSTP and was
    charged to establish a framework for implementing Results Act
    requirements in assessing fundamental science programs. The report,
    ``Assessing Fundamental Science,'' was published in 1996, and provides
    guidance to R&D agencies for their development of strategic and
    performance plans. The report also provides a set of principles for use
    by these agencies for designing and testing a range of methods
    appropriate to their particular goals and programs. In partnership with
    OMB, OSTP is now working with the individual R&D agencies to develop
    and fine tune their strategic and performance plans and to ensure that
    they are responsive to the requirements of the Results Act. These plans
    should be useful as management tools for the agency and the
    Administration, and should promote scientific excellence, high
    productivity, and accountability to the taxpayer, without creating an
    unreasonable and costly bureaucracy that detracts from program
    outcomes.

           ROLE OF THE NATIONAL SCIENCE AND TECHNOLOGY COUNCIL (NSTC)

        Question. Two years ago, we asked you what role the NSTC played in
    the formulation of the President's fiscal year 1996 budget. You said
    that NSTC committees had compiled the ``lessons learned'' from that
    process, and were streamlining the process for fiscal year 1997. Could
    you please update us on the progress of the ``lessons learned?'' What
    was NSTC's role in developing the fiscal year 1998 budget? What grade
    would you give the NSTC in fiscal year 1997? In fiscal year 1996?
        What other role does the NSTC play, in addition to its role in
    developing the President's budget request? How have the NSTC roles
    evolved over time?
        Answer. The President established the NSTC in 1993 to coordinate
    the diverse parts of the federal research and development (R&D)
    enterprise and to foster synergy among the varied talents of the
    federal science and technology (S&T) workforce. This coordination
    includes the federal R&D budget, as well as S&T policy making. In
    November 1996, the NSTC completed its third year of operation and moved
    from the identification of strategic goals, as defined in the 1995 NSTC
    committees' strategic plans, to implementation of specific initiatives
    that redirect the federal government's investments in S&T toward
    fundamental national goals, while streamlining government and saving
    taxpayers' dollars.
        At the beginning of the Clinton Administration, the President
    committed to integrating agency R&D budgets to ensure that the nation's
    S&T investments serve broad national goals as well as agency missions.
    This is the most important budget issue addressed by the NSTC. Starting
    with the fiscal year 1996 budget, the NSTC has been using a process
    designed to improve the way priorities are set in federal R&D
    expenditures. This process starts in the spring each year with R&D
    budget guidance to the NSTC departments and agencies, issued jointly by
    the Directors of the Office of Science and Technology Policy (OSTP) and
    the Office of Management and Budget (OMB). This guidance is developed
    through the NSTC process, a mechanism for building consensus throughout
    the federal S&T enterprise, and reflects the President's budget message
    for that year. The NSTC departments and agencies are instructed to
    examine their base programs carefully and focus and/or redirect funds
    into the identified R&D priority areas within the budget constraints
    provided from OMB.
        Following the initial joint OSTP/OMB R&D budget guidance, issued
    for the fiscal year 1996 budget, feedback was solicited and received
    from the nine NSTC committees (which represent all NSTC member
    departments and agencies) on how to improve the process in preparation
    for the fiscal year 1997 budget guidance. This feedback mechanism or
    ``lessons learned'' is used each year to continuously streamline the
    R&D budget priority setting process and make it more useful for the
    NSTC departments and agencies. The joint OSTP/OMB budget guidance
    memorandum for fiscal year 1999 reflects three years of evolution in
    the S&T priority setting process through the NSTC.
        For fiscal years 1996, 1997 and 1998, the NSTC R&D budget guidance
    process resulted in positive outcomes for the overall S&T budgets by
    concentrating federal spending on critical national priorities. Each
    year, by the time the agency budgets were submitted to OMB in the fall,
    agencies had already made trade-offs by eliminating programs that did
    not correspond to the priority areas identified in the OSTP/OMB R&D
    budget guidance.
        In addition to the NSTC's role in developing the President's R&D
    budget request, the NSTC effectively provides a venue for developing
    interagency consensus on major S&T policy decisions. The NSTC review
    process ensures that all agencies impacted by a decision are afforded
    an opportunity to provide thoughtful input. The NSTC Presidential
    Decision Directive (PDD) is one mechanism used to implement major
    policy decisions, often having budgetary implications.
        Examples of recent NSTC accomplishments include:
      --National Bioethics Advisory Commission.--To address bioethical
            issues arising from research on human biology, the President
            appointed 18 non-government experts to serve on the National
            Bioethics Advisory Commission (NBAC) under the auspices of the
            NSTC. The NBAC charter was signed by the Assistant to the
            President for Science and Technology in June 1996 and NBAC met
            for the first time in October 1996. NBAC recently advised the
            President on appropriate policy regarding cloning research
            results announced in February 1997.
      --United States Antarctic Program.--The NSTC conducted a review of
            the United States Antarctic Program, concluding that the
            science performed under that program was of high quality and
            high interest and should be maintained within funding
            constraints.
      --U.S. Research Universities.--In response to communications to the
            President from the President's Committee of Advisors on Science
            and Technology (PCAST) and other national, political,
            corporate, and educational leaders emphasizing that the
            nation's university research system was going through a period
            of stress, Dr. John H. Gibbons issued a Presidential Review
            Directive to evaluate the need to revisit federal policies
            concerning the capacity of U.S. universities to meet the
            nation's research and educational requirements of the next
            century. The resulting NSTC review will be completed in Fall
            1997.
      --Federal Laboratory System.--During the summer 1996, OSTP assessed
            each agency's response to the Federal Laboratory Reform
            Presidential Decision Directive (PDD). The review confirmed
            that the agencies are making progress in meeting the PDD goals,
            however, much still needs to be done to be fully responsive.
            Opportunities exist to advance the goals of the PDD through
            simplified directives and better use of federal personnel rules
            and other regulations.
      --Education.--The NSTC established and presented awards through two
            new programs: (1) Presidential Awards for Excellence in
            Science, Mathematics, and Engineering Mentoring; and (2)
            Presidential Early Career Awards for Scientists and Engineers
            (PECASE). The Presidential Awards for Excellence in Science,
            Mathematics, and Engineering Mentoring program was established
            in 1996 as one strategy to achieve the goal of developing a
            pool of highly trained scientists and engineers that reflects
            the nation's diverse population. President Clinton named 10
            individual and six institutions as the first recipients of this
            award in September 1996. The PECASE award recognizes
            demonstrated excellence and promise of future success in
            scientific or engineering research, and the potential for
            eventual leadership of the recipients in their respective
            fields. In December 1996, the President selected 60 individuals
            to receive the first annual PECASE awards.
          The work of the NSTC has also supported the President's
            Educational Technology Initiative, launched in February 1996,
            and has included public/private partnership activities such as
            NetDays, Tech Corps, and America's Technology Literacy
            Challenge.
      --Dual-Use Technologies.--To address civil, military, scientific, and
            commercial interests, Presidential Decision Directives were
            issued for National Space Policy (PDD NSTC-8) and the Global
            Positioning System (PDD NSTC-6).
      --Children's Research.--The NSTC developed a policy statement on
            children's issues, ``A National Research Initiative for
            Children for the 21st Century,'' that examines the federal
            research agenda on the biological, cognitive, and social
            development of America's children and adolescents.
      --Environmental Quality.--The NSTC fostered the development of
            partnerships between the federal government and non-federal
            researchers working toward improving environmental quality by
            making information available to the public on: (1) federal
            environmental testing and demonstration sites; and (2)
            federally-funded environment and natural resources R&D.
      --High-Performance Computing, and Communications (HPCC) Advisory
            Committee.--On February 11, 1997, the President signed the
            Executive Order establishing the Advisory Committee on High-
            Performance Computing, and Communications (HPCC), Information
            Technology, and the Next Generation Internet. This Advisory
            Committee will provide guidance and advice on all areas of
            advanced computing, communications and information
            technologies. The Committee has already completed an initial
            review of plans for the Administration's Next Generation
            Internet Initiative (NGI) and concluded the NGI is essential to
            sustaining U.S. technological and commercial leadership in
            computing and communications. Members bring together a broad
            range of expertise and interests from business and
            universities.
      --Emerging Infectious Diseases.--In response to an NSTC study, Vice
            President Gore announced a Presidential Decision Directive
            directing the federal government to strengthen the United
            States' ability to respond to the growing threat of emerging
            and re-emerging infectious diseases. This NSTC has begun a
            tracking process of our investments in this important field of
            research. We are now able to look across agencies and
            understand what the federal R&D effort includes.
      --Partnerships.--The NSTC also fosters collaborations between
            industry, academia, and federal, state and local governments.
        --The Partnership for a New Generation of Vehicles (PNGV).--Each of
                the Big Three U.S. automakers--Ford, Chrysler, and General
                Motors, working with small and medium sized suppliers and
                leveraging collaborative research with government
                agencies--produced a PNGV concept vehicle demonstrating
                different ``Supercar'' possibilities. The partnership
                includes research on: (1) manufacturing productivity
                improvement; (2) near-term improvement in fuel efficiency
                and emission reduction; and (3) development of a production
                prototype by the year 2010 that can achieve three times the
                fuel efficiency of today's vehicles with comparable cost
                and performance.
        --National Electronics Manufacturing Initiative (NEMI).--The NSTC
                undertook an initiative with the American Electronics
                Association (AEA) to develop a research partnership with
                the nation's electronics manufacturing industry. This
                effort came to fruition on March 13, 1996, with the
                announcement of National Electronics Manufacturing
                Initiative, Incorporated (NEMI), a consortium created to
                ensure the sustained growth and competitiveness of
                electronics manufacturing in the U.S. NEMI is an industry-
                funded, industry-led, private-public partnership that
                brings together the largest electronic equipment
                manufacturers in the U.S. and their key suppliers with
                government agencies to foster development of the world's
                best electronics manufacturing supply chain. NEMI is a
                prime example of the NSTC providing an initial federal
                government impetus to stimulate collaboration and growth of
                a non-government activity.
        --Building and Construction.--In the area of construction and
                building, progress was made toward streamlining and
                coordinating regulatory permitting of construction
                projects, as well as meeting the National Construction
                Goals and supporting the Department of Housing and Urban
                Developments' National Home Ownership Strategy.
        --United States Innovation Partnership (USIP).--To enhance the
                technology partnerships between the federal and state
                governments, the United States Innovation Partnership
                (USIP) was established. A Memorandum of Understanding (MOU)
                between OSTP, the Department of Commerce (DOC), and the
                National Governors Association (NGA), outlining policies
                and procedures for USIP, has been approved by all parties.
                There are plans for the MOU to be signed the week of June
                23 in the home states of the NGA lead-Governors on
                technology, Governor John Rowland, Connecticut, and
                Governor Paris Glendening, Maryland. The NGA and DOC issued
                solicitations for state and federal participants in Task
                Forces for initial USIP projects. A federal agency or
                department head and a governor will be sought to act as
                champions for selected projects.
        The NSTC developed several major science and technology policies
    that drive the activities of several NSTC committees and have led to
    some of the accomplishments listed above.
      --Technology in the National Interest (July 1996) outlines the rich
            portfolio of policies and programs being carried out by
            departments and agencies across the federal government to
            ensure that technology remains the key driver of the nation's
            economic growth, leading to creation of high-wage jobs in the
            U.S. and an improved standard of living and quality of life for
            the American people.
      --Meeting the Challenge (February 1996) laid out the following five
            initiatives: (1) establish the Presidential Early Career
            Scientist Award; (2) strengthen domestic health, safety, and
            food data systems; (3) strengthen the integrated,
            multidisciplinary human nutrition research initiative; (4)
            develop an integrated research agenda to develop technologies
            to assure the safety and quality of food for consumers; and (5)
            develop methods for assessing exposures and other factors
            influencing health.
      --National Security Science and Technology Strategy (September 1995)
            was the nation's first national security S&T strategy document
            to describe how U.S. investments and international cooperation
            in S&T support the full range of U.S. national security
            objectives. This report offers a policy context for a rigorous
            defense of Clinton Administration initiatives, including the
            Cooperative Threat Reduction (Nunn-Lugar) Program, the Advanced
            Technology Program, and economic development programs aimed at
            mitigating or addressing the problems of endemic poverty,
            overpopulation, food scarcity, infectious diseases and
            environmental degradation. This report focuses on the
            importance of investments in support of military superiority,
            verifiable arms control, sustainable development abroad, and
            economic performance at home.
      --Preparing for the Future Through Science and Technology, An Agenda
            for Environmental and Natural Resources Research (March 1995)
            is a multidisciplinary environmental strategy that provides the
            scientific and technical information needed for national and
            international policy formulation and to assure the most
            efficient use of scarce research and development resources.
            This strategy was developed by the NSTC, with assistance from
            stakeholders from academia, industry, and state and local
            governments.
      --Science in the National Interest (August 1994) is the
            Administration's statement on science policy released by the
            Vice-President. The first such statement in 15 years, this
            document presents policy objectives for the Nation's research
            enterprise. It is the product of extensive NSTC consultation,
            combined with the input received at the forum held on January
            31-February 1, 1994.
        The Clinton Administration considers science and technology an
    important investment for America's future. Our nation relies on federal
    investments in science and technology to contribute to: the growth of
    our economy; the health of our citizens; the sustainability of our
    environment and natural resources; the United States' leadership in
    critical world markets; the education of our children; the ensuring of
    our national security; and the addressing of global problems through
    cooperation with other countries.
        Since its establishment, the NSTC has served a vital role in
    identifying and prioritizing how federal investments in science and
    technology can be wisely applied toward addressing our nation's
    critical needs, in the context of balancing the budget. The NSTC has
    made considerable progress in helping federal research and development
    organizations evolve from an autonomous, fiscally expansive environment
    to a collaborative fiscally constrained one. There is still much
    progress to be made, however, in integrating our federal R&D efforts to
    face the challenges in the areas of education, transportation systems,
    energy resources, human health, national security, and the environment.
    Working through the NSTC will become even more compelling as the
    players are more comfortable with change, as innovators recognize the
    untapped opportunities, and the federal research and development
    enterprise is guided toward a unified set of goals.
         federal investments in producing new scientists and engineers
        Question. In 1993, there were about 2.5 million people in the U S.
    with graduate degrees in science or engineering. In addition, there
    were about 330,000 science and engineering graduate students. Over 70
    percent of the scientists and engineers with Ph.D.'s were working in
    science and engineering, in their own or a closely related field.
        Yet, there are repeated complaints from young scientists that their
    opportunities for a career in science are abysmal. In my own state of
    Missouri, at least one university has tried to address this problem.
    Washington University in St. Louis has recently chosen to scale back
    the number of students to those the university can provide full
    financial support for six years, rather than producing as many students
    as they can.
        What should the federal government's role be in assisting the
    development of the next generation of scientists and engineers? Are we
    overproducing scientist and engineers? Are we producing the right kind
    of scientists and engineers?
        Answer. For forty years since enactment of the National Defense
    Education Act of 1958, the federal government has played a role in the
    support of graduate students seeking a career in science or
    engineering. Through fellowships, traineeships, and research
    assistantships, students gain experience and become professionally
    socialized as team members and apprentice researchers. But the
    Committee's question about graduate degrees is integrally related to an
    even larger issue: the health of research institutions and the strength
    of the government-university partnership. The President has received
    letters from national, political, corporate and education leaders
    warning that universities are stressed in a number of ways, and urging
    a policy and administrative review of the government-university
    partnership. The President's Council of Advisors on Science and
    Technology also urged such a review. Accordingly, I have established an
    interagency Task Force under the auspices of the NSTC to review the
    status of the federal government-university partnership and recommend
    options for strengthening it. The Committee's question regarding the
    number of Ph.D.'s produced through this partnership is central to the
    issues being addressed by the Task Force: the policies, programs, and
    regulations that shape the partnership, the education of graduate
    students, and research administration. In addition, the Task Force will
    consider mechanisms that can help sustain the strong U.S. tradition of
    innovative research, even under current budgetary and other
    constraints. How we utilize new Ph.D.'s is an important element of
    whether or not we continue to get new ideas into the system.
        The Task Force's work constitutes a first step in a multi-step
    process. In this first phase, expected to be completed this fall, the
    Task Force will recommend actions to the NSTC through its Committee on
    Fundamental Science. Follow-on activities will also be identified at
    that time. The Task Force is chaired by the Acting Associate Director
    for OSTP's Science Division, and is composed of representatives from
    the six major research funding agencies: DOD, DOE, NASA, NIH, NSF, and
    USDA. Both OMB and the National Performance Review are also
    represented. RAND's Critical Technologies Institute, the Federal
    Demonstration Partnership, and the NAS Government-University-Industry
    Research Roundtable are providing crucial assistance and insight based
    on their extensive experience in this area.
        I would like to address one special concern I have about the impact
    of depressed demand for science and engineering Ph.D.'s, and that is
    the continued and persistent under representation of women, persons of
    color, and persons with disabilities in the science and engineering
    workforce. With market opportunities sluggish in the 1990's, new
    Ph.D.'s have experienced unprecedented under-employment rates in
    mathematics and strikingly high rates in physics and chemistry. In
    general, there are fewer positions to be found in research
    universities. But students recruited from traditionally under
    represented categories receive less financial support, experience
    higher attrition at each succeeding educational stage, and complete
    proportionately fewer degrees relative to their number in the pool. And
    those who do earn the Ph.D. still face lesser career prospects in terms
    of full-time employment, tenure-track status, promotion to full
    professor, etc.
        So at a time of constrained opportunity for all, diversity suffers.
    At present, the student pool is becoming more ethnically diverse with
    foreign citizens earning a majority of the doctoral degrees from U.S.
    institutions in some science and engineering disciplines. There is the
    perception and perhaps the reality--that science and engineering are
    not rewarding career choices for U.S. students. We must be concerned
    about what this means not only in terms of individual career choices,
    but about what it means for the future of the nation. We must therefore
    consider the impact of federal policies and graduate support mechanisms
    on the future vitality of our nation's scientific enterprise and
    economic competitiveness.
           international cooperation versus international competition
        Question. One of the key R&D goals of the Administration is to
    ``maintain world leadership in science, engineering, and mathematics.''
    Yet another important strategy of the Administration seems to be
    involving our sometimes competitors as international partners. How do
    you perceive the difference between international cooperation and
    international competition?
        More specifically, there have been reports that Japan intends to
    increase their investments in R&D, particularly at colleges and
    universities, by a substantial amount. Some seem to see that increase
    as a threat, and others see it as an opportunity. What is your view?
        Answer. International cooperation and international competition are
    both important drivers of innovation. Embracing the benefits of both is
    essential to advancing U.S. science and technology policies. In many
    parts of the globe today, a clear rise in sources of innovation in
    science and technology creates expanded opportunities to leverage
    international cooperation and international competition to benefit our
    society and our economy.
        Cooperation among nations is becoming more essential to our goals
    in science and technology for several reasons, including: (1) a growing
    number of the challenges that we face are regional or global and
    require an international solution; (2) the scale of resources needed to
    tackle priority issues stretch the capability of support by any one
    nation, but can be addressed through cooperation; and (3) finding
    solutions to problems of common concern can be accelerated. For
    example, cooperation among nations in environmental research is
    expanding rapidly and has been essential in deciphering climate changes
    and other complex interactions in our planet's system; understanding
    the fundamental nature of life and matter are large-scale efforts that
    advance more rapidly by pooling international resources; and in the
    fight against emerging infectious diseases or the mitigation of natural
    disasters, the U.S. shares an interest with all nations in bringing the
    best science and technology to bear, with other nations having
    important assets and experiences to share.
        I should also note that an important benefit of international
    cooperation in science and technology is its value in helping to defuse
    the sources of conflict abroad. Steady cooperation between U.S. and
    Soviet scientists during the Cold War has been of significant value in
    the post-Soviet era in smoothing that transition and in dealing with
    critical issues such as the management and disposition of nuclear
    materials.
        International competition is also a resource in advancing
    innovation. To the extent that international advances spur further
    innovation in the United States, we are all better off as it drives all
    of us to greater heights. However, this requires that the U.S. makes
    the investments needed to stay at the forefront of science and
    technology and works with other nations to remove barriers to
    innovation and trade that handicap our interests. Domestically, we must
    maintain the investments that we need to keep up with the pace of
    international competition. Internationally, we are working with the
    U.S. Trade Representative and other agencies to remove regulations and
    practices that are discriminatory against U.S. innovations and to
    achieve fair and consistent protection for intellectual property. We
    are supporting work to develop international regimes such as the
    Multilateral Agreement on Investments that will help to protect our
    competitive edge.
        With regard to Japan, we are currently assessing its Basic Plan for
    Science and Technology, for potential impacts on our science and
    technology relations. This ambitious plan calls for substantial
    increases in government support for science and technology and major
    reforms in the public system of innovation. Under the Committee on
    International Science, Engineering and Technology of the NSTC we have
    formed a Working Group on Japan. This Working Group is charged with
    broadly examining our bilateral relations in science and technology to
    identify areas in which we can strengthen the value to the U.S. of this
    partnership. The increases in investments being undertaken by the
    government of Japan, particularly in the universities, will spur their
    innovative capability and will surely bring long-term benefit to their
    economy and societal well being. These increases will ultimately lead
    to greater competition for the U.S. in future markets, but they will
    also create greater opportunities for leveraging research cooperation
    to more effectively address common concerns.
        One of the challenges that we face is pressing for reciprocal
    access to Japan's resources for innovation, a challenge that continues
    to need attention. A concern that has been raised by the U.S. members
    of the U.S.-Japan Joint High Level Advisory Panel on science and
    technology is that Japan develop transparent processes for access to
    its universities and clear protection of intellectual property. Another
    area of concern continues to be the substantial asymmetry in exchange
    of scientific and technical personnel and in the flow of information.
    We will continue to work with Japan to ensure that more Americans
    participate in Japan's research system and that information is made
    more easily available from Japan, exploiting the capabilities of
    machine translation and the Internet.
        It is our responsibility to engage with the innovation community in
    Japan, to gain from their advances in science and technology as they
    have gained from our open system, and to encourage Japan to join with
    the U.S. and other nations in taking leadership to address common
    international concerns. We have had a recent success in the rapidly
    expanding area of global change prediction, where Japan plans to
    increase its investment four-fold in five years. In this area, the
    government of Japan has been forthcoming in seeking mutually beneficial
    cooperation. The U.S. government must ensure that engagement with
    Japan, and with other nations, is given appropriate priority because
    achieving the benefits of international cooperation and competition for
    the U.S. will depend on our deep commitment to success.
                                  ostp budget
        Question. Please provide travel costs by division within OSTP for
    fiscal year 1995 and fiscal year 1996, differentiated into domestic and
    international travel. Also, please provide projected travel costs for
    fiscal year 1997.
        Answer. Please see attached chart.

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                             Fiscal Year 1995                                Fiscal Year 1996
                             Divison                         -----------------------------------------------------------------------------------------------
                                                               Local travel      Domestic      International   Local travel      Domestic      International
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Director................................................         $294.20      $12,111.19      $16,031.88         $282.23      $16,058.97       $9,235.87
    Environment.............................................          547.50       16,225.08       24,087.81          769.50       20,637.24       16,155.53
    National Security and International.....................        1,555.12          703.10       42,727.02        2,521.31        2,575.96       43,499.82
    Science.................................................        2,131.05       29,932.90        2,619.61        1,767.10       15,949.12        7,749.19
    Technology..............................................          862.10       10,659.45       14,156.39          868.05       14,267.76        7,642.97
    PCAST...................................................          751.65       33,707.88  ..............          613.25       26,945.09  ..............
    Budget and Administration...............................          214.25  ..............  ..............          320.30  ..............  ..............
                                                             -----------------------------------------------------------------------------------------------
          Subtotal..........................................        6,355.87      103,339.60       99,622.71        7,141.74       96,434.14       84,283.38
                                                             ===============================================================================================
          Grand total.......................................                      209,318.18                                      187,859.26
    --------------------------------------------------------------------------------------------------------------------------------------------------------

    --------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                         Fiscal Year 1997 to date                       Fiscal Year 1997 remaining
                             Divison                         -----------------------------------------------------------------------------------------------
                                                               Local travel      Domestic      International   Local travel      Domestic      International
    --------------------------------------------------------------------------------------------------------------------------------------------------------
    Director................................................          $22.00       $6,472.61      $22,631.79       $1,428.00       $5,400.00       $8,000.00
    Environment.............................................          735.42       17,469.21        1,141.51          714.58        7,100.00        2,600.00
    National Security and International.....................        1,361.68           75.36       39,202.44           88.32  ..............       12,800.00
    Science.................................................          606.41       13,701.72        5,981.58          843.59        4,115.00        2,550.00
    Technology..............................................          107.70        7,881.09        6,076.25        1,342.30       11,500.00          800.00
    PCAST...................................................          377.95       25,221.70  ..............          122.05       13,074.00  ..............
    Budget and Administration...............................          108.55        3,050.77  ..............          141.45  ..............  ..............
                                                             -----------------------------------------------------------------------------------------------
          Subtotal..........................................        3,319.71       73,872.46       75,033.57        4,680.29       41,189.00       26,750.00
                                                             ===============================================================================================
          Total.............................................                      152,225.74                                       72,619.29
                                                             -----------------------------------------------------------------------------------------------
          Grand total.......................................
    (5)224,845.03
    --------------------------------------------------------------------------------------------------------------------------------------------------------

        Question. Please provide data, by division, on FTE's, and
    reimbursed and nonreimbursed detailees for fiscal year 1995 and fiscal
    year 1996, and projections for fiscal year 1997.
        Answer. The attached table illustrates OSTP's personnel expenses,
    FTE's, detailees, non-reimbursed detailees, and reimbursed IPA's.

                SUMMARY OF OSTP PERSONNEL EXPENSES--FISCAL YEAR 1995 THROUGH FISCAL YEAR 1997 (ESTIMATED)
    ----------------------------------------------------------------------------------------------------------------
                                          Fiscal year 1995           Fiscal year 1996      Fiscal year 1997 estimate
                                    --------------------------------------------------------------------------------
                Division                 Salary/                    Salary/                    Salary/
                                        benefits     FTE count     benefits     FTE count     benefits     FTE count
    ----------------------------------------------------------------------------------------------------------------
    Director's Office--FTE's.......     $610,825.98       7.34     $654,454.72       7.29     $709,954.06       8.25
    Environment--FTE's.............      470,320.54       5.00      345,619.30       4.00      340,318.45       3.83
    National Security and
     International--FTE's..........      437,329.81       5.50      573,038.81       6.70      674,412.69       7.70
    Science--FTE's.................      349,816.04       4.67      356,466.53       5.58      330,912.26       3.92
    Technology-- FTE's.............      644,867.35       6.70      554,432.11       5.80      432,820.40       4.83
    Budget and Administration--
     FTE's.........................      272,479.24       5.42     $271,611.55       4.50      310,581.63       5.00
    PCAST--FTE's...................       40,650.76       0.88       95,625.22       0.96       46,029.79       0.59
                                    --------------------------------------------------------------------------------
          Total FTE's, salary and
           benefits................    2,826,289.72      35.51    2,851,248.24      34.83    2,845,029.28      34.12
                                    ================================================================================
    Director's Office--Detailees/
     IPA's.........................  ..............  .........  ..............  .........      $30,000.00       0.50
    Environment--Detailees/IPA's...      $17,125.00       0.25      $38,158.00       0.21      230,623.02       1.67
    National Security and
     International--Detailees/IPA's      178,809.00       1.60  ..............  .........  ..............  .........
    Science--Detailees/IPA's.......      307,873.48       3.25      266,283.31       3.17      145,052.38       2.46
    Technology--Detailees/IPA's....      156,231.00       2.00       74,888.01       1.08       87,537.82       1.00
    Budget and Administration--
     Detailees/IPA's...............  ..............  .........  ..............  .........  ..............  .........
    PCAST--Detailees/IPA's.........  ..............  .........  ..............  .........  ..............  .........
                                    --------------------------------------------------------------------------------
          Total detailees/IPA's....      660,038.48       7.10      379,329.32       4.46      493,213.22       5.63
                                    ================================================================================
    Lump Sum Leave Payments........       32,550.80  .........       16,165.74  .........       53,058.81  .........
    Overtime Payments..............       27,109.57  .........       21,183.25  .........       20,000.00  .........
    Awards.........................       40,500.00  .........       24,000.00  .........       40,000.00  .........
    Unemployment Compensation......  ..............  .........        7,713.00  .........       10,000.00  .........
    OPM Buyout Charge..............        3,040.00  .........        2,880.00  .........        2,680.00  .........
                                    --------------------------------------------------------------------------------
          Total personnel expenses.    3,589,528.57  .........    3,302,519.55  .........    3,463,981.31  .........
          Budget apportionment or
           request.................    3,754,000.00  .........    3,797,000.00  .........    3,746,000.00  .........
          Difference--Surplus or
           (deficit)...............      164,471.43  .........      494,480.45  .........      282,018.69  .........
    ----------------------------------------------------------------------------------------------------------------

        With regard to fiscal year 1996 and fiscal year 1997 staffing,
    these were unusual years. During these two years OSTP had long
    stretches of time without confirmed Associate Directors. Because
    incoming Associate Directors should make the decision on permanent
    staffing replacements for departing staff, in many instances Acting
    Associate Directors made temporary assignments in order to ensure that
    required work got done during the transitions. Many of these temporary
    assignments were in the form of short-term detailees, hiring of
    consultants, etc. In addition, in most cases individuals currently on
    staff were named Acting Associate Directors. These individuals have
    salaries that are $10,000 to $30,000 less than the salaries of
    confirmed Associate Directors. The combination of unfilled Executive
    Level III positions and temporary assignments to enable OSTP to meet
    required deadlines contributed substantially to the excess of personnel
    funds.
                          NATIONAL SCIENCE FOUNDATION

    STATEMENT OF NEAL LANE, DIRECTOR
    ACCOMPANIED BY DR. JOSEPH BORDOGNA, ACTING DEPUTY DIRECTOR

        Senator Bond. Thank you very much. Dr. Lane.
        Dr. Lane. Thank you very much, Mr. Chairman and ranking
    member Mikulski. I very much appreciate the opportunity to
    appear before you this afternoon to discuss NSF's budget
    request for the coming fiscal year. I join my colleague, Jack
    Gibbons, in expressing my appreciation for the very good
    working relationship that we have had with the committee under
    your leadership and under Senator Mikulski's leadership.
        I would like to ask your permission, Mr Chairman, if during
    the question session Dr. Joe Bordogna be permitted to join us
    at the table.
        Senator Bond. We will be happy to do so, and I should have
    said earlier that we will make your full statements part of the
    record so that you may just touch on what you feel are the most
    important items.
        Dr. Lane. Thank you. I would also like to submit the
    statement of Dr. Richard Zare, Chairman of the National Science
    Board, for the record.
        Senator Bond. Without objection, it will be accepted.
        Dr. Lane. NSF-supported discoveries have a very large
    impact on the world, from understanding how plants respond to
    diseases, and paving the way to plants that resist parasites
    without pesticides, to developing microbes that purify
    contaminated groundwater, to using auditory detection
    strategies first identified in frogs as models for improving
    hearing aids.
        The 1996 Nobel Prize in chemistry was awarded for research
    that NSF has supported for over a decade on the carbon
    molecules known as buckyballs. Today, these NSF-supported
    researchers are stringing buckyballs together to create tiny
    nanotubes which are 100 times stronger than steel, but only a
    fraction--one-sixth--of the weight. In the words of the
    Washington Post, these could be the drop-dead superfiber of the
    future.
        NSF's unique role in support of university-based research
    and education across all fields has been found to be among the
    most productive of all public investments. One seminal study
    has estimated that the rate of return on investments on
    academic research exceeds 25 percent on an annual basis,
    outpacing even the market over the long haul.
        America's system of higher education sets a world-leading
    standard of excellence and inclusiveness, yet even this
    outstanding system faces challenges in preparing students to
    deal with a rapidly changing scientific and technological
    world. NSF addresses these challenges by supporting innovative,
    systemic approaches to education and training at all levels.
        NSF remains committed to delivering the highest possible
    returns on the Nation's investments. We have traditionally
    maintained a very low overhead rate and have received national
    recognition for our commitment to efficiency and productivity.
        This past December, NSF became the first Federal agency to
    receive the prestigious National Information Infrastructure
    Award, which recognizes innovative uses of the Internet and
    World Wide Web in business, education, and Government.
        Mr. Chairman, our budget request of $3.367 billion will
    provide us with resources to continue supporting more than
    19,000 research and education projects in science and
    engineering. An increase of $97 million, it represents a strong
    commitment to research at a time of constrained Federal
    discretionary spending.
        This increase will enable NSF to pursue several
    initiatives, one of which we call knowledge and distributed
    intelligence, or KDI. It is designed to push the frontier of
    Internet use and development to a new level of capability. It
    has not only major scientific implications, but practical
    societal benefits as well.
        This is a truly remarkable era for research and education
    in America. The investments in this request will help ensure
    that our Nation gains full benefit from these emerging
    opportunities, and that the future brings greater progress and
    prosperity to all Americans.
        We are struck by the recent commitment by Japan to double
    the Government's research and development budget between the
    years 1992 and 2000. This is one more reminder that strong
    support for research and education is essential if the United
    States is to remain a world-leading economy in the 21st
    century. How can we expect to compete in the world's aggressive
    technology-driven markets if we reduce the very investments in
    people and ideas and instrumentation that creates technology?

                              PREPARED STATEMENTS

        Mr. Chairman, I thank you for this opportunity to discuss
    the role of the National Science Foundation in ensuring
    America's global leadership in science, engineering, and
    technology, as well as quality education for all Americans.
        I would be very pleased to respond to any questions that
    you or members of the committee might have.
        [The statements follow:]

                      Prepared Statement of Dr. Neal Lane

        Mr. Chairman, I appreciate the opportunity to appear today and
    provide the subcommittee with an overview of the NSF budget request for
    1998. For the coming fiscal year, the National Science Foundation
    requests $3.367 billion. This will allow us to invest in more than
    19,000 research and education projects in science and engineering.
    These investments in people, ideas, and exploring the unknown will
    guide our future course as a nation and bring new sources of prosperity
    and opportunity to all Americans.
        If one were to take a snapshot of the U.S. economy today, it would
    show a number of key areas driving growth and opportunity. They come
    under headings like biotechnology, multimedia, medical imaging,
    environmental technologies, polymers, decision theory, educational
    technologies, sensors, and opto-electronics, not to mention high-speed
    computational and communications technologies like the Internet and
    World Wide Web.
        Virtually all of these innovations have become widely used within
    the past few decades. And while these areas are key to productivity in
    a wide array of industries and sectors, from manufacturing to health
    care to financial services, they share one important trait--each has
    deep roots in the support for fundamental research and education
    provided by the National Science Foundation and other Federal agencies.
    For example:
      --Boeing's new 777 jetliner has been cited as ``the most advanced and
            service-ready jet in commercial aviation history.'' Yet, the
            777 was designed entirely ``on screen'' bypassing the need for
            models and mockups, and saving the company an estimated $100
            million. The computer-assisted-design and virtual reality
            systems that underlie this important accomplishment can all be
            traced to years of sustained public investments in such diverse
            topics as scientific visualization, fundamental mathematics,
            rapid prototyping, and other areas that cut across the spectrum
            of science and engineering.
      --On January 2, 1997, a New York Times article on productivity in
            business opened with the following passage: ``Dell Computer
            Corp. has designed its newest factory without room for
            inventory storage. Chrysler Corp. can increase vehicle
            production without building new factories. And General Electric
            expects to save millions of dollars by purchasing spare parts
            over the Internet. On the surface, these are manufacturing
            stories. At heart they are among the thousands of new business
            practices made possible by technology.''
      --If an ordinary citizen were asked to name a field of research that
            is unlikely to generate much in the way of discoveries that
            would quickly find their way to the marketplace, it would not
            be surprising if astronomy were mentioned. But the
            determination of precise positions for satellites can only be
            accomplished by very long baseline interferometry (VLBI) radio
            telescopes fixing on distant cosmic radio sources. The Global
            Positioning System that uses satellites to precisely pinpoint
            our location at any spot on the globe would be impossible
            without such precision. GPS has important applications for the
            military, recreation, transportation, and even for reducing the
            time and cost of commercial airline flights. GPS is a
            multibillion dollar industry that would have been impossible
            without astronomical research.
        Moreover, the technologies that made possible these new innovations
    were in turn made possible by steady and stable Federal support for the
    instruments and insights needed to extend the frontiers of physics,
    cosmology, supercomputing, manufacturing research, and other areas of
    science and engineering that demand the most of new technologies.
        Similar success stories abound in today's world, such as bacteria
    that munch on oil spills, classroom computers that adapt automatically
    to students' strengths and weaknesses, and new chemical techniques that
    slash the cost of drug design and development. Each can be traced back
    to investments in people and ideas through research and education in
    science and engineering.
        In this same way, we have great expectations that recent
    breakthroughs in fundamental research hold the key to future economic
    success. For example, the 1996 Nobel Prize in Chemistry was awarded for
    research on the carbon structures known as buckyballs that NSF has
    supported for over a decade. Today, these NSF-supported researchers are
    stringing buckyballs together to create ``nanotubes'' which turn out to
    be 100 times stronger than steel but only one sixth the weight. In the
    words of The Washington Post, these could be the ``drop-dead super-
    fiber of the future.'' These and other examples bring to life what top
    economists have been saying for years: public investments in science
    and engineering yield immense dividends to our economy and society.
        Furthermore, NSF's unique role--that of supporting university-based
    (non-clinical) research and education across all fields and
    disciplines--has been found to be among the most productive of all
    public investments. One seminal study \1\ has estimated that the rate
    of return on investments in academic research exceeds 25 percent on an
    annual basis, outpacing even the stock market over the long haul. Other
    studies have found an increasingly vital link between our university
    research base and the competitive position of U.S. industry. Newly
    awarded patents, for example, draw upon current findings from academic
    research at a rate never before seen in history.
    ---------------------------------------------------------------------------
        \1\ Mansfield, E. 199. ``Academic Research and Industrial
    Innovation.'' Research Policy 20: 1-12. For a fuller discussion of the
    rate of return on scientific research, See ``Science and Engineering
    Indicators 1996'', Chapter 8.
    ---------------------------------------------------------------------------
        While these examples provide ample testimony to the success of
    NSF's past investments, all signs are that they are only the beginning
    of what is possible--provided we uphold our nation's position of
    leadership across the spectrum of science and engineering research and
    education.
        As we approach the 21st Century, it is especially noteworthy that
    other nations--Japan in particular--are demonstrating a growing
    awareness of the link between a strong science and technology base and
    a nation's overall economic vitality. U.S. Ambassador and former Vice
    President Walter Mondale noted this in a recent editorial: ``One clear
    indicator of the seriousness of Japan's R&D efforts is the level of
    spending * * *.'' Japan has recently announced a national goal of
    doubling its support of basic research over the next five years. This
    provides one more reminder that strong public support for research and
    education is essential if the U.S. is to remain a world leading economy
    in the 21st Century.

            NSF FISCAL YEAR 1998 REQUEST: HIGHLIGHTS AND PRIORITIES

        NSF's fiscal year 1998 budget request provides NSF with an overall
    increase of 3 percent, which would enable the agency to pursue a number
    of emerging opportunities that hold immense potential both from a
    scientific standpoint and as drivers of future economic growth and
    social benefit.
        These focused efforts draw upon NSF's strong linkages across all
    science and engineering fields, as well as the agency's commitment to
    the integration of research and education and to working in partnership
    with academic institutions, private industry, and other agencies at all
    levels of government.

    Knowledge and Distributed Intelligence in the Age of Information
        Over the span of a few years, computers have moved from large, air-
    conditioned rooms to our laps and our pockets. While in 1980 NSF-
    supported scientists and engineers had only limited access to the
    highest levels of computational power, today they employ desktop
    systems of comparable power and have access to a collection of
    supercomputing facilities with capabilities they could only dream about
    a decade ago. Over this same period, the number of host computers on
    what is now the Internet has leapt from about 200 to over 10 million in
    1996--a 50,000 fold increase.
        This rise in both power and connectivity has changed the face of
    science and engineering, just as it has generated new opportunities for
    all Americans. The challenge today is to realize the full potential of
    these emerging technologies for research, for education, and for our
    economy and society. This era is often referred to as ``the information
    age,'' but that heading does not do justice to the possibilities and
    opportunities emerging today. The coming age is perhaps best described
    as an era of ``knowledge and distributed intelligence''--an era in
    which knowledge is available to anyone, located anywhere, at any time,
    and an era in which power, information, and control move away from
    centralized systems to the individual.
        Knowledge and Distributed Intelligence (KDI) is an ambitious
    Foundation-wide effort designed to take information, communications,
    computing and networking to a new level of technological, economic,
    educational, and societal impact. It has the potential to revolutionize
    not only U.S. science and engineering, but also the way in which all
    Americans learn, work, and interact. It draws on past advances made in
    networking, supercomputing, and learning and intelligent systems. In
    fiscal year 1998, NSF plans a focused, multidisciplinary $58 million
    program of activities in support of KDI research, infrastructure
    development, and education that draws upon and reinforces related on-
    going efforts totaling approximately $355 million.
        For fiscal year 1998, these investments in KDI fall into two basic
    categories:

      --Multidisciplinary Approaches to Knowledge and Distributed
            Intelligence ($48 million). This NSF-wide activity will provide
            researchers and educators an opportunity to link diverse
            components of the KDI framework, so that advances in one area
            work to the benefit of all. This effort will span such
            activities as knowledge-based networking, learning and
            intelligent systems, and new approaches to computational tools
            important to many disciplines.
      --Next Generation Internet ($10 million). NSF is a key participant in
            the President's 5-year program to move toward the Next
            Generation Internet. The agency's role builds on its current
            programs of networking, infrastructure development, and
            research. NSF's $10 million contribution will be devoted to
            participation in a multi-agency program aimed at enhancing
            Internet capabilities for research and education at colleges
            and universities.

    Life and Earth's Environment
        NSF has had a strong presence in the life, social, and
    environmental sciences for many years, supporting research and
    education activities that complement the mission-driven activities of
    other agencies. Increasingly, NSF is focusing on how living organisms
    interact with their environment, including how humans affect their
    environment and vice versa. Examples include microbial diversity and
    bioremediation, metabolic engineering and bioprocessing, natural
    hazards mitigation, environmental geochemistry and biogeochemistry,
    human dimensions of global change, and long term ecological research
    sites.
        The study of life in extreme environments can provide important new
    insights into how organisms formed, and about the range of adaptive
    mechanisms which allow them to function. Researchers can then examine
    how to mimic such mechanisms for use in situations inimical to human
    life such as bioremediation or bioprocessing. This overall effort was
    begun in fiscal year 1997 and we will continue to develop this program
    in fiscal year 1998, in concert with activities in other agencies (such
    as NASA's Origins program).

    Educating for the Future
        America's system of higher education sets a world-leading standard
    for excellence and inclusiveness. Yet even this outstanding system
    faces challenges in preparing students for dealing with the rapidly
    changing scientific and technological landscape expected in the 21st
    century. NSF is addressing these challenges by supporting innovative,
    systemic approaches to education and training at all levels, and
    especially through activities that link learning and discovery.
        Integration of Research and Education.--This core strategy from the
    Foundation's strategic plan has emerged as a key touchstone for all NSF
    investments. Educating today's students in a discovery-rich environment
    will better prepare them to meet tomorrow's challenges. Likewise,
    history has shown that research in an education-rich environment yields
    an exceptionally dynamic and diverse enterprise. Fiscal year 1998
    highlights include:
      --The CAREER program (Faculty Early Career Development), which
            provides a framework for junior-level faculty to link their
            research activities with their teaching and mentoring
            responsibilities. For fiscal year 1998 the CAREER program will
            grow by 21 percent, to $81 million. NSF nominates selected
            awardees for the prestigious Presidential Early Career Awards
            for Scientists and Engineers in order to recognize both the
            outstanding character of their research and their commitment to
            education.
      --The REU program (Research Experiences for Undergraduates) will
            significantly expand in fiscal year 1998, increasing by 11
            percent to almost $30 million. It is one of NSF's most popular
            and successful programs, as it provides opportunities for
            several thousand undergraduate students each year to
            participate in ongoing or specially designated research
            projects at sites throughout the nation.
      --Integrative Graduate Education and Research Training (IGERT). This
            new cross-Foundation activity, funded at $20 million, will
            merge features of the ongoing Research Training Group program
            in the biological sciences with the Graduate Research
            Traineeship program. This experimental effort provides a
            flexible alternate approach to graduate education--as was
            recommended in recent reports by the National Science Board and
            the National Academy of Sciences.
        Systemic Reform.--NSF's systemic reform activities are well-
    established at the K-12 level, where they will remain a high priority.
    Fiscal year 1998 will see the initiation of focused systemic reform
    efforts at the undergraduate and graduate levels that will involve all
    parts of the Foundation. Experimental activities in fiscal year 1996
    and fiscal year 1997--such as the Comprehensive Reform of Undergraduate
    Education and the Recognition Awards for the Integration of Research
    and Education--have set the stage for an enhanced effort, or more
    accurately, the age of Knowledge and Distributed Intelligence.
        The Urban Systemic Initiative will fund up to 25 implementation
    sites in the remaining eligible cities. In 1996 our investment in USI
    was leveraged nearly 4-fold as other Federal agencies, states, and the
    private sector committed over $206 million. More than 145,000 teachers
    who serve 3.6 million students typically in minority districts in urban
    centers have received intensive training in math and science content as
    a result of their participation in the USI.
        Challenges to Learning.--Just as the information age creates
    challenges and opportunities for the research component of science and
    engineering, it creates challenges and opportunities for learning.
    Formal education systems have changed little while the workplace and
    other aspects of life have been transformed and redesigned. In
    conjunction with the KDI effort described above, NSF will explore how
    individuals and groups of individuals learn, both inside and outside
    formal education systems, as well as how technology might be used to
    change the patterns of traditional education.
        EPSCoR (Experimental Program to Stimulate Competitive Research) is
    a Foundation-wide investment pursued in cooperation with state
    governments that helps to broaden U.S. capabilities in science,
    engineering, and technology. In fiscal year 1998, NSF funding for
    EPSCoR totals more than $38 million. Improved linkages between EPSCoR
    and other NSF-supported research and education activities is expected
    to result in an additional $8-10 million in merit-reviewed research for
    EPSCoR states. This funding is intended to enable researchers and
    educators supported through EPSCoR to participate more fully in other
    Foundation-wide activities.
    Facility Investments
        In keeping with its core purpose of advancing the frontiers of
    science and engineering, NSF is acutely aware of the need for major
    research platforms that support the activities of a broad spectrum of
    researchers and educators. Fiscal year 1998 will see the completion of
    funding for the Laser Interferometer Gravitational Wave Observatory
    (LIGO), maintain investments in facility improvements at the South
    Pole, and initiate support for the Polar Cap Observatory and the first
    phase of the Millimeter Array.
        Last month the External Review Panel for the South Pole Station
    completed its work and its chairman, Dr. Norm Augustine, presented a
    set of recommendations for NSF supported research at the South Pole.
    Included in the list of recommendations was that the existing South
    Pole Station be replaced with an optimized new station.
    Salaries and Expenses
        NSF has a well-deserved reputation as an efficiently run agency.
    Credit for this belongs to dedicated men and women who have worked
    there over the years. But the work is growing increasingly challenging
    as the workload increases and the resources for managing the agency
    remain flat. Over the past decade NSF's budget has effectively doubled,
    from $1.62 billion to $3.22 billion. During that time the number of
    participating institutions has grown by 50 percent, as has the number
    of proposals submitted for evaluation and review. During this same
    period, however, NSF career staffing levels have remained relatively
    flat.
        Two factors contribute to the agency's success in increasing its
    workload with no accompanying growth in personnel. First is the
    successful partnership with the research community to provide merit
    review for proposals. Last year more than 59,000 experts provided more
    than 170,000 reviews of proposals submitted to NSF. The second factor
    is the astute use of technology to automate labor intensive processes.
    NSF was the first government agency chosen for a National Information
    Infrastructure (NII) award for extraordinary achievements and
    innovative uses of the information highway for its FastLane initiative.
                                   conclusion
        I would like to close with just a brief comment on NSF's efforts to
    improve our accountability--to Congress, to the public, and to the
    research and education communities that are our major constituencies.
    This budget was prepared in accordance with our Strategic Plan. We are
    now working to develop performance measurements so that our next budget
    submission complies with the Government Performance and Results Act. We
    are anxious to have your views on the types of metrics that would be
    most helpful to Congress in setting budget priorities.
        Today's budget realities require that every dollar work harder and
    yield the highest possible dividends. At the same time, the
    possibilities and opportunities emerging across the spectrum of science
    and engineering remind us that this is a truly remarkable era for
    research and education in America. The investments contained in this
    request will help ensure that our nation gains full benefit from these
    emerging opportunities--and that the future brings greater progress and
    prosperity to all Americans.
        Mr. Chairman, thank you for this opportunity to discuss some of the
    highlights of our budget request. I would be pleased to respond to any
    questions that you or members of the committee might have.
                                     ______

      Prepared Statement of Dr. Richard Zare, Chairman, National Science
                                     Board

        Chairman Bond and members of the Subcommittee, I appreciate the
    opportunity to provided testimony on behalf of the appropriation for
    the National Science Foundation. I am Dr. Richard Zare, Chairman of the
    National Science Board and Professor of Chemistry at Stanford
    University. I would like to convey to you a bit of the excitement and
    value to the nation of the research and education activities that will
    be supported by the National Science Foundation's fiscal year 1998
    budget request. I will also mention some of the work of the Board in
    helping to develop this budget, and in trying to get a better
    understanding of the possible effects of any changes in Federal agency
    research programs on the broader picture of Federal support for
    research.
        First, however, I would like to thank the Subcommittee for its
    strong support of the Foundation in the past. Your continuing
    commitment to a strong national effort in research and education is
    extremely important to the NSF as we carry out our various
    responsibilities.
        The National Science Board is a 24-member body appointed by the
    President for six-year terms. We represent a broad cross-section of the
    nation's leaders in science, engineering and education, and include
    full-time researchers, educators, university officials and industry
    executives. Since the founding of the NSF in 1950, the Board has
    exercised two roles: that of a national policy body, and that of a
    governing body for the Foundation. In many respects the latter role is
    similar to that of a corporate board of directors, but as a Federal
    entity we operate within the framework of policy guidance established
    by the Congress and the Administration.
        The Board approves NSF's policies, budget proposals, new programs,
    and major multimillion-dollar awards, and generally oversees the fiscal
    and management operations of NSF as a whole. We work very hard to make
    sure that all of the Foundation's policies, systems, programs and
    awards are of the highest quality, incorporate our best thinking, and
    reflect the perspectives of the communities we represent.
        The budget before you has the wholehearted approval of the Board.
    NSF funding is a vital investment in the nation's future. The budget
    you're looking at today will provide the means to fund thousands of
    worthwhile projects across the exciting frontiers of all fields of
    research, and it will fund important efforts to improve the Nation's
    education in science, mathematics, engineering and technology.
        I would especially like to call your attention to a new initiative
    in the area of Knowledge and Distributed Intelligence, which holds
    immense potential as a driver of progress and opportunity for all
    Americans. This is a new set of investments spanning a wide range of
    Foundation programs, including NSF's part of the Next Generation
    Internet, and going beyond that, for example, to better link research
    in cognition with technologies for teaching and learning. I am so
    excited about the possibilities arising from this ``KDI'' initiative
    that I wrote an editorial that appeared in Science magazine on February
    21. With your permission, I would like to submit the editorial for the
    record.
        The Foundation's fiscal year 1998 budget also is important for
    improving education in science and mathematics at all grade levels.
    Aside from the beauty and enjoyment that flows from better
    understanding our world, there are three practical reasons for that
    education:
        First, to educate the workers and entrepreneurs who are able to
    understand and use research results and new technological capabilities
    to keep the nation at the forefront in today's global marketplace;
        Second, to refresh the pool of researchers who can go about gaining
    new understanding of nature, who can design novel processes and
    products, and who are able to capitalize on discoveries made by other
    societies; and,
        Third, to give the public as a whole, and especially its future
    leaders, a sufficient foundation in science, mathematics, technology
    and problem-solving, to make sound decisions about important national
    and global issues.
        The Board also recently led an effort to revise the general
    criteria for proposal review that are used to select projects for
    funding in all NSF programs. The criteria have served the Foundation
    well, by and large, but they have not been given a comprehensive
    examination since the early 1980's, and we think they need at least
    some updating to be brought into line with the Foundation's Strategic
    Plan.
        A task force consisting of the Board members and senior NSF staff,
    with input from our proposer and reviewer communities developed new
    general criteria. The revised criteria were adopted at our March
    meeting, a couple of weeks ago for use for all proposals reviewed
    beginning October 1. NSF is getting the word out to the national
    research community, so investigators can have the new criteria in mind
    as they work on their proposals over the summer.
        We are also providing oversight to NSF as it develops methods and
    processes to comply with the present and forthcoming requirements of
    the Government Performance and Results Act, and monitoring the phase-in
    of other legislated government-wide requirements such as the
    Information Technology Management Reform Act.
        In addition to our close and continuing oversight of NSF, the Board
    has a special role in monitoring the health of science and engineering
    in the U.S. and in providing advice on national policy in research and
    education. We have been discussing ways to give considerable attention
    this year to research funding priorities within NSF, in the context of
    the overall picture of support by the various Federal agencies.
        The world is changing more quickly than ever. Each of us sees the
    speed and force of those changes around us every day, in ways that we
    perceive as wondrous, elegant and profound--even, sometimes, a little
    overwhelming. I need only mention three examples:
      --Developing (when it's working) a nearly instantaneous, worldwide
            information delivery capability that, among other things, is
            promising to cause a revolution in scientific publishing
            comparable in its impact to the Gutenberg printing press;
      --The ever-increasing use of microprocessors and robotics, from what
            you see in the home to those used in manufacturing; and,
      --Something that I have a very personal involvement in, namely,
            finding possible evidence of primitive life on ancient Mars.
        In more down-to-earth ways, we also see, for example, that global
    competition in manufacturing continues to grow, challenging our
    economic base; and that the public's expectations about combating
    terrorism, violence, disease, poverty and environmental problems
    continue to rise. Although research alone cannot solve these problems,
    it is one of the most important contributors to their solution. Because
    the Federal government plays a critical role in supporting the
    fundamental research that underlies progress in these areas, it is more
    important than ever that a robust and well-considered level of overall
    Federal investment in long-term research be sustained.
        Strong support for NSF is clearly a keystone of that investment.
    And strong support for the research performed or supported by other
    Federal agencies, in connection with their missions, is vital as well.
    The Board is very concerned about the possibilities for reduction or
    compression of the overall Federal investment in research. We are
    concerned as well for the possible fate of the various research
    programs in Federal agencies whose budgets--indeed, their very
    existence--continue to be challenged.
        Mr. Chairman, we urge the Congress, when considering funding for
    Federal agencies that have science, engineering and education programs,
    to do so with explicit regard for the relationships among those
    programs across the government and with industrial research and
    development. It is important not to take actions that will undercut
    areas of science and engineering vital to our national interest.
        The Board's efforts over the next few months will center on getting
    a clearer understanding of the many linkages within the Federal and
    national picture for research so that we will be better able to
    visualize or anticipate the consequences of various actions by the
    Administration and Congress.
        Thank you, Mr. Chairman.
                                     ______

                     Knowledge and Distributed Intelligence

                              (By Richard N. Zare)

        The author is chairman of the National Science Board, which is the
    governing body of NSF, and professor of chemistry at Stanford
    University, Stanford, CA.
        In reading the pages of Science, I have been struck by the stunning
    progress being made in science and engineering--new phenomena
    discovered, new materials synthesized, new methods developed. What I
    see behind many of these exciting stories is the widespread and even
    revolutionary use of distributed intelligence that is made possible by
    the ``wiring'' of the scientific community. It is more than a time
    saver or a communication enhancer; it is enabling us to think in new
    ways and its impact on society may be monumental.
        Consider this random sampling of newspaper headlines: ``Medical
    Schools Use Palmtop Computers to Improve Training,'' ``Web Site Allows
    Users to `Handle' Specimens From Smithsonian,'' ``Laugh and Your
    Computer Will Laugh With You, Someday.'' There's obviously something
    profound going on here, and it is more than just the Internet.
    Computational technologies are becoming more powerful and more
    portable. We can access more information at greater speeds and with
    greater facility than was previously imaginable. We can even remotely
    control sophisticated experiments--on a recent visit to the National
    Science Foundation's (NSF's) South Pole Station, I watched as
    astronomers in Wisconsin controlled an infrared telescope on site. As
    these advances in computing and communications coalesce, we begin to
    see their full potential for promoting progress in science and
    engineering and for driving economic growth and societal gain.
        The term ``information age'' probably does not do justice to the
    possibilities of this emerging era. This is an age of ``knowledge and
    distributed intelligence,'' in which knowledge is available to anyone,
    located anywhere, at any time; and in which power, information, and
    control are moving from centralized systems to individuals. This era
    calls for a new form of leadership and vision from the academic science
    and engineering community. We know from countless examples that
    academic science and engineering have enabled our society to make the
    most of new technologies. We wouldn't have today's advanced computer
    graphics systems if mathematicians hadn't been able to solve problems
    related to surface geometries. We wouldn't have networks capable of
    handling massive amounts of data if physicists and astronomers hadn't
    continuously forged tools to look more deeply into subatomic structures
    and the cosmos. Chemists' efforts to simulate complex phenomena and
    predict the properties of many-electron systems have inspired massively
    parallel architectures for computing. And the information made
    available by the sequencing of the human genome has caused us to
    rethink how to store, manipulate, and retrieve data most effectively.
    It will take new insights from studies of human cognition, linguistics,
    neurobiology, computing, and more to develop systems that truly augment
    our capacity to learn and create. The best may be yet to come.
        Despite brutally tight constraints on federal discretionary
    spending, President Clinton has stepped forward to champion a 3 percent
    increase (uncorrected for inflation) in NSF's 1998 budget. The
    president's request is only the first step in the congressional budget
    process ahead. Given that the priorities of Congress will almost
    certainly differ from those of the president, it will take an
    unprecedented level of input and commitment from the research community
    to ensure that investments in science and engineering receive the same
    strong bipartisan support they have enjoyed for generations. This 3
    percent increase would enable NSF to launch a new set of investments
    spanning all its directorates. This knowledge and distributed
    intelligence (KDI) initiative would promote collaborations that seem
    long overdue, such as linking the science of learning and cognition
    with the development of technologies for teaching and learning. NSF's
    role in the proposed Next Generation Internet project is also part of
    the KDI package. This project would create a ``smart'' infrastructure
    for research and education at colleges and universities that would
    facilitate collaboration across geographic as well as intellectual
    distances.
        It is clear that knowledge and distributed intelligence holds
    immense potential, both from a scientific standpoint and as a driver of
    progress and opportunity for all Americans. Knowledge and distributed
    intelligence is not just about hardware or software, but about the
    wherewithal to change for the better the way we learn, communicate, and
    do research.

                             FEDERAL R&D INVESTMENT

        Senator Bond. Thank you very much, Dr. Lane.
        First, we recognize the comments made by Dr. Gibbons that
    the amount of money is a critically important item. The
    discretionary funds have been squeezed because we have not yet
    been able to come to agreement on dealing with the entitlement
    or mandated benefit programs which threaten to bankrupt our
    country.
        Until we get that part of the spending under control we are
    going to see continued pressure on not only science but other
    items funded through the appropriations process, and I am
    hopeful that perhaps as early as this week we will see some
    evidence of bipartisan agreement that will move us in the path
    of getting entitlement spending under control.

                         SCIENCE AND TECHNOLOGY BUDGET

        Let me ask a broad, probably unanswerable question as to
    the correct level in science and research development. As you
    know, the NSTC put out a report that said 3 percent of gross
    domestic product would be a good total investment. The
    President's fiscal year 1998 budget shows an overall increase
    of some 2 percent. Unfortunately, the entire budget shows a
    very significant increase this year with all the cuts to come
    in year 2001 and 2002, and that is not going to happen, so we
    have additional pressure that I can expect from the budget
    agreement.
        What would you say is the proper Federal investment in R&D?
    How should it be made in relationship with the private sector
    investment, and what kind of tests should we be using to
    determine this level?
        Let us start with Dr. Gibbons.
        Dr. Gibbons. Well, there is an interesting dialog going on
    now as you know, Senator, that talks about how much should we
    be putting into research, and it has been an international
    dialog.
        The Japanese, in the face of a sluggard economy, decided to
    double their Federal research budget as a means of stimulating
    their economic growth. At the same time, we have been trimming
    ours well below the past historical trajectories.
        The study that OSTP carried out suggested that the
    traditional level of presently around 2\1/2\, 2.6 percent total
    fraction of our national GNP, public and private, goes into
    research, and perhaps as we move into the new century it would
    be well to ramp that up to around 3, because we are so much
    more dependent on science and technology in that future time.
        It was not a recommendation, but it raised the question of
    whether or not we should not be thinking about what fraction of
    our national wealth should we be recommitting to assure our
    future.
        Now, what we have done in the past several years is try to
    assure that at least we are holding on as we all struggle to
    get our fiscal house in balance, and so our changes over the
    past 4 years have been basically to try to hold on to our
    purchasing power, but we have been unable to make the kinds of
    historic increases that have been made in the past, when we are
    borrowing money from the future to do it.
        Now, I would suggest that our first priority, then, is to
    hold on to the level of support we have, and to maintain that
    support with a reasonably stable environment. We do not want a
    lot of up and down in research, because it is very difficult to
    plan and carry out research in that way, or to train students,
    but that in the long term we might want to talk very seriously
    about establishing some kind of a goal in which the research
    reinvestments in our Nation would track our economic growth
    over the long term.

                 PUBLIC INVESTMENT IN RESEARCH AND DEVELOPMENT

        Senator Bond. Where public investment results in a
    profitable R&D result, should the Government participate in a
    share of the profits in order to reinvest?
        Dr. Gibbons. The Government does clearly but indirectly
    profit, because those investments in the private economy result
    in taxes on goods and services. That is probably the most
    assured and most efficient way of return.
        At the same time, there are other measures now when public
    and private sectors partner and both invest in a research
    project that private investor receives certain advantages in
    that intellectual property, such as an exclusive license for a
    period of time.

                            PUBLIC INVESTMENT IN R&D

        Senator Bond. Let me ask Dr. Lane to comment on that
    unanswerable question.
        Dr. Lane. Thank you, Mr. Chairman. Maybe I would just add
    to the excellent response Dr. Gibbons just gave that, in
    particular in the area that NSF focuses on, namely research and
    education activities integrated in a university and college
    environment, I think the payoff even for the most fundamental
    studies can be immediate and large in terms of educational
    benefits, because the students that flow through those
    institutions go very quickly out into jobs, careers of various
    kinds that take advantage of technological capability that they
    get from a university education.
        There is a place in which our investment is relatively
    small. I think we invest from the Federal budget about $13
    billion in academic research compared to a total Federal
    investment of $75 billion or so.
        I believe that, in deciding how much is enough and
    addressing the issue of how you test to determine whether you
    are there yet or not, one needs to try to look for those scale-
    dependent terms of the equation. The size of our country, the
    number of students that flow through our universities and
    colleges, for example, and the size of our industry that will
    require the knowledge and technology as it comes out of the
    companies does make a difference.
        So whether it should scale directly with GDP or not I
    certainly do not know, but we must make a larger investment
    than other countries. It is not enough just to say the United
    States is at the leading edge in all of these important fields.
    It is at the leading edge right now in many fields. Our worry
    is about the future. But there also are the direct benefits
    that come out of research activity, and I point particularly to
    the educational benefits that flow from our universities and
    colleges.
        Senator Bond. Thank you, Dr. Lane. Senator Mikulski.
        Senator Mikulski. Thank you. Dr. Gibbons, I do not want to
    turn this hearing into a NASA hearing by proxy, but I do have a
    few questions related to our space program if we would, and
    then also to some of the roles directly related to the OSTP.

                          ROLE OF OSTP IN SPACE ISSUES

        In your testimony you outline essentially the role of the
    Office of Science and Technology in space. First, I want to
    thank you for your role in helping increase space funding so
    that we did not have that draconian dip that took us to $11
    billion in the out-years and I felt would have decimated it, so
    thank you for your very key advocacy role in that.
        I want to ask two questions, one about the space station
    and the shuttle, and I understand they are interlocked. We are
    deeply concerned about the future of the space station because
    of the role, of the involvement with the Russians.
        There are, as you know, questions raised by both ourselves
    as well as our counterpart in the House, Mr. Sensenbrenner,
    about what are we bankrolling with the Russians? Do we have
    what will then amount to a bailout operation, and if we do, are
    we then foraging, taking money out of the space shuttle program
    to pay for the inadequacies of the Russians failing to meet
    their commitments.

                         RUSSIA'S ROLE IN SPACE STATION

        So now, having said that, let me go to my questions. Where
    are we with the Russians? Second, do you think they are going
    to keep their commitments? Do we have to have this kind of
    backup system, and then if we then are funding two programs
    with the Russians and then our own backup to them, what is the
    impact on the other NASA budget, particularly the shuttle and
    the safety of the shuttle, essentially the Sensenbrenner
    question.
        Dr. Gibbons. Senator, first of all I want to thank you for
    your steadfast support of NASA and the space science
    activities. Without that kind of support we would not have
    gotten where I think we have gotten today in terms of improving
    especially those outyear profiles.
        With respect to the station, as you know, early in
    President Clinton's first term we decided to try to move toward
    a full internationalization of the work and to bring the
    Russians into that equation for a variety of reasons, including
    their extensive knowledge of space science and engineering and
    the capability of their being added to that international
    consortium to make a truly extraordinary venture.
        Now, we did not anticipate all of the problems that Russia
    was going to have, and one never can do that, but clearly they
    have run into some enormous fiscal problems here in this past
    year or so. They have delivered fully on those things for which
    we were purchasing from them, purchasing at a far less cost
    than we could have done ourselves. Where they have fallen short
    are on the areas in which they promised to furnish at their own
    expense certain elements of the space station.
        What has happened is that their lack of funds flowing into
    their space agency has caused them to be slipping in their
    schedule of a couple of important units for the space station.
    We want to treat this incrementally because both Prime Minister
    Chernomyrdin and at Helsinki a conversation between the
    President and President Yeltsin indicated that the Russian
    leadership does indeed intend to fulfill their obligations.
        We would like to see that happen. We very much want to see
    that happen, so we are going to make our moves as required to
    maintain the station's integrity, but we will make them
    incrementally rather than some sudden decision to walk away
    from Russia or some other, I would call it a draconian move.
        So our first move is to put a little postponement--well,
    not a little, about 6 months of postponement into the launch
    sequence of the elements of the station. Second, to provide
    some funding to assist in the preparation of an alternative way
    to maintain the station's elements in orbit as it is assembled.
        This would cause perhaps a $200 million investment which
    Administrator Goldin feels he can provide from internal funds
    within NASA, the largest portion of them being the fact that he
    has so increased the efficiency of the shuttle program that
    there are underruns in this year that could provide funds
    without any sacrifice in safety with respect to providing some
    of this funding. It would need funding some this year and some
    next year.
        So we are in close negotiations and discussions, of course,
    with the Russians on this matter. We would like to move
    incrementally. We believe we can do it from within the NASA
    budget framework, but that is still a matter to be worked out.

                                 SPACE PROGRAMS

        Senator Mikulski. Well, Dr. Gibbons, first of all I do not
    doubt the technical competency of the Russians and would rely
    on our scientific and administrative teams to evaluate this. I
    think the condition, the situation in which we find ourselves
    within the Congress makes the international space station
    coalition a bit vulnerable. I do not say it is fragile, and I
    do not say it is brittle, but I think that there is a very
    serious question about whether that commitment, the Russian
    commitment can be made.
        We understand the Russian contractors themselves would
    rather be doing direct business with us than going through
    their own country because of the hard currency and actually
    cash on delivery, and there is question that if we have saved
    $200 million in efficiency, then No. 1, why should not the
    American space program, the other aspects, benefit?
        You know, we have been through a hard time with buyouts and
    drawdowns, all of those anxiety issues that you and I have had
    excellent conversations on, and I am very concerned about the
    future of the station because every year Senator Bond and I and
    others and our colleagues in the House have to mount a vigorous
    battle to save it.

                            SAFETY OF SPACE PROGRAM

        I think these are the kinds of things surrounding the
    debate that could make the viability of the votes in--I would
    not say danger, but I think it could move to a danger zone very
    quickly, so I really caution the administration that they will
    really need to step forward here and tell us where we are
    going, recognizing the delicate international situation.
        But we cannot place any American at risk either through
    underfunding the shuttle, any American at risk in space without
    an evacuation vehicle, and No. 2, that for all of our benefits
    in trying to make NASA faster, quicker, cheaper, et cetera,
    that then we do not benefit from it in another way, but that
    the benefits go to the Russians.
        Dr. Gibbons. I firmly agree with that, Senator. I think we
    must assure that our safety record be maintained. You know, the
    President asked for a review of the shuttle safety system, and
    an independent and very expert group did have a look at it and
    they are satisfied with the process that Administrator Goldin
    has gone through in the shuttle operations.
        I tend to think of shuttle and space station both as very
    much our human space flight, center of investment in human
    space flight, and that in the prime protection here must be
    that the safety be assured. In no way will we want to sacrifice
    any of the safety moves on the shuttle or the shuttle upgrades,
    which I think would be a good way to invest some of this
    efficiency, but neither do we want to take away from our space
    science work in order to do this.
        Senator Mikulski. That is right.
        Dr. Gibbons. So we have to be very careful which Peter we
    rob to pay Paul.
        Senator Mikulski. But you see, I do not want anybody to be
    robbed, because we feel we had a deal and the deal is not there
    any more.
        Dr. Gibbons. That is right.
        Senator Mikulski. So now we are providing, kind of like--I
    do not want this to be like a space savings and loan bailout
    here.
        Dr. Gibbons. That is why I was pleased that the President
    spoke specifically with Mr. Yeltsin about this issue in
    Helsinki.
        Senator Mikulski. I am going to yield back to the chairman
    and we will come back to the National Science Foundation. As
    both the House and the Senate move on their appropriations and
    this particular subcommittee I think we really need to have
    clarity and specificity about where we are going, and what is
    this cost to us for the involvement, and what would be the cost
    if we did not provide this backup.
        But anyway, thank you.
        Dr. Gibbons. Thank you.
        Senator Mikulski. I think you would agree this is a big
    deal.
        Senator Bond. Oh, this is one of many very important things
    we need to cover.

                               STRATEGIC RESEARCH

        Let me move on again and ask Dr. Lane, Senator Mikulski
    several years ago called for the National Science Foundation to
    increase its investment in strategic research, and NSF came
    back to us identifying certain areas of strategic areas of high
    national priority. These included high performance computing
    and communications, biotechnology, global climate change,
    manufacturing materials, civil infrastructure systems, et
    cetera.
        I note that the fiscal year 1998 budget request contains no
    discussion nor funding profiles for these strategic areas, and
    they are not included in the NSF's list of highlights and
    priorities. What happened to them? What were the outcomes of
    the investments in these strategic areas, and what happened to
    all these strategic areas?
        Dr. Lane. Mr. Chairman, Senator Mikulski, NSF is continuing
    to support these strategic areas and, in fact, they are
    incorporated throughout the budget request, even though they
    are not highlighted or pulled together, as you have pointed
    out. They really have become part of our day-to-day activities.
    For the most part they came from the bottom up, out of the
    research interests and capabilities of the community in ways
    that most of the outstanding research disciplines and cross-
    discipline areas do.
        In some cases they were coordinated across many agencies so
    as to take advantage of the fact that other agencies than NSF
    could contribute in one or another of these areas, and it is
    important to make the larger investment greater than the sum of
    the parts. Such areas as global change and high performance
    computing and communications come to mind. We have expanded
    some of our areas, and I will be a little more specific here in
    just 1 second, in what we think are particularly timely
    directions.
        One area that is highlighted in this budget request--it is
    our highest priority for new investment and research--is
    something we call knowledge and distributed intelligence. It
    has a high overlap with high performance computing and
    communications, but what it really does is pull in much of the
    human side and much of what we learned about learning, about
    human learning, about animal learning, machine learning,
    putting it all together to try to move the whole computing
    networking, communication, and other aspects of information
    technology, one whole leap forward.
        It is a very exciting area for us. It has an infrastructure
    aspect to it. It has a large multidisciplinary research
    challenge associated with it, and it is very much highlighted.
    As I pointed out, it does overlap substantially with high
    performance computing and communications.
        We continue to place high emphasis on our other strategic
    areas such as biotechnology, manufacturing, and materials. Just
    to give you an example of some of these areas, they are all--
    the amounts that we continue to track within the Foundation
    cutting across the budget--are all well above what they were at
    the time of my arrival in fiscal year 1993 and our discussions
    in fiscal year 1994. In particular, for 1998 our support for
    environmental and natural resources, including global change,
    goes up by almost $10 million.
        HPCC, a part of knowledge and distributed intelligence,
    goes up by $16 million. There is over a $4-million increase in
    biotechnology, almost $3 million increase in materials, and
    over $20 million in science, math, engineering, and technology
    education.
        So as we talked a couple of years ago, Senator, about the
    evolving nature of strategic areas, you made very clear to me
    in our early discussions and in hearings that one would expect
    these areas to evolve. Some will mature, some will simply
    become a part of the larger program, others will change their
    character to take advantage of new technologies, new
    capabilities of the scientists and engineers, and that is what
    NSF is about.
        We still have in place at the Foundation, a high level
    management committee called the Senior Management Integration
    Group. It exists in order to bring the Assistant Directors of
    the Foundation and the other office heads together to deal on a
    regular basis with all kinds of crosscutting activities in
    research and education, including these areas.
        Senator Bond. Dr. Lane, if you will excuse me, that may be
    a little more about frogs than we want to know.
        Dr. Lane. Oh, I am sorry, sir.

                                  GOAL SETTING

        Senator Bond. The problem that we have, since we have a
    very brief acquaintance with science quite a few years ago, we
    need to be able to understand better what it is you are setting
    out to do, and the progress you are making.
        When you come up with a whole new set of schemes and ideas
    and come forth with a brand new program, they all sound good to
    us, but as we proceed in the budget process we have to have a
    more definable area as to what your focus is going to be, how
    you know whether you are making progress in that area, and so
    we can when challenged on the floor tell our colleagues that
    here are the high priority areas, and this is the progress.
        I know in basic research it may be 20 years before you come
    to a final result, but we had better be able to find some way
    to explain to lay persons, who at least 99 out of the 100 are,
    whether we have made any progress. Are we getting there?
        We are most impressed with and supportive of the scientific
    skills and knowledge you bring, but in the budget process we
    need specific things like an ability to say, well, we are
    getting these results. This, I think, is a problem that we
    face.
        We need to have a common framework of projected goals that
    you can explain to us in simple enough terms that we can
    understand and share with our colleagues, and so next year when
    you come back you can tell us either, (a) we met the
    milestones, we met the guideposts, or (b) we didn't, and here
    is why not.
        I would welcome any comments you might have. How can you
    tell us in concrete, definable terms what it is you are doing?

                        MEASURING THE IMPACT OF RESEARCH

        Dr. Gibbons. I might just add a vignette. I think as you
    understand, and Neal Lane has pointed out, the closer you get
    to the fundamental science the tougher it is to do this thing.
    You can look at the number of Noble Prizes, you can look at
    citation indexes in peer-review journals, you can look even
    farther back at that stream or flow of research into satisfying
    national needs and concerns, and all those look like pretty
    good numbers. The question is, how can one put this in a
    tighter framework?
        There are some areas, for instance in the development of
    supercomputers, in which goals have been set. The teraflop was
    a goal that was established. Just last year it was met and
    exceeded ahead of schedule, if anything, so there are those
    particular areas where one can identify and put down a marker
    and then measure against it in a much clearer way.
        I think there are some interesting markers coming up, for
    instance, that have not yet been defined, but one marker is can
    we continue this extraordinary improvement in semiconductors
    and microelectronics called Moore's Law, which says roughly
    every 3 years you have the cost of the chips, and the question
    is, how long can we continue that before we run into some real
    limits of science, and, therefore, what are the areas of
    science most needing advancement in order to be able to
    continue on that curve?

                                      GPRA

        Senator Bond. Dr. Lane, did you want to comment on that?
        Dr. Lane. Yes, Mr. Chairman. Let me add that we really
    think this is how we should be thinking about the results act
    for the investments that are made in science and engineering by
    the National Science Foundation. We need to be able to identify
    clearly stated objectives that we can agree on which will
    provide a basis to evaluate how well we are doing, and we, in
    fact, are working on that very hard. It is not so easy to do.
        Perhaps it is not easy for anyone to do, but it is
    particularly challenging in the area of fundamental research,
    where quantitative measures are not likely to be very helpful,
    and where even qualitative descriptions might only provide
    guidance over some period of time.
        So for example in our budget, we report examples of major
    advances in one or another field of science, any of which
    overlap. Biotechnology for example, where plant communication
    and response to attack is an interesting area. Our progress on
    unraveling the genome of Arabidopsis, a little mustard plant,
    makes progress here.
        There is much that we could have described about materials
    and manufacturing and many other areas. That is our challenge,
    to try to identify a descriptor that will satisfy your needs
    and our needs to measure our progress.
        Senator Bond. Clearly I do not have the ability--I speak of
    myself--to establish clearly what the milestones and guideposts
    are, but we need to have those from you in ascertainable terms
    because I assume that you do not just throw money out in the
    hope that 20 years later something good is going to come out of
    it. There has got to be some kind of measure, and that has to
    be explainable.
        That may be the toughest thing explaining it to people like
    me, but to continue to support it we have got to have that kind
    of promise, performance, and report on the progress.
        Senator Mikulski.
        Senator Mikulski. Thank you, Mr. Chairman. You have really
    covered my questions on both the strategic initiatives and the
    so-called Government Performance and Results Act, known as
    results act, so I will not go over that ground.
        I just want to affirm that my position is that Government
    is not involved in commercial research, and so I am going to be
    very clear when we talk about strategic research that
    Government really helps by both directing and then leveraging
    in other areas the precompetitive research, the basic
    knowledge, but that we are organized around these strategic
    goals which we know this century demands.

                           YEAR 2000 COMPUTER DILEMMA

        However, I do believe that both the Office of Science and
    Technology and NSF could play a role in solving a juggernaut
    problem that is presenting itself to us, and that is, what
    happens to all the computers in the world when we hit 2000, the
    so-called year 2000?
        I wonder, as part of the science and technology role, and
    then really where so much information technology is developed
    through the NSF and I believe NIST have really been the two
    agencies most responsive, what is the White House role and the
    NSF role in working to come up with a solution that has
    enormous ramifications for not only the public sector but the
    private sector, or should we say do it the American way and
    offer a $1 billion, or a prize to anybody in America that comes
    up with it?
        Dr. Gibbons. That is the best idea I have heard in a long
    time on that issue, Senator, the one you just mentioned. I
    would like to respond to that, but may I do just a postscript
    on this assessing outcomes of research, because I think it is
    really important.
        There are two things I should have mentioned to you. First
    is that the National Science and Technology Council, with OSTP
    and Neal Lane's direct involvement, completed a study last year
    called Assessing Fundamental Science. We are now using that
    report with the agencies in their preparation for the GPRA, so
    we hope we are sharing wisdom across the agencies.
        The second point I should have mentioned is that at the end
    of each of the chapters in our biannual report on science and
    technology is a discussion of the accomplishments over the
    previous 2 years, so it gives at least a benchmark for that
    progress.
        Now, with respect to the year 2000 issue, which is what
    happens when you get the double zeros and the computers do not
    know what to do about it, there is going to be no magic bullet,
    but it was a uniformly missed concern in programmers throughout
    the years in thousands of different programs about how to
    handle the double zero. Each program has to be reviewed
    technically, so across Government as well as the private sector
    there is a sharing of experience.

                ROLE WHITE HOUSE HAS IN SOLVING YEAR 2000 ISSUE

        Senator Mikulski. Are you all taking the lead? In other
    words, who is taking the lead?
        Dr. Gibbons. Well, the lead within the White House I
    believe is both the National Economic Council and OMB because
    it is more a business and programming issue than it is a
    science issue.
        Honestly, it is not a science issue. It is an issue of
    having not thought very well in advance about these programs as
    we get to the millennium.
        Senator Mikulski. Where is the solution going to come from?
        Dr. Gibbons. The solution is going to come--Neal may have a
    special one for you, but I would say the solution is going to
    come from a number of innovative approaches to fixing these
    programs and records so that there will be minimum problems as
    we cross the millennium. It is happening all over the world. It
    is not just a U.S. issue.
        Dr. Lane. Excuse me. May I add a comment, Senator?
        Senator Mikulski. Yes.

                                YEAR 2000 ISSUES

        Dr. Lane. There are millions of lines of computer code all
    around in businesses and governments, and somewhere buried in
    there is a statement that deals with this issue of how to
    handle the flipover, and it has not been dealt with in much of
    that code. There really is no magic way to get into all of
    that. We are focusing with OMB in making sure that our agency
    does not have any problems, and I am assured by my Chief
    Information Officer that we are on schedule with that, but it
    really is not a research problem. It is not an area where the
    National Science Foundation or other Federal agencies can
    somehow support research that will take care of it.
        All of us who deal with computers are just going to have to
    find these problems before the time happens.
        Senator Mikulski. I find these answers dismaying,
    gentlemen. Everywhere I go in my own State and even outside,
    talking with people, this is one of the No. 1 issues facing
    business, Government, academic centers, et cetera, what is
    going to happen with this so-called flipover, as you said, that
    could throw us into chaos, and there is enormous concern from
    the private sector about this.
        I can go on where the concerns are, and just as there has
    been a missing of the problem, there seems to be a missing of
    the solution, and I am somewhat surprised--I do not know if my
    colleague shares it--that there is not a one-stop shop within
    our own Government that wants to take the leadership in helping
    deal with this issue, and it might not be research, but I do
    not know, then, what it is.
        To say it is a business problem, it has horrendous
    implications for national defense, our encryption, our
    banking--it goes on. I could name so many different sectors,
    and frankly, I think this is where the United States should be
    playing a role in global leadership and global cooperation.
        I know it is a global problem because computers are global,
    but if we are going to have all these, let us wire schools, and
    let us do Kid Net, College Net and so on, unless we deal with
    the year 2000 issue we are truly going to be in a global
    meltdown.
        Dr. Gibbons. Senator, I agree with your statement of the
    importance and the pervasiveness of this problem. The
    frustration is, as Dr. Lane points out, it is buried in some,
    however, mundane computer line codes down in all of these
    various programs. Each agency--for instance, the Department of
    Defense, Social Security----
        Senator Mikulski. Are you telling me each agency is going
    to have to solve its own problem, that each business is going
    to have to solve its own problem?
        Dr. Gibbons. They are going to have to solve their own
    problems, but hopefully we will be able to share, and this is
    where I would like to pick up on your comment, share on each
    other's experience, and I promise you that when I get back to
    my office this afternoon I will look into the extent to which
    appropriate sharing of innovative ideas or progress is being
    made.
        I have not focused on this recently, but you have gotten my
    attention for sure.

                               YEAR 2000 FLIPOVER

        Dr. Lane. I am aware that OMB has thought through the
    phases of activity, advising all of the agencies to go through
    this process, and they are scheduled for that, and we are on
    that schedule. I am sorry that I do not have those things with
    me today, but OMB is at least playing a very important role
    here.
        Senator Mikulski. What role do you play?
        Dr. Lane. Our role is to ensure that we follow those
    guidelines and make our whole system work.
        Senator Mikulski. Are you helping to write the guidelines?
    In your testimony, Dr. Lane, you talk about how you are one of
    the premier agencies in funding information technology
    knowledge and sharing your networking and micro this and
    parallel that, and I am not minimizing this. I do not want this
    to be a cranky hearing, but if you aren't, then what the agency
    is, are you in the room? Are you helping them solve the
    problems? Is there a sense of urgency? Is there a collaboration
    here, or is it OMB?
        I know--you know, I really do not feel comfortable with OMB
    being the lead agency. They are management and budget of this,
    and given the way every single agency in the Federal Government
    that even buys information technology squanders its resources,
    we have no leadership advising the agency on what they should
    even buy now.

                   NEED FOR BETTER COMMUNICATION/COORDINATION

        We could go to IRS, we could go through every--the veterans
    and what they buy, et cetera. So do we need a White House Chief
    Information Officer that does all that and tells these agencies
    what to do? That is another topic.
        But now, there is one issue that the world knows that it
    will face, that there will come a year 2000, and all of the
    computers in the world are going to have a problem, every
    single computer in the world is going to have a problem, and
    all dependent on it are going to have a problem. Well, maybe
    not every single--I mean, you are shaking your head.
        You know, I am a generalist here. I am on five
    Appropriations Committees. I am on two other committees. We
    work on FDA reform. We really rely on you.
        But I am really relying on the United States of America to
    have (1) a sense of urgency, (2) a one-stop shop that we are
    coordinating this, that this is not a management issue, it is a
    serious technology issue, and the guidance that we can offer
    the world and that we can gain from other thinkers in the world
    I think is absolutely crucial, and obviously the sense of
    urgency I feel from the private sector and other local and
    State government agencies is not what is felt.
        Do you share this view or not?
        Senator Bond. Senator Mikulski, when we talk about computer
    technology my lack of knowledge is infinite, and as one who
    still relies on a Rolodex----
        Senator Mikulski. And under Moore's law, that will multiply
    manyfold.
        Senator Bond. Well, I carry these things around, so really
    my own personal life is not going to be much more difficult if
    I get to 2000, because I will just get a brandnew card with the
    knowledge on it, but from my very limited understanding----
        Senator Mikulski. But it is going to say 1900.
        Senator Bond. Not mine. Not mine. [Laughter.]

                           YEAR 2000 FLIPOVER ISSUES

        Let me ask you two gentlemen to collaborate and do one
    thing for the ranking member and me. It seemed to me--this is a
    humongous problem that is going to afflict everybody who uses
    computers, generations younger than me and those who are into
    the computer age.
        It would seem to me that this is a problem in applied
    technology and programming that is not rocket science but it is
    very complicated real time technological unscrambling of
    something that has been scrambled.
        There may be some high-level scientific input that is
    appropriate, but it seems to me that there may be a technology
    body or a technology focus that would be the appropriate one to
    coordinate the efforts, that it may be a different level of
    science, and rather than continuing it, if you would all just
    send us a very brief memo, two pages, who is going to do it and
    what you see as the resources and needs on it. We would like to
    have something.
        [The information follows:]

                          Year 2000 Computer Concerns
        There appears to be no generic solution to the Year 2000 problem.
    The reason is to be found in the economics of and practices used in the
    early days of widespread computer use.
        In order to save on what was then very expensive memory (which in
    the mid sixties cost about $1/byte, compared to the present cost of
    roughly $0.000005/byte, which equals $5/megabyte), many business and
    other systems coded the year as two bytes or in some cases at two
    digits in one byte. This served immediate purposes well and at an
    acceptable cost. The standard procedure for determining which year is
    earlier consists of subtracting the old year from the new and testing
    to see if the result is positive. Once again, to speed up the operation
    on relatively slow computers or to save memory, many codes did this
    ``in line'', i. e. the instructions were imbedded in the instruction
    stream to be used whenever needed. Such calculations could occur dozens
    of times in a business system.
        An additional problem arises because of how many ``legacy systems''
    were programmed. In the 1960's and 1970's many applications were coded
    in assembly language, specific to a given processor type. The primary
    reason for this was to obtain maximum performance on slow systems.
    Difficulties in addressing problems arise because this kind of code is
    difficult to interpret or read. Further, in many cases, the processors
    in question no longer exist, although the code is still running by
    emulating old processors on new ones. Moreover, many organizations did
    not put into place adequate means for maintaining software.
        This complexity and diversity is what stands in the way of a
    broadly applicable procedure for resolving the Year 2000 problem. The
    result is that in legacy systems many of the problem sections
    associated with the date comparison must be found by hand in a
    laborious fashion and the results tested as comprehensively as
    possible. Such actions will, in the case of more modern software,
    especially that produced by third parties and widely used on standard
    architectures, be easier to fix.

                                 GENOME STUDIES

        Senator Bond. But let me move from these wonderful broad
    generalities down to the specific. I mentioned the corn genome
    project. We have had tremendous growth in technology in
    agriculture, more food, healthier food, less expensive, more
    nutritious, and we are going to continue to need to do that
    with more people on less land.
        One hundred years ago, 60 percent of our population was
    engaged in providing food. Now, maybe 2 to 3 percent is. An
    acre that produced food for one person in 1960 now produces
    food for two and one-half today, and biotechnology, plant
    genetics and specifically, I believe, carrying the work from
    the mustard plant on to the corn plant is going to be one of
    the significant steps that we take that will benefit all of
    agriculture.
        We know that Japan is deeply involved in mapping the rice
    genome, and rice may be appropriate for them, but when they get
    the mapping done on the rice genome they are going to be in a
    very significant competitive position to expand that into other
    grains, and it seems to me that No. 1, I know there are a
    number of groups in the private sector, there are a number of
    disparate efforts underway on this project.
        I would like to have your honest opinion, and if you think
    I am wrong, please tell me. I promise no retaliation. I just
    want to know, is this from a scientific standpoint as
    significant an effort as I believe it is? If so, what role
    should the NSF and Government science play in this?
        If it is important, what is the best way to organize it and
    manage it so that all of the different efforts are brought
    together in a consistent and productive and complementary
    fashion?
        Let me start with Dr. Gibbons and go to Dr. Lane.
        Dr. Gibbons. Mr. Chairman, I applaud your interest in this.
    The whole food genome is now, in the current decade, ripe for
    major advances in understanding, and I think we have a lot of
    lessons to learn from the human genome project, which is
    working very well. It is achieving its goals. It is reducing
    dramatically the cost of sequencing and the like, so other
    things become less costly than they would have been.
        At the same time, in approaching corn, which presently is
    mostly the subject of research at USDA--I think they are doing
    the majority of the work at this point--corn has to be taken in
    the context of the other grasses, because you might learn
    faster and cheaper about corn by working on some of the grass.
    We are not quite sure.
        So I would suggest that we push ahead on this notion of the
    food genome program, which would inherently be best done as a
    multiagency activity. Presumably USDA leads, but we know that
    NSF, USDA, Department of Energy, all are, and obviously the
    health agencies, are all pretty well working together now, and
    if we could focus this and take the best of the capabilities of
    each of these agencies in a food genome program, that would be
    the best way to get there.
        I do not think we can do it, as I think you intimate, with
    existing funds. It will probably take some additional
    commitment of funding to do this.
        Senator Bond. Dr. Lane.
        Dr. Lane. Mr. Chairman, I also commend your interest in
    this area. Undoubtedly, understanding the genomes of plants is
    going to continue to be very important for agriculture.

                           ARABIDOPSIS GENOME PROJECT

        Let me say a word about why we have focused on the mustard
    plant, arabidopsis. There are very good reasons for it. First
    of all, how are we doing it? It is an international project.
    There is an international steering committee that we are
    involved with in countries in the European Union, United
    Kingdom, France, and in Asia, Japan, working together on this.
        Why did we choose this mustard plant? Well, one of the
    unique things about this plant is that its genome is the
    smallest, as far as we know, of any flowering plant. So, if we
    can sequence the genes in this plant we can gain the tools and
    the understanding that will then enable us to do things with
    other plants, to transfer properties, and in time to realize
    the benefits over a larger class of important food plants and
    other plants that benefit people.
        How much simpler? Well, the genome size is 100 million base
    pairs. For corn and for humans the number is approximately 3
    billion base pairs, so corn, while I think corn is terrific,
    and it does not look a lot like a human, on the other hand it
    has got this extraordinarily complex genome.
        So our approach is to understand a plant that replicates
    itself very fast and that flowers rapidly. It is not of any
    commercial value, so an international partnership is very easy
    to form. Nobody is worried about intellectual property on the
    mustard plant, and the partnership has worked extremely well.
        The tools we get from that plant are going to help us in
    many, many ways in trying to understand the genomes of corn and
    wheat and barley and rice, and I agree with Dr. Gibbons that
    the way to get at some of these others is through many
    agencies' involvement and perhaps international activities,
    where we can forge those partnerships.
        We think that our investment is the right way for NSF now.
    It is an active partnership that ought to deliver the full
    genome for arabidopsis around the year 2002. We are requesting
    about $3 million in 1998 to continue this work. It is being
    carried out by a couple of consortia, one of which involves
    Washington University in St. Louis, and one organization doing
    this work is the Institute for Genomic Research in Maryland.
        Senator Bond. Those are very well chosen examples.
    [Laughter.]
        Nice target on the examples. [Laughter.]
        Dr. Lane. It really turns out that there are two consortia
    and two institutions. One of the consortia involves Missouri,
    and one of the institutions is in Maryland, so I just think it
    shows there is wisdom in those States at least. [Laughter.]
        Senator Bond. I am always struck by your farsightedness and
    your intuitive sense of what is important. [Laughter.]

                       FUNDING FOR AGRICULTURAL RESEARCH

        As we speak, the Under Secretary for Research Education is
    testifying before the Agricultural Appropriations Committee,
    and I intend to submit a question over there asking whether
    funding should be included in the fund for rural America
    instead of excluding it, but there are a couple of points I
    guess I ought to make.
        We talked abut the USDA, and I have supported much USDA
    research, but applied practical research on things like dealing
    with soybean nematodes, some practical applications, and the
    Food & Agricultural Policy Research Institute does economic
    research. The fescue problems in feeding cattle are really the
    strong point of research in the USDA.
        But we know that there is currently research going on in
    this area, and what I am concerned about is that there is
    significant resources being put in piecemeal. There are
    uncoordinated, underfunded, proprietary limits. There is some
    redundancy. It is unfocused.
        Now, I recognize and I strongly support that private
    funding should be utilized extensively to the greatest extent
    possible, but there ought to be some way through your agency or
    agencies that progress, or the paths could be coordinated so
    that at least someone would have an idea of where progress is
    being made.

                          POTENTIAL CORN GENOME STUDY

        The reason that we focus on corn, and I recognize that it
    is a second step, or something like it is a second step after
    the mustard plant, is that it is our highest value crop. It is
    our most exported crop. Scientists say that of the cereal crops
    it makes the most scientific sense to begin with corn. That is
    what the experts have told us, that you ought to begin with
    corn because you can move from there.
        They have told me that doing corn would yield the most
    information on other cereals, and the industry itself is coming
    forward with a business plan and they are willing to bring in
    resources and organize major funding for it, but if it is more
    appropriate to begin a 5-year plan to map the genomes of other
    cereals, if that makes more scientific sense, please let us
    know.

                        REQUEST FOR INTERAGENCY MEETING

        I would ask--maybe Dr. Gibbons you would be the appropriate
    one--if you and your staff could arrange an interagency meeting
    with the appropriate agencies and departments, including NSF
    and Energy and Agriculture and NIH, to lay out not only for us
    but for all those who are interested in what an appropriate
    strategy would be.
        Scientifically, how can we make the most progress where
    there will be benefits to agriculture and to all of us who
    enjoy the benefits of agriculture--i.e., we eat--in this area,
    the mapping of the genome, whether it is corn or whether it is
    all cereals, and give us a game plan that we can understand and
    that the private sector can relate to, provide input to, and
    provide assistance and research.
        Is this something that would be appropriate for you or for
    the NSF?
        Dr. Gibbons. Absolutely. I would be pleased to put together
    an interagency working group on this, Senator, and get as early
    as possible feedback to you on an interim basis of what we
    would suggest as the most appropriate and efficient way of
    going about this as a Federal family, also keeping in mind that
    we should look for partnerships with the private sector and
    perhaps the States on this as well.
        Senator Bond. Well, clearly there will be just for one
    example the University of Missouri has a very well recognized
    program, Food for the 21st century, which has brought together
    tremendous scientists with plant biotechnology skills and the
    universities and the State government has supported it very
    strongly.
        I think that there are resources out there. You are the
    ones to take the lead in identifying how to use those
    resources.
        Dr. Lane, a comment on that?
        Dr. Lane. Mr. Chairman, I do not know what the right thing
    to do here is. I think the outcome is very important. It may
    well be that we need to understand the series of grasses
    better. After we go from the mustard plant, then it might be
    that an intermediate step before going to a genome as
    complicated as corn is the proper strategy, but I am not sure.
        I think we certainly look forward to participating with
    other agencies in this discussion and getting the best advice
    of the scientists in the country, and then there is excellent
    fundamental research to be done here, and NSF would expect to
    be part of it.

                            FUTURE OF GENOME STUDIES

        Senator Bond. Could you give me an idea--it is going to be
    done by somebody somewhere. A cereal is going to be--the genome
    is going to be mapped. What are the benefits? What will happen?
    What do you see as the likely area of benefits when the job is
    done for something more complicated than the mustard plant,
    whether it be the rice genome in Japan, or a cereal genome
    here? What is likely to come from it?
        Dr. Gibbons. Well, it is very hazardous to make guesses on
    areas like this, but I am getting old enough to not be worried
    that much about it, so let me make a few guesses.
        Senator Bond. Good. Good. Nobody will hold it against you
    if you miss this one.
        Dr. Gibbons. Corn probably has at least one-half as many
    genes in it as people do. It is a very complicated plant, but
    those genes do various things. They turn on and off things.
    They make various proteins that cause various things to happen,
    and if we could learn the structure of corn we can figure out
    from other research how we might be able to insert, for
    instance, the capability of corn--and these are going to be
    wild guesses, Senator, but sometimes it helps. How to insert a
    gene that would enable the corn to be even better in terms of
    its protein production. You know, corn is typically lysine
    short and maybe you could figure out how to get lysine in the
    corn.
        The second thing is how to maybe make corn perennial. There
    are primitive corn plants in Mexico that are perennial, and
    that would change very much the situation with respect to corn
    growing. It is a long shot, but that is a question.
        Another question could be corn that would attract microbes
    to its roots and enable it to fix nitrogen, like our legumes
    do.
        Senator Bond. Clover and legumes.
        Dr. Gibbons. These are wild stabs, but those are the sort
    of things one would look for after we come to understand the
    structure of the corn genes, their functions, and how one might
    be able to manipulate by bringing in certain special functions
    into the corn genome.
        Senator Bond. One of the items suggested to me was by
    making corn more digestible you would make it a more efficient
    feed for cattle and eliminate the environmental problems which
    always draw laughs on the floor of the Senate when discussed as
    being a significant environmental problem as a result of the
    indigestibility of corn that is fed to many of the herds.
        Dr. Lane, any thoughts that you would like to offer on the
    higher noble uses of the corn genome?
        Dr. Lane. Well, Mr. Chairman, I think the examples that Dr.
    Gibbons gave are excellent ones, and we will want to check back
    down the road to see how well he did.
        Dr. Gibbons. Uh-oh.
        Dr. Lane. I think an obvious thing that we are interested
    in, in the cases of all valuable and useful plants, is disease-
    resistance, and we want to be able to make these plants
    disease-resistant in a way that has the least damaging
    environmental impact to the plant itself, other plants around,
    people, animals and so on, so it is a clear area in which I
    think researchers will be looking.
        I like chocolate a lot. I do not know if there is any way
    to change that substance.
        Senator Bond. If you could make it less fattening, I am
    with you on that one. We will have a special set-aside if you
    find a solution to that one. [Laughter.]
        I do not want to get into your business, but if you give me
    a promising area there we will steal money from some place to
    make that happen, to make that nonnutritive but delectable.

                          EXAMINATION OF GOAL SETTINGS

        Let me just ask, let me go back to my questions about what
    we are doing, and how we are going to get there. There are two
    things you have talked about, knowledge and distributed
    intelligence, and life and Earth's environment. Would you try
    to explain to me briefly what you are doing in each of those
    initiatives, why you chose them, and precisely what mile
    markers, guideposts you will set out for us to tell us whether
    you have been successful in the progress that you propose or
    expect in these two areas?
        Dr. Lane. Mr. Chairman, if I could just make a comment, I
    would like my colleague, Dr. Joe Bordogna, who is Deputy
    Director of the Foundation, to add his comments. He chairs the
    senior staff group that, in fact, developed the programs in
    these interdisciplinary areas, and I would like to get his
    comment on those.
        There are two things about them. First, the research that
    falls within the interdisciplinary areas really does arise out
    of the community. It comes from what scientists are interested
    in and what they can do, and the advances that they have made
    in recent years.
        What they have begun to see is a commonality of interests
    across all fields of science in information, science and
    technology, and we are going to build on that because we see
    real benefits not only for the science itself but benefits of a
    more practical nature. Education clearly relates to these
    advanced technologies that are coming out of KDI.
        The second thing I would say in terms of the objectives and
    matrices that we will use is, we are working on those. Those
    will be a part for the long range of our strategic plan that is
    due to OMB this fall. The particular objectives for the fiscal
    year 1999 will be a part of the submission of the 1999 budget,
    as required by the act, so it is a work in progress, and we
    will give you as much information on how that is going as we
    can.
        Senator Bond. Do not bury me with information. Just give me
    something that is clearly understandable, because if I have to
    defend it on the floor I am not going to be able to give a \1/
    2\-hour speech. I need to have just a simplified explanation of
    what it is all about, why it is important, and how we know we
    are getting there.
        Dr. Lane. Let me ask Dr. Bordogna to start.
        Senator Bond. That is very simple, and you have 90 seconds
    on each one. [Laughter.]

                     KNOWLEDGE AND DISTRIBUTED INTELLIGENCE

        Mr. Bordogna. We are not wedded to this term, knowledge and
    distributed intelligence. It is the moniker at the moment,
    because this is something at the edge of the knowledge base,
    but there are two pieces to it.
        Distributed intelligence is a term we use because we can
    now, more and more of us individually, access knowledge from
    any place, any time, anywhere. That is a strength the United
    States has. We would like to enable more people to be able to
    access it, and when they access this information it is more
    facile to get it.
        It is very complicated to interface with a machine now, or
    a keyboard. Wiring the school is good, but once you have the
    interface with the students, how can they access this
    information and learn from it better?
        The knowledge part means, can we create a whole new
    knowledge base for doing things differently? For example, in
    the strategic area of manufacturing, we have done a lot of
    things there the last several years to move that strategic area
    ahead. Five of the last six engineering research centers in the
    last couple of years deal with manufacturing.
        One of the key issues there is using information to make
    manufacturing less expensive to do, be more competitive in
    world markets. Can we, for example, take this Moore's Law that
    was talked about--yes, we can get more in a small space. That
    creates a new problem of packaging things better, and that
    needs a knowledge base for doing that.
        Manufacturing is done in many places from anywhere at any
    time, and having a broadbased infrastructure that is
    intelligent as well as having the Internet can be helpful for
    that.
        Another piece of this is what we call learning and
    intelligence systems. The idea there simply is, can we augment
    a capacity for each of us, at any level in life, not just
    professionals but everybody, to learn and create more
    efficiently? Can we work smarter in this? This is a key basis
    of distributed intelligence, increasing the knowledge base of
    everyone to do things better, including craftsman, carpenters,
    plumbers, and well as professional people.
        On the high end, we will do our research differently and
    more efficiently. We will share resources around the country.
        One of the problems we have in equipment now is that the
    equipment need to push back the frontiers of knowledge is
    increasingly expensive. You cannot have it repeated in many
    universities. We have to share this infrastructure equipment.
    Having a knowledge and distributed intelligence infrastructure
    will enable us and enable our clients, in a sense, the people
    we support, to share instrumentation, to be able to do their
    research better.
        A nice neat aspect of this is with regard to the EPSCoR
    effort. Many States and universities cannot afford the
    equipment needed, but with this kind of system they are going
    to be able to access it everywhere.
        We have a cute term called collaboratories, collaborative
    laboratories, collaborative meaning working together.
        All of this is coming together. We are trying to integrate
    all of that to lift the knowledge base to a level where people
    can work smarter, and a greater range of people can work
    smarter. We can also change, perhaps, the paradigm of
    education.
        One bottom line here is that life and society as we have
    known it so far is essentially entity-based, companies,
    schools, and so on. All of this is enabling this whole effort
    to be human-center based, where the individual is empowered
    better.
        So knowledge and distributed intelligence, in summary, is
    the ability to get knowledge anywhere, any place, at any time.
    The knowledge part lifts the knowledge level of everyone, and
    lets us work smarter. It provides a certain competitive
    advantage against the rest of the world, and it also enables
    progress in all the strategic areas that were listed in the
    last several years. It is going to help us move ahead.

                               SUCCESS INDICATORS

        Senator Bond. I agree that is noble. It is very important.
    Next year at this time how will we know if you have made
    progress in that area? How will we make sure that you have not
    just blown the money?
        Dr. Bordogna. Well, I will give you some examples. That is
    the best way to do it. Let us take manufacturing. Some
    strategic areas have been brought up. Let me relate it to that.
        Right now, the interagency effort in manufacturing, which
    is still extant, is into a new way of looking at manufacturing,
    and that is, now that we have distributed intelligence, now
    that we have a high-speed network, now that we can enable even
    small manufacturers to get access to the best ways of doing
    things, we can measure next year, whether new engineering
    research centers arise, for example, because of this effort.
        Five of the latest engineering research centers arose
    because of the strategic effort in manufacturing. We did not
    spend extra money. We reoriented the investment in engineering
    research programs to these new issues.
        Another example would be if we were able to take the wiring
    of the schools, for example, and we could see that students are
    learning better, that their scores are increasing, for example.
    These are measures of how to ensure that this infrastructure
    base is really moving us ahead.

                          LIFE AND EARTH'S ENVIRONMENT

        Senator Bond. All right. I would be interested to see, and
    I would ask you to submit for the record what you think these
    markers would be, and then suggest that next year we get a
    report on which of the markers have been achieved, or whatever
    markers there may be.
        Life and Earth's environment, just a quick synopsis of
    that. Not that it is not rather broad.
        Dr. Bordogna. We are trying to do two things here. One of
    the things that has happened over the past few years is that a
    lot of new knowledge has been created on how life is formed,
    where do we come from, and many, many venues of research. That
    is an important issue. We are at the cusp of learning a lot
    very, very fast.
        The environment is an issue. The environment is a concern
    because we have to live in it, and so on, so life in the
    environment on the Earth is an important issue for NSF, and we
    are trying to couple these two things.
        From an environmental point of view, we have really two
    issues there. One is to ensure that the environment is
    sustainable as we know it, that we can somehow get into a
    system of producing wealth while not impacting the environment
    obviously. We also want to be able make wealth out of that
    activity, however, so one of the issues we have a very serious
    interest in at NSF is how to avoid harm to the environment in
    the first place.
        It is a very technologically based kind of thing. Can we
    apply technologies to the processes that we use in life to
    create wealth and lift our standard of living, while at the
    same time creating businesses out of that so that it can be
    wealth created out of the idea of working with the environment.
        The bottom line here is that we are trying to connect the
    issues of where life has come from, understanding that well,
    with all of the ramifications that means for our progress and
    health and so on, with sustaining the environment so that we
    have a livable society.
        [The information follows:]

     NSF Initiatives in Knowledge and Distributed Intelligence (KDI) and
                       Life and Earth's Environment (LEE)

        NSF's initiative in Knowledge and Distributed Intelligence (KDI)
    addresses the question of ``what's next for the computer-communications
    revolution?'' We have already seen advanced information technologies
    transform how research is conducted. We have glimpsed how they can
    dramatically improve teaching and learning in schools and classrooms at
    all levels of education. We have seen the Internet grow into a
    veritable global village. We have even seen a supercomputer crowned
    champion of chess.
        In fiscal year 1998, NSF plans to initiate its targeted KDI
    program. We will issue focused program solicitations in specific areas
    of research, based on workshops currently being held. In the first year
    of this program, NSF will support scientists and engineers, selected
    through the merit review process, to begin working in focused,
    multidisciplinary areas, on problems such as those described below.
    Through this first KDI competition, we will gain a better sense of the
    range and type of questions that researchers consider most pressing,
    while enabling researchers to begin working on those problems.
        After the first year of KDI, we should be able to show that NSF has
    indeed funded important research projects in this area. We should be
    able to describe, both generally and in detail, what those projects
    are, what they are setting out to accomplish, and what the priorities
    for research within KDI are. Through review of the merit review
    process, we should be able to show that the projects selected for
    funding are competitive and of very high quality. We will also be able
    to demonstrate the outputs of NSF's processes--numbers of proposals
    received, awards made and people involved, and lessons learned from the
    merit review process for the initial KDI competition. We will, however,
    not yet be able to identify what scientific or technical results have
    been achieved or even much about the training and educational results.
        In subsequent years, NSF should be able to show the accumulated
    research results from these awards, and link these to NSF's outcome
    goals. The initial awards made in fiscal year 1998 will be generating a
    stream of outputs and outcomes. Indeed, we are currently developing a
    new Web-based project reporting system that should allow us to collect
    much better information on direct outputs from awards. Even then,
    however, many of the truly important ``outcomes'' of KDI--the knowledge
    gained, the training of scientists and engineers, and the education of
    students--may still be years off.
        The challenge for KDI is to develop new ways to manage and make
    productive use of the flood of information released by these emerging
    technologies. To address this challenge, we need first to create new
    ways of collecting, transforming, representing, sharing and using
    information. We need to develop ways of modeling complex systems,
    managing vast amounts of data, and merging data and models. We need to
    effectively harness these new technologies to improve education. In
    short, we need to mobilize them for the benefit of society.
        NSF's KDI initiative will lay the scientific and technical base for
    these next steps. It will address a wide range of highly complex issues
    such as:
      --New technologies such as satellite and airborne sensors, and
            automated or remotely-operated sampling stations are generating
            an explosion of geospacial information. Integration of this
            data is necessary to proceed with multidisciplinary research on
            problems such as environmental phenomena (e.g. the Ozone Hole),
            and using real-time data to understand and predict storms.
      --Taxonomists are building a Web-linked network to share databases,
            and to analyze and identify specimens. A major challenge they
            face is managing and coordinating the amount and complexity of
            information. However, the availability of quick and accurate
            taxonomic identification would be valuable for uses ranging
            from agricultural extension agents encountering a new weed, to
            customs officials interdicting imports of new biological
            materials, to geologists searching marine cores for fossils
            indicative of petroleum deposits.
      --Systems as dissimilar as an economic market, the brain, and large
            computer networks have this in common: information is widely
            distributed throughout the system, and no identifiable entity
            coordinates the information or makes decisions. Yet, this
            information is somehow coordinated and focused into sensible
            outcomes. Researchers in disciplines ranging from economics to
            neuroscience to mathematics and computer science currently
            study these types of systems separately. Collaboration may
            reveal similarities in how these systems function, and hence
            how to improve system performance.
      --Most simulations of complex phenomena generate vast volumes of
            numeric data. Whether these simulations address natural
            processes--the collapse of a star, global weather patterns,
            groundwater flow, or the function of the nervous system--or
            engineering or social processes--the management of electrical
            power networks, fluid flow around an airplane, or the behavior
            of financial markets--the phenomena are too complicated to be
            understood either by simple observation or by reduction to
            isolated components. The only hope of extracting useful
            information from those volumes of data depends on visualization
            techniques that are beyond current capabilities.
        NSF's initiative in Life and Earth's Environment (LEE) seeks to
    increase understanding of the mutual interdependence among Earth's
    lifeforms and the environments that affect and sustain them. LEE builds
    on the exciting new discoveries regarding how lifeforms originate and
    flourish in a diverse range of environments. These discoveries have
    challenged traditional conceptions of the origins and conditions for
    life. LEE also focuses on the interactions between lifeforms and the
    environments they inhabit, ranging from desolate parts of the world
    where few lifeforms survive to urban complexes dominated by human
    activity to tropical forests where flora and fauna abound.
        NSF initiated its targeted LEE program in fiscal year 1997 by
    enhancing existing programs in areas such as global change, natural
    hazard reduction, and the NSF-EPA Environmental Partnership. Fiscal
    year 1997 also saw the conduct of a special competition focusing on
    Life in Extreme Environments (LExEn). During fiscal year 1998, NSF
    plans to continue these efforts and to expand its coordination
    activities. A set of workshops and studies will be held to stimulate
    identification of new lines of inquiry, and special competitions
    focused on urban environments will be held. NSF also will encourage the
    development of new educational approaches that will initially focus on
    life and Earth's environment but that ultimately will be useful in
    improving science and engineering knowledge for people at all levels
    across a broad range of topics.
        Looking beyond fiscal year 1998, NSF will encourage increased
    interdisciplinary work to address a set of integrating themes
    associated with Life and Earth's Environment. Through the merit review
    process, NSF will identify those projects for which potential
    contributions in expanding and disseminating knowledge are especially
    great. As with KDI, we will be ale to demonstrate the output of NSF's
    merit review process, but it will take a decade or longer for the
    ultimate outputs and outcomes of NSF's investments to become clear. The
    new Web-based project reporting system that NSF will be implementing
    during fiscal year 1998 will provide improved means for identifying
    both short- and longer-term products and contributions of LEE research
    and educational projects.
        An expanded emphasis on support for research and education dealing
    with life and Earth's environment will enable us to build on the
    exciting new perspectives provided by recent discoveries; enhanced
    capabilities for making observations, conducting analyses, and making
    predictions; and growing awareness among the scientific communities and
    the general public regarding the potential value of increased knowledge
    about life and Earth's environment.
        Increased understanding about life processes and the interactions
    among lifeforms and other facets of their environments gained through
    LEE could address issues which affect all Americans. For instance,
    citizens would be better able to assess how changing environmental
    conditions may affect their health and well-being. Industrial firms
    could have a sounder basis for developing and implementing productions
    techniques that will stimulate economic growth while improving
    environmental quality. Local governments would be better prepared to
    deal with hazards associated with adverse environmental conditions,
    while state and federal agency officials would be able to evaluate how
    to deal with environmental change.
        Examples of LEE research activities follow:
      --New research shows that millions of years ago, fish in the
            Antarctic and in the Arctic independently evolved nearly
            identical antifreeze glycoproteins that kept them from freezing
            in frigid oceans, which in turn allowed them to exploit new
            ecological niches. For the first time the genetic process by
            which a novel protein evolved to enable this adaptation has
            been traced. This knowledge will provide the basis to
            understand how life originated and evolved on Earth as well as
            how life has managed to thrive in unexpected environments.
      --One of the biggest challenges facing scientists and engineers
            involved in environmental research is understanding the highly
            interrelated physical, chemical and biological feedback loops
            commonly present in the Earth's natural systems. NSF addresses
            this challenge by supporting studies on a variety of
            environments of interest including soils, ground waters,
            surface waters, coastal marine and estuarine areas, and
            portions of the troposphere in contact with these environments.
            Methods from molecular biology and high resolution surface
            microscopy are combining to revolutionize understanding of many
            geological processes in these environments. For example,
            microorganisms have been found to interact with minerals, such
            as pyrite, causing them to dissolve. Previously, weathering was
            understood as an inorganic process, but that is now known to be
            inadequate. The role of microorganisms is critical since it
            often controls the first step in the dissolution process.
            Because the constituents of soils and sediments depend on
            mineral weathering, fundamental knowledge of these complex
            chemical reactions is basic to understanding environments both
            natural and man-made, and may have longer-term impacts on our
            understanding of processes such as the weathering of man-made
            infrastructure.
      --Global change research focuses on interactions among different
            components of the integrated Earth system. NSF-supported global
            change research has been instrumental in observing ocean
            circulation patterns and in advancing understanding of the
            ocean-atmosphere interactions that have permitted major
            improvements in capabilities for predicting the onset of major
            seasonal events like El Nino nearly a year in advance. This
            prediction enables affected communities to adapt and to
            minimize the destructive impacts of El Nino. Other global
            change programs have supported research that improves
            understanding of the ways that ecological systems respond to
            changes in climate and to the impacts of climate variability
            and change on human activities at local and regional scales.

                           EVALUATION AND PERFORMANCE

        Senator Bond. And you will be able to give us some markers
    on progress and we will be able to measure in future years your
    progress toward those goals, those two areas?
        Dr. Lane. Yes; Mr. Chairman, but let me be very clear about
    this kind of research activity, that the way we evaluate what
    we found and set our priorities is by using expert opinion of
    scientists and engineers. That is the merit review process that
    we use now and have used for years. That is also how we will
    have to evaluate ultimate outcomes of these investments. It is
    the field advancing? Are we world class in one or another area?
        So we have to write these objectives, and we have to
    present for you these markers or metrics in such a way that it
    satisfies both the needs, that it is going to be a genuine
    measurement of quality at the same time.
        Senator Bond. Maybe we ought to ask you to have a peer-
    review group look at from the outside NSF who is not dependent
    upon you for the funding, evaluate the markers and the
    guideposts that you set forth, and come back next year as an
    independent scientific auditor to say are you doing the job?
    Are you game for that?
        Dr. Lane. Well, I think there is not anybody who could not
    come to NSF. There is not any scientist or engineer who could
    not come to NSF for support. We support the entire research and
    education community, so if you ask who the experts are I would
    say we probably support many of them.
        But I do agree with the point of putting together an
    objective such as you describe.

                   SETTING PRIORITIES AND MEASURING PROGRAMS

        Senator Bond. We have used the National Academy of Public
    Administrators and others in many instances to evaluate it, and
    obviously apparently everybody has the hope of getting an NSF
    grant, but perhaps--I am sure there are enough scientists, men
    and women of integrity that maybe we have to have them
    anonymously work for an independent agency that can evaluate
    your markers, your guidelines, and then come back to us.
        I have been looking forward to seeing from the National
    Academy of Sciences a report they worked on a couple of years
    ago about how we do a better job of appropriating research
    dollars, and we are still struggling to apply the scientific
    tests in a way that is feasible through the political process.
        I would welcome your comments and discussion on that so
    that we can give assurances to our colleagues and to our
    constituents that we are getting something for the money, and
    you all lay out lofty goals and talk about things that are
    absolutely mind-boggling and breathtaking, but we need to be
    able to make sure that we are getting our breath taken and our
    mind boggled in an efficient manner with the dollars that we
    make available.
        Dr. Gibbons. Mr. Chairman, may I interject just an element
    that I think you would enjoy?
        Senator Bond. Please.
        Dr. Gibbons. The late Lewis Thomas, who was a famous
    physician and medical writer, once observed that he thought in
    terms of proposals in the area of basic research that when
    people proposed things and proposed what they would achieve
    during the time of that research, that if they came back and
    reported that they had achieved just what they said they were
    going to do, they should be penalized, because it means they
    did not discover anything new that they did not expect, and
    that I think puts the bottom line on the concern and issues
    that I know you understand.
        Senator Bond. Yes; it makes it a little tougher for you to
    develop the guidelines you are going to give me on how you
    measure those things.
        Dr. Gibbons. That is right, but I think there are
    guidelines, and we are working on this assessment of
    fundamental science. I believe we are going to make some real
    progress in the months ahead now as we get ready for GPRA this
    fall--that is, G-P-R-A--and we very much are in sympathy with
    your concern that we have got to report back to our investors,
    the American people, about how well their investment is
    working.
        Senator Bond. Well, we will look forward to working with
    you. We would like to have that information, and we would like
    to have a means, better means than we have now, of assessing
    it, because I think that is really important.
        We very much appreciate your time, and I know there are
    many knowledgeable people in the audience here who seem to be
    nodding and scratching their heads, and proposing thinking of
    things.

                         Additional committee questions

        We would welcome your written comments, but we would keep
    the record open for you to present to us your suggestions in
    response to these questions and a few other questions we will
    submit to you in writing.
        [The following questions were not asked at the hearing, but
    were submitted to the Foundation for response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

                           IMPACT OF BUDGET REDUCTION

        Question. What programs would the agency cut or eliminate if the
    subcommittee had to recommend a reduction in the NSF budget of 10
    percent? What parts of the budget request would the agency protect?
        Answer. A 10 percent reduction in NSF's budget would have serious
    consequences. It would not only lead to significant reductions in our
    ability to support the conduct of science and engineering research and
    education, but would also cause:
      --A reduction of approximately 4,600 research and education awards,
            about 50 percent of the number of new competitive awards;
      --Consideration of funding continuing awards below their committed
            levels;
      --A delay in initiation and/or stretch-out of construction for new
            research facilities;
      --Significant reductions for K-12 teacher enhancement; and
      --Major reductions in all aspects of undergraduate education.
        This level of reduction would also have significant impact on the
    number of people NSF supports through its programs, with possibly the
    greatest reduction in numbers of people realized in the support of K-12
    teachers. In total, over 20,000 people could lose NSF support. All
    interagency agreements, memoranda of understanding with other agencies
    and other countries, and partnership agreements with universities,
    colleges, other institutions and industry would require reexamination.
    In the face of such reductions, NSF would continue to move its agenda
    forward through:
      --Significant shifts in funding to maintain areas of priority at or
            near fiscal year 1997 levels;
      --Completion of LIGO construction and initiation of operations of
            LIGO and Gemini;
      --A shift toward graduate traineeships and away from other mechanisms
            of graduate student support; and
      --Maintaining appropriate levels of staff for effective management
            during a period of massive change.

                     GOVERNMENT PERFORMANCE AND RESULTS ACT

        Question. NSF's draft strategic plan does not meet the requirements
    of the Government Performance and Results Act (GPRA). Please provide
    your timetable for addressing the following issues: (a) long range
    goals, which are within the agency's statutory authority and span of
    responsibility; (b) objectives that conform with statutory
    requirements, and provide guidance in formulating budget requests,
    setting priorities, and allocating resources; (c) an annual performance
    plan with quantifiable annual performance goals.
        Answer. On March 14, 1997, NSF submitted to all the relevant
    Congressional committees a copy of its GPRA Strategic Plan. This
    version contained a mission statement condensed from its statutory
    authority; both over-arching and outcome-specific goals generated
    therefrom; investment strategies to achieve those goals; and a set of
    critical factors for success that address agency management.
        Based on comments received from Congressional staff, the Office of
    Management and Budget, the Office of Science and Technology Policy, and
    the National Science Board, a revised draft of the strategic plan was
    developed and forwarded to Congress. This draft will also be available
    on the Internet in order to provide a broad range of stakeholders an
    opportunity to comment on it. As required, we will also submit our
    Strategic Plan to Congress by September 30, 1997. An annual Performance
    Plan, based upon but distinct from, the Strategic Plan, will be
    submitted with the President's fiscal year 1999 budget request for NSF,
    per the Results Act.
        NSF recognizes the difficulty of identifying specific goals for
    which NSF's discrete contributions can be separated from the
    contributions of other agencies and activities. Nonetheless, we are
    committed to working with Congress and the relevant stakeholders in
    developing and refining over time the most reasonable outcome measures
    practical.
        Question. The NSF budget justification states that NSF is committed
    to delivering ``the highest possible social returns'' on the Nation's
    investment in research and education. Could you please explain what you
    mean by that statement, and how you will measure ``the highest possible
    social returns''?
        Answer. A number of studies by economists and others have
    demonstrated the benefits of research to the economy. We use the phrase
    ``social returns'' to refer to this broad range of benefits that
    research and education activities provide for the public, including new
    knowledge, the capacity for innovation, and new educational approaches.
    The statement that appears in the budget justification is one statement
    of our vision for the agency. It reminds us that we promote the
    progress of science in order to obtain such returns for the nation.
    Social returns can only be assessed over time, and then only
    indirectly. The concept is not appropriate as a performance goal that
    requires direct measurement.

                        NSF'S ROLE IN EDUCATION STRATEGY

        Question. The President placed an extremely high priority on
    education in his budget proposals for fiscal year 1998. What role is
    NSF playing in the White House education initiatives? If the President
    has made education a priority, why does NSF's budget for the education
    account go up by only 1 percent, and support for precollege math and
    science education actually decline from the fiscal year 1997 level?
        Answer. NSF places high priority on education and has a coordinated
    set of programs that cross the education spectrum. In fiscal year 1998,
    the funding request for grade K-12 activities is $376 million, less
    than $2 million below the fiscal year 1997 level. Nearly 56 percent of
    the NSF education and training portfolio is invested in grades K-12
    with the objective of developing resources and strategies that enable
    implementation of standards-based mathematics and science education
    materials. NSF programs thus fully support the Presidential initiative
    for improving mathematics education, grades K-8.
        Informed by fiscal realities and careful review of priorities and
    emerging opportunities, the fiscal year 1998 budget request redirects
    funding from certain K-12 activities to other important program areas
    within the K-12 arena. For example, increased emphasis is planned for
    pre-service undergraduate preparation and education of teachers by
    redirecting resources from teacher enhancement activities that focus on
    in-service training of the existing workforce. NSF will also place
    emphasis on developing materials and strategies that will ensure the
    effective application of learning technologies throughout the K-12
    sector. Increases will be offset by reductions in the Instructional
    Materials Development program, which has a number of comprehensive
    mathematics curricula projects nearing completion. The fiscal year 1998
    program thrusts complement NSF's existing large-scale systemic projects
    that engage entire states, urban and rural areas, and school districts
    in mathematics and science education reform. In addition, through its
    dissemination and evaluation activities, NSF will intensify efforts to
    communicate information about effective curricula, research on teaching
    and learning, as well as effective strategies for reform and teacher
    development.
        NSF and the Department of Education (DoED) share expertise and work
    to coordinate their science and mathematics education activities.
    Recently, in response to a March 6, 1997 Presidential Directive, Dr.
    Lane and Secretary Riley established a Working Group on Improving
    Mathematics and Science Education that is comprised of senior officials
    and program experts from each agency. That Working Group has nearly
    completed an action strategy for ensuring effective use of Federal
    resources for improving teaching and learning in support of the
    President's voluntary, standards-based national mathematics test for
    individual eighth grade students. The strategy addresses: teacher
    preparation and professional development; implementation of
    instructional materials; improved integration of technology into the
    classrooms; and effective strategies for motivating students.

                               GRADUATE EDUCATION

        Question. The budget proposes a new graduate program called
    integrated graduate research and education traineeships to be supported
    at a level of $20 million. An additional $14.5 million is being spent
    on other traineeship programs, thereby increasing traineeship
    activities by about 65 percent. In order to make this increase, you
    must have some convincing evidence that this is a good investment. What
    evaluations have you done of your traineeship programs? Please provide
    copies of the evaluations. What criteria were used to determine the
    fiscal year 1998 funding request? What are the annual performance goals
    for fiscal year 1997? When will you know if they have been met?
        Answer. Development of the new Integrative Graduate Education and
    Research Training (IGERT) program, to be initiated in fiscal year 1998,
    is based on need, on an understanding of the ability of the traineeship
    mode of support to affect institutional change, and on experience with
    two prototype programs. Recent studies by the National Academy of
    Sciences and the National Science Board indicate a growing need for
    broadly prepared Ph.D.'s with multidisciplinary backgrounds. The need
    for technical, professional, and personal skills essential to
    addressing career demands of the future also has been articulated in a
    number of recent studies. The goal of the NSF-wide IGERT program is to
    develop a new training paradigm by supporting the development of better
    education and training activities that provide an environment for
    acquiring those skills, as well as for conducting the nation's premier
    research.
        The IGERT program builds on the strengths of two NSF existing
    traineeship programs: Research Training Groups and Graduate Research
    Traineeships. IGERT will support development of innovative graduate
    education efforts based on multidisciplinary research themes in
    emerging areas of science, mathematics, and engineering. These grantee-
    identified themes will provide the framework for integrating research
    and education and for fostering effective interdisciplinary
    collaboration of faculty. Projects will develop innovative courses,
    workshops and other activities; provide access to state-of-the-art
    research instrumentation and methodologies; offer training experiences
    relevant to academic and non-academic careers; develop communication
    and teamwork skills; and provide international perspectives on
    research. In addition, IGERT will facilitate development of a
    demographically diverse Ph.D. workforce.
        Summative program evaluation can only be conducted after projects
    have appropriate opportunity to mature. Such evaluations for the
    programs underlying IGERT are being developed. Interim formative
    program development is based on project monitoring and focuses on
    progress in meeting long-range objectives for improving the quality of
    graduate education and, as appropriate, increasing Ph.D. production in
    critical disciplinary areas. Projects under both underlying programs
    have been evaluated through annual reports. Program performance is
    being strengthened through implementation of an electronic, Web-based
    distance-monitoring system that collects annual performance data on
    students and faculty, as well as written reports. The future
    development of IGERT will be informed by the formal evaluations that
    are being initiated.

             INVESTMENTS IN PRODUCING NEW SCIENTISTS AND ENGINEERS

        Question. In 1993, there were about 2.5 million people in the U.S.
    with graduate degrees in science or engineering. In addition, there
    were about 330,000 science and engineering graduate students. Over 70
    percent of the scientists and engineers with Ph.D.'s were working in
    science and engineering, in their own or a closely related field.
        Yet, there are repeated complaints from young scientists (most
    recently from the co-discoverer of the Hale-Bopp comet) that their
    opportunities for a career in science are abysmal. In my own state of
    Missouri, at least one university has tried to address this problem.
    Washington University in St. Louis has recently chosen to scale back
    the number of students to those the university can provide full
    financial support for six years, rather than producing as many students
    as they can.
        Why are you proposing to increase the number of graduate students
    supported by NSF?
        Answer. NSF supports only about four percent of the full-time
    science and engineering graduate students in the United States. In
    fiscal year 1998, NSF expects to support approximately 21,000 graduate
    students, an increase of 2 percent above the fiscal year 1997 level.
    The majority of this increase (380 students) is directly attributable
    to the new Integrative Graduate Education and Research Training (IGERT)
    program. The IGERT program is a focused experiment designed to reform
    graduate education, making it more responsive to the growing need for
    researchers and educators who are capable of functioning beyond the
    boundaries of a single discipline and who have technical, professional,
    and personal skills necessary to address varied career demands of the
    future. In addition to IGERT, NSF will provide for a modest increase in
    the number of students supported as research assistants on NSF-
    supported grants and a slight reduction in students supported by
    graduate research fellowships.

                    COSTS AND MANAGEMENT OF HIGHER EDUCATION

        Question. Recently Time Magazine ran a story on why a college
    education costs so much. The article seemed to challenge the entire
    academic enterprise to wake up to the fact that they--just like
    corporate America and government--have to downsize, re-engineer,
    streamline and reduce costs if they are to remain strong and vital
    institutions in the future. And, by and large, the public perception is
    that they have not yet stepped up to the plate. What do you think our
    colleges and universities need to do to remain strong and yet, at the
    same time, control their costs and management activities.
        Answer. University costs are increasing in a number of areas,
    including physical plant improvements, maintenance of competitive
    salaries, financial aid to students, acquisition of technical
    information, upgrading of computer technology, and compliance with
    federal regulations (such as improving access and services for the
    disabled). In addition, many public universities face decreasing
    support from state funds. All these factors result in a difficult
    financial situation for many universities but one which NSF believes
    most universities are, each in their own way, attempting to address.
    NSF can comment on this complex matter only in connection with the
    research and other activities that the federal government sponsors at
    universities.
        The federal government and university communities face similar
    budgetary constraints, but share common goals, in the conduct of
    academic research. There is incentive for both communities to not only
    work together to assure that universities are fairly compensated for
    the costs of performing federally-sponsored research, but also to
    strive to contain the cost of engaging in that research. In that
    regard, the Federal Demonstration Partnership (FDP) is a valuable forum
    for both federal agencies and the university community to consider not
    only which research-related costs should be reimbursed by the federal
    government, but also to discuss issues such as simplifying
    accountability for federal funds and eliminating unnecessary
    administrative requirements.

              ANTARCTIC PROGRAM: SOUTH POLE STATION MODERNIZATION

        Question. The Antarctic External Panel led by Norm Augustine is
    about to issue their reports on the Antarctic Program. This
    Subcommittee asked for an examination of the U.S. Antarctic Program
    about 18 months ago. According to recent Congressional testimony by Mr.
    Augustine, the panel is going to reaffirm the need for this country to
    maintain its active and influential presence in the Antarctic. The
    panel is also going to call for the modernization of the South Pole
    station to address some very critical safety, health, and structural
    issues. The panel estimates that a new station and other necessary
    infrastructure improvements would come to about $145 million--less than
    earlier estimates that were in the $180 to $200 million range.
        If you accept the panel's assumptions and recommendations, an
    additional $95 million is needed over the next five years to rebuild
    the station. You have a request of $25 million in the fiscal year 1998
    request so if we were to provide the request, over the next few years,
    you would have to come up with an additional $70 million. Would you
    agree with that estimate?
        Answer. The $145 million estimate includes the following:
                                                                 In millions
    New South Pole Station............................................  $125
    Repairs to keep the existing South Pole Station operational during
        construction of the new station...............................     5
    Minimum infrastructure improvements at McMurdo and Palmer Stations
        identified by the Augustine Panel.............................    15
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................   145

        NSF's fiscal year 1998 Budget Request includes $25 million for a
    new South Pole Station. To rebuild the station for $70 million in post-
    1998 costs, two additional assumptions are necessary. First, the USAP
    must actually realize an estimated $30 million in savings associated
    with the transfer from the Navy to other DOD support. These would bring
    the post-1998 costs down to $90 million.
        In addition, NSF would have to reprogram $20 million away from
    ongoing research and support activities to the South Pole Station
    rebuilding effort. Which research efforts would not receive funding has
    not been identified at this early stage.
        If this additional reprogramming were implemented, the remaining
    post-1998 costs would be reduced to the $70 million identified in the
    Augustine report:
                                                                 In millions
    South Pole Station and other infrastructure.......................  $145
    Fiscal year 1998 Budget Request for South Pole Station............   -25
    Cost savings......................................................   -30
    Reallocation of science funds.....................................   -20
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................    70

        Note that the cost estimates for the South Pole Station were based
    on inflation rates in use at the time of planning (2.2 percent).
    Current projected inflation rates are slightly higher (2.7 percent),
    which may affect the total cost.
        Question. Within the Administration's outyear profile for NSF, are
    there sufficient funds to accommodate the cost of the redevelopment of
    the South Pole station?
        Answer. The Administration's outyear profile for NSF's Major
    Research Equipment Account is flat from fiscal year 1998 to fiscal year
    2002. The Foundation continues to examine how to accommodate needs for
    major projects across the agency within its funding profile. Funding
    for redevelopment of South Pole Station is one item being considered,
    in the context of the Augustine Panel statement that the USAP should be
    viewed as a national program, not as another NSF science project, and
    should be designed, funded and judged as such.
        Question. Have you thought about international participation in the
    redevelopment of the station?
        Answer. NSF concurs with Recommendation IV in the Augustine Panel
    report, which states that ``International cooperation in scientific
    research and logistics support should be encouraged, but permanent
    facilities and infrastructure at permanent U.S. sites in Antarctica
    should be provided by and maintained by the U.S.'' The Panel concluded
    that:
        ``Considering the geopolitical history of Antarctica outside the
    reach of the Antarctic Treaty system, that joint funding and/or
    ownership of infrastructure and facilities may lead to substantial
    international legal issues while producing little or no fiscal benefit.
    The Panel is mindful of the experience of the space program in
    international cooperation, but draws a strong distinction between joint
    ownership of a space station--where there are no territorial issues in
    contention--and the joint ownership of a facility at, say, the South
    Pole.''
        The Panel also concluded that:
        ``To internationalize the physical plant in Antarctica with foreign
    capital investment in fixed facilities at the U.S. stations raises
    ownership issues that, ultimately, work to the detriment of U.S.
    interests and, in the opinion of the Panel, worldwide interests. It is
    not, it would seem, illogical that a nation which shares the basic
    costs of the existence of a facility would seek a voice in the
    operation and governance of that facility--and ultimately in the title
    to that facility.''
        Question. How do you plan to respond to the Augustine Panel's
    report?
        Answer. NSF is currently analyzing the recommendations contained in
    the Augustine Panel report to determine how best to address them.

                   NSF-EPA PARTNERSHIP/ENVIRONMENTAL BIOLOGY

        Question. A few years back this subcommittee urged NSF and EPA to
    work together on some common research interests. Part of the reason for
    that effort was to assist EPA in improving the quality of its research
    and research program management activities. Recently NSF and EPA
    decided to renew that partnership activity through a new Memorandum of
    Understanding. How well is that partnership effort working?
        Answer. The NSF-EPA Partnership for Environmental Research has
    sponsored joint competitions each year since fiscal year 1995.
    Professional staff from both agencies have worked together to plan and
    manage the competitions, and both agencies have provided funds to
    support the highest quality peer reviewed research proposals. The NSF
    administered the competitions in the first two years while mentoring
    EPA staff. In the third year of the partnership (fiscal year 1997), the
    EPA is administering the competitions.
        The partnership emphasizes shared investments, shared risks and
    shared benefits. From an NSF perspective, the partnership has enabled
    the support of research that synergistically integrates elements of
    diverse core activities. Fundamental interdisciplinary research has
    been particularly emphasized in the three competitions sponsored to
    date: (1) Water and Watersheds, (2) Technology for Sustainable
    Environment, and (3) Decision Making and Valuation for Environmental
    Policy. Of special value has been the ability to link the traditional
    NSF-supported community of researchers with the management-oriented
    goals of EPA.
        NSF has been pleased to join with the EPA to promote the discovery,
    integration, dissemination, and employment of new environmental
    knowledge in service to society.

                            ADMINISTRATIVE EXPENSES

        Question. One of your ``key program functions'' is Administration
    and Management. In your fiscal year 1998 Budget Submission (Overview)
    you state that Administration and Management function constitutes 4
    percent of your request of $3.367 billion. How is that percentage
    determined?
        Answer. The percentage of fiscal year 1998 total support provided
    for NSF's Administration and Management function is determined by
    adding the $136.9 million in the Salaries and Expenses appropriation to
    the $4.85 million request for the Office of Inspector General and
    dividing by the total NSF request of $3.367 billion.
        Question. What activities are included in the four percent
    Administration and management category?
        Answer. The Administration and Management function includes funds
    for staff salaries, benefits, travel, rent, contracted administrative
    services, supplies, equipment, and other administrative operating
    expenses.
        Question. Are there any personnel-related and/or program support-
    related activities funded out of other appropriation accounts?
        Answer. NSF has traditionally funded program support costs from the
    ``program'' appropriations because of their direct support to the
    research and education programs. Some examples include the cost of
    proposal review panels, contracts for special services--such as
    proposal processing and evaluation--directly related to the program,
    and grants to institutions to obtain the temporary assignment of
    visiting program managers through the Intergovernmental Personnel Act.
    These scientists and engineers contribute significantly to our program
    operations. Program support costs are usually program specific, short
    term costs.
        Question. Please provide the funding levels for the various program
    support activities outlined above, including but not limited to cost
    associated with holding review panels, personnel costs for IPA
    positions, and costs for performing program evaluation.
        Answer. Program support costs funded through ``program''
    appropriations are shown below for fiscal year 1996.

       National Science Foundation Fiscal Year 1996 Program Support Costs

                            [In millions of dollars]

    IPA's.............................................................  16.9
    Travel--(panelists, committees of visitors (COV) and IPA's).......   5.1
    Printing..........................................................   0.8
    Equipment.........................................................   0.3
    Contracts (includes education evaluations, SRS and other contracts  14.6
    Panelists and COV's...............................................   4.5
                            -----------------------------------------------------------------
                            ________________________________________________
          Total.......................................................  42.2
                             internet registration
        Question. NSF entered into a cooperative agreement in 1993 with
    Network Solutions, Inc. (NSI) to manage the registration service for
    domain names on the Internet. The agreement is due to expire in
    September 1998. What plans does NSF have regarding the ending of that
    cooperative agreement?
        Answer. The September 30, 1998 date allows for an administrative
    period for concluding activities such as the preparation and submission
    of the final report. As a result, the agreement is actually scheduled
    to be concluded by March 31, 1998. Since there appears to be no need
    for continued NSF support of an activity which has become self-
    supporting, no recompetition, extension or other follow-on of the
    current award is anticipated.
        Question. How will NSF ensure that NSI does not have an unfair
    advantage over other potential registrars for domain name services?
        Answer. There are currently several proposals based on two
    alternative concepts being discussed that are posing alternative
    mechanisms for increasing competition for name registration in Internet
    Top Level Domains (TLD's). All involve the creation of additional
    TLD's. One is based on the model of ``sharing'' of TLD's among several
    registries (competition within TLD's). Others involve the ownership of
    specific TLD's by individual registries (competition among TLD's). It
    is probable that, by March 31, 1998, a number of registries, both
    ``shared'' and private, will be competing for domain name
    registrations.
        Question. Does NSF retain the rights to the database of
    registration information?
        Answer. In accordance with the principles governing the treatment
    of copyrightable material produced under NSF awards adopted by the
    National Science Board on March 16, 1984, the Foundation normally
    acquires only such rights to copyrightable material as are needed to
    achieve its purposes or to comply with the requirements of any
    applicable international agreement or government-wide policy notably
    Sec.__36(a) of Office of Management and Budget Circular A-110, Uniform
    Administrative Requirements for Grants and Agreements with Institutions
    of Higher Education, Hospitals, and Other Non-Profit Organizations
    (revised November 1993), which for efficient administration the
    Foundation applies to most of its few for-profit awardees. The
    Copyrightable Material clause in the Foundation's Grant General
    Conditions, which were attached to and made part of the cooperative
    agreement with NSI, provides (in part): ``[T]he grantee may own or
    permit others to own copyright in all subject writings. The grantee
    agrees that if it or anyone else does own copyright in a subject
    writing, the Federal Government will have a nonexclusive,
    nontransferable, irrevocable, royalty-free license to exercise or have
    exercised for or on behalf of the United States throughout the world
    all exclusive rights provided by copyright. Such license, however, will
    not include the right to sell copies or of the copyrighted work to the
    public.''
        ``Subject writing'' is defined in the first paragraph of that
    clause as meaning any material produced by the awardee or its employees
    that is or may be copyrightable under Title 17 of the United States
    Code.
        Under the above-quoted Copyrightable Material provision, NSF has a
    license under any copyright asserted on the database as it exists
    during, and at the conclusion of, the agreement. Also, under Article
    10E of the agreement, NSF has the right to request ``a copy and
    documentation of any and all software and data generated'' as part of
    the final report, which must ``contain a description of all work
    performed and problems encountered * * * in such form and sufficient
    detail as to permit replication of the work by a reasonably
    knowledgeable party or organization''. This discretionary ``delivery''
    requirement, unusual in an assistance award, was added to give the
    Foundation the option of continuing to assist Internet registration by
    supporting some other entity subsequent to the NSI agreement. Since
    Internet registration has become self-supporting and NSF will no longer
    be involved in supporting the activity, there is no need for us to
    obtain that material.
        Question. Beginning in 1995, NSF authorized NSI to charge $100 to
    register a domain name initially, and $50 a year to maintain it in the
    master database. Thirty percent of that money is set aside in an
    account for the purpose of reinvestment of the ``intellectual
    infrastructure'' of the Internet. As of December 1996, over $12 million
    was deposited in that account, but there has not been any disbursement
    of funds. What plans does NSF have for using those funds and future
    monies that will be collected?
        Answer. As of April 30, 1997, the balance in the fund was
    approximately $23.8 million. Consistent with the requirements of the
    agreement, Network Solutions has proposed that a 501(c)(3) non-profit
    organization (having no connection with either Network Solutions or
    NSF), with an appropriate charter and board of directors, be formed to
    disburse the funds. Using this proposed approach, as of an established
    date, all funds collected in the account would be transferred into the
    nonprofit organization, collection of additional Infrastructure funds
    would cease and fees would be reduced by a corresponding amount.
    Pending resolution of appropriate details we believe this to be a
    reasonable plan for disposition of the funds.
        Question. Recently, there has been criticism of NSI's performance
    of the registration function and concern about their role as the sole
    provider of certain categories of domain names. What oversight has NSF
    conducted of NSI's activities?
        Answer. Consistent with normal practice for such awards, NSF
    conducted an external merit review of NSI's performance in 1994 which
    found it to be excellent. NSF receives and reviews monthly, quarterly
    and annual reports on their activities as well as copies of complaints
    or comments on their service and conducts periodic performance review
    meetings. Recently, a management review of the registration activity
    was conducted by the NSF's Office of the Inspector General. The
    resulting report and Agency response have been released to the public.
    Additionally, NSF's Office of the Inspector General is currently
    conducting a financial audit of the NSI award at our request.
        Question. There is a new proposal from a coalition involving the
    Internet Society and other interested groups for adding additional
    generic groups of domain names and adding new registrars. What is NSF's
    position on this proposal?
        Answer. The proposal from the Internet Society is only one of a
    number of proposals which have recently been advanced to increase
    competition in the Internet Domain Name registration process. NSF
    believes that several of the proposals currently being considered by
    the Internet community have merit. NSF also believes that any of the
    proposals being considered will have only minimal, if any, impact on
    the research and education community which we support. As a result, NSF
    has no preference at this time among the proposed alternatives.

                           MATH AND SCIENCE EDUCATION

        Question. For the past several years, NSF has invested about $300
    million annually in efforts to improve K-12 math and science education.
    How has NSF evaluated the progress in this area? How were these
    evaluations used in determining the fiscal year 1998 budget request?
        Answer. NSF's K-12 education programs benefit from a comprehensive
    set of evaluation activities that includes project monitoring, formal
    program evaluations, informal assessments by staff and external
    experts, and management reviews. As part of NSF's response to the
    Government Performance and Results Act (GPRA), other efforts are being
    implemented to ensure accountability: (1) Performance Effectiveness
    Reviews (PER) of sets of large-scale projects to obtain management and
    standardized performance information; (2) standardized program
    evaluation that allows monitoring of individual projects, program
    aggregation, and cross-site comparisons; and (3) electronic, Web-based
    monitoring systems. NSF also regularly supports specialized studies,
    such as the Third International Mathematics and Science Survey (TIMSS)
    to obtain information on the context in which our programs operate.
        Development of NSF K-12 programs is firmly grounded in evaluations
    and can itself be viewed as implementation research, evolving with
    observations of strengths and weaknesses. Examples of rationale for
    major program thrusts include:
      --Systemic Reform: NSF is able to broaden and deepen its impact in
            implementing standards-based science and mathematics education
            reform when it engages entire school districts and
            simultaneously addresses requisite policies, curriculum,
            professional development, assessment, and resources. In the
            1995-96 school year, NSF reform initiatives reached nearly 7.5
            million students and 103,000 teachers and administrators. Sites
            reported improvements in standardized achievement tests and
            statewide assessments in mathematics and science. Program
            monitoring has demonstrated the need for reform projects to
            articulate high student and teacher expectations; align
            assessment and curriculum; converge resources; provide linkages
            to parents, communities and industry; and develop scale-up
            strategies. While systemic programs show great promise for
            being effective, only a portion of the students in greatest
            need have been reached thus far. A large number of systems are
            looking for resources (financial and otherwise) to undertake
            such reform, particularly those in urban settings.
      --Teacher Education: A major obstacle to reform and increased student
            achievement has been shown to be the competency of the
            instructional workforce. It has become apparent that pre-
            service preparation of teachers must be accelerated and linked
            to systemic reform sites. Recent TIMSS findings further
            indicate the critical need for elementary teachers to develop
            an understanding of mathematics. While pre-service education is
            a critical issue, in-service training of the existing workforce
            continues to remain problematic.
      --Technology: The potential of educational technologies, as well as
            barriers to its implementation are documented by systemic
            reform, instructional materials development, and teacher
            education programs. Technology is effectively being used to
            foster development of learning communities, to provide access
            to expertise and other resources in underserved areas (e.g.,
            inner cities, rural areas), and to address differences in
            learning styles.

                       SUPERCOMPUTERS CENTERS COMPETITION

        Question. Earlier this year (March 27 and 28) the National Science
    Board gave its approval for two partnership proposals for
    supercomputing. How does this supercomputer initiative differ from the
    previous NSF advanced scientific computing program?
        Answer. At its inception, the existing NSF Supercomputer Centers
    program focused on providing access to high performance computers for
    the research and education community that NSF supports. This program
    has evolved over time, moving from providing cycles on vector multi-
    processors, to exploring and adopting scalable, massively parallel
    systems. This transition demonstrated that usage and performance
    advances of these architectures are hampered by difficulties in
    programming such systems for a broad range of applications. General
    acceptance of these systems by the research and education community,
    who generally program applications themselves, can benefit from a
    broadened effort.
        In examining possible structures for an advanced computational
    infrastructure program, it became apparent that considerable expertise
    in this area existed at many universities and research centers. The
    Partnerships for Advanced Computational Infrastructure (PACI) program
    was NSF's response to the recommendations of the Task Force on the
    Future of the NSF Supercomputing Centers Program (the Hayes Task
    Force), and represented a plan to deploy the most competent
    investigators to develop a coordinated national infrastructure.
        The Hayes report indicated that the new initiative should be
    substantially different from the current activity. In particular, the
    addition of a large number of partner universities engaged in
    infrastructure development is a shift from the previous concentration
    on ``leading-edge'' sites in the current centers program. The result is
    a broadening of participation in the program, targeted initiatives in
    software development, and a national education, training, and outreach
    effort.
        Question. How will NSF transition to this new partnership
    arrangement? (e.g. the phaseout process for those centers not part of
    the new program, how the user community will be accommodated during the
    transition process).
        Answer. There are several aspects of the transition to the new
    partnership arrangement--funding, allocations, and phase-out--that
    merit individual attention.
        Funding for the new partnerships is derived from the reduction in
    operating expenses by reducing the number of ``leading-edge'' sites
    from four to two. These savings are accomplished as follows:
      --The operations budgets for the leading-edge sites in the PACI
            program are substantially the same as in the current centers
            program.
      --The capital budget for the overall PACI Program is essentially the
            same as that for the four previous centers.
      --The savings in operations at the discontinued centers program
            (approximately $20 million in 1997 dollars) will be used mainly
            to fund partner activities, increased maintenance on the larger
            system configurations, and a modest increase in staff at the
            continuing leading edge sites to augment the user support that
            is expected to increase less than 50 percent at each site.
        NSF plans to fund the PACI partnerships through cooperative
    agreements, the same means used to fund the current Centers. This
    funding mechanism assures a cooperative management structure, and close
    oversight of all partnership activities, including those at the leading
    edge site. An independent contractor will survey user opinion of the
    performance, and designated NSF staff will be contacted in instances
    when users do not receive satisfactory responses from center staff. All
    allocations will remain under the control of peer review allocation
    panels, with active NSF oversight.
        Current allocations of the largest users have been made for the
    period April 1, 1997 to March 31, 1998. Future allocations for these
    resources will be made only at permanent PACI leading edge sites and
    partner sites, as appropriate. All plans include retention and use of
    current facilities for the entire transition period at centers being
    phased out.
        Both of the new PACI sites, the National Partnership for Advanced
    Computational Infrastructure (NPACI) at the University of California,
    San Diego and the National Computational Science Alliance (NCSA) at the
    University of Illinois at Urbana-Champaign, are making plans for new
    systems and upgrades to be brought on-line during the fall of 1997.
    These systems are powerful enough to meet the current demand, even
    without the Pittsburgh Supercomputer Center (PSC) and the Cornell
    Theory Center (CTC) resources, and are expected to attract some users
    from phase-out sites. Both NPACI and NCSA have active plans for
    workshops and training sessions to orient current users of both PSC and
    CTC to the new facilities.
        Very few high-end users make exclusive use of resources at only one
    center. We do not anticipate a major difficulty in providing proper
    orientation and training to this segment of the community. Other users
    will be moving from one phasing-out center to a partnership to utilize
    the same type of computer system. The problems resulting from this
    transfer are substantially less than a change in operating systems at
    one facility, an event that has occurred and been successfully
    addressed many times during the history of the centers program.
        One potential significant problem is the movement of user data from
    one center to another. This is a consequence of the fact that PSC had
    not adopted the same standard mass storage systems as the other
    centers. As a result, the migration of files from PSC may also involve
    some data translation and record reformatting. NCSA is already working
    with the largest users at PSC by providing access to the NCSA Origin
    2000 computer system to ease the transition.
        The NPACI's facilities at the San Diego Supercomputer Center (SDSC)
    will support a new vector system approximately 75 percent faster than
    the current systems at PSC. The greater speed machine should attract
    users, and the capacity to be added should equal the current capacity
    at PSC and SDSC. Additionally, NPACI will be augmenting its distributed
    memory system to one having approximately the same capacity as the one
    at CTC.
        Transition plans for both CTC and PSC include measures to retain
    key personnel during the phase-out period. NSF plans to augment user
    support services at both NCSA and NPACI to handle the new user load.
    Towards this end, NCSA has completed a reorganization of its user
    support function and is expected to have the new structure in place by
    the summer of 1997 to meet the requirements of PACI. It appears that no
    reorganization will be necessary at NPACI, except for that involving
    the integration of partnership expertise into the national
    infrastructure.
        When the current Supercomputer Centers program was extended by the
    National Science Board (NSB) in October 1994, and again in the Board's
    December 1995 resolution approving the new PACI program, all of the
    centers were informed that the transition would begin immediately
    following Board approval of the new awards. After analyzing the cost
    structure of each center, NSF concluded (based on the argument outlined
    below) that one year's operations budget (i.e., excluding all
    supercomputer capital payments) should be sufficient to support a
    center for 15-18 months, if they started to reduce expenditure levels
    immediately.
        NSF is now providing an average of $800,000 per month for non-
    capital items (salaries and wages, maintenance, expendable materials
    and supplies, indirect costs, etc.) at each center. A phase-out model
    was constructed that included a linear ramp-down of personnel from
    April 1, 1997 staffing levels to a 25 FTE level in early fiscal year
    1998 which generally results in a loss of about 2.5 FTE/month. Other
    expenses were modeled as fixed (hardware maintenance, software
    licenses, power, utilities), while others (travel, training, etc.) were
    set to arbitrarily lower (but non-zero) levels; indirect costs were
    estimated at the last current rate. Based on the different cost
    structures at each center, this model projected an operation time of
    15-18 months. With this, NSF allocated one full year's operating
    expenses (at an $11 million level, about $1 million higher than actual)
    to be expended during a period not to exceed 24 months beginning April
    1, 1997, for phase-out. The detailed validity of the model is being
    explored in phase out negotiations with PSC and CTC.
        This $11 million figure was authorized in the NSB resolution, i.e.,
    a sum not-to-exceed one full year's operational funding (actually $11
    million) that could be expended over a period not-to-exceed two years,
    starting April 1, 1997. Thus, the last six months of the final year of
    the extended cooperative agreement would be part of the phase-out.

                  MERIT REVIEW PROCESS--ADJUSTING THE CRITERIA

       Question. The Foundation and the Board have recently issued draft
    revisions to the merit review criteria. Please provide background and
    an update on the status of this effort.
        Answer. NSF's current criteria were adopted by the National Science
    Board in 1981. They remain an effective means for determining the
    optimal allocation of NSF's valuable resources. From time to time, it
    is nevertheless prudent to examine the review criteria--in the spirit
    of improving an already outstanding system.
        Furthermore, there are also a number of important factors that
    deserve consideration in any assessment of NSF's review criteria, such
    as:
      --NSF's 1994 strategic plan established long-range goals and core
            strategies for the Foundation;
      --Several studies suggest that there is room for improvement in NSF's
            highly successful system of merit review. For example, surveys
            of reviewers and program officers have revealed that the
            current criteria are not always well understood and some are
            often ignored; and
      --Seminal events over the past fifteen years--notably the end of the
            Cold War and the rise of global economic competition--have
            altered the context for public support of research and
            education. It is now more important than ever to highlight and
            document the returns to society on NSF's investments in
            research and education.
        On March 28, 1997, the National Science Board passed a resolution
    approving use of the following criteria for all proposals reviewed
    beginning October 1, 1997:
        1. What is the intellectual merit of the proposed activity?
        The following are suggested questions to consider in assessing how
    well the proposal meets this criterion: How important is the proposed
    activity to advancing knowledge and understanding within its own field
    and across different fields? How well qualified is the proposer
    (individual or team) to conduct the project? (If appropriate, please
    comment on the quality of prior work.) To what extent does the proposed
    activity suggest and explore creative and original concepts? How well
    conceived and organized is the proposed activity? Is there sufficient
    access to resources?
        2. What are the broader impacts of the proposed activity?
        The following are suggested questions to consider in assessing how
    well the proposal meets this criterion: How well does the activity
    advance discovery and understanding while promoting teaching, training,
    and learning? How well does the proposed activity broaden the
    participation of underrepresented groups (e.g., gender, ethnicity,
    geographic, etc.)? To what extent will it enhance the infrastructure
    for research and education, such as facilities, instrumentation,
    networks, and partnerships? Will the results be disseminated broadly to
    enhance scientific and technological understanding? What may be the
    benefits of the proposed activity to society?
        The Task Force's Final Recommendations are available on the World
    Wide Web at http://www.nsf.gov/home/nsb/pubs/nsbmr975/nsbmr975.htm.
        A task group of NSF staff is developing procedures to implement the
    Board's resolution.
                     privatizing logistics in the antarctic
        Question. This past season in the Antarctic, private sector
    helicopter support was used in place of the helicopter support of the
    Navy, as part of the privatization actions you have been undertaking
    for sometime. How well is the privatizing program working and do you
    agree with the Augustine External Panel's estimates that an additional
    $30 million over the next 5 years will be saved if we continue with
    these privatization efforts?
        Answer. Since 1993 when the Navy proposed a phased withdrawal from
    the U.S. Antarctic Program, NSF has planned for replacement support by
    both civilian contractors and other Department of Defense units,
    including air support by the New York Air National Guard. The 1996-1997
    field season was the first year of civilian helicopter support,
    provided by Petroleum Helicopters, Inc. (PHI) of Lafayette, Louisiana.
    NSF considers the transfer of this function an extraordinary success
    for the following reasons:
      --Helicopter operations costs have decreased from $5 million to about
            $2.5 million per year.
      --The ``footprint'' in McMurdo has decreased from 52 to 18 people,
            placing less strain on station resources, and the aircraft
            footprint has decreased from six to four.
      --A greater overall efficiency of operations has been realized, with
            a 20 percent reduction in flight hours with no decrease in
            support service.
      --There is a greater platform variety--the helicopter inventory is
            now comprised of light and medium-lift aircraft. Previously,
            only medium-lift helicopters were available through the Navy.
      --PHI had a perfect safety record this season with no helicopter
            accidents or incidents.
        Other parts of the transition are also continuing on track. An
    agreement between the NSF, Office of the Secretary of Defense, Navy,
    Air Force, and Air National Guard (ANG) will result in transition of
    the LC-130 aircraft operations from the Navy to the ANG by March 31,
    1999.
        Other functions supported by the Navy such as medical services,
    services in New Zealand, and communications, will be transferred in
    fiscal year 1998 to civilian contractors in fiscal year 1998. Air
    traffic control and weather forecasting functions will be transferred
    to civilian contractors under the management of other DOD units.
        DOD will continue to support the following functions: procurement
    of fuel, fuel and cargo ships, and some engineering services.
        NSF believes the Augustine Panel's estimate that up to $30 million
    can be saved over the next five years (fiscal year 1998-2002) as a
    result of the transition to private contractors and other DOD
    providers--is realistic.

                       ACADEMIC RESEARCH INSTRUMENTATION

        Question. The budget contains no discussion about academic research
    infrastructure. Last year NSF proposed to terminate its support for the
    modernization of research facilities. That was a decision this
    subcommittee supported reluctantly. But now this budget is strangely
    silent on the instrumentation program for fiscal year 1998. Are you
    going to support the effort in fiscal year 1998 and, if so, why is
    there no discussion or funding level outlined in the budget proposal?
        Answer. The NSF's Academic Research Infrastructure (ARI) Program
    was well conceived, well planned, and well leveraged but the overall
    impact on the nation's research and research training facilities
    infrastructure was relatively minor. This program, funded at
    approximately $50 million per year, was not a major source of funds for
    colleges and universities that were renewing their research
    infrastructure. With approval from the National Science Board, NSF
    decided to focus its investment of limited funds in areas where NSF can
    make a major contribution to the science and engineering education
    enterprise. Consequently, NSF chose to terminate the ARI facilities
    program.
        NSF will continue to support instrumentation programs in fiscal
    year 1998. As mentioned in the discussion of Research Project Support
    within NSF's fiscal year 1998 budget justification, $50 million will be
    used to continue support for an NSF-wide instrumentation program. This
    program, formerly funded out of the Academic Research Infrastructure
    appropriation, is now supported through the Research and Related
    Activities appropriation. In addition, approximately $180 million in
    additional support for smaller-scale instrumentation will also be
    provided.

              STATUS OF GREEN BANK AND ARECIBO TELESCOPE OVERRUNS

        Question. In December press reports circulated about the Arecibo
    telescope and the Green Bank telescope. Stories of cost overruns and
    significant delays appeared on the pages of Nature magazine. Please
    provide the status of these two telescope. What steps have been taken
    to address the construction management issues associated with large
    scale facilities?
        Answer. The Green Bank Telescope (GBT) is located at the National
    Radio Astronomy Observatory's (NRAO) Green Bank, West Virginia site. In
    December 1990, Radiation Systems Inc (RSi) was awarded a $55 million
    fixed-price, design-and-build contract by NRAO's managing organization,
    Associated Universities Inc (AUI), for the 100-meter diameter Green
    Bank telescope. In 1994, COMSAT Corporation purchased RSi and its
    subsidiaries.
        The telescope was originally contracted for delivery in late 1994,
    but the contractor was unable to meet this date. The current schedule
    calls for completion of the telescope assembly, telescope,
    installation, and alignment of the panels by the contractor by the end
    of April 1998. Recently, the contractor requested that the schedule be
    extended by an additional eight months, but has been told that further
    delays are unacceptable; the contractor has been asked for
    clarification and a plan to keep the project on schedule. All the
    systems for the telescope that are to be provided by the NRAO are
    expected to be ready for a delivery as early as April 1998.
        Progress on the telescope has been significant during the past
    year, with the contractor's workforce nearly doubled at the job site in
    recent months. All 16 million pounds of steel that make up the
    telescope have been designed, engineered, fabricated, and delivered.
    About 1,500 of the 2,200 curved aluminum reflecting panels have been
    manufactured. The 165-foot-high telescope base is essentially complete,
    and the 100-meter diameter surface backup structure has been pre-
    assembled on the ground; it will be lifted into place on the telescope
    for final welding beginning in June.
        In an attempt to recover costs incurred due to its delays, the
    contractor has filed claims against AUI under the Disputes provision of
    the telescope contract; the claims allege that actions on the
    Observatory's part have resulted in additional costs. The initial claim
    filed in October 1995 totaled $14.4 million; in December 1996, it was
    increased to $28.6 million. AUI disputes the factual basis of these
    claims, and is auditing their fiscal basis. Should the claims be
    unresolved to the mutual satisfaction of NRAO and COMSAT RSi, the
    contract calls for binding arbitration. At this stage, the claims do
    not involve the National Science Foundation.
        At the National Astronomy and Ionosphere Center's (NAIC) Arecibo
    radio telescope, NSF and NASA co-funded--approximately equally--a major
    upgrade projected to cost $22 million. The upgrade has three separate
    elements: (i) structural reinforcement of the main antenna structure
    and the installation of so-called ``Gregorian'' reflectors to correct
    the aberration of the main spherical antenna; (ii) construction of a
    50-foot high ground screen surrounding the 1,000-foot diameter main
    dish to reduce the effect on astronomical observations of scattered
    radiation from the ground; and (iii) doubling the power of the
    planetary radar.
        All upgrade construction was completed in April 1997, and NAIC
    staff are now in the process of putting the Arecibo radio telescope--
    the world's largest--back into service. The upgrade, started in 1992,
    was originally scheduled for final completion at the end of 1995, and
    is thus about 15 months late. (It should be noted that the telescope
    was only out of service for about one year of the upgrade period.) The
    upgrade project ran over its original 1990 budget by about 7 percent;
    the costs of the overrun were borne by the NAIC program within the
    Division of Astronomical Sciences.
        In June 1996, the prime contractor for the structural reinforcement
    phase of the project, RSi (now COMSAT RSi), filed a $7 million lawsuit
    in Federal Court against Cornell University, NSF's manager of NAIC. NSF
    is not a party to the suit. The crux of the lawsuit is COMSAT RSi's
    contention that Cornell did not provide adequate and accurate
    engineering drawings of the Arecibo radio telescope to RSi. Since these
    drawings were the responsibility of Cornell's engineering contractor
    for the Arecibo facility, Amman and Whitney (AW), Cornell has made AW a
    third party to the law suit. Cornell disputes COMSAT RSi's claims and
    has counter-sued the contractor for $635,000 in excess costs resulting
    from the company's failure to complete its work in a timely fashion.
    The case is scheduled to go to trial in United States District Court,
    Northern District New York. The trial date was recently (re)set to May
    4, 1998. Both sides are gathering information at this time.
        Regarding the construction management issues associated with large
    scale facilities, the Foundation is taking a number of steps to
    minimize the possibility of future problems like those associated with
    the GBT and Arecibo projects. First, the Foundation plans a high-level
    review of its methods for overseeing management of large facilities,
    and intends to provide closer project oversight where needed in the
    future. Second, in light of our Green Bank experience where the
    contractor subcontracted a key activity of the project, NSF will now
    take steps to ensure that more careful attention will be paid to the
    in-house capabilities of potential contractors.
        Finally, the construction of any large single telescope presents a
    unique potential problem: the telescope being constructed is also the
    prototype. This issue is particularly acute when the telescope breaks
    new ground in technology, as was the case with the GBT.

                             MILLIMETER ARRAY (MMA)

        Question. In light of the situation with respect to your ongoing
    telescope projects, why is it necessary to start forward with the new
    Millimeter Array radio telescope? Please describe the project, the
    outyear funding implications, as well as your interactions with NASA to
    coordinate with ongoing NASA programs.
        Answer. We are confident that the construction and management of
    the Millimeter Array (MMA) will not encounter the same type of concerns
    involved with the Green Bank Telescope (GBT) and the Arecibo radio
    telescope. The MMA is a mature concept; there are no technical
    impediments to making the instrument work.
        Any problems encountered in developing the prototype during the
    Design and Development phase will be resolved prior to beginning the
    construction phase of the project. Construction of the MMA was endorsed
    by the Astronomy and Astrophysics Survey Committee of the National
    Research Council (NRC) as the highest-priority radio astronomy project
    for the 1990's in its last decadal planning study (the ``Bahcall
    Report''). Most important, momentum for the project has built up over
    the past few years to the point where there is now strong international
    interest in cooperation; postponement could put this at serious risk.
        The MMA will be the world's most sensitive and highest-resolution
    millimeter-wavelength telescope, and will consist of an array of
    antennas rather than a single antenna. In the proposed Design and
    Development phase, it will be possible to construct a true prototype,
    resolve on a small scale any problems that will be encountered, and
    then proceed to replicate the prototype many times during the
    construction phase. Millimeter wavelength astronomy provides a testing
    ground for theories of star birth and stellar evolution, galaxy
    formation and evolution, and the evolution of the Universe itself. The
    chemistry and composition of the interstellar medium, the earliest
    stages of star formation, and the internal kinematics of luminous
    galaxies are uniquely revealed by observations at millimeter
    wavelengths. The MMA will combine angular resolution comparable to that
    of the Hubble Space Telescope with the sensitivity of a single antenna
    over 50 meters in diameter.
        With these capabilities, the MMA will reveal the inner workings of
    the central black hole ``engines'' which power quasars, and will make
    possible a search for planets around hundreds of nearby stars.
    Instrumentation to be developed for the MMA will push existing gallium
    arsenide (GaAs) and indium phosphide (InP) amplifier technology to high
    frequencies, will challenge production of high-density, high-speed
    integrated circuits, and can be expected to stimulate commercial device
    and communication technologies.
        Physically, the MMA is to consist of 40 transportable, precision
    antennas, each eight meters in diameter and equipped with a suite of
    advanced receivers. To fulfill its potential, the array must be located
    at a high, dry site. Two candidate sites currently under serious
    consideration and undergoing testing for sky transparency and phase
    stability are Mauna Kea, Hawaii, and a high plateau in Northern Chile.
        The MMA was proposed to NSF by the National Radio Astronomy
    Observatory in 1990. It is expected that the MMA will be a cooperative
    project, with the construction and operating costs to be shared by
    international partners or other Federal agencies. The NRAO has active
    discussions underway with the Netherlands, Japan, Chile and Spain.
        The total cost for design, development and construction of the MMA
    is estimated at $232 million. Estimated annual funding requirements
    are:

                                [By fiscal year]

                                                                 In millions
    Design and development phase:
        1998..........................................................  $9.0
        1999..........................................................   9.0
        2000..........................................................   8.0
    Capital construction phase:
        2001..........................................................  30.8
        2002..........................................................  50.5
        2003..........................................................  50.6
        2004..........................................................  38.1
        2005..........................................................  35.9
                            -----------------------------------------------------------------
                            ________________________________________________
          Total....................................................... 231.9

        Although we have presented a five year capital construction
    timeline, the design and development phase will address the question of
    the optimum construction period for this project. Also, current budget
    planning models assume cost-sharing between NSF and international/other
    agency partners on roughly a 60/40 percent basis.
        The annual operating cost for the MMA is estimated to be $8.5
    million in fiscal year 1998 dollars. All of the U.S. share of the
    operating funds will come from the Research and Related Activities
    appropriation; however, approximately $3 million of these funds will
    come from the closure of the NRAO 12m millimeter-wave antenna on Kitt
    Peak.
        NSF would welcome NASA participation in the MMA project as part of
    the Space Agency's Origins initiative. Discussions between the NSF and
    NASA staff have been held, as yet with no definite results.

                             POLAR CAP OBSERVATORY

        Question. The budget also proposes another new start, the Polar Cap
    Observatory. In this very tight budget environment, why are you
    proposing this new start at this time?
        Answer. Completion of the PCO by the year 2001 will allow
    observations during the Sun's next sunspot maximum phase, during which
    the dramatic effects of solar storms on Earth's upper atmosphere occur
    more frequently. The Polar Cap Observatory (PCO) is planned for
    construction in Resolute Bay, Northwest Territory, Canada and will be
    completed in three years.
        The facility will include an array of radiowave and optical
    instruments for remotely sensing properties of the upper atmosphere and
    ionosphere. The centerpiece of the facility is a large, state-of-the-
    art incoherent scatter radar. Fiscal year 1998 proposed funding of $25
    million fully constructs the PCO with no further construction funds
    required in the outyears. The PCO will also complement a constellation
    of international research satellites being deployed over the next five
    years.
        At a location very close to Earth's magnetic pole, the site of
    unique atmospheric phenomena such as sun-aligned auroral arcs and
    drifting ionospheric plasma clouds, the PCO will serve as the apex of
    both the U.S. and European chains of large upper atmospheric radar
    facilities. The PCO will allow us to better understand these unique
    atmospheric phenomena, enabling us to better forecast space weather,
    leading to the prevention of satellite damage, communication and
    navigation disruptions, and electrical power loss.

                             LARGE HADRON COLLIDER

        Question. While not yet in the NSF budget, the Department of Energy
    is proposing an advance appropriation of nearly $400 million for the
    Large Hadron Collider as part of its fiscal year 1998 budget. Is the
    Foundation planning on participating in the LHC and if so, when and in
    what way? Please provide the Foundation's funding profile and
    programmatic interest in the LHC.
        Answer. In February 1996, the National Science Board approved a
    Project Development Plan which authorizes NSF to proceed with planning
    and R&D support for possible eventual NSF participation in the Large
    Hadron Collider (LHC). In fiscal year 1996, about $1 million was
    provided from the Research and Related Activities (R&RA) account for
    these activities. We are planning to spend up to $1.4 million toward
    R&D in both fiscal year 1997 and fiscal year 1998. NSF grantees are
    proposing involvement in two detectors, ATLAS and CMS. NSF will not be
    involved in the construction of the LHC accelerator. It is standard
    practice at accelerator labs around the world that participating
    parties make financial and in-kind contributions to hardware for the
    experiments (i.e. the detectors) in which they are involved. NSF
    support for the construction of the detectors would likely begin in
    fiscal year 1999 and end in fiscal year 2003.
        NSF support for R&D and construction of the detectors was projected
    to be approximately $81 million. It is likely that a substantial
    portion of the funds will be requested through the Major Research
    Equipment (MRE) account, although the internal discussions that will
    shape our request have not yet been completed.
        We anticipate that about $61 million of the $81 million total would
    go to ATLAS R&D and construction, and the remaining $20 million to CMS
    R&D and construction. Operations costs for NSF participants would be in
    addition to these amounts, and would be provided via NSF's usual
    proposals procedures from R&RA resources.
        The National Science Board (NSB) authorized NSF participation in
    these construction projects at its May 1997 meeting. CERN has been
    informed from the beginning that NSB approval is necessary prior to
    NSF's involvement. This is written into the ``Umbrella Agreement'' and
    the ``Experiment Protocol'' that have recently been initialed by DOE,
    NSF, and CERN. The Director General of CERN, Chris Llewellyn-Smith,
    attended the March 1997 NSB meeting to discuss the LHC project with the
    Board.
        The DOE and the NSF have worked very closely together on this
    project. The process has been mutually consultative at each step over
    the last two or more years, and the result, in terms of inter-agency
    cooperation, has been very positive. Dr. Martha Krebs, Director of the
    Office of Energy Research at DOE, also attended the March 1997 NSB
    meeting to discuss the LHC project with the Board.
        To our knowledge, CERN has never stated that the U.S. would not be
    allowed access to the LHC should we not contribute. The Director of
    CERN, Chris Llewellyn-Smith, has recently reaffirmed that CERN has an
    ``open door'' policy with respect to U.S. participation in the LHC.
    This policy is a continuation of long-standing international tradition
    in the fields of nuclear and particle physics.

                            UNDERGRADUATE EDUCATION

        Question. The fiscal year 1998 budget also puts a rather high
    priority on undergraduate education--with a particularly large emphasis
    on an undergraduate reform initiative. What are your reasons for
    emphasizing undergraduate education seemingly, by the way, at the
    expense of the precollege level of education?
        Answer. In fiscal year 1998, NSF requests an increase of $11.3
    million (or 12.9 percent) for several critical undergraduate areas--
    teacher education, undergraduate institutional reform, and advanced
    technological education. Many of these NSF-funded undergraduate
    programs will in fact have a major impact on K-12 education. The
    rationale for these areas of emphasis are as follows:
      --Pre-Service Teacher Education.--The availability of well-trained
            teachers has been identified as one of the most critical needs
            of school systems engaged in science and mathematics reform.
            Retirements, student population growth, and turnover will
            require the hiring of more than two million teachers during the
            next decade, over 75 percent at elementary and middle grade
            levels. Therefore, NSF is investing more of its teacher
            education resources in accelerating production and subsequent
            career retention of teachers whose preparation meets national
            science and mathematics education standards.
      --Undergraduate Institution Reform.--Recent studies highlight the
            need for improving undergraduate education in science,
            mathematics, engineering, and technology (SMET) in order to
            achieve major gains in learning for all students--SMET majors,
            non-majors, and the future K-12 instructional workforce.
            Building on pilot efforts, this program will lead to visionary
            institutional models for stimulating the modernization of
            academic culture and infrastructure through development of
            innovative curricula and courses; revision of faculty reward
            systems; modification of operating policies, procedures, and
            budgets; and development of effective partnerships with
            industry and the broader community.
      --Advanced Technological Workforce.--Critical high-technology
            industrial sectors face shortages of personnel with requisite
            SMET expertise. Program efforts in this area address this need,
            as well as strengthen the capacity of two-year colleges to
            deliver SMET education. The effort also facilitates the
            transition among secondary schools, two- and four-year
            institutions, and the workplace and builds effective
            partnerships between the academic and industrial sectors.
        The proposed fiscal year 1998 support for preK-12 education ($376
    million) is a relatively modest decline of $1.73 million from fiscal
    year 1997. Within this relatively stable funding environment, NSF can
    continue to strengthen its programmatic impact by broadening systemic
    reform efforts; redirecting teacher education activities; and focusing
    attention on materials development and implementation strategies that
    effectively bring learning technologies into the classroom. NSF will
    also intensify its dissemination of standards-based curriculum models,
    research on teaching and learning, and effective strategies for
    systemic reform, teacher education, and the engagement of
    underrepresented groups (e.g., minorities, women, and the disabled) in
    SMET disciplines.

                         SCIENCE AND TECHNOLOGY CENTERS

        Question. The fiscal year 1998 budget proposes a net decrease in
    support of your science and technology centers of about $6 million.
    What is the Foundation's long range plan for the science and tech
    centers programs? Are you beginning to phase it out with this request?
        Answer. NSF has recently concluded a major evaluation of the
    Science and Technology Centers (STC) program in order to determine the
    future of the program. The National Academy of Public Administrators
    (NAPA) performed an evaluation of the management of the STC program and
    published their findings in NSF's STC Program--Building an
    Interdisciplinary Research Paradigm (July 1995). Abt Associates Inc.,
    under contract to the NSF, performed an evaluation of the STC program
    to determine the progress of the program towards its stated goals. This
    study was completed in June 1996. The National Research Council also
    performed an assessment of this program and the utility of this mode of
    support for fostering interdisciplinary research and published a report
    on their findings in An Assessment of the NSF's STC Program (August
    1996). Finally, an STC ad hoc Advisory Committee reviewed the findings
    of the aforementioned reports as well as reports from the NSF research
    directorate advisory committees on the STC Program, and made
    recommendations to the Director of the NSF regarding the STC program
    and how it fits into the NSF strategic plan. All of the reviews and
    evaluations stated this mode of support was very valuable to the NSF
    portfolio and recommended that the STC program should be continued.
        NSF views the STC program as a vehicle for innovation in the
    integrative conduct of research and education and knowledge transfer.
    This program helps NSF fulfill its strategic vision and, with
    programmatic and management modifications, we will continue to support
    it.
        On the basis of the numerous evaluations and reviews, in February
    1997, the National Science Board approved a plan to hold a new
    competition for Science and Technology Centers: Integrative
    Partnerships. This competition for new centers will be initiated in
    fiscal year 1998, with new competitions to be held about every three
    years. Each competition is expected to be for approximately $25 million
    with a steady-state being reached in 2006 of approximately $75 million.
        In the guidelines for the initial Science and Technology Centers
    program, it was written that the awardees would have a maximum of
    eleven years of NSF support and would be phased out in the final two
    years of their awards if they continued to be successful. In fiscal
    year 1998 the planned budget phase-down for the first cohort of STC's
    begins. Also in fiscal year 1998, NSF will have shut down two STC's due
    to performance issues. These factors contribute to the net decrease in
    support for STC's in the fiscal year 1998 budget.

              LASER INTERFEROMETER GRAVITATIONAL WAVE OBSERVATORY

        Question. Support for the LIGO observatory is slated to decline by
    some $22 million in fiscal year 1998. Presumably, this is because the
    construction phase of this project is beginning to come to an end.
    Please provide a brief update on LIGO.
        Answer. The fiscal year 1998 request for LIGO construction of $26
    million represents the final increment of support for LIGO
    construction. The construction at Washington is proceeding on schedule,
    but unusual rainy weather has delayed the scheduled initiation of
    construction activities at the Louisiana site. This is not expected to
    cause any significant delay in the final completion of the entire
    construction project.
        In Washington, the concrete slabs supporting the two beam tubes (4
    km vacuum pipes) have been finished. All beam tube sections produced
    have been individually tested, and no leaks were discovered that were
    due to the manufacturing process. Manufacture of the remaining tube
    sections is nearing completion and the contractor is planning to
    demobilize the spiral beam tube mill around June 1 in order to move it
    to Louisiana. Currently, one entire beam tube has been assembled and
    vacuum testing will begin shortly. The manufacture of all the 2,500
    precast concrete beam tube enclosures is complete, and the casting
    forms are being demobilized for shipment to Louisiana. The corner and
    mid-station buildings are under construction. The vacuum equipment
    vendor has completed six of the large vacuum chambers which will house
    the optical components needed for the experimental program.
        In Louisiana, the first concrete was poured in March. Preparations
    are underway for the installation of the concrete slabs, and the road
    along one arm has been constructed. The state of Louisiana has
    completed construction of the bypass road which provides alternate
    access to the southern end of the facility.

                    PRECOLLEGE TEACHERS OF SCIENCE AND MATH

        Question. In fiscal year 1998 you are proposing to increase your
    support for teacher preparation substantially (up by $7 million) while
    at the same time you are calling for a reduction in support for teacher
    enhancement to the tune of $8 million. Please explain the difference
    between teacher preparation and teacher enhancement and why the teacher
    preparation program is being emphasized seemingly at the expense of
    enhancement activities.
        Answer. Teacher training activities--both preparation and
    enhancement--remain high priority areas within NSF's support of K-12
    education. The goal of both programs is to support development of a K-
    12 instructional workforce with sufficient grounding in disciplinary
    content and pedagogy to deliver standards-based science and mathematics
    education. Teacher preparation focuses on undergraduate education of
    pre-service (or future) teachers; teacher enhancement focuses on
    strengthening skills of in-service teachers (i.e., the current
    workforce). In general, teacher preparation is viewed as a long-term
    strategy for improving the instructional workforce while teacher
    enhancement is more short-term in nature. Each strategy complements the
    other and activities must be coordinated. Over time, stronger pre-
    service teacher training will change the nature of in-service training.
        The redirection of funding to teacher pre-service education is
    derived from identified needs at the national level, as well as those
    to ensure success of NSF systemic reform projects. Studies show that
    (1) retirements, student population growth, and turnover will result in
    the hiring of more than two million teachers during the next decade,
    over 75 percent at elementary and middle grade levels and (2)
    availability of well-trained teachers presents a major obstacle to the
    effective implementation of science and mathematics education reform.
    In fiscal year 1998, NSF intends to pursue a revised strategy for
    teacher preparation that will accelerate production and subsequent
    career retention of teachers whose preparation meets national science
    and mathematics education standards.
        Teacher enhancement operates in an environment in which a vast
    majority of an instructional workforce of more than 2.5 million
    teachers requires remedial training, especially at the K-8 grade
    levels. Over the past several years, teacher enhancement has pursued a
    strategy for training the instructional workforce within entire
    districts thereby broadening program impact, strengthening the training
    of individual teachers, and positioning school districts for continual
    development of their instructional workforce well after termination of
    NSF funding. The gains made under this strategy will leave in place a
    strong program despite the budget reduction.

                          OCEAN DRILLING VESSEL REFIT

        Question. The budget proposes to allocate about $1.5 million for
    some retrofit work associated with the ocean drilling vessel. Please
    provide the agency's future plans for the ocean drilling program.
        Answer. The Ocean Drilling Program is a multinational program of
    basic scientific research in the oceans which uses drilling and data
    from drill holes to improve fundamental understanding of the role of
    physical, chemical and biological processes in the geological history,
    structure and evolution of the oceanic portion of the earth's crust.
    Operational support for this activity is shared by seven international
    partners, comprising 19 other countries.
        In fiscal year 1998, the JOIDES Resolution is scheduled for a mid-
    life refit. This refit, which will cost $6 million over two years, is
    necessary to extend the life of the ship. This will be the first major
    replacement and upgrading of primary ship systems since the ODP began
    in 1985. Emphasis will be on ship station-keeping capability, pipe
    handling and drilling systems, and improvements to laboratory and
    personnel spaces. With these improvements, operational life of the
    vessel will be adequate to support the Program through 2003.
        An additional motivation for conducting a mid-life refit is that
    doing so will result in considerable cost savings to NSF. Under the
    terms of the operating contract for the ship, unless a refit is done,
    the daily rate NSF is charged for drilling activities will have to be
    renegotiated. The large increase in ocean drilling activities
    associated with oil exploration has caused the average industry daily
    rate to jump significantly. We estimate that a renegotiated daily rate
    would be at least twice what we currently pay. Under these assumptions,
    the entire cost of the mid-life refit will be recovered in cost savings
    in about 120 days of operation. The JOIDES Resolution is operated
    essentially year-round.
        In addition, planning for ocean drilling activity beyond 2003 is
    underway. JOIDES (Joint Oceanographic Institutions for Deep Earth
    Sampling) has recently published a Long Range Plan which calls for the
    addition of a second drilling vessel in the period following 2003. This
    vessel would be capable of deploying a marine riser and well-control
    equipment to improve hole stability while drilling deep holes and to
    allow drilling in areas of oil and gas accumulations.
        Simultaneously, the Science and Technology Agency (STA) in Japan
    has been working to attain resources to construct a next-generation
    drillship of the type envisioned by JOIDES. STA is committed to seeking
    the $500-$600 million required for the new vessel's construction.
        Recently, the Japanese and JOIDES plans have been merged into what
    is presently called the ``Integrated Ocean Drilling Program'' which
    would operate two vessels--one to undertake global studies of climate
    and oceanographic processes requiring large spatial arrays of cores,
    and the second to provide deep drilling for studies of continental and
    ocean crust evolution. NSF and STA staffs are pursuing additional
    international participation in the program.

                             ARCTIC RESEARCH VESSEL

        Question. Please provide an update on the Coast Guard icebreaker.
    What role is NSF playing so that this vessel will serve the needs of
    the arctic research community?
        Answer. NSF and the U.S. Coast Guard established an Arctic
    Icebreaker Coordinating Committee (AICC), which operates under the
    auspices of the University National Oceanographic Laboratory System
    (UNOLS). The AICC chair, Dr. James Swift of Scripps Institution of
    Oceanography, reports that the AICC has made an ``excellent start to a
    working relationship with the ship construction oversight group'' of
    the Coast Guard. The AICC, which represents the research community, has
    met both in Washington, DC, and at the shipyard in Louisiana where the
    icebreaker is being constructed. Based on these reports, the committee
    has made a number of recommendations regarding science-related layout
    and specifications of the ship and has found the Coast Guard receptive
    to these suggestions. In fact, certain changes in the main deck science
    area will be accommodated during construction instead of waiting until
    after delivery in 1998, as originally planned by the Coast Guard. Dr.
    Swift states that AICC is pleased that the Coast Guard is working to
    meet the needs of the research community. Final conclusions on the
    suitability of the ship for research support purposes will ultimately
    depend on sea trials, but at this point the research community is
    optimistic about progress with respect to the ship, which has been
    named the Healy.

         TECHNOLOGY PROGRAM IN RESEARCH, EVALUATION, AND COMMUNICATION

        Question. The Technology program in EHR is slated to increase by
    over 40 percent in fiscal year 1998. What is this program designed to
    accomplish and why is such a substantial increase necessary?
        Answer. In education, technology is both the catalyst for change
    and a means to implementing significant reform and restructuring. It
    affords the opportunity to equalize access to high-quality materials
    and expertise; to connect learning communities that foster development
    of knowledge bases; and to individualize instruction in response to
    differences in learning styles. Yet, the academic sector has yet to
    visualize the potential, let alone realize the benefits of the computer
    revolution.
        The Foundation brings leadership and critical expertise to
    research, experimentation, and implementation of educational
    technologies that support science, mathematics, engineering, and
    technology (SMET) education. Current programmatic emphasis is on
    developing new strategies that promise to make significant and lasting
    improvements in the nation's educational system. In fiscal year 1998,
    the technology-related increment of $5.25 million is directly
    attributable to Learning and Intelligent Systems (LIS) which supports
    the NSF-wide Knowledge and Distributed Intelligence (KDI) initiative.
    LIS will stimulate interdisciplinary research that promotes use and
    development of information technologies in learning. Priority will be
    placed on: (1) embedding technology within learning systems for
    judicious and appropriate use; (2) expanding R&D on advanced
    technologies for the enhancement of student achievement and teacher
    competencies in standards-based pre-K-12 education, as well as inquiry-
    based undergraduate education; (3) integrating technology to enrich the
    pre-K-12 educational enterprise with emphasis on creating and modifying
    effective tools to enrich teaching and learning; and, (4) strengthening
    collaborations and partnerships between developers of learning
    technologies and education experts. Programming efforts will continue
    to focus on several critical issues: the absence of science and
    mathematics content for delivery by hardware/software systems; barriers
    afforded by the instructional workforce; and other factors that affect
    large-scale, systemic implementation (e.g., education policies,
    resources).

                        MAJOR RESEARCH EQUIPMENT ACCOUNT

        Question. Please provide your plans for the next five years for
    this account, including what projects you plan to fund and what dollar
    levels.
        Answer. The fiscal year 1998 Budget Request for the MRE account
    includes $85 million for four projects: completion of construction
    funding for Laser Interferometer Gravitational-Wave Observatory ($26
    million); initial funding for the design and development phase of the
    Millimeter Array ($9 million); construction of the Polar Cap
    Observatory ($25 million); and initial requirements for modernization
    of South Pole Station ($25 million). In addition, there are several
    potential projects for future consideration.
        NSF senior management are currently conducting an annual review of
    MRE candidates to determine which projects may be considered for
    funding in fiscal year 1999 and which are more appropriate for later
    consideration. Decision factors include scientific merit, technical
    readiness, quality and comprehensiveness of the planning effort, impact
    on other programs, balance and availability of funds. Several projects
    are in the preliminary stage, with planning, design, construction and
    cost estimates still being assessed. With the exception of the Large
    Hadron Collider and continued work on South Pole Station, all of the
    other projects are at various stages in conceptual design.
        Below is a brief description of some potential future projects--
    over the next five years and beyond--with preliminary cost estimates:
      --Large Hadron Collider (LHC).--The LHC will be constructed at the
            CERN Laboratory in Geneva, Switzerland by a consortium of more
            than 22 nations and will be the world's most energetic
            accelerator. Coupled to this device will be four particle
            detectors, including the two largest, most complex ever built,
            ATLAS and CMS. NSF support for the construction phase of the
            ATLAS and CMS projects, pending Congressional approval of U.S.
            participation in the LHC project, is expected to be $81
            million.
      --South Pole Station.--The Foundation is currently considering the
            recommendations of the U.S. Antarctic Program External Panel
            (the Augustine Panel) regarding modernization of the U.S.
            research station at the South Pole. Those recommendations
            outline the need to replace the station--for economic, safety
            and operational reasons--at a cost of approximately $125
            million. The fiscal year 1998 Budget Request includes $25
            million toward this modernization, leaving an anticipated
            balance in the range of $100 million for fiscal year 1999 and
            beyond.
        The following potential projects are in a more preliminary planning
    phase than those cited above:
      --High Altitude Research Platform (HARP).--HARP is a specially-
            instrumented high altitude mid-sized jet with range, altitude
            and communication capabilities that will significantly advance
            national capabilities in airborne research and provide
            measurement access over the entire globe. The acquisition cost,
            which includes airframe, structural modifications, research
            modifications, and instrumentation, is estimated at about $60
            million.
      --National Network for High Performance Seismic Simulation (NHPS).--
            NHPS is a geographically distributed set of facilities linked
            by an efficient communication network, for research in earth
            sciences, geotechnical and structural engineering, and
            earthquake-related social science that contributes to
            earthquake hazard mitigation. The preliminary projected total
            cost for developing new facilities, upgrading existing
            facilities, integrating them and developing one or several user
            networks is estimated to be in the range of $100 to $120
            million.
      --Millimeter Array (MMA)--Construction Phase.--The MMA will be the
            world's most sensitive, highest resolution, millimeter-wave
            telescope. Following the proposed three-year design and
            development phase of MMA (requested for funding in fiscal year
            1998), NSF will decide whether to proceed to the capital
            construction phase. Costs for construction are estimated to be
            approximately $200 million. International or other agency
            participation will be sought.
      --Coastal Research Vessel.--A coastal research vessel is planned as a
            replacement for one or more existing aging research vessels.
            Interdisciplinary studies of coastal systems require the
            involvement of a large contingent of scientists engaged in a
            diverse mix of activities, including the rapid sampling of
            conditions for extended periods. The diversity of measurements,
            experiments, and over-the-side operations necessary for the
            conduct of science require extensive laboratory and deck space,
            usually not available on the current coastal research ships.
            Estimated costs for construction are in the range of $20
            million to $30 million.
      --Ocean Drillship.--The Ocean Drilling Program (ODP) is a
            multinational program, consisting of a total of seven
            international partners involving nineteen nations. Continued
            use of the Drilling Vessel (DV) JOIDES Resolution as the
            primary facility for ODP coring and logging is anticipated
            through at least 2003. In ongoing discussions with Japan and
            European ODP partners on future drillship requirements,
            possible alternatives have been identified including a major
            refitting of the DV JOIDES Resolution. The U.S. will be
            expected to help support the maintenance of ODP drillship
            capabilities. If this alternative were to be pursued, the total
            estimated cost is in the range of $50 million to $70 million.
      --National Spallation Neutron Source (NSNS).--The U.S. has fallen
            behind the European scientific community in the past twenty
            years in the availability of neutron sources and
            instrumentation. No single agency is able to take full
            responsibility for a facility of this kind. The proposal calls
            for a joint partnership between DOE and NSF. DOE would
            construct the proton accelerators and one fully instrumented
            target area at a cost of approximately $1 billion. NSF would
            assume the responsibility for the second fully instrumented
            target area. At the present time, the estimated cost would be
            approximately $150-175 million.
        This list provides an indication of the ongoing planning for major
    research equipment. Other projects are likely to be brought forward--
    such as an ocean floor observatory system to understand processes in
    the ocean crust--as planning continues and as needs for forefront
    facilities are defined.
        Question. What mechanisms do you have in place to discourage cost
    overruns in major equipment projects?
        Answer. Projects funded through the Major Research Equipment (MRE)
    account contain award conditions which allow NSF to monitor the
    performance of the organizations that construct, manage and operate
    research facilities, and to oversee the expenditure of federal funds.
    Increasingly, large projects are being undertaken on a ``build-to-
    cost'' basis that controls cost overruns. In the current MRE program,
    cost overruns are to be borne within the sponsoring organization within
    NSF, a policy that focuses additional attention by staff to this issue.
    The NSF Director names an NSF staff person to be responsible for
    monitoring progress during the construction phase of a MRE project and
    for advising on the transition from construction to operations. The
    responsibility for project management typically resides in the
    cognizant disciplinary division or office, with assistance provided as
    necessary from other parts of the NSF. Status reports on the progress
    of MRE projects are provided by the responsible directorate or office
    at least semiannually to the Chief Operating Officer, the Director and
    to the National Science Board (NSB).
        At its February 1997 NSB meeting, the NSB Committee on Programs and
    Plans received status reports on all major facilities construction
    projects. At the present time, internal discussions with staff about
    the oversight of large facilities are being conducted by the Chief
    Operating Officer. Recommendations will be made to the Director based
    on these discussions.

                            NEXT GENERATION INTERNET

        Question. What is NSF's role in the interagency Next Generation
    Internet project? What are the expected outcomes for this project.
        The Next Generation Internet project has three closely-related
    goals:
        1. To connect about 100 leading research universities and labs with
    an advanced network fabric that provides an increase of 100 fold in
    end-to-end performance and serves as a testbed for the development of
    future Internet technologies,
        2. To develop, test, and model future network technologies that
    provide differentiated qualities of service, enhanced reliability and
    security, and other capabilities required for advanced applications of
    the Internet, and
        3. To develop and model advanced applications that better support
    important national objectives in research, education, medicine, crisis
    management, commerce, etc.
        NSF will play an important role in all three facets of the NGI:
        1. NSF's ongoing ``high-performance connections'' program will play
    a central role in the first NGI goal by interconnecting about 100
    leading universities and their research partners to NSF's existing
    VBNS, the very high-speed backbone network service. (The VBNS recently
    has been selected as the primary network of ``Internet 2,'' a
    university-based consortium committed to the development of advanced
    networking to support future modes of education.)
        2. NSF will continue to fund research in network technologies in a
    coordinated effort with DARPA and other agencies.
        3. NSF will direct more than $200 million in new and existing
    funding to the development of a wide variety of advanced network
    applications in the cross-foundation Knowledge and Distributed
    Intelligence (KDI) program.
        Nearly all programs in NSF are expected to substantially benefit
    from the deployment of the advanced network fabric of the NGI, and some
    (e.g., the PACI partnerships) depend by design on NSF's success in the
    connections program.

                LIFE IN EXTREME ENVIRONMENTS (LEXEN) INITIATIVE

        Question. The NSF budget includes funding for an initiative called
    ``Life in Extreme Environments (LExEn),'' an exobiology program that is
    one of the components of the Administration's Origins Initiative. While
    $35.9 million is requested for this program in 1998, it appears that
    little of this investment represents new money. Given the
    Administration's emphasis on this particular initiative, including the
    meeting which the Vice President hosted last fall, why are there no
    additional funds proposed for it in 1998?
        Answer. Recent discoveries of the incredible diversity of microbial
    life here on Earth, the development of molecular techniques for
    analyzing genetic material, discoveries concerning volcanism on our
    ocean floors, oceans on Europa, and extra-solar planets around other
    stars, have revolutionized our perceptions of life and the potential
    for life in extreme environments.
        To capitalize on these discoveries, the National Science Foundation
    invested $6 million in fiscal year 1997 in a special competition
    focused on the development and application of techniques, technologies
    and methodologies associated with the Life in Extreme Environments
    (LExEn) initiative. Together with related research, the total effort
    for the LExEn initiative accounted for more than $35 million in fiscal
    year 1997.
        We estimate that our investment in the LExEn Activity will continue
    to exceed $35 million in fiscal year 1998. This estimate is based upon
    support that individual programs within the Foundation expect to devote
    to the LExEn Activity. NSF believes that the research accomplished at
    this funding level, along with increased support for specific
    activities not included under the LExEn umbrella, will contribute
    significantly to the ORIGINS initiative.

                        NSF PARTICIPATION IN ``ORIGINS''

        Question. We understand that NASA, the Department of Energy (DOE),
    and NSF are discussing the consideration of an interagency Origins
    program, with NSF taking a broader role than simply to support the
    LExEn initiative, but to include a significant role in the use of
    ground-based optical observatories to help in the detection of planets
    and determine the origins of the universe. We further understand that
    NSF alone has been unwilling to sign this proposed agreement. Can you
    explain why the Foundation has not agreed to support this interagency
    effort and when we might see a change of heart from the leadership of
    the Math and Physical Sciences Directorate to support a significant and
    meaningful role for NSF in Origins?
        Answer. NSF's support for ``Origins'' research includes continued
    funding for the Life in Extreme Environments (LExEn) initiative,
    increased funding for a number of research activities to be supported
    collaboratively with NASA or the Department of Energy (DOE) under the
    ``Origins'' umbrella, support for the Design and Development phase of
    the Millimeter Array, and support for the Gemini Telescopes. Together,
    these constitute a much broader role for NSF than simply maintaining
    support for the LExEn initiative.
        NSF is unaware of any proposed interagency agreement concerning
    ``Origins'' but is participating actively with NASA and DOE in
    developing a brochure describing the activities of the three agencies
    concerning ``Origins'' research. NSF regards the suite of activities
    described above to constitute a very significant and meaningful role
    for NSF in ``Origins''. In fact a major portion of NSF's Division of
    Astronomical Sciences' efforts are focused already on questions related
    to the origin of the Universe. Within the next two years, the upgraded
    Arecibo Telescope, the new Green Bank Telescope, and the Gemini
    Telescope in Mauna Kea will become operational, adding immensely to the
    capabilities for exploring these questions.

                 OPTICAL ASTRONOMY PARTICIPATION IN ``ORIGINS''

        Question. Does NSF's outyear planning estimates (fiscal year 1999-
    2002) for the MPS Directorate assume any funding in optical astronomy
    for the Origins Initiative over and above the base funding for
    astronomy? If so, please explain. If not, please advise the Committee
    on why this has been given relatively lower priority relative to other
    NSF programs, particularly within MPS.
        Answer. NSF's outyear planning for optical astronomy does assume
    funding for ``Origins'' over and above the base funding for astronomy.
    This includes (1) increased participation in the Life in Extreme
    Environments (LExEn) initiative, and (2) a joint effort with NASA to
    support comparative investigations of planetary atmospheres. Probably
    the most important development in NSF's efforts in optical astronomy in
    the outyears will be the completion of construction of the Gemini
    Telescopes and the beginning of Gemini operations, first at Mauna Kea
    in 1998 and at Cerro Pachon in Chile in 2000.

                              subcommittee recess

        Senator Bond. There being no further business to come
    before the subcommittee, we stand recessed.
        [Whereupon, at 11:10 a.m., Tuesday, April 22, the
    subcommittee was recessed, to reconvene subject to the call of
    the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                             THURSDAY, MAY 1, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 2:23 p.m., in room SD-124, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Mikulski, and Harkin.
        Also present: Senator Faircloth.

                         DEPARTMENT OF VETERANS AFFAIRS

                            Office of the Secretary

    STATEMENT OF HON. JESSE BROWN, SECRETARY
    ACCOMPANIED BY:
            KENNETH W. KIZER, M.D., M.P.H., UNDER SECRETARY FOR HEALTH
            D. MARK CATLETT, ASSISTANT SECRETARY FOR MANAGEMENT
            STEPHEN L. LEMONS, ACTING UNDER SECRETARY FOR BENEFITS
            JERRY BOWEN, DIRECTOR, NATIONAL CEMETERY SYSTEM
            KATHY E. JURADO, ASSISTANT SECRETARY FOR PUBLIC AND
                INTERGOVERNMENTAL AFFAIRS
            WILLIAM MERRIMAN, DEPUTY INSPECTOR GENERAL
            EDWARD SCOTT, ASSISTANT SECRETARY FOR CONGRESSIONAL AFFAIRS
            SHIRLEY C. CAROZZA, DEPUTY ASSISTANT SECRETARY FOR BUDGET
            ROGER BAUER, VICE CHAIRMAN, BOARD OF VETERANS' APPEALS
            MARY LOU KEENER, GENERAL COUNSEL
            EUGENE BRICKHOUSE, ASSISTANT SECRETARY FOR HUMAN RESOURCES AND
                ADMINISTRATION
            DENNIS DUFFY, ASSISTANT SECRETARY FOR POLICY AND PLANNING

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good afternoon. The committee will come to
    order. Let me apologize again for the schedule of the Senate.
    We had a vote that began just after 2 p.m., and I wanted to
    make that vote so that I could come back and start as soon as
    possible.
        Senator Mikulski, who has been here, asked us to go ahead.
    I will make sure to submit to her a full copy of my written
    statement so she will not miss anything, and we are very
    pleased today to welcome on behalf of the Department of
    Veterans Affairs on the fiscal year 1998 budget request
    Secretary Jesse Brown and other VA officials.
        The Department of Veterans Affairs appropriations request
    totals about $40 billion, including $21.3 billion in mandatory
    programs and $18.7 billion in discretionary programs.
    Discretionary appropriations would decrease in fiscal year 1998
    by $225 million, while mandatory programs would increase by
    about $1 billion.
        In general, VA's budget request is modest, and the goals
    presented are worthy, albeit ambitious. The budget reflects
    continued progress in overhauling VA service delivery without a
    massive price tag. However, there are a number of important
    concerns raised by the budget request.
        The largest discretionary program in this subcommittee's
    jurisdiction, and one of our highest priorities, is veterans'
    medical care, for which no increase has been requested. In
    fact, under the President's budget VA medical care actually
    would be reduced by $54.6 million owing to some accounting
    changes, but in essence the proposed budget would freeze VA
    medical care at about $17 billion in fiscal year 1998.
        In order to finance the increase VA believes is necessary
    to cover inflation, payroll, and other increases, the
    administration is proposing the Department be authorized to
    retain third-party collections and veterans copayments totaling
    about $468 million after deducting administrative costs.
        Mr. Secretary, the administration's proposal is a great
    gamble, with veterans' medical care at stake. I am concerned
    that, while it provides an incentive for VA to improve cost
    recovery, and that is not a bad idea, the concept is part of a
    large and, frankly, controversial package of proposed user fees
    for a number of departments.
        Should VA's proposal not be enacted as part of the budget
    reconciliation legislation, I really question whether the
    Veterans Health Administration could avoid making large
    reductions in staff and undertaking other major cost-cutting
    measures if no increase in discretionary appropriations were to
    be provided.
        We have to acknowledge, and we are delighted to
    acknowledge, that the VA has made significant and impressive
    changes to its health care system in the last 2 years. The
    system has been completely restructured. Major improvements
    have been put in place and are continuing to be implemented,
    such as enrolling patients in primary care, eliminating
    redundancies and unnecessary management layers, increasing the
    use of ambulatory care, and implementing bulk purchasing.
        These changes have enabled the VA to redirect millions of
    dollars to patient care. In just one of VA's 22 networks
    savings of $130 million have been made this year alone. VA has
    actually managed to do more with less, a real success story of
    which you and your team can rightfully be proud.
        In addition, VA has overhauled its allocation methodology,
    vastly improving the fairness and appropriateness with which
    resources are allocated to facilities. While some fine tuning
    may be needed, the new system is a tremendous step forward.
        The changes have occurred in large part due to the
    leadership and vision particularly of Dr. Ken Kizer. He
    deserves accolades for bringing these important and long-needed
    changes about.
        Before Dr. Kizer's arrival at the VA, the idea of such
    dramatic changes would have been considered heresy, and Dr.
    Kizer I hope still you are not being tried for heresy in the
    Department, but I am afraid a funding freeze would do more than
    force efficiencies. A funding freeze could have the effect of
    eviscerating some of the improvements which are now underway.
        The American Legion has advised us that the flat
    appropriations levels recommended in the fiscal year 1998-2002
    medical care budget proposal are far beyond what the system can
    absorb without jeopardizing the quantity, quality, timeliness
    and access to care.

        Mr. Secretary, if you recall, at last year's hearing you
    stated VA could not operate on flat funding. You said it would
    force VA to eliminate about 60,000 physicians and deny care to
    about one million veterans and would force you to close the
    equivalent of 41 hospitals. We raised questions about that at
    the time, and I still have some questions about the adequacy of
    the budget request before us.
        In addition, the President's budget is predicated on the
    assumption that VA can achieve a 30-percent reduction in per-
    patient cost, a 20-percent increase in the number of patients
    served, a 10-percent increase in revenues from nonappropriated
    sources by the year 2002. It would be a great feat if you could
    do it. Again, I am from Missouri. You are going to have to show
    me.

                               PREPARED STATEMENT

        VA's 30-20-10 goal is based on enactment of the cost
    recovery proposal, and the Medicare subvention proposal, both
    of which are controversial and problematic. In addition, we do
    have some concerns about whether VA's projections are overly
    optimistic. GAO has submitted testimony for the record today,
    and unlike most GAO reports, it notes with approval many of the
    changes that have been undertaken, and I again commend you on
    the favorable report from an agency not always prone to give
    favorable reports.
        [The statement follows:]

                    Prepared Statement of Stephen P. Backhus

        Mr. Chairman and Members of the Subcommittee: We are pleased to
    contribute this statement for the record for the Subcommittee's
    deliberations on the President's 1998 budget request for the Department
    of Veterans Affairs (VA) health care system. With a 1997 medical care
    appropriation of $17 billion and a declining veteran population, VA
    faces increasing pressure to contain or reduce spending as part of
    governmentwide efforts to achieve a balanced budget. Last year, we
    reported that VA's health care system had the opportunity to reduce its
    operating costs by billions of dollars over the next several years.\1\
    ---------------------------------------------------------------------------
        \1\ VA Health Care: Opportunities for Service Delivery Efficiencies
    Within Existing Resources (GAO/HEHS-96-121, July 25, 1996) and VA
    Health Care: Opportunities to Increase Efficiency and Reduce Resource
    Needs (GAO/T-HEHS-96-99, Mar. 8, 1996).
    ---------------------------------------------------------------------------
        VA's 1998 budget proposal requests a medical care funding level of
    $17.6 billion, consisting of an appropriation of almost $17 billion and
    a legislative proposal to retain insurance payments and other third-
    party reimbursements.\2\ VA characterizes this as the first step in a
    5-year plan to reduce its per patient cost by 30 percent, increase
    patients served by 20 percent, and finance 10 percent of its
    expenditures using nonappropriated revenues by the year 2002. VA
    proposes to use appropriations of about $17 billion over the next 5
    years and supplement this with increases in third-party reimbursements
    that are estimated to be $1.7 billion in 2002.
    ---------------------------------------------------------------------------
        \2\ This includes $123 million of administrative costs for third-
    party insurance recoveries and $68 million of reimbursements for
    veterans compensation and pension examinations.
    ---------------------------------------------------------------------------
        Our comments focus on VA's 5-year plan, including the outlook for
    attaining the stated targets and the potential effects on veterans and
    others. In addition, as requested by the Subcommittee, we also offer
    our preliminary observations on VA's progress on two major initiatives:
    developing a method to more equitably allocate resources and
    establishing a decentralized management structure to more efficiently
    and effectively deliver services. We plan to provide the Subcommittee
    more detailed information on these two initiatives at a later date.
        Our comments on VA's budget proposal are based on past and ongoing
    work to assess operating policies, procedures, and practices of VA
    hospitals and clinics.\3\ We spoke with hundreds of VA officials and
    examined a wide array of documents, including VA's budget submission,
    annual reports, and studies done by VA's Office of Inspector General
    and others. Our comments on VA's decentralized management and resource
    allocation initiatives are based on information obtained from
    discussions with officials at headquarters and seven networks as well
    as a review of documents they provided.
    ---------------------------------------------------------------------------
        \3\ A list of related GAO testimonies and reports appears at the
    end of this statement.
    ---------------------------------------------------------------------------
        In summary, while VA's budget goals may be attainable, they also
    carry implications such as limited deficit reduction contributions and
    potential risks to low-income, uninsured veterans. Achieving increased
    efficiency is not contingent on either increases in patients served or
    resources. VA's ongoing efforts to restructure its health care system
    could yield billions of dollars in savings during the next 5 years. A
    large part of these savings would be realized through more efficient
    use of its workforce, which will allow the existing patient base to be
    served with fewer employees. In fact, sufficient savings could be
    generated to afford VA an opportunity to increase patients served
    without new resources or increase its contribution to deficit
    reduction. Furthermore, VA can significantly decrease its reliance on
    appropriated resources by using its existing authority to sell excess
    capacity to help other federal agencies meet their beneficiaries'
    health care needs.
        VA's proposal to generate billions of dollars in new revenue to
    serve 20 percent more patients intensifies VA's direct competition with
    the private sector and potentially leaves low income, uninsured
    veterans vulnerable. VA may be able to attain its revenue goals only by
    attracting thousands of new users who have higher incomes or public or
    private insurance. And such new VA users are likely to be drawn from
    private providers who may see their revenue base erode as patients
    shift to VA care. Moreover, VA may spend unreimbursed resources on
    these veterans that could reduce the availability of resources for low-
    income, uninsured veterans.
        VA also faces a difficult challenge as it takes steps to implement
    a new resource allocation method to improve veterans' access to VA care
    and a decentralized management structure to improve resource
    utilization. These initiatives promise improvements in equity and have
    stimulated significant changes in efficiency. However, VA's challenge
    will be to adequately monitor these changes to identify and correct
    unintended effects such as those that limit equity of access.

                                   BACKGROUND

        VA's role in providing for the health care needs of veterans has
    evolved over time. During its first 50 years, VA predominantly served
    veterans who had disabilities caused or aggravated by military service
    and other low-income, uninsured veterans in need of a health care
    safety net. Over the past 10 years, VA has also served higher income
    and insured veterans with nonservice-connected conditions. Over time,
    however, VA's patient base has been shifting from serving primarily
    veterans with service-connected conditions to those without service-
    connected conditions. Currently, VA operates over 750 facilities,
    including 173 hospitals and over 400 outpatient clinics. These
    facilities serve 2.6 million of the nation's almost 26 million veterans
    as well as about 300,000 nonveterans.
        In 1995, to promote greater efficiency and services to veterans, VA
    created a new decentralized management structure, forming 22 Veterans
    Integrated Service Networks (VISN). These networks replaced the
    previous structure's four regions and expanded their authority. The
    VISN is now the basic budgetary and decision-making unit of VA's health
    care system and exercises management authority over VA facilities in
    its geographic area. This system of networks clearly places value on
    efficiency and customer service, and the networks are empowered to make
    a wide range of decisions regarding care delivery options. Under the
    recently enacted eligibility reform legislation (Public Law 104-262),
    for example, networks can contract with a broader range of private
    providers to purchase services at prices lower than VA's costs and
    generate revenue by selling excess services. In April 1997, VA
    implemented the Veterans Equitable Resource Allocation (VERA) system to
    allocate medical care appropriations among the 22 VISN's. VERA is
    intended to improve the equity of resource distribution throughout VA's
    health care system.
    efficiency savings not dependent on increased number of veterans served
        Last year, we testified that VA could save billions of dollars over
    the next 7 years through improved efficiency. As noted before, the
    Congress subsequently gave VA the two additional tools-eligibility
    reform and expanded contracting authority--that VA said were key to the
    success of its efforts to increase efficiency. With these tools, VA can
    help veterans prevent costly hospital admissions and access lower cost
    services, regardless of where veterans reside. VA's 1998 budget
    request, however, suggests that VA will be able to achieve 30 percent
    efficiency savings over the next 5 years only if it has the additional
    resources to serve 20 percent more patients.
        Over the past 18 months, VA has taken aggressive steps to change
    the way it operates to reduce costs and improve services to veterans.
    These initiatives are expected to save billions of dollars by avoiding
    unnecessary expenditures. Most of the initiatives involve a resizing
    and more efficient use of its workforce, which accounts for over $10
    billion of VA's medical care budget. For example, VA is shifting
    patient care from inpatient to outpatient settings as well as reducing
    average lengths of inpatient stays. It is also consolidating management
    and clinical services of nearby hospitals to reduce costs. Moreover, VA
    is exploring opportunities to contract with other health care providers
    for services at costs lower than VA's.
        These restructuring efforts should save billions of dollars without
    attracting new users as the following examples indicate:
      --VA established a pre-admission screening process for hospitals
            that, if effectively implemented, could save $8.4 billion over
            the next 5 years.
      --VA integrated the management of two or more nearby facilities in 26
            different locations, which should result in savings of $230
            million over the next 5 years.
      --VA shifted substance abuse treatment from an inpatient to an
            outpatient setting in one service location, which is expected
            to result in savings of $10 million over the next 5 years.
        Currently, VA has teams exploring additional opportunities for
    streamlining operations and reducing workforce needs. Many of these
    teams are identifying ways to use lower cost methods for delivering
    services within individual facilities. For example, many facilities are
      --reducing patient bed-days of care, including one location that
            would close seven medical wards and generate potential savings
            of almost $50 million over the next 5 years, and
      --shifting inpatient surgeries to ambulatory settings, including one
            location that shifted enough workload among facilities to close
            two surgical wards and potentially save over $15 million during
            the next 5 years.
        VA also has many teams exploring ways to consolidate services at
    nearby facilities. Such actions should result in significant savings
    over the next 5 years as shown by the following examples:
      --Facilities in one service area are planning to integrate eight
            pathology and laboratory medicine services into a single
            business unit with two central laboratories. This integration
            is expected to save about $10 million over the next 5 years.
      --Facilities in another area are exploring ways to consolidate small
            purchases into one location, which is expected to save over $20
            million during the next 5 years.
        Additional savings opportunities could be available in later years
    from the closing of hospitals whose workloads may be shifted to nearby
    hospitals that have sufficient unused capacity to efficiently and
    effectively meet veterans' needs. For example, closing a facility with
    about 300 beds could save over $100 million in overhead costs alone
    during a 5-year period.

     EFFICIENCY SAVINGS COULD PROVIDE OPPORTUNITIES TO SERVE MORE VETERANS
                          WITHOUT ADDITIONAL RESOURCES

        VA could expand its current patient base if its efficiency savings
    exceed payroll and other cost increases. These costs are expected to be
    about $637 million in 1998 and to increase by a rate of about 4 percent
    a year over the next 5 years.
        The effect of VA's efficiency savings is to increase its purchasing
    power each year. For example, most of the savings are attributable to
    reductions in VA's workforce, which currently numbers about 189,000
    full-time equivalents. VA may need to reduce its workforce by about
    6,800 full-time equivalents to realize an annual savings of $637
    million. This level of reductions would decrease VA's resource needs by
    comparable amounts in succeeding years. Thus, an annual appropriation
    of $17 billion could be sufficient to serve 2.9 million patients in
    2002 if efficiency savings and cost increases approximate $637 million
    a year, on average. Moreover, VA could increase its patient base if its
    efficiency initiatives yield greater savings.

       ADDING RESOURCES FURTHER ENHANCES VA'S OPPORTUNITY TO SERVE MORE
                                    VETERANS

        VA's 1998 budget proposes reinvesting all efficiency savings and
    using additional resources to expand its patient base. VA expects to
    add a total of $5.8 billion in new resources over the next 5 years
    (from public and private insurers and others), starting with $737
    million in 1998 and increasing to $1.7 billion in 2002. VA expects that
    these additional resources will allow it to increase the number of
    veterans served by 587,000 which would increase its patient base from
    2.9 million to 3.5 million in 2002.
        If the targeted resource levels are attained, VA appears capable of
    attracting 587,000 new users by 2002. Recent expansion of VA's
    contracting authority and veterans' eligibility for care should
    facilitate creation of new access points, referred to as community-
    based outpatient clinics, which along with VA's efforts to improve
    accessibility of existing hospital-based clinics are likely to attract
    new workload.
        For example, VA has opened or developed plans to open 86 new
    community-based clinics over the last 3 years. These clinics provide
    only primary care and refer veterans to VA hospitals for more
    specialized care. Last month, we surveyed the 12 clinics that had at
    least 2 years' operating experience and found that they had attracted
    3,000 new veterans. These clinics experienced the largest growth in
    their initial year and smaller growth in subsequent years. VA estimates
    that the remaining 74 clinics will serve over 128,000 users a year but
    has not estimated how many will be new VA users. Twenty-two of the new
    clinics estimated that between 5 and 60 percent of the patients served
    will be new users, while the rest expected to serve no new users or
    were unsure whether new users would be served.
        Although it plans to open many more clinics, VA told us that it is
    too early to estimate how many or where they will be located. Our
    analysis suggests that VA could need between 1,200 and 1,800 additional
    clinics to attract 587,000 new users if each clinic attracts between
    250 and 500 new veterans. The first 12 clinics averaged 250 in their
    initial years. These clinics also appear to provide an affordable way
    for VA to attract new users.
        In addition, VA's efforts to improve veterans' access to existing
    facilities should also attract new users. These initiatives include
    expanding primary care by extending operating times for hospital-based
    clinics to night and weekend hours as well as ways to reduce waiting
    times. For example, one hospital-based clinic reported enrolling 3,000
    new veterans for care during the first year after having made such
    accessibility improvements.

                EXPANDING VA'S RESOURCE BASE POSES CHALLENGES

        VA's revenue goal of $1.7 billion in 2002 includes estimated
    recoveries of about $902 million from private insurance, $557 million
    from Medicare, and $178 million from federal agencies and others.
    Attaining these targets may present a challenge as VA would probably
    have to attract thousands of new revenue-generating veterans. VA has
    provided, however, little information on the numbers of new veterans
    needed to meet revenue goals or how much of the revenue will come from
    inpatient or outpatient services. This lack of information creates
    uncertainties about VA's ability to achieve its revenue goals.
    Increasing Recoveries From Private Health Insurance May Be Difficult
        VA currently serves insured veterans and recovers some or all of
    its costs of care from insurers. Presently, VA returns all recoveries
    to the Treasury, except those needed to cover VA's billing and
    collection costs. In 1996, VA deposited $455 million into the Treasury
    and used $119 million for administrative costs. VA's recovery of $574
    million represents a decline in recoveries from 1995, despite an
    increase in the number of users.
        VA's ability to increase future recoveries from its current insured
    patient base is uncertain for several reasons:
      --Veterans are increasingly covered by health maintenance and
            preferred provider organizations from which VA generally cannot
            recover.
      --As an increasing proportion of VA users become eligible for
            Medicare, their private health insurance becomes secondary, so
            potential recoveries drop.
      --As VA shifts from inpatient to outpatient settings, insurance
            recoveries decrease and the cost of recovery increases.
      --VA found that Medigap insurers have been paying VA too much, which
            will result in decreased future recoveries and refunds of about
            $150 million a year.
      --VA's authority to recover from private health insurance for care
            provided to service-connected veterans for non-service-related
            conditions expires September 30, 1998.
        As a result, to meet its revenue projections of $902 million from
    private insurance, VA will probably have to focus its marketing efforts
    on attracting veterans with fee-for-service private health insurance.
    In addition, the Congress would need to extend VA's authorization to
    recover for certain services provided to service-connected veterans.
        VA officials told us that they do not know how many veterans in
    their 2.9 million patient base have insurance or how many insured
    veterans receive billable care. This lack of information on key
    elements affecting its projections creates considerable uncertainty
    about the number of new insured users it would need to attract in order
    to generate its target revenues.
    Attaining Medicare Recovery Target May Be Difficult
        VA proposes to collect about $557 million from Medicare in 2002 for
    services provided to about 106,000 additional higher-income veterans
    who are covered by Medicare. VA currently attracts only about 1 out of
    every 100 higher-income Medicare-eligible veterans--about 41,000
    veterans in 1992. It thus appears questionable whether VA will be able
    to attract an additional 106,000 higher-income Medicare-eligible
    veterans by the year 2002.
        VA expects to recover from Medicare, on average, about $5,300 for
    each of the 106,000 additional Medicare-eligible veterans it expects to
    serve in 2002, a target amount that seems achievable based on average
    Medicare spending levels per patient nationwide. However, it may be
    difficult for VA to achieve this collection rate if Medicare-eligible
    veterans use primarily VA services that are not covered by Medicare,
    such as prescription drugs, inpatient psychiatric care, and long-term
    nursing home care. Our assessment of Medicare-eligible veterans' use of
    VA services in 1994 suggests that most of these veterans use VA, at
    least in part, for services not covered by Medicare.\4\
    ---------------------------------------------------------------------------
        \4\ Veterans' Health Care: Use of VA Services by Medicare-Eligible
    Veterans (GAO/HEHS-95-13, Oct. 24, 1994).
    ---------------------------------------------------------------------------
    Increasing Recoveries From Other Sources Appears Attainable
        VA proposes to collect $178 million in 2002 through sales of excess
    services to federal agencies, affiliated medical schools, and others.
    This amount represents over a 300-percent increase over VA's
    collections of $43 million in 1996.
        Since 1966, the Congress has expanded VA's authority on several
    occasions to sell excess services in an effort to encourage VA
    facilities to generate revenues in addition to those appropriated. Over
    the last 5 years, VA's sales have increased by about 37 percent, with
    most sales to the Department of Defense (DOD) and affiliated medical
    schools. Last September, the Congress took another step to expand VA's
    ability to generate revenue by authorizing VA to sell excess health
    care services to any health care plan, insurer, or other provider.
        VA could meet or exceed its goal of $178 million in 2002 if it
    markets its excess capacity to other federal agencies. DOD and VA
    reached agreement in 1995 that VA can provide health care services to
    active duty and retired members of the military and dependents enrolled
    in DOD's TRICARE program. While some VA facilities have become TRICARE
    providers, most have not. Similarly, few VA facilities have generated
    revenue by serving beneficiaries of other federal agencies, such as the
    Indian Health Service and the Bureau of Prisons, even though these
    agencies have expressed interest in buying VA's excess services.
    expanding va's resource base may place some veterans and others at risk
        Over the last 25 years, VA has served an increasing number of
    veterans without service-connected conditions, generally those low-
    income veterans in need of a health care safety net. During the last 10
    years, VA has also served higher-income and insured veterans with its
    resources that were in excess of those needed to provide care to
    service-connected and low-income veterans.
        Allowing VA to retain nonappropriated revenues may change VA's
    perspective. This is because the veteran population is, in effect,
    likely to represent two distinct groups--non-revenue-generating
    veterans and revenue-generating veterans. Within this later group are
    several potential target populations: privately insured veterans;
    Medicare-eligible veterans; higher-income veterans; and higher-income,
    privately insured, or Medicare-eligible veterans.
    Non-Revenue-Generating Veterans May Be at Risk of Having Access Limited
        VA may encounter difficulty attaining its revenue goals unless a
    significant number of new users have higher incomes or insurance. This
    could create a strong incentive for VA to market services to attract
    revenue-generating rather than non-revenue-generating veterans. This
    incentive could manifest itself in several ways, including where VA
    decides to locate new community-based outpatient clinics. For example,
    VA recently proposed locating a community-based clinic in a homeless
    shelter that VA expects could attract 2,040 new users in need of VA's
    safety net and therefore not likely to generate revenue. By contrast,
    VA has also proposed opening a new clinic in one of the country's more
    affluent counties. While the clinic is intended to improve access for
    current users, it is also expected to attract patients who could
    ultimately generate revenue.
    Non-VA Providers May Be at Risk of Losing Workload
        Marketing VA services to generate revenue has the potential to draw
    higher-income insured veterans from private providers who may then see
    their revenue base erode, depending on the number of patients who shift
    to VA care. If VA has to aggressively attract new users who are now
    receiving health care elsewhere, it will intensify the competition
    between VA and other state, county, and private providers for a larger
    share of a shrinking veterans' health care market.
        VA's success in attracting revenue-generating patients will be
    likely to result in a shifting of health care costs from other
    financing organizations to VA and to exacerbate financial hardships for
    those competing health care providers that have excess capacities. For
    example, our interviews with 115 veterans using new access points last
    year revealed that 70 percent had Medicare coverage, 50 percent had
    private insurance, and 7 percent had Medicaid.\5\ Most said they paid
    for their own primary care or used insurance coverage to obtain care at
    other providers before they switched to VA care.
    ---------------------------------------------------------------------------
        \5\ VA's Health Care: Improving Veterans' Access Poses Financial
    and Mission-Related Challenges (GAO/HEHS-97-7, Oct. 25, 1996).
    ---------------------------------------------------------------------------
    VA's Proposal Could Lower Contribution to Deficit Reduction
        VA's proposal to retain revenue generated from nonappropriated
    sources would also affect VA's contribution to deficit reduction. VA
    currently returns recoveries to the Treasury, which, in effect, reduces
    the government's cost of VA health care. For example, VA expects to
    return $438 million in 1997, which would reduce the amount of
    government resources needed to serve VA's patient base from its
    appropriated amount of $17 billion to $16.6 billion. By contrast, under
    VA's proposal it would retain insurance recoveries of $590 million in
    1998, increasing the government's cost to finance VA health care to
    $17.6 billion, or $1 billion more than in the previous year.
        In addition, VA's proposal to reinvest efficiency savings and use
    additional nonappropriated resources to increase the number of patients
    served could affect VA's contribution to deficit reduction. For
    example, VA would need an appropriation of $17 billion a year to serve
    2.9 million users if savings equal payroll and inflation costs between
    1998 and 2002. By contrast, VA may be able to contribute up to $1
    billion more in 2002 toward deficit reduction if annual efficiency
    savings exceed cost increases by $200 million, on average, over the 5-
    year period and such excess savings are returned to the Treasury.

      NEW ALLOCATION METHOD AND DECENTRALIZED MANAGEMENT SHOW PROMISE BUT
                                  RISKS EXIST

        VA is using a new resource allocation method and a decentralized
    management structure to address two long-standing issues: equity and
    efficiency. These initiatives are intended to improve the equity of
    veterans' access to care and produce cost savings.
    Allocating Resources Equitably Seems Achievable With New Methodology
        VA is using the Veterans Equitable Resource Allocation (VERA)
    system to allocate 88 percent of the $17 billion medical care
    appropriation to the 22 networks. This approach is a major shift away
    from VA's historical process for two reasons. First, it funds 22
    networks rather than hundreds of facilities. Second, it allocates
    resources on the basis of costs per veteran served rather than on the
    basis of facilities' historical budgets. Funding networks sends a clear
    message that each facility is a part of a larger regional enterprise
    charged, in part, with a mission of achieving equity of access. VERA
    recognizes that networks are the vehicles for fostering regional
    change, eliminating redundancies, and facilitating cooperation among
    medical facilities. Network officials have the authority to tailor
    their VERA allocations to facilities and programs, within the
    parameters set by national policy and guidelines, and to integrate
    services across facilities for equity and other purposes.
        The goal of VERA is to provide networks with comparable levels of
    resources per veteran served. VA implemented VERA in an attempt to
    allocate patient care resources on the basis of differences in patient
    needs and regional differences in the price of their care. To do this,
    VERA classifies patients into two groups--basic care and special care--
    as a simple case mix adjustment. Basic care patients generally receive
    routine services that are less expensive than those received by special
    care patients. Special care patients often have complex or chronic
    conditions, such as spinal cord injury or end-stage renal disease, or
    require care in settings such as nursing homes. The VERA special care
    category also includes some adjustment for age to account for the
    higher medical demands of older population groups.
        VERA allocates resources to networks based on two key components:
    network workloads and national prices. VA patient workloads are the
    estimates of the number of patients--basic and special--a network may
    serve. VA also calculates workloads for research support, education
    support, equipment, and nonrecurring maintenance. To determine a
    national price for each workload category, VERA divides national
    resources available by the national workload for that category. VERA
    allocates funds to a network by multiplying the network's workload
    numbers by their respective national prices. In addition, VERA adjusts
    for differences in regional labor costs for patient care.
        To the extent that VERA allocates comparable levels of patient care
    resources for each veteran served, it provides incentives for networks
    to obtain these resources by increasing workload and decreasing costs.
    Networks that increase their patient workload relative to other
    networks gain resources under VERA; those whose patient workloads
    decrease relative to others lose resources. Networks that are more
    efficient, that is, have patient care costs below the national price,
    have more funds available for local initiatives. However, those with
    patient care costs above the national price (that is, less efficient
    networks) must increase efficiency to have such funds available. Thus,
    these incentives can result in cost savings and enhanced access for
    veterans.
        VERA will not be fully implemented until fiscal year 1999. As a
    result, few resources will move among networks this year. (See fig. 1.)
    Five VISN's will receive fewer dollars and 17 will receive more.\6\
    VERA generally moves resources from the Northeast and Midwest, where
    per veteran costs have been higher than the national average, to the
    South and West where per veteran costs have been lower than the
    national average. If VA had fully implemented VERA this year, shifts in
    funding among the networks would have ranged from a reduction of 14
    percent to an increase of 16 percent.
    ---------------------------------------------------------------------------
        \6\ In VA's Veterans Equitable Resource Allocation System Briefing
    Booklet, March 1997, VA shows that 6 networks will lose funds and 16
    will gain funds in fiscal year 1997. However, VA excludes allocations
    for equipment and non-recurring maintenance. We included those amounts
    in our calculations to show the impact of VERA more fully. Neither we
    nor VA includes funds not allocated by VERA in these comparisons.
    [GRAPHIC] [TIFF OMITTED] T05MA01.000

        VERA, like any allocation model, has limitations. First, VERA may
    shift some resources inappropriately because it may not fully account
    for justifiable differences in regional cost variations. Although VERA
    adjusts for differences in regional case mix with its basic and special
    care patient categories and adjusts the allocations for differences in
    regional labor costs, it assumes that all the remaining differences are
    based on differences in efficiencies. While inefficiency is a major
    factor in these cost differences, other factors may play a role. For
    example, to the extent that veterans are sicker and need more health
    care services in different parts of the country, additional case mix
    adjustments may be necessary to fully explain regional cost
    differences. As we have said in the past, VA needs to provide more
    information on why costs vary throughout the country.\7\ VA officials
    told us they plan to examine this further.
    ---------------------------------------------------------------------------
        \7\ Veterans' Health Care: Facilities' Resource Allocations Could
    Be More Equitable (GAO/HEHS-96-48, Feb. 7, 1996) and Department of
    Veterans Affairs: Programmatic and Management Challenges Facing the
    Department (GAO/T-HEHS-97-97, Mar. 18, 1997).
    ---------------------------------------------------------------------------
        Another potential issue is that basing VERA on veteran-users may
    result in underallocation of funds in areas with low usage rates. If
    these rates result from past inequities in access to services, VERA may
    need to incorporate population-based data on veterans with highest
    priority for receiving services rather than relying solely on user
    data.\8\ However, other factors, such as number of veterans with health
    insurance coverage, could also affect usage rates. Because adequate
    data were not available and VA wished to implement VERA as quickly as
    possible, it did not include population data in VERA. VA continues to
    examine the utility of doing so.
    ---------------------------------------------------------------------------
        \8\ Category A veterans have the highest priority for receiving VA
    health care services. Included in Category A are veterans with service-
    connected disabilities and those with service-connected disabilities
    whose income falls below certain thresholds.
    ---------------------------------------------------------------------------
        VERA's incentives for lower per veteran costs and higher workload
    numbers could lead to unintended consequences if not properly monitored
    and corrected. In our discussions and visits with network and medical
    center officials, we found efforts under way to increase the number of
    veterans served. VA indicators for the first quarter of fiscal year
    1997 generally show increases in the number of high-priority veterans
    (that is, Category A veterans) seen, and the increases for some
    networks are dramatic. We have concerns about whether the data
    accurately depict changes in workload. If the data are reliable, we are
    concerned that some networks may be inappropriately increasing their
    workload numbers to get more resources under VERA. For example,
    networks may be increasing workload by increasing the number of one-
    visit patients. This may be good primary or preventive care, or it
    could distort VERA allocations because only minimal services are
    provided to get credit for increased workload. In the short time since
    the indicators were published, however, we have been unable to
    determine the accuracy of the data and the services the new users
    received. VA officials told us that they recognize the importance of
    monitoring, identifying, and correcting unintended consequences. They
    said they will monitor data used in the allocation model, including
    workload increases, to ensure that they reflect changes at the network
    and medical center levels that are consistent with VA-wide policy and
    guidance.
        Although VERA is a step toward to a more equitable allocation of
    resources, it does not specifically address equitable access to
    services. Networks are ultimately responsible for allocating funds to
    ensure that veterans have equal access to VA services. Each of the
    networks we contacted differs in how it allocates funds. One funds its
    facilities using a flat rate for each veteran-user. Another uses a
    combination of historical funding and negotiation with medical center
    management regarding new initiatives. Still another includes a feature
    in its allocation method that provides payment for each additional
    veteran served. VA officials told us they will examine these processes
    to ensure that different allocation mechanisms increase equity of
    access to services while addressing other national VA goals.
    Networks Have Made Significant Progress. But Decentralized Management
            Poses Oversight Challenges
        VA has taken a page from private sector organizations and empowered
    the network directors by delegating broad decision making authority
    over network budgets, facility staffing, health care delivery, and
    administrative functions. This has resulted in notable accomplishments
    at VA, including significant cost savings and improvements in access.
        Decentralized decision-making at VA places a premium on effective
    headquarters guidance and monitoring of VISN activities. The challenge
    is to ensure that networks have a common understanding of VA-wide goals
    and legislative requirements while permitting them flexibility in how
    to achieve the goals. The challenge in monitoring network performance
    is to have reliable, appropriate, and timely indicators to ensure that
    problems are identified and corrected.
        VA has provided guidance to managers and staff since the beginning
    of its reorganization. For example, the Under-Secretary for Health
    issued two volumes, ``Vision for Change'' and ``Prescription for
    Change,'' delineating the type of organization he intended VA to become
    and the goals VA would strive to attain. Network and medical center
    staff told us that these publications and other communications, such as
    monthly meetings between network and headquarters managers, help
    develop their understanding of the structural and operational changes
    being made.
        VA's new performance measurement process also plays an important
    guidance role by underscoring VA-wide organizational priorities. These
    measures include key indicators such as reduced bed-days of care and an
    increased percentage of surgeries performed on an ambulatory basis. The
    measures are the main components of the network directors' performance
    agreements. In networks we visited, medical center directors'
    performance agreements also included these measures. Medical center
    directors we contacted told us that network directors were exercising
    closer oversight of their progress in achieving VA-wide goals than had
    occurred under previous organizational structures.
        Another strategy for reducing unnecessary variation has been the
    use of clinical practice guidelines. These are intended to enhance the
    quality and appropriate utilization of health care services by reducing
    variations in the way a health condition--for example, stroke--is
    treated. Networks are required to adopt 12 practice guidelines by the
    end of fiscal year 1997. They can choose from those identified by
    headquarters or other sources.
        Providing national guidelines but offering networks discretion on
    when to follow these guidelines can create opportunities for local
    innovation but problems for national oversight. If discretion results
    in variation across the system, it will be difficult for VA to assess
    the impact of the guidelines. Network flexibility may produce tension
    between headquarters and networks. For example, officials in one
    network we visited told us that they preferred the American Medical
    Association guidelines to the national diabetes guidelines VA adopted.
        Headquarters, network, and medical center officials told us that
    national guidance had not been sufficiently clear on whether to notify
    headquarters of significant program changes at the network level. They
    told us that they had not always been clear on what constituted
    ``significant'' changes. In a few instances, headquarters officials
    were not notified of impending network-initiated changes such as
    closure of a surgical program at a medical center. In May and September
    1996, headquarters issued guidance for networks on prior notification
    and consultation with headquarters for network actions such as
    restructuring clinical services--including closures of major programs--
    and proposed changes to special emphasis programs such as those for
    spinal cord injury and prosthetics. VA has additional measures planned
    to ensure that headquarters is involved in significant network-
    initiated program changes.
        Performance measures and standards developed by headquarters are
    the key components of VA's monitoring process. Headquarters holds
    network directors accountable for making progress toward VA goals by
    including measures and standards of performance in the directors'
    contracts. Headquarters lengthened its list of measures for fiscal year
    1997; it now includes about two dozen indicators. In networks we
    visited, directors are monitoring medical centers on these measures as
    well.

                            CONCLUDING OBSERVATIONS

        VA's 1998 budget presents the Congress with a fundamental choice
    about the future course of VA health care, a choice that will have an
    effect on veterans, other health care providers, and efforts to achieve
    a balanced federal budget. In general, VA's proposal to reinvest all
    savings and generate additional nonappropriated revenues may intensify
    the direct competition between VA and other providers. By contrast, a
    decision to limit VA's retention of nonappropriated revenues will set
    VA on a course to becoming a more cost-efficient safety net for those
    non-revenue-generating veterans who have no other health care options.
        Currently, there is insufficient information to understand the full
    implications of VA's budget proposal. VA states that the key elements
    of its proposal--namely, a 30-percent per patient cost reduction, a 20-
    percent increase in veterans served, and a 10-percent reduction of its
    reliance on appropriations--are inexorably linked but, in our view,
    this is not so. It seems plausible that any number of different
    scenarios could occur, depending on the magnitude of cost savings that
    VA will realize through its ongoing restructuring.
        For instance, VA could operate as a health care safety net for
    several years, with an appropriation of about $17 billion or less,
    given VA's progress in identifying and implementing efficiency savings.
    Such efficiency savings could equal or exceed the potential
    nonappropriated revenues that VA estimates it can generate over the
    next 2 years if authorized to do so. For this reason, there appears to
    be time to obtain critical information from VA and others so that VA's
    budget proposal may be more clearly understood and fully debated. In
    this regard, several critical issues could be addressed, including the
    following:
      --Should VA reinvest all efficiency savings to expand the number of
            patients served? If so, should VA's expansion be limited to
            certain target groups of veterans, such as service-connected,
            low-income, or uninsured veterans in need of a health care
            safety net?
      --Should VA use nonappropriated revenue sources to help finance
            increased services to higher-income and insured veterans who
            have no service-connected conditions or continue relying solely
            on appropriated resources to finance increased services for
            service-connected and low-income veterans without service-
            connected conditions?
      --Should VA reinvest savings in excess of those needed to maintain
            its current patient base in order to serve more veterans or
            should it return some or all of the excess savings as a
            contribution toward deficit reduction?
        It would be less difficult to make such choices at this time if VA
    had provided a road map that clearly articulated (1) what operational
    changes would be needed to move along its newly proposed competitive
    course and (2) what consequences such competition would have for
    veterans and others. For example, additional information would be
    helpful about how different choices may affect (1) service-connected
    veterans and those in need of VA's safety net; (2) VA's existing
    hospitals, clinics, and other facilities; (3) VA's workforce; and (4)
    other health care providers.
        Delaying a decision on VA's legislative proposals until such
    critical information is available--including a plan describing how the
    system will look and operate in 2002--may result in a better
    legislative decision on VA's budget proposal. It will also afford VA
    and the Congress time to better assess how VA's future resource needs
    may be affected by the new decentralized management and resource
    allocation initiatives.
        VA's new resource allocation process and decentralized management
    structure hold promise for improved operational efficiencies and
    equitable access. Responding to VERA's incentives and VA's goals, local
    managers are already producing substantial savings and increasing the
    number of veterans served. VA, however, needs to continue examining how
    price and workload data are determined under VERA to improve equity of
    resource allocation. VA also needs to carefully monitor the impact of
    VERA's incentives on network and facilities performance. This is
    particularly important given the variation resulting from local
    managers' flexibility in the decentralized system. We believe that
    identifying and correcting problems is essential to the success of VA's
    proposed 5-year plan.

                              RELATED GAO PRODUCTS

        Department of Veterans Affairs: Programmatic and Management
    Challenges Facing the Department (GAO/T-HEHS-97-97, Mar. 18, 1997).
        VA Health Care: Improving Veterans' Access Poses Financial and
    Mission-Related Challenges (GAO/HEHS-97-7, Oct. 25, 1996).
        VA Health Care: Opportunities to Significantly Reduce Outpatient
    Pharmacy (GAO/HEHS-97-15, Oct. 11, 1996).
        VA Health Care: Issues Affecting Eligibility Reform Efforts (GAO/
    HEHS-96-160, Sept. 11, 1996).
        VA Health Care: Opportunities for Service Delivery Efficiencies
    Within Existing Resources (GAO/HEHS-96-121, July 25, 1996).
        VA Health Care: Challenges for the Future (GAO/HEHS-96-172, June
    27, 1996).
        VA Health Care: Efforts to Improve Veterans' Access to Primary Care
    Services (GAO/T-HEHS-96-134, Apr. 24, 1996).
        VA Health Care: Approaches for Developing Budget-Neutral
    Eligibility Reform (GAO/T-HEHS-96-107, Mar. 20, 1996).
        VA Health Care: Opportunities to Increase Efficiency and Reduce
    Resource Needs (GAO/T-HEHS-96-99, Mar. 8, 1996).
        Veterans' Health Care: Facilities' Resource Allocations Could Be
    More Equitable (GAO/HEHS-96-48, Feb. 7, 1996).
        VA Health Care: Issues Affecting Eligibility Reform (GAO/T-HEHS-95-
    213, July 19, 1995).
        VA Health Care: Challenges and Options for the Future (GAO/T-HEHS-
    95-147, May 9, 1995).
        VA Health Care: Retargeting Needed to Better Meet Veterans'
    Changing Needs (GAO/HEHS-95-39, Apr. 21, 1995).
        Veterans' Health Care: Use of VA Services by Medicare-Eligible
    Veterans (GAO/HEHS-95-13, Oct. 24, 1994).

        Senator Bond. But the VA does raise the question: ``It
    appears that efficiency savings could equally equal or exceed
    the $700 to $850 million in potential nonappropriated revenues
    that VA estimates it could generate over the next 2 years'' but
    we have not seen the hard data to back up the VA's 5-year
    projection of the 30-percent reduction in per-patient cost.
        Nor have we been given justification for the increases
    projected in user fee collections. GAO believes that VA may
    have a tough time increasing recoveries from private health
    insurance for a variety of reasons outlined in their testimony.
        Outside of the medical care proposal, we have serious
    concerns with the President's request for the VA research
    program. This program, which has served to bring the best
    physicians to the VA--and to keep them there--would be slashed
    11 percent, or $28 million.
        VA's research program has resulted in tremendous
    discoveries and improvements in health care to veterans and the
    general population. It is an integral element to the veterans'
    health care system, and I am concerned about the implications
    of such a significant cut.
        In a recent letter, the chief of the pulmonary disease
    section at the Kansas City VA hospital told me,

        The opportunity to conduct basic and clinical research
    relevant to my clinical interests was a major factor in my
    joining the VA staff and in remaining here. Only in the last
    year have I felt the need to explore other employment
    opportunities. One of the major factors in this decision has
    been the continuing decrease in funds available to support the
    VA research program.

        Unfortunately, the President's budget would also cut the VA
    State home construction program by $6 million, a cost-effective
    program which results in the provision of vitally needed
    nursing home care to our Nation's veterans. There is almost
    $200 million worth of priority projects awaiting funding, so
    the President's proposal to cut this important program is very
    disappointing.
        In my own State of Missouri, there are proposed projects in
    Cameron, Warrensburg, St. Louis, and Mount Vernon. I strongly
    support funding of these projects and will do my best to
    increase the budget over the President's proposal.
        For the Veterans Benefit Administration, funding would be
    held close to fiscal year 1997 levels, factoring out the
    proposed shift of funds for the cost of medical examinations in
    connection with compensation and pension claims, formerly
    funded from the medical care account. VBA's staff would decline
    543 FTE's, or 5 percent.
        I am pleased to see that VBA's budget would allow for the
    implementation of reengineering efforts which are intended to
    result in significantly faster and less expensive compensation
    and pension claims processing by 2002. I am concerned, however,
    that productivity is not improving, and we have seen little
    data to back up VBA's assumptions that it could reduce
    processing time for an original compensation claim by more than
    one-half.
        In addition, the National Academy of Public Administration,
    which has been studying the VBA claims processing system at
    this subcommittee's request, found fundamental problems in
    VBA's leadership and management structures, and a lack of
    capacity to undertake sound review, analysis, and evaluation of
    ongoing operations.
        NAPA states in testimony, which, again, is provided for the
    record, and I assume you have received copies of it today:

        The NAPA study team has discerned little improvement in the
    VBA's ability to develop a clear prioritized business plan
    within which resources are allocated only to critical
    priorities, nor has there been any improvement in the staff's
    ability to plan and manage software projects. These management
    failures underlie a significant part of my concern about VBA's
    ability to meet its year 2000 needs and deliver on its BPR
    promises.

        NAPA calls for strong and decisive leadership in VBA,
    strengthen strategic management capacities, consolidation of
    VBA's 58 regional offices, and other changes which are more
    profound than the business processing reengineering effort,
    which VBA seems to believe is the answer to its problem.
        So while I am pleased the VA is proposing some changes, it
    would seem they are not sufficient to address the core
    management and organizational issues NAPA has identified.
        We are pleased to see no new hospitals proposed and a
    relatively modest major construction request. The President's
    request would fund two cemetery projects and the completion of
    a seismic correction project in Memphis. Perhaps the
    administration has come around to our view that major medical
    projects should be put on hold while the new Veterans Health
    Administration organization restructuring grows roots.

                               PREPARED STATEMENT

        Clearly, Mr. Secretary, we have much to discuss this
    afternoon. I look forward to hearing your opening statement,
    but first it is my pleasure to turn to the distinguished
    ranking member, Senator Mikulski.
        [The statement follows:]

                    Prepared Statement of Milton J. Socolar

        Mr. Chairman and Members of the Subcommittee: My name is Milton J.
    Socolar, and I am a Fellow of the National Academy of Public
    Administration. I am serving as the chair of the Academy's panel on
    claims processing at the Department of Veterans' Affairs. As I will
    describe in a minute, the Committee has tasked the Academy with
    studying and making recommendations on the claims process, and our
    study will be completed at the end of June. Because the panel has not
    yet fully reviewed the initial staff findings and recommendations, I am
    addressing you today in my own capacity as chair and am not speaking
    with finality on behalf of the panel.

                  THE SENATE'S TASKING TO THE NATIONAL ACADEMY

        This Committee has expressed ongoing concerns about of the
    compensation and pension (C&P) claims adjudication and appellate
    process. In 1995, in its report accompanying the fiscal year 1996
    Department of Veterans Affairs appropriations bill, the Committee
    expressed concerns about the backlog of claims at the Veterans'
    Benefits Administration (VBA) and shortcomings in its computer
    modernization effort. Congress tasked the Academy with making `` * * *
    a comprehensive assessment of the Veterans Benefits Administration with
    particular emphasis on specific steps necessary to make claims
    processing more efficient and less time consuming.'' Specifically, your
    subcommittee instructed the Academy to evaluate: The computer
    modernization initiative and its link to strategic goals and
    priorities; efforts to reengineer the claims processing methodology;
    efforts to simplify rules and regulations; performance measures for
    critical program areas and systems modernization efforts; the regional
    office structure; and the roles of the Board of Veterans Appeals and
    the Court of Veterans Appeals.
        You stated that the Academy needs to build on and not duplicate
    previous or ongoing evaluations. In 1996, you amplified the tasking in
    the subcommittee's report accompanying the fiscal year 1997
    appropriations bill adding that the Academy ``* * * should provide
    specific recommendations for comprehensive, strategic improvements to
    the organization and the many problems which have been identified.''

                              THE CHALLENGE AHEAD

        The VBA is under great pressure to improve the performance of its
    C&P program. Long-existing problems have been chronicled by a series of
    reports, the most recent of which is the December 1996 report to
    Congress by the Veterans' Claims Adjudication Commission (VCAC). The
    panel relied heavily on this excellent report in guiding its own
    research and recommendations. With the exception of those
    recommendations related to program policy, on which the panel takes no
    position, the panel accepts or takes even farther the VCAC's
    recommendations.
        In thinking about VBA's administrative difficulties in delivering
    C&P benefits, it is well to keep in mind the size of the program and
    complexity of the process involved. Following are some complicating
    program imperatives:
        1. VBA's C&P workforce must manage a ``portfolio'' of about 5.3
    million service-connected disabilities, which is growing in volume and
    complexity, for over two million veterans.
        2. In addition to statements filed by veteran claimants,
    corroborating or new evidence to support claims must be collected from
    numerous sources not controlled by VBA--the Department of Defense, VA
    hospitals for medical data and claim-specific medical examinations,
    other federal agencies, private medical practitioners, and others.
        3. Under the program's concept of rating disabilities in ten
    percent increments, assessing the degree of disability for many
    injuries and diseases often requires the exercise of sophisticated
    judgement complicated by the growing body of opinions from the Court of
    Veterans' Appeals (COVA).
        4. VBA is required, if necessary, to assist each claimant in
    perfecting his or her claim which can contain many alleged
    disabilities.
        5. The claim is kept open for the receipt, at any time up to final
    decision, of additional supporting evidence or evidence of additional
    entitlement.
        6. Within a year after VBA's decision on a claim, the claimant may
    file a notice of disagreement to initiate the administrative appeals
    process, requiring additional consideration and processing.
        It is also well to keep in mind that, despite delays occasioned by
    the foregoing, claimants to date have tended to formally appeal to the
    board of veterans' appeals (BVA) in a relatively small percentage of
    cases--less than five percent of VBA's decisions on compensation
    claims. Nevertheless, considering the overall large volume of cases
    handled, this small percentage translates into a significant number of
    cases. They clog the system, which results in backlogs and further
    delays in disposing of claims filed--from an average of three to as
    long as five years for a significant number of cases.
        The department and VBA have been administering the C&P program
    within a narrow, insular perspective. VBA tends to address issues as
    they arise, very much on an ad hoc basis. Although there have been
    times when VBA has shown signs of a desire to raise C&P operations to
    new and more efficient levels, it has not yet succeeded in realizing
    the more important of its stated aims for improving service. In
    essence, VBA has been ``administering'' the C&P program; it has not
    been managing it.
        Although VBA's problems have been tolerated to a degree through
    previous years, it is now essential, even critical, that it undertake
    and meet the management challenge to achieve greater efficiency and
    provide better service. Medical issues underlying many disability
    considerations now require deeper analysis to resolve. Harnessing the
    boon of advancing information technologies is enormously complex and
    difficult. With the arrival of judicial review in 1988, BVA is no
    longer the final arbiter of statutory obligations to claimants and both
    VBA and BVA must meet more stringent requirements as interpreted by
    COVA. Perhaps, most significant, funds to cover inadequacies will
    surely not be so freely available in the future as they have been in
    the past.
        Briefly stated here--I will return to the point later in my
    statement--VA and VBA leadership must develop greater management
    capacity and discipline to meet future demands. VBA's leadership and
    management structures and systems do not embody essential analytic and
    planning capacities. With poor analysis and planning, it is small
    wonder that there is not sufficient discipline to carry out controlled
    implementation of approved initiatives. And finally, VBA must develop
    the capacity and will to do good review, analysis and evaluation of
    ongoing operations. Even though some regional offices (RO's) operate at
    high levels of performance, the VBA nationally operates in too
    permissive a manner with little accountability for the achievement of
    specific results across all 58 of its regions.

                               THREATS TO SERVICE

        Fixing the Year 2000 Problem.--A good example of the consequences
    resulting from inadequate management structure and discipline is the
    risk that VBA was going to assume in resolving the critical ``year
    2000'' computer problem embedded in its payment system. Should that
    problem not be resolved, VBA would not be able at the turn of the
    century to issue benefit checks to millions of veterans.
    Notwithstanding that computer expertise was clearly spread too thin and
    that its record of managing complex computer projects was poor, VBA was
    poised to simultaneously undertake (1) development of VETSNET to
    replace the existing payment system, (2) implementation of complex
    legislative changes into the system, (3) reprogramming of its benefit
    delivery network, (4) consolidation, at the department's behest, of the
    Hines and Philadelphia benefit delivery centers with the Austin
    automation center, while (5) also working on a number of programs to
    cure the year 2000 problem.
        We became alarmed during our study over the disastrous consequences
    should VBA's risky approach fail, as well it might have. We met with
    deputy secretary Hershel W. Gober to point out the risks involved and
    explain our concerns. Subsequently, the deputy secretary changed the
    direction of VBA's approach to significantly reduce the risk to the
    payment system now and to support year 2000 operations. VBA has now
    initiated action to hire the necessary systems integration contract
    support, procure other resources and put in place the management
    required to sustain payment system operations and achieve year 2000
    capabilities.
        Staffing Is Being Reduced By A Third While Workload And Other
    Resource Demands Are Rising.--The fiscal year 1998 President's budget
    reduces resources by 1,335 full time equivalent (FTE) staff or 31
    percent between fiscal year 1996 and fiscal year 2002. While
    recognizing the pressures for balancing the budget and that future VBA
    budget estimates may be revised, I am concerned that inappropriate
    reductions will only serve to make a bad situation worse, engendering
    the need for larger expenditures in the future.
        We are exploring some questions we have about VBA's workload
    forecasting generally. A large percentage of these reductions is
    premised in fiscal year 1999 and beyond on the success of the business
    process reengineering (BPR) plan to change the way C&P claims will be
    processed. The C&P service bases its staffing estimates on a series of
    assumptions about programmatic and legal changes that will allow
    reductions while at the same time achieving ambitious timeliness and
    quality of service goals. These assumptions have not been evaluated in
    an operational setting, and pilots intended to test their validity,
    just now getting underway, will take up to 18 months to complete. Of
    particular concern are VBA's assumptions about future workload,
    projected levels of participation by veteran service organizations, and
    the benefits of information technology.
        Unmanaged Appellate Workloads In VBA Regional Offices May Reach
    Crisis Proportions.--I am also concerned about growing appellate
    workloads in VBA RO's. Since the end of fiscal year 1995, the number of
    BVA remands pending in RO's increased by 69 percent to more than 23,000
    and had been pending for an average of about a year. Over one-fourth of
    the cases pending in RO's are in appellate status.
        VBA has not treated this workload as a nation-wide problem needing
    concerted attention. It has neither established 19 performance goals
    for processing this work nor regularly tracked progress in their
    accomplishment. I am concerned that, without adequate attention, the
    RO's will continue to focus on new and reopened claims and that
    appellate workloads and lead times will reach crisis proportions.
         major claims and appeals problems continue to degrade service
        Apart from these potential threats to program integrity, the VA
    continues to struggle with major problems that continue to degrade
    service.
        Regional Office Adjudication Decisions Are Too Slow And Not Well
    Enough Prepared.--While showing some improvement in the last several
    years, processing time for claims continues to be far higher than the
    BPR goal of 60 days. The VBA continues to have difficulty making
    quality decisions early in the adjudication process, and quality
    remains a point of major concern and contention. The rate of remands by
    BVA peaked at a level of 50.5 percent of cases considered in fiscal
    year 1992, and has come down only slightly to 45.6 percent at present.
    The combined total of allowances and remands by the BVA peaked at 67.1
    percent in fiscal year 1995 and is down to 62.6 percent at present, far
    higher than the BPR goal of 25 percent.
        Information Resources Management--Failure To Manage Effectively Has
    Led To Current Crises.--VBA's has shown little ability to learn from a
    1995 study by the CNA Corporation and a series of harshly critical GAO
    reports about problems in managing VBA's information resources. The
    study team has discerned little improvement in the VBA's ability to
    develop a clear, prioritized business plan within which resources are
    allocated only to critical priorities, nor has there been any
    improvement in the staff's ability to plan and manage software
    projects. These management failures underlie a significant part of my
    concern about VBA's ability to meet its year 2000 needs and deliver on
    its BPR promises.

       VBA NEEDS TO DEVELOP MANAGEMENT CAPACITIES FOR MAKING MUCH NEEDED
                                    CHANGES

        I was initially puzzled as to why the sustained criticism VBA has
    endured had not led to the reforms required for improving operations
    but have now concluded that the reason is two-fold. First, VBA is
    bounded by a culture that looks only to short-term needs without
    concern over long-term implications. Second, this short term outlook
    has led inevitably to the failure of leadership to develop capacities
    that are essential to the successful management of complex programs in
    a large organization. VBA has long felt that it could manage the
    increasingly complex adjudication and appellate process on the basis of
    past and existing organizational capacities and practices. While VBA
    staff and executives are dedicated and hard working, enlightened
    leadership and new approaches are critical to solving the
    organization's problems and significantly improving program service.
        The Institution Lacks Capacity For Strategic Management.--VBA lacks
    the management capacities that would enable its leaders to define long-
    term direction and provide the resources to follow through. At the same
    time, it is leadership's function to see to it that those capacities
    are established and maintained at high levels of competence. These
    include: the capacity to plan, integrate and execute complex
    programmatic activities; the evaluative and information capacities to
    measure performance and hold executives accountable for results; and an
    annual plan, implementation, and review cycle to integrate all parts of
    the organization into a comprehensive operational effort to fulfill the
    VBA's goals.
        VBA Needs Strong, Decisive Leadership.--Despite progress since
    1996, the potential for a cohesive, well functioning leadership team is
    uncertain. The VBA strategic management committee (SMC), established in
    1996, is a step in the right direction, but it lacks a clear purpose, a
    long-term agenda for change, an ability to integrate and oversee
    complex activities, and a clear vision of what strategic management
    means. Recent efforts to implement the government performance and
    results act (GPRA) and conduct BPR are laudable but insufficient.
        There are also major gaps in clear lines of accountability within
    the leadership team, including a lack of clarity in staff and
    operational responsibilities between central office and field
    organizations. This is exemplified by assignment of responsibility for
    implementation of BPR, a quintessentially operational activity, to the
    C&P Service, nominally a VBA staff office without operational control.
    C&P lacks influence on the performance of the VBA area offices and
    RO's. Nor is there sufficient uniformity among the 58 regions and four
    area offices in their execution of central office direction. There are
    also numerous cultural short circuits to accountability. These include
    a bias against developing a systematic corporate information capacity
    and a reactive and decision-averse culture in which senior executives
    are reluctant to take tough action against a failing member. The VBA is
    a closed organization that has historically not systematically sought
    information for planning purposes from stakeholders or others outside
    of the organization.
    a fundamentally different configuration of field operations is required
        VBA faces a compelling need to develop a fundamentally different
    way of delivering services in the field. The current structure of 58
    RO's is difficult at best to manage with any uniformity of policy
    implementation, and such a structure prevents optimal allocation of
    staff resources to service need. Such a structure with its inherent
    staffing inefficiencies was affordable in an era of full budgets;
    however, VBA is now facing a rapidly declining resource base as well as
    requirements for funding new BPR and IT service improvements and
    stronger strategic management and leadership capacities.
        Consolidation of RO's would not only bring cost efficiencies but
    would actually improve service to veterans. The BPR plan, when
    implemented, will facilitate formation of small, stand alone
    adjudication teams capable of flexible geographic targeting. Existing
    faxing, conferencing and other technology now enable flexible
    geographic processing, and future IT enhancements will only improve
    this. A number of these small groups, situated to be convenient to
    veterans, could be managed through a fewer number of RO's having larger
    geographical jurisdictions than at present. Strengthened strategic
    management capacities as recommended will facilitate development and
    implementation of the integrated and phased planning and improved
    performance data necessary for successful consolidation.

    THE TIMELINESS OF APPEALS AT THE BOARD OF VETERANS' APPEALS IS SHOWING
                                  IMPROVEMENT

        Improvements put in place to improve the timeliness and quality of
    decisions by the BVA appear to be working and show promise of reaching
    acceptable levels by the end of fiscal year 2000. The establishment of
    judicial review of VA decisions on claims for veterans benefits by the
    Veterans Judicial Review Act of 1988 caused major stress in the entire
    adjudication and appellate process generating waves of remands and
    rework throughout both the VBA and BVA. As BVA's productivity declined,
    backlogs of cases pending its review increased from about 17,000 in
    fiscal year 1991 to more than 60,000 at the end of fiscal year 1996.
    During this period, average elapsed time to final BVA decisions on
    substantive appeals, including time during which RO's processed
    remanded cases, increased almost three-fold from about 400 to over
    1,100 days.
        Both the backlog and average days to final decision are now being
    reduced and our report will describe the actions BVA has taken to
    improve its productivity. Principally these involve: (1) acquiring
    increased staff resources, (2) implementing improved training and
    performance evaluation programs, (3) increasing the ratio of
    professional decision staff to support staff, and (4) dispensing with
    BVA panel consideration of appeals in favor of single board member
    decisions.
        Our staff analysis indicates that with its current level of staff
    resources, BVA should be able to reduce the backlog of cases to about
    20,000 or the equivalent of six months' decision production by the end
    of fiscal year 2000. At that time, average time to a BVA decision from
    the time an appeal is ready for its review should be six months which
    is acceptable given the complexity of appellate cases and the time
    needed by national veteran service organizations to participate in this
    stage of the appellate process.
    recommendations for urgent action to head off crisis and achieve rapid

                            PERFORMANCE IMPROVEMENT

        While the VBA has shown some progress, they do not have the three
    to five years needed to allow that progress to take its natural course.
    Events are being driven by potential threats to program integrity such
    as preparing for the year 2000. But, even without these threats, the
    seemingly endless and unbreakable cycle of complaint and inaction about
    VBA performance is a major problem for the department.
        It is time for the secretary to act.
        Our preliminary recommendations are that:
        Action Is Critical To Assure That Checks Continue To Go Out In The
    Year 2000.--The secretary must ensure that VBA follows up on the recent
    actions taken by the deputy secretary to assure uninterrupted payments
    to veterans for the year 2000.
        Regional Office Appellate Workloads Need To Be Addressed On A
    Priority Basis.--To address growing appellate workloads in the RO's,
    the under secretary for benefits should establish performance measures
    and standards for these workloads, hold managers accountable for
    meeting the established performance standards and report quarterly to
    the secretary on progress in meeting them.
        Congress Should Ensure That VBA Has The Resources Necessary To
    Guarantee Continued Benefits To The Veteran.--VBA's proposed FTE
    reductions are premature and put at risk current operational capability
    to sustain performance of the claims processing system. Given
    significant doubts about the validity of VBA's estimating methods,
    Congress should not reduce VBA resources until the organization can
    fully document the basis for its workload and staffing estimates and
    demonstrate the validity of their reengineering efforts. I also
    recommend that the inspector general (IG) be asked to work with VBA in
    improving these estimating methods.
        The Secretary Should Initiate Comprehensive Change In Leadership
    and Management At The VBA.--Urgent action is needed by the secretary to
    achieve rapid and effective reform. Such reform cannot come all at
    once. Crucial leadership and organizational capacities must be built
    before long term improvement in performance can be achieved.
        The secretary should make every effort to ensure the selection of
    an under secretary for benefits who can lead such a long-term reform
    process. He should give the new leader an unequivocal charge to ``fix
    the place'' and should require him or her to develop a long-term reform
    plan for this. This plan should include a detailed, integrated,
    sequenced timetable for achieving planned objectives and the costs
    associated with key actions.
        Vital first actions should be to: strengthen the leadership team;
    design a better organizational structure to promote a higher degree of
    accountability for performance; and ensure stronger influence by the
    director of the C&P Service over field operations. The under secretary
    should draw on the expertise of other federal agencies and private
    sector organizations that have a proven ability to improve
    organizational management and performance.
        The secretary should also make every effort to ensure selection of
    a capable leader/manager as the new chair of the BVA with a charge to
    drive home BVA improvements already begun and to work closely with the
    under secretary for benefits to develop system-wide solutions for
    adjudication and appellate problems.
        The New VBA Under Secretary Needs To Develop Strong Strategic
    Management Capacities.--As essential first steps, the under secretary
    and appropriate departmental components must take rapid action to
    develop jointly the strategic management capacities necessary to give
    leadership the tools with which to manage. These tools include an
    integrated and fully resourced set of strategic management capacities
    within the VA, VBA and C&P service. These include: (1) an effective
    plan, implementation, review and revision cycle at the department level
    and within the VBA; (2) effective evaluation, assessment, and
    information capacities; (3) an accountability-based implementation
    system of goal-setting, performance measurement, and regular tracking
    of results; and (4) stronger coordination among VBA components and with
    key stakeholders such as the BVA, veterans' health administration(VHA)
    and key staff offices at the departmental level.
        The Business Process Reengineering Effort Needs To Be Improved And
    Broadened.--The new under secretary for benefits should act to
    reexamine and improve the analysis, approach, and management of the BPR
    program. Budget estimates must be based on a more complete and detailed
    analysis of workloads coming into the organization and their effects on
    appellate workloads in VBA and BVA. Further, the BPR implementation
    plans must be carefully evaluated in an operational setting and their
    effects on program performance and staff requirements measured. The
    under secretary should seek assistance from the IG and expertise from
    the private sector in accomplishing this.
        Regional Office Restructuring Is Necessary.--A fundamentally
    different configuration of field operations is required by budget and
    other pressures. In the interest of greater efficiency and improved
    service, the under secretary needs to plan for restructuring and
    consolidation of the 58 VBA RO's while maintaining the availability of
    local access by veterans to small, well-trained adjudication staffs
    dispersed throughout the nation. The under secretary must begin
    planning a new, phased effort to restructure the field service delivery
    network to improve customer service performance but achieve
    administrative savings with which to finance enhanced strategic
    management capacities, a training and quality strategy, and other
    needs. Congress should require (1) the secretary to prepare a
    restructuring plan by March 31, 1998; (2) the IG to review and report
    to Congress on progress at least twice yearly; and (3) the under
    secretary for benefits to report to Congress on progress twice yearly.
        Key Steps To Improve Management Of Information Resources Are
    Necessary.--The under secretary should follow through on the deputy
    secretary's recent decision to reallocate VBA's software workforce to
    implement fiscal year 1996 legislative changes and hire a systems
    integration contractor to assume total system performance
    responsibility for all year 2000 modifications. In addition, the under
    secretary should suspend the VETSNET program and reallocate those
    resources to support higher priority needs. He should initiate an
    effort to reprioritize VBA information resources management (IRM)
    projects; establish rigorous processes for IRM requirements
    determination and configuration control; improve IRM leadership and
    management; and determine the necessary size of the IRM workforce. He
    should turn total system performance responsibility for new systems
    over to a systems integration contractor.
        Key VCAC Recommendations Affecting The Claims Adjudication Process
    Need To Be Implemented.--The under secretary for benefits should
    implement key VCAC recommendations including rule simplification,
    development of regulations to clarify statutory requirements, and
    development of an integrated VBA/BVA plan to measure the quality of
    claims processing. VBA should also develop a capacity to evaluate field
    innovations, develop a training strategy, and continue improvements in
    disability rating examinations.
        The Secretary And The Congress Should Track And Fund Progress.--The
    secretary should direct the under secretary to present a comprehensive
    reform plan to the Congress. For at least the next three years, the IG
    should monitor progress and report semi-annually to the secretary and
    Congress on their assessment of overall progress. The deputy DVA
    secretary, in conjunction with the under secretary for benefits and the
    chair of the BVA, should report on this progress at least semi-annually
    to the Congress outside of the budget process. As Congress is assured
    that the VBA is making progress, it should provide necessary funding in
    support of VBA efforts.

                                  Attachment 1

                               ABOUT THE ACADEMY

        The National Academy of Public Administration is an independent,
    nonprofit, nonpartisan organization chartered by Congress to assist
    federal, state, and local governments in improving their performance.
    The Academy, through its many projects, is at the forefront of efforts
    to create more efficient, effective, and accountable government.
    Making a Difference
        The Academy is frequently called upon to tackle the toughest issues
    facing government today. The problem-solving ability and innovative
    responses to change of the Academy are increasingly sought by Congress,
    federal agencies; state, local and international governments; and
    private institutions. Some of the 27 projects underway in 1997 are:
      --Assessing the future direction of environmental regulation and
            interaction among stakeholders (Enterprise for the Environment
            project)
      --Analyzing federal mapping, surveying, and other geographical
            information services, including possible consolidation or
            privatization, and the relationship to state, local, and
            private activities
      --Training current and future public officials in the Republic of
            Georgia
      --Developing seismic safety standards for buildings covered by
            federal safety regulations
      --Creating a new human resources management system at the National
            Institutes of Health
      --Studying the feasibility of creating an enterprise organization to
            conduct environmental management functions at the Department of
            Energy
      --Examining compensation and benefits claims processing at the
            Department of Veterans Affairs

    A Unique Institution
        A Focus on Performance.--Since its founding in 1967 the Academy has
    focused on improving the nation's capacity to achieve public purposes
    by maximizing available financial, information, technological, natural,
    and human resources.
        An Objective Viewpoint.--The Academy is nonpartisan, insulated from
    political concerns, and free from ideological agendas.
        A Congressional Charter.--The Academy's congressional charter,
    granted in 1984, distinguishes it as a national institution dedicated
    to the public good.
        A Guiding Framework.--The Academy's framework of governance
    provides a formula for examining public management processes,
    functions, strategies, and institutions. The framework identifies four
    dimensions for evaluating systems and structures for meeting public
    needs: public purposes and strategies, institutional roles and
    responsibilities, performance capacities, and change.
        Academy Fellows.--The Academy's most distinctive feature is its 480
    Fellows: current and former Cabinet officers, members of Congress,
    governors, mayors, legislators, diplomats, business executives, public
    managers, and scholars.

    Advice to Congress
        Mindful of the Academy's special capacity to evaluate management
    issues and offer concrete recommendations for improving performance,
    Congress called upon the Academy for testimony 30 times in 1995 and
    1996.
        The Academy responded to requests for advice on emerging issues of
    governance and the implementation of legislation. Oversight and
    appropriations committees also requested Academy expertise when
    examining management and organization of federal agencies. Fellows also
    assessed legislative proposals and provided members of Congress
    valuable institutional history. The Academy was also called upon to
    identify and illuminate opportunities created by dilemmas such as the
    fiscal year 1996 budget stalemate.
    Funding
        The Academy is a private nonprofit organization whose projects are
    funded on a contract basis from public agencies and private
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    Recently Published Studies
        A Path to Smarter Economic Development: Reassessing the Federal
    Role, prepared for the Economic Development Administration, advocates a
    ``smarter'' federal role in economic development that is based on
    ``Learning, Leveraging, and Linking.''
        The Role of the National Guard in Emergency Preparedness and
    Response recommends ways that the Guard can enhance its disaster relief
    capabilities without compromising its role within the nation's ``total
    force structure.''
        Ensuring Worker Safety and Health Across the DOE Complex states
    that the Department of Energy should transfer regulatory responsibility
    for worker safety and health at its sites to the Occupational Health
    and Safety Administration.
        Budgeting for Performance Strategy, Flexibility, and Accountability
    to Meet a Demanding Mission found that with increasing demands to
    control the flow of illegal aliens and serve those seeking citizenship,
    the Immigration and Naturalization Service must rethink and redesign
    its budgeting processes.
        These and other reports can be purchased through NAPA Publications
    at (301) 617-7801.
                                     ______

                                  Attachment 2

      VETERANS' CLAIMS PROCESSING AND THE VETERANS BENEFITS ADMINISTRATION

    Panel members
        Milton J. Socolar, Chair--Former positions with the General
    Accounting Office: Special Assistant to the Comptroller General of the
    U.S.; Acting Comptroller General of the U.S.; General Counsel and
    Deputy General Counsel.
        Mark A. Abranson--Chair, Leadership, Inc. Former President, Council
    for Excellence in Government; Senior Program Evaluator, Office of
    Assistant Secretary for Planning and Evaluation, U.S. Department of
    Health and Human Services; Research Associate, National Academy of
    Sciences.
        Rhoda M. G. Davis--Member, Veterans Claims Adjudication Commission.
    Former Director for Strategic Management, Social Security Commission;
    Director of Field Operations and Director of Long-term Care Research,
    Health Care Finance Administration.
        C. William Fischer--Senior Vice President for Business and Finance,
    Northwestern University. Former Executive Vice President, Brandeis
    University; Vice President for Budget and Finance, University of
    Colorado; Assistant Secretary for Planning and Budget, U.S. Department
    of Education.
        Anthony J. Principi--Former Deputy Secretary, Department of
    Veterans Affairs; Staff Director, Senate Committee on Veterans Affairs;
    Deputy Administrator, Congressional and Public Affairs, Veterans
    Administration; Counsel, Senate Committee on Armed Services; and line
    officer, U.S. Navy.
        John Shannon--Former positions with the U.S. Army, including:
    Special Assistant to the Assistant Secretary for Legislative Affairs;
    Deputy Under Secretary; Assistant Secretary of the Army for
    Installations and Logistics; Under Secretary of the Army.
        Charles W. Washington--Professor of Public Administration, Florida
    Atlantic University. Former Stennis Chair and Director, John C. Stennis
    Institute of Government, Mississippi State University. Associate Dean,
    School of Government and Business Administration, George Washington
    University.
    Project Staff
        John P. Scully--Project director. The Alliance for Redesigning
    Government Public Innovator Learning Network Manager; Acting Alliance
    Director; Special Assignment to the Vice President's National
    Performance Review; Deputy Director, Management Operations Directorate,
    Goddard Space Flight Center.
        Gregory J. Ahart--Senior research associate. Management consultant.
    Former official at GAO, served as assistant comptroller general for
    human resources, director of the Human Resources Division, and Deputy
    Director of the former Civil Division.
        Martha S. Ditmeyer--Research assistant. Consultant, National
    Academy of Public Administration. Former staff member Massachusetts
    Institute of Technology and Comsat.
        Charles Hulick--Senior research associate. Former official at the
    General Services Administration (GSA); Assistant Commissioner for
    Quality and Contract Management, GSA; past President of the Senior
    Executives Association, GSA.
        Emerson Markham--Senior research associate. Former Budget Director,
    Veterans Administration, ACTION and Airways Modernization Board; has
    held a variety of financial management and planning positions in eight
    federal agencies; Project Director on Academy projects, including with
    the Administrative Office of the U.S. Courts, Department of Veterans
    Affairs, General Accounting Office, Office of Personnel and Management,
    and Treasury Department.
        Michael H. McLendon--Senior research associate. Consultant in
    aerospace, information technology and health care. Former professor,
    Finance and System Acquisition, the Defense Systems Management College;
    principal member, Office of the Secretary of Defense; Department of the
    Air Force.
        Roger I,. Sperry--Co-Project director. Director of Management
    Studies. Former Professional staff member, U.S. Senate Committee on
    Governmental Affairs; Senior Group Director and Special Assistant to
    Comptroller.

                         STATEMENT OF BARBARA MIKULSKI

        Senator Mikulski. Thank you, Mr. Chairman.
        I am going to ask unanimous consent that my statement be
    included in the record. I note that it is 2:30, and people have
    been waiting to testify. We want to hear from Secretary Brown.
    So just note that I really want to raise questions related
    around the adequacy of funding for medical care. I am deeply
    troubled about the numbers for veterans' medical research,
    which has meant so much to not only the veterans, but the
    American community at large, and also other issues related to
    education, the utilization of the benefits of some others.

                               PREPARED STATEMENT

        Mr. Chairman, you should know here, periodically, sounds of
    applause. It is because about 10 percent of the back room are
    my Maryland constituents that are visiting. And they should
    know that Senator Bond is a real champion of the veterans. And
    they are here as kind of a workshop, learning how Congress
    works. So maybe we ought to get to it.
        [The statement follows:]

               Prepared Statement of Senator Barbara A. Mikulski

        Mr. Chairman, thank you for holding this hearing today on the
    fiscal year 1998 budget request for the Department of Veterans Affairs.
    I'd like to welcome today's witness, Secretary Jesse Brown.
        Since the VA was founded, we have fought a World War, a Cold War
    and a Gulf War. From the World Wars to Korea, Vietnam to the Persian
    Gulf, each conflict has created a new generation of veterans with their
    own unique medical needs.
        We recently celebrated the 50th anniversary of the end of World War
    II. To the G.I. Joe generation, we said thank you again. And thank you
    to all of the men and women who fought and died defending this nation.
        Fifty years later, the World War Two soldiers, sailors and airmen
    have become our veterans. We have a sacred contract with all of our
    veterans that we cannot break. Promises made must be promises kept. We
    have no higher responsibility than to provide the medical care that is
    due our veterans.
        The VA, despite all of the criticisms, has become indispensable to
    our veterans. We can never abandon our responsibility to provide the
    best possible care to our veterans--it is our responsibility to do
    nothing less.
        Unfortunately Mr. Chairman, you know as well as I do that this
    subcommittee faces tremendous fiscal constraints. We need to make sure
    that the VA and every other agency makes the most of the money it
    receives. The need to cut costs and save money is driving a new agenda
    for the VA.
        This new agenda can be an opportunity for the VA and for the
    Congress. We must look for new solutions and new ideas instead of
    clinging to old ways of doing business.
        However, as we look to reduce costs to the taxpayer, we must not
    reduce the quality of care to our veterans. Improving quality and
    efficiency should be our guiding principles, not simply cutting costs.
    If we are not careful, saving a buck in the short term could cost us
    bigger bucks in the long term.
        During this morning's hearing, I plan to ask questions about
    several of VA's initiatives. I want to make sure that the
    Administration's projections for VA funding aren't overly optimistic. I
    want to make sure that creative proposals don't end up harming veterans
    as the proposals potentially get bogged down awaiting Congressional
    approval.
        I am concerned that the VA's budget request assumes new revenues
    and service to new veterans without assurances that the money can be
    collected or that costs can be reduced sufficiently to accommodate the
    increase in the numbers of veterans served.
        I also will raise questions about VA's plans to serve a new
    generation of veterans. Tomorrow's veterans may have dramatically
    different needs than yesterday's veterans. I want to make sure that the
    VA is thinking strategically and creatively about what it needs to do
    to make sure that the baby boomer veterans will receive the best care.
        We must proceed cautiously when so much is at stake. The VA and the
    Congress need to be guided by a strategic plan for improving the
    quality of health care and delivery of benefits while utilizing new
    management strategies, such as decentralizing decisionmaking authority,
    to save money for the taxpayer.
        I know the VA has begun to make some changes to become more
    efficient and effective, and I look forward to hearing about this
    process.
        I want a better VA, a more efficient VA, and a VA that takes care
    of our veterans.
        Mr. Chairman, I thank you again for calling this hearing today and
    I look forward to working with you on this issue.

        Senator Bond. Thank you very much, Senator Mikulski.
        And you have no better teacher on how Congress works than
    your distinguished Senator from Maryland, Senator Mikulski, who
    chaired this subcommittee and I would say taught me all I know
    about this subcommittee. But she does not want to be hung with
    that. And so I will just say that she has been valuable in her
    assistance.
        Senator Faircloth, do you have a statement to submit?

                          STATEMENT OF LAUCH FAIRCLOTH

        Senator Faircloth. Yes, I do, Mr. Chairman. And I would
    like to read it, if I may. It is not that long.
        Mr. Chairman, I thank you for allowing me to be a visitor
    to your subcommittee this afternoon. I have some very serious
    questions that I need to ask the Secretary about a situation in
    North Carolina concerning some wasteful and abusive practices
    in the Department of Veterans Affairs there.
        Mr. Chairman, almost 1 year ago today, the Veterans
    Department took under investigation into allegations of a
    sexual harassment misconduct and unprofessional behavior on the
    part of the Director of the VA Medical Center in Fayetteville,
    NC. In September 1996, the Office of the Inspector General of
    the Veterans Department issued a report confirming the
    allegations of sexual harassment as well as other acts of
    misconduct by the Director.
        Now, Mr. Chairman, in most organizations in today's world,
    the Director would have been fired. But that did not happen at
    the Department of Veterans Affairs. Instead, Mr. Jerome
    Calhoun, about whom the allegations were made, was given a pay
    increase. He now earns $106,000 a year. He was also transferred
    to Bay Pines, FL, where he had asked to be transferred. Talk
    about throwing the rabbit in the briar patch. His relocation
    expenses were paid by the taxpayers.
        Mr. Chairman, this is a very serious issue. My constituents
    in North Carolina are outraged; in particular, the people at
    Fayetteville and the veterans in that area. A man making
    $100,000, in a settlement, is transferred to Florida, with a
    pay increase. It is absurd, but it does not end here. Here are
    some of the other examples of spending practices at VA while
    Mr. Brown has been there. These are serious and they need
    correction.
        One, the number of Department of Veterans Affairs employees
    earning $100,000 or more has increased by more than $1,200
    since January 1993; 8,252 employees, or 3.8 percent of the VA
    work force, earn six figures or better.
        A $26,000 saltwater fish tank was installed in the South
    Carolina VA Hospital. The yearly maintenance cost of the tank
    is $7,800. This was installed at a time of layoffs and a budget
    shortfall at the facility. The Director of the facility who
    ordered the tank also spent $58,000 to renovate his office, and
    $139,000 on furniture and equipment. When the new carpet was
    deemed an inappropriate color, new carpeting was installed at
    $5,600.
        Mr. Chairman, I will not take up your time today and delay
    your hearing, but there are a number of issues that need to be
    addressed. And that is the reason I feel compelled to be here
    today. And, Mr. Chairman, I thank you for letting me be here.
        And, Secretary Brown, I plan to contact you next week and
    ask you to come by as I want to discuss this with you.
        Senator Bond. Thank you very much, Senator Faircloth.
        And for Secretary Brown, let me tell you that I do not
    believe you have received the GAO or the NAPA testimony yet. I
    apologize for that, and we will make that available.
        Secretary Brown. We have the study, Mr. Chairman.
        Senator Bond. Fine. If you would proceed.

                            STATEMENT OF JESSE BROWN

        Secretary Brown. Thank you, Mr. Chairman. I want to thank
    you so much for allowing me to present the President's 1998
    budget request for the Department of Veterans Affairs.
        I notice there are some new members on the subcommittee
    since I was here last year. I am glad that they are on this
    committee, and we look forward to working with all of you.
        As Senator Mikulski pointed out, we have some VA employees
    in the audience. And she mentioned that they were a
    constituency of hers. But I want to note for the record that
    they are here to protect my back, especially after listening to
    Senator Faircloth. [Laughter.]
        Mr. Chairman, we are requesting $17.6 billion for medical
    care and $19.7 billion for compensation and pension payments,
    $818 million for VBA, $84 million for national cemeteries, $234
    million for research, $79.5 million for major construction, and
    $166.3 million for minor construction. The details on the total
    of $41.1 billion and 210,625 employees for VA programs are
    contained in my written testimony.
        This is a good budget, Mr. Chairman, because it will allow
    VA to continue providing quality care and services to our
    veterans and their families. It builds on our progress in
    making changes needed to operate, as you defined it, for the
    last 2 years within budget realities. These changes, and
    eligibility reform, offer VA a great opportunity to expand and
    improve health care services, create new revenue streams and
    provide value to the taxpayers.
        Our proposal includes some new tools to keep our system
    sound. I am pleased to report that VA will expand and improve
    health care delivery in 1998, without any appropriated increase
    above the 1997 enacted level for medical care. This is a first.
        Mr. Chairman, we have been very proactive in changing the
    way we do business, as you pointed out in your opening
    statement. And we, too, are very, very proud of the
    innovativeness and the proactiveness that Dr. Kizer has brought
    to VA. But if we are to continue, we clearly need the help of
    Congress. Critical to our strategy is our proposed legislation
    to retain all third-party collections. Should this legislation
    require an offset of $1.9 billion to overextenders, we are
    proposing savings of $3.4 billion, which means $1.5 billion for
    deficit reduction.
        It is also our goal to collect Medicare reimbursements for
    higher income, nonservice-connected veterans who chose VA
    health care. Of course, this will require legislation
    authorizing the Medicare demonstration.
        Passage of our legislative package will permit us to
    accomplish the following:
        By the year 2002, we expect to reduce the per-patient cost
    for health care by 30 percent, increase the number of veterans
    served by 20 percent, and fund 10 percent of VA's health care
    budget from nonappropriated revenues. These three goals are
    mutually dependent. We cannot accomplish any one of them alone.
        Without enactment of these legislative proposals, a
    straight line appropriation in 1998 would force VA to treat
    fewer veterans and eliminate thousands of health care
    positions. We have estimated that 105,000 veterans would be
    denied care next year and 6,600 health care positions may be
    eliminated. A straight line budget in 1998 would force us to
    change VERA. Those networks that will receive needed increases
    will get less. And those that will lose dollars will lose more.
    By the year 2002, we would have denied care to up to 500,000
    veterans.
        Mr. Chairman, no additional resources above the 1997 level
    will mean the beginning of the end of the VA's health care
    system. And I think you pointed in that direction when you
    provided or shared your opening statement with us.
        However, if our proposal is enacted, we would provide care
    to 500,000 more veterans by the year 2002. Under this budget,
    in 1998, we would treat 3.1 million unique patients--an
    increase of 135,000 over 1997; provide 890,000 episodes of
    inpatient care--and that is going down, which is good; and 33.2
    million outpatient visits--that is going up, and that is good.
        This budget also includes funds that are critical to
    changing the claims processing system through the business
    process reengineering process. When completed, reengineering
    will allow most claims to be processed in less than 60 days by
    the year 2002, while reducing the cost for processing claims by
    over 20 percent.
        I think, quite frankly, we do have a clear vision for the
    future as we look to reengineer that whole operation. And I am
    looking forward to the opportunity today to explain how.
        The national cemetery system is continuing to experience
    growth in its workload. I am pleased to note that funding is
    being requested for the first full year of operations at the
    national cemetery in Seattle, and activation of cemeteries at
    Chicago, Dallas, and Albany.

                               PREPARED STATEMENT

        Mr. Chairman, this concludes my statement. I do want you
    and the committee to know that I look forward to working with
    all of you to honor the commitments that we have made to our
    veterans and their families.
        Now, I would be happy to respond to any questions that you
    or members of the committee may have.
        [The statement follows:]

                       Prepared Statement of Jesse Brown

        Mr. Chairman, members of the Subcommittee, I am pleased to present
    the President's 1998 budget proposal for the Department of Veterans
    Affairs (VA). We are requesting $41.1 billion in new budget authority
    and 210,625 FTE for veterans' programs. This budget will allow VA to
    continue providing quality care and services to our veterans and their
    families.
        The President's proposal is innovative and historic. It builds upon
    the significant progress we have already made in preparing VA to
    operate within current and future fiscal realities. Our request strikes
    the appropriate balance between upholding our commitment to veterans
    and supporting deficit reduction. It also includes new management and
    revenue tools to keep our system viable and promote overall savings to
    the Federal Government. The 1998 budget for Medical Care is the first
    installment of a five-year strategy to improve the delivery of
    healthcare to veterans. I wish to highlight several key elements of our
    budget request.

                     A NEW COURSE FOR VETERANS' HEALTHCARE

        VA has reinvented its approach to healthcare delivery and
    implemented a new national network management structure. We are moving
    toward becoming a truly national system, with coordinated networks of
    patient-centered healthcare services. Beginning in fiscal year 1997, we
    propose to allocate medical care funds on a capitation-based model
    called the Veterans Equitable Resource Allocation (VERA) system. This
    resource allocation system complies with the Congressional mandate
    contained in Public Law 104-204. The recently enacted Eligibility
    Reform Act (Public Law 104-262) offers VA a great new opportunity to
    provide improved healthcare services to current customers, attract new
    revenue-generating customers, and provide value to taxpayers.
        VA will expand and improve healthcare delivery with a 2.8 percent
    increase in funding, but without any increase in appropriated funds
    above the current 1997 enacted level for Medical Care. This
    ``baseline'' strategy is tied directly to our proposed legislation to
    retain all third-party medical collections and user fees. The estimated
    $468 million in net collections will provide the funds necessary for us
    to cover the costs of inflation and continue to improve services.
        In future years, VA's goal is also to collect Medicare
    reimbursements for higher income, non-service-connected veterans who
    choose VA healthcare. This assumes authorization of the Medicare
    subvention demonstration, successful pilot testing, and authorization
    to expand nationwide. To keep our system vibrant and in step with
    modern medicine, we will reach out with a high-quality product and
    expand our customer base.
        With these incentives come new challenges. Our budget request
    commits us to reduce the per patient cost for healthcare by 30 percent,
    increase the number of veterans served by 20 percent, and fund 10
    percent of the VA healthcare budget from non-appropriated revenues by
    the year 2002.

                          IMPROVING BENEFITS DELIVERY

        We continue to process compensation and pension claims in a more
    timely manner. The Veterans Benefits Administration (VBA) is on
    schedule to process original compensation claims in 1998 in 106 days, a
    reduction of 38 days from 1996 actual and an improvement of 107 days
    from a high of 213 days in 1994. Progress also continues in reducing
    the total pending caseload as well. By 1998, the total pending caseload
    will be reduced by nearly 38 percent from its highest point of 570,000
    in 1994 to 356,000 in 1998.
        In addition to the Compensation & Pension (C&P) medical exam pilot
    program funded from the C&P appropriation, our budget also proposes
    that exams be funded directly from VBA resources with a transfer of $68
    million from the Veterans Health Administration (VHA) to VBA for this
    purpose. We propose that VBA reimburse VHA for the cost of medical
    exams conducted in conjunction with a veteran's claim for benefits.
    Establishing a customer/provider relationship should improve the
    quality and timeliness of medical exams and, in turn, enhance the
    quality of VBA claims adjudication. Claims remanded to VBA for
    deficient medical exams should decline. This budget reflects the
    continuation of VBA's Business Process Reengineering (BPR) for the C&P
    claims process, which will significantly improve service to veterans.
    When completed in 2002, this reengineered process will allow most
    claims to be processed in less than 60 days and will reduce C&P costs
    by over 20 percent in the same time frame.
           ensuring a lasting tribute for veterans and family members
        We project that annual veteran deaths will increase 13 percent,
    from 525,000 in 1996 to 592,000 in 2002. Based on the 1990 census,
    annual veteran deaths are expected to peak at 620,000 in 2008. As
    deaths increase, we anticipate a corresponding increase in the number
    of annual interments performed at our national cemeteries from 71,786
    in 1996 to 92,300 in 2002. During the same time period, the total
    number of graves maintained will increase from 2.1 million to 2.5
    million.
        Our request for the National Cemetery System begins to position VA
    to meet future requirements. The budget includes funding and personnel
    to completely open a new National cemetery at Tahoma, WA, begin the
    activation process for three additional new national cemeteries, and
    address workload growth at existing cemeteries. Infrastructure needs
    will also be addressed.
        The budget includes a change in Administration policy for the
    National Cemetery System. The Federal Government will focus on
    providing additional incentives for states to participate in the
    veterans cemetery grant program in order to improve future access to
    veterans cemeteries. We propose to increase the maximum Federal share
    of the costs of construction from 50 percent to 100 percent. In
    addition, the entire cost of initial equipment for cemetery operations
    could be funded from Federal resources.
        administrative services--maintain high quality at reduced costs
        Reinvention efforts continue under VA's Franchise Fund. In 1998, we
    anticipate gross billings of nearly $82 million compared to $55 million
    in 1997. In addition to the six Service Activities already in the fund,
    we have added the remaining portion of the Austin Finance Center's
    fiscal operation.
        Our budget also reflects the phased expansion of the Shared Service
    Center (SSC). The SSC is an integrated facility in which VA employees
    and managers can obtain fast, accurate responses to their payroll and
    human resources questions. In fiscal year 1998, the SSC will provide
    services to additional VA facilities and locations. The SSC will
    centralize payroll processing and personnel information in a cost-
    competitive way and will reduce the Department's overhead.

                          PERFORMANCE BASED BUDGETING

        The Government Performance and Results Act of 1993 (GPRA) is the
    primary vehicle through which we are developing more complete and
    refined strategic goals and performance information. This will allow us
    to better determine how well VA programs are meeting their intended
    objectives. We are continuing to move our focus away from program
    inputs and toward program results. Our strategic management process has
    been reinvigorated to bring about a stronger ``One VA'' focus that
    emphasizes our commitment to becoming a world-class service delivery
    organization.
        We have blended the performance plan required by GPRA into our
    budget submission so that program goals, objectives, and performance
    information are presented in an integrated fashion with our request for
    resources. This provides much better information on what we are trying
    to achieve, how we will measure our success, and what resources we
    believe are needed to accomplish our stated goals and objectives.
        Along with our enhanced planning efforts, we have strengthened our
    focus on accountability for results. Our Accountability Report
    documents the Department's financial and programmatic performance and
    serves to meet the performance reporting requirements of GPRA. We
    continue to move closer to our ultimate objective of having a single
    set of performance measures that are used throughout the program
    planning, budget formulation, budget execution, and accountability
    processes. This emphasis on program results will position us to make
    more informed budget and management decisions.
        I will now briefly summarize our 1998 budget request by program.

                                MEDICAL PROGRAMS

    Medical care
        This year, funding of the veteran's health system is based upon
    four elements: the appropriation, third-party collections, sharing
    reimbursements and copayments, and a demonstration pilot for billing
    Medicare for higher income veterans. For 1998, VA's request provides an
    additional $468 million--a 2.8 percent increase--over last year's
    enacted level. Essentially, the appropriation is straight-lined at the
    enacted level for 1997 with a slight adjustment, a decrease of $68
    million for C&P examinations to be transferred to the VBA and an
    adjustment for Franchise Fund supported financial services (an increase
    of $14 million). VA is proposing that all third-party medical
    collections and user fees be merged with the Medical Care
    appropriation. This will provide additional resources estimated to be
    $591 million, of which $123 million is required to cover the cost of
    collections and $468 million is available for veterans' healthcare
    services.
        The Administration is also proposing legislation to authorize a
    demonstration pilot project for Medicare subvention which will allow VA
    to bill Medicare for higher level income veterans (Category C) and
    retain these funds. Although we do not estimate significant collections
    from this pilot in 1998, it is VA's goal to accomplish national
    implementation of Medicare billing before 2002. We estimate that by
    2002 the combined collections from MCCR and Medicare could contribute
    $1.4 billion in revenue to support veterans' healthcare. Important to
    note, we believe VA can provide high quality care for Medicare eligible
    veterans cheaper than the private sector so this will benefit the Trust
    Funds and VA. We believe this is a ``win-win'' situation.
        The net result of these proposals for 1998 is the total
    availability of new funding of $17.6 billion, which will support
    187,317 FTE. We expect to provide care to 3.1 million unique patients,
    an increase of 135,000. The new funding level should support almost
    891,000 inpatient admissions--560,000 acute care, 18,000
    rehabilitation, 168,000 psychiatric care, 87,000 nursing home care,
    28,000 subacute care, 30,000 residential care, and 33.2 million
    outpatient visits.
        This year's funding request includes a proposal that will make a
    months' worth of funding (8.3 percent) available for two years. This
    will increase network directors ability to plan procurement of medical
    services, supplies and equipment more rationally and effectively than
    if they were constrained by the end of the fiscal year.
        This budget makes an extraordinary commitment over the next five
    years to reduce per patient cost for healthcare by 30 percent, serve 20
    percent more veterans, and increase the percent of the operating budget
    obtained from non-appropriated sources to 10 percent of all medical
    care funding by 2002.
        VA's healthcare system is at a crossroads. VA is now implementing
    its most significant management restructuring since its inception.
    Creation of the Veterans Integrated Service Networks (VISN's) assures
    that scarce resources will be focused upon high priority patient
    healthcare. VA is also planning to move forward with the Veterans
    Equitable Resource Allocation System (VERA). This process guarantees
    that VA funding is distributed based on the eligible veteran population
    receiving care in a network rather than on historic funding patterns.
    With enactment of eligibility reform, Congress has given VA the tools
    to restructure the delivery of healthcare in a practical, logical and
    cost-effective manner, reflecting the priorities of the Nation.
    Combined with VERA, eligibility reform will help VA serve all veterans
    better and more fairly.
        It is essential that VA receive Congressional support to allow us
    to expand our non-appropriated funding sources to support veterans
    healthcare. This includes VA retaining third-party insurance
    collections and copayments and, after successful pilot testing, VA
    billing Medicare for higher-income non-service-connected veterans.
    Allowing VA to retain all third-party collection and user fees will
    provide the incentive to improve collection performance. In addition,
    providing the medical care program with access to these alternative
    revenue sources will allow VA to meet the five-year funding levels
    envisioned in this budget, while meeting the healthcare needs of our
    Nation's veterans.
        In this competitive health care environment, VA is becoming more
    customer-focused. We are measuring customer satisfaction and timeliness
    of services, while comparing community standards for quality measures
    to ensure that veterans receive high-quality, compassionate care.
        Decentralization of network management will continue to promote
    innovations and generate more cost-effective care. VA will continue its
    shift from a hospital-centered specialty-driven healthcare delivery
    system to an integrated network delivery system that is grounded in
    ambulatory and primary care. VA now has a Primary Care program in place
    at each of its medical centers.

    Medical and Prosthetic Research
        For Medical and Prosthetic Research, a total of $234 million and
    2,953 FTE will support over 1,469 high priority research projects that
    will enhance the quality of healthcare to the veteran population and
    will maintain operations of research centers in the areas of Persian
    Gulf illnesses, diabetes, environmental hazards, and women's issues, as
    well as rehabilitation centers and Heath Services Research and
    Development Service (HSR&D) field programs. In addition to the projects
    supported by VA appropriations, VA's staff will conduct over 5,200
    projects supported by outside funding sources, such as the National
    Institute for Health (NIH) and private grants and studies.
        The following are areas of focus within research: Persian Gulf
    Syndrome, Prostate Cancer, Outcomes Research, Nursing, Diabetes,
    Occupational and Environmental Hazards, R&D Program Oversight,
    Reorganize Cooperative Studies Program, R&D Program Research Project
    Portfolio, Revitalize the Career Development Program, and DOD
    Collaborative Research into Human Reproductive System Consequences from
    Traumatic Military Experience.

    Medical Care Cost Recovery
        A total of $123 million and 2,295 FTE are provided for the
    administrative costs of the Medical Care Cost Recovery program in order
    to improve collections from third parties, copayments, and other
    sources. With this proposal, any increase in performance will directly
    benefit veterans by providing additional resources for veterans
    heathcare. Collections in fiscal year 1998 are estimated to increase by
    $58 million over the 1997 level to $591 million. Legislation is being
    proposed to merge this function with the Medical Care appropriation to
    allow VA to retain medical collections.
        The Administration has proposed permanently extending several
    Omnibus Budget Reconciliation Act (OBRA) provisions, most of which
    would expire in 1998 under current law. They are: extending authority
    to recover copayments for outpatient medication and nursing home and
    hospital care; extending authority for certain income verification
    authority; and extending authority to recover third-party insurance
    payments from service-connected veterans for nonservice-connected
    conditions.

                               BENEFITS PROGRAMS

        VA benefits programs provide assistance to veterans in recognition
    of their service to their country and the impact of that service on
    their quality of life. We provide compensation payments to veterans who
    suffered disabling illnesses or injuries during military service and to
    survivors of those who died from service-connected causes, pension
    payments to needy disabled wartime veterans and the needy survivors of
    wartime veterans, education and training assistance to help veterans
    readjust to civilian life, vocational rehabilitation and counseling
    assistance to help disabled veterans obtain employment, credit
    assistance to enable veterans and active duty personnel to purchase and
    retain homes, and life insurance. VA seeks to use strategic planning
    and performance measurement to improve benefits and services for
    veterans and their families and ensure the best use of taxpayer
    investments.
        The Administration is requesting $19.7 billion to support 1998
    compensation payments to 2.3 million veterans and 307,000 survivors,
    and to support pension payments to 410,000 veterans and 304,000
    survivors. This request reflects caseload and funds for benefits under
    Public Law 104-204 for the child of a Vietnam veteran born with spina
    bifida. Additionally, vocational training is also available to these
    children. This training may consist of vocationally-oriented services
    and assistance and may include a vocational education program at an
    institution of higher learning. Caseload increases in compensation also
    reflect the anticipated increases in accessions for Persian Gulf
    veterans as well as increases anticipated due to the addition of
    prostate cancer to the presumptive list for herbicide exposure in
    Vietnam and the extension of the Vietnam era for veterans who served in
    the Republic of Vietnam.
        Legislation is being proposed to amend title 38 to prohibit service
    connection of disabilities or deaths based solely on their being
    attributable, in whole or in part, to veterans' use of tobacco products
    during service. This proposal would not preclude establishing service
    connection based on a finding that a disease or injury became manifest
    or was aggravated during active service, or became manifest to the
    requisite degree of disability during an applicable statutory
    presumptive period. There are no costs or savings associated with this
    proposal.
        We are also proposing in this budget a 2.7 percent cost-of-living
    adjustment (COLA), based on the projected change in the Consumer Price
    Index, to be paid to compensation beneficiaries, including spouses and
    children receiving Dependency and Indemnity (DIC). Proposed legislation
    is included which makes permanent a provision of current law that
    provides VA access to certain Internal Revenue Service data for
    determining eligibility for VA income-based benefits. It also
    permanently limits the monthly pension benefit to $90 for certain
    Medicaid-eligible veterans and surviving spouses receiving nursing home
    care. Also proposed is the requirement that all future compensation
    COLA's be rounded down to the next lowest full dollar amount.
        This budget request also reflects a need for an additional $753
    million for the fiscal year 1997 Compensation programs to fund the COLA
    that took effect December 1, 1996, and to fund increases in caseload
    and average benefit payments. Several factors account for the increase
    in projected average payments, including awards of original backlogged
    claims, which generated significant retroactive benefit payments,
    increases in the number of service-connected disabilities claimed and
    granted to veterans, and changes in program eligibility, such as
    additions to the list of conditions associated with exposure to
    herbicides.
        An appropriation of $1.37 billion is requested for the Readjustment
    Benefits program to provide education opportunities to veterans and
    eligible dependents and for various special assistance programs for
    disabled veterans. Education benefits will be provided for about
    516,000 trainees in 1998 including 345,300 training under the
    Montgomery GI Bill. This request includes funds for the annual Consumer
    Price Index adjustment, estimated to be 2.9 percent effective October
    1, 1997, for education programs.
        This budget proposes legislation which will combine the separate
    Guaranty and Indemnity Fund, Loan Guaranty Fund and Direct Loan Fund
    into one new fund, effective October 1, 1997. Beginning in fiscal year
    1998 all income generated by the VA housing loan programs, except the
    Native American Pilot Program, would be deposited into the new fund
    along with appropriated monies. Under the credit reform legislation, 13
    distinct accounts were necessary for the old structure. The
    consolidation would merge the remaining eleven accounts into four
    accounts under a new fund entitled the Veterans Housing Benefit Program
    Fund (VHBPF). No program or cost changes would result.
        We are also proposing legislation to repeal certain restrictions on
    the collection of debts owed to the Government resulting from the
    foreclosure of VA housing loans. The budget also proposes to
    permanently extend VA's authority to (1) increase most housing loan
    fees by 0.75 percent and (2) charge a 3 percent fee for certain multi-
    use home loans. In addition, this budget proposes to permanently extend
    the resale loss provision in the formula that determines whether VA
    should acquire a foreclosed property or pay the default claim. Also
    included are proposals that would permanently extend the loan asset
    sale enhancement authority, so that VA can continue selling loans at a
    greater return, and increase the vendee funding fee to match the FHA
    fee structure on loans. VA's vendee loan program offers financing of VA
    real estate obtained as a result of property foreclosures and is
    available to both veteran and non-veteran purchasers.

                           GENERAL OPERATING EXPENSES

        A total of $846.4 million is requested for the General Operating
    Expenses (GOE) appropriation in 1998. This funding level, combined with
    $161.5 million of administrative costs associated with VA's credit
    programs (funded in the loan program accounts under credit reform
    provisions), $11.3 million in reimbursements from the Compensation and
    Pensions account for costs associated with the implementation of the
    Omnibus Budget Reconciliation Act of 1990 as amended, and $35.8 million
    from insurance funds' excess revenues, together with other reimbursable
    authority, will provide $1.159 billion to support operations funded in
    the GOE account.

    Veterans Benefits Administration
        The 1998 budget request for the Veterans Benefits Administration
    (VBA) is $661 million which will support an average employment level of
    11,400, which is 543 FTE below the 1997 level. This request, combined
    with $157 million associated with credit reform funding, will result in
    an increase of $55.6 million in discretionary appropriated funding over
    the 1997 level. Included in these totals are $68 million transferred
    from the Medical Care account for the cost of medical examinations
    conducted with respect to veterans' claims for compensation or pension.
        This budget reflects the continuation of VBA's Business Process
    Reengineering (BPR) for the C&P claims process, which will
    significantly improve service to veterans. The BPR effort has examined
    C&P core business processes and addressed the entire claims processing
    environment. The present lengthy process will be reengineered to reduce
    internal handling and emphasize VBA interaction with veterans and their
    representatives. When completed in 2002, this reengineered process will
    allow most claims to be processed in less than 60 days and will reduce
    C&P original claim costs by over 20 percent in the same time frame.
        This also reflects several on-going and new information technology
    initiatives that will support the needs of a reengineered environment.
    A major component of the VETSNET initiative is scheduled for completion
    in 1998. VETSNET will provide a user friendly interface and a standard
    payment and accounting system for the C&P benefits programs. Also
    included are funds for the Claims Processing System (CPS). CPS is an
    integrated, rules-based data collection and case management instrument
    designed to assist field staff in the development of disability claims
    and the tracking of the current status of pending claims. This system
    will ensure greater accuracy and consistency during the development
    process.
        This budget also includes funds to continue the development and
    installation of the Education Electronic Data Interchange (EDI)/
    Electronic Funds Transfer (EFT) project. We will use the EDI, an expert
    system, to automatically process education enrollment certifications
    where possible and the EFT to deliver the benefit to the claimant's
    financial institution. When fully implemented, it is expected that the
    EDI will automatically process up to 40 percent of all education
    claims, resulting in a 45 percent improvement in processing time.
    General Administration
        A total of $185.6 million is requested for the Office of the
    Secretary, five Assistant Secretaries and three VA-level staff offices.
    This request, combined with $4.7 million associated with credit reform
    funding, will result in a total resource level of $190.3 million.
        The fiscal year 1998 budget includes a request to add the fiscal
    operations of the Austin Finance Center to VA's Franchise Fund. The
    revolving fund will continue to be used to supply common administrative
    services on a reimbursable basis. All service activities under this
    revolving fund for 1998 will have annual billings of nearly $82 million
    and 659 employees, who were transferred from their parent
    organizations.
        The fiscal year 1998 budget reflects the phased expansion of the
    Shared Service Center (SSC) to encompass additional VA employees and
    sites. The SSC will centralize payroll processing and personnel
    information. For fiscal year 1998, the SSC is requesting $23 million in
    reimbursement authority from other VA organizations. Average employment
    requested for the SSC is 252 FTE.

    Board of Veterans' Appeals
        The Board of Veterans' Appeals will continue working to improve
    appellate decision-making timeliness in 1998. Response time for the
    Board will decrease from 549 days in 1997 to 538 days in 1998. The 1998
    request is $37.6 million for the Board in the General Administration
    total.

    National Cemetery System
        The National Cemetery System proposes a budget of $84 million,
    which will support 1,375 FTE. This represents an increase of $7.3
    million and 52 FTE over the 1997 level. The funding increase over last
    year's level is for the first full year of operations at the new Tahoma
    National Cemetery in the Seattle, Washington area; for the partial
    activation of three new national cemeteries near Chicago, IL; Dallas,
    TX; and Albany, NY; for the increasing workload and infrastructure
    needs at existing cemeteries; for equipment replacement; and for
    inflation.

    Office of Inspector General
        The fiscal year 1998 request of $31 million for the Inspector
    General will allow for continued audits of financial statements and a
    continuing focus on high pay-off areas that are most vulnerable to
    fraud, waste, and inefficiency.
    Construction, Major Projects
        A total of $79.5 million is requested for the Major Construction
    program. The Major Construction request would fund the final phase of a
    project to correct seismic deficiencies at the Memphis, TN, VA Medical
    Center and expand VA's National Cemetery System. A new cemetery will be
    constructed near Cleveland, OH, and funds are requested to expand
    national cemeteries in Arizona and at Fort Sam Houston, TX. Additional
    funds are requested to remove asbestos from VA-owned buildings and to
    support advanced planning and design activities.
    Construction, Minor Projects
        A total of $166.3 million is requested for the fiscal year 1998
    Minor Construction program. The request includes $140.5 million for
    Veterans Health Administration projects. Of this amount, $42.4 million
    is targeted for the outpatient care and support category. This will
    enable VA to continue its commitment to provide primary and preventive
    care. Additionally, $53.2 million will be earmarked for the inpatient
    care and support category. This category includes projects that improve
    the patient environment, such as providing private and semi-private
    bedrooms. A total of $16 million is also included for the National
    Cemetery System. Funds in the amount of $6.3 million are requested for
    the Veterans Benefits Administration. Staff Office and Emergency
    projects are provided $3.5 million.
        Legislation is being proposed to increase the appropriation limit
    on minor construction projects from $3 million to $5 million.
    Grants for the Construction of State Extended Care Facilities
        The fiscal year 1998 request of $41 million for the Grants for the
    Construction of State Extended Care Facilities will provide funding to
    assist the States to establish new, or renovate existing, nursing homes
    and domiciliaries.
    Grants for the Construction of State Veterans Cemeteries
        The fiscal year 1998 request of $10 million for the Grants for the
    Construction of State Veterans Cemeteries will provide funding to
    assist the States to establish, expand or improve State Veterans
    Cemeteries.
        We propose legislation to increase the maximum Federal share of the
    costs of construction from 50 to 100 percent. This legislation would
    also permit Federal funding for up to 100 percent of the cost of
    initial equipment for cemetery operations. The State would remain
    responsible for paying all costs related to the operation of the state
    cemeteries, including the costs for subsequent equipment purchases.
                                    closing
        Mr. Chairman, the challenges before us are great but they do not
    exceed our dedication and commitment to ensuring the best possible care
    and service to our Nation's veterans. We owe our veterans the best we
    can provide. I look forward to working with you and the members of this
    Subcommittee to meet these challenges. This completes my prepared
    statement. I will be pleased to answer any questions the Subcommittee
    might have.

        Senator Bond. Thank you very much, Mr. Secretary. Excellent
    timing. That is about as close as you can come in this
    business. Your full statement will be made a part of the
    record, as I hope I indicated earlier.

                               USER FEE PROPOSAL

        Mr. Secretary, if Congress appropriates the budget request
    but budget reconciliation legislation fails to include the user
    fee proposal, what would be the impact on VHA's medical
    services next year?
        Secretary Brown. It would be, in my view, Mr. Chairman,
    devastating. Because within, as you pointed out--while the
    request is basically flat between 1997 and our 1998 request, we
    would like to retain the third-party reimbursements revenue
    that we receive--about $600 million, which we in turn send on
    to the Treasury. What we would like to do is to retain those.
    So it, in fact, represents a net increase in purchasing power
    of about $468 million.
        Now, we need somewhere between 300--and you can correct me
    if I do not give the right numbers--about 300 and, let's say,
    $390 million, just to offset the COLA's that we provide to our
    approximately 240,000 employees. The private sector increased
    their services, which we purchased. And we have to buy at that
    increased rate. That is another $250 million or so.
        And so that basically is what we used to refer to as
    current services. Because we have no control over that
    whatsoever. Just by being in existence, that is what we would
    have to absorb.
        So what we want to do is to create this new funding stream,
    to allow us to absorb those institutional costs that we have no
    other way to pay--in the absence of appropriated funding. To
    answer your question to the best of our ability, we would have
    to deny care to about 105,000 veterans and layoff about 6,600
    VA employees.

                      VA HEALTH CARE RESTRUCTURING SAVINGS

        Senator Bond. GAO states that the VA's ongoing efforts to
    restructure its health care system could yield savings of $2
    billion or more during the next 5 years, and that sufficient
    savings could be generated to increase patients served without
    new resources above the $17 billion level. What is your view of
    that finding?
        Secretary Brown. I do not know where they got that from. If
    we just look at the basic structure that we have in place, this
    is all about money. We can, Mr. Chairman, make anything work
    that the Congress is kind enough to place on the table. But the
    way we compensate for it is by closing our doors to our
    veterans. We equate dollars with the number of veterans that we
    can treat.
        As I pointed out to you, just our institutional costs--just
    the mere fact that we are in existence, will require us to
    offset somewhere close to about $600 million. That has to come
    from someplace. And what we would do if we do not have those
    revenues coming in, either from a nonappropriated source or an
    appropriated source, then we are going to take them out of our
    base. When we take them out of our base, we are talking about
    not providing care to veterans. If we do not provide care to
    veterans, there is no need to have our employees. If there is
    no need to have our employees, then there is no need to have
    our hospitals.
        And so I do not know exactly what the rationale for making
    that kind of a statement is. But I do want you to know that we
    have been working very hard to identify as many areas in which
    we can generate savings to become much more efficient. And that
    is what this is all about, everything that we are doing now, we
    think, to some degree. It has been tested in the private
    sector. We do not just dream these things up. We take advantage
    of the experience of providing health care or health care
    delivery in the private sector, and then we try to use VA to
    copy them.
        And so we think that we are doing a great job under Dr.
    Kizer's leadership in this area.
        Senator Bond. Well, I just praised you for cutting $130
    million out of one network. And your own projections show that
    you can cut 30-percent reductions in per-patient costs. And the
    GAO study, I guess, hypothesized that you have been able to cut
    expenses. And their figures must somehow relate to the cuts
    that you have already achieved and the cuts that you project.
        Let us go on to your own assumptions on the cost reduction.
    We did not see any detail on how the savings could be achieved.
    We do know anecdotally that there have been some tremendous
    savings and cost efficiencies. And the GAO has mentioned some
    of these. And I would like some specific information on how
    these savings come about.

                     30 PERCENT PER-PATIENT COST REDUCTION

        So, with your permission, Mr. Secretary, I would like to
    turn to Dr. Kizer, and ask him to tell us how we are going to
    achieve the savings of $956 million next year, and the
    methodology or analysis behind your assumption that there can
    be a 30-percent per-patient cost reduction by 2002.
        Secretary Brown. Mr. Chairman, before I ask Dr. Kizer, can
    you tell us where you get that $956 million from, sir?
        Senator Bond. That was the figure, I am told, that was
    given us by the Department. We figured out, if you take a 6-
    percent reduction in patient cost next year--and you even did
    the math--tell us how much you are going to save next year and
    how you are going to get there.
        Dr. Kizer. Let me try to respond to you in a couple of
    ways. One, the number that you reference is a gross
    calculation, in the sense that if you take 30 percent and
    divide it by 5 years this would equal 6 percent per year. If
    you then multiply it, you get the fiscal year 1998 number. It
    is only one part of the overall effort. But, that is what the
    genesis of that number is.
        I think what you really were asking, though, was the more
    important question as to how or what are some of the specifics.
        Senator Bond. How do we get wherever it is you are going?
        Dr. Kizer. Sure. That is a very reasonable question. The 30
    percent is a target which, I believe, is the first time in the
    Department's history that there has actually been some sort of
    target set as a multiyear goal, that is, something to strive
    for. While we recognize that it may be perceived by some as a
    bit of a stretch target, we think that it is realistic and
    consistent with what is occurring elsewhere in the health care
    industry. We are employing some of the same management
    strategies that are being used in the private sector--things
    like disease management and case management; shifting care to
    the outpatient setting, where medically appropriate, as opposed
    to inpatient; using a variety of health care practitioners,
    such as physician assistants, nurse practitioners, and
    pharmacists to provide care where medically appropriate to do
    so; and a host of other things of that type. We would be happy
    to engage in a more detailed discussion with you in writing or
    verbally, as you like, over time.
        One other point, though, that I would add and one that
    makes it difficult to take some of these numbers and focus on
    them specifically is that we have tried to focus on the
    aggregate cost or global cost. Because as you make some of
    these changes, parts of the health care budget are going to go
    up and others are going to go down.
        For example, as we shift more care to the ambulatory or
    outpatient mode it is anticipated that our pharmaceutical costs
    will go up. That has been the experience elsewhere and that
    seems to be our experience as well--that is, this form of
    practice results in more use of medications.
        So, while we will see an aggregate reduction in the global
    cost of taking care of a patient, some portions of our cost may
    go up while others go down. And, when you start doing multiple
    things at the same time, the actual accounting gets very
    difficult. The discussions we have had with staff repeatedly is
    that, based on some of the cost accounting and other tools that
    VA historically have had to work with, trying to get overly
    precise in some of these areas may result in less than totally
    accurate numbers. And so what we have focused on is the bottom
    line--the overall cost.
        Secretary Brown. Mr. Chairman, can I go back just for a
    moment to that $956 million? It bothers me. And, Mark, can you
    give us some--as I understand it, we understand how you got
    there, but we do not think that it was offset by the $600
    million.
        Mr. Catlett. Mr. Chairman, the 6 percent is the number we
    supplied. And that is the cost reduction that is based on a
    deflated cost factor. So there is, in looking at the total
    picture--and that is part of what Dr. Kizer was saying, I
    believe--you have to look at that tradeoff. The commitment to
    the 30-percent reduction per patient is adjusted for inflation.
        And so we have those increases--$600-700 million a year
    offsetting these reductions you have mentioned, that we have to
    account for.
        Senator Bond. Well, I see I have this information from the
    Department, indicating that, before inflation, there is still a
    net decrease of $181.4 million. Let me come back to that. But
    let me first now turn to Senator Mikulski.
        Senator Mikulski. Thank you, Mr. Chairman.

                          VETERANS EDUCATION BENEFITS

        I would like to switch gears for a moment if I could, Mr.
    Secretary, and then come back to health care, to the issue of
    education. As you know, is one of the hallmarks of the VA
    benefit package has been in educational benefits. Veterans in
    Maryland have approached me and said, gee, if you do not use
    your education benefit within 10 years, you lose it.
        President Clinton is talking about lifetime learning. Also
    the educational benefit only has about a 37-percent
    utilization. My question is, No. 1, how could we promote
    greater utilization of the education benefit? With so many
    young men and women who leave the military, this benefit could
    be tremendous.
        And then, No. 2, have you given any thought to
    restructuring the educational benefit so that it could be a
    tool for lifetime learning for America's veterans?
        Secretary Brown. No; we looked at the education benefit in
    terms of trying to bring it into conformity with today's
    dollars. As has been pointed out over and over here this
    morning, we expressed concern about the research budget, to
    some degree about our flat budget and the impact that it will
    have. All of this had to do with VA trying to prioritize the
    resources that were made available to it.
        Now, I like everything that you have said, quite frankly,
    especially since we have a sense nationwide--I am not speaking
    for the administration at this point; I would like to give some
    further thought to it--but since we have a philosophy that
    education is an ongoing process and it looks like the public
    sector is going to become involved in all of that, then maybe
    we need to think about taking some of the eligibility
    limitation dates off of our chapter 30, chapter 31 and chapter
    35 benefits and make them available for lifelong experiences. I
    kind of like that. And I would like to explore that with you.

                         MONTGOMERY GI BILL USAGE RATE

        Senator Mikulski. Mr. Secretary, I really think we could be
    on to something here, in terms of our veterans. I understand
    you need predictability in terms of budget predictions, which
    is when eligibility would end. And a date is a nice way of
    doing it. But we do have certain national goals. And also I
    think you would appreciate that many veterans, when they come
    back, have to get started in civilian life before they can then
    turn to education, just coming back and getting started.
        So I would like to explore that with you and look at how--
    if it is not lifetime learning, that there is some extension of
    the benefits for a certain period. I am also troubled by the
    fact that the education benefit only has a 37-percent
    utilization. Has the Department done any evaluations as to why
    that utilization is so skimpy?
        Secretary Brown. We expect to increase it to 42 percent.
    But let me just get rid of this bureaucratic stuff here and
    just kind of go right to what you are talking about. Because I
    agree with you.
        I think that there are some things in that area that we can
    do directly. No. 1, we could write to all of the veterans that
    have been discharged that we have addresses on and tell them
    and remind them that they have this benefit. We can do an
    aggressive outreach through our veterans organizations, asking
    them to remind our veterans in their monthly publications about
    this benefit. So there are some things that we could do to
    increase this. And we do expect for it to be increased to 42
    percent in 1998. And our performance target by the year 2002 is
    about 75 percent. But I think there are some things we can do
    right now.
        [Clerk's Note.--Facts for consideration in modifying
    Secretary Brown's testimony.]
                                   Usage Rate
        Both the Department of Veterans Affairs and the Department of
    Defense want to see an improvement in the percentage of veterans who
    use the Montgomery GI Bill (the usage rate). One of the goals of the
    VA's Education Service's business plan is to improve the usage rate.
    Since the Montgomery GI Bill is an important recruiting tool, DOD is
    also seeking to improve the usage rate.
        Consequently, discussions have begun between DOD and VA to
    determine how best to discover the cause of the low usage rate and to
    seek the best method of increasing it. In addition, a member of the
    Secretary's Veterans' Advisory Committee on Education is conducting a
    survey of a sample of those eligible for the Montgomery GI Bill, but
    who are not using it, to ascertain their reasons for failure to pursue
    training.

        Senator Mikulski. I appreciate those good intentions. But
    has there been an evaluation as to why the utilization is so
    skimpy?
        Mr. Lemons. There is concern expressed about the level of
    the benefit and the increased cost of education generally. Our
    focus groups and customer surveys have indicated that the high
    cost of education is a barrier to utilization of the benefit.
    It does not cover as much as we would like to have it cover.
        Senator Mikulski. Well, Mr. Secretary, I would really
    strongly recommend that there be an evaluation, taking your own
    research and looking at the need that our veterans have when
    they come back home and how this benefit can truly be a bridge
    to the future. And I say this because, first of all, it is
    something I know you are deeply committed to. So many of our
    veterans are people who have come to the military from very
    modest backgrounds. Many are minorities. Even if they are not,
    they have come for service to the Nation and the possibility of
    education afterwards.
        I think one of the most empowering things we can do for
    those veterans is to make sure that educational benefit is a
    truly empowerment tool. If they stood sentry in defense of the
    Nation, let us stand sentry on how the veterans benefit could
    be a tool. And what we could do even for minority men could be
    so fantastic that we would like to be a partner with you in
    reevaluating it, using the resources we have, but more
    creatively and more wisely.
        Secretary Brown. We will do it.
        Senator Mikulski. I would like to offer that as a
    suggestion.

                              NAPA RECOMMENDATIONS

        The other question that I would like to get to is also the
    disability benefits. You and I have talked for some time about
    our concern about the backlog in disability, the need to manage
    that. This committee has had a National Association of Public
    Administrators' study done on that. I believe you have their
    recommendations. Could you comment on the NAPA recommendations
    on the need for better management, better structure, greater
    attention to the regional offices, and so on, and let us know
    what you see yourself doing in that area?
        Secretary Brown. Yes, ma'am. Let me just say that I do not
    disagree with their conclusion that we need to have better
    management of the resources that we have. And I think, now that
    we have made recommendations to have a new Under Secretary
    coming forth, that we are going to be able to move forward in
    that respect.
        There are, however, some recommendations that were made,
    such as the consolidation of the regional offices--and I have
    not had a chance to look at the entire report; I have just kind
    of thumbed through it--that we have some concern about, not so
    much in terms of concept, but in terms of reality. But we will
    carefully review that and we will provide you with our analysis
    of that review when we complete it.
        [The information follows:]
                        Response to NAPA Recommendations
        May 27, 1997, VBA received the draft NAPA report. NAPA has
    requested our comments by June 13, 1997. We are currently reviewing it
    with the Department and other appropriate stakeholders.

                           YEAR 2000 COMPUTER PROBLEM

        Senator Mikulski. Well, one of the issues I am concerned
    about, which goes to the benefits across the board, is the so-
    called year 2000 problem. You know, when the computers hit
    2000, if we do not have a way of fixing that, it would go back.
    If the computer does not go forward to 2000, it goes back to
    1900. And it could really mess up our pensions, our disability
    benefits. And you understand that. Where are you on the year
    2000 problem?
        Secretary Brown. Ma'am, we have no problem with that.
    Obviously, we are concerned, just like any other business
    entity, whether in the private or public sector. But we think
    we have that under control. Right now, we are modifying our
    code, just like all of the other industry leaders are doing. We
    expect to start testing that in December 1998.
        At the same time, we are in the process of building a whole
    new platform that is 2000 compliant. We are not using that as a
    backup system, because we think, quite frankly, that we are
    going to be able to have these modifications made, tested, and
    running. We recognize that if we do not, then we just die on
    the vine if our veterans are not getting their checks and we
    are not able to make the computations. So we are well ahead of
    that.
        Not only are we taking advantage of the personnel that we
    have inhouse, we are actually hiring outside contractors to
    come in and help us. And so we think that we are managing this
    program extremely well. And, quite frankly, I feel very
    comfortable with it.
        Senator Mikulski. Well, that gives me heart. But I really
    would encourage you to go back to look at the so-called NAPA
    study, because they sound the alarm about their concern that
    claims and appeals issues are so significant that it could
    really degrade the service to veterans, and are rapidly
    reaching a crisis level, both with the diminishing staff, the
    need for new technology and a streamlined regulatory process--
    whether that is at the appellate level for the appeal or
    whether it is at the first-line, particularly like the regional
    offices, where they say decisions are too slow and not well
    enough prepared.
        Secretary Brown. Yes, ma'am. That is a little bit different
    than the year 2000 problem.
        Senator Mikulski. I know it is.
        Secretary Brown. But I do not totally disagree with them.
    We have not, in my view, managed our modernization programs
    extremely well. But I think now we are on course. We understand
    where our weaknesses are. What I have directed is that we bring
    in an outside consultant to look at everything that we are
    doing, from the top down, to make sure that all of the pieces
    are in place.
        Senator Mikulski. In all of VA or just this area?
        Secretary Brown. All of VA. Because we are going to a new
    platform. And so what we plan on doing, we think we are doing
    it right. And I just did not rely on the resources within the
    house--their conceptualization on how things should work. In
    fact, we just signed that contract this week.
        Senator Mikulski. Who is going to do it?
        Mr. Catlett. Senator, Burch & Davis is the firm that we
    will be retaining this week. We have the direction of the
    Secretary. We have done interviews and the selection process.
    As the Secretary said, they are going to assist us. We hope to
    have the first deliverable in 90 days, defining the overall
    information technology architecture for the Department in the
    future. So while we are trying to fix the problem of the year
    2000 now, which we have to do as our first priority, we are
    looking to the future and designing the system that we are
    going to need.
        Senator Mikulski. Well, I know my time is up, and I will
    wait for a second round on some of the health care issues. But,
    again, NAPA says this: Information resource management failure
    to manage effectively has led to our current crisis. The VA has
    just shown no ability to learn from previous studies.
        And so I do not know if you need a chief information
    officer. I do not know. But, really, technology should be your
    tool, particularly as other resources--technology should be
    your best friend, particularly as other resources are frozen.
        So thank you, Mr. Chairman.
        Senator Bond. Thank you, Senator Mikulski.

           SAVINGS ACHIEVED THROUGH HEALTH CARE EMPLOYMENT REDUCTIONS

        Let me get back to the savings. Dr. Kizer, how much of the
    savings would be achieved through reductions in staff? And what
    would be the anticipated reduction of staff by 2002?
        Dr. Kizer. I do not have that exact number on the tip of my
    tongue. Mark may have it. We do expect to have further
    substantive reductions. As you may know, our current staffing
    level is about 185,000, which is down over 20,000 from where it
    was 3 or 4 years ago.
        Senator Bond. What other specific plans do you have for
    savings? Or all of these to be generated by the networks?
        Dr. Kizer. There is a long list of things that contribute
    to the savings. It includes reductions in everything from
    beds--and, as you probably know, our bed count now is down over
    15,000 from where it was a few years ago. We expect that that
    will drop another 10,000 or so in the next 2 or 3 years. We are
    shifting care in a very marked way to the outpatient setting.
        Senator Bond. What kind of percentage or what kind of
    ballpark savings does that give? What is your general estimate
    on that?
        Dr. Kizer. The bulk of savings will come from retooling the
    way care is provided. Now, how you apportion that--for example,
    how much may be due specifically to case management versus,
    say, a nurse-managed clinic versus ambulatory surgery versus
    contracting for pharmaceuticals, that becomes very hard to
    dissect out all of those specific components. But, let me give
    you one very specific example--based upon 1 year's worth of
    data. We set a target in fiscal year 1996 of increasing the
    amount of surgery that was done on an ambulatory care basis,
    starting the year at 39 percent of all of our surgeries being
    done on an ambulatory care basis and ending the year at 52
    percent, a 33-percent increase.
        Now, during that year, if we compare the first-quarter
    statistics with the fourth-quarter statistics, and I cite these
    numbers recognizing the limitations of extrapolating to the
    long term from a 1-year sample, the number of surgeries
    performed in the first quarter was a little over 81,000. The
    number of surgeries performed in the fourth quarter was over
    89,000, or about a 10-percent increase in productivity in that
    product line.
        Likewise, the timeliness and the ease with which patients
    were getting the surgery increased dramatically and
    concomitantly, there was a 12-percent reduction in surgical-
    related mortality. So not only did we do more, we did it more
    cheaply, and we did it quicker and with fewer complications.
        That is the type of thing that we are trying to do in all
    of the different product lines and the manner in which we
    provide care.
        Senator Bond. Well, we appreciate those. What we would like
    to see is the kinds of things you were laying out, the kinds of
    things that you expect will continue to make those cuts. Do you
    have specific plans or guidelines for the networks?
        Dr. Kizer. Each of the networks has submitted a plan that
    has been reviewed and critiqued, and feedback has been given to
    each network on their plan. This is the first time in the
    history of the Department that this type of exercise has ever
    been done. In my judgment, it was not a perfect process, and we
    do expect that as we move into the second year of this the
    planning and the specific linking of budget to planning will be
    better. We will be able to, I think, give you some more precise
    extrapolations of where savings will come from in the future.
        You referenced network 3, where they have been able to
    achieve a savings of about $120 million in the past year, and
    they can delineate rather precisely exactly where those savings
    came from as far as the amount that was due to reduced staffing
    and the amount due to a number of other things.
        Senator Bond. Thank you, Mr. Secretary.

                                NEW PATIENT MIX

        Let me turn to another part of your equation, and that is
    the new patients. What sort of mix of new patients are you
    expecting? Are they going to be primarily higher discretionary-
    income veterans, with insurance and relatively fewer medical
    problems?
        Mr. Catlett. I am Mark Catlett, the Assistant Secretary for
    Management. Of the increase we are anticipating over the next 5
    years almost 600,000 new patients per year by the year 2002, we
    are estimating over 80 percent of that would be what we used to
    call category A, our service-connected and low-income veterans.
    Only 20 percent would be the higher income veterans that you
    referred to.
        Secretary Brown. Let me make one other point on that. With
    respect to if we have to get our legislative proposals in, the
    Medicare reimbursement we expect to attract higher income
    nonservice-connected veterans. Those are the ones that have
    been left out of the system, and we have to keep in mind that
    our high income basically could be a veteran that is making
    $21,000 coming into the household, so what we would want to do
    is to allow him to spend his Medicare dollars with VA and that
    way in our view makes him whole. We think they are being
    treated as second-class citizens now.
        Dr. Kizer. If I might add just one other point to this.
    Under the VERA methodology, appropriated funds are being
    allocated only for the category A veterans, as you probably
    know, and I think that represents a very tangible manifestation
    of the philosophical commitment that is being made to serving
    the service-connected veterans.
        Secretary Brown. One other point, Mr. Chairman, I think
    that is very important. What we are basically saying, that the
    new, this 20 percent that we plan to attract, we really want a
    mechanism by which they bring the dollars with them, and that
    is what this is all about. That is what the third party
    reimbursement is really all about.
        We think there is a lot of fat, and I do not want to call
    it fat, but there are a lot of opportunities to get more out of
    that $600 million. For instance, in order to collect the $600
    million, it costs us about $125 million. We think we can
    probably do that for about $50 million, but we want to keep it
    all, so those are the kinds of things that we are looking at.
        Senator Bond. Really, when you are talking about this, it
    seems to be a major change in the mission. Do you see the VA
    becoming a full-scale health competitor seeking to provide care
    for the general veteran population?
        Secretary Brown. No; what we envision is allowing VA to
    continue with this mission of providing care to category A's,
    which are our service-connected veterans and our poor veterans,
    and we want to, in order to take advantage of the economies of
    scale so that we can spread out our resources, for instance, as
    I mentioned to you for the first time I think it is the number
    of inpatients have been reduced below a million. We expect in
    1998 to provide about 890,000 inpatient episodes.
        Now, at the same time, what is happening here, while the
    number of bed vacancies are going down, we still have to pay
    the rent--not the rent, but the cost of heating. We have to pay
    the doctors and so forth, so in order to reduce the per-unit
    cost, we wanted to get more people in there, and that is the
    whole point that is central to this thing, and so I do not
    think that we plan on opening this up to everybody, but the
    people that we do plan on treating, we want them to bring
    dollars with them.
        Senator Bond. But you are talking about the general
    veterans population. They do have dollars, and I think that the
    GAO indicates that you are not going to get that revenue unless
    you get the better-off veterans.
        Secretary Brown. Well, let us talk about who the better-off
    veterans are. Let us just talk about Medicare. We are talking
    about veterans that are retired, and probably--I mean, they are
    not extremely well off, but we think that many of them want to
    come into our system, and in turn from the third party
    reimbursement what we are talking about is just really
    maximizing our efforts.
        We think, for instance, a person can come into one of our
    outpatient clinics and get a $3,900 procedure right today, and
    we charge the insurance company $150. Dr. Kizer has in place
    now a system by which we will be able to bill the insurance
    company for the value that we provide to the veteran. That is
    going to represent in our view increased revenues, so those are
    the kinds of things we think we are going to be able to do much
    better than some of the reports that we accumulate.

                             TREATING MORE VETERANS

        Senator Bond. Allowing the VA to gather in more revenues
    raised the question in GAO's mind that this could put at risk
    the access of category A veterans to the health services.
        I wonder also on the other hand if you are trying to bring
    in veterans who have an option, who might go some place else if
    you may not be getting the benefits of competition and finding
    that you have to have the high quality care to get these people
    in. I would ask if you are concerned, (1) about diverting
    resources from the highest risk veterans, and (2) do you see an
    opportunity for competitive improvements in the care, if you
    are going to have to draw in veterans who currently have access
    to other services?
        Secretary Brown. I am going to ask Dr. Kizer to respond to
    that, but before I do, let me just say this. We are already in
    the process of making available comprehensive health care. With
    your help and assistance we now have eligibility reform. A
    veteran that is enrolled in our hospital can come in and get
    treated for everything from the flu to a broken foot.
        That is the kind of thing that we are making available all
    across the Nation, and we believe that there will be many
    people who now want our care, and quite frankly we think it is
    going to, especially on the Medicare side, we think it is going
    to end up as a savings to the taxpayer.
        Dr. Kizer.
        Dr. Kizer. Let me say just two or three things. I know that
    you, Senator Bond, and you, Senator Mikulski, would never allow
    VA to abandon its mission and its responsibility of treating
    category A veterans. So while GAO may identify that as a
    hypothetical potentiality it is not consistent with reality--
    either from where the management of the VA is or where you as
    our board of directors, our oversight body, would ever let the
    system go.
        Second, the amount of funding that we are talking about is
    10 percent of our operating budget coming from nonappropriated
    funding. That means that 90 percent, the overwhelming bulk of
    money, is still provided to take care of those category A
    patients.
        I think the real benefit that we are talking about is for a
    very small amount of marginal cost we can take care of some of
    those veterans who repeatedly--and I know you have heard this
    as well as we have--have said they would like to use their
    Medicare benefits at VA. They would like to get taken care of
    at the VA.
        For those folks who would like to do that, and if they
    brought with them some resources, that could be maximized so
    that we could not only take care of the category A's that we
    are currently taking care of, but we believe we could take care
    of more of them.
        So there is a benefit to the VA system and an overall
    social benefit. We would be taking care of not only those for
    which the appropriation is targeted, but a multiplicative or
    synergistic effect would accrue by which we would be able to
    take care of more category A's by maximizing the return on
    those capital investments that have already been made.
        Secretary Brown. Mr. Chairman, I do not know what he just
    said, but it sounds good. [Laughter.]
        Senator Bond. I am going to go back and read it.
    [Laughter.]
        I think I will probably understand it a little better the
    second time around.
        Senator Mikulski.

                              MEDICARE SUBVENTION

        Senator Mikulski. Dr. Kizer, actually I did understand what
    you said. What you said is that we already have in place a
    physical infrastructure and a patient care infrastructure, and
    we need to maximize it, and the best way to maximize it is to
    ensure that the revenue that could be garnered by third party
    reimbursement either of private health insurance or Medicare,
    if it could be recaptured to go into essentially subsidizing
    those who do not have either, but within the VA family
    umbrella. Am I correct?
        Dr. Kizer. You are correct, but the additional benefit, for
    example, to Medicare, is that we can take care of those
    Medicare patients cheaper than they would be taken care of in
    the private sector, so there is an additional benefit, or a
    benefit that would accrue to the trust fund, and Medicare
    program, as well, but by maximizing those funds that we have we
    are going to take care of more of the category A veterans, as
    you note.
        Senator Mikulski. And I understand the direction you are
    going. I think we are very fortunate to really have you in the
    VA family, as you really try to bring the best practices and
    best learned from what is going on in the private sector of
    health care, not the profitmaking side but the nonprofitmaking
    side, where we are looking at--in many instances the VA medical
    centers are tied to academic centers of excellence like the
    University of Maryland, so bringing in those best practices I
    think are helping reduce cost for outpatient care.
        I think what concerns Senator Bond and myself is not the
    good intentions or the strategic plan that you have outlined,
    but how this is essentially a new way of doing business or
    patient care, and the concern that I have is that during the
    transition, that VA not be caught in a financial shortfall
    while you are making the transition and delivering the care,
    that the ability to capture or recapture these other forms of
    reimbursement do not quite materialize the way we had hoped,
    and there we are.
        We would not want to in any way suffer the stressed out
    demands on care, the possibility of RIF's and layoffs and
    weakening the patient care structure that we have of nurses,
    physicians, and other technicians, so our question is, do you
    think VA is--I mean, how do you see this working?

                     THIRD PARTY REIMBURSEMENT LEGISLATION

        That is what Senator Bond is asking. How do you see this
    working out, and within a timeframe where they have not even
    passed the authorization for you to do this, which, by the way,
    I support, Secretary Brown, the change, so that when you do
    capture third party reimbursement it does not go to deficit
    reduction but comes back into veteran health care.
        Do you see what I am saying? You have got an appropriation
    now that is based on a whole bunch of assumptions related to
    the transition, and we are not sure that transition is going to
    happen.
        Secretary Brown. Yes, and let me tell you----
        Senator Mikulski. On the timetable that I believe you and
    Dr. Kizer hoped that it would.
        Secretary Brown. I am having nightmares about this whole
    process.
        Senator Mikulski. So we are on the same wavelength?
        Secretary Brown. Yes, ma'am, and Senator Bond is, too. I
    listened very carefully to his opening remarks. What frightens
    me to death, I am afraid it will be so easy for--and no
    disrespect--for the appropriators to say, well, we do not have
    authorizing legislation so we are going to give you what you
    asked for, and if you give us what we ask for, we end up with
    $600 million less.
        Senator Mikulski. That is exactly what I am worried about.
        Secretary Brown. That frightens me to death, on the bottom
    line, so we need to forget about all these numbers and just
    say, give them $600 million and they will just shut up and go
    away. [Laughter.]
        Senator Bond. Is that OMB's position? That sounds too
    sensible for OMB. [Laughter.]
        Senator Mikulski. Well, Secretary Brown, I think we can do
    it, but I really do believe you and the veterans' organizations
    need to light a fire under the authorizers to give the
    authority for you to move ahead with this strategic plan,
    because we are deeply concerned--I mean, there is a possible
    budget agreement, and we do not need to take our time to go
    into that.
        But that is really what I am concerned about, not the
    strategic plan and the goals that are set, but the ability to
    do that, because unless everything works right you could end
    up--the veterans could end up with a $600 million shortfall,
    and that could only be addressed by less patient care, a
    diminishing of patient care, or riffs and layoffs.
        Secretary Brown. Stop reading my notes. [Laughter.]

                     REDUCTION IN MEDICAL RESEARCH FUNDING

        Senator Mikulski. Can I ask you another question about VA
    medical research, which has been so important, because it is
    bedside patient care, hands-on research. Could you tell us the
    significance of this $28 million, 11 percent cut in VA medical
    research?
        Dr. Kizer. Well, the Secretary has given such good answers
    before I thought he was going to take that. Clearly the impact
    of this cut on the research program would be damaging. I do not
    know any way of sugar-coating it. It would hurt. It would have
    definite negative effects. It was a very difficult decision for
    the Department, and I think, as the Secretary has testified
    before, it is predicated on the overall availability of funds,
    not on the judgment of the merits and the very high value that
    that program has had in the past.
        Senator Mikulski. But if you had to implement it, what
    would you do, cut out new grants? Would you cut out, say, your
    research in a particular scientific area?
        I know you have been outstanding in your work on
    orthopedics, spinal cord regeneration, these kinds of things,
    new surgical techniques for high risk patients.
        Secretary Brown. What would happen, ma'am, there would be a
    decrease of $28 million, which means we have a decrease of
    about 407 employees, and it will support a reduction in our
    projects from about 1,644 to 1,469. What we have done within
    that number, we have made a deliberate effort to fence our
    commitment to Persian Gulf veterans, diabetes, prostate cancer,
    sexual trauma. We kind of circled those to make sure they would
    end up not getting hurt.
        Now, I am not going to try to tell you that this is
    adequate, because I agree with everything that you said about
    the importance of research, everything. I am just simply saying
    we had x number of dollars. We had to prioritize how we use
    those dollars. Now, if those dollars--and back up here. You are
    not going to hear any complaints from me. The only thing I
    would ask, do not take it from another veterans program. Let us
    find it from somewhere else, but not within the VA's program.
        Senator Mikulski. Well, you talk to the other agencies. I
    do not want to reiterate the importance of research, but I am
    very proud that, in fact, the University of Maryland VA, that
    they pioneered that gall bladder surgery of the laparoscopic--
    what that did was reduce for high risk patients the ability to
    have gall bladder surgery and be able to return home probably
    in less than 1 week, or back to work in 1 week, where before
    that recovery would take 30 days. The savings, both to
    employers and the private sector, goes exactly to what you are
    trying to achieve, which is 30-percent reduction on patient
    cost. That is what the heck the research means, is how you can
    reduce patient cost, by better surgical techniques, new
    technologies.
        Dr. Kizer. You are preaching to the choir.

                   MARYLAND COMMUNITY-BASED OUTREACH CLINICS

        Senator Mikulski. Well, let me ask some other quick
    Maryland questions in my time. One of the things I am so
    pleased we pioneered in Maryland is outpatient care, and you
    have been enormously helpful in both the Cumberland area and
    Dorchester County.
        Those leases are coming up for renegotiation, Mr.
    Secretary, and I hope your headquarters stands sentry on that,
    and we are also concerned about the possibility of new
    outpatient facilities in St. Mary's County as well as in
    Hagerstown. Are you in a position to tell us how those are
    proceeding?
        We understand two community based outreach clinics, one in
    Charlotte Hall in St. Mary's County, the other in Hagerstown,
    they are awaiting, I think, a sign-off from VA headquarters
    with moving ahead with those.
        Secretary Brown. Yes, ma'am. There is a proposal--well, the
    proposal would state that Charlotte Hall State Veterans Home--
    Todd, tell me what this says.
        Dr. Kizer. The group, or next group of clinics that would
    be forwarded to the Congress for concurrence is currently under
    review. We are going back and forth with field staff. We have
    not yet gotten sign-off or agreement or concurrence by the
    relevant folks in Congress on the last bunch of clinics that
    was submitted, although the Senate has indicated their
    concurrence. We are waiting to hear from the House folks on
    this, and when we get that we will proceed with those. Then we
    will be further processing the next batch that would come
    forward, and go on from there.

                           PERRY POINT MODERNIZATION

        Senator Mikulski. Thank you. I just want to make one final
    comment about status.
        As you will recall, up at Perry Point, which has served the
    veterans who are mentally ill and who are chronically ill with
    situations like Alzheimer's, this subcommittee provided
    leadership in providing funds to do modernization of that
    facility. Ms. Apostolou particularly has been enormously
    helpful in making that happen.
        As I understand it, Perry Point now believes that new
    construction would better serve the veterans but also
    ultimately save the VA money and reduce cost, and I believe
    that is pending at headquarters, and I do not know where that
    is, and we would like you to again give you attention to it. I
    believe you have the engineering and architects on that.
        Dr. Kizer. The recommendation has not yet reached me, and
    we can check and get back to you on that for the record, but I
    would defer further comment at this point.
        Senator Mikulski. I would really like you to see it. I wish
    you could be up at Perry Point and see what your excellent
    staff in the back has labored on, I mean, heart and soul to
    keep an old building going that really, Mr. Chairman, goes back
    to the early 1900's where you can't regulate the heat. You
    can't do this.
        What they have done has been heroic, and now with some
    modest investments we could really turn that around, and again,
    I believe it would help also reduce the cost of providing the
    same level of care. A lot of their work just has to go into
    maintaining the asset.
        Dr. Kizer. We will be looking at that very carefully, and I
    would just note that as you complimented Ms. Apostolou I would
    second that; she has been very helpful in our dealings with the
    committee.
        Senator Bond. Than you, Senator Mikulski, and I do have a
    significant number of additional questions, prepared with the
    assistance of Ms. Apostolou, but Mr. Secretary, I know you are
    enjoying this as much as I am, but I am going to ask a few
    questions and regretfully have to submit the rest for the
    record so you can get back to running the VA.

                       MEDICAL RESEARCH FUNDING REDUCTION

        Let me ask a couple of very important questions. The budget
    request would cut VA research by 11 percent. The number of new
    projects funded would drop by 40 percent. You know my lack of
    enthusiasm for that. There is no explanation in the budget
    justifying it.
        First, would you not agree that this program is a critical
    element to quality care in the VA, and if so, why the
    substantial reduction, and do you have any estimate on the
    number of physicians, such as the one I referenced in my
    opening statement, who might pursue careers outside of the VA
    because of difficulty in getting research dollars?
        Secretary Brown. The reduction is about 10 percent, Mr.
    Chairman. It went from 1,644 projects to 1,469. But I agree
    with everything that you said, and as I mentioned to Senator
    Mikulski, I am not here to tell you that we are very happy with
    this. If you can find the dollars, you are not going to hear
    anybody complain about it. I mean, we just did not have the
    dollars, so we just made the best that we can do with it.
        We fenced off some of the programs that are very, very
    important in terms of having the impact on physicians leaving.
    We do have a lot of information on what will happen in terms of
    the FTE loss, which is a little over 400. The type of projects
    we hope to manage, a lot of that because most of these will be
    projects as I understand it that will be coming in, and not
    necessarily projects that are ongoing.

                    COMPENSATION ORIGINAL CLAIMS PROCESSING

        Senator Bond. In the Veterans Benefit Administration the
    current estimates of the time it takes to process an original
    compensation claim does not meet the original projections. The
    original estimate for fiscal year 1997 was 118 days. I
    understand the current estimate is actually about 132 days. Why
    is the VBA falling short of its goal, and when do you think you
    will be able to meet the estimate of 118 days, and how can we
    believe that you will meet the standard of 106 days when we
    have not made the progress to date that was scheduled for 1997?
        Secretary Brown. Quite frankly, we believe we are right on
    target. We had a little bit of a setback because of some things
    that were beyond our control. For instance, we had to
    readjudicate all of our Persian Gulf claims. What else? Give me
    the others, Steve.
        Mr. Lemons. I am Steve Lemons, the Acting Under Secretary
    for Benefits. We had approximately a 20-percent increase in
    reopened compensation claims as a result of changes in
    eligibility criteria in the Veterans Health Administration. We
    put out new rating schedule changes on psychiatric conditions
    and respiratory conditions that increased workload as a result
    of readjudication of those claims, and in addition we had the
    passage of legislation on spina bifida.
        Secretary Brown. And we expect to be back on target--even
    in the presence of that, we expect to be back on target in
    1999, so we are OK.

                            FEDERAL SUPPLY SCHEDULES

        Senator Bond. Mr. Secretary, in June 1995 I believe you
    advised the GSA that the Federal supply schedules were open for
    the pharmaceutical schedule. It would result in dramatically
    increased prices for pharmaceutical products, and you said
    there would be an adverse impact of about $153 million. Is it
    still your view that the access would have a harmful effect on
    the budget of the VA?
        Mr. Catlett. Yes, sir, Mr. Chairman.
        Senator Bond. And do you have an estimate of what might
    occur if the measure that we included in yesterday's markup
    does not go through?
        Mr. Catlett. The estimate that $153 million is still our
    estimate. I do not think we have relooked at that recently.
        Senator Bond. But it is still your position?
        Mr. Catlett. That is still our position.

                             COST EFFICIENCY GOALS

        Senator Bond. While VA has made some impressive changes in
    the health care system there have been no facility closures.
    Dr. Kizer, you said there are more VA medical centers in the
    Northeast than the current population would suggest is
    necessary. Do you expect to achieve your cost efficiency goal
    closures, that the closures will need to occur at some point to
    get to your efficiency goals?
        Dr. Kizer. That is a question that is going to continually
    have to be asked and reassessed as we go forward. I think as
    you know, we did close one facility last year. In Indianapolis
    we have had two facilities. Of the two facilities that were
    operational there 1 year ago, only one of them is operational
    now. The other one is being operated by the State of Indiana
    under an enhanced use lease arrangement.
        Likewise, as you may know, inpatient services at Miles
    City, MT, are slated to be discontinued on June 1 of this year.
    Requisite notices have gone out, and we will be shifting many
    of those resources to the Billings area to enhance the
    outpatient services there, while we maintain a clinic and a
    long-term care presence in Miles City. So, depending upon how
    you want to view these things, since closure probably has more
    than one definition, there are changes in the mission and the
    services that are being provided by VA facilities--some of
    which might qualify as closures.
        As you know, in your home State there have been some
    changes.
        Senator Bond. And we have supported those, and I think the
    veterans have by and large felt that the closing down of the
    inpatient surgery at Poplar Bluff was an appropriate decision.
    I mean, people go wild when you talk about closures, but I
    think the veterans and the people who are concerned about them
    really feel that they are getting better service and we are
    grateful for that.
        But let me ask you the tough question. You have got VA
    hospitals in Chicago. You are going to consolidate management
    of two of them, but you have run into incredible opposition.
    Some think it comes from the affiliated medical schools.
        There are those who suggest that there is more interest in
    protecting medical school turf than the question of quality
    care for veterans. Where do you stand with what you are trying
    to do in Chicago, and how are you dealing with what we know is
    a very hot political potato in Chicago?
        Dr. Kizer. I think we have continued to work very closely
    with the Chicago delegation, which has shown an exceptional
    degree of interest in the activities attendant to those
    facilities.
        We will continue to work with the various constituents and
    stakeholder groups there to allay any concerns and to convince
    them that the actions that are currently underway will not only
    result in more services and better quality of services but will
    allow us to put a presence in underserved areas that currently
    do not have adequate access. We will be able to make access to
    VA care better.
        I should also note that there are a number of very
    innovative things going on in the Chicago area. For example,
    the current plans to consolidate laboratories will result in
    very substantial savings as well as increase the timeliness and
    the availability of services to veterans there. While I know
    that Chicago is not part of Missouri, there is a certain amount
    of show-me-ness that occurs there, and I think the longer that
    people work with us, and the more we are able to demonstrate
    our intentions, the more they will be convinced that what we
    are doing is the right thing and that we are on the correct
    path. What we are doing will result in better services for the
    people that we serve.
        Senator Bond. Is the merger there on hold, or is it going
    forward?
        Dr. Kizer. It is moving forward with a degree of rapidity
    that did not exist some months ago.
        Secretary Brown. Let me just say on the merger, Mr.
    Chairman, we have already merged the administrative functions,
    so we have one director there and he is doing a great job.
    Initially I appointed him on a temporary basis, and he has now
    been permanently assigned.
        We have set up a task force to look at the medical mergers
    of clinics and we are bringing all of the stakeholders in, and
    we have a completely open process, and we plan on moving
    forward to do the right thing.
        Senator Bond. Well, we strongly support you in that effort,
    and you can tell them for those of us who have already given at
    the office, or actually in our home State, we are looking to
    see the same kind of benefits and the same kind of improvements
    rendered to our friends in Chicago and elsewhere. We believe
    that you are on the right track, and certainly this committee
    will support you to the greatest extent that we can.
        I am sorry to see that my time has expired, and with that,
    I will leave the record open for questions that other committee
    members may have.

                         Additional committee questions

        If there are points that we have raised--and I am not going
    to argue whether it is an 11-percent cut or a 10.6-percent cut
    to research--I do not need any further information on that, but
    on the substantive points that we have raised, if you have
    further information you would like to share with us, we would
    welcome that.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                Questions Submitted by Senator Christopher Bond

                              SAVINGS PROJECTIONS

        Question. GAO's testimony indicates VA's ongoing efforts to
    restructure its health care system could yield savings of $2 billion or
    more during the next five years, and that sufficient savings could be
    generated to increase patients served without new resources above the
    $17 billion level.
        Do you agree with GAO's assessment? If so, why?
        Answer. No. Uncontrollable inflation and payroll increases alone
    are estimated to increase costs cumulatively over 20 percent by 2002.
    The total estimated budget resources needed to pay for these
    uncontrollable costs from 1998 to 2002 (5 years) cumulatively is $10.2
    billion. VA's actions, which will include continued restructuring
    efforts to accomplish the 30 percent per patient cost reduction will,
    with the help of alternative revenues, pay for the inflation and
    payroll increases and the 20 percent increase in the number of veterans
    served.
        Question. How much could VA save without increasing its patient
    base--in other words just how dependent is the 30 percent reduction in
    unit cost dependent on the 20 percent increase in patients and the
    attendant economies of scale?
        Answer. It is not possible to precisely quantify how much of the 30
    percent reduction in unit cost is dependent on ``spreading the base''
    over optimally utilized fixed cost assets; however, it is expected to
    account for a reasonably small part of a reduction in unit cost.
        Question. GAO states that ``achieving increased efficiency is not
    contingent on either increases in patients served or resources''. Why
    do you disagree?
        Answer. We are currently using disease management, case management,
    clinical guidelines and other techniques to both improve the quality of
    care and to achieve more appropriate utilization of the resources we
    have. As stated in the preceding answers, the shortfall in
    uncontrollable current services (inflation and payroll increases) for
    1998-2002 requires the ability to generate new revenue (medical
    collections and Medicare receipts) from additional patients served,
    better utilization of excess capacity and the spreading of fixed costs
    over a larger patient base and doing a better job of providing more
    efficient care. We estimate these actions plus a straight-line
    appropriation and alternative revenues will help us achieve our
    targeted goals.
        Question. Earlier this year, the VISN directors completed their
    business plans. Do these plans reflect the specific activities the
    networks will undertake to achieve the 30-20-10 goal? If not, how can
    we be confident your goals are feasible?
        Answer. The Network plans were primarily one to three year plans--
    while 30/20/10 is a five year strategy. The Under Secretary for Health
    issued planning guidance to the Networks on July 8, 1996, preceding
    development of the 30/20/10 performance targets. The 30/20/10 goals
    were released for consideration late in 1996, after most of the VISN's
    had already completed their formal planning processes which are
    reflected in the current Network plans. Consequently, only a few of the
    networks were able to consider or express in these plans how they would
    address the 30/20/10 goals. Many of the Networks, however, were aware
    of the general direction the Under Secretary wants the system to take
    and included definite movement to reach the objectives. The full
    implications of the 30/20/10 goals will be more completely reflected in
    the next VISN strategic business plan cycle which begins in the summer
    of 1997.
        Cost per patient reductions in the range of 30 percent are
    consistent with what is occurring in other integrated health care
    systems, as well as what has occurred in VA in the past two years where
    bed days of care have been declining and ambulatory care has been
    increasing.
        Question. To what extent is per-patient cost projected to decrease
    based on bringing in healthier Medicare-eligible veterans?
        Answer. It is not possible to precisely quantify how much of the 30
    percent reduction in unit cost is dependent on bringing in healthier
    Medicare-eligible veterans and ``spreading the base'' over optimally
    utilize fixed cost assets; however, it is expected to account for a
    reasonably small part of a reduction in unit cost.
        Question. Do you believe that by 2002, all of the possible
    efficiencies will be squeezed out of the system?
        Answer. Depending on whether Congress allows us to manage our
    resources as they should be, we would expect most of the efficiencies
    to be accomplished by 2002.

                           MEDICAL CARE COST RECOVERY

        Question. In testimony provided for the record today, GAO states
    that VA's projections for insurance collections may be difficult to
    meet. GAO says ``VA may be able to retain its revenue goals only by
    attracting thousands of new users who have high incomes or public or
    private insurance''. Do you agree?
        Answer. In part, yes. While they may be difficult to reach we
    believe they are achievable if Congress gives us the needed tools and
    allows the system to be appropriately managed.
        Veterans with higher incomes and insurance would certainly make the
    task a lot easier. Increased workload alone will not make up the
    necessary revenues to meet the MCCR recoveries contained in the
    President's Budget. MCCR through program improvements and increased
    workload will be able to increase recoveries to reach the levels
    contained in the President's Budget.
        VA is pursuing ten initiatives that should allow us to increase
    recoveries. Implementation of these improvements will occur over the
    next several years.

                                  INITIATIVES FOR INCREASING REVENUES FOR MEDICAL CARE
                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                         Projected
                    Initiative                                      Description                          recovery
    ----------------------------------------------------------------------------------------------------------------
    Insurance Identification (Pre-             Pre-registration: Involves contacting patients                     75
     registration, HCFA Match).                 scheduled for outpatient visits to remind the
                                                patients of their appointment and to update patient
                                                information. $6.4 million was recovered from
                                                insurance from 10 medical centers in one year.
                                                Assuming average recoveries of $500,000 per each of
                                                150 medical centers, $75 million in new revenues
                                                could be generated.
                                               HCFA Match: Approximately 5 percent of the Medicare          60 to 97
                                                eligible population possess third party primary,
                                                full coverage, reimbursable insurance as a result of
                                                their full time employment or the employment of a
                                                spouse. MCCR is pursuing a match of Medicare and VA
                                                records to identify primary payer data. If the
                                                estimate is correct and VA mirrors the private
                                                sector, potential recoveries from this group may
                                                total between $60 to $97 million.
    HCFA Medicare Remittance Notices.........  Since VA presently cannot receive reimbursement from           \1\ 42
                                                Medicare for eligible veterans, MCCR has not been              \2\ 8
                                                able to submit claims to Medicare Supplemental
                                                insurers similar to those of Medicare providers that
                                                have an accompanying remittance notice from a
                                                Medicare Fiscal Intermediary or Carrier. Certain
                                                payers are withholding payment of Medicare
                                                Supplemental claims. HCFA and VA are negotiating an
                                                agreement to allow VA to utilize existing Medicare
                                                contracts to obtain the remittance notices to
                                                satisfy payer requirements. A one time recovery of
                                                $42 million in outstanding unpaid claims and a
                                                recurring annual $8 million in additional revenue
                                                are expected as a result of this contract and change
                                                in processing.
    Utilization Review.......................  In fiscal year 1995, approximately $159 million in           15 to 30
                                                non-Medigap inpatient claims and $44 million in non-
                                                Medigap out-patient claims were denied by payers.
                                                Utilization review staff, familiar with third party
                                                criteria, such as admissions, lengths of stay,
                                                discharges, pre-certification, continued stay
                                                reviews, etc., could negotiate payments for many of
                                                the denied claims. UR staff have recovered as much
                                                as $400,000 per medical center in previously denied
                                                claims. If we assume a possible average success rate
                                                of between $100,000 and $200,000 for each of the 150
                                                medical centers, recoveries from proper training and
                                                assignment could amount to between $15 and $30
                                                million.
    Universal Billing (TRICARE, Sharing,       As a consequence of Public Law 104-262, eligibility                25
     etc.).                                     reform legislation, expanded sharing contracts,
                                                including support of TRICARE is expected to result
                                                in $25 million in new revenues annually.
    SC/NSC Documentation and Billing.........  Approximately 3.3 percent of service connected                     11
                                                inpatient care and 2.5 percent of service connected
                                                outpatient care for adjunct conditions is
                                                inappropriately being coded as treatment for
                                                adjudicated service connected care. Properly coding
                                                this care as adjunct and billing insurance carriers
                                                will result in an additional $1 million per year.
    Salary and Benefit Offset................  An IG audit determined that by referring delinquent                 3
                                                patient copayment and means test debt for salary and
                                                benefits offset, an additional $3 million in
                                                revenues can be recovered. The MCCR program
                                                currently utilizes IRS offset for delinquent debt
                                                and is implementing referral of debt over 90 days
                                                old to the Debt Management Center in St. Paul.
          Annual Total.......................  .....................................................      239 to 291
    Point of Service Contracts...............  In order to remain competitive, traditional HMO's             ( \3\ )
                                                recently began offering their enrollees the option
                                                of obtaining health care outside the HMO network.
                                                The enrollees agree to bear larger copayments and
                                                providers receive reimbursements that are less than
                                                customary and usual. Aggressive identification and
                                                recovery from these HMO plans will be pursued.
    Network Incentives.......................  Network retention of revenues recovered will result           ( \3\ )
                                                in better managed local recovery efforts.
    Restructuring Reimbursement Rates........  Restructure reimbursement rates to more accurately            ( \3\ )
                                                reflect the costs related to the actual services
                                                provided; and facilitate new revenue streams from
                                                public and private health insurance programs such as
                                                Medicare, Medicaid, CHAMPUS, and Sharing agreements.
                                                Initially a DRG rate schedule will be developed for
                                                inpatient care, to be used with an automated
                                                multiple rate schedule pricer in Integrated Billing.
                                                Outpatient procedure rates are planned in late
                                                fiscal year 1998.
    AICS.....................................  Increases efficiency, reducing program costs to               ( \4\ )
                                                identify, bill and collect the cost of outpatient
                                                care services. Implementation of Primary Care
                                                Management module has been completed. Training on
                                                scanning and scheduling changes continues.
                                                Implementation of Version 3.0 is scheduled in Spring
                                                1997.
    ----------------------------------------------------------------------------------------------------------------
    \1\ One time.
    \2\ Recurring.
    \3\ Undetermined.
    \4\ Human resources dedicated to increased insurance identification initiative.

        Question. How many new, insured users would VA need to attract in
    each of the next 5 years to meet revenue projections?
        Answer. Projections of increases in unique patients users between
    3.5 percent and 5 percent a year or workload increases of 20 percent
    over 5 years as contained in the President's budget should be
    sufficient. This increase in workload, along with increases in the
    number of current users that are identified with insurance, will allow
    VA to reach the recovery levels anticipated from third party insurers.
    Currently, 20 percent of all inpatient users have insurance while only
    8.5 percent of the outpatients are identified with insurance. Through
    the use of the ambulatory data capture initiative and better insurance
    identification procedures, it is anticipated that by fiscal year 2002
    this number should be closer to 16 percent for outpatients.
        Question. VA recently re-estimated downward by 32 percent its
    anticipated third-party reimbursements for fiscal year 1997 because
    health insurance companies apparently have been making overpayments
    totaling about $150 million. Are you confident in your projections for
    fiscal year 1998, which represent an overall increase of 11 percent
    over fiscal year 1997?
        Answer. Department of Veterans Affairs is confident that the
    assumptions contained in the 1998 President's Budget are accurate in
    the short term. Long term, they are less reliable because of the
    rapidly changing environment. In developing third party recovery
    estimates we relied upon the Center for Health Care Quality, Outcomes,
    and Economic Research, Bedford, MA. With their assistance MCCR has
    refined the projection methodology, and in the next few months will be
    reassessing the environmental effects, which are constantly changing.
    These are the best estimates given the fast-changing trends in workload
    and mode of treatment. Other environmental issues include the effects
    of eligibility reform or other legislation, such as authorization to
    bill Medicare.
        Question. Given that inpatient workload is diminishing while
    outpatient workload is increasing, shouldn't recoveries decrease--since
    outpatient care costs less than inpatient care?
        Answer. Yes, here are some things we are doing to try to address
    the dynamics:
      --The first being workload. Projecting increases in unique patients
            users between 3.5 percent and 5 percent a year (workload
            increase of 20 percent total) while supporting declining
            inpatient workload of approximately 4 percent and increasing
            outpatient workload of over 6 percent, the MCCR third party
            recoveries will be able to reach the levels contained in the
            President's fiscal year 1998 budget based on the following
            factors.
      --Increases must occur in the number of current users that are
            identified with insurance as well as new users having insurance
            in the same or greater portions as current users. Currently, 20
            percent of all inpatient users have insurance while only 8.5
            percent of the outpatients are identified with insurance.
            Through the use of the ambulatory data capture initiative and
            better insurance identification, it is anticipated that by
            fiscal year 2002 this number could be closer to 16 percent for
            outpatients.
      --Restructuring reimbursement rates charged for services are another
            important factor. It is anticipated that, even under the
            current per diem rate system, increases will occur
            conservatively for both inpatients and outpatients at a rate
            exceeding one percent a year.
      --Another critical area is the gap between receivables and
            collections. It is anticipated that the ratio between
            receivables and collections can be narrowed. Currently, we
            collect 31 percent of receivables for inpatients and 33 percent
            for outpatients. We expect our collection rate to improve to
            approximately 35 percent for both inpatient and outpatient
            receivables.
        For the above assumptions to be realized, VHA has developed 10
    initiatives that will enable it to reach or exceed those levels.
        Question. What are your contingency plans should VA's projections
    turn out to be too high?
        Answer. If recovery estimates are not met, the veterans health care
    services would have to be reduced to levels that can be afforded within
    available resources, in accordance with the priorities for care
    contained in the Veterans' Healthcare Eligibility Reform Act of 1996,
    Public Law 104-262.
        Question. The user fee proposal is said to give VA managers
    incentive to increase collections, since such collections currently are
    not retained by VA. Will collections be retained by individual
    hospitals? If not, why would there be any incentive to increase
    collections?
        Answer. The allocation of funds from MCCR recoveries to facility/
    VISN has not been determined. Several proposals have been developed and
    the Under Secretary for Health has been in discussions with the Network
    Directors on this issue. The possibilities range from including the
    recoveries as part of the VERA model to allowing each facility/VISN to
    retain what they individually collect. As VA moves toward relying upon
    non-appropriated funding it is critical that all VISN's are treated in
    an equitable manner. No matter which method of distribution is
    selected, the incentive that will be created by allowing VHA to retain
    collections will be the greatest catalyst for increased receipts.
        VHA believes that if the networks are able to manage recoveries,
    the local medical center recovery efforts will become better managed
    and more efficient, maximizing the benefits of the new resources. The
    networks will have the ability to consolidate certain parts of the
    medical collection processes to make the most of automation, and to
    make the most of the human resources. MCCR believes that a presence at
    the individual medical center or access point is essential, as direct
    personal contact enhances the likelihood of obtaining insurance
    information and answering patients' questions satisfactorily. The VHA
    Chief Financial Officer and MCCR Program managers will provide
    nationwide support to the networks through initiatives designed to
    increase revenue and efficiency.
        Question. GAO states ``VA has not provided sufficient information
    to permit a full understanding of the implications of its proposal.
    Delaying a decision on VA's legislative proposals until critical
    information is available, including a plan describing how the system
    will look and operate in 2002, may result in a better legislative
    decision on VA's budget proposal.'' Do you care to comment on GAO's
    assertion that VA's proposal should be put on hold?
        Answer. GAO's comments ignore the nature of healthcare
    restructuring today. No one in healthcare can predict five years out.
    Putting these legislative proposals on hold only fosters continued
    reliance on the appropriation and increases competition for
    discretionary funding. No matter how long we wait, legislation will
    never be perfect. The requested proposals will give VHA a course now
    and provide the tools necessary to reach our long-term targets. We will
    continuously monitor and request changes in the future if fine-tuning
    is needed.

                                    OUTYEARS

        Question. It is my understanding that this year's budget includes
    realistic outyear projections. Are the outyear projections then real
    planning tools?
        Answer. The VA and OMB have reached a 5 year agreement on the
    budget resources and policies requested for Medical Care. In the
    Government Performance and Results Act (GPRA) effort of integrating
    budget with planning, these resource levels will be included in the
    updated Network Business Planning process. VISN's will plan within
    these resource targets considering the long-term goals and targets
    established.
        Question. For fiscal year 1999, VA is showing an increase in
    obligations of only $100 million over fiscal year 1998. How is it
    possible that in fiscal year 1999, VA could manage to increase the
    numbers of patients served with an increase in obligations of only $100
    million?
        Answer. For 1999, with passage of the requested legislative
    proposals, we estimate an additional 6 percent per patient cost
    reduction (second installment towards the 30 percent goal by 2002)
    coupled with an additional 3.4 percent workload increase (towards the
    20 percent goal). In addition, we estimate we will reach approximately
    one-half our goal of 10 percent funding from non-appropriated sources.
        Question. Will the networks be working with these outyear
    projections in revising and updating their business plans?
        Answer. Yes, these outyear projections will be integrated into the
    Network Business Planning process.

                               ELIGIBILITY REFORM

        Question. Dr. Kizer, last year you told us that eligibility reform
    legislation was a critical tool in restructuring VHA and becoming more
    efficient. This legislation was enacted last fall, after years of
    debate.
        How is eligibility reform legislation allowing VA to make savings,
    do you have an estimate of savings associated with the new authorities
    and to what extent is your goal of a 30 percent reduction in per-
    patient cost is made possible through the new authorities?
        Answer. VHA has always contended that it would manage eligibility
    reform in a cost-neutral manner. This legislation legitimizes the
    continuing transformation of VHA into a system that is changing its
    practice patterns from inpatient to outpatient care when it is
    appropriate and cost-effective. While there may be small ``savings'' in
    some areas, e.g., the ``hotel'' costs of inpatient care or decisions to
    contract for some services, these resources are shifted to other areas
    to produce required services, e.g., outpatient staff, prosthetics,
    initiatives to improve access and quality. Our goal is that by 2002,
    VHA will have decreased its unit costs by 30 percent, increased the
    number of veterans treated by 20 percent, and opened up increased
    revenue streams outside the appropriation by 10 percent. Eligibility
    reform is helping VHA to make progress toward meeting these goals. We
    expect to continue decreasing bed days of care while increasing
    ambulatory surgery and preventive medicine. Reduction in per-patient
    cost is made possible through the new authorities?
        Question. In the past, Congress has been concerned that eligibility
    reform would increase costs by attracting a substantial new patient
    population. Has this happened--is eligibility reform generating
    significant new demand?
        Answer. Even though veterans will now be able to receive whatever
    outpatient, as well as inpatient care is needed, we believe that
    efficiencies gained through the transformation of VHA will provide for
    treating veterans under the Act's provisions. Our data already shows
    that with the increase in outpatient visits, primary care enrollment,
    clinic availability and ambulatory surgeries, there is a concurrent
    decrease in admissions, bed days of care, and operating beds with no
    adverse outcomes.
        Question. Eligibility Reform legislation greatly expands the size
    of the population eligible for unrestricted ambulatory care.
    Prescription drugs are a part of ambulatory care. What has been the
    effect of Public Law 104-262 on VA's expenditure for prescription
    drugs?
        Answer. Currently, VA's data base regarding pharmaceutical
    utilization and cost in the ambulatory care setting does not track
    expenditures to a specific patient and diagnosis. We are, however, able
    to track gross utilization and pharmaceutical costs in the outpatient
    setting by facility, network and nationally. This information allows us
    to make inferences regarding the impact of shifting care from the
    inpatient setting to the outpatient setting relating to pharmaceutical
    expenditures. Although the cost of pharmaceuticals for treating
    patients on an outpatient basis is expected to increase, we are
    confident that the total cost per patient in the outpatient environment
    is less than inpatient care for such patients. This is consistent with
    the private sector experience. As we link the gross utilization data
    with patient specific information, we will be in a much better position
    to address this type of question with greater accuracy. We are in
    process of developing the software necessary to create the necessary
    linkage.
        Question. Eligibility reform legislation provided VA with the
    authority to sell services to the private sector. What are VA's plans
    with respect to selling health care services to non-veterans?
        Answer. Under the authority of prior law, VA facilities had entered
    into a limited number of sharing agreements under which specialized
    medical resources, such as radiation therapy, sleep studies, substance
    abuse, and transplants, were provided on an inpatient basis to the
    patients of our eligible sharing partners. Typically, these sharing
    agreements were with our University affiliates or with the Indian
    Health Service. These agreements remain active. However, since 1994,
    VHA has not established any new agreements to provide inpatient care to
    non-veterans, and has no plans to do so at this time.
        Under the authority of Public Law 104-262, VHA does expect to sell
    outpatient care, health care support, and administrative services to
    eligible sharing partners, assuring that veterans will receive priority
    under such agreements. Furthermore, such agreements must be necessary
    to maintain an acceptable level and quality of service to veterans, or
    result in the improvement of services to eligible veterans at that
    facility.
        Question. What policy guidance has been--or will be--issued to the
    VISN's to clarify when health care services should be sold?
        Answer. VHA Directive 97-015, dated March 12, 1997, contains
    initial policy guidance. VISN or medical center directors must
    specifically certify in writing for each contract (a) that veterans
    will receive priority for the services being provided, and (b) that the
    contract is necessary either to maintain an acceptable level and
    quality of service to veterans, or will result in the improvement of
    services to veterans. Further guidance will be developed and issued.
        Question. How will VA address concerns regarding competition with
    the private sector?
        Answer. VA is very much aware of concerns regarding competition. We
    presently are developing more detailed policy guidance for the field on
    selling services and are focusing on this sensitive issue. We do not
    intend to compete unfairly or to ``under cut'' the private sector.
        Question. What are VA's plans with respect to selling non-health
    care services to the private sector, such as laundry services?
        Answer. The recent legislation clearly gave the VA authority to
    sell health care support and administrative services, as well as the
    use of space or equipment, to support veterans' health care. We would
    not expect to sell these services to individual non-veterans but do
    expect to sell these services to other eligible sharing partners.
        Question. Does VA have the authority to compete with the private
    sector without limitation? If not, please explain what the limitations
    are imposed.
        Answer. VA has the authority to sell any health care service, or
    administrative service required for the operation of a health care
    facility to support veterans health care. Until detailed policy
    guidance is issued, all requests from VA facilities to sell
    administrative resources, the use of medical equipment or space,
    prosthetics, supplies or laundry services, regardless of service or
    dollar amounts, are individually reviewed by a headquarters team
    composed of staff from VHA, Office of Acquisition and Materiel
    Management (OA&MM), and General Counsel. Each proposal is individually
    discussed with each facility by the review team, who emphasizes VA's
    sensitivity to the issue of competition and the need for fair pricing.
    This same information has been conveyed to the field on monthly
    conference calls and on national satellite teleconferences.
        Question. Has the VA conducted any studies concerning the effect of
    VA resource sharing on the ability of private sector companies to
    compete with the VA?
        Answer. No studies have been conducted. While policy guidance will
    be provided by VHA headquarters, actual decisions to sell services will
    be made locally within the policy framework.
        Question. Has the VA conducted any studies which reflect the amount
    of business which the VA intends to displace from the private sector?
        Answer. No studies have been conducted; however, the VA intends to
    compete fairly in providing quality services to support veterans'
    health care.
        Question. Has the VA developed any projections on how much revenue
    it will generate from resource sharing?
        Answer. No specific projections have been developed, however, the
    expanded provisions under Public Law 104-262 will help us achieve the
    10 percent collection goal.
        Question. How will VA determine the cost of VA services provided to
    the private sector?
        Answer. VA will look at both total costs and incremental costs. We
    also will take into account comparable market prices for the same
    services in determining an appropriate price for VA services that will
    be in the best interest of veterans' health care and of the Federal
    government.
        Question. What are VA's plans with respect to selling excess
    capacity to help other federal agencies meet their beneficiaries'
    health care needs?
        Answer. VA encourages its facilities and VISN's to offer available
    services to other Federal agencies. The only restriction currently
    imposed by the Secretary precludes new agreements that would provide
    inpatient care at VA Medical Centers to non-veterans other than DOD
    beneficiaries. Our plans include expanded sharing with all Federal
    agencies and with DOD's TRICARE contractors. We have negotiated
    standard provider agreements with each TRICARE contractor to facilitate
    the development of facility-specific TRICARE agreements.

                                 ACCESS POINTS

        Question. To date, VA has been given approval to open 51 community-
    based outpatient clinics. Currently pending is a request for an
    additional 38 clinics. VA has assured the Committee that the access
    points meet a number of criteria, including that the ``host'' medical
    center will fund the clinic out of existing resources. VA has yet to
    let the Committee know of its long-term plans for access points--how
    many more are needed nationally to ensure equitable access to medical
    care for veterans and over what time frame will they be activated?
        Answer. It is not known exactly how many CBOC's are needed
    nationally to ensure equitable access to medical care for veterans.
    Overall, the Community Based Outpatient Clinics will facilitate the
    transition of VA from a hospital bed-based system of care to a more
    efficient health care system rooted in ambulatory and primary care. The
    CBOC review process is open-ended, and VISN's will continuously
    identify appropriate sites in their geographical areas and develop
    business plans and proposals for submission to VA Headquarters.
        Question. Why are only 19 of the 51 approved access points
    operational at this time?
        Answer. The proposals which were submitted for review are plans
    and, therefore, conceptual in nature. Indeed, one of the criteria for
    submitting these for approval is that no definitive agreements will
    have been effected (e.g., leases, contracts, etc.). Upon notification
    that a proposal has been approved, it is necessary for the parent
    facility to enter into the formal process of finalizing the preferred
    alternative. In the case of setting up a VA staffed clinic in leased
    space, it is necessary to solicit bids for the space, negotiate the
    costs associated with any required modification or renovation, acquire
    necessary equipment, and contract for ancillary services. If a clinic
    is to be a contract for service, the negotiation process to assure that
    the requirements as set forth by the parent medical facility are met,
    requires careful analysis and review to assure that all associated
    costs are reasonable.
        Question. How many additional access points are needed to meet VA's
    goal of attracting 600,000 new users by 2002?
        Answer. There is no specific number of CBOC's that directly
    correlates to the goal of 600,000 new users. However, the primary
    criteria for establishing CBOC's is to improve access to care for
    existing workload.
        Question. VHA plans to bring in 600,000 new veterans by the year
    2002. For fiscal year 1998 the budget assumes a 4.6 percent increase in
    patients at cost of $774.7 million--which amounts to about 135,000
    patients. Are these new patients expected to come primarily through the
    new community-based outpatient clinics?
        Answer. Although some new patients may be expected at the CBOC's, a
    larger share will initially come from current medical center users who
    choose to receive outpatient and ambulatory medical care at a CBOC more
    convenient for them. In establishing CBOC's nationwide, the focus is
    not on how new veterans are brought into the system; but rather, a
    concern for providing quality care in the most appropriate setting,
    whether the care is at a medical center or a CBOC.

                              MEDICAL AFFILIATIONS

        Question. How will the cost-efficiencies that you anticipate impact
    VA's affiliations with 105 of the nation's medical schools? Are major
    changes to the affiliation agreements needed to being about the
    streamlining that is needed?
        Answer. VA is in the process of executing revised affiliation
    agreements with all of its medical school academic partners. While VA
    has made a number of changes in the affiliation agreement documents to
    reflect the changes in the structure and operation of the veterans
    health care system, it is difficult to predicate how future cost
    efficiencies will impact VA's medical school affiliations.
        Currently VA and its medical school partners are conducting
    substantive reviews of the affiliation relationship. The most important
    parts of these reviews will be mutual strategic planning and the
    identification of opportunities for improvement and measurable outcomes
    to track future progress. The products of the reviews will be an
    assessment of the affiliations and plans for the future of the academic
    partnerships. (See the attached Academic Partnership Policy
    Instruction.)

                Memorandum From the Department Veterans Affairs

                                                     February 26, 1997.
    Subject: Academic Partnership Policy Instruction
    Chief Network Officer (ION), Chief Academic Affiliations Officer (14),
            Network Directors, Facility Directors, and Associate Directors,
            Facility Chiefs of Staff, and ACOS for Education
        1. As VHA moves forward with formulation of the health care system
    for tomorrow, a number of operational and policy changes are needed to
    bring the management of our academic affiliations into line with
    today's and tomorrow's expected needs. The provision of health care
    professional education and the conduct of research are two important
    missions of the Veterans Health Administration and are intricately
    associated with the direct delivery of care by VA treatment facilities.
    The unique challenges of these missions must be addressed in our re-
    engineering to make them consistent with specific VHA changes that have
    been effected since 1995.
        2. As outlined in my first Academic Partnership Policy memorandum
    of October 7, 1996, it is anticipated that a number of ``Academic
    Partnership Policy Instructions'' will be issued by the Office of the
    Under Secretary for Health in order to accomplish these goals. The
    attachments to this memorandum continue this series and include the
    following:
      --97-01 Academic Partnership Policy: Affiliation Review and Execution
            of Revised Affiliation Agreement Documents outlines the process
            for a substantive review of the affiliation relationship
            between VA and its school of medicine academic partners and the
            execution of revised affiliation agreements. This process will
            include participation from the local, network and headquarters
            components of VHA as well as our academic partners.
      --97-02 Guidelines for Review of Affiliations constitutes the
            framework within which the effectiveness and value of the
            academic partnership is measured. It is anticipated that the
            reviews will be the basis for long-term planning for academic
            affiliations with medical school partners and will identify
            measurable outcomes to track future progress. The actual
            reviews of the facility-medical school relationship will take
            place at the local level, with the attendant documents
            submitted to the network leadership for concurrence or
            revision. The Network Director will ensure that an appropriate
            review process has been formulated to accomplish a
            comprehensive review of academic affiliations, and through the
            Network Academic Partnership Councils monitor the follow-
            through of the process.
      --97-03 Academic Affiliation Agreements provide the model template
            and language for updated affiliation agreements. Any deviation
            from the model template must be submitted to VA General Counsel
            for review and approval before execution. During fiscal year
            1997, revised affiliation agreements will be executed for
            institutions sponsoring the 105 medical school partnerships
            with VHA. New affiliations with other academic partners may be
            executed using the new templates, but it is not necessary to
            prepare new affiliation documents for non medical school
            partnership agreements in fiscal year 1997. These will be
            executed in fiscal year 1998, after the recommendations of the
            Associated Health Professions Review Sub-Committee of the
            Special Medical Advisory Group have been received and
            implementation decisions made.
        3. The Chief Academic Affiliations Officer shall provide guidance
    and assistance to network directors and treatment facilities regarding
    these issues. The initial point of contact for questions should be the
    Office of Academic Affiliations.

                                              Kenneth W. Kizer,
                                                           M.D., M.P.H.
                                     ______

         Under Secretary for Health's Academic Partnership Instruction

                           97-01 (february 26, 1997)

       ACADEMIC PARTNERSHIP POLICY: AFFILIATION AND EXECUTION OF REVISED
                        AFFILIATION AGREEMENT DOCUMENTS
                                  INTRODUCTION

        VA is the nation's largest provider of health professions education
    and training; and as such, it is obligated to lead in the development
    of a health professions work force that meets the current and future
    needs of both veterans and the nation. The educational impact of VA
    relies on its partnerships with many of the nation's leading academic
    institutions. The basic foundation for VA partnerships with academic
    health care programs was espoused in Policy Memorandum Number 2 issued
    in 1946. The key objectives of this unique document were to maintain
    and improve health care for veterans, to assist in recruitment and
    retention of the highest quality staff at VA facilities, and to create
    a patient care environment characterized by an academic atmosphere of
    inquiry. Much of that document is as applicable today as it was when it
    was conceived 50 years ago.
        Nonetheless, medical science, the manner in which health care
    services are delivered, the training of health care professionals, the
    health care manpower needs of VA and the nation, and the structure and
    operation of the veterans health care system have all dramatically
    changed since Policy Memorandum Number 2 was promulgated. A number of
    operational and policy changes are now needed to bring VA academic
    affiliations in step with the health care environment of today and
    tomorrow and to make the management of them consistent with specific
    VHA re-engineering changes that have been effected since 1995.
        Therefore, VHA will renegotiate its academic affiliations over the
    course of the next two years. The process will be carried out in two
    phases. Phase One will encompass a substantive review of the
    affiliation relationship between VA and its academic partners and the
    execution of a revised affiliation agreement. Phase One will
    concentrate on those institutions sponsoring the 105 medical school
    partnerships. Phase Two will address the other 4,000-plus affiliation
    agreements that VHA maintains for its associated health professions
    training programs. Phase Two awaits the finalization of a policy that
    will be anchored in the recommendations of the Associated Health
    Professions Review Subcommittee of the Special Medical Advisory
    Committee. Accordingly, Phase Two will be implemented after the
    Associated Health Professions Review Subcommittee has completed its
    work and action on its recommendations has been determined.
        This document addresses the principles and process for Phase One
    and includes, (1) direction for the completion of a review process for
    affiliations between VA and its medical school affiliates and, (2) the
    process for execution of revised affiliation agreement documents
    between VA and its academic affiliates.

                                   PRINCIPLES

        The following set of principles guides the linked processes of
    review and execution of revised VA and medical school affiliation.
        1. Health care work force training, medical education, and research
    are most beneficial to patient care and most valuable to learners, when
    they are aligned with the best models of patient care.
        2. Education and research should be accountable to health care
    system needs. Accordingly, they should be managed with performance
    expectations and outcomes measures.
        3. VA's educational offerings should emphasize areas of greatest
    need to society and to those of its veterans. They should be especially
    concentrated in areas for which VA has special expertise. The numbers
    and types of health care professionals should be determined by the
    needs of the system and the needs of the nation.
        4. Academic affiliation agreements with VA should be fair and
    equitable to all parties.

         PROCESS FOR REVIEW AND EXECUTION OF REVISED VA-MEDICAL SCHOOL
                        AFFILIATION AGREEMENT DOCUMENTS

    The general conditions and expectations listed below will guide these
            processes.
        1. The linked process of review of affiliations and execution of
    revised affiliation agreement documents will take place under the
    guidance of the Chief Academic Affiliations Officer. The Network
    Director will provide guidance to individual treatment/training
    facilities regarding Network strategy and goals with reference to
    affiliation agreements and shall approve all affiliation agreements.
    Specific negotiation regarding operational and logistical details will
    be negotiated by the facility.
        2. A set of guidelines (attached) will serve as the basis for the
    review. The review process will begin concurrently with the process to
    execute revised affiliation agreement documents. Because the prowess of
    executing new affiliation agreement documents will renew existing
    affiliation agreements with new standard language, it is expected that
    the new master affiliation agreements and new School of Medicine
    affiliation agreement documents will be signed within 120 days. The
    review process may extend beyond this deadline, because it is
    anticipated that the review will lead to ongoing planning,
    implementation strategies and outcomes analysis.
        3. The template affiliation agreements will apply to all VA-
    university affiliations. There shall be no informal or special
    arrangements that are not in accordance with VA policy or sound
    management practices as outlined by the template agreement. Any wording
    change from the template must be approved by General Counsel in VA
    Headquarters.
    The sequence and implementation of the review and execution of revised
            affiliation agreement documents processes is shown below.
        1. General.--The Chief Academic Affiliations Officer will convene
    the Network Academic Affiliations Officers to initiate the processes of
    review and execution of revised affiliation agreement documents. The
    review process will be based on guidelines that have been developed by
    VHA educational and administrative leadership as well as leadership
    from VHA's academic partners. The VISN will initiate these processes
    for each medical school partnership in its network. The Network
    Director will be responsible for the direction of the processes. The
    Network Academic Affiliations Officer will be responsible for
    coordination of the processes.
        2. Revised Affiliation Agreement Documents.--The Revised
    Affiliation Agreement Documents provide the model template and language
    for updated affiliation agreements. Any deviation from the model
    template must be submitted to VA General Counsel for review and
    approval before execution. During fiscal year 1997, revised affiliation
    agreements will be executed for institutions sponsoring the 105 medical
    school partnerships with VHA. New affiliations with other academic
    partners may be executed using the new templates, but it is not
    necessary to prepare new affiliation documents for non-medical school
    partnership agreements in fiscal year 1997. These will be executed in
    fiscal year 1998 after the recommendations of the Associated Health
    Professions Review Subcommittee of the Special Medical Advisory Group
    have been received and implementation decisions made.
        There are three types of affiliation agreements: master affiliation
    agreements, school of medicine affiliation agreements and educational
    program affiliation agreements.
      --Master Affiliation Agreement.--There will be one Master Agreement
            for each college/university with which a facility has an
            agreement. It will be signed by the Facility Director, the
            leading official at the educational institution, and the
            Network Director. The generic umbrella of the master
            affiliation agreement constitutes both the philosophical and
            legal basis for numerous specific corollary agreements that may
            be executed among components of VA and the affiliates. Such
            corollary arrangements may address academic programs as well as
            health care delivery arrangements that may be executed under
            the enabling umbrella of the master affiliation agreement. They
            may talk the form of contracts, memoranda of understanding,
            performance guidelines, leases, written agreements which cover
            academic or research partnerships, as well as shared services,
            facilities, equipment or other resources that support the
            affiliation. Additional agreements may include VISN-wide
            coordinating agreements, or local multi-affliate sharing
            agreements where relevant. Failure to agree on the details of
            one or more corollary agreements made as a part of an
            affiliation agreement should not necessarily preclude approval
            of the master affiliation agreement, but should constitute the
            basis for planning and for future interaction.
      --School of Medicine Affiliation Agreements.--The Medical School
            Memorandum of Affiliation specifies unique aspects of
            affiliations between VA and schools of medicine and will be
            signed by officials in the medical school and the university as
            well as VA officials at the facility and network levels.
      --Educational Program Affiliation Agreements.--The Educational
            Program Affiliation Agreement applies to an individual program
            in a medical school and to all other non-medical school
            affiliations. This includes a separate educational program
            agreement for each discipline-specific educational program that
            sends trainees to VA. It will be signed by the VA Network
            Director or his/her delegates and the responsible official at
            the educational program.
        3. Review process.--To accomplish a comprehensive review of
    academic partnerships, the VISN will convene a meeting of facility and
    medical school leadership to discuss the rationale and goals of the
    review guidelines and their network level and facility level relevance.
    Rational expectations for the review will be discussed. The review will
    incorporate all relevant areas of partnership between VA and the
    academic affiliate. Cross-cutting issues as well as opportunities and
    challenges for VA/affiliate partnerships will be addressed. The Network
    Director will assure that an appropriate review process has been
    formulated to accomplish a comprehensive review of academic
    affiliations. When the facility-medical school review process has been
    completed, the attendant documents will be submitted to the network
    leadership for concurrence or revision. Upon completion of the network
    level review, the documents will be submitted to Headquarters for
    review and comment. The time line for completion of the review will be
    determined by each VISN. In any event, it is to be completed no later
    than September 30, 1997.
        4. Follow-through of the Review Process.--The review process is not
    an end unto itself. It is anticipated that it will be the basis for
    long-term planning for academic affiliations with medical school
    partners. Therefore, as part of the discussions surrounding the review
    process, a set of future strategies will be developed to address the
    guidelines. It is expected that the Network Academic Partnership
    Councils will play an important role in the follow-through of the
    review process. They will coordinate the tracking of measurable
    outcomes that emerge from the review.
        5. Execution of Revised Affiliation Agreement Documents.--
    Concurrent with the review, the process leading to the signing of a
    master affiliation agreement and accompanying school of medicine
    affiliation agreement will take place. It will include participation by
    facility leadership--to include at least the Facility Director, Chief
    of Staff, and Associate Chief of Staff for Education--and the academic
    affiliate's leadership--to include the medical school dean and the
    university president or his/her delegated representative. The Network
    Director will be the official designated to approve the affiliation
    agreement for VA.
        6. Time line for Approval of Master Affiliation Agreement.--It is
    anticipated that the execution of the master affiliation agreement and
    school of medicine affiliation agreements--from convening of the
    network-level leadership to final review--will take no more than 120
    days.
                           97-02 (february 26, 1997)

          THE VA-MEDICAL SCHOOL PARTNERSHIP: GUIDELINES FOR REVIEW OF
                                  AFFILIATIONS
                                  INTRODUCTION

        VA is committed to its education and research missions. The review
    of VA-medical school affiliations designed to strengthen those missions
    in the context of the change that is occurring in the larger health
    care environment. If VA-academic partnerships are to continue to be
    mutually beneficial, both entities must work to strengthen this
    partnership.
        VA is in a unique position to support effective change in medical
    education. First, it provides financial and organizational support for
    a large proportion of medical education in the United States. Second,
    because of the medical and social complexity of the patients VA serves,
    only the best in medical skills and the most effectively integrated
    system will meet veterans' health needs. This context provides a
    singular opportunity to help prepare future physicians for a changing
    health care system currently dominated by managed care.
        These guidelines for review of affiliations are intended to
    constitute the framework within which the effectiveness and value of
    the partnerships are measured. The guidelines have been developed to
    reflect the shared goals of the partnerships and to provide a mechanism
    for tracking their success into the future. Of necessity, the vision
    for the future held by the partnership leaders will be evolutionary. It
    is assumed that not all partnerships will be at the same point in the
    development of a strategy that deals effectively with the changes that
    are occurring in medicine today. Nevertheless, this process of
    assessment should reflect the attitudes and plans as they exist
    currently and the mechanisms to effect valuable change going into the
    future.

                                  APPLICATION

        The review of VA-medical school partnerships differs from other
    accreditation and standards-based reviews. It is not so much a ``report
    card'' as it is a foundation for planning and establishment of goals.
    The review will incorporate all relevant areas of partnership between
    VA and the academic affiliate. The value of the partnership to both VA
    and the school of medicine should be addressed together with the status
    of the strategic plans of each partner that may have an impact on the
    future of the partnership. Opportunities for improvement and for the
    development of new partnerships should be addressed. The reviews will
    be the basis for long-term planning for academic affiliations between
    VA and medical school partners, and they will identify measurable
    outcomes to track future progress.
        The reviews of the facility-medical school relationship will take
    place at the local level, with the conclusions submitted to the network
    leadership for concurrence or revision. The Network Director will
    ensure that an appropriate process has been formulated to accomplish a
    comprehensive review of academic affiliations. Each Network Academic
    Partnership Council will monitor the follow-through of the process.
    While the review will initially focus on the local VA facility-
    affliated school of medicine partnership, it will also incorporate the
    emerging changes that are taking place in the VA health care system,
    including systems planning for patient care delivery within the context
    of the population-based Veterans Integrated Service Networks. Recent
    changes in VA administrative structures and processes may help to
    enable previously untapped opportunities for neighboring schools of
    medicine to share in VA partnerships.
        The review process is expected to be the basis for long-term
    planning for VA's academic affiliations with medical school partners.
    Therefore, as part of the discussions surrounding the review process, a
    set of strategies will be developed to address the future goals of the
    partnership. It is expected that the Network Academic Partnership
    Councils will play an important role in the follow-through of the
    review process. They will coordinate the tracking of measurable
    outcomes that emerge from the review.

                                  EXPECTATIONS

        The product of the review of affiliations should be an assessment
    of the current strengths and weaknesses of the partners' relationship
    and a short-and long-range plan for the future of the academic
    partnership. The broad headings included below are intended to help
    focus the review around major conceptual areas of the partnership as
    embodied in the affiliation agreements. Varying degrees of integration
    are found in the many VA-medical school partnerships. The specific
    questions included with each conceptual area are intended to be
    examples of representative questions that may be relevant for a subset
    of affiliations. They are not intended to be an exhaustive list of
    specific uniform measures applicable to all situations. Rather, they
    are to serve as examples that may help to characterize the partners'
    relationship.

       GUIDELINES FOR REVIEW OF AFFILIATIONS: CONCEPTUAL AREAS OF THE VA-
                           MEDICAL SCHOOL PARTNERSHIP

    Mission/vision
        The provision of education future healthcare providers and the
    conduct of research are statutorily defined missions of the Veterans
    Health Administration. Building on the long-standing, close
    relationships between the U.S. Department of Veterans Affairs (VA) and
    the nation's academic institutions, VA seeks to play a leadership role
    in reshaping the education of future healthcare professionals to help
    meet the rapidly changing scope and complexity of the nation's health
    care delivery system. (Memorandum of Affiliation Master Agreement.
    Preamble)
        Examples of Representative Questions.--A shared vision of the
    future is important to a successful partnership. How do the University/
    Medical School and VISN/facility leadership reflect congruence in their
    commitment to clinical care, education and research within a vision for
    the future state of the national, regional, affiliate and VA health
    care systems? What are the collaborative strategies to deal with the
    emerging clinical work force and the nation's changing health care
    delivery system? In what ways can VA and medical schools collaborate in
    response to the emerging environment? What do VA and medical schools
    expect of each other? How can these expectations be met?
    Physician faculty issues
        At its finest, an affiliation agreement articulates a ``one
    campus'' concept for the two parties. To the extent possible, it
    establishes the goal of one standard for patient care, one standard for
    resident and student education, one standard for research, and one
    standard for faculty appointments. (Memorandum of Affiliation Master
    Agreement Preamble)
        Examples of Representative Questions.--The VA school of medicine
    partnerships results in medical school physician faculty having
    appointments at the VA as staff physicians. These appointments vary in
    the percent of time spent at each institution. What is the overlap in
    physician appointments? Are there physicians that are considered VA-
    based? If so, are VA-based faculty academically productive, as
    reflected by peer-reviewed publication, external grant funding (NIH,
    merit review, educational grants, etc.), and medical student and
    resident teaching? How do they compare in these areas to comparable
    non-VA-based faculty? How is commitment to care of veterans
    demonstrated by VA-based faculty? What leadership positions do VA-based
    faculty hold in medical school educational programs? How many are on
    the medical school curriculum committee? What VA-based faculty have
    received awards for outstanding contributions to education and research
    from the medical school? What VA-based faculty occupy positions of
    influence in the medical school? How many VA-based faculty carry
    university administrative positions? Which ones?
    Medical care of veterans and the education and research partnership
        It is the intent of VA to maintain its long-standing practice of
    effective affiliations with educational institutions for the purposes
    of contributing to continued excellence in VA patient care and
    conducting joint academic programs that address health manpower needs
    throughout VA and the nation. (Memorandum of Affiliation Master
    Agreement Preamble)
        Examples of Representative Questions.--How well does VA rank among
    students and residents as a preferred site for education? It is
    recognized that the shift of workload and teaching to the ambulatory
    setting creates new complexities and challenges. How have the partners
    collaborated to develop innovative strategies for student and resident
    supervision and curricula for ambulatory care? Given the climate of
    resource constraint, what consideration is being given by the
    partnership to the support of the education and research missions? Are
    VA and non-VA ambulatory/continuity experiences integrated? How is the
    economic aspect of medical practice reflected in the student and
    resident curricula? How is access to care facilitated in clinics/
    practices in which residents and students learn? How is patient
    satisfaction tracked among patients cared for by students and
    residents? How do the facility and medical school support the clinics/
    practices where students and residents learn? What is the mechanism for
    planning and tracking such support? Does the collaboration foster
    education in primary care? How? Are there efforts to move toward models
    of primary care training that are interdisciplinary? In what ways does
    the affiliation foster VA's research mission?

    Business relationships
        The generic umbrella of the affiliation agreement is critical to
    the affiliation because it forms the philosophical and in some cases,
    the legal basis for numerous specific agreements that may be executed
    between components of the affiliate and VA. Affiliation agreements with
    individual academic institutions may lead to agreements in a number of
    different academic programs and for a number of different health care
    delivery arrangements that may be executed under the umbrella of the
    affiliation agreement. The success of the affiliation must be judged in
    the aggregate--that is, a balanced judgment of the tradeoffs and values
    of all the arrangements entered into between the affiliated parties.
    (Memorandum of Affiliation Master Agreement. Corollary Agreements)
        Examples of Representative Questions.--What is the process for
    initiation of sharing agreements relative to patient care, education
    and research? What sharing agreements exist? How are the outcomes of
    such sharing agreements tracked? What other business agreements exist
    between the partners?

    Network-wide issues
        This agreement, when duly executed and approved by the Department
    of Veterans Affairs (VA), authorizes its Veterans Integrated Service
    Networks and the listed VA facilities, to affiliate with academic
    institutions for the purposes of enhanced patient care, education and
    research. VA and the affiliated academic institution have a shared
    responsibility for the academic enterprise. (Memorandum of Affiliation
    Master Agreement. Terms of Agreement)
        Examples of Representative Questions.--What is the evidence that
    there is a collaborative relationship among the affiliated deans in the
    network? How have efficiency and savings been realized by consolidated
    programs? What is the evidence for joint planning among affiliated
    deans and VISN leadership?
    VA/University governance
        VA treatment facilities, or groups of VA treatment facilities as
    appropriate, will establish an Affiliation Partnership Council made up
    of representatives of the affiliated health professional schools. The
    Council will act as the strategic planning and coordination body for
    all academic matters involving VA and the affiliates, and will
    coordinate the tracking of measurable outcomes that emerge from reviews
    of the academic partnerships. The Council will inform VA of affiliate
    matters such as strategic planning, program direction or budgetary
    issues affecting VA. Topical or discipline specific subcommittees to
    address specific management or strategic interests may be developed as
    needed in collaboration with the academic and VA leadership.
    (Memorandum of Affiliation Master Agreement. Terms of Agreement)
        Examples of Representative Questions.--Who constitutes the current
    Academic Partnership Council? How does the Academic Partnership Council
    track defined outcomes? What are those outcomes? How does the
    leadership of the medical school, the facilities, and the VISN
    demonstrate collaborative management among departments, e.g., number of
    joint projects in care delivery, interdepartmental research projects
    and grants, joint faculty appointments, coordination among teaching
    programs? What is the mechanism to establish goals and to track their
    achievement as a result of this current review of the academic
    partnership? Does the leadership of the medical schools and the VISN
    perceive each other's governance systems as a possible basis for moving
    to overcome hindrances to effective change?
                                     ______

                           97-03 (february 26, 1997)

                        ACADEMIC AFFILIATION AGREEMENTS

        Revised academic affiliation agreements provide the model template
    and language for updated affiliation agreements. Any deviation from the
    model template must be submitted to VA General Counsel for review and
    approval before execution. During fiscal year 1997, revised affiliation
    agreements will be executed for institutions sponsoring the 105 medical
    school partnerships with VHA. New affiliations with other academic
    partners may be executed using the new templates, but it is not
    necessary to prepare new affiliation documents for non medical school
    partnership agreements in fiscal year 1997. These will be executed in
    fiscal year 1998, after the recommendations of the Associated Health
    Professions Review Subcommittee of the Special Medical Advisory Group
    have been received and implementation decisions made. There are three
    types of affiliation agreements: master affiliation agreements, school
    of medicine affiliation agreements and educational program affiliation
    agreements.
      --Master Affiliation Agreement.--There will be one Master Agreement
            for each college/university with which a facility has an
            agreement. It will be signed by the Facility Director, the
            leading official at the educational institution, and the
            Network Director. The generic umbrella of the master
            affiliation agreement constitutes both the philosophical and
            legal basis for numerous specific corollary agreements that may
            be executed among components of VA and the affiliates. Such
            corollary arrangements may address academic programs as well as
            health care delivery arrangements that may be executed under
            the enabling umbrella of the master affiliation agreement. They
            may take the form of contracts, memoranda of understanding,
            performance guidelines, leases, written agreements which cover
            academic or research partnerships, as well as shared services,
            facilities, equipment or other resources that support the
            affiliation. Additional agreements may include VISN-wide
            coordinating agreements, or local multi-affiliate sharing
            agreements where relevant. Failure to agree on the details of
            one or more corollary agreements made as a part of an
            affiliation agreement should not necessarily preclude approval
            of the master affiliation agreement, but should constitute the
            basis for planning and for future interaction.
      --School of Medicine Affiliation Agreements.--The Medical School
            Memorandum of Affiliation specifies unique aspects of
            affiliations between VA and schools of medicine and will be
            signed by officials in the medical school and the university as
            well as VA officials at the facility and network levels.
      --Educational Program Affiliation Agreements.--The Educational
            Program Affiliation Agreement applies to an individual program
            in a medical school and to all other non-medical school
            affiliations. This includes a separate educational program
            agreement for each discipline-specific educational program that
            sends trainees to VA. It will be signed by the VA Network
            Director or his/her delegates and the responsible official at
            the educational program.
     memorandum of affiliation master agreement between the department of
       veterans affairs (va) and the undersigned educational institution
    VA
    NETWORK:______________________________________________________________

    VA TREATMENT FACILITY (OR FACILITIES):________________________________

    NAME OF EDUCATIONAL INSTITUTION:____________________________________
                                    preamble
        The provision of education for future healthcare providers and the
    conduct of research are statutorily defined as missions of the Veterans
    Health Administration. Building on the long-standing, close
    relationships between the U.S. Department of Veterans Affairs (VA) and
    the nation's academic institutions, VA seeks to play a leadership role
    in reshaping the education of future health-care professionals to help
    meet the rapidly changing scope and complexity of the nation's health-
    care delivery system. It is the intent of VA to maintain its long-
    standing practice of effective affiliations with educational
    institutions for the purposes of contributing to continued excellence
    in VA patient care and conducting joint academic programs that address
    health manpower needs throughout VA and the nation.
        From its first forging in 1946, the purpose of affiliations has
    been to enhance the delivery of patient care. Within this purpose the
    education and research missions are intricately interwoven and
    complementary to the patient care mission.
        At is finest, an affiliation agreement articulates a ``one campus''
    concept for the two parties. To the extent possible, it establishes the
    goal of one standard for patient care, one standard for resident and
    student education, one standard for research, and one standard for
    faculty appointments. The parties to the affiliation agreement also
    seek to avoid duplication of academic assets and where mutually
    beneficial to enter into legal agreements to share patient care
    delivery services, facilities, equipment, and other resources that
    support the affiliation. The parties enter into this affiliation in a
    spirit of mutual benefit to be achieved through an equitable
    contribution of resources.

                              COROLLARY AGREEMENTS

        The generic umbrella of the affiliation agreement is critical to
    the affiliation because it forms the philosophical and in some cases,
    the legal basis for numerous specific agreements that may be executed
    between components of the affiliate and VA. Affiliation agreements with
    individual academic institutions may lead to agreements in a number of
    different academic programs and for a number of different health-care
    delivery arrangements that may be executed under the umbrella of the
    affiliation agreement. The success of the affiliation must be judged in
    the aggregate--that is, a balanced judgment of the tradeoffs and values
    of all the arrangements entered into between the affiliated parties.
        One or more corollary or related specific agreements may be entered
    into between the parties to the master affiliation. These arrangements
    or agreements may involve any component of the Academic Medical Center,
    College or University and the local VA health-care facilities and may
    be in the form of contracts, memoranda of understanding, performance
    guidelines, leases, or other written agreements which cover academic or
    research partnerships, shared services, facilities, equipment or other
    resources that support the affiliation. Additional agreements may
    include Veterans Integrated Service network--wide coordinating
    agreements, or local multi-affliate sharing agreements where relevant.
    These may include any of the following:
      --memorandum of affiliation with a school of medicine
      --disbursement agreements for the payment of medical residents while
            at VA facilities
      --sharing agreements or scarce medical specialist services agreements
            with the affiliate or is faculty
      --consulting and attending arrangements
      --research agreements
      --authorized arrangements for the use of space
      --memorandum of affiliation with associated health educational
            programs
      --general education agreements
      --specific programmatic education agreements
      --other agreements that may be advantageous to the affiliated parties

                               TERMS OF AGREEMENT

        This agreement, when duly executed and approved by the Department
    of Veterans Affairs (VA), authorizes VA, its Veterans Integrated
    Service Networks and the listed VA facilities, to affiliate with the
    academic institution for the purposes of enhanced patient care,
    education and research. VA and the affiliated academic institution have
    a shared responsibility for the academic enterprise. In coordination
    with VA staff, the faculty of the academic affiliate has primary
    responsibility for the assignment and supervision of students and/or
    residents in their academic program(s). VA retains full responsibility
    for the care of patients, including the administrative and professional
    functions pertaining thereto. While in the VA facility, students and
    residents are subject to VA rules and regulations. Students will
    receive an orientation to the VA facility. Faculty members and facility
    staff supervisors are to evaluate the student's performance in mutual
    consultation and according to the guidelines outlined in the approved
    curriculum.
        VA treatment facilities, or groups of VA treatment facilities as
    appropriate, will establish an Affiliation Partnership Council made up
    of representatives of the affiliated health professional schools. The
    Council will act as the strategic planning and coordination body for
    all academic matters involving VA and the affiliates, and will
    coordinate the tracking of measurable outcomes that emerge from reviews
    of the academic partnerships. The Council will inform VA of affiliate
    matters such as strategic planning, program direction or budgetary
    issues affecting VA. Topical or discipline specific subcommittees to
    address specific management or strategic interests may be developed as
    needed in collaboration with the academic and VA leadership.
        The affiliate complies with Title VI of the Civil Rights Act of
    1964, Title IX of the Education Amendments of 1972, section 504 of the
    Rehabilitation Act of 1973, Title III of the Older Americans Amendments
    of 1975, the Americans with Disabilities Act of 1992, and all related
    regulations, and assures that it does not, and will not, discriminate
    against any person on the basis of race, color, sex, creed, national
    origin, age or handicap under any program or activity receiving Federal
    financial assistance.
        Nothing in this agreement is intended to be contrary to State or
    Federal laws. In the event of conflict between terms of this agreement
    and any applicable State or Federal law, that State or Federal law will
    supersede the terms of this agreement. In the event of conflict between
    State and Federal laws, Federal laws will govern. Nothing in this
    agreement grants to the educational institution or the Partnership
    Council any legal authority to exercise control over any VA program or
    facility. Ultimate responsibility for the control and operation of VA
    facilities and programs rests with VA.
        Periodic reviews of academic programs and policies will be
    conducted as necessary under the auspices of VA's Chief Academic
    Affiliations Officer.
        This agreement is in force until further notice; it may be
    terminated in writing at any time by mutual consent with due
    consideration of patient care and educational commitments, or by 6
    months advanced written notice by either party. [IF APPLICABLE: The
    affiliation agreement previously agreed to on       (DATE) is hereby
    rescinded.]
    __________________________________________
    Name and Title of Responsible Official
    for the Educational Institution       (date)

    __________________________________________
    Name and Title of Responsible Official at
    VA Health Care Facility       (date)

    __________________________________________
    Network Director
    Department of Veterans Affairs       (date)
        memorandum of affiliation school of medicine agreement between
       department of veterans affairs (va) and the undersigned school of
                                    medicine
    VA
    NETWORK:______________________________________________________________

    VA TREATMENT FACILITY (OR FACILITIES):________________________________

    NAME OF SCHOOL OF MEDICINE:__________________________________________

        This agreement, when duly executed and approved by the Department
    of Veterans Affairs (VA), authorizes VA, its Veterans Integrated
    Service Networks and the listed VA facilities, to affiliate with the
    university school of medicine for the academic purposes of enhanced
    patient care, education and research. VA and the affiliated school have
    a shared responsibility for the academic enterprise. The school accepts
    primary responsibility for the integrated education programs conducted
    with VA; and VA retains full responsibility for the care of patients,
    including administrative and professional functions pertaining thereto.
    Responsibilities are to be shared as follows:
        1. The Medical School
        a. Nominates membership for the VA Affiliation Partnership Council
    and its subcommittees; membership will include the Medical School Dean
    and senior faculty members from appropriate divisions of the medical
    school.
        b. Nominates faculty to serve as VA medical staff in the number and
    with the qualifications agreed to by the school and VA.
        c. Through the VA facility Director and the medical staff,
    participates in the supervision of integrated academic programs at VA.
    VA staff members who are also faculty members are responsible for
    student and house staff supervision for educational purposes but may
    delegate responsibility to non-faculty VA staff members under unusual
    circumstances.
        d. Nominates residents and fellows for academic programs operated
    jointly by VA and the affiliated school; residents and fellows shall
    have the qualifications agreed upon by the school and VA.
        e. Consults with the Director in medical school decisions such as
    strategic planning, program direction and budgets that may directly
    affect VA.
        2. Department of Veterans Affairs, its Veterans Integrated Service
    Networks and component VA facilities
        a. Operate and manage the VA facility.
        b. VA treatment facilities or groups of treatment facilities as
    appropriate will establish an Affiliation Partnership Council made up
    of representatives of affiliated health professional schools. The
    Council will act as the strategic planning and coordination body for
    all academic matters involving VA and the affiliates, and will
    coordinate the tracking of measurable outcomes that emerge from reviews
    of the academic partnerships. The Council will inform VA of affiliate
    matters such as strategic planning, program direction or budgetary
    issues affecting VA. Topical or discipline specific subcommittees to
    address specific management or strategic interests may be developed as
    needed in collaboration with the academic and VA leadership to address
    specific management or strategic interests.
        c. Appoint qualified physicians, dentists, and other health care
    professionals, as appropriate, to full-time and regular part-time staff
    of the facility. Receives nominations from the Medical School Dean for
    faculty appointments to VA staff and welcomes medical school
    nominations for non-faculty staff positions. The appointed VA staff,
    including chiefs of service, are responsible to their immediate
    supervisors.
        d. Consider the attending and consulting staff end trainees for
    appointment who are nominated by the school.
        e. Cooperate with the medical school in the conduct of appropriate
    academic programs of education and research.
        3. Director, VA Health Care Facility (or equivalent title)
        a. Is responsible for the operation of the facility.
        b. Cooperates with the Affiliation Partnership Council and its
    subcommittees in the conduct of academic programs and in the evaluation
    of participating individuals and groups.
        4. Chief of Staff, VA Health Care Facility (or equivalent title)
        a. Is responsible to the Director for the professional health care
    operations covered by the affiliation agreement.
        b. Cooperates with the Affiliation Partnership Council and its
    subcommittees and the affiliated education institutions in the
    direction and conduct of academic programs.
        5. Chiefs of Services, VA Health Care Facility (or equivalent
    title)
        a. Are responsible to their superiors in VA for the conduct of
    their services.
        b. With the assistance of the health care facility staff, and in
    cooperation with consulting and attending staff, assist faculty members
    in the supervision of the academic programs that are the subject of
    this agreement and are within their respective services.
        6. Full-time and Part-time VA Staff
        a. Are responsible to their supervisors in VA for the discharge of
    their responsibilities.
        b. Participate in the academic programs within their respective
    services. Those staff with faculty appointments are responsible for the
    supervision of the education of students and house staff on their
    service, and may only delegate supervision in unusual circumstances to
    non-faculty staff. All VA staff who are delegated such supervision must
    be appropriately credentialed and privileged.
        7. Attending Staff
        a. Are responsible to the respective chiefs of services while
    serving as attending physicians for the VA facility.
        b. May be full or part-time staff, consulting and attending, or
    without compensation.
        c. Accept responsibility for the proper care and treatment of
    patients in their charge, including the supervision of students and
    house staff.
        d. Cooperate in achieving the education and research objectives of
    the academic programs in which they participate.
        e. Hold faculty appointments in the medical school, or are
    outstanding members of the profession with equivalent professional
    qualifications acceptable to VA.
        8. Consultants
        a. Are members of the faculty, have professorial rank or have
    equivalent professional qualifications acceptable to VA, and are
    subject to VA regulations concerning consultants.
        b. As representatives of the school, participate in and are
    responsible for the integrated academic programs of the affiliated VA
    health care facilities subject to current VA policy and regulations.
        c. Make available to the Director, Chief of Staff, and the
    appropriate chief of service the benefit of their professional advice
    and counsel.

                               TERMS OF AGREEMENT

        The affiliate complies with Title VI of the Civil Rights Act of
    1964, Title IX of the Education Amendments of 1972, section 504 of the
    Rehabilitation Act of 1973, Title III of the Older Americans Amendments
    of 1975, the Americans with Disabilities Act of 1992, and all related
    regulations, and assures that it does not, and will not, discriminate
    against any person on the basis of race, color, sex, creed, national
    origin, age, or handicap under any program or activity receiving
    Federal financial assistance.
        Nothing in this agreement is intended to be contrary to State or
    Federal laws. In the event of conflict between terms of this agreement
    and any applicable State or Federal law, that State or Federal law will
    supersede the terms of this agreement. In the event of conflict between
    State and Federal law, Federal law will govern. When furnishing
    professional services covered by this agreement, protection of faculty
    members and students of the affiliated institutions from personal
    liability while at VA health care facilities will be that which is
    provided under the Federal Tort Claims Act, as implemented by 38 U.S.C.
    7316. Nothing in this agreement grants to the educational institution
    or the Partnership Council any legal authority to exercise control over
    any VA program or facility. Ultimate responsibility for the control and
    operation of VA facilities and programs rests with VA.
        Periodic reviews of academic programs and policies will be
    conducted as necessary under the auspices of VA's Chief Academic
    Affiliations Officer.
        This agreement is in force until further notice; it may be
    terminated in writing at any time by mutual consent with due
    consideration of patient care and educational commitments, or by
    written notice by either party 6 months in advance of the next training
    experience. [IF APPLICABLE: The affiliation agreement previously agreed
    to on       (DATE) is hereby rescinded.]
    ________________________________________
    Name and Title of Responsible Official
    for the School of Medicine       (date)

    ________________________________________
    Name and Title of Responsible Official at
    VA Health Care Facility       (date)
    ________________________________________

    Name and Title of Responsible Official
    for the Educational Institution       (date)

    __________________________________________
    Network Director
    Department of Veterans Affairs       (date)
      memorandum of affiliation educational program agreement between the
     department of veterans affairs and the undersigned educational program
    VA
    NETWORK:______________________________________________________________

    VA TREATMENT FACILITY (OR FACILITIES):________________________________

    NAME OF EDUCATIONAL INSTITUTION:____________________________________

    PROGRAM AND DEGREE:____________________________________________________

        This agreement, when duly executed and approved by the Department
    of Veterans Affairs (VA), authorizes VA, its Veterans Integrated
    Service Networks and the listed VA facilities, to affiliate academic
    purposes of enhanced patient care' education or research. The faculty
    of the affiliate has primary responsibility, in coordination with VA
    staff, for the assignment and supervision of students and/or residents
    in their academic program(s). VA retains full responsibility for the
    care of patients, including administrative and professional functions
    pertaining thereto. While in the VA facility, students are subject to
    VA rules and regulations. Students will receive an orientation to the
    VA facility. Faculty members and facility staff supervisors are to
    evaluate the student's performance in mutual consultation and according
    to the guidelines outlined in the approved curriculum.
        VA treatment facilities or groups of treatment facilities as
    appropriate will establish an Affiliation Partnership Council made up
    of representatives of affiliated health professional schools. The
    Council will act as the strategic planning and coordination body for
    all academic matters involving VA and the affiliates, and will
    coordinate the tracking of measurable outcomes that emerge from reviews
    of the academic partnerships. The Council will inform VA of affiliate
    matters such as strategic planning, program direction or budgetary
    issues affecting VA. Topical or discipline specific subcommittees to
    address specific management or strategic interests may be developed as
    needed in collaboration with the academic and VA leadership to address
    specific management or strategic interests.
        The affiliate complies with Title VI of the Civil Rights Act of
    1964, Title IX of the Education Amendments of 1972, section 504 of the
    Rehabilitation Act of 1973, Title III of the Older Americans Amendments
    of 1975, the Americans with Disabilities Act of 1992, and all related
    regulations, and assures that it does not, and will not, discriminate
    against any person on the basis of race, color, sex, creed, national
    origin, age or handicap under any program or activity receiving Federal
    financial assistance.
        Nothing in this agreement is intended to be contrary to State or
    Federal laws. In the event of conflict between terms of this agreement
    and any applicable State or Federal law, that State or Federal law will
    supersede the terms of this agreement. In the event of conflict between
    State and Federal laws, Federal laws will govern. When providing
    professional services covered by this agreement, protection of faculty
    members and students of the affiliated institution from personal
    liability while at a VA health care facility will be that which is
    provided under the Federal Tort Claims Act, as implemented by 38 U.S.C.
    7316. Nothing in this agreement grants to the educational institution
    or the Partnership Council any legal authority to exercise control over
    any VA program or facility. Ultimate responsibility for the control and
    operation of VA facilities and programs rests with VA.
        Periodic reviews of academic programs will be conducted as
    necessary under the auspices of VA's Chief Academic Affiliations
    Officer.
        This agreement is in force until further notice; it may be
    terminated in writing at any time by mutual consent with due
    consideration of patient care and educational commitments, or by
    written notice by either party 6 months in advance of the next training
    experience. [IF APPLICABLE: The affiliation agreement previously agreed
    to on     (DATE) is hereby rescinded.]
    ______________________________________
    Name and Title of Responsible Official
    for the Educational Program       (date)

    __________________________________________
    Network Director or delegates
    Department of Veterans Affairs       (date)

                               STATE HOME PROGRAM

        Question. VA's budget would cut the state home construction grant
    program by $6.4 million, down to $41 million. VA's reported cost for
    providing care in VA nursing homes is considerably higher than its
    costs for doing so in state veterans homes. While VA's daily per
    patient cost was $213.17 for veterans in VA homes in fiscal year 1995,
    it was $35.37 for veterans in state homes. Why is VA cutting this cost-
    effective program for which there is almost $200 million in priority
    projects awaiting funding?
        Answer. The level requested was determined on the need to balance a
    number of priorities given overall resource constraints.

                 VETERANS EQUITABLE RESOURCE ALLOCATION SYSTEM

        Question. VA recently changed its resource allocation methodology
    to ensure similar access to care for veterans who have similar
    eligibility priority. VA should be commended for taking the important
    step of improving the fairness of its resource allocation methodology.
        However, concerns remain that ``VA has not determined the `right'
    amount of dollars that need to be shifted to ensure equity of access,''
    according to GAO. GAO is concerned that ``VA has not adequately
    determined the reasons for differences between VISN's in costs per
    veteran-user. Without a better understanding of why the costs vary, VA
    cannot, with any certainty, determine the appropriate amounts of
    resources to shift among VISN's''. We know that differences in
    efficiency are a major factor in cost-per-patient, but not the only
    factor.
        What is VA doing to explore other factors that might explain why
    certain networks have lower costs per patient-user?
        Answer. As explained in the VERA Briefing Book, age of veterans,
    energy, labor and pharmaceutical cost were evaluated in the planning
    stages of VERA to determine if additional adjustments to the national
    price were warranted. It was found that there was little variation in
    the average and median age of patients among networks; energy as a
    percent of total costs varied little among networks, and in fact
    constituted a very small portion (1-2 percent) of the network budgets
    and; over 90 percent of pharmaceuticals are purchased through the
    federal supply system--resulting in equal network pricing. However, it
    was recognized that some factors affecting the cost of a patient's care
    vary by geographic region and cannot be controlled by VA management. To
    account for such differences, adjustments were made to the fiscal year
    1997 national price to reflect differences in the cost of labor.
    Additional allocations to account for the differences in support for
    education, research and equipment and non-recurring maintenance are
    also made as components of the VERA methodology. Also, to the extent
    veterans are sicker and require more health care, the networks will get
    more resources by virtue of the Special Care price. Networks receive
    $35,707 for each veteran with more intensive health care needs. For
    example, VISN 3 in New York received $366.1 million--more than any
    other network--for Special Care patients in fiscal year 1997.
        Question. Does VA plan to ``fine-tune'' VERA in fiscal year 1998
    and beyond?
        Answer. There are several mechanisms for adjustments to the
    resources allocated to networks through VERA. Annually, as new data
    about the historic workload patterns for each network become available,
    resource allocations for future fiscal years can be estimated. In May
    1997, new workload and cost data will be available for incorporation
    into simulations for the fiscal year 1998 allocation. Secondly, there
    are workgroups that are looking at each component of the VERA model
    (workload volume, special programs, care across networks, geographic
    prices, education support, research support, equipment and non-
    recurring maintenance, and data validation). The majority of the
    recommendations from the workgroups will impact the fiscal year 1999
    budget allocation, and there are a few changes under consideration for
    the fiscal year 1998 allocation that amount to ``fine-tuning'' research
    support, education support, equipment and non-recurring maintenance. In
    addition to these annual mechanisms there is a third process, which
    while not directly impacting the funding allocated through the VERA
    model, does impact the allocations to the networks. We are maintaining
    a funding reserve in headquarters to assist networks in the unlikely
    event that the current level of patient care is threatened. The
    reserves will be used, if needed, to maintain quality and level of
    services.
        Question. How is VA addressing the questions raised by GAO about
    the VERA model and its March 18, 1997, testimony to the House Committee
    on Government Reform and Oversight?
        Answer. VA's position is that GAO's comments overlook many of the
    improvements that VERA makes over past resource allocation methods.
    Specifically, VERA is designed to correct past funding inequities,
    simplifies complex resource allocation processes, and is understandable
    to all VA stakeholders. GAO's chief criticisms of VERA are that it may
    not distribute the ``right'' amount of dollars, that VA has not
    adequately determined the reasons for differences between VISN's in
    costs per veteran user, and that the allocation model is not based on
    total veteran population.
        VA contends that there is no way of knowing the ``right'' amount of
    dollars. We do know that past methods failed to allocate dollars in an
    efficient manner. For example, under the old system VISN 3 spent $6,500
    per patient while VISN 18 spent $3,000. VERA bases per patient spending
    on a national price with an adjustment for differences in the health
    care needs of veterans, in the cost of labor support for research and
    education, equipment, and non-recurring maintenance. We have also
    spread the impact of VERA over several fiscal years so that VISN's can
    continue to serve current users at the same level of quality.

                            DECISION SUPPORT SYSTEM

        Question. According to GAO, there continues to be concerns with
    VA's Decision Support System. DSS is a software system to help provide
    managers data on patterns of care and patient outcomes as well as their
    resource and cost implications. The usefulness of the system depends on
    the completeness and accuracy of the data going into the system and GAO
    has stated in recent testimony ``VA still has not adequately focused on
    improving the completeness and reliability of data entered into the
    feeder system. Although the draft business plans developed by the 22
    VISN's generally discuss goals and timetables for implementing DSS
    throughout the network, they identify no plans for improving the
    completeness and accuracy of the data feeding into DSS''. What is VA
    doing to address these important concerns? How will VA ensure the
    networks make this a priority?
        Answer. This is an ongoing issue, especially during the first
    twelve to eighteen months of technical implementation. The Chief
    Network Officer and the Network Directors have improved the DSS system
    report with DSS staff to identify facilities which need to place
    greater emphasis on this program and the supporting data input.

                VETERANS BENEFITS ADMINISTRATION PENDING CLAIMS

        Question. Pending claims are projected to increase at the end of
    1997 relative to the end of 1996 by 5 percent to 360,000 claims.
    Furthermore, productivity--measured by the number of claims completed--
    is tending downward for each of the years from 1996 to 2002.
        Why is the backlog increasing and productivity decreasing?
        Answer. The Compensation and Pension Service (C&P) fiscal year 1998
    Business Plan projected a pending workload of 360,000 at the end of
    fiscal year 1997. As of March 31, 1997, six months into fiscal year
    1997, the pending workload was 393,240 and it is unlikely that we will
    be able to make any substantial timeliness improvement during the last
    six months of fiscal year 1997.
        A number of factors contributed to this latest performance trend.
    During the first six months of fiscal year 1997, a substantial number
    of hours was invested in the training needed to move toward the
    consolidation of Adjudication and Veterans Services Divisions, a
    necessary investment for long-term service improvements; the number of
    reopened compensation claims received increased by approximately 20
    percent due primarily to change in hospital eligibility criteria; and
    labor intensive reviews were conducted on approximately 4,485 Persian
    Gulf War claims.
        Because of the above referenced circumstances and the resultant
    growth of pending work during the first half of the fiscal year, it is
    unlikely we will attain our fiscal year 1997 interim goals. We have
    identified new dollars out of general operating monies for overtime and
    are distributing those to the field at this time. We intend to use
    overtime funds to process rating related claims and reduce our
    appellate workload. We will also continue to aggressively broker the
    workload between regional offices to ensure maximum utilization of
    resources. These efforts will move us back toward target in fiscal year
    1998, although perhaps not as quickly as originally envisioned.
        Through our Business Processing Reengineering (BPR), we expect an
    improvement to the totality of the product we deliver. We expect the
    quality levels to improve to at least a 97 percent level of accuracy
    and the timeliness of claims processing to improve to levels that meet
    customer and stakeholder expectations.
        In addition, we can well expect a higher level of satisfaction for
    the veterans with our service and a higher level of satisfaction for
    our employees. All these performance measures are important to the
    compensation and pension product we deliver. Production alone, that is,
    claims produced during a given period, is not the whole product.

                         BUSINESS PROCESS REENGINEERING

        Question. VBA is projecting significant improvements in the time it
    takes to process a claim, through the implementation of business
    process reengineering in each of its 58 regional offices, which is to
    be fully implemented by 2002.
        As I see it, BPR is in large part what this Subcommittee has
    advocated for years--a streamlining and simplification of the
    adjudication process through case management, and a focus on improving
    the quality of work the first time around.
        According to your BPR plan, a 20 percent improvement in
    productivity can be achieved. Where it currently takes 123 days to
    process an original compensation claim, it would take 53 days once BPR
    is fully implemented.
        While we support the goal, we haven't seen any analysis as to how
    it could result in such improvements.
        Can you explain how BPR will result in such dramatic improvements?
        Answer. The answer to the question is in two parts: the first
    involves the analysis we have done using a sophisticated simulation
    model to represent the effects of proposed changes and the second has
    to do with the specific initiatives that we propose and why.
        Workload model analysis.--During early 1996, data was collected on
    1,200 active claims at four regional offices. Three of those offices,
    St. Louis, Milwaukee, and Des Moines, were selected because they were
    the offices which performed among our best in fiscal year 1994 under
    the current procedures and measured by current indicators. The
    reasoning for selecting these stations was that if they characterized
    the best that could be achieved with current processes and management,
    and if we could affect improvement in them, then we could assure system
    wide improvement. The concern was that if we modeled stations that were
    not our top performers we ran the risk of fixing local processing
    inefficiencies that would not generate system wide improvement. A
    fourth station, Baltimore was included for administrative purposes.
        During the data collection period we collected information on the
    ``task time'' for completing various tasks associated with awards, the
    time cases wait for an employee to work or ``queue time'' and we were
    able to identify what are called the ``transition probabilities'' of a
    case moving from one work station to another. Finally, we collected a
    sample of cases from each regional office where we asked them to
    provide us with specific information on the kinds of development (i.e.,
    service medical records, private medical evidence, VA examinations,
    income, service verification, etc.) undertaken. We asked when the
    evidence gathering began, what kind, when and whether we got an answer.
    From this exercise we were able to develop what we refer to as ``wait
    time.'' With these four key elements and a sound modeling of the
    current process we were able to closely replicate actual performance
    for the nation in 1994. This data model demonstrated in the ``as is''
    environment that there was a significant amount of rework in our system
    as well as significant queue times. It identified development as a
    potential weakness, it clearly identified the consequences of the
    highly complex nature of the current pension program, and it showed the
    multiple hand-offs that exist in the current system and the resulting
    built in queue times throughout the system.
        Based on the information that we received from the model,
    stakeholder interviews, benchmarking with public and private sector
    leaders in various phases of our business process, Internet searches,
    and discussions with other nations regarding their veterans claims
    process, we developed a series of high level requirements that, if
    fulfilled, potentially would result in better service. Those changes
    were run through a ``to be'' model which was a model created with the
    recommended changes in process, technology, training and partnership
    built in. We then input into that model projected workloads to
    determine the processing times. The model suggests that we can achieve
    the kinds of performance improvements in our plan.
        The model suggests that there is a synergistic effect from the
    implementation of all the changes which is greater than the whole of
    all the individual initiatives. Likewise, the model's performance
    projections are based on the assumption that VA will successfully
    implement all of the changes recommended. Should individual elements of
    the plan not be accomplished the model would have to be re-run to
    determine the impact on projected performance.
        Process changes.--Based on the high level of rework demonstrated by
    the model, six necessary changes in current process were identified.
    Those changes are enhanced training with certification to improve the
    skills of the work force. Second, a reduction in the number of hand-
    offs to no more than three positions rather than the current eight that
    deal with claims processing. The current process makes no one
    individual or limited group of individuals accountable for the timely
    processing of a complete claim. Rather, numerous individuals complete
    pieces of the claim process without full understanding of the affect
    their efforts have in delivering service. In addition to improved
    accountability, by reducing the number of hand-offs we believe that we
    can significantly reduce queue times since all necessary actions will
    be accomplished by one individual rather than a series of hand-offs
    where the case would again sit in employee's queues. Third, the amount
    of rework, especially when examined in the cases requiring rating,
    strongly suggested that it is essential to greatly enhance the skill
    level of those individuals who initially handle claims so that
    essential claims development is accomplished--correctly and promptly--
    at one time. This drove the view that it was essential to more actively
    engage both the veteran and his/her service representative in a
    personal dialogue to insure that all issues were clearly identified,
    all sources of evidence identified, and that there was an understanding
    among all parties about which parts of the development could be done
    more efficiently and timely by the claimant and/or the representative
    than the VA, while recognizing that VA would do the development
    independently as well. This together with a case management approach
    designed to keep the claimant advised of the status of the pending
    claim with realistic time estimates will, we believe, significantly
    reduce the amount of time needed to resolve claimant inquires.
        Fourth, we recognized that the appeals workload was increasing in
    complexity and frequency while extending significantly in processing
    length. The creation of the Decision Review Process with difference of
    opinion authority will, we believe, allow us to resolve many issues
    much earlier in the process without the need for them to go to the
    Board of Veterans Appeals (BVA). Those that do go will go quicker and
    with clearer issues under consideration.
        The extremely high rework rate among income based awards and the
    very high number of FTE (full time employee equivalent) tasked to
    administer this program when compared to the much larger compensation
    program called for the fifth effort which involves pension
    simplification and rule clarification. This effort is seen as a source
    for additional resources to process compensation claims while
    concurrently improving service in pension with fewer overpayments.
    Likewise, in this fifth effort, certain modifications to rules were
    seen as greatly reducing the amount of handling required for a number
    of types of claims. Examples of these include changing the burial
    process to become an automated sub-routine of First Notice Death
    processing. This adaptation would reduce the number of burial claims
    requiring manual processing by about 90 percent and issue payment in
    one day. Similarly we would change some match program requirements for
    due process. We would propose replacing pre-determination due process
    with concurrent due process which will significantly reduce the number
    of second handling of award adjustments while at the same time reducing
    the size of overpayments. Pension simplification holds the potential of
    greatly reducing the number of award adjustments needed and making the
    income stream of our beneficiaries more predictable and certain. Again,
    task time is saved that can be devoted to other claims.
        Finally, initiatives to insure the deployment of a new relational
    data base, award processing and payment system--VETSNET--is essential
    to the vision. Without VETSNET, it will be difficult to achieve the
    following:
      --A better interaction with veterans.
      --The ability to address a large number of veteran inquiries with
            automatic voice response.
      --The ability of employees dealing directly with claimants to have
            full on-line information on pending claims.
      --The ability to collect and analyze critical data needed for process
            management and strategic planning.
        Traditionally, the regional offices have resisted central office
    directives on how they should do business.
        Question. Have the regional offices ``bought into'' this new
    process?
        Answer. The senior management of all regional offices, Directors,
    Adjudication Officers and Veterans Services Officers were brought
    together in December 1996 and thoroughly briefed on the process. We
    solicited volunteers from across the country to participate in the
    implementation planning phase of the process and received far more
    volunteers than we were able to utilize. We have provided each employee
    in VBA with a detailed written explanation of what is transpiring.
        We have also provided a video for them to view with comments from
    senior management on our movement and why it is necessary to achieve
    world class customer service. We believe that the efforts of local
    offices to go to customer service centers, the heightened awareness of
    the need for improved quality and service and the recognition by all
    parties of the declining resource base indicate that most staff
    everywhere accept that this is a sound plan.
        NAPA's testimony says ``VBA nationally operates in too permissive a
    manner with little accountability for the achievement of specific
    results across all 58 regions. There are numerous cultural short
    circuits to accountability.''
        Question. How can we be confident there will be consistent
    implementation of the new system you plan, and how will you ensure
    appropriate accountability for results?
        Answer. Our implementation plan identifies specific over the next
    five transition years. Many of our initiatives will be tested at two
    laboratory stations, Seattle and Houston, to document the level of
    service enhancement. This will also insure that each change is the most
    efficient and consistent process possible prior to exporting it to
    other offices. We believe that we are building a rollout protocol which
    will accurately demonstrate the effectiveness of initiatives, modify
    those that don't work as originally conceived and provide data about
    the system consequence if specific initiatives are either not funded,
    passed or fail. Finally, customer service elements are being inserted
    into all employee's performance standards.
        VHA is a much larger and complicated organization than the VBA, yet
    it has managed to implement a major restructuring in the last few
    years, with cost-savings, more veterans served, and improved patient
    care.
        Question. Are there lessons-learned from VHA that VBA will be using
    to improve the success of transition?
        Answer. Yes, VHA's lessons about the need for communication with
    stakeholders, veterans and employees is recognized. A special
    transition and communication task force has been established to insure
    that the high level of communication needed will occur. Lessons learned
    in enhanced cooperation with VHA and insuring that we maintain close
    ties to them are essential so that, together, we can deliver a seamless
    line of benefits to veterans. In addition, we too, like VHA, will
    ensure that goals and objectives of VBA managers are derived from and
    support national goals and objectives and are part of the performance
    plans for these managers at all levels. This is a recommendation of the
    Adjudication Commission--certainly in concert with Government
    Performance and Results Act (GPRA)--that VBA fully endorses.
        Question. Does VA's budget include sufficient funds to undertake
    the information technology investments recommended in the BPR plan?
        Answer. The fiscal year 1998 budget contains sufficient funds to
    implement the information technology (IT) needs that can be
    accomplished next year. However, it should be noted that external
    evaluations of VBA (such as those conducted by the Veterans Claims
    Adjudication Commission and NAPA) could cause delays in VBA's IT plans
    as program recommendations are studied and assessed.
        Question. What is VA's long-term training strategy to address the
    human resource element of BPR, and are adequate funds requested?
        Answer. Our long term training strategy involves the creation of
    three service delivery positions, rather than the current eight, each
    of which will have a sophisticated, validated and testable training
    protocol which will result in certification that a graduate of the
    training is knowledgeable in his or her position. Attainment of the
    journeyman status in each position will require certification testing.
        The first phase of that training--training for rating specialists--
    is currently under construction. We anticipate having the very first
    portions of that training available for use in the field in 1997. The
    training package for veteran service representatives--the front end
    job, is currently awaiting funding will be requested in the 1999
    budget. The training package for Decision Review Officers is likewise
    awaiting initial funding in the 1999 budget.
        The training packages that we are developing utilize the rigorous
    ISD (instructional systems design) methodology which is a rigorous one
    requiring substantial development time. We believe however that it is
    the best approach to adult learning available. The VSR (Veteran Service
    Representative) and Rating VSR packages will require approximately
    three years to develop while the Decision Review Officer course will
    take about 18 months.
        During the interim we have identified some existing materials which
    will aid us in making the transition.
        Last fall, the Congressionally-chartered Veterans' Claims
    Adjudication Commission--known as the Melodosian Commission--made
    recommendations for improving the veterans claims processing system.
    The Commission concluded ``The problems of the adjudicative and appeals
    processes cannot be solved by fine tuning. The system has become
    cumbersome and outmoded.''
        Question. Do you believe your Business Process Reengineering
    efforts go beyond fine-tuning?
        Answer. The C&P redesign is a radical overhaul of the way VBA does
    business. It eliminates the assembly line approach to claims
    processing, designates responsibility and accountability, provides the
    training tools needed for staff to become fully competent, forges a new
    relationship with veterans and service organizations, seeks to
    streamline rules and procedures and takes advantage of modern
    information, telecommunication and rules based technology to deliver
    benefits on time, without hand-offs from multiple access points. While
    the basic elements of the adjudicative process remain the same--receipt
    of claim, development of evidence, decision and notification--the
    manner in which these steps occur is significantly different.
        The Commission recommended a major overhaul of the process.
        Question. What are your plans with respect to implementing the
    recommendations of the Melodosian Commission, and what is the time
    line?
        Answer. The Department is developing a detailed implementation plan
    with respect to the recommendations of the Melodosian Commission. It
    should be noted that the Secretary has indicated that a large number of
    the recommendations of the Commission will be handled through the BPR
    process.
        The BPR process is in the final stages of the ``implementation
    planning'' phase which we expect to be completed in the near future.
    During that intensive effort, teams put specific detail, costs,
    benefits and timelines on the higher level vision found in the ``Case
    for Change.'' The result of the teams, work ``Blueprint for Change''
    will be available for stakeholder review in June.
        With respect to NAPA's concerns regarding VBA's ability to deliver
    on its BPR promises and that the BPR efforts need to be improved and
    broadened, NAPA's detailed views have not yet been widely available in
    the Department nor have we had an opportunity to analyze them and
    evaluate their validity. Needless to say, as indicted earlier, a
    detailed implementation strategy is in the final stages of production
    and will be available shortly.
        NAPA is not optimistic about VBA's ability to deliver on its BPR
    promises, citing little improvement in VBA's ability to develop a
    clear, prioritized business plan within which resources are allocated
    only to critical priorities and the lack of capacity for strategic
    management. NAPA also says the BPR efforts needs to be improved and
    broadened.
        Question. How do you respond to NAPA's criticisms, and what are
    your plans to remedy the fundamental management and leadership
    shortcoming NAPA identified?
        Answer. VBA has not received the full, final NAPA report. When we
    receive it, we will review it with the Department and other appropriate
    stakeholders and develop a plan of action.

                     REGIONAL OFFICE RECONFIGURATION NEEDED

        Question. NAPA recommends a reconfiguration of field operations,
    stating ``the current structure of 58 regional offices is difficult at
    best to manage with any uniformity of policy implementation, and such a
    structure prevents optimal allocation of staff resources to service
    needs.'' NAPA recommends consolidation of the regional offices while
    maintaining the availability of local access by veterans to small,
    well-trained adjudication staffs dispersed throughout the nation.
        What are your plans to meet this recommendation?
        Answer. As we stated above, when we receive the full, final NAPA
    report, we will review it with the Department and other appropriate
    stakeholders and develop a plan of action.

                         PENSION PROGRAM SIMPLIFICATION

        The BPR plan indicates the pension program needs to be simplified
    as VBA is spending more than 5 times as much administering pension than
    compensation. The program is unduly complex and simplification will
    reduce costs and improve customer service. The Melodosian Commission
    also recommended changes to the pension program.
        Question. When will VA submit proposed legislation to Congress to
    simplify the pension program?
        Answer. The BPR business plan incorporated pension simplification
    as part of its vision for claims processing. In January 1997, VBA
    created six BPR implementation planning teams. One of these teams was
    the Compensation and Pension (C&P) Service rules team. This team was
    tasked with preparing a legislative proposal to simplify the current
    pension program. The team completed its assessment in April 1997 and is
    finalizing the report which recommends specific pension simplification
    proposals. These recommendations will be reviewed by top VA management
    who will determine the legislative initiatives that will be submitted
    to Congress. We anticipate that pension simplification legislation will
    be submitted with VA's fiscal year 1999 Budget submission.
        As part of the implementation planning phase a detailed data based
    analysis of the pension program was conducted and alternative
    approaches analyzed. A series of recommendations have been developed to
    simplify pension which will be included in the ``Blueprint for
    Change.''

                           REGULATORY CHANGES NEEDED

        Question. The BPR plan notes, ``Since 1911 COVA has been building a
    body of case law that often differs from VA's intent in preparing
    regulations.'' VBA has been in the mode of reacting to COVA decisions,
    rather than revising its regulations. The BPR report recommends
    ``Rather than continuing to adapt to the Court's views in all cases,
    VBA should revise vague provisions to clarify and specify VA's
    position, relying on OMB and public review of proposed changes to
    surface, clarify and accommodate stakeholder concerns. VBA's concerted,
    short-deadline review and if needed, revision of key regulations will
    enhance accurate, fair and predictable claims processing decisions with
    fewer delays in delivering services to veterans.''
        What are VBA's specific plans to meet this aspect of the BPR
    recommendation?
        Answer. In January 1997, VBA created six BPR implementation
    planning teams. One of these teams was the C&P Service rules team. This
    team was tasked with analyzing current regulations and their underlying
    statutes to determine what changes are needed to achieve the claims
    processing vision outlined in VBA's report titled: ``Reengineering
    Claims Processing: A Case for Change.'' The team also reviewed rule
    changes that would clarify existing VA policy or enhance or simplify
    the claims process. Many of these issues were identified in the BPR
    business plan. The team completed its assessment in April 1997 and is
    finalizing the report recommending rules changes. These recommendations
    will be reviewed by VBA management, which will determine a course of
    action based on the team's recommendations.
        As indicated in the previous answer, as part of the implementation
    planning phase a detailed analysis of regulations was conducted. A
    series of recommendations has been developed with respect to
    regulations which will be included in the ``Blueprint for Change.''

                                   YEAR 2000

        Question. What is VBA doing to ensure it will be Year 2000
    compliant by January 1999--to allow for a year of testing? Is VA
    confident that it will be compliant in a timely manner? What is
    requested in the budget to address Y2K problems, and is this
    sufficient?
        Answer. Long before the Year 2000 (Y2K) problem received the
    publicity it has today, VBA computer specialists realized there was a
    unique problem associated with this event. We have been making program
    changes in our benefit payment systems since the 1970's.
        In 1991, VBA completed an initial analysis of all application
    systems to determine the extent of the problem. In 1993, work began on
    fixing our debt management systems, and in 1995 work began on making
    our Insurance system compliant.
        In 1996, VBA set up a dedicated project team to manage the Y2K
    effort. A project manager was appointed and a team chartered. The first
    draft of our Y2K plan was prepared in July 1996. This plan is
    continually revised, enhanced and maintained. We also established an
    inventory of all of our applications, third party products, and
    interfaces (data exchanges with other agencies).
        VBA is in the Renovation phase of our Y2K project. As of 1 May, VBA
    has an estimated 158 applications and 9,088,343 Lines of Code (LOC).
    There are 30 applications that are currently compliant and in
    production. There are 10 applications that have been retired or
    removed. The percentage of compliant applications is 25 percent.
        VBA set a goal of having all operating systems, applications and
    third party products, etc., compliant and tested by December 1998. This
    will allow one year to correct problems and to monitor the
    applications' execution.
        On April 14, 1997, the first VBA payment system was fully certified
    and installed as Y2K compliant. The Restored Entitlement Program for
    Survivors (REPS) provides restored Social Security Administration
    benefits to approximately 48,500 beneficiaries. VBA pays this benefit
    to surviving spouses and children of veterans who died while on active
    duty prior to August 13, 1981, or who died as a result of injuries
    sustained while on duty before that date. The first payment cycle after
    ``Year 2000'' installation ran on April 24, 1997.
        Third party vendor issues are of special concern to us, as well as
    the rest of the government. We continue to follow-up with our
    contractors in their efforts to determine whether their products are
    compliant.
        To accelerate and provide more support for our compliance efforts,
    we are supplementing our staff with contractor support. We are in the
    process of putting contract vehicles in place for some of our
    applications requiring support in making them Y2K compliant. In
    addition, we created an oversight team that includes a senior
    technology expert from the Office of Management and VBA, assisted by
    contractors to oversee our Y2K effort. They will regularly report on
    the projects' progress to the Assistant Secretary for Management and
    the Under Secretary for Benefits, as well as Deputy Secretary Gober.
        For 1998, VBA estimates a total of $11 million to address the Y2K
    compliance. This exceeds the amount requested in the President's budget
    submission by $4.5 million. This increase in the estimate is due to our
    need to accelerate our efforts by expanding the use of contractors, the
    need to replace third party software products, and personal computers
    that are not Y2K compliant.

                           BOARD OF VETERANS APPEALS

        Question. Why is BVA's employment projected to decline, after
    several years of requesting increases? How will BVA produce 37,250
    cases next year with 6 fewer staff?
        BVA's cost-per-case has been declining for the past several years,
    yet is projected to increase in fiscal year 1998. Why?
        Answer. Due to the significant improvements made in BVA's work
    process through previous staffing increases and other initiatives such
    as geographic realignment, VA decided not to request an increase in
    staffing for the Board in fiscal year 1998. VA wanted to ensure that
    total resources are maximized.
        At the midpoint of the fiscal year, BVA productivity exceeded
    expectations as a result of overtime and other initiatives, and it is
    on course to decide around 41,200 appeals during fiscal year 1997--over
    3,000 more than the current budget estimate. The following table shows
    how critical workload details would change if BVA is able to sustain
    this production level.

    ----------------------------------------------------------------------------------------------------------------
                                                                                                   1997
                                                                  1995       1996       1997      Actual      1998
                                                                 actual     actual    estimate   through    estimate
                                                                                      revised    3/31/97
    ----------------------------------------------------------------------------------------------------------------
    Appeals pending--start...................................     47,148     58,943     60,120  .........     53,920
    Appeals received.........................................     39,990     35,121     35,000  .........     35,000
    Total workload...........................................     87,138     94,064     95,120  .........     88,920
    Appeals decided..........................................     28,195     33,944     41,200     20,787     37,250
    Appeals pending--end.....................................     58,943     60,120     53,920  .........     51,670
    Average BVA response time................................        763        596        478  .........        506
    ----------------------------------------------------------------------------------------------------------------

        The 37,250 decisions projected for fiscal year 1998 assumes an FTE
    of 494 and is derived from the same mathematical model which projected
    that 38,000 decisions would be produced with an FTE of 500.
        Question. The number of appeals decided per FTE in BVA has been
    increasing steadily, to the current of 76 in fiscal year 1997. For
    fiscal year 1998, BVA estimates a slight decline to 75.4. Why is
    productivity projected to decline?
        Answer. The model used by BVA to develop productivity projections
    is built around a fixed level of staffing devoted to all positions
    other than decision-making and decision-writing Board members and staff
    counsels. Through fiscal year 1995, as the transition was made to its
    current realigned structure, BVA reduced its administrative and
    professional support positions, together with its management and
    executive staffing requirements, to a combined base of 183 of its then
    current total staffing of 449 FTE. This support component remained a
    constant as the overall FTE rose during fiscal years 1996 and 1997. The
    number of decisions decided per FTE calculation is a BVA-wide per
    capita figure. Therefore, as only Board member and staff counsel
    positions--those directly involved in decision-making--were being
    increased, per capita productivity was projected to rise, and did rise,
    accordingly. Conversely, as BVA reduces from 500 to 494 FTE in fiscal
    year 1998, it will lose 6 positions directly related to decision
    production from the staffing mix. As the percentage of BVA's staffing
    composition directly involved in decision production declines, we
    project a slight decline in the BVA-wide per capita decision
    production. However, if BVA continues to exceed productivity
    expectations evidenced through the midpoint of fiscal year 1997, the
    appeals decided per FTE will increase.
        Question. What is an appropriate number of appeals decided per FTE,
    and when do you believe BVA will attain that goal?
        Answer. It is not possible to identify, in absolute terms, an
    ``appropriate'' number of appeals decided per FTE that can remain fixed
    in time due to a variety of uncontrollable variables. These variables
    individually and collectively affect the amount of Board member and
    staff counsel time, BVA's basic unit labor components, consumed in
    producing decisions on appeals. Among these variables are the number of
    individual issues appealed, the complexity of the issues, and the
    effects of precedential decisions of the Court of Veterans Appeals.
    Other variables that cannot be predicted or controlled include the
    volume and types of personal hearings that must be conducted. For
    example, conducting hearings at sites geographically removed from BVA's
    offices requires considerable travel time by Board members and,
    consequently, a reduction in Board members' time available for case
    review and decision-making.
        For the fiscal year 1998 budget submission, the Board's performance
    objective in this area is to decide 75.4 appeals per FTE. We believe
    the decisions per FTE goals based on recent historical performance
    represent the most realistic productivity targets we can devise.
    Establishing annual per capita productivity goals allows the Board to
    adjust, at least partially, to changing dynamics in the decision-making
    environment.
        Question. BVA's cost per case has been declining for the past
    several years, yet is projected to increase in fiscal year 1998. Why?
        Answer. Cost per case is inversely related to decisions per FTE.
    Thus, the same factors that have resulted in a slight decrease in the
    projected number of decisions per FTE will result in a commensurate
    increase in cost per case.
        Again, if BVA continues to exceed productivity expectations
    evidenced through the midpoint of fiscal year 1997, the cost per case
    will decline.

                               MAJOR CONSTRUCTION

        Question. No new medical construction projects are proposed in the
    budget request. Does this reflect a new administration view that such
    projects should be put on hold until the VHA reorganization has been in
    place for a few years?
        Answer. VHA is in a period of rapid internal and external change in
    healthcare delivery systems. The networks require additional time to
    assess the projected impact of the new resource allocation system
    (VERA), the reallocation of resources to primary care, the
    transformation from a facility-based system of care to a network-based
    system of care, and the eligibility reform legislation, among other
    things. Capital planning supports the results of this assessment and
    planning, and in this period of rapid change VHA is not at the point to
    assess the long range impact on capital requirements. In the first
    cycle of network planning, networks have focused on establishing a
    baseline of capital assets available, identifying each network's
    patient base and the healthcare services required by those patients.
    VHA will assess the progress made in the next planning cycle in
    translating the results of these analyses to action plans that may
    include the need for major construction.
        Question. What are VHA's long-range major construction priorities?
    What is VA's new method for prioritizing construction projects
    conceived by the VISN's?
        Answer. Potential capital projects to be implemented through the
    major construction program will be recommended by the Network
    Directors. The focus of the projects is anticipated to be on meeting
    the Mission Goals described in the Prescription for Change largely in
    the areas of shifting the emphasis of health care delivery from an
    inpatient orientation to a primary care/managed care, outpatient based
    system as well as to upgrade reduced but needed inpatient bed space.
    Nationally, the priority of each project will be determined on the
    basis of its value to the VHA system in implementing the Strategic
    Plan. The current VA Major Construction Prioritization System is being
    examined and revised to reflect the broad set of performance objectives
    contained in the Strategic Plan. This will include both quality and
    cost/benefit factors.
        Question. Why is VA proposing funding for the Cleveland veterans
    cemetery when Detroit ranks higher according to VA's prioritization
    list, and has received initial EIS funding?
        Answer. For the last decade, VA's policy on the establishment of
    new national cemeteries has been based on the findings in two Reports
    to Congress, one in 1987 and another in 1994. The Reports each
    identified ten areas of the country most in need of new national
    cemeteries based on concentrations of veteran population. The rankings
    in each report were not a priority listing, but a list depicting
    veteran population. Cleveland and Detroit were ranked in the top 10 in
    both reports (Cleveland was 4th in 1987 and 3rd in 1994 while Detroit
    was 5th in 1987 and 2nd in 1994).
        Milestones in new cemetery projects develop at varying rates as
    steps in the process are completed. Cemeteries are not constructed in a
    specific order nor must one cemetery project be completed before
    another begins. As a segment of the development process is completed
    for a specific cemetery, such as the EIS or land acquisition, funding
    is usually requested for the next phase.
        The schedule for the Cleveland cemetery project was ahead of
    Detroit. Congress provided EIS funds for Cleveland in fiscal year 1988,
    site acquisition funds in fiscal year 1991, and design funds in fiscal
    year 1997. No earmarked appropriation has ever been provided for an EIS
    for the proposed new cemetery in Detroit; funding for the EIS was
    provided from the VA's Advance Planning Fund. In April 1994, the
    Secretary advised the Michigan Congressional delegation, the Governor,
    and major veterans organizations that VA budgets will not support a new
    national cemetery in the Detroit area.
        In June 1993, the Secretary reiterated and approved VA's policy to
    establish new national cemeteries in Albany, Cleveland, and Seattle and
    to continue progress to establish new national cemeteries in Chicago
    and Dallas/Fort Worth. The approval of these five sites permits VA to
    increase a level of service delivery consistent with veterans'
    expectations. By concentrating the locations in major metropolitan
    areas, the burial needs of large numbers of veterans will be served.
        The President's fiscal year 1998 budget includes funding for the
    construction of a new national cemetery for the Cleveland, Ohio area.
    If funds are provided for this project, we anticipate opening the
    cemetery in the fall of 1999. This will be the sixth VA national
    cemetery to be constructed in those areas identified in a 1987 Report
    to Congress as most in need of burial sites for veterans. San Joaquin
    Valley National Cemetery in California was opened in 1992. Tahoma
    National Cemetery near Seattle is projected to open in September 1997.
    We expect to open Dallas/Fort Worth National Cemetery, Saratoga
    National Cemetery near Albany, New York, and a national cemetery near
    Chicago in the summer or fall of 1999.
        The opening of these five new VA national cemeteries within a two-
    year time frame is unprecedented since the Civil War. VA must ensure
    full operation of these new cemeteries as its priority and assess their
    impact on the system.

                               MINOR CONSTRUCTION

        Question. I understand VISN's are currently reviewing, prioritizing
    and selecting capital initiatives for the minor construction program
    for fiscal year 1998. What are the criteria for project selection? Does
    the VISN select the criteria, or does central office? Do the network's
    business plans include long-range minor construction priorities?
        Answer. Capital initiatives for the minor construction program are
    expected to reflect the values and strategic objectives of the Veterans
    Health Administration (VHA) as set forth in VHA's Vision for Change,
    the Prescription for Change, and the Secretary's Performance Agreement
    with the White House. These documents identify specific values and
    objectives which have been incorporated into the respective performance
    plans for the network directors. These values and objectives are
    subsequently incorporated into the network strategic business plans and
    a capital strategy for implementation of the plan is included. This
    Capital Strategy includes capital initiatives in the major
    construction, minor construction, NRM, leasing, and enhanced use
    programs as well as capital equipment initiatives. Headquarters
    provides guidance to the networks with regards to any expected areas of
    special emphasis such as Outpatient Improvements and Patient
    Environment. The network then identifies those capital initiatives and
    a capital strategy which best enable them to achieve these objectives
    within their local health care environment. Proper criteria for
    selection of capital initiatives include whether the initiative is
    consistent with the network's strategic business plan, how well it
    meets one of the network's stated values or strategic objectives, and
    the return on invested capital (in terms of either dollar savings or
    services provided). The Networks determine specific qualitative and/or
    quantitative methodologies to assess how well a capital initiative will
    meet these criteria.

                             BONE DISEASE RESEARCH

        Question. In the fiscal year 1997 VA-HUD conference report, support
    was expressed for additional research activity focused on men with bone
    diseases at the VA. Further, the Committee urged the Department to
    prepare a long-term strategy for research in this area. Can you comment
    on the status of this request and the research activities the agency
    has initiated with respect to these diseases?
        Answer. Osteoporosis and related bone disease remain areas of
    special emphasis for funding. In particular, osteoporosis and related
    bone disease fits into two of our current Designated Research Areas
    (DRA's)--Aging and Geriatrics; and Chronic Diseases. Our DRA's are in
    response to October 1996 recommendations made by the Research
    Realignment Advisory Committee. Post traumatic osteoporosis due to
    injury is an area of expanded collaboration with the Department of
    Defense. Projects in this area are taking place at the Rehabilitation
    Research and Development Center, located in the VA Palo Alto Medical
    Center. This Center focuses on degenerative bone disease and joint
    reconstruction and often partners with the National Aeronautics and
    Space Administration. In fiscal year 1996, VA investigators
    collaborated with the National Institutes of Health on seven projects
    in the area of degenerative bone disease. In fiscal year 1997, VA
    investigators are participating in over 100 projects in the areas
    associated with Osteoporosis.

               REGIONAL OFFICE ADJUDICATORS' PERFORMANCE CRITERIA

        Question. In this Subcommittee's report explaining appropriations
    for the Department of Veterans Affairs for fiscal year 1997, we
    directed the VA to establish performance criteria, including measures
    of technical proficiency and work quality, for regional office
    adjudicators. Have you developed and disseminated such criteria?
        Answer. In previous discussions of this topic we have noted that
    performance standards do currently exist for each individual employee
    as a part of each person's Performance Plan. We have also said the
    sound performance plans include both quality and timeliness elements.
    These performance standards will continue until we move further into
    the transition/implementation phase of our BPR effort. Each employee
    does receive an annual appraisal of his/her performance based on the
    indicators in the Performance Plan. But as noted earlier, VBA will
    ensure that goals and objectives of VBA managers are derived from and
    support national goals and objectives and are part of the performance
    plans for these managers at all levels. These performance expectations
    will cascade down to those processing the claims. This is a
    recommendation of the Adjudication Commission--certainly in concert
    with GPRA--that VBA fully endorses.
        Question. And, if so, are regional office adjudicators now
    operating under these new standards and what quality improvements have
    been attained?
        Answer. The Human Resources task team for the implementation of the
    BPR vision has developed position descriptions, a transition plan, and
    performance evaluation policies to properly develop, reward, and train
    employees in the re-engineered claims processing environment. The task
    team's proposal will be presented to the VBA Strategic Management
    Committee at its June 1997 meeting.

                        CHANGE IN CURRENT CLAIMS PROCESS

        Question. Your Business Process Reengineering Plan, which is
    incorporated in your GPRA business line plan in your budget submission,
    includes changing the current claims process to one which involves more
    direct interaction between VA employees and veterans and more
    personalized customer service to veterans. Logically, it would seem
    that this would require a greater investment of time in each claim by
    VA personnel and, as a consequence, require more staffing. Yet, your
    budget proposes to reduce staffing in the VBA by 543 FTE in fiscal year
    1998 and reduce staffing in C&P alone by 100 FTE. How do you reconcile
    this seeming contradiction?
        Answer. The attainment of the vision is predicated on the
    successful implementation of a number of BPR initiatives which are all
    interactive, a number of which emphasize closer, more personal, and
    frequent contact with veterans and greater responsiveness to their
    concerns.
        In the vision, a partnership is forged with the veteran and his/her
    representative. This partnership implies increased accountability for
    certain actions, not only by VA personnel, but veterans and their
    representatives as well. The claimant is asked to assist in the claims
    process. VA will rely more on Veterans Service Organizations and County
    Service Officers for the up-front part of the claims process.
        The VSR (veteran service representative), consulting with the
    veteran, focuses the issue, identifies all sources of evidence, and
    explains the claims process. Rule-based technology supports the VSR in
    this process to ensure the quick resolution of the claim. Routine
    actions are handled quickly, often at the initial contact. In addition,
    the vision emphasizes on-line electronic interfaces with internal and
    external entities. Most status calls will be answered through an
    automated voice response system.
        Regulatory and legislative changes are needed to achieve the claims
    processing vision. We will seek these changes. Assumptions were made in
    C&P's 1998 Business Plan that these changes would be accomplished.
        We believe that we can attain the vision with fewer FTE in the
    outyears if all BPR initiatives are funded and successfully
    implemented. During fiscal year 1997, we have experienced a temporary
    set back in the progress we are making toward reaching our timeliness
    goals and reducing our claims backlog. At the end of fiscal year 1996,
    the average processing time for original disability compensation claims
    was 144 days with 342,683 claims pending. As of March 31, 1997, six
    months into fiscal year 1997, the average processing time for original
    compensation claims was 132 days with a pending backlog of 393,240.
        A number of factors contributed to this slippage, including the
    following:
      --During the first six months of fiscal year 1997, over 228,000 hours
            were invested in training, as we move toward the consolidation
            of Adjudication and Veteran Service Divisions into Veteran
            Service Centers.
      --During the first six months of fiscal year 1997, there was a
            significant increase (approximately 20 percent) in the number
            of reopened compensation claims received when compared to the
            first six months of fiscal year 1996 (primary cause--change in
            hospital eligibility criteria).
      --During the first six months of fiscal year 1997, approximately
            4,485 Persian Gulf War claims were re-reviewed. These reviews
            are labor intensive with an average review task time of 8 hours
            per review (total review time of 35,800 hours).
        For the following reasons, we do not expect marked improvement in
    timeliness or a reduction in the backlog during the last six months of
    fiscal year 1997:
      --Continued consolidation of Adjudication and Veteran Service
            Divisions into Veteran Service Centers which will require over
            280,000 additional hours of training.
      --The issuance of 230,000 outreach letters to DIC widow(er)s.
      --The issuance of triennial EVR's.
      --The adjudication of approximately 4,250 tobacco-related claims with
            a total projected task time of 46,200 hours.
      --The completion of approximately 6,250 additional Persian Gulf War
            re-reviews and additional Persian Gulf War workload demands
            based on new information, amended regulations, or policy
            directives.
      --The adjudication of Spina Bifida claims (approximately 2,000
            cases).
      --Dedication of resources to reduce remands and other appeal work.
        Although it is unlikely that we will attain our fiscal year 1997
    interim goals of 117 days for original compensation claims with 360,500
    claims pending, we expect to be back on target in fiscal year 1998. We
    intend to use available overtime funds to process rating-related claims
    and reduce our appellate workload. We intend to continue aggressively
    brokering the workload between regional offices to ensure maximum
    utilization of resources. We intend to continue the re-allocation of
    available resources to the rating activity, consistent with our BPR
    vision.

                           COURT OF VETERANS APPEALS

        Question. The Court of Veterans Appeals, on previous occasions, and
    recently in an order in the case of Ehringer v. Brown, has found it
    necessary to remind VA that it has the responsibility to devote
    sufficient resources to its counsel to fulfill its duty as an officer
    of the court to make timely filings in cases pending before the Court.
    The Court cited the well established principle that a government agency
    must bear ultimate responsibility when the staffing pattern in that
    agency is sufficient to meet judicially imposed requirements. It is
    indicated that your Professional Staff Group VII attorneys routinely
    file multiple motions for extensions of time in cases in which
    proceedings are awaiting your briefs and other filings. At a time when
    the number of appeals to the Court is increasing, your budget would
    reduce staffing in the Office of General Counsel by 26 FTE. Can you
    explain this in light of the ongoing problems your General Counsel has
    had meeting VA's legal mandate to represent your interests before the
    Court?
        Answer. The Office of General Counsel (OGC) is acutely aware of the
    impact the increasing caseload has had on the Professional Staff Group
    VII's (PSG VII) ability to serve the Secretary's interests before the
    Court. While this group has experienced increasing workloads, other
    elements within the OGC have also experienced substantial increases in
    their workload, most notably in the personnel and EEO categories. Every
    effort has been made to balance the level of legal support among all
    elements within the Department.
        To assist us in making a determination on what is the optimal level
    of resources to dedicate to the appellate function, OGC has recently
    awarded a contract to a consultant to study the operations of PSG VII.
    The consultant's charge is to make recommendations on what procedural
    changes or resource increases are needed to address the current
    workload backlogs. Once these recommendations are offered and reviewed,
    necessary actions will be taken, within the parameters of the
    President's Budget, for implementing those recommendations and the
    resource supplementation that may be required. In the meantime, OGC has
    increased staffing for PSG VII and has authorized limited amounts of
    paid overtime to help address the backlog problems.

                    NATIONAL CEMETERY CONSTRUCTION PROJECTS

        Question. It is my understanding that the VA has made a decision to
    complete national veterans cemetery project in Seattle, Cleveland,
    Dallas, Chicago, and Albany, while national veterans cemetery projects
    in Oklahoma, Pittsburgh, Detroit, and Miami will be terminated. Is this
    correct?
        Answer. It is VA policy not to request Federal funds to construct
    and operate new national cemeteries once the new cemetery projects in
    Seattle, Cleveland, Dallas, Chicago, and Albany are completed. However,
    the fiscal year 1998 budget proposes to enhance the State Veterans
    Cemetery Grants Program so that it can help states obtain full funding
    to establish a complete and fully equipped cemetery for veterans. The
    proposal will increase the Federal share of funds to States through the
    State Veterans Cemetery Grants Program from 50 percent to up to 100
    percent of the costs of construction. This proposed legislation will
    also authorize funding of up to 100 percent of all initial equipment
    costs. It is anticipated that this proposal will achieve VA's goal of
    expanding veterans cemetery access.
        In the Spring of 1994, the Secretary advised the Michigan, Florida,
    Oklahoma, and Pennsylvania Congressional delegations, their Governors,
    and major veterans organizations that `` * * * construction of national
    cemeteries in Detroit, Miami/Fort Lauderdale, Oklahoma City, and
    Pittsburgh before the year 2000 was not feasible.'' VA has not
    requested funding for any further action at any of these sites.
    Instead, VA will establish an enhanced partnership with the States for
    new or expanded state veterans cemeteries through the State Veterans
    Cemetery Grants Program.
        The proposed new national cemetery in the State of Oklahoma has
    been the subject of congressional action as funding has been earmarked
    several times during the 1990's. In fiscal year 1991, $250,000 was
    provided for advance planning including an Environmental Impact
    Statement (EIS). In fiscal year 1995, $250,000 was provided for design
    purposes. Legislation authorizing the Department of Army to transfer
    400 acres at Ft. Sill to VA for a new cemetery was enacted as part of
    Public Law 104-201. In February 1997, the Secretary signed the Record
    of Decision which completed the EIS process.
        Of the amount appropriated in fiscal year 1991, a total of $118,000
    has been obligated for the completion of the EIS process. In April
    1997, VA requested that the total unobligated project balance of
    $382,000 be reprogrammed to the Major Construction working reserve. The
    Appropriations Committee in the Senate rejected the request. The VA is
    now proceeding to use the $382,000 for master planning.
        Question. Has any funding, in fiscal years previous to fiscal year
    1998, been identified, earmarked, set-aside or otherwise designated for
    any aspect of the study, design, construction or any other stage that
    is deemed necessary to the locating, planning, design and construction
    of a national cemetery in Oklahoma, Pittsburgh, Detroit, and Miami? If
    so, how much has been designated for these projects, for what stage of
    the cemetery project were they designated, in what fiscal year was that
    funding identified, and how much has been obligated?
        Answer.
        Oklahoma.--
      --$250,000 appropriated for Advanced Planning/EIS in fiscal year 1991
            ($118,000 obligated for EIS).
      --$250,000 appropriated for Planning and Design in fiscal year 1995
            (no funding obligated).
        Pittsburgh.--$250,000 appropriated for Advanced Planning in fiscal
    year 1991 ($103,000 obligated for EIS).
        Detroit.--No funding appropriated ($71,000 provided from VA APF
    working reserve for EIS).
        Miami.--$250,000 appropriated for Advanced Planning in fiscal year
    1992 ($92,000 obligated for EIS).
        Question. Of those funds identified in my previous question, how
    much of those funds, and for what projects, has the VA requested to be
    reprogrammed for other projects?
        Answer. Of the total $500,000 appropriated for the development of a
    new national cemetery in Oklahoma, VA requested in April 1997, that the
    total unobligated project balance of $382,000 be reprogrammed to the
    Major Construction working reserve. The Appropriations Committee in the
    Senate rejected the request. The VA is now proceeding to use the
    $382,000 for master planning.
        Question. Would the VA be willing to allow those national cemetery
    projects where funding has been spent and a site identified, to be
    completed with the understanding that after these projects are complete
    the VA is to build no more national veterans cemeteries?
        Answer. It is VA policy not to request Federal funds to construct
    and operate for new national cemeteries other than for the five now in
    progress. Our paramount concern is not the upfront capital investment
    required to build national cemeteries but the long-term commitment of
    providing recurring operational dollars to maintain the cemetery in
    perpetuity. We have also forwarded legislation to expand the State
    Veterans Cemetery Grants Program to support construction of veterans
    cemeteries in locations that are currently, or may become underserved.
    Should Congress appropriate funds for new national cemeteries beyond
    these five, VA will obviously comply with the law.
                                     ______

                 Question Submitted by Senator Barbara Mikulski

                             BONE DISEASE RESEARCH

        Question. In the fiscal year 1997 HUD, VA, Independent Agencies
    Appropriations Report, the Conferees expressed their support for
    additional research activity focused on men with bone diseases at the
    Veterans Administration. Further, the Conferees urged the agency to
    prepare a long term strategy for research in this area. Can you comment
    on the status of this request and the research activities the agency
    has initiated with respect to these diseases?
        Answer. Osteoporosis and related bone disease remain areas of
    special emphasis for funding. In particular, osteoporosis and related
    bone disease fits into two of our current Designated Research Areas
    (DRA's)--Aging and Geriatrics; and Chronic Diseases. Our DRA's are in
    response to the October 1996 recommendations made by the Research
    Realignment Advisory Committee. Post traumatic osteoporosis due to
    injury is an area for expanded collaboration with the Department of
    Defense. Projects in degenerative bone disease are taking place at the
    Rehabilitation Research and Development Center, located within the VA
    Palo Alto Health Care System. This center focuses on degenerative bone
    disease and joint reconstruction, often partnering with the National
    Aeronautics and Space Administration. In fiscal year 1996, VA
    investigators collaborated with the National Institutes of Health on
    seven projects in the area of degenerative bone disease. In fiscal year
    1996, VA investigators collaborated with the National Institutes of
    Health on seven projects in the area of degenerative bone disease. In
    fiscal year 1997, VA investigators are participating in over 100
    projects in the areas associated with Osteoporosis.
                                     ______

                   Questions Submitted by Senator Tom Harkin

                 VETERANS EQUITABLE RESOURCE ALLOCATION SYSTEM

        Question. I wanted to ask you about the Veterans Equitable Resource
    Allocation system--VERA. I must say the name sounds good. But, we must
    be assured that it is truly equitable.
        The GAO has examined the system and had some very real concerns.
    Their statement says in part on page 13: ``Although VERA adjusts for
    differences in regional case mix with its basic and special care
    patient categories and adjusts the allocations for differences in
    regional labor costs, it assumes that all of the remaining differences
    are based on differences in efficiencies. While inefficiency is a major
    factor in these cost differences, other factors may play a role. For
    example, to the extent that veterans are sicker and need more health
    care services in different parts of the country, additional case mix
    adjustments may be necessary to fully explain regional cost
    differences. As we have said in the past, VA needs to provide more
    information on why costs vary throughout the country. VA officials told
    us they plan to examine this further.''
        What are the specific plans for the further examination of these
    factors and what is the expected timing of those analyses? Can you
    provide the Committee with a complete listing of the factors being
    looked at?
        Answer. As explained in the initial VERA Briefing Book, a variety
    of factors such as age of veterans, energy, labor and pharmaceutical
    costs were evaluated in the planning stages of VERA to determine if
    additional adjustments to the national price were warranted. It was
    found that there was little variation in the average and median age of
    patients among networks; energy as a percent of total costs varied
    little among networks, and in fact constituted a very small portion (1-
    2 percent) of the network budgets and; over 90 percent of
    pharmaceuticals are purchased through the federal supply system--
    resulting in equal network pricing. However, we will continue to
    evaluate the labor adjustment index and will monitor the implementation
    of VERA for potential associations between resource allocation and
    quality of care and workload. We welcome any specific thoughts the
    Committee may have on what other factors should be examined to
    potentially improve VERA.
        Question. I am told that you only look at the age levels of the
    population in the ``special'' classification. For that classification,
    to what extent is the weight of the more elderly veteran population
    considered--those over 80 and over 85 years of age? Can you provide the
    Committee with exact methods involved?
        Answer. Due to the significant healthcare needs of the ``oldest
    old'' population, the vast majority of such patients are reflected in
    the projection of workload for the special care group. Under VERA, the
    most resource intensive patients that we treat, including the high-cost
    elderly, are funded at a special rate of $35,707. Thus, networks with
    proportionately more of the ``oldest old'' veterans using VA health
    care will receive relatively more funding through the special care
    rate.
        Question. For the basic classification, costing an average of
    $2,596, there is no adjustment at all for the variation of more elderly
    populations. Can you provide the committee with a detailed set of
    reasons for that decision?
        Answer. In the VERA model, patient needs determine resources
    regardless of age. The three year user basic care population includes a
    wide range of patient healthcare needs, outcomes, and ages. Age was not
    used as an adjustment because there was little variation between the
    average and median age of patients among networks and it is not always
    the cause of health care needs or costs.
        Question. Frankly, I fear that some of the underlying assumptions
    in VERA could be in serious error and that could provide considerable
    misallocations of resources in the veterans health care system. To what
    extent does the Veterans Administration desire to implement VERA in
    fiscal 1998?
        Answer. To best answer this question we would need to know which
    assumptions you believe could be in serious error. With regards to
    fiscal year 1998, VA plans to implement VERA under the same parameters
    as fiscal year 1997. However, VERA is a dynamic process that may be
    refined as it is implemented. For example, there are workgroups that
    are continuing to look at each component of the VERA model (workload
    volume, special programs, care across networks, geographic prices,
    education support, research support, equipment and non-recurring
    maintenance, and data validation). At present, there are a few changes
    under consideration that amount to ``fine-tuning'' the components for
    research support, education support, equipment, and non-recurring
    maintenance.

              REIMBURSEMENT FROM PRIVATE HEALTH PLANS AND MEDICARE

        Question. I understand that the VA budget assumes that some of the
    budgetary shortfalls will be made up by collecting money from the
    private health care plans of veterans and Medicare. Depending on the
    details, I support this idea. However, I have my doubts that the VA
    will be able to collect funds at the level projected. It is my further
    understanding that VA requires a statutory change in order to collect
    these funds for VA use.
        If Congress does not approve the needed statutory authority, how
    will VA make up the shortfall in funding? What will this shortfall mean
    for current programs?
        Answer. VA would have to reduce workload below 1997 levels if
    Congress does not approve this alternative source for collections. VA
    might not be able to treat as many as 105,000 veterans in 1998, with an
    even more severe impact in the outyears. The following chart reflects
    the VA model for the budget year and provides an approximation of
    impact of various key indicators. These estimates were generated by
    simply using national averages of past resources and workload. They do
    not reflect the actual outcomes and efficiencies that would result
    through Network planning and implementation.

    ----------------------------------------------------------------------------------------------------------------
                                           1998            1999            2000            2001            2002
    ----------------------------------------------------------------------------------------------------------------
    Shortfall ($000)................      ($648,985)    ($1,319,015)    ($2,027,789)    ($2,696,992)    ($3,475,791)
    Unique individuals..............       (105,423)       (214,265)       (329,400)       (438,108)       (564,618)
    Inpatients treated..............        (35,421)        (69,220)       (102,325)       (130,858)       (162,159)
    Outpatient visits...............     (1,179,000)     (2,304,000)     (3,406,000)     (4,356,000)     (5,398,000)
    FTE.............................         (6,643)        (12,983)        (19,192)        (24,546)        (30,417)
    ----------------------------------------------------------------------------------------------------------------

          GULF WAR ILLNESSES--DELAY IN PRESUMPTIVE PERIOD RULE CHANGE

        Question. The Congress and the Department of Veterans Affairs is
    well aware of the strange health problems facing many of our military
    personnel who served in the Gulf War. I know the VA continues to work
    toward a better understanding of the causes of Gulf War illnesses. I
    also understand that the VA is bearing most of the burden for treating
    those suffering from these illnesses.
        As you know, many Gulf War veterans were denied access to treatment
    due to a very limited time period in which they could have applied for
    help. Unless a veteran suffering from Gulf War illnesses had applied
    for treatment within two years of the conflict, they were automatically
    denied. In March, the Administration decided to extend the presumptive
    period for veterans suffering from Gulf War illnesses to ten years. I
    applaud this action. As you may know, I was a supporter of legislation
    introduced earlier this year that pressed for the ten year extension of
    the presumptive period.
        Unfortunately, the policy change has not yet been implemented.
    Apparently, the VA has yet to promulgate the presumptive period
    extension rule change to its network of medical facilities and regional
    centers. This delay has caused some confusion in the VA regional
    offices and in the veteran community.
        When will the rule be promulgated?
        Answer. As to the new rule, an interim rule with request for
    comments was published in the Federal Register on April 29, 1997. (See
    62 FR 23138-9). The rule was effective November 2, 1994, the effective
    date of ``The Persian Gulf War Veterans' Benefits Act,'' Title I of
    Public Law 103-446.
        Question. Have you notified your medical staff and regional centers
    of the pending rule change?
        Answer. We would like to point out first of all that the
    presumptive period applies only to monetary benefits. VBA notified its
    regional offices of the revised rule on May 1, 1997, and began
    processing claims under the revised regulation the same day. Hospitals
    are aware that Persian Gulf veterans have special eligibility for
    comprehensive medical care with medical problems thought to be possibly
    related to hazardous exposure during the Persian Gulf War.
        Question. How do you plan on reaching out to the veterans community
    when the rule is finalized?
        Answer. VA has issued a press release announcing the revised
    requirements which has generated a number of newspaper articles. The
    next issue of the VA's Persian Gulf Review will also publicize the
    revised requirements and veterans may receive information on this issue
    by calling VA's toll-free number 1-800-PGW-VETS. VBA will also review
    all claims previously denied because the symptoms of undiagnosed
    illnesses did not manifest within the previous two year presumptive
    period to determine whether the veterans who filed those claims qualify
    for compensation under the revised criteria.

                      GULF WAR ILLNESSES--RESEARCH FUNDING

        Question. I note that your fiscal year 1998 budget includes a
    decrease in funding for VA medical research. What will the decrease in
    VA medical research mean for your investigations of Gulf War illnesses?
        Answer. No reduction in support for study of Gulf War illnesses is
    contemplated.

                      NEW RULES FOR DISCRETIONARY VETERANS

        On October 1, 1996, new rules went into effect at the Veteran's
    Administration (VA) with regard to who ``may'' and ``shall'' have
    needed care furnished to them in a VA facility. These new rules have
    had the effect of ending VA care to a number of veterans who are
    ``discretionary'' or Category ``C''. I understand the budgetary reasons
    for such changes to the rules governing veterans care. As I am sure you
    know, these rule changes have caused problems for a lot of category C
    veterans who can no longer receive medical care in a VA facility.
        However, I have received reports from Iowans about the difficulties
    and administrative problems with even determining who is eligible to
    receive care at a VA facility. For instance, one of my constituents
    contacted me when the VA denied him further treatment for several
    conditions for which he was receiving ongoing treatment. In the end, we
    were able to get him his continuing treatment, but it took intervention
    by my office and his doctor at the VA.
        We have heard of these types of problems before. Even the best of
    staffs can make mistakes. However, it appears to me that these mistakes
    are being made because of inconsistencies in the application of the VA
    eligibility requirements due to a lack of understanding by the staff
    and veterans.
        For instances, in order to help my staff better help constituents
    who have been denied care at the VA, the VA distributed a ``VA Medical
    Care Fact Sheet'' (See the attached VA Healthcare Fact Sheet.) However,
    this fact sheet is very confusing to veterans. It was also
    indecipherable to my caseworkers and veterans policy staff.

                           VA MEDICAL CARE FACT SHEET

        Public Law 104-262 dated October 9, 1996, made significant changes
    in veterans' eligibility for VA medical care. A major feature of this
    new law makes eligibility rules the same for both inpatient and
    outpatient care. Public Law 104-262 eliminated many of the complicated
    eligibility rules governing outpatient care that previously existed.
    Eligibility rules for nursing home care remain unchanged.
        Public Law 104-262 establishes two eligibility categories: The
    first category includes veterans to whom VA ``shall'' furnish needed
    hospital and outpatient care, and ``may'' furnish nursing home care,
    but only to the extent and in the amount that Congress appropriates
    funds to provide such care. This group is composed of those veterans
    who were previously referred to as ``Category A'' veterans, but
    excludes 0 percent noncompensable service-connected (SC) veterans
    needing care for a nonservice-connected (NSC) disability. This group
    includes veterans:
    Under the authority of Title 38 USC Section 1710(a)(1)
      --for a service-connected disability
      --who have a service-connected disability rated at 50 percent or
            more,
    Under the authority of Title 38 USC Section 1710(a)(2)
      --who have a compensable service-connected disability;
      --whose discharge or release from active military service was for a
            compensable disability that was incurred or aggravated in the
            line of duty;
      --who are former prisoners of war;
      --who are veterans of World War I;
      --who were exposed to Agent Orange in Vietnam, ionizing radiation, or
            environmental hazards in the Persian Gulf (care for this group
            is limited to certain disabilities);
      --who have annual income and net worth below a specified threshold
            (based on results of ``Means Testing'');
      --who are 0 percent Service Connected and require treatment for their
            service-connected disability.
        The second category includes veterans to whom VA ``may'' furnish
    needed hospital care, outpatient care, or nursing home care, but only
    to the extent resources and facilities are available, and only if the
    veteran agrees to pay VA a copayment for that care. This group includes
    all those not listed above and are primarily nonservice-connected
    veterans with incomes and net worth above the established threshold
    based on the results of ``Means Testing.'' These veterans must agree to
    pay VA a copayment to receive their care. This group also includes 0
    percent noncompensable service-connected veterans needing care for any
    nonservice-connected disability if they are not otherwise eligible for
    cost-free care. This group is provided treatment under the authority of
    Title 38 USC Section 1710(a)(3).

                       ELIGIBILITY ASSESSMENT PROCEDURES

        Public Law 99-272, The Veterans Health Care Amendment of 1986, and
    Public Law 101-508, The Omnibus Budget Reconciliation Act of 1990,
    established eligibility assessment procedures, based on income levels,
    for determining whether or not certain veterans who have no other
    special eligibility, are eligible for cost-fee medical care. These
    income levels will be adjusted on January 1 of each year by the
    percentage that VA pension benefits are increased.
        Veterans who are not subject to the eligibility assessment (Means
    Test) are as follows:
      --Service-connected (compensable) veterans.
      --Former prisoners of war.
      --Veterans who were exposed to herbicides while serving in Vietnam,
            to ionizing radiation during atmospheric testing and in the
            occupation of Hiroshima and Nagasaki, or exposed to an
            environmental hazard while serving in the Persian Gulf Theater
            and need treatment for a condition that might be related to
            such exposures.
      --Veterans receiving a VA pension.
      --Veterans of World War I.
      --Veterans eligible for Medicaid.
        The eligibility assessment, which follows, applies to all other
    veterans without special eligibility, regardless of age:
        Your hospital care, medical services and nursing home care (when
    provided) are cost-free if:
      --You are not subject to the eligibility assessment (as listed
            above): or,
      --You are a nonservice-connected veteran or 0 percent non compensable
            service-connected veteran seeking care for a non service-
            connected disability and your combined household income is
            $21,610 or less and your income plus net worth is less than
            $50,000, if single with no dependents: or your combined
            household income is $25,935 or less and your income plus net
            worth is less than $50,000 if married, or single with one
            dependent (add $1,445 to the income level for each additional
            dependent.)
        Your hospital care, medical service and nursing home care (when
    provided) will require your agreement to pay VA a deductible (also
    referred to as Co-payment) amount for that care equal to what you would
    have to pay under Medicare, as adjusted annually, if:
      --Your combined household income is $21,611 or above if single with
            no dependents.
      --Or, $25,936 or above if married or single with one dependent, plus
            $1,445 for each additional dependent.
        If you are required to pay a deductible for your medical care, you
    will be charged a co-payment, for which you will be personally
    responsible, as follows:
      --A co-payment equal to the Medicare deductible, currently $760, for
            the first 90 days of hospital care during any 365-day period.
            (In addition to this co-payment, you will be charged a fee of
            $10 per day for inpatient hospital care.)
      --For each additional 90 days of hospital care, you will pay half the
            Medicare deductible plus the additional charge of $10 per day.
      --For each 90 days of nursing home care, you will pay the full
            Medicare deductible. (In addition to this co-payment, you will
            be charged a fee of $5 per day for nursing home care.)
      --A co-payment of $38.80 will be charged for each outpatient visit.
        Note. The Medicare and outpatient co-payment are adjusted annually.

                             HOW INCOME IS ASSESSED

        Your total income and net worth under the eligibility assessment,
    include social security; U.S. Civil Service retirement; U.S. Railroad
    retirement; military retirement; unemployment insurance; any other
    retirement; total wages from all employers; interest and dividends;
    workers' compensation; black lung benefits; and any other gross income
    for the calendar year prior to your application for care.
        The income of your spouse and dependents as well as the market
    value of your stocks, bonds, notes, individual retirement accounts,
    bank deposits, savings accounts, cash, etc. are also used.
        Your debts are subtracted from your assets to determine your net
    worth. However, your primary residence and personal property are
    excluded from this assessment.
        You will not be required to provide proof of income or net worth
    beyond filling out VA Form 10-10f, Financial Worksheet, at the time you
    apply for care; however, VA has the authority to compare information
    you provide with information from the Department of Health and Human
    Services and the Internal Revenue Service.
        Note. The Department of Veterans Affairs is authorized to bill
    insurance carriers for the cost of Medical Care furnished to all
    veterans for nonservice-connected conditions covered by health
    insurance policies. Veterans are not responsible and will not be
    charged for any co-payment or co-insurance required by their health
    insurance policies.
        Note. The Omnibus Budget Reconciliation Act of 1990 provides that
    veterans receiving medications on an outpatient basis from VA
    facilities, for the treatment of a nonservice-connected disability or
    condition, are required to make a co-payment of $2.00 for each 30-day
    or less supply for medication provided. Veterans receiving medications
    for treatment of a service-connected condition, veterans rated 50
    percent or more service-connected, and veterans receiving VA pension or
    whose income is at or below the maximum VA pension rate are exempt from
    the co-payment requirement for medications.
        Question. What are the VA's plans to help clarify this confusing
    situation? Do you have any plans to establish a clear set of guidelines
    as to which veterans can receive care? Could you examine your current
    materials intended for public use and design more clear fact sheets and
    other documents?
        Answer. It has been recognized that the current material available
    to the general public regarding VA health care benefits is inadequate.
    With passage of Public Law 104-262, it is imperative that our clientele
    clearly comprehend what their eligibilities for VA health care are and
    that they can make informed decisions regarding seeking their medical
    care from the VA. In order to develop sensible solutions to these
    concerns, a focus group has been formed and charged with developing
    pamphlets, fact sheets and other materials for dissemination, which
    will assure that clear and understandable information is available to
    our veterans and their various representatives. It is hoped that these
    newly developed informational materials will be available by early
    July.

                      CORRECT TRIAGE BY MEDICAL PERSONNEL

        Question. Another issue that has been brought to my attention by
    Iowa's veterans is the issue of proper triage at VA medical facilities.
    Under the current system, a veteran who is category C or discretionary,
    can, under certain circumstances, get medical attention from a VA
    facility. For example, the VA can see discretionary vets for life
    threatening medical problems or if adequate resources are available.
    Unfortunately, my staff has found that the VA staff making the
    determination may not always be a medically trained individual.
        For instance, a veteran complaining of a headache, might be having
    a stroke or have suffered a concussion, but the receptionist might not
    feel it is a legitimate emergency and deny them an appointment. I do
    not believe that any vet with a medical problem should be turned away
    for administrative reasons. They should at least have the right to
    proper triage, where personnel with medical training can determined if
    an emergency exists.
        Do you think such a triage based admission system would be
    possible? Do you believe such a system would be safer and better for
    the health of our veterans?
        Answer. When a veteran, who has never been seen before, comes to a
    VA facility for treatment, there are two triage process that he/she
    must go through: The first is an administrative process to determine
    eligibility for care and the second is to identify the need for
    treatment. However, if the patient is in obvious acute distress, i.e.,
    life threatening, (not breathing, hemorrhaging, convulsive), then there
    is no question that the patient would be clinically assessed and
    provided emergency care. This would occur before any assessment is made
    to determine eligibility. This practice is in concert with the private
    sector.
        Providing medical triage to every individual who presents at the
    admission desk would certainly be ideal. However, the resources
    required would be significant and would not be good use of our scarce
    staff and funds.

                               KNOXVILLE FACILITY

        Question. There is a building at the Knoxville, Iowa Veterans
    Hospital (Building 74) that is currently vacant. Marion County would
    like to lease this facility as a minimum security county jail. This
    would address the number one concern of the Marion County Board of
    Supervisors which is adequate prison space. Would your office allow
    this to occur?
        Answer. To allow the establishment of a correctional facility
    primarily for the incarceration of convicted individuals in space that
    is under the control of the Department of Veterans Affairs is contrary
    to the mission and vision of this agency as a health care provider.
        Question. Would it also be possible for your office to look into
    setting very strict guidelines to only allow minimum security jails,
    such as the one in Marion County, to lease vacant VA property? This
    would have a very positive impact on the Marion County community faced
    with the task of finding adequate space for their jail.
        Answer. Since the issuance of IL 90-96-1, dated November 13, 1996,
    titled ``Interim Acquisition Guidance for Health Care Resources Sharing
    Authority'' and VHA Directive 97-015, dated March 12, 1997, titled
    ``Enhanced Health Care Resources Sharing Authority,'' the VA has
    further interpreted the intent of the policy to disallow the use of
    space for correctional purposes regardless of the crime or court order.
    This activity, as well as using space for abortion clinics, any type of
    gambling, partisan political activities, or the selling of inpatient
    services, is contrary to the mission and vision of this agency as a
    health care provider.

                              subcommittee recess

        Senator Bond. We thank you very much, and this hearing is
    recessed.
        [Whereupon, at 3:50 p.m., Thursday, May 1, the subcommittee
    was recessed, to reconvene subject to the call of the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                              TUESDAY, MAY 6, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:30 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Burns, Mikulski, Harkin, and Boxer.

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    STATEMENT OF DANIEL S. GOLDIN, ADMINISTRATOR
    ACCOMPANIED BY:
            MALCOLM L. PETERSON, COMPTROLLER
            MICHAEL D. CHRISTENSEN, ASSOCIATE ADMINISTRATOR FOR
                HEADQUARTERS OPERATIONS
            SPENCE M. ARMSTRONG, ASSOCIATE ADMINISTRATOR FOR HUMAN
                RESOURCES AND EDUCATION
            JOHN D. SCHUMACHER, ASSOCIATE ADMINISTRATOR FOR EXTERNAL
                RELATIONS
            JEFF LAWRENCE, ASSOCIATE ADMINISTRATOR FOR LEGISLATIVE AFFAIRS
            WILBUR C. TRAFTON, ASSOCIATE ADMINISTRATOR FOR SPACE FLIGHT
            ROBERT E. WHITEHEAD, ASSOCIATE ADMINISTRATOR FOR AERONAUTICS
                AND SPACE TRANSPORTATION TECHNOLOGY
            WESLEY T. HUNTRESS, ASSOCIATE ADMINISTRATOR FOR SPACE SCIENCE
            ARNAULD E. NICOGOSSIAN, ACTING ASSOCIATE ADMINISTRATOR FOR LIFE
                AND MICROGRAVITY SCIENCES AND APPLICATIONS
            ROBERT L. GROSS, INSPECTOR GENERAL
            WILLIAM F. TOWNSEND, ACTING ASSOCIATE ADMINISTRATOR FOR MISSION
                TO PLANET EARTH

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good morning. The committee will come to
    order.
        The subcommittee meets today to review the budget request
    of the National Aeronautics and Space Administration, and we
    welcome Daniel Goldin, NASA's Administrator, and his staff.
        NASA's budget request totaled $13.5 billion, $200 million
    less than fiscal year 1997's enacted level. Not only is NASA
    the only major agency in the VA-HUD-Independent Agency
    Subcommittee jurisdiction that has requested a reduction from
    the fiscal year 1997 level, but NASA is also to be a
    contributor to the recisions put forth in the 1997 emergency
    supplemental appropriations bill. You cannot be much better of
    a team player than that. We appreciate NASA's willingness to
    step up to the plate and actually do more with less, instead of
    just talking about doing more with less sometime in the future.
        Compared to last year at this time, NASA's future looks a
    lot better. The out-year numbers contained in the President's
    request appear to be at levels the agency and Congress can live
    with. And NASA has presented us with awe-inspiring visions,
    allowing us to picture the far reaches of the universe, to see
    the birth of stars and galaxies, and to imagine the possibility
    of life existing throughout the universe.
        On the other hand, last year has also raised new concerns,
    particularly over the construction of the international space
    station. We appear to have run into problems, both with United
    States contractors and with the commitments from our Russian
    partners. Obviously, this will be an area we want to explore
    during the hearing.
        But we also have been surprised that the shuttle program,
    which had allegedly cut to the bone, was able to come up with
    an excess of $200 million in fiscal year 1997 to be used as
    part of the shortfall in the space station program. I am very
    concerned that it appears that NASA has built up an internal
    bank of uncosted carryovers to allow the agency to bail out
    other programs, despite the purposes for which Congress
    appropriated the funds. The committee needs to understand
    NASA's use of uncosted carryovers, both for NASA's credibility
    and for us to understand the actual funding costs of these
    programs.
        To make matters worse, this is another difficult year for
    the subcommittee. We have human scale problems ranging from
    medical care for veterans to housing for low-income Americans
    to relief for victims of disasters. We are not far enough along
    in the budget process yet to have an allocation for this
    subcommittee, and we have noted with great relief that all
    sides and all parties finally appear to recognize that the
    costs of assisted housing, particularly section 8 housing,
    require additional funding, particular budget authority, and if
    there is agreement and recognition of that, our lives, and
    consequently your lives, will be somewhat easier.
        But nevertheless, it is still somewhat premature to discuss
    the levels of funding that may be available to NASA. The one
    thing we know for sure, regardless of the budget agreement, is
    that budgets will be tight, and, therefore, we will be asking
    questions to get a better understanding of NASA's funding
    priorities for its programs.
        We are living in a rapidly changing world. If you achieve
    the goals you recently laid out in your aeronautics and space
    transportation technology enterprise, Mr. Goldin, the pace may
    become even more rapid, with no excuses for a plane not landing
    due to fog and flights to Alaska so fast that our chairman will
    be spending every weekend in the State. But in any event, we
    look forward to exploring that future with us.
        Let me now call on my distinguished ranking member, Senator
    Mikulski, for her opening statement.

                        STATEMENT OF BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman, and
    good morning, Dr. Goldin. I am really looking forward to this
    hearing this morning, and would like to say that first of all I
    am very pleased that the budget request by the President is
    $13.5 billion. We view that as the minimum acceptable level to
    maintain NASA in terms of it being able to fulfill its mission.
        I want to thank Chairman Bond, as well as you, OMB Director
    Frank Raines, Leon Panetta, and the Vice President, for really
    dealing with the outyear question that was raised at last
    year's rather intense hearing. As you recall, I kind of gulped
    when I saw that in a few years the budget dipped to 11.6, and I
    was afraid that for fiscal reasons NASA would be hollowed out.
    Now I believe that we have a stable budget request for over 5
    years. It is not exactly what we would all hope, but at least
    the certainty and reliability of that I think will help NASA be
    able to plan, and so we are very relieved about that.
        What that calls for, because it will be the minimum
    acceptable level, is really wise use of our Federal dollars.
    And I know your mantra has been quicker, faster, better,
    cheaper. But let me lay out a couple of the yellow flashing
    lights that I hope we will see addressed in your testimony
        One, I am concerned about the space station and its ability
    to eventually come to fruition because of the shaky nature of
    the Russian participation. I in no way question the technical
    competency of our Russian counterparts, but their financial
    situation. The same types of concerns that were raised by our
    colleague in the House, Mr. Sensenbrenner, parallel mine. So we
    look forward to hearing your commentary.
        I was a bit concerned to hear about $200 million from the
    space shuttle could be going in to develop alternatives should
    the Russians fail to complete their commitment. I am concerned
    because I do not know what that means to the shuttle, and I
    believe that the No. 1 priority of the chairman and myself will
    always be the shuttle and its safety. Without the shuttle and
    safety on the shuttle, we really do not have the kind of NASA
    that I believe we need for the 21st century. So we will be
    looking at shuttle safety.
        Second, we note in the budget that mission to planet Earth
    enjoys funding, and we appreciate that, but one of the other
    areas I will be interested in is the EOS DIS, the Earth
    Observatory DIS part, which ultimately we could gather the
    greatest information in the world about the Earth. But if all
    we are is a catcher's mit that just then throws something to a
    space dugout where it just becomes a data mortuary, then what
    the hell are we doing it for, you see? So we are not out there
    for intellectual curiosity. We are out there for intellectual
    curiosity that could be moved into a greater availability for
    information. So we will be interested to hear how EOS DIS is on
    target. We understand one of the contractors has suffered
    significant problems.
        And last but not at all least, of course, we are very much
    interested in space science, and we will be interested to hear
    what your vision is for space science, and particularly the
    origins project which I think ties in ultimately with all that
    we are doing.
        So those are really kind of my concerns that I hope to hear
    more about this morning, and I look forward to hearing your
    testimony and once again working with you, and I want to thank
    you for really the collegial and cooperative way I think we
    have been working.
        Thank you, Mr. Chairman.
        Senator Bond. Thank you very much, Senator Mikulski.
        Senator Campbell will not be able to attend today's
    hearing, but requests that his statement be made part of the
    record.
        [The statement follows:]
             Prepared Statement of Senator Ben Nighthorse Campbell
        Thank you, Mr. Chairman, for holding this important hearing on the
    National Aeronautics and Space Administration's fiscal year 1998 budget
    request.
        I would like to welcome Dr. Dan Goldin, the NASA Administrator, to
    today's hearing and thank him for appearing before us today to this
    important part of America's research into the future. I know most of us
    are quite familiar with many of the ``spin offs'' of space technology
    and research into our every day lives. Also, with NASA's Mission to
    Planet Earth program, we anticipate the possibility of immense benefits
    to our Nation in new knowledge and tools for improved weather
    forecasting, natural resource monitoring, agriculture, urban and other
    land-use planning, as well as other economic and environmental
    benefits.
        My home state of Colorado has been and continues to be a major
    player in the space industry. We have several small businesses that
    have a great interest in the commercialization of space. Of course,
    there are some larger contractors, employing hundreds of people who
    have an interest in what is happening to NASA. I also understand that
    almost every college and university within Colorado has some degree of
    participation on the part of not only their faculties, but their
    students as well and, in fact, this participation even extends into
    many of the high schools of our state. These are accomplished through
    the Colorado Space Grant Consortium which is partially funded through
    NASA. It is estimated that for every NASA dollar invested, $3 of cash
    and in-kind contributions are added to the program.
        We are all aware of the need to balance our federal budget and NASA
    has been prepared to come to the table and play a part in that effort.
    At the same time, we do hope that we can continue to support this
    important aspect of our Nation's research.
        I understand that there are problems with the level of
    international cooperation as well as some problems with the abilities
    of some of our own U.S. contractors to meet their time and financial
    agreements. I am looking forward to today's testimony by Dr. Goldin to
    learn how he intends for NASA to address some of these concerns and
    continue with our world-leading efforts in space research.
        Mr. Chairman, I will close my remarks for now to leave plenty of
    time for today's testimony. Thank you.

                         Statement of Daniel S. Goldin

        Senator Bond. Mr. Goldin.
        Mr. Goldin. Mr. Chairman, I would like, if it is OK with
    you, to submit my written testimony for the record, and just
    summarize in a brief statement which I have prepared.
        Senator Bond. We would be happy to do so. Without
    objection, your full statement will be made part of the record.
    We do appreciate your willingness to summarize, and we will
    keep the record open for further questions from our colleagues
    who are not able to be here today.
        Mr. Goldin. Mr. Chairman, I am pleased to take this
    opportunity to appear before you today. I want to start by
    thanking you, Mr. Chairman, and the ranking minority member and
    the subcommittee for the level of support and guidance that
    have been critical to NASA.
        NASA has undertaken some Herculean tasks. We are
    restructuring and downsizing, which has saved taxpayers more
    than $40 billion. We are moving away from operations back to
    cutting edge R&D. We are driving bold science and technology
    initiatives. We are working with our international partners to
    build the space station. Your input and support have been
    enormously valuable to NASA as we transition to a new era in
    Government and a new era in space and aeronautics.
        I would like to thank the subcommittee leadership
    specifically for your support on a number of key issues: First
    is virtually full funding of the fiscal year 1997 budget
    request. This was a very important step toward stability for
    NASA. You also gave us the flexibility we needed to do what
    made most sense programmatically. We are putting more resources
    into science and technology and aeronautics, as you encouraged
    us to do. You have a strong, balanced program today.
        Second, gaining transfer authority to meet space station
    funding needs was crucial. We are able to focus more fully on
    station development during a critical peak period in hardware
    production and integration. There was a real need here, and
    this subcommittee responded.
        Third, the multiyear buyout authority has helped us
    downsize in the least destructive manner possible. This made a
    tremendous difference to the morale and dignity of our
    employees. We expect to continue to use this authority in a
    targeted way to meet our goal of just under 18,000 employees by
    fiscal year 2000.
        Fourth, your support for stable out-year funding has been
    critically important. It has allowed us to maintain a balanced
    program and our core mission objectives. The President's fiscal
    year 1998 budget request reflects this stability, as well. It
    fully supports the space station and the shuttle. Shuttle
    safety will continue to be our No. 1 priority.
        We are also excited about the Origins Program, new
    technology-driven mission to planet Earth initiatives, and the
    aeronautic safety program. While the NASA out-year budget is a
    reduction in real terms, we are confident we can deliver a
    robust space and aeronautics program for America.
        Chairman Bond and Senator Mikulski, you have been rigorous
    in scrutinizing the NASA budget and programs. We appreciate
    your concern and vigilance. You have held us to very high
    standards over the years. You have been right to do that. The
    result is a NASA that is stronger, more efficient, and more
    relevant to the American people.
        Thank you.
        [The statement follows:]
                     Prepared Statement of Daniel S. Goldin
        Mr. Chairman and Members of the Subcommittee: Last May, I told this
    Subcommittee about the amazing year NASA had completed. I reported that
    NASA had requested that the Administration provide the Agency a stable
    budget submission for fiscal year 1997 and that the Administration had
    done that. NASA's fiscal year 1997 budget request of $13.8 billion was
    the same as our budget in fiscal year 1996. We had just completed
    1995--a year of upheaval for NASA. We had made a commitment to the
    President to identify another $4 billion of savings in fiscal year
    1997-2000 and we delivered, bringing to $40 billion the savings in
    NASA's multiyear budget NASA has identified for the American taxpayer.
    The 1995 Zero Base Review had consumed the energy and attention of the
    NASA workforce. But the Zero Base Review was only partly about finding
    budget savings. At its heart was a fundamental challenge to the NASA
    workforce to prepare the Agency for the next millennium. To sharpen
    NASA's focus on cutting edge technology. To commit NASA's Centers to
    becoming Centers of Excellence. To do more with less by cutting out
    duplication and overlaps, and ensuring that NASA's energies are
    directed at those things only NASA does best. Let the private sector
    take over those activities that they are best equipped to do, and get
    NASA out of the way. The Zero Base Review was the sprint. Following
    that extraordinary exercise, we requested that the Administration
    provide us stability to catch our breath, to continue the serious
    implementation of new ways of doing business, and to continue to
    fulfill our promise to the American people--to deliver astonishing
    science and aeronautics missions which provide history-making
    discoveries. The President gave us that year.
        The Congress, led by this Committee, also gave us that stability in
    fiscal year 1997. We are indebted to this Committee for its support and
    its key role in ensuring stable funding for NASA's aeronautics and
    space efforts over the past several years. With this Committee's help,
    we have been able to sustain our core activities and maintain a balance
    among them. The Committee's favorable action on NASA's fiscal year 1997
    budget request was a vote of confidence. It provided the stable funding
    support that we are convinced is fundamental to NASA's delivering on
    our promises. Last year, I believe we demonstrated convincingly that
    what NASA does is relevant to the lives of the American people.
        Last year, NASA's fiscal year 1997 budget request was stable, but
    the outyears were lower than we expected. I told you then, we hoped we
    could do better. I am happy to report that we have. The President's
    fiscal year 1998 budget request for NASA of $13.5 billion, and the
    funding plan for the outyears, are proof of the President's commitment
    to the Nation's space and aeronautics program. This budget plan is a
    vote of confidence from the President and his Administration that NASA
    has done what it needed to do, technically, scientifically, and
    organizationally. We have reached out to our solar system and our
    Universe seeking answers to fundamental questions:
      --How did the Universe form?
      --How do galaxies, stars, solar systems and planets form and evolve
            and how does this knowledge relate to rewriting chemistry,
            physics, and biology textbooks?
      --How did life form and evolve?
      --How do we develop knowledge of our own planet so we can predict
            climate, weather, and natural disasters?
      --How do we use the uniqueness of space in Earth orbit and on
            planetary bodies to understand the fundamentals of chemistry,
            physics, and biology, and how do we use this knowledge to live
            and work in space and benefit life on Earth?
      --How do we have revolutionary advances in air and space so that
            travel will be safer, more economical, and more environmentally
            friendly so we can open the air and space frontier?
      --What are the cutting-edge technologies, the processes and design
            tools that we need to solve the above questions?
      --How do we communicate this knowledge to the American public to
            inspire young people to reach for heights and be proud of their
            country?
        NASA's goal this year is the same as it was last year--to implement
    a space and aeronautics program that is balanced, relevant, and stable.
        NASA has made a remarkable transition in the last few years. We
    have turned around our budget overruns. In 1992 a General Accounting
    Office survey identified an average cost growth of 77 percent on our
    major programs. Today, 5 years later, we are underrunning our program
    cost estimates by 6 percent.
        This turnaround has taken several years. In 1992, technical
    performance was rewarded while the contractor's practice of ``buying
    in'' and NASA's habit of adding program requirements went unaddressed.
    I told program managers as well as the contractor community when I
    became Administrator 5 years ago that these practices would be
    tolerated no longer. The message has obviously been received because
    NASA program managers are turning in terrific performances. Actually,
    the pendulum has swung in the opposite direction and resulted in the
    growth of uncosted balances between fiscal year 1995 and fiscal year
    1997. Program managers have become extremely conservative in their
    obligation and cost plans for the year, biasing their numbers to cover
    unrealistic procurement award schedules or low probability development
    threats. This may be an overcorrection, but we are taking advantage of
    this excellent cost performance across the Agency. In the Shuttle
    program, we are accelerating the development and delivery of upgrades
    to hardware and software systems, which will enhance the Shuttle's
    safety. We have proposed increases for the New Millennium program and
    TIMED for fiscal year 1997 which took advantage of uncosted balances in
    excess of program funding requirements. One of the major contributors
    was the Cassini program, where we have spent far less than we
    anticipated of our program reserves. There is no lack of exciting work
    to be done if additional funds are available through increased
    efficiency, without going back to the taxpayers.
        We also know that these large balances made us more vulnerable to
    budget reductions for fiscal year 1997 and fiscal year 1998. We are
    taking action to correct this problem. We are building our budgets to
    minimize uncosted obligations at the end of the year. We are increasing
    management awareness of the need for accuracy in planning by stressing
    personal accountability and interdependence. We are adjusting how we
    internally track the actual cost performance of our programs against
    their monthly plans by eliminating from these plans unsupported
    estimates about how program reserves will be expended. Finally, we are
    identifying program priorities midway through the year that we
    determine are unaffordable, and reallocating funds from programs that
    aren't using them. Through all of these actions, we are demonstrating
    that credible, accurate obligation and cost plans are something that
    management rewards.
        In addition to addressing cost overruns, NASA needed to streamline
    its workforce. In 1993, we had 24,900 civil service employees at NASA.
    At the end of fiscal year 1996, we had a workforce totaling 21,000.
    Today, we are under 20,000. By fiscal year 2000 we will have 17,979.
        We also have made great strides in cutting the cost of spacecraft.
    From 1990-1994, the average cost per spacecraft launched was $590
    million. For 1995-1999, it will be $190 million. Our goal beyond the
    year 2000 is $77 million. At the same time we are achieving reductions
    in average development time per spacecraft. For 1990-1994 it was 8.3
    years. For 1995-1999, it will be 4.6 years. For 2000 and beyond, our
    goal is 3.1 years. Because we are reducing the cost and time for
    development, we can launch more missions. For fiscal year 1990-1994,
    NASA averaged 2 flights per year. For 1995-1999 it will be 9 flights
    per year. For 2000 and beyond, our goal is 16 flights a year. It truly
    is faster, better, cheaper.
        NASA determined several years ago that we must transition from
    larger to smaller spacecraft. Galileo is an extraordinary program. It
    is providing us unprecedented information about Jupiter and its moons,
    changing the way we think about the largest planet in our solar system.
    But the development of Galileo was expensive. Development of the
    Galileo spacecraft started in 1981, when the approach to space missions
    was ``a one time shot,'' in which a mission was designed to achieve a
    maximum number of scientific objectives because it was deemed to be a
    single flight opportunity. It is no wonder Galileo's total life cycle
    cost, from development through mission operations, is $2 billion
    dollars.
        Today, NASA has revolutionized the way we build spacecraft. We have
    created a group of small planetary missions. Between fiscal year 1996-
    2001, NASA expects to launch 11 of these small missions which,
    combined, will cost less than the single Galileo mission. NASA is
    thrilled with Galileo and the science it is returning, but the days of
    bigger and bigger spacecraft are over.
        NASA remains unwavering in our commitment to improving Shuttle
    safety. It has been our highest priority. In 1991, the probability of
    catastrophic loss on ascent for the Shuttle was one in 78. Today it is
    one in 248. NASA has achieved a 50 percent reduction in the number of
    in-flight anomalies per flight since fiscal year 1993, from 14.3 to
    6.8. The Agency also has reduced the number of monthly mishaps during
    Shuttle processing at the Kennedy Space Center almost 50 percent, from
    0.9 in fiscal year 1993 to 0.5 in fiscal year 1996. At the same time,
    the Agency has worked diligently to reduce Shuttle operating costs. In
    fiscal year 1993, it had been $4.1 billion dollars. Today it is $3.1
    billion. The number of people required to operate the Shuttle--
    contractors and civil servants--has been reduced nearly 22 percent
    since fiscal year 1993. At the same time, we have made the process more
    efficient. Since fiscal year 1993, the amount of overtime has been
    reduced 37 percent. This means our teams on the line are not overworked
    and susceptible to making mistakes, and that we are meeting our
    budgetary commitments.
        Today, NASA is focusing on programs that make the most sense. We
    are not rushing off to initiate a program every time a new discovery is
    made. Before NASA commits to a program, it must show real promise for
    answering important questions about the Universe, planet Earth, or
    aeronautics. The technology we are developing is cutting edge and is
    linked directly to accomplishment of our scientific goals. NASA's
    measurements of success are profoundly different than in the past--by
    our output, by the science achieved, not by the level of dollars going
    in. As you can see, by all measures, NASA has achieved great success.
        Witness NASA's outputs for 1996. It was an amazing year. The
    scientific discoveries, the missions, were astounding.
        Last August, I had the opportunity to introduce a finding at a NASA
    press conference which forever changed the way people view themselves
    and the Universe. The cause for all of this excitement was a rock, a
    meteorite from Mars which suggests that primitive life may have formed
    there more than 3 billion years ago.
        NASA's reaction to this announcement is one of careful fascination.
    The implications are profound, but the inferences are not conclusive.
    Much more work needs to be done to confirm, or refute, the conclusions
    of this team of researchers. While the potential for life on early Mars
    adds emphasis to our current planning for the scientific exploration of
    Mars, an important first step is to focus more work on the Martian
    meteorites.
        A logical next step is to confirm what we have here on Earth. Other
    scientific teams must attempt to replicate the findings of the McKay
    team to ensure the validity of its findings. McKay and other scientists
    must look to other avenues of inquiry, such as evidence of sub-cellular
    structures, to augment and expand the areas of analysis. And we need to
    continue to identify more meteorites from Mars, and to examine the
    other eleven we already have, for any light they may be able to shed on
    this area of scientific inquiry.
        In this regard, NASA and the National Science Foundation (NSF) are
    jointly funding the Ancient Mars Meteorite Research Program. NASA and
    NSF released research announcements for this program last November and
    we received proposals in late January 1997. We will conduct a
    coordinated peer review and selection process shortly; we anticipate
    announcing awards in mid-May. This joint program will allow the broader
    scientific community to investigate whether the preliminary conclusion
    reached by the McKay team is valid, to see if other meteorites offer
    similar opportunities for understanding life, and to open this area of
    inquiry to new methods and ideas. We expect that in a year or two a
    clear scientific consensus will have emerged on the intriguing question
    of whether we have found evidence of life beyond Earth.
        As this research continues, we also are launching a number of
    missions to help address these questions about past life on Mars. Two
    historic missions to Mars were launched in 1996. The Mars Pathfinder
    and the Mars Global Surveyor will reach the Red Planet in 1997. Both of
    these are part of the 11 small planetary missions, the ones with
    quicker development time and much smaller life cycle costs.
        Galileo made a lot of history of its own this year. When Galileo's
    probe made its way into the violent atmosphere of Jupiter, we learned
    new information on the extent of its water, clouds, and chemical
    composition. One of Galileo's most exciting reports last year was that
    Europa, a moon of Jupiter, may have once had, or perhaps still has
    ``warm ice'' or even liquid water beneath its icy crust. On Ganymede,
    Jupiter's largest moon, Galileo recorded three-dimensional images of
    giant, icy fissures and evidence of a magnetic field. Galileo's data
    gathered from the moon Io found it had changed substantially since the
    volcanically-active moon had been observed 17 years ago by the Voyager
    spacecraft. The new data we have gathered from Galileo's mission to
    Jupiter means that astronomy books all over the world will be
    rewritten.
        The Hubble Space Telescope had an impressive year in 1996. It
    studied the surface of Pluto and the birth of stars. Hubble took a
    cosmic movie of the Crab Nebula. It found the Nebula even more dynamic
    than previously understood. Hubble surveyed the ``homes'' of quasars
    and found they live in a remarkable variety of galaxies often violently
    colliding.
        These discoveries set the stage for an even more exciting quest to
    find answers to questions about the Universe and Life which are as old
    as human thought. The study of Origins follows the 10- to 15-billion-
    year-long chain of events from the birth of the universe at the Big
    Bang, through the formation of chemical elements, galaxies, stars and
    planets, through the mixing of chemicals and energy that cradled life
    on earth, to the earliest self-replicating organisms and today's
    profusion of life.
        Human Space Flight activities hit the record books in 1996.
    Astronaut Shannon Lucid set a new American record for continuous space
    flight during her 181-day stay on the Russian space station Mir.
    Astronaut Lucid conducted vital microgravity and life sciences research
    as well as providing a model for international cooperation in space.
    Our continuing program of joint activities with the Russians is setting
    a foundation for the International Space Station. The Space Shuttle
    successfully completed seven missions, including 3 visits to the Mir,
    two Spacelab missions, deployment of the Tethered Satellite System, and
    the fourth Spacehab mission. NASA and the United Space Alliance (USA)
    signed the Space Flight Operations Contract, making USA the single
    Space Shuttle prime contractor. This was the first step in the
    consolidation of multiple ground and flight operations contractors into
    a single contract.
        As part of the Mission to Planet Earth, the NASA Scatterometer was
    launched aboard the Japanese ADEOS satellite in 1996. It is providing
    new data on wind velocities over the oceans, allowing researchers to
    study the interaction of the oceans with the atmosphere on a global
    scale.
        In 1996, NASA successfully flight tested a new collision avoidance
    radar system intended to help helicopter pilots fly more safely when
    operating close to the ground or in poor weather conditions. This
    sensor, designed to detect obstacles in an aircraft's flight path and
    provide a cockpit display to help avoid them, has potential uses for
    all types of aircraft.
        Lockheed Martin was chosen to build the X-33. It is a one-half
    scale prototype of the Reusable Launch Vehicle. The X-33 will be used
    to demonstrate advanced technologies that should dramatically increase
    reliability and lower the costs of putting payloads into space.
        We can all agree 1996 will go down in history as a year of record-
    breaking discoveries. I predict 1997 will also be spectacular. No one
    knows what discoveries we have in store, but that is the serendipitous
    nature of exploration.
        Next, I would like to address NASA's fiscal year 1998 budget
    request. If the fiscal year 1993 NASA budget were projected through
    fiscal year 1998, NASA would have planned for a fiscal year 1998 budget
    of $20.8 billion. The actual budget request for 1998 from the President
    is $13.5 billion. That's a world of difference. But we are making it
    work. I will now discuss the plans of NASA's Enterprises and how the
    fiscal year 1998 budget request supports NASA's continuing efforts to
    deliver better programs for less.

                               HUMAN SPACE FLIGHT

        We are now into our fourth year of development since President
    Clinton asked NASA, in the spring of 1993, to redesign the Space
    Station. Since then, the International Space Station (ISS) Program has
    moved steadily and aggressively forward, overcoming many challenges to
    develop this unprecedented international orbital research facility, the
    doorway to the future of human space exploration.
        We have gained much from our collaboration with Russia in
    preparation for ISS assembly and operations and from continuous
    presence of American astronauts onboard Mir. We have flown five
    successful Space Shuttle/Mir docking missions, and one rendezvous
    mission. We have just recently completed the first year of continuous
    U.S. presence in space, through the Phase 1 Program, with U.S.
    astronauts living and working aboard Mir. We have successfully
    performed joint U.S. and Russian operations on the ground and in orbit
    and demonstrated that scientific research will benefit greatly from the
    ISS. On-orbit experiments such as those to be flown on the
    International Space Station have already provided new insights that may
    help support ground-based research in the search for treatments for
    cancer, AIDS, influenza viruses, and other diseases.
        With regard to the Mir, I know that recent press reports have
    raised some concern about the viability of Mir and the safety and
    health of the crew. Let me say as strongly as I can that no one is more
    concerned about the safety and well-being of our astronauts than NASA.
    And I believe our Russian colleagues share that concern. We have flight
    surgeons monitoring the Mir missions, just as we do Shuttle missions,
    and their responsibility is to protect the health and safety of the
    crew members. Our Phase 1 Program Manager, Frank Culbertson, is
    conducting his own internal review of the Mir status and the question
    of maintaining our presence there. In addition, an independent
    assessment is being conducted by a group led by Tom Stafford. Make no
    mistake. Mir has been experiencing mechanical problems; it is an aging
    spacecraft. Those problems are being addressed and repaired as they
    occur, and the crew has the ability to come home early if necessary.
    But there is no emergency. We will keep the Congress informed with
    respect to our activities and findings and assure you that we will not
    compromise the safety of our astronauts. We have learned much through
    the Mir program. The problems incurred have actually increased our
    acceptance of Russian operations philosophy, through confirmation of
    their decisions through our own review. The exchange of U.S. crew on
    the Russian Mir station is a main element of the program, which we
    expect to continue.
        While the foundation being provided through Shuttle-Mir cooperation
    in developing on-orbit assembly and operations capabilities for the ISS
    remains an unequivocal success, Russia's challenges in providing
    hardware contributions as an international partner have been a
    continuing cause for concern. This is addressed later in the testimony.
        Our other international partners--Canada, Europe and Japan--have
    proven their commitment to this international venture for humankind,
    investing nearly $6 billion to date for design and development of their
    hardware contributions. The European Space Agency (ESA) has entered
    into the largest single contract in ESA history for development of the
    Columbus Orbital Facility (COF). ESA has confirmed its commitment to a
    three-component ISS contribution: the COF, the COF utilization plan and
    the Ariane Automated Transfer Vehicle. The Japanese program is solid
    and on track with its contributions of the Japanese Experiment Module
    (JEM), the JEM Exposed Facility, and the JEM Experimental Logistics
    Module. Canada is also making good progress, with Canadian government
    approval of funding for the Special Purpose Dexterous Manipulator
    (SPDM) having been secured. The SPDM will augment the robotics system
    already being provided by Canada with additional capabilities to carry
    out on-orbit maintenance and operation of the Space Station. The
    Canadian decision to fund the SPDM, in spite of constrained budgets,
    underscores its commitment to this program. Relative to non-partner
    international involvement, the Italian Space Agency remains on schedule
    for delivery of the first Mini-Pressurized Logistics Module to the
    Kennedy Space Center in 1998. There are now a total of 15 countries
    participating in the International Space Station Program, and interest
    is expanding. NASA and the Brazilian Space Agency have agreed to
    conduct feasibility studies to explore mutual interests relative to
    Station.
        The largest international, scientific research facility in history
    is rapidly becoming a reality. The ISS Program has now passed the 59
    percent milestone completion mark, having built over 184,000 pounds of
    U.S flight hardware. As testing of more design units is completed, we
    are seeing production runs of hardware and software increase. The final
    quarter of calendar year 1996 marked the largest increase in the amount
    of flight hardware built since the Program's inception, over 30,000
    pounds. Design and fabrication of flight elements for the first six
    American flights are almost complete. Qualification testing is well
    underway across the program and flight hardware is being assembled and
    checked out. Integrated test and verification planning is progressing
    well and steps are being taken to provide even more integrated testing
    at the Kennedy Space Center. The NASA/industry team has worked long
    hours and demonstrated a true commitment to the American people in
    delivering the International Space Station. I am proud to say that I
    have no doubt that, had we chosen to, we would have launched the FGB
    and first U.S. Node later this year. The delay we have announced is not
    the result of technical development problems or manufacturing
    difficulties.
        The Space Station Program continues to demonstrate a high level of
    performance, completing approximately 97 percent of scheduled work at
    approximately 103 percent of budgeted cost. Given the breadth and
    complexity of the ISS Program, and taking into account the experiences
    of other major Government development programs, we are convinced that
    we have demonstrated strong performance. Change request activity is
    subsiding, with most major cost drivers definitized. Nevertheless, the
    performance of the ISS prime contractor has not improved as well as
    planned, which is negatively impacting the program's total performance.
    While the differences seen between development targets and the prime
    contractor's actual level of performance are to be expected in a
    program of this complexity, the continued cost growth and performance
    problems have strained near-term reserves. Recovery plans will mitigate
    our cost and schedule variances, but these variances will continue to
    require the use of reserves.
        ISS program management has been innovative and creative in
    addressing and resolving many of the challenges, but significant issues
    remain. We are now in a critical phase where a considerable amount of
    hardware is being assembled and tested, and software is being
    developed, integrated and checked out. Peak manufacturing and testing
    activity is occurring through fiscal year 1997 and fiscal year 1998.
    During this timeframe, the potential for unforeseen challenges to our
    cost and schedule targets will remain high. The program had adequate
    reserves built into the total development estimate to address these
    anticipated challenges. However, delays in delivery of Russian
    contributions have required us to develop and maintain contingency
    capabilities that are diverting these resources.
        The Russians are facing tremendous economic challenges and are
    experiencing serious difficulties in meeting their commitments. Russia
    has missed a number of development milestones for its contributions to
    the International Space Station due to funding shortfalls. Delivery of
    the Service Module (SM) has been delayed from April to December 1998.
    The funding issue was addressed at the February 1997, meeting between
    Vice President Gore and Russian Prime Minister Chernomyrdin, and by
    Presidents Clinton and Yeltsin in March. Russian leaders have committed
    that adequate funds will be provided in 1997 to keep Russian elements
    on track.
        We continue to believe it is important that Russia remain a partner
    in the International Space Station; however, we must not be overly
    dependent on them, or any of our other partners. This is a partnership
    based on mutual benefits. We receive the benefits of a mature and
    experienced space program. And it is important to remember that before
    the Russians joined the partnership, the cost of the space station was
    $2 billion more and would have started a year later, even with the
    current change in the first element launch.
        We are continuing to closely follow developments in Russia with
    respect to funding for the Service Module. A NASA team, led by General
    Thomas Stafford, recently completed a visit to Moscow where its members
    gained further insight into the Russian funding status. The team
    received assurances of the Russian government's commitment to
    participation as planned in the ISS. The team was advised that the
    first increments of ISS funds would be dispersed to the Russian Space
    Agency by the end of May.
        As the Committee is aware, NASA has been reviewing a number of
    options to mitigate the impact of the Service Module slip. In order to
    allow the Agency to work around the current delay of this key Russian
    module, we are rescheduling the launch of the first element, the
    Functional Cargo Block, to no later than October 1998. To launch
    hardware to orbit simply to maintain our baseline schedule exposes the
    flight hardware to unnecessary risks. This is because FGB on-orbit
    avionics and fuel reserves would be stretched to support any additional
    Service Module delays. As designed, the FGB cannot adequately provide
    control functions for the assembly sequence to continue beyond the
    arrival of the U.S. Node. Going beyond that point requires the arrival
    of the Service Module, which will provide critical capabilities for the
    control and stability of the Station prior to arrival of the U.S.
    Laboratory Module. The Service Module also provides crew habitation and
    life support systems for early human occupation of the Station.
        Faced with the potential for further delay of the Service Module,
    we have initiated a contingency plan to ensure that we can continue the
    ISS assembly process. We are now pursuing two hardware options to
    address the delay in the Service Module. First, we will modify the FGB
    to enhance its attitude control capabilities and make it refuelable.
    Second, we will pursue the development of an existing, proven system
    built by the U.S. Naval Research Laboratory, as an interim control
    module, or ICM. The ICM will provide command, attitude control, and
    reboost functions. The FGB modification and the ICM addition would
    provide control capability even if the Service Module were delayed even
    a year longer than planned--up to December 1999.
        We are currently evaluating options to address further potential
    perturbations to the program which could result from Russian schedule
    delays. These evaluations include assessing the possibility of
    advancing life support systems from the U.S. Habitation Module to the
    U.S. Laboratory Module to enable earlier human presence. In addition,
    we are evaluating options to provide a longer term propulsion
    capability to guard against further delay or non-delivery of the
    Russian Service Module. We are continuing the technical evaluations,
    assessing the schedule implications, and completing the cost estimates
    necessary to support a decision if necessary on these issues, in
    consultation with our international partners, the research community,
    and the Congress.
        NASA and its partners have agreed to baseline a revised assembly
    sequence at a Space Station Control Board meeting in mid-May.
    Baselining the Service Module launch for December 1998 remains NASA's
    preferred approach. We have told RSA that the factors we will be
    looking at in making this decision are: first, whether Russian
    contractors are receiving promised funding; second, the completion of a
    Service Module General Designer's Review, and; third, satisfactory
    progress by Service Module subcontractors to support a December 1998
    launch. A significant delay in these events would necessitate the
    baselining of the ICM for launch in December 1998. NASA intends to
    preserve the ICM risk mitigation capability in either case.
        ISS funding is flowing in Russia through two different mechanisms.
    Over 100 billion rubles of RSA ISS CY 1997 budget funding has been
    received and disbursed to RSC-Energia and subcontractors for work on
    the ISS, particularly the Service Module. Additional funding is flowing
    through a Ministry of Economics investment allowance of 1.5 trillion
    rubles, specifically targeted for the ISS. Of this allowance, over 200
    billion rubles was made available to RSA on April 30; this amount is
    expected to increase to 800 billion rubles by mid-May. A schedule of
    payments on the remainder of this allowance is expected to be finalized
    by mid-June 1997.
        The Service Module General Designer's Review was held on April 24,
    1997, with RSA, RSC-Energia, Krunichev and all major subcontractors
    (over 40 companies). NASA senior managers were also in attendance
    during this open and candid review which focused on technical issues.
    Schedule milestones were reviewed in detail and all Russian parties
    stated that the current Service Module schedule for a December 1998
    launch is feasible if the promised funding is forthcoming. They then
    committed to the schedule execution necessary to hold this launch date.
    As a result of the General Designer's Review, we now have a signed
    overall Service Module schedule and detailed delivery schedules for the
    subcontractors.
        Based on the positive and concrete progress we have observed in
    Russia since February, I am increasingly optimistic that we can
    baseline the Service Module for a December 1998 launch at the upcoming,
    mid-May meeting of the Space Station Control Board (SSCB). However,
    progress must continue to be demonstrated. NASA has made it clear to
    RSA that we fully intend to build the ICM as a prudent measure, and
    that a decision by the international partners to maintain the Service
    Module launch date of December 1998 will ultimately be based on an
    increased confidence in Russia's commitment, gained through
    substantiated actions. We will, of course, confirm that funding
    continues to flow to Russian contractors for the Service Module before
    the SSCB, which includes participation of all of the ISS international
    partners, makes a decision to baseline the Service Module instead of
    the ICM for launch in December 1998. We will continue to monitor the
    situation and make appropriate adjustments to our baseline assembly
    sequence, per our contingency plan, as required based on Russia's
    ability to continue to meet their commitments.
        The costs associated with NASA's contingency efforts to offset the
    Service Module delay are being minimized wherever feasible, but NASA
    will certainly require resources outside the planned program to
    undertake these changes and minimize delays. NASA has submitted to the
    Committee a revision to the fiscal year 1997 Operating Plan to
    reallocate $200 million within NASA's budget for step one of this
    contingency effort. It is important to note, however, that NASA must
    secure $130 million of the planned $200 million reallocation by May 15
    in order to implement this contingency effort; the full $200 million
    reallocation must be undertaken by the end of May. I want to be clear
    that, to the extent we use uncosted Shuttle funds for this purpose, it
    will have no effect on Shuttle safety. The reallocated funding will be
    the source of funds to address specific U.S. program requirements
    resulting from delays on the part of Russia in meeting its commitments
    to the ISS program and uncertainties about future Russian performance.
    NASA is also seeking continuation of the U.S./Russian Cooperation and
    Program Assurance budget line in fiscal year 1998, with a placeholder
    amount of $100 million within the President's total request of $13.5
    billion. The exact amount and source of the funding for fiscal year
    1998 will be determined after a careful review of any potential
    additional hardware requirements needed to offset possible further
    Russian delays on the Service Module and its other programmatic
    commitments. We will keep the Committee apprised of our deliberations
    in this regard.
        NASA is meeting its commitments to the Congress and the American
    people in building the ISS. The ISS program continues to identify ways
    to maximize program efficiencies and leverage investments to enhance
    the capabilities of the Space Station. Ongoing discussions with the
    International Partners have resulted in some U.S. hardware development
    being performed by the International Partners to offset Shuttle launch
    cost for International Partner hardware. After delivery, the United
    States will own and utilize this hardware. Examples of this hardware
    include: Nodes 2 and 3, which ESA has agreed in principle to provide,
    and the Centrifuge Accommodation Module, Centrifuge Rotor and Glovebox
    which we are currently negotiating with Japan.
        NASA, the Administration and the Congress recognized the risks and
    challenges involved in undertaking a partnership on the International
    Space Station with the Russian Federation, but agreed that the risks
    were outweighed by the tremendous benefits. We have already learned
    much from the Shuttle/Mir Program. The International Space Station
    remains a much more capable and robust laboratory facility than it
    would be without the Russian contributions--we will gain incredible
    scientific capabilities; we will develop cutting-edge technology. As I
    have said earlier, the American taxpayer has gained by the Russian
    involvement, and would stand to lose a great deal if Russia does not
    continue as part of the program. The Russian funding shortfalls have
    presented challenges. Now, in conjunction with our international
    partners, we have developed the necessary plans to move ahead, while
    still providing the opportunity for the Russians to participate in the
    program. With the support of this Committee and the Congress, we can
    enhance program stability and adapt to the realities that have come
    with Russia's involvement.
        The International Space Station is an initiative of significant
    size and complexity, offering enormous returns. It is a demonstration
    of America's leadership in the development of peaceful cooperative
    ventures entering the 21st century. Humankind's thirst to expand its
    knowledge and desire to explore the unknown are essential elements to
    our continued growth as a Nation and as a world community. The Space
    Station is our opportunity to prove America's commitment to lead the
    way.
        The Life and Microgravity Science and Applications (LMSA) program
    leads the Nation's efforts in space biological, physical and chemical
    research and aerospace medicine. We support technology development and
    use the space environment to advance knowledge, to improve the quality
    of life on Earth, and to strengthen the foundations for the continued
    exploration and development of space. The LMSA program supports ground-
    based research and definition studies upon which flight experiments are
    based. Major initiatives underway include continued cooperation with
    the National Institutes of Health and the National Science Foundation.
    The fiscal year 1998 budget request for the LMSA program is $214.2
    million.
        The fiscal year 1998 budget request for the Space Shuttle program
    supports two major activities: Safety and Performance Upgrades ($483.4
    million) and Space Shuttle Operations ($2,494.4 million). Safety and
    Performance Upgrades funding supports the modifications and
    improvements to the flight elements and ground facilities, including
    expansion of safety and operating margins, enhancement of Space Shuttle
    capabilities to meet customer requirements, replacement of obsolete
    systems, and upgrades required to meet environmental regulations. We
    are continuing the program of selected upgrades to increase reliability
    and maintainability of the Shuttle systems, and continuing studies to
    assess the feasibility of implementing more state-of-the-art
    technologies into the system. The upgrades allow us to support our
    customer's requirements through 2012. Upgrade examples include updating
    the launch processing system, implementing Global Positioning System,
    Orbiter avionics improvements, and orbital debris modifications.
        Shuttle Operations funding supports hardware production, ground
    processing, launch and landing, mission operations, flight crew
    operations, training, logistics, and sustaining engineering to maintain
    and operate the Shuttle fleet of four vehicles. The transition of
    operations to the Space Flight Operations Contract will continue
    through fiscal year 1998. The Shuttle manifest includes eight flights
    in fiscal year 1997 and six flights in fiscal year 1998. Highlights of
    the fiscal year 1997 flights include: a Wake Shield experiment, which
    was successfully flown in November 1996; the successful second
    servicing visit to the Hubble Space Telescope replacing two current
    science instruments with ``second generation'' instruments and
    refurbishing some telescope support system components; three more
    resupply flights to the Russian Space Station Mir; a development flight
    test of components that will be part of the Japanese Experiment module
    on the International Space Station, and; the Microgravity Science
    Laboratory mission (MSL), which was designed to study protein crystal
    growth, combustion, and material science experiments. A problem with
    one of three Shuttle fuel cells forced curtailment of this mission. The
    fuel cell has been removed from the orbiter, returned to the vendor and
    is undergoing numerous tests and analyses to discover the root cause of
    the problem. We plan to refly MSL, and to continue its important
    scientific research, in July of this year. Six flights are planned for
    fiscal year 1998, including the last Spacelab (NEUROLAB), deployment of
    the Advanced X-Ray Astrophysics Facility (AXAF) and two flights to the
    Mir Space Station. A mission including a Microgravity payload package
    of experiments in the Orbiter cargo bay and a SPARTAN X-ray astronomy
    experiment using a retrievable free flyer also is manifested. We will
    also be ready for the assembly of the International Space Station to
    begin during this timeframe.
        The fiscal year 1998 budget request for Payload and Utilization
    Operations ($227.4 million) supports the processing and flight of Space
    Shuttle payloads and payload carriers for space experiments; retention
    of core science and technology capabilities supporting a variety of
    programs and the Human Space Flight Centers, and advanced research
    programs activities. Funding also is included to continue support of
    the X-38 vehicle, which is an in-house technology demonstration program
    for a prototype vehicle which has multiple applications and
    evolutionary options. Primarily, it is a pathfinder for the Crew Return
    Vehicle (CRV) for the International Space Station.
        Discussions are underway with the European Space Agency exploring
    the commonality of design between the CRV and European Crew Transfer
    Vehicle and on the ability to launch the CRV on the European's Ariane
    expendable launch vehicle. The Japanese Space Agency has expressed
    interest in participating in the X-38 and CRV programs and we are
    jointly looking at the possibility of their providing launch capability
    on their H-2 expendable launch vehicle.
        An agreement has been reached with DOD to collaborate on the X-38
    to validate technologies which may be required for the Air Military
    Space Plane. Design and test capabilities which the Air Force could
    contribute to the X-38 have been identified. The Air Force has agreed
    to perform a 6-degree-of-freedom flight simulation of the X-38,
    miscellaneous additional design reviews and evaluations, as well as
    developing an experiment to fly as a payload on the X-38. Additional
    areas for potential collaboration are being discussed.

                                 SPACE SCIENCE

        The highlight of the fiscal year 1998 budget request of $2,043.8
    million for Space Science is the Origins program. The Origins Program
    was designed to answer questions about the Universe. For the first time
    in the history of humankind, we have the technology, or we will soon,
    for answering many of the questions about the beginning of the Universe
    and our solar system. Origins is going to look at many facets of the
    Universe, from its creation to the formation of chemical elements,
    galaxies, stars, and planets. Through this unique program, we will be
    unraveling the mysteries of the events and their sequence that led from
    the creation of the Universe to life on Earth.
        The fiscal year 1998 budget request for Space Science includes
    increases for several Origins-related programs. These include:
      --an increase for the Mars Surveyor program to allow for the launch
            of a Mars sample return mission in the middle of the next
            decade, and to increase the scientific robustness of the
            program;
      --a new Exploration Technologies Development program, to enable bold,
            new, low-cost experiments on the surface of solar system
            bodies;
      --augmentations to the New Millennium program to enable aggressive
            development and demonstration of new technologies for the
            highly demanding new Space Science missions;
      --full development of the Keck II ground-based interferometer, to
            enable direct detection of planets around other stars; and
      --an increase in astrochemistry/astrobiology research and analysis,
            to support the multidisciplinary study of the origin and
            evolution of pre-biotic material, the origin and distribution
            of life, the adaptation of life to space, and space studies of
            life on Earth. The science content of this program will be
            further defined in the coming year.
        The Space Science program is moving forward on a number of
    scientific and flight programs, building on scientific successes of the
    recent past and preparing for the launch of significant missions which
    were started a few years ago and are nearing the end of their
    development. Cassini will be launched in October 1997. In 2004 it will
    begin exploring Saturn and surrounding objects, including Saturn's moon
    Titan. This mission should give us unprecedented knowledge about Saturn
    and its moons.
        On July 4, 1997, America will be returning to Mars when the Mars
    Pathfinder lands a single vehicle with a microrover and several
    instruments on the surface. The microrover will be providing ground
    truth on the surface, while the Pathfinder explores Mars from orbit,
    using instruments to study geology, surface morphology, geochemistry,
    the magnetic and mechanical properties of the soil, and a variety of
    atmospheric investigations. In September 1997, the Mars Global Surveyor
    will reach Mars and begin its orbits. Approximately every two hours, it
    will circle the planet, gathering information about Mars that it will
    relay to Earth. During each orbit the spacecraft will be over a
    different part of Mars, filling in the blanks in our knowledge about
    the Red Planet. Together, these missions should give us the most in-
    depth information we have ever had about Mars.
        Galileo will continue its mission of studying Jupiter and its
    system. A Galileo Europa Flyby occurred on February 20 and another is
    scheduled for November 1997. During the February flyby, Galileo
    captured spectacular images of chunky ice rafts and relatively smooth,
    crater-free patches on Europa which suggest a younger, thinner icy
    surface than previously believed. We were intrigued by these blocks of
    ice, similar to those seen on Earth's polar seas during springtime
    thaws. These features lend credence to the idea of hidden, subsurface
    ocean, and that some motion caused Europa's crustal plates to break up.
    Scientists hope to find answers to some of the questions surrounding
    Europa and its possible oceans as Galileo continues its journey through
    the Jovian system. Galileo will also have two flybys of Ganymede in
    April and May.
        This budget request includes funding to continue the robust program
    spacecraft development activities underway in the Discovery, Explorer,
    New Millennium and Mars Surveyor programs. The program management
    philosophy underlying these programs, which emphasizes limited science
    objectives, short development times and strict adherence to cost caps,
    exemplifies the acceptance of the ``faster, better, cheaper''
    philosophy by NASA and the scientific community. The fiscal year 1998
    budget request also provides for continued stability in the Space
    Science Research and Analysis (R&A), Suborbital Program, and Mission
    Operations and Data Analysis (MO&DA) accounts.

                            MISSION TO PLANET EARTH

        We are requesting $1,417.3 million in fiscal year 1998 for Mission
    to Planet Earth, a basic research program seeking an understanding of
    how the Earth system works and changes, both naturally and in response
    to human activity. This effort has huge potential to improve the
    quality of life on Earth, from the basic scientific research and also
    from strengthening the American economy by developing new science and
    technologies that are essential to a broad community of civil,
    commercial and national security users. The comprehensive, long-term
    focus on understanding and eventually predicting changes in the Earth
    system is only possible with today's air and space-based observation
    and information processing technologies. Understanding the interactions
    of the oceans, atmosphere, continents, ice caps and biomass will be a
    revolutionary advance in Earth science. While much of our funding is
    looking toward the long-term goal, a significant portion of this
    funding is focused on producing near term results. In the near term, we
    are in the business of improving weather prediction on seasonal to
    interannual time scales, and increasing the efficiency of producing and
    using water, food, timber, rangeland, and other natural resources. Our
    scientists produce research results which reduce the threats that
    unexpected environmental changes pose to America and other nations of
    the world. This aspect of the program has become increasingly more
    important given that the seven largest economic losses from natural
    catastrophes have occurred in the last seven years. Mission to Planet
    Earth also conducts basic science and technology research that benefits
    the American remote sensing industry.
        An Integrated Program Incorporating New Science & Technology.--The
    Earth Observing System (EOS), the centerpiece of Mission to Planet
    Earth, is a program of multiple spacecraft and instruments (AM, PM,
    CHEM series spacecraft and multiple small missions) designed to provide
    a sustained 15 year data set on 24 key measurements needed to
    understand global climate change. The first EOS satellite launches
    begin in 1998. The EOS implementation strategy has undergone a profound
    transition in the past few years. The size of the initial satellites to
    establish the system has been greatly reduced. Future missions will be
    increasingly responsive to technology advances, evolving scientific
    understanding, and commercial opportunities. In addition, to ensure the
    ability to stimulate new scientific discovery and respond to science
    questions on shorter term time scales, a parallel series of small,
    rapid-development Earth System Science Pathfinder (ESSP) missions has
    been incorporated into the program within the available funding. Two
    ESSP missions were selected last month. The first selection, The
    Vegetation Canopy Lidar Mission (VCL) seeks to provide the first global
    inventory of the vertical structure of forests. The second selection,
    Gravity Recovery and Climate Experiment (GRACE), is a satellite-to-
    satellite microwave tracking system between two spacecraft to measure
    the Earth's gravity field and its time variability over at least two
    years. One alternate was chosen if either of the above missions does
    not stay within cost guidelines--the Chemistry and Circulation
    Occultation Spectroscopy Mission (CCOSM), which would attempt to better
    understand when and where pollutants are released from the surface and
    mixed into the lower atmosphere, the distribution of Tropospheric
    ozone, and atmospheric circulation control and seasonal change. VCL
    will be ready for launch in 2000 and GRACE will follow in 2001.
        Data from MTPE missions, both current and future, are captured,
    processed into useful data products, and broadly distributed by the EOS
    Data and Information System (EOSDIS). EOSDIS will ensure that data from
    these diverse missions remains available in active archives for use by
    current and future scientists. We are currently experiencing some
    schedule problems in the EOSDIS Core System (ECS), the data processing
    and active archiving system which comprises approximately one-third of
    the EOSDIS. We are working aggressively to ensure no adverse impact to
    the near-term launches while working with Hughes, the implementing
    contractor, to resolve the issue. In the longer term, following the
    recommendation of the National Research Council, MTPE is exploring the
    creation of a federation of Earth Science Information Partners in
    academia, industry and government to broaden the participation in the
    creation and distribution of EOSDIS information products.
        The intellectual capital for these missions, and the key to
    generating new knowledge from them, is vested in an active program of
    research and analysis. MTPE's science research program funds over 1,700
    researchers from nearly every state. These researchers develop Earth
    system models from MTPE data, conduct laboratory experiments, run
    aircraft campaigns, develop new instruments, and thus expand the
    frontier of our understanding of our home planet. In 1996, MTPE
    published its first Science Research Plan which lays out an integrated
    strategy of satellite, aircraft and surface-based observations and
    research to address five key questions. The Plan also outlines some
    twenty related areas of research which round out the MTPE contribution
    to Earth System Science. The research program is also the basis for
    generation of applications pilot programs which enable universities,
    commercial firms, and State and local governments to turn scientific
    understanding into economically valuable products and services.
        Partnerships Make It Possible.--The challenges of Earth System
    Science, sustainable development, and protection of people, property
    and the environment from natural disasters require collaborative
    efforts among a broad range of national and international players. NASA
    participates with 12 other agencies in research coordinated by the U.S.
    Global Change Research Program. MTPE has extensive collaborations with
    the National Oceanic and Atmospheric Administration (NOAA) on seasonal-
    to-interannual climate prediction, and MTPE develops the NOAA-operated
    operational environmental satellites. NOAA, NASA and the Department of
    Defense are collaborating on a convergence of the civilian and military
    weather systems. MTPE collaborates with the U.S. Geological Survey on a
    range of land surface, solid Earth and hydrology research. NASA, NOAA
    and USGS collaborate in the Landsat 7 program, and NASA, DOD and USGS
    are working together on a third flight of the Shuttle Radar Laboratory
    modified to yield digital terrain data on most of the Earth's surface.
        Internationally, MTPE participates in the World Climate Research
    Program, the International Geosphere/Biosphere Program, and the ozone
    assessments of the World Meteorological Organization. Most of MTPE's
    satellite missions have international participation, ranging from
    simple data sharing agreements to joint missions involving provision of
    instruments and spacecraft. International direct contributions to MTPE
    missions total $4 billion, while cooperative agreements on data
    exchange provide access to U.S. researchers to $4.7 billion in other
    foreign programs. In total, our international partners' contributions
    exceed NASA's investment, and we are working aggressively to improve
    the integration of our joint efforts as their contributions increase.
        MTPE includes a growing web of commercial partnerships, ensuring a
    broader distribution and use of MTPE science results while stimulating
    the U.S. commercial remote sensing industry as a byproduct of MTPE
    activity. The worldwide market for remote sensing products was
    estimated at approximately $1 billion in 1995, and may grow to $10-$15
    billion in the next 10 to 20 years. In 1997, a commercial firm is
    planning to launch a satellite instrument to measure global ocean
    ``color'' (phytoplankton concentration) to satisfy both MTPE research
    needs and to sell data to commercial fishing concerns. Also in 1997,
    two satellites built by industry in partnership with NASA (Lewis and
    Clark), will demonstrate hyperspectral and high resolution land imaging
    technologies and will test the market for such data. A new and growing
    industry of ``value-added'' data processing companies is taking data
    from MTPE satellites and combining them with other data to produce
    information products for sale to timber companies, State and local
    governments and others with a need for geographic data. Many of these
    NASA/industry partnerships are implemented through the Earth
    Observation Commercial Applications Program (EOCAP) managed by NASA's
    Stennis Space Center. Mission to Planet Earth released its Commercial
    Strategy last month, which is designed to foster these partnerships.
        Other creative partnerships also further the application of MTPE
    data to practical problems. MTPE is assisting the City of Scottsdale,
    Arizona, to apply remote sensing data to a broad range of needs such as
    flood management, urban planning, and environmental compliance; we are
    also working on final definition of a pilot program that develops local
    government applications of satellite imagery in Cayuga County, New
    York. NASA and several partner agencies are planning a series of
    regional workshops in partnership with regional authorities and local
    universities to look at hydrology in the Southeast, and perhaps
    fisheries in the Northwest, and agriculture in the Midwest.
        Staying on the Cutting Edge of Science and Technology.--MTPE has
    adopted an evolutionary approach to fulfilling its mission and goals.
    During 1995, NASA conducted a comprehensive review of the entire MTPE
    enterprise. The goal was to enable: a focus on near-term science and
    associated applications; explicit provision for new technology
    infusion; reduction in life-cycle cost of the EOS program; provision of
    new science opportunities through smaller, quicker and less expensive
    missions (the genesis of ESSP); and closer participation with other
    Federal agencies (especially NOAA), commercial firms and international
    partners. The result of this review is an EOS which is lower in life-
    cycle cost, more flexible in implementation, and of greater utility to
    the science and commercial communities. Our basic approach has been
    endorsed by the National Research Council (NRC) through its Board on
    Sustainable Development.
        Out of this review came planning for MTPE involvement in the New
    Millennium Program which conducts the development and flight
    demonstration of advanced, smaller instruments which will significantly
    reduce the cost of later phases of the EOS program. We are beginning a
    companion Instrument Incubator program to encourage the development of
    advanced instruments that may not require a flight demonstration, and a
    program to extend these advanced technology gains for polar-orbiting
    spacecraft to existing geostationary spacecraft programs. Additionally,
    we have recently initiated a study to examine the benefits of using a
    Principal Investigator-mode of implementation for EOS-Chem-1, the first
    in the CHEM series of EOS missions to study atmospheric chemistry. In
    this management mode, the Principal Investigator who has designed the
    scientific instrument, is empowered to make design tradeoffs among the
    spacecraft, instrument, and ground system capabilities to get a more
    optimum implementation approach. This mode shows promise for yielding
    additional cost savings across the space and ground aspects of our
    missions. We continue to refine this plan and seek the advice of the
    NRC and other external groups as we progress. In 1997, NASA will
    conduct the first Biennial Review of MTPE. The Biennial Review will
    examine all aspects of MTPE with a view toward incorporating new
    scientific understanding, technology development, commercial
    opportunities and expanded collaborations with national and
    international operational and research satellite systems. The product
    of the Biennial Review will be reviewed by a panel of independent
    external experts from the commercial, technology, and scientific
    communities, and will be the basis for MTPE's fiscal year 1999 budget
    request development.
                aeronautics and space transportation technology
        In 1996, NASA combined its Aeronautics and Space Transportation
    Technology programs, creating a strategic alliance between them to
    develop, in partnership with industry, advanced technologies in
    aeronautics and space transportation, and to facilitate the transfer
    and commercialization of these technologies. It is not NASA's job to
    build operational vehicles, either for aviation or space
    transportation. It is NASA's job to reduce the technology risk enough
    so that industry can produce vehicles for use by both the government
    and commercial sectors. To this end, NASA conducts enabling, risk
    reducing research, along with some focused technology demonstrations.
    The application of this research supports NASA mission requirements
    while improving U.S. economic competitiveness. The Aeronautics and
    Space Transportation Technology budget request for fiscal year 1998 is
    $1,469.5 million.
        As we combined these two programs, we worked with our partners in
    government, industry and academia to develop a strategic framework to
    guide our research over the next two decades. I challenged this
    community to develop revolutionary goals for the future; goals for
    pioneering, high-risk, innovative concepts and technologies to break
    old paradigms and create new markets for U.S. industry. They met this
    challenge, and on March 20 I unveiled three technology ``pillars'' that
    will shape this Enterprise in the decades to come: Global Civil
    Aviation, which focuses on issues of safety, affordability of air
    travel, and environmental compatibility for subsonic aircraft;
    Revolutionary Technology Leaps, which tackles these challenges for a
    new generation of both subsonic and supersonic aircraft, and; Access to
    Space, which will incorporate aeronautics technologies and operational
    efficiencies with revolutionary new space propulsion, control and
    structural technologies for launch vehicles to reduce the cost of
    launching payloads to Low Earth Orbit and geosynchronous orbit. Each
    pillar has 10- and 20-year goals that will stretch the boundaries of
    our knowledge and capabilities.
        In Aeronautics, NASA's work goes well beyond vehicle technologies
    as we focus on the long-term safety, efficiency, and environmental
    compatibility of aircraft and the system in which they operate.
    Developing technologies that cannot be utilized in the system or that
    do not add value is not a good use of taxpayer dollars. NASA works
    closely with the FAA, DOD and U.S. industry to ensure NASA develops the
    high-payoff, critical technologies that can be used in future vehicles
    and systems.
        The High Speed Research (HSR) program addresses precompetitive,
    high-risk, make-or-break environmental and economic ``barrier issues''
    that currently prevent any manufacturer from making a commitment to
    build a High Speed Civil Transport (HSCT). Industry trade studies
    indicate that a substantial market exists for an HSCT that would travel
    at more than twice the speed of sound, provided that stringent noise
    and emissions standards can be met and that ticket prices will be
    roughly equivalent to those on subsonic aircraft. Successful U.S.
    leadership in this next-century market could mean $200 billion in sales
    and 140,000 high-quality jobs in the U.S. NASA is working on the
    technologies that should make U.S. leadership possible in this next
    arena of global competition. The fiscal year 1998 budget request for
    the High Speed Research program is $245 million.
        Regardless of the success of a future HSCT, subsonic aircraft and
    the system in which all aircraft operate will remain the foundation for
    air travel in the next century. The Advanced Subsonic Technology (AST)
    program provides a focused technology base to ensure continued U.S.
    leadership in aircraft manufacture, aviation system safety, capacity
    and efficiency, and protection of the environment. This work will help
    assure that the anticipated tripling of demand for air travel over the
    next 20 years will not be unnecessarily constrained. NASA's safety
    research includes both aircraft and air traffic system work to assure
    the greatest possible safety gains throughout the system. The AST
    program also focuses on reducing the environmental impact (both noise
    and engine emissions) of the growing fleet. Further, NASA is developing
    technologies that could lower both the manufacturing and operating cost
    of new aircraft, resulting in better U.S. competitiveness and
    ultimately lowering airfares to the traveling public. The fiscal year
    1998 budget request for AST is $211.1 million.
        NASA's High Performance Computing and Communications (HPCC) program
    is part of the multi-agency effort to boost supercomputer speeds one
    thousand-fold to at least one trillion arithmetic operations per
    second--one teraflop--and communications capabilities one hundred-fold.
    Throughout government, we have applications and requirements for these
    capabilities. For NASA, teraflop capability should allow us to begin to
    model the complete physics of an aircraft and develop a 100-year ocean-
    atmospheric model for climate change. Clearly, to get to the full
    fidelity of these models, we may need speeds of a thousand to a million
    times faster than a teraflop--and we will continue to work in this
    arena. We also will embed this capability in future spacecraft and
    remote exploration vehicles, greatly expanding the scientific return.
    The DOE recently demonstrated teraflop capability; however, this
    demonstration is at the theoretical peak performance which is relevant
    for only 4 or 5 percent of potential applications. For the majority of
    applications, we are at about 10 percent of our goal and significant
    progress needs to be made. HPCC efforts are funded in the Aeronautics,
    Space Science, Mission to Planet Earth and Education programs. NASA is
    also contributing $10 million to the Administration's Next Generation
    Internet initiative. The total fiscal year 1998 NASA budget request for
    HPCC is $73.8 million.
        The Research and Technology (R&T) Base has been reorganized into
    six systems-oriented, customer-driven programs that serve the needs of
    the full range of aeronautical vehicle classes. A new emphasis on
    flight research has been added within the R&T Base, to ``build a
    little, test a little, fly a little,'' in order to advance
    technologies. The new organization is reflected in the fiscal year 1998
    budget request of $418.3 million. The R&T Base continues to serve as
    the vital foundation of expertise and facilities that meets a wide
    range of challenges and provides revolutionary new aerospace concepts.
    The new organization allows the R&T Base to remain focused on long-term
    technology needs while being more flexible and responsive to customers.
        NASA's Advanced Space Transportation Technology program is focused
    on developing and demonstrating pre-competitive next-generation
    technology to enable the commercial launch industry to provide truly
    affordable and reliable access to space. This in turn should enable the
    U.S. to recapture leadership in worldwide commercial space
    transportation in the early decades of the next century. The
    consequences of today's high launch costs are unacceptable--it is
    choking off the scientific, commercial and national security potential
    of this Nation's space program.
        The Reusable Launch Vehicle (RLV) technology program, comprised of
    the X-33 large-scale Advanced Technology Demonstrator and the X-34
    Small Reusable Demonstrator, is a partnership between NASA and industry
    aimed at radical improvements in launch system cost and performance. We
    are focusing on six parameters: reusability, operability, reliability,
    safety during abort, mass fraction, and affordability. It is the goal
    of this program to reduce launch costs to $1,000 per pound of payload.
        NASA is playing a unique role in the X-33 program, which is based
    on industry-led cooperative agreements. As a result of industry's
    leadership of the program, the Government is not playing the
    traditional role of overseeing and directing the work of the industry
    contractors. Instead, Government participants are acting as partners
    and subcontractors, performing only those tasks which offer the most
    effective means to accomplish the program's goals. The Government
    participants report costs and manpower to the industry team leader
    (Lockheed-Martin Skunkworks) as would any other subcontractor. Most
    NASA Centers have negotiated roles in the X-33 program. The industry-
    led cooperative arrangement allows a much leaner management structure,
    lower program overhead costs, and increased management efficiency.
        The Advanced Space Transportation Program (ASTP) focuses on a
    broader spectrum of technological advances than RLV, with the potential
    to reduce launch costs well below RLV goals. The RLV is not the end of
    this process; it is only the beginning. We must continue to push
    technology to make space transportation as easy, reliable and
    affordable as it can be, to allow the fullest utilization of the space
    environment for research and commerce. The ASTP aims at a cost-to-orbit
    measured in hundreds, not thousands, of dollars per pound. Major near-
    term efforts include the Low-Cost Booster Technology project and
    Advanced Reusable Transportation Technologies project.

                             SUPPORTING ACTIVITIES

        NASA's request for Space Communications continues the critical
    services essential to the success of every NASA flight mission, from
    interplanetary spacecraft to the Space Shuttle to aeronautical flight
    test. The fiscal year 1998 budget request for these activities is
    $646.5 million. Funding for components of the basic NASA infrastructure
    and institutional facilities is included in the Construction of
    Facilities budget. The fiscal year 1998 budget request for these
    activities is $159.4 million.
        NASA's civil service workforce is at its lowest level since the
    early 1960's. The overwhelming success of two buyouts conducted in the
    past two years, and an aggressive constraint on hiring, has allowed
    NASA to achieve unprecedented reductions in the civil service
    workforce, and meet the Administration's streamlining targets earlier
    than planned. NASA is committed to continuing its downsizing efforts,
    to reach an FTE level just below 18,000 by fiscal year 1999. The fiscal
    year 1998 budget request for Research and Program Management, which
    includes the salaries, travel and supporting infrastructure for NASA's
    civil servants is $2,070.3 million.
        The fiscal year 1998 budget includes several initiatives to improve
    the planning and budgeting for the acquisition of flight projects. The
    President's budget request includes a request for advance
    appropriations for several of NASA's programs. These programs include
    development of the International Space Station, development and launch
    of the Space Infrared Telescope Facility (SIRTF), development of the
    Stratospheric Observatory for Infrared Astronomy (SOFIA), the X-33
    experimental launch vehicle, and development and launch of the Tracking
    and Data Relay Satellite Replenishment spacecraft. The incremental
    budget authority required in fiscal year 1998 for these projects is
    included in NASA's budget request. The Administration is requesting
    approval of language which would appropriate fixed amounts in future
    years to complete development of the projects.
        One of the Zero Base Review recommendations was to manage NASA's
    programs on a ``full cost'' basis, including direct and overhead costs.
    Although there is no other way in the private sector, the NASA
    financial and program managers have been working hard to make this
    management philosophy a reality within NASA. NASA traditionally has
    considered funding for its programs separately from funding for the
    civil service workforce and institutional support. Under full cost
    management, the total cost of any activity--including direct, indirect
    service pools, and agency overhead costs--will be captured together.
    Management on a ``full cost'' basis will improve NASA's decision
    process by motivating managers to operate more efficiently and allowing
    a more compete analysis of the true cost of project activities.
    Implementation of full cost management is integral to the management
    changes that we have instituted over the past year. The designation of
    Lead Centers for program activities, and the movement of program
    management authority and responsibility out of Headquarters to the
    field centers will be completed with the implementation of full cost
    budgeting and management in NASA. We will work closely with the
    Congress as we implement our plan to accomplish this.

                                   CONCLUSION

        Since 1918, NASA has been a terrific investment for the country. We
    do very real things to make life better for all Americans. Whether the
    concern is the environment, health care, the economy, or our children's
    education, NASA is making a unique contribution. One way we do that is
    by preserving U.S. leadership in cutting-edge science and technology.
    Our past work has led to tremendous breakthroughs in such diverse areas
    as mobile communications, air transportation, biomedical research,
    information systems, and new industrial tools. These types of new
    technologies mean a stronger America, but not without the workforce of
    the future to support the new technologies. NASA nurtures America's
    students to give them better opportunities for the future; our
    education programs reach more than 3 million people each year, from
    elementary students to post-graduates. NASA is an investment we must
    continue to make, so future advances can keep our country strong and
    benefit our citizens.
        Some will say the NASA budget request for fiscal year 1998 is not
    enough. I do not agree with that. When I look at the President's budget
    submission, I see a vote of confidence from the President. The
    President's request indicates that he recognizes what it takes for NASA
    to do its job.
        This is an extraordinary time for civilization and this Nation. For
    the first time, we have achieved the level of understanding and
    technical capability that allows us to grasp the full meaning of our
    origins, our history, and our context in the Universe. For as long as
    humans have been able to think, we have been explorers, inventors, and
    dreamers, pondering how the Universe came to be as it is, how the
    richness of life on this planet developed, and whether life on Earth is
    unique in the cosmos. In the past, these questions were answered by
    speculation and myth. Now they can be addressed with the scientific
    soundness of evidence and quantitative analysis.
        We are nearly ready to begin construction of the International
    Space Station, ushering in a new era of living and working beyond the
    confines of Earth's gravity. We eagerly await the discoveries and
    inventions we cannot yet imagine that will be made possible by this
    orbital research facility.
        We also stand at a new threshold in the understanding of our
    planet, as Mission to Planet Earth already is providing groundbreaking
    new information on the systems at work on Earth. We are working toward
    a future where we understand Earth's systems and the influence and
    impact of the human race on them; the benefits for humankind will be
    diverse and far-reaching.
        In Aeronautics, thanks to NASA research the early part of the next
    century may see the advent of the first affordable supersonic transport
    aircraft, with its attendant benefits for the global community and the
    U.S. economy. Air travel on the whole will become even safer, less
    harmful to the environment, and more convenient.
        NASA technology will enable a whole new generation of launch
    vehicles that will make access to space affordable and reliable,
    allowing the proliferation of new uses for the space environment, many
    of which we cannot yet imagine.
        NASA is ready to deliver on this vision for the future. We will
    continue to work closely with the Congress over the coming months as we
    implement our programs for the benefit of the American people. We
    believe they will see the value of the work NASA is doing and the work
    we did to get here.

                          INTERNATIONAL SPACE STATION

        Senator Bond. Thank you very much, Mr. Goldin.
        Let me begin with some of the major questions we have.
    Senator Mikulski and I both have mentioned the current problems
    with the construction in the international space station.
    Although we do not like to think of worst case scenarios, were
    the Russians to fail to deliver the promised hardware and
    services for the Space Station Program, including the service
    module and other obligations such as the science power platform
    and resupply launches, what additional budgetary resources,
    what additional dollars would be needed to complete the Space
    Station Program?
        Mr. Goldin. To answer that I would like to give you a
    phased approach which we have developed, if that is OK. Based
    on activities in Russia in the last 6 months, we have made a
    decision that we must move out immediately and build an interim
    control module with the Naval Research Laboratory, and make
    modifications to the American-owned FGB tug, and make
    appropriate modifications to the shuttle to handle refueling in
    orbit. We believe this is prudent, and we are proceeding with
    that. Our estimate to complete that will be about $250 million.
        We set up a set of criteria with the Russians, and said we
    are going to have a meeting of the Space Station Control Board
    on May 14 of this year, and at that time we have to decide
    whether to baseline the service module or the interim control
    module for launch in December 1998. We set up three criteria.
    Criteria one, did the Russians get 400 billion rubles in April
    of this year; second, did they hold a general designers review
    with all their subtier suppliers validating that they could
    meet the December schedule, and convincing us that they were on
    track; and third, has the money flowed to the subtier
    suppliers. We will be reviewing all this data.
        The preliminary data says from the Russians they have
    received 473 billion rubles as of today, so they met the first
    threshold. We had the general designers review, but we want to
    validate the money has flowed to the subtier suppliers. So we
    have a team in Russia that is validating that now. So on May
    14, it is a decision time.
        Following May 14 there are two other milestones they have
    to meet. By July we expect that they will have the remainder of
    the funding that they requested. We are assuming by the end of
    May they will have 800 billion rubles. By July we would expect
    that they will have the remaining 700 billion rubles. If that
    is the case, we keep the service module baselined and proceed.
        At the end of September, they are supposed to ship the
    service module, which is through assembly at Krunichev, to the
    RSC-Energia factory for final integration. If they meet that
    milestone, we will proceed.
        Now, if they miss any of the other milestones, we will make
    a decision to baseline the interim control module and start
    phase two--if they miss the July deadline or the September
    deadline. That would be the commitment of an additional $50
    million, and if we deem it necessary to go ahead and build an
    additional interim control module and the associated equipment,
    then the funding could get very high, to be a fraction of $1
    billion.
        In 1998, if the Russians still do not perform, and we have
    no reason to believe that they will not, but if they still do
    not perform, we would then have to start thinking about
    purchasing crew rescue vehicles and providing the
    infrastructure with the United States and our other teammates,
    which would drive the cost up even further.
        But that is the structured plan that we have. We have very
    specific milestones at which we review the data, but we have
    already committed to build the interim control module and
    associated equipment.

                           SPACE STATION FUNDING CAPS

        Senator Bond. NASA has agreed to certain caps on the
    construction of the space station, including annual caps of
    $2.1 billion and an overall cap of $17.4 billion. Where do you
    stand relative to these funding caps? At what point would you
    have to seek congressional authorization or change in those
    caps? You have indicated several stages. When do you get beyond
    the capacity to fund that out of the caps that have been laid
    out?
        Mr. Goldin. First, let me say that I think having a funding
    cap of $2.1 billion for the last 4 years has been terrific. It
    has forced the discipline into NASA. We have gone through 4
    years, and we have held the program on schedule and on budget.
        We had a few problems--the Russians. When we set up the
    funding cap, we did not assume that we would have to cover lack
    of performance by the Russians, and our comptroller tells us
    that over the last 4 years, out of our reserves, which we set
    aside for our own contractors, we have had to cover about one-
    half-billion dollars of additional costs to American
    contractors to cover the Russians. This has caused our reserve
    situation to be very, very spotty. In fact, we believe we are
    going to make it through 1997 with just some tens of millions
    of dollars of reserve left at the end of the year for that
    year, and our reserves for 1998 look thin, but we are not
    giving up.
        At this point in time, we are going to try and live within
    this $2.1 billion cap. We have just under $1 billion in total
    program reserves. We do not intend to do anything stupid. If we
    do feel we are beginning to get to the point where we have to
    pull out-year reserves into the present year, we will come and
    seek approval from the Congress. But I want you to hold our
    feet to the fire until that point in time comes.
        The last point I want to make is with regard to handling
    this present Russian situation, the $250 million that we are
    talking about to cover the interim control module and
    associated equipment is outside of what we had agreed to do, so
    we are proposing to transfer funds within the human space
    flight account and other accounts to cover that money, and we
    view that as outside our commitment on the $2.1 billion.
        Senator Bond. Thank you, Mr. Goldin. I can assure you we
    will be required to hold your feet to the fire. We do not have
    room to do anything else.
        Senator Mikulski.
        Senator Mikulski. Thank you, Mr. Chairman.
        I am not going to reiterate the questions that the chairman
    has raised about the space station. I think we all need to
    stand sentry on this issue and see how this develops with the
    Russians. But you know, you work very hard, as does your team,
    to come up with $200 million in savings, which I think is
    outstanding and appreciated. But now we have $200 million that
    are going to accrue to the benefit of the Russians rather than
    to us. This $200 million that is now being used as a backup, of
    course, will accrue to ensure the fact that we will have a
    space station, that we will have an evacuation vehicle, that we
    will be able to get into the orbit we need. So I guess it
    accrues to us, but I sure had hoped that with all the faster,
    better, quicker, cheaper, $200 million in savings, that it
    would have gone into science or some of the other areas rather
    than a backup to them.
        You can understand my disappointment, particularly when
    from this time last year till January we were really foraging
    for NASA's future. We were foraging. So I am not going to go
    over that, but I am not happy about the situation, and I know
    you are not. And if this is going to be a foreign policy issue
    rather than a NASA issue, then we have to then look at other
    ways to back it up rather than taking savings to accomplish
    that objective.
        Did you want to comment on that, Mr. Goldin?
        Mr. Goldin. Senator Mikulski, you are absolutely right. I
    am highly frustrated. I am very goal-oriented. I want to tell
    you our NASA employees and our contractors have been pouring
    their hearts out. They have been working night and day. They
    were ready to launch on time, and to have this occur is very
    disappointing.
        I come from a world where people are supposed to do what
    they say they are going to do, and I am very, very frustrated
    about what has happened.
        Saying that, we are committed to making this happen. And
    all I want to say is you are absolutely right in being upset,
    and we will do the right thing.

         EARTH OBSERVING SYSTEM DATA INFORMATION SYSTEM [EOSDIS] STATUS

        Senator Mikulski. Well, let me go on to mission to planet
    Earth, which I understand is on budget, and also for the first
    time the House has actually included it. And we appreciate
    again Mr. Sensenbrenner and the House participation. Let me ask
    you--here are my concerns: I understand that while we are
    looking at how to gather Earth Observatory information there
    has been a problem at EOSDIS due to high contractor work force
    turnover. And then you have had to again jump in and bailout,
    provide the backup to this.
        Could you tell us the status of EOSDIS? Who is really going
    to be doing EOSDIS? Is it going to be a private contractor or
    NASA staff, and is this really one of the fragile parts of this
    whole endeavor? Because to me, without this there is really
    question about why to have the program, other than say we have
    gathered data.
        Mr. Goldin. First, let me say this is a case where a U.S.
    contractor did not do what they said they were going to do.
    They wrote a nice glossy proposal, and month after month they
    made loads of promises. But one of the things that is wonderful
    about NASA is we have a terrific civil servant work force. We
    descoped the program. We took work away from the contractor so
    we could hold the program on schedule and on budget, and the
    employees at NASA Goddard are saving this contractor. And I am
    very, very proud of them, and very displeased with the
    contractor.
        Senator Mikulski. So where does that, then, leave us?
        Mr. Goldin. We are going to be on time and we are going to
    be on budget. What we have done is we have broken the contract
    down into smaller pieces, and we have very focused outputs from
    the contractor. We are going to be testing a series of releases
    in the next few months with the scientific community to get a
    headstart. And because of the reduced workload on the
    contractor, for immediate deliveries which the civil servants
    took on, and we told them do not worry about the follow-on
    business because we do not know if we are going to give it to
    you, you just focus on the deliveries for the EOS AM1 platform
    and Landsat, and if you convince us that you know what we are
    doing maybe we will allow you to complete the contract.
    Otherwise we will recompete it.
        Senator Mikulski. Do you also feel, though, that the
    software science is such that it will lend itself to truly
    being able to catalog, archive, and organize the data in a way
    that it will be available not only to scientists or
    universities, but also for commercial applications?
        Mr. Goldin. The answer is yes, but I want to tell you, I
    have been in this business 35 years. This is one of the most
    difficult software jobs I have ever seen, and we have had
    advice from our Advisory Committee, who are suggesting to us
    that we go to more of a federated approach and involve our
    scientific investigators in some of the data processing
    activity, they believe that we will get closer to that goal by
    having the scientists closer to the data than the contractor.
    So we will be rebalancing this over the next year.
        We have a biannual review this summer by our Advisory
    Committees, and we will be able to keep it on focus. But I am
    optimistic it will happen.
        There is one last point I would like to make. The software
    business has mushroomed with companies like Microsoft and the
    other companies that are in the software. They are hiring our
    contractor employees and our civil servants at an alarming
    rate. They are paying them salaries well beyond what the
    aerospace community could afford, and over the next 2-3 years I
    am very, very concerned about this. And it is good for America,
    but for NASA, with our limited budgets and what we could pay
    people and our contractors and what they could pay people, this
    is the only thing that I am worried about, Senator Mikulski.
        Senator Mikulski. Well, Mr. Goldin, I see that my time is
    up. I am worried about it, too. First of all, in my talks with
    our European counterparts, they really are targeting the
    commercial applications of Earth Observatory data. And we are
    No. 1. We are going to be No. 1 in gathering it, and I believe
    we should also be No. 1 in the commercial applications, knowing
    that information should be free to certain segments in our
    society which is so terrific.
        But I think also, and this is not the hearing to go into
    this, but I am continually hearing about software engineer
    shortages, as well, in the private sector. And at the same
    time, I have people graduating from very fine universities in
    my own State and even in this metropolitan area with degrees in
    physics, with degrees in mathematics, and they cannot get jobs.
    They bought this National Science Foundation jazz about
    shortages, and now you have this. You have a very disgruntled
    group of young people with excellent undergraduate degrees and
    some even masters degrees.
        Now, I do not know if you and the science advisor and the
    Science Foundation need to get together and talk about a crash
    program for software engineers, the ability to quickly retool
    those people in physics and engineering. I mean, we do these
    things when we have air traffic control shortages, and I am not
    trying to--I mean, I do not know enough. I am not drawing these
    comparisons. But I do know that there are people with excellent
    degrees in math and in science that cannot get jobs. Then we
    have the software shortage. They are so saddled with student
    debt that they cannot go to get that. And then here we are.
        And what I find from the Science Foundation and so on, kind
    of this rocky approach that says oh, we are behind and we
    compare ourselves to other countries. But I do not find a
    quickstep approach to solving that. And I hope that you talk
    with that leadership to see what we are going to do. But we
    have got some big problems. And it shows itself up here. I
    think we have a big problem in terms of our attitudes, the way
    universities are training people, what they are advising
    people.
        I know the chairman wants the red light to flash a little
    bit more for me, but I feel very strongly about this and, Mr.
    Chairman, I have people who really went way out to get
    undergraduate degrees in science because they were told that
    they were needed. Now they find that maybe they are and maybe
    they are not. But where there are needs we have no way then of
    quickly moving them perhaps into a graduate program almost like
    an officers candidate school in software engineering.
        Senator Bond. Thank you, Senator Mikulski.
        Normally we go back and forth, but Senator Boxer was here
    earlier and has another hearing. She had just a couple of quick
    questions, so I will recognize Senator Boxer.

                                  NASA BUDGET

        Senator Boxer. Thank you very much. And, Senator Burns,
    thank you for your indulgence. I will not take my full 5
    minutes because I am late for a Banking Committee hearing.
        Senator Bond. Do not worry about it.
        Senator Boxer. Let me just say, Mr. Chairman, that in
    general I think this budget request is a good one. Last year's
    NASA budget request called for steep declines in several key
    programs, and the cuts would have been particularly hard on the
    space science budget and could have caused irreparable harm to
    NASA's basic research program. Having said that, I would like
    to ask unanimous consent to put my full statement into the
    record.
        Senator Bond. Without objection.
        Senator Boxer. And I will not read it.

                          PLANS FOR RESEARCH AIRCRAFT

        California is a space State, and it is not only that we
    have Government employees working there, we have a tremendous
    private sector, as you know, Mr. Goldin. And we are getting to
    the point where our space infrastructure is as important as our
    bricks and mortar in the State that I represent.
        I have one question I would like to ask, and then I will
    submit others for the record. Could you specifically comment on
    your plans for research aircraft currently housed at NASA Ames
    Research Center?
        Mr. Goldin. Yes; we are studying the most expeditious way
    of performing our research with aircraft. We are probably a
    week or 2 away from a final decision on the disposition of this
    aircraft. We are coordinating this with the Office of
    Management and Budget and the administration, and I think we
    should be prepared to have a final decision within 1 week or 2.

                          AIRCRAFT CONSOLIDATION PLAN

        Senator Boxer. Would you agree not to make any aircraft
    moves, if, in fact, that is the recommendation, until the GAO
    is able to conduct an independent review of the conflicting
    data?
        Mr. Goldin. I think that the time has come to make a
    decision yes or no. We are just running out of time. There is a
    very bad situation developing because we do not have this
    disposed. People do not know where they are going to live. We
    are worried about if we let this go on much longer we are going
    to have a potential problem in aircraft safety, and we believe
    a decision has to be made in the next few weeks.
        The inspector general has done a study at NASA. They have
    validated that moving the planes from northern California to
    southern California will save us money. It will cost about $9
    million up front. The payback is about $3 million a year. So
    within 3 years we are revenue neutral, and we will be saving $3
    million a year after that.
        Should the decision be positive, we believe we will have to
    move out on this. Otherwise I am just worried it will go on a
    little longer.

                               PREPARED STATEMENT

        Senator Boxer. Well, I will not take up any further time in
    deference to my colleagues, but, Mr. Goldin, there are a lot of
    conflicting numbers out there. One says it is $3 million, one
    says something else. So I hope you and I could talk before the
    final decision. I would appreciate that.
        Mr. Goldin. I am committed to that.
        Senator Boxer. Thank you very much.
        Thank you, Mr. Chairman. Thank you to my colleagues.
        [The statement follows:]
                  Prepared Statement of Senator Barbara Boxer
        Thank you Mr. Chairman, and thanks also to our Ranking Member,
    Senator Mikulski. I may be called to leave this hearing early, so I
    will try to keep my opening remarks brief.
        I believe this budget request is generally a good one. Last year,
    NASA's budget request called for steep declines in several key programs
    in coming years. These cuts would have been particularly hard on the
    space science budget and could have caused irreparable harm to NASA's
    basic research programs.
        This year's budget request has addressed these issues by providing
    a stable budget forecast for the next five years. This stable budget
    environment has enabled NASA to accelerate the Origins Program and
    several other important initiatives which I strongly support.
        Mr. Chairman, California is very much a ``space state.'' True, many
    NASA employees and programs are based in my state, but space commerce
    in California extends far beyond that. Space-related industry and
    commerce is now an integral part of the California economy. Our
    telecommunications, entertainment, software, and computer industries
    depend as much upon space and satellite technology as traditional
    industries depend upon bricks and mortar.
        I am especially pleased by the progress of NASA programs which
    recognize the leadership role of industry in space technology
    development. The best example of such a program is the X-33 reusable
    launch vehicle. In my view, the X-33 will forever change the way new
    generations of space transportation systems are developed. I look
    forward to hearing from Administrator Goldin on this and other issues.
        As I mentioned in my opening statement, I strongly support the
    additions made in this year's request for space science research. Could
    you tell the Committee about the new programs NASA has launched as a
    result of this new budget outlook?
        I believe that a key NASA objective for the next decade and beyond
    must be to reduce the cost of access to space. Could you tell us how
    far you believe the cost of access to space can fall? What are the
    implications of lower space-launch costs for NASA, other government
    agencies, and the private sector?

        Senator Bond. Thank you very much, Senator Boxer.
        Senator Burns.
        Senator Burns. I have got a great idea. Move the airplanes
    to Montana. [Laughter.]
        Senator Boxer. That is not in the mix.
        Senator Burns. I will save you lots of money.
        Senator Boxer. No, you do not get it. We do not want them
    to move to Montana. Let us be clear on that. [Laughter.]
        Senator Bond. Senator Burns.

                              NASA BUDGET/RESERVES

        Senator Burns. First of all, Mr. Goldin, thank you very
    much, and thanks for this budget. I think we are still very,
    very tight, and it is the belief of this Senator that we are on
    the nub. I do not think we can complete our missions that we
    want to and still continue this funding. In fact, I am thinking
    one of these days we are going to have to take a better look.
        I am not at all concerned about the $200 million in
    reserves, pending that should the Russian situation
    deteriorate. I am a believer in reserves. I think every
    department in this Government should have reserves. We maintain
    reserves at every other level of government in this country in
    preparation of some things that may come unraveled, and we are
    not coming back for a lot of supplemental appropriations or
    trying to explain exactly what is and what is not the case with
    certain situations.

                                SCIENCE MISSIONS

        I have just got one question in particular. Scientists have
    been visiting my office with concerns that there is a
    disconnect between the views of the scientific community and
    the picture presented by NASA. One issue that is after the 1998
    NEUROLAB mission, there are no planned science missions until
    the station is operating. They are concerned that they are
    going to have a hard time hanging on to the scientists that
    they have in the interim, and pending some funds, I understand.
    Could you address that for me, please, and bring me up to date,
    and are you aware of that situation?
        Mr. Goldin. Yes; I am. I think the scientists are correct.
    We are doing two things. First, we are continuing to build a
    scientific base for ground-based research supporting the space
    station, and we are going to ramp up from 650 scientists at
    present to 850. That ramp-up continues on a continuing basis.
        We are exploring the possibility of between two or three
    additional shuttle flights because the Russians have slipped
    the up-front schedule, and one of those flights we are
    considering will be a life sciences flight. In fact, there is
    so much good science on NEUROLAB--I mean, it was so hard
    picking that science, we think that there is enough good
    science from the proposals we got for a follow-on to NEUROLAB.
    And that is one of the missions we are considering. We are
    looking at another microgravity mission, and in the months
    ahead we will be able to finalize that.
        But I agree with your concern, and we will be addressing
    it. We will be trying to find the money, which is very, very
    important, because at NASA the rule is we are committed to
    fiscal responsibility, so for every upper we must find a
    downer. So we are searching the budget to figure out how to pay
    for it.

                            MISSION TO PLANET EARTH

        Senator Burns. In the area of mission to planet Earth, I
    think it was pointed out in particularly the last 6 months,
    that we are, in our sensoring capabilities. I am glad that
    mission to planet Earth has been funded. The information and
    science now make a lot more sense, that we are gathering, than
    it did 1 year ago, as everything takes a while. We just did not
    know what we were going to do with all the information that we
    got, to be honest with you, and how that pertained to our
    mission to planet Earth.
        I think with some revelations in our forestry, in our
    agriculture, and in our water supplies--now, I realize that you
    will have a hard time telling the folks in Grand Forks, ND,
    that there is a shortage in some areas, but nonetheless, those
    problems continue to plague this country and the management of
    our natural resources. And I just happen to believe that the
    mission to planet Earth is very, very important and will play a
    key role, especially in forestry. The images that we are
    getting now and the sensoring that we are getting now are very,
    very good, and we are establishing, I think, our inventory of
    what our resources really are, our growth rate, and this type
    of thing. And that is very, very important to the wood products
    industry of this country. So I am very, very happy about that.

                             NASA/RUSSIAN SITUATION

        I am concerned with the Russian situation. I think all of
    us are concerned about the Russian situation. And knowing the
    internal problems that the Russians have, I do not see this
    situation getting any better in the near future. If we can just
    maintain somewhere close to where we want to be, I think we
    will be very, very fortunate. I do not know how it could
    deteriorate any further, but I continue to monitor that, and I
    am very, very concerned about it.

                            NASA'S OUTREACH PROGRAMS

        And that is all the questions I have. Your outreach
    programs are very, very good and they are doing what they are
    supposed to do. I think it continues to be an agency that, even
    though Senator Mikulski has some concerns about our math and
    our science people that are motivated to go into those subjects
    of study, and because of our outreach in this society, we can
    still use a few engineers over in agriculture. So maybe
    sometimes these young people are going to have to focus maybe
    not on space, but they could help us in other parts of this
    American economy.
        I get the biggest kick out of--this is an old story of Kika
    de la Garza, and I continue to say this to be true about when
    they built the first nuclear submarine, and it could make its
    own air, it could do everything, they could stay under,
    submerged for long periods of time. And one of the captains, I
    asked how long can you stay under? And he says until we have to
    come up for food. So we do not want to forget that that is an
    infrastructure that is very, very important to this, too.
        But I appreciate the work you are doing, and that is all
    the questions I have. I might have a couple more, but we can
    work those out.

                            MISSION TO PLANET EARTH

        Mr. Goldin. Could I respond to that, Mr. Chairman?
        Senator Bond. Please.
        Mr. Goldin. There are three important points you made.
    Senator Mikulski expressed a concern about taking the results
    from mission to planet Earth to the people. It is very
    important. And I would like to thank you and Senator Dorgan for
    the support for a program we are working on in the High Planes
    area with Montana, Wyoming, North and South Dakota, and Idaho,
    to take the data from mission to planet Earth to the people, to
    the farmers, to the forest products industry, to people that
    are selling grains. And this is very, very exciting. It is
    taking science in very abstract terms and putting it into terms
    that people understand that help their pocketbook and help
    raise their children. We have pilot programs around the country
    like that and, Senator Burns, you have been very supportive of
    this, and we appreciate that.
        Senator Burns. Well, not only is it important that we get
    the information and we understand the information, now we are
    learning how to use it. But also is the extension, how do we
    get that information on the ground where it makes it
    applicable. And we have seen that grow since I have been on
    this committee, and Senator Mikulski and I know there have been
    a lot of us that have supported that. We have had a scrape or
    two along the way, but nevertheless, I think it is paying very
    handsome dividends.
        The American people have got to understand that there is
    more application to our space program than just going into
    space or what Hubble has done, and that has been a marvelous,
    marvelous advent into the space program, but we also want the
    American people to understand that some of the science is
    coming home, and it positions this country to do a lot of work
    around this globe with regard to this little piece of mud that
    we are whipping through space on.
        So I appreciate your work because the outreach and the
    extension is just as important as the gathering and
    understanding of it.
        Senator Bond. Senator Burns, thank you. You saved me one of
    my questions. I was going to talk about partnering.
        Mr. Goldin, you had some further comments, but right now
    Senator Mikulski has to go to a hearing, and I want to give her
    an opportunity to get in a couple more questions. Save those
    good thoughts that you had in answer to Senator Burns, and when
    Senator Mikulski finishes we can go back to that, and I might
    even ask a question.

                 CONSOLIDATED SPACE OPERATIONS CONTRACT [CSOC]

        Senator Mikulski. Mr. Goldin, I have to join Senator
    Sarbanes in introducing the new Director of the CIA nominee for
    his hearing. I have many questions, and look forward to talking
    with you even after this hearing. But let me focus on something
    called the consolidated space operations contract. Having just
    looked through it, it seems to me that this could be one of the
    most important procurement contracts to be issued by NASA, and
    also because we are talking about a Space Operations Management
    Office in Texas, I would have these questions: No. 1, what is
    the consolidated space operations contract. No. 2, how will the
    savings be achieved? Will it be achieved through more layoffs?
    No. 3, will it also result in job shifts from existing centers;
    for example, Goddard to Texas, which, of course, would be of
    concern to me? Do you want to talk about this? Because I think
    this is a little sleeper here.
        Mr. Goldin. We have decided to run a competition to bring
    together all our space operations. We have a lot of duplication
    of facilities around the country. There are things that have to
    be done in specific places. So to sort that out, we wanted to
    get some of the leading contractors in the country working with
    us. We have received some proposals. We have to evaluate them.
    But the purpose is to streamline it.
        The second approach is that we believe that there is some
    tremendous opportunity to use this consolidated space
    operations contract to cover a lot of commercial activities. I
    am not sure whether it will be a downer or an upper, because if
    the companies bid in an appropriate manner, instead of having
    each of these new commercial activities which has an operating
    contract build their own control center, there is opportunity
    for consolidation. We are looking for creativity in this part,
    too.
        So I do not know whether in the total picture it will be
    less people because the Government will be able to hopefully
    take advantage of some commercial activities. But we do hope in
    the long run to have the Government save dollars.
        Senator Mikulski. Well, is that the focus of it, commercial
    activities, or is this a closet kind of base closing commission
    for NASA facilities?
        Mr. Goldin. I do not see it as a closet base closing
    activity, and until we have the proposals from our contractors,
    I do not know exactly what the whole impact is. But we have
    made estimates that we could save a significant amount of
    money, and we want to have much more efficient, much more
    vibrant operations of our spacecraft activity.
        Senator Mikulski. And we all support that. But you can
    appreciate the fact that there is a lot of water cooler talk
    that comes into my office that this really means that it will
    be downsizing and major shifts of jobs to Texas.
        Mr. Goldin. I would be very surprised if people move jobs
    just to Texas for the sake of moving it to Texas. But the thing
    that we will be doing throughout this competition is we will be
    working with the members who have an interest in this, keeping
    them appraised of the directions that we are going, to make
    sure we do the right thing for the American Government.

                             SPACE SCIENCE PROGRAMS

        Senator Mikulski. Well, I want to talk with you further
    about it.
        I would like to just shift 1 second to space science, and,
    of course, I think we are all tremendously excited about the
    next generation of the space telescope; the Origins project, of
    course, offers many new opportunities; and then, of course, we
    have the new millennium funding. One of the things, though,
    that I look at that much of the new science, about 85 percent
    of it will go to JPL, is that right?
        Mr. Goldin. I do not believe so, because it will be done by
    contractors, it will be done in different NASA centers, and, in
    fact, we have the folks at Goddard working with JPL on a lot of
    the advanced technology activity.
        The next generation Hubble telescope, which is part of
    Origins, will be managed out of NASA Goddard, and there are a
    broad range of activities that will be managed at Marshall,
    Goddard, and Langley.
        Senator Mikulski. Well, Mr. Goldin, I look forward to
    hearing more about this. I know my time is up.
        I learned a lot about the space program from Senator Garn.
    And then through that then got connected to both Admiral Truly
    and now you. What I feel I learned from you was a lot of your
    private sector know-how that you brought to the management of
    NASA, and I think ultimately you will be recorded as one of the
    most innovative managers we have had since the creation of
    NASA.
        Having said that, you essentially introduced competition
    even within NASA for better ideas, more efficiencies, and so
    on, and we would hope that this kind of competition for
    excellence, competition for efficiency which ultimately is
    savings, better ideas, faster, cheaper, also continues to be
    reflected in the space science so we do not end up with like
    scientific cartels within NASA.
        So I look forward to hearing more about it because I think
    the management approach that you have often had, which is it is
    not wedded to a particular facility but the outcome we seek, is
    one that has really served NASA well.
        Mr. Chairman, thank you, and we will look forward to
    continuing this conversation. Thanks a lot.
        Senator Bond. Thank you very much, Senator Mikulski. I
    appreciate your kind words about Dan Goldin and his efforts.
    And I second those and would agree with you on those words.
        Mr. Goldin, you had some comments. Did you finish
    responding to Senator Burns, or do you have others?
        Mr. Goldin. Well, before Senator Mikulski leaves I would
    like to say that she is absolutely right about her concern of
    retraining, and I had not thought about that issue, and I will
    be coming to see you after I have discussions with the senior
    executives at the White House and our own sister agencies. This
    software problem is not going to go away. It is only going to
    get worse, and I am worried about the future of America's space
    program. We will work with you on that subject.
        Senator Mikulski. Well, Mr. Goldin, I want to be clear and
    I want everyone in the room to be clear and the press here. I
    in no way object to young people pursuing basic degrees in
    science, whether it is physics or math or any of the other
    wonderful endeavors. But often they are being educated to then
    go get doctorates to then train other doctorates. I think not
    only do we need to take a look at this shortage area, but I
    think American universities need to retool their thinking and
    help to get our students ready for the real world that they are
    facing.
        That is in no way to talk--but I think we need a multiple
    kind of thinking in that the Ph.D.'s we need will not only be
    in the universities but out there working with you on how to
    translate and do the commercial work that we have talked about.
        Senator Bond. Thank you, Senator.
        Further comments that you had on your list?

                               RUSSIAN SITUATION

        Mr. Goldin. Yes; I do. With regards to Russia, we have a
    benefit of working with the Russians. I want to say for the
    record that I am very, very favorably impressed by how the
    Russian Space Agency--not the Russian Government--has been
    resilient to work with us. We have been through some very tough
    times with them, and they have turned out to be very good
    partners.
        My frustration is that the Russian Space Agency is not
    getting the funding that they need. And this is a case where
    the Russian Government is going to have to do what it says it
    is going to do, because we cannot have international agreements
    and keep looking over our shoulders.
        Now, the news so far is good, that we think they are back
    on track. But I want you to know that we are going to build
    that interim control module. I think building the interim
    control module has gotten some attention in Russia, because
    everyone now sees we are going to build this space station no
    matter what. We are no longer debating it.
        The last point I want to make is that for the record I
    would like to clarify. I think there is some sense that this
    $200 million we are going to spend in fiscal year 1997, with
    concurrence from your committee and the other committees that
    oversee us, is not going to be all spent in Russia. Only about
    $30 million will be spent in Russia. One hundred seventy
    million dollars will be spent in the United States of America.
    So I just wanted to correct that impression.
        Senator Bond. I have your letter of May 5 indicating that
    to fund that $130 million is going to come from the ``Human
    space flight'' account, opposed to $200 million, and $70
    million will come from the mission support appropriations to
    human space flight.
        Mr. Goldin. If the appropriation transfer is approved, that
    is the way it will be.

                                 SHUTTLE SAFETY

        Senator Bond. I would just like your assurance that
    reshuffling will not interfere with shuttle safety efforts or
    undermine plans to launch scheduled payloads. Are you going to
    be able to avoid those problems?
        Mr. Goldin. I can say unequivocally yes.
        Let me say this to you: There was a comment made that I
    thought about, it was internal back of uncosted money. I would
    like to correct an impression. NASA has built up additional
    moneys in the uncosted area not because our people are bad, but
    we have undergone tremendous change. This was an agency that
    had 77 percent average cost growth on its top 29 programs just
    a few years ago. And now we are underrunning 6 percent. We put
    a very, very serious commitment into our employees and our
    contractors to do what they say they are going to do. So as the
    budget has been coming down, our employees are so determined
    not to overrun contracts that they are perhaps overcompensating
    on how they apply their reserves.
        We are correcting this situation. Last year we believe it
    had peaked out, and over the next few years we are going to
    bring it back to historical levels. We have been tracking the
    rate at which we have been obligating funds, and they are now
    back to our historical average. In fact, it is a little bit
    above that. So that was the first point I wanted to make.
        Second, our people on the shuttle program have been doing
    an outstanding job. In the past, if they had reserves there was
    an attitude let us spend the money before the end of the year
    or you will lose it. We have put a very serious focus on not
    doing that. And it is really a good news story. And we are now
    taking those reserves and applying them to things that are very
    important to the program.
        But saying that, I am absolutely committed to safety. We
    are planning on spending an additional $100 million a year on
    handling obsolescence problems in the shuttle which deal with
    safety, and our safety metrics are terrific. As the budget came
    down $1 billion a year on the shuttle, we have tripled the
    reliability on ascent for that shuttle, and we have cut the
    number of on-orbit anomalies one-half, and we have cut the
    overtime, so every single metric we have says we are focused on
    safety. So I commit to you that we will stick on that track.

                         SPACE STATION--OUTYEAR REQUEST

        Senator Bond. With respect to the space station, the United
    States side, if the Russians deliver as promised, which
    obviously we hope they will do, the out-year request goes from
    $2.1 billion today down to $1.5 billion by 2002. Are you
    confident that the agency can, assuming the Russians stay with
    their commitments, that the agency can accomplish the mission
    with that declining resource for our United States portion?
        Mr. Goldin. Let me say this is the toughest job I have ever
    been in in my life. I have been in the aerospace business 35
    years. It is a real challenge. I want to tell you, I am so
    proud of this team. Four years ago we redesigned the station
    and we took out some billions of dollars, and we have held the
    schedule and held the budget. Each year the reserve looks like
    a cliff, precarious. We have worked through it. We are now in
    the toughest part of the program, because we are building
    hardware, and next year we are going to be launching it. I am
    cautiously optimistic that our reserves that are just under $1
    billion will take us through and allow us to come down that
    curve.
        I recommended to you that you keep our feet to the fire,
    and I am going to keep everybody else's feet to the fire on
    holding that cap. It is going to be rough. We are going to face
    some problems. If we feel we have come to a point where we have
    an issue where spending a little bit of money above the cap
    will save us in total dollars, we will come back. But right
    now, I do not see that, and we will just keep on chugging.
        Senator Bond. Thank you, Mr. Goldin.
        We have been joined by Senator Harkin. Senator Harkin,
    would you like to make a statement and/or ask some questions?
    We are delighted to have you with us.
        Senator Harkin. Thank you, Mr. Chairman. I just have a
    quick statement.
        Senator Bond. Proceed Mr. Harkin.

                            STATEMENT OF TOM HARKIN

        Senator Harkin. I apologize for being a little late.
        I would like to welcome again Mr. Goldin to the
    subcommittee. I am new on this subcommittee. I have been on the
    committee for a long time, but I decided to get on the
    subcommittee, and one of the reasons I wanted to get on it was
    because of my long-time interest in NASA and the space program,
    having spent 10 years in the House of Representatives and
    keeping somewhat in close contact with it through the
    intervening years.
        I have some questions, but I guess, Mr. Goldin, what I
    really want to pursue is options. And without being at the
    point of second guessing, but sometimes it is good to look back
    and find out where we have been and ask tough questions as was
    that really the right approach to take. Did we really take the
    right course in the past? I am not going to go back and say,
    well, we should--but just ask that, and then to use that
    knowledge to see whether or not the course we are embarked upon
    now is the right course.

                       SHUTTLE PROGRAM VS. SATURN PROGRAM

        I look back, I remember when the Shuttle Program was
    designed and we were moving ahead in the Shuttle Program, and I
    wondered, and there were a lot of people then that were
    questioning whether that was the right direction to go and
    whether we should continue on with the Saturn Program and the
    expendable vehicles that we had at that time rather than going
    to a Shuttle Program. Of course, at that time all the ballyhoo
    and the hype was on it is going to be cheap. We are going to
    reuse all these things. It is going to be wonderful and
    miraculous and all that kind of stuff. All of the savings and
    costs that I think were talked about at that time, I do not
    think much of that has materialized.
        Now, I do not mean to downgrade the Shuttle Program. It is
    a marvel of technology. And what the people did in coming up
    with the shuttle and how it operates, it is just a
    technological miracle above all else, and it works, and it
    works wonderfully well. But in terms of four goals and what we
    are looking at down the road, had it really aided us that much
    in terms of space exploration?

                           SPACE STATION--YES OR NO?

        We have had a lot of experience in near-Earth orbit. And I
    guess what I am wondering about now is whether or not the space
    station that we are talking about building is the right path to
    pursue, and will it really add anything. I intend to continue
    along this vein on this subcommittee and in the Senate in the
    coming months to raise these questions. And I know a lot of
    people have thought about it and there have been books written
    on it and articles, everybody has thought about this thing. But
    I just wonder whether or not we should not step back and take
    another look at it.
        $35 billion? Is that what the cost is now, estimated?
        Mr. Goldin. 17.4 plus 10.2 is 27.6 for the development and
    operations is about $13 billion on top of that.
        Senator Harkin. About $35 billion. And given overruns, we
    are talking about $40 to $50 billion.
        Mr. Goldin. I am not signing up to any overruns.

              SHUTTLE PROGRAM COST VS. SATURN/APOLLO PROGRAM COST

        Senator Harkin. I understand. I am just talking about how
    things happen in life. I am having some research done right
    now--I have been on it for some time now--on the Shuttle
    Program. With what the Shuttle Program costs to develop, build,
    operate, what could we have done with that somewhere between
    $12 and $20 billion? I cannot quite get a handle on the
    dollars. And I am just wondering if we could not--someone
    suggested to me not too long ago that for what we spend on the
    Shuttle Program, that if we had kept up the Saturn Program and
    the Apollo Program that we would have today for the same price
    and the same money a fully operational 365 days a year manned
    moon base on the moon, for that same amount of money, with all
    that that entails. I do not know if that is true or not. I
    would like to find out.

                             SPACE STATION BENEFITS

        And I would like to find out if for this $40 to $50 billion
    or $35 billion, whatever it is that we are looking at in the
    future, what are we going to get out of this space station? We
    have had space stations. We have had the Mir. We have done a
    lot of low-weight experiments, long endurance flights, there is
    a lot of data there. We are back, you know, to doing the rhesus
    monkeys. They are still shooting these rhesus monkeys. Who
    cares about that? We have got all that data.
        And so I am just wondering if we are just not going ahead
    on something that everybody seems to have signed off on, but
    will it really add to our exploration of space, which is what I
    am interested in, or is it just going to be another low Earth-
    orbit space station, we are going to send people up there, they
    are going to float around for a while, they will do experiments
    ad nauseam, but is it really pushing the frontiers, really
    pushing the frontiers of space exploration? Could we use that
    money in a different way and for different form?

                                  X-33 PROGRAM

        Now we are talking about the X-33, and all of the arguments
    I am hearing on the X-33 I heard on the space shuttle, every
    single one of them. It is going to be cheap. It is going to be
    reusable, go back and forth, all this.
        So, Mr. Chairman, I just wanted to take a little bit of
    time. That was sort of my opening statement.
        Senator Bond. That was a good one. If Administrator Goldin
    does not hit a long ball on that one I will be surprised.
    [Laughter.]
        This one ought to be interesting. I would say fasten your
    seat belts and let us see what he says. [Laughter.]

                             SPACE STATION BENEFITS

        Senator Harkin. We will. And there will be more coming down
    the pike later on, too. But again, I just wonder about what
    other systems could we have purchased for what we did, and what
    could we purchase for the $35-plus billion that we are going to
    put in their plus all the problems it looks like we are going
    to have with the Russians and everybody else on this thing.
    That is sort of an open-ended question, but it is the kind of
    thing I know you like to deal with.

              NASA'S RESPONSE TO PURSUING THE RIGHT PATHS/OPTIONS

        Mr. Goldin. First, let me say it is a fact America has been
    locked in Earth orbit for 25 years. Probably one of the reasons
    I am the NASA Administrator is I expressed a high level of
    frustration when I was in private industry over that subject. I
    came to NASA in 1962 to take America to Mars sometime in the
    late 1970's. I left NASA in 1967 because I said the bureaucracy
    is setting in and we ``ain't'' going to go to Mars for a long
    time, so I am going to work real hard, I might as well go make
    money in industry, and I left.
        For 25 years after the development of the shuttle, this
    Nation did not develop one new rocket engine, this Nation did
    not develop one new launch vehicle, and we watched 25 developed
    in the rest of the world. It is not because we had bad people.
    We have fabulous people. But somehow in the mid-1960's America
    lost its heart and soul to do risky, bold, difficult things. We
    analyze things to death. We involve all sorts of issues other
    than opening the space frontier that are peripheral to where we
    want to go in America. And I think that is the problem.

                                SHUTTLE PROGRAM

        Now let us deal with the shuttle. I came back, by the way,
    in 1992 in the hope that we are going to Mars, because I could
    think of no other thing that could inspire young and old alike
    that America is a great country, ready to be on the frontier
    again.
        Now, what are some of the issues? Let us go through the
    shuttle point by point. NASA proposed building a shuttle, and
    some of the bureaucracy set in, and one of the issues was NASA
    had to survive after Apollo. That is not a reason to build a
    shuttle, to keep people busy. A second issue was NASA wanted to
    build a shuttle and a space station, and they were told you
    could have one or the other. Well, you could not have a space
    station without a shuttle, so they went to build the shuttle.
    So let us not blame the NASA employees for that.
        But the other part that I cannot get complete data on but I
    will give you my feeling, NASA was set up. They were given a
    program and they were asked to manage to a development and not
    come up with a low operating cost system. So to live with a
    smaller development budget they could not minimize the
    operating costs.
        Third, the shuttle was supposed to be designed to handle
    DOD payloads and commercial payloads and civil space payloads.
    Well, what happened was NASA now has to carry the full
    infrastructure of just the civil payloads when DOD and the
    commercial payloads are elsewhere. It is against the law for us
    to fly commercial payloads on the shuttle. So that is part of
    the problem.
        The next part of the problem is----
        Senator Harkin. Could you get me some more information on
    that one aspect right there?
        Mr. Goldin. It will be my pleasure. I am a rocket
    scientist, and I have thought a lot and hard about this.
    [Laughter.]

                             SPACE STATION PROGRAM

        Now, there is another issue that I feel to be very, very
    difficult. NASA needed something to do in the mid-1980's, so
    they proposed a space station at $8 billion, and this space
    station was much bigger than anything we have right now, and I
    have a videotape which I will be happy to show you of the
    program manager on that program saying you would think we would
    build this for management efficiency. We did it for political
    expediency.
        That was the attitude in the formation of the space
    station. The NASA employees were not bad, but the politics of
    the situation were bad, and America has to decide who are we
    and what are we as a country. Is it the purpose of a space
    station to employ people around the country or is it the
    purpose of the space station to open the space frontier.
        Well, this $8 billion turned to $40 billion, and we went
    for 8 years and spent $8 or $10 billion and did not build a
    piece of hardware, but boy, did people make profits and did
    they have fun.
        I came to NASA in 1992, and I asked a very simple question:
    Is this thing going to work? I was attacked. I then checked
    into where all the work was being done. We had 2000 people in
    Reston, VA, who were trying to manage five prime contractors.
    Now, that is an oxymoron. It was unbelievable. The resistance
    to change was incredible, and the thing would not work. They
    did not build hardware, and spent $8 to $10 billion. Were the
    people bad? No; they were terrified. The political process did
    not allow NASA to go where it needed to go.

                    SPACE STATION INTERNATIONAL COOPERATION

        So in 1992, first President Bush asked me to go to Russia
    to see if we could begin the process with the Russians, and the
    President Clinton had a summit with President Yeltsin where
    they said this is crazy, the cold war is over, why are we
    building competing space stations? So Russia and the United
    States and the other countries, Europe, Canada, and Japan said
    let us see if we could be sensible here, and not have an
    Eastern Bloc space station in the post-cold war era and a
    Western Bloc space station. So we made a commitment to do this.
        Our partners are putting in a huge amount of money. We have
    redesigned the space station. We have a program which I believe
    is not building an engineering temple in search of questions,
    but we are building a space station that is asking fundamental
    scientific questions and then building the engineering to go
    with it.

                                 SPACE STATION

        Now let me deal with the space station itself. We are
    probably 60 percent complete. Our international partners,
    Europe, Japan, and Canada, of a $9 to $10 billion commitment
    have expended $6 billion. The Russians, with all their
    problems, are building 300,000 pounds of hardware which we are
    relying upon. On the Shuttle Mir Program, I want to tell you,
    as much as the Russians have been in space and we have been in
    space, we have learned a tremendous amount.

                              SCIENTIFIC BENEFITS

        Let me tell you some of the scientific things we have
    learned. We now at NASA have something called the bioreactor.
    And the bioreactor is capable of building human tissue outside
    the human body. We have built 1 to 2 centimeter pieces of human
    cartilage in this bioreactor. And we did not have an
    opportunity to do it for months until we got to the Mir Space
    Station.
        We have built colon cancer tumors in this bioreactor. We
    have built tissue from the intestine and other parts of the
    body. It is revolutionary, and now there is an institute, a
    NASA NIH Institute for three dimensional tissue growth, that is
    beginning to impact the medical science community.
        We have been doing structured drug design on the Mir
    Station and the shuttle, and we are getting unbelievable
    results, and new drugs are now coming out on the market.
        We are now finding out things of the human anatomy, and I
    do take exception, the Russians have been in space 10 years, we
    have been in space years, and we still do not know how to stop
    bone loss in the human body, we do not know how to start
    muscles from atrophying, we do not understand the depression of
    the human immune system, we do not understand changes in the
    cardiovascular system. We do not understand the impact of
    gravity at the cell level, which is essential for future
    studies in physiology on the surface of this planet.
        We have an opportunity on this space station to do
    fundamental scientific research in the absence of gravity. In
    the absence of gravity there is no convection. You know, hot
    air rises, and it does not allow you to rearrange atoms one at
    a time. You have sedimentation, heavy things drop and buoyancy,
    light things rise. That is with gravity. Without gravity, you
    do not have it and you could break apart physical processes.
        We have now validated two Nobel award winning theories
    which had not been validated before because we have these
    characteristics. One is a group renormalization theory and the
    other has to do with phase transitions. It is called the Lambda
    point. You cannot make those measurements on the ground.
        Now what happens? Another problem has occurred in America.
    I call it scientific cannibalism. As the science budget starts
    compression, one scientist looks at some other scientist's
    budget and with incredible knowledge, not knowing what is in
    that field, says you cannot go do that. Microgravity research
    is now having an impact. There are thousands of scientists and
    in the area of combustion, for example, at the 25th combustion
    symposium, which is the symposium in combustion, 10 percent of
    the papers came from microgravity research.
        There is a scientific community building, and if you look
    upon the space station as a laboratory which happens to be a
    couple of hundred miles above the Earth, in that laboratory
    there is incredible research, and I submit we have 14 countries
    involved in this research. Brazil is begging to become a part
    of this, a country which has terrible economic problems wants
    to join. The Ukraine which has a situation that is a problem--
    OK, so we have these countries.

                             SPACE STATION BENEFITS

        And my final point is on the space station we will
    understand how people could live and work safely and
    efficiently in space. On the space station we are developing
    techniques for telemedicine and telepresence that will be
    essential if we go to another planet responsibly. On the space
    station we are going to understand how to develop
    countermeasures. On the space station we are doing experiments
    on integrating robots with people. We are developing robots
    that will see, hear, smell, and have tactile feel. We need to
    understand how to do this to realistically have low-cost
    missions back to the Moon and on to Mars.
        And my last point to you is if we want to go to the Moon
    and Mars and have a splash, a one-shot feel-good mission, we
    could do it with the kind of moneys we have. The object is to
    have sustained presence in the solar system. And this is done
    with very basic, fundamental science that takes time, it is
    difficult and painful. And we have set an objective of seeing
    how we could go back to the Moon and on to Mars for one-tenth
    to one-thirtieth the cost in these days, dollars of what Apollo
    cost. We do not want to brute force this, and the space station
    is going to help us develop these techniques.
        We, also, in the space station redesign, put a sunset
    clause on the space station, so it would not go on for 30
    years, which was the initial plan, and that after 10 years of
    operation there will be a national peer review to see if we
    have met the objectives on science, on exploration and
    commercialization, and commercialization is a major part, to
    see if we could then hand over the space station to commercial
    activities that will be taking it over. That is the fundamental
    issue.

                                      X-33

        Being in the space business these years, I believe this is
    the right thing. But I also believe it is crucial that we now
    look at other ways of getting into space. The X-33 is another
    way of doing it. It is the first time in 25 years we are
    developing a new rocket engine--first time. It is the first new
    launch vehicle we have developed in 25 years, and maybe it will
    crash and maybe it will not, but I want to assure you the X-33
    program is not a Government program. Industry is putting in
    roughly 25 percent of the cost of this thing. There is no cost-
    plus-fixed-fee program, and we are going from start to launch
    in a little over 2\1/2\ years, not 10 years with a huge number
    of people.
        We have a whole series of other programs in parallel with
    the X-33 that are going to help us do this, too. And finally,
    we have maybe 100 people in Houston, not 1,000, not 10,000
    people, who have been charged with figuring out how to go back
    to the Moon and on to Mars for numbers that would live within
    the present budget we have, and as the space station gets
    through its completion to live within the budget wedge that has
    been specified, and I think you are going to see unbelievable
    things.

                                  MARS MISSION

        My last point is we are not waiting to go to Mars. We have
    10 missions going to Mars right now. The first one from the day
    we started until we launch was 3 years. It was one-quarter the
    cost of the spacecraft that took 10 years and just went into
    orbit, and on July 4 of this year we are landing a robot on
    Mars. And 2 years from now we are going to land a robot at the
    polar cap on Mars and drill into the ice. We are going to be in
    2005 bringing back rock samples from Mars, where in 2001 and
    2003 we had robots walking all over the planet to make piles of
    rocks, and we are going to then collect it and bring it back.

                         NASA--FASTER, BETTER, CHEAPER

        We are doing things for a lot less money, and I want to
    tell you, doing all this we turned back $40 billion, we cut our
    budget 36 percent, our productivity went up 40 percent, we
    started 38 new programs without asking for an extra nickel from
    the Congress. This NASA is determined to open the space
    frontier, and we are going to build opening the space frontier
    on that space station. The shuttle is now $1 billion a year
    less to operate, and in my tenure we have gone from $600
    million a mission to $400 million a mission, and those crazy
    folks at the shuttle are now saying they want to take a go in
    the next 5 to 10 years to cut the cost by a factor of four. I
    do not know if they will do it, but they are signing up and
    improving their reliability by a factor of five, and they are
    going to compete with the X-33. There will be competition and
    there will be other approaches to do that.
        So I submit this is an outstanding program that is going to
    inspire young and old alike, and July 4 turn on your Internet,
    because every child in America is going to see the mission from
    Mars. It is not going to be for the scientists.
        Thank you.
        Senator Bond. Thank you very much, Mr. Goldin. If you want
    to expand on your thoughts, I would be happy to admit those for
    the record. [Laughter.]
        Mr. Goldin. I am a little emotional. [Laughter.]
        Senator Bond. I trust that Senator Harkin may have
    additional questions for the record.
        Senator Harkin. Excuse me, Mr. Chairman. I do have
    additional questions. I will submit them in writing.
        Senator Bond. If you would, please, we would be most
    interested to receive the questions and the response. Thank you
    very much, Senator Harkin.

                                  X-33 PROGRAM

        Senator Bond. Speaking of the X-33, we are obviously very
    interested in that. Do you now know whether you would plan to
    phase out the shuttle by 2010? I would be interested generally
    in the status of the reusable launch vehicle and the
    commercialization and privatization. Would you address the X-
    33?
        Mr. Goldin. Yes; the X-33 is a half-scale vehicle that will
    go up to close to Mach 15 and fly suborbital flights over land
    from California to places as far northeast of that as Montana.
    Senator Burns is not here. That was a little commercial.
        Senator Bond. If anybody wants to go to Montana.
    [Laughter.]
        That will teach Senator Burns to leave.
        Mr. Goldin. It is an incredible program. We have taken a
    new rocket engine. We are building an almost all composite
    vehicle, and we are going to try and see if we could retire the
    risk so it could be open to commercial activity.
        But this is a new NASA. As Senator Mikulski talked about,
    we want competition. So the shuttle team is all charged up
    because they want to compete with it, because all of a sudden
    you cannot charge anything you want, and we have set a goal
    that within 10 years at NASA we want to get to $1,000 a pound.
    So we intend to compete the shuttle against the X-33, because
    the next step is a reusable launch vehicle. Maybe the reusable
    launch vehicle will be a derivative of the X-33, maybe not.
    Because in parallel with that we are working on a new set of
    rocket engines, and we just awarded a contract for something
    called HYPER-X, which is a vehicle which will fly between Mach
    5 and Mach 10.
        Somewhere around the year 2000 we are going to have a lot
    more data, and at that point in time we will be in a position
    to start making decisions based upon what the industry thinks
    they could do. We view NASA's role as reducing technological
    risk and not getting into marketing, and we will let the
    shuttle compete against the reusable launch vehicle based on
    the X-33, and hopefully that will be a heck of a competition,
    and at that point we will be able to say whether we could
    proceed with the commercial development.
        Last point, we have been talking to investment bankers, and
    we are trying to make NASA a place that is acceptable for
    private capital, and over the next year we intend to really dig
    in and support this. And, in fact, one of the possibilities
    might be that we could not just go to a prime contract on the
    shuttle, but the privatization and perhaps even
    commercialization where private capital will then take it over.
    And that is the best way to do it, not to have the Government
    make those decisions.

                              AERONAUTICS PROGRAM

        Senator Bond. Thank you.
        With respect to the aeronautics side, this subcommittee, as
    you know, has been a very strong supporter of the first A in
    aeronautics. And we are looking at the aeronautic safety
    initiative, and do you see any impact on other programs? What
    will be the effect on the aeronautics research and technology
    base, and would you describe generally the goals and the new
    goals that you have in advanced subsonic technology and high
    speed research?
        Mr. Goldin. Yes; we felt that the aeronautics program was
    drifting a little bit, and we were not telling the American
    public what we were doing in terms they could understand. So we
    set 10 very specific goals for 10 years and 20 years out. And
    just a couple of them. In 10 years we intend to cut the crash
    rate on planes involving fatalities by a factor of 5 in 10
    years and a factor of 10 in 20 years. We intend to within 20
    years have planes capable of going across the ocean so that you
    could do business there in one day and come back, or twice the
    speed we have right now. We intend to cut the emissions and the
    noise levels of planes. We intend to cut the cycle time it
    takes to develop a new aircraft by a factor of two. So we set
    those goals.
        Now, to start things off, we reprogrammed one-half billion
    dollars out of existing resources. Remember, the rule is in the
    declining budget you do not come back to the Congress and hold
    your hand out, you reprogram and prioritize and you make a list
    and the lowest priority drops off. We felt that the American
    public wants safer planes. It is crucial to opening up the
    Pacific rim, and it is crucial if we open the Pacific rim it
    has an American flag on the tail of that plane.
        Safety is very important. The crash rate for the last 20
    years has been constant. And the number of planes will triple
    in the next 15 to 20 years, so we must get the crash rate down.
    So the first 5 years we programed within our own resources,
    prioritized, the research and technology base is just as strong
    but it is now focused, and we are telling them we want safety,
    we want lower emissions, lower noise, faster planes, better
    economics, and I think it is going to change aviation in this
    country and have American flags on the tails of planes.

                           MERGERS AND CONSOLIDATIONS

        Senator Bond. One final question and I will submit the rest
    of my questions for the record. We all know that there have
    been significant mergers and consolidations. One of those
    affects the major employer in my State, McDonnell Douglas,
    which may become a part of the Boeing conglomerate, and that
    was discussed in this Sunday's business section of the
    Washington Post. What kind of concerns do you have about the
    maintenance of a healthy, competitive environment as these
    mergers occur, in light of the fact you have to contract for
    the space shuttle, for consolidated space operations? To what
    extent do you see any problems for your space and aeronautics
    efforts with these mergers and consolidation?
        Mr. Goldin. First let me say that in the big picture I have
    supported the mergers, because we were carrying an overhead
    base that we could not afford. So on the one hand there is a
    real reason. The capacity was much too great for the amount of
    work that was involved, and that is a driving force.
        Second, let me say that there is one giant already, and
    that giant needs competition. So on the positive side this
    latest merger will cause two giants so they will compete with
    each other. So I think that is healthy.
        Saying that, here is my concern: It is important that the
    words of the CEO's be very clearly written down and all their
    promises be very clearly written down and they be held
    accountable, and that over a period of time if they have an
    abuse of power where these companies start telling their
    customers what to do because they are so big, I think
    appropriate action will have to be taken.
        But I am the optimist. I think it could work. But I would
    hope to see a process where we have some touch points
    downstream so we do not have to listen to the promises of today
    and then have to listen to them downstream. Everyone knows that
    downstream if something happens we, NASA, may have to come
    forward and suggest a divestiture or two to get that power
    away. I am worried about raw power, and I would like to see
    some response by the industry to convince us that they are not
    going to push around their customers. I have, you would be
    shocked to know, seen this power play before.
        Senator Bond. Mr. Goldin, since you are one of the major
    customers, we would be interested to see what kinds of test
    guidelines and parameters you might set on that. I hope you
    will share those with us.
        Mr. Goldin. We would be happy to participate in that, and
    we will communicate with your staff our thoughts. But right now
    we would like to see it go through. We believe people do what
    they say they are going to do, but there is an old expression,
    trust but verify.
        Senator Bond. Thank you.
        Senator Harkin.

                                  X-33 PROGRAM

        Senator Harkin. Mr. Chairman, thank you. I just have a
    couple of short followups.
        Mr. Goldin, you said that the X-33 program was not a
    Government program. You said the private sector is putting in
    25 percent. Who is putting in the other 75 percent?
        Mr. Goldin. My terminology was improper. Let me correct
    that. I am sorry. It is not a typical Government program.

                      UPGRADING EXPENDABLE LAUNCH VEHICLES

        Senator Harkin. Has NASA studied the option of upgrading
    its expendable launchers, including the development of a
    nonreusable craft for human space flight in case the X-33 does
    not prove cost effective?
        Mr. Goldin. The answer is we now have executive direction
    that the Department of Defense is responsible for expendables
    and NASA is responsible for reusables. The Department of
    Defense right now is developing a program called the EELV, the
    evolved expendable launch vehicle, which is trying to take the
    expendables to the highest possible reliability and the lowest
    possible cost. It is my belief, being in the industry for 35
    years, that if we are ever to have routine presence in space,
    sustained presence in space, the expendables are not the
    answer. It will have to be reusables, and let me explain to you
    why.
        If you take a look at an expendable rocket, 2 percent of
    the total rocket mass goes into orbit. So 98 percent is thrown
    away. Of that about 10 to 15 percent is high-value-added
    machined and electronic hardware, and every time you launch you
    throw it away. Given the kind of technology we have, I do not
    see that there is a way with an expendable to ever change that
    payload mass fraction. Maybe they will go up to 3 percent, but
    they will never go higher than that. With reusable vehicles you
    keep using that over and over again. This is what an airplane
    is.
        The other problem with expendables is they have multiple
    stages. First the first stage and the second stage and the
    third stage and the fourth stage, like on Apollo. We are
    attempting to build a vehicle--which is a real stretch--that is
    just like a plane. You do not have multiple stages. The
    technology drives it, and as a result, you do not have to have
    all that integration going on. In fact, there were some
    thoughts early in the aviation business when we had jet
    aircraft that maybe we would refuel them in mid flight. That
    would be a two-stage system. That does not make sense from a
    reliability standpoint or a cost standpoint.
        We take on some very tough tasks, and it is our position at
    NASA that ultimately within 10-15 years we will develop the
    technology for reusables that will make expendables obsolete.

                           COST EFFECTIVENESS OF X-33

        Senator Harkin. Well, again, it is all good theory, but I
    am just wondering what happens if the X-33 does not prove cost
    effective. And I am not going to get into that debate, I just
    wonder. You say that DOD is responsible for expendables, NASA
    is responsible for reusable. This is reusable. If it does not
    prove cost effective, just throw up your hands?
        Mr. Goldin. No; oh, we have a broader program.
        Senator Harkin. Or are you going to make it prove cost
    effective regardless.
        Mr. Goldin. No; let me explain the broader program. The X-
    33 is but one element of a very broad-ranging program we have
    on reusables. The program has something called the X-34. That
    is a vehicle that is a two-stage vehicle that goes up to Mach
    8. The X-33 is an experimental vehicle. It is not a production
    vehicle, it is not a program where we even know it is going to
    end. We are just doing experimental flights like the X-1 up
    through the X-15. These are experimental vehicles.
        This is a program that has a 10-year goal and a 20-year
    goal, and it is not a single program, but it is the sum of many
    programs. So we have the X-34 which flies a year from now. We
    have the X-33 which will fly a little less than 2 years from
    now. And parallel with that we have the HYPER-X Program, which
    is a series of small vehicles which will fly between Mach 5 and
    Mach 10 with the pilot sitting on the ground. We have a program
    called RBCC, rocket booster combined cycle, which begins to
    feed in oxygen as a portion of the fuel from the atmosphere so
    we can get the payload mass fraction up to perhaps 5 or 10, and
    all these programs are going to be undertaken in the next few
    years.
        We have another program called the BANTAM lifter, which is
    a reusable small launch vehicle. We are going to evaluate these
    technologies every few years, we will look for which of the
    ones that are progressing, which are the ones that are not
    progressing, and constantly drive toward this goal of $1,000 a
    pound which we set for 10 years from now.
        So this is not a one-shot, and we were very clear on the X-
    33. It may succeed or it may fail. But the problem we have had
    at NASA in the past was we would take these major programs that
    became organic, like the shuttle, and it was the shuttle or
    nothing, now what we are saying is we want a broad diversity of
    things going on, and instead of multibillion dollar programs,
    we are doing programs that range between $30 million for this
    HYPER-X up to $900 million for the X-33, under $100 million for
    the X-34, so we are breaking it into small chunks, different
    industrial teams, loads of competition, a tremendous amount of
    intensity, but for the first time in 25 years we have five
    different new rockets under development in this country, with a
    much smaller budget than we ever did before.
        So that is my point. The X-33, I hope it makes it. If it
    does make it, we are saying to the contractor at some point in
    time you pay for the development and then we will just be a
    customer. But we are out of the business, at least right now,
    of having the Government pay the full development costs, and we
    are trying to amortize the development costs against the
    commercial sector so the Government is only a participant. So
    that is the concept we have, and maybe I did not explain it
    correctly.
        Senator Harkin. Thank you very much.
        Thank you, Mr. Chairman.

                         Additional committee questions

        Senator Bond. Thank you, Senator Harkin.
        As I indicated, we will keep the record open for further
    questions from members of the committee and further answers. As
    I said, I am sure you want to expand on some of those answers.
        [The following questions were not asked at the hearing, but
    were submitted to the Administration for response subsequent to
    the hearing:]
                      Questions Submitted by Senator Bond

                           MANAGEMENT AND AGENCY-WIDE

        Question. In 1996 NASA abolished the Office of Space Access and
    Technology (OSAT), redistributing responsibility for technology
    development to other program offices. Coordination of these efforts is
    being undertaken by NASA's Chief Technologist in the Administrator's
    office. How will advanced technology development be undertaken within
    the agency's offices? How will the Chief Technologist coordinate NASA-
    wide technology development efforts? What are your plans for the
    creation of a Technology Institute and what role would this institute
    have in NASA's technology efforts?
        Answer. First, when OSAT was dissolved, the specific technology
    programs supported by that office were not dissolved. OSAT
    responsibilities were reassigned to other offices along with budget and
    personnel. Specifically, cross-cutting spacecraft technology, formerly
    within the Spacecraft Systems Division of OSAT, was assigned to the
    Office of Space Science which now has responsibility for basic
    spacecraft technology in support of multiple program offices. The Space
    Transportation Division, responsible for advanced launch and in-space
    propulsion technology (including the reusable launch vehicle programs),
    was transferred intact to the Office of Aeronautics, which has been
    renamed the Office of Aeronautics and Space Transportation Technology
    (OASTT). Similarly, the commercial technology programs were transferred
    intact to OASTT. The Space Processing Division, which supports
    activities in areas such as materials processing and biotechnologies
    was transferred to the Office of Life and Microgravity Sciences and
    Applications.
        In addition, each NASA program office will support specific
    technology programs to support their missions. The Office of Space
    Science, for example, is initiating major new technology programs to
    support its Origins Program (e.g., the Next Generation Space Telescope
    and space interferometers that will eventually directly detect
    planets--potentially earthlike--around other nearby stars) and deep
    space planetary program (e.g., Mars exploration). The Offices of
    Mission to Planet Earth and Human Exploration and Development of Space
    are similarly developing plans for robust new technology programs.
        The key instrument for technology coordination is the Technology
    Leadership Council (TLC) which was established along with the Office of
    the Chief Technologist at the end of fiscal year 1996. The Chief
    Technologist will chair the Technology Leadership Council. This council
    will include program office leaders, key HQ officials and center
    directors. The TLC is chartered to advise the Administrator on
    technology through the Chief Technologist, formulate Agency-level
    technology policy and investment strategy, coordinate the technology
    program within NASA, and address any and all issues related to the NASA
    technology program. The Office of the Chief Technologist will also lead
    and be responsible for the process that will be used to develop the
    NASA Integrated Technology Plan.
        The institute NASA is in the process of establishing is for
    advanced concepts, not technology in general. The role of the institute
    is to provide the Agency with an independent source of advanced
    concepts that can have a significant impact on future missions. NASA
    strongly believes that a robust program in advanced concepts is
    essential for the long-term future of the Agency. The institute will be
    established, competitively, at a host institution and will have
    independent authority to solicit, fund and evaluate advanced concepts
    across all NASA mission areas. The institute will be ``virtual'' in the
    sense that it will not have a permanent technical staff, except for a
    director. The director will be responsible for developing solicitations
    and overseeing the evaluation process. The other ``members'' of the
    institute will be the investigators selected for award. NASA's role
    will be to assist the director in developing solicitations consistent
    with the Agency's long term goals and to assure that institute awards
    are similarly supportive of the Agency's overall mission and strategic
    goals. This activity will augment individual advanced concepts
    activities conducted within each program office. By complimenting the
    internal activities with an independent external advanced concept
    activity, NASA will significantly broaden the range of concepts that
    can help the Agency do its job more effectively and at lower cost.
        Question. NASA and the Air Force recently announced their intention
    to coordinate efforts in several areas. What are the plans for agency
    coordination? What areas are being addressed in the coordination study?
    What impact might these efforts have on NASA's budget?
        Answer. NASA and Air Force Space Command cooperative efforts are
    outlined in the accompany press release.
        Any budget impacts will be dependent on the implementation of
    recommendations which have not yet been formulated. It is premature to
    speculate what impacts might ultimately result.
        Question. In 1997, NASA must begin complying with provisions of the
    Government Performance and Results Act (GPRA). What progress are you
    making in developing your strategic plan that must be submitted to
    Congress by the end of September of this year? What roadblocks or
    difficulties are you encountering in efforts to comply with the act?
    What metrics will be used given the research nature of the agency?
        Answer. NASA's efforts to develop a strategic plan and performance
    measurement system predate the passage of the Government Performance
    and Results Act (GPRA), as well as the National Performance Review.
    NASA initiated a new Strategic Management System in 1992. Previous
    attempts at planning did not align with budget reality or with national
    policy priorities, and did not present a unified vision and direction
    for NASA. NASA issued the first Strategic Plan developed under the new
    system in 1994. The Plan has been updated in 1995, 1996, and the 1997
    edition is now undergoing the congressional consultation process.
        The NASA Strategic Plan articulates the vision, mission, goals and
    values for the Agency and lays out a roadmap for the next 25 years. The
    Plan describes what we do, identifies our customers, and articulates
    where we are going and why. Most importantly, it provides a common
    basis for the Administration, Congress, and NASA's management to make
    decisions regarding the implementation of our programs and the
    deployment of the resources needed to turn the Plan into reality. The
    Plan describes four Strategic Enterprises as our core businesses that
    include: Mission to Planet Earth, Space Science, Aeronautics and Space
    Transportation Technology, and the Human Exploration and Development of
    Space. The Plan also defines four crosscutting processes that are
    essential to perform our mission. Specific goals are identified for
    each Enterprise and the roles and responsibilities for each field
    installation as a Center of Excellence or Center Mission are defined.
    The NASA Senior Management Council approved the Strategic Plan that
    covers the period beginning with fiscal year 1998 and will be submitted
    with the fiscal year 1999 budget request. We are encountering no
    roadblocks to comply with GPRA.
        The metrics to measure the success of our programs will be
    contained in a separate Performance Plan. Performance indicators will
    be offered for NASA's four Strategic Enterprises and for the four
    Crosscutting Processes. To develop the performance measures, NASA
    initiated an internal pilot project in 1994 to assess program outputs,
    outcomes, and operational efficiencies. The assessment of our
    crosscutting processes measures outcomes associated with answering our
    fundamental questions of research. NASA has cooperated with other
    research and development agencies to identify metrics that take into
    account the long term nature of realizing specific results from the
    nation's investment in research, while accommodating the intent of GPRA
    to ensure efficient short term success indicators. Two pilot
    Performance Plans have been completed to date and have been discussed
    with our advisory committees and external stakeholders. The first
    official Performance Report will be submitted this fall with the fiscal
    year 1999 budget request.
        NASA's Strategic Management System has been recognized as a model
    of excellence by OMB. A case study video tape documenting the NASA
    process was developed and distributed by the Office of Personnel
    Management and distributed to all government agencies and to Federal
    education and training centers.
        Question. Through the years NASA has built an extensive physical
    infrastructure at its centers located throughout the nation. During
    times of budget constraints, the physical plant of agencies is often
    neglected. Does the agency have a plan to maintain the capability of
    its physical plant? How much is requested in fiscal year 1998 for such
    efforts?
        Answer. NASA just completed a Facility Investment Study that tied
    plant condition and performance with mission criticality from a risk
    management perspective. We know where we need to make investments and
    will sort that out in the upcoming budget builds.
        The fiscal year 1998 budget request contains approximately $172
    million for infrastructure investment including liquidating
    environmental liabilities associated with the plant.
        Question. What is the status of the 1995 Zero Base Review? Will you
    be able to achieve the savings initially projected in the review? Are
    all the consolidations and changes recommended in the review complete?
    If not, what remains to be completed? Are there any plans to undertake
    an evaluation of your efforts?
        Answer. Since NASA's implementation of the recommendations
    resulting from the Zero Base Review (ZBR), significant progress has
    been made in changing the way the agency conducts business, and
    reducing its size and infrastructure in concert with its future budget
    projections. NASA is achieving the savings projected in the Zero Base
    Review. The budget runout for fiscal year 1997-2000 included in the
    fiscal year 1998 budget request is nearly identical to the budget
    runout included in the Zero Base Review.
        The following are examples of specific actions underway to
    implement the ZBR recommendations:
      --On October 1, 1996, NASA awarded a contract to operate the Space
            Shuttle program to U.S. Alliance, a significant departure from
            years of direct government management and control.
      --Program management responsibilities have been transferred to Lead
            Centers from NASA Headquarters, and Centers of Excellence have
            been established for each NASA Center for more effective and
            efficient decision-making.
      --The fiscal year 1999 budget will implement full cost budget,
            management and accounting principles which will further the
            objective of more efficiently managing the public's fund based
            on sound business principles.
      --Through two successful buyouts, attrition and aggressive
            restrictions on hiring the agency FTE workforce is 19,763 in
            mid-fiscal year 1997. This is 1,175 FTE below the post-fiscal
            year 1996 level. The fiscal year 2000 target has been increased
            491 to 17,979 after careful analysis of agency requirements for
            its programs, projects and skill mix, particularly in regard to
            the Space Shuttle. The fiscal year 2000 target of 17,979 is a
            reduction of over 3,500 FTE's (-16 percent) from the fiscal
            year 1996 ZBR baseline of 21,555 FTE.
      --Through fiscal year 1996, buildings and facilities with a current
            replacement value of $1.5 billion have been closed. Other
            actions at NASA in support of the ZBR recommendations which are
            well underway are conversion to performance-based contracts,
            decommissioning of excess aircraft, and efforts to privatize
            communications services for NASA's low-Earth orbiting missions
            at JPL and remote sensing data acquisition at the Stennis Space
            Center. Procurement activities are underway which will
            establish the National Space Biomedical Research Institute in
            Houston, TX in June 1997.
        In short, NASA is maintaining its stated goals of implementing the
    ZBR recommendations within the timeframe established. Evaluation of our
    progress in this implementation process is ongoing. No major programs
    have been terminated. In fact, several significant, new programs have
    been initiated in this timeframe which maintain the agency's leadership
    in science and technology into the next century.
        Question. Last year this Subcommittee provided NASA the authority
    to conduct employee buyouts to help with downsizing efforts. How well
    is the buyout effort proceeding and is there other legislation that the
    Congress should be considering to help avoid a RIF situation?
        Answer. With the passage of legislation granting NASA buyout
    authority through fiscal year 2000, the agency once again possesses a
    valuable tool to aid in downsizing and restructuring without the
    adverse impact of involuntary separations and downgrades. Thus far,
    most of the NASA centers have conducted their first round of targeted
    buyouts, aimed at job categories where reductions need to take place.
    As the fiscal year heads to a close, over 850 NASA employees have
    separated with buyout under this authority. With careful management,
    tailoring the use of buyouts to each center's specific downsizing
    needs, we have significantly enhanced our voluntary attrition rate,
    while avoiding major skills imbalances and program disruptions which
    can result from reduction in force.
        With continued availability of buyout and early retirement
    authorities for the balance of our downsizing cycle, agency managers
    anticipate achieving target staffing levels without the need for
    additional legislation. NASA appreciates your continued interest and
    support during the restructuring process.

                                 SPACE STATION

        Question. What were the results of the Russian General Designers
    Meeting on April 24? Did that meeting give you any confidence that the
    Russians are now willing to meet their commitments on the International
    Space Station (ISS) program? If yes, why?
        Answer. The Service Module General Designer's Review, held on April
    24, 1997, with RSA, RSC-Energia, Krunichev and all major subcontractors
    (over 40 companies) reconfirmed that there were no significant
    technical impediments to completion of the Service Module in support of
    a December 1998 launch. NASA senior managers were in attendance during
    this open and candid review which focused on technical issues. Schedule
    milestones were reviewed in detail and all Russian parties stated that
    the current Service Module schedule for a December 1998 launch is
    feasible. They then committed to the schedule execution necessary to
    hold this launch. As a result of the GDR, we now have a signed overall
    Service Module schedule and detailed delivery schedules for the
    subcontractors.
        At the Space Station Control Board held May 14, 1997, in
    conjunction with all our international partners, we officially
    baselined a new assembly sequence which places the Service Module
    launch in December 1998. This decision reflected a renewed confidence
    by all the international partners that Russia will deliver its
    commitments on schedule based on events that have taken place in Russia
    over the last few months, such as the fiscal year 1997 funding for the
    SM being available. While not completely eliminated, the risk to its
    delivery schedule has been sufficiently lowered. There were many
    factors that the U.S. and the other partners considered in making this
    decision, but, it was ultimately based on a visible and concrete
    demonstration by Russia of their resolve.
        Question. What return on investment have American taxpayers reaped
    from having U.S. astronauts aboard Mir for more than a year? What will
    be the return from the additional flights planned through 1998?
    Precisely what are the scientific experiments the astronauts are
    conducting?
        Answer. The returns on the investment for having U.S. astronauts
    live and work aboard Mir derive from pursuing the basic objective of
    the Shuttle-Mir/Phase I program: namely, to capitalize on existing U.S.
    and Russian space assets and know-how in the interest of the U.S., both
    today and in future years. The benefits to us of the joint Shuttle/Mir
    activities are accruing through three thrusts: (a) learning to work
    with the Russians (and having the Russians learn to work with us); (b)
    reducing the programmatic, technological, and assembly/operations
    procedures risks on the International Space Station (ISS) program; and
    (c) utilizing the space station Mir for conducting early science
    research requiring longer durations than provided by Shuttle missions.
    By exercising crew exchanges, science research, hardware delivery, on-
    board repairs and servicing, and operational test and verification, we
    have in all of these categories already gained much more from our
    collaboration with Russia than many experts expected at the outset.
        The early scientific experiments conducted by U.S. astronauts fall
    in two major areas: Risk Mitigation Experiments (RME) and Mission
    Science. The latter recognizes such areas as Fundamental Biology (FB),
    Human Life Sciences (HLS), Space Medicine Program (SMP), Microgravity
    Sciences (MG), and Space Science (SS).
        Specific experiment programs in these disciplines include:
        RME.--Mir Environmental Measurements (e.g., electric field);
    Structural Dynamics Investigations; Dynamic Loads Measurements; Cosmic
    Radiation Monitoring; Radiation Shielding Research; Volatile Organics
    Measurements; Micrometeoroid/Debris Survey; ESA Proximity Sensor
    Verification; Docking Evaluations; EVA Operations; Onboard Water
    Experiments/Testing; and Hardware Verification Tests (e.g., treadmill,
    personal computer system).
        FB.--Insect Circadian Rhythms; Environmental Radiation
    Measurements; Dosimetry Tests; Greenhouse/Plant Growth Experiments; and
    Incubator Experiments.
        HLS.--Bone Mineral Loss Investigations; Humoral Immune Function
    Investigations; Renal Stone Risk Assessment; Human Autonomic
    Investigations; Sensory-Motor Transforms Determination; Sleep
    Investigations; and Magneto-resonant Imaging (MRI).
        SMP.--Toxicological Assessments; Archival Water Sample Analyses;
    Crew Microbiological Assessments; Mir Microbiological Measurements;
    Metabolic Investigations (blood, urine, saliva, glands, centrifuge);
    Cardiovascular Investigations (skin & core temperatures, blood
    pressure, cardiovascular monitoring, physical fitness); and Orthostatic
    Function Studies.
        MG.--Space Acceleration Measurement System (SAMS); Colloidal
    Gelatin Experiments; Microgravity Glovebox; Dialysis Crystallization
    Experiments; Liquid Metal Diffusion Experiments; Flame Investigations;
    and Biotechnology Systems Development.
        SS.--Particle Impacts Measurements; and Mir Samples Assay, etc.
        Question. Much attention has been focused on the problems with
    Russian involvement in the space station program. However, the U.S.
    prime station contractor, Boeing, also has encountered problems
    resulting in cost increases and schedule delays. What is the current
    status of Boeing's efforts? Are you satisfied with the prime
    contractor's performance to date? What actions are being taken to deal
    with the problems?
        Answer. Boeing continues to make substantial progress on the
    development of the hardware. The FGB and Node 1 were on track for
    launch in late 1997, and now, due to the Service Module (SM) delay,
    they are scheduled for launch in mid-to-late 1998. The U.S. elements
    through 7A are completing design and fabrication, with qualification
    testing and flight integration activities well underway. The program
    has passed the 59 percent completion mark in major milestones. Of the
    U.S. flight hardware to be produced, over 184,000 pounds of the total
    720,000 pounds have been built.
        As is expected with an undertaking of this complexity and
    magnitude, problems have been encountered by Boeing, as the program
    reaches the point of peak development activity. Boeing is addressing
    the technical problems that have been identified to date and continues
    to work very hard to solve the myriad of technical and programmatic
    challenges that are encountered as the program moves through the
    qualification testing and production phase of the development cycle.
    Resolution of the technical problems, however, is achieved at a cost in
    both schedule and cost performance.
        Boeing's schedule variance is currently approximately 3.3 percent
    ($132M) through March 1997. This continuing schedule variance indicates
    the Prime contractor is approximately 5 weeks behind plan. Although the
    schedule variance has continued to worsen over recent months, we expect
    to see slight improvements in schedule performance over the next 6
    months as hardware and software qualification milestones are completed.
    Schedule recovery plans are in place at the Product Groups and at the
    Tier II subcontractors. The overall cost and schedule variances are
    reported monthly at the Program Manager's Review. The near-term
    schedule problems on flights FEL through 7A are statused to management
    on a regular basis.
        Boeing's cost variance is currently 7 percent ($291M) through March
    1997. Boeing's cost projections indicate that this variance will
    continue to grow over the remainder of the year. While this trend is of
    concern to NASA and Boeing, it is important to recognize that the
    program is now in a critical phase where a considerable amount of
    hardware is being assembled and tested, and software is being
    developed, integrated and checked out. During this timeframe, the
    potential for unforeseen challenges to our cost and schedule targets
    will remain high. The program had adequate reserves built into the
    total development estimates to address these anticipated challenges.
    However, Russian schedule uncertainties have required us to develop and
    maintain contingency capabilities that has diverted a portion of those
    resources at a time when they are critical for continued program
    development. For that reason, NASA has reallocated $200 million to
    support the contingency requirements, and enable the use of program
    reserves as originally intended.
        NASA and Boeing are also developing and implementing as rapidly as
    possible a workforce destaffing plan that aggressively removes Tier One
    and Two contractors from the work force as soon as hardware and
    software development efforts are completed. Staffing projections for
    the remainder of the year show substantial reductions in workforce
    levels. NASA is also restricting change orders to the contract to only
    those that are absolutely essential to the successful operation of the
    Station. All changes currently in process are being carefully reviewed
    to minimize near-term costs. Additionally, NASA has a very rigorous
    award fee process in place that requires the contractor to meet
    acceptable cost and schedule performance standards in order to earn
    award fees on the contract. Failure to meet those standards could
    result in a substantial loss of revenue to the contractor, and is
    expected to incentivize excellent contractor performance.
        Question. Why has the estimated number of spacewalks for the Space
    Station during the assembly period tripled (from 434 hours to 1,519.5)?
    Do you expect the number to continue growing?
        Answer. The International Space Station is a large and complex
    project which is assembled over several years and numerous flights. The
    assembly requires a large number of EVA's; however, the total number of
    EVA's or EVA hours is not a particularly useful tool in evaluating the
    level of risk to ISS assembly. During the two Hubble Space Telescope
    repair missions, NASA demonstrated the ability to accomplish complex
    missions with multiple complex EVA's. The two most important issues in
    assessing the risk of the assembly EVA's is the EVA margin available to
    the program and the level of complexity of the EVA tasks. Experience
    has shown that as we transition from a hardware development phase of
    the program into crew training the EVA timelines become better defined
    as task/design details emerge and other operational details are
    integrated into the timelines. In some cases we expect the timelines to
    grow because of this but in other cases the timelines will decrease as
    the EVA crew members become more proficient with their tasks and/or
    design details emerge where only assumptions about the EVA task were
    previously made.
        The 434 crew hours basically indicates an older estimate which only
    included the hours for U.S. assembly of the ISS. The 434 hours does not
    include: U.S. Assembly crew hour growth from 434 to the current number
    of 905.2; U.S. external maintenance during assembly (currently at 200
    crew hours); Russian assembly crew hours (currently at 270 hours); and
    Russian crew hours required for external maintenance (currently at 144
    crew hours).
        The following table indicates the U.S. crew hours increase and the
    Russian crew hours decrease from March 1996 to the current numbers
    (April 1997).

    ------------------------------------------------------------------------
                                               Crew hours
                                    -------------------------------
                                      U.S.    U.S.    RSA     RSA     Total
                                      assy.  maint.  assy.  maint.
    ------------------------------------------------------------------------
    June 1995......................   434.0  ......  .....  ......     434.0
    March 1996.....................   707.4    122    420     240    1,489.4
    September 1996.................   808.2    126    324     144     1402.2
    October 1996...................   810.6    162    324     144    1,441.6
    January 1997...................   910.5    162    270     144    1,487.5
    Current (April 1997)...........   905.2    200    270     144    1,519.2
    ------------------------------------------------------------------------

        Examples of activities leading to U.S. EVA hour growth from March
    1996 to the current numbers (April 1997) are provided below.
      --Better definition of timeline and design maturity on Flight 7A
            (Airlock assembly tasks) and other flights (+25.3 hr.)
      --Added EVA to install Power/Data Grapple Fixture and cables on the
            FGB to complete on-orbit software modifications. (+12 hr.)
      --Battery move from P6 Truss to P4 without the previously planned
            Special Purpose Dexterous Manipulator (SPDM) (+35.0 hr.)
      --Manual relocation of the Battery Charge/Discharge Unit & Grapple
            Fixture resulting from SPDM deferral as an assembly aid (+35.3
            hr.)
      --Additional EVA is required to remove Multi-Layer Insulation from
            the JEM External Facility instrument (+12.0 hr.)
      --Miscellaneous growth and timeline maturity (+12.0)
        The U.S. growth in external maintenance activities using EVA has
    occurred for the following reasons:
      --Increases in the on-orbit spares, i.e., MDM's, RPCM's, etc.
      --Changes in the current assembly sequence baseline.
      --Better defined equipment and upmass allowances (Preventive
            maintenance is just recently being addressed in the ISS
            Program).
      --Decision to defer SPDM by 7 months resulted in an increase of 40
            EVA hours for external maintenance.
        The reduction in Russian EVA assembly hours has occurred for the
    following reason:
      --The Science Power Platform (SPP) is now more fully integrated on
            the ground, therefore, reducing the amount for SPP assembly
            EVA's.
      --Service module (SM) solar array augmentation was eliminated as a
            requirement.
        The reduction in Russian external maintenance using EVA has
    occurred for the following reason:
      --increased understanding of the Russian method of estimating
            maintenance requirements. The earlier values included IVA tasks
            as well as EVA tasks.
        The current estimate of EVA hours required for ISS assembly while
    large, represents a group of EVA's which are within NASA's experience
    base and which are doable given the training planned and the margin
    present. The estimate will continue to change as the assembly sequence
    continues to mature, but appropriate margins will continue to be
    maintained.

                                 SPACE SHUTTLE

        Question. When will you have a new assembly sequence for the Space
    Station? Do you still estimate that approximately 30 U.S. Space Shuttle
    launches will be required?
        Answer. The International Space Station Control Board (SSCB)
    approved a Rev. C assembly sequence on May 14, 1997. This updated
    assembly sequence reflects a delay in the Russian provided Service
    Module from April 1998 to December 1998.
        NASA's estimate of the number of Space Shuttle flights required for
    assembly is 34, which includes one launch for ESA's Columbus Orbital
    Facility (COF) and portions of four launches for Japan's Experiment
    Module (JEM).
        Question. Within the past year the shuttle program has encountered
    such problems, a stuck orbiter hatch, the discovery of un-insulated
    water pipes, unexpected scorching of the solid rocket motors, and the
    early return of a shuttle mission due to problems with a fuel cell. Are
    these indications of a problem in the shuttle program given the
    extensive changes that have been taking place by going to a single
    prime contractor? How has United Space Alliance been performing since
    the initiation of its contract?
        Answer. Such anomalies have occurred throughout the space program
    and will likely continue in spite of the most prudent and reasonable
    precautions taken by NASA and its contractors. While certainly not an
    excuse, the water pipes that were found to lack insulation have been in
    that condition for many years--long before the advent of USA. In fact,
    USA discovered the condition. Regarding the solid rocket motors, they
    are the responsibility of Thiokol Corp. which is not a part of the USA
    contract. The fuel cells and hatch are products of sub-contractors that
    are checked for proper function, configuration, and integration by USA
    prior to launch. The Shuttle team, both contractor and government
    workers, work very hard to eliminate the occurrence of such problems.
    Performance of USA is tracked by a number of metrics including problem
    reports, mishaps, in-flight anomalies, cost rate, overtime, and
    waivers--all of which indicate a trend of good and improving
    performance by USA since initiation of its contract. The Aerospace
    Safety Advisory Panel recently reviewed the transition of operations to
    USA and confirmed that Shuttle safety has not been compromised and that
    the transition is going well.
        Question. What are your plans for Shuttle upgrades? Does it make
    sense to pursue extensive space shuttle upgrades if the shuttle is
    going to be phased out by 2012? With the potential to privatize the
    shuttle, should not the current prime contractor United Space Alliance
    be involved in funding shuttle upgrades? What might you have to do to
    keep the shuttle flying well into the next century if an operational
    RLV does not come into existence as currently envisioned?
        Answer. We plan to continue to fund and implement those upgrades
    that are required to fly the Shuttle safely until it is replaced by a
    more capable, efficient vehicle. The decision to phase out the Shuttle
    by 2012 and replace it with an operational RLV has not yet been made
    and until that is decided, maintaining the option of operating the
    Shuttle to 2020 or beyond is the prudent course, therefore, we plan to
    continue to study those upgrades which would take the Shuttle
    significantly beyond 2012. To continue to fly the Shuttle to 2020,
    significant upgrades will be needed to the Shuttle system to increase
    safety margins, mitigate obsolescence, reduce processing time, and
    reduce operations costs. Work has already begun to define, demonstrate
    and, where it makes sense, to implement component upgrades to the
    Shuttle system. Examples of upgrades needed to continue use of the
    Shuttle to 2020 include modernized avionics, computers, and displays/
    controls; more efficient and robust fuel cells; engines and auxiliary
    power units that burn less toxic fuel; and engine components and
    thermal protection tiles that require less maintenance. Certainly, the
    role of the operations contractor and the specifics of its involvement
    in Shuttle upgrades are questions that must be addressed in the near
    future. Keeping the Shuttle as safe as can be is NASA's number one
    priority, no matter how much longer it remains in service.
        Question. What are the savings from consolidation of space shuttle
    contracts? Are these savings already included in NASA's outyear budget
    estimates?
        Answer. The Shuttle program anticipates savings of $360M through
    fiscal year 2000 from its overall restructuring efforts. The $360M was
    the remaining amount of unresolved reductions as submitted in the
    fiscal year 1997 request. The total amount of budget savings that the
    program achieved was over $1B through fiscal year 2000 from the fiscal
    year 1996 request. Of the remaining $360M, $250M of that is to be
    achieved by the Space Flight Operations Contract. The $360M of savings
    were included in the fiscal year 1997 budget request to Congress and
    has been reflected in our fiscal year 1998 request.
        Question. What is the current status of DOD use of the space
    Shuttle? Are there any plans in the future to fly a dedicated DOD
    mission? Has DOD approached NASA with potential future missions that
    could be flown on the shuttle?
        Answer. Currently there are a number of secondary DOD payloads
    scheduled to fly on the Shuttle throughout the manifest and the Shuttle
    Radar Topography Mission (SRTM) primary payload is scheduled to fly in
    fiscal year 1999. Also, we are working very closely with the DOD on
    several additional primary payload flight opportunities, which may
    include some of the remaining Defense Support Program (DSP) satellites.
        Question. Some recent shuttle flights have had scorching on the
    solid rocket motor nozzles to an extent that has not occurred
    previously. What is the status of investigation into this anomaly? Can
    the agency continue to fly the shuttle safely without full resolution
    of this problem?
        Answer. Scorching or pocket erosion was observed post-flight and
    determined to have occurred on both the STS-79 (Sept. 1996) and STS-80
    (Nov. 1996) Solid Rocket Motor nozzles. The investigation will be on-
    going until a cause and corrective action is determined. The
    phenomenon, however, is understood well enough and the existing margins
    of safety provide sufficient rationale to allow safe continuation of
    Shuttle flights.
        Question. What metrics are being used or being developed to measure
    the impact of downsizing on the safety of the space shuttle?
    Additionally what metrics are being used to measure the impact on the
    shuttle safety of transition shuttle operation to the single prime
    contractor United Space Alliance? Is the agency satisfied that the
    changes are not having a negative impact? Are there specific areas of
    concern?
        Answer. The SFOC contract has several metrics which monitor the
    transition. So far, we are satisfied with the transition progress and
    do not see any negative impacts. We are constantly monitoring and
    communicating changes to our managers and workforce to ease this
    transition period. One area of concern for both civil servants and our
    contractors is in the area of software development and engineering.
    With the expansion of the Internet and other computer applications, it
    is difficult to compete with other industries to retain our best and
    brightest in this critical area.

                            REUSABLE LAUNCH VEHICLE

        Question. How significant is the weight growth and reduction in
    mach number in the X-33 program? Do you believe the program can still
    demonstrate by the turn of the century whether or not this is a viable
    option for replacing the space shuttle?
        Answer. Weight growth in a vehicle of this type, at this stage of
    its detailed design work, is not unexpected. A special weights tiger
    team has been established to assess where vehicle weight reductions
    could be achieved and has to date identified in excess of 10,000 pounds
    of candidate weight reductions. Additionally, the potential to achieve
    higher Mach numbers through optimizing flight trajectories and applying
    other technologies (e.g. densified propellants) are being assessed. The
    goal of Mach 15 is still achievable through these various efforts;
    however, falling short of that goal is not a serious problem. The
    stated goal of Mach 15 was established prior to configuration
    downselect as a conservative target to achieve ``real gas effects'' on
    aerodynamics and aerothermodynamics for multiple vehicle shapes. We are
    currently evaluating velocity requirements from an engineering
    standpoint for this specific X-33 aerodynamic shape, and we believe
    that the real requirements will be satisfied whether or not Mach 15 is
    reached. We are confident that the goal of the X-33 program, to prove
    that the concept of an operational reusable, single-stage-to-orbit
    launch system is viable, will be accomplished by the turn of the
    century.
        Question. What is NASA's relationship with the Air Force in the
    Reusable Launch Vehicle program, particularly the X-33? Is the Air
    Force bringing its own funds to bear for work on the project? Does the
    Air Force have any role in the X-33 test flights?
        Answer. NASA and the Air Force are cooperating in the various
    reusable launch vehicle programs. Specifically in the X-33 program, Air
    Force personnel participated in the source selection process. Lockheed
    Martin Skunk Works currently has X-33 task agreements in place through
    which the Air Force laboratories are supporting development of the X-33
    in areas where they have particular expertise. X-33 will be launched
    from Edwards Air Force Base (EAFB), and EAFB personnel are
    significantly involved in the range safety assessments. Air Force bases
    have been identified as candidate X-33 landing sites. The Air Force
    views the X-33 program as a source for technology developments which
    they need for their own use; however, the X-33 program is not being
    funded by the Air Force.
        Current plans are for the higher Mach number flights of the X-34 to
    be conducted in the Air Force's Eastern Test Range in Florida.
    Additionally, NASA and Air Force Space Command have established a
    partnership council to oversee expanded cooperation between the two
    organizations. Several joint teams have been established including one
    to develop an Integrated Space Transportation Plan which addresses a
    complimentary mix of Air Force EELV programs and NASA RLV programs and
    Air Force leveraging of NASA RLV technology for the military spaceplane
    development.
        Question. Has NASA begun discussions with Lockheed Martin or other
    potential industry providers as to what the government role should be
    in the development of an operational reusable launch vehicle (RLV) if
    the X-33 program proves successful? Does the agency still assert that
    an operational RLV will be financed solely by the private sector? What
    role might the government take to facilitate private sector funding?
        Answer. While the X-33 flight and ground test programs are
    progressing, NASA, industry, and investment advisors are assembling the
    business plan that will enable a commercial RLV. Such a business plan
    may or may not require government support. At this point, the industry
    team and their investment advisors have not finalized this business
    plan. Therefore, speculation on a set of specific government actions is
    premature. Our current schedule completes the first cycle of business
    planning, including any potential government support, before the end of
    1997. Whether or not government funding may be required and at what
    level, if any, will be identified through these efforts.
        Question. NASA recently added a second test flight vehicle to the
    X-34 program. Are there plans for a second flight-test vehicle in the
    X-33 program? What contingencies are in place in case of a flight
    failure that damages or destroys the X-33 vehicle?
        Answer. We do not plan a second X-33 flight-test vehicle. If a
    vehicle is damaged or destroyed, an assessment would be made at that
    time on how to proceed. Much of what we will learn from X-33 will
    already have occurred in building the vehicle, integrating the
    candidate advanced technologies, and processing and testing the vehicle
    on the ground. Depending on when in the program such a hypothetical
    loss might occur, many of the flight demonstration goals might have
    already been achieved. This approach involves risks, but we chose this
    path by weighing the additional risks versus the additional costs of a
    second vehicle.
        Question. The trade press has reported that Marshall Space Flight
    Center is promoting a flight demonstrator, known as X-37, to be a
    follow-on to the X-33 program. Is NASA planning a successor
    experimental flight demonstrator to the X-33?
        Answer. In keeping with the National Policy direction to balance
    investment between existing space transportation systems and
    development of future capabilities. NASA's Aeronautics and Space
    Transportation Technology Enterprise has begun initial planning for a
    continuing program of investment in space access technology development
    and flight demonstration. There is potential for a future flight
    demonstration vehicle, although no decision has been made regarding the
    type and configuration of the vehicle, or the technologies to be
    demonstrated.
        The continuing space transportation development and demonstration
    program is aimed at meeting access-to-space requirements beyond the
    scope of the current X-33 program, and at continuing to reduce the cost
    of all areas of space transportation over time, whether or not the X-33
    leads to a commercial RLV. Experimental flight vehicles are a critical
    part of the program, and they will be used when a near- or mid-term (1-
    7 years) operational or development decision requires the use of X-33,
    X-34 and DC-XA demonstrators. The flight demonstration program would
    coordinate with, and draw advanced technologies from, programs such as
    the Advanced Space Transportation Program (ASTP) and the Aeronautics
    core. The technologies demonstrated would be aimed at meeting the full
    gamut of commercial, international and government needs for space
    access (e.g., Earth-to-orbit, orbit transfer, or interplanetary
    transportation).
        Question. As part of its NASA authorization bill, the House Science
    Committee has approved $300 million in fiscal year 1998 for a new
    experimental demonstration vehicle which is to be a ``complementary
    follow-on'' to the X-33. The X-33 program currently has only one
    experimental vehicle. A second X-33 is estimated to cost $330-360
    million. Would you rather have additional funds to build a second X-33,
    or a new follow-on vehicle as the House Science Committee directed?
        Answer. If funding were to be added to the RLV program, that
    additional fiscal year 1998 appropriation would be better spent on an
    evolved, or next-generation demonstrator that adds newer or back-up
    technologies, rather than on an identical duplicate of the X-33's
    current design. This follow-on vehicle would complement the X-33 by
    incorporating technology advancements that have been made since the X-
    33 program was initiated and would take advantage of the lessons
    learned.
        As compared to an ``X-33B'', however, a new demonstrator could
    offer significantly more advanced technologies, potentially including:
    ultra high temperature thermal protection, very high hypersonic lift/
    drag ratios, an integrated reusable upper stage, and very fast
    turnaround. Such a demonstrator offers potential for global two hour
    transportation, very low cost delivery to geostationary orbit, and
    fully reusable earth-moon transportation systems.

                                 SPACE SCIENCE

        Question. NASA has put forth the ``Origins'' program as the focus
    of its space science efforts, looking at the origins of galaxies and
    stars, the origin and evolution of planetary systems, and the existence
    of life. What is the Origins program and which projects comprise the
    effort? Are all future space science efforts part of the Origins
    program? Has the agency developed a roadmap and milestones to be met by
    each mission identified as part of the Origins effort?
        Answer. NASA's Origins Program is directed towards answering among
    the most fundamental questions that we can ask: Where did galaxies,
    stars and planets come from? Are there worlds like the Earth around
    nearby stars? If so, are they habitable and is life as we know it
    present there? What is the origin of the universe?
        The current and planned space science programs of NASA begin the
    next steps in the quest for origins and pose the scientific challenges
    needed for subsequent steps. Missions now underway and in planning,
    including the upgraded instrumentation for the Hubble Space Telescope,
    are the Space Infrared Telescope Facility, the Stratospheric
    Observatory for Infrared Astronomy, the Mars Surveyor series, and other
    planetary and space astronomy and physics projects. These missions will
    offer powerful tools for advancing NASA's Origins program.
        At the same time, while the origins challenge provides a unifying
    core for the space science program, neighboring disciplines will
    address important problems of their own, and may unexpectedly
    contribute directly, as was the case for the recent analyses of Martian
    meteorites. These related activities span the broad panoply of
    laboratory, field, and theoretical research conducted by NASA. The
    fiscal year 1998 budget request captures a core Origins program
    consisting of:
      --an increase for the Mars Surveyor program to allow for the launch
            of a Mars sample return mission in the middle of the next
            decade, and to increase the scientific robustness of the
            program;
      --a new Exploration Technologies Development program, to enable bold,
            new, low-cost experiments on the surface of solar system
            bodies;
      --an accelerated launch schedule (from September 2002 to December
            2001) for the Space Infrared Telescope Facility (SIRTF) to
            enable more overlap with the Hubble Space Telescope and the
            Advanced X-ray Astrophysics Facility, and provide earlier
            Origins results;
      --full development of the Keck II ground-based interferometer, to
            enable direct detection of planets around other neighboring
            stars by analyzing for signs of the tug of intermediate-mass
            planets;
      --advanced technology funding for the Next Generation Space Telescope
            (NGST) to peer far out into space and far back into time to
            reveal the birth of galaxies and will peer into dusty stellar
            nurseries, allowing scientists to study the formation of stars
            and their families of planets;
      --advanced technology funding for the Space Interferometer Mission
            (SIM) to search for the tiny wobbles of a star's motion in
            response to the tug of possible planets only a few times
            heavier than the Earth. SIM has been targeted as a Phase C/D
            new start in fiscal year 2001, with an anticipated launch in
            late fiscal year 2005;
      --an increase in astrochemistry/astrobiology research and analysis,
            to support the multidisciplinary study of the origin and
            evolution of pre-biotic material, the origin and distribution
            of life, the adaptation of life to space, and studies of the
            earliest life, and life in extreme conditions on Earth.
        NASA has developed a roadmap and milestones for the Origins
    program, which are currently being incorporated into the upcoming
    revision of the OSS Strategic Plan, to be released in the fall.
        Question. The National Research Council recently recommended that
    NASA develop a plan for the safe return of samples from Mars. What are
    the agency's plans in the area given that there are plans for a Mars
    Sample Return launch in 2005?
        Answer. At NASA's request, the Space Studies Board recently studied
    and published, ``Mars Sample Return: Issues and Recommendations,
    1997.'' NASA is now in the process of considering the following
    recommendation for a receiving facility:
      --A research facility for receiving, containing, and processing
            should be established as soon as serious planning for a Mars
            sample return is underway: operational a minimum of 2 years
            before launch; with multi-disciplinary science staff for
            development and procedures; and with an advisory panel of
            scientists established for oversight responsibility.
        The Planetary Protection Office initiated a study in 1996 which
    included considering:
      --Quarantine and testing of the returned sample: suitability of
            current containment facilities for Mars sample return; and
            review Apollo and new methods for biohazard testing.
        There will be a Mars Sample Quarantine Protocol Workshop at Ames
    Research Center, June 4-6, which will discuss containment practices and
    facilities.
      --This issue will be addressed in our fiscal year 1999 budget
            request.
        Question. Funding for near-Earth asteroid detection is currently
    $1.5 million annually. The House Science Committee recently recommended
    that the agency undertake a $3.4 million effort annually. Do you agree
    with the increase in funds for this effort?
        Answer. NASA does not agree with the proposal to increase this
    effort to $3.4 million annually.
        Total NASA funding for all NEO-related activities is approximately
    $1.2 million in fiscal year 1997. Comparable amounts will be available
    in fiscal year 1998, but the final funding level will be determined
    based on the peer-review findings and the availability of appropriated
    funds.
        We estimate that it will take approximately 20 years to detect,
    catalog and characterize 90 percent of the NEO's larger than 1
    kilometer in diameter with the current program of approximately $1.2
    million per year.
        Funding for the NEO program comes out of a small and very
    competitive budget for peer-reviewed science. Increasing funding for
    NEO's to $3.4 million would eliminate funding for a significant number
    of meritorious, peer-reviewed space science endeavors.

                         LIFE AND MICROGRAVITY SCIENCES

        Question. The Bion program, which studies the biomedical effects of
    the space environment on animals using Russian biosatellites, came
    under severe criticism from animal rights activists and taxpayer
    groups. You recently announced that you have suspended NASA
    participation in the primate research aspect of Bion 12. Will you still
    be participating in the other non primate aspects of the Bion 12?
        Answer. At this time NASA is studying options which exclude non-
    human primates for possible flight on Bion 12. Studies are currently
    underway in both the U.S. and Russia to determine ways of taking
    advantage of the investment to date by evaluating the possibility of
    flying non-primate payloads utilizing as much of the existing resources
    as possible.
        Question. How much money remains unobligated for Bion 12?
        Answer. In fiscal year 1998 and fiscal year 1999 approximately $6.1
    million.

                            [In thousands of dollars]
    ------------------------------------------------------------------------
                                                     Fiscal years
                                                  ------------------  Total
                                                     1998     1999
    ------------------------------------------------------------------------
    Principal investigators......................      900      900    1,800
    Flight support...............................    1,793      701    2,494
    Contract.....................................    1,780  .......  .......
                                                  --------------------------
          Total..................................    4,473    1,600    6,073
    ------------------------------------------------------------------------

        Question. What are your plans for use of this money?
        Answer. The Principal Investigators for Bion 11 are planning to
    conduct supporting studies on the ground that will enable them to
    derive the maximum scientific benefit from the flight data already
    acquired from the flight on Bion 11. The Flight Support funds will be
    used to support other flight activities and to study options for
    flights of lower organisms (rodents, insects, cells, plants) on the
    Cosmos Biosatellite, as a potential replacement payload on Bion 12.
        Question. Does NASA intend to continue using primates in other
    biomedical research efforts?
        Answer. Yes. NASA plans to continue to use non-human primates where
    their use is appropriate and justified. This research will continue to
    be thoroughly peer reviewed and subjected to the highest standards of
    animal care and use.

                            MISSION TO PLANET EARTH

        Question. It has been past practice that the agency estimates MTPE
    program costs only through fiscal year 2000. Since NASA's 5-year budget
    includes fiscal year 2001 and fiscal year 2002, the agency may be in a
    better position to estimate total program cost. What is the total life-
    cycle cost of the MTPE program? What is the total life-cycle cost of
    MTPE's major component, the Earth Observing System (EOS)?
        Answer. Mission to Planet Earth is one of NASA's four basic
    enterprises. Enterprises, by their nature, are long term commitments to
    a research area or customer community. There is no life cycle cost, per
    se, for Mission to Planet Earth. There are life cycle costs for
    specific programs within Mission to Planet Earth. Short programs can
    estimate life cycle costs with reasonable accuracy. The longer the
    program, the greater the uncertainty in these estimates. Future
    advances in technology, evolution in basic science requirements as
    knowledge is gained, and changes in implementation strategy will
    directly impact the real life cycle costs. Recognizing this
    uncertainty, the Earth Observing System (EOS) program has maintained a
    total program cost estimate through fiscal year 2000 as a key measure
    of effectiveness. At inception the EOS program was to cost $17 billion
    through this period. The current estimate for the same period is $6.7
    billion. Savings were achieved through technology infusion,
    streamlining requirements and increased international and interagency
    partnerships (i.e. National Polar Orbiting Environmental Satellite
    System (NPOESS) with reference to EOS-AM-2). In fiscal year 1996,
    Mission to Planet Earth made a major commitment to define and estimate
    the life cycle cost for EOS. Sufficient progress had been made in
    defining the program implementation in the near term that future
    estimates could begin to be made. The total costs were estimated
    through fiscal year 2022, consistent with the stated objective of
    providing a 15 year data set of key measurements necessary to
    understand climate change.
        In June 1995, the General Accounting Office (GAO) issued the
    results of their study of long-term EOS costs. Basing their estimate on
    a assumption that NASA would simply fly copies of the 1st phase EOS
    instruments and spacecraft during the 2nd and 3rd phases, the GAO
    predicted that the total long term cost of EOS (including operations)
    would be approximately $33 billion. Cognizant of the problem with their
    assumption, the GAO report acknowledged that NASA was actively studying
    how the program could be evolved at a lower cost and posed some of the
    challenges that NASA would face in achieving such savings. NASA noted
    that the estimate did not reflect the likely actual cost of the
    program, given agency intentions to incorporate new technology and
    partnerships. Recognizing the potential to reduce the cost of second
    series missions relative to the first, Mission to Planet Earth
    initiated an aggressive technology infusion program. Funds were carved
    out of the near term program to initiate an integrated technology
    strategy that included a focused program for new instruments
    (instrument incubator) and flight demonstrations (New Millennium). In
    addition, efforts were expended to transition, when possible, Mission
    to Planet Earth science measurements to existing operational
    capabilities. As a result, the second and third series estimated costs,
    through fiscal year 2022, were reduced 30 percent. NASA estimated that
    the life-cycle cost of EOS would be $25.3 billion based on our new
    approach to implementing the follow-on series. Additionally, the EOS
    component of the Mission to Planet Earth program has been ``capped'' at
    approximately $1 billion per year for the first decade of the 21st
    century. The ability of NASA to achieve these cost savings in the
    second and third generations systems for EOS is critically dependent
    upon maintaining a stable funding environment for the program between
    1998 and 2002, so that the necessary new technology can be developed/
    demonstrated.
        During the Biennial Review process, we are continuing to press our
    implementation strategy. We previously committed to re-compute the EOS
    instruments and investigators for the second series. Based on advice
    from our Earth Systems Science Advisory Committee, we are now moving
    toward revalidating the measurements on a recurring basis as scientific
    knowledge advances. This is driving increased pressure to shorten
    development time and to de-couple spacecraft development from
    aggressive instrument technology infusion. We have not finalized these
    results but they will clearly have an impact on future EOS life cycle
    cost estimates.
        Question. What is the status of the LightSAR program? Is there
    funding available in the outyears to fund LightSAR? Does NASA expect to
    fund the program in the future?
        Answer. NASA has committed $6,250,000 of the fiscal year 1997
    allotted $12 million. NASA is funding four studies at $700 thousand
    each. Each of the four selected teams are making significant cost
    sharing efforts on the study, ranging from just over $100,000 to just
    under $1.5 million. In addition, NASA is also funding project work at
    the Jet Propulsion Lab (JPL), Stennis Space Center (SSC) and a science
    team. When completed, the studies will help us determine compatibility
    between science requirements and commercial requirements, and the level
    of investment industry is willing to make in a LightSAR-type mission,
    as well as potential teaming arrangements between the government and
    private industry through a better understanding of the potential
    commercial market for SAR data products and services. The Stennis Space
    Center will be managing the commercial applications support ($700
    thousand) offered to each of the teams. Total funding for the studies,
    commercial applications support, and subsequent core technology
    development will not exceed the $12 million currently identified in
    MTPE's 1997 budget. The LightSAR studies will produce final reports for
    NASA in November 1997, for program review by year end. At that time, a
    schedule for further LightSAR activities will be developed.
        Currently there is no plan to fund LightSAR in the outyears.
    LightSAR, would require approximately $150 million through fiscal year
    2001, depending upon the configuration. A SAR was proposed for the
    Earth System Science Pathfinder (ESSP) solicitation, but was not
    selected as it exceeded the $90 million maximum cost allowed in that
    process. SAR data might qualify as a candidate for the MTPE Scientific
    Data Purchase, which was competitively announced on May 23, in which
    case these additional funds would be available.
        Any additional funding for LightSAR beyond the $12 million already
    provided, and possibly the scientific data purchase will depend
    significantly on the outcome of the funded studies which will be
    completed in November of this year to determine if industry can absorb
    a larger share of the mission costs. Results of these studies will help
    define an appropriate implementation approach based upon affordability,
    scientific priority, and industry cost share.
        Question. Landsat 7 is scheduled for launch in 1998. Is the program
    on schedule and within budget? Is the National Oceanic and Atmospheric
    Administration providing funding for Landsat 7 operations, or will NASA
    fully fund its operations?
        Answer. NASA has committed to launch Landsat 7 by December 1998. It
    is presently planning a launch date set for May 29, 1998. The program
    is within its NASA budget guidelines of $387.4 million, projected total
    at completion.
        NOAA is committed to operating the Landsat program. NOAA is sharing
    the cost for operations preparation and engineering support for fiscal
    year 1997 and fiscal year 1998 with NASA. NOAA has committed $1.2
    million for fiscal year 1997 and plans $2.45 million for fiscal year
    1998. NOAA expects revenues from access fees and data sales to cover
    the operations costs in fiscal year 1999 and beyond.
        Question. What is NASA's role in the National Polar Orbiting
    Environmental Satellite System (NPOESS)? Are there plans to use NPOESS
    satellites for instrument deployment as part of EOS?
        Answer. NPOESS is a tri-agency program among NOAA, DOD and NASA
    designed to converge the military and civilian operational weather
    satellite systems now run separately by NOAA and DOD. NASA's role is to
    provide technology leadership for the NPOESS program. NASA, MTPE and
    NPOESS/Integrated Program Office (IPO) personnel are actively engaged
    in reviewing areas of synergism between the two programs. The most
    fertile area for additional cooperation currently is the area of
    atmospheric temperature and moisture soundings, in which NASA is
    considering possible development of an Integrated Multi-Spectral
    Atmospheric Sounder (IMAS) as a candidate for flight on NPOESS and
    precursor operational NOAA satellites. NASA's participation is intended
    to facilitate the development of smaller, less expensive instrument and
    spacecraft systems for the converged program. Other promising areas of
    cooperation include sensors for monitoring Earth's radiation budget,
    total solar-irradiance, and ocean surface topography.
        The first NPOESS satellite has a planned launch readiness date of
    2007 to back-up the NOAA ``N'' satellite, with a probable launch date
    of 2009. The NPOESS Integrated Program Office has recently released a
    Request for Proposals for Phase B definition studies for several
    instruments. We have already adopted as a baseline the plan to have
    some EOS-PM2 requirements met by the first NPOESS satellite (and
    perhaps a precursor).
        Question. How much are NASA's international partners spending on
    MTPE cooperative efforts with NASA? What countries and/or agencies are
    involved and what are their major efforts?
        Answer. NASA's international partners are spending approximately $4
    billion in projects directly connected to MTPE through cooperative
    agreements and another $4.4 billion in complementary missions during
    the period 1990-2000. Direct cooperative contributors include
    spacecraft carrying NASA instruments (e.g., NSCAT and TOMS on ADEOS-1),
    instruments to fly on NASA satellites (e.g., HSB on EOS PM-1), foreign
    launch of NASA satellites (e.g., TOPEX-Poseidon on Ariane, TRMM on H-
    2), NASA launch of foreign satellites in exchange for data rights
    (e.g., Radarsat), cooperative field campaigns involving ground-based
    and airborne data collection (e.g., Boreas, Pacific Rim AIRSAR), and
    data system interoperability to facilitate access to and sharing of
    data resident in foreign data bases (e.g., DARA/DLR, Russian Academy of
    Sciences).
        For direct cooperative programs with NASA, Japan is the largest
    contributor, and other significant partners are France, Germany,
    Canada, Russia, and Brazil. The first chart below summarizes the
    specific cooperative projects and their value. The second chart's
    missions are defined and developed outside of NASA's formal programs,
    but the data are acquired and used by NASA scientists in conducting
    their research. Please note that the figures below should be considered
    neither official nor exact; they represent the best approximations
    obtained by NASA staff from various sources. Some figures are expressed
    in terms of actual costs to foreign partners, others in terms of
    comparable U.S. costs.

                       FOREIGN CONTRIBUTIONS TO EARTH OBSERVATIONS--ALREADY COMMITTED OR UNDERWAY
                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                          Foreign
                 Country/region                   Mission/instrument          Type of cooperation       obligation
    ----------------------------------------------------------------------------------------------------------------
    Japan...................................  ADEOS-1 & -2; AMSR; ASTER;  Satellite, launch,                   2,030
                                               ODUS; TRMM.                 operations, instruments,
                                                                           data exchange, data
                                                                           system interoperability.
    Europe (individual countries and ESA      CHAMP; CRISTA-SPAS;         Satellite, launch,                     841
     combined).                                HIRDLS; MAS; Oersted; SAC-  operations, flight
                                               C (Den); SIR-C/X-SAR;       opportunities, Shuttle
                                               SOLCON; SOLSPEC; SRTM;      payloads, sensors, data
                                               TOPEX/Pos; Jason-1.         system interoperability.
    Canada..................................  BOREAS; MOPITT; RADARSAT;   Satellite, operations,                 656
                                               SCISAT.                     sensor, field campaign.
    Russia..................................  EOS-AERO; TOMS/Meteor-3M..  Flight opportunities,                   56
                                                                           science.
    Brazil..................................  HSB; CIMEX................  Instrument, field                       12
                                                                           campaigns, shuttle
                                                                           payload.
    Argentina...............................  SAC-C.....................  Flight opportunity,                     21
                                                                           operations.
    South Africa............................  SUNSAT....................  Flight opportunity,                      6
                                                                           operations.
    Over 80 countries.......................  Geodynamics...............  Operation of ground-based              334
                                                                           systems.
          Total.............................  ..........................  ..........................           3,958
    ----------------------------------------------------------------------------------------------------------------

            COMPLEMENTARY FOREIGN CONTRIBUTIONS TO EARTH OBSERVATIONS
                            [In millions of dollars]
    ------------------------------------------------------------------------
                                                                  Foreign
              Country/region                   Mission          obligation
    ------------------------------------------------------------------------
    Japan.............................  JERS................             500
                                        GMS.................           1,000
    Europe............................  ERS-1 & -2 & ENVISAT           3,900
                                        METEOSAT & METOP....           6,450
                                        1Argos & SARSAT.....             200
          Total.......................  Without Operational            4,400
                                         Metsats.
          Total.......................  Including foreign             12,050
                                         operational systems.
    ------------------------------------------------------------------------

        Question. Does the agency have a plan for infusion of new
    technologies into the MTPE program? Please explain MTPE's New
    Millennium program efforts and technology development efforts such as
    the instrument incubator? What level of funding effort on an annual
    basis is expected for technology infusion?
        Answer. Mission to Planet Earth's technology program is focused on
    advanced instrument development to enable smaller, less expensive
    missions for the second series of the Earth Observing System, and to
    enable new measurements in support of evolving scientific discovery.
    The New Millennium Program is a jointly managed program of the Mission
    to Planet Earth and the Space Science Enterprise. Its goal is to
    provide flight demonstration missions for advanced spacecraft and
    instrument technologies developed by integrated product development
    teams comprised of industry and NASA personnel. By its nature, New
    Millennium demonstrates integrated, system-level technologies. The
    first such mission, designated EO-1, is scheduled for launch in the
    Spring of 1999, and will fly an advanced land imager to demonstrate the
    ability to meet the requirement for a post-Landsat 7 imager at a
    fraction of Landsat 7's cost. A second mission, EO-2, will be chosen
    this Summer, with competitive implementing solicitations to follow.
        The Instrument Incubator is a companion advanced instrument
    development program to fill the technology gap between core technology
    components and flight demonstration-ready instruments. Thus, it focuses
    on subsystem and system instrument-level development. The Instrument
    Incubator program will enable the development of new measurement
    techniques, as well as reduce the size of current instruments.
    Technologies developed in this program may be candidates for New
    Millennium flight demonstrations if in-space system-level
    demonstrations are required.
        Given the recent assumption of advanced technology development
    responsibilities from the former Space Technology Enterprise, MTPE is
    developing an integrated technology strategy. This document will be
    completed later this year.
        Within the Mission to Planet Earth Enterprise, the technology
    infusion program planning runout is: fiscal year 1997--$46.7M; fiscal
    year 1998--$65.5M; fiscal year 1999--$55.5M; fiscal year 2000--$65.5M;
    fiscal year 2001--$65.5M; fiscal year 2002--$65.5M. This funding
    includes the New Millennium Program, sensor and detector technology,
    and Instrument Incubator. The EOSDIS budget includes funding for
    prototyping efforts related to the data system.
        In addition to the technology work within Mission to Planet Earth,
    the Human Exploration and Development of Space Enterprise funds ground
    systems technologies that directly contribute to MTPE, and the Space
    Science Enterprise funds the advanced space technology program with a
    primary goal of providing innovative technologies to enable ambitious
    future space missions and to support development of the required space
    technology base in the U.S. space industry through focused joint
    technology efforts. Managed by the Human Exploration and Development of
    Space and Space Science enterprises, to address joint technology needs
    across all of the enterprises by working to develop crosscutting
    technology products for future planetary, astrophysics, astronomy,
    Earth observing, and human exploration spacecraft systems. These
    products will dramatically reduce costs and increase performance to
    enable new and more flexible missions.
        Question. NASA often states that the key to MTPE is the science
    that will come out of the program. The General Accounting Office, the
    National Advisory Council, and several scientists have been critical of
    the amount of funds that are available for research and analysis in the
    MTPE program. How does the agency intend to address this concern? What
    is an appropriate level of funding for research and analysis?
        Answer. There is a necessary balance between spacecraft, data
    systems and research. MTPE is providing spacecraft in order to obtain
    the necessary observational measurements needed to perform research and
    productive applications. These measurements will be used by the entire
    Earth sciences research community as well as by MTPE funded
    researchers. In a complementary way, researchers not only utilize the
    data but they determine the requirements, develop the computational
    algorithms, and validate the measurements. We are approaching the end
    of the development of Landsat 7 and AM-1 (launching in mid-1998), and
    are approaching the peak of development of PM-1. Recognizing that MTPE
    measurements will be used by a number of federal agencies as well as
    our international and commercial partners, we have placed a premium on
    maintaining our performance and schedule commitments. We are proceeding
    as planned with missions scheduled through 2001. Budget stability is
    essential to keep these and several smaller missions on schedule and on
    budget. For subsequent missions, we are developing new technical
    approaches to reduce program costs and respond to new scientific
    understanding.
        MTPE research activities include the Research and Analysis Program,
    mission science teams on existing spacecraft, and interdisciplinary
    research teams, principally associated with the Earth Observing System
    spacecraft. In total, MTPE funds approximately 1,900 principal
    investigators plus their supporting graduate students, co-investigators
    and research associates. The emphasis in MTPE research funding has been
    shifting towards interdisciplinary research consistent with NASA's
    focus on Earth Systems Science. As a result, the core Research and
    Analysis Program funding has declined. The Research and Analysis
    Program historically has provided the new instrument technologies,
    discipline process understanding and research breakthroughs in Earth
    sciences. There is a strong concern within the scientific community
    that this activity must be maintained to enable the interdisciplinary
    science as well as to fully utilize the new measurement capabilities to
    be provided by the Earth Observing System. This has been a major
    recommendation of our Earth Science Advisory Committee.
        We have initiated a comprehensive review of the MTPE program known
    as the Biennial Review. This process is designed to examine MTPE as a
    whole, with emphasis on selected time-critical questions. This first
    Biennial Review is intended to support decisions on the structure of
    the Chem-1 mission, on implementation of EOSDIS, and on defining a
    strategic approach to continuing critical measurements after the first
    series of EOS missions. Additionally, the review will specifically
    focus on addressing the balance between research and measurement
    funding.
        The review will be completed this Summer, with a formal report to
    follow. We intend to use the results of the review to support the
    development of the fiscal year 1999 budget. We will provide the report
    to the staffs of our Congressional committees and to other interested
    elements of the Congress as soon as it is completed.

                                  AERONAUTICS

        Question. The launching of the Lewis and Clark small remote sensing
    satellites has been delayed and recent press reports indicate that cost
    overruns with the Clark spacecraft may lead to its cancellation. What
    is the status of these two spacecraft? When will they be launched?
    Lewis and Clark are two of the first projects to incorporate the
    smaller, faster, cheaper philosophy with greater involvement of the
    private sector. Who has the rights to the data that will be gathered
    from these satellites? Will the data be commercially available? Will
    scientists funded by the government have to buy the data at commercial
    rates? What if any lessons have been learned from this effort to date?
        Answer. The Small Spacecraft Technology Initiative (SSTI) Lewis and
    Clark missions were originally scheduled for launch in the 4th quarter
    of fiscal year 1996. Both missions are experiencing unplanned delays in
    launch. While the Lewis spacecraft development was completed on
    schedule, it is now being held in storage at TRW waiting resolution of
    launch vehicle technical problems identified through the failure of the
    demonstration launch of the newly developed, low cost, commercial
    Lockheed-Martin launch vehicle in the Summer of 1995. The launch
    vehicle return-to-flight recovery has been protracted.
        The SSTI contractors are totally responsible, under their
    contracts, for the procurement of the SSTI launch services; however,
    the launch services subcontracts make no provisions for oversight of
    the development of the launch vehicles. The difficulties being
    experienced through the delay in return to flight of the launch vehicle
    are broad reaching across NASA programs, therefore, the Agency is
    exercising direct oversight of flight recovery activities. Currently,
    several high risk items remain to be resolved before return to flight;
    however, it is anticipated that launch of the Lewis mission will be
    during Summer 1997.
        The original development costs for Lewis and Clark was $108.3M. The
    fiscal year 1998 President's budget shows $122M through fiscal year
    1997. The Lewis mission is a fixed price procurement with cost plus
    provisions for launch delays caused by the launch vehicle. The launch
    services are a fixed price subcontract; however, costs being incurred
    for the storage of the spacecraft are covered under the cost plus
    provisions. As of the February status assessment, it was projected that
    another $1.3M will be required in fiscal year 1997 beyond that
    currently planned for the program to defray the costs of launch delay
    storage of Lewis.
        The Clark mission is a cost plus procurement. Based on the February
    assessment, the technical problems incurred by Clark new technology
    developments have resulted in the need for an additional $5.7 million
    above the plan in fiscal year 1997. Clark failed to meet its 2-year
    development schedule requirement for reasons which include the
    following: a large number of technology developments, a limited CTA
    manpower base which has been unable to respond to technical problems in
    system engineering, and an overly complex contractor decision structure
    that has fostered slow responses to problems. Several recent
    assessments indicate that the Clark mission may exceed the 15 percent
    cost overrun threshold NASA has established for its programs. A
    comprehensive program status assessment is in progress, being conducted
    by CTA Management. We are awaiting this report for evaluation during
    Summer 1997. The assessment will enable us to evaluate the strengths
    and weaknesses revealed by this new way of doing business.
        A major program objective for the dual missions is to proactively
    promote commercial technology applications. However, all participants
    must recognize and understand that Lewis and Clark is a research and
    demonstration program, not an operational scientific or commercial
    mission. The Earth remote sensing applications for both spacecraft are
    intended to understand new technology and applications development,
    risk assessment, and market expansion opportunities to support private
    sector investment for future operational systems.
        Another program is the data management and policy for ``tasking''
    of on-board instruments for both science and commercial objectives and
    distribution of, and access to, archived data sets. Four classes of
    experiments requiring tasking of the spacecraft have been identified:
    (1) commercial remote sending applications, (2) technology
    demonstrations for both spacecraft and instruments, (3) science
    demonstrations, and (4) education. Everyone who desires Lewis and Clark
    data requiring tasking of the spacecraft will be required to have an
    approved experimental plan and a mechanism to report on progress and
    results. In addition, those participants not directly associated with
    the SSTI program who desire tasking of the satellite will be required
    to have a signed Space Act Agreement through NASA Stennis Space Center
    (SSC). TRW (Lewis) and CTA (Clark) are responsible for all satellite
    data acquisition for the first year of operation.
        Once acquired from the satellites, all data sets and data fusion
    products will be integrated through the Mission Data Management System
    (MDMS) at NASA Stennis Space Center. These data sets include the
    satellite state of health, technology demonstration data, and
    instrument data, and will provide the baseline for all archival data
    products and distribution of all data and data products. The
    fundamental concept for SSTI data distribution is non-exclusivity of
    data after validation and processing data to radiometrically corrected
    status (Level 1R2). The MDMS will provide standard services associated
    with distribution of Level 1R2 data to all approved users with tasking
    rights. Level 2 through 4 processing of data will be performed on a
    negotiated basis for SSTI and Space Act Agreement participants. Level
    1R2 data will be distributed to the Eros Data Center (EDC). Level 2
    through 4 data products will not be distributed to EDC. Access to Level
    1R2 data from EDC will be provided on a nondiscriminatory basis to any
    requester within the technical limitations of the system. Although NASA
    retains ownership and all rights to the Level 1R2 data processed by
    SSC, there will be no restrictions imposed by NASA on the subsequent
    use, sale, or redistribution of data from SSTI spacecraft. The
    permanent archive for the data sets will be kept at Eros Data Center
    (EDC), where public access will be provided for the cost of
    reproduction.
        Question. What is the status of aircraft consolidation at Dryden
    Flight Research Center? What are your plans for the DC-9 at Lewis
    Research Center that is used for microgravity research? Is NASA going
    to renew the DC-9 lease, and if not, why not?
        Answer. NASA will move the aircraft currently located at Ames
    Research Center to Dryden at the earliest opportunity, without
    disrupting ongoing research programs. We believe consolidating the
    California-based aircraft at Dryden will result in significant cost
    savings. In addition, we believe it is critical to NASA's future that
    Ames fully focus on its roles and missions as defined by the Zero Base
    Review. In order to achieve this, Ames must move out of other mission
    areas such as aircraft operations.
        NASA is prohibited by law from using any fiscal year 1997
    appropriations to consolidate aircraft based east of the Mississippi
    River at Dryden. At this time, we have no plans to relocate any of
    these aircraft to Dryden for purposes of consolidation. However, we are
    proceeding, as planned, with decommissioning aircraft which are no
    longer programmatically required, as recommended by the Zero Base
    Review. The NASA Inspector General's final report of August 12, 1996,
    recommended that ``NASA should immediately decommission all aircraft no
    longer having a programmatic need to achieve an estimated $21.8 million
    savings.''
        After planned decommissionings at Langley Research Center (LaRC)
    are completed by October 1, 1997, there will be five aircraft at LaRC
    supporting a variety of programs. These are a T-34C, a UH-1H
    helicopter, a BE-200, a T-38 and the B-757.
        The new Wallops Mission 2000 includes plans for the Wallops
    aircraft fleet to include one NASA-supported research aircraft, one
    NASA administrative aircraft, and one aircraft jointly funded by NASA
    and the Navy. Wallops will remain the deployment site for Mission to
    Planet Earth science missions using various NASA research aircraft,
    regardless of basing.
        NASA is terminating its lease of the DC-9 microgravity research
    aircraft located at Lewis Research Center at the end of the current
    lease period, July 21, 1997. The reason is that NASA's current
    microgravity research requirements for parabolic flight can be met
    using the KC-135 aircraft which is based at Johnson Space Center in
    Houston. Should additional capability be needed in the future, NASA
    would first seek parabolic aircraft support via commercial means.
        Programmatic requirements for all remaining NASA aircraft will be
    continually reassessed to ensure NASA is using its resources in the
    most efficient manner.
        Question. Because of budget constraints and limited financial
    support from industry, the Administration has decided to forgo the
    construction of a new National Wind Tunnel Complex. Does NASA plan to
    upgrade some of its current wind tunnels to meet future needs? Will the
    issue of a National Wind Tunnel Complex have to be revisited in the
    future?
        Answer. While full achievement of the NWTC capability is not
    affordable at this time, NASA believes that significant improvements to
    the nation's testing capability can be made at relatively low cost.
    Using $35 million in fiscal year 1995 NWTC funding, NASA has developed
    the Aeronautics Design/Test Environment Program (ADTE) to address ways
    in which wind tunnel testing may more effectively contribute to the
    design process. Objectives include increasing confidence in wind tunnel
    to flight extrapolation, reducing the cost and time associated with the
    testing process, increasing the quality and quantity of data obtained
    during test, and efficient conversion of data to knowledge that is
    applied to the design process. These objectives are being met by a
    combination of Information Technology (database management and mining,
    user-remote access, condition-based maintenance), advanced
    instrumentation and model design technologies, and computational
    methods for predicting non-flight effects introduced by the wind
    tunnel. Although these developments are initially being implemented
    using facilities at Ames Research Center, results from this program
    will have applicability to most of NASA's wind tunnels.
        Further, NASA has engaged industry and the Department of Defense in
    discussions to define facilities test technologies, research, and
    development actions needed in the years beyond completion of ADTE to
    further improve the Nation's aeronautical testing capability. These
    activities are generally aimed at low cost improvements to existing
    facilities, equipment, or test techniques.
        In prior years NASA has identified and budgeted two major programs
    to modernize and improve existing wind tunnel capability. These are:
        The Aeronautical Facilities Revitalization Program, a $300 million
    modernization program funded in fiscal year 1989-95. This program made
    major productivity and reliability improvements to many of NASA's wind
    tunnels, including the 12" Pressure Wind Tunnel and the Unitary Plan
    Wind Tunnel at ARC, the National Transonic Facility and 14 Ft X 22 Ft
    Wind Tunnel at LaRC, and the 8 Ft X 6 Ft and 9 Ft X 15 Ft Wind Tunnels
    at LeRC.
        The National Aeronautics Facilities Upgrade Program (fiscal year
    1994), a $172 million program that in addition to funding studies and
    design for the NWTC, makes further performance and productivity
    improvements to the Unitary Plan Wind Tunnel at ARC; the National
    Transonic Facility, 14 Ft X 22 Ft Wind Tunnel, and Transonic Dynamics
    Tunnel at LaRC; and the Icing Research Tunnel and Composite Technology
    Center at LeRC.
        NASA does not currently plan to accomplish any further major
    upgrades to current wind tunnels but will continue to pursue relatively
    low cost improvements within available funds. While full achievement of
    NWTC capability was not deemed affordable in the current budget
    environment, we believe the issue will have to be revisited in the
    future.
                                     ______

                     Question Submitted by Senator Mikulski
        Question. I have been advised that NASA is considering relocating
    CASI's activity from its existing location in Maryland. As the
    Appropriations Committee indicated in its report (S. Rpt. 104-318)
    accompanying the fiscal year 1997 Appropriations bill for NASA, I am
    interested in all costs, direct and indirect, associated with
    relocation. It is essential in this economic environment to ensure
    taxpayer's funds are spent prudently. I urge you to seek savings at the
    existing facility before you undergo the expense and personal
    disruption that occurs with any federal relocation. We should seek to
    avoid the disruption in the work of a facility and its employees unless
    significant cost savings dictate otherwise.
        Please provide to the Committee a status report on NASA's plan for
    CASI. I would also like for NASA to keep the Committee informed on
    significant occurrences regarding this important facility.
        Answer. NASA already has sought, and achieved, significant savings
    at the Center for Aerospace Information (CASI) located in Linthicum,
    Maryland. Since May 1995, NASA has made significant improvements and
    efficiencies in the services offered by CASI which have enabled the
    Agency to reduce its utilization of the CASI facility. The facility
    currently housing CASI operations is only 50 percent utilized and space
    requirements will continue to decrease. The Headquarters Scientific and
    Technical Information (STI) Program (primarily CASI) annual budget has
    decreased from $12 million in year 1995 to $8 million in year 1997.
    Reductions over the next four years will result in a budget of
    approximately $6 million by year 2000. The current CASI facility costs
    the Program $1.5 million annually, and cannot be supported on a $6
    million annual budget without impacting the STI Program.
        In February 1997, the current facility owner was notified of NASA's
    interest in renegotiating the last year of the lease. In March 1997,
    the current facility owner submitted a proposal to NASA based on
    utilizing approximately one half of the current leased space. NASA has
    also received proposals from each of the contractors responsible for
    CASI operations (Computer Sciences Corporations and NCI Incorporated)
    to provide a smaller facility in Maryland for CASI operations. NASA is
    currently conducting a detailed cost comparison of these three
    proposals which includes ongoing costs, moving costs, and associated
    start-up costs. NASA anticipates concluding its review within the next
    several weeks, and will inform Senator Mikulski of our findings.

                              SUBCOMMITTEE RECESS

        Senator Bond. Thank you very much. The hearing is recessed.
        [Whereupon, at 11 a.m., Tuesday, May 6, the subcommittee
    was recessed, to reconvene subject to the call of the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
            INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                                  ----------

                             TUESDAY, MAY 13, 1997

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 9:40 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Christopher S. Bond (chairman)
    presiding.
        Present: Senators Bond, Shelby, Mikulski, and Leahy.

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    STATEMENT OF ANDREW CUOMO, SECRETARY

                    OPENING STATEMENT OF CHRISTOPHER S. BOND

        Senator Bond. Good morning. The VA, HUD and Independent
    Agencies Appropriations Subcommittee hearing will come to
    order. This is our last scheduled hearing of the fiscal year
    1998 budget, and I welcome Secretary Cuomo and our other guests
    for being with us this morning. This is essentially a rainout
    date from a month ago. I am sure the additional month has
    provided the Secretary in his new position with some fresh
    insights into the many problems and issues that face the
    Department.
        As always, the hearing on HUD is one of our most important
    hearings. This is an agency that administers some 240 programs
    and activities, including such important programs as the Public
    Housing Program, the Section 8 Program, the Community
    Development Block Grant Program, the HOME Program, the McKinney
    Homeless Assistance Program, the Sections 202 and 811 Programs,
    and the FHA mortgage insurance programs.
        Moreover, whatever the final terms of the budget agreement
    to balance the Federal budget by the year 2002, this
    subcommittee, I fear, is going to face another very difficult
    year of budget decisions. We are faced with increased EPA
    costs, including calls for increased funding for Superfund
    cleanup, two NASA contingency plans, and costs for the
    international space station, to increase veterans' medical and
    benefit needs, to the skyrocketing cost of renewing HUD
    expiring section 8 contracts.

                          INCREASE IN SECTION 8 COSTS

        As Secretary Cuomo well knows, I continue to be very
    concerned about the skyrocketing cost of the expiring section 8
    contracts and the continuing Federal commitment to those low-
    income families, many of whom are elderly and disabled. The
    cost is staggering, and the need is dramatic.
        As I have mentioned to Secretary Cuomo in the past, I
    continue to be very much concerned and will be asking questions
    about the Department's recent discovery of $5.8 billion in
    section 8 contract reserves, which became the funding vehicle
    for the supplemental. This discovery of additional reserves
    comes at a time when the Section 8 Program faces ballooning
    costs. How ballooning? Well, as most of us here who deal with
    the budget know, the 1997 appropriation act provided $3.6
    billion in budget authority to cover the cost of renewing all
    expiring section 8 contracts for fiscal year 1997. The cost of
    renewing all section 8 contracts for fiscal year 1998, a total
    of some 1.7 million expiring contracts, will require an
    appropriation of some $10.2 billion in budget authority for
    fiscal year 1998. That is an increase of $6.6 billion in
    additional costs to the Section 8 Program for just 1 year.
        That cost of expiring section 8 contracts will continue to
    increase to $11.9 billion for fiscal year 1999, $13.7 billion
    for fiscal year 2000, $15.1 billion for fiscal year 2001, and
    $16.4 billion for fiscal year 2002. While I am hopeful that the
    budget agreement will address some or all of the section 8
    costs, there also are many other critical issues facing the
    Department.

                              NEED FOR HUD REFORMS

        Over 2 years ago, I convened a series of hearings which
    focused on HUD's management and fiscal deficiencies, including
    program issues. This subcommittee and HUD have taken a number
    of meaningful steps to reform HUD and HUD programs since those
    hearings, but there remains significant HUD management programs
    and fiscal deficiencies which still need to be addressed.
    Because of these concerns, a number of Senators continue to
    advocate eliminating the Department and devolving its
    responsibilities to States and localities. To be blunt, Mr.
    Secretary, we challenge you to make the necessary
    administrative, management, and fiscal reforms that will
    justify Congress's continued support of the agency and the role
    of the Federal Government in providing affordable low-income
    housing and programs targeted for the economic development of
    our States and localities.
        In the last 4 years, I have watched the Department continue
    to reinvent itself. While there seems to be lots of movement,
    HUD often seems to be on a hamster wheel, never moving forward.
    In particular, GAO continues to designate HUD as a high-risk
    area, the only Cabinet level agency ever designated agencywide
    as a high-risk area, vulnerable to waste, fraud, abuse, and
    mismanagement. GAO's concerns result primarily from four
    longstanding departmentwide management deficiencies identified
    as recently as February 1997. They are, No. 1, internal control
    weaknesses, such as a lack of necessary data and management
    processes; No. 2, poorly integrated, ineffective, and generally
    unreliable information and financial management systems; No. 3,
    HUD organizational problems, such as overlapping and ill-
    defined responsibilities and authorities, including a
    fundamental lack of management accountability and
    responsibility; and No. 4, an insufficient mix of staff with
    proper skills for the effective monitoring and oversight of
    HUD's programs.
        In addition, the HUD inspector general echoes GAO's
    concerns with an emphasis on HUD's lack of capacity to carry
    out its programs and initiatives. Also, the National Academy of
    Public Administration July 1994 study, ``Renewing HUD, a Long-
    Term Agenda for Effective Performance,'' advised that between
    1980 and 1992 HUD statutory mandates increased from 54 to over
    200 programs, and the HUD inspector general's best educated
    guess on the number of existing HUD programs still exceeds 240
    programs. The NAPA report also questioned HUD's ability to
    achieve its mission because of an overload of programs that,
    quote, ``saps HUD's resources, muddles priority, fragments the
    Department's work force, creates unmeetable expectations, and
    confuses communities.'' This is a harsh but real assessment.
        Nothing has occurred at HUD yet that convinces me that HUD
    has really taken to heart and addressed these concerns, and
    that is something that the ranking member and I are
    particularly concerned about. These concerns have to be
    resolved. As a practical matter, HUD is one of the Nation's
    largest financial institutions, with sizable commitments,
    obligations, and exposures. HUD is responsible for managing
    more than 400 billion dollars' worth of insured mortgages, $485
    billion in outstanding mortgage-backed securities, and some
    $180 billion in prior years' budget authority for which it has
    future financial commitments.
        I again urge the Department to work with Congress in a
    bipartisan manner in assessing HUD's programs and how they
    should work. We need to work on this together. We have made
    some progress, as I indicated, but the Department's ultimate
    success will depend upon a bipartisan approach and on
    cooperation in defining and refining HUD's mission while
    clarifying and consolidating the responsibilities and
    requirements of HUD's programs and, most importantly, achieving
    control and understanding of the Department's enormous fiscal
    responsibilities.

                    REDIRECTION OF DECISIONMAKING TO LOCALS

        Finally, I emphasize a continued need for the Department to
    redirect the responsibility for HUD programs and activities
    from the Federal Government to State and local decisionmaking.
    There is already evidence of tremendous success through
    programs like CDBG and HOME, where HUD is at most a junior
    partner to the State and local decisionmaking in the use of
    block grant funds. This is critical. No longer can, or should,
    the Federal Government do it all. Programs like HOME, CDBG, the
    low-income housing tax credit, the national community
    development initiative, are successful because they leverage
    State, local, private, and nonprofit resources to expand the
    availability of affordable housing and to create new economic
    development initiatives. Most important, the decisions are
    State and local decisions that respond to State and local
    needs.
        The future success of HUD, in my view, will depend on
    getting away from a one-size-fits-all, Washington-determined
    approach to a partnership that relies on State and local
    decisionmaking.
        Before we turn to your comments, Mr. Secretary, I would
    like to call on my distinguished ranking member, the Senator
    from Maryland, Senator Mikulski.

                        STATEMENT OF BARBARA A. MIKULSKI

        Senator Mikulski. Thank you very much, Mr. Chairman. I will
    not either repeat or amplify your remarks. I know that first of
    all we want to welcome Mr. Cuomo, our new Secretary of HUD. We
    are looking forward to making sure that we fulfill the mission
    of HUD, that there is the financial or money resources to do
    it, and I know in our conversations your passion for improving
    the management at HUD. So if we could focus on those M&M's, I
    think that we would have a very successful next fiscal year.
        I have now worked with four secretaries of HUD, Mr. Pierce,
    Mr. Kemp, Mr. Cisneros, and now you, and I believe that our
    focus, along with yours, is to make sure that HUD continues or
    focuses on HUD as an empowerment agency where, whatever we do
    through the Housing and Urban Development, we remember it is
    housing and urban development. We give help to those that
    practice self-help.
        Let me say that what I am thinking about in terms of the
    mission or the empowerment model is that one of our primary
    goals is to promote home ownership for the middle class or near
    middle class. FHA continues to be a very important tool for
    people who are moving from welfare to work or in new
    opportunities to leave public housing. I hope we would come up
    with new thinking to promote home ownership even among those
    normally left out of the opportunity to participate.
        In terms of those, though, who will not be moving to home
    ownership, that where we spend our subsidy money again gives
    help to those that practice self-help, and will be looking at
    ideas on, No. 1, how section 8 is truly an opportunity and not
    a hollow opportunity for the poor. I have been deeply concerned
    that often section 8 has been a hollow opportunity for the
    poor, simply a voucher to say another decrepit, rundown, drug-
    infested neighborhood with significant subsidies to landlords,
    creating sometimes a new class for landlords without the
    standing sentry over section 8 to both make sure that it is an
    opportunity, that we are getting 1 dollar's worth of housing
    for 1 dollar's worth of taxes, but most of all that it is open
    opportunity.
        We will be talking more, I know, in terms of the resources
    for FHA, CDBG, and, of course, our big concern over section 8
    and the ability to meet our contracts.
        On the management issue, Mr. Secretary, I hope we can have
    a dialog on where HUD is on implementing the NAPA, or the
    National Association of Public Administrator recommendations,
    on management reforms in section 8, how we are implementing
    HOPE VI, and then also some new thinking particularly in
    housing for the elderly. When Pat Harris was Secretary of HUD
    under President Carter, I believe we had the most significant
    advance in creating housing for the elderly. That has now been
    21 years ago. Many of the seniors who moved into that housing
    for the elderly, many in my own home town of Baltimore have now
    aged in place. We have old buildings, and now people who moved
    in when they were in their sixties are now in their eighties.
    The buildings are starting to get frail and so are the elderly
    living in them. I want to discuss with you how we could begin
    to prepare for what type of activity needs to go on in those
    particular, the aging housing for the elderly where both the
    buildings and the seniors themselves are aging.
        So this is what we are looking forward for, which is to
    stick to the mission, let us make sure we make wise use of the
    money, and really pursue those management priorities that I
    know that you have in mind. I look forward to working with you.
        Senator Bond. Thank you, Senator Mikulski.
        Senator Leahy.

                         STATEMENT OF PATRICK J. LEAHY

        Senator Leahy. Thank you, Mr. Chairman. I am delighted to
    see Secretary Cuomo here. He may come from the more populous
    side of Lake Champlain, but Vermonters know him very well and
    know how helpful he has been to us. I have been struck by the
    fact that the Secretary, even though he comes from one of the
    most populous areas of the country, has never forgotten the
    fact that we have homeless and housing needs in rural areas
    like Vermont. I have been able to work with him a great deal
    Mr. Chairman, especially on HUD's homeless assistance programs.
    I think he brings more personal experience and commitment to
    Federal homeless assistance programs than any of his
    predecessors.
        In my own State of Vermont, a State smaller than many
    suburban towns in this area, 6,000 people every year spend at
    least a night in our homeless shelters. This is in a State as
    small as ours. I do not think I need to tell anybody how
    important those shelters are when the temperature is at 20 and
    30 below zero, as it often is in the middle of the winter in
    Vermont. Just over 1 week ago, I was at a fundraising event for
    the Committee on Temporary Shelter in Burlington, VT. It is
    called COTS. Hundreds and hundreds of people came, raising
    money to help other people less fortunate than themselves. In
    fact, I think nearly one-half the money COTS raises is from
    donations like these.
        We are going to have to set priorities in the budget
    battle, but I am very concerned that funding for the homeless
    programs could become a casualty. I am also concerned about the
    focus of homeless assistance. Often the services that our aid
    organizations provide like job training and counseling and
    child care are just as important as the shelter itself. Without
    these kinds of services, the child care, the placement, the job
    training, the person might go to temporary shelter and then be
    right back out on the street with nowhere to go. Legislation
    has been introduced in the House that would sharply limit HUD's
    services for the homeless. I think funding for these activities
    is not only appropriate for HUD, it is essential.
        Mr. Secretary, I have other questions. I am going to be at
    a chemical weapons hearing for awhile, but I will be back for
    questions because I do want to work with you to make sure that
    we do things to help those people who are temporarily homeless
    and those people who are looking for shelters, but also looking
    for a way to get into the work force. Mr. Secretary, I have
    found that while sometimes those in your position have had a
    focus solely on urban areas, you, sir, have always shown a
    commitment to the rural areas, and in Vermont that is much
    appreciated.
        Thank you, Mr. Chairman.
        Senator Bond. Thank you, Senator Leahy. It is always a
    pleasure to be working with you. You certainly have a banner
    day going back and forth between chemical weapons and HUD. We
    will----
        Senator Leahy. I just hope that I do not ask the wrong
    questions at the wrong one. [Laughter.]
        Senator Bond. They might apply in both places. [Laughter.]
        We will await your return. With that, Mr. Secretary, if you
    would proceed, please.

                           STATEMENT OF ANDREW CUOMO

        Secretary Cuomo. Thank you, Mr. Chairman, Senator Mikulski,
    and Senator Leahy. First, let me take the opportunity to thank
    the committee for all the good work we have already done these
    past few months. Although it is my first opportunity as
    Secretary to appear before the committee, I have had the good
    fortune to work with this committee over the past 4 years, both
    on a staff level and on a principal level. I think the
    relationship we have already struck bodes well for the future.

                           INTRODUCTION OF HUD STAFF

        If I might just take a moment to quickly run through the
    HUD team that is here, Mr. Chairman, to maybe put a face with
    some of the names you may have heard bandied about. They are
    seated behind me and I would ask them just to signal when I
    mention their name. Margaret Sullivan is here, who is the new
    Chief of Staff of the Department. This is her second week at
    the Department of Housing and Urban Development, and I hope
    this hearing does not dissuade her, push her toward an early
    retirement.
        We have Assistant Secretary Nic Retsinas who you know well,
    Inspector General Susan Gaffney, Marilynn Davis, who is
    Assistant Secretary for Administration, Michael Stegman, Policy
    Development and Research Assistant Secretary, Kevin Chavers who
    runs GNMA, Kevin Marchman, Assistant Secretary for Public
    Housing, Paul Leonard, who is going to be helping us on the
    charts today and is the Deputy Assistant Secretary for PD&R,
    Mark Kinsey, who is the Acting Director for OFHEO, Bob
    Hickmont, who is Counselor to the Secretary, and Cheryl Fox,
    who is Issues Adviser to the Secretary.
        Mr. Chairman, if it suits the committee I have a full
    statement that I would offer to be put into the record, and for
    the sake of time I will just abbreviate my comments.
        Senator Bond. Mr. Secretary, we will include your full
    statement in the record and would give you 10 minutes for your
    opening statement, realizing we will have to cover much of this
    in the questions and answers afterward. We appreciate your
    summarizing the important points of your statement.
        Secretary Cuomo. Thank you, Mr. Chairman. It is a
    challenging time, indeed, to take the mantle of the HUD
    leadership. There is a lot of good news. It seems like there is
    more good news everyday, 12 million new jobs, crime is down,
    poverty is down, unemployment is at its lowest in 24 years. We
    now talk about balancing the budget by the year 2002, which a
    few years ago would have been an unheard of, unprecedented
    accomplishment.
        But in the light of all this good news there are still real
    problems out there, as the chairman pointed out in his opening
    statement, and certainly problems that are on the horizon for
    us. You still have 600,000 homeless Americans who sleep on the
    streets at night. You have the Dow Jones hitting record
    heights, but you still have one out of five children sleeping
    in poverty. You have 5 million Americans who spend over 50
    percent of their income for rent. You have millions and
    millions on housing lists waiting for section 8 and public
    housing who we have not even contemplated a solution for. All
    this at a time when the cities are getting older, they are
    getting more minority, they are getting poorer, and the poverty
    in our cities today is becoming more isolating and more
    concentrating. More and more the accumulation of wealth is
    accompanied by flight to the suburbs. And all of this, again,
    when the economy is working well, indeed in historic
    proportions.
        John F. Kennedy was right. A rising tide does lift all
    boats. But I feel in this rising tide some are just treading
    water, and that the high tide is actually covering some
    obstacles that lurk just beneath. When this economy turns
    around and when this economic cycle completes itself, which is
    inevitable, and when the tide recedes, I fear it will expose
    real problems that have been hidden just beneath the surface.
    You have crumbling infrastructures, dysfunctional education
    systems, loss of neighborhood economies, loss of affordable
    housing stock, and on the shoals will be not just America's
    cities but older suburbs, aging themselves and now experiencing
    problems once thought to be the sole province of urban America.
        HUD's role is indeed more critical than ever before, and I
    would urge you, Mr. Chairman, not to abandon the worthy goals
    of this Department to help needy Americans and communities just
    because we are frustrated with the flaws in a bureaucracy
    undoubtedly going through a transition.

                      PRIORITY--AVERTING SECTION 8 CRISIS

        We have facilitated the presentation today with a few
    charts. We will just organize an overview, and then we will get
    to your questions. Mr. Chairman, there are four basic
    priorities for the Department which I think we would all share.
    The first is averting the so-called section 8 crisis, the
    renewal crisis you know so well. The second is expanding
    affordable housing opportunities. Third is making welfare
    reform work, and fourth is restoring the public's trust in the
    Department.
        On the section 8 crisis, and again this committee has
    brought it to the attention of the American public, we have
    this wave of contracts which are expiring in 1998--
    approximately 1.8 million units. This is not just important in
    terms of units, but the number of Americans who actually live
    in these units are staggering. This year 4.4 million Americans
    are in expiring units. These 4.4 live all across the country,
    every city, every community across the country. The problem
    gets worse in the next few years, so solving it this year is
    not the end of it, but it is the first step on a journey.
        We do not come to you today asking you to renew all the
    contracts and finding more money in a tight budget. We have
    also done our part on the reform savings side to try to save
    funds, and we have saved about $2.4 billion in fiscal year 1998
    alone. Where we saved the money first of all is through ending
    excessive subsidies to landlords. That is bringing down what we
    call the out of whack rents. There is nothing more infuriating
    to me than at this time of tight budget resources we should be
    paying landlords more than a fair market rent. Cities like Las
    Vegas, where the fair market rent is $380, we pay $820.
    Chicago, the fair market rent is $435, we pay $849. Washington,
    DC, fair market rent is $499, Government pays $734 for the same
    apartment. It is indefensible, and you cannot explain to the
    American people why we would be in this situation.
        There was a so-called market solution which we proposed a
    couple of years ago. The legislation did not go anywhere, as
    the chairman knows well. There were two flaws in the
    legislation. No. 1, we did not have a tax fix to make it work
    and, No. 2, we did not have a good plan for extended
    affordability. We have proposed legislation now called the
    housing 2020 which has both a tax fix which will allow this
    financial calculation to happen, and it extends the
    affordability of the units that we secure for an additional 15
    years. The housing 2020 legislation would save about $1.4
    billion over the next 5 years.
        Additional savings we get from increasing the number of
    working families to fill vacant units, limiting the annual
    adjustment factors for project-based units, maintaining what we
    call the $25 minimum rents, reducing administrative funds to
    the public housing authorities, and a host of smaller
    miscellaneous savings.

                     PRIORITY--EXPANDING AFFORDABLE HOUSING

        The next priority of the Department is to expand affordable
    housing opportunities. The first word in our name is housing,
    and that is our job. We again propose 50,000 new housing
    certificates, remembering that all of this discussion of the
    section 8 renewals only protects the status quo. You only house
    those people who are currently housed. This is at a time when
    you have millions on waiting lists all across the country that
    we are not even beginning to talk about. Our stab in that
    direction as far as an affirmative housing policy is to suggest
    50,000 new certificates, which would be called incremental.
        The second goal is to increase home ownership, as Senator
    Mikulski pointed out. There can be no higher goal for the
    middle class moving up through FHA and for people coming off of
    the welfare to work experience and public housing experience.
    We have an item in the legislation that I am very excited about
    which would allow a section 8 certificate to be used for home
    ownership. If a person can use a section 8 certificate to pay a
    landlord's mortgage, why not pay their own?
        Senator Leahy spoke about the homeless programs, and we
    have had a good deal of success with them. We will keep them
    going with our continuum of care program. With the
    transformation of public housing, we will continue to go with
    the HOPE VI Program which exists, thanks to the good work of
    members of this committee. We have some suggested reforms for
    HOPE VI which we think can make a good program a better
    program. We have learned some lessons and we have some
    suggestions for getting a handle on the costs of the units and
    a way to move the money faster. We would continue to build on
    the success of the HOME Program, which has constructed about
    114,000 units, and continue to insure fair housing.

                      PRIORITY--MAKING WELFARE REFORM WORK

        The next priority is making welfare reform work. While
    welfare reform is not the obvious bailiwick of the Department
    of Housing and Urban Development, it is the critical issue in
    the cities and communities that we serve. To address welfare
    reform, and to get on the economic development agenda, we have
    a number of initiatives which the committee is familiar with
    including the second round of empowerment zones and a $25
    million brownfields initiative. There are about 450,000
    brownfields in this Nation stopping development. This is a
    joint initiative with EPA which would give us a real solution
    to the brownfields problem. It will include the CDBG Program,
    EDI funds, 108 loan guarantees, Youthbuild, and Bridges to
    Work, which says maybe the jobs do not have to be in the
    cities, maybe we can get the people from the cities out to the
    suburbs where the jobs are, and again, 50,000 new housing
    vouchers.

                        PRIORITY--RESTORING PUBLIC TRUST

        The final priority, and probably in my opinion the most
    important, Mr. Chairman, is restoring the public's trust, and
    when we say public's trust we include the U.S. Senate in the
    public. And that works on a number of levels: cracking down on
    bad landlords, which we have done; ending the waste, fraud, and
    abuse in the Section 8 Program and in the multifamily
    portfolio. We have done 39 what are called debarments of
    landlords so far this year, where they are kicked out of the
    program. That compares to 24 of all of last year. We have a new
    partnership with Attorney General Reno. We say if you think you
    are going to rip off HUD any more, you had better think again.
    We are doing it on that level.
        We are cleaning up troubled housing authorities. In our
    legislation, we have some tough new measures that say use it or
    lose it. We are not going to leave the money in the pipeline.
    If the public housing authority cannot spend it, we will take
    it back. For troubled public housing authorities, we have a
    very tough measure that says if you are troubled at the end of
    1 year, you go to a judicial receiver to run the housing
    authority. New changes to FEMA which would make it a better
    grading system. We extend that to clearing out the drugs, the
    gangs, and the crime, and we extend it to ourselves, Mr.
    Chairman. We have taken a very aggressive stance on the
    management of the Department.

                          PRIORITY--MANAGEMENT REFORMS

        As I said to you during the confirmation hearings, I
    understand the concern of this committee. Cleaning up our own
    house is job one. You mentioned past efforts by the Department
    and Secretary Cisneros. Secretary Cisneros had some very bold
    reinventions which were primarily geared toward program reforms
    but also required legislation that we never got. We have made
    it a focus to address the issues that concern this committee,
    the management issues, the financial issues. I think it is fair
    to say that the Department has never begun a more sweeping
    internal reform than the one we are going through, and I would
    ask this committee to give us support for the legislation we
    need and a window of opportunity to allow us to complete what
    we have embarked on, all this at a time when the Department
    will continue to downsize from a high of about 13,000 employees
    when we started 5 years ago down to about 7,500 by the year
    2000.

                               PREPARED STATEMENT

        But again, management will be job one, Mr. Chairman. I am
    looking forward to doing it with this good committee. Thank
    you.
        [The statement follows:]

                     Prepared Statement of Andrew M. Cuomo

        Chairman Bond, Ranking Member Mikulski, Members of the
    Subcommittee: thank you for inviting me here this morning. If it
    pleases the Subcommittee, I would like my testimony entered into the
    record. Thank you.
        I am honored to have been chosen by President Clinton as HUD
    Secretary at this decisive moment in the Department's history. I was
    proud to serve with Secretary Henry Cisneros, whose leadership and
    commitment to our mission transformed HUD into a vibrant, vital force
    for the American people and their communities.
        Today, HUD is a stronger, abler, leaner, more cohesive Department
    because of Henry's leadership. He is, in my opinion, the best Secretary
    in the history of the Department. While it will be difficult to fill
    his shoes, it is my privilege to follow in his footsteps and build on
    the good job he began.
        I know that Secretary Cisneros had a positive working relationship
    with members of this Subcommittee. I pledge to do all I can to make
    sure that this productive, bipartisan relationship continues.
        Mr. Chairman and members of the Subcommittee, I appreciate the
    opportunity to discuss HUD's reform efforts and plans for the future.
    It is my pleasure to present the Clinton Administration's budget for
    the Department of Housing and Urban Development for fiscal year 1998--
    especially in light of the historic balanced budget agreement that was
    achieved just eleven days ago.
        As the members of this Subcommittee know, I come to this hearing
    today not just as the HUD Secretary, but as a person who spent more
    than ten years working on these issues in the private sector. I entered
    housing--not as a government official--but as a builder, operator, and
    manager, responsible for meeting a payroll and balancing a budget. I
    have known the joy and pain of building housing, creating jobs, and
    filling out grant forms--from both sides.
        To me, the mission of HUD--and the larger mission of this
    Subcommittee--has never been more vital than it is today. The need to
    create safe, decent and affordable housing for all Americans; the need
    to create jobs and bring opportunity to our communities; the need to
    empower our people and help them get the skills they need to lift
    themselves up--these challenges are just as great and just as pressing
    as they have ever been.
        But today, we have an entirely new dynamic. We have to meet these
    challenges while also meeting the very real challenge of moving
    millions of our fellow citizens from welfare to work. As the department
    responsible for housing more than a quarter of the families on welfare
    today; as the agency with potentially the largest economic development
    portfolio in government; and as the department that deals most directly
    with cities, where most people on welfare live; welfare reform shines a
    spotlight on HUD like never before.
        We recognize that these challenges come at a time when the federal
    government has fewer and fewer resources. If we had to make a choice
    between fiscal prudence and meeting the needs of troubled Americans,
    the choice would be difficult--indeed.
        But in truth, we have no choice because we have an undeniable
    responsibility to balance the budget. And, at the same time, we have an
    equally undeniable responsibility to meet the challenges that lie
    ahead. How do we do that? With a government that is smarter and
    smaller--and a Department that is more sharply focused and better
    managed.
        We must be willing to admit that some programs do not work. We must
    recognize the right roles for the government and private sector. We
    must crack down on waste, fraud, and abuse wherever and whenever we
    find it. We must understand that quick-fix solutions do not work--that
    many of these challenges, as you have rightly pointed out, Mr.
    Chairman--require long-term structural changes.
        And, we must be willing to acknowledge that if we're going to solve
    these problems, the answers will not just come from the top down, but
    from the bottom up. In the last four years, we have learned: there are
    no people who understand the needs of a community better than the
    people who live in a community.
        By listening to the American people, by working together the past
    four years, we have proven that we can produce real results for
    America. Today, because of all of our efforts, the economy is strong.
    Jobs are up, homeownership is up, and cities are coming back. At the
    same time, crime is down, poverty is down, and unemployment has hit a
    24-year low.
        Since President Clinton took office in 1993, the annual federal
    deficit has been cut by nearly 80 percent, from $290 billion in 1992 to
    a projected $70 billion in 1997. As a proportion of our economy, the
    U.S. budget deficit is now the smallest of any major nation in the
    world.
        Now, we are at a turning point. The historic balanced budget
    agreement we signed 11 days ago will help us finish the job we started
    four years ago. We have come together--Democrats and Republicans--to
    agree on a balanced budget with balanced values that will help
    Americans buy a home, start a business, save for retirement, and send
    their kids to college.
        For America's cities, this budget comes at a crucial time. Despite
    all our progress, today, one in five American children live in poverty.
    One in four Americans who needs housing assistance gets it. Over five
    million very low income families spend more than 50 percent of their
    income on rent. The challenges are great but the response of this
    budget agreement is strong.
        But make no mistake about it: if the Congress, in a bipartisan
    spirit, lives up to the commitments in the budget agreement, this
    budget can be good for America's cities. For the people we serve at
    HUD, for the people who are struggling to move from welfare to work,
    who live in urban America, this budget can be a big win.
        The aggregate level of resources in this budget agreement is
    sufficient not only to renew Section 8 contracts, but also to provide
    for other urban priorities. Failure to renew all expiring Section 8
    contracts would likely put over 4 million people in the street. Full
    renewal will help us maintain America's historic commitment to
    providing decent, safe, affordable housing well into the next century.
        This agreement also provides enough resources to meet other urban
    priorities in the President's February budget. It does so by:
      --Expanding our empowerment zones and enterprise communities. In less
            than two years, 95 percent of our EZ/EC's nationwide have shown
            substantial progress. Over $2 billion in private investment has
            been leveraged nationwide. A second round of EZ/EC's will help
            bring even more jobs back to our urban communities.
      --Expanding the Brownfield Redevelopment Initiative. In cities across
            America, abandoned factories sit vacant. This will help mayors
            transform those properties into vital centers of the community.
      --Maintaining the low income housing tax credit at its present level.
            Millions of Americans have used this credit as a stepping stone
            to a better life.
      --Providing $2 billion to help move people from welfare to work in
            combination with an expanded wage tax credit to help companies
            create opportunities for long-term welfare recipients. On one
            hand, this will help welfare recipients get the skills and
            services they need to move into the workforce. On the other
            hand, employers who hire them get a 50 percent credit on the
            first $10,000 a year of wages for up to 2 years.
      --Funding the America Reads initiative. A lot of kids who live in
            public housing need help with basic skills. This initiative
            will help mobilize a million tutors to help three million
            children learn to read by the end of the third grade.
      --Expanding health coverage for as many as 5 million uncovered
            children. Many of these children are poor, and live in the
            inner city. This new capped grant program will help strengthen
            efforts to cover uninsured children that are already underway
            in many states.
      --Preserving food stamp benefits for people willing to work. While
            maintaining the work requirements set out by the welfare reform
            bill, this can supply funding for an additional 190,000 slots
            to provide the help many inner-city residents need on the road
            to self-sufficiency.
      --Restoring disability and health benefits for legal immigrants, and
            restoring Medicaid coverage for the children of poor legal
            immigrants.
      --Doubling funding to help schools bring the Internet to the inner
            city. Many suburban schools today are moving to new technology
            without our assistance. But many urban schools need our help--
            particularly at a time when computer skills are becoming more
            necessary to find a job. This will ensure that the information
            superhighway does not bypass urban America.
        All told, while addressing the full range of HUD's activities, this
    agreement can help meet the needs of America's cities. We have agreed
    in principle upon a budget that can help our families prosper and grow.
    But now, Mr. Chairman, this Subcommittee moves to the very difficult
    task of matching principle with reality, of matching budget outlays
    with budget authority, and filling in the details of this budget.
        We look forward to working with you closely on this task in the
    days to come. Today, as we move to the next stage, allow me to expand
    on this budget and focus attention on four pressing and immediate
    challenges we at HUD expect to face in the months to come: (1) renewing
    Section 8 contracts; (2) expanding housing opportunities for all
    Americans; (3) making welfare reform work; and (4) restoring the
    public's trust in the Department.
        Let me discuss each one of these challenges in more detail and
    describe HUD's response to them--not just in the short-term, but in the
    long-term--and the long-term structural changes we are proposing to
    make HUD work even better.

                          RENEWING SECTION 8 CONTRACTS

        As this Subcommittee knows, a record number of Section 8 contracts
    are beginning to expire, with contracts on 1.8 million units expiring
    in fiscal year 1998. To put that in perspective: more contracts will
    expire in the next year than in the previous five years combined.
    Renewing these contracts was the absolute highest priority for me in
    presenting my budget.
        About 1.4 million of the Section 8 contracts expiring in 1998 are
    tenant-based vouchers and certificates. Another 400,000 of the expiring
    contracts are project-based. Of this number, some 167,000 units are in
    markets where the government rate is sometimes twice as high as the
    market rate. I will discuss this in more detail later.
        American communities should not have to bear the high social costs,
    and should not have to face the potential social chaos, of an
    unprecedented explosion of homelessness that would surely arise if we
    did not fully renew these contracts. None of us would advocate a policy
    guaranteed to push hundreds of thousands of elderly, children, and
    disabled Americans into homeless shelters and onto the streets of our
    communities.
        That is why I believe we must renew these contracts. And that is
    why the budget agreement--which provides for sufficient resources to
    renew all expiring contracts through 2002--represents such a great bi-
    partisan accomplishment.
        While the resources in the budget agreement are adequate to renew
    all expiring contracts, we must strive to protect the remainder of
    HUD's budget from the intense pressure caused by a limited pool of
    domestic discretionary resources. We cannot tolerate a budget that
    allows all contracts to be renewed while at the same time making severe
    cuts in essential HUD programs like CDBG, public housing operating
    support, homeless assistance, and many others.
        This kind of ``cut-and-shift'' approach--robbing Peter to pay
    Paul--would be short-sighted and self-defeating. While such an approach
    would avert the Section 8 crisis, it would simultaneously trigger other
    community crises in homelessness and affordable housing.
        HUD's solution to the renewal crisis calls for both tough reforms
    to control outlays and new spending authority. Our fiscal year 1998
    budget provided a 30 percent increase in HUD's budget authority--a $5.6
    billion increase in new budget authority--virtually all of which would
    be used to renew the expiring Section 8 contracts. The budget also
    proposes program reforms that would save substantial Section 8 outlays
    in both fiscal year 1998 and over the next five years. In particular,
    our approach stresses tough savings reforms:
      --Increase the number of working families to fill vacant units.
      --Limit the annual rent increases for project-based units.
      --Maintain $25 minimum rents in public and assisted housing.
      --Reduce administrative fees for public housing authorities; and most
            importantly.
      --End excessive subsidies to landlords by restructuring high-cost
            assistance contracts.
        This last point is especially crucial. In markets across America,
    the rents government pays are out of whack with market rents.
        A 1994 study by the General Accounting Office found numerous
    examples. In Las Vegas, for example, the market rate was $380, the
    government paid $820. In Chicago, the market rate was $435, the
    government paid $849. In Washington, D.C., the market rate was $499,
    government paid $734.
        Why? Because twenty years ago, when we first offered contracts to
    give owners incentives to build affordable housing in the inner city,
    there were built-in escalators in the contracts. Since many of the
    contracts lasted 20 years, it prevented us from cutting the rents. But
    now that many of the contracts are expiring, we're caught in a catch-
    22. If we just cut rents, many owners will go into default. Since the
    properties are FHA-insured, taxpayers will get stuck with the bill. At
    the social level, such defaults could lead to an explosion in
    homelessness.
        As I noted earlier, in 1998 alone, contracts will come due on
    approximately 167,000 units with over-market rents. Over the next 12
    years, some 500,000 FHA-insured units will come due. We are determined
    to reduce these out-of-whack rents and reduce the cost to taxpayers--
    but to do it in a way that protects families, preserves affordable
    housing, and avoids massive defaults and foreclosures.
        Over the past six months, HUD has worked closely with the
    Department of Treasury to craft a sensible solution to this problem.
    Our solution, which we call Housing 2020, will reduce rents, reduce
    FHA-insured mortgages, and give owners more time to pay off their tax
    burden. In return, we save taxpayers money, protect families, and
    ensure affordable housing well into the next century.
        Over the next five years, our Housing 2020 proposal will save over
    $1.4 billion while maintaining more than 500,000 units for 850,000
    people. We believe this is a good starting point for a constructive,
    bipartisan dialogue with Congress about finding a long-term solution to
    this structural problem of the Section 8 program. I look forward to
    working with you, Mr. Chairman, and the members of this Subcommittee,
    to enact a permanent solution to this inventory this year.
        Mr. Chairman, you have also raised questions about the issue of the
    Section 8 contract reserves. As you know, I have made the issue of
    enhancing the management reform of the Department a critical priority.
    This focus has already yielded significant benefits.
        Last fall, we completed the first phase of auditing housing
    authority Section 8 project reserve accounts. This effort yielded $1.6
    billion in excess Section 8 project reserves. We promptly reported the
    existence of these excess reserves to your committee in our operating
    plan, and committed to using them to reduce our request for fiscal year
    1998 appropriations for contract renewals. At that time, and when we
    introduced our budget earlier this year, we explained that this was the
    first result of an ongoing effort to review PHA reserve levels.
        Last month, we reported the existence of additional Section 8
    project reserves. The Department is continuing to review every aspect
    of its budgeting for Section 8 renewals. We have asked Price Waterhouse
    to review these estimates, and those efforts are ongoing. We are also
    continuing to review issues that GAO has raised with respect to the
    per-unit costs of Section 8 contracts. And, we have identified
    imbalances within the project-based Section 8 program, where many
    projects have insufficient funding to reach the end of the contract
    term, while other contracts are expiring with budget authority
    remaining on the contracts. As more information becomes available, we
    will keep the Committee fully informed.
        The Section 8 program was forged in a bipartisan spirit and it must
    be fixed with the same bipartisan spirit. Democratic and Republican
    Administrations have been working for years to put in place financial
    systems to enhance the management of the Section 8 accounts. I pledge
    to you to continue to improve these systems and look forward to working
    with this Committee and this Congress to do so.
               expanding housing opportunities for all americans
        While solving the Section 8 crisis must be HUD's first priority,
    our second challenge must be to expand affordable housing opportunities
    for those not currently served. Our 1998 budget does that.
        HUD's budget asks for 50,000 additional Section 8 certificates, and
    links them to welfare reform. It moves to boost homeownership rates to
    an all-time high. It continues to transform public housing and help the
    homeless work toward self-sufficiency. It will keep building on the
    success of the HOME Program. And, it provides more money for our Fair
    Housing Initiatives.
        As you know, our requests for additional Section 8 certificates for
    fiscal year 1996 and fiscal year 1997 were not funded.
        In the 1998 budget, our request is particularly compelling because
    the 50,000 additional Section 8 certificates we're asking for will help
    move people from welfare to work. We are targeting these certificates
    to help welfare recipients move into jobs. With this targeting, we feel
    we have found common ground with Congress to provide these
    certificates.
        A key part of our strategy to expand housing opportunities will be
    to build on HUD's great success in expanding homeownership.
        During President Clinton's first term, the homeownership rate
    surged to 65.4 percent. There are two reasons why this happened. First,
    the economy is strong. Together, we've created more than 12 million new
    jobs, and interest rates are low--making it easier than ever to buy a
    home. Second, at the President's request, HUD helped organize the
    National Partners in Homeownership, an unprecedented alliance of 58
    housing industry organizations dedicated to adding eight million new
    homeowners by the end of the year 2000. These partners have worked
    together marvelously to lower barriers to owning a home. They deserve a
    great deal of credit and our continuing respect.
        The success of the National Partners in Homeownership has
    encouraged housing industry leaders in cities and counties across
    America to form local affiliates that reflect the goals and values of
    the National organization. In 1998, we will continue to promote these
    local affiliates, adding 75 local homeownership partnerships for a
    total of 225.
        We will continue reforms at FHA that allow that vital agency to
    help even more of the first-time buyers and minorities they serve
    better than anybody else in the consumer mortgage field. With these
    reforms, 75 percent of FHA's mortgage business, excluding refinancings,
    will go to first-time home buyers in 1998. When President Clinton took
    office, first-time buyers were just 65 percent of FHA's new mortgage
    business. These reforms will help almost 500,000 families become new
    homeowners.
        Additionally, we will fund Ginnie Mae's efforts to stimulate $1
    billion in mortgage lending to inner cities, and we will provide $50
    million to help cities reclaim abandoned urban land by building
    homeownership zones--suburban-style developments of single-family homes
    to stabilize and reclaim neighborhoods in the shadows of downtown.
        And we are making sure that Americans have full access to the homes
    they want by increasing our budget for Fair Housing by $9 million--a 30
    percent increase. These funds will increase enforcement and compliance
    activities and build the America we all want, a land where opportunity
    is available to all who seek it--no exceptions.
        We will also expand affordable housing by building on the
    transformation of public housing. I am encouraged by the progress that
    both the House and Senate are making to enact an authorizing bill which
    cement the transformation we have begun.
        Even as we undertake to replace the 100,000 worst public housing
    units in America, we must maintain sufficient operating and capital
    funds for the 3,300 mostly well-performing public housing authorities
    across America.
        In 1998, we request $2.9 billion in public housing operating
    subsidies and $2.5 billion in capital funds, equal to the fiscal year
    1997 levels. These numbers, however, actually reflect an $85 million
    increase in operating subsidies and a $162 million increase in capital
    funds to public housing authorities, since funds that were once
    included for Indian housing were separated out and put into their new
    housing block grant. These funds are needed to keep sound buildings in
    good shape--preventing them from deteriorating and needing to be
    replaced.
        HUD is beginning the process of shifting our focus in public
    housing away from demolition to replacement housing. The 1998 budget
    intensifies that move. For HOPE VI, the program that spearheads HUD's
    public housing renovation effort, we are asking for $524 million in
    1998--$103 million for replacement vouchers and $421 million for
    demolition and revitalization activities.
        Our goals are to increase the number of good quality units and to
    expand housing choices. After all 100,000 demolitions are completed and
    all the new units built, we will have 100,000 expanded housing
    opportunities. Just over 40,000 of these are new opportunities
    (vouchers and new units), since about 40 percent of the units in the
    buildings that are being torn down are vacant.
        For HUD's homeless programs, our proposed budget--$823 million, the
    same as last year--will allow HUD to move forward with our ``Continuum
    of Care'' strategy, a strategy that helps move people off the streets
    toward self-sufficiency.
        This is the right thing to do. A study released in December by
    Columbia University found that in 1995 as many as 14 times more
    homeless people were served by HUD programs as in 1992--this during a
    period when federal funds only doubled. Communities are using HUD
    homeless funds to leverage substantial local matching contributions. We
    are getting funds out to every state across the nation, and we are
    serving more homeless people with disabilities.
        Shortly, we will introduce our homeless reform bill, which will
    permanently consolidate our seven separate homeless programs into a
    single performance-based program.
        Our investment in helping the homeless work toward independence and
    self-sufficiency is clearly the right thing to do.

                           MAKING WELFARE REFORM WORK

        Our third major challenge, as I mentioned earlier, is our newest
    one. We now have to respond to a new environment created by welfare
    reform.
        Under President Clinton's leadership, the American economy has
    added more than 12 million new jobs in the last four years. Now he is
    committed to moving another two million people from welfare to work by
    the year 2000.
        HUD's fiscal year 1998 budget recognizes that the Department has a
    special ability to help welfare reform succeed. The people HUD serves
    will be among the people who are most dramatically affected by the
    changes that lie ahead.
        Over the past four years, we have learned that housing is the
    foundation of progress and stability, but housing alone does not
    develop a community: jobs are the essential element needed to drive
    people and families forward to self-sufficiency.
        To fulfill our core mission of revitalizing America's communities,
    we must work to do two key things: we must create housing, and we must
    create jobs. HUD's economic development programs can play a vital role
    in bringing opportunity to communities all over America in places where
    there are not enough jobs.
        The 1998 budget asks for $100 million to fund a second round of
    Empowerment Zones and Enterprise Communities. These are designed to
    encourage job creation and attract businesses to high-poverty areas
    where many welfare recipients live. Communities use these funds to
    leverage billions of dollars of private investment. After just two
    years of a 10-year program, we have seen more than $2.6 billion in
    private investment leveraged nationwide. This is one of the key
    component's of the President s strategy to move people from welfare to
    work.
        In addition, the HUD budget asks for $100 million over the next
    four years--including $25 million for 1998--to clean up and redevelop
    abandoned Brownfields.
        HUD is asking for stable funding for CDBG at $4.6 billion and $1.3
    billion in Section 108 loan guarantee authority. Our $50 million
    request for the Economic Development Initiative will help create jobs
    and leverage private investment.
        We will also help welfare recipients transition to work by
    providing and leveraging service for them. Our budget asks for $20
    million in counseling assistance to help Section 8 recipients--who are
    welfare recipients--find rental homes that are new jobs and needed
    support services. It asks for $30 million for Youthbuild, a program
    that gives young high school dropouts a chance to learn, earn, and do
    good for their community, all at the same time. Youthbuild places these
    disadvantaged youngsters into apprenticeships that teach them valuable
    construction skills while they work to renovate affordable housing.
        The budget also requests $10 million to expand our Bridges to Work
    demonstration, which pays for transportation and support services to
    link central city residents to the suburbs, where the jobs often are.
        And remember: the 50,000 new Section 8 housing certificates we're
    requesting--at a cost of $305 million--will be targeted to help welfare
    recipients move into the workforce.
        These resources will help welfare recipients sign up for the best
    social program that has ever been invented--a job!

                 RESTORING THE PUBLIC'S TRUST IN THE DEPARTMENT

        At HUD, we are prepared to meet the Section 8 crisis, create
    affordable housing, and move people from welfare to work. But we
    recognize that our success in meeting these three challenges will
    largely depend on our success in meeting a fourth challenge--restoring
    the public's trust in HUD.
        We must continue to demand accountability, not just from those who
    benefit from HUD--tenants and landlords alike--but from ourselves as
    well. We've made a lot of progress the past four years, but much work
    remains to be done.
        The public must have confidence that our partners at the local
    level are spending HUD funds wisely, honestly, and efficiently. We are
    well underway in our efforts to make 1997 the year we crack down on
    waste, fraud, and abuse.
        Seven weeks ago, HUD and Attorney General Janet Reno announced a
    new joint ``Get Tough'' campaign to crack down on bad landlords who
    were taking taxpayer dollars while forcing their tenants to live in
    slums. In 1997, we have taken action against more than 39 bad
    landlords--compared to 22 in all of 1996. Just last week, we took
    action against one of America's most notorious slumlords--who accepts
    more than $70 million in federal funds every year.
        We will continue to crack down on bad landlords with a $50 million
    effort to remove and punish those who run troubled HUD-assisted
    properties. We will clean up troubled public housing authorities by
    investing another $45 million for technical assistance and expertise
    that they so badly need. These funds will also help smaller housing
    authorities that are having problems.
        We will also continue to target scam artists who take advantage of
    people who participate in HUD activities. Last year, we started a
    highly successful program intended to help keep elderly homeowners in
    their homes. Our ``Reverse Mortgage'' program is targeted to senior
    citizens who are house-rich but cash-poor, people who have equity in
    their homes, but not enough money to pay their bills. This program
    allows homeowners age 62 and older to borrow against the value of their
    home. About 125 lenders participate in this program.
        We were so successful that we spawned a handful of scam artists.
    For the same information HUD provided for free, some companies were
    charging up to $8,000 in fees. In March, we issued a letter to all FHA-
    approved lenders to stop doing business with these companies. Last
    month, I joined many of you here on the Hill to introduce legislation
    to stop it. Together, we have forced these companies to retreat.
        Our budget is also working to clean crime, drugs, and gangs out of
    public housing. HUD is asking to double funding for Operation Safe Home
    to $20 million. This highly effective crime-fighting partnership in
    public housing is led by HUD, working together with the FBI, DEA, and
    other state and local law enforcement to prosecute both violent crime
    and white-collar fraud.
        The HUD budget also requests $290 million in Drug Elimination
    grants for public housing to fight drug traffickers and violence, and
    to fund programs that give children growing up an alternative to the
    crime they see every day.
        But demanding accountability from others is just half of the
    equation. For housing and economic development to work better, HUD must
    work better as well. We are determined to get our own house in order.
    As I said earlier, government must find ways to be smaller and smarter.
    We must remain committed to worthwhile goals but not to failed means.
    We must be willing to admit that some programs do not work. We must
    recognize the right roles for the government and private sector.
        HUD needs to continue to reinvent and adopt a private-sector
    mentality. To that end, we will be targeting efforts to show that ``HUD
    Means Business.'' The agency will borrow--for a limited time--business
    executives and experts from leading companies to help us implement the
    financial and management reforms we must take.
        I am proud to continue the task that Henry Cisneros began four year
    ago--bringing this agency back from the brink of public disrepute by
    modernizing and preparing it for a new century. And, I also recognize
    that while genuine progress has been made in the past four years--
    progress acknowledged by a number of outside experts--much remains to
    be done.
        Let me note a few of the areas that most concern me:
      --HUD continues to be listed as a high-risk agency by the General
            Accounting Office. While the GAO acknowledges progress--citing
            ``substantial efforts over the past two years''--they are right
            to say that a lot more must be done. In short, HUD's public
            purpose is too vital--especially in this time of sweeping
            economic and social transformation as we move from an
            industrial to an information age--to compromised in any way by
            waste, fraud, abuse, and poor management. We must go further.
      --HUD continues to have problems with its financial control and
            management systems. While we've made improvements in the past
            few years, these changes are not quite sufficient if we are
            going to make sure this agency effectively and efficiently
            serves the nation.
      --While HUD is right on target for reducing the size of its staff--
            from 13,200 in 1992 to 10,400 today and ultimately down to
            7,500 in 2000--we must, in the next few years, bring our long-
            term mission in line with our reduced and dwindling resources.
        As I pledged in my confirmation testimony a few months ago,
    management reform is a top priority for me. It is perhaps a thankless
    task, but I believe the moment is ripe--as the most recent GAO report
    makes clear--for a close collaboration between HUD and Congress to
    clean up the agency for the long-run. I will be introducing a
    comprehensive management reform plan to address these long-term
    deficiencies in the next few weeks.

                                   CONCLUSION

        We have made a lot of progress together the past 4 years, but we
    have a long way to go. The traditional challenges faced by HUD--
    providing affordable housing, increasing homeownership, promoting fair
    housing, reducing homelessness, creating jobs, and helping our
    communities develop and grow--are being challenged like never before by
    shrinking Federal resources and the reality of moving millions of
    Americans from welfare to work.
        The historic balanced budget agreement provides a framework to meet
    these challenges in a way that is good for our cities and good for
    America. But we need to do more. We must continue to streamline,
    reinvent, and crack down on waste, fraud, and abuse wherever possible.
    We must be willing to admit that some programs have failed. We must
    reach out to the private sector and nonprofit community to meet our
    greatest challenges. We must trust our local communities to know best.
    And, we must work together to prove to the American people--not only
    that HUD means business--but we can meet these challenges in a
    creative, competent, common-sense way.
        Over the past 4 years, HUD and this Committee have worked in a
    positive way to meet these challenges. I look forward to working with
    all of you in the months to come to build on that relationship and meet
    our housing and economic development needs as we head into a new
    century.
        Thank you.
                                     ______

    Fiscal Year 1998 Priorities
        I. Renewing expiring section 8 contracts.
        II. Expanding affordable housing opportunities.
        III. Making welfare reform work.
        IV. Restoring the Public's trust in the Department.

        [GRAPHIC] [TIFF OMITTED] T05MY13.000

                          The Problem Explodes in 1998

                                  [In millions]

            Fiscal year                                            Americans
                                                                     at risk
    1997..............................................................   1.5
    1998..............................................................   4.4
    1999..............................................................   5.2
    2000..............................................................   6.0
    2001..............................................................   6.2
    2002..............................................................   6.4

    Reforms=Savings
        Ending excessive subsidies to landlords.
        Increasing number of working families to fill vacant units.
        Limiting annual adjustment factors for project-based units.
        Maintaining $25 minimum rents.
        Reducing administrative funds to public housing authorities to
    encourage efficiency.
        Other savings.
    Expanding Affordable Housing Opportunities
        Providing 50,000 new housing certificates.
        Increasing homeownership.
        Helping more homeless move from the streets to self-sufficiency.
        Continuing to transform public housing.
        Continuing the success of the HOME Program.
        Ensuring fair housing.
    Making Welfare Reform Work
        $100 million: Empowerment zones and enterprise communities ROUND II
    (toward a new $2 billion Federal effort).
        $25 million: Redeveloping brownfields ($100 million over 4 years).
        $4.6 billion: Community Development Block Grants (CDBG).
        $50 million: Economic development initiative (EDI).
        $1.3 billion: Section 108 loan guarantees.
        $30 million: Youthbuild.
        $10 million: Bridges to Work.
        $305 million: 50,000 new housing certificates.
    Restoring the Publics Trust in the Department
        Cracking down on bad landlords.
        Cleaning up troubled housing authorities.
        Clearing out drugs, gangs and crime:
      --Drug elimination grants
      --Operation Safe Home
      --One-Strike and You're Out
      --Reverse mortgages

                            HUD Continues to Downsize

            Fiscal year                                                FTE's
    1992..............................................................13,194
    1997..............................................................10,447
    2000.............................................................. 7,500

    Note: Totals do not include Inspector General, Working Capital Fund, and
    OFHEO.

        Senator Bond. Thank you, Mr. Secretary. We are delighted
    you are utilizing some of the tools that we have given you. The
    mark-to-market demonstration, you were not here at the time,
    was initiated here and this committee came up with the
    demonstration funds. We conferred with Mr. Retsinas and others.
    We did not include the tax changes because we did not have
    support for them. While this committee has been known to
    authorize a little bit in an appropriations bill, we have not
    yet attempted passing tax legislation here. That might be a bit
    much.

                           MANAGEMENT TRANSITION PLAN

        You mentioned addressing unmet needs for adding 50,000
    units. I would note that we do have the HOPE VI Program which
    does provide some additional needs. We believe HUD's existing
    programs already are adding units successfully. We believe that
    expanding home ownership opportunities and the housing needs is
    being best accomplished by State and local partnerships with
    HOME, through capacity building, through the Habitat for
    Humanity, and many other programs that we think are doing an
    excellent job.
        I touched on, and you have mentioned, the problems that HUD
    faces, the high-risk management problems. You have indicated
    that this is job one, Mr. Secretary. For the record, I would
    appreciate it if you would set out for this committee and for
    the authorizing committees some benchmarks and timeframes, what
    is it that you are going to do, when are you going to get it
    done, how do we know it is done, what kinds of steps will be
    taken to meet the criticisms and the significant questions
    raised by the GAO, the inspector general, and others. I agree
    with you, this has to be job one. We would like to know how we
    can tell it is moving forward. As I said, we have seen a lot of
    motion and we have spent a lot of time at these hearings
    talking about reforming HUD. You come in with a fresh slate,
    and we would like to see the reforms made and the steps to
    sound financial and management controls taken by the
    Department.
        Secretary Cuomo. Mr. Chairman, it would be my pleasure to
    go back and do a little quick work and sketch out a management
    transition plan for this committee. I think you can see where
    the Department is going if you look at the legislative agenda
    we have put forward. We put forth a public housing management
    reform bill, a housing 2020 bill, which is the section 8
    management reform bill. We are going to do a homeless bill in
    response to the House bill. That will change some policy but
    will be a management reform bill. We have very real substantive
    program reforms in each one of those bills which I believe will
    bring a new level of management efficiency to those program
    operations.
        On top of that, we have to make sure our own house works.
    We have some very real problems of financial management systems
    in the Department--94 financial management systems that have
    never been reconciled. There is no one, integrated financial
    management system. You cannot go anywhere and push one button
    and get the read out for the entire Department. I think we have
    been experiencing some of that over the past several weeks. So
    we have the program reforms, we also have the internal
    organizational reforms. We have an aggressive agenda on both,
    and I can provide the committee with the time line and
    benchmarks so that we can see just how we are making progress.
        Senator Bond. That would be very helpful. You talked about
    some of the public housing reforms. Frankly, we have done that
    in authorizing legislation. We have given HUD various authority
    for dealing with underperforming or misperforming public
    housing agencies. I am sure that there are many things that can
    be done to improve the programs, but we are not looking at
    things that primarily require outside legislation. We are
    looking at management steps and management reform to make HUD
    programs work.
        And to be quite honest with you, it is not just this
    committee that ought to be interested in the progress. You need
    to have your own game plan and we want to see what your game
    plan is. Also, I do not want something you just sketch out for
    us. I want to see the standards, the goals, the objectives that
    you establish for the Department under which you can tell and
    we can tell whether the Department has made the improvements
    and reforms that are needed.

                      SECTION 8 CONTRACT RENEWAL RESERVES

        Let me address a particularly relevant question about
    financial management. I have already laid out the problem with
    section 8 and, with the ranking member, I have written letters
    to the Budget and Appropriations Committee chairs and ranking
    members telling them that we have a real crisis in the Section
    8 Program and that we are going to need additional budget
    authority to renew expiring section 8 contracts. But as we have
    discussed at length, HUD, on April 17, found about $5.8 billion
    in unobligated section 8 contract reserves. You advised the
    chairman in the House of that. A good portion of that was
    immediately grabbed up by the Appropriations Committee to fund
    FEMA, to fund CDBG contracts, and I have got a problem with
    that.
        When we have tried to make some inquiries as to where those
    reserves are and it is clear that those reserves are held by
    the public housing authorities. Some 2,500 public housing
    authorities that handle section 8 have section 8 reserves of
    some kind. My sense is that even though you contracted with
    Price Waterhouse to do a study, you do not know where those
    reserves are or the amount of the reserves because we have been
    making calls to public housing authorities. In some cases, the
    public housing authorities do not know the status of their
    section 8 reserves. A number of public housing authorities have
    advised my staff that there are no rules and no regulations as
    to the amount of section 8 reserves that they can hold. Some of
    them say they do not have any reserves. On the other hand, the
    Kansas City housing authority advises that it has approximately
    5 months worth of section 8 reserves on hand.
        I would like to know if you know specifically by PHA where
    section 8 reserves are, how much they are, and how in the
    dickens are you going to recapture them. We have just passed a
    measure spending all those reserves and, I will be honest with
    you, the more I look into it, I will be hard pressed to say how
    we are going to recapture those and how we are going to put
    them back into the bank so we can spend them on FEMA and CDBG
    in the Dakotas. Where are they? How much are they? And how do
    we get them back?

                       GAO ESTIMATE ON SECTION 8 RESERVES

        Secretary Cuomo. Mr. Chairman, let me take a moment on
    this, because I want to be clear. You have made some
    statements, and I just want to make sure that we are
    communicating clearly on this. First, I did not mean to imply
    that we are going to embark on a management plan for the
    Department in response to this committee. During the
    confirmation hearings, and at one of the briefings you attended
    with Senator Mikulski, it was made clear to me that job one had
    to be a management reform plan, not just for this committee but
    for every committee, and frankly for myself more than anyone
    else. My priority as Secretary is to make this Department work
    better than it now works, period. So it was not in response to
    this request.
        On the reserves, the chronology is important here. The
    Department said nothing about any reserves. We did not raise
    this issue. In the House, they moved the supplemental bill and
    said they were going to take a certain amount of reserves which
    were identified by GAO. The number they had I believe was $3.6
    billion, and they were going to take this $3.6 billion from the
    reserves. We had said nothing about the reserves. They then
    called the Department and said how much do you have in
    reserves, because we are taking $3.6 billion. GAO says you may
    have about $5 billion. Please give us a number. I was reluctant
    to provide a number for the very reasons that we discussed. We
    have some financial systems that are coming on line and they
    are providing numbers. I wanted to make sure before a number
    left the Department that it was the right number, that it was a
    vetted number, that I had and somebody's signature on the
    number, frankly. But as the supplemental was moving through the
    House, they said we are taking $3.6 billion because GAO said
    you have up to $5 billion. What is your number, answer please
    immediately.
        We were reticent. There was a delay. Frankly, the House did
    not like the delay. We provided, after that period of time, the
    best estimate that we had at that time, which was about the
    $5.8 billion which you refer to, Mr. Chairman. But we did not
    prompt this conversation. We did not volunteer the reserves for
    supplemental. It did not happen that way.
        If anything happened, the criticism of the Department was
    that we were lax in not responding more quickly to the
    questions of how much money were in the reserves. That is
    factually how that happened.

                  SECTION 8 RESERVES AND THE SUPPLEMENTAL BILL

        As far as the reserves in general, there are two issues on
    the reserves that I would bring to the attention of this
    committee. No. 1 is again a housekeeping issue and how our
    financial management systems work, how accurate the data is
    when it came on line. As the chairman pointed out, we do have
    Price Waterhouse who is auditing this number, and until I have
    an audited number, frankly, Mr. Chairman, I am somewhat
    reluctant to say here is a number, put a pin in it and I vouch
    for the number.
        Senator Bond. Well, I would urge you not to do it until we
    know where they are and how we get them back, and that really
    troubles me. We passed a great big bill, promised that we would
    fund it from these reserves, and it is a really speculative
    operation at this point.
        Secretary Cuomo. But again, Mr. Chairman, the supplemental
    was not premised upon any representation we made at the
    Department. It was premised upon a GAO representation that we
    were asked to backup. That is how that happened. And when you
    asked me for the number I said again please let me get an
    audited number, but this is the range, if we have to have a
    range, a number today, and you push me, which they did. I said
    this is about the range, about $5.8 billion. I was also quick
    to say we are bringing in Price Waterhouse and they will audit
    it, and we have housekeeping work to do on this financial
    management system, and this is not found money. These are
    reserves. You can have as little or as much as you want,
    depending on what policy calls you are willing to make.
        Do you want a 6-month reserve or a 4-month reserve or a 2-
    month reserve? What do you want to set-aside for welfare
    reform? What assumption do you want to make about the economy
    next year? What does your crystal ball say tenant incomes will
    be? Depending on all those calculations, you can keep a larger
    or a smaller reserve.
        This is a program that needs a reserve, make no doubt.
    There are a lot of assumptions in there. The economy might
    change, tenant incomes might change, welfare reform might have
    an impact, public housing authorities may have put more
    certificates and vouchers out there than we know about.

                 NEED FOR VARYING AMOUNTS OF SECTION 8 RESERVES

        Senator Mikulski. Mr. Secretary, would you yield just a
    second? Mr. Chairman, maybe I can offer first of all a sense
    about why reserves were needed, and hopefully now we can get to
    the bottom of something. When I chaired the committee and Jack
    Kemp was Secretary, he came in one day ready for a hearing and
    we thought we needed something, I will say $1 billion. I am
    going to make up the numbers, I do not have my accurate records
    here for section 8. As we then moved to markup in July, Mr.
    Kemp, but really he sent Mr. Dellibovi, said he needed
    something like $4 billion more, and the discrepancy between
    what we were told at a hearing like this and then moving to
    markup was about $3 billion. Then Mr. Kemp and Mr. Dellibovi,
    the Budget Officer from HUD, we all huddled to see what we
    could do.
        What came out of that was there were no data management
    systems standing sentry or monitoring the HUD contracts about
    what was due when and how much would be due, when we would know
    it would be due. We held a ponderous, laborious, technical,
    dull, but nevertheless important hearing on that information
    gap. We were promised then by Mr. Kemp, we would continue to be
    promised by the Cisneros administration that they would be able
    to have the data systems in place, and I believe at that time
    Mr. Kemp and Mr. Dellibovi, anticipating that we would reach
    the spikes, began to build a reserve. It was not to hide money.
    Maybe it was not as easily visible, but we knew we would be
    coming to like a section 8 Armageddon.
        Now, what I do not know, Mr. Chairman, is whether that
    money was set aside, which would be a bonafide purpose even
    though we did not know about it, but the purpose was bonafide,
    and No. 2, if those guys ever put those management systems in
    place. But that is kind of where it first erupted, and I must
    say in a rather volcanic situation, quite frankly, between Mr.
    Kemp and myself, and then Mr. Dellibovi, obviously it is the
    Italian diplomacy skills associated with the Vatican and the
    Medicis--[Laughter.]
        We tried to work this through. But that was the history.
    You see a lot of old hands in the Department--but they promised
    two things. No. 1, the information systems, and No. 2, that
    they would have a way of dealing with it. I have a feeling that
    is where some of the money came from. I do not know if you were
    here----
        Senator Bond. Senator Mikulski, I cannot believe that an
    excited, heated conference between you and Secretary Kemp was
    dull. [Laughter.]
        Somehow that defines logic. But you have brought out this
    problem.
        Senator Mikulski. I think it went something like you need
    what, and then there were other comments. [Laughter.]
        Senator Bond. Too bad we did not videotape that one. But
    seriously, there is a serious question about what rules, and
    talking to people we cannot find that there are any specific
    rules from HUD concerning the use of section 8, including the
    retention of section 8 reserves. What worries me is the Senate
    has gone on record, as has the House, in recapturing some of
    this cloud bank of section 8 that is somewhere in the
    stratosphere.
        My time is up, and I apologize to my colleagues. But where
    is it, how much is it, and how do you propose to get it back?

                   DEPARTMENTAL POLICY ON SECTION 8 RESERVES

        Secretary Cuomo. Mr. Chairman, that is the question.
    Senator Mikulski's recollection is the same recollection as has
    been shared with me at the Department. The reserves actually
    existed from the beginning of the program, but it was
    heightened with the interchange between Senator Mikulski and
    Secretary Kemp. People were very aware of the necessity to have
    this program operated on means where they did not have a
    shortfall, which meant the reserves became more important as
    they went forward.
        The Department has a policy on reserves. The PHA is
    supposed to have 6 months in reserves, no more than 6 months.
    Now, some PHA's have more, some PHA's have less. We are
    actually in the process, Mr. Chairman, of going to all 3,400
    PHA's and reconciling how much they have in the accounts. We
    have the field offices all across the country going through the
    books with those local PHA's. But the chairman's caution that
    there may be a level of imprecision here I think is a good
    caution, and that is why I was reluctant to come up with any
    finite number. We have ranges, which I am more comfortable
    with, and again we have Price Waterhouse auditing the numbers
    so we can come up with a more solid number.
        The second issue then is what policy do you choose to set
    about the reserves. Is 6 months the right amount of time,
    should it be greater, should it be lower? And depending on what
    decisions you make, that reserve can be more or it can be less.
    The smaller the reserve, the more you have for the renewals,
    and in my opinion that was the tradeoff. This money was not
    supposed to go to a supplemental to do floods. As worthy a
    cause as that is, it did not make sense to me to displace
    section 8 people so you could house people displaced by a
    flood. We have to do both, but do not help the flood at the
    cost of the Section 8 Program. That is what we said in a letter
    to the House. But that reserve can be more, can be less,
    depending upon the policy assumptions. We then wanted to take
    that money from the reserves and use it against the renewals.

                         RECAPTURING SECTION 8 RESERVES

        Senator Bond. With apologies to my colleagues, assuming
    that this measure passes both Houses and the conference and it
    is signed by the President, how do you get the money back? What
    would you do?
        Secretary Cuomo. We are proposing in our legislative
    package a piece of legislation that would allow us to recapture
    and reallocate.
        Senator Bond. You cannot do it without legislation? You do
    not have the authority to recapture it now?
        Secretary Cuomo. Our counsel says we cannot reallocate
    without the legislation, and we would need to reallocate so we
    could distribute the funding, and that is why we put it in the
    legislative package. But we would have to set the appropriate
    reserve level. Again, we have an aggressive proposal that says
    2 months, and then recapture and reallocate against that.
        Senator Bond. If you are telling us, Mr. Secretary, that we
    are basing our supplemental on the recapture of funds that
    cannot be recaptured, perhaps somehow in the conference, at
    some point we need to add the authorizing legislation. Because
    from what you have just said, if I understand it correctly, we
    have used as an offset something that you cannot do under
    existing authority.
        Secretary Cuomo. We cannot reallocate.
        Senator Bond. Well, what is it that you need to--how do you
    get the money back? If there is a rescission included in the
    supplemental, how is that effectuated?
        Secretary Cuomo. We believe we can recapture the money, Mr.
    Chairman, which means we can get it back to the Department. We
    can have the money in hand. We could not reallocate it among
    the different public housing authorities, but we could
    recapture it.
        Senator Bond. But you can recapture it?
        Secretary Cuomo. Yes.
        Senator Bond. My apologies, Senator Mikulski. Senator
    Mikulski, if you do not mind, Senator Leahy has to go back to
    chemical weapons, and I thought that maybe we would defer to
    him.
        Senator Mikulski. First of all, I do know what Senator
    Leahy is working on, and he is a great colleague. I would like
    very much for him to go ahead and then I will wait my turn. I
    just want to make Senator Leahy aware while he was waiting
    patiently during this conversation----
        Senator Leahy. I found this more exciting than chemical
    weapons. [Laughter.]
        Senator Mikulski. The reason this conversation is so
    important is that if we do not deal with the unexpired section
    8 contracts it could sink or eclipse the entire HUD budget. I
    know, Senator Leahy, you have been a champion on housing for
    the elderly, the homeless, that you want to pursue. And this is
    why--this is so technical, but it really could eclipse every
    good effort that we want to take. I will be happy to wait my
    turn.
        Senator Leahy. I thank both of you very much. I found the
    discussion you were just having to be extremely important on
    this whole issue. Of course, I always listen when they talk
    about Machiavellian or Medici-type concepts, and I have always
    thought what great things the Italians have given to politics
    of our country. When I used to talk to the Secretary I only
    talked about my mother's side of the family. If I were talking
    to his spouse I would probably talk about my father's side of
    the family. [Laughter.]

                     HOMELESS ASSISTANCE FOR SMALLER STATES

        I have learned to cover every base I possibly can, Mr.
    Chairman. Earlier when I spoke I talked about the fact that
    even in a small State like Vermont, you have 6,000 people every
    year that are going to be homeless at some point, that are
    going to need a warm or dry or safe place to sleep. And that is
    in a State where it can get 25 to 30 below zero during the
    wintertime and even our summers are very short. Those numbers
    point out the necessity of these homeless programs.
        Last month those who provide these programs learned that
    HUD will pay only 50 percent of the cost to renew their
    service-oriented homeless assistance programs this year. It is
    ironic because one of the Vermont groups affected by that
    reduction only days before had received a Best Practices Award
    from HUD for its excellent homeless assistance program. You pat
    them on the back with one hand, and take the wallet out of
    their pocket with the other hand. Because these programs, even
    though they have enormous support from the community, even
    though people contribute to it in fundraisers, the program
    still needs HUD funding to survive.
        The 1997 homeless grant competition does offer some
    flexibility in determining State need for homeless assistance.
    Is this flexibility available to be sure that States like
    Vermont, that have significant project renewals, can receive
    the funding they need for homeless assistance?
        Secretary Cuomo. Thank you, Senator. First, let me take the
    opportunity, if I might, to thank the Senator for all his good
    work, especially on the homeless programs. His support over the
    past 4 years has really allowed the Department to do the good
    things that we have done, especially on the homeless side, and
    we have. Even with the budget increase, when we came in, the
    homeless budget was $300 million. Today it is about $823
    million. When we came in we served about 20,000 homeless. Today
    we serve as many as 280,000 homeless. So we really have made
    progress on that front, and the Senator has been instrumental
    in that.
        Senator, on the question you pose about the renewal needs,
    it is a very real question and a conundrum indeed. What is
    happening is the renewals as we go forward, almost reminiscent
    of the Section 8 Program, the renewals get higher and higher
    every year on the program. The amount of funding, although it
    is as high as it is, is insufficient to fund all the renewals
    at 100 percent and fund new programs.
        So what we have said is after the initial grant expires the
    cap on the renewal will be 50 percent from HUD money, saying to
    the organizations you have to find the 50 percent somewhere
    else or the local government would have to subsidize the
    difference. This is not a new policy, Senator, you should know.
    This has been in operation for several years. But it is an
    attempt to get at the issue that the chairman has been
    addressing about renewals on these programs escalating, with no
    way to renew and continue to do business.
        But it is not a new policy. We have been using it. I would
    obviously prefer to be in a position where I could say we could
    renew everything 100 percent and we can do more good things
    with more programs. It does not work that way, even on a
    program where the budget went from $300 million to $823
    million.

                       CONSOLIDATION OF HOMELESS PROGRAMS

        Senator Leahy. I am just wondering, if we were to
    consolidate homeless programs, what about the idea of at least
    having a small State floor? There is a certain amount of cost
    that goes into just administering a program, whether it is a
    large State or a small State. If you consolidated them, could
    you get at least a minimum level of funding, for small States?
    We do this on a lot of other programs, as you know, not just in
    HUD but in Agriculture, in Energy, and a lot of other areas.
        Secretary Cuomo. Senator, we proposed a piece of
    legislation that would do essentially that. We proposed it last
    year. We anticipate proposing it this year. The House has put
    forth a consolidation also of homeless programs this year. But
    under our proposal it would accomplish essentially what the
    Senator laid out. We would go to a formula called the ESG,
    emergency supplemental grant formula, which is a subset of the
    CDBG formula, and rather than running all of these separate
    programs we would say to a locality this is the amount of money
    you might be entitled to, it is not a formula grant but we use
    a formula to tell the locality what they would be entitled to
    if they came in with an application that was accepted. That
    would tell a State like Vermont this is the amount of money
    that you could get if you win the competition. The fairest
    formula that we have found is basically the ESG, which is a
    formula that is in operation now.

                   PROPOSED RESTRICTION ON HOMELESS SERVICES

        Senator Leahy. The House wants to restrict HUD from paying
    for programs that provide services for the homeless. Do you
    have a position on that?
        Secretary Cuomo. We are against that, Senator. The House
    bill would limit initially 30 percent for services, and then it
    goes down from there. The House bill is trying to end the
    services portion of the homeless programs and move just to
    housing. I think it flies in the face of the reality of the
    homeless problem, which the Senator well knows is multifaceted.
    You have mental health problems, you have domestic violence
    problems, you have substance abuse problems. To say all we have
    to do is provide a person with an apartment and then presto-
    chango their life will change really is a fundamental
    misunderstanding of what we are dealing with.
        Senator Leahy. I found that back home these services have
    been extremely helpful, and I appreciate that. I feel a little
    bit better than I did when I first came into this hearing. Mr.
    Chairman and Senator Mikulski, I thank you for your courtesy.
        Senator Bond. Thank you very much, Senator Leahy.
        Senator Mikulski.

                                  ELDERLY CARE

        Senator Mikulski. Thank you, Mr. Chairman. Once again, we
    could spend all of our time talking about the reserves. I want
    to pursue that for a moment, but there are a couple of other
    issues I would like to raise. One, I would like to talk about
    housing for the elderly. I know that what HUD and what we often
    have to grapple with takes us to the emergency of the week or
    the emergency of the session. Housing for the elderly is that
    program that probably enjoys, other than community development
    block grants and FHA, the largest public support for what HUD
    does. FHA, CDBG, and housing for the elderly. What I want to
    outline, Mr. Chairman, is just some things that I would like to
    discuss with you about that at another time, and put it on your
    radar screen.
        No. 1, we have a good intention that has gone astray, which
    is having disabled live in the same section 8 facilities as
    housing for the elderly. We have a generation clash when that
    occurs because the disabled are often a younger population who
    want to lead the lifestyle of a younger population, and this
    has often caused very prickly relationships between the elderly
    and the disabled. We look forward to hearing from you as we
    move forth on the appropriation what your ideas are on how we
    meet our responsibilities to both very deserving constituencies
    but not have prickly relationships and, therefore, not be able
    to benefit.
        The second is I would really like to, I see you have
    reverse mortgages on your future way of empowerment. Reverse
    mortgages are a fantastic idea, but I have been alerted by
    attorneys general around the country that they are becoming a
    subject of scam for the elderly, with a lot of fear, a lot of
    misinformation, and people signing up for a reverse mortgage
    which has caused them to lose both their home and their income.
    So please, have your team work with FNMA and other groups to
    make sure that this is an opportunity and not another scam.
        Let me get then to my third point. I am really concerned
    about the aging in place elderly, and aging in place section 8
    facilities. We need to have a plan for that. I was really
    heartened to see how you want to use section 8 with
    flexibility. Catholic Charities in Baltimore is developing a
    conceptual framework to convert some Section 8 to like an
    assisted living framework. They are fleshing that out, Mr.
    Secretary, but when they do we would like to be able to arrange
    what we think is a new idea for discussion with your
    Department, because I think you share this same idea which is
    how do we deal with that population and yet deal with it
    creatively, and not necessarily with new money but with new
    flexibility and new resourcefulness.
        I just wanted to lay those issues out because I know of
    your longstanding commitment to the elderly, and we want to
    make sure a good program that is working and enjoys public
    confidence continues to do the same. Did you want to comment on
    that?
        Secretary Cuomo. Please, Senator. It would be my pleasure
    to follow up with the Senator or her staff on the so-called
    mixing of the populations, the elderly and the disabled. I
    could not agree with the Senator more. It was a nice idea in
    concept, it worked poorly in practice. They are different
    populations, different needs. The Department has published a
    rule saying how a housing authority, if it chooses, can have
    separate buildings, elderly and disabled. As the Senator points
    out, the challenge for us is to make sure we protect the rights
    of both. We want good housing for the elderly, but we also want
    good housing for the disabled. It did not work when we put them
    together. How do we separate them and be fair to both? But we
    put out a rule that does that. Housing authorities are now
    coming forward, and that happens to be working well. It was a
    misstep, however, in policy that I suppose the Department and
    the Congress made together.
        On the reverse mortgages, Senator, just let me affirm your
    point. It has come to the Department's attention that there has
    been a high level of fraud in the Reverse Mortgage Program. We
    took quick action and we are getting the word out. There has
    been legislation proposed that would make it illegal to charge
    high fees on the seniors for the Reverse Mortgage Program. I
    think we have abated that problem.

                                  BROWNFIELDS

        Senator Mikulski. Mr. Secretary, my time is going to be up
    and all I did was want to give a conceptual framework if I
    could, but we will follow through on that. I want to ask, if I
    could, about your brownfields idea. We will pursue that. I do
    not mean to cut you off.
        Secretary Cuomo. That is fine. We will follow up later on.
        Senator Mikulski. In terms of right now, I know President
    Clinton is announcing a brownfields initiative, and neither you
    nor I are there, but that is OK. We are giving him the
    opportunity to announce that. I understand you have $25 million
    as an appropriation request for brownfields. This could be a
    really big breakthrough for empowerment communities. In my own
    hometown we estimate that there are over 3,000 acres of land
    around waterfront that could be claimed through brownfields.
    Can you tell me what this money is going to buy in terms of
    services or work with the private sector and how you are
    coordinating with EPA?
        Secretary Cuomo. Yes; I can. I will do it quickly because I
    am cognizant of the Senator's time. There are about 450,000
    brownfields across the country, probably no single greater
    obstacle to urban recovery than brownfields. We have a joint
    approach with EPA. Basically EPA will come in and do the
    cleanup side of the site, the remediation side. We come in and
    do the reconstruction side. It is an EPA-HUD partnership that
    will----
        Senator Mikulski. I do not know what that means. I do not
    know what reconstruction means.
        Secretary Cuomo. Well, redevelopment. For example, say the
    city of Baltimore says we have 10 acres, it was a former
    factory, we cannot do anything on it because it is a dirty
    site. We have a store who would come in and open up a factory
    shopping outlet if they could get it clean, certified, and if
    they could get a loan to do the construction. EPA would come in
    and do the cleanup and remediation side. We could come in and
    do the economic developmental loan the way we now do under the
    EDI Program, Economic Development Initiative Program, or CDBG,
    an economic development loan that would facilitate the
    reconstruction or development on that site.
        Senator Mikulski. So this would be different than using
    what CDBG could have been used for this?
        Secretary Cuomo. It is generally the same types of purposes
    as CDBG, because CDBG is very broad. CDBG can be used for
    economic development. It is not the normal use of it, but it
    could be. The EDI Program can be used for economic development,
    and this $25 million would be used on the same general
    activities.

                     IMPLEMENTATION OF NAPA RECOMMENDATIONS

        Senator Mikulski. Well, we look forward, again, to working
    with you on this. Mr. Chairman, if I could just have a moment
    for reform. I know the chairman has talked about reserves, and
    I will not go over that. As you know, we are deeply concerned
    about the Armageddon getting ready to hit section 8, and look
    forward to hearing then how we are able to pursue this
    particularly since funds have now been moved to the
    supplemental. What I am interested in, though, is just
    listening to you now about CDBG. We went through EDI and you
    listed a whole lot of programs. Do we have too many programs? I
    mean, this comes back to the NAPA report where we had so many
    programs, so many line items, and so many minuscule funding
    around it. The NAPA report was commissioned in 1994, and I
    believe Secretary Cisneros did it. Could you tell me where you
    are on implementing the National Association of Public
    Administrators report, and then also about consolidation,
    because we can have so many micro tools that we do not solve
    some of the macro problems, even though you and I know
    solutions are local.
        Secretary Cuomo. Senator, I could not agree with you more.
    I think we are doing well on the NAPA report, and frankly I
    think the reforms are even going to be more fundamental than
    NAPA may have anticipated at the time. But on the NAPA report,
    we are using that as a benchmark. We have completed about one-
    half of their recommendations and we are working our way
    through the list. What NAPA really said, which is really true,
    and I can tell you just from the first few months in the
    Secretary's position, there is a mismatch between staff
    resources and program activity. That mismatch is becoming
    exaggerated as we have been doing the downsize.
        Four years ago we were about 13,000 employees. Four years
    from now we will be about one-half that. When the work force
    comes down that much, almost 50 percent, something has to
    change. You cannot keep doing everything you were doing with
    one-half the work force. You certainly cannot be doing more
    than you were doing. You are going to have to allocate that
    staff with your mission, and putting these small boutique
    programs together with larger programs that are easier to
    administer I think is going to be one of the hallmark
    directions for us, getting the resources to the local
    communities so they can implement them, not forgetting our
    monitoring responsibility because the pendulum swings both
    ways. I do not want to be before this committee and have
    somebody say well, you gave them $2 million in CDBG, did you
    watch what they did with it. We have to monitor also.
        But let us get it into fewer programs that get the funds to
    the communities. Let our role be to facilitate that, help
    advise the community, and secondarily to monitor the
    communities' use of those funds. That is the direction we are
    headed. When I talk about management as job one, the
    fundamental reconciliation is what do you do as a Department,
    how many things can you do and do them well. We do a lot of
    things now. We do not do enough things well.

                                HOPE VI REFORMS

        Senator Mikulski. Mr. Chairman, I know my time is up. If I
    could just ask Mr. Cuomo one last question. How do you want to
    deal with the reforms of HOPE VI? What are they? I know Senator
    Shelby is here. I am kind of the founding mother of HOPE VI. It
    was meant to be an empowerment tool. It has worked in many
    communities around combining, changing both the housing but
    also self-sufficiency and community service. Do you want to
    reform it?
        Secretary Cuomo. We have suggestions to reform it, Senator,
    because we have now been able to see how it works in operation.
    We have the grants out there. As in any program, you have some
    outstanding successes.
        Senator Mikulski. What are the top three reforms?
        Secretary Cuomo. I think we have to look at the cost of the
    units that we are developing. The law allowed HOPE VI units to
    be higher than what is called total development costs, TDC. It
    allows HOPE VI to exceed those costs. What did the Congress
    have in mind when it said you can exceed those costs, how much
    do we want to pay for a unit? How about those HOPE VI grantees
    who are not spending the money? At what point do we say enough
    is enough, we are getting squeezed for money across the board,
    we do not have enough money for renewals, and take it back?
    Those would be the top two on HOPE VI. Where is the money
    committed? How long will you allow it to stay out there?
        Senator Mikulski. I would add one other. What is the
    outcome we seek? Is it just to move people from one ZIP code to
    another? Is it just to give money out so we can tear down
    public housing but not buildup community? And ultimately, are
    the residents better off? Have they greater tools of self-
    sufficiency, and then is the community in which they live doing
    that? Are we just building new federally subsidized empires, or
    are we building communities in which residents have these tools
    connected to empowerment or enterprise zones?
        Thank you, Mr. Chairman, and thank you, Mr. Secretary.
        Secretary Cuomo. Thank you very much, Senator.

                      SENATE MEASURE ON REVERSE MORTGAGES

        Senator Bond. Thank you, Senator Mikulski. I am going to
    turn for the questions to our dear colleague from Alabama. Just
    a couple of observations. You mentioned the reverse equity
    mortgage. A measure has passed the Senate to provide HUD with
    additional tools to fight fraud and abuse in reverse equity
    mortgages. We have passed through the Banking Committee, and I
    believe through this committee, several directives to separate
    elderly and disabled housing, and we are delighted to see that
    is moving forward. I should note with respect to the
    recapturing of the section 8 reserves, we have fenced some $5.8
    billion that we have attempted to recapture. If we have fenced
    more than is there, we need to hear about it.

                            ADDITIONAL HUD PROGRAMS

        And finally, I want to reemphasize what Senator Mikulski
    has said about the new programs. You are talking about a new
    Brownfields Program. Please, let us not be continuing to add to
    the 240 programs. I have something in the Small Business
    Committee, a hub zone program to bring jobs to the distressed
    inner city areas. We do not want HUD to feel like it has to do
    everything. We would like you to stay focussed and, as a rule
    of thumb, for every new program you propose if you could
    recommend repealing at least two and perhaps more. That would
    be a wonderful way, perhaps, to begin to get a hold on and a
    handle on the responsibilities you have. If you want to repeal
    5 or 10, I could be supportive of that.
        Observations, for what they are worth, and now let me turn
    to Senator Shelby. Thank you, Senator Shelby, for your
    indulgence.

                         STATEMENT OF RICHARD C. SHELBY

        Senator Shelby. Thank you, Mr. Chairman. Mr. Secretary, I
    was not here earlier, I was detained at another meeting, and
    you may have gone through this dealing with the integrated
    disbursement information system. Have you gone into that?
        Secretary Cuomo. We have not, Senator.
        Senator Shelby. OK. I did not want to be repetitious. It is
    my understanding, Mr. Secretary, that HUD is in the process of
    mandating a computerized payment and reporting system for all
    block grants, including the community development block grant
    managed by State governments, according to my Governor in
    Alabama's office. He has written us twice already on this. The
    system was designed, they say, for entitlement cities and
    cannot be adapted for State programs. I do not know this, I am
    just relating it.
        It says IDIS is complex and burdensome with respect to
    time, personnel, and cost. They tell me that HUD's mandated
    system is designed in such a way that existent data in the
    State systems cannot be uploaded to HUD. As a result, that data
    must be entered twice since HUD's system cannot be used for
    accounting purposes. My Governor's office maintains that should
    the system go forward as is, there will be substantial cost
    involved for hiring, training, and equipping new employees. I
    know HUD has established a committee to look at States'
    concerns under your supervision and has postponed the
    activation date. However, the system is going forward with
    little or no consideration to the cost of States with respect
    to manpower and equipment. That is my understanding. You might
    have other information.
        Now, where is the State pilot program in relation to the
    concerns of the States with new integrated disbursement
    information systems? Do you know off hand?
        Secretary Cuomo. Senator, I know the pilot is ongoing. In
    general we have to get management information systems in place
    at the Department. Part of the conversation you did miss which
    is relevant is the chairman expressed concerns about the data
    collection, the information that we have, financial information
    we have, and we are putting systems in place. One of the
    systems we need is, the IDIS system which tracks CDBG, and how
    much we have and how much the grantee has. It is fundamental
    for us to know that, and we need a management information
    system to do that. We have to move, even HUD eventually----
        Senator Shelby. That is a must, is it not? You have just
    got to have that.
        Secretary Cuomo. Yes; we need to know the information and
    it has to be on a computer. I also understand that in that
    transition, while management information systems are the wave
    of the future and technology is the wave of the future, there
    is also a transition and there are fits and starts. Some of the
    States are saying we are not ready to provide this information,
    we are not ready to get on line, the flip side, Mr. Chairman,
    of the conversation we were just having. What we have said is
    we do not want anyone to implement a system that is not a
    workable system and an intelligent system. We will design a
    transition period to ease them into the process. We have
    working groups with the State.
        But, Senator, the system has to work and the transition has
    to work and the training has to work, but we have to get to a
    point where we do have the financial management systems
    otherwise, especially as we have heard this morning, I do not
    have the basic information to provide this committee to make
    funding decisions and appropriations decisions.
        Senator Shelby. Do you know, Mr. Secretary, if there has
    been a cost benefit analysis of this project? And if you do not
    know now, could you furnish that for the record?
        Secretary Cuomo. I can find out, Senator.
        Senator Shelby. We would be interested in the expected cost
    to the States both in dollars and man-hours. I think that is a
    consideration. I do agree with you that you need a system where
    you can track everything that is going on with the States with
    these community block grants and so forth. Otherwise you have
    no oversight. There is no way in the world. But the question is
    what is the best way to achieve that? I do not know myself, I
    am just raising these questions on behalf of my State. We have
    50 States to deal with, and you have got to have a product that
    works. I guess that is the main line.
        I am sure as the Secretary, this falls in your lap. You
    want it to work. If you will make sure it will work and
    accommodate the States, not as an impediment but to make it
    work, that would, I believe, be good. Because without the
    information that is going on, I do not know how you can monitor
    anything.

                              MANUFACTURED HOUSING

        Manufactured housing. I do not know if you got into this at
    all earlier. If you did, I apologize to you. I would like to
    ask you a few questions about this. You know, that is a fast
    growing area of housing in America. It is my understanding that
    the manufactured home inspection and monitoring program which
    administers Federal construction standards is subordinated
    under the Office of Single Family Housing within HUD. If that
    is true, given the fact that manufactured housing accounts for
    nearly one in three new single family homes sold in the United
    States each year, and that is one of the best means, affordable
    means for home ownership for Americans with an average price
    tag--I did not know it was this low--average price, I am sure,
    of $37,000, do you believe the program has been given the
    necessary leadership and oversight in HUD since it is a fast
    growing part of meeting the housing needs?
        Secretary Cuomo. Senator, I agree with your concern and
    your expectations for manufactured housing. I think there is
    great potential for manufactured housing, and really playing an
    even increasing role despite the great progress that they have
    made over these past few years in the area of affordable
    housing in particular. It is one of the most exciting
    developments that I think we can point to on the horizon.
        Have we done enough for manufactured housing within the
    Department? The Senator just has to keep in mind the overall
    context, as we were mentioning earlier. The Department is
    coming down about close to 50-percent reduction in personnel,
    and that is basically the backdrop against which we are doing
    all of these things. So, do we have a lot more staff to put in
    the manufactured housing division? No, just because most of the
    numbers in most areas are coming down. I am not familiar
    exactly with the Deputy Assistant Secretary level. On one hand
    we try to keep down the number of assistant secretaries and
    deputy assistant secretaries----
        Senator Shelby. Overhead. I understand.
        Secretary Cuomo. But I will look at it, and let me assure
    the Senator that we will have the right leadership and the
    right priority for manufactured housing. Because, as I said, as
    a matter of policy----
        Senator Shelby. Well, it has changed a lot. I see where
    they are moving areas of manufactured housing, maybe two or
    three or four sections, and putting it together. It is changing
    the looks of a lot of the housing. It has I think improved a
    lot. If it is growing that fast and it is affordable, it looks
    to me like it ought to be answerable to at least the FHA
    Commissioner or someone under him. I wish you would let me
    review it--you review it and let me know how you view it for
    the future.
        Secretary Cuomo. That would be my pleasure, Senator.
        Senator Shelby. But how can we do, working with you, a
    better oversight of it and give a helping hand making sure the
    standards are met for the American people, because it has
    increased availability of housing in some areas? If HUD is
    promoting that in some way, then that is probably positive. I
    do not know. I am not in the business. I have just seen some
    improvements.

                             PROPOSED RULE ON RESPA

        I want to shift to RESPA. About one-half of today's
    residential mortgages originate with mortgage brokers, I have
    been told. Some of them write me and say there is ambiguity
    with regard to lender paid broker fees. You know, there is some
    controversy about this. As a matter of public policy, if this
    is true, if there is ambiguity there on what you can pay, what
    you can charge, or what you cannot charge--I do not know this
    myself. I just have had people write me and call me about it--
    should HUD be involved, or are you looking at the possibility
    to make a rule regarding what brokers can charge, what
    parameters they are involved in, where there is some idea of
    what is right, what is wrong, what is in a gray area, what is
    the right thing to do? I know it is a controversial area.
        Secretary Cuomo. Senator, it is controversial. There is
    also litigation that is ongoing about it now, it is in the
    court system. What fees are right, what disclosure has to
    happen.
        Senator Shelby. But it is a big industry, is it not?
        Secretary Cuomo. Very big industry, very important for,
    obviously, housing in America to continue at the rate it is
    continuing. As you know, we are trying to even increase the
    home ownership rate, so it is important to us that we keep it
    going, and going well. We have a rule in the Department now
    that is going to be going out literally in the next couple of
    weeks which will put out a number of options on how the
    situation could be handled. We will then get some comment on
    that and come up with a final rule. But you are right, it is
    controversial, it is in the courts, it does need to be
    clarified so the industry can get on with it. We are going to
    play our part by putting out a proposal, get comments, and then
    we will go to a final rule.
        Senator Shelby. Do you think that will be in the next few
    weeks?
        Secretary Cuomo. Yes; it will.
        Senator Shelby. Well, that would be good. One thing we want
    to make sure is that no one gets gouged or taken advantage of
    in the market, but if there are no rules, if there are no
    guidelines out there, we probably need to make some to protect
    both the consumer and the broker, let them know what they are
    doing, what they can do and what they cannot do. It would make
    sense to me, because that is, a lot of people, that is where
    they get their loans, is it not?
        Secretary Cuomo. Yes; it is. As the Senator knows, we are
    going to take a good stab at establishing clarity here on the
    specifics, but the RESPA law itself, which was passed back in
    1974 I believe, really has some areas that could have been
    better written, could be clarified. It has been problematic to
    implement, to say the least. But on the specifics, we will have
    a proposed rule go out, we will get comment, and then we will
    go to final.
        Senator Shelby. That is all I am asking. Thank you, Mr.
    Chairman.
        Senator Bond. Thank you, Senator Shelby. You touched on one
    of the questions I was going to ask, and the Secretary has
    indicated that the RESPA proposed rule will be coming out in
    the next couple of weeks. I would be interested in
    clarification of HUD's position. Is it possible that HUD could
    provide some interim guidelines which would be effective in the
    near-term future? This is a continuing problem, obviously.
    There is a great deal of uncertainty in the area.
        Secretary Cuomo. I think, Mr. Chairman, that once we
    publish the rule, anyone who reads the rule will see basically
    where the Department is headed. It lays out a number of
    options, but there is ongoing litigation now. It is very heated
    on both sides. Again, the underlying law is vague. It was
    designed to protect the consumer. I do not know that it always
    got there, but we will publish the rule for comment. They can
    look to that rule and try to obtain guidance that way.

                              PRESERVATION PROGRAM

        Senator Bond. Let me turn to the Multifamily Housing
    Preservation Program. In the last 2 years we have appropriated
    approximately $1 billion to fund the Preservation Program,
    mostly for capital grants for sales to nonprofits. There is
    evidence which the GAO is investigating and the HUD inspector
    general has raised questions about the possibility of
    significant overpayments to owners for excessive appraisals and
    rehabilitation under the program. I remain concerned, while
    there is talk about finding a new approach, that certain of
    these projects, especially projects with elderly and disabled
    residents in low-vacancy areas, where a project prepayment
    could result in displacement and the loss of a valuable housing
    resource.
        I would like your comments on this Multifamily Housing
    Preservation Program, and I would also like to ask Ms. Gaffney
    if she will enlighten us with any further information she has
    on the program.
        Mr. Secretary, you first, please.
        Secretary Cuomo. Thank you, Mr. Chairman. You know the
    Department's position on preservation is, given the current
    budget environment, we do not support further funding for the
    Preservation Program. Is it a worthwhile goal to preserve the
    affordable housing stock? It certainly is, but at the cost of
    the Preservation Program, we do not think we have that luxury
    right now. The Preservation Program is much more expensive than
    providing a voucher. Over 5 years, a voucher is about $20,000,
    a preserved unit through the Preservation Program is about
    $56,000. Over 20 years, a preserved unit is about $97,000, a
    voucher is about $77,000. So, given the entire context of this
    conversation today and looking for a cost-effective
    alternative, we believe it is hard on the numbers to support
    the Preservation Program.
        Having said that, we do have a Preservation Program which
    was passed by the Congress. We are implementing it. There are
    questions on the implementation of that. GAO is doing a study.
    I do not believe they have come out with a draft yet. But the
    issue revolves around repairs which are done by the new owner,
    the not for profit, which may have been in excess of original
    estimates of repairs. What is happening, to the best of my
    knowledge, is that new owners come in and we allow repairs to
    increase the liveability of the building, reduce future
    maintenance of the building. We allow a capital grant to make
    those repairs. The new owners are coming in with an aggressive,
    ambitious desire for repairs to the building, and we are
    funding them.
        The question is should we be more diligent in trying to
    reduce those costs of repairs. GAO is doing an audit, we are
    going to be reviewing it internally ourselves, and I am going
    to be getting recommendations over the next several weeks on
    how we can correct it. My sense of it, again this is just a
    cursory review thus far, we have funded sometimes legitimate
    estimates, but estimates which are in excess of what we really
    needed to do as a bare bones minimum on rehab, and we have to
    be on a more conservative side on rehab as opposed to a more
    aggressive side.
        Senator Bond. Thank you, Secretary. Ms. Gaffney, would you
    come forward and share with us your comments? We will ask for
    further expansion, obviously, on this from the Secretary and
    from the inspector general. Welcome, Ms. Gaffney.
        Ms. Gaffney. This is one area where I think it is fair to
    say that HUD and the OIG are generally in agreement. All of our
    work in the past has indicated that this program, that this is
    one of the areas where HUD does not really have the staff
    capability to do the program appropriately, and the costs as a
    result have been too high. The impact on these buildings in the
    past has been bad. What has happened is we have turned mixed
    population kinds of buildings into everyone receiving section
    8, a concentration of the poorest of the poor, and the
    buildings go down hill.
        The current program, we think there are cost problems, but
    the problem that we have run into--and I am not going to tell
    you that it is systemic, I do not know. We have, in the cases
    we have looked at we have found the problem. That is the new
    program relies on community-based organizations or resident
    counsels who purchase the properties. In a few cases that we
    have looked at we believe these are what we call sham
    nonprofits. That means that these are the sellers' constructs,
    and it becomes a means for the seller to maintain control over
    the property in the long term. Now, again, I cannot tell you
    that that is systemic, but that is what we have found in a few
    cases we have looked at.
        I will tell you that the Department, at this point, does
    not agree with us in that characterization, and the issue
    continues.
        Senator Bond. Thank you, Ms. Gaffney. That obviously will
    require some careful oversight. Senator Shelby, do you have any
    additional comments?

                    SALE OF PUBLIC HOUSING UNITS TO TENANTS

        Senator Shelby. I have no other questions, Mr. Chairman,
    except I do have one observation. You may have gotten into it,
    and maybe the Secretary has, or maybe Senator D'Amato did on
    the Banking Committee. The public housing problem, which is big
    in many ways, whether we rehabilitate them or what do we do
    with section 8, what do we do here and there--Mr. Secretary, as
    you know, you have got your hands full.
        What are you doing, if anything, in the Department toward
    selling some of these units to the people in them? I know we
    talked about that, I know Secretary Kemp was into that several
    years back. I just know from my own experience that a lot of
    people, once they have ownership of anything, be it a car, they
    take care of it. If they had a house, I do not believe they
    would tear it up. I have thought, I have not run any numbers on
    it or anything, it costs the Government billions of dollars
    from the taxpayers each year to maintain the housing that we
    have. A lot of it is old, a lot of it needs maintaining.
        But would we as a Nation be better off if we started
    privatizing, even if we sold some of these units as so-called
    condos or whatever, to the people in it at book value, you
    know, over the long term? I just wondered if you have ever done
    any pilot programs or if you have thought about it in that
    regard.
        Secretary Cuomo. Senator, if I might, let me respond to two
    questions, if I might, just quickly following what the
    inspector general said, just for a point of clarity. I would
    agree with the inspector general, this is not the type of
    program HUD should be running. It is the exact opposite of
    every discussion we have had where we want to get simpler
    programs, where we can block grant to the local community and
    then monitor. This is a very complicated program that requires
    very sophisticated judgments by the HUD staff, and I would
    agree that we do not have the capacity to do this. We will be
    reviewing the program internally and we will have suggestions
    to change it, because if we do not have the capacity I want to
    make sure that there is no fraud, waste, or abuse on this, and
    we will be taking care of that.
        Senator Shelby, we discussed this when we had the briefing
    prior to my confirmation. I could not agree more. There is all
    the difference in the world between ownership and rental.
    Before I had the pleasure of serving at HUD, I actually built
    and operated housing, in the good old days, Senator. I ran
    housing that was both rental and housing in which people had an
    equity stake, the tenants had an equity stake. And it is all
    the difference in the world. You cannot do what ownership does,
    the vesting, the stakeholder status, the pride.
        Senator Shelby. How do we get there?
        Secretary Cuomo. In public housing, I do not know that the
    best course is to sell public housing to the residents. That is
    what Secretary Jack Kemp advocated. They did it on a very
    limited basis. I believe where they did it the costs were
    actually extravagant, that it cost a lot of money to get public
    housing in a condition that you could transfer it to a person
    and they could maintain it with their obviously limited income,
    otherwise they would not be in public housing in the first
    place.

                          COST OF REHABILITATING UNITS

        Senator Shelby. Would it cost more in the long run, because
    we continue to upgrade it? I know it would cost some money to
    get it ready, like an apartment, a home, a condo to sell, a
    house. You would fix it up, so to speak, and get it ready for
    the market. But then once you are through with it you do not
    have to come back year after year. I do not know how to get
    there, but it just seems that public housing as we know it, for
    the most part, I am sure there are success stories and you
    could recount a lot of them, but in America people that I know,
    and I know a lot of people and so do you, Mr. Secretary, they
    would like to own something in America. That is the American
    dream. The question is should we stay in the public housing
    business as we have known it all these years, as we have grown
    in it since the thirties, forever or should we figure out a new
    plan under your leadership as HUD Secretary to try something
    else?
        I certainly do not know the answer. I do believe that what
    we have is for the most part not good for a lot of people in
    public housing, and it is not good for the taxpayers. So how do
    we get there? Heck, I do not know. But, you know, I am
    interested in some of your thoughts.

                  ALTERNATIVES TO SELLING PUBLIC HOUSING UNITS

        Secretary Cuomo. Well, Senator, I think the point about
    some of the public housing in this country has not worked well
    is obviously true. I also believe we do have a much different
    course in public housing than we have over the past few years.
    You could look at the HOPE VI Program which is totally
    different, look at public housing, you look at a law called the
    mandatory conversion law which could have really significant
    impact on public housing in this country that says if it is a
    big project and it costs too much to fix and there is a high
    level of vacancy, then we go to vouchers and that building goes
    away, literally. That could have sweeping impact on public
    housing. Literally it could take the worst, the biggest, the
    most expensive, the most vacant projects and eliminate them
    from the public housing inventory.
        We then do sell some public housing when we think it works,
    to the residents. We do several thousand units that way. I
    would not say that it is a numerically significant number at
    this point, but we do that with public housing also. And then
    we have a host of other weapons in this arsenal that really I
    think are more direct: the HOME Program where we provide
    someone a subsidy and they can get home ownership; the section
    8 home ownership initiative, which I am excited about, which
    says we could take a person who is in public housing, give them
    a section 8 voucher and let them buy a home with that. I think
    when you start to look at those different initiatives, you see
    a much different path for public housing in this country.
        Senator Shelby. Mr. Secretary, I do not recall the so-
    called HUD name of the program, it was many years ago, where
    you had a subsidized single housing program where people of
    lower incomes could buy a home under FHA insurance and they--
    was it a 235 program?
        Secretary Cuomo. Yes; it is the section 235.
        Senator Shelby. OK. In my hometown of Tuscaloosa, AL, I
    could carry you today into areas, this was probably 25, 30
    years ago, a lot of those homes, were some of the poorest
    people in my town at that time. They bought a lot of these
    houses. They are the best maintained homes, their lawns are
    cut, there is no trash in the street, they are proud of their
    home. I know you do not have a program like that today, but it
    fostered home ownership. I know I am getting off of the other a
    little, but we are talking about housing and people. It is one
    of the safest little neighborhoods around. It says a lot about
    owning something. They are buying it, they feel like an owner.
        Can we ever get there? If we could do it, I think we could
    do miracles and you would, as a Secretary, under your
    leadership--I do not know how to get there, as I say, but I
    think we need to explore this, and you are in a position to
    probably think up a lot of this, you and your staff.
        Secretary Cuomo. We are trying, Senator. Your vision is the
    goal for the Department. All of these efforts are to get to
    home ownership. Either it is moving a person from homelessness
    up through a continuum to home ownership, or public housing to
    home ownership, or welfare to home ownership, but the ultimate
    goal is home ownership because nothing works like home
    ownership. From the individual's point of view it is literally
    vesting in the American dream. It is the most stable community.
    It works for the community by and large.
        Senator Shelby. It works for the family, does it not?
        Secretary Cuomo. It works for the family. So everything we
    are trying to do is geared toward making that a reality. The
    President has said the highest rate of home ownership in
    history is his priority. So everything is pointed in that
    direction.
        Senator Shelby. Thank you.

                         USE OF EMERGENCY CDBG FUNDING

        Senator Bond. Thank you very much, Senator Shelby. Let me
    ask you a technical question. You may want to get back to us
    and respond in writing because this is going to be a major
    question in the emergency supplemental. As you probably are
    well aware, at this juncture the Senate has $500 million for
    emergency CDBG assistance for disaster areas, and gives HUD
    broad waiver authority. The amount of these emergency funds are
    unprecedented since there is not even an appraisal for the
    disaster costs. The flood disaster areas have no plans for the
    use of the CDBG funds, there is no agreed approach on how to
    rebuild from the disaster.
        I would be interested in having either your comments here
    or written comments, what are the requirements that cover the
    use of emergency CDBG funds under HUD's existing guidelines? We
    know in some cases emergency CDBG has been used for buyouts,
    and I understand they are generally restricted to use in
    conjunction with the FEMA Program, but are there restrictions
    for the use of CDBG funds for buyouts? Can CDBG funds be used
    in conjunction with, for example, the buyout of private
    businesses, rental properties, or is it limited to personal
    residences?
        Again, what can you do to enlighten us on this subject?
        Secretary Cuomo. Senator, I will go back and check, if it
    works for the committee, on some of the technicalities. But
    unless my recollection fails me, I do not believe this is that
    unusual a circumstance. Northridge earthquake in California,
    Homestead, Hurricane Andrew in Florida, there was an allocation
    of CDBG which is almost by definition done before you know the
    actual disaster estimates, because the disaster estimates take
    a while to assess. You have to get an engineer to go in and say
    what the infrastructure damage is, what is the damage to
    Government buildings, what is the damage to homes, et cetera.
    The CDBG in those cases was allocated pursuant to a disaster
    estimate done by FEMA, and the allocation among eligible
    entities was also based on that disaster estimate by FEMA. We
    had broad waiver authority in those cases. I do not know that
    this waiver authority is any more or less than that waiver
    authority.
        Senator Bond. Since fiscal year 1993, in the last 4 years I
    think only a total of about $1.2 billion has been appropriated
    in these emergency CDBG's. It has gone to 25 States. The $500
    million request for emergency CDBG for this fiscal year is an
    unprecedented level, and if you would provide for us the
    guidelines, the working guidelines--I am familiar with the use
    of CDBG funds in conjunction with FEMA disasters. They have
    been very helpful in my State, and really they were the extra
    assistance that FEMA needed to move some very small communities
    out of the floodplain where they were willing sellers. It
    really made a difference.
        But here we have what may be the CDBG Program being the
    lead horse, the pulling mule, and before FEMA has any concept
    of it we may have appropriated more in CDBG funds than FEMA has
    in disaster funds. We would like to have the guidelines that
    you use in handling that kind of emergency.
        Secretary Cuomo. Just so the chairman knows, all past
    experiences have been that CDBG does not come in until FEMA has
    exhausted its resources and we are the fill behind FEMA, if you
    will. FEMA comes in, they take the first shot, they come up
    with a plan, they use FEMA funds. Where there is a shortfall,
    then we have used CDBG in the past. But that is always the MO
    that we have used, and I do not believe it would be any
    different in this case.
        Senator Bond. Well, that was my understanding, and we need
    to know how it would work. I also have a problem in my home
    area that involves you, and I do not know if your staff has
    called to your attention the Kansas City Star on Sunday, May 11
    that started off with an editorial on the dog that did not
    bark. It says that HUD has recently reviewed how the city needs
    to improve its management of funds in several areas, and that
    last year in Kansas City, the city hall apparently approved an
    outlay of some $17,500 for a picnic, and the HUD regional
    director of community planning and development said that
    spending money on picnics can be valid if it meets public
    service requirements. The article asked the question what is
    the public service for a $17,500 picnic, and what are the
    constraints on this? This obviously has stirred some comment in
    the community, not just in the editorial page.
        Secretary Cuomo. Chairman, thankfully I am not familiar
    with that picnic. I was not at that picnic. I do not know
    anyone who was at that picnic. [Laughter.]
        Senator Bond. They tell me it was not too lavish, but they
    spent 17 grand. It had to be a heck of a picnic.
        Secretary Cuomo. I will check on the specifics, Mr.
    Chairman. I am not familiar with it.
        Senator Bond. We will make a copy of this.
        Senator Shelby. I was not at that picnic either.

                          REVIEW OF EMPOWERMENT ZONES

        Senator Bond. I did not make it. It could have been a bash.
    But we would appreciate your looking into this, because it is
    of interest.
        Actually one of the other things mentioned in here, when we
    are talking about empowerment zones, the editorial also
    mentions the EDI Program and the subsidies provided thereunder.
    The question I guess that still lingers out there is the fact
    that in the past the inspector general has said that the
    selection of empowerment zones was not based on any formal
    selection criteria. Have you, as you look at empowerment zones
    and if you propose to move forward in that area, do you have
    any plans to remedy those problems or to take a fresh look at
    the selection of empowerment zones?
        Secretary Cuomo. If you are suggesting are we considering
    going back and removing the designation from zones that
    received the designation, no. If that is the question, Mr.
    Chairman. I am aware of the inspector general's opinion. It is
    a different opinion than the opinion of the General Counsel,
    who reviewed the same law and came to a different opinion. The
    Empowerment Zone Program, by and large, has been a very
    successful program. We did a report several weeks back that
    said 67 of the 72 empowerment zones/enterprise communities are
    already showing progress.
        I think if you talk to these zones, Mr. Chairman, you will
    see an energy and an excitement that we have not seen in years.
    And these are zones which by and large are getting a small
    amount of Federal money for the bang, when one considers the
    bang we are getting for the buck. The enterprise communities $3
    million. In some cases these enterprise communities for $3
    million have leveraged 10 to 20 times as much funding. It was
    really a program that caused the community to come together.
    They got excited. It was about creating jobs, community
    revitalization, and it has worked. We were at a conference a
    couple of weeks back in Detroit with these empowerment zones.
    Kansas City was there. Mayor Cleaver was talking about how well
    it is working and the excitement, and that he knows that he has
    a Federal partner. So I am very pleased with the program, and
    we are not considering removing the designation from any zones
    based on the inspector general's opinion.
        Senator Bond. Well, there are some mixed results on that. I
    do not think we need to pursue those here. We note that Camden
    was designated a primary empowerment zone and has since gone
    into receivership and there are other questions in other cities
    about how much money is actually being leveraged in. I do not
    think at this point that we need to extend this hearing any
    further, but we will explore with you at the staff level any
    further information that we may need on this. We will leave the
    record open. Believe it or not, I still have some additional
    questions that we will submit for the record.
        Senator Bond. We invite the other members of the committee,
    if their staff is here, to submit further questions, and we
    will keep the record open for a week or so. We do want to have,
    before we move to markup on the bill, we do want to see how you
    are responding to the GAO and the NAPA and the inspector
    general requirements, that we move forward on job one, getting
    the financial and management systems in place so that you and
    we will know what you have got, where it is, and how it is
    being managed.
        Any final comments, Mr. Secretary?

                         Additional committee questions

        Secretary Cuomo. Just let me assure the chairman that we
    share his concern about the management of the Department,
    especially in the financial management systems. We have
    embarked on a course that brings us to an entirely different
    financial management system than we have ever had before. We
    are going to contract with it. We know what we do not know. We
    are going to bring in an outside contractor to go through all
    1994 financial systems in the Department, get rid of the ones
    that do not work, integrate all of them. We are making
    management changes, personnel changes in the Department, and if
    the committee indulges us a window of opportunity to get these
    changes in place, I think you will be pleased with what you
    see.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]

                      Questions Submitted by Senator Bond

                 GAO DESIGNATION OF HUD AS A ``HIGH RISK AREA''

        Question. GAO initially designated HUD in 1994 as a ``high risk
    area'', the only cabinet-level agency ever so identified; GAO continues
    to designate HUD as a ``high-risk area'' (as recently as February 1997)
    vulnerable to waste, fraud, abuse and mismanagement.
        GAO's major areas of concern are: (1) internal control weaknesses,
    such as a lack of necessary data and management processes; (2) poorly
    integrated, ineffective, and generally unreliable information and
    financial management systems; (3) HUD organizational problems, such as
    overlapping and ill-defined responsibilities and authorities, including
    a fundamental lack of management accountability and responsibility; and
    (4) an insufficient mix of staff with proper skills for the effective
    monitoring and oversight of HUD's programs.
        This is a significant concern to this subcommittee especially since
    GAO also has described HUD as one of the nation's largest financial
    institutions, with significant commitments, obligations and exposures;
    that HUD is responsible for managing more than $400 billion worth of
    insured mortgages, $485 billion in outstanding mortgage-backed
    securities, and about $180 billion in prior years' budget authority for
    which it has future financial commitment.
        These are not new concerns; they have echoed through almost every
    HUD appropriation hearing in every year. Secretary Cisneros spent 4
    years talking about HUD reinvention and reform; however, HUD seems to
    be on a treadmill, always moving but never moving ahead. What can be
    done to rebuild HUD's fiscal management and program integrity?
        Answer. Restoring the public trust in the Department is one of
    Secretary Cuomo's top priorities. Work in the following areas will go
    far toward rebuilding HUD's fiscal management and program integrity,
    and restore the public trust:
        1. Financial Systems Integration.--GAO has reported that one of
    HUD's major management deficiencies involves inadequate management
    systems. It is the Secretary's plan to fully correct deficiencies in
    the financial management systems by the end of fiscal year 1998. The
    Deputy Secretary has formed a Departmentwide working group with the
    express purpose of developing a financial systems integration plan. Its
    initial work has been completed. As a result, the Department will soon
    enter into an Interagency Agreement with the Department of Treasury
    (Center for Applied Financial Management) to develop an implementation
    plan. Step one will be to assess systems requirements and provide a
    report to the Department. This is to be accomplished within the next 90
    days. In addition, to assure effective utilization of information
    resources, the Department, in 1994, established the Technology
    Investment Board (TIB) to oversee investments in information
    technology. This Board has been recognized by the GAO as a ``best
    practice'' in managing technology in the Federal government. Secretary
    Cuomo has recognized the extraordinary potential in the TIB and has
    agreed to serve as TIB Chair.
        2. Financial Integrity.--Recent IG and GAO reports have identified
    a serious disconnect at the program management level between
    responsibility and accountability. To remedy this, HUD is changing to a
    new business culture--a positive financial management process that is
    fully integrated with day-to-day operations and is owned by program
    managers. To transform HUD into an agency with a new business culture
    where management self-monitors and looks at results, a three-part
    strategy has been developed:
        a. Make program managers responsible for the financial management
    of their programs and hold them accountable for achieving business
    results and reward positive performance.
        b. Provide managers with clear, reasonable expectations and the
    resources necessary to meet those expectations. In particular, it is
    proposed that the Chief Financial Officer assumes an expanded role as
    partner, consultant and advocate for the program managers.
        c. Develop and demonstrate this new business culture by
    incorporating front-end risk assessments in the reorganization and
    consolidation of HUD programs.
        The Department has undertaken an assessment of key financial
    management functions, including control environment, control evaluation
    and monitoring, the budget process, funds control, performance
    measurement, reporting and financial systems. This assessment shows
    both the strengths and weaknesses within these key financial management
    functions. An implementation plan has been developed to assure that
    those functions identified with weaknesses will be addressed and
    appropriate actions taken.
        A number of other initiatives are either planned or underway and
    will be provided when further developed.
        Question. What can we do and what can you do to address HUD's
    fiscal, management and program deficiencies? Mr. Secretary, I would
    really like you to provide us with some benchmarks and timeframes to
    judge the fiscal health and reform of the Department. Mr. Secretary, if
    my questions seem harsh, it is because I am frustrated over the
    continued failure of HUD to come to grips with its management, fiscal
    and program deficiencies. I also respect how difficult it must be for
    you as the new Secretary at HUD to come to grips with so many different
    and difficult problems--programs and bureaucracies have a tendency to
    become locked in place and impossible to move or change. The real issue
    is to identify the management and fiscal deficiencies at the Department
    and what tools you need to address the fiscal and management
    deficiencies? What can and should Congress do?
        Answer. The work undertaken by the Government Accounting Office
    (GAO) and the National Academy of Public Administration (NAPA) both
    directed by the Congress has identified a set of problems/issues which
    the Department must resolve. Implementation of their recommendations
    will go far toward addressing financial management issues at HUD. In
    addition, the NAPA report suggests that the ``challenge for Congress is
    to work with the Administration and the Secretary of HUD to develop a
    long-term agenda for change * * * '' and ``help clarify HUD's mission
    and consolidate its programs.'' It goes on to say that ``in the short
    term, Congress needs to work with the Secretary in creating additional
    waiver and demonstration authority for HUD.''

                                   NAPA STUDY

        Question. The National Academy of Public Administration's study on
    Renewing HUD: A Long-term Agenda for Effective Performance (July 1994)
    advised that between 1980 and 1992, HUD's statutory mandates increased
    from 54 to over 200 programs, with the HUD IG recently estimating that
    the current number of HUD programs exceeds 240 programs and
    initiatives. The NAPA report also questioned HUD's ability to achieve
    its mission because of an overload of programs that ``saps HUD's
    resources, muddles priorities, fragments the Department's work force,
    creates unmeetable expectations, and confuses communities.''
        I have seen little since 1994 to change this assessment. What has
    HUD done specifically to address the concerns and recommendations of
    the NAPA report?
        Answer. The Department has provided a recent update to the ongoing
    implementation of the NAPA recommendations. The initial NAPA Report
    made 64 recommendations in 15 categories. At this time 44 of those
    recommendations have been implemented, 20 of them are in the process of
    implementation and 2 are not yet implemented. The Department has made a
    good attempt at responding to the NAPA recommendations.
        Question. What is HUD's current relationship with NAPA?
        Answer. The Department continues to make progress in addressing the
    recommendations made in the NAPA Report. This has called for regular
    meetings and discussions with NAPA staff. It is the Department's
    understanding that the Congress has proposed additional funding for
    NAPA in the proposed HUD Budget Supplemental. It is further understood
    that the funding is to be used to follow-up on the initial NAPA
    recommendations.

                                 HUD DOWNSIZING

        Question. HUD continues to downsize its employees with a goal of
    7,500 employees in 2000, while continuing to add new programs,
    initiatives and activities. When will HUD focus on eliminating programs
    and activities while focusing on its primary programs, such as Section
    8, public housing, CDBG, the HOME program, the McKinney Homeless
    Assistance programs and the FHA mortgage insurance programs?
        Answer. The Department has made proposals for eliminating programs
    that are not core to HUD's business. There are a number of reviews and
    evaluations underway which may substantially expedite the
    Transformation processes which were designed to consolidate, eliminate
    and streamline existing HUD Programs.
        Question. HUD also is mandated in last year's appropriation bill to
    provide the appropriation committees with a downsizing plan. When will
    the HUD downsizing plan be submitted to Congress?
        Answer. Upon completion of the above-noted reviews and evaluations,
    a downsizing plan will be submitted to Congress. A strategic buyout
    plan has been submitted to and approved by the Office of Management and
    Budget. This will be followed by a detailed downsizing plan, which
    should be completed in draft form within 30 days.

                             HUD INSPECTOR GENERAL

        Question. Audit of HUD's Financial Statements pursuant to the Chief
    Financial Officers Act of 1990. The HUD IG on April 10, 1997 issued its
    audit of the fiscal year 1996 consolidate financial statements of HUD
    pursuant to the Chief Financial Officers Act of 1990. While the HUD IG
    noted that HUD has made some progress in addressing a number of
    material weaknesses, the HUD IG concluded that a Federal Managers'
    Financial Integrity Act (FMFIA) statement of noncompliance would be
    appropriate for HUD.
        HUD's material weaknesses include: (1) the need for HUD to complete
    improvements to financial systems; (2) the need to ensure subsidies are
    based on correct tenant income; (3) the need to continue efforts to
    improve monitoring of multifamily projects; (4) the need to address FHA
    staff resource issues; (5) the need to place more emphasis on early
    warning and loss prevention for FHA-insured mortgages; and (6) the need
    to improve FHA's accounting and financial management systems.
        Mr. Secretary, you are new and these are tough and slow issues. We
    need to work together to find ways to address these concerns and
    rebuild HUD's fiscal integrity.
        Again, we need to find a consensus approach to identifying
    benchmarks for reform and a time frame for assessing HUD's success in
    addressing these concerns.
        Answer. The Department is fully prepared to work together to find
    ways to address these concerns and rebuild HUD's fiscal integrity.

                    MULTIFAMILY HOUSING PRESERVATION PROGRAM

        Question. Congress has appropriated approximately $1 billion to
    fund the Multifamily Housing Preservation program over the last 2
    years, mostly for capital grants for sales to nonprofits. GAO currently
    is completing a study on the Preservation program which I believe will
    indicate that both the appraisals and the rehabilitation costs
    associated with the projects are often much too high. I know that HUD
    does not support continued funding for this program. In addition, Ms.
    Gaffney, the HUD IG, also has expressed deep reservations about this
    program and has several audits critical of certain sales.
        While perhaps it is time to find a new approach, I remain concerned
    about certain of the projects, especially those with elderly and
    disabled residents, in low vacancy areas where a project prepayment
    could result in displacements and the loss of a valuable housing
    resource.
        Mr. Secretary, I would like your comments on this program as well
    as those of Ms. Gaffney.
        Answer. The Department shares your concern that limited funding
    resources require us to be vigilant about the cost of preserving
    affordable housing. At the same time, we are very concerned about
    minimizing displacement of the very vulnerable elderly, disabled, and
    other citizens served in our programs, and the loss of scarce
    affordable housing stock.
        HUD's overall administration of the Preservation program since 1987
    has been effective, and has resulted in the preservation of 814
    properties consisting of approximately 100,000 affordable multifamily
    rental housing units. At this point, the Department has utilized
    approximately $2.2 billion to preserve these units at a per unit cost
    of $21,600. There remains over $1 billion of unmet needs in the funding
    queue. Short of the unlikely option of appropriating sufficient funds
    to provide incentives for every Preservation eligible property, there
    is no way to guarantee affordable housing stock will not be lost upon
    prepayment.

    High Program Costs
        The program funding costs are the direct result of conflicting
    goals within the statute. On the one hand, LIHPRHA provides equity
    take-out incentives to owners based on a valuation of the project as if
    it were to be sold as a market rate project. On the other hand, a much
    higher useful life standard is required of the nonprofit purchasers.
    They are expected to maintain the affordability of these units for 50
    years with no additional Federal rental subsidies. The Department
    encourages nonprofit purchasers of sales projects to perform
    improvements above those which would be performed by an owner with a
    short term interest in selling the project and maximizing profit. As a
    result, rehabilitation costs can be high.
        A number of the fundamental problems with the Preservation program
    are direct result of the overly prescriptive legislation. More than any
    other factor, this has added tremendous administrative burden,
    complexity, and potential for error, thereby minimizing the cost
    effectiveness of the program.

    Preventing Displacement/Tenant Protections
        As noted above, one of the Department's top priorities is to
    minimize the amount of displacement resulting from prepayments allowed
    under the Housing Opportunity Extension Act of 1996, particularly for
    elderly, disabled, and other vulnerable residents in low vacancy areas.
        Prior to the 1997 Appropriations Act, tenant protections were
    provided in the form of restrictions on rent increases for a period of
    3 years, and a requirement that the owner provide a portion of the
    relocation assistance necessary. With implementation of the 1997
    Appropriations Act, tenants receive an ``enhanced'' voucher. This form
    of rental assistance gives the tenants the choice of remaining in their
    current unit, or moving. Neither of these forms of tenant protections
    prevent the loss of affordable housing stock, but they do protect
    individual tenants and families.

    Enhancing Program Effectiveness
        Should the Congress decide to fund the Preservation program in
    fiscal year 1998, the Department would recommend prioritizing (or even
    requiring) funds from other sources to leverage the Federal funding. A
    significant benefit of such a policy would be to supplement, not only
    HUD's funding, but our capacity to effectively monitor and administer
    the program in a cost effective fashion. Informed and financially
    committed State or local agencies can be a particularly effective
    resource in not only targeting the most deserving projects, but in
    negotiating rehabilitation and other transaction costs, and monitoring
    the management and affordability provisions through the life of the
    property.

                            PUBLIC HOUSING--HOPE VI

        Question. The Hope VI program (Distressed Public Housing) attempts
    to respond responsible to many of the deteriorating, public housing
    high-rises that have become symbolic of urban decay. Through HOPE VI,
    HUD provides grants to demolish the worst public housing, replacing it
    with mixed income housing, detached housing and section 8 assistance.
    If implemented correctly, public housing under HOPE VI can help to
    revitalize urban areas and provide an anchor for new economic growth.
    What is the current status of the HOPE VI program?
        Answer. HOPE VI appropriations from fiscal years 1993 to 1996 have
    been used to fund a total of 118 grants in 52 cities: 59 implementation
    grants, 24 demolition-only grants, and 35 planning grants.
        Fifty-seven of the 59 implementation sites have proposed demolition
    as part of their revitalization. As of June 1, 1997, 8,733 units have
    been demolished. Seventy-four percent of the HOPE VI grantees planning
    to do demolition have started and/or completed their demolition.
        HUD will receive full Revitalization Plans in August 1997 for the
    20 implementation grants awarded from fiscal years 1996 appropriations.
    Of the 39 implementation awards made in 1993 to 1995, 17 grantees have
    begun construction. Approximately 1,300 units have been built and 750
    units are available for occupancy. Twenty-two of the 39 sites are
    planning to use low-income housing tax credits; 20 sites are planning
    for a mix of market rate and subsidized housing. Twenty-three sites
    want to make some of the new units available for homeownership by
    public housing residents. Nineteen sites are hiring private program
    management for their HOPE VI programs.
        All 39 sites are planning extensive community service and
    supportive services programs to help residents prepare for self-
    sufficiency. Eleven sites will have STEP-UP vocational training
    programs; eleven sites have also been funded for a Youth Apprenticeship
    program. At least ten sites have expressed interest in designing a
    Campus of Learners program for some or all of the new units. HUD has
    awarded several technical assistance contracts to outside experts so
    they can assist grantees in the development and administration of their
    self-sufficiency and community building programs.
        HOPE VI funds spent as of May 31, 1997: Fiscal year 1993--22.7
    percent; fiscal year 1994--17.9 percent; fiscal year 1995--11.9
    percent; and fiscal year 1996--Pending execution of Grant Agreements;
    funds not yet available to grantees for expenditure.
        HOPE VI is truly the new face of public housing. By designing
    housing that fits into the community, appeals to a broad range of
    prospective tenants, offers incentives for upward mobility and finding
    jobs, and provides supportive services to make self-improvement a
    reality, HOPE VI is defining the public housing of the future.
        Question. How many projects have been demolished and replaced with
    some new form of public and mixed income housing?
        Answer. The 59 implementation grants awarded through fiscal year
    1996 will revitalize 68 public housing developments in whole or in
    part. As of June 1, 1997, 8,733 HOPE VI units have been demolished. A
    far larger number, of course, have been approved and/or funded for
    demolition, but not yet taken down. For instance, while only 8,733
    units have actually been demolished to date using HOPE VI funds, HOPE
    VI grants awarded in 1993 to 1996 are expected to support the
    demolition of approximately 35,000 units.
        As of the December 31, 1996, reports from grantees, fiscal years
    1993 to 1996 HOPE VI funds are expected to revitalize, through new
    construction or rehabilitation, approximately 20,000 units; roughly
    15,000 of which will be newly constructed replacement units. This
    number will become more precise as the recently funded 1996 grantees
    finalize their revitalization plans. The majority of replacement units
    are on-site or in the immediate neighborhood. HOPE VI grantees will
    build approximately 5,000 additional affordable and homeownership units
    using leveraged non-HOPE VI funds. Approximately 8,100 units are being
    reconstructed using outstanding MROP funds.
        Question. What have we learned from this program?
        Answer. Some of the initial lessons are:
      --The Congressional directives articulated in the HOPE VI
            Appropriation Bills recognize three distinct sets of
            activities, each with identifiable costs: (1) Community and
            support services for resident self-sufficiency and economic
            development. (2) Remediation of the existing blighted public
            housing site, usually including relocation of residents,
            abatement of hazardous materials, demolition and removal, and
            minimal site restoration; and (3) Development of replacement
            housing, which is primarily new construction, but includes some
            rehabilitation of existing structures.
      --Inner-city revitalization is expensive, and often must address
            infrastructure and neighborhood issues beyond the HOPE VI site,
            including public safety and blight. HOPE VI grants should be
            used to leverage other public and private funding sources, and
            should not be expected to pay the entire cost of neighborhood
            revitalization.
      --HOPE VI should involve the whole community in revitalization and
            creating new housing opportunities, rather than be seen as just
            a public housing issue.
      --Revitalization of existing, occupied sites takes longer than
            anticipated, and cannot be compared with new construction on
            vacant land.
      --Because of historical apprehension and mistrust between residents
            and some public housing agencies, revitalization is often
            resisted at first because it is seen as permanent displacement
            from home and community. Sometimes outside technical assistance
            is needed to achieve positive working relationships.
      --Doing HOPE VI revitalization at a ``troubled'' housing authority
            takes longer and will probably necessitate the use of an
            outside program administrator. It is difficult to ``insulate''
            HOPE VI revitalization from other systemic problems or
            weaknesses of a PHA.
      --Mixed finance of replacement and affordable housing is creating
            additional housing resources in the community, and is providing
            additional housing choices for lower-income households as well
            as viable mixed-income communities. This is a new experience
            for most PHA's and few are equipped to negotiate or administer
            such a program. PHA's need expert technical assistance to do
            mixed-finance development.
      --To be successful, HOPE VI must be closely linked with State and
            local welfare reform, and the requirement to equip residents
            for self-sufficiency.
      --HOPE VI effectively addresses the blighted social and physical
            conditions of severely distressed public housing developments
            with potential for viable revitalization.
      --HOPE VI is working, and should be continued. The new models of
            lower-density, mixed-income and affordable housing are truly
            the public housing of the future.
       emergency cdbg in the fiscal year 1997 supplemental appropriation
        Question. The fiscal year 1997 supplemental appropriations bill
    would appropriate $500 million for emergency CDBG assistance for
    disaster areas, while providing HUD with broad waiver authority. The
    amount of these emergency funds are unprecedented, especially since
    there are no current real appraisals of the disaster costs, the flood
    disaster areas have no plan for the use of the CDBG funds, and there is
    no agreed approach to how to rebuild from the disaster. What are the
    requirements that cover the use of emergency CDBG funds under HUD's
    existing guidelines?
        Answer. In general, use of emergency CDBG funds are governed by
    existing CDBG program requirements in the Housing and Community
    Development Act of 1974, as amended, and in regulations at 24 CFR Part
    570 and other relevant parts. The Department will grant appropriate
    waivers of program requirements, as it has for use of funds for past
    disaster recovery efforts, and will issue policy guidance that will
    likely be similar to that issued previously for recovery from the
    Midwest floods of 1993 and the floods of 1996. Once those materials are
    developed following enactment of the 1997 supplemental appropriations
    bill, we would be happy to provide you with a copy.
        Question. In some cases, emergency CDBG funds have been used for
    buyouts. My impression is that the use of CDBG funds for buyouts are
    generally restricted to use in conjunction with the FEMA buyout
    program. What are the restrictions for the use of CDBG funds for
    buyouts? How could the CDBG funds be used in conjunction with private
    businesses--personal residences--rental properties?
        Answer. You are correct that, in some cases, emergency CDBG funds
    have been used for buyouts. Though such use is not restricted to
    buyouts undertaken in conjunction with FEMA's Hazard Mitigation Grant
    program, generally, emergency CDBG funds used for buyouts are used to
    complement FEMA mitigation efforts. In conjunction with buyouts,
    emergency CDBG funds have been used to pay optional relocation
    assistance so that property owners can relocate to ``comparable
    replacement dwellings.'' It has been HUD policy that the use of
    emergency CDBG funds for optional relocation payments to property
    owners of personal residences and businesses (including rental
    properties) follows the use of insurance proceeds, personal tax savings
    that result from a property owner's tax deduction of a capital loss on
    displacement property, FEMA Hazard Mitigation Grant funds for
    acquisition, and SBA disaster loan assistance. Note that while a
    grantee must provide optional relocation assistance uniformly among
    categories of assistance recipients, the level of assistance and
    categories of recipients assisted are grantee decisions.

                     MCKINNEY HOMELESS ASSISTANCE PROGRAMS

        Question. I have been advised that a number of the McKinney
    homeless assistance programs (such as Section 8 SRO housing) could
    balloon in cost over the next few years. Are there additional costs
    that the subcommittee should be aware of in assessing how to preserve
    existing homeless assistance programs?
        Answer. HUD is well aware of the fact that as a result of the
    significant funding increases beginning in fiscal year 1995, McKinney
    renewal costs do increase in fiscal year 1998 and beyond, and we have
    taken action accordingly. As part of this year's competition, HUD is
    asking communities to prioritize their renewal needs along with new
    projects. Communities are given the option of renewing Supportive
    Housing Program projects for up to 100 percent of the last year's costs
    of the original grant, for a period of up to 3 years. By statute,
    Shelter Plus Care renewals must be for 5 years.
        HUD is currently considering the best way to renew Section 8 SRO
    Moderate Rehabilitation projects. Since the original grants were for 10
    years, the first projects will begin coming up for renewal in fiscal
    year 1998, when approximately 800 units will be eligible for renewal.

     FHA MORTGAGE INSURANCE PROGRAMS--FHA SINGLE FAMILY MORTGAGE INSURANCE
                      PROGRAM--RAISING THE MMI LOAN LIMIT

        Question. The FHA single Family Mortgage insurance program permits
    mortgage insurance not to exceed the lesser of 95 percent of the median
    single family home price in an area to 75 percent of the Freddie Mac
    limit (or approximately $151,725). HUD is now requesting that the FHA
    single family mortgage insurance loan limit be raised to the Fannie
    Mae/Freddie Mac loan limit (about $212,000). Why is this necessary?
        This raises a number of serious questions, including (1) risk to
    the FHA insurance fund under which the federal government already has
    some $400 billion of contingent liability (e.g. high risk due to low
    downpayments and high loan-to-value ratios; many individuals are
    unlikely to have savings or credit to pay for significant repairs or
    make mortgage payments in the face of an economic downturn); and (2)
    intrusion of the FHA into the high-cost market in competition with
    private mortgage insurance companies.
        Answer. FHA loans historically do not show a higher level of risk
    with higher insured amounts. For mortgages at current limits, the value
    of homes insured by FHA is at or below median area house prices. In
    these areas, the proposed increase would make possible the insurance of
    homes in a wider range of prices around area medians (both below and
    above median prices), where the market for homes sales is stronger, and
    the risk of loss is lower. Especially in high cost areas, the
    additional FHA volume should reduce average risk levels. In other
    areas, it would likely have a mixed effect on risk, enabling FHA to
    serve some additional borrowers who are creditworthy, but pose
    relatively higher risk, without adversely affecting overall average FHA
    risk. We do not expect that on balance the proposal will result in
    increased risk to the FHA insurance Fund.
        The reserves in the Mutual Mortgage Insurance Fund (MMI) of FHA,
    where most of the new business generated by the loan limit increase
    would be, achieved in 1995 the 2 percent capital reserve requirement
    set by Congress for the year 2000. In 1996, the reserve level has
    continued to increase.
        Experience has shown that FHA and Private Mortgage Insurance (PMI)
    serve distinct segments of the market. FHA fees and costs are higher
    than PMI fees, so that most borrowers who qualify for private mortgage
    insurance go with PMI. FHA predominantly serves homebuyers that PMI
    leaves behind. This should hold true to an even greater degree at the
    price ranges affected by the proposed increase, due to the FHA
    requirement that borrowers put up a 10 percent marginal down payment
    for the portion of loans that exceed $125,000. Any competition between
    FHA and PMI insurance should remain small under the proposal. We
    estimate a small volume increase of 8 percent from the loan limit
    increase, because the proportion of borrowers served by the private
    market in these loan amounts is higher.
        FHA's presence in credit markets benefits underserved and unserved
    populations directly by expanding access to home financing, and
    indirectly by setting standards that influence the products and
    services offered by private insurers and lenders. FHA brings public
    purposes and stability to mortgage credit markets, through both good
    times and downturns. Without infringing on the business of private
    insurers, the proposed increase in mortgage limits would extend the
    benefits of FHA insurance to many families with sufficient income to
    meet mortgage payments on the home they desire, but who otherwise would
    have difficulty obtaining affordable financing.

     FHA MORTGAGE INSURANCE PROGRAMS--FHA SINGLE FAMILY MORTGAGE INSURANCE
                            PROGRAN--FHA CORPORATION

        Question. Also, there are concerns that FHA could be made more
    efficient by setting up a separate FHA corporation within HUD? This
    also is controversial for a number of members who would look at a new
    FHA corporation as another GSE (government-sponsored entity) which
    competes with the private sector. Does HUD support a new corporate FHA
    and what would be the advantages over the current FHA structure within
    HUD.
        Answer. Creating a corporate FHA within HUD is very different from
    a GSE. While a GSE is stockholder-owned, and has a fiduciary duty to
    pursue policies which benefit those stockholders, a corporate FHA
    within HUD would remain government-owned and be integrated into the
    larger housing policy of the President and the Secretary of HUD. HUD
    proposed creating a corporate FHA within HUD several years ago. At the
    moment, we are working to make progress toward a more performance-based
    organization through administrative and existing authorities, but
    further statutory changes may be required as well.
        To be most effective, a reinvented FHA should combine
    entrepreneurial market-driven mode of operation with a public-purpose
    mission and mind-set. The Secretary would continue to develop Federal
    housing policy, of which FHA would be one arm. He would preside over
    major policy issues, as today, and approve each year's business plan.
    Within the policies that are set, an FHA chief operating officer would
    handle the daily operations and the business plan and be accountable
    for performance. Additionally, administrative policies would be more
    flexible to respond to business needs.
        An FHA corporation statute would consolidate numerous statutory
    insurance authorities into a small number of business lines, and allow
    FHC to change its products quickly to respond to market changes,
    provided they met public purpose and safety and soundness objectives.

                           SECTION 8 MARKET-TO-MARKET

        Question. The Section 8 project-based programs have been
    significantly criticized because the Federal government routinely
    oversubsidized these FHA-insured projects with inflated section 8 rents
    through 15- and 20-year contracts. These section 8 costs need to be
    addressed, especially since many of these contracts are now expiring
    with section 8 rents above market. The VA/HUD fiscal year 1997
    appropriations bill established a demonstration for restructuring the
    section 8 rents and mortgages to market, and the Senate Banking
    Committee has introduced legislation each of the last 2 years to
    provide a long-term section 8 and mortgage restructuring program. In
    addition, HUD is following Senate recommendations in having drafted a
    proposed tax fix to this issue. What is the status of the
    Administration legislation and how would it work?
        Answer. HR 1433 ``Housing 2020: Multifamily Management Reform Act''
    was introduced in the House by Representative Lazio and co-sponsored by
    Representative Kennedy on April 24, 1997. The Bill was referred to the
    House Banking and Financial Services Committee; Ways and Means
    Committee; and, Judicial Committee.
        The Administration's Bill has four critical goals: 1. Preserve and
    extend a commitment to affordable housing for 850,000 people; 2. Ensure
    that these projects are put on a financially sound footing well into
    the 21st century; 3. Protect low-income tenants; and 4. Reduce HUD's
    long-term costs for section 8 contracts.
        Under HUD's proposal, over-subsidized rents can be reduced to
    market levels at or before contract expiration. The objective of the
    mark-to-market proposal is to induce owners to accept lower section 8
    rents prior to contract expiration. The Department believes that
    property owners will agree voluntarily to terminate existing high-cost
    contracts before expiration in return for the benefits contained in
    this proposal. Owners recognize that Congress will not continue to fund
    the renewal of expiring contracts at above-market rents indefinitely
    into the future.
        Responsible landlords would have their FHA-insured mortgages
    reduced to a level that can be supported by market rents. Writing down
    the mortgage and reducing the rental assistance payments would reduce
    both the Federal government's contingent liability and the excessive
    subsidy costs to United States taxpayers.
        The reduction of the mortgage debt (or a sale of the property) will
    generally result in taxable income for the owners. In order to
    encourage voluntary owner participation, subtitle B contains tax
    legislation that will allow deferred payment of the tax liability in
    certain situations. Owners who are having their debt reduced by more
    than 30 percent and less than 75 percent of the mortgage will be able
    to amortize payment of the tax associated with the debt write-down for
    up to 10 years. Owners that sell their project to certain non-profits
    will be able to amortize the resulting tax liability for seven years.
    However, in either case, if certain events occur (such as sale of the
    property or death of the taxpayer), the unpaid tax becomes due and
    payable.
        In exchange for a mortgage write-down and favorable tax treatment,
    property owners would agree to charge affordable rents on at least 40
    percent of the rental units for another 15 years.
        In addition to mortgage write-down, or debt restructuring,
    rehabilitation of the properties can be undertaken where necessary.
    Rehabilitation may be financed by using accumulated project reserves,
    new equity provided by the owner, and further debt write-downs.
    Rehabilitation funds from the insurance fund may be available to
    restructured projects to accomplish repairs and rehabilitation.
        HUD proposes to renew expiring housing contracts with tenant-based
    and project-based assistance. In about half the projects, HUD will
    renew the contracts with project-based subsidy. This would occur in
    housing markets where market indicators demonstrated that it would be
    difficult to use tenant-based subsidy (for example, in areas with less
    than a 6 percent vacancy rate) and for projects which are predominantly
    (90 percent and higher occupancy) for elderly and/or disabled
    households.
        In the case of tenant-based assistance, the assistance will be
    calculated to provide the tenant with an option to remain in the
    project at a reasonable market rent or to search for an apartment on
    the private market.
        Finally, the legislation calls for the use of third parties
    (``designees'') to assist HUD in administering the multifamily
    restructuring initiative. This reflects the existing constraints upon
    HUD resources and is designed to make best use of public and private
    managerial and housing expertise. State and local government agencies
    will have a priority choice to be designees.

       IMPLEMENTATION OF THE NATIVE AMERICAN HOUSING ASSISTANCE AND SELF-
                               DETERMINATION ACT

        Question. The Native American Housing Assistance and Self-
    Determination Act of 1996 established a new Native American Block Grant
    which consolidated most of HUD's Indian Housing programs (HOME, Public
    Housing programs, Homeless programs). The Administration is requesting
    $485 million for the Native American Block Grant Program for fiscal
    year 1998. What is the status of this block grant program? Is this
    program ready for implementation and for funding to start in fiscal
    year 1998?
        Answer. The Native American Housing Assistance and Self-
    Determination Act (the Act) will fundamentally alter the delivery of
    housing assistance to Indian tribes and their tribally designated
    housing entities (TDHE). Indian Housing Block Grant funding will be
    allocated to all eligible tribes or TDHE's according to a needs-based
    formula.
        The Department has been actively engaged in all aspects of
    preparing this program for its scheduled implementation on October 1,
    1997. As prescribed by Section 106 of the Act, a series of negotiated
    rule-making sessions with representatives of twelve tribes was recently
    conducted. Through these sessions, an allocation formula and a
    consolidated proposed rule were developed and approved by the
    committee, which is comprised of staff from the National Office of
    Native American Programs (ONAP) in Denver and tribal leaders from
    across the Nation.
        The proposed rule is expected to be published in the Federal
    Register for public comment soon. Once the comment period ends, the
    negotiated rule-making committee will meet again to prepare the final
    rule. A public notice has been issued by the Department requesting that
    the Indian Housing Plans, required under Section 102 of the Act, be
    submitted not later than November 3, 1997.

                               EMPOWERMENT ZONES

        Question. HUD would like to fund another round of empowerment
    zones, even though there are significant questions regarding the
    reliability of the original selection process and whether the
    empowerment zones have worked.
        Answer. The HUD Inspector General (IG) reviewed our selection
    process following the first EZ/EC competition, and made only two
    recommendations for change, both of which were administrative in
    nature. We have complied with both. We have also worked with the IG to
    develop a Competitions Manual to govern how all future competitions
    managed by the Office of Community Planning and Development are to be
    conducted.
        As to whether EZs have worked, we believe that the results of the
    first 2\1/2\ years of the program have been quite promising. Since the
    designations were made in December 1994, EZs and ECs have begun to
    translate the goals articulated in their strategic plans into specific
    activities, with investment strategies that are focused primarily on
    economic opportunity and sustainable community development. While there
    were a few problems, the vast majority (67 of 72) of EZs and ECs have
    shown a great deal of success in their program implementation to date.
        The EZ program is successful because of its combination of
    extraordinary vision and concrete, measurable results. The Strategic
    Plans developed by the communities represented a wealth of innovative
    thinking about how best to address the difficult and complex problems
    of America's distressed communities. We are now beginning to see the
    rewards of such careful planning, community collaboration, and hard
    work. In fact, the General Accounting Office Report (issued in December
    1996) concluded that ``HUD has taken commendable steps toward
    establishing results-oriented measures for the EZ program. Among other
    things, the EZs have developed benchmark that described planned
    activities, as well as the baselines and time frames against which
    progress toward accomplishing individual benchmark can be measured.''
        The EZ Initiative represents the most ambitious performance-driven
    grant management effort to date. EZ/ECs use performance benchmarking to
    set specific goals for Federal, State, local and private investment.
    The benchmark provide a blueprint for an entrepreneurial, no-nonsense
    way to distribute funds, fulfill commitments, and measure performance.
        Our recent publication, WHAT WORKS! in the Empowerment Zones and
    Enterprise Communities provides examples of accomplishments in EZ and
    ECs around the country. More than 100 programs and projects are
    highlighted, providing reason to celebrate the successful
    revitalization of our Nation's communities. Moreover, these serve as
    models for programs throughout the country, helping to bring businesses
    and residents back to America's most distressed areas and giving hope
    to the people of every community.
        Communities have used Federal funds to leverage additional private
    investment from foundations, businesses, and other sources. Federal
    funds have also been used as seed money, supporting the communities as
    they build partnerships with a wide variety of organizations in both
    the public and private sectors. In addition, tax incentives have been
    highly successful in drawing private investment into distressed
    communities.
      --Since designation of the EZs in 1994, the total private and public
            investment activity commitments has exceeded $2.6 billion.
      --More than $2 billion in private investment has been made,
            indicating that capital investors perceive future opportunities
            for investment returns in the EZs to be equal to or greater
            than in other locations. For every dollar of EZ funds, $18 of
            private investment are leveraged.
      --The overwhelming focus of the new investment--$1.7 billion--is
            targeted toward economic opportunities, including business-
            related job retention, expansion, relocation, and creation;
            investment pools for capital access and innovative financing
            needs; jobs- and occupation-skills training; and
            entrepreneurial and entrepreneurial and business-support
            services and assistance.

                                VOUCHER PROGRAM

        Question. The voucher program currently allows assisted households
    to pay more than 30 percent of their adjusted income for rent if the
    rental house costs more than the payment standard. As I understand it,
    there is evidence that the median voucher family pays 38 percent of
    their adjusted income for rent and that 45 percent of new voucher
    families or movers pay more than 40 percent of their adjusted income
    for rent?
        Answer. This is correct. A copy of a rent burden table showing
    these data is attached.
        Question. Since 30 percent of adjusted income has become the basic
    federal standard for rent affordability in the country, what do these
    rent burdens in the voucher program mean for the cost of housing for
    low-income families? Also, since families are limited in the section 8
    certificate program to paying 30 percent of their adjusted income for
    rent, how successful are families at finding affordable rental housing
    in the certificate program?
        Answer. These figures do not represent a major change in the
    program over time. Rent burdens among movers in the Freestanding
    Housing Voucher Demonstration of the late 1980's were comparable. We
    have consistently found that some renters will choose to pay more than
    the FMR when that option is available, even at the cost of a higher
    rent burden.
        Rent burdens may be surprisingly high in the voucher program for
    the following legitimate reasons:
      --Families seeking modest and decent housing in good neighborhoods
            may be willing to lease units with rents substantially above
            the FMR.
      --By statute and by regulation certain income sources are not counted
            in annual income. Among these are foster care payments,
            earnings of dependents, student loans and grants, and wages for
            persons enrolled in certain training programs. In addition,
            some assisted households have virtually all food and medical
            needs met by the Food Stamps and Medicaid programs,
            respectively. In short, for some families, it would be possible
            to have rent burdens even in excess of 100 percent of annual
            income without hardship, simply because annual income is a poor
            measure of total resources.
      --At any given time, certain communities may be undergoing rapid rent
            inflation. The Fair Market Rent (FMR) published by HUD will
            respond to this inflation only with a significant lag.
      --Housing authorities may choose under the voucher program to
            maintain payment standards that are below the FMR, in order to
            serve a larger number of families. This may be a reasonable
            choice, as only about a fourth of eligible households are
            assisted. There is a significant relationship between rent
            burdens in the voucher program and the setting of the Payment
            standards: the higher the Payment Standard (relative to FMR)
            the lower the incidence of high rent burdens.
        HUD has sponsored two studies bearing on the utilization rate:
      --In the Freestanding Housing Voucher Demonstration (final report
            issued in 1990), the success rate was 61 percent in the
            certificate program and 64.6 percent in the voucher program.
            This difference was statistically significant.
      --In the Section 8 Rental Voucher and Rental Certificate Utilization
            Study (final report issued 1994), the success rate for the two
            programs combined was 80 percent (87 percent outside New York
            City). Results were not broken out by program, but about three-
            fourths of the families probably received certificates.
        Preliminary data are also available that show the relationship
    between units under lease (for which subsidies are actually being paid)
    and units under contract (the number of subsidized units that HUD has
    agreed to pay for). The two numbers will always be different for
    various reasons; the most important are the time that it takes a PHA to
    process a new family and the time that the new family requires to
    identify an acceptable unit.
        The lease-up rate in the voucher program (unit-months of subsidy
    used divided by unit-months available) is 84.4 percent; the lease-up
    rate in the certificate program is 82.8 percent. Both figures are
    probably affected by the statutory 3-month delay in the reissuance of
    turnover units. HUD has proposed that Congress permit this provision of
    the most recent HUD/VA Appropriation to expire.
                          voucher program rent burdens
        The table below excludes from analysis all cases other than new
    admissions and moves, and also removes all cases where tenant
    contribution is $25 or less.
        The median voucher family analyzed pays 38 percent of adjusted
    income for rent. 45 percent of mover/new admission tenants paid more
    than 40 percent of adjusted income toward rent. Caveats follow the
    table.

    ------------------------------------------------------------------------
                                                    Percent of
      Tenant contribution as percent of adjusted     voucher     Percent of
                        income                      tenants in   cumulative
                                                    this range  distribution
    ------------------------------------------------------------------------
    0-14.........................................          4.8           4.8
    15-19........................................          4.6           9.4
    20-24........................................          7.5          16.9
    25-29........................................          9.7          26.6
    30-34........................................         14.1          40.7
    35-39........................................         13.9          54.6
    40-44........................................         11.8          66.4
    45-49........................................          7.5          73.9
    50-74........................................         18.3          92.2
    75-99........................................          4.7          96.9
    100 percent or more..........................          3.1         100.0
    ------------------------------------------------------------------------
    Source: MTCS February 1997 tape; 8 percent sample; records with
      effective dates prior to January 1, 1996 excluded.

        The table contains some judgmental editing. MTCS has some data in
    which HA's have either left the amount blank and a zero has been
    substituted for the blank, or have submitted the number of cents where
    HUD asks for dollars. (This leads to ratios that are 100 times their
    true values).
        In producing this table, we have tried to account for the following
    facts:
        (a) The MTCS shows 2.9 percent of voucher tenants paying less than
    10 percent of total income for rent. This is contrary to program rules,
    but probably reflects more on data entry than on administration; and
        (b) The MTCS shows 3.7 percent of voucher tenants paying more than
    105 percent of total income for rent. This is not bloody likely.
        Our adjustment is to remove the bottom 2.9 percent and the top 3.7
    percent from the distribution.
        We have also tried eliminating cases where total income was less
    than $1,000, and cases where tenant contribution was double the FMR.
    The results, which are not shown, made only a slight difference.

                          EXPIRING SECTION 8 CONTRACTS

        Question. As HUD knows, the cost of section 8 contracts will
    skyrocket over the next few years. In particular, the VA/HUD Fiscal
    Year 1997 Appropriation Act appropriated $3.6 billion to cover the cost
    of renewing expiring section 8 contracts for fiscal year 1997. The cost
    of renewing all Section 8 contracts for fiscal year 1998 (a total of
    1.7 million expiring contracts, many of which are for the elderly and
    disabled), however, will require some $10.2 billion in budget authority
    for fiscal year 1998. The cost of expiring section 8 contracts will
    then rise to $11.9 billion in fiscal year 1999; $13.7 billion in fiscal
    year 2000; $15.1 billion in fiscal year 2001; and $16.4 billion is
    fiscal year 2002.
        I remain very concerned that we continue to fund these existing
    section 8 contracts. Senator Mikulski and I have sent letters to the
    Chairmen and Ranking Members of both the Budget and Appropriation
    Committees requesting special attention to this vital issue.
        Nevertheless, HUD abruptly on April 17th found some $5.8 billion in
    unobligated and excess section 8 contract reserves.
        Answer. We have always been aware that the Section 8 programs
    generate project reserves; multiyear increments have always been funded
    on a level basis, so that each increment would generate reserves in the
    early years so that the housing authority (HA) could draw upon them in
    the later years. In mid-1995, we began analyzing what portion of the
    reserves could be considered excess in order to identify expiring
    increments which could be extended using the reserves. During the
    negotiations with Congress on the 1995 Rescission Act (Public Law 104-
    19), HUD was able to offer-up the use of reserves as a means of funding
    (extending) the expiring contracts, along with shortening the terms of
    the contracts, in order to comply with the rescission of almost $1.2
    billion. The 1995 rescission, in fact, specifically authorized the use
    of the reserves. It was critical at that time since the appropriated
    funds were insufficient to cover all renewal costs. As a further point
    of clarification, it is noted that all project reserves held by the
    HA's are obligated funds.
        Question. The failure of HUD to get a handle on this section 8
    funding is indicative of HUD's fiscal and management deficiencies as
    identified by GAO and the HUD IG.
        Answer. The Department has been working diligently since 1993 to
    develop automated financial management/data systems that would enable
    the Department to determine, among other issues, the appropriate amount
    of project reserves for a HA to maintain. HUDCAPS was implemented
    during fiscal year 1995, and every account now has been reconciled with
    the old system. The reconciliation took over a year to complete and it
    was only through this reconciliation that the Department was able to
    provide the project reserve numbers. The ability of HUD to identify the
    project reserves in total is, in fact, indicative of the substantial
    improvement in HUD's fiscal and management systems.
        Question. Mr. Secretary, you met with me as recently as March 12th
    and I was assured in that meeting that there might be as much as $1
    billion of section 8 reserves on hand, but certainly no more than $1
    billion. In addition, in a Banking Committee hearing on September 28,
    1995, Bruce Katz, then Chief of Staff to HUD Secretary Cisneros,
    testified that HUD estimated that, in fiscal year 1996, there was only
    about $460 million in excess section 8 contract reserves in public
    housing authorities around the country.
        Answer. That amount, $460 million, was the amount of reserves the
    Department indicated would be used for 2-year extensions in fiscal year
    1996. It does not represent the total amount of reserves that could
    have been considered excess at that time, but only the amount that was
    anticipated to be used for extension of expiring increments in that
    year; extensions were limited to those increments which could be funded
    from reserves for a full 2 years after allowing a 6-month threshold
    amount to remain in the reserves. It was an amount HUD considered
    available, absent (at the time) a system to accurately determine
    project reserve levels.
        Question. Nevertheless, on April 17th of this year, HUD finds not
    only $3.5 billion in excess, unobligated section 8 reserves to pay for
    FEMA needs but indicates it will revise its section 8 contract reserve
    requirements so that there is an excess of $5.8 billion in unobligated
    section 8 contract reserves. It is a big jump from $460 million to $5.8
    billion. This is a big problem and raises significant management
    issues.
        Answer. Again, for the record, it is noted that all project
    reserves held by the HA's are obligated funds. The $5.8 billion figure
    identified in April is based on substantially different assumptions and
    a much larger universe than the $460 million figure previously noted.
    It included the entire universe of HA Section 8 programs, regardless of
    whether it had expirations in the next fiscal year, and assumed only a
    2-month threshold amount remaining in the reserves. Moreover, it was
    based on a reconciliation of reserve balances nationwide, to correct
    any inaccuracies drawn from prior accounting systems.
        Question. In addition, since that time, I have asked my staff to
    begin evaluating the status of the section 8 reserves. I am concerned
    about the accuracy of the $5.8 billion and the continued need for
    retaining adequate section 8 reserves. I only have anecdotal evidence,
    but I have been told that many small PHA's have little if any section 8
    reserves on hand and that, for a small PHA, a month's section 8
    reserves might be considered normal to cover shortfalls. On the other
    hand, I understand that the Housing Authority of Kansas City is likely
    to have some $800,000 to $900,000 on hand, approximately 5 months worth
    of section 8 reserves.
        Answer. Project reserve amounts vary among housing agencies,
    according to the size of the HA, and the age of their program, their
    leasing history and the relationship of costs to historical funding
    levels. There is no mandated reserve level--reserves accrue based on
    the normal operation of the program. HA's have been given the autonomy
    to manage their programs as efficiently as possible consistent with
    program regulations and handbooks, and in a manner that would not
    create negative reserves. Certificate programs that experience
    shortfalls are provided additional funding through amendments to ensure
    continued assistance for the number of units contracted by HUD.
    Amendment funds, however, were not provided for Voucher programs which
    were initially funded for shorter terms with a statutory 15 percent
    inflation factor. The recently completed analysis of excess reserves
    assumes that every HA should have a minimum 2-month threshold amount in
    their reserves.
        As part of HUD's efforts to ascertain accurate reserve levels and
    maintain financial management data in our automated system (HUDCAPS),
    Kansas City was informed in September 1996, that its Certificate
    project reserves totaled $22 million, as of the end of the housing
    authority's fiscal year 1995. (See attached letter.) Subsequently,
    Kansas City's 1996 settlement (as of December 31, 1996) showed that
    additional project reserves accrued (actual and projected through
    1997). Based on the Department's current policies to maintain reserves
    to cover contract terms and extensions, and to maintain a 2-month
    reserve threshold, Kansas City will have $32,846,064 of excess project
    reserves at the end of their fiscal year 1997.
                           letter from karen schleper
              U.S. Department of Housing and Urban Development,
                                   Kansas City, KS, September 18, 1996.
    Mr. Eugene Jones,
    Executive Director, Housing Authority of Kansas City, MO,
    Kansas City, MO.
        Dear Mr. Jones: Enclosed you will find the HUD-approved year-end
    settlement for the Certificate Program, MO002CE, for the period ending
    December 31, 1995. Please note the ending balance of your project
    reserves for the program has changed to $22,886,338.
        The conversion of accounting information from the PAS/LOCCS systems
    to HUDCAPS in May, 1995 identified discrepancies in the amount of
    budget authority available, budget authority liquidated, and project
    reserve balances. The Annual Budget Authority has been reformulated
    based upon the effective and expiration dates for each individual
    increment using an effective date of the first day of the month.
    Partial years have been prorated accordingly.
        The reformulated budget authority has been compared to the amount
    of cumulative disbursements through the reporting period. The
    difference between the reformulated budget authority and cumulative
    disbursements is the amount of project reserves available for use and
    should be carried forward as your beginning balance for your current
    PHA fiscal year.
        Please make the necessary adjustments to your accounting records.
    You will be required to adjust account 2840, Cumulative HUD Annual
    Contributions, account 2827, Project Account, and account 2810,
    Unreserved Surplus, as applicable.
        We apologize for any delays and inconvenience created by the
    reformulation process for your Authority. This is a one time adjustment
    to the above program to bring the accounting records in line with the
    terms of the Annual Contribution Contract (ACC).
        Should you have any questions please contact Robert Boepple,
    Financial Analyst, (913) 551-5587.
                Sincerely,
                                                Karen Schleper,
               Director, Management Division--Office of Public Housing.
        Question. Even more troubling is that several PHA's report that
    there are few rules or restrictions concerning the use of section 8
    reserves--that most uses are okay if consistent with the purposes of
    the Section 8 or public housing program.
        Answer. Project reserve balances are maintained in the Department's
    central accounting and program system, HUDCAPS, and can only be used to
    supplement each year's Budget Authority in the operation of the
    program. The Annual Contributions Contract between the Department and
    each PHA stipulates that HUD may establish and maintain a reserve
    account, in an amount determined by HUD, and that the account may be
    used to pay any portion of the program payment approved by HUD for a
    fiscal year. Current policy on use of the reserves was established in
    HUD Notice 96-68, which stipulates that PHA's may not use the reserves
    to lease more than the number of units originally reserved by HUD and
    that HUD will use reserves to extend the terms of expiring contracts
    and to cover increased costs of continuing to assist the number of
    units reserved by HUD. Your characterization above of the Section 8
    reserves, however, does not apply to these project reserves; rather it
    applies to the HA's operating reserves, which are different funds
    entirely. An HA is paid an administrative fee to cover its costs of
    operating the Section 8 programs (salaries, office space, supplies, and
    all other administrative costs). Any portion of that fee that is not
    needed for operations in the year it is earned accrues to the operating
    reserve, which is maintained by the HA. The operating reserve is to be
    used to support program administration in later years, if cost
    increases exceed fee increases. If an HA determines that any portion of
    the operating reserve is not needed for future program administration,
    the HA may use that amount for other housing purposes consistent with
    State and local law.
        Question. Mr. Secretary, I know that you are as concerned as I am
    about the availability and use of unobligated section 8 reserves. You
    have indicated to me that HUD has contracted with Price Waterhouse to
    audit the Section 8 reserve accounts. What is the status of that report
    and when do you expect a final accounting of Section 8 funds.
        Answer. On April 17, 1997, I directed my Acting Chief Financial
    Officer to obtain the services of an independent public accounting firm
    to verify the amount of excess Section 8 tenant-based program reserves
    estimated by the Office of Public and Indian Housing (PIH) to be
    available in fiscal year 1998. Only one firm, Price Waterhouse and Co.,
    agreed to meet on short notice to discuss requirements for such an
    engagement.
        An audit of the PIH Section 8 program office estimates was
    previously requested. However, during preliminary discussions with
    independent accountant firms and Departmental staff, several
    complications to obtaining an audit were discovered. One complication
    related to the fact that calculating excess reserves involves
    projections of future events. While projections are a normal part of
    budgeting, the uncertainty with regard to the assumptions (inflation
    and provision for future contributions to reserves, for example)
    appeared to preclude absolute guarantees as to the accuracy of an
    amount by any auditor. A related complication is that excess program
    reserve balances is a dynamic amount which changes daily as payments
    are made, new Budget Authority is added, contracts are renewed or
    extended and accounts are closed-out by the housing authorities.
        Another impediment to obtaining an audit opinion is the length of
    time since the books and records of its grant and subsidy programs had
    been audited by an independent auditor. The Office of the Inspector
    General has been the Department's primary auditor for the last 2 years.
    It was determined that the primary auditor is the only one that could
    render an opinion on an element of the Department's financial
    statements in a reasonable time period since they would be the only
    entity capable of expanding their existing work without the necessity
    of starting from the beginning, as a new firm would have to do.
        While an audit might not be practical, other forms of assurance can
    be obtained by an independent public accounting firm in a reasonable
    period of time. One such alternative is an engagement to apply agreed-
    upon procedures to the excess reserve amount calculated by the program
    office. In an agreed-upon procedures engagement the accountant issues a
    report of findings based or specific procedures performed.
        To address the limitations of an agreed-upon procedures engagement,
    the Office of the PIH Comptroller, in conjunction with the Office of
    the Chief Financial Officer and the PIH Section 8 program office,
    designed a verification methodology to test the reasonableness of the
    amounts reported as excess reserves by the Section 8 program office.
    The verification method compares total undisbursed Budget Authority
    currently recorded in HUDCAPS to a projection of requirements to fully
    fund all existing contracts to their expiration date. The result is a
    projection of total excess Budget Authority (some of which has been
    closed to reserve accounts and some which has not).
        The services of American Management System (AMS) were utilized to
    perform the verification methodology. AMS is the contractor that
    developed the Federal Financial System (FFS) that is currently the
    foundation of both HUD's Central Accounting and Program System
    (HUDCAPS) for PIH Section 8 programs as well as for Salary and Expense
    payments. AMS is currently under contract with the Department to
    provide on-going support for the continued implementation of HUDCAPS/
    FFS.
        Price Waterhouse's work is complete and a report should be
    available by the second week in July. Procedures performed and to be
    reported on thus far include: (1) testing for clerical accuracy of
    audit trails and spreadsheets; (2) sampling source documents maintained
    in the field offices for agreement with spreadsheet amounts; and (3)
    tracing financial and program amounts to PIH's (also the Department's)
    integrated financial management system.
        Question. I also am very interested in knowing how HUD will assess
    the amount of section 8 reserves that PHA's should keep on hand for
    shortfalls or other needs. For example, I understand that there are
    significant concerns over the possible impact of welfare reform on
    HUD's obligation to pay public housing operation costs and section 8
    rents; that the cost of welfare reform to HUD could be calculated in
    the billions of dollars. How does the Department plan to calculate this
    potential cost into section 8 contract reserves and future section 8
    operating subsidies costs?
        Answer. The cost of welfare reform is a prospective one and we are
    building it into per unit costs to be used in developing future budget
    estimates. Since we are now processing contract renewals for only 1-
    year terms and since the bulk of our inventory will expire in fiscal
    year 1998, we anticipate that most of the costs of welfare reform will
    be carried by future funding rather than by current reserves.

           Restrictions on Leasing Additional Units; Budget Guidance

                            DIRECTIVE NUMBER: 96-68

    Subject: Restrictions on Leasing Additional Units; Budget Guidance
        1. Purpose: This Notice provides guidance to public housing
    agencies and Indian housing authorities (HA's), and HUD staff regarding
    the number of units that can be approved in an HA's budget. Guidance is
    also provided regarding the utilization of funds from an HA's Annual
    Contributions Contract (ACC) Program Reserve Account to support the
    budgeted units, provided that additional units are not approved.
        2. Applicability: These policies apply to HA's administering the
    rental certificate and rental voucher programs. These policies do not
    apply to the moderate rehabilitation or single room occupancy programs.
        Please note that Notice PIH 96-7 issued on February 13, 1996
    covering mandatory delays in reissuing turnover rental certificates and
    rental vouchers, optional suspension of the federal preferences, and
    fiscal year 1996 administrative fees is still applicable to these three
    areas.
        3. Leasing Policy: HA's may approve leases for the number of units
    of assistance approved by HUD in the budget for the current HA fiscal
    year. However, HA's should not submit, and State or Area Offices should
    not approve, subsequent fiscal year budgets which reflect the use of
    funds from the ACC Program Reserve Account to provide assistance for
    additional units.
        Previously, HA's were permitted to use ACC Program Reserves to
    lease-up additional units, as long as the contract authority and ACC
    Program Reserves covered the subsidy and administrative fee costs of
    those units and the additional lease-up was approved by HUD. That
    policy has been revised as follows:
        A. An HA may not use ACC Program Reserve funds to lease-up
    additional units;
        B. An HA may lease-up more than the number of units originally
    reserved by HUD if it can support the additional units within the
    contract authority amount under ACC. No funds may be used from the HA's
    ACC Program Reserve Account to cover the subsidy and administrative fee
    costs in future years.
        C. If an HA currently has an approved budget to assist more units
    than the number of units initially reserved by HUD, and the contract
    authority will not support the additional units, HUD will approve
    subsequent budgets to continue assisting all families currently
    assisted. However, the HA must reduce the number of assisted units
    through attrition until the HA is within the number of units that HUD
    initially reserved for the HA, or the number of units that can be
    supported by the contract authority, whichever is higher.
        D. ACC Program Reserve Account funds will be used to extend the
    term of expiring funding increments, and to cover increased costs of
    continuing to assist the number of units reserved by HUD.
        4. Budget Review and Approval: State or Area Offices shall use the
    budget review and approval process to monitor and manage the number of
    unit leases which a HA may approve.
        A State or Area Office may approve a budget for more units than are
    currently under lease, or were initially reserved by HUD, as long as
    the proposed number of units can be supported within the contract
    authority amount for the HA fiscal year, as well as subsequent HA
    fiscal years. If the budget reflects the use of ACC Program Reserves,
    the State or Area Office must carefully review the proposed units
    budgeted to ensure the ACC Program Reserves are being used to continue
    assistance to families currently assisted, not to lease-up additional
    units. This review must also consider any portion of the ACC Program
    Reserve Account which has been restricted. Restricted ACC Program
    Reserves, set aside to support contract extensions, should not be
    included in this analysis.
        If the HA's rental certificate or rental voucher program is
    overleased at a level which cannot be supported within the contract
    authority available for the HA fiscal year and/or is not sustainable in
    future HA fiscal years, the State or Area Office may approve continued
    assistance, including the use of ACC Program Reserves, for all families
    currently under lease. However, the budget approval letter to the HA
    must direct the HA to stop reissuing turnover rental certificates or
    rental vouchers until the number of units under lease has declined to
    the number of units which can be assisted within the contract authority
    available for the HA fiscal year. Of course, HA's may not reissue
    turnover rental vouchers and rental certificates for 90 days.
        5. Issuance of Rental Certificates or Rental Vouchers: In the past,
    many HA's have found it necessary to issue two, three or more rental
    certificates or rental vouchers to eligible families in order to
    achieve one successful lease-up. This is most common in rental markets
    with low vacancy rates and/or limited availability of affordable and
    adequate housing units. This practice does not need to change under
    these revised policies.
        Where market conditions adversely affect the ability of rental
    certificate and rental voucher holders to find suitable units, it is
    anticipated that HA's will continue to have to issue multiple rental
    certificates or rental vouchers to achieve one successful lease-up.
    Occasionally, rental certificate or rental voucher holders may be more
    successful than normal in their search for units, and the HA may find
    itself briefly in an overleased situation. If so, the HA must not
    reissue turnover rental certificates or rental vouchers until the
    number of units under lease can be fully supported by the contract
    authority. Also, the HA will be required to hold additional turnover
    rental vouchers or rental certificate up to the number of units
    subsequently overleased for 90 days.
        6. Contact: If questions arise, please contact Mary Conway,
    Director of the Finance Division in the Office of Rental Assistance on
    (202) 708-2934, extension 4078.

                   GOVERNMENT PERFORMANCE RESULTS ACT (GPRA)

        Question. What is the status of HUD's implementation of the
    Government Performance and Results Act? When will HUD be ready to
    submit a draft of its ``Results'' plan to the VA/HUD Appropriations
    Subcommittee for consultation?
        Answer. We began implementation of GPRA in January 1994 with the
    establishment of the Secretary's Performance Report (SPR). The SPR
    tracks performance measures set forth in the Annual Management Plans
    and Management Control Plans done by each Assistant Secretary.
        Beginning in fiscal year 1995, HUD negotiates with OMB regarding
    performance measures which are outcome oriented for the major program
    funds. The resultant measures are included with the Budget submission.
        Consultation regarding the objectives and general direction of the
    Strategic Plan was held with House staff on June 6, 1997. A full final
    draft will be forwarded on July 14, 1997. At that time, it will also be
    placed on the Web Page for General comment.

                            RESPA--MORTGAGE BROKERS

        Question. There has been a significant amount of litigation with
    regard to the requirements of the Real Estate Settlement Procedures Act
    and mortgage brokers. I understand that HUD was going to issue some
    interim guidance on mortgage brokers practices to relieve the confusion
    in the industry while final regulations can be reviewed and issued.
    What is the status of the interim guidance and when will it be issued?
        Answer. The Department has determined to issue a proposed rule to
    comprehensively address the treatment of mortgage broker fees under
    RESPA instead of issuing interim guidance. The proposed rule will
    provide a framework to end consumer confusion about the role of
    mortgage brokers and the fees which they receive. At the same time, the
    rule would afford mortgage brokers, who meet requirements under the
    rule, a reasonable degree of certainty about the legality of their
    fees. The rule is being completed by HUD. After final review within the
    Administration, it will be submitted to the House and Senate Banking
    Committees for 15 days of pre-publication Congressional review. It will
    be published in the Federal Register approximately 3 weeks after
    submission.

                             CONCLUSION OF HEARINGS

        Senator Bond. Well, no further questions for this session.
    We will recess the hearing. Thank you, Mr. Secretary.
        [Whereupon, at 11:30 a.m., Tuesday, May 13, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

     DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND
                  INDEPENDENT AGENCIES APPROPRIATIONS FOR 1998

                                  ----------

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--The following testimonies were received by
    the Subcommittee on VA, HUD, and Independent Agencies for
    inclusion in the record. The submitted materials relate to the
    fiscal year 1998 budget request.
        The subcommittee requested that public witnesses provide
    written testimony because, given the Senate schedule and the
    number of subcommittee hearings with Department witnesses,
    there was not enough time to schedule hearings for
    nondepartmental witnesses.

                         DEPARTMENT OF VETERANS AFFAIRS

     Prepared Statement of Veronica A'zera, National Legislative Director,
                                     AMVETS

        Mr. Chairman, I am Veronica A'zera, National Legislative Director
    of AMVETS, The American Veterans of World War II, Korea and Vietnam. We
    are grateful to you and the committee for this opportunity to testify
    before you today. Neither AMVETS, nor myself, have received any federal
    grants or contracts during fiscal year 1997 or in the previous two
    fiscal years.
        We view the Independent Budget as a factual analysis of the
    realistic funding required by the Department of Veterans Affairs to
    adequately carry out the many roles and missions designed to meet the
    needs of America's veterans. We urge this committee, the Congress and
    the administration to support the VA's efforts at reorganization and
    refocusing of it's health care delivery system by sparing the agency,
    and the veteran, from unreasonable reductions in order to balance the
    budget.
        AMVETS' testimony today primarily addresses the National Cemetery
    System (NCS). America's National Cemetery System (NCS) has a long and
    proud history of service to America's veterans and their families. Many
    of the individual cemeteries within the system are steeped in
    historical memorabilia which represents the very foundation of these
    United States. The National Cemetery System, its land, its monuments,
    and the historical interments within are a national treasure that must
    be protected, maintained, and nurtured.
        Unfortunately, despite NCS's continued high standard of service and
    despite a true need to protect and nurture this national treasure, and
    despite the administration's proposal for a $7 million increase in
    budget authority over fiscal year 1997 levels, we feel the system has
    been and continues to be under funded. The current and future
    requirements of NCS are simply not being adequately funded to meet the
    current or anticipated demands.

                                   THE SYSTEM

        The National Cemetery System (NCS) assumed its current posture as
    an independent benefit provider within the Department of Veterans
    Affairs pursuant to Public Law 93-43. Its mission is to provide
    deceased veterans and deceased active duty members of the armed forces,
    their spouses and certain dependents a last resting place of dignity
    based on their service to this country. For over 100 years, NCS has
    performed this mission and to date maintains some 2,148,000 gravesites
    for veterans and their dependents.
        Veterans Service Organizations are concerned with the future of NCS
    due to the depletion of gravesites available in many of its cemeteries.
    While some facilities are able to accept the remains of those who chose
    cremation, the facts are as follows:
      --Currently only 57 of the 114 (or 50 percent) national cemeteries
            remain open with burial plots.
      --By the year 2000, it is projected that only 53 cemeteries will be
            accepting full casket first interments.
      --During fiscal year 1996, NCS had approximately 360,000 gravesites
            available (that is 27,500 less than fiscal year 1995), with the
            ability to add 1.6 million additional grave sites on
            undeveloped land.
        As the veteran population ages, the workload of the NCS will
    continue to increase in all program areas. Based on the 1990 census,
    annual veteran deaths are expected to peak at 620,000 in 2008. Given
    the current and projected death rates in the veteran population, NCS'
    capability will fall far short of requirements to provide burial spaces
    for those veterans who seek burial in a national cemetery. A veterans
    right to burial in a national cemetery was affirmed by Public Law 93-
    43, The National Cemeteries Act of 1973. We ask you, the lawmakers, to
    ensure that the dictates of that law are met, and that burial space is
    available for those veterans who request it.
        It should be noted that historically only about 10 percent of
    eligible veterans seek interment in a NCS facility. Despite this
    seemingly low demand rate, if funding is not forthcoming for new
    acquisitions and development of existing land, the legal entitlement
    will be an empty promise, as veterans are denied access based on non-
    availability.
        The non-availability of NCS burial sites is compounded when
    geographical limitations are considered. An example of geographical
    limitations is illustrated by the veteran and his family who live in
    San Francisco, California. The nearest available burial space for that
    veteran is available at San Jocuquin Valley, approximately 100 miles
    east of San Francisco. We, the authors of the IB continue to feel it
    practicable that every veteran have the availability of burial space in
    a national cemetery or state-supported veterans cemetery within 75
    miles of his or her home.
        On a more positive note is the projected opening of the new
    national cemeteries in Dallas, Chicago and Albany. Here again, the need
    for $1.8 million activation monies is paramount in fiscal year 1998.
    The IB also lauds the expansion of the Ft. Sam Houston and Arizona
    National Cemeteries. The projected funding of $9.4 million for Fort Sam
    Houston and $9.1 million for Arizona will provide burial space for
    veterans in Texas and Arizona for several decades to come.

                                 NCS SHORTFALLS

        Prior IB's have been complimentary of NCS's management in spite of
    the budget shortfall and understaffing they continue to incur. We may
    only hope they are able to meet future challenges as they face a
    shortfall of 276 FTE's (Full Time Employee Equivalents) in fiscal year
    1998. NCS has, for too many years, been forced to delay new equipment
    purchases and maintenance and repair projects, making it difficult to
    provide basic services at an acceptable level. NCS anticipated that by
    the end of fiscal year 1994 their equipment replacement backlog would
    be $4.8 million. Now, three years later, NCS is looking at an estimated
    backlog in obsolete equipment and equipment in need of repair of $6.5
    million by the end of fiscal year 1997. This equipment maintenance
    backlog shortfall of fiscal year 1997 is a 35 percent increase in three
    short years. The problem continues to compound, and worsen. Less
    dollars, more deadline equipment, less efficient work, less service to
    veterans.

                               SECONDARY MISSIONS

        The state grant program for veterans cemeteries continues to
    provide a cost-effective alternative in providing burial space for
    veterans. The IBVSO's are pleased that in fiscal year 1996 NCS provided
    grants to 11 states totaling $7.5 million. One way to ensure that
    veterans are provided a dignified burial is to ensure adequate funding
    of the grants program. We recommend that VA provide at least $5 million
    additional in such grants in fiscal year 1998.
        NCS is projecting that they will process 351,000 applications for
    headstones or markers during fiscal year 1998. This, coupled with an
    estimated request for 250,000 Presidential Memorial Certificates,
    substantiates the need for improved ADP equipment.
        ADP improvements, equipment backlogs on repair, maintenance, new
    equipment, staff position shortfalls, new and expanded facilities for
    burials, and the preservation of a national treasure, all require
    proper funding. The funding comes from the Congress and the
    Administration. When the veteran was asked to serve, he and she did so
    willingly, immediately, with pride, and without question. When the
    veteran or his/her family comes to the NCS to ask for his final
    entitlement, a dignified burial space, NCS should have the resources to
    provide that space willingly, immediately, with pride and without
    question. Not ``sorry, no vacancy.'' The Congress and the president
    documented, in Public Law 93-43, the American peoples' wish that a
    veteran be provided a dignified last resting place. The only way to
    ensure that happening is for Congress to authorize and appropriate the
    needed resources.
        Therefore our recommendations are:
      --VA should add at least 60 more FTE's over the 1997 level to cover
            incremental workload increases and maintain current services.
            Although 60 FTE's are required just to maintain the current
            line of services, it is important for you to note that there is
            still a shortfall of nearly 270 FTE's.
      --VA should provide at least an additional $4 million in funding to
            reduce equipment backlog.
      --The IBVSO's again ask VA to begin a feasibility study to promote a
            second national cemetery to ease the demand for space at
            Arlington National Cemetery. While the IBVSO's understand that
            it is not possible to duplicate the national appeal of
            Arlington, the VA should pursue a second site of national
            significance properly promoted and placed. Ft. Myer and
            Henderson Hall offer potential land mass for expansion of
            Arlington, as an alternative to this recommendation.
      --VA should aggressively pursue an open cemetery in each state.
      --VA should actively expand existing national cemeteries wherever
            possible.
      --VA should recommit to a policy of an open national cemetery within
            75 miles of 75 percent of America' veterans.
      --VA should seek relief from historic preservation requirements at
            NCS facilities wherever appropriate.
        These recommendations cost out at approximately $85,550,000 which
    represents a $1,367,000 increase over the fiscal year 1998 VA budget
    request of $84,183,000.
        Mr. Chairman this concludes my statement.
                                     ______

      Prepared Statement of Larry D. Rhea, Deputy Director of Legislative
    Affairs, Non Commissioned Officers Association of the United States of
                                 America (NCOA)

                   DISCLOSURE OF FEDERAL GRANTS OR CONTRACTS

        The Non Commissioned Officers Association of the USA (NCOA) does
    not currently receive, nor has the Association ever received, any
    federal money for grants or contracts. All of the Association's
    activities and services are accomplished completely free of any federal
    funding.
        The Non Commissioned Officers Association of the USA (NCOA)
    appreciates the opportunity to testify on the appropriation levels for
    the Department of Veterans Affairs for fiscal year 1998. The
    Association thanks the Distinguished Chairman for holding this hearing
    and trusts that our testimony will contribute in a meaningful way to
    the deliberations undertaken by the Subcommittee.
        The Administration has described the fiscal year 1998 budget for
    veterans as ``historic and innovative.'' It certainly is that Mr.
    Chairman; however, the innovative trend set forth in this budget is
    deeply troubling to NCOA on several fronts. In NCOA's view, the trend
    established by this budget for fiscal year 1998, and continuing in the
    out-years, is innovative in one tragic respect--relying on states and
    the private sector to fulfill in the future what should be a federal
    responsibility. Arguably, there are probably many things done by the
    federal government that are more appropriately state and private sector
    responsibilities. NCOA respectfully submits that taking care of the
    medical needs of the Nation's warriors is not one of those
    responsibilities.
        When taken in its entirety, the Administration's budget starts
    veterans down a path that is fraught with even more uncertainty than
    under current circumstances. NCOA implores the Distinguished Chairman
    and Members of the Subcommittee to not take steps in fiscal year 1998
    which could produce disastrous results and from which recovery would be
    very difficult, if not impossible.
        NCOA is deeply concerned with two areas of the President's budget
    proposal for veterans for fiscal year 1998--veteran health care and
    post-service education benefits.

                             HEALTH CARE DISCUSSION

        The Administration has recommended that veterans health care
    appropriations be reduced by $54.6 million from the level enacted by
    Congress for the current year. Further, the Administration's proposes
    to flat-line DVA health care dollars at that reduced level, $16.9
    billion, through the year 2002. The President's budget also calls for
    an actual reduction of $28 million below the level appropriated for
    fiscal year 1997 in VA research programs which would further erode VA's
    ability to deliver clinical services to veterans.
        The health care budget for veterans is further complicated by the
    Administration's reliance in the future on two separate legislative
    initiatives that have yet to even be considered by the 105th Congress.
    The first would permit VA to collect and retain MEDICARE reimbursements
    from the Health Care Financing Administration. The second would allow
    VA to retain monies recovered from veterans with private insurance as
    well as reimbursements from other third-party payers. Presently,
    payments received from private insurance and other third-party payers
    goes to the Treasury for deficit reduction. VA is permitted to retain
    the administrative costs associated with medical care cost recovery.
        In fiscal year 1998, the Administration estimates that $591 million
    will be collected from MEDICARE and third-party insurance to offset
    their actual reduction in appropriations for veteran health care. In
    the out-years, to meet increased patient demand, the budget proposal
    estimates even greater reliance on recoveries to compensate for their
    flat-line appropriation. By the year 2002, the Administration has set a
    goal of having 10 percent of veteran health care costs to be met
    through such recoveries. At the same time, VA intends to increase
    patient workload by 30 percent while achieving 20 percent greater
    efficiency in the delivery of services.
        NCOA has and continues to aggressively support MEDICARE
    reimbursement and allow VA to retain MEDICARE and third-party monies
    within the system. NCOA has always viewed these receipts as a
    supplement to, not a replacement for adequate annual appropriations. In
    NCOA's view, the rosy scenario ``hoped for'' in the budget proposal is
    simply not achievable. VA's track record on medical care cost recovery,
    while improved in recent years, still leaves a lot to be desired. VA
    originally projected recoveries in fiscal year 1997 at $736 million;
    they now acknowledge that they will be nearly $200 million short of
    their earlier estimate.
        The proposed outside revenues are not only dependent on Congress
    enacting enabling legislation, the reliability of the estimates are
    questionable and emerging health care market forces will make the task
    of recovery even more difficult. The VA's own strategic plan for
    medical care cost recovery notes that there is not methodology that can
    accurately predict the collection potential. As VA restructures to a
    primary care, outpatient system, the difficulty in recovering costs
    will be multiplied many times over. Today, medical care cost recovery
    must generate approximately 20 outpatient bills to produce the
    equivalent recovery of a single inpatient bill.
        On April 24, 1997, the Senate Veterans Affairs Committee provided
    their views and estimates on the fiscal year 1998 budget for veterans
    benefits and services. Essentially, the Committee agreed with NCOA's
    preceding comments by stating:
        ``This budget proposal, even assuming the enactment of MCCR and
    Medicare subvention legislation, does not allow even for slow growth in
    real terms. The Committee, therefore, remains very concerned that VA's
    health care spending projections, particularly in the out year's, are
    unrealistic. The fact that this year's out-year projections differ
    substantially from those presented by the Administration last year, as
    the Secretary then stated they would, does not increase the Committee's
    confidence that VA out-year projections can be viewed as real planning
    tools.
        The Committee notes one other concern. VA is currently initiating a
    medical care resource reallocation plan which will result in actual
    cuts in some regions of the Nation. The Committee is of the view that
    resources should be allocated equitably so that similar veterans will
    have similar access to VA care without regard to the region where they
    live. VA's health care funding must grow sufficiently to allow such
    allocations without undue disruption in any region.''
        The Senate Committee on Veterans Affairs further stated: ``The
    better course, in our judgement, would be for VA's fiscal year 1998
    projected medical care spending needs--at minimum, $17.573 billion, as
    set forth in the President's budget--to be financed fully with
    appropriated funds. In our view, the goal of balancing the budget could
    still be met while allowing VA medical care appropriation to increase
    to at least that amount.''

                     RECOMMENDED HEALTH CARE APPROPRIATION

        Both the Administration and the Senate Veterans Committee seem to
    agree on the amount needed for veteran health care in fiscal year 1998.
    The manner to achieve that amount is where the question lies. The
    Administration wants to rely on $591 million in outside sources and
    revenues, that requires enactment of legislation, to fund health care
    at $17.5 billion. The Senate Veterans Committee has recommended an
    appropriated amount of $17.55 billion with no reliance on outside
    sources in fiscal year 1998. And, for your information Mr. Chairman,
    the House Veterans Affairs Committee has recommended VA medical
    appropriations at $17.6 billion.
        With the passage of last year's health care eligibility reform
    legislation, Congress projected a funding need for veteran health care
    in fiscal year 1998 at $17.9 billion. In the strongest possible terms,
    NCOA urges this Subcommittee to: (1) reject the Administration's fiscal
    year VA medical care proposal; and, (2) meet or improve upon the $17.55
    billion recommendation of the Senate Veterans Affairs Committee. NCOA
    believes every effort should be made to achieve the $17.9 billion
    target set last year.
        Further, the Senate Veterans Committee has recommended restoration
    of the critical medical and prosthetic research appropriation. The
    Administration has proposed spending in this area at $234 million in
    fiscal year 1998, $28 million less than enacted for fiscal year 1997.
    The Veterans Committee in the Senate has recommended a level of $280
    million for fiscal year 1998. NCOA urges the Subcommittee to adopt or
    improve upon the recommendation of the Senate Veterans Committee for VA
    medical and prosthetic research programs.

                              EDUCATION DISCUSSION

        No other area of the President's budget has incensed this
    Association more than the non-proposal for veterans education. The
    Administration's budget recommends no improvements to veterans
    education benefits although the Administration seeks record levels on
    non-veteran education spending during fiscal year 1998. Neither did the
    Administration propose any improvements for the education programs
    available to certain survivors of service-connected disabled veterans.
        In NCOA's view, veteran education benefits should be the touchstone
    by which all other education programs are measured. In this
    Association's view, if anyone has earned an increase in benefits, the
    very first place to start is the veteran benefit which now covers only
    40 percent of the cost at a public four-year college or university.
    Irrespective of what Congress may do on other programs, a substantial
    increase in the basic Montgomery GI Bill benefit is called for as being
    long overdue.
        NCOA understands that the Chairman and Ranking Member of the House
    Veterans Affairs Committee will be seeking a 10 percent increase in the
    MGIB basic benefit, which now is $347 per month for a veteran with two
    years of honorable service. A similar initiative has not yet been
    offered in the Senate. While NCOA will aggressively support the efforts
    of the Chairman and Ranking Member, the Association is not timid in
    pointing out that, if the increase were enacted, the benefit will
    remain woefully deficient. If an AMERICORPS volunteer can be guaranteed
    $5,000 per year for education, the individuals who provide for the
    Nation's security have earned and deserve a better deal than what they
    are getting.

                                   CONCLUSION

        In closing Mr. Chairman, let NCOA be clearly understood. The
    Association appreciates fully the difficult task before you. It is
    important though that NCOA repeat what we have said many times during
    the last several years before numerous Committees and Subcommittees in
    both the House and Senate.
        The veterans of this Association are more than willing to do their
    fair share to assist in the effort to balance the federal budget and
    deal with the national debt. An examination of Federal budgets for the
    past ten or fifteen years will reveal that veterans have indeed been
    doing their share. User fees have been added and increased, COLA's have
    been frozen and/or rounded down, and, pensions for some veterans have
    been nearly eliminated are but a few examples of what such an
    examination would reveal.
        The President's budget for fiscal year 1998 contains a number of
    cost-saving provisions which have been previously approved and which
    were contained in the Balanced Budget Act of 1995. Rather, than extend
    these OBRA cost-saving provisions through 1998, the Administration
    proposes to make these provisions permanent.
        NCOA does not oppose extending these cost savers in fiscal year
    1998 although the Association is not joyous about that prospect. NCOA
    is adamantly opposed, however, to making those savings provisions
    permanent. The pattern of sacrifices and restraint in veterans budgets,
    over the last ten years alone, substantiates that veterans programs are
    not among the culprits in federal deficits. The Administration's fiscal
    year 1998 veterans budget and the recommendations of the Senate
    Veterans Affairs Committees continue that same pattern of restraint in
    fiscal year 1998 and beyond.
        Until the pattern of unrestrained growth in other budget categories
    is effectively dealt with by the Congress, NCOA will never agree to
    locking-in permanently onerous fees and penalties on veterans
    benefits--to agree to do so would be sheer foolishness on the part of
    this Association. Currently, veterans have little leverage in the
    budget reconciliation process. NCOA is unwilling to permanently give
    away the few bargaining chips that veterans have remaining in the
    scoring process.
        Veterans have been and will continue to pull their fair share of
    the load. Frankly, in the opinion of NCOA, it is about time that a
    concerted ``fair share'' be imposed on all other non-defense,
    discretionary budget categories.
        Thank you.
                                     ______

      Prepared Statement of Rick Surratt, Assistant National Legislative
                      Director, Disabled American Veterans

        Mr. Chairman and Members of the Subcommittee: On behalf of the more
    than one million members of the Disabled American Veterans (DAV) and
    its Women's Auxiliary, I am pleased to present DAV's views on the
    President's fiscal year 1998 budget request for the Department of
    Veterans Affairs (VA).
        As you know, the combined views of DAV, AMVETS, PVA, and VFW are
    provided in the Independent Budget (IB) we publish each year. The co-
    authors of the IB appreciate the recognition our views have received
    from this Subcommittee in the past. We hope our analyses of VA's
    funding needs will be helpful to you. We believe our recommendations
    accurately reflect the resources necessary to enable VA to provide an
    acceptable level of benefits and services for our Nation's 26 million
    veterans and their dependents and survivors.
        The DAV has responsibility for the sections of the IB pertaining to
    Benefit Programs, General Operating Expenses (GOE), and the United
    States Court of Veterans Appeals. Our testimony will primarily focus on
    these appropriations.

                             THE PRESIDENT'S BUDGET

        Of the $41.1 billion budget authority the Administration requests
    for VA, $40.05 billion would be from appropriations. A total
    appropriation of $846.4 million is requested for General Operating
    Expenses (GOE). Of this, $660.8 million is for the Veterans Benefits
    Administration (VBA), and $185.6 million is for General Administration.
        Under the Administration's budget, VBA would lose 543 FTE (full-
    time employee(s) or equivalent(s)) from the fiscal year 1997 level,
    reducing the total from 11,943 to 11,400. In General Administration,
    there would be an FTE reduction of 71, to 2,292 from 2,363. The
    reduction in VBA's FTE is to be offset by increased operational
    efficiency and the impact of various restructuring initiatives designed
    to improve service to veterans and reduce the overall costs of
    operation in the future. VBA projects that it will continue its trend
    of improving its claims processing timeliness and reducing its case
    backlog in fiscal year 1998. The Board of Veterans' Appeals (BVA) would
    be authorized 494 FTE for fiscal year 1998, a reduction of 6 FTE from
    the 500 authorized in fiscal year 1997.
        For medical care, the Administration requests $17.6 billion in
    budgetary resources, a $536 million increase over the fiscal year 1997
    appropriation. This amount would include an appropriation of $16.959
    billion, $468 million retained from third-party collections, $68
    million reimbursement from VBA for rating examinations, and $78 million
    from sharing and other reimbursements. This assumes legislation
    allowing VA to retain third-party collections of $591 million minus
    $123 million for the administrative costs of collection. Employment in
    the Veterans Health Administration (VHA) will decrease by 2,135 to
    190,835 FTE. With these resources, VHA expects to provide care to 3.1
    million unique patients, an increase of 134,914 over fiscal year 1997.
    Through increased efficiency and with Medicare subvention, VHA's 5-year
    plan, beginning with fiscal year 1998, includes the goal of reducing
    the per-patient health care cost by 30 percent, serving 20 percent more
    veterans, and increasing the portion of the operating budget obtained
    from nonappropriated sources to 10 percent.
        A total of $79.5 million is requested for major construction. Funds
    are included for structural corrections to the Memphis, Tennessee,
    Medical Center to meet current seismic standards; beginning development
    of a new cemetery at Cleveland, Ohio; expansion of the cemetery at Fort
    Sam Houston, Texas; and additional gravesite development at the
    National Memorial Cemetery of Arizona. For various minor construction
    projects, $166.3 million is requested. The Administration's budget also
    proposes legislation to change the definitions of minor and major
    construction to raise the minor construction range from $300,000 to a
    $500,000 maximum.
        The request for the National Cemetery System is $84.2 million, an
    increase of $7.3 million. Fifty-two additional FTE are requested. The
    Administration is proposing legislation to change the VA role in the
    cemetery program. Under the proposed plan, VA would discontinue
    construction of new VA cemeteries after the addition of the Cleveland
    cemetery. It would make the grant program for construction of state
    cemeteries more attractive by increasing the Federal share of the
    construction costs from 50 percent to 100 percent and by making initial
    equipment costs eligible for up to 100 percent of funding by Federal
    grant. Thereafter, states would be responsible for the operation
    expenses.
        While VA projects that services will not suffer with the
    recommended staffing reductions in VBA and VHA, the depth of these cuts
    cause us concern that VA may be overly optimistic, especially
    considering the already existing strains on the system. The IB
    recommended that staffing levels be maintained at least at current
    levels for VBA.
        The DAV supports the concept of allowing VA to retain and use
    collections from third parties to strengthen its health care system to
    permit it to provide more cost-effective treatment to more veterans.
    However, the Administration's proposal does not direct these
    collections toward improvement of the efficiency and capacity of VA's
    health care delivery system, but merely serves to relieve the
    Government of part of its obligation to provide the resources necessary
    to care for our Nation's ill and disabled veterans. Funds collected
    from the private sector and Medicare should not be used to supplant
    appropriations. Moreover, even with the inclusion of third-party
    collections in VA's ``budgetary resources,'' health care funding is
    increased only 5.4 percent over 5 years. We are concerned that, even
    with optimum increases in efficiency, this amount will be insufficient
    to maintain an acceptable level of service. With the effects of
    inflation, a 5.4 percent increase over a 5-year period will quite
    probably not even represent a modest real increase but rather a
    substantial reduction in health care funding for veterans. In addition,
    under the Omnibus Budget Reconciliation Act (OBRA), some of the third-
    party collections have already been assigned to deficit reduction. It
    would be even more of an inequity if these OBRA funds were to be
    replaced from elsewhere in VA's budget at the expense of further
    reducing benefits and services to veterans.

                       INDEPENDENT BUDGET RECOMMENDATIONS

        In the Benefit Programs section, the IB presents some of the
    authors' priority legislative goals for benefit improvements. Also
    included is our argument against proposals to means test, eliminate,
    offset, tax, reduce, and restrict eligibility for disability
    compensation.
        In the GOE section, the IB authors have addressed VBA's Business
    Plan, which, in accordance with the Government Performance and Results
    Act of 1993 (GPRA), outlines VBA's strategy and associated resource
    needs for accomplishing its mission of providing benefits and services
    to veterans and their families in a responsive, timely, and
    compassionate manner in recognition of their service to the Nation.
        Just as veterans enjoy a special status and are highly deserving of
    VA benefits, they are deserving of an effective benefits delivery
    system to ensure that benefits are dispensed in a manner to be
    meaningful and fully accomplish their purposes. The GOE portion of the
    budget covers the administrative costs of delivering VA benefits and
    services. VBA is responsible for administering VA's nonmedical
    programs. These are compensation and pension, education, loan guaranty,
    vocational rehabilitation and counseling, and insurance.
        VBA's Business Plan is comprised of its overall direction and
    policy and its primary goals and strategy for administering all of its
    benefit programs but also integrates more specific multi-year plans for
    each of its five component benefit programs, referred to as its five
    business lines. In addition to serving as VBA's operational
    ``blueprint'' for its business processes and reforms, and as its ``road
    map'' to achievement of its long-term goals, this comprehensive plan is
    also intended, under GPRA, to serve as an aid to Congressional
    oversight and budgetary decisions. To each of the five Business Line
    Plans--which form the context and specific bases for the
    Administration's budget request--we added our own recommendations and
    discussed our concerns where we question or disagree with VBA's
    approach. The IB includes analyses of the activities, performance, and
    needs of each of the services that administer VBA's business lines as
    well as two of the functions funded under General Administration, BVA
    and the Office of the General Counsel (OGC). Although the Court of
    Veterans Appeals is not part of VA, the IB contains a section on its
    operations because of its inextricable role and impact in veterans'
    claims and VA's processes. Overall, we believe that the VA plan and the
    budget request are tailored to achieve an optimum level of services and
    an optimum use of limited resources. We generally support this plan
    and, in the IB, urged that Congress provide VA with the resources
    necessary to effectuate its strategy for the timely and efficient
    delivery of benefits and services. The area of greatest concern
    continues to be the compensation and pension claims process.
        In recent years, VBA has been challenged by increasing claims
    backlogs and resulting long delays for veterans and other claimants
    awaiting decisions on claims. With an aging veteran population, the
    need for prompt service has become greater at a time when, until
    recently, claims processing times were becoming progressively longer.
    Backlogs and consequent protracted delays result in increasing numbers
    of disabled veterans in need of VA assistance dying before that
    assistance is provided. Other veterans with immediate needs suffer
    through long delays without their needs being met.
        In response to concerns about the quality of its service to its
    customers, VA established a Business Process Reengineering (BPR) Office
    in November 1995 and the BPR team issued a report of its findings and
    recommendations in August 1996. These recommendations were incorporated
    in Compensation and Pension Service's (C&P's) Business Line Plan. This
    plan includes measures to correct the following five core problems
    identified in the BPR study: inadequate communications and outreach;
    lack of individual accountability; emphasis on production and
    timeliness instead of quality; inadequate information technology
    support for process; and complexity of rules and regulations.
        The plan acknowledges that poor quality and the resulting necessity
    to rework claims is the primary problem accounting for the overload on
    the system. The plan builds on the strengths of the current successful
    hearing officer program--personal interaction and more thorough review.
    The current ``assembly line'' process is replaced with a new integrated
    claims process that allows direct interaction between the veteran and a
    more highly skilled and trained adjudication team, with one person on
    the team responsible for ensuring satisfactory completion of all
    actions related to the claim. A separate post-decision review process
    will allow a dissatisfied claimant prompt access to remedial action and
    a ``second look'' by a hearing officer, (redesignated post-decision
    review officer). The post-decision review officer will have authority
    to (1) change the decision on the basis of the current record, if
    warranted, (2) undertake additional action toward favorable resolution,
    or (3) prepare the case for BVA review if revision of the decision or
    further action is not indicated. Quality--and thus efficiency--and
    customer service will be the primary goals, supported by training and a
    certification process and better quality review and accountability
    mechanisms. We believe that the Business Line Plan for C&P presents a
    solid, well-reasoned, and well-supported strategy for resolving the
    problems that have for the past several years plagued VBA and have been
    at the center of attention of the Congress, VA, and the veterans'
    community.
        From our knowledge of VBA's operations and our review of VBA's
    Business Plan as included in VA's budget submission, the four veterans
    organizations co-authoring the IB present the following added
    recommendations for the activities funded under the GOE appropriation:
    Compensation and Pension
        Congress should endorse and support C&P's BPR plan as set forth in
    its GPRA Business Line Plan. Congress should provide VA with the
    resources necessary to accomplish all components of this plan, namely
    funding for training and associated personnel costs, information
    technology improvements, and other related costs. However, Congress
    should reject recommendations that VA revise its rules to negate the
    Court's enforcement of claimants' rights as contained in current rules.
    Congress should, through its oversight functions, closely scrutinize VA
    rulemaking to ensure that it is not undertaken to erode or undermine
    rights VA claimants currently enjoy and to ensure that VA does not
    continue to make rules without involving its customers.
        Should it become necessary to protect VA claimants' procedural
    rights, as have been provided in long-standing VA regulatory
    provisions, Congress should codify into statute provisions which VA
    shows an intent to rescind, and Congress, if necessary, should amend
    the Secretary's general rulemaking authority to require means for
    public participation in rulemaking that impacts upon VA customers.
        Congress should enact the legislative changes recommended by C&P to
    carry out simplification of VA programs, namely, de novo review
    authority for Post-Decision Review Officers and pension simplification.
        C&P's Business Line Plan should be revised to include more
    concrete, defined strategies for obtaining improvements in quality of
    decisionmaking, namely through performance standards that focus
    primarily on quality criteria. To obtain quality in decisionmaking, VA
    must install an effective quality assurance infrastructure, VA must
    have quality measurement criteria that correspond to the requirements
    of law for a complete and legal adjudication, and VA must have a means
    for effective enforcement of quality and performance standards among
    its decisionmakers through an accountability process that includes
    strong incentives for quality work and strong disincentives for
    noncompliance with quality standards.
        VA should promptly institute an aggressive new training program to
    instruct adjudicators on the mandatory nature of case law and in its
    use and applicability. This training should be complemented by a
    process incorporating a chain of accountability for proper and legal
    claims decisions, with monitoring for compliance and quality control,
    along with studies of appellate decisions to identify problem areas.
    Management should take necessary steps to bring about a renewed
    institutional and individual adjudicator commitment to VA's fundamental
    guiding principles for the administration of benefits, such as broad
    and liberal application of the law, resolution of reasonable doubt, and
    award of all benefits to which entitlement may be established.
        To confront rating boards with the reality of their errors, to
    instruct them in proper interpretation and application of law, to
    provide data to measure performance and enforce accountability, and to
    aid in identifying areas where training is most needed, BVA decisions
    should specify regional office errors accounting for the different
    outcome on appeal or necessitating remand.
        If VA fails to voluntarily revise the manner in which BVA decisions
    are written, Congress should amend 38 U.S.C. Sec. 7104(d) to expressly
    require that the Board specify the basis for affirming the decision of
    the agency of original jurisdiction or specify the errors accounting
    for the Board's reversal or remand.
    Education
        Congress should provide Education Service the resources necessary
    to improve accessibility, services, accuracy, and efficiency as
    envisioned in its GPRA Business Line Plan.
    Loan Guaranty
        Congress should provide the resources necessary for Loan Guaranty
    to fulfill the service goals in its Business Line Plan, including the
    information technology improvements shown to be essential to the plan;
    however, Congress should not reduce Loan Guaranty's FTE authorization
    below current levels inasmuch as staffing reductions are incompatible
    with the planned improvements for customer service under GPRA and are
    indeed essential to maintaining current levels of service quality and
    timeliness.
    Vocational Rehabilitation and Counseling
        To prevent further strains on Vocational Rehabilitation and
    Counseling Service (VR&C) and reversal of recent gains, current FTE
    levels should be maintained until the effects of reorganization can be
    evaluated as to staffing needs. Subsequently, staffing considerations
    should include a plan to return to full use of in-house counseling and
    routine rehabilitation services because they are more cost effective
    than contract services.
        VBA should include VR&C's immediate and future needs in its
    development of automated support systems.
        Disabled Veterans Outreach Program specialists employed at the
    local Job Service Office should be part of the case management system
    for vocational rehabilitation.
        The vocational rehabilitation Design Team should promptly finalize
    its report and forward it to the Under Secretary for Benefits and to
    the Secretary, if appropriate, for implementation.
    Insurance
        Insurance Service should be provided the resources necessary to
    fulfill its customer service goals.
        Because of changes in VA's accounting methodology beginning with
    the fiscal year 1997 budget, Veterans Services is no longer funded as a
    separate entity under the budget structure. Its functions are viewed as
    support and are considered overhead expenses, which are apportioned
    among VBA's business lines. Nonetheless, even with the changes in
    accounting methodology and the consolidation of functions, Veterans
    Services remains a discrete operational entity within VBA. Given the
    necessity for personnel devoted solely to dissemination of general
    benefits information and assistance across the varied benefits programs
    at various field and satellite locations, it seems apparent that VA
    will find it necessary to retain a service dedicated to those purposes.
    We believe that Veterans Services is a vital part of VBA's benefits
    delivery system, and we discuss it separately in the IB because of its
    importance. Our recommendation for Veterans Services is:
      --VA and Congress should continue to recognize that a strong and
            viable Veterans Services component within VBA is essential to
            the satisfactory delivery of veterans' benefits, and Congress
            should provide Veterans Services with the resources necessary
            for it to perform all of the many important tasks with which it
            has been charged.
        Similarly, funding for information technology is no longer
    separated from the VBA's product lines under the current budget
    structure. Again, because of the importance of this program, the IB
    includes separate discussion and a recommendation for this component of
    VBA's operations:
      --Congress should provide funds to maintain VBA's existing data
            systems while new systems are phased in; Congress also should
            provide all funding necessary to meet VBA's future
            responsibilities and to implement its new business processes.
        From its analysis of the processes, performance, and needs of BVA
    and OGC, the IB provides several recommendations. Two recommendations
    aimed at improving the Board's operations and decisions:
      --Congress should earmark sufficient funding for BVA training
            programs.
      --VA should change 38 C.F.R. Sec. 19.5 to properly instruct that BVA
            is bound by VA manuals, circulars, and other directives issued
            by VA.
        Given OGC's workload, the IB includes the following recommendations
    for additional personnel to meet OGC's needs:
      --OGC should be authorized 12 additional FTE to handle the increase
            in workload before the Court of Veterans Appeals.
      --OGC should be authorized 10 additional FTE for its alternative
            dispute resolution program.
      --OGC should be authorized 15 additional FTE for procurement and
            leasing functions to minimize VA's liability and reduce
            litigation and claims costs.
        Last year, there was some consideration of reducing the number of
    judges on the Court. Such action would be inadvisable for several
    reasons, including the increasing rate of appeals in the last year. The
    four veterans organizations presenting the IB oppose any reduction in
    the number of judges on the Court.
        One of the problems the Court has faced since its inception is a
    large pro se docket. Approximately 74 percent of appellants before the
    Court are unrepresented when they file their appeals. That figure is
    reduced to 50 percent through the efforts of the Pro Bono program. The
    IB authors support continuation of this program. The IB recommends:
      --Legislation to codify into law the Veterans Consortium Pro Bono
            program.
      --Appropriation of adequate funds to operate the program.
        The Court seeks improvement in its retirement and survivor program
    to make it comparable to other Article I courts. Also, regarding its
    retirement plan, the Court seeks early retirement provisions for
    associate judges to avoid retirement of all judges near the same time,
    when their terms expire. The DAV supports these changes.

                                   CONCLUSION

        This concludes the DAV's testimony on the fiscal year 1998 budget.
    We appreciate the opportunity to present our views on this most
    important matter, and we thank this Subcommittee for its continuing
    support of this Nation's disabled veterans.
                                     ______

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Prepared Statement of Charles L. Calkins, National Executive Secretary,
                           Fleet Reserve Association

        Mr. Chairman and Members of this distinguished Subcommittee: I am
    Charles L. Calkins, National Executive Secretary, Fleet Reserve
    Association (FRA). The Association is Congressionally-Chartered and has
    been serving the Sea Services since 1924. Current membership is more
    than 162,000 active duty, reserve and retired Navy, Marine Corps and
    Coast Guard personnel, veterans all. FRA is the only organization
    exclusively representing the more than 500,000 enlisted members of
    those three branches of the Armed Forces and it is my privilege to
    bring their message to you regarding fiscal year 1998 Department of
    Veterans Affairs (DVA) appropriations.
        The Administration is requesting nearly $41 billion for DVA in its
    fiscal year 1998 Budget. This includes $21.7 billion for Veterans
    Benefits, $17.9 billion for Veterans Health, $246 million for
    construction and a total of $94 million for the National and State
    Cemetery Systems. Although, there are other items in the request, only
    those mentioned herein are of paramount concern to the Association.

                               VETERANS BENEFITS

        Compensation and pensions.--FRA supports the Administration's
    request of $19.7 billion for this program. It does, however, seek
    additional funds in the event the oversight committees agree to
    amending OBRA 1990. FRA believes it unfair to further deny the
    reinstatement of Dependency and Indemnity Compensation (DIC) to widows
    whose subsequent spouses either passed away or the marriage ended in
    divorce. The Association has made its position on this issue known to
    the oversight committees.
        COLA's.--The Association fully endorses funding full cost-of-living
    adjustments to Veterans Compensation and DIC. FRA does not support a
    decrease in COLA's based on the presupposition that the CPI is
    inflated, particularly when it has not been supported with sufficient
    scientific data. The Association believes that the Consumer Price Index
    (CPI) provides the best guide for determining annual COLA adjustments.
        Montgomery GI Bill (MGIB).--FRA strongly supports the House
    Committee on Veterans Affairs (HCVA) request for an additional $175
    million to improve veterans education programs. The MGIB program is
    sorely in need of improvement. Current benefits are running far below
    the annual cost of undergraduate education. And noteworthy is the fact
    that if the President's request for a 10 percent increase in Pell
    Grants is approved, the program will provide about $123 less each year
    than what the MGIB pays for a nine month school year. HCVA found that
    the current AmeriCorps education benefit of $4,725 per year for two
    years exceeds the earned MGIB basic benefit on a per school year basis
    by $1,602. The program needs to be enhanced if Congress, charged with
    raising an army and navy, wishes to attract quality young men and women
    to serve in the defense of this Nation and its citizens.
        VEAP conversion.--Legislation was enacted last year to authorize
    military personnel enrolled in the Veterans Educational Assistance
    Program (VEAP) to convert to the MGIB. Unfortunately, the legal
    interpretation of what constituted an ``active'' VEAP account left
    thousands of service members out of the conversion since they no longer
    had funds invested in their VEAP accounts. Many of the Association's
    active duty members have expressed frustration because they were
    counseled by their respective services to close out their accounts. FRA
    urges this distinguished committee to appropriate additional funds to
    enable those frozen out of last year's program to convert to the MGIB
    in fiscal year 1998.
        Concurrent receipt.--FRA and many of its sister organizations
    continue to urge Congress to halt the discriminating practice of
    requiring military retirees to waive retirement pay in order to receive
    VA disability compensation. FRA believes the current law should be
    amended and has so advised the proper oversight committees of its
    commitment to resolve the matter in favor of military retirees. In the
    event concurrent receipt is authorized for military retirees, FRA
    strongly recommends that this distinguished subcommittee appropriate
    the necessary funds to support the authorization.

                         VETERANS HEALTH ADMINISTRATION

        The Administration's fiscal year 1998 DVA budget requests nearly
    $17.9 billion for Veterans' Health Care. This is almost $500 million
    above the fiscal year 1997 authorization, but close to $1 billion below
    the estimate recommended by the HCVA. FRA supports the HCVA request for
    an additional $117 million. Hopefully military retirees--surely one of
    the most deserving groups eligible for veterans benefits--will soon be
    placed in a higher priority for access to DVA health care facilities.
    FRA urges this distinguished Subcommittee to also consider additional
    appropriations for the expansion of access to VA medical facilities for
    military retired veterans.
        In a recent statement to the oversight committees, FRA recommended
    that VA medical facilities, particularly at or near military
    installations being closed or ``downsized,'' be opened to military
    retired veterans on a priority immediately below that of service-
    connected disabled veterans. Access to the facilities would be at the
    option of the military retired veteran, if space is available.
        The Association believes that every veteran should have access to
    VA facilities; however, FRA is acutely aware that the system is unable
    to physically or fiscally accommodate all veterans. FRA advocates an
    open door policy for military retired veterans who were promised free
    medical care for life in return for serving 20 or more years in the
    uniformed services. Today, that promise grows more shallow with each
    passing year.
        It's a disgrace that some military retired veterans who are 65
    years of age or older are being shut out of Military Treatment
    Facilities (MTF's). An estimated 35 percent are combat veterans of one
    or more wars. Less than that number have combat-related disabilities,
    but each honored their commitment to the Nation and is seeking only
    that which was promised. Unlike other federal employees, these
    beneficiaries must rely upon the civilian sector for services under
    Medicare. Those residing near military installations who counted on
    access to local MTF's, now closed under BRAC, failed to enroll in
    Medicare Part B and the only recourse for some may be accessing VA
    medical facilities. Hopefully, this distinguished Subcommittee will
    concur and allocate additional funds to accommodate these military
    retired veterans.

                              HEALTH CARE OFFSETS

        The Administration's budget proposes that DVA be granted authority
    to retain collections from health insurance companies that pay for care
    provided in VA Health Care Facilities. These collections would be used
    as offsets for reductions in veterans medical care totaling about $468
    million. FRA agrees with the distinguished HCVA Chairman, who warns
    that ``future collections may not keep pace with the needs of aging
    veterans. Projections for future spending contained in the
    Administration's budget could lead to a drastic reduction in services
    to veterans who now depend on VA for their care.'' FRA supports the
    authority for the collection and retention of ``third party'' payments
    by DVA, but not as leverage to offset funds for veterans health care
    programs. Although, FRA questions whether collections will equal
    projected offsets, the Association urges this Subcommittee to fully
    fund the DVA's Health Administration request.

                              MEDICARE SUBVENTION

        DVA is seeking authority to participate in a Medicare Subvention
    Demonstration Program. The plan would authorize DVA to provide health
    care to over-65 veterans enrolled in Medicare, and then collect
    discounted reimbursements from the Health Care Finance Administration
    (HCFA). FRA supports this demonstration program and urges the
    Subcommittee to do likewise.

                             CONSTRUCTION PROJECTS

        FRA supports all construction projects listed in the fiscal year
    1998 DVA budget request. Noteworthy is the Administration proposal to
    reduce funding to the State Home Program by $6 million. World War II
    and Korean Veterans are reaching their senior years and may require
    extensive long term care. Many suffer from mental illnesses, some as a
    result of participating in combat environments, relived again in their
    later years. For their families to place them in commercial nursing
    homes drains what little financial resources they may possess.
    According to Joshua M. Wiener of the Urban Institute, a long-term care
    insurance policy costs a 65-year old veteran $2,607 annually. At age
    79, the initial policy purchase would be $8,492. With the median age of
    World War II veterans at 75, not many are able to afford this coverage.
        Expanding the number of VA nursing homes and beds will provide
    necessary accommodations and care plus an atmosphere of camaraderie
    with other veterans. The State Home Program is doing a superb job in
    relieving the Federal government of much of this responsibility, and at
    only 65 percent of the cost of construction. This is a win-win-win-win
    situation for the Federal Government, DVA, the State, and the Veteran.
    FRA strongly endorses the $80 million HCVA recommends to assure that
    States continue to participate and maintain the partnership in caring
    for our aging veterans. An example of this is the Texas State Senate's
    recent authorization of construction for as many as four veterans-only
    nursing homes. Funds from the State Home Program Grants will build 300-
    bed facilities offering nursing care for up to 1200 veterans at one
    time.

                                   CEMETERIES

        FRA urges this distinguished Subcommittee to support the request
    for $84 million for the National Cemetery System (NCS) and $10 million
    for State Cemeteries Grants. NCS was established by Congress in 1973,
    an act endorsed and influenced by FRA. Today, the Association continues
    to support the System and seeks its expansion in order to accommodate
    many more of our aging veterans and family members who are expected to
    choose NCS burial plots for interment.
        According to the HCVA, the NCS faces an increasing workload through
    fiscal year 2008 as the veteran population between fiscal years 1995
    and 2010 decreases by 6 million (23 percent). By fiscal year 2008, the
    number of interments in NCS cemeteries is projected to reach 104,000
    from a high of 71,786 in fiscal year 1996. Over the same period, the
    total number of graves maintained is expected to increase from 2.1
    million to 2.5 million.
        FRA believes the $7 million increase over last year's authorization
    is justified. The System must expand the number of cemeteries to
    accommodate the projected increase in interments over the next decade.
    This, in turn, requires additional FTEE as requested by the oversight
    committees. The Association continues to be an advocate for the NCS
    State Grant program. Financial grants to State veterans cemeteries
    relieve the Federal Government of full responsibility for funding
    additional cemeteries at the national level.

                            GRATEFUL ACKNOWLEDGMENT

        Mr. Chairman, FRA appreciates this opportunity to present priority
    veterans programs of interest to its membership. FRA also supports and
    endorses all requests for appropriations that provide the Nation's
    deserving veterans with adequate and reasonable programs. The Nation
    would not exist today if it weren't for the service and sacrifices of
    our veterans. FRA again salutes this distinguished Subcommittee for its
    concern and commitment to our Nation's Veterans.
                                     ______

    Prepared Statement of Kenneth E. Quickel, Jr., M.D., President, Joslin
    Diabetes Center, Boston, MA and Blake E. Waterhouse, M.D., CEO, Straub
                       Clinic and Hospital, Honolulu, HI

        Mr. Chairman and Members of the Subcommittee, we appreciate this
    opportunity to present Joslin Diabetes Center's proposal to improve the
    access to and quality of health care for veterans and to reduce costs
    and increase savings in the near term for Veterans Affairs health care
    outlays by establishing a new paradigm of health care. We have met with
    policy officials and senior career professionals in the office of the
    secretary and with regional and state officials in the Veterans
    Administration and they are enthusiastic about our proposal.
        Diabetes among veterans and their families mirrors the disease in
    the total overall population where the incidence of diabetes approaches
    20 percent in the over 50 age group and diabetes and its complications
    comprise 25 percent of Medicare costs. In this societal context, the
    1998 Department of Veterans Affairs covers 26,198,000 veterans:
      --786,000 will be diabetics who generate in excess of $8 billion in
            health care costs annually
      --nearly an equal number will have diabetes and not know it
      --nearly 15,000 will die every year from diabetes and its
            complications
      --between 1,400 and 3,600 will become blind each year
      --5,000 will have amputations
      --1,240 will develop kidney failure
        Though Joslin is the world's largest and most comprehensive
    independent diabetes research and patient care institution, we would
    like to put ourselves out of business by finding a cure for diabetes
    through research, but we are not quite there yet. Joslin would like to
    share our technology and methods with other institutions and networks
    in order to limit the effects of diabetes. The personnel structure,
    telemedicine technology and medical network within the Department of
    Veterans Affairs offer a tremendous opportunity for the transfer of
    Joslin's technology and techniques to demonstrate the following:
      --Early detection of diabetes and those who will develop diabetes.
      --Prevention of the onset of diabetes for those prone to diabetes
            development.
      --Improved care for those who have diabetes.
        The real effects of this proposal offer improved quality of life
    for diabetes patients and significant cost savings for the Department
    of Veterans Affairs as soon as the period 2000-2002, the period in
    which overall government expenditures must be reduced to meet balanced
    budget objectives.
        Joslin proposes to work with Department of Veterans Affairs
    officials to develop a pilot program of diabetes detection, prevention
    and care. The objectives would be to institutionalize advanced
    techniques to detect diabetes and those most likely to develop diabetes
    within the Department of Veterans Affairs personnel and to implement
    improved prevention and care protocols for veterans with diabetes.
        Early detection, intervention for prevention and improved care
    techniques can reduce projected health care costs in excess of $400
    million throughout the Department of Defense/Veterans Administration
    population universe by the 2000-2002 period.
        Specifically, we propose to institute pilot programs of detection,
    prevention, and care in two sites (New England and Hawaii) for a two-
    year demonstration, training and technology transfer exercise of
    Joslin's expertise utilizing existing Department of Veterans Affairs
    medical infrastructure, personnel and employee/patient base. The cost
    would be $2.5 million annually.
        If patients with diabetes have eye examinations annually, current
    treatments can prevent 98 percent of the blindness of diabetes. Yet
    today, diabetes and diabetic retinopathy remains the leading cause of
    blindness in working age Americans. The primary causes for this dilemma
    are twofold, namely access of patients into mandated standards of care
    and patient and provider education.
        Equally important, the Joslin health care treatment programs can
    significantly reduce complications of diabetes including cardiovascular
    disease, kidney disease, and peripheral neuropathy with subsequent
    significant economic savings.
        We have developed the Joslin Vision Network and a Diabetes Eye
    Health Care Model to address these problems of access and education of
    diabetic eye disease.
        The Joslin Vision Network is a telemedicine based platform that
    services remote eye examination stations using video imaging
    technologies that take advantage of low light level sensitive video
    cameras and industry standard telecommunication protocols. Thus, at a
    remote site, patients can have their retinal images rapidly and
    comfortably acquired using the low light level sensitive video
    technologies, have these images transmitted to a central site where the
    images and related medical information is stored and reviewed. The
    review of the images at the central reading center resource produces an
    assessment of the level of diabetic retinopathy and a recommended
    treatment plan which can be transmitted back to the patient contact
    site before the patient has left from their visit. This function is
    performed using the real time teleconferencing functions of the Joslin
    Vision Network. Operation of the Joslin Vision Network has been made
    simple so that retinal images and related medical information can be
    acquired by ancillary staff without any prior expertise in computers.
    Minimal training is required for recognizing regions of the retina that
    will need to be imaged for diagnostic purposes.
        The Joslin Vision Network system can affect patient access,
    compliance, education and motivation using the Department of Veterans
    Affairs test bed sites. The objectives are to establish Joslin Vision
    Network remote imaging stations at these sites and to implement and
    evaluate services aimed at addressing concerns regarding patient access
    across geographic and cultural barriers, cost effectiveness of the
    service, establishing and assessing health professional and patient
    education programs specifically with respect to behavioral, compliance
    and motivational issues.
        Using the Joslin Vision Network, all veterans can be screened for
    diabetes at the test sites. Diabetes detection will be performed using
    a methodology that does not involve drawing blood or taking urine
    samples, which was developed by Joslin and is currently being
    commercially produced by Spectra, an Atlanta based medical
    instrumentation company. The system provides a rapid assessment of
    diabetes without the need for a blood sample to be obtained and results
    from initial studies have shown that as a screening device for diabetes
    this system provides as good or better sensitivity than a fasting
    plasma glucose measurement.
        Diabetes care will be available using the Joslin Vision Network and
    the Diabetes Outpatient Intensive Treatment program developed at Joslin
    Diabetes Center. We have had experience at Joslin in applying a new
    approach toward patients with diabetes. From the beginning, this
    approach focused on two major areas: improving clinical outcomes and
    doing so in a practical, resource-efficient manner. Our clinical
    outcome goals were improved metabolic control (and thus fewer long-term
    complications) and reduced patient stress from having to take care of
    their diabetes. The program was focused on individual flexibility and
    was developed in a way to be more efficient in utilization of both the
    patient resources and the health care resources. Rather than have the
    continued intensive involvement of health care providers throughout a
    patient's lifetime, we put the patient through a short (but intensive)
    course of training which not only leads to an immediate improvement in
    their metabolic control, but gives them the foundation to take care of
    themselves in the future. We are also able to reduce the patient's
    diabetes-related stress. Training the patients to care for their own
    diabetes, seeking other input when they need it, is more appealing to
    the patient, more efficient in use of resources in the long-term, and
    produces good results.
        The Joslin Vision Network provides the technology structure and
    program for the Joslin Diabetes Eye Health Care Model and the Joslin
    Diabetes Outpatient Intensive Treatment program so that people with
    diabetes can closely monitor their disease and appropriately trained
    medical personnel can provide timely treatment to better control of
    glycemia, hypertension and cholesterol to alleviate and eliminate life
    threatening complications.
        The two proposed pilot programs would be expected to demonstrate
    significantly improved detection, prevention and care techniques for
    diabetes patients incorporated within the Department of Veterans
    Affairs medicare/health arena, resulting in reduced costs, improved
    patient access and quality of life and increased personnel
    productivity.
        Thank you for this opportunity to testify. We would be pleased to
    answer any questions you might have.
                                     ______

              Prepared Statement of the American Heart Association
        The non-profit American Heart Association, powered by 4.2 million
    volunteers in virtually every community throughout the nation, is
    alarmed that the federal government, through its Department of Veterans
    Affairs Medical and Prosthetic Research program, is not devoting
    sufficient resources for medical research on America's No. 1 killer--
    heart disease--and on America's No. 3 killer and leading cause of
    permanent disability--stroke.
        More than 57 million Americans of all ages suffer from heart
    attack, stroke and other cardiovascular diseases. The absolute number
    of Americans with heart disease and stroke is expected to increase
    dramatically with the aging of the ``baby boomer'' generation. While
    heart disease and stroke occur at all ages, they are most common in
    Americans over age 65--an age group that is now about 13 percent of the
    U.S. population and will be 20 percent by year 2010. By the year 2010,
    the percentage of veterans over 65 years of age will be about three
    times that of the general population or 42.5 percent of the veteran
    population. The VA's planning models recognize that its aging patient
    population demands more care. More than 4.49 million or 16.4 percent of
    the veterans population reported suffering from ``heart trouble'' in
    the 1992 National Survey of Veterans.
        Heart attack, stroke and other cardiovascular diseases often begin
    in childhood and progress through mid-life. Thus, research efforts must
    be targeted at populations of all ages.
        Thanks to advances that already have occurred in defining and
    countering risk factors for heart disease and stroke and in the
    treatment of these and other cardiovascular disease, more Americans are
    surviving heart attack and ``brain attack'' (stroke), and in many cases
    are developing these diseases at later ages than did their parents or
    grandparents. Due to these accomplishments made possible by previous
    investment of funds for research by the federal government and the
    American Heart Association, heart disease and stroke have evolved into
    chronic--or long-term--health problems much like diabetes and
    arthritis. No longer does a heart attack or stroke necessarily mean
    immediate death. But, they usually can mean long-term disability,
    requiring costly medical attention, and loss of productivity and
    quality of life. Over the last 20 years there has been a dramatic
    increase in the indicators of prevalence of heart disease and stroke.
    This situation will worsen in the 21st century.
        Cardiovascular diseases already are a staggering burden to our
    nation's health care system consuming about 1 out of 6 health care
    dollars, with a price tag in medical expenses and lost productivity of
    $259 billion per year. No other disease costs this nation so much
    money, and the amount is expected to increase dramatically with the
    growth of the senior citizen population and as a consequence of the
    relatively recent trends in all ages of our population--but
    particularly in the young--of smoking, obesity and physical inactivity,
    which are among the several risk factors for heart disease and stroke.
        The American Heart Association challenges our government to invest
    additional funds in cardiovascular disease research. Our government's
    response to this challenge will help define the health and well-being
    of citizens in the next century. We have a choice between
      --a nation of physically and mentally healthy veterans and other
            citizens, capable of enjoying an active, productive life,
            living as independently as they wish late into their lives; or
      --a population of frail elderly veterans and other citizens, disabled
            by stroke and congestive heart failure the latter too often the
            end-result of heart disease.
        The AHA places its major emphasis on research. Since 1949 the AHA
    has invested almost $1.5 billion in research to increase knowledge
    about heart attack, stroke and other cardiovascular diseases. More than
    31 percent of the AMA's fiscal year 1995-1996 expenditures support
    biomedical research.
        Our ability to combat heart attack, stroke and other cardiovascular
    diseases correlates directly with the level and quality of overall
    support for basic and clinical research and prevention efforts.
    Although the AHA will continue to commit increased resources toward
    research, larger efforts by the federal government are essential to win
    the battle against cardiovascular diseases. A significant increase in
    funding for federal biomedical research is critical for continued
    progress.
        The Department of Veterans Affairs Medical and Prosthetic Research
    program plays an important role in cardiovascular research and deserves
    the strong support of Congress. In fiscal year 1996, VA support for
    research on heart disease was $21.1 million (a 4.4 percent reduction
    from fiscal year 1995), accounting for 8.2 percent of the VA's
    appropriated budget. VA-supported stroke research represented $2.4
    million or 1 percent of the VA's appropriated budget. In addition to
    its own program, the VA administers an additional $26.7 million in
    heart research and $5.6 million in stroke research from outside
    sources.
        The mission of the VA Medical and Prosthetic Research program is to
    ``discover knowledge and create innovations to advance the health and
    care of veterans and the nation.'' While the primary purpose of the VA
    health care system is the provision of quality health care to eligible
    veterans, VA-supported research contributes to the quality of care by
    bringing talented and dedicated physicians into the VA system.
    Discoveries from VA-supported research benefit veterans, science and
    the world's health. VA researchers include many nationally recognized,
    distinguished scientists and several Nobel Laureates. Several VA
    investigators have been acknowledged for their work in cardiovascular
    research. In addition, VA-sponsored investigators provide core faculty
    support at major medical schools affiliated with VA institutions.
        The Medical Research component of the VA Medical and Prosthetic
    Research program supports both basic and clinical research, primarily
    investigator-initiated peer reviewed studies. This component provides
    funds for support of VA-based faculty members (M.D.'s or Ph.D.'s) at
    various stages in their careers, multicenter cooperative studies--a
    large portion of which are cardiovascular studies--and research
    equipment. The presence of a VA research program aids the VA. This
    small, but internationally recognized, highly competitive research
    program in 1996 directly supported 2,130 investigators with
    appropriated funds at about 123 VA centers nationwide.
        VA cardiovascular research is largely clinical in nature. The VA is
    a major contributor to this nation's clinical research, playing a
    unique role in the research community because of its ability to
    immediately translate research findings into clinical practice.
        VA-supported research has produced landmark results and
    revolutionized treatment in the cardiovascular area in the last decade.
    Research results from selected studies show that:
      --low doses of the blood thinner warfarin can lower the risk of
            stroke by about 80 percent in patients suffering from an
            irregular heartbeat;
      --carotid endarterectomy, a surgical treatment to remove fat deposits
            in a major artery in the neck supplying blood to the brain, can
            prevent stroke in patients with a blocked carotid artery;
      --blood pressure lowering medication is beneficial for older patients
            with high blood pressure, the most prevalent cardiovascular
            disease and the leading risk factor for heart attack, stroke,
            congestive heart failure and kidney failure;
      --physicians can adapt blood pressure lowering medication to fit
            individual patient profiles;
      --heart medication works just as effectively as coronary artery
            bypass surgery for most patients with blocked arteries;
      --aspirin cuts deaths and heart attacks by 50 percent in patients
            suffering from unstable angina (chest pain);
      --patients, after undergoing angioplasty to widen narrowed arteries
            to the heart, suffer less pain and can exercise more than those
            taking only medication;
      --heart medication can enhance the heart's pumping ability and keep
            sufferers of congestive heart failure alive;
      --mechanical heart replacement valves bleed more in patients but last
            longer than those from animals; and
      --noninvasive treatment of non-Q-wave heart attack survivors is just
            as effective or in some cases better than invasive procedures
            such as bypass surgery and angioplasty. Higher death rates for
            victims were associated with invasive procedures. Of the
            estimated 1.5 million Americans suffering from heart attack
            each year, an estimated 750,000 experience the non-Q-wave--EKG
            classification--version.
        Examples of on-going VA Medical Research-funded cardiovascular
    studies include:
      --determination of whether the addition of beta-blockers to standard
            treatment reduces deaths and enhances health and quality of
            life of patients with heart failure. A substudy is creating a
            large DNA bank of sufferers to examine the genetic basis of
            heart failure. Still another study, the first big scale,
            international, randomized clinical trial of digitalis, is
            evaluating the effects of this 200-year old treatment in
            preventing deaths from heart failure, the leading cause of
            hospitalization of Americans age 65 and older. Heart failure
            represented more than 22,000 VA hospital discharges in 1990 at
            an estimated cost of $100 million.
      --assessment of the most cost-effective way to diagnose and treat
            suspected heart attack victims without the use of costly
            invasive procedures.
      --research to evaluate the best therapy for patients with low HDL or
            ``good'' cholesterol, desirable LDL or ``bad'' cholesterol and
            high levels of triglycerides. Individuals with this type of
            blood lipids profile are more susceptible to heart attack.
            Incidence of stroke in these patients is also being examined;
      --analysis of the effects of warfarin, a blood thinner, plus aspirin
            versus aspirin alone in reducing death from heart attack;
      --evaluation of concept that too much iron in the blood stream causes
            atherosclerosis; and
      --evaluation of efficacy of two promising drugs (amiodarone and
            sotalol) in maintaining normal heart beat in 2 million
            sufferers of atrial fibrillation, a totally irregular heart
            beat, that is a known risk factor for stroke.
        The number of VA research applications has grown slightly over the
    last five years, but funding cuts and/or inflationary increases
    severely restrict support for approved applications. For the programs
    which were reviewed for fiscal year 1997 funding, 20 percent of
    approved applications were funded. Ten years ago, 50 percent of the
    approved applications were funded.
        Total dollars appropriated for the Department of Veterans Affairs
    Medical and Prosthetic Research program have increased $69.3 million
    since 1985 at an average annual rate of 2.8 percent; however, there has
    been a decrease in terms of constant ``1985 dollars'' of $60 million.
        The President's fiscal year 1998 budget of $234.4 million for the
    VA Medical and Prosthetic Research program is a 10.5 percent or $27
    million cut from the fiscal year 1997 appropriation. The President's
    budget represents a 14 percent cut when adjusted for biomedical
    research inflation. The VA's ability to fund new initiatives and other
    important medical research projects would be severely jeopardized by
    the funding cut proposed by the President.
        Enactment of the President's request would require deep
    modifications and severe cuts in the VA Medical and Prosthetic Research
    program. Under the President's budget, no new Career Development Awards
    would be initiated for the third year in a row. The VA would be forced
    to terminate ongoing programs scheduled for review and renewal and may
    have to cancel programs approved in fiscal year 1997 to start in fiscal
    year 1998. The total number of funded programs would fall from an
    estimated 1,644 in 1997 to 1,469--an 11 percent or 175 program
    reduction by the end of fiscal year 1998. From 1992 there will be a
    reduction of more than 930 research programs, an approximate 39 percent
    cut because budgets have not kept pace with current services. The VA
    research program would lose 407 FTE.
        The Medical Research programs highlighted below would be
    jeopardized.
      --Investigator-Initiated Studies.--During fiscal year 1997 this
            program will constitute 70 percent of the Medical and
            Prosthetic Research appropriated budget and will support an
            estimated 1,550 investigators. Under the President's 1998
            budget, this program would be cut 16 percent from the fiscal
            year 1997 appropriated level. This proposed budget will result
            in a loss of 175 programs. These investigators comprise the
            core of all VA research and provide the preceptorship for
            career development awardees.
      --Cooperative Studies.--In fiscal year 1997 this program supports 37
            clinical trials. The VA offers a unique opportunity for
            cooperative studies due to close linkage among hospitals. These
            studies provide a mechanism by which research on the
            effectiveness of diagnostic or therapeutic techniques can
            achieve statistically significant results by pooling data on
            patients from a number of VA hospitals. Proposals developed by
            teams of VA clinicians and biostatisticians are evaluated by
            the Cooperative Studies Evaluation Committee. Many landmark
            clinical trials in the cardiovascular field (e.g., studies in
            high blood pressure treatment and coronary artery bypass
            surgery) have been supported by the VA under this mechanism.
            Under the President's fiscal year 1998 budget, this program
            would receive a $500,000 million decrease from the fiscal year
            1997 appropriation. Two planned heart-related cooperative
            studies--comparison of medical treatment versus surgical
            methods and evaluation of outpatient surgery as opposed to
            hospital surgery of victims of heart disease--would not be
            funded.
      --Career Development Awards.--Applications for these awards are
            reviewed both locally and by the VA Central Office. This
            program has experienced a decrease in the number of awards by
            200 percent over the past 5 years. The President's budget
            recommends a ten percent decrease in this program from the
            fiscal year 1997 appropriation. For the third year in a row,
            there will be no new awards. The Research Realignment Advisory
            Committee-suggested rejuvenation of this program will
            indefinitely be postponed.
        These proposed funding levels are short-sighted because of their
    negative impact on the entire VA Medical and Prosthetic Research
    program. Moreover, VA cardiovascular research represents an integral
    part of the overall scientific effort in this field. The AHA is keenly
    aware of the need for fiscal restraint, but more importantly, we are
    concerned about the potential negative long-range effects on this
    nation's health if biomedical research programs do not receive
    resources for significant growth.
        Today's investment in biomedical research will lead to future
    returns, including continued decreases in death rates from heart
    attack, stroke and other cardiovascular diseases, reduced federal
    outlays for hospital and long-term care expenses, a well-trained cadre
    of biomedical researchers and a more healthy and productive society.
        The American Heart Association recommends a fiscal year 1998
    appropriation of $280 million for the VA Medical and Prosthetic
    Research program. Our recommendation, consistent with that of the
    Friends of VA Medical Care and Health Research, is based on a current
    services budget for fiscal year 1998 and a small amount for new
    initiatives and to recruit new VA physician researchers. A fiscal year
    1998 appropriation of $280 million for this program would continue
    current research momentum in cardiovascular diseases within the VA and
    help to maintain the VA's vital role in the overall scientific effort
    in this field.
                                     ______

        Prepared Statement of Jay Lane, Director, Program Planning and
            Development, Laconia Housing and Redevelopment Authority

                    THE CONGREGATE HOUSING SERVICES PROGRAM

        For the record, my name is Jay Lane. I am Director of Program
    Planning and Development for the Laconia Housing and Redevelopment
    Authority, Laconia, New Hampshire. For over 15 years, I have
    participated in the development and operation of eleven CHSP's in the
    State of New Hampshire. I also serve as a professional consultant,
    providing technical assistance to public and private housing agencies
    that are developing CHSP and other alternative housing programs. I am
    the publisher of the ``Congregate Report,'' a national newsletter that
    provides information and advice on funding and other issues related to
    Congregate Housing and Supportive Services for frail elderly.
        In my testimony, I will discuss CHSP's history and the people it
    serves. I will provide an opinion on the potential problems that may
    occur in the event that future funding for CHSP is eliminated. I will
    introduce evidence that CHSP is cost-effective and provides an enhanced
    quality-of-life by referencing independent evaluations that have been
    conducted on CHSP programs, and, finally I will share the concerns
    expressed by housing administrators when discussing the possible
    elimination of CHSP.
    History
        Congress established the Congregate Housing Services Program [CHSP]
    in 1978 with the goal of preventing the premature institutionalization
    of elderly and handicapped residents of federally subsidized housing.
    Through CHSP, supportive services and non-medical care would be
    provided to residents of Public Housing that qualified for the Program.
    Congress was intent on determining if the introduction of supportive
    services would assist Public Housing Administrators deal with frail
    elderly residents ``aging in place.'' The goal was to determine if a
    supportive service program linked to the public housing subsidy program
    could delay the premature institutionalization of frail elderly people
    into nursing homes, and, if this program could have any impact on the
    amount of money the federal government spends through its Medicaid and
    Medicare Programs to provide nursing home care to low-income elderly
    people.

    People Currently being served by CHSP
        Presently, over 3,200 public housing residents (frail elderly and
    handicapped people) receive both housing assistance and supportive
    services at 130 CHSP sites across the country. While CHSP may differ
    from community to community, most programs offer basic services that
    include meals, housekeeping, personal care, transportation, case
    management and medical prevention programs. Public housing residents
    qualify for the Program if they are deficient in at least three
    activities of daily living [ADL]. Residents also pay for the services
    they receive based on their income.
    Evaluations Conducted on CHSP Revealed the Following
        Despite efforts by Congress to determine if the original goals of
    CHSP were being met, very few evaluations on the CHSP have been
    conducted since its inception. HUD has commissioned two evaluations on
    CHSP. The first evaluation was conducted on the original program in
    1985. It provided the first conclusive evidence that CHSP kept people
    from entering nursing homes and saved taxpayers thousands of dollars.
    The second evaluation of CHSP remains on going.
        While few evaluations have been conducted on CHSP, those that have
    been done overwhelmingly agree that CHSP is both cost-effective and
    provides a higher quality of life for its participants than nursing
    homes. The following excerpts are from three different evaluations
    conducted on different CHSP's:
        Sylvia Sherwood, Ph.D.--Executive Summary of the Evaluation of CHSP
    for the Department of HUD, April 1995:
      --The CHSP is a cost-effective alternative to institutional care. All
            research comparing congregate services to nursing home care
            finds substantial savings for congregate services when
            comparing costs for a typical person, over a specified period
            of time. The most careful cost comparison study conservatively
            estimates these savings to be $4,233-$5,880 per person per
            year.
      --CHSP's in-home services have been effective in preventing
            unnecessary institutionalization.
      --CHSP had substantial positive effects on the life satisfaction and
            general sense of well being of its participants.
        Richard Fortinski, Research Director, University of Southern
    Maine--Evaluation of the Pariseau CHSP in Manchester, New Hampshire,
    1987:
      --Based on an analysis of the program's first 40 clients, the
            researchers estimated that the State of New Hampshire would
            have spent more than $201,000 on institutional care for the
            CHSP participants during the first fifteen months of the
            program. It was estimated that the State would have paid more
            than twice as much per client month. Monthly costs were $745
            per month for CHSP versus $2,097 for nursing home care.
      --Our evaluation shows that existing formal services are enhanced by
            participation in CHSP. CHSP actually provides important support
            to families to permit them to continue family interaction.
        Tamara Martin, Research Assistant, University of New Hampshire,
    conducting an evaluation on The Tavern Program operated by the Laconia
    Housing and Redevelopment Authority in 1997:
      --Based on an analysis of the program's costs over the first twelve
            months of operation it was determined that it costs $14,399 to
            provide housing and supportive services to residents at the
            Tavern Building versus $32,000 for nursing home placement in
            one of the state nursing homes.
      --The Tavern Program is offering a very high quality of life to a
            population who would otherwise be in nursing homes.
        Despite overwhelming evidence of the Program's success, CHSP is
    targeted for elimination unless the Congress acts to provide additional
    funding. The Program, currently funded through the United States
    Department of Housing and Urban Development, is scheduled to be phased
    out in 1998. New funding for the program has not been requested for
    fiscal year 1998. HUD has informed public housing agencies operating
    CHSP's, that existing five-year commitments will begin expiring in
    August 1998 and that renewal of the program is not expected.
      public housing administrators concerned over the elimination of chsp
        Public Housing Administrators who work in agencies that sponsor
    CHSP are concerned about what will happen to their residents if CHSP is
    eliminated and supportive services end. Most agree that there are two
    major problems, (1) where will people who participate in the Program
    go? And, (2) what will happen to them if they stay? When CHSP ends, the
    vast majority of the estimated 3,200 public housing residents that rely
    on CHSP services to remain independent, will no longer be eligible to
    reside in public housing because they cannot care for themselves. They
    will need to move to nursing homes or other institutional settings.
    [PHA Administrators wonder]--Suppose beds are not available at local
    nursing homes, where will my residents go? Will I be forced to evict my
    residents when they can no longer take care for themselves?
        Across the country, thousands and thousand of people are placed in
    nursing needlessly at great expense to taxpayers because we have not
    developed Alternative Programs like CHSP. It has been well documented
    that anywhere from one-third to two-third's of the people currently
    residing in nursing homes in this country have the functional
    capability of living in an independent setting if provided with
    supportive services. In New Hampshire, the State Department of Adult
    and Elderly Services commissioned a study in 1986 in which it was
    determined that at a minimum, 10 percent of the people living in the
    State's nursing homes could live in an alternative setting if provided
    with necessary supportive services. The report further suggests that
    through the development of Alternative Housing Programs, like CHSP,
    thousands of taxpayer dollars could be saved.
        As Congress searches for ways to better utilize its scarce Medicaid
    and Medicare dollars, it makes no sense to eliminate the few
    alternatives we've developed. Not only should we maintain programs like
    CHSP, we should seek to expand them. CHSP has proven to be cost-
    effective, while at the same time allowing people the opportunity to
    live out their lives in dignity. It makes absolutely no sense to
    eliminate funding of programs that are cost-effective and provide a
    higher quality of life for society's most vulnerable citizens.
        I cannot stress enough, if Congress does not refund CHSP, many of
    the 3,200 people currently receiving services will no longer be
    eligible to reside in public housing, because they cannot care for
    themselves without the supportive services. Many will be required to
    move immediately into nursing homes. If nursing home beds are not
    available, housing administrators may be forced to undertake eviction
    procedures for residents unable to care for themselves.
        In closing, let me again point out that CHSP provides vital
    supportive services for the most vulnerable people in this country. The
    vast majority of people receiving services through CHSP would reside in
    nursing homes if CHSP were not available. The difference in costs
    between nursing homes and CHSP are two to one. In the State of New
    Hampshire it costs $32,000 for nursing home care, while CHSP is
    $14,399. I would suggest the costs are similar across the country.
    Since every resident participating in CHSP is Medicaid eligible, the
    longer we can maintain people in CHSP the more precious taxpayer
    dollars we save.
        I would like to thank you for allowing me the opportunity to
    provide you with this testimony. It has been my pleasure to discuss
    with you this very important program and I look forward to your
    continued support. Please feel free to be in touch with me should you
    require additional information on the Congregate Housing Services
    Program or other alternative programs.
                                     ______

     Prepared Statement of Sunia Zaterman, Executive Director, Council of
            Large Public Housing Authorities (CLPHA), Washington, DC
        The Council of Large Public Housing Authorities (CLPHA) thanks you
    for inviting it to submit this written testimony. CLPHA represents the
    65 large housing authorities shown on this testimony's face sheet. Our
    members manage over a half million of the country's 1.3 million public
    housing units, have assets ranging from 1,250 to 160,000 units, and
    administer a major share of the section 8 tenant-based assistance
    program.

                           THE PUBLIC HOUSING CRISIS

        Our gravest crisis is in the public housing program. Starting with
    the fiscal year 1995 rescissions, public housing has endured cuts among
    the deepest in federal government. Development funds have been both
    zeroed out and recaptured; modernization levels have dropped one-third
    from the original fiscal year 1995 appropriation; operating subsidy
    shortfalls have been severe--a combined loss of one billion dollars for
    fiscal year 1997 and fiscal year 1998, should the HUD request be
    accepted, and a total drop of $5.3 billion from fiscal year 1993 to
    2002, assuming a hard freeze from now on. Revenue losses will worsen as
    the result of welfare and SSI changes. CLPHA estimates a rent loss of
    $500 million annually from the welfare changes alone. In Wisconsin, a
    waiver state, a year into the end of welfare entitlement, the Milwaukee
    Housing Authority estimates that rent losses will be $100,000 in the
    year that ends December 31, 1997. Its reduced rents from the impact of
    SSI changes upon legal immigrants and upon disabled children will be
    even greater--almost $200,000.
        Despite these huge structural deficits, PHA's are still required to
    run the same program, suffer the same regulations, and serve the same
    extremely poor households as heretofore. We have become a massive
    unfunded mandate.

                              MAJOR CHANGES NEEDED

        Mr. Chairman, we greatly appreciate your response to the failure of
    the authorizing committees to change the rules of the game last year.
    Your willingness to provide relief has helped, especially in setting
    ceiling and minimum rents and in removing derelict properties. However,
    many PHA's have been reluctant to undertake the far-reaching and
    complex move to local preferences without permanent authorization,
    which we hope will happen this year.
           hud requests for fiscal year 1998 are woefully inadequate
        HUD's request for operating subsidies is a half-billion dollars
    under the $3.4 billion required by the Housing Act's Performance
    Funding System (PFS). For the Committee's convenience, there is
    attached hereto a comparison and analysis of the HUD request and
    CLPHA's calculation which points up the discrepancy. The differences
    lie mainly in HUD's claim of savings from an unimplemented and largely
    non-existent income matching system, overestimation of savings gained
    from units to be demolished, underestimation of replacements, and
    understatement of inflation.
        Congress has long dictated that the poorest of the poor should be
    housed in PHA's. We have done that--our residents' average annual
    income is a paltry $5,850. The rents they pay--capped at 30 percent of
    adjusted income--cover only 40 percent of a PHA's operating costs. The
    federal promise, through the PFS, is to provide an operating subsidy
    that covers the gap between the low rents and the operating costs of a
    well-run PHA. HUD's request of $2.9 billion does not come close to
    keeping that promise. It is short a record $500 million. The impact of
    that shortfall falls on a PHA's budget for maintaining the properties
    and the grounds, collecting the rents, providing security, and re-
    renting vacant units; the utilities must be paid. To accept HUD's
    figure is to inflict those consequences on the residents.
        PHA's are told that it is difficult to meet the PFS funding
    requirements because operating subsidies are a ``high outlayer.'' This
    label means little to our members: it is the nature of a rental subsidy
    program for the money to be spent currently. The statutory income
    targets and the rent cap are not suspended when being a ``high-
    outlayer'' becomes a problem. Operating subsidies do not spend money
    more quickly, for example, than the subsidies to private owners for
    existing section 8 units. The notion of ``outlay rate'' and ``budget
    authority'' are not meaningful, we suggest, when applied to contract-
    type subsidy programs, such as operating subsidies and section 8. (If
    ``outlay rates'' are the obstacle, then the Committee might wish to
    increase our slower-outlay capital funds.) The other inequity in
    shorting the operating subsidy is that private landlords with section 8
    contracts do not suffer subsidy cuts as their tenants' incomes fall;
    they always get 100 percent of the contract rent.
        The Committee should also disregard HUD's proposal to cut section 8
    administrative fees further. We have already suffered the two-step cut
    of a reduced percentage and a reduced base. Many authorities use their
    administrative fees to help make up for the reduced operating
    subsidies.

                HUD'S REQUEST FOR MODERNIZATION IS A RECORD LOW

        Major HUD studies and the National Commission on Severely
    Distressed Public Housing call for annual funding of $4.5 billion to
    revitalize and to rehabilitate the public housing stock to current
    standards, and to cover normal depreciation. Aside from HOPE VI, HUD
    purports to propose only $2.5 billion for ``public housing capital,''
    basically: the modernization program. Its request is misleading because
    $100 million is set aside for non-capital, non-rehabilitation items:
    $50 million for ``Economic Development & Supportive Services,'' $45
    million for ``Technical Assistance,'' and $5 million for the ``Tenant
    Opportunity Program''--leaving $2.4 billion for building
    rehabilitation. This is the lowest level since fiscal year 1989, is
    almost $2 billion below that called for by the National Commission on
    Severely Distressed Public Housing, and is little more than the $1.7
    billion that HUD experts say is needed annually to meet the costs of
    normal depreciation. Before the fiscal year 1995 rescissions, when
    formula funding was in full swing, the public housing stock was
    improving rapidly. Let that momentum be restored--especially now when
    we seek to market to families with a broader range of incomes.
        The Committee should also seek clear plans on how HUD plans to
    spend $45 million in technical assistance. We have not seen any sign of
    strategic use of such monies or measurement of outcomes.

             MODERNIZATION FUNDS ARE USED PROMPTLY AND EFFECTIVELY

        The General Accounting Office's recent testimony here on ``HUD's
    Fiscal Year 1998 Budget Request: Some Requests for Funding May Be
    Unnecessary'' observed that despite PHA's having reduced uncommitted
    modernization funds by over 30 percent, approximately $925 million has
    been in the hands of PHA's for more than two years without being
    committed to use. Of this amount, one-quarter was with three
    notoriously troubled PHA's: the District of Columbia, New Orleans, and
    San Francisco. The DC Housing Authority is now under an able receiver
    who is spending the backlog apace after years of incompetence; San
    Francisco and New Orleans are in HUD's hands. HUD under its regulations
    can recover and redistribute dormant mod funds from any PHA. All mod
    funds must be obligated by the PHA within two years of HUD's approval
    of the mod plan and expended within three years of such approval: 24
    C.F.R. Sec. 968.125. Mod-troubled PHA's suffer a partial withholding of
    funds followed by a phaseout: Section 14(k) of the Housing Act of 1937.
    HUD can always seek the appointment of a receiver to carry out a
    troubled PHA's mod program. CLPHA has long urged HUD to use these
    powers but with little success. Effective PHA's and their residents
    should not be punished by reduced mod funding, because of the failures
    of the few and of HUD.

    SUPPORTIVE SERVICES SHOULD NOT BE FUNDED FROM MODERNIZATION; DEFINITION
                                     NEEDED

        Supportive services should be funded from the Community Development
    Block Grant Program as heretofore, and not newly from the underfunded
    ``capital account.'' See, VA, HUD and Independent Agencies
    Appropriations Acts, 1996 and 1997. CDBG has not suffered any funding
    cuts. Moreover, supportive services grants are not confined to PHA's
    nor to PHA residents, but may be granted to ``nonprofit corporations,
    and other appropriate entities * * * '' and may be used for other than
    residents of public housing. See, for example, Public Law 104-204, 110
    Stat. 2887 (1996). CLPHA also urges the Committee to make clear that
    funding to a non-PHA for work with a PHA's residents should be done in
    collaboration with the PHA to avoid duplication and misuse of the
    funds.
        Please clarify the purposes for which these funds can be used. The
    language of the Appropriations Acts, no doubt induced by HUD, allows a
    hodgepodge that worsens at the Notice of Funding Availability (NOFA)
    stage. Neither PHA's nor HUD belong in the panoply of social and
    entrepreneurial activities littered across the Department's fiscal year
    1997 NOFA for these funds. See, 61 Federal Register 42356 (Aug. 14,
    1996). A portion of the setaside is transformed into the ``Economic
    Development and Supportive Services Program,'' which HUD's proposed
    1997 authorizing bill makes into a new program. Other portions are set
    aside for ``Bridges to Work,'' ``Neighborhood Network,'' ``Resident
    Initiatives'' and ``Family Self-Sufficiency,'' programs of questionable
    authorization parentage. Finally, partnerships should not be a
    condition for funding.
        CLPHA recommends statutory earmarks of these funds for the elderly
    and disabled in the form of service coordinators, pursuant to section
    507 of the National Affordable Housing Act, Public Law 101-625, and
    section 673 of the Housing and Community Development Act of 1992,
    Public Law 102-550, and Congregate Housing Services, and for families
    in the form of service coordinators, including job training
    coordinators, and basic education and work readiness training. HUD
    should be instructed to drop its unauthorized requirement that
    supportive services can be funded only if ``new or significantly
    expanded.'' Many are struggling to maintain their successful ongoing
    programs, rather than invent something for grantsmanship.
        Service coordinators for the elderly and disabled can be very
    helpful at many PHA's with mixed populations. Mixed populations of
    elderly and non-elderly disabled are sustainable only through the use
    of service coordinators. Fear and tension between the two groups can be
    decreased and coexistence made possible. The confidence of the elderly
    community and its supporters can be regained and the lives of both
    populations enhanced. We urge that a significant portion of supportive
    service funds be targeted for such coordinators.
        We appreciate the Chairman's constant efforts to get HUD to make
    the designation of buildings exclusively for senior citizens feasible.
    We regret that HUD's budget doesn't request section 8 units, as in the
    past, to enable nonelderly disabled persons to move from elderly
    buildings or to be able to avoid moving into them in the first place.
    Certificates/vouchers give the nonelderly disabled an opportunity to
    live in the broader community; please continue this setaside.
           phdep and supportive services funding should be increased
        The Public Housing Drug Elimination Program (PHDEP) has enabled
    PHA's to leverage helpful services for their residents ranging from
    more security to networks of crime preventing Boys and Girls Clubs.
        Please increase funding for these worthy programs to $350 million
    for PHDEP and to $75 million for Supportive Services. We ask that an
    allocation of 85 percent of the PHDEP funds go to PHA's with 500 or
    more units on a per unit basis. The first nationwide survey of tenants
    in public housing, by the Research Triangle Initiative in 1995, found
    that residents in the large authorities--1,250+ units--suffered at that
    or a greater percentage of the study's crime indicia when measured
    against the residents of the four smaller classes of PHA's, each of
    which was dramatically less. Although this share would reduce the
    current per unit funding of many large PHA's--to the benefit of
    smaller, less crime-beset agencies--large PHA's are willing to accept
    this ``discount'' to gain: predictability, opportunity to plan,
    continuity for the residents, and enhanced recruitment of capable
    staff. The present system of annual grantsmanship undercuts good
    program performance.
        Please head off HUD's reported intent to limit the percentage of a
    PHDEP grant that can be used for law enforcement and to prescribe a
    percentage that must be used for work-related efforts. PHDEP funds are
    effectively used now for the purposes Congress intended--to defeat drug
    and alcohol abuse. Sometimes HUD should learn to leave well enough
    alone. We request Report language on this point.
        hope vi funds should be limited to original revitalization goal
        The promise of HOPE VI--of social and physical revitalization--is
    being fulfilled. Milwaukee's Hillside development (one of the first
    HOPE VI sites to be reoccupied) is a wonderful example: a pariah
    project is now eagerly applied for; the neighborhood has been
    rejuvenated; now one-third reoccupied, residents reporting wages as
    their principal source of income have increased 34 percent. The
    combination of capital for reconstruction and funds for support
    services to residents has been the secret of this success. Now, HUD
    seeks in its fiscal year 1998 request, and in its proposed
    authorization bill, to use HOPE VI (a) to fund applications for
    demolition only, unconnected to revitalization--an activity which
    should be carried out under the modernization (now ``capital'')
    account; and (b) to use HOPE VI capital for section 8 tenant-based
    assistance for relocation--an activity traditionally carried out under
    the section 8 account. There is a ``bait and switch'' aspect to this:
    Congress appropriates funds narrowly focused on the capital needs for
    major reconstruction of the most distressed projects and HUD then
    bootlegs other activities under the popular HOPE VI account. CLPHA
    requests $500 million for HOPE VI--for revitalization capital and
    supportive services only.

                                   CONCLUSION

        Please recognize that no system serving 3.4 million persons--all
    poor, many frail elderly, many mentally and physically disabled, many
    children--housed in over 13,000 individual developments with 1.4
    million apartments, often in difficult locations, can survive the cuts
    imposed on public housing. CLPHA members seek only to fulfill the
    responsibility that we share with the federal government to shelter
    decently the country's most vulnerable people--not to launch new
    activities with future funding obligations. We want to prevent a $90
    billion public asset from wasting. Thank you for whatever help you can
    give us; please consider our predicament and that of those whom we
    serve.
                                     ______

    The Performance Funding System: CLPHA's Operating Subsidies Projections
                              for Fiscal Year 1998
        In early February, HUD announced its budget request for fiscal year
    1998. The budget calls for $2.9 billion for public housing operating
    subsidies for non-Indian housing authorities. This request corresponds
    to 93 percent of HUD's own estimates of operating subsidies needs for
    fiscal year 1998. CLPHA estimates that these HUD projections are
    significantly below the basic needs of public housing. According to
    CLPHA's calculations, the PFS calls for $3.4 billion in operating
    subsidies, making the HUD request only 85 percent of PFS. A worksheet
    summarizing the estimates is attached.
        The major differences between HUD's and CLPHA's estimates are in
    two areas: the projection of tenant income and the number of units.
    Other differences are influenced by these two estimates. Also, HUD is
    expecting the inflation factor to be 3.4 percent in 1998, while CLPHA
    projects slightly over 4 percent.

                                 TENANT INCOME

        HUD expects tenant income to increase by $88 million and income
    matching to generate an additional $49 million in 1998. We believe that
    these assumptions are not realistic and may not materialize. HUD may be
    trying to correct a deficiency on one hand while adding another
    deficiency of the same nature on the other hand. In the past, HUD used
    to require housing authorities to automatically budget for a 3 percent
    increase in rental income. However, these increases never materialized
    and HUD was forced each year to budget for an adjustment. Last year
    this requirement was suspended. HUD may be banking too early on the
    potential positive effect of welfare and housing reforms.
                                number of units
        HUD in its budget estimates is accounting for units demolished in
    fiscal year 1996 and to be demolished in fiscal year 1997. Although HUD
    is correctly accounting for the phasing out of these units, we do not
    believe that the pace or the magnitude will be as projected by HUD.
    Also, CLPHA does not believe that the demolition of units will or
    should automatically translate into reduction in operating subsidies.
    The correct accounting for the number of units is crucial in the
    determination of operating subsidies for it affects the budgeting for
    costs and revenues.

      THE PERFORMANCE FUNDING SYSTEM: OPERATING SUBSIDIES NEEDS PROJECTIONS
                          FOR FEDERAL FISCAL YEAR 1998
                              [Dollars in millions]
    ------------------------------------------------------------------------
                No IHAS in 1998                   HUD             CLPHA
    ------------------------------------------------------------------------
    Components of PFS base:
        Allowable expense level (AEL).....      $3,865.273       $4,014.333
        IPA audits and other expenses.....           8.583            8.913
        Add-ons for FICA/UNEC.............          18.980           19.712
        Utilities.........................       1,179.662        1,216.682
        Utility adjustments--rate.........          17.422           17.422
        Less: income......................      (1,970.998)      (2,032.852)
                                           ---------------------------------
          Subtotal PFS base...............       3,118.922        3,244.210
    Add:
        Non-PFS projects..................         114.955          120.124
        Energy incentives per 1987 HCD Act           3.000            3.000
        Miscellaneous adjustments.........  ...............  ...............
        Non-dwelling units................           1.796            1.809
        Family self-sufficiency program...           3.908            3.935
        Unit configurations...............           5.965            6.195
        Transition funding for demolitions          19.038           19.171
        Earned income exclusion...........          40.000           40.000
    Less:
        Utilities rolling base............         (43.700)         (30.700)
        Change tenant income..............         (88.000)  ...............
        Tenant income matching............         (49.000)  ...............
                                           ---------------------------------
          Subtotal requirements...........       3,126.884        3,407.744
                                           =================================
    Cumulative demolition savings in
     requirements.........................         (88.193)  ...............
    Amount available/request..............       2,900.000        2,900.000
    Shortfall.............................        (226.884)        (507.744)
    Proration (percent)...................              93               85
    ------------------------------------------------------------------------

                           BACKGROUND AND ASSUMPTIONS

        In 1975 pursuant to Section 9(a) of the 1937 Housing Act, HUD
    implemented the Performance Funding System (PFS) to determine the
    amount of operating subsidy to be paid to most housing authorities. The
    PFS serves two purposes: it is used to determine each PHA's share of
    the total operating subsidy funds appropriated by Congress each year;
    and provides a reliable means of estimating the annual aggregate
    operating subsidy of PHA's which serves as the basis for requesting
    annual appropriations from Congress.
        Under the PFS, subsidy levels are tied to the cost of operating a
    prototype well managed project, taking into account the characteristics
    and location of the project and the characteristics of the tenants. The
    subsidy amount is computed as the difference between the PHA's
    projected expenses and its projected operating income. The operating
    subsidy is generally approved prior to the beginning of a PHA fiscal
    year. After the end of each fiscal year, certain adjustments of
    operating subsidy eligibility are required based on actual experience
    during the year.
        The total allowable expenses under PFS are comprised of an
    Allowable Expense Level (AEL) for non-utility costs, a separate
    Allowable Utilities Expense Level (AUEL), and several other costs.
        The AEL inflation.--The AEL inflation factor will be equal about
    4.12 percent. In recent years, HUD has used a rate between 2.7 percent
    and 3.6 percent.
        The first step in determining a PHA's operating subsidy allocation
    is to compute the base year expense level. In subsequent years, the AEL
    is increased by 0.5 percent (the delta which represents regional cost
    variations), adjusted for changes in the number of units in excess of 5
    percent or 1,000, whichever is less, and adjusted for the local
    inflation factor.
        (a) The Delta.--A Delta of 0.5 percent was used in this projection.
    Normally, The delta varies from region to region and is reflected in
    each housing authority's budget submission. However, at the national
    level, a single delta is used. In recent years the value of the delta
    has been consistently set at 0.5 percent.
        (b) The Inflation factor.--The inflation factor used to annually
    adjust the AEL for anticipated increases in non-utility expenses is a
    composite of two separate indices. The first which has a weight of 60
    percent is in the composite index is derived annually from data
    collected in a survey of state and local government wage and rates
    conducted each fall by the bureau of census. The basic rational behind
    the use of this measure is that PHA's as public agencies should be
    given adequate funds to provide wage increases to their employees,
    which keep pace with those of other public employees in their
    communities. In this projection, this value is taken to be equal to the
    projected growth from 1987 to 1988 in wages and salaries as predicted
    by the Office of Management and Budget (OMB).\1\ This value is equal to
    5.4 percent.
    ---------------------------------------------------------------------------
        \1\ See attached.
    ---------------------------------------------------------------------------
        The second index, which has a weight of 40 percent in the composite
    index, is also derived annually from survey data The Bureau of Economic
    Analysis samples the costs of goods and services purchased by state and
    local governments and determines how much the costs have to be deflated
    to be valued in constant dollars. The implicit price deflator is then
    further modified for HUD in order to strip out the labor component of
    the index and to estimate, what the index will be in the upcoming PFS
    forward coming year. Unlike the index used for local government wage
    rates, which varies from community to community, the implicit price
    deflator is a single value which is used for all PHA's nationally. The
    basic rationale for using the implicit price deflator is that it allows
    compensation for increases in PHA non-labor expenses, which could be
    rising at a higher or lower rate than local government wages.
        OMB reports a prediction of 2.2 percent for the IPD for 1998.
        The rationale behind the 60/40 weights in forming the composite
    index is that approximately 60 percent of PHA non-utility costs are, on
    the average, labor costs and 40 percent are goods and services.
        AEL Inflation Factor (0.6*5.4+0.4*2.2)=4.12 percent
        IPA Audits and Other Expenses.--Independent audits are intended to
    determine whether a PHA's financial statements fairly present its
    financial position and the effectiveness of its financial operations.
    Additionally, an audit ensures that internal accounting and other
    control systems exist to provide reasonable assurance that programs are
    in compliance with applicable laws and regulations which may have a
    material effect on its financial statements. PHA's receiving $25,000 or
    more in operating subsidy are subject to an annual audit.
        The estimate for the IPA audits is done by adjusting the previous
    year's audit cost for inflation.
        Add-Ons for FICA/UNEC.--In 1977 change in Social Security laws in
    1977 periodically increases the amount of Social Security deductions
    and, therefore, increases the employee benefit contributions expense
    for PHA's whose employee are covered by Social Security (FICA).
    Increases may be a result of changes in the contribution rate and/or
    benefit base.
        The estimate for the FICA audits is done by adjusting the previous
    year's audit cost for inflation
        The AUEL inflation factor used is 3.0 percent.--Utility expenses
    are estimated at the beginning of a PHA fiscal year based on a 3 year
    average consumption level and the use of current rates. After the end
    of the PHA's fiscal year, an adjustment is made in order to: reflect
    actual utility rates during the year; adjust estimated consumption to
    resect the impact of weather on heating costs; and provide for a PHA
    and HUD 50-50 sharing, of additional costs or savings resulting from
    changes in consumption level.

                                                                                         PUBLIC HOUSING OPERATING SUBSIDY FUNDING SHORTFALLS (1993-2002)
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                              Fiscal year
                                                         -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                1993              1994              1995              1996              1997              1998              1999              2000              2001              2002
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    Operating subsidy need \1\..........................    $2,576,000,000     2,817,579,000    $2,933,867,000    $3,146,910,000    $3,347,291,000    $3,407,744,000    $3,548,143,053     3,694,326,547    $3,846,532,800    $4,005,009,952
    Appropriation for operating subsidies...............     2,282,000,000     2,620,000,000     2,900,000,000     2,800,000,000     2,900,000,000     2,900,000,000     2,900,000,000     2,900,000,000     2,900,000,000     2,900,000,000
    Annual funding gap..................................       294,000,000       197,579,000        53,867,000       346,910,000       447,291,000       507,744,000       648,143,053       794,326,547       946,532,800     1,105,009,952
    Cumulative funding  gap.............................       294,000,000       491,579,000       545,446,000       892,356,000     1,339,647,000     1,847,391,000     2,495,534,053     3,289,860,599     4,236,393,400     5,341,403,351
    ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
    \1\Operating subsidy needs do not include funding for employee benefits and funding for deductions in the 1990 NAHA. Projections for fiscal years 1998 to 2002 include a 4.2 percent inflation adjustment.

                                           TABLE 2.--ECONOMIC ASSUMPTIONS \1\
                                      [Calendar years; dollar amounts in billions]
    ----------------------------------------------------------------------------------------------------------------
                                                                                   Projections
                                                     Actual --------------------------------------------------------
                                                      1995    1996    1997    1998    1999    2000    2001     2002
    ----------------------------------------------------------------------------------------------------------------
    Gross Domestic Product (GDP):
        Levels, dollar amounts in billions:
            Current dollars........................   7,246   7,569   7,952   8,360   8,783   9,233   9,701   10,196
            Real, chained (1992) dollars...........   6,739   6,888   7,050   7,214   7,381   7,552   7,725    7,905
            Chained price index (1992=100), annual
             average...............................   107.6   110.2   113.0   116.2   119.3   122.5   125.8    129.3
        Percent change, fourth quarter over fourth
         quarter:
            Current dollar.........................     3.7     5.0     5.1     5.1     5.1     5.1     5.1      5.1
            Real, chained (1992) dollars...........     1.3     2.6     2.3     2.3     2.3     2.3     2.3      2.3
            Chained price index (1992=100).........     2.6     2.5     2.7     2.7     2.7     2.7     2.7      2.7
        Percent change year over year:
            Current dollars........................     4.5     4.5     5.1     5.1     5.1     5.1     5.1      5.1
            Real, chained (1992) dollars...........     2.0     2.2     2.4     2.3     2.3     2.3     2.3      2.3
            Chained price index (1992=100).........     2.5     2.4     2.6     2.8     2.7     2.7     2.7      2.7
    Incomes, billions of current dollars:
        Personal income............................   6,102   6,403   6,722   7,040   7,368   7,708   8,068    8,467
        Wages and salaries.........................   3,424   3,588   3,797   4,003   4,214   4,429   4,653    4,894
        Corporate profits before tax...............     601     652     697     724     764     815     848      880
    Consumer Price Index (all urban): \2\
        Level (1982-84=100), annual average........   152.4   156.9   161.3   165.8   170.5   175.3   180.2    185.2
        Percent change, fourth quarter over fourth
         quarter...................................     2.7     3.2     2.8     2 8     2.8     2.8     2.8      2.8
        Percent change year over year..............     2.8     3.0     2.8     2.8     2.8     2.8     2.8      2.8
    Unemployment rate, civilian, percent:
        Fourth quarter level.......................     5.6     5.6     5.7     5.7     5.7     5.7     5.7      5.7
        Annual average.............................     5.6     5.6     5.7     5.7     5.7     5.7     5.7      5.7
    Federal pay raises, January, percent:
        Military...................................     2.6     2.9     3.0     3.1     3.1     3.1     3.1      3.1
        Civilian \3\...............................     2.0     2.0     3.0  ......  ......  ......  ......  .......
    Interest rates, percent:
        91-day Treasury bills \4\..................     5.5     4.9     4.5     4.3     4.2     4.0     4.0      4.0
        10-year Treasury notes.....................     6.6     6.2     5.6     5.2     5.0     5.0     5.0      5.0
    Addendum: March Budget assumption for GDP
     implicit price deflator, pre-revision basis
     (1987 dollars): \5\ Percent change, year over
     year                                               1.7     2.2     2.2     2.2     2.3     2.2     2.2      2.2
    ----------------------------------------------------------------------------------------------------------------
    \1\ Based on information available as of June 1996.
    \2\ CPI for all urban consumers. Two versions of the CPI are published. The index shown here is that currently
      used, as required by law, in calculating automatic adjustments to individual income tax brackets. projections
      reflect scheduled changes in methodology.
    \3\ Percentages for 1995 and 1996 exclude locality pay adjustments. Percentages to be proposed for years after
      1997 have not yet been determined.
    \4\ Average rate (bank discount basis) on new issues within period.
    \5\ Because the comprehensive revision to the National Income and Product Accounts (which include GDP price
      measures) was delayed due to furloughs of Government employees, some budget estimates and their Mid-Session
      Review updates were based, at least in part, on GDP measures on the pre-revision basis.

                                     ______

         Prepared Statement of John Koelemij, Past President, National
                          Association of Home Builders
        Mr. Chairman, Senator Kerry and Members of the Subcommittee: My
    name is John Koelemij and I am a home builder from Tallahassee, Florida
    and past President of the 190,000 member firms of the National
    Association of Home Builders (NAHB). On behalf of NAHB, I thank you Mr.
    Chairman, as well as other key members of the Subcommittee and of the
    full Banking Committee, for your leadership and perseverance in
    continuing to strive in order to achieve both a responsible as well as
    equitable solution to the task before you with respect to the expiring
    project-based Section 8 rental assistance contracts. I also want to
    publicly thank and acknowledge our appreciation for the Subcommittee's
    professional staff, both Republican and Democratic, for their
    dedication, accessibility and their in depth knowledge of housing
    programs. They serve you well.
        Further, I thank you for the opportunity to appear here today to
    comment on the ``Multifamily Assisted Housing Reform and Affordability
    Act of 1997,'' S. 513. As the Chairman and Members of this Subcommittee
    know all too well, project-based section 8 rental assistance contracts,
    have begun to expire. Their numbers are estimated to be 1.3 million
    units. Of this universe, approximately 900,000 are in structures with
    mortgages insured by the Federal Housing Administration (FHA). An
    additional 50,000 units, in about 1,700 projects, are financed by a
    direct loan from the Rural Housing Service at the Department of
    Agriculture. Other units are in projects financed by bonds through
    various state housing finance agencies.
        While some of these rental assistance contracts are co-terminus
    with the terms of the mortgage, most are not. Consequently, if the
    Section 8 rental assistance contracts are not renewed, these projects
    are at serious risk of default and foreclosure. The practical effect of
    Congress taking no action exposes a wide variety of stakeholders to
    very serious consequences. These stakeholders include: the FHA
    insurance fund, the Departments of Agriculture, HUD, and Treasury;
    state bonding agencies; private lenders; a vast number of communities
    and neighborhoods; owners and most importantly, the residents the
    program is intended to serve.
        Most owners of this valuable housing stock are dedicated to
    providing good housing that is decent, safe, sanitary and affordable.
    Residents depend on this rental housing for shelter and security. In
    many neighborhoods, this housing serves as an anchor for the community.
    These are very sound reasons, indeed, Mr. Chairman for taking actions
    that will preserve this housing in the affordable housing stock,
    minimize the risk of loss and likelihood of increased liabilities for
    responsible owners, minimize the displacement and uncertainty for
    current residents, and protect the physical asset that this housing
    provides.
        NAHB believes that Section 8 portfolio re-engineering should
    contain certain elements essential to providing a responsible and
    equitable solution. First, the formula should be clear, workable and
    flexible, as a ``on one size fits all'' system simply will not work. S.
    513 contains this essential element. The bill provides for new, lower
    rents for projects based on rents for comparable unassisted properties
    in the area, or, if no such measure is available, 90 percent of the HUD
    fair market rent (FMR). Existing mortgages would be restructured to
    provide a reduced new, or modified, first mortgage with lower debt
    service, which along with operating costs, can be covered by the lower
    rents. Funds to pay the difference between the old mortgage and the new
    mortgage would come from the FHA insurance fund. In order to avoid
    certain adverse tax consequences arising from the reduction of the
    first mortgage, funds provided by FHA to reduce the first mortgage
    would be repaid by the owner through a second mortgage. The lower rents
    would result in lower rental subsidies from HUD.
        Second, if the debt is to be restructured, the restructuring entity
    should be a public body. Section 8 project-based rental assistance
    involves the use of public funds. Only public bodies have the
    accountability necessary for balancing social policy with the fiscal
    policy in a responsible manner, while being accountable to taxpayers.
    S. 513 embraces this element by maintaining an active role by public
    entities for any reform of the Section 8 portfolio; namely the state
    and local housing finance agencies (HFA's). NAHB strongly supports this
    approach.
        We recognize that not all public housing finance agencies possess
    the ability to restructure the debt on properties that exceed market
    value, nor to determine the actual market value. HFA's should,
    nonetheless, remain in control of the process, while contracting out
    certain functions to FHA approved mortgage lenders and other entities
    that are qualified to deliver a responsible and workable approach. Re-
    engineering, or financial restructuring, on over-market properties
    should focus not only on reducing the cost to the government, but it
    should also focus on protecting the physical asset along with
    responsible owners and managers and the hundreds of thousands of
    elderly, disabled, and other low-income families. S. 513 achieves this
    goal.
        Third, the rental assistance should remain as project-based.
    Empowering residents by providing alternative housing choices is a
    commendable concept and can be a useful tool. However, in this
    instance, we are in most cases misleading the public, if not ourselves,
    for there often exists no alternative housing. Instead, the goal should
    be one of adequate protection for the joint needs of current residents,
    the fiscal viability of responsibly owned and well-managed housing
    projects, the overall cost to taxpayers, and the continuation of needed
    affordable housing that serves as an important resource for the
    community. S. 513 embraces this element.
        Continuation of project-based assistance provides the highest level
    of protection for current residents. For the elderly and the disabled,
    tenant-based assistance does not offer choice, but rather uncertainty.
    This is particularly true in tight housing markets in major urban areas
    as well as in rural areas. ``Vouchering out'' project-based rental
    assistance does, however, pose an increased risk to the continued
    financial viability of an affordable housing resource. ``Vouchering-
    out'' also places residents at greater risk that the government's
    commitment to providing rental assistance can be reduced in overall
    numbers with greater ease.
        Further, NAHB is deeply concerned with the Administration's
    proposal, which provides project-based assistance for the elderly and
    the disabled, but not for housing occupied by families with children.
    NAHB believes that it is important to preserve affordable housing for
    the elderly and the disabled, as well as housing occupied by low- and
    moderate-income families.
        The fourth element is maintenance of FHA insurance. NAHB believes
    FHA insurance should remain in place on those projects that have their
    mortgage debt restructured. Without FHA insurance, many otherwise good
    and fiscally sound housing projects will be unable to obtain long-term
    financing at reasonable interest rates. S. 513 embraces this element.
    The combination of project-based assistance, which is mandatory,
    combined with the presence of FHA multifamily mortgage insurance on
    one-year renewals of the rental assistance, increases the likelihood
    that future renewals will be forthcoming.
        The Administration's proposal potentially would subject literally
    hundreds of thousands of residents to displacement as long-term
    pressures on balancing the budget prevail over the more limited
    resistance to renewing tenant-based assistance contracts. As existing
    residents either move or cease to need assistance, the overall supply
    can be more easily reduced by failure to re-issue the certificates or
    vouchers. Further, in certain markets, projects will quickly become
    destabilized as low-income residents receiving rental assistance move,
    or exit the program, and no new assistance is provided for additional
    families. If market rate renters can not be located or attracted to the
    project, then they will go into default and foreclosure.
        Fifth, responsible owners of this housing should be provided
    adequate protection from the likelihood of unnecessary tax consequences
    as a result of debt restructuring. If the federal government takes
    actions to restructure the debt, it has the responsibility to protect
    those stakeholders who would otherwise be penalized, albeit
    unintentionally, as the result of these actions. While not containing a
    tax solution through the Internal Revenue Code, S. 513 turns that
    portion of the original debt that is above the market value into a
    second mortgage. While this approach is far from perfect, it is
    preferable to the tax consequences that would occur for many owners
    without it. The Administration's proposal would increase an owners tax
    liability beyond that which currently exists without debt restructuring
    or sale of the property. It creates a preference for sale to certain
    purchasers, by providing favorable tax treatment to sales to non-
    profits, but no tax relief for sales to for profits, thereby reducing
    the overall value of the properties. Also, the provision calls for
    owners to relinquish the step up in basis at death. This would result
    in a major change in what has been an integral part of tax law for
    decades.
        Sixth, restructured rents should be based on market comparables,
    not HUD's fair market rents (FMR's), which often do no reflect the
    current market. Further, rents can, and often do, vary widely
    throughout a metropolitan area leaving the FMR far too low in more
    costly sections of an area, while excessively high in other
    neighborhoods.
        Seventh, restructuring should not abrogate an owner's right to
    prepay the existing mortgage. S. 513 embraces this element. Owners have
    the option simply to prepay the current mortgage without participating
    in the program. The Administration's proposal, on the other hand, does
    not allow property owners a clean right to prepay their mortgage
    obligation and seek other uses for their properties. It also would
    require owners receiving many types of housing assistance to lease a
    set amount of units to holders of tenant-based assistance, abrogating
    contract rights of the owners.
        With respect to the Section 515 rural direct loan program
    administered by the Rural Housing Service (RHS) at the Department of
    Agriculture, NAHB supports the Chairman's decision to renew these
    Section 8 assistance contracts at current rents. Additionally, we would
    support any efforts by this Subcommittee to ensure that when these
    Section 8 contracts do expire, that they are renewed as Section 8
    contracts, as opposed to transferring them to the RHS Section 521
    rental assistance program until any rural restructuring proposals are
    fully developed.
        When I appeared before this Subcommittee a year ago, I offered our
    support for last year's version of S. 513. This year, I again offer our
    support for S. 513. It embraces not only the basic principles for
    responsible housing policy, but also a clear, concise, and workable
    formula that protects all stakeholders in the program.
        We remain concerned, however, over the following three issues:
        First, we strongly agree with the authors of S. 513 that the
    restructuring entities must be public organizations. And, most of the
    provisions in this legislation direct the restructuring to public
    entities. Section 103(b)(3)(B), however, provides HUD with a ``back
    door'' to contract with non-public entities, including Wall Street
    investment bankers to conduct the restructuring. NAHB believes that
    this back door approach, while admittedly a narrow opening, will,
    nonetheless, allow HUD to involve firms with motivations to take these
    properties from their current owners and displace their low- and
    moderate-income residents. NAHB urges that this provision be stricken.
        Second, NAHB believes that the bill should contain workable
    ``exception rent'' provisions. NAHB is aware of many projects,
    particular in New York City, as well as many rural areas, where
    comparable properties do not exist, and where operating costs are high
    in comparison to HUD's FMR's. A substantial portion of these properties
    serve seniors who need special services and facilities. It is
    appropriate to shift to budget-based rents as ``exception rents'' when
    the formula cap will not support operating costs without debt service
    for these properties. However, the technique for establishing a higher
    exception rent cap (120 percent of the FMR in S. 513) and annual limits
    for use of exception rents (20 percent of expiring units) is not a
    proper approach for controlling operating costs and simply will result
    in the removal of hundreds of good projects from the affordable housing
    stock. A HUD commissioned study by Earnst & Young indicates that market
    rents would not cover operating expenses in 1,100 of the 8,400 projects
    in the privately owned FHA-insured HUD-assisted portfolio. Many of
    these worthwhile projects, particularly elevator structures for seniors
    in rural areas, would have to be demolished because existing
    residential market rents will not support operating costs and these
    buildings cannot be converted to other uses.
        NAHB urges that these limitations be removed from S. 513. In their
    place, NAHB supports language to be added to Section 104(g)(2),
    allowing Participating Administrative Entities (PAE's) to exceed
    restructuring rent limits and utilize budget-based rent levels for
    ``exception projects'' where the PAE determines that the housing needs
    of the tenants and the community cannot be addressed adequately through
    restructuring.
        Third, as discussed above, many projects are located in communities
    where comparable properties do not exist, particularly in rural areas.
    Comparable properties do exist, however in other communities of similar
    size and characteristics and can be utilized by expanding the
    definition of ``comparable properties'' to allow state certified
    appraisers, pursuant to the standards of the Uniform Standards of
    Professional Appraisal Practice, to locate and use actual comparables.
        Thank you for considering our comments on this legislation of vital
    importance to the industry.
        I would be happy to respond to any question that Members may have.
                                     ______

    Prepared Statement of the National Council of State Housing Agencies on
             Behalf of the Nation's State Housing Finance Agencies
        Chairman Bond, Senator Mikulski, and members of the Subcommittee,
    thank you for this opportunity to submit testimony.
        The National Council of State Housing Agencies (NCSHA) is a
    national, nonprofit organization created in 1970 to assist its members
    in advancing the interests of lower income and underserved people
    through the financing, development, and preservation of affordable
    housing. NCSHA's members are Housing Finance Agencies (HFA's) with
    statewide authority. NCSHA's member agencies operate in every state and
    the District of Columbia, Puerto Rico, and the U.S. Virgin Islands.
        Mr. Chairman, the state HFA's are very grateful for your
    extraordinary support of affordable housing in this time of severe
    budget austerity. You have consistently supported HFA's and worked to
    enact sensible housing finance policy. The HFA's will continue to do
    their very best to use these hard-won resources as efficiently,
    effectively, and creatively as possible.
        Though the HFA's administer the full range of affordable housing
    programs--from homeownership to rental to all types of special needs
    housing--our statement focuses on three HFA priority federal spending
    programs: the HOME Investment Partnerships Program, Section 8, and the
    Federal Housing Administration's (FHA) multifamily insurance programs,
    particularly the HFA Risk-Sharing program.

                  REJECT THE ADMINISTRATION'S HOME FUNDING CUT

        The HFA's vigorously oppose and urge you to reject the Clinton
    Administration's proposal to cut the HOME program by five percent to
    $1.309 billion in fiscal year 1998. As you know, HOME has produced
    dramatic results over the years, giving many low income, working
    American families a chance they otherwise would not have to live in
    decent, affordable housing, to move toward self-sufficiency, and to
    establish a stake in their communities. Since the program's inception,
    the need for HOME funding has exceeded its supply, and states and
    localities have been unable to meet the steadily increasing demand for
    HOME funds.
        The Administration claims that despite its success, HOME too must
    contribute to deficit reduction. We assert that like affordable housing
    programs generally, HOME has already contributed more than its fair
    share. Congress cut HOME to $1.4 billion in 1994, and has not increased
    it since, while inflation has cut its purchasing power 15 percent.
    After correcting for contract renewal costs, the Administration
    proposes to cut affordable housing programs by one percent between
    fiscal year 1997 and fiscal year 1998, as compared with its proposed
    increase of four percent in discretionary programs overall. Between
    fiscal year 1997 and fiscal year 2002, the Administration proposes to
    cut HUD's budget by five percent, while increasing the discretionary
    budget by eight percent.
        We hope you will find a way to increase HOME funding to meet its
    growing demand, or at the very least to maintain HOME funding at its
    current level of $1.4 billion.
        NCSHA's member agencies administer the HOME program in 39 states
    and territories and are responsible for over 70 percent of all state
    HOME funds. That is nearly' $2.4 billion to date.
        HOME works because Congress designed the program to allow states
    and localities, not the federal government, to decide how best to
    respond to their unique housing needs. HOME marks a bold step toward
    decentralizing decisions about affordable housing help to the states
    and localities. We must not reverse this progress by cutting its
    funding.
        Unlike bureaucratic, categorical programs, HOME can be used, and is
    being used, at the option of states and localities, for a wide range of
    activities to produce housing for every conceivable low income
    population. HOME is funding housing for the elderly, the homeless,
    people with disabilities, battered women with children, and families
    with extremely low incomes. HOME is making homeowners out of public
    housing residents and creating independent living opportunities for
    people across the spectrum of special needs.
        HOME funds have financed construction and rehabilitation of more
    than 95,000 affordable apartments, helped over 55,000 families buy
    their first home, assisted more than 46,000 to make needed home
    repairs, and provided rental assistance to nearly 26,000 families.
        The vast majority of HOME funds assist extremely low and very low
    income families, whose incomes are well below the income limits
    Congress has imposed on the program. For example, over 70 percent of
    families who have received HOME funds to repair their homes have
    incomes below 50 percent of their area's median. The same is true for
    nearly one-third of those families who have purchased a home with the
    help of HOME down payment, closing cost, or interest rate assistance.
    Over 70 percent of families who have received HOME rental assistance
    have incomes below 30 percent their area's median income, and more than
    90 percent of HOME-financed apartments are rented by families with
    incomes below 50 percent of the area's median income.
        HOME also creates jobs, expands local tax bases, and stabilizes
    communities. One dollar in HOME funds leverages nearly two more dollars
    of investment in affordable housing.
        Here are just a few of the success stories HOME has written in your
    state and some of your Subcommittee members' states:
      --In Missouri, for the first time, the Department of Mental Health is
            working in cooperation with a community housing development
            organization (CHDO) to use HOME funds to create a twelve unit
            apartment complex for people with serious mental illness. One
            hundred percent of the units will be rented to residents with
            25 percent or less of median income.
      --In Montana, a CHDO is using HOME funds to support infrastructure
            costs involved in developing 22 units of single family housing
            on land donated to a permanent land trust by the City of
            Livingston. All homebuyers will have incomes ranging from 66 to
            80 percent of median income.
      --The Alaska Housing Finance Corporation (AHFC) used HOME funding to
            develop a 15 unit disabled-accessible, affordable community in
            Juneau, historically one the state's most difficult housing
            markets. This region's limited utilities, expensive land costs,
            and rugged terrain generate unusually high development costs.
            The sponsor combined the HOME funds with a capital grant from
            the City and Borough of Juneau and Low Income Housing Tax
            Credits.
                 hfa's priority role in portfolio reengineering
        Mr. Chairman, NCSHA commends you for co-sponsoring Senator Mack's
    legislation (S. 513) which would address permanently the need for
    restructuring FHA insured mortgages and renewing the thousands of
    expiring Section 8 project-based contracts which support them. NCSHA is
    committed to working closely with you, your staff, and the authorizing
    committee to develop the best legislation possible to preserve the
    federal government's multimillion dollar investment in this quality
    affordable housing, protect the properties, their residents, and
    communities, and respect the rights of states, owners, and investors,
    without breaking the federal budget.
        We also appreciate greatly your efforts to create the fiscal year
    1997 Section 8 portfolio reengineering demonstration program, enacted
    last September in last year's VA-HUD appropriations bill. We are
    especially grateful for the priority role you gave to HFA's to serve as
    designees for HUD in the demonstration. Thirty state HFA's, with three-
    quarters of the eligible properties, have been approved by HUD to serve
    as designees. Unfortunately, despite NCSHA's efforts to help HUD
    prepare its program guidelines and specific instructions for designees,
    HUD only issued the guidelines in late January and the designee
    instructions in mid-April. Regrettably, HUD has focused much of its
    time and attention on readying its own field staff to carry out the
    restructurings Congress intended for public agencies and nonprofits.
        The sluggish pace of the demonstration should not be misinterpreted
    as a lack of enthusiasm or interest on the part of the HFA's, however.
    Despite their disappointment with HUD's repeated delays, HFA's are
    eager to participate in the demonstration and begin the restructuring
    process. Two states already have submitted management plans to HUD.
    This week, HUD approved the plan presented by Ohio, which has the
    largest portfolio of eligible properties in the nation.
        In its fiscal year 1998 budget, HUD again proposed a multifamily
    portfolio reengineering plan to renew expiring Section 8 contracts at
    market rents and restructure the properties' FHA-insured mortgages so
    they can be serviced at the reduced rents. In addition, HUD recently
    submitted its legislative proposal for portfolio reengineering to
    Congress. This proposal is an improvement on previous HUD approaches,
    but continues to have serious flaws. Our greatest concerns are that
    HUD's legislation would continue project-based assistance for only 50
    percent of the current portfolio and fails to give HFA's and other
    public agencies the right of first refusal to carry out the
    restructuring, which both the demonstration and the Mack legislation
    provide.
        Consensus exists among Section 8 residents, owners, managers, and
    lenders that portfolio reengineering of some kind is necessary to
    reduce the cost of renewing expiring Section 8 contracts while
    preserving the housing stock as affordable. We favor the approach taken
    in the fiscal year 1997 demonstration and Senator Mack's bill which
    renews all expiring project-based contracts and utilizes qualified
    designees to handle restructuring when possible. If Congress is unable
    to enact permanent authorizing legislation in the time remaining this
    year to address the Section 8 contract renewal crisis, we urge you to
    extend for another year the current demonstration program, which
    embodies so many principles we support, especially the priority role
    for HFA's as designees and the preservation of project-based
    assistance. In the absence of permanent legislation, an extended
    demonstration presents the best opportunity for illustrating the
    benefits of portfolio reengineering.
        As the discussion about permanent portfolio reengineering
    legislation continues, we propose several measures to ensure the best
    possible outcome for all properties. We support the use of the FHA
    insurance fund to write down the insured mortgages to levels
    sustainable at new, reduced rents, and the use of budget-based rents
    for distressed properties which could not operate successfully at
    market rents even if the FHA insured debt was written down to zero.
    Some of the Section 8 contracts expiring in fiscal year 1998 and beyond
    support uninsured properties and properties developed under the Section
    8 Moderate Rehabilitation program. The HFA's are confident, given the
    provision Congress made for these properties in fiscal year 1996 and
    1997, that you intend to renew these contracts going forward. We urge
    you to renew these contracts at rents adequate to support their
    operating budgets, so these properties, like the FHA insured inventory,
    can continue to provide viable, affordable housing for the long term
    future.
        Budget-based rents are particularly important for uninsured
    properties with bond financed mortgages outstanding at the time of
    their contract expirations. Without adequate rents, many of these
    properties will default, valuable affordable housing will be lost, and
    HFA's, bondholders, and states will be left to suffer the financial
    losses.
        The HFA's support moving to a system where rents are based on a
    property's financial needs, not on HUD's fair market rents (FMR's),
    which are often inappropriate for individual properties within a larger
    market area, or market rents, which require an administratively
    burdensome and costly analysis to determine. Allowing budget-based
    rents in many Section 8 properties still will yield budget savings,
    while preserving decent, affordable housing and avoiding deterioration
    and abandonment harmful to residents, the FHA insurance fund, and the
    state and local governments and neighborhoods where the properties are
    located.

                  MAKE HFA MULTIFAMILY RISK-SHARING PERMANENT

        The HFA's thank you for continuing the very successful HFA/FHA
    multifamily risk-sharing program. In the three years since HUD
    allocated insurance authority to the 28 states it approved to
    participate in this program, including Alaska, California, Colorado,
    Idaho, Maryland, Missouri, Montana, and New Jersey, the states have
    financed more than 20,000 units of affordable housing.
        Risk-sharing is a win-win approach for the states and the federal
    government. In return for sharing in the federal government's risk,
    HFA's are permitted to cut through the HUD bureaucracy and use their
    own proven and prudent financial underwriting standards. HUD has
    revised the credit subsidy rate for the risk-sharing program, so that
    it is now self-supporting and needs no credit subsidy. You can
    literally enable the financing of these units at no additional cost to
    HUD.
        Mr. Chairman, the Missouri Housing Development Commission (MHDC)
    has financed three mixed-income properties providing more than 344
    units, using risk-sharing, Low Income Housing Tax Credits, taxable and
    tax-exempt bonds, loans to be sold in the secondary market, corporate
    donations, and local government resources. At one development, O'Fallon
    Place, MHDC is restructuring a 675 unit family rental apartment complex
    located adjacent to the Vaughn and Carr Square public housing
    developments in a distressed St. Louis neighborhood. Residents of
    O'Fallon Place will benefit from the State of Missouri's Department of
    Social Services' Family Maintenance Organization demonstration, which
    will address welfare reform by helping families move into work and
    increase their self-sufficiency. In addition, the St. Louis Board of
    Education is working with the project's developer to transform the
    community's elementary and middle schools into top-notch neighborhood
    based schools with strong after-school and summer programming. In
    completing the O'Fallon Place project, Missouri will exhaust its risk-
    sharing unit allocation and require 300 additional risk-sharing units.
        We appreciate your efforts to provide additional risk-sharing units
    in this year's supplemental appropriations bill. As you know, many
    states like Missouri will exhaust their allocations soon and HUD does
    not have any additional units to allocate. We recommend that Congress
    provide at least 7,500 units as soon as possible. We believe HFA's will
    need at least 10,000 additional units in fiscal year 1998 to continue
    operating their programs to meet demand. To avoid the need to
    constantly request more units and the uncertainty about whether those
    requests will be met, we strongly urge Congress to make the HFA risk-
    sharing program permanent so states can plan, generate more interest
    within the development community, and avoid diverting energy toward
    constantly seeking piecemeal unit allocations. In addition, we urge you
    to appropriate sufficient credit subsidy for HUD's other multifamily
    direct insurance programs.
        Thank you for this opportunity to testify.
                                     ______

         Prepared Statement of Cyrus M. Jollivette, Vice President for
                     Government Relations, Miami University

        Mr. Chairman and Members of the Subcommittee: I appreciate the
    opportunity to present testimony on behalf of the University of Miami.
    The University is seeking your support for four initiatives within your
    purview: a HUD special project research and diagnostic institute
    initiative for children; a diabetes research initiative in the
    Department of Veterans Affairs; and two initiatives in the
    Environmental Protection Agency which address some of the urgent
    problems of South Florida's declining environment.
        First, the University has embarked on the construction of one of
    the major children's research facilities in the nation, a state-of-the-
    art research building to house all basic and clinical research for the
    Department of Pediatrics in the University of Miami/Jackson Memorial
    Medical Center. The goals and mission of the facility are for the
    benefit of the children of Florida and the nation. We seek to create a
    children's clinical and basic research center of unmatched excellence,
    to facilitate consolidated, coordinated, interdisciplinary research
    efforts in pediatrics, and to study, treat, and ultimately cure
    childhood diseases.
        Through HUD, the University seeks a $5 million special project
    grant which will be leveraged with $40 million in private contributions
    to construct a state-of-the-art pediatric research facility in Miami's
    urban core.
        The $45 million facility will contain 145,000 square feet. The
    facility will contain outpatient research facilities for broad ranging
    clinical investigations including AIDS, cystic fibrosis, asthma, other
    lung problems, genetics, behavioral sciences, gastroenterology,
    endocrinology, critical care, neonatology, maternal lifestyles (and
    their effects on children), clinical research in Touch and many others.
        Major space will be allocated for parent/patient education, in
    addition to extensive education programs of medical students, house-
    staff, and fellows in all areas of pediatric medicine. State-of-the-art
    laboratories are planned for cardiology, critical care, cancer,
    endocrinology, gastroenterology, neuromuscular genetics, infectious
    diseases/immunology, AIDS, pharmacology/toxicology, neonatal, pulmonary
    (asthma and cystic fibrosis), core facilities, shared research, and a
    vivarium.
        Second, through the Department of Veterans Affairs, the University
    seeks to establish a Diabetes Research Center to marshall the expertise
    and resources in diabetes, immunology, transplantation, and of the
    closely affiliated Miami VA Medical Center, Jackson Memorial Hospital,
    and the University of Miami School of Medicine's Diabetes Research
    Center.
        This partnership in one of the nation's largest academic medical
    centers will contribute greatly to the enhancement of diabetes care at
    the Miami VA Medical Center and stimulate and facilitate
    multidisciplinary research in diabetes at the Diabetes Research Center.
        The VA/JMH/UM Medical Center is the only tertiary care academic
    medical center in South Florida, with a patient catchment area
    embracing more than 5 million people, as well as a large and growing
    number of referrals from outside the region.
        Next, the focus of the coastal ecology research program within the
    Rosenstiel School's Division of Marine Biology and Fisheries (MBF) is
    on advancing the scientific understanding of coastal ecosystems and
    their interactions with humans. My colleagues have considerable
    expertise in coral reef, seagrass, hardbottom, mangrove, and wetland
    ecosystems in South Florida and the Greater Caribbean region.
        Their coastal ecology research covers the range of hierarchy from
    biochemical, physiological, and behavioral studies on individual
    organisms, through studies on population dynamics, community ecology,
    ecosystem processes and landscape- and seascape-level ecology. Examples
    of their coastal ecology research include: studies on diseases and
    morphological anomalies as indicators of pollution affecting coastal
    fishes, and studies on fish biochemistry and behavior as indicators of
    environmental stress. The University seeks support through the
    Environmental Protection Agency to continue this important initiative.
        Fourth, my colleagues at the Rosenstiel School of Marine and
    Atmospheric Science recently have discovered a possible connection
    between the occurrence of algal blooms in Florida Bay and the
    underlying rocks.
        Based upon a series of core borings taken throughout South Florida,
    it appears that a confined bed composed of coarse quartz sand runs from
    areas close to Lake Okeechobee south underneath the Everglades and
    close to the surface in Florida Bay and Keys. Rosenstiel scientists
    have suggested that phosphate rich waters could be transporting this
    sand into Florida Bay, providing this essential nutrient to algal and
    plant life in the area. Excess supply of phosphate result in algal
    blooms which are detrimental to water clarity and life in the Bay.
        It is important that this discovery be investigated as soon as
    possible. Funds are being expended in attempts to find solutions for
    excess phosphates, such as restrictions on agricultural sources.
    Results from this study could have significant impact on decisions
    which are being discussed by various agencies for remedying the
    perceived decline in Florida Bay. The support of the Environmental
    Protection Agency is crucial to this initiative.
        Mr. Chairman, my colleagues and I know what a difficult
    appropriations year you face. However, again, we respectfully request
    that you give very serious consideration to these two projects so that
    the research progress already made is not lost. In the long-term, these
    national investments will provide continuing dividends in our mutual
    search for cost-effective solutions for the nation's problems.
                                     ______

         Prepared Statement of Jay Lane, President, Jay Lane Associates

                    THE CONGREGATE HOUSING SERVICES PROGRAM

        For the record, my name is Jay Lane. I am President of Jay Lane
    Associates, a consulting firm that works closely with public and
    private housing agencies assisting in the development of Congregate
    Housing Services Programs that allow frail elderly and people with
    handicaps to remain independent and avoid premature
    institutionalization. I have participated in the development and
    operation of Congregate Housing Services Programs for over fifteen
    years. I am the publisher of the ``Congregate Report,'' a monthly
    newsletter with a nationwide circulation, that provides information and
    advice on funding and other issues related to the Congregate Program.
    My experience with the Congregate Program includes working with state
    and federal leaders in the development of legislation calling for the
    establishment of alternative housing programs that give people choices
    and allow them to remain independent. I have worked closely with local
    communities in the planning and design of programs that keep people out
    of nursing homes. Finally, and most importantly, I have worked closely
    with clients and their families who have been faced with having to
    enter a nursing home.
        As you know, the Congregate Housing Services Program is being
    eliminated. The Program, funded in part through the United States
    Department of Housing and Urban Development, is scheduled to be phased
    out in 1998. New funding for the program has not been requested to
    extend existing contractual arrangements with participating housing
    agencies. Organizations that operate CHSP programs have been informed
    by HUD that existing five year commitments will begin expiring in
    August 1998 and that contract renewals will not occur unless authorized
    by Congress. It is HUD's opinion that this will not occur. HUD is not,
    nor has it ever advocated for the program. HUD's current position is
    that CHSP is being eliminated, along with other worthwhile programs, as
    a means of cutting the budget.
        Currently, CHSP services are available in 130 public and private
    housing sites nationwide. Over 3,200 frail elderly and people with
    handicaps receive both housing assistance and supportive services
    through the Congregate Housing Services Program. The availability of
    these services in public housing allows residents ``aging in place'' to
    remain in their home, thereby avoiding premature admission to nursing
    homes. When the program ends, many of these 3,200 people that receive
    supportive services through the CHSP will no longer be eligible to
    reside in public housing. Once supportive services are eliminated,
    people lacking the functional ability to care for themselves will be
    forced into nursing homes or other forms of institutional care. This
    will come at a great expense to the American taxpayers since Medicaid
    will pick up the majority of the costs, which are estimated to be
    substantially more than CHSP.
        The Congregate Housing Services Program [CHSP] was established by
    Congress in 1978 with the goal of preventing the premature
    institutionalization of elderly and people with handicaps residing in
    federally subsidized housing. In-home supportive services and non-
    medical attention would be provided to residents that qualified for the
    program. It was the intent of Congress to decrease unnecessary human
    and financial costs associated with placing people in nursing homes
    prematurely. At the time CHSP was created, Congress mandated an
    evaluation study to determine if these goals were realistic and could
    be attained by federally assisted housing agencies that agreed to
    participate. Congress was intent on determining if the program could
    successfully address three major concerns identified by administrators
    of elderly public housing:
        (1) Would the introduction of supportive services assist Public
    Housing Administrators deal with long-term residents who were ``aging
    in place?'';
        (2) Would people with special needs become eligible for public
    housing assistance as a result of supportive services specifically
    designed to meet their needs?
        (3) Would the introduction of supportive services to the public
    housing subsidy program delay the premature institutionalization of
    frail elderly people into nursing homes and would this have an impact
    on the amount of money spent through the Medicaid Program to provide
    nursing home care to low-income elderly?
        In 1978, at the time it passed the original CHSP legislation,
    Congress recognized it faced serious financial problems associated with
    the Medicaid Program. Congress was intent on determining if alternative
    housing and supportive service programs would prove to be a cost-
    effective alternative to placing people in nursing homes and could a
    program like CHSP reduce the Medicaid appropriations targeted to
    nursing home care.
        Since its inception, all evaluations conducted on the Congregate
    Program have demonstrated conclusively that CHSP saves the taxpayers
    money and it promotes the dignity of elderly people. The original
    evaluation on the program conducted by the Hebrew Rehabilitation Center
    of Boston in 1986, entitled ``Dignity, Independence and Cost
    Effectiveness: The Success of the Congregate Housing Services
    Program,'' presented the following conclusions: The CHSP is a cost-
    effective alternative to institutional care. All research, comparing
    congregate services to nursing home care finds substantial savings for
    congregate services when comparing costs for a typical person, over a
    specified period of time. The most careful cost comparison study
    conservatively estimates these savings to be $4,233-$5,880 per person
    per year.
        An evaluation conducted by the University of Southern Maine in 1989
    on a Congregate Program operated by the State of New Hampshire provided
    the following conclusions: The CHSP has been successful because of its
    ability to target resources to those most at risk of
    institutionalization. The majority of residents participating in the
    Program are frail elderly women living alone who have few financial
    resources. CHSP serves those who often have no other appropriate
    housing options. Additional sites would serve a similar, yet expanded
    population, reaching more of those in urgent need of supportive
    services, while at the same time saving Medicare and Medicaid dollars.
        This evaluation documents that CHSP is especially less costly than
    nursing home services, where it was estimated that the State of New
    Hampshire would have paid more than twice as much per month. For the 21
    clients who would have been in nursing homes if the CHSP did not exist,
    the State of New Hampshire would have paid $1,049 per month for each
    client under its share of Medicaid cost. This is almost twice the cost
    of Congregate Housing Services Programs. An additional $1,049 a month
    per client would also have been spent on these clients, but was instead
    available for other Medicaid-Funded Services.
        An evaluation conducted in 1996 by the Connecticut Department of
    Social Services on the Congregate Housing Services Program operated
    within that State concluded the following:
        CHSP improves the quality of life of its participants, promotes
    dignity and independence and is an extremely cost-effective alternative
    to placing people in nursing homes. At a minimum, the CHSP model
    addresses quality of life outcomes, facilitates elderly's independence
    through co-location of housing and supportive services, frees housing-
    management personnel to attend to other responsibilities and reduces
    turnover. Family members of program participants were unanimous in
    their assessment that the program had impacted positively on people
    participating. Many suggested that family members that participated in
    the program had an enhanced sense of independence, heightened social
    interaction, and increased access to supportive services.
        When it came to cost, findings indicated that Connecticut's CHSP's
    average monthly costs of $522 were consistent with the national average
    for CHSP's. A typical nursing home in Connecticut is estimated to cost
    approximately $5,543 per month. Nursing homes costs are estimated to be
    more than ten times greater than most community-based options.
        The University of New Hampshire is currently conducting an
    evaluation on a CHSP operated by the Laconia Housing and Redevelopment
    Authority in Laconia New Hampshire. Preliminary reports suggest that
    per day costs for the program are $22. The average rate for Medicaid
    reimbursed nursing home care in the State is $105 per day. Since the
    majority of clients participating in the CHSP operated by the Laconia
    Housing and Redevelopment Authority moved into the program from nursing
    homes, a substantial savings of taxpayers dollars is occurring. A final
    report on the project is due out in July.
        New Hampshire, like many other states, has come to the realization
    that it is spending proportionately more for nursing home placement
    than any other form of care for its elderly people. New Hampshire
    institutionalizes roughly 68 people per 1,000 over the age of 65. This
    ratio is among the highest in the country. Oregon, for example,
    institutionalizes roughly 38 per 1,000. The reason for the high ratio
    of institutionalized people is that New Hampshire, like many other
    states, simply has not developed alternatives to nursing home care.
    Therefore, we are placing people in nursing homes prematurely at great
    expense to the taxpayer. According to New Hampshire's Commissioner of
    Health and Human Services, Terry Morton, at least a third and perhaps
    as many as two-thirds of the people residing in the State's nursing
    homes have the functional capability of living in an independent
    setting, like CHSP, if provided with services. If this were to occur,
    the potential for savings could be substantial.
        The Congregate Housing Services Program should not be eliminated,
    it should be expanded. At a time when the fastest growing segment of
    our population is people 85 years of age and older, I do not believe it
    is prudent to dismantle a program that has proven to be effective in
    saving money and promoting the dignity of the most vulnerable people in
    our country.
        CHSP is not a program that relies exclusively on federal dollars in
    order to operate. The program, as designed, calls for the creation of
    partnerships between state and federal agencies, as well, as public and
    private entities with everyone participating in the cost. The federal
    government is responsible for 40 percent of the costs while the
    remaining money comes from participating partners, including clients.
    This shared arrangement encourages efficiency.
        I strongly urge the committee to consider the long-term
    ramifications of eliminating the Congregate Housing Services Program. I
    am available to answer additional questions should they be required.
    Thank you for allowing me this opportunity.
                                     ______

     Prepared Statement of Kathye Gorosh, Project Director, The CORE Center

        I would like to thank the Chairman and the Members of this sub-
    committee for their support for the Cook County/Rush Health Center,
    which has been permanently named ``The CORE Center--For the Prevention,
    Care and Research of Infectious Disease.'' Their commitment has made a
    critical difference in the availability of appropriate health care
    services for those affected by and living with HIV and other infectious
    diseases in the greater Chicago area.
        1. The CORE Center: A unique solution for Chicago's public health
    crisis.--Today, despite major technological and scientific advances,
    devastating infectious diseases such as HIV/AIDs, Tuberculosis and
    Sexually Transmitted Diseases (STD's), these diseases remain prevalent
    in Chicago and around the world. Efforts must be sustained with
    continued vigilance to detect, treat, and cure Tuberculosis and STD's
    or their resurgence will be devastating. The HIV/AIDs epidemic
    continues to be one of the most serious public health problems facing
    the nation today. It is currently the leading cause of death among
    Americans between the ages of 25 and 44 years of age. Today, the
    Centers for Disease Control and Prevention (CDC) estimate that there
    are between 650,000 and 900,000 Americans living with HIV in the United
    States. In 1995, the CDC reported that our country had unfortunately
    reached another milestone in the AIDs epidemic--over a half million
    Americans had been diagnosed with AIDs. In 1996, it was reported that
    362,004 Americans had died of AIDs. These numbers continue to increase.
        Although the number of AIDs cases is what primarily gets reported
    by the press, the real focus should be on HIV, the virus that cause
    AIDs. While the development of new and more effective drugs has allowed
    people to remain healthier longer and to delay the progression from HIV
    to AIDs, it remains critical that we stop the spread of HIV as well as
    provide early and comprehensive care to those already infected. It is
    also critical to recognize that regardless of a decline in the number
    of AIDs related deaths in the U.S., there is not a decline in the need
    for adequate care, treatment and research for HIV/AIDs.
        Because of the resurgence of infectious diseases and HIV/AIDs, the
    Chicago area is in the midst of a severe public health crisis. Over
    35,000 people in the Chicago metropolitan area are currently infected
    with HIV/AIDs. Approximately, two-thirds of those infected are not
    receiving treatment.
        An examination of the profiles of patients who receive HIV services
    at Cook County Hospital reveals that Cook County Hospital cares for 75-
    80 percent of infected women and roughly one-third of infected children
    in the Chicago Eligible Metropolitan Area (EMA). 72 percent of program
    clients at Cook County Hospital are African American. Of all the
    patients seen at the Cook County HIV Primary Care Center last year, 916
    (46.4 percent of all clients) of the patients seen were HIV positive
    and 986 (49.9 percent of all clients) of the patients seen were AIDs
    diagnosed.
        One in every 9-10 beds at Cook County Hospital is occupied by a
    person with HIV/AIDs. Approximately 30 percent of those inpatients
    could be seen on an outpatient basis if specialized services were
    available--saving $6 million per year.
        In addition to HIV/AIDs, sexually transmitted diseases continue to
    be a major cause of morbidity in the greater Chicago area. STD's, which
    increase the likelihood of HIV transmission three to five fold, have
    increased at alarming rates since the 1980's. In fact, in 1996, the CDC
    reported that STD's--most of which are curable through the use of
    conventional treatments and drugs--accounted for 87 percent of the top
    10 percent of transmissible diseases in the nation.
        The landscape of the AIDs epidemic is changing daily--much faster
    than care providers are able to handle. Today, people of color make up
    nearly 50 percent of all reported AIDs cases. Those indirectly affected
    by AIDs also present a rapidly increasing need. For example, by the
    year 2000, it is expected that 144,000 children will be left motherless
    by the AIDs epidemic. Obviously, these new dimensions require new and
    innovative community-based prevention and care strategies.
        While the federal government has and will continue to provide
    leadership in the battle against AIDs and other infectious diseases,
    these afflictions will ultimately only be conquered at the local level
    through the implementation of comprehensive systems of care which
    involve every sector of the community.
        Regardless of these dramatic statistics, the serious increase in
    the demand for outpatient services and the obvious public health
    crisis, no comprehensive community-based system of specialized
    outpatient care and support services has been available to help reduce
    unnecessary, disruptive, and costly hospitalization while maintaining
    the quality of life for people with HIV/AIDs--until now.
        2. The CORE Center: For the prevention, care and research of
    infectious disease.--It is clear that we must take immediate and
    decisive action to address the HIV/AIDs crisis in the greater Chicago
    and across the nation. A community-based commitment is required to
    develop and coordinate the complex medical and social interventions
    necessary to address these diseases effectively. Both public and
    private local health care providers must develop the resources and
    linkages needed to effectively address this health crisis. As a result,
    Cook County Hospital and Rush-Presbyterian-St. Luke's have combined
    their resources to develop ``The CORE Center: For the Prevention, Care
    and Research of Infectious Disease.''
        Construction of The CORE Center, the result of an unprecedented
    public/private partnership, is scheduled to begin by this summer. The
    Center's design is the culmination of a focused team effort that has
    involved collaboration between HIV/AIDs patients, architects, doctors,
    nurses, other health care professionals, community members,
    representatives from the business community and government officials.
    It will provide a system of specialized health care and an array of
    support services for community-based health care providers to improve
    the care of persons with HIV or related infectious diseases who do not
    need to be hospitalized. As people continue to live longer with HIV/
    AIDs the demand for services, especially outpatient services, continues
    to increase. The CORE Center will provide that care and, at the same
    time, provide access to clinical trials and emphasize the importance of
    prevention and education in combating this epidemic.
        With a full range of services available for the first time in a
    centralized location, the Center will provide a missing link in the
    public health system thus creating a full continuum of community-based
    outpatient medical care for people with HIV disease who currently do
    not receive adequate care.
        The new 60,000, square foot, state-of-the-art, Center will boast
    many times the space now available for HIV/AIDs services at Cook County
    and Rush combined. The facility will combine and expand the
    capabilities of both institutions. The new Center will effectively
    house current programs and make it possible to address the growing
    numbers and needs of infectious disease patients.

                            PREVENTION AND EDUCATION

        The HIV program at Cook County Hospital has responded to the
    current health crisis by providing extensive outreach, prevention and
    education services. In 1995 alone, the Women and Children's Program at
    Cook County Hospital went out into the community and educated 6,979
    children ages 11-14 about HIV risk reduction.
        Prevention and education are essential components of the Center's
    comprehensive approach to the care of HIV/AIDs and other related
    infectious diseases. The CORE Center will focus significant resources
    on community-wide prevention strategies and education programs. The
    Center's programs will include a major specialized training program for
    physicians and other health care professionals, including: clinical
    care, lectures, clinic observations and psychosocial interventions;
    targeted programs for people at risk, especially women, children, and
    minorities; HIV counseling and testing; and bilingual community forums
    to extend the reach of the Center's prevention and education programs.
    Prevention programs will be tailored for specific populations and the
    Center will actively recruit members of these populations to their peer
    education courses.

                       KEY FEATURES AND ON-SITE SERVICES

        The design of The CORE center is meant to provide a sense of
    security and dignity to patients and families. A primary focus in the
    design of the facility is the comfort and ease of use by patients and
    staff. Key design features include:
      --Graduate levels of care on each ascending floor of the four-floor
            facility--moving from education, prevention and screening
            programs on the first floor to treatment areas for the most
            seriously ill patients on the fourth floor.
      --Multi-functional space throughout the building so that clinical and
            administrative areas can be easily reconfigured to adjust to
            the development of new modes of treatment.
      --Medical care services which are integrated with essential support
            services, such as: child care, mental health and case
            management, and integrated with research in new treatments.
      --Specialized space and programs for adolescents, people with
            chemical dependency and for women, children and families with
            HIV.
      --A resource center library and classrooms to enhance the

            EFFECTIVENESS OF PREVENTION AND EDUCATION PROGRAMS.
                                    RESEARCH

        Recent breakthroughs in drug therapies give reason to be hopeful
    for the successful treatment of HIV/AIDs now and in the future. The
    Center will carry out critical research to continue the search for a
    cure, as well as develop new treatments that will help prolong the
    comfortable and functional lives of HIV/AIDs patients.
                           resource and referral site
        The CORE Center will serve as a resource and referral center for
    the growing network of primary care providers currently delivering
    community-based care for people with infectious diseases. It will
    provide increased access to the sophisticated medical services of
    institutions like Cook County Hospital and Rush-Presbyterian-St. Luke's
    Medical Center. The Center will supplement services available through
    the providers in the community-based system, enabling them to serve
    clients more efficiently and effectively and avoiding costly
    duplication of services. Community providers will now be able to refer
    patients to the Center for a definitive diagnosis, specialized care or
    participation in clinical trials. Patients can then return to their own
    primary care provider or clinics for continuing care.
        3. Cook County Hospital and Rush-Presbyterian-St. Luke's Medical
    Center: A tradition of excellence.--As leaders in HIV/AIDs research and
    model service delivery, Cook County Hospital and Rush-Presbyterian-St.
    Luke's Health Center are highly capable of delivering programs of
    highest quality care and are uniquely qualified to develop and operate
    the Center in response to this urgent, community identified, health
    crisis.
        Each institution has in-depth experience with infectious diseases,
    especially HIV/AIDs, and a history of successful affiliation with one
    another. They are Illinois' largest public and private hospitals.
    Traditionally, Cook County Hospital has cared for approximately 30
    percent of the HIV population receiving care in the Chicago area and
    has an international reputation for HIV model care programs, prevention
    and research. The Infectious Disease Section at Rush has been
    nationally recognized for its HIV treatment program since it was
    created in 1986. Rush, a leader in clinical HIV related research also
    coordinates an acclaimed service of national physician training
    sessions on HIV/AIDs. In addition, the two hospitals are already
    integrated for the provision of training and clinical care.
        It is these existing strengths and collaborations that will enable
    The CORE Center to provide the most comprehensive and expert care
    available in the country.
        4. A national prototype.--This unique partnership and model system
    of care will be a prototype for national efforts to meet the challenges
    posed by infectious diseases, especially, HIV/AIDs.
        It is estimated that in its first full year of operation, operating
    and programmatic costs will be approximately $14.5 million.
        In light of the Subcommittee's support for community-based
    solutions to unique public health problems, and the current public
    health crisis in Chicago, we are requesting that you include $2 million
    for the operational and programmatic support of The CORE Center in the
    fiscal year 1998 VA-HUD-Independent Agencies Appropriations Bill.
        Thank you Mr. Chairman for your consideration of our request.
                                     ______

       Prepared Statement of the American Association of Retired Persons

        American Association of Retired Persons (AARP) appreciates this
    opportunity to comment on funding next year for housing programs which
    affect the lives of many low-income older Americans. We also want to
    take this opportunity to acknowledge the Subcommittee's historical
    support of initiatives which benefit the elderly.
        Our recommendations can be summarized as follows:
        Secs. 202 and 811.--Provide sufficient funds for the Sections 202
    and 811 Housing Programs in order to continue current production levels
    of project-based assistance to older persons and persons with
    disabilities;
        Alternatives for younger persons with disabilities.--Make available
    to public housing authorities the resources necessary to develop and
    adapt alternatives to elderly housing for younger individuals with
    disabilities. Designate at least 5,000 vouchers for persons with
    disabilities and target them to housing authorities most affected by
    the ``mixed population'' problem;
        Housing counseling.--Provide sufficient funds for the Housing
    Counseling Program, which is under statutory obligation to provide
    counseling to reverse mortgage consumers;
        Supportive services.--Set aside adequate resources for Public
    Housing Supportive Services;
        Congregate housing services.--Set aside funds to continue existing
    projects under the Congregate Housing Services Program;
        Section 8 assistance.--Provide sufficient resources to continue
    Section 8 assistance contracts; and
        Corporation for National and Community Service.--Provide sufficient
    funds for the Corporation for National and Community Service.

        FULFILLING THE PROMISE TO SERVE OLDER PERSONS AND PERSONS WITH
                                  DISABILITIES

        Despite policy differences that will undoubtedly be debated at
    great length in Congress this year, nearly all parties agree that the
    time has come to weed out ineffective programs, wasteful bureaucratic
    structures, and counterproductive regulations. Entrepreneurial
    government and rewarding success have become the new themes of housing
    policy discussions. As the debate continues, AARP believes that it is
    also important to remember and reward existing programs that work,
    including elderly housing programs.
        Relevant parties in the public and private sectors have all
    acknowledged that programs like Section 202 Elderly Housing work well
    for older persons with low incomes. The Association is mindful of the
    need to produce housing as cost effectively as possible. We stand ready
    to work with the authorizing committee in this regard. However, pending
    any changes that would improve the productivity of the existing Section
    202 program, we urge that funding be provided to allow for current
    production levels next year.
        The Administration's Section 202 budget request represents a cut of
    more than 53 percent below the existing appropriation and would
    severely curtail the production of specialized rental housing for the
    elderly. The number of new housing units to be constructed would drop
    from 8,526 to 3,865. Section 202 helps meet an acute housing need for
    frail, low income older persons. Research indicates that eight people
    are waiting for every one vacancy that occurs. Meanwhile, many elderly
    are forced to live in unsafe housing and unsafe neighborhoods because
    of limited resources. The average Section 202 tenant is a frail woman
    in her mid-seventies living on an annual income under $10,000. Cuts
    made here, Mr. Chairman, really end up hurting those most in need.
        In addition, AARP urges that a minimum of 5,000 vouchers be
    designated to fund the tenant-based assistance program for younger
    persons with disabilities authorized in the Housing and Community
    Development Act of 1992. We recommend that these vouchers be targeted
    to public housing authorities (PHA's) which have been most affected by
    problems that have occurred as the result of housing the younger
    disabled with the elderly. PHA's need these resources along with
    additional development and modernization funds in order to meet the
    challenge of providing real housing alternatives and choices to younger
    persons with disabilities.
        One of the thorniest issues to face FHA and policy decision-makers
    is the restructuring of the current inventory of FHA-insured housing,
    much of which has rental assistance under Section 8 or other programs.
    Seeking to reduce HUD's long-term rental assistance costs, the
    Administration has proposed a plan to ``mark to market'' the properties
    and convert the project-based assistance to tenant-based assistance as
    contracts expire. Proponents contend that both quality and price should
    improve as housing providers are subjected to competitive pressures of
    the marketplace. Also it is argued that the process would significantly
    reduce the Department's future requirements for budget authority and
    help move the Administration toward meeting its deficit reduction
    goals.
        Unfortunately, the Administration's plan leaves many questions
    unanswered relating to the transition and long-term program effects on
    project residents. The answers will be critical in evaluating whether
    or not the risks inherent in this approach--rent increases or
    displacement--are worth taking. Pending legislative resolution of these
    important program questions, AARP recommends that sufficient resources
    be provided to continue extending assistance contracts as provided
    under existing law.
        Because almost half of the residents of Section 8 projects are
    elderly, the risks associated with the Administration's proposal must
    be weighed carefully. HUD has proposed to protect current residents
    against negative effects by providing an ``enhanced voucher'' that
    would pay the difference between 30 percent of the household's income
    and the new market rent for the unit, even if that rent were higher
    than HUD's normal limit for the locality. However, a recent General
    Accounting Office report notes that these enhanced vouchers would
    increase the costs of the ``mark to market'' proposal, making the
    program savings from the change less clear-cut. Further, the proposal
    does not answer the question of how to successfully relocate displaced
    tenants in tight local markets. AARP understands that the
    Administration is currently considering a ``choice coupon'' proposal
    that would give such residents the option of remaining in their current
    housing unit. But it should be emphasized that the majority of elderly
    projects are working very well now. The burden of proof, therefore, is
    very high in demonstrating that the outcome of the dramatic changes
    proposed is likely to be substantially better than more modest
    improvements to the current system.

               PROMOTING THE INDEPENDENCE OF FRAIL OLDER PERSONS

        AARP recommends that no less than the proposed $50 million for
    public housing supportive services continue to be set aside out of the
    Community Development Block Grant (CDBG). These resources are used to
    support a variety of eligible activities including nonmedical,
    congregate services to the frail elderly as well as Service
    Coordinators.
        Service Coordinators have proven their value as part of the
    management team in elderly housing projects. The need for such
    coordinators is especially acute in public housing projects for the
    elderly, which often include large numbers of residents with mental and
    physical disabilities. AARP believes that the cost for such personnel
    should be made part of routine operating expenses of elderly housing
    projects. We recommend that HUD be encouraged to fund them as part of
    operating budgets.
        The first contracts funded under the Congregate Housing Services
    Program (CHSP) are due to expire next year, curtailing services that
    are desperately needed by frail and disabled tenants of public and
    assisted housing. Many of the estimated 4,000 tenants currently
    assisted by CHSP will be forced to relocate to expensive and confining
    nursing homes. AARP recommends that these expiring contracts be
    extended for another year by setting aside sufficient resources in the
    CDBG program. We further recommend that HUD be directed to come up with
    an alternative strategy for providing future funding for these vital
    services.
        AARP also urges that sufficient funds be made available next year
    for the Housing Counseling Program. This program requires independent
    counseling for those elderly homeowners who seek FHA-insured reverse
    mortgages. These mortgages allow older homeowners who are ``house rich
    but cash poor'' to tap into the equity in their homes to pay for
    meeting basic needs. Given recent reports of scam artists taking
    advantage of older homeowners who seek such mortgages, the need for
    adequate resources to continue the Counseling Program is critical.
                 corporation for national and community service
        AARP further recommends that sufficient resources be made available
    for programs administered by the Corporation for National and Community
    Service. Older Americans are not only participants in programs like
    AmeriCorps, but recipients of its community-based services as well. And
    many older persons participate in programs as mentors and tutors to
    youngsters in schools across the nation. These valuable activities
    foster civic responsibility and strengthen the ties that bind us as a
    people.
        Thank you again for this opportunity to comment on some of the
    Administration's budget proposals for fiscal year 1998.
                                     ______

    Prepared Statement of James H. Mullen, Jr., Vice President for Student
                            Affairs, Trinity College

                               EXECUTIVE SUMMARY

        Founded in 1823, Trinity College is an independent, nonsectarian
    liberal arts college with an enrollment of about 1,800 undergraduates
    and 200 graduate students. Its academic excellence was recognized as
    early as 1845, when it became the eighth institution in the nation to
    be granted a chapter of Phi Beta Kappa. Trinity's demanding vision of
    higher education is shaped by three fundamental commitments: to
    excellent instruction that is personal and conversational, to the
    rigorous pursuit of the liberal arts, and to reaping the educational
    advantages of its setting in Connecticut's capital city.
        As one of the nation's preeminent liberal arts colleges, Trinity
    sustains and nurtures a diverse community of learning united by a
    common engagement with the classic liberal arts tradition. Within this
    context, in recent years, one of the College's chief aims has been to
    connect its goals and mission to its urban environment in ways that
    reflect a fundamental commitment to the City and to its rigorous
    liberal arts curriculum.
        Trinity's new commitment, the Neighborhood Initiative, was
    announced in January of 1996. The Neighborhood Initiative is a
    comprehensive $175 million effort to revitalize the historic
    communities surrounding Trinity's campus in South Hartford. The
    initiative is designed to create a safe, viable area which also is a
    central hub of economic development, new jobs and educational, health,
    and family support activities. The initiative reflects an emerging
    national trend in which institutions and communities are joining forces
    to solve urban problems and create mutual growth and development. For
    Trinity and for Hartford, the Neighborhood Initiative marks the highest
    level of collaborative engagement and activity since a group of
    Hartford residents worked together to establish the College almost 175
    years ago. The partnership includes a unique mix that successfully
    joins a largely impoverished Latino community with city/state
    government agencies, private businesses, hospitals, and a prestigious
    liberal arts educational institution.
        The Neighborhood Initiative will reinvigorate an economically
    distressed neighborhood in the southern part of Hartford with a
    comprehensive, cooperative and bottom-up philosophy. It will do so
    analyzing the problems of the neighborhood within the broader context
    of the problems of the institutions within that neighborhood. Each
    entity confronts the need to survive, and each has a stake in growth
    and development. Second, it strives to bring about revitalization
    through a corporate-institutional-community partnership that affirms
    the will, determination, and innate capacity of local residents. This
    is a program designed to offer the tools, education, and resources
    critical to the advancement of the people living in the area. It is
    renewal from within, not from without. It is renewal that is proactive,
    not passive. It is renewal that fosters self-sufficiency and creative
    problem-solving, not dependency and canned solutions. Finally, the
    project strives to reinvigorate a very manageable target area of the
    city. So while it is ambitious, it is also very manageable given the
    scope of the problems facing Hartford and other urban centers
    throughout the nation. In so doing, the project has great potential for
    serving as a model for other cities, institutions and urban areas
    confronting similar dilemmas.

                 THE NEED FOR COMMUNITY INVESTMENT AND RENEWAL

        For the past decade, there has been a critical need for jobs,
    housing, recreation facilities, education and training in the Frog
    Hollow and Barry Square neighborhoods. In particular, there has been a
    need for leadership, resources and a spirit of cooperative problem-
    solving. It is that vision of development from within that will help
    local residents fulfill their dreams and rebuild their community. The
    Neighborhood Initiative fulfills that need.
        Hartford is the fourth poorest city in the nation. A range of
    startling indicators highlight the need for comprehensive approaches to
    community development in Hartford:
      --One child in three lives in poverty, compared to one in four
            nationally;
      --A 1990 survey of three neighborhoods found 72 percent of homes
            female-headed, and 62 percent of households below the poverty
            line;
      --45 percent of high school freshmen did not graduate with their
            class 4 years later, and only 50 percent of persons over 28 had
            high school diplomas; and
      --A 1990 survey of two mainly Latino neighborhoods found 48 percent
            of households could not speak or read English.
        Crime is significant in the neighborhoods of Hartford being
    targeted by this project. In 1990 there were 297 narcotics arrests of
    adolescents under the age of 17 in Hartford. There were 169 youth
    referrals to juvenile court for narcotics offenses in 1990. In the same
    year, there were 157 juvenile referrals for other types of crime. Staff
    of a local gang prevention project indicate girls are increasingly
    involved in illicit activity such as gun/drug trafficking, theft, and
    credit card falsification. Violence has become a way of life for many
    Hartford youth. In Connecticut, homicide is the second leading cause of
    death among 15-19 year-olds and the leading cause among minority males
    15-24.
        Increasingly, young people are affected by poverty and crime.
    Despite a decline of adolescents nationwide, Hartford is a
    disproportionately young city--one-third of residents are youth--and
    most youth are persons of color. Most city youth under 18 are African-
    American, Caribbean or Hispanic. The infant mortality rate is 21-35
    percent, paralleling that of many third world nations. Teen pregnancy
    is chronic. Like Latinos nationwide, only 78 percent completed high
    school in 1990 compared to 91 percent for Anglos and 84 percent of
    African-Americans. A 1990 report on education in Hartford stated 45
    percent of high school freshmen did not graduate with their class 4
    years later, and only 50 percent of persons over 28 had high school
    diplomas. Dropping out of school is associated with linguistic and
    cultural isolation.
        To further aggravate the situation, many families have abandoned
    their homes. In Frog Hollow about 13 percent of housing is vacant.
    Mobility is also high. One study reported that in the past five years
    Frog Hollow families moved between 3-6 times. Many local businesses
    have been forced to close down due to crime, poor sales, and lack of
    credit. Large employers have also disinvested, leaving families without
    jobs only to rely on public assistance and drug sales--for income. The
    mood created as a result of this collective message of flight and lack
    of confidence has resulted in a sense of anger, frustration, and
    despair.
           an alliance for economic development and community renewal
        The Neighborhood Initiative covers a 15-block area in the heart of
    historic Frog Hollow and Barry Square neighborhoods nestled between the
    College and Southside Institutions Neighborhood Alliance (SINA) partner
    institutions. SINA partners participating in the renewal efforts are:
    the Connecticut Children Medical Center, Hartford Hospital, the
    Institute of Living, and Connecticut Public TV and Radio. The
    revitalization effort encompasses renewed housing, increased home-
    ownership and employment opportunities, and retail and commercial
    development, as well as expanded parking and improved streetscapes,
    lighting and security. The aim is to create the underlying support and
    infrastructure needed for local residents to advance economically and
    educationally. The project strives to provide the tools, resources and
    skills needed by the community to move and develop from within. It
    seeks to recognize the innate potential of residents; capitalize upon
    their fortitude; and help people find their own solutions. Slated for
    completion by 2002, the Neighborhood Initiative will become a bedrock
    for a community that has long suffered crime, blight, disinvestment,
    gang involvement, nonresident homeowners, family fragmentation, and
    lack of stability and lack of credit. It will become home to hundreds
    of low- and middle-income families who will send their children to
    school in Learning Corridor schools; take pride in affordable single
    family dwellings; work in local businesses, and shop in newly developed
    retail stores.
        The Learning Corridor is a cornerstone of the neighborhood
    revitalization initiative. The Learning Corridor is a comprehensive,
    community endeavor designed to offer general and specialized education,
    skills-building, and support to over 2,000 Hartford families, largely
    Puerto Rican, and hundreds of students of all cultural backgrounds
    living in the metropolitan region. To be constructed over the next four
    years directly east of the College on a former bus garage site acquired
    from the State, the Learning Corridor will consist of a unified
    physical complex within walking distance to shops, churches, child
    care, health facilities, libraries, parks, a college, and other basic
    resources. It will house the following educational and training
    projects: a regional Montessori-style public elementary school; a
    public neighborhood middle-school; a regional math, science and
    technology high school resource center; and, a regional arts high
    school program; and a professional teacher training and development
    center.
        Also within the Learning Corridor will be broader programs to
    support family education and training, including: an early childhood
    and family support center, a youth development center, recreation
    facilities and a series of arts and cultural heritage programs and
    events. The overall endeavor will have linkages with numerous children,
    youth, and arts/cultural programs in the City and the region. The
    Learning Corridor will also generate and test new methods of
    redefinition and renewal that can be adapted to other colleges and
    universities in urban areas nationwide.
        It is envisioned that the Neighborhood Initiative and the Learning
    Corridor will evolve into an independent community entity. It will be
    governed by a diverse group of education, business, governmental and
    community leaders from the neighborhood, the City and the region.
    Administrative and academic representatives from the College will also
    participate in the governing body. The latter individuals will, in
    part, come from a regional steering committee. This new community
    entity will also have its own identity and physical space within the
    Learning Corridor's central administrative offices. The Neighborhood
    Initiative will be an economic, cultural and social anchor within
    Hartford's south end. It will deepen ties between residents and the
    College, as well as between residents and other SINA institutions.
    Further, it will create opportunities for learning engagements,
    volunteering, student internships, cultural exchanges, and a host of
    activities that will benefit students, faculty and health professionals
    at local institutions. Finally, it will offer learning challenges to
    hundreds of families residing in and outside of Hartford. It will also
    provide vitally needed training, health/social programs, recreation
    facilities, housing, employment and other services to local residents
    that will guarantee its vigor and life well into the next century.
        The Neighborhood Initiative will generate significant employment
    opportunities within the community of South Hartford. Initial economic
    impact studies estimate that 400 primary jobs will be created from the
    construction and associated improvement efforts. Additional employment
    opportunities will be generated over the life of the entire project.

                     CORPORATE, STATE AND COMMUNITY SUPPORT

        The Learning Corridor and the Neighborhood Initiative have broad
    support at the local, city, state and regional levels. Key entities
    that have been involved in planning and development include:
    institutional members of SINA, the Loctite Corporation, the Aetna
    Foundation, the Hartford Public Schools, State and City governments,
    the Boys and Girls Clubs of America, the Trinity Center for
    Neighborhoods, Hartford Areas Rally Together, Spanish American Merchant
    Association, Broad Park Development Corporation, Capital Region
    Education Council and Trinity Community Child Care Center. Numerous
    community leaders, residents, youth, and several local service
    organizations have also been participating in the planning. Fannie
    Mae's Connecticut Partnership office has provided technical assistance
    and funding for the development of an Employer Assisted Housing Program
    to provide incentives for employees to buy homes in the target area and
    Hartford.
        The Learning Corridor and the Neighborhood Initiative also have the
    backing and intimate involvement of Trinity's President and senior
    administrative, academic and development staff and of SINA partner
    institutions. Together, the five SINA institutions have combined
    budgets of $500 million and a total of 7,000 employees in Hartford.
        The project will provide a broad range of services for neighborhood
    residents that are important to the State and the nation. Hartford is
    the state capital, and has a large stake in restoring its physical and
    economic health. Hartford is also a regional center of growing
    importance along the northeastern corridor, with increasing ties to
    cities across the country through business and industry. As such, it
    plays an important role in the national economy. It is critical that
    the city be economically healthy. The present project will play an
    important role in achieving that end. It will offer within the southern
    sector of the city the following: home ownership opportunities,
    economic development, employment and training, education, early
    childhood screening, day care, family supports, and youth development.
    Each of these programs are designed to offer a comprehensive package
    that addresses the needs of the entire family from birth through old
    age. The aim is to revitalize an entire community in a way that fosters
    self-sufficiency and growth from within. The project is an important
    model for other urban centers experiencing similar problems. Both the
    State and federal government can point to the project as a powerful
    example of community-institutional partnership for urban renewal.
           federal support for an innovative approach to urban blight
        Since the announcement of the Neighborhood Initiative by Trinity
    College President Dobelle in January 1996 the core staffing,
    consulting, and predevelopment costs for the Initiative and the
    Learning Corridor have been supported by financial contributions from
    the SINA institutions. Because Trinity serves as the lead institution
    it has added two new positions and created the Department of
    Institutional and Community Relations to support the Initiative. As the
    College and SINA move from planning to implementation with the
    components of the Initiative, the cost of improving the infrastructure
    and development capacity continues to increase.
        The College seeks $4.3 million in Federal assistance to support the
    Neighborhood Initiative's planning, acquisition and environmental
    abatement, demolition, and coordination needs for next three years.
        There are two types of planning activities that are needed for the
    next phase of the project. First, a long term master plan for each of
    four quadrants around Trinity College needs to be developed with
    intensive community involvement and support on a block-by-block level.
    The cost of each quadrant plan is $50,000 and will include a
    coordinated process that will bring together the present Neighborhood
    Revitalization Zones Committee's plans and those of the merchants
    associations in each quadrant. Secondly, most of our current planning
    activities and resources have been aimed at the first-time buyers and
    home-ownership development. A significant amount of the current vacant
    or distressed housing stock is in multi-family buildings. A plan needs
    to be developed to determine which buildings require demolition,
    rehabilitation and/or changes in use. The plan must include an
    inventory of conditions: present use and potential future uses in the
    present market. The plan will include an analysis of current funding
    opportunities and how they could be packaged with institutional support
    to attract housing and retail developers to the target area. The plan
    is projected to cost $400,000 for acquisition and economic development
    plans in each quadrant.
        Acquiring the 15 block target area is the Neighborhood Initiative's
    biggest challenge. Most of the properties in the area that are vacant
    need to be foreclosed by the city or written off by the mortgage
    holder. The College, SINA and the City are assembling parcels for the
    Learning Corridor. There are another 75 sites throughout the target
    area that need to be acquired. A minimum of 45 properties are proposed
    to be acquired with the assistance of the City of Hartford. The City,
    in most cases, will foreclose on buildings but their cost and tax
    write-off would be significant since there are about 600 abandoned
    buildings citywide. The SINA institutions have proposed to pay the city
    the cost of foreclosing and $10,000 per property (or $450,000 in total
    for the 45 target) in the back taxes. The cost of a non-contested
    foreclosure to the City is $3,000 and $5,000 if contested. If the
    assumption is that half of the foreclosures will be contested, then the
    cost will be in the range of $180-$200,000. The total cost of
    acquisition with assistance from the City is estimated at $650,000.
        The other 30 properties will be acquired through negotiated sales
    involving the owner and their mortgage holder. These sales would be to
    a tax-exempt entity and land-banked until it is time to turn it over
    for development in the overall quadrant plans. In order to be able to
    develop successful plans, site control is important for attracting
    prospective non-profit and profit developers. We are proposing the
    establishment of a matching fund of $1 million for the purpose of
    purchasing the non-city assisted acquisitions. This fund will be
    matched with another $1 million from the SINA institutions.
        In cases where rehabilitation of present structures are not planned
    or are unfeasible, the structures must be remediated for lead and
    asbestos, then demolished. This cost is prohibitive on two grounds.
    First, Trinity and SINA may not have an immediate reuse of the property
    when it is targeted for acquisition and some of the vacant property
    will be used for open-green space, recreation or community gardens.
    Absorbing this redevelopment cost in properties that in most cases have
    negative market value is a disincentive and an unreasonable risk.
    Second, in the event that the institutions decide to absorb the
    redevelopment cost associated with demolition, it is very unlikely that
    the cost could be recaptured in the development budgets since most of
    the initial projects will require an ``affordability-subsidy'' because
    the incomes of prospective buyers and renters are low. The costs of
    remediation and demolition are driven by location and future uses. An
    estimate of $1.5 million is needed for remediation and demolition of
    property.
        As evidenced by the success of the coordination of the Learning
    Corridor, the College's Office of Institutional and Community Relations
    will serve as the lead implementation team that coordinates the
    community, city, state, federal, and private stakeholder that will
    participate in the Initiative. The Office requires $250,000 a year over
    a three-year period for a total of $750,000. This is in addition to
    SINA and Trinity's current total commitment to the Office of over $3.1
    million.

                                    SUMMARY

        Responding to the escalating crime and unemployment in Hartford,
    the $175 million Neighborhood Initiative is an ambitious, yet
    realistic, solution to revitalizing the economically depressed
    community of South Hartford. The Initiative has brought together all
    aspects of the community, state and local governments to work together
    to help the area regain its economic and social stability to create an
    environment where businesses and community residents can flourish.
        A $4.3 million community and economic development grant will help
    Trinity College, its SINA partners and the community to meet this
    crucial challenge of revitalizing the depressed areas of Hartford that
    surround the college campus and neighboring institutions. The
    Neighborhood Initiative will constitute one of the largest reinvestment
    efforts in a concentrated area of Hartford. It requires leadership and
    commitment and we ask that the Federal government be committed to being
    part of the solution.

                             FEDERAL GRANTS AWARDED
    ------------------------------------------------------------------------
                                      Dollar amount           Dates
    ------------------------------------------------------------------------
    Department of Education
     Program:
        SEOG 96-7 E-P007A60799/5-          $290,718
         20107.
        CWS 96-7 E-P033A60799/5-            203,495
         20109.
        PELL 96-7 E-P063P61376/5-           374,371
         20105.
        Perkins 96-7 E-PO38A60799/0-         55,139
         4500.
    Department of Housing and Urban         580,000
     Development: HUD COPC-CT-0024/
     5-20260.
    Department of Commerce:                 196,452  10/01/96-09/30/98.
     Department of Commerce-
     Langeland 09-40-96027.
    Department of Agriculture: USDA-         43,743  10/15/96-10/31/98.
     Archer 96-35311-3811/5- 20237.
    Research/Development
        NSF-Brown ATM-9424423/5-             73,200  12/01/95-11/30/98.
         20201.
        NSF-Blackburn BIR-9512508/5-        221,000  08/15/95-07/31/98.
         20202.
        NSF-Bronzino BES-9509117/5-          75,000  03/15/96-08/31/97.
         20203.
        NSF-Lang DUE-9653736.......         190,093  09/01/97-08/31/99.
        NIH-Bronzino 1 R15 NS/              109,462  05/28/96-05/30/98.
         OD35287-01/5-20222.
        NIH-Prigodich 1 R15 GM52712-        105,912  06/01/95-05/31/98.
         01/5-20223.
        NEH-Lang RH-21201-94/5-             111,000  09/94-08/97.
         20230.
        NEH-Lang EW-20283-94/5-              87,221  05/25/95-05/25/97.
         20232.
    ------------------------------------------------------------------------

                                     ______

             Prepared Statement of Local Initiatives Support Corp.

        The Local Initiatives Support Corporation (LISC) is pleased to
    submit this statement regarding fiscal year 1998 HUD Appropriations for
    the U.S. Department of Housing and Urban Development (HUD), and in
    particular three HUD programs that affect low-income communities--HOME,
    CDBG and the National Community Development Initiative.
                  a new stability for low-income neighborhoods
        These three programs, along with the Low Income Housing Tax Credit
    (LIHC), have fueled a remarkable if unheralded wave of low-income
    community revitalization. Indeed, stability is returning to some of
    this country's toughest inner-city neighborhoods. The idea that these
    neighborhoods might be salvageable is potentially of great national
    significance, because it means that America has begun to find a way to
    confront one of its most serious problems. While there are many, many
    low-income neighborhoods in deep trouble, there are others with enough
    revitalization activity to establish substantial, sustainable progress.
    Most of these reviving neighborhoods are still poor and face numerous
    hurdles, but the evidence of regeneration is unmistakable: population
    has stabilized; physical conditions are much improved; crime is down;
    civic engagement is greater; bank lending and property values have
    increased; and public services are more responsive. A renewed sense of
    hope, pride and responsibility is spreading in the inner-city.

                          THE ROLE OF COMMUNITY GROUPS

        Nonprofit community groups formed by churches, civic associations,
    and ordinary residents have led most of the serious neighborhood
    revitalization efforts. Government and the private sector have become
    critical partners and undertaken subsequent activities, but
    neighborhood organizations have usually taken the first initiative.
        Nationwide, these community development corporations (CDC's) have
    produced hundreds of thousands of affordable homes, and some have
    invested in commercial enterprises, or are involved in anti-crime,
    child care, job training, health care and other activities. Equally
    important, community groups have brought residents together with the
    private sector and government to create a new sense of hope for
    neighborhoods that the popular press and most other outsiders write off
    as irretrievable.
        CDC's succeed in so many diverse places because they embrace
    mainstream American values. Because these values transcend ideology,
    CDC's have been able to generate broad participation and are an
    attractive instrument of public policy. We believe CDC's have been
    ahead of many of the emerging changes in federal policy.
      --Self help.--CDC's are vehicles that community residents create to
            take responsibility for improving their neighborhoods and
            enforcing pro-social behavior.
      --Community building.--CDC's bring people together, reinforce the
            social fabric, and bolster community institutions from churches
            to little leagues. Their mission to rebuild communities
            physically, economically and socially transcends housing or any
            other single issue.
      --Local control.--CDC's bring decision making down to the
            neighborhood level, where it is closest to the people. CDC's
            work well with city and state officials.
      --Partnership.--CDC's are pragmatic and collaborative, not
            confrontational. They recognize that no single organization can
            revive a neighborhood alone. CDC's, government, and the private
            sector--lenders, investors, property owners, developers,
            businesses, foundations, and others--all contribute to and
            benefit from community development activities.
      --Investment.--The only long-term, sustainable way to revive low-
            income communities is through investment, private as well as
            public. A principal function of public investment is to
            stimulate private investment, create healthy, functioning
            markets, and to connect isolated, distressed communities to the
            economic mainstream.
      --Tangible results.--This is perhaps the most important and
            distinguishing characteristic of CDC's. The visible results of
            community development, such as housing and retail development,
            are verifiable proof that community development works. Less
            tangible outcomes--greater community cohesiveness, new
            relationships with public and private institutions, stronger
            community leadership, and a new sense of hope and progress--are
            undeniably important, but it is CDCs' tangible results that set
            them apart from many other efforts and impart credibility to
            claims of less visible outcomes.

                              HOW LISC HELPS CDC'S

        LISC was created 17 years ago as a nonprofit organization to enable
    the private sector to assist CDC's in their efforts to transform
    distressed neighborhoods into healthy communities. LISC operates with
    the convictions that: community regeneration must come from within the
    community itself; that government at all levels, the private sector,
    and community residents all have critical roles to play and must work
    together as active partners; and that CDC's are the most effective
    agents for fighting poverty in the most distressed communities in the
    United States.
        Our first name is ``Local.'' We are a constellation of 37 local
    programs nationwide, a list of which is attached, serving over 100
    cities and urban counties. Funds raised locally are matched by national
    LISC on a formula basis. Each LISC program is served by local staff and
    governed by a local advisory committee. In addition, in November 1995,
    we began a new Rural LISC program to invest $300 million through 68
    rural CDC's nationwide.
        We believe that engaging the private sector is essential to the
    community development process. Private involvement is not a substitute
    for governmental funding, and public funds are necessary to make
    private investment feasible. But community development requires that
    isolated neighborhoods join the economic mainstream. Not only is the
    active involvement of the private sector necessary to community
    development, but business leaders genuinely want to participate. It is
    our job--and, we would assert, the government's job as well--to create
    opportunities for them to do so.
        Our primary focus has been to build the financial and technical
    capacity of CDC's to sponsor housing and commercial development
    projects. We provide project financing and technical support to CDC's:
    grants, loans, recoverable grants, equity investments and loan
    guarantees for project development, operating support, and up-front
    predevelopment costs. Since 1979, LISC has provided $2.2 billion in
    grants, loans and equity investment to over 1,400 CDC's nationwide. The
    funds have, in turn, leveraged an additional $3.1 billion in financing
    to build or rehabilitate over 68,000 homes and apartments and create
    9.6 million square feet of commercial and industrial space. We provided
    $481 million in grants, loans, and investments to CDC's in 1996 alone.
        LISC has also expanded the scope of our support for the wide range
    of activities undertaken by CDC's including social community
    development, and a wider range of economic development activities.

                                   HUD'S ROLE

        We believe that, in general, HUD's role should be to support the
    efforts of local communities to meet their housing and community
    development needs. Two HUD programs that do just that are the HOME
    Investment Partnerships Program (HOME) and the Community Development
    Block Grant (CDBG). They, along with the Low Income Housing Tax Credit
    (LIHC), have fueled the neighborhood revival process. The constraints
    on HOME, CDBG and LIHC's are now a principal bottleneck constraining
    neighborhood revival. In many cities, competition for these scarce
    resources means that many important projects must wait two or three
    years to get funding, and private investment is being choked off. We
    may be losing this historic opportunity to reclaim not just
    neighborhoods and the families who live there, but something even more
    precious: our self-confidence as a nation to solve our most difficult
    problems.
        Attached to this testimony are seven descriptions of projects
    developed with the help of HOME and/or CDBG funds. We believe these
    stories will help illustrate the important work both programs help to
    produce.
        HOME.--HOME is now seen as HUD's most important tool for producing
    affordable housing and an indispensable resource for nonprofit and for-
    profit sponsors and state and local governments.
        The National Housing Task Force, convened in 1987, conceived what
    in 1990 became the HOME program as the centerpiece for the Cranston-
    Gonzalez National Affordable Housing Act. Congress and the task force
    intended HOME to be a flexible resource to strengthen state and local
    housing production systems, in stark contrast to previous federally
    driven approaches, and to engage CDC's and private developers,
    investors, and lenders as active partners in the process.
        Since 1993, when regulations implementing crucial amendments were
    issued, HOME has become an invaluable resource. States and localities
    have been spending funds expeditiously. HOME has already assisted over
    230,000 housing units at an average HOME contribution of $19,800. In
    addition, roughly 31,000 families are receiving HOME tenant-based
    rental assistance. HOME is combined effectively with other sources of
    financing and works extremely well with the Low Income Housing Tax
    Credit program. Each dollar of HOME has attracted an additional $1.79
    of other funds; LISC has participated in the financing of many of these
    properties.
        We are especially pleased by the way HOME is helping to forge new
    local partnerships with CDC's. We strongly support the 15 percent set-
    aside of HOME funds in each state and locality for nonprofit Community
    Housing Development Organizations (CHDO's), whose definition
    accommodates the vast majority of CDC's. In addition, the 1992
    amendments permit states and localities to use up to 5 percent of their
    HOME funds to support the operational expenses of CHDO's. These
    provisions have sparked new and greater opportunities for CDC's. Where
    CDC's and state and local governments already had good relationships,
    HOME has strengthened and deepened those relationships. Elsewhere, HOME
    has brought CDC's and state and local governments together for the
    first time.
        CDBG.--The Community Development Block Grant program has for many
    years been a critical resource for CDC's and low-income communities
    generally. While HOME has focused primarily on housing production, CDBG
    is used for a broader range of activities critical to low-income areas,
    including economic development, community facilities such as health
    clinics, day care centers, and youth recreation centers,
    infrastructure, and certain public services. Numerous CDC's use CDBG
    for a wide range of activities and the vast majority of funds benefit
    low-income people and areas. In fact, in a major 2\1/2\ year study of
    the program, the Urban Institute concluded: `` * * * in every city,
    neighborhoods would have been worse off had the program never existed,
    and certainly, cities would not have embarked on the housing and
    redevelopment programs that now comprise a core function of municipal
    government.''
        Over the last three years, Congress has shown its support for HOME
    and CDBG by providing them level funding during a period of severe
    pressure to reduce the domestic budget. Achieving level funding was
    seen as a success since many other HUD programs were cut deeply. Yet,
    continuing to deny increases to these programs is no longer
    satisfactory.
        We urge Congress to continue its strong past endorsement of both
    programs by approving modest increases in their appropriations. We
    support fiscal year 1998 appropriations for the HOME program of at
    least $1.5 billion--a $100 million increase over the fiscal year 1997
    appropriation of $1.4 billion. For the CDBG program, we support an
    appropriation of at least $4.6 billion for the core CDBG program
    allocated to states and localities. All funding for new or existing
    set-asides within the program should be either funded as separate
    programs or provided funding in addition to the $4.6 billion.
                   national community development initiative
        Just like private business, CDC's start small and grow over time.
    As CDC's grow, they can take on new and more complex challenges, but
    again, similar to small businesses, they can experience growing pains.
    Capacity building programs are needed to help CDC's successfully manage
    growth to become financially stable, sophisticated organizations,
    poised for even greater productivity. Capacity building may include
    board and staff training, funds for equipment, asset management
    training, and a wide assortment of other activities geared towards
    strengthening the operations of CDC's.
        One successful capacity building program is the National Community
    Development Initiative (NCDI). LISC helped to conceive the NCDI under
    which seven private foundations and the Prudential Insurance Company
    provided $62.8 million in grants and loans to assist CDC's in
    developing 4,400 affordable new homes. LISC and the Enterprise
    Foundation administer the funds. In 1993, the Congress authorized and
    appropriated $20 million for HUD to contribute for the second phase of
    the program. This modest federal participation attracted $87.7 million
    in grants and low-interest loans from 10 national foundations and
    corporations as match for the federal funds. LISC and Enterprise have
    passed every federal grant dollar through to CDC's primarily for
    capacity building activities. Over the course of the program, over
    15,000 units of affordable housing have been made possible by this
    partnership. We expect these nationally raised funds to generate at
    least another $1.4 billion in project financing and other support, a
    remarkably effective use of federal funds. In 1996, another $10 million
    NCDI participation was approved as part of the HUD Extender Bill. Along
    with the $10 million requested by the Administration for fiscal year
    1998, we expect this HUD participation to attract even higher levels of
    private sector participation in the NCDI program.
        The Administration is requesting an additional $10 million for the
    National Community Development Initiative (NCDI) as a set-aside within
    the CDBG program for fiscal year 1998. We support at least this funding
    level for NCDI as a separate account.

                                   CONCLUSION

        America faces its most pressing problems--adjusting to economic
    change, controlling crime, improving public education, and reducing
    welfare dependency--most intensely within the inner city. We as a
    nation cannot successfully meet these challenges unless we take them on
    in the cities. Nor can the cities consolidate and build on their
    nascent recovery unless they effectively meet these same challenges.
    What is new is that effective local initiatives, bolstered by six years
    of economic expansion, have created an organizational, economic,
    social, and physical foundation on which to build.
        So, Congress deserves praise for rewarding the good performance of
    the HOME and CDBG programs by maintaining level funding for the past
    three years. However, we support an increase in both programs as well
    as funding for NCDI, to help continue to support the efforts of
    effective community groups.
        This concludes LISC's statement.

                             35 LISC PROGRAM AREAS

        Baton Rouge, Bay Area, Boston, Chicago, Cleveland, Connecticut
    Multi-Cities, Detroit, Hartford, Houston, Indiana Statewide, Northwest
    Indiana, Indianapolis, Kalamazoo, Kansas City, Little Rock, Las Vegas,
    Los Angeles, Greater Miami, Michigan Multi-Cities, Milwaukee, Mid-South
    Delta, Monongahela Valley, New Orleans, New York City, Newark, Palm
    Beach County, Philadelphia, Phoenix, Puget Sound, Rhode Island,
    Richmond, San Diego, St. Paul, Toledo, and Washington, DC.
                                     ______

                            kansas city cdbg project
        Project Name.--Metropolitan Homes
        Project Address.--31st and Brooklyn, Kansas City, MO.
        CDC Sponsor(s).--CDC of Kansas
        Number of Units.--60
        CDBG Funds.--$1,200,000
        Total Project Costs.--$5,479,637
        Metropolitan Homes is a newly-constructed affordable rental housing
    project built with the intent to meet the diverse needs of residents
    living within the Linwood/Prospect area. Located within Kansas City's
    core urban communities, this area was once known for having the highest
    crime rate, three times the poverty rate, twice the unemployment rate
    and half the median housing value of the city. In order to address
    chronic distress of abandoned buildings, drug dealing and middle-class
    flight, the Community Development Corporation of Kansas City (CDC-KC),
    developed Metropolitan Homes.
        CDC-KC is a non-profit community-based organization founded in
    1970. Since its inception, CDC-KC has primarily concentrated on
    commercial redevelopment. However over the past eight years, CDC-KC has
    vigorously pursued a multi-faceted community development strategy,
    including housing and commercial development and social service
    activities. During this time, CDC-KC produced over 150 homes affordable
    to low- to moderate-income families. With a staff of 13, the CDC-KC has
    helped create more than 1,200 new jobs, including 560 jobs to construct
    and operate of three commercial retail centers.
        CDC-KC provides a broad range of services for its tenants and
    community residents. For example, home healthcare service is available
    for residents with special needs, while a transportation company
    provides reverse commute services to Metropolitan Homes residents at a
    reduced cost.
        Metropolitan Homes is a 60-unit project comprised of five buildings
    with 12 apartments each, half of which have garages. Each two-bedroom
    unit contains nearly 900 square feet of living space. The apartments,
    which rent for $400 a month on average, provide homes for ten families
    with incomes at or below 50 percent of area median income ($23,150 for
    a family of four), and 50 families that earn no more than 60 percent of
    the area median income ($27,780 for a four-person household).
        A host of public and private organizations contributed to make this
    project possible. CDC-KC received a ten-year tax abatement on the
    property by the city. The National Equity Fund invested $2.7 million
    through the Low Income Housing Tax Credit program while Boatmen's Bank
    and the Housing Development Corporation and Information Center made
    construction loans for $1.1 million and $1 million, respectively. An
    allocation of $1.2 million in Community Development Block Grant funds
    was made by the City of Kansas City. In addition, the Kansas City
    Redevelopment Authority cleared the land and did preliminary site work
    at no cost.
        Due to the proximity of the property to the Metropolitan Missionary
    Baptist Church, CDC-KC formed a strong bond with this active
    institution. The church played a leadership role in finding tenants,
    which happened in less than 90 days. Today, many church members are
    Metropolitan Home residents.
        Metropolitan Homes is part of broad long-range economic
    redevelopment plan developed by the CDC-KC. The apartments are not only
    conveniently located within walking distance of churches and schools,
    but are adjacent to other CDC-KC developments such as the Linwood
    shopping center area and a retirement community.
        The fact that Metropolitan Homes provides a safe environment and
    source of quality housing for its residents has not gone unnoticed.
    Last year, CDC-KC was honored with the Maxwell Award of Excellence from
    the Fannie Mae Foundation for its innovative approach to the
    development of Metropolitan Homes. In their support for nominating
    Metropolitan Homes for an award, its residents said that living there
    ``gives them a sense of security and comfort''. Moreover, one widowed
    resident, wrote: ``It's clean, quiet and private, a place where my
    daughter and I can call home''.
                         north little rock home project
        Project Name.--Argenta Home Rehabilitation
        Project Address.--108 Melrose Circle North Little Rock, AR.
        CDC Sponsor(s).--Argenta Community Development Corporation
        HOME Funds.--$27,200
        Total Project Costs.--$63,000
        For many years, the historic Argenta neighborhood of North Little
    Rock, Arkansas maintained the highest crime rate in the city. Yet, many
    dilapidated single family bungalows and vacant lots offered
    opportunities for development. In 1994, the Argenta Community
    Development Corporation (Argenta CDC) was created by residents who had
    formed a Booster Club to identify properties which needed substantial
    improvement. Argenta CDC enjoys a strong base of neighborhood support,
    with over 270 people on the CDC membership list.
        In just two short years, the CDC's efforts have brought more than
    $1.6 million into Argenta to renovate single-family homes. A total of
    23 single-family have been rehabilitated. Sales of renovated homes have
    been swift, and the transformation of the area has been remarkable. A
    neighborhood once plagued with crime and instability is home to new
    homeowners in well-maintained houses. More families have been moving
    back into Argenta, crime rates have plummeted and a new sense of
    neighborhood pride is spreading.
        One of the homes Argenta CDC assisted was 108 Melrose Circle.
    Originally constructed in 1924, the house remained abandoned for
    several years prior to the Argenta CDC's purchase. The house was in
    disrepair from years of neglect and a series of haphazard and unsafe
    additions. It also represented an arson risk. The CDC's improvements to
    the house resulted in the creation of a 3-bedroom, 2-bath home to
    accommodate Michelle Martin and her family.
        Michelle Martin was born in North Little Rock. One of five
    children, she was raised by a single mother in a poor area of the city.
    Michelle became a single unwed mother herself at age fifteen and left
    school after the ninth grade.
        As an adult, Michelle lived in public housing for seven years, and
    was supported by welfare and food stamps. In 1985, through her own
    efforts, her life began to take a turn for the better. She became an
    employee of the North Little Rock Public Schools, and is now a
    supervisor of a school cafeteria where she earns $11,000 annually.
    Currently, she is also working towards her GED. Within the last two
    years, Michelle successfully completed self-sufficiency classes offered
    by the North Little Rock Housing Authority, and was among the first of
    many low-income home buyers to seek assistance from Argenta CDC. She
    completed home buyer counseling classes.
        To help make Michelle's dream of homeownership a reality, $27,200
    in HOME funds helped finance construction and her mortgage. The Argenta
    CDC Board approved the application for HOME funds in recognition of
    Michelle Martin's remarkable ``Welfare to Work'' life story. Other
    financial partners include First Commercial Bank and Metropolitan Bank
    which provided a line of credit for contractors. The Community
    Development Agency of the City of North Little Rock and ARKLA, the
    local gas company, provided a grant for gas street lamps for all of the
    Argenta rehabilitated homes.
        With help from the HOME program, Michelle was able to purchase her
    home and is now one of nineteen home owners residing in Argenta CDC-
    assisted homes. She lives with her three children and one grandchild.
    When asked about her new home, Michelle states, ``It is everything I
    always desired, more comfortable than any place I have ever lived. I
    thank Argenta CDC for helping me make my dream of owning my own home
    come true.
                              newark home project
        Project Name.--St. James CDC, Phase II Rentals
        Project Address.--134-148 Broad Street, Newark, New Jersey
        CDC Sponsor(s).--St. James CDC
        Number of Units.--30
        HOME Funds.--$500,000
        Total Project Costs.--$3,402,913
        The St. James community is known as a neighborhood with garbage and
    debris strewn vacant land, blatant drug dealing and businesses. Located
    in the lower Broadway prostitution, and abandoned neighborhood section
    of Newark's North Ward, St. James is lacking retail services and public
    parks and playgrounds are scarce. Supermarkets or pharmacies are absent
    while highly priced mini-markets serve as substitutes through-out the
    area. Renters outnumber homeowners by a ratio of 4 to 1. About half of
    St. James' residents are housed in properties built before World War
    II, while very little new housing stock exists.
        With a 90 percent minority population, the St. James neighborhood
    is rated the third poorest section in the City of Newark. Over 41
    percent of all families in St. James live below the poverty level in
    contrast with 23 percent of families city-wide. Renters regularly pay
    more than half of their household income for shelter.
        St. James Community Development Corporation, incorporated in 1992,
    was originally established as St. James Square Housing Corporation in
    1989. It was responsible for planning the St. James Square housing
    project in conjunction with the Episcopal Diocese of Newark. St. James
    CDC's mission is to provide a vehicle for neighborhood-based efforts to
    affect systemic change in the community's physical and social well-
    being.
        While serving as sponsor for affordable housing and other community
    development projects, St. James CDC also builds partnerships with other
    organizations to meet identified community needs. Recently, St. James
    Community Development Corporation and La Casa de Don Pedro, a
    neighboring CDC, agreed to jointly undertake a comprehensive community
    revitalization process. The goal of this collaboration is to transform
    the Broadway section of North Newark into a dynamic and viable
    community. The collaborative effort will oversee the construction of
    150-200 additional units of affordable housing, strengthen and develop
    the local economy, and stimulate the social fabric of the community
    through the provision of social services. Phase II, a historic
    restoration project, was St. James' second housing venture. The nine
    historic limestone and brownstone townhouses, dating back to 1893, were
    recently placed on the National Register of Historic Places by the
    Department of the Interior. They are unique Italian-influenced,
    Renaissance Revival rowhouses, three stories high with an elevated
    basement. They were renovated to retain their original look by
    utilizing the authentic woodwork and moldings.
        The project will house 30 families in 1 four-bedroom, 24 two-
    bedroom, and five three-bedroom apartments. Six units were reserved for
    recently homeless families. All of the apartments are rented by
    families at or below 50 percent of area median income.
        Funding for Phase II included $500,000 in HOME funds, grants from
    the State Department of Community Affairs Balanced Housing Program and
    contributions from the Episcopal Diocese of Newark. The National Equity
    Fund raised $449,000 in equity through Low Income Housing Tax Credits.
    Other partners included Thrift Institutions Community Investment
    Corporation of New Jersey, and the Federal Home Loan Bank of New York's
    Affordable Housing Program.
        As stated by Mayor Sharpe James, ``Newark, the third oldest major
    City in America after New York and Boston, is a leader in urban
    renewal. We see a rebirth for Newark's neighborhoods in preserving
    these magnificent historic properties.'' The restoration of the
    limestone rowhouses signifies the completion of a neighborhood
    revitalization plan by St. James CDC to rebuild the community's
    affordable housing base.
                              houston cdbg project
        Project Name.--Heritage Homes--Phase I
        Project Address.--5th Ward Community, Scattered Sites, Houston,
    Texas
        CDC Sponsor(s).--Fifth Ward Community Redevelopment Corporation
        CDBG Funds.--$450,000
        Total Project Costs.--$2,250,000
        The 5th Ward has the lowest income in the city with sixty-two
    percent of the residents living below the poverty line. Houston's 5th
    Ward Community Redevelopment Corporation (CRC) was organized in 1989 by
    5th Ward residents, business owners, ministers, educators and civic
    leaders to be a catalyst for rebuilding a healthy community through
    housing and business development, neighborhood safety and
    beautification. The CRC has either built or rehabilitated over 100
    affordable for-sale homes for low-income families in the community.
    Some of the CRC's accomplishments include the rehabilitation of two
    historic homes, the creation of a chamber of commerce for neighborhood
    businesses, and neighborhood safety-related improvements. In the near
    future, CRC plans to develop a day care center, a mixed commercial and
    residential project, and affordable rental housing units.
        Heritage Homes I is the first phase of a multi-phase project to
    develop 150 affordable single family homes for the 5th Ward
    neighborhood. The project includes homes that range in size from 2 to 4
    bedrooms with up to 1,700 square feet of living space, constructed on
    scattered sites in the northeast corner of Houston's Central Business
    District. The project will be developed over the next three years.
    Heritage Homes is giving 30 families the chance to purchase newly built
    single family homes. Phase II is scheduled to produce forty more homes
    in 1997. Administered by the City of Houston, a Community Development
    Block Grant (CDBG) grant of $450,000 was used to write down loans, pre-
    pay development costs, and finance closing costs for homebuyers.
    Private partners such as Bank United assisted with permanent financing.
    The project represented the first affordable for-sale housing units
    built in Houston's inner-city in years. Homeownership opportunities are
    finally a reality for 5th Ward families desiring quality affordable
    housing.
        Since its development, Heritage Homes I has not only increased home
    ownership but also made a significant contribution to improving the 5th
    Ward housing stock. Moreover, community residents observed how Heritage
    Homes I became a catalyst for additional development and investment in
    the community. Now several private developers are interested in
    developing and investing in the area due to its close proximity to
    downtown Houston. One such example is Texas Commercial Bank, which in
    its new location, will be the first financial institution in the 5th
    Ward community in over 30 years. The 5th Ward community has also
    recently welcomed a Walgreens drug store and a retail commercial
    business.
                              houston home project
        Project Name.--Plaza de Magnolia Apts.
        Project Address.--7310 Sherman, Houston, Texas
        CDC Sponsor(s).--Association for the Advancement of Mexican
    Americans CDC (AAMA CDC)
        Number of Units.--84
        HOME Funds.--$420,000
        Total Project Costs.--$4,542,000
        The East End neighborhood of Houston is predominately Hispanic, and
    is comprised of approximately 85,000 residents, many of whom are Latin-
    American immigrants. This community has experienced many years of
    disinvestment and neglect during which the housing stock deteriorated
    and dozens of apartments were lost to demolition. It is estimated that
    there is a need for at least 10,000 units of affordable family housing
    in the East End neighborhood. For the first time in more than 30 years
    new affordable homes were developed in a project called Plaza de
    Magnolia Apartments.
        Sponsored by the CDC affiliate of the Association for the
    Advancement of Mexican Americans, Plaza de Magnolia was developed by
    one of the largest Hispanic non-profit social service agencies in
    Texas. AAMA has provided educational and social services to the East
    End community for 25 years. The CDC is a non-profit, tax-exempt
    organization, established to encourage the development of affordable
    housing opportunities and other projects to meet the East End's
    community development needs.
        Plaza de Magnolia Apartments has 84 new rental units ranging from
    one- to three-bedrooms for individuals and families. Rents, ranging
    from $375 to $525 per month, are affordable to the tenants whose
    incomes range up to $19,800 for individuals and up to $32,000 for a
    family of four. Partners in the project include Homes for Houston
    Organization, a city-sponsored non-profit corporation that serves as a
    clearinghouse of affordable housing information for Houston's
    residents. Project financing includes $2,435,000 in equity raised using
    Low-Income Housing Tax Credits provided by LISC's National Equity Fund,
    and a first mortgage of $1,688,000 from the Bank of United Texas.
    Administered through the City of Houston, federal HOME funds provided
    $420,000 in gap financing of the $4,542,000 total development costs.
        Plaza de Magnolia Apartments is providing safe, decent, and
    affordable housing opportunities and is stimulating private investment
    in the neighborhood--breathing new life into a once dying community.
                             san diego home project
        Project Name.--Mercado Apartments
        Project Address.-- 2001 Newton Avenue, San Diego, California
        CDC Sponsor(s).--Metropolitan Area Advisory Committee on Anti-
    Poverty of San Diego County, Inc. (MAAC Project)
        Number of Units.--144
        HOME Funds.--$758,600
        Total Project Costs.--$12,377,000
        For six years, Sonia Rodriquez and her three children shared a two-
    bedroom apartment with her sister, Sandra Le, her brother-in-law and
    their three children in the Barrio Logan Community. Sonia and her
    children slept in one bedroom while Sandra, her husband and children
    slept in the other. Sonia, 34, recalls, ``When my children Fabian, 12,
    Laiza, 10 and Vicki, 5, were small, it (their living conditions) was
    O.K. and we dealt with it, but as they were growing up their needs for
    their privacy grew, especially for Fabian, my son.'' So when Sonia's
    application was accepted for a new three-bedroom, two bath apartment at
    the Mercado Apartments, she was very excited. ``When my family and I
    moved into our apartment, it was like we won the lottery!'' she
    exclaimed.
        Developed on an industrial lot once owned by a utility company,
    Mercado Apartments is a 144 unit family rental development located
    adjacent to Chicano Park, across the San Diego Bay from Coronado. The
    development created 144 family apartments including 18 one-bedroom, 60
    two-bedroom, and 66 three-bedroom family dwellings
        All of the apartments are affordable to families who earn 60
    percent or less than the area median, or $27,000 for a family of four.
    Residents of Mercado Apartments use on-site social services such as a
    Head Start daycare facility and job placement program. While Chicano
    Park has been a symbol of Latino activism and cultural pride since
    1970, Mercado Apartments represents a symbol of renewed community
    spirit and revitalization as the first major residential development in
    Barrio Logan in more than 50 years.
        The nonprofit sponsor and co-developer of Mercado Apartments is the
    Metropolitan Area Advisory Committee, also known as the MAAC Project.
    The MAAC Project has been serving low-income people of San Diego County
    since 1965. It is dedicated to building mixed-income, multi-ethnic,
    service-enhanced and self-sufficient communities in San Diego County.
    The MAAC Project combines its community base with professional services
    to the Latino community, such as alcohol and drug recovery counseling.
    For the past 17 years, an ongoing public/private partnership effort has
    existed between the MAAC Project and neighborhood residents, the City
    of San Diego, and the financial community to improve the living and
    working conditions of the Barrio Logan population. The MAAC Project has
    also developed ten homes for first-time home buyers, and is currently
    developing both Boston Gardens, a housing facility for persons living
    with HIV-AIDS, and a retail center.
        A financing collaborative for Mercado Apartments was made possible
    with nearly $760,000 in HOME funds through the San Diego Housing Trust
    Fund, and about $3 million dollars in low-interest loans from the City
    of San Diego Redevelopment Agency. Almost $5 million in equity was
    raised by the California Equity Fund and a grant of $800,000 was
    provided by the Affordable Housing Program.
        The Mercado Apartments is seen as a focal point for future
    redevelopment activities in the Barrio Logan community. The development
    not only attracted current residents like Ms. Rodriquez, but has made
    it possible for former residents to return to the neighborhood. This
    renewed interest reverses the trend of neglect, abandonment,
    disinvestment and out-migration. In addition, other new developments
    are springing-up. One example is an ambitious plan for a future 100,000
    square foot project called the Mercado Commercial Center. The center
    will be adjacent to the apartment complex and plans to include a major
    supermarket, retail shops, and a neighborhood theater.
        ``Slowly but surely, nonprofits and government agencies are joining
    hands to complete these projects and reclaim hope in this beleaguered
    community'', says Rich Juarez, director of the MAAC Project.
        Several local and national awards have recognized the MAAC
    Project's efforts to create affordable housing. Mercado Apartments won
    Honorable Mention from the Affordable Housing Tax Credit Coalition's
    1995 Excellence Award competition and was an alternate in the Fannie
    Mae Foundation's Maxwell Award competition. The project was also the
    Nonprofit Federation for Housing and Community Development Project of
    the Year for 1994 and won the San Diego Housing Commission Community
    Partners Award.
        The greatest reward, however, is the sense of renewed hope and
    neighborhood pride for Ms. Rodriquez and the 560 Mercado Apartment
    residents. At the apartments, Sonia is very busy with tenant
    activities. She works and volunteers at the nearby Perkins Elementary
    School attended by her two oldest children. She bakes cupcakes for the
    Friday night movies, and helps with yard sales, holiday parties and
    potlucks. She also attends parenting classes sponsored by the San Diego
    Urban League. Getting involved has become a family affair for Sonia and
    her sister. Sonia was recently elected Vice-President of the Mercado
    Apartments Tenant Association while Sandra Le was chosen as Treasurer.
        The town-like, family-oriented atmosphere is enhanced by the
    security Sonia's family feels as Mercado Apartment residents. ``When my
    friends come from outside to the apartments'', she says, ``they are
    always comfortable, and you feel very proud to live here.''
                        cleveland home and cdbg project
        Project Name.--Willow Rose Homes
        Project Address.--Scattered Sites in Glenville and Forest Hills
    Cleveland, Ohio
        CDC Sponsor(s).--Northeastern Neighborhood Development Corporation
    and Lutheran Housing Corporation
        Number of Units.--56
        HOME Funds.--$200,000
        CDBG Funds.--$300,000
        Total Project Costs.--$5,400,000
        The Willow Rose project was co-developed by two community
    development corporations (CDC's): the Northeastern Neighborhood
    Development Corporation (NNDC) and the Lutheran Housing Corporation
    (LHC).
        NNDC serves the residents of Ward 9, which includes the Forest
    Hills, Glenville and South Collinwood neighborhoods in Cleveland.
    Founded in 1994, NNDC's mission is to improve the community through
    organizing, code enforcement, home repair, housing rehabilitation,
    construction and commercial development. Since 1994, NNDC has completed
    56 units of housing and has constructed 46 new homes. With the support
    of Congressman Louis Stokes, NNDC recently completed an ambitious
    planning effort for Lakeview Ave., the major commercial artery for the
    neighborhood, which will create significant residential and commercial
    development.
        LHC was founded in 1973 as an initiative of the Lutheran
    Metropolitan Ministries to assist low and moderate income families
    obtain and maintain quality affordable housing. Currently they provide
    housing counseling, energy conservation, elderly home repair, furnace
    repair and a tool loan program. In addition, LHC is implementing a
    long-term comprehensive housing program in East Cleveland. Their
    current projects include renovating and selling existing homes,
    repairing occupied homes and providing pre-purchase and foreclosure
    prevention counseling. LHC's other major programs include involvement
    in a county-wide program to renovate and sell vacant HUD houses, and to
    act as co-developer with emerging CDC's involved in both homeownership
    and housing credit projects throughout Cleveland.
        Willow Rose is one of the most well-known and successful
    collaborations between NNDC and LHC. Named for Cleveland's City
    Councilmen Craig E. Willis and Roosevelt Coats, from Wards 9 and 10
    respectively, Willow Rose is 56 new and rehabilitated single-family
    homes scattered among various sites within the Glenville/Forest Hills
    neighborhoods. Forty-six of the homes provide affordable rental housing
    to families with an option to purchase after 15 years. The remaining 10
    new homes were sold to families at market rate ($90,000-$100,000) with
    a deferred second mortgage provided by the City of Cleveland.
        Financing for the 46 leased homes includes a combination of
    $200,000 in HOME funds from the State of Ohio, $3,105,000 in Low Income
    Housing Tax Credit equity, and $300,000 in CDBG support from the City
    of Cleveland. These homes are being leased to families making
    approximately $25,000 annually.
        The strategic reinvestment of $5,400,000 back into the community
    not only offers quality and affordable housing to residents, but it has
    further strengthened the housing market for the whole community. The
    sale of the new homes for $90,000--$100,000 demonstrates that the
    market is rebounding and that people want to come back to Cleveland's
    neighborhoods.
        All homes have a full basement and attached garage. Standard
    amenities include laundry rooms, central air conditioning, dishwashers
    and large landscaped lots. Many of the homes have vaulted ceilings. New
    homeowners also enjoy the option to select upgrades like fireplaces or
    bay windows to personalize their homes to reflect their own tastes and
    needs. NNDC continues to provide training to families on how to
    maintain their homes, upgrade their landscaping and annually they have
    Christmas and Halloween parties for the families.
        Very little marketing was necessary since news of the project
    spread quickly by word of mouth, reaching one former Glenville resident
    named Crystal Washington. Before returning to Glenville, Crystal lived
    in a tiny two-bedroom apartment in Euclid, a suburban community of
    Cleveland with her two daughters. Her former home had no yard. As a
    single mother expecting a third child, Crystal paid more for renting
    the apartment than the monthly lease payment for a Willow Rose home.
        Today at Willow Rose, Crystal lives in a 1,350 square foot, three-
    bedroom house with her three daughters. There is a large yard with
    plenty of room for the children to play. An avid gardener who likes to
    work with flowers, Crystal is known to have one of the best-looking
    backyards in the neighborhood! Before moving in, Crystal and all other
    new Willow Rose residents participated in orientation and maintenance
    workshops to learn the basics of upkeep of a house, developing them
    into ``perfect homeownership material''.
        Currently, all of the homes are fully occupied. The lease-purchase
    program of Willow Rose Homes has had a major impact on the Glenville/
    Forest Hills community. The attractive family homes gave families like
    Crystal's an affordable opportunity for homeownership, a more stable
    environment for their children, and instilled in them a sense of
    neighborhood pride. By giving it a new face-lift to create stability
    for its residents, Willow Rose Homes has encouraged additional
    investment in the Glenville/Forest Hills neighborhood.
                                     ______

      Prepared Statement of Henry M. Cagey, Chairman, Lummi Indian Nation

        The Lummi Nation supports the Native American Housing Assistance
    And Self-Determination Act Of 1996 (NAHASDA). The Lummi Nation was one
    of the Tribal governments which entered into discussions with the HUD
    Office of Native American Programs to support their administrative de-
    regulation and the legislation to create the Block Grant Program. The
    Lummi Nation views the development of the Housing Block Grant Program
    as an integral part of our overall goal of Self-Governance within the
    American family of governments.
        This act enables Tribal governments to develop and implement a
    comprehensive plan consistent with actual Tribal housing needs and
    resources to meet local housing needs, which was not previously
    available. The need for a new approach is obvious. After over 30 years
    of working with the HUD Indian housing program the members of the Lummi
    Nation continue to suffer from the lack of safe, affordable and
    standard housing. Approximately 40 percent (2,200 people) of all Lummi
    Nation members are either homeless or housed in substandard housing or
    housing which cost more than 30 percent of their monthly income.

           THE ADMINISTRATION'S BUDGET PROPOSAL FOR FISCAL YEAR 1998

        The Administration's budget proposal for HUD reflects the
    President's commitment to balance the federal budget by 2002. As a
    result, the Administration proposes allocations for the next five
    years. The proposed budget recognizes NAHASDA and combines several
    categorical grants for Indian housing into one block grant. It proposes
    $485 million for fiscal year 1998, and for each of the following four
    years. The proposed budget also allocates $3 million for the Indian
    Housing Loan Guarantee program (Section 184) which will leverage
    approximately $36 million per year through 2002.
        Lummi Indian Nation 1998 appropriation requests: $148 million
    Funding for Tribal Planning and Implementation; $850 million for Basic
    Affordable Housing Activities; $32 million Funding to Support our
    Access to Private Financial Resources; and $6 million Section 184 Loan
    Guarantee Program.
    $148 million funding for tribal planning and implementation
        Tribes and Tribal Housing Programs need adequate dollars for
    additional implementation costs now necessary to carry out the block
    grant. The NAIHC estimates that tribes and Tribal Housing Programs need
    $148 million to plan, manage and administer the grants as well as to
    undertake the environmental reviews that are now their responsibility.
    Funds are also needed for planning and technical assistance to further
    prepare Tribal Housing Programs and tribes for NAHASDA. Some tribes
    lack the capability to adequately manage and oversee their housing
    programs. Insufficient funding only compounds this problem.
    $850 million for basic affordable housing activities
        Mr. Chairman, the Administration's budget proposal for Indian
    housing falls far short of our need. The National Indian Housing
    Council (NAIHC), estimates that approximately $850 million will be
    needed to address the current housing need in each of the next five
    years. This is significantly more than the amount proposed by the
    Administration, which is ultimately a compounded cut, due to inflation,
    for each year after fiscal year 1998. Each year inflation will eat at
    our precious dollars and each year their value will dwindle.
        With the passage of NAHASDA, NAIHC estimates that approximately 30
    more tribes can participate. These are, in large part, federally
    recognized tribes that have not previously participated in the housing
    program and new federally recognized tribes that are now eligible. The
    program is already seriously under-funded given current housing needs,
    provides no increase for inflation, nor does it account for new
    participants who are now eligible.
    $32 million funding to support our access to private financial
            resources
        The Administration has provided no funding for the Loan Guarantee
    Program known as Section 601. The Lummi Nation is extremely
    disappointed that the Administration has failed to fund Section 601. We
    hope that this does not signal their abandonment of this mechanism to
    enable Tribal governments to access private financial resources. With
    zero funding until 2002, millions of private dollars will escape our
    reaches while we scramble to stretch declining federal housing dollars.
    Indian Country must wait, in spite of the acute human need, while the
    federal government solves its fiscal problems.
        NAHASDA will allow us to meet current needs by guaranteeing, to
    private lenders, future financial resources. The Act provides for a
    Loan Guarantee program (Section 601), similar to the Community
    Development Loan Guarantee (Section 108) used in the rest of America.
    Section 601 will allow us to guarantee future dollars, using private
    lenders, to finance housing projects that we can begin building now.
    The leveraged amount could be as much as $400 million. Section 601 is
    essential for Indian reservations and Native communities in an era of
    declining federal housing dollars. It is an indispensable tool that
    will help us move private financing into our communities where few
    private lenders dare to venture. Mr. Chairman and Members of this
    Committee, without this option Indian people will remain solely
    dependent on decreasing federal dollars for which there are countless
    competing forces.
        The Lummi Nation supports the NAIHC estimate that the Loan
    Guarantee Program needs about $32 million in credit subsidy. This small
    investment could potentially leverage twelve times more in private
    housing funding, or $400 million. It seems a minor amount in comparison
    to the huge contribution it will bring to our impoverished Native
    American communities.
    $6 million section 184 Loan Guarantee Program
        Mr. Chairman, the Lummi Nation supports the NAIHC request of $6
    million for the Indian Housing Loan Guarantee Program (Section 184).
    Congress created this program in 1992 and appropriated its first $3
    million in fiscal year 1993. This funding however, has not changed
    since 1993. The Section 184 program is well-received and well-known in
    Indian country. Each year appropriations for Section 184 are used, and
    demand is growing. HUD expects to commit its fiscal year 1997 Section
    184 appropriation months before the September 30 deadline.

                       LUMMI INDIAN NATION HOUSING NEEDS

        Current housing needs.--Overall housing need--893 families (nearly
    2,200 people).
        Rate of increasing need.--The need for housing is increasing at the
    rate of 55 units per year based on the annual birth rate of 112 per and
    the rate of household formation.
        Cost of current backlog.--At an average cost of $80,750/per housing
    unit the total costs to meet the existing backlogged housing needs of
    the Lummi Indian Nation would be $66 million.
        Infrastructure needs.--Infrastructure development including access
    roads, water lines and sewer lines and pump stations needed to support
    the housing need would cost an additional $22 million.
        Impact of welfare reform.--The impact of welfare reform on members
    of the Lummi Indian Nation is anticipated to be severe. We anticipate
    that those persons currently on our Housing waiting list will be the
    most severely impacted. These families are now facing substandard
    housing and a rental market which prices them on the outside looking in
    on the prosperity of the mainstream American economy. The current
    prosperity of America is still a dream for most residents of our
    Reservation. There is no booming local economy waiting to absorb low
    skilled and in many cases workers without even basic communications
    skills of reading and writing. With nearly 1,000 families dependent on
    income transfer programs housing will be a major issue in their
    transition from dependency to prosperity.
        The Administration proposes programs that housing authorities will
    be able to use for creating jobs, linking welfare recipients to jobs,
    and leveraging funds to increase job opportunities. Who pays the rent
    when welfare payments stop? How will tribes and Tribal Housing Programs
    make up the difference? Members of this Committee, you must understand
    that welfare reform will hit us very hard. The Administration's budget
    has not factored the impact of welfare reform into its request for the
    Indian housing block grant.
        Violence in cluster housing sites.--Over the past five years the
    Lummi Nation has documented an increase in youth violence on the
    Reservation and particularly in housing cluster sites, which are
    modeled after large public housing developments in urban areas. The
    divorce of Public and Indian Housing provided by NAHASDA will enable
    Tribes to design housing cluster sites which support family
    relationships as legitimate sources of behavioral control.
        Davis Bacon Act requirements.--We recognize the efforts of the
    Committee to relieve us of the burden of complying with the
    requirements of the Davis Bacon Act. Unfortunately, these requirements
    remain in NAHASDA despite our repeated attempts to remove them. Davis
    Bacon does not have the positive benefits to workers that its
    proponents are seeking on our Reservation. The administrative burden
    imposed by Davis Bacon increases our costs and does not translate into
    better wages. We request that these requirements be waived for
    Reservation areas and be maintained in areas where there are
    demonstrated benefits.
        Thirty percent of income rule.--While we appreciate that the
    statute provides for rental caps for families who are trying to earn
    funds to move out of subsidized rental units it does not allow
    sufficient flexibility to work with families with little or no income.
    These families comprise the majority of families who occupy our rental
    units. Thirty percent of zero is zero. We are requesting approval of a
    sliding scale approach to rent rates. This will enable us to set
    reasonable rents based on the local market, which recognize the ability
    of even the poorest among us to live with dignity by contributing to
    the extent that they can to their own support.

                         LUMMI INDIAN NATION SUCCESSES

        Lummi Nation addresses its own housing needs.--Over the last 4
    years Lummi Nation Housing Authority has been re-organized to
    incorporate it into the management structure of Lummi Nation
    Government. Now known as Lummi Nation Housing Program, this program has
    revised its housing development, management and transition policies and
    procedures. A new housing ordinance has been developed which authorizes
    the Tribal Council to address a wide range of housing needs through its
    housing, social, health, educational and credit programs.
        Lummi Nation accomplishments.--Over the last 4 years Lummi Nation
    Housing Authority has constructed 160 new units of housing and
    renovated another 60 units of existing housing. The Lummi Nation is
    also one of the very few Tribal governments which has been awarded a
    HOPE I Grant. This grant is being used to fund the conversions of 50
    existing rental units into homeownership units to be purchased by the
    current renters. HOPE I funds are also providing an expansion in the
    child care facilities available to housing residents.
        Also, during the past four years the Lummi Nation has been one of
    the most active in the process of developing financial connections with
    the local private housing financing.
        Section 248 Leasehold Mortgages.--The Lummi Indian Nation was one
    of the first to develop the ordinances and procedures needed to enable
    Tribal members to finance their homes on reservation trust lands
    through the Section 248 Program.
        VA Home Loan Program.--The Lummi Nation was the second Tribal
    government to receive approval for its Memorandum of Understanding with
    the Veterans Administration to enable its Veterans and their families
    to participate in the VA Home Loan Program.
        HUD Section 184 Loan Guarantee Program.--The Lummi Nation is also
    one of the leaders in the use of the Section 184 HUD Loan Guarantee
    Program.
        Lummi Nation Mortgage Company and Credit Union.--The Lummi Nation
    is currently developing on reservation private credit resources, which
    include a mortgage financing company and a credit union.

                                   CONCLUSION

        Fiscal year 1998 is NAHASDA's first year! A poorly funded program
    undermines the historic reform and great promises of NAHASDA. Success
    breeds success. If we are successful in informing you of our true
    financial needs and if we are all successful in securing the level of
    funding we know is needed; then NAHASDA will be a success for Indian
    people. If the funding is not adequate and we cannot even fund our
    basic operations, then we cannot implement these plans. Our people
    cannot live in our plans; promises provide no shelter from the bitter
    cold and the grand designs we have supported through NAHASDA will
    provide little more than more of the same. Our people need a stable
    base from which to launch their escape from poverty to a future of
    prosperity. They need housing. Housing on a scale that dwarfs the
    current effort. Otherwise, Tribes and Tribal Housing Programs will
    begin to question the foundation, meaning, and purpose of NAHASDA. Our
    intentions as leaders will be doubted.
        Mr. Chairman, I know that you are a supporter of NAHASDA. Our
    members are grateful for the changes it will bring. I am sure, however,
    that we always knew that without adequate appropriations, our struggle
    to house Indian people would fail. A new program that is under-funded--
    with funding levels that fail to account literally decades of neglect
    or the impact of welfare reform--will be a program that has great
    potential, yet ultimately fails to enable Native Americans an
    opportunity to achieve goals that other Americans take for granted.
        I strongly urge the Committee to reconsider the Administration's
    budget proposal and consider the requests of the National Indian
    Housing Council and the Lummi Indian Nation.
        Thank you.
                                     ______

     Prepared Statement of Merle Boyd, Acting Principal Chief, Sac and Fox
                                     Nation

        Chairman Bond and distinguished Members of the Committee, on behalf
    of the Sac and Fox Nation, I thank you for this opportunity to present
    the position of the Sac and Fox Nation regarding the fiscal year 1998
    appropriations for the Department of Housing and Urban Development,
    Public and Indian Housing programs. And, to submit for the record, our
    support for this Committee's efforts and those of the Administration
    towards the implementation of the Native American Housing Assistance
    and Self-Determination Act of 1996.
                              appropriation needs
        The Sac and Fox Nation asks that consideration be given to the
    following fiscal year 1998 appropriation requests for the Department of
    Housing and Urban Development:
      --Increase Indian Housing block grant to $850 million;
      --Provide $32 million to implement Section 601--Loan Guarantee
            Program;
      --Provide $6 million for the Section 184 Indian Housing Loan
            Guarantee Program; and,
      --Earmark $148 million to new and existing Tribal Designated Housing
            Entities (TDHE's) planning and to complete studies to implement
            the Comprehensive Housing Plans (CHP's), and conduct
            environmental reviews.

                          BACKGROUND AND HOUSING NEEDS

        After thirty years of service to the low-income Indian population
    within the Sac and Fox Nation's jurisdiction, we continue to move
    forward to meet the housing needs of Indian people. In 1993, the Sac
    and Fox Nation was the first Tribe in Oklahoma to remove itself from
    State control by establishing a housing authority under the sole
    jurisdiction of the Tribe. We have managed our own housing programs
    quite well under this structure and welcome HUD representatives to
    review and monitoring our operations. The principles of the Native
    American Housing Assistance and Self-Determination Act of 1996, are
    consistent with our Tribes efforts to self-govern our Indian population
    and to work diligently towards meeting the serious shortfall of
    providing safe and standard housing. We are actively administering 325
    mutual help homes and 44 low rent units with an additional 30 low rent
    units underway. These housing developments make a small dent in our
    overwhelming housing needs. There are 500 applicants on the waiting
    list for mutual help homes and over 100 applicants seeking low rent
    housing units. This listing of applicants awaiting housing assistance
    serves as a constant reminder of the level of appropriations for
    housing in comparison to the identified local housing needs.

                      NARRATIVE JUSTIFICATION ON REQUESTS

    Increase Indian Housing block grant to $850 million
        Based on current housing needs for Indian country, the
    Administration's proposal for $485 million falls significantly short of
    the Nation's Native American housing needs. While realizing that
    Congress must remain conscientious about reducing the budget deficit,
    the acute housing needs for impoverished Indians cannot be ignored.
    $850 million annually, is needed to address the housing needs of Indian
    country under a five year budget plan, which also considers
    inflationary factors.
    Provide $32 million to implement Section 601--Loan Guarantee Program
        The Native American Housing Assistance and Self-Determination Act
    authorized Section 601--Loan Guarantee Program. However, the
    Administration has provided zero funding for implementation through
    2002. While the rest of America is ably administering a similar program
    under Section 108 Community Development Loan Guarantee, Indian country
    will be unable to venture into private financing in an effort to
    leverage other dollars to stretch the ever-shrinking federal dollar
    made available for housing assistance.
    Provide $6 million for a Indian Housing Loan Guarantee Program
        This highly popular program was created by Congress in 1992 in
    which Section 184 funding was appropriated in the amount of $3 million
    for Indian country. Demand for this type of service continues; whereas,
    appropriations have been flat-lined for the past five years. An
    additional $3 million is requested to meet current demand.
    Earmark $148 million for new and existing Tribal Designated Housing
            Entities (TDHE's) planning, complete studies, and conduct
            environmental reviews
        The implementation of the new Act requires the development of
    Comprehensive Housing Plans (CHP's). In order for our TDHE to update
    its current needs, complete accurate assessments of future housing
    construction needs, enhance administration capability and accept
    primacy over environmental studies, assessments and clearances,
    additional funding is needed to transition to this new way of carrying
    out our respective housing responsibilities. A comprehensive housing
    plan requires comprehensive planning which cannot not be adequately
    carried out without funding to support the tasks at hand.

         NATIVE AMERICAN HOUSING ASSISTANCE AND SELF-DETERMINATION ACT

        The enactment of the Native American Housing Assistance and Self-
    Determination Act of 1996 was a historic event which brought forth
    renewed optimism to Tribes throughout Indian country for a housing
    program which has struggled to meet the dire needs of impoverished
    Indian households. We bring to this Committee's attention, areas of the
    Act which require clarification, and in some instances additional
    appropriation needs to fulfill Congress' intent and purpose.
    Implementation Time Lines
        The time allotted for TDHE's to implement the act is insufficient.
    Additional time and appropriations (as cited above) are needed to
    implement a comprehensive housing plan. Implementation of the Act
    should be consistent with fiscal year time lines, beginning on October
    1, 1997.

    Davis Bacon Act
        As with HUD Indian Community Development Block Grant construction
    grants of years past, Davis Bacon requirements should not be mandatory
    for Indian country. While the Sac and Fox Nation does not want to
    lessen the value of qualified construction workers, the prevailing
    wages of the area should be the focal point for determining actual
    wages for skilled workers. A waiver of Davis Bacon should be an option
    to each TDHE to self-determine appropriate construction wages for a
    Tribal reservation and/or service area.
    Multi-Tribe Designated Housing Entity
        While separate plan certifications are required for each Tribe
    under a Multi-Tribal Designated Housing Entity, the Act is not clear as
    to whether separate accounting mechanisms will also be required. The
    Sac and Fox Nation believes that such a process can become convoluted
    if complete segregation is required in all areas of administering
    housing assistance for more than one Tribe. In-fact, it defeats the
    purpose of a multi-service entity and subsequently requires more
    funding to support such an umbrella operation.
    Carryover and Lump Sum Funding
        The Administration's five year proposal allows for the Congress and
    Administration to better plan future budgetary needs. Tribe's equally
    share in the process of streamlining their operations and to invoke
    savings wherever possible. Multi-Year budgetary planning is a positive
    tool for future housing planning needs. However, the Act is not clear
    as to the true status of proposed carryover funds for TDHE's. The Sac
    and Fox Nation believes that savings should be a priority for a TDHE.
    Thus, carryover funding can be representative of astute fiscal
    management. The TDHE should be able to retain any carryover funding and
    have full authority to determine where incurred savings can best be
    applied in future year funding cycles, based upon clearly defined
    priorities established by a TDHE. Additionally, lump sum funding is the
    appropriate manner in which funding should be allocated instead of our
    current ``as needed'' basis. As a Tribe which has been participating in
    ``Self-Governance'' with the U. S. Department of Interior and the
    Indian Health Service, such a funding mechanism has been instrumental
    in serving our population needs. Our cognizance of our fiduciary
    responsibilities have resulted in sound management practices and the
    investment of the federal dollars allocated at the beginning of a
    fiscal year, have afforded us the opportunity to stretch limited
    dollars and to provide additional services to our membership. We
    support local discretion and flexibility for carryover funding as well
    as lump sum funding of TDHE allocations.
    Section (8) Housing
        The Sac and Fox Nation, along with all Tribes in Oklahoma as well
    as the Native Villages of Alaska, have endured long-term discrimination
    of our housing needs over the past thirty years. Because of our unique
    land status in Oklahoma and Alaska, the past funding allocation formula
    has been prejudicial towards our identified needs. A Tribe's land base
    status is irrelevant in determining the level of housing need. Funding
    determinations should be based upon the needy population to be served
    within the area served by a TDHE. The funding allocation formula that
    is currently being developed under the negotiated rulemaking process
    must correct this long-standing deficiency in assessing Oklahoma Tribes
    and Native Alaskan's housing funding needs. The estimated impact to
    Oklahoma under Section (8) is $10 million. We can no longer expect to
    be accepting of such a biased allocation methodology.
        In closing, we thank the Committee for your dedication and
    commitment in the passage of this important Act and for this
    opportunity to present our written remarks for the record. I am
    available to the Members of this Committee at your convenience to
    provide any further response to our statement.
        Thank you.
                                     ______

                   Letter From Congressmen Kennedy and Lazio

                                                        March 12, 1997.
    House of Representatives,
    Committee on Banking and Financial Services,
    Washington, DC, March 12, 1997.
        Dear Colleague: We are writing to invite you and your staff to a
    briefing sponsored by a host of local government and national non-
    profits that will highlight the importance of the Community Development
    Block Grant (CDBG) and Home Investment Partnership (HOME) programs. The
    event will take place on Thursday, March 20, from 8:30 until 9:30 in
    Room 2222 Rayburn HOB.
        Hear first hand from local elected officials, community leaders,
    and representatives of non-profit organizations about how these two
    programs improve communities across this nation. It is critical that
    support for these two programs be sustained as states, localities and
    community-based organizations rely upon CDBG and HOME to undertake
    broad, long-term revitalization efforts.
        In many communities, CDBG is the ``glue'' that holds revitalization
    efforts together. It is a proven component of state and local
    government housing and community development efforts. The unique nature
    of the program provides flexibility so that urban, suburban, and rural
    communities may tailor CDBG assisted projects to their development
    needs. CDBG addresses deterioration, increases affordable housing, and
    leverages private investment dollars.
        The HOME Investment Partnership program serves as federal
    partnership with state and local governments with private for-profit
    and non-profit organizations. HOME provides these partners with the
    ability to address local affordable housing needs, such as rental
    housing development and tenant based assistance programs. The HOME
    program has catalyzed local support for affordable housing.
        This event is scheduled immediately prior to the celebration of
    Community Development Week, an annual week-long campaign designed to
    focus local and national attention on the outstanding accomplishments
    of the CDBG program, funded through the U.S. Department of Housing and
    Urban Development.

                                       Joe Kennedy,
                                                        Ranking Member.
                                       Rick Lazio,
           Chairman, Subcommittee on Housing and Community Opportunity.
                                     ______

     WHY THE COMMUNITY DEVELOPMENT BLOCK GRANT (CDBG) PROGRAM AND THE HOME
                      INVESTMENT PARTNERSHIP PROGRAM WORK

        The CDBG and the HOME programs are working extremely well in
    communities across the country. State and local governments and their
    citizens are using these programs to build strong and equitable
    communities for the future. Both CDBG and HOME are the epitome of
    programs that enable Congress to fulfill its commitment to
    neighborhoods and communities. This commitment was best expressed in
    the Housing Act of 1949 that reads as follows: ``The Congress hereby
    declares that the general welfare and security of the Nation, and the
    health and living standards of its people, require housing production
    and related community development sufficient to remedy the serious
    housing shortage, the elimination of substandard and other inadequate
    housing through the clearance of slums and blighted areas, and the
    realization as soon as feasible, of the goal of a decent home and a
    suitable living environment for every American family * * *''
        CDBG and HOME work because they:
      --Provide maximum flexibility to communities to design and implement
            programs to meet their unique affordable housing, community and
            economic development needs.
      --Provide a stable funding source that enable jurisdictions to
            implement long-term and far-reaching revitalization strategies.
      --Require and foster community participation in identifying community
            needs and targeting resources.
      --Promote public/private partnerships. Both programs have leveraged
            substantial private investment for affordable housing, and
            community and economic development projects.
      --Foster intergovernmental and multijurisdictional cooperation.
                   community development block grant program
    Background
        The Community Development Block Grant (CDBG) Program, enacted in
    1974, provides annual grants on a formula basis to entitled communities
    and states to carry out a wide range of community development
    activities. Congress appropriated $4.6 billion for CDBG in 1997, of
    which 70 percent is distributed directly to nearly 1,000 metropolitan
    cities and urban counties, and 30 percent to states for distribution to
    smaller communities based on state adopted priorities and selection
    systems.
        Cities with populations over 50,000 and counties with populations
    over 200,000 receive annual entitlement grants. The amount of
    entitlement funds a state or local government receives is based on a
    dual formula that considers problems of growth and decline. Smaller
    cities and counties with populations of 50,000 or less are eligible to
    apply to their states for state administered non-entitlement CDBG
    funds.
        All CDBG funded activities must meet at least one of three
    statutory objectives: (1) primarily benefit low-and moderate-income
    persons; (2) eliminate or prevent slums or blight; (3) meet other
    urgent local community development needs.
        Since 1983, Congress has required that low- and moderate-income
    persons be the primary beneficiaries of the CDBG program. Consequently,
    over a one to three year period, each community must spend at least 70
    percent of its CDBG funds on activities that principally benefit low-
    and moderate-income persons who are defined as persons at or below 80
    percent of median income. In fiscal year 1993, the Department of
    Housing and Urban Development (HUD) calculated that 93.7 percent of the
    funds were expended on activities benefiting persons at 80 percent or
    below the median income.
        Activities that can be carried out with these block grant funds
    include, but are not limited to: acquisition of real property;
    relocation and demolition; housing and nonresidential rehabilitation;
    construction of public facilities and improvements, such as water and
    sewer facilities, streets and neighborhood centers, and the conversion
    of schools for eligible purposes; homeownership assistance; public
    services (subject to a 15 percent cap) including job training, child
    care and housing counseling; and assistance to for-profit businesses to
    carry out job creation and other economic development activities.
        In order to receive annual grants, jurisdictions must submit a
    Consolidated Plan--a planning and management tool that documents a
    jurisdiction's housing and community development needs and its strategy
    for addressing identified needs. Grantees also are required to develop
    and follow a detailed citizen participation plan which provides for and
    encourages citizen participation, with particular emphasis on persons
    of low- and moderate-income.
        Nonprofit, low income community-based development corporations
    frequently use CDBG as a primary tool to help rebuild their
    neighborhoods and leverage private funds for locally based community
    development initiatives.
        A companion to CDBG is the Section 108 loan guarantee program which
    is used by jurisdictions for large, primarily economic development
    projects. Communities may finance site acquisition and rehabilitation
    of publicly owned real property. These costs may be financed over an
    extended period of time with the jurisdiction pledging its current and
    future CDBG funds and other forms of security to guarantee the loan.
    Impact of CDBG
        The following statistics on the CDBG program are in HUD's most
    recent annual report to Congress. Due to data collection methods, this
    information primarily reflects 1993 data.
      --Between fiscal year 1993 and fiscal year 1996 an estimated 14-17
            million households benefited from the CDBG program.
      --Approximately 114,799 jobs were created through economic
            development activities.
      --Of the funds expended by entitlement communities in fiscal year
            1993 the following percentages were used:
                                                                     Percent
    Preventing or eliminating slum and blight.........................   6.0
    Public works......................................................  22.7
    Economic development..............................................   6.0
    Public services...................................................  12.8
    Acquisition and clearance of property.............................   7.3
    Administration....................................................  14.4
    Housing rehabilitation assisting over 200,000 households..........  35.8

      --For every 10 percent of CDBG funds expended for direct assistance
            to individuals and households (two-thirds of the CDBG funds),
            1,093 million persons and households are affected, based on the
            fiscal year 1992 Grant Performance Report. (Since the remaining
            one-third of funds benefit entire neighborhoods, a per person
            benefit cannot be accurately calculated.)
    The Hidden Decline in CDBG Funding
        Although the CDBG program has received ``level funding'' of $4.6
    billion since fiscal year 1995, the actual amount of funding for states
    and local governments has declined by four percent, while the number of
    participating communities has increased by three percent.
        In fiscal year 1995, $4.6 billion in CDBG funds were allocated to
    946 entitlement communities and 51 states and territories with
    approximately $90 million in designated set-asides. In fiscal year
    1997, $4.6 billion in CDBG once again was allocated, but to 975
    entitlement communities and 51 states and territories and with $289.6
    million in designated set-asides.

    ----------------------------------------------------------------------------------------------------------------
                                                                                     Fiscal year
                                                               -----------------------------------------------------
                                                                      1995              1996              1997
    ----------------------------------------------------------------------------------------------------------------
    Number of entitlement communities.........................               946               955               975
    Overall program funding...................................    $4,600,000,000    $4,600,000,000    $4,600,000,000
    Total amount of set-asides................................       $90,000,000      $230,000,000      $289,600,000
    Actual allocation to entitlements.........................    $3,140,000,000    $3,060,000,000    $3,020,000,000
    ----------------------------------------------------------------------------------------------------------------

        Even without considering inflation, this on-going trend towards
    more set-asides and increases in entitlement communities create a
    steady, yet hidden decline in actual CDBG funding to jurisdictions. For
    example:

    ----------------------------------------------------------------------------------------------------------------
                                                                    Fiscal year                        Loss
                                                      --------------------------------------------------------------
                                                           1995         1996         1997       Dollar    Percentage
    ----------------------------------------------------------------------------------------------------------------
    Westchester County, NY: Actual alloca-  tions....   $6,892,000   $6,637,000   $6,036,000    $525,000         8
    East St. Louis, IL: Actual allocations...........    2,710,000    2,611,000    2,550,000     160,000         6
    Cambridge, MA: Actual allocations................    4,203,000    3,939,000    3,852,000     351,000         8
    Los Angeles, CA: Actual allocations..............   96,773,000   93,942,000   92,191,000   4,582,000         5
    ----------------------------------------------------------------------------------------------------------------

                                                                                                          [GRAPHIC] [TIFF OMITTED] T050151.000

                      HOME INVESTMENT PARTNERSHIPS PROGRAM

    Background
        HOME, established by Congress in 1990, is an affordable housing
    block grant to states and over 500 localities and consortia of smaller
    jurisdictions. HOME funds are distributed according to a needs-based
    formula with 40 percent allocated to states and 60 percent to
    localities. HOME provides funds for housing rehabilitation, tenant-
    based rental assistance, assistance to homebuyers, and new
    construction. Funds may be used for site acquisition, site
    improvements, demolition and relocation. As partners in the program,
    states and localities are required to match a portion of federal funds
    with non-federal money. States and localities determine how their HOME
    funds will be spent through a comprehensive planning process which
    requires public participation. HOME projects in nonmetro and rural
    areas are generally funded through states. The fiscal year 1997 HOME
    appropriation is $1.4 billion, level with fiscal year 1996 funding.
        HOME is flexible, responsive to local needs, fosters true public/
    private community collaboration, and provides the gap financing
    necessary to attract private loans and investments to projects. HUD
    reports that as of January, 1997, HOME funds have been used in the
    following manner:
                                                                     Percent
    Rehabilitation....................................................  58.2
    Construction......................................................  28.5
    Acquisition.......................................................  10.3
    Rental assistance.................................................   3.0

        At least 15 percent of HOME funds must be set-aside for projects
    sponsored by nonprofit Community Housing Development Organizations
    (CHDO's). Most community development corporations (CDC's) qualify as
    CHDO's. HOME funds can be used to implement a locally defined housing
    strategy. The 15 percent of HOME funds that must be set-aside for
    community-based housing organizations has helped develop a locally-
    based nonprofit housing delivery system.
    Impact of the HOME Program
        Since HOME was created in 1990, it has helped to develop or
    rehabilitate over 230,000 affordable homes for low-income families.
        Ninety percent of HOME funds used for rental housing must be
    targeted to families with incomes of 60 percent or below of area
    median. The remaining 10 percent must be invested in housing occupied
    by families whose incomes are at or below 80 percent of area median.
    Actual targeting is deeper.
        The majority of HOME funds are committed to developments that will
    assist very low-income people and a substantial amount will assist
    families with incomes no greater than 30 percent of area median. For
    example, 65 percent of all occupied HOME-assisted rental housing is
    rented to families with incomes of 30 percent of area median or less.
        All funds used for homeownership programs must be targeted to
    households with incomes at or below 80 percent of area median. Again,
    these requirements have been exceeded. Thirty-two percent of homebuyers
    assisted with HOME funds have incomes at or below 50 percent of median
    income.
        HOME funds help very low-income families realize the dream of
    homeownership by providing the downpayment assistance and second
    mortgages necessary to bridge the gap between the amount provided by a
    mortgage lender and the purchase price of a modest home. HOME has
    assisted 68,900 homebuyers.
        HOME is cost effective and provides the gap financing necessary to
    attract private loans and investments to projects. For each HOME dollar
    invested in the new construction of affordable housing, four dollars of
    private and other public funds are committed.
        On average, HOME provides $19,800 per unit to produce rental
    housing. Since the inception of the program, nearly $4.0 billion in
    HOME funds have leveraged $7.1 billion for a leveraging ratio of $1.79
    of private and other public funds to each dollar of HOME funds.

    HOME Investment Partnership Appropriations From the Onset of the Program

                             [Actual appropriations]

                                                                    Billions
            Fiscal Year                                           of dollars
    1992.............................................................. 1.5
    1993.............................................................. 1.0
    1994.............................................................. 1.275
    1995.............................................................. 1.4
    1996.............................................................. 1.4
    1997.............................................................. 1.4

                          FUNDING COMMITMENTS AND DISBURSEMENTS--BY FISCAL YEAR SOURCE OF FUNDS
                                                   [Amount in dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                 Committed            Disbursed
                        Fiscal year source                        Amount   -----------------------------------------
                                                                 allocated    Amount    Percent    Amount    Percent
    ----------------------------------------------------------------------------------------------------------------
    1992......................................................   1,460,000   1,448,663     99.2   1,367,291     93.7
    1993......................................................     990,000     978,562     98.8     820,876     82.9
    1994......................................................   1,215,250   1,190,898     98.0     779,283     64.1
    1995......................................................   1,339,000   1,030,044     76.9     430,054     32.1
    1996......................................................   1,361,200     365,291     26.8      61,041      4.5
    ----------------------------------------------------------------------------------------------------------------

    ----------------------------------------------------------------------------------------------------------------
                                                                Authorized   Projects committed   Projects disbursed
                        Fiscal year source                          for    -----------------------------------------
                                                                 projects     Amount    Percent    Amount    Percent
    ----------------------------------------------------------------------------------------------------------------
    1992......................................................   1,328,033   1,313,089     98.9   1,240,647     93.4
    1993......................................................     889,682     849,146     95.4     731,489     82.2
    1994......................................................   1,087,296     967,876     89.0     692,837     63.7
    1995......................................................   1,195,252     701,382     58.7     380,651     31.8
    1996......................................................   1,154,400     135,808     11.8      50,275      4.4
    ----------------------------------------------------------------------------------------------------------------

                                   Leveraging

                                                                      Amount
    HOME dollars commited to HOME units...........................$3,967,300
    OTHER dollars commited to HOME units.......................... 7,101,914
                        --------------------------------------------------------------
                        ____________________________________________________

        TOTAL dollars commited to HOME units......................11,069,214

    Ratio: Other dollars leveraged for each HOME dollar 1-79.

                                                   PROGRAM PRODUCTION
    ----------------------------------------------------------------------------------------------------------------
                                                                        Millions of dollars           Units \1\
                                                                   -------------------------------------------------
                                                                    Commitments  Disbursements
                                                                    to projects   to projects   Committed  Completed
    ----------------------------------------------------------------------------------------------------------------
    Activity in month.............................................         71.8          78.6       5,985      7,005
    Activity in same month prior year.............................        101.1          68.6       5.973      3,332
    Activity in fiscal year 1996..................................      1,039.4         929.9      61,943     47,271
    Activity in fiscal year 1997..................................        328.0         356.6      24,633     23,337
                                                                   -------------------------------------------------
        Total activity to date....................................      3,967.3       3,095.9     232,339    130,828
    ----------------------------------------------------------------------------------------------------------------
    \1\ Does not include Tenant Based Rental Assistance.

    Note: Home program data as of 1/31/97. All figures adjusted to include estimates of IDIS activity except lower
      income benefit.

                                 PROJECT FUNDING COMMITMENTS BY ACTIVITY TYPE AND TENURE
                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                             Percent
                              Activity                             Rental   Homebuyer  Homeowner    Total   of funds
    ----------------------------------------------------------------------------------------------------------------
    New Construction............................................       792        339  .........     1,131      28.5
    Rehabilitation..............................................     1,271        216        824     2,311      58.2
    Acquistion..................................................       100        310  .........      10.3
    TBRA \1\....................................................       117  .........  .........       117       3.0
                                                                 ---------------------------------------------------
        Total...................................................     2,280        865        824     3,969  ........
                                                                 ===================================================
        Percent of funds........................................      57.5       21.8       20.8  ........    100.0
    ----------------------------------------------------------------------------------------------------------------
    \1\ Does not include Tenant Based Rental Assistance.

                                       UNITS COMMITTED BY ACTIVITY TYPE AND TENURE
                                                [In millions of dollars]
    ----------------------------------------------------------------------------------------------------------------
                                                                                                             Percent
                              Activity                             Rental   Homebuyer  Homeowner    Total   of units
    ----------------------------------------------------------------------------------------------------------------
    New construction............................................    35,682     17,794  .........    53,476      23.0
    Rehabilitation..............................................    67,226     10,264     54,440   131,930      56.8
    Acquistion..................................................     6,092     40,842  .........    46,934      20.2
                                                                 ---------------------------------------------------
        Total...................................................   108,999     68,900     54,440   232,339  ........
                                                                 ===================================================
        Percent of units........................................      46.9       29.7       23.4  ........     100.0
                                                                 ===================================================
    TBRA \1\....................................................    30,902  .........  .........    30,902  ........
    ----------------------------------------------------------------------------------------------------------------
    \1\ Does not include Tenant Based Rental Assistance.

                 HOME COST PER UNIT BY ACTIVITY TYPE AND TENURE
                         [Dollars based on commitments]
    ------------------------------------------------------------------------
              Activity              Rental   Homebuyer  Homeowner    Total
    ------------------------------------------------------------------------
    New construction............     22,192     19,032  .........     21,141
    Rehabilitation..............     18,910     20,998     15,136     17,515
    Acquistion..................     16,420      7,588  .........      8,734
    Average.....................     19,845     12,541     15,136     16,576
                                 ===========================================
    TBRA \1\....................      3,796  .........  .........      3,796
    ------------------------------------------------------------------------
    \1\ Does not include Tenant Based Rental Assistance.

                                  RESERVATIONS/COMMITMENTS/DISBURSEMENTS FOR CHDO'S \1\
    ----------------------------------------------------------------------------------------------------------------
                                                                         Percent                 Percent of dollars
                                                                         of HOME                      reserved
                                                                          funds       Amount   ---------------------
                            Fiscal year source                           reserved    reserved
                                                                           for      for CHDO's  Committed  Disbursed
                                                                          CHDO's
    ----------------------------------------------------------------------------------------------------------------
    1992..............................................................       21.6     $315,793       98.6       89.2
    1993..............................................................       21.5      213,109       91.8       73.5
    1994..............................................................       23.1      280,839       82.6       50.8
    1995..............................................................       17.6      235,874       70.7       35.1
    1996..............................................................        5.7       78,096       55.2       19.4
    ----------------------------------------------------------------------------------------------------------------
    \1\ Community Housing Development organizations.

               LOWER INCOME BENEFIT \1\ --BASED ON OCCUPANTS OF COMPLETED PROJECTS AND RECIPIENTS OF TBRA
    ----------------------------------------------------------------------------------------------------------------
                                                                                     Percent of--
                                                                 ---------------------------------------------------
                                                                                      TBRA and
                      Percent of median income                      TBRA    Occupied  occupied   Occupied  Homebuyer
                                                                  families   rental    rental   homeowner    units
                                                                              units     units     units
    ----------------------------------------------------------------------------------------------------------------
    0-30........................................................      81.9      46.0      64.5       31.2        7.8
    31-50.......................................................      14.9      39.0      26.5       39.1       23.8
                                                                 ---------------------------------------------------
        Subtotal 0-50...........................................      96.8      85.0      91.0       70.3       31.6
    51-60.......................................................       2.1      11.9       6.9       12.6       23.4
                                                                 ---------------------------------------------------
        Subtotal 0-60...........................................      98.9      96.9      97.9       82.9       55.0
    61-80.......................................................       1.1       3.1       2.1       17.1       45.0
                                                                 ===================================================
        Total...................................................     100.0     100.0     100.0      100.0      100.0
    ----------------------------------------------------------------------------------------------------------------
    \1\ Does not include PJ's converted to IDIS.

             USE OF CDBG FOR ECONOMIC DEVELOPMENT AND JOB CREATION

    Background
        The San Francisco Renaissance Micro Business Incubator (MBI) is an
    example of a successful use of CDBG funds to foster and support
    economic self-sufficiency for low and moderate income residents. It is
    also an excellent example of how CDBG funds can leverage private funds
    to promote local community economic development.
        The MBI was initially designed as a pilot to demonstrate the
    effectiveness of business incubation in stimulating growth of small
    businesses owned by new entrepreneurs. Low and moderate income women
    and minorities were targeted. The Renaissance MBI was the first in San
    Francisco and one of the first incubators in the nation to target these
    populations. The MBI is part of the larger Renaissance Entrepreneurship
    Center which provides training, consulting, networks and financing
    assistance to small business entrepreneurs.
        The MBI provides low cost office space, office support services and
    intensive business management assistance. Participants are expected to
    stay an average of two years and then be able to ``hatch'' out of the
    incubator. The goal of the Renaissance MBI is both to enhance self-
    sufficiency of families through self-employment and asset development
    and also to create jobs for community residents. As important, though
    difficult to quantify, are the role models which Renaissance
    entrepreneurs become for the neighbors and children of the community.
        One MBI participant, Integral Results, has demonstrated phenomenal
    success, in profits, job creation, and contribution to the community.
    Lauren Gruner, Charles Okeke and Marlus Moscovici provide computer
    systems consulting on Oracle databases. They have hired three
    employees, two of whom were unemployed. Integral Results emphasizes its
    business values: 10 percent or $17,000 was distributed to community
    programs, including 10 scholarships for low income students in the SF
    Renaissance entrepreneurship training.
    Financing
        The San Francisco Mayors Office of Community Development seeded the
    Renaissance MBI with a planning grant in 1988 and provided small
    amounts of funding until corporations such as PG&E and Bank of America
    got involved. As it grows, the MBI also increases its ability to
    generate program income and now generates 46 percent of its budget from
    fees and income.

    CDBG funds (per year).........................................   $50,000
    Corporations/Foundations......................................    50,000
    Self-generated fees...........................................    85,000
    Results
        The project has exceeded expectations and now supports 15 tenants.
    In seven years, the MBI has served 32 businesses: 50 percent minority
    owned, 50 percent women owned and 150 jobs were created for San
    Francisco residents, including the owners. For every $1 of CDBG funds
    $3 in private funds are leveraged through this project. The San
    Francisco Renaissance Micro Business Incubator was recently honored by
    the National Business Incubator Association with the 1996 Special Focus
    Incubator of the Year Award.
                the transformation of a rural virginia community
        CDBG.--$435,480 (Planning grant, acquisition, site development)
        HOME.--$545,400 (Architectural design, new construction 14 units)
        Non-Profit Contribution.--$15,000
        Local Business.--$2,000 (Donated material for fencing)
        Local Vocational Schools.--In Kind Student Labor (Construction of
    fencing panels)
        The project which built the Mill Run Apartments, 145 subsidized
    rental housing units in the town of Belle Haven, Virginia, began in
    1990 with a CDBG planning grant and was completed in December 1995.
    Fourteen families (31 people) were housed through this project.
        Duertown was one of the most notorious pockets of substandard
    housing in Accomack County, Virginia. Duertown was constructed as
    migrant housing in the 1940's. It consisted of 14 cinder block units
    built on concrete slabs which were below grade level of the surrounding
    land. Water flowed under the doors during rainstorms. All of the units
    lacked complete indoor plumbing facilities. Each unit had cold water
    only to a kitchen sink. Wastewater from the sinks was discharged
    through a pit near each house containing two 55-gallon drums and
    crushed shell material. Each house was served by a pit privy in various
    state of repair. Duertown was cited on numerous occasions by the
    Virginia Department of Health and was identified in their shellfish
    surveys as a major pollutant to local shellfish grounds due to its poor
    methods of sewage disposal.
        Rental income from the property was not sufficient to afford
    additional improvements to the property so the owner came to the
    Accomack-Northampton Housing and Redevelopment Corporation seeking help
    to rehabilitate the housing. The HUD Rental Rehabilitation Program
    about which he inquired was no longer in existence and no new program
    was available for rehabilitation of rental property. The non-profit
    requested the Town of Belle Haven to apply for Virginia Community
    Development Block Grant (CDBG) funds to help correct the problem.
        In 1990 the Town applied for and received CDBG Planning Grant funds
    to design a strategy for improving the living conditions in Duertown.
    It became apparent almost immediately that rehabilitation was not a
    feasible alternative. A preliminary engineering study and architectural
    plan was developed for a workable alternative for construction of new
    units for the residents of Duertown.
        In 1991 the Town of Belle Haven applied for and received $415,480
    in CDBG funds for site development, temporary relocation, acquisition
    of a sewage easement and construction of a mass drainfield on a
    neighboring property.
        Throughout the project development the residents were active in
    working with the architect and the Housing Corporation Board of
    Directors in the design process. The architectural plans reflected a
    real feel for ``people spaces''--storage areas, utility areas and
    enclosed back yards were included in the design. The housing units were
    designed as duplexes with a site plan which makes the complex feel more
    like a neighborhood than apartments, an important component to the
    residents who planned on keeping their neighborhood together at their
    new site.
        The community at large also became involved. A local building
    supply company donated $2,000 in fencing materials. The vocational
    classes from five schools made all of the fencing panels. Before
    construction residents picked their units on a copy of the site plan
    and were able to follow the progress of their own unit. Some residents
    came daily. Residents were encouraged to submit names to the Belle
    Haven Town Council for a name for the new development.
        Some unique construction techniques were used in building the
    units. Prefabricated framing and trusses were delivered and erected on
    site. Instead of vinyl, poured flooring was used. (Poured flooring is
    done by painting an epoxy-based substance on the floor, scattering
    color chips over that and covering the whole thing with a clear epoxy
    coat). The units were constructed to the power company's Super E+
    energy efficiency rating. All units are heated/cooled with heat pumps.
        The residents were moved, as a group, to the newly constructed Mill
    Run Apartments in the Town of Belle Haven. These 14 subsidized rental
    units house 14 families (31 people) who celebrated their first year
    anniversary in their new homes this past Christmas. The residents pay
    30 percent of their income for units which are more than just safe,
    decent and sanitary. They were relocated as a neighborhood and they are
    still a neighborhood. They take great pride in where they live and
    their involvement in the development process makes it all the more
    special to them.
        For more information about this project or an opportunity to visit
    the site contact: Kathy O'Keefe, Director of Housing Services,
    Accomack-Northampton Housing and Redevelopment Corporation, P.O. Box
    387, Accomack, Virginia 23301, (804) 787-2936, office, (804) 787-4221,
    fax.
        The Accomack-Northampton Housing and Redevelopment Corporation was
    established by local governing bodies to address housing of their low-
    and moderate-income residents. Since its establishment, the Corporation
    has conducted housing rehabilitation projects using Virginia CDBG and
    Indoor Plumbing Funds in Accomack and Northampton Counties and in eight
    of the incorporated towns and developed 44 units of subsidized rental
    housing. The Corporation operates a 262-unit Section 8 Existing Rental
    Assistance program in these counties and from 1983 to 1984, the
    Corporation was property manager for 215 FmHA units occupied by low-
    income families.

                 CDBG/HOME FUNDED SPECIAL NEEDS HOUSING PROJECT

        Who: Mt. Hood Community Mental Health Center (Mt. Hood CMHC), 400
    NE 7th Avenue, Gresham, OR 97030.
        What: Coburn Woods Apartments. Ten new construction rental units
    for adults with a chronic mental illness.
        Where: 17311 E. Burnside, Gresham, OR 97230. A rapidly growing
    suburb located east of Portland. Its population is currently about
    80,000, making it the fourth largest city in Oregon.
        Financing: The total cost of this project was $775,762. Funds were
    obtained from several sources, which are listed below. As is the case
    with many projects targeted for low-income and ``special needs''
    residents, a combination of federal and state assistance, with below-
    market funding for acquisition and rehabilitation, and a source of
    conventional funding were all needed.

                                 Funding Sources

    HUD 811.......................................................  $675,330
    Oregon State Trust Fund.......................................    31,100
    Oregon Mental Health Grant....................................    25,000
    Mt. Hood CMHC Contribution....................................     3,332
    CDBG/HOME.....................................................    50,000
                        --------------------------------------------------------------
                        ____________________________________________________

          Total...................................................   775,762

        A $43,000 acquisition loan was obtained from the Enterprise
    Foundation and repaid at the beginning of the construction phase. The
    loan was at six percent interest, with the principal and interest
    deferred for two years or until the construction began whichever
    occurred first.
        The Coburn Woods Apartments consist of a single building to promote
    independent living for very low-income adults with a chronic mental
    illness. The project includes nine one-bedroom units for residents and
    one two-bedroom unit for the apartment manager. The one-bedroom units
    are approximately 740 square feet including a kitchen, bathroom, and a
    living/dining area. To promote social interaction, the project has a
    community room and a patio area for outdoor gatherings.
        The complex offers residents the ability to live independently
    while obtaining much-needed support services. These services include
    case management, psychiatric help, drug and alcohol services,
    vocational rehabilitation services and assistance with the activities
    of daily living. In accordance with the HUD 811 program, all residents
    are very low-income and pay no more than 30 percent of their adjusted
    income for rent and utilities. Resident contributions are based on
    income; the maximum is $141 per month.
        Coburn Woods was developed in response to local awareness of the
    need for facilities to house people with ``special needs'' including
    those with mental illness. Before this project was developed, Mt. Hood
    CMHC had a waiting list of more than 60 applicants for affordable
    apartments with supportive services. It took applicants years to get
    apartments because turnover in Mt. Hood CMHC's projects was very low--
    fewer than one vacancy per year.

                  USE OF CDBG FOR INFRASTRUCTURE IMPROVEMENTS

    Background
        Air transportation facilities of the Reading Regional Airport are
    surrounded by an industrial park. About 25 percent of the annual
    revenue of the airport is generated by the industrial park. The airport
    authority decided to undertake an aggressive capital improvement
    program to fully utilize two underdeveloped sections of the park.
        One of the tracts was a former military base that had declined
    steadily since the end of World War II. Forty-seven structures in the
    area were single-story block buildings and inadequate by today's
    standards for industrial usage. Of this total, 63.8 percent were
    deteriorated and incapable of supporting any revitalization effort. In
    addition, the buildings were scattered over the entire area, thereby
    making expansion or consolidation of facilities impractical. Because of
    the original structural design and current condition of the buildings,
    it was necessary to demolish and clear those structures which would
    otherwise impede meaningful development.
        Infrastructure in the area also was in disrepair. The original
    roadways lacked a substantial sub-base and contained large potholes.
    The narrow roads with excessive curves were not conducive to serving
    the types of development the airport authority sought. The water
    service was non-existent in certain areas and the sanitary sewer system
    was primarily comprised of old terra-cotta pipes which were collapsing.
    Recognizing that the existing infrastructure was inadequate to
    accommodate any upgrading or expansion for development, Berks County
    declared the area blighted and undertook the following: preliminary
    engineering studies and site improvements; demolition and removal of
    selected buildings and relocation of tenants; and installation of a new
    road system; installation of water, sanitary sewer, storm sewer and
    other related utilities.
    Financing
    Sec. 108 guaranteed loan funds (airport authority pays all
        interest on the Sec. 108 notes)...........................$2,000,000
    Berks County CDBG funds.......................................   250,000
    Grant from the state of Pennsylvania..........................   127,000
    Results
        Upon completion of the public improvements, a local developer began
    development of an industrial park. With a target of 1.4-1.6 million
    square feet of office, warehouse/distribution and manufacturing space,
    construction costs alone range between $35-$40 million. To date, three
    businesses have located in the park with over 500,000 square feet of
    space. Over one hundred new jobs have been created of which
    approximately 60 percent are held by low- and moderate-income persons.
    Based upon the current tax millage of the three taxing bodies, the $40
    million investment in new buildings will generate $117,400 in county
    tax revenue, $610,000 in school district tax revenue, and $23,548 in
    township tax revenue. With this revenue the jurisdictions can pay for
    services to residents and attract additional businesses.

                  ECONOMIC DEVELOPMENT PROJECT--STATE OF IOWA

    The Promise Jobs Program
        An initiative that demonstrates Iowa's collaborative effects using
    the CDBG program is its Promise Jobs program. In 1996, IDED setaside $3
    million of its CDBG funds to help save the state's under-funded Promise
    Jobs program, an integral part of Iowa's welfare reform initiative. The
    program provides education and training, as well as child care and
    transportation to help participants escape welfare. The rescue of
    Promise Jobs has required IDED to carefully coordinate activities with
    the Departments of Human Services and Employment Services, and with
    communities and providers in service delivery areas across the state.
    The Quality Jobs Program
        The Quality Jobs program is designed to foster training services to
    Promise Jobs participants who are on the waiting list for post-
    secondary classroom training. Promise Jobs funding is insufficient to
    enroll these individuals in the training that has been identified in
    their Family Investment Agreements. Therefore, the Department of
    Economic Development has allocated funds from its CDBG program to serve
    the needs of these participants.
        The Quality Jobs program will operate as a demonstration project in
    several Service Delivery Areas. In addition to meeting participant
    needs, the projects are intended to demonstrate the efficacy of the
    post secondary component and re-emphasize the IDED's commitment to a
    quality trained workforce as a foundation to economic development
    efforts. Project operators will monitor and report the achievements of
    program participants in support of increased levels of funding for
    training. Projects will also be asked to provide examples of applied
    learning techniques and industry-specific training, where possible.
                               project conditions
        1. Operating entities.--JTPA/Promise Jobs contractors will be the
    service delivery system for the QJ program.
        2. Number to be served.--The QJ program is designed to serve up to
    1,000 participants in selected Service Delivery Areas (SDA's) beginning
    in the Program Year 1995.
        3. Period of operation.--The total demonstration period is from
    July 1, 1995, through June 30, 1997. QJ participants must be able to
    complete training within the demonstration period.
        4. Funding.--Funds in support of training up to 1,000 participants
    will be available.
        A. Participant process.--Quality Jobs participants must be select
    from the Promise Jobs waiting list. The EI must describe participant
    selection criteria that includes; the participant's need for training
    and the likelihood of the participant becoming employed and self-
    sufficient, i.e., leaving the Family Investment Program (FIP). In
    addition, the EI may describe selection criteria that includes the
    participant's investment in the training plan as demonstrated by going
    to school and/or working while on the waiting list, by serving as an
    Iowa Invest mentor or by some other initiative taken by the
    participant.
        B. Activities and services.--This part of the EI must identify and
    describe the activities and support services that will be provided to
    the participants. The EI must follow these guidelines:
      --Pell and other grants will be used for tuition, fees, books, and
            supplies. The QJ program will pay remaining costs up to rates
            charged at Iowa Regents institutions.
      --The QJ program is the child care payor of last resort. If the
            participant can access another child care program, it must be
            accessed. When such child care is not available, actual child
            care costs will be paid.
      --Transportation will be paid on an reimbursement basis.
    state of texas partners with step \1\ to construct water and wastewater
                                    systems
        The state of Texas is establishing a prototype in the way states
    can assist small, rural communities address their water and wastewater
    needs. The Texas Department of Housing and Community Affairs, the Texas
    Natural Resource Conservation Commission (TNRCC) and the Texas Water
    Development Board have been instrumental in supporting the STEP effort
    in Texas. Given that TNRCC is the environmental regulatory and
    compliance agency, it assumed the lead in the Texas-STEP program.
    ---------------------------------------------------------------------------
        \1\ States are beginning to seek many unorthodox methods for
    assisting the most impoverished communities to obtain safe, clean water
    and adequate wastewater disposal. One such method is the Small Towns
    Environment Program (STEP) which is operated by the Rensselaerville
    Institute (TRI) with support from the U.S. Environmental Protection
    Agency and the Ford Foundation. Since 1989 STEP has been assisting
    state governments to build support networks that enable small
    communities to solve water and wastewater problems using less money and
    more local initiative. Self-help as defined and implemented by STEP
    refers to a variety of cost-saving techniques including conservation,
    use of appropriate technology, local administration of projects, inter-
    local cooperation, use of volunteer labor, direct purchase of materials
    and others.
        STEP first began in New York State in 1989. Its Self-Help Support
    System has assisted approximately 160 community projects over the past
    ten years, achieve cost savings of more than $18 million. There are
    currently ten states that have become partners with STEP by undertaking
    demonstration projects, putting forth the self-help message in small,
    rural, communities. These states are: Arkansas, Idaho, Maryland, New
    York, North Carolina, Oregon, South Dakota, Tennessee, Texas and
    Washington.
        STEP administers a $1.5 million revolving loan fund underwritten by
    the Ford Foundation. The loan fund supports the goals of the program by
    providing low-interest construction financing to disadvantaged
    communities in STEP states. STEP works closely with state governments
    and specifically with the departments that control and maintain
    standards on safe drinking water and proper wastewater treatment.
        Throughout the process of working with small communities in a self-
    help program many issues of project development and design have become
    standard. One very important standardization is the size, economic
    level and overall ``commitment'' of the people with whom the services
    are being provided. The project managers at STEP have designed a
    ``checklist'' that enables them to (1) determine if the locality is a
    good STEP candidate and, (2) when its time for the STEP community to
    assume operations of its new system.
    ---------------------------------------------------------------------------
        The colonia of Arroyo Colorado Estates, an unincorporated community
    along the Texas-Mexico boarder is the site of a STEP project. These
    areas are typically the sites of large numbers of lower income people,
    living in ``shanty town'' conditions, without adequate water and
    wastewater treatment or the means to access services that may be
    available to them. Priority in funding applications and systems within
    the traditional avenue with the state always prefer incorporated
    localities over colonias. Community officials were informed that it
    could take anywhere from seven to ten years to design, finance and
    implement a solution to their problem if they waited or relied on
    traditional state/federal funding avenues. A cost of over $1 million
    was much more than the community of 171 households could afford.
        Members of the community decided that they could do much better
    than seven to ten years and proceeded to form a nonprofit development
    corporation, the Arroyo Colorado Estates Water Supply Corporation
    (ACEWSC) as the vehicle for bringing sewer service to the area. Once
    ACEWSC was formed, members searched for ways to bring the project cost
    down. They searched for an engineering firm that was amenable to
    working in a ``self-help environment,'' which often proves difficult.
    Engineers and engineering firms are often unwilling to work with the
    self-help approach. Engineers are used to working in very controlled
    environments, with standardized practices and procedures, so it is not
    surprising that the self-help concept would be foreign to them. It is
    also very probable that the uncertainty of financing is also a major
    deterrent. However, as funding levels dwindle and localities lose the
    economic wherewithal to traditionally pay for water and sewer needs,
    alternative financing and engineering methods are being employed.
        With guidance from TRI, Texas-STEP, ACSWSC found methods to lower
    the cost of the project. They found an engineering firm comfortable
    using and working within the confines of the self-help model. ACEWSC
    used volunteer labor and other in kind contributions such as equipment
    to bring the $1 million project down to an affordable $150,000. They
    were able to access TRI's Self-Help Loan Fund for short term financing,
    found an entity to purchase the system and take over operations once
    the project is complete and repay the loan with user fees. User fees
    are expected to be approximately $25 per month. The Texas Division of
    Natural Resources estimates costs could approximate $720 million to
    meet the needs of the other colonias within the state. Using the STEP
    approach could lower the estimated cost by as much as 60 percent.
                                     ______

                         NORTH LITTLE ROCK HOME PROJECT

        Project Name: Argenta Home Rehabilitation
        Project Address: 108 Melrose Circle, North Little Rock, Arkansas
        CDC Sponsor(s): Argenta Community Development Corporation
        HOME Funds: $27,200
        Total Project Costs: $63,000
        For many years, the historic Argenta neighborhood of North Little
    Rock, Arkansas maintained the highest crime rate in the city. Yet, many
    dilapidated single family bungalows and vacant lots offered
    opportunities for development. In 1994, the Argenta Community
    Development Corporation (Argenta CDC) was created by residents who had
    formed a Booster Club to identify properties which needed substantial
    improvement. Argenta CDC enjoys a strong base of neighborhood support,
    with over 270 people on the CDC membership list.
        In just two short years, the CDC's efforts have brought more than
    $1.6 million into Argenta to renovate single-family homes. A total of
    23 single-family have been rehabilitated. Sales of renovated homes have
    been swift, and the transformation of the area has been remarkable. A
    neighborhood once plagued with crime and instability is home to new
    homeowners in well-maintained houses. More families have been moving
    back into Argenta, crime rates have plummeted and a new sense of
    neighborhood pride is spreading.
        One of the homes Argenta CDC assisted was 108 Melrose Circle.
    Originally constructed in 1924, the house remained abandoned for
    several years prior to the Argenta CDC's purchase. The house was in
    disrepair from years of neglect and a series of haphazard and unsafe
    additions. It also represented an arson risk. The CDC's improvements to
    the house resulted in the creation of a 3-bedroom, 2-bath home to
    accommodate Michelle Martin and her family.
        Michelle Martin was born in North Little Rock. One of five
    children, she was raised by a single mother in a poor area of the city.
    Michelle became a single unwed mother herself at age fifteen and left
    school after the ninth grade.
        As an adult, Michelle lived in public housing for seven years, and
    was supported by welfare and food stamps. In 1985, through her own
    efforts, her life began to take a turn for the better. She became an
    employee of the North Little Rock Public Schools, and is now a
    supervisor of a school cafeteria where she earns $11,000 annually.
    Currently, she is also working towards her GED. Within the last two
    years, Michelle successfully completed self-sufficiency classes offered
    by the North Little Rock Housing Authority, and was among the first of
    many low-income home buyers to seek assistance from Argenta CDC. She
    completed home buyer counseling classes.
        To help make Michelle's dream of homeownership a reality, $27,200
    in HOME funds helped finance construction and her mortgage. The Argenta
    CDC Board approved the application for HOME funds in recognition of
    Michelle Martin's remarkable ``Welfare to Work'' life story. Other
    financial partners include First Commercial Bank and Metropolitan Bank
    which provided a line of credit for contractors. The Community
    Development Agency of the City of North Little Rock and ARKLA, the
    local gas company, provided a grant for gas street lamps for all of the
    Argenta rehabilitated homes.
        With help from the HOME program, Michelle was able to purchase her
    home and is now one of nineteen home owners residing in Argenta CDC-
    assisted homes. She lives with her three children and one grandchild.
    When asked about her new home, Michelle states, ``It is everything I
    always desired, more comfortable than any place I have ever lived. I
    thank Argenta CDC for helping me make my dream of owning my own home
    come true.

               CARLTON TERRACE SRO APARTMENTS OFFER HOUSING, HOPE

        Editor's Note: In June 1995, HUD, through the National Affordable
    Housing Training Institute (NAHTI), recognized nine projects and four
    honorable mentions in its ``Excellence in Affordable Housing''
    competition. The following is a summary of the winning project from an
    ALHFA member jurisdiction.Chicago's Sheridan Park Historic District is
    a unique blend of the old and the new. Its citizenry is among the most
    diverse in the country, combining African American (924 percent),
    Caucasian (39 percent), Latino (23 percent) and Asian (14 percent)
    populations. Some have been in the area for generations; many more are
    new Americans. Some earn a good living, while others live on next-to-
    nothing. While neighborhood block associations fight to preserve the
    area's safety and historic integrity, gang violence and drug-related
    crime is on the rise. Moreover, homelessness has become increasingly
    common, and the neighborhood's overall living condition is uncertain.
        Like the area's population, the neighborhood's buildings are also
    diverse--some impeccably maintained and others vacant and
    downtrodden.The City of Chicago has partnered with several nonprofits
    to combat the area's deteriorating condition. One of these nonprofits
    is Lakefront SRO Corporation, a local affordable-housing developer that
    has acquired and rehabilitated four buildings in the Sheridan Park
    neighborhood. Lakefront's mission is clear: to reduce homelessness
    through the preservation of valuable (and vulnerable) SRO structures
    (more than 70 percent of Chicago's SRO buildings have been lost since
    1973). The Carlton Terrace Apartments is the most recent credit to
    Lakefront's mission and to the neighborhood in which it operates.
        In 1992, Lakefront was seeking a site for its fourth SRO project.
    When the Carlton came on the market, it was in reasonably good
    condition, but its former owners had run out of money to maintain the
    property. Lakefront was immediately interested in the architecturally
    unique building. With the help of the City of Chicago's Department of
    Housing and the HOME program, Lakefront was able to acquire the Carlton
    and began reconstruction shortly thereafter.
        The project, which serves 70 single, formerly homeless individuals,
    was financed with a wide variety of public and private sources, not the
    least of which was a deferred first mortgage in the amount of
    $1,536,000 funded by HOME through the Department of Housing. In
    addition, the project received a total of $951,694 in low-income
    housing and historic tax credits through the National Equity Fund, a
    nonprofit subsidiary of the Local Initiatives Support Corporation
    (LISC). A grant in the amount of $500,000 from the Illinois Housing
    Development Authority ``filled the gap'' in the construction and
    permanent financing packages for the project.
        In addition to rehabilitating older SRO buildings to serve the very
    poor, Lakefront SRO implemented what it calls a ``blended management''
    system in all its affordable housing projects. This means that in
    addition to traditional property management, which keeps the building
    and surrounding property in good condition, each property's staff is
    obliged to go the extra mile for its residents and neighbors. For its
    residents, the Carlton offers a variety of supportive services,
    including individual case management, substance abuse meetings and
    counseling and employment assistance--at no charge to the tenant. With
    this support network in place, Lakefront hopes that residents will
    begin to weave their lives back together. When a tenant ``moves up and
    out,'' it creates a new opportunity for another homeless person who so
    desperately needs the help.

                 USING HOME TO BUILD HOMEOWNERSHIP AND PARTNERS

        The HOME program is an important source of funding for
    homeownership initiatives across the country. Recent HOME statistics
    published by HUD reveal that more than 21 percent of all HOME monies
    are spent to build, rehabilitate and acquire homebuyer units.
    Furthermore, around 28 percent of the units currently produced under
    the HOME program are home ownership units. Clearly, the HOME program
    has facilitated the creation of many successful homebuyer programs,
    but, more important perhaps, it has encouraged the development of new
    partners and leaders for the development of housing in communities
    throughout the nation.
        The Clark County HOME Consortium--which gathers unincorporated
    Clark County, Nevada and the cities of Las Vegas, North Las Vegas,
    Boulder City and Mesquite under one funding and administrative
    umbrella--used a First Time Homebuyers Program as a launching pad to
    transform a social service organization into a strong CHDO, which now
    produces a variety of affordable housing opportunities in the area.
        In 1993, the Economic Opportunity Board (EOB), a large and
    established community action agency, became a CHDO and approached the
    HOME Consortium with a proposal to develop a First Time Homebuyer
    Program. The need for such a program was evident. First, the area was
    in the midst of a population boom, fed by the 3,000-4,000 people moving
    into the county per month. Second, since 1980, the cost of rental
    housing had risen over 70 percent throughout the county, driven by the
    rapidly growing casino/gambling industry, which had created a plethora
    of minimum-wage service sector jobs. Third, the people in service-
    sector jobs could not afford to become homeowners and ended up paying
    increasingly rising rents, which kept them from saving the money to
    make a down-payment on a home. Finally, older and moderately priced
    single-family homes were available in the county and seemed perfect for
    a homebuyer's initiative.
        Over the first two years, the HOME Consortium contributed $450,000
    of HOME money and county money to the initiative. According to Michael
    Trend, management analyst for Clark County, this substantial investment
    was motivated by the recognition that ``large-scale efforts undertaken
    by non-profit organizations are often plagued by under-capitalization,
    and the consortium wanted to make sure that the EOB had enough
    resources to do the job.'' Part of these resources came in the form of
    HOME operating expenses, which enabled the EOB to hire the staff and
    develop the expertise to build a strong homebuyer's program.
        Under this program, a bank or mortgage company carries a family's
    first mortgage and the EOB provides down-payment assistance. This down-
    payment assistance is limited to $5,000 and structured as a no-
    interest-bearing loan that becomes a full-fledged grant after five
    years. The decision to make this assistance a grant is based on the
    belief that for such a small initial investment, it is ``counter-
    productive to monitor and recapture money that will be worth five or
    ten cents on the dollar some 30 years hence.'' By providing this
    shallow non-payment subsidy, EOB feels that it has been able serve more
    people than if it had decided to fully finance a few homes for a few
    families.
        Eighty-seven families have become homeowners as a result of EOB's
    program. More than 72 percent of the loans have been made to
    traditionally underserved minority populations, while 30 percent of the
    loans have been made to households making less than 60 percent of the
    area's median income. EOB's homeownership program is a model across the
    county and has generated more opportunities for homeownership than any
    other HOME program in the state of Nevada. The City of Las Vegas has
    recently chosen EOB to administer a $220,000 HOME-funded homeownership
    program, a testament to the organization's strong administrative
    capacity.
        With the homeownership experience under its belt, EOB has willingly
    undertaken a series of new and innovative housing initiatives. In 1995,
    EOB added an ``acquisition, rehabilitation and re-sale'' component to
    its program. The CHDO acquires ``board ups'' and other substandard
    units from HUD, city, and county repo-lists for a low price and
    rehabilitates them for sale to low- to moderate-income homebuyers. EOB
    uses its own maintenance crews to do most of the rehabilitation work in
    the units. This in-house rehabilitation allows the non-profit to save
    money, but also prepares the ground to develop a job training program
    for underprivileged youth. The county and EOB are still working on the
    job-training program component of the new program, with the expectation
    that it will become an important feature of their work under Section 3.
    According to Mike Trend of Clark County, this initiative is
    ``especially noteworthy in that the EOB is going to make the effort to
    be self-supporting.''
        EOB is now working to provide a continuum of care in its housing
    programs. The CHDO owns and runs transitional units for homeless
    families, possesses 50 units of transitional below market rental
    housing, which were developed with HOME funds, and is designing a
    lease-to-purchase program which will be coordinated with the
    organization's homeownership and acquisition/re-sale initiatives.
        The innovation and the strength of EOB's housing program is
    reflective of the Clark County HOME Consortium's original commitment to
    the CHDO's homeownership program. According to Mike Powlack of EOB,
    this commitment went beyond funding. The Clark County HOME Consortium
    gave the CHDO the flexibility to run its program in both unincorporated
    and incorporated areas and provided the organization with freedom to
    design the program as it saw fit. Furthermore, the county was and
    continues to be the EOB's helpful partner, assisting in working through
    problems and challenges that the CHDO faces. With the Clark County HOME
    Consortium's help, the EOB's homeownership program has blossomed into a
    multi-pronged affordable housing initiative and a powerful agent in
    building hope and opportunity in communities across the county.

       ASTER PLACE APARTMENTS AT BLOOMFIELD, PARTNERSHIPS FOR AFFORDABLE
                                    HOUSING

        Editor's Note: In June 1995, HUD, through the National Affordable
    Housing Training Institute (NAHTI), recognized nine projects and four
    honorable mentions in its ``Excellence in Affordable Housing''
    competition. The following is a summary of the winning project from an
    ALHFA member.
        When the Housing Development Corporation, a local nonprofit
    developer in Lancaster County, Pa., proposed to build affordable
    housing in one of the county's most affluent suburban townships, it set
    itself on a path that few had traveled before. Located 50 miles west of
    Philadelphia, Lancaster County, traditionally an agricultural region,
    has experienced important industrial growth over the past 30 years.
    This growth has been most vigorous in the county's suburban communities
    where housing developers have built expensive homes to cater to the
    newly expanding population. This push to develop luxury housing has
    left the needs of low- and moderate-income families unaddressed. While
    many of the county's new jobs are located in suburban communities, most
    of the affordable housing remains within the city of Lancaster,
    creating a dramatic imbalance between employment and housing
    opportunities.
        In response to this growing imbalance, the Housing Development
    Corporation designed the Aster Place Apartments at Bloomfield project,
    a mixed-income planned community which would bring together 66 new
    affordable apartment units and 98 fee-simple, for-sale townhouses in a
    suburban setting. The critical element in the project's plan was the
    emphasis it placed on the creation of partnerships between
    municipalities, townships, and the Housing and Redevelopment
    Authorities as well as between the low-income families living in the
    affordable apartment units, and the families residing in the planned
    community's town homes. The result of these partnerships has been the
    first affordable housing project locally produced in Lancaster County's
    suburbs in the past 10 years.
        The Aster Place Apartments at Bloomfield are located in Manheim
    Township, the county's most affluent suburban township. Virtually no
    affordable housing existed in the area before the Aster Place
    Apartments, which proved to be an important factor for the Housing
    Development Corporation when it chose the project's site. The developer
    had to overcome negative perceptions of affordable housing, and
    restrictive zoning and land-use ordinances. Through extensive
    discussions with township officials, local leaders, and neighborhood
    organizations early in the project's planning, the Housing Development
    Corporation mitigated community opposition. These discussions forged a
    close working relationship between the developer and Manheim Township,
    facilitating the modification of the zoning requirements that made the
    project possible.
        The apartment portion of the project, which was opened in fall
    1994, includes 50 two-bedroom apartments averaging 938 square feet each
    and 16 three-bedroom apartments averaging 980 square feet. Typically,
    the apartments' residents include single-parent households, single-
    person households, and elderly households. People who moved into the
    apartments were often living in Lancaster city and commuting to the
    suburbs or paying more than 30 percent of their incomes for housing in
    one of the county's suburban communities. This housing targets
    households making less than 60 percent of the area's median family
    income. The apartment project's waiting list attests to the further
    need for this type of housing in the area.
        In addition to providing affordable housing to low-income families,
    the project offers a Supportive Service Program, including budgetary
    counseling, latch-key programs, substance-abuse prevention, educational
    seminars, health programs or any other identified need. The goal is to
    empower residents to become partners in the life of their community and
    to provide them with the skills necessary to become homeowners.
    Ideally, residents with adequate means will choose to move from the
    Aster Place Apartments into the Aster Place Town Homes.
        The project depended on financing from a variety of sources,
    including HOME funds. The Housing Development Corporation used HOME
    funds, which allowed them to construct new housing at a soft, low-
    interest mortgage of $662,500. The state Department of Community
    Affairs made a similar loan in the amount of $200,000 through its
    Housing and Community Development Program. The state Housing Finance
    Agency provided soft secondary financing of $1,000,000 and a first
    mortgage of $1,200,707. High Investors, Ltd., a local securities
    broker, provided $2,050,000 in equity from various investors.
        The Housing Development Corporation's Aster Place Apartments at
    Bloomfield project highlights the partnerships that can be created to
    generate a viable community that provides housing opportunities for
    families at all income levels. Furthermore, the project serves as a
    reference for communities looking to create affordable housing where
    none existed before.

           THE 15TH AVENUE CO-OP OF THE CITY OF ESCONDIDO, CALIFORNIA

        The 15th Avenue Co-op is the first limited equity housing
    cooperative to be developed in California's San Diego County. Limited
    equity cooperatives offer an alternative to renting for low-income
    families by allowing them to own the building in which they live.
        Like many cities today, Escondido is faced with an increase in
    deteriorating housing stock, overcrowded housing and urban blight. In
    Escondido, the problem of overcrowding is compounded by a lack of
    suitable units in the city's existing multi-family housing, especially
    the lack of three- and four-bedroom units for large families. The vast
    majority of multi-family housing in Escondido consists primarily of
    studios and one- and two-bedroom units. Only 17 percent of its rental
    units have three or more bedrooms. Due to the shortage of appropriately
    sized units, there are relatively few existing multi-family buildings
    that are suitable for acquisition and rehabilitation for lower-income
    families.
        The 15th Avenue Co-op had its beginnings after an apartment
    building that was nearly vacant and in need of extensive rehabilitation
    was also identified as having the potential to be redesigned to provide
    three- and four-bedroom units. The building was severely deteriorated
    with roof and plumbing leaks, holes in many of the walls and ceilings,
    torn carpets, and broken interior fixtures. The exterior was also
    deteriorated with missing asphalt in the parking lot and no
    landscaping. Due to the condition of the building, as well as the
    inability of previous renters to continue paying rent, all but one of
    the occupants had moved out. The building, however, provided an ideal
    opportunity for rehabilitation because of the availability of existing
    utilities and its proximity to major thoroughfares, public
    transportation, and amenities such as a neighborhood market,
    restaurants, elementary schools and child care.
        The 15th Avenue Co-op is located in the center city residential
    area. In addition to convenient services, the neighborhood hosts a mix
    of residential development consisting of apartment complexes and
    single-family residences. The area encompasses approximately nine city
    blocks and has been identified by the city as an ideal area in which to
    promote a wide range of housing opportunities. The estimated average
    annual income in the area (for a family of four) ranges from about
    $7,000 to $28,000. Fifty-two percent of area residents are Hispanic,
    and the remaining 48 percent are Anglo-Americans, African-Americans,
    Asian/Pacific Islanders, and others.
        The long-term financial success of the project is assured with the
    commitment of all funds. Project financing is unique because three
    reserve accounts will be set up instead of the standard two. In
    addition to the usual operating and replacement reserves, a third
    reserve account will enable paydown of the principal in order to reduce
    mortgage payments should they go up in the eleventh year. The best loan
    that was available offered low, fixed-rate interest for the first ten
    years only. Thus, the monthly carrying charges could rise in the
    eleventh year. However, this will be avoided due to the third reserve
    account.

    15th Avenue Co-op Funding
        The project was funded by a variety of public and private
    resources, but 47 percent was received from HOME funds. The next
    highest contributor was SAMCO, a statewide consortium of lenders, which
    provided approximately 32 percent of the needed resources through a 30-
    year loan. The City of Escondido's Rehabilitation Program provided an
    additional 13 percent of funding and the remaining came from other
    contributors. Additional sources included ``sweat equity,'' which was
    provided by the future residents' participation in the demolition of
    the building, construction clean-up and installation of the fixtures
    such as toilets, screens and doors. The breakdown is as follows:

    HOME funds....................................................  $580,000
    (3 percent simple interest deferred first 10 years)...........   405,000
    (3 percent 30 years, residual receipts).......................   175,000
    SAMCO (standard 30-year loan).................................   400,000
    City of Escondido Rehabilitation Program (Funds are obtained
        for the program through set-aside funds from tax
        increments obtained within the redevelopment area)........   160,000
    Affordable Housing Grant (received from the Federal Home Loan
        Bank).....................................................    60,000
    Developer/resident equity.....................................    24,450
                        --------------------------------------------------------------
                        ____________________________________________________

          Total...................................................$1,224,450

        In addition to the HOME funds, the city's rehabilitation funds and
    the developer's equity, other sources of interim funding include
    $48,000 from the Local Initiative Support Cooperation and a Bank of
    America Community Development Bank Loan of $404,500.
        The financial success of the project can also be attributed to the
    fact that the resale price of shares will be fixed, which will
    encourage long-term ownership. In turn, success may be even greater
    since residents will have a vested interest in and control of the
    operation costs.
        Principals involved with the project believe that the HOME program
    played a very important role in its feasibility. HOME program funds
    contributed 47 percent of the total development costs, which made it
    more attainable for the developer to be able to pull together other
    funding commitments. Also, when it comes to financing such a housing
    project, private financing institutions take a close look at leverage
    coming from a public source.
        Because of the attractive loan terms offered by the city in respect
    to HOME funds, the developer was able to offer quality affordable
    housing and lower rents for very low-income households in the
    community. Furthermore, the City of Escondido has been able to expand
    its supply of affordable housing with the availability of HOME funds
    coming directly from the State Department of Housing and Community
    Development, as well as the U.S. Department of Housing and Urban
    Development.
    california renaissance village: the rebirth of an american neighborhood
        Just a few short years ago, the Glenwood Avenue Apartments, located
    in Rialto, Calif., was a neighborhood in distress. The 144-unit complex
    was deteriorating, the area was plagued by crime, and the few habitable
    dwelling units were difficult to rent. Other units were in foreclosure
    or boarded up.
        Then, the City of Rialto, San Bernardino County, the Southern
    California Housing Development Corporation (a local, not-for-profit
    community housing development corporation), area financial
    institutions, and local residents formed a partnership to design and
    implement a comprehensive neighborhood revitalization strategy for the
    Glenwood Avenue Apartments. The partners assessed the underlying
    problems of the complex, most notably that it was an eyesore and a
    financial abyss.
        The revitalization of the complex--which was later renamed
    Renaissance Village--made it an ideal candidate for the HOME Investment
    Partnerships Program because it entailed the acquisition, demolition,
    rehabilitation, and continued management of the 144 units, and resulted
    in the rebirth of an American neighborhood. Area lenders offered
    financial incentives to potential buyers, managers, and tenants. The
    City of Rialto leveraged funding, ownership, and management options at
    the state and local level, while San Bernardino County tapped funding
    mechanisms at the federal level. Finally, the Southern California
    Housing Development Corporation (SCHDC) participated in acquiring,
    rehabilitating, and operating the complex.
        Over a two and one-half year period, the project's HOME program
    objectives were met through the multilevel, comprehensive partnership.
    The $7.5 million project was funded by a highly creative plan that
    included: (a) a $1.5 million gap financing and a 30-year $500,000 bond
    issue--credit-enhanced by Fannie Mae--from the Rialto Redevelopment
    Agency; (b) a $500,000 HOME Investment Partnerships Program loan
    approved by the San Benardino County Board of Supervisors; and (c) a
    $500,000 grant from the Federal Home Loan Bank of San Francisco
    Affordable Housing Program. In addition, SANWA Bank, Calif., provided a
    $500,000 construction loan for rehabilitation, and the American Savings
    Bank, Great Western Bank, Fidelity Federal Savings, and Freddie Mac
    provided assistance through mortgage balance write-downs during SCHDC's
    acquisition period.
        In addition to saving the dilapidated apartment complex, SCHDC has
    provided extra amenities for the restoration of the neighborhood. The
    area that once looked like a war zone now boasts a gated neighborhood
    community of attractive residential housing, a ``tot lot,'' two
    swimming pools, picnic areas, basketball courts, indoor recreation
    facilities, landscaping, and, most important, residents. To prevent
    some of the problems faced by the former complex, in-house security
    personnel patrol the grounds from 10 p.m. to 6 a.m., and local law
    enforcement agencies are working with the community to ensure a safe
    environment for the residents.
        Renaissance Village is 100 percent affordable--20 percent of the
    units rent to households earning 50 percent of area median income,
    while 80 percent rent to individuals earning 60 percent of median
    income.
        San Bernardino County submitted Renaissance Village for the NACCED
    HOME Awards awarded at the NACCED 21st Annual Conference.
                                     ______

       Prepared Statement of the U.S. Conference of Mayors, the National
       Association of Counties, the Association of Local Housing Finance
          Agencies, and the National Community Development Association

        Mr. Chairman and Members of the Subcommittee: The U. S. Conference
    of Mayors, the National Association of Counties together with its
    affiliate, the National Association for County Community and Economic
    Development, the Association of Local Housing Finance Agencies, and the
    National Community Development Association appreciate the opportunity
    to present our views on fiscal year 1998 appropriations for the
    Department of Housing and Urban Development, and in particular the two
    priority programs of local governments--Community Development Block
    Grants and HOME. Through this statement our organizations, composed of
    city and county government elected officials and practitioners, wish to
    articulate the critical importance of maintaining a continued federal
    commitment, in partnership with our members--the nation's local
    governments--in promoting neighborhood revitalization and expanding the
    supply of affordable housing in our nation's central cities, counties,
    small towns and rural areas.
        At the outset, we wish to commend you, Mr. Chairman and members of
    the Subcommittee, Republicans and Democrats alike, for your continuing
    support for priority local government programs. This is evidenced by
    inclusion in the fiscal year 1997 appropriations act the same funding
    levels for CDBG and HOME as approved for fiscal year 1995 and 1996--
    $4.6 billion and $1.4 billion, respectively.
        However, we also want to reiterate our deep concern over, and
    opposition to, the proliferation of set-asides within the CDBG program.
    For fiscal year 1997, $289.6 million is allotted for set-asides. Of
    that, $180 million is for programs unrelated to the basic CDBG program:
    Youthbuild ($30 million), public housing supportive services ($60
    million), and lead-based paint abatement ($60 million), and public
    housing law enforcement ($20 million). The Administration's fiscal year
    1998 budget also requests set-asides totaling $290 million. To the
    extent these programs deserve to be funded, they should be funded
    separately.
        Making them set-asides has the effect of taking formula funds,
    which benefit many communities, and converting them into discretionary
    funds, which benefit a far fewer number of communities. In addition,
    the inclusion of unrelated set-asides such as these is what I refer to
    as the hidden cut in CDBG. Although the CDBG program has received level
    funding of $4.6 billion since fiscal year 1995, the actual amount of
    funding for local governments and states has declined by 4 percent,
    while the number of new formula grantees has increased by three
    percent. This increase in entitlement grantees, coupled with the
    steadily mounting set-asides, seriously reduces entitlement
    allocations. In fiscal year 1995, $4.6 billion in CDBG funds was
    allocated to 946 entitlement communities and 51 states and territories
    with approximately $90 million in total designated set-asides--those
    for Indians, Insular areas and Section 107 special purpose grants (none
    of which we object to). In fiscal year 1997, $4.6 billion in CDBG was
    allocated to 975 entitlement communities and 51 states and territories
    and with $289.6 million in total designated set-asides. Even without
    considering inflation, this on-going trend creates a steady, yet hidden
    decline in actual CDBG funding to jurisdictions. For example, from
    fiscal year 1995 to 1997, East St. Louis, IL, lost 8 percent, Los
    Angeles, CA, lost 5 percent, Cambridge, MA, lost 8 percent, and
    Westchester County, NY, lost 8 percent in CDBG funding.
        As with CDBG there is the beginning of a trend toward set-asides in
    HOME. For fiscal year 1997, $15 million has been set-aside for housing
    counseling. The HOME program has also experienced an increase in the
    number of participating jurisdictions each year, spreading the funds
    even further. In addition, for fiscal year 1998 the Administration has
    recommended a cut in funding for HOME to $1.3 billion. We are, of
    course, strongly opposed to this cut.
        Mr. Chairman: Due the hidden decline in CDBG and HOME funding over
    the past three years at ``level funding,'' we urge the following
    funding levels for fiscal year 1998: $4.6 billion in formula funding to
    entitlement communities and states without any set-asides within this
    amount, and $1.5 billion for HOME.
        Attached to this statement are the materials used for a
    Congressional briefing on the CDBG and HOME programs which our
    organizations and others held on March 20, 1997. We commend it to the
    Subcommittee's attention for the extensive information which it
    contains.

                                 IMPACT OF CDBG

        Celebrating its 23rd year, having been signed into law by President
    Gerald Ford in 1974, CDBG is the federal government's most successful
    domestic program. The CDBG program's success stems from its utility,
    i.e., providing cities and counties with an annual, predictable level
    of funding which can be used with maximum flexibility to address their
    unique neighborhood revitalization needs. Based on HUD's most recent
    annual report to Congress, between fiscal year 1993 and fiscal year
    1996 an estimated 14-17 million households benefitted from the CDBG
    program. During that same period an estimated 114,799 jobs were created
    through CDBG-funded economic development activities. In fiscal year
    1993, entitlement communities spent funds in the following manner:
    housing rehabilitation, assisting over 200,000 households (35.8
    percent), public works and infrastructure (22.7 percent), planning,
    monitoring and program administration (14 percent), public services
    (12.8 percent), acquisition and clearance of property (7.3 percent),
    preventing or eliminating slums and blight (6 percent), and economic
    development (6 percent).
        Again according to the HUD report, for every 10 percent of CDBG
    funds expended for direct assistance to individuals and households
    (two-thirds of CDBG funds) over 1 million persons and households are
    served, based on the fiscal year 1992 Grantee Performance Reports.
    Since the remaining one-third of funds benefit entire neighborhoods a
    per person benefit cannot be accurately calculated.
        A two-year study of the CDBG program by the Urban Institute
    concludes that in its twenty-two years' existence the program has
    brought `` * * * important contribution[s] to city community
    development, including demonstrated successes in achieving local
    neighborhood stabilization and revitalization objectives.'' The Urban
    Institute believes that in virtually every city, neighborhoods would
    have been adversely affected had CDBG not been implemented. The
    Institute claims that ``the CDBG program works most effectively when
    communities practiced concentrated investments, linked housing,
    economic development and social service spending, and invited citizen
    participation in neighborhood planning efforts.'' This strategy of
    comprehensive treatment of neighborhoods is greatly facilitated by the
    Administration's Consolidated Plan requirements. The study also found
    that CDBG programs clearly benefit those for whom the program was
    intended, low- and moderate-income persons and neighborhoods, and does
    so to a substantially greater extent than the minimum (70 percent)
    required by law. The Urban Institute correctly characterizes the
    program as the federal government's primary means to support local
    efforts in the stabilization and restoration of deteriorated
    neighborhoods.

                                 IMPACT OF HOME

        Like CDBG, the HOME program is producing very positive results in
    expanding the supply of affordable housing. Enacted as the centerpiece
    of the 1990 National Affordable Housing Act and signed into law by
    President Bush, the program was initially mired by many legislative
    provisions which thwarted its effective implementation. After a series
    of legislative changes in 1992, designed to facilitate effective
    implementation, and regulatory actions by former Secretary Cisneros and
    his staff, the program really took off in January 1993.
        Since then the progress in using the funds, and the uses to which
    they are being put, is most impressive. In fact the House
    Subcommittee's report accompanying H.R. 3666, the fiscal year 1997 HUD
    appropriations bill stated: ``This program provides resources to
    nonprofits to build affordable homes equitably and efficiently.
    Furthermore, the program is well monitored, making it possible to
    determine whether low- and moderate-income families are receiving the
    benefit of the assistance.'' We heartily agree.
        According to HUD data, since HOME was created in 1990, it has
    helped to develop or rehabilitate over 230,000 affordable homes for
    low- and very-low income families. Ninety percent of the HOME funds
    used for rental housing must be targeted to families with incomes at or
    below 60 percent of the area median. The balance may assist those with
    incomes up to 80 percent of the median income. Actual targeting is
    deeper. The majority of HOME funds have been committed to housing that
    will be occupied by very low-income people and a substantial amount
    will assist families with incomes no greater than 30 percent of median.
    As of the end of January, 1997, 65 percent of all occupied HOME-
    assisted rental housing is rented to families with incomes at or below
    30 percent of area median income.
        HOME funds help low- and very-low income families realize the dream
    of homeownership by providing for construction and rehabilitation of
    housing as well as providing the downpayment and/or closing cost
    assistance in the form of second mortgages necessary to bridge the gap.
    Since 1990 HOME has assisted 68,900 homebuyers. All HOME funds used for
    homeownership must be targeted to households with incomes at or below
    80 percent of area median. Again this targeting requirement is being
    exceeded. Thirty-two percent of homebuyers assisted with HOME funds
    have incomes at or below 50 percent of median income.
        HOME is cost effective and provides the gap financing necessary to
    attract private loans and investments to projects. For each HOME
    dollar, $1.79 of private and other funds have been leveraged since the
    program's inception. This clearly illustrates the effective and
    judicious use of HOME funds by participating jurisdictions.
        We also urge the Subcommittee to fully fund the Administration's
    request for renewal of expiring project-based and tenant-based Section
    8 subsidy contracts, but not at the expense of CDBG and HOME funding.
    Failure to do so will put an estimated 4.4 million households at risk.
    At the same time we are urging the authorizing committees to formulate
    legislation which would permanently address this issue.
        Mr. Chairman, local government officials believe that a strong
    federal role in housing and community development programs must
    continue. Since the Housing Act of 1937, Congress has enunciated, and
    repeated in subsequent housing acts, that, as a matter of national
    policy, the federal government has an obligation to assist states and
    local governments in providing decent, safe and sanitary housing for
    lower income households. Perhaps Congress said it best in a
    ``Declaration of National Housing Policy'' included in Section 2 of the
    Housing Act of 1949:
        ``The Congress hereby declares that the general welfare and
    security of the Nation, and the health and living standards of its
    people, require housing production and related community development
    sufficient to remedy the serious housing shortage, the elimination of
    substandard and other inadequate housing through the clearance of slums
    and blighted areas, and the realization as soon as feasible, of the
    goal of a decent home and suitable living environment for every
    American family * * *.''
        We submit to you that, while progress has been made toward this
    goal, it has not been fully achieved. The federal government must make
    a commitment to this national housing policy, backed up by the
    resources with which to continue the battle against neighborhood
    deterioration and a decaying housing stock.
        Mr. Chairman, we look forward to working with you and the
    Subcommittee in adequately funding HUD's housing and community
    development programs.
                                     ______

        Prepared Statement of Jacqueline Johnson, Chairperson, National
                        American Indian Housing Council

        I am submitting written testimony to your subcommittee to tell you
    of the critical need for funding from Congress for the new Indian
    Housing Block Grant Program. My name is Jacqueline L. Johnson and I am
    the Chairperson of the National American Indian Housing Council
    (NAIHC). I am also the Executive Director of the Tlingit-Haida Regional
    Housing Authority located in Juneau, Alaska. In addition, I am the
    Secretary of the Juneau Tlingit Haida Tribal Council, and a member of
    the Raven/Sockeye Clan. Kus'een yo xat duwasakwak, Lukaxadi a'y'a xat,
    Yeith hit dax nax satee Kagwaantaan yadi.
        First, I want to thank the chairman and members of the subcommittee
    for their continued support of the Indian housing program. We are
    honored to provide the subcommittee with testimony about housing for
    Native Americans, who continue to be among the most impoverished people
    in the United States. NAIHC looks forward to working with the
    subcommittee to assure that together, we meet the housing needs of
    Native Americans.
        As the subcommittee is aware, this is a historic time for Indian
    housing. The Native American Housing Assistance and Self-Determination
    Act (NAHASDA), passed last October, brings great changes to the way
    federal housing assistance will be delivered to tribes. We are excited
    about the change and the opportunities it brings, and ask the
    subcommittee to consider funding NAHASDA at a level that will ensure
    its success.

       THE NATIVE AMERICAN HOUSING ASSISTANCE AND SELF-DETERMINATION ACT
                                   (NAHASDA)

        Tribes and Indian housing authorities have long advocated for
    changes in the Indian housing program. The passage of NAHASDA
    represents the culmination of these efforts. NAHASDA allows for greater
    tribal control and flexibility. Under the existing program, Indian
    housing authorities have been forced to work within the confines of a
    program designed for urban areas. Through the years, we worked hard to
    make the program meet our rural needs and diverse cultures. While we
    have had some successes, the road has been difficult. With the passage
    of the NAHASDA, we can expand upon our successes and finally make
    significant movement towards our goal of providing safe, decent and
    sanitary housing for all eligible families. NAHASDA allows tribes the
    flexibility to build culturally sensitive homes that are tailored to
    their environments. It allows each tribal community to create their own
    housing programs--to manage their resources in ways that will best
    serve the unique needs of their people.
        NAHASDA brings to tribes a new way to approach housing--one that
    will identify each communities' housing needs and goals through
    comprehensive housing planning. The comprehensive housing plans
    required under the Act will guide each communities' housing program and
    allow housing to be incorporated into all the other economic activities
    of the tribe. No longer will housing be a separate activity.
        NAHASDA provides new opportunities for meeting our housing needs by
    combining public resources with private financing. The Act encourages
    partnerships with banks and financial institutions, allowing us to
    guarantee future financial resources to private lenders.
        This is an exciting and challenging time for those of us who are
    dedicated to improving the housing conditions in Native American
    communities. We are eager to seize this opportunity and move forward.
        In fact, I am proud to report that the Negotiated Rulemaking
    Committee, created to develop the regulations for the new Indian
    housing program under NAHASDA, recently completed its work. The
    Committee met the deadline it established, and wrote draft regulations
    for the Indian Housing Block Grant program which will be available for
    public comment in the next few weeks. We thank Congress for providing
    us with the opportunity to develop this new program. It has been an
    educational and challenging process.
        Through negotiated rulemaking, the Committee was able to draft
    program regulations that: respect tribal sovereignty; provide HUD and
    tribes with the tools to monitor and oversee the program; direct,
    through the funding formula, resources to tribes that are most in need;
    protect current residents and families through the continued operation
    and maintenance of existing housing units; and encourage private-public
    partnerships that allow tribes to leverage and guarantee financial
    resources.
        I believe that the Committee has addressed many of the concerns of
    Congress, ensuring that accountability and responsibility is integrated
    into the regulations, while providing for local control and flexibility
    that meets the needs of low-income Native Americans. I am proud to
    report that tribal representatives and HUD participants were able to
    work together, to work out differences, and to produce regulations that
    will enable us to achieve our goals of decent, safe, sanitary housing.
              the administration's fiscal year 1998 budget request
        To meet the great promise and challenge of NAHASDA, it is essential
    that tribes and TDHE's receive a level of funding that allows them to
    meet the Act's objectives. While we recognize the national goal to
    balance the budget, the Administration's budget proposal falls far
    short of our need. It fails to provide funding at levels designed to
    ensure the success of the program. A new program that is under-funded--
    that fails to account for the recent changes in welfare reform--will be
    a program that has great potential, yet ultimately fails to give Native
    Americans a fair chance to achieve goals that other Americans take for
    granted.
        NAIHC estimates the need for the Indian housing program to be
    approximately $850 million. This figure includes not only the costs of
    operating and maintaining the viability of the existing stock, but also
    the costs associated with implementing the Act and preparing for
    welfare reform. Additionally, it incorporates funding for the loan
    guarantee programs, Section 601 and Section 184, which are vital for
    addressing our housing needs.
        While the Administration's proposal does not acknowledge that more
    tribes and TDHE's are now eligible to participate in the block grant
    program, HUD estimates that approximately 60 more tribes will be
    eligible under the Act. These are, in large part, federally recognized
    tribes that have not previously participated in the housing program and
    new federally recognized tribes. The increase in those who are now
    eligible for assistance must be budgeted for. In addition, the proposed
    appropriation fails to account for the effect of inflation, and funding
    remains at a constant level over the next five years. Each year,
    inflation will eat at our precious dollars and each year their value
    will decline. The result will be a cumulative decrease in funding
    annually.
        Also, tribes and TDHE's need adequate dollars to carry out the
    additional responsibilities required by the Act. NAIHC estimates that
    tribes and TDHE's need $148 million to plan, manage, and administer
    their grants, as well as to undertake the necessary environmental
    reviews that are now the tribes' responsibility. Insufficient funding
    will hamper tribal and TDHE's efforts to manage these tasks which were
    previously funded by HUD.
        There is also a factor that no one can accurately estimate and one
    in which housing is rarely mentioned when discussed--the impact of
    welfare reform. The Administration proposes programs that housing
    authorities will be able to use for creating jobs, linking welfare
    recipients to jobs, and leveraging funds to increase job opportunities.
    What happens when there are no jobs or when economies are so depressed
    that jobs cannot be created or sustained? Who pays the rent when
    welfare payments stop? How will tribes and TDHE's make up the
    difference? It is important that this subcommittee understands that
    welfare reform will hit us very hard. Unfortunately, the
    Administration's budget does not factor the impact of welfare reform
    into its request for funding the Indian housing block grant.
        Under NAHASDA, tribes and TDHE's can form new partnerships with
    private lenders and financial institutions, using many of the financial
    tools available in the larger community. But under the Administration's
    proposal, the Loan Guarantee Program, Section 601, receives no funding.
    NAIHC estimates that Section 601 needs approximately $32 million in
    credit subsidy. This small investment could potentially leverage twelve
    times more in private housing funding, or approximately $400 million.
    The amount of credit subsidy requested is minor in comparison to the
    huge contribution it will bring to our economically distressed
    communities. I sincerely believe that without adequate funding for this
    program, we will never properly house Indian people. Section 601 is
    important because it helps us begin to achieve our goal of economic
    self-sufficiency. Without 601, we will remain solely dependent on
    decreasing federal dollars for which there are countless competing
    demands.
        In addition, NAIHC is seeking to increase the funding for the
    Indian Housing Loan Guarantee Program (Section 184) from $3 to $6
    million. This program has been extremely successful since its creation
    in 1992. Congress appropriated $3 million for funding in 1993. Each
    year appropriations for Section 184 are used, and the demand is
    growing. HUD expects to commit the fiscal year 1997 appropriation for
    the Section 184 program months before the September 30 deadline. This
    program has allowed us to build houses on Indian land for the first
    time with private financing. With such great unmet housing needs, and
    the prospect of diminishing federal dollars, it makes sense to further
    encourage the participation of the private market.
        Housing finance programs are essential for Indian reservations and
    Native communities in an era of declining federal housing dollars. They
    are indispensable tools that will help us move private financing into
    our communities, where few private lenders dare to venture.
        We request that appropriations for NAHASDA funding lose their
    federal distinction for the purpose of leveraging those funds with
    state and local matching contributions and private investment, similar
    to the way funds under the Home Investment Partnerships Act are used.
    This will allow us to fully maximize our ability to bring private and
    other resources to our communities.
        Additionally, we request that TDHE's be allowed to service public
    housing vouchers and receive the funding for their non-Indian families
    through the public housing appropriation. Currently, there are 4,174
    Section 8 vouchers managed by Indian housing authorities. Although
    small compared to public housing, in many areas of the country, Indian
    housing authorities serve a substantial number of Indian and non-Indian
    families in this program. Providing funding for TDHE's to continue to
    serve non-Indians will allow these families to remain in their homes.
        NAIHC recognizes the need to meet national budget priorities, and
    the pressure that the subcommittee is under to do so. However, NAIHC
    believes that if tribes and TDHE's are going to meet the housing needs
    of their communities, develop housing that is decent, safe and
    affordable, and create partnerships with the private sector, providing
    the level of funding requested is essential.

                MAXIMIZING THE OPPORTUNITIES THAT NAHASDA BRINGS

        As tribes and TDHE's make the transition from the existing program
    to the new program, technical assistance and training becomes
    especially important. As the only national organization representing
    Indian housing, NAIHC understands the importance of building the
    capacity and ability of tribes and TDHE's. Education is critical in
    preparing tribes and TDHE's for understanding the program, and
    preparing for its implementation. NAIHC strongly supports additional
    funds for technical assistance and training, directed not only to
    tribes and TDHE's, but also for HUD staff so that they are better able
    to understand their new role. Additionally, we ask that the
    subcommittee continue the direct appropriation of $1.5 million to NAIHC
    for the provision of technical assistance, training, and research
    activities to tribes and TDHE's. NAIHC has received funding in past
    years, and its TA and training programs have assisted IHA's (TDHE's)
    and tribes throughout Indian country.
        NAIHC also asks this subcommittee to support the passage of a
    national financial institution, targeted to provide assistance to
    tribes in the development of tribal consortiums and the pooling of
    funds. Such services are critical to build the financial capacity and
    resources of tribes, and to address the lack of access to credit that
    exists in many tribal areas.
        The success of the new Indian Housing Block Grant program rests on
    a partnership--a partnership between the federal government and tribes,
    where each fulfill their responsibilities to provide decent, safe and
    sanitary housing for all Native Americans. Your support of $850,000,000
    will give us the opportunity to achieve these goals.
                                     ______

        Prepared Statement of Aimee R. Berenson, Director of Government
                          Affairs, AIDS Action Council

        Good afternoon. My name is Aimee Berenson, and I am Director of
    Government Affairs for AIDS Action Council, the Washington voice of
    over 1,400 community-based AIDS service organizations across this
    nation and the people living with HIV/AIDS they serve. The work of AIDS
    Action Council is supported by our dues-paying members and individual
    donations. AIDS Action Council does not receive any federal funding.
        I want to thank the members of this Subcommittee for the
    opportunity to testify here today on behalf of people living with HIV/
    AIDS and their families. We are at a time of great hope and enormous
    promise in this epidemic. As you probably know from recent media
    reports, last year, as a result in dramatic advances in the care and
    treatment of people living with AIDS, the number of people dying from
    AIDS decreased by 13 percent. But this epidemic is far from over. While
    the number of people dying from AIDS declined significantly last year,
    the number of people living with AIDS did not. And tragically, not
    everyone living with AIDS is reaping the benefits of advances in care
    and treatments. The death rate for women with HIV disease actually
    increased by 3 percent last year, and death rates among people of color
    declined only nominally. These statistics are a poignant reminder that
    there are stark inequities in the ability to access the state-of-the-
    art health care that people with HIV/AIDS need to stay alive. AIDS
    continues to be the leading cause of death among American women and men
    between the ages of 25 and 44, cruelly depriving them of years of
    productivity. Worse still, every year 40,000 to 80,000 more Americans
    become infected with the human immunodeficiency virus (HIV), the virus
    that causes AIDS.
        Stable housing has always been essential to preventing the early
    onset of illness and maintaining the quality of life for HIV-infected
    individuals and their families. In the past, the lack of stable housing
    has meant many people with HIV disease died prematurely, because
    without a stable place to live, they could not access the care services
    and life-sustaining treatments that could have prolonged their lives.
    Today, the hope of new advances in the care and treatment of HIV
    disease means that stable housing may not only prevent premature death;
    it may actually be the key to a long, healthy life. Some people have
    responded so well to new therapies that they have been able to go back
    to work after years on disability. Ultimately, stable housing--and the
    access to care it enables people to achieve--may not only prevent
    premature death; it may mean the difference between life and death
    altogether.
        For the first time in the history of this epidemic, people living
    with HIV disease and their families have real cause for hope. Yet at
    the same time, they struggle with the challenge of how to realize that
    hope. Imagine the challenges that the costs of these new drugs
    therapies pose; imagine the challenges of finding the affordable,
    comprehensive state-of-the-art medical care and supportive services
    needed to benefit from the new drug therapies in the first place. Now
    imagine the challenges of trying to do either without affordable,
    stable housing. How do you choose between paying your doctor's bills or
    filling your prescriptions and paying your rent or mortgage? And what
    about those people who don't even have the pretense of such a choice,
    because they are already homeless?
        The Housing Opportunities for People with AIDS (HOPWA) program is
    the heart of the federal housing response for people living with HIV/
    AIDS. By increasing fiscal year 1998 funding for HOPWA, Congress can
    help us ensure that no American living with HIV disease is denied care,
    treatment, even life itself, just because they do not have a stable
    place to live.
        Ninety percent of HOPWA funds are distributed by formula grants to
    states and localities hardest-hit by the AIDS epidemic.\1\ States and
    localities control the use of these funds, not HUD. Communities may use
    HOPWA funds to meet whatever housing needs they may have, from
    providing short-term supportive housing or rental assistance for low
    income persons with HIV/AIDS to rehabilitating existing housing units,
    building new community residences, or coordinating home care services.
    The remaining ten percent is awarded on a competitive basis for
    projects of national significance.
    ---------------------------------------------------------------------------
        \1\ To qualify for a formula grant, a metropolitan statistical area
    (MSA) must have 1,500 cases of AIDS in a population in excess of
    500,000 people as reported by the CDC; a state must have 1,500 cases
    outside of any qualifying MSA. Thus formula grants are awarded
    equitably, based on need as reflected by numbers of cases.
    ---------------------------------------------------------------------------
        At any given time, one-third to one-half of all Americans with AIDS
    are either homeless or in imminent danger of losing their homes. And 60
    percent of all people living with HIV/AIDS will face a housing crisis
    at some point during their illness, because they face illegal
    discrimination or because, as a result of lost wages and medical
    expenses, they become unable to pay their rent or mortgage. Moreover, a
    growing number of people with HIV/AIDS are already homeless when they
    become ill and find themselves shuffled between acute care hospitals,
    medically unsafe shelter facilities, and the streets, at an enormous
    cost to their health and to the taxpayers. Past studies by the Centers
    for Disease Control (CDC) found HIV infection rates of up to 21.4
    percent in selected homeless populations; more recently, infection
    rates among the homeless in some urban areas are estimated to be as
    high as 50 percent.
        Unfortunately, the number of people living with HIV/AIDS in a given
    jurisdiction who need housing is increasing disproportionately to the
    overall increase in AIDS cases in that jurisdiction. Moreover, because
    of the historical underfunding of the HOPWA program, the amount of
    housing provided has never been nearly sufficient to meet the true
    needs. And ironically, a number of AIDS housing providers across the
    country are reporting that as a result of the recent advances in care
    and treatment, the people currently being housed are living longer, so
    there is less turnover in existing housing programs, and the waiting
    lists for those programs are growing even more.
        The housing crisis facing people living with HIV/AIDS exacts an
    enormous toll, personally and economically, on individuals, their
    families, and communities across this country. HOPWA dollars help
    lessen this toll. For example, studies have shown that at any given
    time, approximately 30 percent of people with HIV-disease in acute-care
    hospitals are there only because there is no other community-based
    residential alternative. An acute-care bed for an AIDS patient costs on
    average $1,085 a day. The cost of providing housing and services in a
    HOPWA-funded residential facility is between one-tenth and one-
    twentieth of that amount. HOPWA dollars reduce the use of emergency
    health care services by an estimated $47,000 per person per year.
        HOPWA fills a need that has not been met by other federal housing
    programs. Many programs, like Section 8, have waiting lists that are,
    even today, much longer than the average lifespan of a person with
    AIDS. Other programs, like CDBG, fund a wide range of community and
    economic development activities far more politically popular on the
    local level than housing for people with AIDS. And many people with
    HIV/AIDS still have difficulty accessing HUD programs that serve people
    with disabilities generally, such as Section 811 or HOME, because of
    HUD's historic position that such programs cannot be used for
    ``targeted'' housing that meets the needs of people with particular
    disabilities, such as HIV/AIDS.
        Without question, the HOPWA program is critically important to the
    thousands of people living with HIV/AIDS, their families, and their
    communities in states across the country, ranging from New Jersey and
    North Carolina to Florida and Mississippi; from Ohio and Wisconsin to
    Texas and California. In fiscal year 1997, 80 jurisdictions--53
    metropolitan areas and 27 states--qualified for HOPWA formula grants,
    and HUD estimates that 10 new jurisdictions will qualify for fiscal
    year 1998. Yet the ability of the HOPWA program to respond to the
    growing housing crisis cities and states face in battling the AIDS
    epidemic has already been compromised by the fact that appropriations
    have not kept pace with the documented increases in need for their
    communities. In fact, appropriations for the HOPWA program have been
    below what is needed even to maintain existing HOPWA programs in some
    jurisdictions.
        The President's fiscal year 1998 Budget Request for HOPWA seeks an
    8.1 percent increase, to a total of $204 million. This increase, while
    below the $250 million we estimate is needed for fiscal year 1998,
    would at least ensure that cities and states across the country, and
    housing projects in your community and communities across this nation,
    can work to address the ever-increasing needs of their citizens with
    HIV/AIDS. HUD estimates that the increase in funding requested in the
    President's fiscal year 1998 Budget would provide housing and related
    services for an additional 2,836 individuals and families.\2\
    ---------------------------------------------------------------------------
        \2\ Attached is a chart prepared by HUD showing each state's
    combined total in MSA/state HOPWA formula funds for fiscal year 1996
    and fiscal year 1997, and each state's estimated total for fiscal year
    1998 (assuming the President's requested increase in fiscal year 1998
    appropriations for HOPWA).
    ---------------------------------------------------------------------------
        This nation's investments in AIDS research and care have reaped
    enormous benefits. But if this Congress does not make a similar
    investment in HOPWA funding for fiscal year 1998, people with HIV/AIDS
    will not have the most basic thing they need to realize those
    benefits--namely, a roof over their heads. It is not only appropriate
    but imperative for the federal government to enable those cities and
    states hardest-hit by this epidemic to provide the housing needed, so
    that their citizens on the local level can share in the progress we are
    making in fighting this epidemic as a nation.
        Without stable housing, we will continue to see people with HIV/
    AIDS dying prematurely, and perhaps unnecessarily, in hospital
    emergency rooms, in shelters, on the streets of our cities. It has been
    true in the past and is even truer today: homelessness kills people
    with AIDS.
        We realize that there are enormous budgetary challenges facing us
    on the federal level, particularly with regard to the overall HUD
    budget. Our request of $250 million for HOPWA in fiscal year 1998
    actually represents the amount that HUD estimated was needed for HOPWA
    in fiscal year 1996 to prevent drastic cuts in funding to many states
    and localities. Now more then ever, cities and states need this
    increased HOPWA funding, to ensure that this community-based,
    community-controlled program can respond to the growing AIDS housing
    crisis in their jurisdictions. On behalf of the many people living with
    HIV/AIDS in those jurisdictions, I ask you to remember that HOPWA
    dollars really do represent life or death.
        HOPWA has been the focus of my testimony here today because HOPWA
    is the only federally-sponsored housing program specifically designed
    to meet the acute housing crisis facing people with HIV/AIDS in those
    cities and states hardest-hit by the epidemic. But HOPWA alone cannot
    possibly meet the housing needs of all Americans with HIV/AIDS,
    especially those living in communities that do not qualify for HOPWA
    formula grants.
        Thus many people with HIV/AIDS have relied on programs such as the
    McKinney Homeless Assistance Grants, Section 8 rental assistance
    (project and tenant-based), and Section 811.\3\ We urge you to remember
    that programs such as these, which serve the homeless and people with
    disabilities, are programs that serve people living with HIV/AIDS. When
    we talk about the homeless, we are talking about people with AIDS; when
    we talk about people with disabilities, we are talking about people
    with AIDS. AIDS is a disease that disables and impoverishes people; at
    the same time, it is a disease which disproportionately affects people
    who are already poor and/or homeless.
    ---------------------------------------------------------------------------
        \3\ Because of the waiting list problems with Sec. 8 and HUD's
    interpretation of ``disability'' under Sec. 811 referenced earlier,
    gaining access to these two programs has often had to be done through
    set-asides within these programs for people with AIDS.
    ---------------------------------------------------------------------------
        Funding for the McKinney Homeless Assistance grants program is of
    particular importance for homeless people living with HIV/AIDS.
    Therefore, we urge you to increase funding for this program in fiscal
    year 1998 to at least the original fiscal year 1995 level of $1.12
    billion. The growing number of homeless people and families, and the
    increasing rate of HIV-infection among the homeless, pose enormous
    challenges for communities across America. Without increased funding
    for the McKinney programs, cities and states will not only have to find
    the political will to address the complex needs of homeless people, but
    may have to divert scarce local resources and raise state and local
    taxes to do so.
        We urge you to appropriate the funding needed to provide housing
    that can prevent premature deaths, improve the quality and duration of
    life, and enable thousands of Americans living with HIV disease and
    their families to share in the hope of new treatments. Funding for
    HOPWA and other housing programs serving homeless and vulnerable
    Americans must be increased for fiscal year 1998, so that communities
    across this nation have the resources they need to address the housing
    problems of their citizens.
        Thank you for allowing me to testify before you today.
                                     ______

      Prepared Statement of Harold L. Paz, M.D., Dean, UMDNJ-Robert Wood
                             Johnson Medical School

                              OBJECTIVE STATEMENT

        To meet the needs of children and their families' UMDNJ-Robert Wood
    Johnson Medical School (UMDNJ-RWJMS) seeks to create the Child Health
    Institute of New Jersey. We have received a planning grant from Johnson
    & Johnson toward the creation of an institute and we expect substantial
    support from the private sector.
        The Child Health Institute of New Jersey will implement a set of
    programs, integrating: (a) genetics and environmental exposure; (b)
    social development and urban dynamics; and (c) the study of how
    disorders of these processes result in diseases expressed at life's
    different stages. This innovative and integrated scientific-clinical
    approach will foster understanding of diseases of childhood, maturity,
    and aging in terms of generic, environmental and developmental
    influences.

                              BACKGROUND STATEMENT

        The nation has embarked on a new initiative, ``Healthy People
    2000'', announced by Secretary Louis W. Sullivan, MD in 1990. Child
    health comprises a prime goal, with an explicit focus on ``lead
    poisoning, learning disorders, mental retardation * * * and emotional
    and behavioral problems'' (DHHS Publication No (PHS) 91-5021). The
    state of New Jersey is in a unique position to assume a leadership
    role.
        As we approach the 21st century, New Jersey faces unique challenges
    and opportunities in a healthcare environment in radical transition.
    Our state is the most densely populated, leads the country in the
    emerging suburbanization of America and is the heartland of the U.S.
    medical-pharmaceutical industry. The state also possesses some of the
    poorest urban environments in the nation. The impact of the decaying
    urban environment has enormous implications on human growth and
    development. The institute will examine not only the biological and
    chemical effects on childhood, but the effects of behavioral and
    societal influences as well. In many ways, these latter areas have been
    the focus of most legislative action, but little attention has been
    paid to the science which could provide the solutions to these
    problems. This Institute will, for the first time, integrate
    behavioral, social and biologic approaches in order to understand human
    development.
        The Institute will be based in New Brunswick. In the last 30 years,
    New Brunswick has become the premier healthcare site in the state
    through the cooperative efforts of UMDNJ-Robert Wood Johnson Medical
    School and its affiliated hospitals, and the ongoing support of Johnson
    & Johnson and the Robert Wood Johnson Foundation. While unmet needs and
    unique biomedical opportunities characterize our state, New Jersey
    contains no university children's hospital, and no international center
    for the study of child health and development. The unique combination
    of need and opportunity signal a chance for New Jersey to capture a
    leadership position in child health. As a result, UMDNJ has made this
    issue a top priority and Robert Wood Johnson Medical School has
    received a planning grant from J&J to study the feasibility of
    developing an Institute for Child Health. In addition, we anticipate
    additional private support toward this goal.
        The knowledge and technology to unravel the miracles of
    development, the biologic mechanisms that convert the one-celled
    fertilized ovum into a feeling, thinking, conscious individual are at
    hand. The Child Health Institute of New Jersey at UMDNJ-Robert Wood
    Johnson Medical School will implement a novel vision for the integrated
    study of development and its disorders. Our strategy explicitly
    recognizes that changing environmental conditions alter gene function
    during development, maturation and aging, necessitating study of the
    whole individual as well as the individual gene. The human child during
    development appears to be more sensitive to the impact of the
    environment, both chemical and social, than at any other period of
    life. Employing this approach, Institute scientists will study human
    growth and development and the emergence of cognition, emotion,
    consciousness and individuality. Since growth mechanisms are now known
    to govern function throughout life, abnormalities of development,
    maturity and aging will be characterized employing unique insights
    obtained during development.
        Ongoing insight into mechanisms regulating growth and development
    holds the promise of altering medical approaches to recovery of
    function after illness and injury. For example, recent discoveries at
    UMDNJ-RWJMS and elsewhere now indicate that brain nerve cell division
    is governed by special growth factors in utero. These factors can be
    used in the adult to accomplish a feat long thought impossible: nerve
    cells can be regenerated. This striking discovery points the way to
    regrowth and recovery of function after stroke, head and spinal trauma,
    and Alzheimer's and Parkinson's diseases. Parallel discoveries in other
    areas of developmental biology suggest that a variety of tissues,
    including skin, bone and blood vessels, should now be regarded as
    renewable resources. These and related findings now prompt a
    thoroughgoing reevaluation of the entire process of aging. The new
    Institute is designed to pursue these revolutionary findings and forge
    this new approach to medicine.
        The faculty at UMDNJ-Robert Wood Johnson Medical School provide the
    academic, research, patient care and community service activities for
    the two New Brunswick hospitals, Robert Wood Johnson University
    Hospital and St. Peter's Medical Center. The new Institute will enable
    the medical school to continue this leadership role and become a
    statewide and national resource for the cutting edge issue of childhood
    development. Further, the new Institute will link and enhance the
    studies being conducted at other UMDNJ-Robert Wood Johnson Medical
    School centers of research, all of which pursue development-related
    studies. For example, the Cancer Institute of New Jersey (CINJ) studies
    disordered cell growth; the Center for Advanced Biotechnology and
    Medicine (CABM) characterizes gene structure and function; the
    Environmental and Occupational Health Sciences Institute (EOHSI)
    delineates environmental influences on normal and disordered function;
    the Institute for the Study of Child Development in the Pediatrics
    Department studies basic processes related cognitive, emotional, and
    social development in children; and the core Transgenic and Gene
    Targeting Facility defines how abnormal genes derange development. The
    new Institute, formally charged with defining developmental mechanisms,
    will enhance developmental programs at these and other centers in New
    Jersey and throughout the nation.

                                 ACTION NEEDED

        The development of an institute that explicitly recognizes these
    developmental issues will be necessary to meet national and state
    needs. This Institute will pursue interrelated programs, designed to
    integrate fundamental studies at the molecular genetic, cellular and
    systems levels with whole organism investigations, in the context of
    child development. The programs are mutually supportive, and each will
    pursue problems of clinical and basic relevance.
        In addition to the primary focus on scientific discovery, the
    Institute will educate the next generation of developmental biologists
    and physician-scientists in the emerging field of reproductive health,
    growth and development. An integral component of the Institute
    scientific enterprise will be the intensive exposure of students of
    varying seniority to pioneering research; undergraduates, graduate
    students, post-doctoral fellows, clinical residents, subspecialty
    fellows, scientific personnel from regional pharmaceutical companies,
    visiting senior scientists and physicians pursuing continuing education
    will be afforded the opportunity to participate in cutting-edge
    developmental science. We anticipate that New Jersey will rapidly
    emerge as a center for learning the new basic and clinical
    developmental biology, as well as a center for advanced developmental
    research.
        Environmental health science and policy has been driven by cancer
    concerns in adults, however recent information from animal and human
    studies indicate that the developing mammal and the reproductive
    process can be effected at lower levels of environmental chemicals than
    that required to produce many adult cancers and the effect may be more
    general than a slight increase in cancer rate. An excellent example
    would be the human in utero can experience apparent permanent brain
    dysfunction when the mother is exposed to select suspected human
    carcinogens such as polychlorinated biphenyls while the mother
    demonstrates no effects including cancer. In addition the consequences
    for the individual and society of children developing life long brain
    dysfunction is greater than having a slight increase in the cancer
    rates in adults.
        Altered reproductive capacity also greatly effects the individual
    and society. There are ample examples of how species have almost been
    eliminated by having environmental chemicals alter their reproductive
    capacity, and recent evidence indicates that human reproductive
    capacity is also being altered by environmental chemicals. An example
    would be couples who have been exposed to high levels of dioxin have a
    decrease in the ratio of male to female offspring, even to the point
    that if the couple has dioxin serum concentrations above a certain
    level only girls will be born to the couple. It is these and other
    examples of developmental and reproductive environmentally induced
    adverse effects that have created this national mandate for child and
    reproductive environmental health initiatives.
                                  the request
        The Child Health Institute seeks a $10 Million planning grant to
    link the current programs at UMDNJ-Robert Wood Johnson Medical School
    to the hospital-based research in childhood development. As noted
    above, the medical school has already received support from J&J for the
    Institute and expects continued private support.
        An initial allocation of $1.5 Million is sought in fiscal year 1998
    to provide direct support for pilot studies on behavioral, social,
    genetic and cellular influences on development. This innovative and
    integrated scientific-clinical approach will foster understanding of
    diseases of childhood, maturity, and aging in terms of genetic,
    environmental and developmental influences.
                                     ______

                 Prepared Statement from the City of Newark, NJ

        Newark, New Jersey is a city of great contrasts and great promise.
    Our City is home to one of the fastest growing and convenient
    international airports in the nation, which is easily accessible to an
    unparalleled network of sea, rail and highway connections. Newark is
    also home to five institutions of higher learning, ranging from a fine
    community college to two law schools and a medical school. The park
    system of the city is another important component of Newark's value as
    a commercial, educational, and cultural hub of northern New Jersey.
        Weequahic Park is a 311-acre facility located in a densely
    populated mostly low/moderate income area of Newark, NJ, the Nation's
    third oldest city. The major areas of the park are (1) several playing
    fields, (2) a 72-acre lake, (3) playgrounds, (4) tennis courts, (5)
    picnic area, (6) paddleball/handball courts, (7) trails, (8) a wide
    variety of open space, and (9) an 18-hole golf course, one of the few
    urban golf courses in the nation. Weequahic Park was designed by
    Frederick Law Olmstead in the 1850's and is the second largest park in
    the Essex County Park System, the oldest park system in the United
    States.
        The park is within Newark's Enterprise Community boundaries and
    borders on Frelinghuysen Avenue which takes its name from the long
    distinguished New Jersey family of Congressman Rodney P. Frelinghuysen.
    Further, the cities of Newark and Elizabeth boundary lines were
    established within Weequahic Park, then Waverly Fair Grounds, in 1668,
    two years after Newark became a city.
        Over the past two decades or more, Essex County, the owner of the
    park, substantially reduced its maintenance support, and as a result,
    every aspect of this once-splendid park fell into substantial
    disrepair. As this former ``anchor'' began to die, so did key elements
    of the surrounding community.
        In 1992, a group of park users came together to form Weequahic Park
    Association, Inc. (WPA), which is modeled after and received a generous
    amount of support from the highly successful Central Park Conservancy
    in New York City. The community-based people working effectively with
    the management team, has been the key to WPA's success to-date, i.e.
    grass roots people do grass roots work, and professionals do the
    professional work. In order to supplement the resources provided by
    Essex County for use in Weequahic Park, and to play a hands-on
    management role, WPA formally entered into a partnership agreement with
    the county in 1995.
        Also, WPA participated in the city of Newark's last Empowerment
    Zone application submission, as one of eight (8) ``area coordinators.''
        Following are some of the key accomplishments of WPA since 1992. It
    should be noted that these accomplishments were made without an
    administrative budget. Our estimate of the investment made in Weequahic
    Park associated with WPA's accomplishments (including ``sweat-equity''
    and ``in-kind contributions'') is in excess of $5 million and growing.
        WPA's Accomplishments:
      --Developed organizational structure
      --Articulated key goals and objectives
      --Recruited management team
      --Incorporated and secured federal tax-exemption
      --Negotiated partnership agreement with Essex County
      --Planned and managed two Labor Day weekend festivals
      --Functioned as Empowerment Zone ``Area Coordinator''
      --Conducted general park management planning
      --Conducted park clean-up projects
      --Collaborated with international, national, and local private
            entities to partner with WPA on specific park projects
      --Developed Foundation Board
      --Developed proposal to do a masterplan study
      --Requested and received proposals from architects/engineers for
            participation in the masterplan study
      --New roadways throughout the park
      --Two state-of-the-art playgrounds
      --Restoration of fieldhouse/visitors' center
      --Convened WPA meetings in various properties surrounding the park
      --Caused lake to be treated and stocked with fish
      --Submitted several projects (with budgets) to the county for funding
      --30 new park ``awareness signs'' are being installed
      --Eight WPA members scheduled for summer employment
      --Major foundation to undertake entranceway beautification project
        WPA strongly feels, and we concur, that they are at the point of
    reaching ``critical mass'' in their development. The president of WPA,
    Wilbur J. McNeil, has made such a positive impression on the county of
    Essex that they have appointed him to a county committee to make
    recreational policy.
        The most immediate WPA projects are to (1) continue showing
    physical improvement within and outside the park and thereby attract
    and involve more indigenous community participation, (2) continue to
    build the management team, (3) attract more local institutions (e.g.
    local school district, hospitals, churches, etc.) to have their
    constituents to use the park consistent with their goals and
    objectives, (4) raise funds and undertake the masterplan study, (5)
    raise funds to implement the masterplan study thereby upgrading the
    quality of open space with both passive and active recreational
    opportunities within Newark, (6) provide employment and economic
    opportunities within and around the park for members of the community,
    and (7) reduce crime.
        An appropriation of $3.5 million is hereby requested to accomplish
    a broad range of initiatives, including the completion of the
    masterplan, park maintenance above the level currently provided by
    Essex County, the upgrading of the lake in order to return it to a
    state usable for boating and fishing and the restoration of trails,
    landscaping and horticultural features. The masterplan will include a
    fundraising component, to involve the private sector and foundations in
    the continued restoration of this historic and invaluable urban asset.
        The redevelopment of former railyard into an integrated part of an
    airport monorail system is the next project for which Newark is
    requesting funding. In close proximity to Newark International Airport,
    the City is proposing two important and distinct projects. The Port
    Authority of New York and New Jersey has just completed the first phase
    of an airport monorail, which, in its second phase, will cross U.S.
    Route 1 and connect to a new stop on the Northeast Corridor rail line.
    The location of this station is an under-utilized site of approximately
    100 acres known as Waverly Yards. A former railyard, The City of Newark
    now owns much of this property, and wishes to develop it to its full
    potential. To do so, several critical infrastructure improvements must
    be accomplished.
        First, there is currently only one road leading into the site;
    right-of-way acquisition through property owned by existing businesses
    and roadway construction is necessary for appropriate accessibility.
    Secondly, some of the area will require environmental remediation
    before facility construction can take place. Finally, basic site
    services, such as power, water, and communication lines need to be
    brought into the location. Site clearance and acquisition of several
    parcels from private owners will complete a building site of
    unparalleled attractiveness. The City proposes to locate an
    International Trade Center, which is currently in a study and
    preliminary design phase, on the site. Private developers will have the
    opportunity to purchase or lease a portion of the property for
    construction of other complementary facilities.
        It has been estimated that activity on this site will ultimately
    generate hundreds of jobs in the trade, hospitality, convention and
    transportation industries. We are requesting that this committee make
    an appropriation of $6 million to help us reach our long-range goals
    for the Waverly Yards, to enable the generation of job and economic
    development opportunities for Newark's residents, and create needed
    enhancements to a regional transportation center.
        Only a mile or two away from Waverly Yards lies an area in need of
    redevelopment which could have a tremendous impact on the economic
    well-being of our City. There is an inventory of dozens of factory and
    warehouse buildings which have become under-utilized, even abandoned.
    Some of them are city-owned as a result of tax foreclosures, many
    others have simply been closed by their owners. Thousands of
    manufacturing and shipping jobs have been lost in the Frelinghuysen
    Avenue industrial corridor. Yet Port Newark, adjacent to the Airport,
    is the East Coast's busiest container port. It generates millions of
    dollars in the businesses of processing, packing and distribution.
    Conversely, Newark is home to a large exporting community, which makes
    use of our key position on the transportation network.
        The City is proposing a project which would provide supplemental
    funds to retrofit under-utilized buildings to enable them to be reused
    by these industries. An appropriation of $3 million to launch a pilot
    program would allow us to begin a process of returning these facilities
    to the tax rolls, and returning our population to work. The additional
    jobs that would be generated in the distribution industry will serve to
    create family incomes, which will in turn create retail demand in
    Newark. The plentiful and competitively priced labor force within the
    City in general, and our Enterprise Community in particular, will
    provide a ready supply of employees for operations in the types of
    industries we need to keep and expand.
        In addition to the aforementioned initiatives, we are also aware
    that the University of Medicine and Dentistry of New Jersey has
    submitted testimony to you regarding an International Center for Public
    Health initiative to be located in the University Heights Science Park
    in Newark. We strongly support and endorse this initiative, and are
    enclosing a copy of this testimony as an attachment to our testimony.
        Mr. Chairman, the City of Newark has come before you today to ask
    for help in changing the situation in Newark: to ask for help in
    obtaining funding for projects that will create long-term economic
    opportunity for people who currently have none * * * to ask for help in
    presenting the chance for some of Newark's currently unemployed
    population to earn a decent salary through which a family can be
    supported. Thank you for your time and consideration
                                     ______

                 Prepared Statement of the University of Tulsa

        During the 1920's and 1930's the Kendall-Whittier area was at the
    eastern edge of Tulsa along with the University of Tulsa. It had its
    own ``downtown'' business center located along Lewis Avenue between
    Third and Archer Streets. The neighborhood was added to as late as the
    1940's and 1950's when later parts of the Daniels Addition were built.
    Throughout the entire period the University of Tulsa was expanding and
    during the 1960's small apartment complexes were built to the west of
    the campus for students and other new residents.
        Since then, Tulsa has grown far to the east and southeast and the
    neighborhood and its people have aged. Retail, industrial enterprises,
    and major highways have encroached on its formerly quiet residential
    streets. Real estate entrepreneurs placed higher density apartments
    where houses once stood. During the economic downturn of the 1980's,
    apartment occupancy and rents fell throughout the city and older
    marginal areas such as Kendall-Whittier became less competitive and
    fell victim to more transient residents and the poor. These new
    residents fed a perception of neighborhood decline which became fact
    because owner occupancy and reinvestment were discouraged. More modern
    and suburban retail centers drew business away from Whittier Square
    which then began to lease to more marginal retail and adult
    entertainment businesses. The schools in the area aged and student
    populations dropped. Crime, primarily drugs and prostitution, became
    rampant and further destabilized the neighborhood such that the
    neighborhood began a very effective law enforcement advocacy during the
    late 1980's. Building aging, a lack of maintenance and depressed rental
    incomes caused considerable visual and structural blight. Yet the
    neighborhood is a key midtown residential and business area with
    significant pockets of good housing and important institutions such as
    Hillcrest Hospital and the University of Tulsa.
        The University, churches, and businesses of the neighborhood banded
    together to do what had never been done before in Tulsa. They
    contributed 50 percent of the cost to produce a neighborhood plan and
    challenged the city to match it. The city did match the funds and a
    neighborhood plan was produced to guide neighborhood growth.
        The Kendall-Whittier Neighborhood Masterplan and Urban Renewal plan
    that resulted from the planning effort identified as its top priority
    the development of a new elementary school to replace two of the oldest
    elementary schools in Tulsa Public Schools (Whittier and Kendall
    Schools). In conjunction with the new park, the development of the new
    elementary school will do more for the regeneration of the neighborhood
    than all other projects combined. In addition, the development of the
    elementary school and park will remove blight, remove habitat for
    criminal elements, and improve the neighborhood's landscaping. Other
    elements in the plan include the expansion and improvement of the
    University of Tulsa campus, which is adjacent to the new school and
    park site, and the relocation of a public library, post office, and
    fire station along with other improvements to enhance Whittier Square,
    the oldest business district in Tulsa outside of downtown.
        The University is key to the long-term success of the plan,
    acquiring and developing lands immediately to the present campus, and
    making significant new contributions to the cultural, educational, and
    economic health of the neighborhood, city and state--including playing
    a central role in the development of a new elementary ``school of the
    future,'' cited in the planning report as likely to ``do more for urban
    regeneration in the Kendall-Whittier Neighborhood than all of the other
    projects combined.''
        Acquisition, relocation, and clearance has been underway for five
    years now to develop a twenty-five acre site for the new school and
    park from the rear property line between 4th Street and 4th Place on
    the north to 5th Place on the south and from Atlanta Avenue on the west
    to Columbia Avenue on the east. To date, $2,794,658 of City of Tulsa
    Sales Tax funds, $1,155,000 of proceeds from the sale of property, and
    $2,000,000 of Special Purpose HUD Grants have been dedicated or used
    for acquisition, relocation, and clearance for the new school and park
    site. For street demolition, utility relocation, park construction, and
    project architecture, engineering, and administration, $500,000 of City
    of Tulsa Sales Tax funds and $250,000 of Special Purpose HUD Grants
    have been dedicated or used. Tulsa Public Schools will spend $8,000,000
    from a bond issue passed in October 1996 to build the new Kendall-
    Whittier Elementary School. To complete the school and park project, an
    additional $1,500,000 is needed for acquisition, relocation, and
    clearance.
        Accordingly, the project has withstood two thorough reviews and has
    been found to be entirely consistent with HUD laws and regulations. It
    represents a true public-private partnership, and a partnership and
    coalition among governmental entities. The University, the City, and
    the School District have made commitments totaling over $20 million.
    The University of Tulsa alone has already committed and raised $8
    million; the City has expended significant funds, and has pledged City
    sales tax revenues toward the plan.
        In keeping with its own academic strategic plan, the University
    would cooperate with the Tulsa Public Schools to develop the merged
    Kendall-Whittier schools as a model school in math-science education.
    This effort would accord with the University's continuing development
    to regional and national eminence of its undergraduate and graduate
    programs in math-science education, and would simultaneously benefit
    both the University and public education.
        We are respectfully requesting a grant for $1,500,000 to complete
    the acquisition, relocation, and clearance for the school and park
    site. After two years and two failed attempts to pass bond issues,
    Tulsa Public Schools has passed a bond issue and will begin
    construction on the new Kendell-Whittier School in May 1997. They
    expect to complete construction and to be able to open for classes in
    August 1998. The school and park are an integrated site project. The
    school must have the park site to meet State of Oklahoma certification
    requirements. While the Tulsa Development Authority and Tulsa Parks
    Department will begin construction on Phase I of the Park and will
    complete it by October 1997, the acquisition and clearance of the
    remaining parcels must occur to finish the park site to allow the
    school to be certified. No local funds can be identified for the
    completion of site acquisition. It will be several years before the
    City can go back for a bond issue. In the meantime, the school needs to
    be open.
        We thank the Subcommittee for its hard work and hope that you will
    give our project request your highest consideration.
                                     ______

      Prepared Statement by Lynne P. Brown, Associate Vice President for
      Government and Community Relations, New York University Center for
                    Cognition, Learning, Emotion and Memory

        Research into cognition, learning, emotion, and memory can help
    educators, physicians, and other health care givers, policymakers, and
    the general public by enhancing our understanding of normal brain
    development as well as the many disabilities, disorders, and diseases
    that erode our ability to learn and think, to remember, and to emote
    appropriately.
        New York University is seeking $10.5 million over five years to
    establish at its Washington Square campus a Center for Cognition,
    Learning, Emotion and Memory. The program will draw on existing
    research strengths in the fields of neural science, biology and
    chemistry, psychology, computer science, and linguistics to push the
    frontiers of our understanding of how the brain functions, and how we
    learn.
        Such exploration into the fundamental neurobiological mechanisms of
    the nervous system has broad implications for human behavior and
    decision making as well as direct applicability to early childhood
    development, language acquisition, teaching methods, computer science
    and technology development for education, the diagnosis and treatment
    of mental and memory disorders, and specialized training for stressful
    occupation.
         cognition, learning, emotion and memory studies at nyu (clem)
        New York University is poised to become a premier center for
    biological studies of the acquisition, storage, processing and
    retrieval of information in the nervous system.
        To be housed at NYU's Washington Square Campus within the Center
    for Neural Science, the new Center will capitalize on the university's
    expertise in a wide range of related fields that encompass our computer
    scientists who use MRI imaging for research into normal and
    pathological mental processes in humans, our vision scientists who are
    exploring the input of vision to learning and memory, our physical
    scientists producing magnetic measurements of brain function with a
    focus on the decay of memories, our linguists studying the relation of
    language and the mind, and our psychiatrists conducting clinical
    studies of patients with nervous system disorders.
        The New York University Program in Cognition, Learning, Emotion and
    Memory (CLEM) focuses on research and training in the fundamental
    neurobiological mechanisms that underlie learning and memory--the
    acquisition and storage of information in the nervous system. Current
    studies by the faculty at NYU are determining why fear can facilitate
    memory; how memory can be enhanced; what conditions facilitate long-
    term and short-term memory; and where in the brain all these memories
    and processed and stored. The research capacity of this Center
    capitalizes on our expertise in physiology, neuroanatomy, and
    behavioral studies, and builds on active studies that range from the
    mental coding and representation of memory to the molecular foundations
    of the neural processes underlying emotional memories. Our faculty use
    electrophysiological and neuroanatomical techniques to study the
    organization of memory in the medial temporal lobe. Together these
    researchers bring substantial strength in psychological testing,
    computational sophistication, advanced tissues staining and electrical
    probes, and humane animal conditioning. These core faculty are well
    recognized by their peers and have a solid track record of sustained
    research funding from federal agencies and private foundations: total
    costs awarded and committed for their research for full project periods
    from all sources presently total $7 million. Additional faculty are
    being recruited in areas of specialization that include: the cellular
    and molecular mechanisms operative in neural systems that make
    emotional memory possible, neurophysiological studies of memory in non-
    human primates, computational modeling of memory, and
    neuropsychological and imaging research on normal and pathological
    human memory.
        Colleagues in the Biology Department are doing related work in the
    molecular basis of development and learning. Given the important input
    of vision to learning and memory, the Center has strong links with the
    many vision scientists based in the Psychology Department who work on
    directly related topics that include form, color, and depth perception,
    memory and psycholinguistics. Colleagues in behavioral science study
    learning and motivation, memory and aging. Physical scientists explore
    the magnetic measurement of brain function, with a focus on the decay
    of memories. CLEM also shares research interests with colleagues in the
    Linguistics Department, who study the relation of language and the
    mind.
        Research linkages extend to computational vision studies, now
    centered in NYU's Sloan Program in Theoretical Neurobiology. The Sloan
    Program works closely with computer scientists at our Courant Institute
    on Mathematical Science, with colleagues at the Medical Center in
    Psychiatry, who use MRI imaging for research into normal and
    pathological mental processes in humans, and in Neurobiology, who are
    conducting clinical studies of patients with nervous disorders,
    especially memory disorders.
        What is unique and exciting about the establishment of such a
    comprehensive center at NYU is the opportunity to tap into and
    coordinate this rich multidisciplinary array of talent to conduct
    pioneering research into how the brain works. In this, the ``Decade of
    the Brain,'' NYU is strategically positioned to be a leader.

                         EARLY CHILDHOOD AND EDUCATION

        Research into the learning process as it relates to attention and
    retention clearly holds important implications for early childhood
    development. Although most of a person's brain development is completed
    by birth, the first few years of life are critically important in
    spurring intellectual development. For example, research has already
    shown that in their early years, children need human stimulation, such
    as playing and talking, to develop the ability to learn.
        With more immigrant children in schools, language development is
    another crucial area of study. If a child's brain were more receptive
    to acquiring sounds during the first few months of life, and language
    in the first few years of life, then students may learn a second
    language more quickly if taught in the lower grades instead of waiting
    for high school.
        In the midst of a national debate on education reform, thousands of
    education innovations are being considered without the advantage of a
    fundamental understanding of the learning process. CLEM researchers,
    coupled with educational psychologists, can contribute to a better
    understanding of how parents can stimulate their children's cognitive
    growth, how children learn at different stages and use different
    styles, how educators can accommodate those styles, and how educational
    technology can be harnessed to increase retention and memory.
        At NYU, these efforts will be enhanced by our scholars and research
    conducted in our School of Education and our New York State-supported
    Center for Advanced Technology.

                  COMPUTER SCIENCE AND TECHNOLOGY DEVELOPMENT

        As we refine our knowledge of how the brain acquires, processes,
    retains and retrieves information and images, we will also be able to
    improve the design, development and utilization of computer science and
    technology. As we reach a better understanding of how children learn,
    we can more effectively harness computer technology in the service of
    education.
        At NYU, this effort is enhanced by the presence of our New York
    State-supported Center for Digital Multimedia, Publishing and
    Education, which brings together educators, laboratory scientists and
    software designers who explore how interactive multimedia technologies
    enhance learning and develop prototype teaching models.

                              SPECIALIZED TRAINING

        Research into how cognition and emotion interact can have
    applicability to other diverse areas of interest including retraining
    of adult workers, job performance and specialized training for high
    risk or stressful jobs such as military service and emergency rescue
    work.
                                     ______

      Prepared Statement of Michael Weinstein, President, AIDS Healthcare
                                   Foundation

                SKILLED NURSING NEED RESIDENTIAL CARE FACILITIES

        Mr. Chairman and Members of the subcommittee: The AIDS Healthcare
    Foundation (AHF) is a leader in HIV medicine. It has distinguished
    itself by detecting trends and taking action, particularly when
    emerging patterns of the disease have a major impact on the quality and
    delivery of care. This philosophy permeates its outpatient healthcare
    clinics as well as its nursing facilities (houses). AHF is engaged in
    the transition from exclusively hospice care to adding skilled nursing
    care at the houses. Presently, over 60 percent of the 50 beds operated
    by AHF are skilled nursing/step down care (aggressive treatment) beds
    under CLHF (Congregate Living Health Facilities) licensure. About 40
    percent are hospice (palliative) beds. A year ago 100 percent of the
    beds were hospice care. AHF will be re-opening Chris Brownlie House,
    its third facility, in early May, 1997. We expect an even higher ratio
    of residents at Brownlie housed under the CLHF/Skilled Nursing Need
    program. The houses are strategically located in three of the major
    HIV/AIDS epicenters: Downtown, West Hollywood and South Central Los
    Angeles. The demographics in these areas represent a mixture of ethnic,
    gender, sexual orientation, drug users, socio-economic, cultural and
    linguistic diversity.
        AHF started to make the transition from exclusive hospice to adding
    skilled nursing care over two years ago. Hospice does not attempt to
    ``cure'' the underlying disease. Instead, it is designed to relieve the
    symptoms and pain and allow the disease to follow its normal course. In
    HIV, however, aggressive anti-viral therapy is many times the best way
    to provide palliative care, as it can enhance the quality of life. For
    instance, AZT is considered aggressive therapy as it is anti-
    retroviral. It is also one of the most effective drugs that penetrate
    the central nervous system and therefore it is utilized to ameliorate
    dementia and relieve symptoms. What we started to see over two years
    ago was that some residents would get better and were ready to be
    discharged but did not have appropriate places to go; with their
    chronic condition they were too healthy to go to an acute hospital kind
    of setting but too fragile and still in need of skilled nursing care
    for a board and care facility. They needed a sub-acute/intermediary
    type of program that would handle their non-acute but chronic
    condition. The choice was between expensive hospitalization or board
    and care living arrangements. The first choice was too intensive and
    the second unprepared to handle this level of care. Many times
    individuals would be released to residential facilities, home shelters,
    or previous home situations regardless of availability of home support.
    This resulted in their return to the hospices in much worse shape than
    when they had left. Their situation went from a stabilized chronic
    condition to that of recurrent acute episodes requiring either
    hospitalization or skilled nursing.
        AHF formalized its intermediary/skilled nursing care program in
    May, 1996 to better serve this growing but unattended population. These
    individuals must show a skilled nursing need and have an estimated life
    expectancy of five years or less. They may need skilled nursing
    intervention such as but not limited to those listed in Attachment A.
    Once these individuals are stabilized and move from an acute episode to
    a relieved or a manageable or chronic status, they are moved to an
    appropriate level of care within or outside the AHF system of care when
    available. Many of these individuals are referred from among 3,000
    patients presently managed through AHF's outpatient healthcare centers.
    The need has shifted from hospice to skilled nursing need. However, the
    funding sources have not followed this shift.
        In addition to its intermediary/skilled nursing care program, AHF
    is spearheading at its houses a drug regimen adherence program, under
    its CLHF licensure, targeted to the homeless, drug addicts, and
    patients experiencing severe reactions to ``cocktail treatment.'' These
    individuals need an inpatient, out-of-home protective living
    arrangement. They need observation given that the level of professional
    care precludes treatment in a home environment due to lack of (home)
    care giver support. AHF has developed multi-disciplinary protocols
    integrating medicine and the psychosocial fields. These protocols
    include the integrated work of physicians, nurses, social workers,
    administrators, spiritual counselors, activities coordinators and
    volunteers.
        The consequence of either not starting combination therapy or
    starting without the appropriate guidance and support could be
    disastrous for the individual and other individuals they might have an
    HIV high risk involvement with. There is a tremendous fear among health
    care providers that individuals who have false starts with anti-
    retroviral combination therapy may develop a resistant strain of the
    virus, which will render current therapies impotent. Furthermore, this
    strain may be directly passed on to an HIV negative person in the usual
    transmission modes of bodily fluid exchanges such as semen, mother's
    milk, or blood. This newly infected person will also be unresponsive to
    existing anti-retroviral therapy. Some providers throughout the nation
    are beginning to ration and deny these medicines to individuals they
    feel will not follow this highly choreographed therapy. Instead of
    writing-off these individuals who have issues with compliance and
    depriving them of these life-saving medicines, we want to provide an
    effective program that can start them off and keep them on track with
    their new drug regimen.
        AHF wants to enhance this model and use it as a demonstration
    project for replication in other areas of the country. Some needed
    upgrades include augmented staff training to keep up with the fast
    developments in HIV medical therapy, facility upgrades to diversify
    funding opportunities and qualify for Medicare certification, and
    equipment enhancement to address the multiple needs of this population.
        The intent of the AHF Houses program is to medically rehabilitate
    individuals who are able to go back to a less intense level of care or
    the labor market once they have gone through either the skilled nursing
    and/or the drug adherence programs. AHF believes that a relatively
    small amount of transition funds will go a long way in making this
    program stable and financially feasible once some basic infrastructure
    is in place.

    Facility Upgrade
        Some structural and infrastructure upgrade will allow the houses to
    meet code for Medicare certification and allow the program to diversify
    its sources of income. Some of these changes include, but are not
    limited to: installing and maintaining generators (for self-sufficient
    power); expanding residents' room doors; renovating and expanding
    nurses' stations; installing piped oxygen systems; developing an
    occupational and physical rehabilitation area; purchasing audio/visual
    equipment for patient and staff training and education; and purchasing
    therapy equipment and furnishings. The estimated amount needed for
    facility and infrastructure upgrade totals $1,560,000.

    Staffing
        Given the pace of HIV treatment therapy, it is crucial not only to
    have an upgraded facility that meets the needs of licensing and payor
    source agencies, but also the latest training and knowledge. With the
    introduction of protease inhibitors, the field of HIV became more
    complex than ever. The advent of a newer generation of drugs and
    assessment assays ranging from viral load measurement to tests
    detecting viral resistance to a particular drug by genotyping, will
    only increase demand for provider sophistication. It is a challenge to
    organize all this knowledge and create a systematic program that leads
    to effective training and development. An organized team of staff
    members solely dedicated to this task of on-going training and
    development is crucial for the success of this program. These
    individuals will also collect and categorize the body of knowledge
    gained through the planning, implementation and evolution of this
    program. This information will be of tremendous value to institutions
    throughout the United States. This component is estimated to cost
    $155,000.
        AHF is soliciting transitional funds to upgrade its facilities and
    for program development. Once established, the program should be self-
    sufficient, as it will allow the houses' programs to access a variety
    of funding sources. The time frame for a complete transition is
    estimated to be two years.
        The following is an approximate breakdown of AHF's three-site
    operational budget.

    ----------------------------------------------------------------------------------------------------------------
                                                                      Chris Brownlie     Carl Bean
                                                                           house           house        Linn house
    ----------------------------------------------------------------------------------------------------------------
    1989............................................................      $2,000,000  ..............  ..............
    1990............................................................       2,100,000  ..............  ..............
    1991............................................................       2,200,000  ..............  ..............
    1992............................................................       2,400,000      $1,000,000  ..............
    1993............................................................       2,500,000       2,600,000  ..............
    1994............................................................       2,600,000       2,700,000  ..............
    1995............................................................       2,750,000       2,700,000  ..............
    1996............................................................       2,750,000       2,800,000      $1,800,000
    1997............................................................   \1\ 1,200,000       2,800,000       2,700,000
    ----------------------------------------------------------------------------------------------------------------
    \1\ Reopened as 15 bed facility.

        The sources of funding for the houses are diverse. Most of this
    funding has been secured for hospice, and not necessarily for CLHF/
    Skilled Nursing programs. A good portion of CLHF care is currently
    uncompensated, but funds could be accessed by upgrading programs and
    facilities.
                                                                  Percentage
    MediCal, private insurers, state grant............................    45
    Local, Los Angeles County government..............................    25
    Ryan White Care Act, Federal......................................    10
    Private fundraising, Foundations and Corporate giving.............    10
                            -----------------------------------------------------------------
                            ________________________________________________
                                                                         100

        AHF has been able to secure state bond, city and county government
    funds for building, renovations and equipment needs.

    ----------------------------------------------------------------------------------------------------------------
                                                                      Brownlie house    Bean house      Linn house
    ----------------------------------------------------------------------------------------------------------------
    State Bonds--Construction.......................................        $700,000      $5,500,000      $3,500,000
    City/County--Construction and Equipment.........................         200,000         750,000         186,000
    ----------------------------------------------------------------------------------------------------------------

        The following budget is an estimate of the resources needed to make
    this program financially viable. We expect AHF to secure a diverse
    array of funding sources once its programs and facilities are upgraded.

    Facility upgrades:
        Renovation and expansion of Nurses' stations
          ($40K3 facilities).............................  $120,000
        Widening (50 doors  $2,000 per door).............   100,000
        Inside stairs for better accessibility....................    40,000
        Conference/education rooms ($45K2)...............   $90,000
                        --------------------------------------------------------------
                        ____________________________________________________

          Subtotal................................................   350,000
    Infrastructure and equipment:
        Upgrading and/or installing call system ($30K3)..    90,000
        Installation and maintenance of generators
          ($50K2)........................................   100,000
        Occupational rehabilitation room and equipment
          ($90K3)........................................   270,000
        Therapy equipment and furnishings ($35K3)........   105,000
        Installing pipe-in oxygen ($50K3)................   150,000
        Installing suction systems ($15K3)...............    45,000
        Enhancing security systems ($25K3)...............   105,000
        Negative pressure rooms ($20K3)..................    60,000
        Kitchen upgrades--therapeutic diets ($35K3)......   105,000
        Therapeutic whirlpool ($15K3)....................    45,000
        Audio/visual equipment ($45K3)...................   105,000
                        --------------------------------------------------------------
                        ____________________________________________________

          Subtotal................................................ 1,210,000
    Training and development staffing:
        R.N. educational coordinator..............................    55,000
        Project assistant/data analyst............................    30,000
        Staff benefits--24 percent................................    20,000
        Training and development fees, materials, equipment.......    50,000
                        --------------------------------------------------------------
                        ____________________________________________________

          Subtotal................................................   155,000
                        --------------------------------------------------------------
                        ____________________________________________________

          Grand total............................................. 1,715,000
                        ==============================================================
                        ____________________________________________________

                                  Attachment A

                aids healthcare foundation--skilled nursing care
        In order to provide skilled nursing care for people who need
    skilled care but no longer need an acute hospital level of care, AIDS
    Healthcare Foundation provides the following services based on
    certification by a physician:
        Patients whose medical condition requires continuous, skilled
    nursing intervention of the following nature:
      --Regular observation of blood pressure, pulse and respiration as
            indicated by the diagnosis or the medication (although not as
            only skilled need).
      --Regular observation of, and treatment interventions for, skin
            conditions such as decubitus ulcers, edema, color and turgor.
      --Intake and output as indicated by the diagnosis or medication in
            concert with other skilled needs.
      --Wound care, including, but not limited to: postsurgical wounds,
            decubitus ulcers, leg ulcers, etc.
      --Tracheotomy care, nasal catheter maintenance.
      -- Gastrostomy or other tube feeding. (Not as only skilled need
            except when gastrostomy is less than 90 days old).
      --Colostomy care for newly post-op or debilitated patients. (Chronic
            colostomy care alone should not be a reason for continued
            skilled care.)
      --Bladder and bowel training for incontinent patients or where a
            condition of total or severe incontinence where training has
            failed to improve.
      --Patient is bedridden or comatose.
      --Patient has a condition which requires a high degree of prolonged
            medical nursing support and supervision such as complex
            regiments of oral and/or parenteral medications, and diet to
            control diabetes, cardiac conditions, seizure disorders,
            hypertension, tumor conditions, obstructed pulmonary
            conditions, infectious conditions, and pain.
        Supporting indications include (must be combined with above
    conditions):
      --Dependence for activities of daily living--dependent upon degree.
      --Cases in which the documented history and/or diagnosis gives clear
            indication of progressive incapacitation.
      --Generalized weakness or feebleness.
        Our admissions coordinators are always happy to assist anyone
    needing more information. They can be reached at 213-468-9533 or 213-
    468-9534.
                           fight for the living * * *
                                     ______

     Prepared Statement of Dennis E. Lower, Executive Director, University
                        Heights Science Park, Newark, NJ

                              PROJECT DESCRIPTION

        The International Center for Public Health is a strategic
    development initiative that will create a world class, infectious
    disease research and treatment complex in University Heights Science
    Park, Newark, New Jersey. Science Park is located in a Federal
    Enterprise Community neighborhood. The International Center will have
    substantial local, regional, national and international impact as it
    addresses many critical social, economic, political and health related
    issues. The International Center is a $70 million anchor project that
    launches the second phase of a fifty acre, $300 million mixed-use urban
    redevelopment initiative, University Heights Science Park. The facility
    will total 144,000 square feet and house two tenants: the Public Health
    Research Institute (PHRI) and the University of Medicine and Dentistry
    of New Jersey's (UMDNJ) National TB Center, one of three Federally
    funded TB centers.
        PHRI, the core tenant creating the International Center, is a
    nationally prestigious, 55 year old biomedical research institute that
    employs 110 scientists and staff in the research of infectious diseases
    and their underlying molecular processes. This facility will permit
    them to double their research staff and budget. Presently they conduct
    research programs in tuberculosis, AIDS, drug discovery, diagnostic
    development, and the molecular pathogenicity of a broad range of
    infectious diseases. A major focus of PHRI research is the study of
    antibiotic resistance of life-threatening bacterial organisms, and the
    development of a new generation of antibiotics.
        The other International Center tenant will be UMDNJ's National
    Tuberculosis Center. The TB Center is one of three Model Tuberculosis
    Prevention and Control Centers in the United States funded by the CDC.
    It will add an important clinical component to the International Center
    for Public Health, since many TB patients also manifest other
    infectious diseases. The TB Center was founded in 1993 in response to
    the resurgence of tuberculosis in this Country. At that time Newark had
    the nation's second highest rate of TB cases for a major city.
        Other collaborators in the development of the International Center
    include the New Jersey Department of Health & Senior Services (NJDHSS)
    and the pharmaceutical industry. Responsible for overseeing all
    statewide public health initiatives, NJDHSS will contract with the
    International Center to have cutting edge molecular epidemiology
    services provided to the State of New Jersey. Expanding the strategic
    use of molecular epidemiology to direct public health activities will
    facilitate prompt identification and containment of emerging and re-
    emerging pathogens. New Jersey's major biomedical industry companies
    will also participate in the International Center. An infectious
    disease consortium will be developed to serve as a forum for
    disseminating fundamental research on the underlying molecular
    processes of infectious disease organisms. This research will
    contribute to private industry development of new drug therapies for
    antibiotic resistant microorganisms. Private industry R&D facilities
    contiguous to the International Center are also being explored.

             THE ANCHOR PROJECT FOR UNIVERSITY HEIGHTS SCIENCE PARK

        University Heights Science Park (UHSP) is a collaborative venture
    of Newark's four higher education institutions, the City and Community
    of Newark, and private industry designed to harness university science
    and technology research as a force for urban and regional economic and
    community development. The university sponsors, New Jersey Institute of
    Technology (NJIT), The University of Medicine & Dentistry of New Jersey
    (UMDNJ) and Rutgers University at Newark, annually conduct nearly $100
    million of research in Newark, much of it federally funded. Essex
    County College trains technicians in eleven science and technology
    fields, and prepares Newark residents for employment with Science Park
    technology companies. The private industry Park sponsors include the
    following Newark based companies: Public Service Electric & Gas, The
    Prudential Insurance Company, First Union National Bank and Bell
    Atlantic of New Jersey.
        UHSP is designed as a 50-acre, mixed-use, science and technology
    park in Newark's Central Ward, adjacent to the Park's four higher
    education sponsors. It is located in a Federal Enterprise Community
    neighborhood. At buildout UHSP will include one million square feet of
    technology commercial space, 75,000 square feet of technology incubator
    space, up to 20,000 square feet of retail support business
    opportunities, an 800 student technology high school, two blocks of new
    and rehabilitated housing and a community day care center. The $10
    million first phase of Science Park has been completed, and includes
    the NJIT Enterprise Development Center 2 (a technology business
    incubator), a 100 child day care center and the CHEN Building (housing
    the industrial liaison laboratories for the Center for Biomaterials and
    Medical Devices). CHEN is the acronym for the Council for Higher
    Education in Newark, the coalition of four universities who founded
    University Heights Science Park. For almost two decades CHEN has
    jointly sponsored educational, housing, and retail/commercial projects
    in Newark's public schools and the neighborhoods of University Heights.
    The NJIT technology incubator was completed in Fall 1996, and is
    already 80 percent leased. More than half of the incubator companies
    are MBE/WBE's. In addition, over half of the children in the Science
    Park day care center are from the surrounding community, and the
    majority of day care center staff are from Newark. The construction of
    the International Center will anchor the second phase of Science Park,
    and serve as a magnet to attract pharmaceutical, diagnostic and other
    biomedical companies to Science Park. The Center will have the same
    impact on the Park as an anchor store does in a retail shopping mall.
    how the international center for public health enhances and implements

                               VA-HUD OBJECTIVES

        Veterans Administration (VA).--VA sponsored research includes
    investigation of drug-resistant HIV, aspects of Gulf War Syndrome, and
    Sigma Factors in M.Tb. The International Center will contribute to the
    achievement of these objectives in the following way:
      --PHRI is presently in discussions with the VA to explore the
            epidemiology of tuberculosis in the VA system. No studies have
            yet been performed to look at tuberculosis transmission on a
            national level with molecular epidemiological techniques.
            Studies of tuberculosis transmission have a particular value
            for the VA system, whose collection represents the only
            geographically representative source of TB strains in the
            nation. The project will type strains submitted and alert VA
            medical centers to the presence of related strains, thus
            providing warning of nosocomial or other local outbreaks.
        The Department of Housing and Urban Development (HUD).--A major HUD
    objective is to effectively implement welfare reform as required by the
    Personal Responsibility and Work Opportunity Reconciliation Act of
    1996. In addition, HUD is seeking to expand the economic and community
    development roles of universities to assist in the revitalization of
    distressed urban neighborhoods. The International Center will
    contribute to the achievement of these objectives in the following
    ways:
      --Newark is a federally designated Enterprise Community (EC), and as
            such is already part of a Federal strategy to attract and
            support economic development activity that will create jobs in
            the urban core. The 50-acre Science Park is located within the
            boundaries of one of the EC neighborhoods. The development of
            the $70 million International Center for Public Health will
            generate 1,500 direct and indirect construction and permanent
            jobs. The permanent jobs include custodial and clerical
            positions, lab technicians, medical personnel, researchers, and
            administrators. Science Park will work directly with the Essex
            County College (one of its sponsoring educational institutions)
            and their Technology Training Project (TTP) to train Newark
            residents as lab technicians for the International Center. TTP
            is privately sponsored by New Jersey's biomedical industry, and
            has been in existence for nearly 30 years. TTP trains 50
            technicians annually, all of whom are high school graduates or
            adults looking for a new career.
          It is one challenge to acquire necessary job skills, but it is
            another for urban residents to have the means to travel to
            where the jobs are. In the last 20 years Newark has lost 35,000
            private sector jobs, a number of which have moved to New
            Jersey's western suburbs. This project redevelops urban land,
            preserves open green space, and utilizes existing public
            transportation to the doorstep of the Park. The development of
            Science Park is Newark's chance to reverse that job exodus by
            utilizing existing university resources and providing City
            residents with access to the technology jobs of the 21st
            century. The International Center serves as the cornerstone to
            launch the 50-acre urban redevelopment initiative. At buildout
            the Science Park will have generated $300 million of
            construction, 5,000 direct and indirect construction jobs, and
            6,600 direct and indirect permanent jobs with an annual payroll
            of $275 million. The International Center serves as a magnet to
            attract other biomedical and pharmaceutical research and
            development companies into the Park. The development costs for
            the Center include the site preparation of three additional
            adjacent building pads. These sites will be simultaneously
            marketed to private biomedical companies, and will generate $60
            million of additional construction, and another 1,500 direct
            and indirect construction and permanent jobs.
      --The development of the International Center for Public Health in
            University Heights Science Park accomplishes the objective of
            HUD's Office of University Partnerships: the university
            expansion of economic and community development roles to
            revitalize distressed neighborhoods. Science Park is sponsored
            by four institutions of higher education.

                             REQUEST FOR ASSISTANCE

        The University Heights Science Park is requesting $5 million from
    the United States Senate VA-HUD and Independent Agencies Subcommittee
    for fiscal year 1998 to support the Phase II development of Science
    Park: the construction of the International Center for Public Health.
    Such support will leverage Phase II development that totals $130
    million, and creates nearly 3,000 direct and indirect construction and
    permanent technology jobs. These requested funds will be used
    specifically for site acquisition, demolition and infrastructure in a
    Federal Enterprise Community neighborhood in Newark, NJ.
        On behalf of University Heights Science Park, I want to thank the
    Committee for the opportunity to present this request. We appreciate
    your consideration of our proposal, and hope to receive your support
    for the creation of the International Center for Public Health at
    University Heights Science Park, Newark, NJ.
                                     ______

                     Biographical Sketch of Dennis E. Lower

                               AREAS OF EXPERTISE

    Real Estate Development and Financial Analysis

        Development and implementation of $300,000 to $115 million real
    estate projects (totaling $800 million); financial structuring and loan
    agreement negotiations; financial proforma development and analysis;
    bid solicitation for construction services; contract negotiations;
    market feasibility and strategy development, site feasibility analysis.
    Planning and Administration
        Program development, budgeting and management, staff recruitment
    and supervision; RFQ/RFP solicitation for professional services;
    contract administration; creative analysis and problem solving; Board
    management; grantsmanship; strong written and oral communication
    skills; strong computer and Internet skills.

    Government Relations

        Federal, state and local relations involving program funding and
    development; public hearings and permitting approvals; direct
    negotiations with elected officials; structuring of public/private
    partnerships; public policy development.

    Community/Human Relations

        Community consensus building in planning redevelopment projects;
    negotiation of community agreements; public speaking; neighborhood
    needs assessment; conflict resolution, strong interpersonal skills.

                         RELEVANT EMPLOYMENT EXPERIENCE

        Executive Director, 1994 to Present, University Heights Science
    Park, Newark, NJ.
        University Heights Science Park is a collaborative venture between
    four public universities, the City of Newark and private industry. The
    project is designed to commercialize university research and redevelop
    40 blighted urban acres adjacent to the universities. The $270 million,
    mixed-use project will include 1 million SF of technology research,
    laboratory and office space, an 800 student science and technology high
    school, 100 units of housing, a children's day care center, and
    ancillary retail space. As the first Executive Director I am
    responsible for planning and developing the Park, and to date have
    accomplished:
      --Development of a 40 acre Land Use and Implementation Plan;
      --Assisted in securing $48.5 million for the project;
      --Construction of two research and technology commercial buildings
            that house Science Park offices, a 100 child day care center
            and a technology incubator;
      --Initiated the development of a strategic business, marketing and
            financing plan to recruit technology based companies to Science
            Park;
      --Negotiation of a joint agreement with The Newark Public Schools to
            develop a $30 million Science Park High School, groundbreaking
            to occur March, 1998;
      --Negotiation of a community partnership agreement articulating
            Science Park redevelopment principles with respect to
            acquisition, relocation, and local resident participation goals
            in construction, and permanent Park employment; and
      --Developed the New Jersey Technology Fast 50 Awards Program
            recognizing the fastest growing technology companies in New
            Jersey, for the purpose of marketing the Science Park to NJ
            technology companies.
        Deputy Director of Project Development, 1992 to 1994, Acting
    Executive Director, 1991, Director of Project Development, 1986 to
    1991, Casino Reinvestment Development Authority, Atlantic City, NJ.
        The CRDA is a New Jersey finance and community development
    authority created in 1986 with the mandate to invest $1.5 billion of
    casino gaming revenues at below market rates in publicly initiated
    residential and commercial real estate projects and community
    development programs statewide. The Authority's 13 member Board
    includes two Casino CEO's, the Mayor of Atlantic City, the Chair of the
    Casino Control Commission and the State Treasurer. I was employed by
    the Authority at its inception, and my responsibilities included:
      --Developing and implementing policies and procedures for a statewide
            loan program;
      --Soliciting and evaluating developer loan proposals and securing
            Board approval to invest $430 million of CRDA funds in 50
            statewide projects totaling $790 million;
      --Conducting financial proforma analysis and program reviews on all
            development loan proposals;
      --Developing and implementing 4 Redevelopment Plans in Atlantic City;
      --Negotiating and structuring all development project financings;
            representative projects include office buildings, entertainment
            facilities, baseball stadiums, hotels, supermarkets, social
            service facilities, factories, high and low-rise residential
            complexes, infrastructure replacement, medical facilities and
            direct loan programs;
      --Negotiating with legal counsel all loan, credit and bond documents
            for approved projects;
      --Coordinating all aspects of real estate development, including:
            preparation of supplementary federal and state funding
            applications; preparation of residential and commercial
            relocation plans involving 450 families and businesses;
            acquisition of 800 privately and city owned parcels, with 225
            acquired through condemnation; site preparation through
            demolition and environmental remediation; site plan and
            building design review; and REQ and REP solicitations for
            developer, professional and construction services.
      --Coordination of 6 major law firms in land acquisition, project
            financings and project implementation;
      --Serving as the primary community liaison for all Atlantic City
            redevelopment plans;
      --Hiring and supervising 14 Authority staff;
      --Setting the monthly agenda for the Board of Directors' meeting and
            presenting all actions requests;
      --As Acting Executive Director, responsible for total Authority
            operations, project financings, management of Board of
            Directors, and supervision of 30 staff.
        Founder and Executive Director, 1981 to 1986, National Shared
    Housing Resource Center, Philadelphia, PA.
        Founding Executive Director of a national non-profit housing agency
    that promotes alternative affordable housing through education,
    technical assistance, real estate development and direct service
    delivery. I secured finding through private foundations, federal and
    state governments, and fees for service. My responsibilities included:
      --Developing a 12 member Board of Directors and a 12 member National
            Advisory committee of U.S. Congressional members, housing,
            aging and finance professionals;
      --Hiring and supervising a 12 person staff;
      --Program development, grantsmanship and fundraising;
      --Writing technical assistance publications;
      --Conducting 175 training and technical assistance workshops in 25
            states on building and zoning codes, proforma development and
            analysis, financing marketing and residence management which
            resulted in the development of 300 housing programs nationwide;
      --Serving as developer for 30 units of housing;
      --Developing and administering a low-interest housing loan fund;
      --Developing a national legislative agenda resulting in legislation
            amending HUD and HHS policies on Section 8 subsidies, SSI
            payments, food stamps and capita] gains sales tax exemptions.

                         OTHER PROFESSIONAL ACTIVITIES

        Presenter/Speaker on Economic and Social Impacts of Casino Gaming
    at various professional meetings in New Orleans, Philadelphia, and
    Washington, D.C.
        Presenter/Speaker at numerous professional conferences on urban
    planning and development issues.
        Lecturer, Harvard Graduate School of Design, Summer Professional
    Seminar Program on resort development.
        Partner, Coral Bay Partners, a land development venture in St.
    John, USVI.
        Professional Memberships: Council on Urban Economic Development
    (CUED), American Planning Association (APA), and Association of
    University Related Research Parks (AURRP).
                       monographs and selected testimony
        Designing Shared Housing for the Elderly: Social and Architectural
    Considerations (with Dr. Sheree West and Hugh Zimmers, FALA), November,
    1985.
        Shared Housing for Older People: A Planning Manual for Group Shared
    Residences, April, 1983.
        National Policy Workshop on Shared Housing: Findings and
    Recommendations (with Dr. Joan Ward Mullaney and Drayton Bryant), June
    1982.
        State of New Jersey--Written and spoken testimony before the Joint
    Committee on Software Technology, August, 1995.
        New Orleans City Council--Written and spoken testimony on the
    Economic and Social impacts of Casino Gaming, September, 1993.
        U.S. House of Representatives, Select Committee on Aging--Written
    and spoken testimony on Shared Housing on three occasions: June 1985,
    Erie, PA; November, 1982, Washington, D.C.; October 1981, Denver, CO.

                                   EDUCATION

        Gordon-Conwell Theological Seminary, South Hamilton, MA; Master of
    Divinity, 1979.
        Wheaton College, Wheaton IL: Bachelor of Arts, Philosophy, 1971.
        Boston University Hospital, Boston, MA; Pastoral Clinical
    Counseling Certificate, 1980.
                                     ______

      Prepared Statement of Dr. Mary Louise Cole, President of ICARE Bay
                                 Point Schools

        As a former Congressman from Florida and member of the House of
    Representatives Committee on Appropriations, it is my pleasure to
    introduce the President of ICARE Bay Point Schools, Dr. Mary Louise
    Cole, the spokesperson for our organization. U.S. Representative Clay
    Shaw and Senators Connie Mack and Bob Graham also support this program.
        If the Department of U.S. HUD has special purpose grant funds, we
    request $3 Million of such funds to be used for a demonstration project
    for the housing of at-risk juvenile offenders.
        The ICARE Bay Point Schools in South Dade, Florida, is such a
    program in need of transitional housing for juvenile offenders while
    they attend school as an alternative to prison. These youth are from
    low income families and also are at-risk of being homeless.
        If no such funding exists, we request that the Subcommittee include
    report language in its legislation that will indicate the
    Subcommittee's interest in the endeavor and which will also urge the
    U.S. Department of HUD to pursue the possibility of special grant
    funding for such a program. Matching funds for operating can be
    obtained from the State of Florida.
        ICARE Bay Point Schools campus is on 45 acres south of Miami by
    Biscayne Bay. The schools grew out of the InterFaith Coalition's
    Hurricane Andrew's Recovery Effort (ICARE) to rebuild homes which were
    destroyed in 1992. Experienced volunteers help teach construction
    skills and act as role models for the juveniles adjudicated by the
    courts. We believe they still have unlimited potential to grow and
    learn if they have decent housing while earning their GED and learning
    job skills as an alternative to being sentenced to prison and being
    released prone to drugs and crime and at-risk of homelessness.
        Juveniles with multiple non-violent offenses such as drug use or
    car theft or burglary who are between 14-17 years of age should not be
    sent to prison where they learn the habits of older and often violent
    offenders and themselves become potential career criminals. However, if
    they are sent back to their neighborhoods on probation, they are
    influenced by their former ``gang's'' negative peer culture or negative
    family situations. These are the breeding grounds for drug abuse and
    future homelessness.
        Although the ICARE Bay Point Schools program acknowledges that the
    children's problems reflect unique interactions between individuals and
    environmental conditions, we feel that the focus must be on behavior
    education and behavior management. The child cannot move forward in
    developing his own pattern of success if he continues to blame his
    involvement in crime and negative behavior on others or the
    environment. For that reason, we prefer to speak of education rather
    than treatment, a school rather than a half-way house. We do not look
    at our clients as mentally ill needing treatment. We view them as
    students needing to learn behavior management. They need to become
    motivated to set positive goals and to become educated, productive
    citizens.
        The success of the program over two years for 50 youth needs to be
    expanded to house 200 juveniles in a demonstration project requiring
    new dormitories, classrooms, and extensive site preparation. The multi-
    racial and multi-ethnic demographics of Dade County, Florida, make
    ICARE Bay Point Schools an ideal national demonstration project. Of the
    2 Million total population of Dade County, approximately 50 percent are
    Hispanic-American, 25 percent are Afro-American, and 25 percent are
    Caucasian-American. Bay Point Schools approximates these demographics.
        Recent research studies provide a number of insights regarding the
    elements which contribute to successfully treating disadvantaged, at-
    risk-of-homelessness, drug-using, delinquent youth. ICARE Bay Point
    Schools is designed around these elements. This adherence to proven
    design principles is the basis of Bay Point Schools success resulting
    in a high percentage of youths successfully transitioning to aftercare
    and, ultimately, leading law abiding responsible lives.
        There is a need to seek new solutions for teenagers who are from
    low income families and are at-risk of being homeless or delinquent.
    The custody/clinical model has been ineffective. Two years ago, the
    ICARE Bay Point Schools was established as a boarding school for 14 to
    18 year old juvenile delinquents based on the theory that these boys
    are not mentally ill, sick, or born bad. In place of the current
    ``treatment'' model (custody/clinical), a program based on education,
    behavior modification, and moral development was emphasized in an
    innovative boarding school approach. A comparison of the two models and
    the success rate of Bay Point Schools is attached.
        For generations, wealthy families, faced with a teenager whose bad
    behavior was leading to trouble and embarrassment for the family,
    hustled them out of town to a military or boarding school. ICARE Bay
    Point Schools does the same thing for boys who are getting into
    trouble, but from all walks of life. The one thing they have in common:
    they have begun committing crimes judged to be more serious than just
    misdemeanors. Once the positive peer climate takes effect at the Bay
    Point School, the students have one thing more in common: the change in
    their value system that causes them to see their former behavior as
    unacceptable and motivates them to work to become positive members of
    society.
        Bay Point prides itself on its emphasis on leaderhip training,
    which motivates its students to excel whether in the classroom, on the
    playing field, or in society at large. All students are tested
    quarterly and placed in classes according to the grade level they have
    achieved over the last quarter. In this way, bright, motivated students
    may move through several grade levels within a year. The classes are
    kept small so that education can be individualized and each student can
    move through the grades at their own rate of learning. Suddenly, boys
    who had zero interest in their high school classes are making plans to
    go to college, to follow a career. Now, the other students are working
    twice as hard to follow in their footsteps.
        But there is more to Bay Point than academics. It is ``in'' to be
    polite, to take pride in appearance, and to work hard in class. The
    secret? Peer pressure. Students feel mutual respect for one another,
    their teachers, and their parents, but the students will not hesitate
    to confront a student whose attitude is negative. This should come as
    no surprise. We have always known teenagers listen to each other more
    than they pay attention to parents or other adults.
        We suggest we have found a solution to juvenile crime, and it is
    not more prisons which lead to homelessness.
        It is imperative that this normative peer leadership model become a
    national demonstration project. We hope funds from U.S. HUD will be the
    catalyst.
        Thank you for your consideration.
                                     ______

                                  Attachment 1

                    ICARE Bay Point Schools Discharged Report

                                                                  Percentage

    School............................................................    45
    College...........................................................    15
    Employed..........................................................    30
    Military..........................................................     6
    Detained..........................................................     3

        The success of ICARE Bay Point Schools in returning its students to
    the community as law abiding citizens is shown in the table above. In
    the last two years, thirty-three of the committed youths from the
    Department of Juvenile Justice have graduated from the program. From
    these thirty-three, forty-six percent have returned to school in their
    community, thirty percent are employed and twenty-one percent are
    attending colleges (with scholarships) or have joined the military/job
    corps. Of the thirty-three, only one student committed a felony after
    being discharged.
                                     ______

                                  Attachment 2

        The following are characteristics of the sociological model
    contrasted with those often associated with custody/clinical programs.

                        Custody/clinical                                        Sociological model

    Treat delinquent youth as abnormal................  Treat delinquent youth as normal.
    Respond to delinquency as psychiatric syndrome....  Respond to delinquency as social fact.
    Treatment model emphasizes family dysfunction,      Treatment model emphasizes behavior change and life skills
     early development and psychological problems.       development.
    Student viewed as basically deviant in character..  Student viewed as basically good and worthy of respect.
    Individual emphasis: Focus on personality change    Systems emphasis: Focus on behavior change to bring about
     to effect behavior change.                          personality change.
    Emphasis on one to one counseling.................  Emphasis on group normative culture.
    Professional staff as the sole treatment force and  Line staff accountable for student life and skills
     line staff as caretakers.                           development. Utilize specialist when requested by staff
                                                         team.
    Blame family, school, line staff, parents,          Hold the student, the staff, and the program accountable,
     legislator, judges for the youth's inability to     (only the program and its workers fail).
     reform, mature or develop life skills.
    Use lock-ups, drugs, one-to-one counseling to       Use peer pressure, rewards, diversification of programs to
     control behavior.                                   change behavior.
    Do not place necessary and proper emphasis for      Pay great attention to internal systems for safe
     protection of students in the living units. This    environment.
     results in a street culture of bullying, conning,
     physically hurting, and stealing.
    Since the basic assumptions are flawed, the         Require no paid security department and far fewer
     problems continue and become greater. The           professionals. The model operates efficiently on a per diem
     traditional social service leaders continuously     cost far below that of custody/clinical programs.
     request more money to do more and more of what is
     not working.
    Consider guards and locked units necessary for      Consider guards and locked units impediments to security.
     security.

                                     ______

     Prepared Statement of The American Association of Homes and Services
                                 for the Aging

        The American Association of Homes and Services for the Aging
    (AAHSA) is pleased to submit for the record our comments on the fiscal
    year 1998 Administration budget request for the U.S. Department of
    Housing and Urban Development (HUD). As you know, AAHSA is the largest
    organization representing nonprofit sponsors of senior housing--owning
    and managing over 300,000 units of market rate and federally assisted
    housing--including the largest number of sponsors of HUD Section 202
    elderly housing facilities. The housing needs of older persons and
    federal budget proposals affecting their ability to be suitably and
    affordable housed are of critical importance to our members.
        This committee has shown strong support and leadership over the
    years to help ensure that the elderly are appropriately housed in
    suitable, affordable, decent and safe housing. We have great
    expectations that your committee will sustain that leadership and
    provide the means necessary for federally assisted elderly housing to
    continue as a viable resource for the growing numbers of low-income
    elderly. As nonprofit sponsors of elderly housing, we consider
    ourselves partners with the federal government. We have a mission of
    helping those whose needs are the greatest and striving to provide
    housing to all low-income elderly who need it. Despite the tremendous
    good our successful partnership has accomplished, it is still not
    enough. The poor elderly continue to have unmet housing needs. HUD's
    1996 study on worst case housing needs shows that 1.2 million
    households are headed by an elderly person where residents were
    spending more than 50 percent of their income on rent or are living in
    severely substandard housing. For a nation with our vast resources and
    committed to caring for vulnerable populations including low-income,
    frail elderly, this is both a shameful and daunting statistic. We
    believe that part of the federal government's mission should be to
    foster an environment that allows aging seniors to live in suitable,
    affordable and decent housing that maintains their individual dignity
    and independence. We continue to believe that working as a nonprofit
    organization in an effective partnership with HUD and Congress, we can
    help to accomplish that goal.
        We believe the federal budget should not only reflect fiscal
    responsibility, but should reflect our tradition as a caring and
    compassionate nation. The quality and effectiveness of these programs
    serving a vulnerable population are an expression of that tradition.
    Unfortunately, while the Administration's overall HUD budget calls for
    increases in some programs, inexplicably, other housing programs
    benefiting the elderly suffer reduced funding--and in certain
    instances, outright elimination. Also of particular concern, is having
    adequate funding to renew expiring Section 8 rental assistance
    contracts without subtracting funds from other housing programs or
    pitting one needy population against another.
        In this context, for fiscal year 1998, AAHSA is especially
    concerned with funding for: Section 8 Project-Based Assistance; Section
    202 Supportive Housing for the Elderly Program; Service Coordinators;
    and Modernization and Retrofit.

                   SECTION 8 PROJECT-BASED RENTAL ASSISTANCE

        We do not envy the difficult position in which the committee finds
    itself in fiscal year 1998. The increased strain on HUD's discretionary
    spending account--including the surge in costs to renew expiring
    Section 8 contracts in fiscal year 1998--is a most troublesome
    condition needing a pressure relief valve. From our perspective, that
    pressure is best alleviated by a sufficient budget to renew expiring
    contracts that does not squeeze out other discretionary programs at
    HUD. While it is clear that the greatest number of Section 8 contracts
    will begin to expire this fiscal year, it is not yet clear that
    Congress has committed to both renewing these contracts and ensuring
    that other existing HUD programs serving the poorest of the poor,
    including the very-low income and frail elderly, will be protected.
    AAHSA is pleased that HUD has also taken a strong stance in favor of
    renewing all expiring contracts and urges the committee to renew all
    Section 8 contracts expiring in fiscal year 1998.
        The importance of maintaining project-based rental assistance
    cannot be overstated for AAHSA members. Elderly housing works
    spectacularly well, delivering high quality housing and appropriate
    supportive services, at affordable rents to low income seniors. In the
    recent legislative proposal on multifamily restructuring unveiled by
    HUD, we were gratified to learn that HUD also adheres to the project-
    based approach for elderly housing. HUD's proposal would exempt Section
    202 and Section 8 elderly housing facilities from the tenant-based
    contract renewal requirements. Elderly housing facilities have needs
    that are distinct from other multifamily housing and tenant-based
    vouchers do not work as well for older persons. Also, most seniors have
    no desire to relocate which the tenant-based approach is designed to
    facilitate. Project-based assistance is the right solution, it works in
    elderly housing, and it should be continued.
        Recommendation: We urge you to renew expiring Section 8 contracts
    in fiscal year 1998; and, to renew all existing project-based rental
    assistance contracts for federally assisted elderly housing facilities.

             SECTION 202 SUPPORTIVE HOUSING FOR THE ELDERLY PROGRAM

        When we testified before this committee last year, we said that HUD
    needs adequate resources to accomplish its mission, and there are
    certain HUD programs--such as the Section 202 elderly housing program--
    that work well and should be preserved and supported. This year, that
    message is no less relevant. It is a major disappointment to elderly
    housing providers that the Administration's budget recommends a
    devastating reduction in funding for the Section 202 elderly housing
    program by requesting only $300 million to develop 3,865 units in
    fiscal year 1998. Given that in fiscal year 1997, Congress appropriated
    $645 million to fund 6,836 units, this represents less than half the
    funding (46.5 percent) of current levels. In comparison to fiscal year
    1996--$830 million for 8,743 units--this request is little more than
    one-third funding (36 percent). Over the years, unit levels for Section
    202 has dwindled from the late 1970's--when over 20,000 units per year
    were funded--to the current levels of approximately one-third that
    number.
        Because Section 202 is one of a few new construction housing
    program at HUD, we are concerned that some policymakers mistakenly view
    the program as serving future and not current housing needs, thereby
    relegating the program to a lower funding priority than other HUD
    programs. Part of our alarm is reflected by HUD Secretary Andrew
    Cuomo's prepared testimony on the Administration's budget proposal
    before this committee in mid-March where he failed to once mention
    elderly housing. We view with skepticism the assertion that restoring
    funding to Section 202 deprives other HUD programs of needed funds. In
    other words, we do not believe the argument that ``Congress is robbing
    Peter--other HUD programs, to pay Paul--Section 202.'' This is short-
    sighted, misguided, and insensitive to the many elderly who are
    currently languishing on multi-year waiting lists. In addition, this
    approach does not anticipate the changing demographic trends and
    burgeoning numbers of elderly who, as a group, are considered the
    fastest growing segment of our nation's population, particularly the 85
    and above age group. Section 202 is a deserving HUD program that works
    and it's funding should be restored to current levels to address the
    tremendous demand for housing by the very-low-income, and the growing
    elderly population. Section 202 should not be the sacrificial lamb in
    HUD's budget.
        As an indication of our commitment to helping to reduce costs to
    the federal government, we are interested in pursuing a strategy to
    reform the Section 202 program that involves restructuring the
    financing and subsidy components of the older loan projects. Under this
    proposal, a project would have the option of having it's existing HUD
    mortgage forgiven and replacing it's existing Section 8 contract with a
    Project Rental Assistance Contract (PRAC). We believe there are mutual
    benefits to the federal government, nonprofit sponsors, and residents
    by enabling the pre-1990 Section 202-loan projects to convert to the
    revised Section 202 capital advance with a PRAC. Converting Section 202
    loans to grants while simultaneously restructuring Section 8 contracts
    to PRAC's makes good sense, since it basically eliminates the Section 8
    payment that is needed for the mortgage payment. This would remove that
    elderly housing inventory from the Section 8 account and assist HUD by
    reducing the amount of funds necessary for Section 8 contract renewals.
    Although our intent is to begin the conversion program with Section 202
    projects, as nonprofit sponsors, we eventually want to extend the
    conversion option to other federally assisted elderly housing,
    including nonprofit sponsored Section 236 elderly housing projects. HUD
    has been supportive of the conversion concept and as we continue to
    work with the department on the details, we look forward to working
    with this committee to refine the proposal.
        Recommendation: We strongly urge you to restore funding to Section
    202 in fiscal year 1998 to a sufficient amount to at least maintain
    current unit levels with multi-year rental assistance contracts. We
    urge your support for the proposal enabling nonprofit sponsors of
    elderly housing to convert to a Section 202 capital advance and project
    rental assistance contract.

                              SERVICE COORDINATORS

        Service coordinators make a vital contribution to the lives of
    frail, older persons by facilitating needed support services to help
    them maintain their independence while also helping them meet their
    obligations of tenancy. Service coordinators serve as a crucial link to
    effective delivery of home and community-based services, as a cost-
    effective measure in long-term care strategies, and as a part of the
    continuum of care for older persons in federally-assisted housing.
        Beginning with the fiscal year 1995 rescissions, separate funding
    for service coordinators has not been requested by the Administration
    or provided by Congress for federally assisted elderly housing
    facilities. Instead, service coordinator funding has been folded into
    various block grant approaches. In fiscal year 1998, the Administration
    recommends that $50 million of public housing funds be used for a host
    of supportive housing activities, including service coordinators. It
    has been our experience for the last three fiscal years that only a
    small portion of these funds will accrue to federally assisted elderly
    housing, and the lion's share of these funds will principally go to
    various supportive services programs for public housing residents. For
    these reasons, we have reservations about this approach.
        Mr. Chairman, we are very appreciative of the strong support for
    the service coordinator concept that you and your committee have
    provided over the years. Last year, the House included language in the
    subcommittee report allowing service coordinators as a part of routine
    operating expenses, and directed HUD to include the costs of service
    coordinator funding in their future Section 8 budget submissions.
    However, HUD did not include that cost in their fiscal year 1998 budget
    request, and the consequences may be immediate and significant for some
    existing projects that currently have service coordinators. Some of
    these projects have a critical need for service coordinators but do not
    have adequate reserve funding (through excess residual receipts), or
    their residents cannot absorb the extra costs associated with a rent
    increase. In fiscal year 1998, the first projects that were funded
    under the service coordinator awards program will have their existing
    contracts expire and they have little hope of sustaining a service
    coordinator because of inadequate reserves or insupportable rent
    increases. These projects would be able to retain their existing
    service coordinator if HUD allowed the costs for service coordinators
    as an eligible project expense in order to make a meaningful difference
    in the lives of very frail, very needy, and very vulnerable elderly
    persons.
        Recommendation: We strongly urge you to allow service coordinators
    as an eligible project expense in order to meet the needs of existing
    elderly housing projects that cannot support a rent increase, that are
    lacking in reserves, or whose existing service coordinator contract is
    expiring.

                           MODERNIZATION AND RETROFIT

        As we have stated previously, many nonprofit-sponsored federally
    assisted elderly housing facilities are aging and have critical capital
    improvement needs for modernization and retrofitting. Many of these
    facilities require retrofitting of community space and individual units
    to accommodate the needs of aging residents for the delivery of
    supportive services to help them to remain in their homes. Since the
    program was revised in 1990, the Congregate Housing Services Program
    (CHSP) retrofit component has not been implemented because of a lack of
    funding. Implementing CHSP/retrofit would allow projects to modify,
    renovate, and modernize their physical plant to accommodate supportive
    services for their frail elderly residents.
        AAHSA strongly supported previous action taken by this Committee
    urging HUD to implement CHSP/retrofit. For the third year in a row
    since the pre-1995 rescission, the Administration's fiscal year 1998
    proposal does not request funding for CHSP although the pressure for
    modernization and retrofit in federally assisted elderly housing
    continues to expand. AAHSA believes the retrofit program should be
    funded, implemented, and given the opportunity to work. Also, AAHSA has
    advocated that Section 236 projects be allowed equitable access to
    their excess rents--to retain the excess funds from rents generated by
    their individual facilities that are presently returned to HUD--for
    their project's use.
        Recommendation: We urge you to restore funding in fiscal year 1998
    for CHSP at the pre-rescission fiscal year 1995 level, to direct HUD to
    implement the retrofit program, and to allow Section 236 elderly
    projects to retain excess rents for modernization and retrofit needs.
        Thank you for this opportunity to testify. AAHSA is pleased to be
    able to contribute to the committee's deliberation on these critical
    issues, and we urge your support for the recommendations outlined in
    our testimony. We hope that our comments will assist in helping you
    formulate a budget that is responsive to the increasing needs of very-
    low-income elderly. If you desire additional information, please
    contact Gerard Holder, AAHSA Associate Director for Housing Policy
    (202-508-9476).
                                     ______

                        ENVIRONMENTAL PROTECTION AGENCY

      Prepared Statement of the Consortium for Citizens With Disabilities
                               Housing Task Force

                                  INTRODUCTION

        Mr. Chairman and Committee Members, the Consortium Citizens with
    Disabilities (CCD) Housing Task Force is grateful for the opportunity
    to provide testimony to your Subcommittee on the housing needs of
    people with disabilities. The current goals of the CCD Housing Task
    Force are to (1) highlight the acute and increasing housing crisis
    facing people with disabilities; (2) advocate for new HUD resources to
    replace the federally assisted housing that is no longer available to
    people with disabilities; and (3) advocate that HUD be directed to
    fully utilize mainstream housing programs on behalf of people with
    disabilities.
        The Consortium for Citizens with Disabilities (CCD) is a Washington
    based coalition of over 100 consumer, advocacy, provider and
    professional organizations who advocate on behalf of people of all ages
    with disabilities and their families. The CCD Housing Task Force
    focuses specifically on housing issues which affect people with
    disabilities, particularly the availability of affordable, community
    based housing options and the protection of their fair housing rights.
    The individuals whom we represent--most of whom have very low incomes--
    may be current participants of HUD assisted and public housing
    programs, may be on federal housing program waiting lists, or may need
    to apply for federal housing assistance at some future time.
        The CCD Housing Task Force strongly believes that housing is often
    the cornerstone to independence. If a person--with or without a
    disability--has access to decent, safe, and affordable housing, then he
    or she can concentrate on getting an education or job training, or a
    job, and become a viable and productive part of the community.

                                   BACKGROUND

        Today, in virtually every part of the United States, people with
    disabilities face an extreme crisis in the availability of affordable
    housing which meets their needs and desires. In cities and towns across
    the country, as people with disabilities struggle to find good quality
    housing they can afford, they are beginning to understand the real
    implications and bitter reality of recent federal housing policies--
    policies that have dramatically reduced the federally subsidized
    housing units that are available to people with disabilities.
        These policies were enacted by the Congress in 1992 and 1996 in
    order to permit public and assisted housing providers to designate
    ``elderly only'' housing. As we move into the appropriations process
    for fiscal year 1998, people with disabilities and their advocates
    understand that, unless Congress acts to replace the hundreds of
    thousands of federally subsidized housing units which are no longer
    available to people with disabilities, an increasing number of people
    with disabilities will be forced into homelessness, or will continue to
    live in extremely substandard housing, or will remain unnecessarily in
    inappropriate institutional settings.
        In September of 1996, in its report entitled Opening Doors:
    Recommendations for a Federal Housing Policy to Address the Housing
    Needs of People with Disabilities the CCD Housing Task Force
    conservatively estimated that 273,000 units of public and assisted
    housing would be lost to people with disabilities by the year 2000 as
    the direct result of ``elderly only'' designated housing policies. This
    loss consists of 115,000 designated units in federally-funded public
    housing and an additional 158,000 units in HUD assisted housing (i.e.
    202/Section 8, ``covered Section 8 projects'', Section 8 Loan
    Management Set-aside, Section 236, Section 221, etc.).
        This significant loss of housing supply for people with
    disabilities is the direct result of the implementation of ``elderly
    only'' designated housing policies by federal public and assisted
    housing providers. The bitter irony of this loss of housing opportunity
    is that it comes at the time when people with all types of disabilities
    are now increasingly able to live successfully in homes of their own--
    if those homes are decent and affordable.

                             ASSISTED HOUSING LOSS

        Much of this loss has already occurred in the HUD assisted housing
    inventory, since no HUD approval is required to limit or preclude the
    admission of people with disabilities to the 650,000+ efficiency and
    one-bedroom units developed over the past 25 years. For example, a
    recent survey of one urban county in Michigan conducted by the
    Technical Assistance Collaborative Inc., indicates that 3,000 of the
    5,000 HUD assisted housing unit inventory has been converted to
    ``elderly only'' housing, a loss of 60 percent.
        To make matters worse, this county has very little federal public
    housing and extremely long waiting lists for Section 8 certificates and
    vouchers. Only 10 McKinney Shelter Plus Care rental subsidies are
    available for people with disabilities who have already become
    homeless. Fortunately, some of the new Section 8 certificates
    appropriated by this Subcommittee for fiscal year 1997 may soon be
    awarded for people with disabilities in this county to offset this
    profound loss of assisted housing.

                              PUBLIC HOUSING LOSS

        The CCD Housing Task Force is very concerned about the impending
    loss of many thousands of public housing units that were previously
    available to people with disabilities. Thus far, HUD had approved 50
    Public Housing Allocation Plans, designating approximately 22,000
    public housing units as ``elderly only''. However, a recent HUD Notice
    minimizing PHA allocation plan requirements has prompted a significant
    increase in the number of allocation plans being submitted to HUD.
    Currently seven plans are pending and more PHA's are in the process of
    preparing plans.
        During the next 12 months, HUD predicts that an additional 174
    plans will be filed. Using the approximate loss of public housing which
    has occurred from the 50 HUD approved plans as the benchmark the CCD
    Housing Task Force estimates that at least 90,000 public housing units
    will be lost to people with disabilities by March 1998. These numbers
    demonstrate that the original CCD estimate of 115,000 public housing
    units lost by the year 2000 may be reached as early as 1998.

                            WHERE WILL PEOPLE LIVE?

        Given the magnitude of this loss of federally subsidized housing,
    how will people with disabilities, particularly those who waited
    patiently on PHA and assisted housing waiting lists, go about obtaining
    decent housing? How will the three million people with disabilities
    currently receiving Supplemental Security Income (SSI) benefits be able
    to afford their own apartment or home? [NOTE: SSI income is less than
    25 percent of median income nationally.] What housing options are
    available for people with disabilities who live with aging parents, or
    who are paying 75 percent or more of their limited income for rent, or
    who are living in unnecessarily restrictive congregate settings--like
    nursing homes?
        Until the Congress took bold action one year ago, there were very
    few if any good answers to the above questions. It is a fact that:
        1. The $50 million appropriation of Section 8 certificates and
    vouchers included by Congress in the fiscal year 1997 HUD
    appropriations bill were the first new resources targeted to replace
    the significant loss of HUD assisted housing;
        2. Very few PHA's have targeted their turnover Section 8
    certificates and vouchers to people with disabilities who will be
    turned away from the PHA's ``elderly only'' designated public housing;
        3. Appropriations for the Section 811 program continue to decline,
    despite the documented growing need for new housing resources for
    people with disabilities;
        4. Mainstream housing programs such as HOME and CDBG have not been
    targeted, either by HUD or by state and local communities, to offset
    the significant loss of housing opportunity experienced by people with
    disabilities due to the implementation of ``elderly only'' designated
    housing policies;
        5. HUD continues to ignore the acute housing crisis facing people
    with disabilities and the negative consequences that ``elderly only''
    designated housing polices have on the available supply of housing for
    people with disabilities in local communities.
        Despite the mounting evidence documenting the loss of efficiency
    and one bedroom units for people with disabilities in now ``elderly
    only'' developments, HUD's fiscal year 1998 budget request does not
    even mention the extreme housing crisis faced by people with
    disabilities. The CCD Housing Task Force believes that replacing this
    lost housing should be included among the HUD Secretary's core
    challenges. However, as was the case in last year's budget process, HUD
    has virtually ignored the impact that ``elderly only'' designation has
    on its own programs, and has made no effort to measure or evaluate the
    loss of housing for people with disabilities. Without a realistic
    policy framework within HUD to address this issue, people with
    disabilities will remain the most underserved of the groups eligible
    for HUD assistance, and the group with the highest incidence of ``worst
    case'' housing needs.

                                RECOMMENDATIONS

        The CCD Housing Task Force believes that people with disabilities
    are entitled to an equitable of federal housing resources, even given
    the Section 8 renewal issue and the other constraints on the federal
    budget. To do otherwise will return us to the era when people with
    disabilities had few if any rights to housing, and when their housing
    choices were often limited to expensive, restrictive, and inappropriate
    institutional settings or homelessness. Therefore, in order to ensure a
    ``fair share'' approach, the CCD Housing Task Force makes the following
    recommendations for fiscal year 1998, which are based on the documented
    housing needs of people with disabilities and the extreme housing
    crisis caused by the implementation of federal elderly only housing
    policies.

    Section 8 Tenant Based Rental Assistance

        The CCD Housing Task Force believes that Section 8 tenant based
    rental assistance is one of the most effective tools for helping people
    with disabilities live integrated lives in their home communities. It
    is also the program which can most quickly provide alternative
    resources to people with disabilities, who would have otherwise been
    eligible for federal housing units now designated as ``elderly only''.
    HUD's fiscal year 1998 budget requests incremental Section 8 rental
    assistance only for people in welfare to work programs and ignores the
    critical need for rental subsidies for people with disabilities
    recognized by the Congress last year.
        The CCD Housing Task Force seeks your continued support for $50
    million in new Section 8 incremental rental assistance specifically for
    people with disabilities. We urge you to again appropriate funds for
    this assistance and not rely on the already under-funded Section 811
    Supportive Housing Program for Persons with Disabilities. Your
    willingness to provide incremental funding for new Section 8
    certificates and vouchers sends a strong, clear, and very positive
    message to those people with disabilities desperately in need of decent
    and affordable housing. Many of these people are living in communities
    where virtually all of the federally funded efficiency and one-bedroom
    units have been converted to ``elderly only'' housing. For them,
    Section 8 rental assistance is their only hope.
    Section 811 Supportive Housing For Persons with Disabilities
        The CCD Housing Task Force has major concerns with HUD's fiscal
    year 1998 appropriations recommendations for the Section 811 program.
    During the past seven years, people with disabilities and their
    advocates have worked closely with HUD and the Congress to re-tool the
    Section 811 program, thereby facilitating the development of smaller,
    scattered-site housing in the community for individuals with
    disabilities. However, we continue to believe that HUD views the
    Section 811 program as ``the'' disability program--a view which
    provides no policy direction for HUD or grantees to target mainstream
    programs (i.e. HOME and CDBG) for people with disabilities. The Section
    811 program is one of those success stories where non-profit
    organizations have worked in partnership with federal and state
    governments to provide people with disabilities with needed housing in
    the community. Therefore, the CCD Housing Task Force believes that it
    is time for the flexibility and innovation now provided with other HUD
    programs (i.e. HOME, McKinney Supportive Housing Program, etc.) be
    offered to the non-profits developing housing within the Section 811
    program.
        The fiscal year 1998 budget proposes $174 million for the Section
    811 program--the same level of funding HUD requested last year.
    Fortunately, Congress ignored HUD's recommendation and added $20
    million back to the program for a total fiscal year 1997 appropriation
    of $194 million. Unfortunately, even that level represents a cut of
    $193 million from the appropriation for the Section 811 program in 1995
    and 1996. HUD justifies the cuts to Section 811 by stating that all
    programs must be cut. Yet, the CDBG and HOME programs are held sacred.
        The Section 811 program cannot be targeted to do more with less
    funding! The CCD Housing Task Force seeks your support for additional
    funding for the Section 811 program. The Task Force supports tenant
    based rental assistance as part of the Section 811 program--if
    additional funds are available. HUD published a Notice of Fund
    Availability on this rental assistance on April 10. Despite HUD's good
    intentions, this NOFA makes PHA's the only eligible applicants for this
    rental assistance. Unfortunately, since the NOFA was published it has
    become very clear that many PHA's are unwilling to apply for these
    funds. Since non-profit organizations were originally the only ones
    eligible for Section 811 funds and since they have first hand knowledge
    of the housing crisis facing people with disabilities, the CCD requests
    that you provide HUD with the authority to make non-profts eligible
    applicants for the tenant-based rental assistance funded through this
    program.

    Section 8 Renewals and Section 8 Turnover

        The CCD Housing Task Force supports the renewal of all Section 8
    expiring contracts for the certificate and voucher programs and for
    Section 8 assisted housing. Many people with disabilities would be
    seriously harmed should Congress not renew these commitments. Those
    harmed would include residents of 202/Section 8 projects developed for
    people with disabilities before the Section 811 program was spun off
    and more than 200,000 people with disabilities now using Section 8
    certificates or vouchers.
        In addition, the CCD recommends that--as PHA's increasingly seek to
    designate ``elderly only'' housing--Section 8 turnover subsidies at the
    PHA could be re-directed to people with disabilities who would have
    otherwise been eligible for admission to public housing.
    HOME and Community Development Block Grant Programs
        The CCD Housing Task Force believes that the solution to the
    housing crisis facing people with disabilities lies with HUD mainstream
    housing resources, including the HOME and CDBG programs. Unfortunately,
    HUD has provided no guidance or direction for state or local
    governments regarding the use of these funds to off-set the loss of
    federally subsidized housing for people with disabilities occurring
    from designation. Without this guidance, local and state housing and
    community development officials are often reluctant to change existing
    program activities, despite the priority housing needs of people with
    disabilities documented in their Consolidated Plans.
        The CCD Housing Task Force supports continued funding for the HOME
    and Community Development Block Grant programs provided that a ``fair
    share'' of these federal resources are directed to meet the housing
    needs of people with disabilities--including addressing the loss of
    federal public and assisted housing for people with disabilities, which
    is occurring due to ``elderly only'' designated housing policies.

    Government Accounting Office Report

        The CCD Housing Task Force believe that it is imperative that HUD
    and the Congress have reliable data on which to base policy decisions
    related to the housing needs of people with disabilities. HUD efforts
    in the past in relation to the housing needs and usage of people with
    disabilities have been half-hearted and incomplete. Unfortunately, HUD
    continues to ignore the impact of federal housing designation
    policies--as well as the fact that people with disabilities want and
    should live in their home communities. The CCD Housing Task Force
    requests that you include a report by the U.S. Government Accounting
    Office in the fiscal year 1998 HUD appropriations bill.

                                    SUMMARY

        The CCD Housing Task Force is grateful for the opportunity to
    provide this testimony. If there are any questions, please contact one
    of the co-chairs of the CCD Housing Task Force--Andrew Sperling 703-
    524-7600; Kathy McGinley 202-785-3388; Suellen Galbraith 703-642-6614;
    and Michael Allen 202-467-5730.
                                     ______

                         Prepared Statement of the Arc

                                  INTRODUCTION

        The Arc is the largest voluntary organization in the United States
    devoted solely to the welfare of the more than seven million people
    with mental retardation and their families. There are more than 1,100
    state and local chapters of The Arc nationwide. For two decades, a top
    priority of The Arc has been to make community-based services and
    supports, including an appropriate variety of housing options, more
    available to people with mental retardation. The Arc also seeks the
    deinstitutionalization of people with mental retardation residing in
    large, inappropriate, and extremely expensive institutions--places
    which many people with mental retardation have been forced to call
    home, often because there is nowhere to live in the community. The
    people whom we represent--most of whom have very low incomes may
    already be consumers of HUD programs or on waiting lists for a variety
    of HUD programs both generic and disability-specific.
        The Arc's deep concern--at the local, state, and national levels--
    for the availability of a range of housing options in the community is
    reflected in the opening paragraph of its Mission Statement which is
    included on the cover page of this testimony. The Arc is grateful for
    the opportunity to provide testimony to the Subcommittee on the housing
    needs of people with disabilities. Our recommendations are most
    detailed in relation to Section 8 tenant-based rental assistance and
    the Section 811 Supportive Housing for Persons with Disabilities
    program. However, we have also included comments on a number of other
    programs.
        Housing can be the cornerstone to independence. If a person--with
    or without mental retardation--has access to decent, safe, affordable
    housing and appropriate supports in the community, then he or she can
    concentrate on getting an education, or job training, or a job, and on
    making friends and being a viable and productive part of the community.

                                   BACKGROUND

        Today, in virtually every part of the United States, people with
    mental retardation and other disabilities face a crisis in the
    availability of affordable housing which meets their needs and desires.
    In cities and towns across the country, hundreds of thousands of people
    with disabilities are: living in seriously substandard housing
    conditions; paying 50 percent-75 percent or more of their limited
    income for rent; living at home with elderly parents; living in
    restrictive congregate settings; or are homeless. Many others remain in
    inappropriate institutional settings because there is no housing
    available to them that they can afford.
        People with mental retardation and other disabilities are currently
    the population group most in need of federal housing assistance. The
    U.S. Department of Housing and Urban Development (HUD) 1994 Report to
    the Congress on Worst Case Housing Needs states that people with
    disabilities often have multiple housing problems and are the group
    most likely to live in severely inadequate housing. Unfortunately, this
    1994 report, as well as a more recent report issued in March of 1996,
    significantly underestimates the number of people with disabilities who
    have priority housing needs.
        There are numerous reasons why people with mental retardation face
    a housing crisis, including:
      --The lack of a comprehensive federal housing policy for people with
            disabilities--ranging from rental housing to homeownership;
      --Federal, state, and local budget constraints such as the loss of
            almost all new Section 8 tenant-based rental assistance
            beginning in fiscal year 1995 and continuing cuts to the
            Section 811 program;
      --The implementation of ``designated housing'' which already has and
            will continue to result in a loss of housing options in the
            community; and
      --Continued widespread discrimination and ``Not In My Backyard''--
            ``NIMBY'' policies.
        The designation of ``elderly only'' subsidized housing is the most
    recent factor which has contributed to the critical housing shortage
    for people with disabilities. In 1992 and 1996, Congress passed
    legislation which permits both PHA's and HUD assisted housing providers
    to limit or exclude people with disabilities from living in certain
    subsidized housing developments by designating housing as ``elderly
    only''. These public housing and assisted housing developments, which
    contain virtually all of the studio and one bedroom federally
    subsidized housing units in the country, make up over two-thirds of the
    federally subsidized housing resources that low income people with
    disabilities were eligible for prior to the passage of this
    legislation.
        Opening Doors: Recommendations for a Federal Policy to Address the
    Housing Needs of People with Disabilities developed by the CCD Housing
    Task Force reports that, from 1993 through the year 2000, the
    implementation of elderly only designated housing policies will result
    in at least a 50 percent decrease in the supply of HUD public and
    assisted housing units previously open to people with disabilities.
    Overall, based on estimates of the number of people with disabilities
    who will be displaced from subsidized housing waiting lists, there will
    be a decrease of at least 273,000 units that would have otherwise been
    occupied by people with disabilities.
      --Already approximately 50 public housing allocation plans that
            ``designate'' elderly-only housing have been approved by HUD--
            leading to approximately 22,000 now elderly-only units. More
            and more plans arrive at HUD weekly and the Department has
            estimated that 174 plans will be submitted in the next twelve
            months.
      --Unfortunately, there is no record of how many assisted housing
            units have been lost. However, a CCD survey of one Michigan
            county showed that 60 percent of the assisted housing units
            that once were open to people with disabilities have been
            designated as elderly-only.
        Despite this dramatic decrease in the supply of subsidized housing
    available for people with disabilities, until Congress acted last year,
    no new resources for people with disabilities were authorized or no new
    funds were appropriated to address this loss. HUD continues to ignore
    the fact that people with disabilities face a housing crisis. HUD's
    neglect of the needs of people with disabilities last year was bad
    enough. However, even after Congress added $50 million for Section 8
    tenant-based rental assistance for people with disabilities and more
    funds for the Section 811 program for fiscal year 1997--HUD did not
    request the $50 million for fiscal year 1998 and, once again, proposed
    yet another cut to the Section 811 program. Once again, we are
    dependent on the understanding and wisdom of Congress.
        One thing that is very obvious is that the housing lost to people
    with mental retardation and other disabilities as a result of
    designating elderly-only housing must be replaced. Where will people
    with disabilities, many of whom have been on waiting lists for years,
    find alternative housing resources? What about those people with
    disabilities who used to be eligible for this housing who will now be
    turned away? What about those people who are living at home with aging
    parents, who fear for their children's future? What about those people
    living in institutions who should be living in their communities?
        People with mental retardation and other disabilities are entitled
    to an equitable share of federal housing resources, even in an era of
    federal fiscal constraints. Therefore, in order to ensure a ``fair
    share'' approach, The Arc makes the following recommendations for
    fiscal year 1998 based on the documented housing needs of people with
    disabilities and the housing crisis which they now face.

                    SECTION 8 TENANT-BASED RENTAL ASSISTANCE

        The Arc strongly believes that Section 8 tenant-based rental
    assistance is one of the most effective tools for helping people with
    mental retardation live integrated lives in their home communities. For
    one thing, access to Section 8 assistance helps people with mental
    retardation afford living in the community. Unfortunately, most people
    with mental retardation have low paying jobs and they would not be able
    to live on their own without a rent subsidy. Medicaid is often a source
    of service funding for people with mental retardation. But, while
    Medicaid can help people get the services and supports they need,
    people still need a rental subsidy to allow them to be able to afford a
    place to live. Access to tenant-based assistance is even more critical
    now when so many other options have been closed to people with mental
    retardation.
        HUD's fiscal year 1998 budget requests incremental Section 8's only
    for people in welfare-to-work programs. HUD's budget request--once
    again--makes no mention of the need for Section 8 tenant-based rental
    assistance for people with disabilities and ignores the funds that were
    added for fiscal year 1997. The Department's Section 8 priorities are
    in direct conflict with HUD's own data that show that people with
    disabilities have some of the worst case housing needs faced by any
    individuals in the nation. HUD's actions also are extremely problematic
    since a bi-partisan effort in Congress authorized and appropriated
    funds for Section 8's for people with disabilities for fiscal year
    1997. Congress recognized the loss of housing as a major problem but
    HUD continues to refuse to do so.
        The Arc seeks your support for continuation funding for the $50
    million in Section 8 tenant-based rental assistance specifically for
    people with disabilities. We urge you to again appropriate funds for
    this assistance and not rely on the already underfunded Section 811
    Supportive Housing for Persons with Disabilities Program. The housing
    crisis faced by people with mental retardation and other disabilities
    is getting worse, not better. A one-time infusion of 8,400 Section 8's
    does little to offset the estimated loss of over 273,000 units. We also
    urge you to work to ensure that the broadest range of people with
    disabilities have access to this rental assistance.
          section 811 supportive housing for persons with disabilities
        The Arc has major concerns with HUD's fiscal year 1998
    appropriations recommendations for the Section 811 program. Reviewed in
    the context of the immerse housing crisis faced by people with
    disabilities and on HUD's own (incorrect) view of the Section 811 as
    ``the'' disability housing program, the HUD recommendation appears not
    only to be very poor public policy, but also dangerous to people with
    mental retardation. Section 811 has expanded the available housing
    stock and options within communities while assuring a level of
    individualized supports required by some individuals with severe
    disabilities. The Arc has many members/chapters who have acquired or
    developed housing through the Section 811. In most cases, our members
    will be the first to admit that projects developed in the past have
    been too large and too segregated. However, for the past seven plus
    years, we have worked closely with HUD and the Congress to make the
    Section 811 program into something that can provide small, scattered-
    site housing in the community for individuals with disabilities.
        The Section 811 program has provided people with mental retardation
    with access to critically needed housing in the community. In many
    cases, it is this access to that prevents or ends institutionalization.
    For some people, a group home has been a ``layover'' on the road to
    living independently in the community. For other individuals, with
    ongoing stronger support needs, housing options funded through Section
    811 continue to be necessary and appropriate.
        The fiscal year 1998 HUD budget proposes $174 million for the
    Section 811 program. This is the same level of funding that HUD
    requested last year. Fortunately, Congress ignored HUD's recommendation
    and added $20 million back to the program for a total fiscal year 1997
    appropriation of $194 million. Unfortunately, even that level
    represents a cut of $193 million from the appropriation for the Section
    811 program in each of fiscal years 1994, 1995, and 1996. HUD justifies
    cuts to Section 811 by stating that all programs need to take a cut.
    Why then are programs like the HOME and CDBG held sacred and funded at
    current levels? In addition, why are neither of these programs held
    more accountable for contributing to the availability of decent, safe,
    affordable, and accessible housing for people with disabilities?
        At the same time that HUD requests less money, the Congress and HUD
    have directed 25 percent of Section 811 funds to tenant-based rental
    assistance. While it appears that this rental assistance will be very
    useful for people with mental retardation and other disabilities, The
    Arc cannot be the only group to wonder why HUD keeps trying to do more
    in this program--with less money. This only harms people. The Arc
    supports tenant-based rental assistance as part of the Section 811
    program only if additional funds are added to the program--not
    subtracted.
        The Arc seeks your support for more adequate funding for the
    Section 811 program. Section 811 is one of those success stories where
    non-profit organizations have worked in partnership with federal and
    state governments to provide people with mental retardation and other
    disabilities with needed housing in the community. We ask that you urge
    HUD to streamline the program so that the more innovative components of
    the program can be used more conveniently, such as the acquisition or
    development of units in condominium, cooperative, and multi-family
    housing developments. We also request that you urge HUD to include non-
    profit organizations as eligible applicants for the tenant-based rental
    assistance funded with Section 811 funds. Non-profits are the
    traditional HUD partner for Section 811 funds.
        The Arc also believes that there are other problematic
    appropriations issues in addition to the Section 8 tenant-based rental
    assistance which we are seeking and Section 811.
        The Arc seeks your support for requirements that ensure that funds
    from both the HOME and CDBG programs are targeted to people with mental
    retardation and other disabilities. These two programs, which never
    seem to face funding cuts like other HUD programs, currently do little
    to ensure that there is a range of housing options for people with
    disabilities in the community. In light of the dwindling resources and
    options for people with disabilities, both of these locally driven
    programs should be required to help provide housing for those with the
    greatest need.
        The Arc seeks your support for adequate funds to deal with the
    Section 8 ``renewal crisis''. Approximately 15 percent of the people
    receiving Section 8 tenant-based rental assistance are people with
    disabilities. Although very few people with disabilities can now access
    project-based Section 8 units due to the designation of many of these
    units as elderly-only, there are still many people with disabilities
    living in these projects who have not been displaced. There are also
    many people living in disability projects funded under the Section 202
    program. It is critical that this crisis be resolved--but not by taking
    funds from other important HUD programs.

                                    SUMMARY

        Thank you for the opportunity to provide you with this testimony.
    We would appreciate your support. The Arc has historically attempted to
    work in collaboration with HUD. We have advocated for additional
    funding for HUD programs; worked for the continued existence of the
    Department itself; and fought to maintain the Office of Fair Housing
    and Equal Opportunity at HUD. However, we are very concerned about the
    Department's continued lack of understanding of the depth and breadth
    of the housing crisis faced by people with all types of disabilities--
    including mental retardation and other developmental disabilities--
    face. The Arc strongly believes that people with mental retardation and
    other disabilities should have equitable access to all HUD programs. We
    appreciate your support in the past and hope that we can continue to
    work with you towards this goal.
                                     ______

      Prepared Statement of the American Network of Community Options and
                                   Resources

                                  INTRODUCTION

        ANCOR is a nationwide association of over 650 private, non-profit,
    for-profit and family care agencies that together provide supports and
    services to more than 50,000 low-income people with mental retardation
    and other developmental disabilities. Most member agencies support
    people in group homes, apartments, and other supported living
    arrangements in the community. ANCOR has twenty-seven years of proven
    leadership representing private providers of housing options for people
    with disabilities and it receives no federal funds of any kind.
        Unfortunately, all too often people with disabilities have been in
    the position of competing for scarce resources at national, state, and
    local levels--competing for housing assistance needed by other low-
    income households in general and, frequently, in competition with other
    vulnerable groups, such as people who are elderly. The need for
    affordable, accessible housing in the community for people with
    disabilities is tremendous and is increasing each year as a result of
    the woefully inadequate supply of affordable housing and as a result of
    units lost because of designated ``elderly only'' housing.
        ANCOR believes it is critical that there be a federal role in
    housing and that adequate funding for America's most vulnerable
    citizens--people with mental retardation and other disabilities--must
    continue in order to open doors to affordable housing in the community.
        Unfortunately over the past few years HUD appears not only to have
    understated the housing needs of people with disabilities in this
    country, but has failed to lead the way in urging an appropriate
    federal response. In its last two funding proposals to Congress, HUD
    did not include any incremental Section 8 tenant-based assistance
    targeted for people with disabilities even in the face of ample
    evidence of the devastating loss of public and assisted housing as a
    result of federal designated housing policy. Remarkably, at the same
    time, HUD proposed a deep cut in funding to the Section 811 Supportive
    Housing for People with Disabilities Program.
        However, last year this Subcommittee took a stand to ensure that
    people with disabilities were not forgotten. Due in no small measure to
    this Subcommittee's sense of equity and commitment to protecting
    America's most vulnerable citizens, a first step was taken in restoring
    some of the housing lost to people with disabilities as a result of
    recent federal housing designation policies. Although this issue
    appears to have escaped the attention of HUD--it did not escape the
    stewardship of members of this Subcommittee when it approved a separate
    $50 million appropriation for tenant-based assistance specifically for
    people with disabilities last year. This Subcommittee has helped to
    lead the way in correcting a mistaken message sent to people with
    disabilities--that their housing needs were no longer important to the
    elected officials in Washington.

       INCOMPLETE HOUSING DATA UNDERESTIMATES NEED AND DISTORTS LINK TO
                                   ALLOCATION

        For many adults with mental retardation and other developmental
    disabilities, the Supplemental Security Income (SSI) upon which they
    depend, is totally inadequate for rent. On average, adults with mental
    retardation and other disabilities receiving SSI have an annual income
    less than 20 percent of median income and are unable to afford housing
    without assistance. On the average nationally, without assistance, it
    takes nearly 66 percent of a monthly SSI check to pay the rent for an
    efficiency apartment.
        HUD's 1994 Report to the Congress on Worst Case Housing Needs and
    its subsequent report in 1996 stated that people with disabilities
    often have multiple housing needs and are the group most likely to live
    in severely inadequate housing. But in spite of this evidence, HUD has
    not included adequate funding in its budget proposal again this year to
    begin to address the known housing crisis.
        According to OPENING DOORS: Recommendations For A Federal Policy to
    Address The Needs of People with Disabilities prepared by the
    Washington-based Consortium for Citizens with Disabilities (CCD)
    Housing Task Force and the Technical Assistance Collaborative, Inc. of
    Boston, Massachusetts, HUD's reports significantly understate the
    housing needs of people with disabilities. The 1996 OPENING DOORS
    report estimates that for people with disabilities, there were
    1,792,000 worst case housing needs as compared to HUD's estimate of
    170,000. On top of this critical shortage in housing, the CCD report
    also estimates a loss of more than 270,000 federally subsidized housing
    units for people with disabilities over a five year period due to the
    impact of recent federal designated housing policy.
        ANCOR believes that this loss of units to people with
    disabilities--with the concomitant result that these units are added to
    the stock of housing available only to elderly people--represents the
    largest single shift in housing in our nation's history. ANCOR
    continues to believe that the changes in federal housing law and the
    subsequent shift in housing assistance requires an immediate response
    by the federal government.
        As of June 1996, 58,400 people still resided in state operated
    facilities for people with mental retardation and other disabilities.
    This sizable pent-up demand for housing in the community, however, does
    not reflect the number of people on statewide waiting lists for
    residential and support services in the community. A limited survey of
    some of ANCOR's members recently provided the following information
    regarding the number of people with mental retardation/developmental
    disabilities on these waiting lists: Arizona (138), Colorado (1,200),
    Illinois (4,500), Indiana (2,900), Kentucky (1,138), Maine (330),
    Maryland (5,000), Massachusetts (2,958), Michigan (3,173), Minnesota
    (2,500), New York (5,439), Oklahoma (1,468), South Carolina (1,300),
    South Dakota (23), Washington (2,800), and Wisconsin (8,900). According
    to ANCOR's affiliate in New York--at the current rate of development,
    the parent of a child with developmental disabilities must wait until
    the year 2027 for a community residential opportunity.
        All of the above statewide figures provide information only
    something about the number of people with mental retardation and/or
    developmental disabilities. This data does not reflect the number of
    people with other disabilities in need of affordable housing. Nor do
    these statistics reveal what is most important--the real human lives
    behind those numbers.
        ANCOR recommends that the Congress request a report by the U.S.
    General Accounting Office on the housing needs of people with
    disabilities. It is imperative that HUD and the Congress have reliable
    data with which to assess the housing needs of people with
    disabilities, including the impact of recent federal housing
    designation policy on public and assisted housing stock, as well as the
    level of resources allocated to address the shortage in housing. In
    other words, Congress needs a credible baseline from which to ascertain
    the growing gap in housing assistance for people with disabilities and
    in order to determine future allocations of scarce resources. It is
    also important that the study complete an inventory and a review of the
    utilization of all HUD housing assistance that should be available to
    people with disabilities--including other HUD mainstream housing
    resources such as the HOME and CDBG programs.
        However, exploring the problem in greater detail will be fruitless,
    if our nation's housing policy and federal expenditures are not
    directed to address the documented acute housing needs of people with
    disabilities.
        Therefore, ANCOR recommends that the Congress be consistent in its
    policy by appropriating adequate funding for HUD programs specifically
    designed to address the housing needs of people with disabilities and
    to direct HUD to promote the utilization of mainstream housing programs
    in order to increase physical accessibility and rehabilitation of
    existing rental properties, development of new affordable rental
    housing, and creation of homeownerhsip.

                         TENANT-BASED RENTAL ASSISTANCE

        Tenant-based rental assistance is one of the nation's most
    effective ways to provide housing for people with low and very low
    incomes, including people with disabilities. It provides an opportunity
    for people with disabilities to exercise choice in obtaining affordable
    housing in the private market, thus empowering them to become full
    fledged members of our nation's communities. However, for the past two
    years HUD has failed to provide any incremental Section 8 tenant-based
    rental assistance targeted for people with disabilities, even as it
    targets assistance for others in need.
        ANCOR recommends a separate appropriation for $50 million in new
    Section 8 tenant-based rental assistance designed specifically for
    people with disabilities in fiscal year 1998 to continue efforts to
    address the housing gap and to replace lost housing as a result of
    federally designated housing policy.
          section 811 supportive housing for people with disabilities
        Some people with disabilities of all ages require supports, beyond
    merely rental assistance, to live in the community. The Section 811
    program has proved to be one of HUD's most successful programs,
    investing federal funding to increase housing stock available to people
    with disabilities who have need for an array of intensive supports to
    live in the community. It is unique in that the program provides a
    ``housing partnership'' structure with local nonprofit organizations to
    develop supportive housing through a direct grant accompanied by
    project-based rental assistance. The Section 811 programs should not,
    however, be relied upon as the only mechanism for addressing the broad
    range and growing housing needs of people with disabilities.
        Nor should Section 811 program funds be reduced at a time when
    there is also a crisis in affordable housing for people with
    disabilities. Although ANCOR applauds the efforts of HUD to ``avert the
    Section 8 contract renewal crisis,'' it is misleading to Congress and
    to others to say it is doing so without harming other programs. HUD is
    proposing $174 million for the Section 811 program--a $193 million
    funding cut over fiscal year 1995 and fiscal year 1996 levels.
        ANCOR recommends fiscal year 1998 appropriations of $265.74 million
    (fiscal year 1996 funding level of $258 plus a three percent inflation
    factor) for the Section 811 Supportive Housing for Persons with
    Disabilities Program for capital grants and tenant assistance.
        The Section 811 Supportive Housing for Persons with Disabilities
    Program, like its sister program--Section 202 Supportive Housing for
    the Elderly Program--was designed to be administered solely by non-
    profit organizations, respecting the strong belief in the innovation of
    the public-private partnership. The Section 811 program funding should
    be made available only to non-profit organizations.
        ANCOR recommends that Congress provide the HUD Secretary with
    waiver authority to permit private non-profit organizations to
    administer Section 811 tenant-based assistance. (Currently, only public
    housing authorities can administer the 25 percent authorization for
    tenant-based assistance under the Section 811 program.)
                                     ______

     Prepared Statement of John R. Wodraska, General Manager, Metropolitan
                     Water District of Southern California

     FISCAL YEAR 1998 APPROPRIATIONS FOR THE U.S. ENVIRONMENTAL PROTECTION
                                     AGENCY

        The Metropolitan Water District of Southern California (MWD) is
    pleased to submit comments for the record, regarding programs contained
    in the U. S. Environmental Protection Agency's (EPA) fiscal year 1998
    budget for your Subcommittee's hearing on April 8, 1997.
        MWD is responsible for meeting the supplemental water requirements
    of 16 million people living in the Southern California coastal plain.
    Of particular interest to MWD and our 27 member agencies are those
    federal programs that provide assistance and facilitate partnerships
    for addressing critical water quality issues.
        MWD urges that you provide the full amount authorized by Congress
    for the Safe Drinking Water Act (SDWA) State Revolving Fund for fiscal
    year 1998, increased amounts for drinking water research, and that you
    fully support the President's proposed fiscal year 1998 budget for
    other EPA programs benefiting drinking water quality. While significant
    progress has been made in improving the quality of our nation's water,
    many surface and ground waters do not meet water quality standards.
    Further, as our understanding of the relationship between the
    contaminants found in our water supply and their effect on human health
    increases, new risks have been uncovered. Adequate protection of
    drinking water quality requires research to identify health effects,
    contaminant sources, and effective control methods; financial
    assistance for implementation of water treatment and source water
    protection measures; and compliance monitoring to ensure existing laws
    and regulations are upheld.
             drinking water and source water protection activities
        MWD supports the President's request for $98 million for drinking
    water and source water protection activities within the Environmental
    Programs and Management Appropriation Account. It is MWD's goal to
    supply safe water that meets or surpasses state and federal standards
    and will achieve the highest standards of customer satisfaction.
        MWD has devoted a significant amount of time and funding to
    disinfectant/disinfection by-product (D/DBP) treatment technologies.
    Staff have also actively participated in the regulatory negotiation of
    the D/DBP rule and the current EPA D/DBP workgroup to ensure a
    reasonable health protective cost-effective regulation. The $73.9
    million is necessary for EPA to develop these regulations.
        MWD actively participated in the development of language on
    reasonable source water protection incentives in the 1996 SDWA.
    Programs for adequate protection of sources of drinking water will
    improve public health protection and reduce treatment expenses. MWD
    strongly supports the $23.4 million allocated for source water
    protection.

                            DRINKING WATER RESEARCH

        Research is the foundation upon which effective drinking water
    quality programs are built, and MWD asks you to provide additional
    support to various EPA water quality-related research programs. The
    1996 SDWA made clear that more research is needed to resolve critical
    questions on health effects of pathogens, arsenic, and disinfection by-
    products. Consequently, we are very concerned that the proposed fiscal
    year 1998 EPA budget provides about $3.5 million less for drinking
    water research than in fiscal year 1997. Increased funding is needed
    for research to help protect against such waterborne pathogens as
    Cryptosporidium and assist in developing cost-effective regulations for
    DBP's and arsenic.
        We urge you to support the addition of $5 million to be earmarked
    for the American Water Works Association Research Foundation (AWWARF)
    for critically needed research on pathogens, DBP's and arsenic. We also
    request the addition of at least $1 million for arsenic health effects
    research to be earmarked for EPA to use to support its recently signed
    Memorandum of Understanding with AWWARF and the Association of
    California Water Agencies. Additional research on the health effects of
    arsenic is critical in order to determine whether existing regulations
    are sufficiently protective of human health. MWD has already committed
    $50,000 of its own funds for arsenic research and many other drinking
    water suppliers have made similar financial commitments.
        We request that you support funding of $45.4 million for drinking
    water research for fiscal year 1998 Pathogens, DBP's, and arsenic are
    just three of the drinking water contaminant issues that the EPA needs
    to address through research. Even greater funding will ultimately be
    necessary to fully address these and other drinking water contaminants.

                 ECOSYSTEM AND HUMAN HEALTH PROTECTION RESEARCH

        Other research programs that need your support include EPA's
    request for $105.5 million for the Ecosystem Protection Research
    program, that will provide environmental monitoring data and add to our
    understanding of wetlands and other important aquatic ecosystems.
    Wetlands act as a natural ``cleansing'' medium and help protect the
    quality of our nation's drinking water. Further, EPA's request for
    $53.6 million for the Human Health Protection Research program should
    help promote wiser spending of limited economic resources on
    environmental human health problems by developing a better
    understanding of the linkage between environmental contaminants and the
    true threat they pose to human populations.

                    DRINKING WATER TECHNICAL SUPPORT CENTER

        The 1996 SDWA will continue to require extensive monitoring and
    accurate laboratory analysis of very complex regulations, such as the
    implementation of the Information Collection Rule. Resources have been
    allocated for drinking water technical support and MWD supports the
    $1.7 million for this technical assistance.
        drinking water--public water systems supervision program grants
        EPA's fiscal year 1998 budget allocates $93.8 million for Public
    Water Systems Supervision Program grants. This funding is necessary for
    states to implement the 1996 Safe Drinking Water Act regulations.

                             STATE REVOLVING FUNDS

        EPA's recently released ``Drinking Water Infrastructure Needs
    Survey'' reported that the nation's community water systems estimate
    they must invest over $138 billion in the next 20 years to ensure
    delivery of safe drinking water. Of this amount, approximately $12
    billion is needed to meet current Safe Drinking Water Act requirements.
    Low-cost financing for projects which ensure safe drinking water
    supplies is critical for protecting the health of the more than 240
    million Americans served by public water systems. The 1996 SDWA made
    available, for the first time, low-cost financing for drinking water
    infrastructure and source water protection projects through a drinking
    water State Revolving Fund (SDWA-SRF). The SDWA-SRF is also a source of
    funding for source water assessment, administering state Public Water
    Supply Supervision activities, development and implementation of
    ``capacity development'' programs and operator certification programs,
    and for health effects research.
        Adequate funding for all of these activities is essential, and MWD
    strongly urges that you provide $1 billion for the SDWA-SRF, the amount
    authorized by Congress for fiscal year 1998. This amount, while greater
    than the amount requested in the President's budget, is still only a
    small fraction of the funding needed by drinking water suppliers to
    meet existing Safe Drinking Water Act requirements.
        Significant investments are also needed to repair and replace aging
    municipal wastewater infrastructure as well as to meet the needs of
    future population growth. Low-cost financing is necessary to support
    the estimated $137 billion of municipal water quality infrastructure
    needs over the next 20 years as well as capital investments to protect
    against nonpoint pollution sources. The President has requested $1.075
    billion for fiscal year 1998 for the Clean Water Act State Revolving
    Fund (CWA-SRF) to support such activities which are also vital for
    ensuring protection of drinking water sources. MWD asks that you
    support the President's budget request.

                             NONPOINT SOURCE GRANTS

        Another critical source of funding for source water protection
    projects is grants under the Clean Water Act's Section 319, Nonpoint
    Source Program (NPS). NPS grants are particularly important for smaller
    projects and projects where debt financing is unsuitable. Further, the
    NPS grant program is necessary to support the many watershed management
    activities fostered by the states. The President has included $100
    million for NPS grants for fiscal year 1998, and MWD requests your
    support of this funding.
        Other EPA grant programs which help maintain or improve water
    quality and need your support are the Section 106 Control Agency
    Resource Supplemental Grants ($95.5 million), Wetlands Program
    Development Grants ($15 million), and the Water Quality Cooperative
    Agreements ($20 million). Your support for the President's fiscal year
    1998 budget request for the above programs will ensure that EPA can
    carry out its mission.
        I would also urge your Subcommittee to support the funding request
    contained in the Administration's fiscal year 1998 budget for the
    Bureau of Reclamation for efforts aimed at restoring the Sacramento/San
    Joaquin Bay-Delta Estuary in Northern California.
        We look forward to working with you and your Subcommittee. Please
    contact Brad Hiltscher, MWD's Legislative Representative in Washington,
    D.C. at (202) 296-3551, if we can answer any questions or provide
    additional information.
                                     ______

       Prepared Statement of Rodney DeHan, Ground Water Manager, Florida
      Department of Environmental Regulations and Ground Water Protection
                                    Council

        Mr. Chairman, my name is Rodney DeHan, I am the Ground Water
    Manager for the Florida Dept. of Environmental Regulations and a Board
    Member and President of the Ground Water Protection Council (GWPC).
    This testimony is submitted on behalf of the member states of the
    Ground Water Protection Council who together have primary enforcement
    authority for over ninety percent of the approximate one and a half
    million injection wells in the United States. Last year this Committee
    provided $10.5 million to the state UIC regulatory agencies for their
    continued operation and enforcement of the national underground
    injection control programs and we'd like to thank you for that.
        The national Underground Injection Control (UIC) program is
    authorized in provisions of the Safe Drinking Water Act and its
    Amendments. The administrative and enforcement responsibilities of this
    program have been delegated to the states for this, the nation's
    largest and most comprehensive ground water protection program.
    Injection wells range in nature from very high-tech deep disposal wells
    which inject hazardous and nonhazardous waste at depths from three to
    twelve thousand feet underground, to simple dry wells which are used by
    mom-and-pop service stations, family industries, small businesses,
    farmers, and municipalities. Also included in the family of injection
    wells are the approximately 175,000 wells used by the oil and gas
    industry for salt water disposal and secondary recovery operations.
    Each year these wells re-inject over a billion barrels of salt water
    brought to the surface commingled with oil and gas production. Solution
    mining wells used to recover salt, sulfur and other minerals are the
    remaining type of injection well.
        As regulatory programs, the Class I, or hazardous waste disposal
    wells and Class II, salt water disposal wells, and Class III, solution
    mining wells, are fairly mature. These types of wells have been used by
    the respective industries for decades and because of the relatively
    small number and the concurrent high technology being applied to their
    operation, they pose less risk to ground water than do the well over
    one million Class V, or shallow injection wells, some of which can be
    found in every Congressional District of the United States. Yet, these
    mature programs have worked only because of the state's ability to
    inspect and monitor their operations. When properly sited and routinely
    inspected these are among the safest means of liquid waste disposal
    available. However, the continued future success of this process is in
    increasing jeopardy if additional funds are not added to the UIC
    program at the federal level.
        With that in mind, I'd like to address the Class II well program
    first.
        Affecting approximately 32 oil producing states is the decline
    which we are experiencing in the total production and price of oil. It
    is typical that as oil production declines, the amount of produced salt
    water increases. Every barrel of oil which is produced may be
    accompanied by as many as 30 to 40 barrels of salt water. This salt
    water is extracted from oil bearing strata and brought to the surface
    along with the oil. It must then be carefully reinjected far below the
    lower most underground source of drinking water. Failure to inject or
    improper injection causes severe and lasting damage to the environment
    and underground drinking water supplies.
        With the decline in the price of petroleum and the increase in
    environmental regulations many oil wells are no longer profitable and
    have been shut down. This could be an even greater threat to ground
    water since an inoperative well can still do serious damage to the
    environment. Under law, well operators have two options. They must
    either file for temporary abandonment or plug their wells and furnish
    the appropriate regulatory agency with evidence that the well has
    maintained its mechanical integrity. The majority of these wells are
    not owned by major oil companies. Most are locally owned by small
    business or are mom and pop operations. Either way, our workload at the
    state regulatory agencies has dramatically increased and will continue
    to do so. This is because we try to have a field inspector present to
    observe mechanical integrity tests concerning operation of a well. In
    cases of a temporary abandonment, our geologists and engineers must
    carefully review and either approve or reject the evidence
    demonstrating the mechanical integrity of a given well.
        We have also been affected by increased federal reporting
    requirements to the EPA and significantly more administrative paperwork
    not to mention the federal budget crisis. The result has been that
    while our workload and responsibilities have been substantially
    increasing, our budget has been decreasing.
        A second concern, of equal importance, is related to the Class V,
    or shallow well program. Shallow wells are of simple construction,
    compared to the other types, and are in daily use by families and small
    businesses, farmers, small municipalities, and, unfortunately, also
    pose a significant risk to the nation's ground water resources. We
    believe many of these wells, acting as conduits, are allowing the
    ``mainlining'' of hazardous wastes commonly found in every day family
    and manufacturing uses, directly into underground sources of drinking
    water. The regulatory program for inventorying, inspecting, closing,
    remediating, and monitoring these wells is new by comparison to the
    other types of injection wells mentioned previously. As the state
    regulatory agencies with the responsibility for implementing this
    regulatory program, we are very concerned because these shallow
    injection wells may pose the greatest risk of all known point sources
    for contaminating ground water. We believe that by providing more, and
    better trained state inspectors and enforcement officers, and more
    extensive public education and outreach, the general public, who own
    and operate, and whose own drinking water is affected by these simple
    shallow wells, will comply with this regulatory program thereby
    diminishing this substantial risk to local ground water supplies. What
    the states lack, however, is enough money to do our job to the degree
    you and we would like. As the front line agencies charged with running
    this federal ground water protection program, states must have
    additional resources to hire more inspectors and enforcement officers
    to find these wells and to work with local city councils, planning
    commissions, and water agencies, to inform them of the hazards
    surrounding the use of these wells and suggesting to them best
    management practices that can be used with these shallow injection
    wells.
        The goal of providing more effective enforcement and subsequently
    promoting pollution prevention activities comes down to money. The
    Underground Injection Control Program receives $10.5 million for the
    operation of a program to regulate all four types of wells in every
    state. The USEPA will propose stricter Class V well regulations, which
    will add another layer to the already overburdened state agencies who
    must enforce this federally mandated ground water protection program.
        There is a way to enforce this program immediately and to pay for
    it. If EPA was provided an additional $5.5 million next year for the
    specific purpose of providing additional enforcement presence in each
    state, there would be a positive impact in ground water protection.
    Congress would have to mandate the specific use of these funds--to
    require immediate direct enforcement through each state underground
    injection control program. Nothing could relieve existing ground water
    pollution threats more than this clearly defined use of additional
    funds.
        To obtain these pollution prevention funds, Congress might consider
    shifting money from a pollution clean up program. Enhancement of the
    shallow well program and more wellhead protection planning would
    ultimately result in less money being needed in pollution clean up
    programs. Proposals to spend more money on these other programs, with
    no new funding for the enforcement of this pollution prevention
    program, causes an imbalance in EPA enforcement efforts that was
    probably unintended by both EPA and Congress. Simply as an example, if
    funding for the UST program grew more slowly, the UST program would
    still continue to grow as the financial capacity of small communities
    expands to allow them to replace damaged tanks. However, if at the same
    time the communities were to engage in locating and closing shallow
    injection wells, much of which can be done with local staff and
    resources already invested, they would be preventing future problems
    from occurring in the first place.
        In short, Congress should consider moving funding (or use funds
    from cleanup programs) to balance the enforcement efforts for the
    prevention of the disposal of pollutants into underground sources of
    drinking water. In addition, this would be 100 percent available for
    in-the-field enforcement activities. It is the first step in
    eliminating them as a source of future pollution.
        The level of federal assistance provided to the states for the
    enforcement of federal UIC regulations has not increased as our
    federally mandated responsibilities have grown. The federal funding was
    $10.5 million last year and $10.5 million for the five years before
    that.
        All of the 23 Primacy States have reported current funding
    shortfalls. The average shortfall for the States was over $350,000.
    Funding shortfalls have impacted most areas of the Class II program.
    The areas of field inspections and risk assessment were most commonly
    impacted. Personnel shortages were mentioned by many states.
        For the Class V program, a review of 1996 expenditures indicated
    that the majority of states do not actively regulate all shallow
    injection well types, but focus only on polluting wells due to the lack
    of funding. This lack of attention to other high risk well types only
    serves to hasten the day when they will be a clean-up problem.
        In closing, we are requesting that the Congress consider an
    additional $5.5 million funding in order to provide additional
    enforcement support for the underground injection control programs in
    each state. In addition, we would like to request an additional
    $400,000 to sustain the Ground Water Protection Council's highly
    successful education and training program used by the states which will
    help them integrate their UIC program and wellhead protection planning
    into the national ground water protection program. The beneficiaries of
    this effort are our friends and neighbors who would be more
    knowledgeable about, and more able to, protect their local ground water
    supplies through their own efforts.
                                     ______

     Letter From Nicholas A. DiPasquale, President, Solid Waste Management
                                   Officials
                   Association of State and Territorial
                              Solid Waste Management Officials,
                                         Washington, DC, April 4, 1997.
    Hon. Christopher S. Bond,
    Chairman, Subcommittee on VA, HUD and Independent Agencies
            Appropriations,
    U.S. Senate, Washington, DC.
        Dear Senator Bond: It is the practice of the Association of State
    and Territorial Solid Waste Management Officials (ASTSWMO) to provide
    comment from the perspective of the State program managers of solid and
    hazardous waste concerning the annual environmental budget proposed by
    the U.S. Environmental Protection Agency (EPA). Your Appropriations
    Subcommittee will soon conduct hearings regarding the EPA's fiscal year
    1998 environmental budget proposal, and we know that you will move
    swiftly to finalize your recommendations for the full Appropriations
    Committee.
        ASTSWMO is a nonprofit association whose members are the directors
    of the State solid and hazardous waste regulatory programs. We believe
    that our members, as practicing waste managers implementing State and
    certain delegated federal program activities, have gained practical
    insights into the operation of the statutes and regulations which make
    up national policy for solid waste management and remediation programs.
    Consequently, they are well positioned to advise the Subcommittee
    regarding budgetary implications for those programs. We believe that as
    State program implementers, we have a special responsibility to address
    the budget for the national waste programs, and to share that
    evaluation with your Subcommittee. We trust the Subcommittee will
    recognize that our views are entirely bipartisan, representing the
    professional opinions of State government managers who, like you, must
    balance resources with genuine environmental needs. We have no special
    interests other than to ensure that we can carry out effective,
    environmentally sound programs in the manner prescribed by federal and
    State statutes and regulations. We respectfully request that this
    letter be made a part of the record of your Subcommittee's
    consideration of EPA's fiscal year 1998 proposed program.
        Your Subcommittee has a very strong track record in support of
    sound State waste management programs and I would like to express our
    continued appreciation for that support. We are especially grateful for
    your recommendations in fiscal year 1997 which held State program
    grants harmless from the turmoil of the EPA budget debate, and for the
    substantial restoration made to the very important LUST appropriations
    used by States to fund cleanups.
        In this letter, we would like to address several of the waste-
    related issues in the fiscal year 1998 budget, those affecting State
    grant programs for hazardous waste and underground tank management, the
    federal Superfund program and its relationship to State cleanup
    programs, and the funding for the Leaking Underground Storage Tank
    (LUST) program. These are critical elements of the national
    environmental budget for our activities, and we want to share our views
    with you.

                          STATE GRANT PROGRAM SUPPORT

        The basic State hazardous waste program needs are provided for in
    the categorical State grant programs which the Congress has wisely
    compartmented into the new State and Tribal Assistance Grants account.
    We urge the Subcommittee to continue its support of this important
    account at least at the fiscal year 1998 levels proposed by the
    Administration for hazardous waste assistance ($98,598,200) and
    underground storage tanks regulation ($10,544,700). However, these are
    virtually zero growth levels that do not account for greater reliance
    being placed on State management of these programs. The increase of
    only $300,000 in the hazardous waste assistance and no increase in the
    tanks regulation grants are insufficient even to cover inflation losses
    over the last year and will not contribute to any real improvement in
    either of these program areas. We also support the modest levels of the
    proposed pollution prevention grant funding ($5,999,500), but note that
    these too reflect zero growth from fiscal year 1997. Additionally, we
    are concerned that these grants continue to be focused on small
    demonstration projects rather than on assisting the comprehensive
    institutionalization of pollution prevention within States programs.
    Looking at the whole of the waste prevention program grants, the static
    levels hardly reflect the Administration's stated theme of enhanced
    prevention of future remedial waste sites.
        It's important that the Congress continues to understand that these
    federal grant funds only supplement State program funding. Despite
    greater and greater emphasis on devolution of more waste program
    elements to States, these federal funds have not been increased for
    some time, and the ability of States to provide any greater share of
    support is minimal. Consequently, we cannot overemphasize the
    importance of maintaining the proposed levels of funding for these
    State waste programs as an absolute minimum. Realizing the difficulties
    your Subcommittee faces in finding additional funding for any program
    this year, we still would suggest that these prevention programs are
    logical candidates for a modest increase over the proposed levels.

                          SUPPORTING FEDERAL PROGRAMS

        Most States do not have the vast technical capacity available to
    the federal government, and in many ways we are dependent upon the EPA
    for technical assistance. For that reason, we would ask that the
    Subcommittee be selective in its directions and appropriations to that
    Agency as you address the internal Agency budget for such areas as
    general funding support for science and technology, hazardous waste,
    solid waste, underground tanks, pollution prevention, and CERCLA and
    LUST cleanup program offices. When these office appropriations are cut
    without guidance to continue support for States, the State programs
    dependent upon technical assistance from EPA effectively lose resources
    as well. We recognize the need to make the federal government more
    efficient and to economize, but we would caution that the indirect
    effects upon States need to be carefully considered by the Congress as
    it downsizes federal programs.

            TRUST FUND SUPPORT FOR BOTH NATIONAL AND STATE CLEANUPS

        Many observers consider the CERCLA or Superfund program to be an
    entirely federal effort, but to those directly involved with the
    implementation of the program, it is apparent that States are
    substantially involved in the decisions and execution of these
    cleanups. States are required to make a match of ten percent of
    remedial action costs borne by the trust fund, and they are heavily
    involved in site-specific decisions in those cases. The Congress
    recognized the necessity for meaningful State involvement in the CERCLA
    decision making process and codified requirements at Section 121(f) of
    the statute. However, the capacity to provide such meaningful State
    involvement does require State resources. EPA has responded by
    supporting basic State program structure through very modest levels of
    CORE grants, and by funding assistance through cooperative agreements
    for the development of State capabilities for the conduct of some
    program elements such as preremedial investigations and emergency
    response. State cleanup programs are very interactive with federal
    Superfund activities and, as a result, State waste managers are
    generally supportive of EPA's Superfund program requests for CERCLA
    cleanups.
        We are supportive of this year's goal for the Hazardous Substance
    Response Trust Fund (or Superfund) of accelerating the site cleanup and
    completion rates. The NPL pipeline is now full with a backlog of sites
    awaiting cleanup funding, and we agree that with continued improvements
    and efficiencies, we should expect greater progress in cleanup
    completions. However, to be quite frank, we don't know whether there is
    enough pending work for the full $700,000,000 in additional funds
    requested in fiscal year 1998, nor that the infrastructure exists to
    spend it effectively. While we could support a significant increase in
    Superfund appropriations in fiscal year 1998 if the funds can be
    constructively used for cleanup activities and properly coordinated
    with States, we still remain concerned that we would be increasing the
    spend-down of the trust fund at a time when there are no new revenues
    restoring that fund. We are worried that this could create a crisis
    situation in the reauthorization process if the fund revenues are not
    restored before legislative reform.
        Should Congress, after a thorough review of EPA's planning for the
    additional $650 in NPL cleanup activities, see its way clear to
    increasing Superfund cleanup appropriations in fiscal year 1998, we
    strongly recommend that it be conditioned upon early and complete
    consultation with States, and require careful cooperation with State
    managers in order to improve the efficiency and applicability of
    cleanup decision-making. States must agree with the work schedules to
    maintain meaningful involvement of scarce State technical resources in
    the process, and to be able to meet their cost share of any additional
    fund-financed cleanups. We also believe enhanced State involvement will
    contribute positively to remedy selection decisions, and add to the
    efficiency and cost effectiveness of the cleanups.
        The final point we would like to address is the fiscal year 1998
    appropriations level for the Leaking Underground Storage Tank (LUST)
    program. The Congress made a remarkable difference last year when it
    increased the funding level for fiscal year 1997 to $60,000,000, up 25
    percent from the inadequate fiscal year 1996 level of $45,000,000. Yet,
    this program was funded in fiscal year 1995 at a level of $69,914,000,
    and we believe that was a more accurate reflection of need. This year,
    the Administration has recommended a level of $71,210,700 for fiscal
    year 1998, and we strongly urge the Subcommittee to support that level.
        You may wonder why we would focus so heavily on this waste program
    area, as it is not the largest, nor the most central to our overall
    membership. That is simply because we think it is the single waste
    program most vulnerable to failure if it is inadequately funded over
    time. This program will be around for a long time, and the mistaken
    impression given a few years ago that EPA was going out of the LUST
    cleanup business is simply wrong. A vast inventory remains to be
    addressed. Our understanding of the available data is that of an
    estimated 317,488 tanks with confirmed releases, the cumulative
    cleanups through fiscal year 1996 of 152,683 still leaves us with
    164,805 tanks to be cleaned up. Consequently, it is obvious that there
    are more than a few years work remaining to be done, even if no more
    leaking tanks were confirmed. Leaking underground storage tanks
    represent one of the major sources of ground water contamination in the
    country, and this cleanup program is one that has resulted in direct
    and immediate environmental results.
        We are tracking the ongoing upgrade tanks program and conclude that
    only 29.7 percent of the existing, active underground tanks now meet
    the 1998 technical compliance standards. That means a great deal of
    upgrading work remains to be done. Because a major source of LUST
    cleanup candidates comes from the universe of tanks being uncovered for
    upgrade to technical compliance, we think this means that a great deal
    of remediation work remains undiscovered. As those older tanks are
    uncovered and upgraded, it is our experience that many more releases
    will be discovered and added to the LUST funded inventory for cleanup.
    It also means there is a great deal of regulatory compliance work ahead
    for State programs.
        Individual State tank cleanup funds simply cannot complete this
    cleanup task unaided by the federal government. EPA has estimated that
    on average, at least 85 percent of the total LUST appropriation is
    provided directly to States under cooperative agreements. Many States
    use this source of federal funds to provide technical oversight of
    responsible party cleanups, and this is accomplished by skilled,
    qualified State employees. Many States still have not recovered from
    the 34 percent reduction in LUST funding in fiscal year 1996, and are
    struggling to maintain their current cleanup progress. To maintain our
    level of effort and achieve a little gain in this uphill cleanup
    effort, States need the additional $11,210,700 this year's Presidential
    budget proposes. This is not a case where we question the ability to
    use the additional funds for cleanup. We know the work is there, and
    the State infrastructure exists to spend it wisely and efficiently.
        In closing we thank you for your consideration of our views and for
    your past support of waste program efforts. Your Subcommittee has been
    the key to adequate funding in the difficult budget years just past and
    we have great confidence that you will be central to a successful
    outcome for the fiscal year 1998 process as well. We are ready at any
    time to assist your staff in exploring our proposals in greater detail,
    and would welcome their inquiries. Should you consider it useful to the
    Subcommittee, we would volunteer to testify on any aspect of our
    program knowledge as you proceed with the difficult task of evaluating
    national needs and making the hard choices that lie ahead. Please
    contact ASTSWMO's Executive Director, Thomas Kennedy, at telephone
    number (202) 624-5828 or fax number (202) 624-7875 for any further
    information or assistance.
        We hope that our information will constructively assist you in that
    task. Thank you for your past support of waste program efforts, and for
    your consideration of these recommendations.
                Sincerely,
                                        Nicholas A. DiPasquale,
                                                    President, ASTSWMO.
                                     ______

               Prepared Statement of the City of Miami Beach, FL

        Mr. Chairman and Members of the Subcommittee: The City of Miami
    Beach would first like to thank the subcommittee for all its diligent
    efforts throughout the past to assist local governments in need. Now,
    as you begin the long and tedious process of crafting the fiscal year
    1998 VA, HUD and Independent Agencies Appropriations Bill, the City of
    Miami Beach would like to request the subcommittees assistance with
    regards to two important initiatives.
        The first project for which the City is seeking assistance is the
    Coastal Erosion Prevention Initiative. The City of Miami Beach, being
    entirely located on a barrier island, is surrounded by beaches on one
    side and canals on the other. This situation makes erosion control one
    of the most important issues for the City as well as the State of
    Florida, and one that desperately needs addressing.
        The City of Miami Beach has approximately 39 miles of waterfront
    properties with seawalls. The seawalls act as a barrier which protects
    properties from tidal action. Loss of seawalls can result in loss of
    property and pose a danger to waterway navigation. Individual property
    owners are responsible for the maintenance and repair of seawalls, but
    the City is required by law to protect property and life and,
    therefore, maintains the responsibility for ensuring that the seawalls
    are adequately repaired or replaced.
        The existing situation with regards to the City's seawalls is that
    they are in extreme disrepair. Years of marine traffic and harsh
    weather have left a system of seawalls which are crumbling or washed
    out, and these damaged seawalls are having a direct and damaging effect
    on property owners, as well as the roadways and bridges that connect
    the City to the mainland. In addition to the damage that lies below the
    waterline, the tops of these seawalls have been eroded by wind and
    rain, providing an unattractive and potentially dangerous situation for
    both residents and tourists.
        As a result of this situation, the City of Miami Beach has
    developed a proposal to reconstruct the public seawalls in a way that
    will make them more durable, while at the same time making them more
    aesthetically pleasing and environmentally friendly. The proposed
    project would cut off the existing seawalls at the water line, leaving
    the underwater wall intact--replacing the wall in areas where the
    underwater wall is damaged or compromised. At the water line, large
    boulders would then be brought in and placed along the waterline with
    additional boulders being stacked at a 45 degree angle to a level
    comparable with the top of the previous seawall. These boulders will
    provide the same erosion control as the former wall, but with much less
    potential to fail after years of use. The City will plant native
    coastal species along the edge of the breakwater to stabilize reinforce
    and protect the shoreline. Once this ``living seawall'' is in place the
    City plans to complete the project with the installation of an
    interpretive trail/bikepath and other access improvement to creating a
    much more effective erosion control device and urban wetland preserve
    and waterfront park for public enjoyment.
        The second part of the Coastal Erosion Prevention Initiative
    centers around the beachfront coastline of Miami Beach. As you may
    know, beaches are Florida's number one tourist attraction, as well as
    being a vital front line defense for our multi-billion dollar coastal
    infrastructure. Wind, storms and at times hurricanes do great damage to
    the vegetation and coastal forests that shield the adjacent structures,
    and once these trees and plants are gone, sand freely blows inland
    causing damage to other delicate ecosystems located further in from the
    beach. The City of Miami Beach, in order to prevent further ecological
    damage, proposes the restoration of specific coastal species of grasses
    and trees to assist in providing an anchor for existing dunes and sand
    on the beach.
        The City of Miami Beach requests $1.5 million from the subcommittee
    to begin construction of the first part of the project which would
    create the ``living seawall'' and to implement a study with regards to
    the reintroduction of native plant species on the City's beaches. Any
    assistance the subcommittee could provide would be greatly appreciated
    by the residents of Miami Beach, in addition to the many tourists who
    visit the City each year.
        This brings us to the next item, Miami Beach's water and sewer
    system, for which the city seeks assistance.

                    DESCRIPTION OF THE EXISTING WATER SYSTEM

        The City of Miami Beach owns, operates and maintains the potable
    water system serving customers within the corporate limits. The potable
    water facilities include a water distribution system extending
    throughout the city, five existing water booster pump stations, and
    four welded steel ground storage tanks. A sixth water booster pump
    station is planned for location on the MacArthur Causeway at Terminal
    Island. Two elevated water storage tanks are located in the south area
    of the City; however, both have been removed from service and at this
    time there are no plans for future use of these tanks. The city's
    potable water is supplied exclusively by the Miami-Dade Water and Sewer
    Department (WASD), the department of the County that oversees operation
    of the County's water and sewer system.
        Because the City of Miami Beach is a coastal barrier island
    surrounded by salt water, it was not practical or economical to develop
    its own water supply system. The least costly and highest quality water
    comes from the Biscayne Aquifer water supply wells located on the
    mainland and owned and operated by the County. The city maintains four
    large diameter metered supply interconnections with the County's
    distribution system.
        Previously, the potable water supply for many of the neighboring
    municipalities passed through the City's distribution system. In 1989
    all of these municipalities, with the exception of one, were
    disconnected from the City's distribution system. The disconnection of
    this last municipality is presently being completed.
        The water distribution system has approximately 157 miles of water
    mains ranging from 6 inches to 36 inches in diameter. The water
    distribution system currently serves approximately 11,123 retail
    customers. The water distribution system serves 958 fire hydrants and
    622 fire lines, and has 23,000 valves of various sizes. The system has
    11,415 service connections.
        Total water consumption in fiscal year 1994 was in excess of 24
    m.g.d.

                 DESCRIPTION OF THE EXISTING WASTEWATER SYSTEM

        The City owns, operates and maintains the wastewater collection and
    transmission system serving customers within the corporate limits. All
    land usage must connect to the sanitary sewer system as a matter of
    City policy, and there are no septic tanks in operation within the
    City. The system consists of 152 miles of lines, including both gravity
    sewers and pressurized force mains, and 23 wastewater pump stations.
    The wastewater system currently serves approximately 9,636 retail
    customers.
        All wastewater generated within the City is sent to the WASD
    Central District wastewater treatment plant on Virginia Key for
    treatment and disposal. The 54-inch force main which conveys the
    wastewater to the plant is a subaqueous force main running from South
    Pointe under Government Cut to Virginia Key. This force main is owned
    and maintained by WASD. The County's wastewater collection,
    transmission and treatment system is divided into three districts
    referred to as the North, Central and South Districts, each served by
    its own wastewater treatment plant. In addition to Miami Beach, the
    Central District plant treats wastewater from the City of Miami as well
    as other communities and unincorporated areas within the Central
    District. The wastewater transmission system has the capability to
    transfer limited quantities of wastewater flows between districts.

                     FIVE-YEAR CAPITAL IMPROVEMENT PROGRAM

        The City is preparing a Five-Year Capital Improvement Program
    containing those projects needed in order to replace and upgrade
    components of the Water and Sewer Utility and to provide for the
    demands to be placed upon the Water and Sewer Utility by projected
    growth. In connection with the water system portion of the Five-Year
    Capital Improvement Program, all four of the Water and Sewer Utility's
    existing storage tanks will be replaced, all five of the existing water
    booster pump stations will be renovated and upgraded and most of the
    water mains throughout the System will be either cleaned and lined or
    replaced and/or extended.
        The wastewater components of the Five-Year Capital Improvement
    Program emphasize: (1) Improvements to the wastewater pump stations,
    and (2) improvements to the gravity collection system to reduce the
    amount of infiltration and inflow into the wastewater system.
        The cost of the projects included within the Five-Year Capital
    Improvement Program is estimated at $105,208,000. The City expects to
    fund these improvements on a cash flow basis primarily from the
    proceeds of Series 1995 bonds and parity Bonds which are anticipated to
    be issued this year. This method of funding will provide most of the
    needed capital, but Federal assistance is still necessary to complete
    these much needed improvements. Therefore, the City of Miami Beach
    requests a 90 percent to 10 percent local/Federal split in order to
    ensure that the City meets its goal.
                                     ______

      Prepared Statement of Raymond J. Campion, Ph.D., President, Mickey
                Leland National Urban Air Toxics Research Center

                                    SUMMARY

        Legislative Authorization.--Clean Air Act Amendments of 1990 (Title
    III, Sec. 301).
        Mission.--Study the health effects of the 189 air toxics designated
    in the Clean Air Act, via sound, peer-reviewed health and environmental
    research designed to address regulatory needs. Current emphasis is on
    the assessment of actual human exposures to air toxics.
        Current Funding.--$1.15 million via EPA fiscal year 1997 Assistance
    Grant (not yet received from EPA).
        Current Request.--$2.0 million via EPA in fiscal year 1998
    (additional private sector funding anticipated).
        Research Projects.--1. Human exposures to gaseous air toxics in the
    outdoor, indoor and personal environments in a major NUATRC field
    study.
        2. Participation in CDC's National Health and Nutrition Examination
    Survey (NHANES) via personal exposure assessments on NHANES subjects.
        3. Feasibility studies on human exposure research involving air
    toxic metals
        4. Initiation of acute human health effects research, with the
    emphasis on effects on the human respiratory and immune systems.

                                   STATEMENT

        Mr. Chairman, and Members of the Subcommittee, thank you for the
    opportunity to provide this written testimony on behalf of The Mickey
    Leland National Urban Air Toxics Research Center (NUATRC). My name is
    Dr. Raymond J. Campion, and I am the President of the Leland Center.
        The Leland Center was established under Title III, Section 301 of
    the Clean Air Act Amendments of 1990 as a non-profit, public/private
    research entity, with the expectation that the Center would help
    develop new multidisciplinary scientific approaches to assessing the
    potential public health risks from exposure to air toxics, and to
    provide sound scientific data useful in prioritizing these risks. In
    brief, the Law mandates installation of Maximum Achievable Control
    Technology (MACT) on major industrial sources of the 189 compounds
    listed in the Act as air toxics or hazardous air pollutants. EPA must
    then determine, over a 8-9 year time frame, the residual health risks
    still present to the American public from these materials.
        The NUATRC has been operational for about four years, having
    received an initial EPA assistance award in February, 1993. Private
    sector funding has also been obtained, primarily from national
    industrial firms, over a similar period. The Leland Center has used
    these monies to develop a small staff, utilizing an administrative
    service agreement with The University of Texas-Houston Health Science
    Center. This arrangement allows the Center to take advantage of the
    scientific synergies created by this relationship with The University
    of Texas and the Texas Medical Center, as directed in the authorization
    language. The Leland Center began its research program in 1993 with a
    contractual assessment of the possible impact of air toxics in urban
    atmospheres on asthma. The Center sponsored a nationally-attended
    workshop on the potential effects of air toxics on asthma in early
    1994. The results of this work have been published in the scientific
    literature and have received a positive reception in the health
    research community, including EPA scientists.
        In this testimony, we will address the strategic research
    directions being pursued by the Center, in order to meet our
    Congressional charge in a cost-effective and scientifically-sound
    manner. We have defined several ``niche'' research areas in which the
    Center is involved. As a small and relatively new entity, we believe it
    is important to concentrate our limited resources in research areas
    that provide the greatest potential payout in terms of environmental
    and public health advances. These ``niche'' areas of concentration are:
    human exposure assessment in the indoor and outdoor environment; and
    characterization of acute health effects from air toxics exposures,
    primarily associated with the respiratory and immune systems.

                         STRATEGIC RESEARCH DIRECTIONS

        The National Urban Air Toxics Research Center has made continuous
    progress over the past three years in addressing the Congressional
    charge to carry out a well-designed and focused research program on air
    toxics health effects. The NUATRC has profited significantly from the
    advice and counsel of our Board of Directors, appointed by Congress and
    the President, and from the research direction of the NUATRC Scientific
    Advisory Panel. The Panel, drawn from nationally-prominent academic and
    private sector scientists, has defined a prioritized research course
    that recognizes the major needs in air toxics research as well as the
    limited ability of organizations like NUATRC to address all of those
    needs. A major component of our activity is to reach out and involve
    other national scientific resources in leveraged efforts to most
    efficiently and collegially carry out these investigations. Through
    national workshops and symposia, with publication in the peer-reviewed
    literature of the findings of these sessions, we have interacted with
    the Centers for Disease Control via their National Center for Health
    Statistics, the National Institute for Environmental Health Science,
    the Health Effects Institute and the Environmental Protection Agency to
    assure that our research directions are complementary to these larger
    organizations.
        The NUATRC has developed a Strategic Research Plan which outlines
    current research plans through the year 2001. This Plan undergoes
    biannual review by the NUATRC's Scientific Advisory Panel as well as
    review by the EPA's Office of Research and Development. This latter
    step is important in forging better scientific ties with EPA so that
    NUATRC research is complementary to that of EPA in the air toxics area
    and also to provide a better understanding of NUATRC's directions to
    EPA before implementation.

                           HUMAN EXPOSURE ASSESSMENT

        We can report to you a significant research result from our two-
    year feasibility study on personal exposure assessment technology
    development. Research scientists at The University of Texas have just
    completed this study, which we funded in 1995-96, which has
    demonstrated two important findings:
        (1) that simple inexpensive `passive' dosimeters can be used in
    urban population field studies to assess actual human exposures to
    specific air toxics such as benzene and toluene.
        (2) that the relative importance of indoor, outdoor and personal
    exposures can be assessed under a variety of behavioral conditions, to
    allow the data obtained to be well characterized in terms of
    experimental variables such as temperature, humidity and concentration.
        A major NUATRC research study will be initiated this summer to
    assess the levels of personal, indoor and outdoor exposures to a
    selected list of gaseous air toxics in major urban areas. Currently,
    nine proposals to do this work are being reviewed by the scientific
    community and the NUATRC plans to select a laboratory to conduct this
    study in early June. This work is expected to take three years to
    complete, and will cost approximately $500,000 per year. It also
    represents the most promising approach to apportioning the
    contributions of various air toxics sources to actual human exposure
    and as such will be critically important to risk assessment and risk
    management decisions.
        Related but independent of this effort will be a NUATRC initiative
    to participate in the CDC's National Health and Nutrition Examination
    Survey (NHANES). The Center has been negotiating with CDC/National
    Center for Health Statistics to measure the personal exposures of a
    subset of NHANES participants to provide the first indications of the
    influence of environmental factors on this national health survey. We
    would be using similar technology to that used in the above referenced
    NUATRC study, but the value of the data would be enhanced by the
    statistical power of the NHANES study. In essence, the NUATRC would
    support this additional work in the NHANES program, and would have
    rapid access to the exposure data for use in risk assessments. NUATRC
    is committing $150,000 annually to this effort. We have also been made
    aware of the interest of the NIEHS in this cooperative work with CDC,
    which hopefully will lead to enhanced interactions with this agency.
        The Strategic Research Plan also calls for NUATRC to begin
    investigations of the feasibility of applying the passive dosimeter
    technology cited above to the studies of air toxic metals. This is
    similar to our approach of first assessing the feasibility of gaseous
    toxics personal exposures that has led to the above studies.

                           AIR TOXICS HEALTH EFFECTS

        As indicated earlier, the second priority research area for the
    NUATRC is that related to the health effects associated with air
    toxics, but particularly those effects of an acute nature dealing with
    the human respiratory and/or immune systems. The Scientific Advisory
    Panel elected to focus the NUATRC attention in that area, as
    considerable work is already underway on cancer effects and the nation
    seems to be experiencing increasing incidences of respiratory problems
    such as asthma among inner city children. This research topic will
    require careful development as these effects are very difficult to
    establish with certainty, but we believe the science is progressing to
    the point that better exposure information will provide direction to
    the types of health research needed and the most promising approaches
    to completing that research.

                              SMALL GRANTS PROGRAM

        Based on the need to involve the community in air toxics health
    risk issues, the NUATRC plans to start a small research grants program,
    wherein young and minority investigators could compete for limited
    funding that could allow more focused research approaches. This program
    should result in a greater degree of involvement by the local community
    and thus a greater sense of empowerment in these studies. We could also
    anticipate the development of better scientific resources in smaller,
    community-oriented institutions. These studies would be subject to the
    same rigorous peer-review and quality control requirements as the
    broader-scope national programs receive. For example, local hospital
    registries could be coupled with ambient environmental data to
    determine whether relationships between environmental and health data
    exist. This area of small grants or pilot studies offers us the
    opportunity to tap a reservoir of scientific talent that may be
    underutilized and which may also provide an improved sense of
    participation on the part of local community leaders.

                             APPROPRIATIONS REQUEST

        The Mickey Leland National Urban Air Toxics Research Center
    respectfully requests a fiscal year 1998 Appropriation of $2.0 million.
    The studies described above, some of which are continuing efforts from
    the fiscal year 1997 research program, can be estimated as follows:

    Human personal exposure.......................................  $500,000
    Participation in NHANES.......................................   180,000
    Toxic metals exposure studies.................................   300,000
    Metals methodology development................................   300,000
    Small grants program..........................................   250,000
    Risk assessment symposium.....................................    50,000
    Administrative................................................   420,000
                        --------------------------------------------------------------
                        ____________________________________________________

          Total................................................... 2,000,000

                               NUATRC MANAGEMENT

        As mentioned at the outset, the NUATRC is led by a nine-member
    Board of Directors, composed of leading academics, regulatory and
    private sector executives, all of whom are fully conversant with the
    air toxics environmental health research issues. The Board has been
    active in overseeing and directing the activities of the Scientific
    Advisory Panel (SAP), which is evolving into a cohesive, effective and
    independent research advisory group. The SAP numbers scientists and
    physicians from Harvard, the Universities of Minnesota, Pittsburgh and
    Washington, Brigham Young University, the Baylor College of Medicine,
    the U.S. Environmental Protection Agency, and private companies,
    including DuPont, Exxon, ICF Kaiser and Union Carbide. These thirteen
    scientists bring different areas of scientific expertise to the table,
    allowing a broad range of input to our research program. A number of
    these scientists are currently participating in the national debate on
    the ozone and fine particulate air quality standards, but it must be
    understood that the NUATRC does not have a position on the need for or
    the level of these proposed new standards, only that well-designed
    research is necessary to address these questions and related questions
    about air toxics.

                                    FUNDING

        NUATRC has relied on Congressional appropriations and support from
    the private sector. NUATRC continues to expand its support base with
    the addition of private sector partners. Thirteen major U.S. firms are
    current contributors to the NUATRC research program. They include
    Ashland Chemical, DuPont, Exxon, FMC Corporation, Goodyear Tire and
    Rubber Company, Houston Industries, Mobil Oil, Rohm and Haas Company,
    Shell, Sun Company, Texaco, Texas Eastman and Union Carbide. Corporate
    contributions have risen in each of the last three years, and represent
    approximately 30 percent the Congressional authorization for fiscal
    year 1996. An intensive development effort is planned in 1997 to
    further increase this portion in light of increased federal support.

                                   CONCLUSION

        We are most appreciative of the support we have received from the
    U.S. Congress. We believe that NUATRC is progressing in the manner
    anticipated by Congress, and is poised to make a significant
    contribution to the science underlying air toxics health effects.
        We continue to experience considerable delays in accessing
    Congressionally-appropriated monies through the Office of Research and
    Development of the Environmental Protection Agency. While fiscal year
    1996 was indeed an unusual federal budget year, we believe that
    receiving the authority to access these monies some fourteen months
    after application (November, 1995 to January, 1997) represents an undue
    delay. We continue to stress our need for prompt action with EPA, since
    our research program cannot be continued with certainty until access to
    the Congressional appropriation is assured. This has slowed our
    research efforts considerably in 1996. In addition, EPA established a
    starting date for the fiscal year 1996 award of September, 1996, one
    month prior to the end of that fiscal year. This is causing the NUATRC
    considerable difficulty in paying expenses incurred during 1996 in
    anticipation of EPA release of these appropriated funds. We are
    continuing to negotiate with EPA to move this starting date to an
    earlier time in that fiscal year.
        We are hopeful that our recent interactive efforts with EPA/ORD
    officials, and the addition of EPA scientists to our Scientific
    Advisory Panel will facilitate more timely receipt of these
    appropriated funds. Thank you for your attention to this request.
                                     ______

     Prepared Statement of the State and Territorial Air Pollution Program
       Administrators and the Association of Local Air Pollution Control
                                   Officials

        The State and Territorial Air Pollution Program Administrators
    (STAPPA) and the Association of Local Air Pollution Control Officials
    (ALAPCO) appreciate this opportunity to provide testimony regarding the
    fiscal year 1998 proposed budget for the U.S. Environmental Protection
    Agency, particularly regarding grants to state and local air pollution
    control agencies under Section 105 of the Clean Air Act. The
    President's request calls for an increase of $4 million for state and
    local air grants in fiscal year 1998, totaling approximately $157.2
    million. While STAPPA and ALAPCO are pleased that the President's
    budget acknowledges the need for additional funds, we believe this
    increase is totally inadequate to support the many critical activities
    state and local air agencies must carry out to implement the federal
    Clean Air Act. Therefore, we recommend that these grants be increased
    by at least $20 million over the President's request, raising the total
    to $177.2 million. Although such an increase would not nearly address
    our resource shortfalls, it would at least restore the approximately
    $27 million in reductions that grants to state and local air agencies
    have suffered since fiscal year 1995.
        STAPPA and ALAPCO are the national associations of state and local
    air pollution control agencies in the 54 states and territories and
    over 150 major metropolitan areas across the nation. Under the Clean
    Air Act, state and local air quality officials have the primary
    responsibility for ensuring healthful air quality for our citizens.
    These agencies must carry out a host of activities to implement
    federal, state and local clean air requirements. This includes programs
    to address smog, particulate matter, toxic air pollution, acid rain and
    other types of air pollutants, some of which cause significant adverse
    health effects, including cancer, severe respiratory ailments and
    premature death. Air agencies must address new initiatives that focus
    on emerging problems, as well as carry out the core elements of our
    programs, which serve as the backbone of our nation's clean air effort.
                      the air pollution problem is severe
        Air pollution poses the most widespread environmental risk to
    public health. In fact, studies have shown that the adverse health
    risks from air pollution far exceed those posed by other environmental
    media. Among the most critical air quality risks to the public are
    caused by, among others:
      --Particulate matter.--This problem is responsible for tens of
            thousands of premature deaths annually (according to various
            scientific studies).
      --Hazardous air pollution.--These emissions cause cancer,
            reproductive disorders, birth defects and damage to the nervous
            system.
      --Ozone.--Smog (ground-level ozone) causes lung damage and impaired
            breathing for approximately 50 million people in urban areas
            and $1-2 billion in lost crop yield across the United States
            annually.
      --Regional haze.--Air pollution causes significant visibility
            problems in national parks as well as urban areas throughout
            the country.
                         federal grants have decreased
        Notwithstanding the severe health and environmental problems caused
    by air pollution, and the fact that Section 105 funds were never
    adequate to support all the demands of the Clean Air Act, federal
    grants that fund state and local air pollution control programs have
    been cut significantly over the past few years. Since fiscal year 1995,
    while our workload has increased substantially, funds under Section 105
    of the Clean Air Act have decreased by approximately $27 million. Below
    is a graph illustrating the funding cuts that state and local agencies
    have experienced over the past few years.

    [GRAPHIC] [TIFF OMITTED] T05MY131.000

      STATE AND LOCAL AGENCIES HAVE TRIMMED FAT AND MAXIMIZED EFFICIENCIES

        During this period, state and local air agencies have done what
    they could to accommodate some of these cuts. Specifically, we have
    maximized any opportunities to work more efficiently, trimmed any fat
    from our budgets, disinvested programs that were not essential and
    raised revenue on the state and local level. For example, in areas
    where air quality has improved, state and local agencies have reduced
    the number of monitors (e.g., lead monitors); when it saves resources,
    some agencies have employed contractors for activities related to
    permitting and monitoring; and agencies have increased the efficiency
    of the permit process by issuing categorical permits, allowing
    registration of sources, rather than requiring permits and relying on
    electronic permit application and issuance to reduce the amount of
    paperwork.
        Notwithstanding our efforts, grant reductions have caused existing
    air programs to suffer, hurting essential programs and activities.
    Among the effects at the state and local levels have been reduced
    staff, decreased enforcement, curtailed monitoring, decreased emission
    inventory work, reduced rule development and decreased public
    education.

                         PERMIT FEES ARE NOT THE ANSWER

        State and local air quality agencies receive funding for their
    programs from a variety of sources, including federal grants, state and
    local appropriations, state and local permit and emissions fees and the
    federal permit fee program under Title V of the Clean Air Act, which
    requires the collection of fees from major sources to cover the costs
    of the permit program. While the permit fees collected pursuant to
    Title V are essential to our efforts, they do not solve our funding
    problems for several reasons.
        First, Title V fees may only support the operating permit program
    and cannot be used for other activities. Second, the fee program only
    applies to major sources, while most permits are issued for non-major
    sources, which do not pay Title V fees. The issuance of minor source
    permits is quite resource intensive. Finally, increases in costs for
    air quality programs (except for permit programs themselves) are not
    addressed by permit fee programs.
        In other words, federal grants and permit fees support separate
    activities and can not be mingled. Even if fees are adequate for major
    source permit programs, which they may not be in many cases, the funds
    are not available for the other elements of air quality programs.

                           THE WORKLOAD IS INCREASING

        New efforts to address air pollution are being added to our
    programs each year. In fact, EPA has proposed revisions to the National
    Ambient Air Quality Standards (NAAQS) for particulate matter and ozone,
    which are critical efforts that will necessitate additional resources.
    The agency estimates the benefits and costs of the revised particulate
    matter standard to be in the billions of dollars, with industry
    expected to spend tens of millions of dollars to comply with these
    standards. Yet, the proposed increase in grants for state and local air
    quality agencies for all aspects of their programs, not just
    particulate matter, is only $4 million. How will state and local air
    agencies, who must implement the air pollution program, succeed with an
    increase in grants of only $4 million?
        Just as an example, one activity related to the new standards will
    be additional monitoring for fine particulate matter
    (PMfine), which state and local agencies will need to begin
    very soon. EPA has proposed to set aside only $10.9 million for this
    activity in fiscal year 1998. However, far more than that will be
    necessary: estimates of needs reach $40 million in fiscal year 1998 for
    PMfine monitoring, including start-up and operating costs.
    Texas has estimated that it will require $1.34 million in fiscal year
    1998 for PMfine monitoring alone (including capital, staff
    and operating expenses). Yet EPA has only proposed to allocate $1.2
    million to the entire region (including five states and several local
    agencies) for PMfine monitoring equipment. The state of
    Washington estimates PMfine monitoring needs of $1.2 million
    in fiscal year 1998. Again, EPA proposed to allocate only $1.2 million
    to the region (including three states and several local agencies) for
    PMfine monitoring equipment.
        To further compound the problem, while EPA has proposed to set
    aside $10.9 million for PMfine monitoring, the President's
    proposed increase for air grants is only $4 million. Therefore, EPA
    plans to obtain the balance by reprogramming grants from other programs
    that are still requirements and that are already struggling
    financially. For example, monitors for ozone and larger particulates
    (PM10) will still be needed, even under EPA's proposed NAAQS
    revisions, yet funds for these programs may be redirected to pay for
    new PMfine monitors. In addition, areas are required not
    only to attain the NAAQS but to maintain them as well. EPA's strategy
    for reprogramming, therefore, will provide insufficient funding not
    only for PMfine monitoring, but for other, critical
    programs, including ozone, PM10 and air toxics.

               WHAT A RESTORATION IN GRANT FUNDS COULD ACCOMPLISH

        With an increase of $20 million over the President's fiscal year
    1998 request, the cuts of recent years to state and local air grants
    would be partially restored. With these additional resources, state and
    local air agencies could focus more on critical activities, such as
    monitoring pollutants to satisfy existing and upcoming standards, data
    gathering and analysis, enforcement and rule development. Specifically,
    state and local agencies could accomplish the following:

    Collecting Good Information
        It is essential that state and local air agencies collect good data
    through monitoring. This information is critical for developing
    emission reduction strategies and assessing progress (e.g., under the
    Government Performance and Results Act). As we noted above,
    significantly more resources are necessary for monitoring fine
    particulate matter--approximately $40 million will be needed nationally
    in fiscal year 1998, while EPA has allocated only $10.9 million.
    Approximately $10 million above EPA's request is needed for monitoring
    ozone and hazardous air pollutants. Finally, the current program for
    visibility and regional haze focuses on areas around national parks
    (for visibility). However, regional haze concerns call for more
    widespread monitoring, which would involve state and local agencies.
    Small Businesses and Minor Sources
        State and local air pollution control programs affect many small
    businesses and minor sources in order to obtain needed emission
    reductions. These types of sources are quite numerous and have special
    needs that should be addressed. The EPA budget proposal does not
    include additional funding specifically to address minor sources.
    However, permitting and inspecting smaller sources and addressing their
    special needs is a tremendous resource burden on state and local air
    agencies. Typically, these sources do not pay Title V fees.
        Additional resources are needed for all aspects of compliance
    assistance and enforcement, but this is especially true as it relates
    to small businesses. These sources need outreach and education
    programs, as well as compliance assistance, specially tailored for
    smaller businesses.
        State and local air agencies must implement all of the federal
    standards EPA develops to limit emissions of hazardous air pollutants--
    there should be standards for 174 source categories by 2000. These
    categories include numerous smaller sources, such as dry cleaners and
    chromium electroplaters, that may not be part of the Title V program
    (thus not paying Title V fees to support the program).
    Other
        Mobile sources contribute significantly to emissions of particulate
    matter, smog precursors, carbon monoxide and toxic air pollutants.
    Additional funding is needed for state and local agencies to address
    these problems. (Mobile sources are not subject to Title V fees.)
    Efforts requiring additional funding include (1) program evaluation and
    data gathering, including the evaluation of the effectiveness of
    inspection and maintenance programs, (2) transportation-related
    programs, and (3) enforcement of oxygenated fuels programs, low-Reid
    Vapor Pressure requirements and Stage 2 Vapor recovery. In addition, as
    with small businesses, considerable outreach and education will be
    essential to gain public support for and compliance with necessary
    transportation control measures.
        It can be very efficient and cost-effective to address pollution on
    a multi-media basis. Grants of approximately $10 million could be used
    for state and local agencies to carry out multi-media initiatives and
    encourage them within industry.

                                   CONCLUSION

        STAPPA and ALAPCO urge that Congress increase federal grants for
    state and local air pollution control agencies under EPA's budget by at
    least $20 million over the President's request, bringing the total to
    $177.2 million. While this increase will not adequately address our
    resource shortfall, it will at least restore the substantial funding
    cuts state and local agencies have incurred over the past few years. In
    addition, STAPPA and ALAPCO are currently working to assess state and
    local funding needs for fiscal year 1999 and beyond. Preliminary
    estimates reveal that state and local agencies also will need
    substantial increases beyond fiscal year 1998.
        We thank you for this opportunity to provide our recommendations on
    the fiscal year 1998 budget for air grants to state and local agencies.
    We will be happy to answer any questions you have.
                                     ______

     Prepared Statement of Julius Ciaccia, Jr., President, Association of
                          Metropolitan Water Agencies

                                  INTRODUCTION

        The Association of Metropolitan Water Agencies (AMWA) is a non-
    profit organization composed of the nation's largest, publicly-owned
    and municipal drinking water suppliers. Member agencies are represented
    by their directors and managers and supply clean, safe drinking water
    to nearly 100 million Americans.
        AMWA member agencies are regulated by the Environmental Protection
    Agency (EPA) under the Safe Drinking Water Act (SDWA) and other
    statutes. As an association devoted to the protection of public health
    through the provision of safe, high quality drinking water, AMWA
    strongly supports adequate levels of funding for EPA's drinking water
    and ground water programs.
        The association sincerely appreciates this opportunity to testify
    before the subcommittee.

                                REQUEST OVERVIEW

        Like the federal government, state and local governments are
    witnessing an era of limited resources. Simultaneously, regulatory
    requirements on local governments continue to expand. The federal
    government can help to make State and local dollars go farther by
    targeting federal expenditures to areas where modest investments can
    deliver significant benefits to the public. This request outlines six
    such investments. AMWA's specific recommendations are:
      --Health effects research: meet EPA's $35.9 million budget request.
      --Continue support of drinking water research partnerships between
            EPA and the AWWA Research Foundation: $5 million (to be matched
            by the Research Foundation and water suppliers).
      --Provide dedicated funding for arsenic health effects research: $1
            million (to be matched by the Research Foundation and water
            suppliers).
      --EPA's Drinking Water Program: meet EPA's $105.3 million request.
      --State primacy grants (Public Water System Supervision Program
            Grants): fund the program at the authorized level of $100
            million.
      --Drinking Water State Revolving Fund: fund the SRF at the $1 billion
            authorization level.

                                   BACKGROUND

        Drinking water is universally recognized as a central element in
    the health and well-being of the American people. Furthermore safe,
    clean drinking water is a key component in the economic health of our
    communities. Through advanced research and technological capacity,
    Americans enjoy the safest drinking water in the world. To ensure the
    continued safety of the nation's drinking water supply, in 1974
    Congress passed the Safe Drinking Water Act. The Act was amended in
    1986 and once again last year. It placed the federal government
    squarely in an arena traditionally the province of State and local
    governments. When enacting the statute, Congress decided it was the
    federal government's responsibility to set national drinking water
    standards, to establish time frames for compliance and to oversee how
    States implement drinking water programs. With the 1996 amendments, the
    federal government assumed a new approach for determining what to
    regulate and for the first time is required to establish drinking water
    standards based on sound, peer-reviewed science.

                            HEALTH EFFECTS RESEARCH

    New Requirements and Good Science
        In 1996 Congress blazed a new trail in directing how federal
    agencies develop regulations by requiring a new focus on good science,
    which includes an increased reliance on health effects research. In
    section after section, the Safe Drinking Water Act Amendments of 1996
    call on EPA to approach regulatory decision making differently. The
    statute requires the agency to utilize health effects data to identify
    contaminants for future regulation and for setting drinking water goals
    and standards. And for the first time, the law gives EPA the discretion
    to consider risk trade-offs and to set standards based on such data.
    Microbial Contaminants, Disinfectants and Disinfection By-products
        Beyond the research needed to satisfy programmatic requirements,
    funds are needed to expand the scientific community's understanding of
    the health effects of microbial contaminants, disinfectants and
    disinfection by-products and the effects of contaminants on sensitive
    subpopulations, such as children, the elderly, pregnant women and the
    sick. Through disinfection, water suppliers are able to control
    microbial contamination in drinking water, but the process can produce
    chemical by-products that may be human carcinogens or may cause other
    toxic effects. The Centers for Disease Control, the National Academy of
    Sciences and EPA's Science Advisory Board have all noted extensive
    research is needed in these areas. AMWA would like to thank Members for
    the appropriation last fiscal year of $10 million specifically for
    health effects research. Without substantial investments on an annual
    basis, Congress, EPA, States and drinking water suppliers cannot assure
    American consumers that contaminants selected for regulation are the
    appropriate ones or that drinking water standards have been adequately
    established.
        AMWA recommends that Congress meet EPA's fiscal year 1998 budget
    request of $35.9 million for drinking water research. In addition, AMWA
    has urged EPA to set aside $10 million per fiscal year from the
    Drinking Water State Revolving Fund specifically for health effects
    research, as authorized in the 1996 amendments to Safe Drinking Water
    Act. The set-aside would ensure a continuous stream of funding in an
    area where EPA's commitment has been inconsistent.

    EPA-AWWARF Research
        The American Water Works Association Research Foundation (AWWARF)
    is an organization dedicated to conducting much needed research to
    satisfy research needs expressed by EPA and the drinking water
    community. Like other drinking water associations, AMWA strongly
    supports the Foundation and its research efforts. Last fiscal year,
    Congress provided $2.5 million to AWWARF. The drinking water community
    matched that amount with $9.1 million and looks forward to maintaining
    the long-standing cooperative relationship we have had with EPA.
        AMWA recommends providing $5 million for fiscal year 1998 for EPA-
    AWWARF research partnerships, with the nation's drinking water
    suppliers matching those dollars.

    Arsenic Research
        The regulation of arsenic in drinking water poses a unique dilemma.
    While the effects of arsenic at levels in excess of those typically
    found in the nation's water supplies are well studied, there is a
    serious scientific debate on the effects of arsenic at the low levels
    commonly found. EPA has outlined a research agenda to explore and
    reduce these uncertainties, and AMWA strongly supports these efforts.
    In fiscal year 1997, Congress provided $1 million in arsenic research
    funding.
        AMWA recommends providing $1 million for fiscal year 1998
    specifically for arsenic research under the aegis of Arsenic Research
    Partnership which includes AWWARF, the Association of California Water
    Agencies and the EPA. As in the past, the funding would be matched by
    individual drinking water suppliers.

                          EPA'S DRINKING WATER PROGRAM

        EPA's drinking water program faces the daunting task of
    implementing the 1996 Amendments to the Safe Drinking Water Act. This
    includes instituting a new regulatory regime and developing programs to
    oversee consumer confidence report requirements, monitoring relief,
    source water delineations, assessments and protection, operator
    certification requirements, microbial and disinfection by-product
    standards, new treatment technologies and the first ever drinking water
    state revolving fund. In addition, EPA must construct a contaminant
    occurrence data base and develop a method to select contaminants for
    regulation. In satisfying these requirements EPA has utilized an
    approach that stands as a model for future federal activities. Never
    before has an agency involved the public in the regulatory process to
    the extent EPA's Office of Water has. Under the aegis of the National
    Drinking Water Advisory Council or NDWAC, EPA has invited private
    citizens, scientists, drinking water professionals, environmental,
    public health and consumer advocacy representatives, medical
    professionals, economists and many others to make official and expert
    recommendations on how the agency should carry out its regulatory
    responsibilities. AMWA commends the agency, and specifically those in
    the Office of Drinking Water and Ground Water, for taking this new
    approach. The association would especially like to point out to members
    of the subcommittee the effort the agency has made to take advice from
    water suppliers on protecting sources of drinking water. In addition,
    EPA's work to educate and motivate stakeholders on the need to protect
    our nation's sources of drinking water is notable. Altogether, EPA will
    have held 26 meetings and workshops across the country, with each one
    attracting remarkable interest. The association is confident that each
    of the regulations eventually developed by EPA will reflect this new
    stakeholder-driven approach and hopefully will have a positive impact
    on the way other agencies go about their work serving the public.
        AMWA recommends that Congress meet EPA's fiscal year 1998 budget
    request of $105.3 million to implement the Safe Drinking Water Act and
    other responsibilities in the drinking water program.

                              STATE PRIMACY GRANTS

        To comply with the Safe Drinking Water Act, Congress intended that
    EPA develop drinking water regulations and that the States administer
    the program to ensure compliance with and enforcement of its
    provisions. Administration, compliance, and enforcement activities are
    collectively known as ``primacy'' requirements, and federal grants to
    the States are known as Public Water Supply Supervision Grants. The
    massive demands on States arising from the Act have become increasingly
    apparent given the dramatic increase in the number of regulated
    contaminants over the last several years. Moreover, effective
    implementation of the 1996 amendments is contingent upon an
    appropriately funded primacy program. States are charged with
    delineating and assessing their rivers and streams to better protect
    sources of drinking water and States must also oversee the new consumer
    confidence regulations, under which nearly every public water system in
    the United States must mail to each customer annually a report
    detailing the quality of drinking water served to them. These and other
    new programs run by the States are integral to the effective delivery
    of safe, clean drinking water. As federal requirements increase, State
    resource shortfalls become more acute, and States are too often
    threatened with the loss of primacy. Should this occur, public health
    protections could suffer a major setback.
        AMWA recommends Congress fund the Public Water System Supervision
    Program Grants at the authorized level of $100 million.
                      drinking water state revolving fund
        Earlier this year, EPA presented to Congress a report of drinking
    water systems' infrastructure needs and identified $138.4 billion in
    needs over a twenty-year period. Nearly $76.8 billion was identified as
    needed in the short term. The share for large systems like those who
    comprise AMWA's membership is $58.5 billion, and $10.2 billion is
    needed immediately to protect water from microbial contaminants that
    could cause death or illness.
        It can be easy to forget that these large dollar amounts are
    composed of thousands of individual projects, many of which are needed
    so that systems will meet or continue to meet the requirements of the
    Safe Drinking Water Act. Upgrading a treatment plant or replacing old
    pipes or installing better technologies can run from a few hundred
    thousand to a few billion dollars. Most project costs fall somewhere in
    the middle, yet the new Drinking Water State Revolving Fund (DWSRF) is
    capitalized to a limited extent. From funds provided by Congress
    through fiscal year 1997, most State capitalization grants--the funds
    from which loans will be made to systems--fall into the $12.5 million
    to $25 million range, which is enough for perhaps one modest project in
    each State. Under EPA's fiscal year 1998 request, most capitalization
    grants will range from $2 million to $12 million.
        AMWA is hopeful that Congress will recognize this overwhelming need
    and respond by funding the new DWSRF at the authorized level of $1
    billion.

                                   CONCLUSION

        Congress, EPA, the States and drinking water suppliers have before
    them a monumental job: to ensure the American public continues to
    receive high quality drinking water. To meet that objective requires an
    investment previously not seen in this arena. Infrastructure is aging,
    water systems require new and better technologies to meet the
    challenges presented by contaminants found in our rivers and streams
    and to meet future regulatory objectives, and regulators must expect to
    base future requirements and contaminant data bases on highly accurate
    research data. AMWA's member agencies look to Congress to help us meet
    these challenges.
                                     ______

          Prepared Statement of the American Public Power Association

        The American Public Power Association (APPA) is the service
    organization representing the interests of the more than 2,000
    municipal and other state and locally owned utilities throughout the
    United States. Collectively, public power utilities deliver electric
    energy to one of every seven U.S. electric consumers (about 35 million
    people) serving some of the nation's largest cities. The majority of
    APPA's member systems are located in small and medium-sized communities
    in every state except Hawaii. We appreciate the opportunity to submit
    this statement concerning fiscal year 1998 appropriations for programs
    under this Subcommittee's jurisdiction.

           CLIMATE CHANGE ACTION PLAN VOLUNTARY PARTNERSHIP PROGRAMS

        APPA supports the Administration's fiscal year 1998 budget request
    of $149 million for Climate Change Action Plan programs operated by the
    Environmental Protection Agency (EPA). These partnerships emphasize
    cost-effective measures to reduce, avoid or sequester greenhouse gas
    emissions in order to return them to 1990 levels. Through voluntary
    agreements, public power and other electric utilities have committed to
    reducing emissions by over 43 million metric tons of carbon equivalent
    in the year 2000. In addition to demonstrating that important
    environmental objectives can be achieved through voluntary efforts,
    these EPA programs contribute to a stronger U.S. position in
    international climate change negotiations. Of particular interest to
    APPA member systems are the Green Lights, Energy Star and Landfill
    Methane Outreach programs operated by EPA.

    Green Lights Program

        The Green Lights program encourages use of energy efficient
    lighting to reduce energy costs, increase productivity, promote
    customer retention and protect the environment. Program partners agree
    to survey lighting in their facilities and to upgrade it, if cost-
    effective. Environmental benefits result from more efficient energy use
    and from reductions in emissions of carbon dioxide, sulfur dioxide and
    nitrogen dioxide, thus improving air quality. EPA provides program
    participants public recognition and technical support.
        Both large and small APPA member systems participate in this
    program including City Utilities of Springfield, MO; Concord Municipal
    Light Plant, MA; City of Georgetown, TX; Grant County Public Utility
    District, WA; Gray's Harbor County PUD, WA; Greenville Utilities
    Commission, NC; Indiana Municipal Power Authority, IN; Los Angeles
    Department of Water & Power, CA; Mason County PUD, WA; New York Power
    Authority, NY; Norwood Municipal Light Department, MA; Omaha Public
    Power District, NE; Orlando Utilities Commission, FL; Port Angeles City
    Light Department, WA; Puerto Rico Electric Power Authority, PR;
    Sacramento Municipal Utility District, CA; City of St. Charles Electric
    Utility, IL; Salt River Project, AZ; Virgin Islands Water & Power
    Authority, VI; Springfield Utility Board, OR, and Taunton Municipal
    Lighting Plant, MA.

    Energy Star Programs

        EPA's several Energy Star programs build on the successes of Green
    Lights. These important EPA programs are examples of successful public/
    nonpublic partnerships that promote the use of profitable, energy-
    efficient technologies as a way to increase profits and competitiveness
    while at the same time minimizing pollution. They include Energy Star
    Buildings, the Energy Star Transformer Program, Energy Star office
    equipment and the Residential Energy Star Program. APPA member systems
    participate in and support EPA's Energy Star efforts.

    Landfill Methane Outreach Program

        The Landfill Methane Outreach Program provides environmental
    benefits by encouraging utilities to make use of landfill gas as an
    energy source. Several APPA member systems participate in this program,
    including Illinois Municipal Electric Agency, IL; Jacksonville Electric
    Authority, FL; Emerald People's Utility District, OR; Los Angeles
    Department of Water and Power, CA, and Orlando Utilities Commission,
    FL. Utilities voluntarily agree to take advantage of the best
    opportunities to use landfill gas in generating power. EPA recognizes
    and publicizes the utility's efforts and provides technical assistance.
    One of the success stories cited by EPA occurred with APPA member
    system Emerald People's Utility District in Eugene, OR. This public
    power utility worked collaboratively with the State of Oregon, Lane
    County officials and a private investment company to develop a 3.4 MW
    plant at the Short Mountain Landfill. EPUD's general manager says
    landfill energy recovery is like ``turning straw into gold,'' providing
    additional revenue to EPUD as well as a fee to the county.

                     COUNCIL ON ENVIRONMENTAL QUALITY (CEQ)

        APPA supports the Administration's fiscal year 1997 budget request
    of $3,020,000 for the Council on Environmental Quality (CEQ). As units
    of local government APPA member utilities have a unique perspective on
    environmental regulation. Public power utilities and others from
    industry have experienced a general lack of consistency in federal
    environmental regulation. While additional layers of government should
    be avoided, a central overseer can perform a valuable function in
    preventing duplicative, unnecessary and inconsistent regulations. The
    council is responsible for ensuring that federal agencies perform their
    tasks in an efficient and coordinated manner. For these reasons, APPA
    supports the existence and continued operation of CEQ.

                                   SUPERFUND

        APPA member systems also support the Administration's request of
    $2,094.2 million for Superfund cleanups. The Superfund Trust Fund as
    well as Superfund research programs are critical as we consider
    reauthorization of the Comprehensive Environmental Response,
    Compensation and Liability Act (CERCLA), the law authorizing Superfund.
    The increased emphasis on expedited settlements and administrative
    relief, the Brownfields Initiative and more effective use of
    alternative dispute resolution by EPA are worthy goals.
        Again, APPA member systems appreciate your consideration of our
    views on priority appropriations issues for fiscal year 1997.
                                     ______

       Prepared Statement of Jared O. Blum, President, Polyisocyanurate
              Insulation Manufacturers Association, Washington, DC

        Enclosed is the testimony PIMA submitted to the House and Senate
    Appropriation Committees concerning fiscal year 1998 funding for EPA's
    Energy Star Homes and Energy Star Insulation programs. We support EPA's
    efforts and strongly urge you to support the level of funding requested
    by EPA for these programs and for the administration's Climate Change
    Action Plan (CCAP). The following are some of the important points we
    wanted to highlight about these programs.
      --Energy use in homes accounts for 20 percent of U.S. CO2
            emissions, a major greenhouse gas.
      --Energy Star Homes are new homes that use at least 30 percent less
            energy than required by the national Model Energy Code.
      --As a result of the Energy Star Homes program, annual CO2
            emissions will be reduced 10 Million Metric Tonnes by 2010
            (which is equivalent to removing about 4 million cars from U.S.
            roads) and $100 billion will be saved through lower energy
            costs during the first thirty years following construction of
            Energy Star homes.
      --The construction of Energy Star Homes will have a significant
            positive impact on U.S. employment and businesses (i.e.,
            additional sales of U.S. services and products instead of
            imported oil).
      --The Energy Star Insulation program provides consumers with unbiased
            and accurate information on how to select the proper insulation
            for each climatic region of the country and for different
            applications, saving consumers energy and money.
      --Because of market barriers to energy efficient products and
            building practices, the environmental and economic benefits of
            Energy Star programs would not occur without EPA's help.
        Thank you for your attention to this issue. If we can be of any
    further assistance, do not hesitate to contact me.
        The Polyisocyanurate Insulation Manufacturers Association (PIMA) is
    pleased to submit these written comments on EPA's fiscal year 1998
    appropriations for the Energy Star Programs, an element of the Climate
    Change Action Plan (CCAP). PIMA is the trade association of the rigid
    polyiso foam insulation industry, a product that is used in over 60
    percent of new commercial roof construction, in 40 percent of new
    residential construction, and in most re-insulation of existing
    commercial building roofs.

                                  INTRODUCTION

        We are frequently reminded of the burden and cost to American
    industry caused by environmental regulations that rely on command-and-
    control approaches. In contrast, EPA's Energy Star programs, which are
    completely voluntary, have a significant positive impact on the U.S.
    economy and business. In addition to the economic and employment
    benefits, the Energy Star programs promise to achieve significant
    reductions in greenhouse gas emissions as well as other pollutants.
    This testimony focuses on the Energy Star Homes program and the Energy
    Star Insulation program, but much of what I say here can be applied
    equally to the other Energy Star programs. PIMA is a charter partner in
    the Energy Star Insulation program and we are one of 79 ally members of
    the Energy Star Homes program.
        Energy Star programs are well-run, relatively inexpensive
    operations that have been established to address critical environmental
    problems. Energy Star programs encourage the production and marketing
    of energy-efficient products and increase consumer awareness of these
    products and their benefits. EPA is a catalyst and a facilitator
    helping to create a market transformation that favors energy-efficient
    products. We believe that EPA should be applauded for its creative and
    economically sound thinking in finding solutions to environmental
    problems.

                               ENERGY STAR HOMES

        As part of the country's efforts to reduce the emissions of global
    warming gases, EPA launched the Energy Star Homes program in 1995.
    Household energy use is a major source of U.S. carbon dioxide
    (CO2) emissions, accounting for about 20 percent of total
    emissions. The Energy Star Homes program reduces energy use and
    prevents pollution by encouraging builders and developers to construct
    energy-efficient homes. Energy improvements result from the use of
    improved insulation, tighter ducts, high efficiency heating and air
    conditioning, and high performance windows.
        Builders who participate in the program as partners are provided
    with technical support, fact sheets on technologies, sales training,
    information on mortgage products, and use of the Energy Star logo and
    promotional materials. In addition, EPA and its partners and allies
    will be placing public service announcements and editorials to raise
    public awareness of the program and recognition of the logo. Builders
    participate not only because of these services, but because EPA is
    working to create a market for energy-efficient home construction, so
    builders willing to undertake some additional effort and risk are able
    to distinguish their product from the less energy-efficient homes built
    by their competitors.
        Builder participation, in turn, provides increased demand for
    energy-efficient products, such as the rigid foam insulation produced
    by PIMA members. EPA estimates that the construction of Energy Star
    homes over the next 12.5 years will increase sales for insulation by $2
    billion. Also, an additional $6 billion of insulation is likely to be
    sold because the Energy Star program is expected to raise the
    ``industry standard'' for insulation upgrades in existing homes.
    Organizations that manufacture energy-efficient products or provide
    related services participate in the Energy Star Homes program as
    allies, promoting the program and recruiting home builders as
    participants and offering builders various services that correspond
    with their own business plans.
        Energy Star Homes are new homes that use at least 30 percent less
    energy than required by the national Model Energy Code while
    maintaining or improving indoor air quality. Although the value of
    these homes is greater than those that are less energy efficient (i.e.,
    a higher sticker price), Energy Star homes actually cost less to own
    and operate on a monthly basis than a comparable home that is not as
    energy efficient. This is because the savings from lower monthly energy
    bills more than cancels out the small increase to a person's monthly
    mortgage payment due to the extra energy features. In addition, banks
    are now providing favorable mortgages for energy-efficient homes,
    lowering monthly payments even more.
        The goal of the Energy Star Homes program is to increase the market
    share for Energy Star homes to 10 percent of new home construction by
    2000 and more than 95 percent by 2010. This will have both economic and
    environmental benefits. The homes sold by the year 2000 will result in
    energy savings of $1.8 billion and homes sold by the year 2010 will
    result in energy savings of $100 billion.\1\ This is $100 billion that
    will be spent, not on energy consumption, but on goods and services. It
    is important to emphasize that money spent on goods and services
    creates more U.S. jobs and results in fewer imports than money spent on
    energy consumption.
    ---------------------------------------------------------------------------
        \1\ These are savings that are locked-in over the life of a 30-year
    mortgage, a time frame that results in an overly conservative estimate.
    If you assume the savings will continue for the life of the home, about
    90 to 100 years, the savings estimate triples to about $300 billion.
    ---------------------------------------------------------------------------
        The environmental benefits start out small, but grow impressively
    over the next 12 years. In the year 2000, the construction of Energy
    Star Homes will have resulted in annual CO2 emission
    reductions of 0.3 Million Metric Tonnes (MMT), which is equivalent to
    removing more than 55,000 cars from U.S. roads. By the year 2010,
    projected reductions in annual CO2 emissions will be 10 MMT,
    which is equivalent to removing about four million cars. In addition to
    the reductions in CO2 emissions, there will be similar
    reductions in other pollutants associated with the generation of
    electricity and the burning of fuel in home furnaces.
                             energy star insulation
        The Energy Star Insulation program, initiated in 1996, is aimed at
    energy use in the existing housing stock and is intended to educate
    retail sales people and consumers about R-values and the proper use of
    home insulation. Insulation manufacturers that participate in the
    program will be allowed to use the Energy Star logo on their products,
    which will prompt consumers to ask for an ``insulation guide'' that
    will be made available at stores selling the insulation. As a condition
    for using the Energy Star logo, the insulation guide will be reproduced
    and distributed to retail outlets by the insulation manufacturers. As a
    result, the guide will be widely distributed at little cost to the
    government.
        The insulation guide is an unbiased and accurate source of
    information that will inform the consumer, in an easy to understand
    format, about the significance of R-values and how to select the proper
    R-value for each climatic region of the country. The guide will also
    indicate which types of insulation are best suited for different
    applications.
              the importance of a well funded energy star program
        Some observers have asked: If the Energy Star programs are
    promoting cost-effective measures that will save people money, why does
    this market transformation not occur on its own? The answer for many of
    the programs can be found in the types of businesses that are involved.
    In the case of the Homes program, the participants are small businesses
    that do not have the resources to obtain enough information on new
    energy-efficient products and construction methods necessary to take
    the risk of changing their old ways of building and selling houses.
    Also, in the case of energy-efficient homes, there is an information
    deficit on the part of the consumer, as well, that will continue to
    exist if nothing is done. The Congressional Office of Technology
    Assessment, in its 1991 report, Changing by Degrees: Steps to Reduce
    Greenhouse Gases, said that ``lack of information is a key obstacle to
    greater investment in energy conservation'' on the part of both
    individual consumers and businesses. ``It adversely affects [operation
    and maintenance] practices, investment decisions, and incentives to
    develop new energy-efficient technologies.'' The large number of highly
    cost-effective investments in energy efficiency that are not chosen by
    consumers indicated that price alone did not stimulate optimal
    investment decisions. Therefore, OTA recommended an increased federal
    role in information dissemination in order to overcome this barrier.
        Selling a home that may have a higher sticker price, but which is
    cheaper to operate and own on a monthly basis because of its high
    energy efficiency, requires a different dynamic between the builder,
    developer, and home buyer than existed before. To create the market for
    energy-efficient homes there has to be an organized effort to educate
    consumers and to teach builders how to change their old ways of
    approaching consumers. Because of the critical importance of reducing
    green house gas emissions (including energy-related CO2
    emissions), it is clearly an appropriate role for the federal
    government to plant the seeds of a new, more sustainable, market. As
    the market is transformed, it will become less dependent on EPA's
    efforts and the Agency will be able to reduce its support for those
    products and to reallocate its resources to other programs.

                                   CONCLUSION

        PIMA urges this Committee and Congress to fund CCAP, of which the
    Energy Star Programs is part, at the administration's requested level.
                                     ______

       Prepared Statement of Dr. Peter Fox, Arizona State University and
       Margaret Nellor, County Sanitation Districts of Los Angeles County

        Mr. Chairman and distinguished members of the Subcommittee, we have
    the honor of submitting testimony to the Subcommittee in support of
    federal funding in the amount of $2 million through the U.S.
    Environmental Protection Agency (EPA) in fiscal year 1998 for an
    exciting research program focussed on reducing uncertainties about the
    efficiency and sustainability of Soil Aquifer Treatment (SAT) for
    indirect potable reuse of highly treated domestic wastewater (known as
    recycled water). Although this study has national applicability, the
    research is centered in California and Arizona. These funds will be
    used to augment the over $5 million in cash and in-kind services
    already committed to the investigation by the various research sponsors
    and participants.
        This research program is designed to provide the data necessary to
    support the rational design and operation of SAT systems, to predict a
    specific level of water quality improvement provided by SAT, and to
    answer important public health questions. The County Sanitation
    Districts of Los Angeles County, who serve over 5 million people in 78
    cities in Los Angeles County, California, and Arizona State University
    are the project managers for the research. We are joined in support of
    this funding by our distinguished colleagues and fellow members of our
    interdisciplinary investigation team including the Cities of Phoenix,
    Glendale, Mesa, Scottsdale, Tempe, and Tucson Water, Arizona; the
    Orange County Water District; the Water Reclamation District of
    Southern California; the Los Angeles Department of Water and Power; the
    City of Riverside, California; the University of Arizona; the
    University of Colorado; Stanford University; and the U.S. Geological
    Survey.
        As the arid West continues to develop and as sources for additional
    water supplies become more and more scarce, an increasingly important
    source of water for agricultural and urban use is recycled water. This
    water has the potential to alleviate water shortages and to provide
    important augmentation to existing sources. Soil Aquifer Treatment,
    which is currently in use in California and Arizona, is one technology
    that has the potential to economically supplement traditional treatment
    and storage systems for existing and future potable water supplies.
    This study will be of value not only in the West but in a number of
    other areas around the country where groundwater recharge is used to
    supplement potable water supplies, to control sea water intrusion in
    coastal groundwater aquifers, to control land subsidence caused by
    declining groundwater levels, to raise groundwater levels to reduce the
    cost of groundwater pumping, and to provide a means of treating
    wastewater prior to discharge. These areas include Florida,
    Massachusetts, Nebraska, Michigan, New Hampshire, New Jersey, New York,
    South Dakota, Texas, and Wisconsin.
        Further, our investigations of SAT will help address public health
    issues that all water suppliers in the nation face, such as source
    water protection and disinfection practices. The questions that will be
    answered by our study will be instrumental to the identification,
    characterization, and treatment of compounds in our nation's water
    supply so that we may better protect the health of our citizens. Thus,
    the research clearly complements the goals of EPA's National Water
    Program Agenda.

                             THE NEED FOR THE STUDY

        While groundwater recharge using recycled water has been used in
    the United States for several decades and has been the subject of a
    number of studies, study methodology and testing has limited the
    scientific and technical community's ability to fully address a number
    of complex public health questions. Most recently, in May 1996, the
    National Research Council's Water Science and Technology Board
    initiated a study to evaluate the viability of augmenting potable
    supplies with recycled water. The purpose of the NRC study is to
    provide technical and policy guidance regarding the use of treated
    municipal wastewater as a potable water source. It is anticipated that
    the NRC's report, which will be available in July 1997, will be useful
    in assessing the feasibility and desirability of potable reuse projects
    as a means of supplementing water supplies, and in identifying fruitful
    lines of research. Many of those on our research team have been closely
    involved in the NRC study. The project presented in this testimony has
    been coordinated with the NRC study and is specifically designed to
    build on and investigate critical areas of research necessary to
    address the myriad of unknowns facing SAT and the indirect use of
    recycled water for potable water supply.
        The results of our investigation will help us better understand the
    complex nature of recycled water and SAT so that we may take advantage
    of the benefits offered by indirect potable reuse based on groundwater
    recharge such as:
      --additional water quality improvements;
      --seasonal or longer-term storage without evaporative losses;
      --protection of water sources against recontamination (with coliforms
            and parasites) by birds, mammals, and even humans; and
      --prevention of algae growth and associated water-quality problems
            such as algae-derived taste and odor.
                                  sat defined
        Soil Aquifer Treatment can best be described as a groundwater
    recharge method using recycled water. SAT relies on percolation of the
    recycled water through soil and groundwater transport to further
    improve water quality prior to reuse.
      --Soil percolation encompasses several processes that occur as water
            seeps downward through the soil under the influence of gravity
            to enter the groundwater system. The soil acts as a filter to
            improve the characteristics of the recycled water due to
            physical chemical and microbiological processes.
      --Groundwater transport.--After reaching the underlying aquifer,
            groundwater moves slowly to extraction wells. During this
            contact time with the unconsolidated aquifer material, which
            includes mixing with the indigenous groundwater, further water
            quality benefits are realized through a number of physical,
            chemical, and biological processes.
                                  study goals
        Specific goals of the study are to:
      --characterize processes that contribute to organic chemical removal
            and transformation during transport through the soil
            percolation zone and underlying groundwater aquifer;
      --investigate and model relationships among above-ground treatment,
            wetlands polishing and SAT;
      --identify monitoring criteria that will provide proper assurances
            regarding the elimination of viruses and other pathogens; and
      --produce a framework or model within which SAT systems can be
            designed and operated to meet regulatory criteria.
        Field investigations and data gathering will be performed using
    recharge sites in California and Arizona. The research will focus on
    wetlands and infiltration/subsurface treatment as a single treatment
    system for purposes of aquifer protection--primarily protection from
    nitrate, dissolved organic chemicals, and pathogenic microorganisms.
    The effectiveness of Soil Aquifer Treatment will be investigated and
    systematically analyzed to determine the efficacy of the three
    protective barriers inherent in SAT systems including: The infiltration
    interface at the soil water boundary of the infiltration basin;
    Percolation through the soil column; and Storage/transport in the
    underlying aquifer.
        The water quality benefits derived from treatment in each of the
    three zones will be evaluated based on each zone's ability to minimize
    organic carbon, nitrogen and pathogens.
        Water quality data will be collected from at least seven full- or
    pilot-scale facilities that offer a range of effluent qualities and
    very different physical conditions in terms of depth to groundwater,
    soil and sediment type, etc. These facilities are located in Phoenix,
    Mesa and Tucson, Arizona; and Riverside, Los Angeles, Los Angeles
    County and Orange County, California. Some of the more unique research
    elements include the use of genetic techniques to isolate and identify
    viruses; analytical methodologies capable of identifying over 90
    percent of the materials comprising the organic content in water
    samples; methods to isolate and characterize the estrogenic components
    in groundwater and recycled water; and a public education/outreach
    component to disseminate the results of the study.
        Mr. Chairman, in conclusion we would greatly appreciate your
    support for this necessary and worthwhile research project.
                                     ______

       Prepared Statement of the Association of National Estuary Programs

        Chairman Bond and Members of the Senate VA-HUD Appropriations
    Subcommittee: On behalf of the Association of National Estuary Programs
    (ANEP), we greatly appreciate the opportunity to submit to this
    Subcommittee our views on the fiscal year 1998 funding requirements for
    both the development and implementation of the National Estuary
    Program. The National Estuary Program is established by section 320 of
    the Clean Water Act, and administered by the U.S. Environmental
    Protection Agency in partnership with the State and local governments,
    interested citizens and the business community.
        Estuaries are the biologically essential, economically priceless,
    but fragile connections between the continent and the oceans. The
    entire nation is served by coastal estuaries in numerous ways, such as
    commercial and recreational fishing, boating, wildlife habitat. Through
    the National Estuary Program, local governments and interested business
    and industry groups come together with the State and Federal
    governments to reach agreement on long-term management plans that seek
    to guarantee the economic and biological productivity of the estuaries
    into the future.
        To date, there are 28 estuaries in the national program, 11 in the
    developmental stage and 17 in the implementation stage, of their
    individual ``Comprehensive Conservation and Management Plans''
    (CCMP's). These management plans are each unique, but share many
    characteristics in that they are all based on sound science, all
    written by local stakeholder groups in partnership with the relevant
    regulatory agencies, and all approved by the local and State
    governments that will be principal partners in implementation. Local
    citizens guide the development and implementation of their plans, and
    work to leverage federal and State dollars with contributions from
    local governments and the private sector.
        In other words, the National Estuary Program is clearly not the
    ``command-and-control'' type of EPA program. Rather, it is a program
    where local governments, citizens and the private sector come together
    and agree as to how the management of the Nation's estuaries will
    occur. Only with the full support of the local sector is the proposed
    CCMP submitted to the Governor and E.P.A. Administrator for approval.
    Thus, it is the States, in close coordination with the local and
    federal governments, that create and implement new, non-adversarial and
    cost effective CCMP's, in contrast to the ``command-and-control''
    approach for environmental enhancement.
        The 28 National Estuary Programs are building strong public-private
    partnerships during the development and implementation of the
    management plans. The Programs work closely with other coastal programs
    to coordinate initiatives at the State and federal levels, putting
    great effort into promoting the exchange of data and information
    between the National Estuary Programs and with other coastal programs.
    Only with such partnerships will the agreed-upon actions be carried
    out, changes in the estuaries monitored, and actions reassessed and re-
    prioritized as needed.
        For fiscal year 1998 we are requesting this Subcommittee to assist
    the National Estuary Program by calling for an increase in EPA's
    allocation to the National Estuary Program. The National Estuary
    Program is rounding the turn from the developmental stage to the
    implementation stage. Our mission is complex. Through the Clean Water
    Act we are charged with first developing comprehensive conservation and
    management plans (CCMP's) to address point and nonpoint sources of
    pollution, and restore and maintain the chemical, physical, and
    biological integrity of the Nation's estuaries. Next we are charged
    with coordinating the implementation of the CCMP's with the involved
    States, Federal and local agencies. It is a substantial and complex
    job.
                        FISCAL YEAR 1998 FUNDING REQUEST

        As evidence of the Congressional intent to establish a true
    partnership program, funding for the National Estuary Program is
    provided through several sections of the Clean Water Act. This requires
    us to coordinate closely with other Federal and State programs. The
    National Estuary Program is funded through the following Clean Water
    Act provisions:
      --33 U.S.C. Sec. 1330 (National Estuary Program);
      --33 U.S.C. Sec. 1329 (Non-point Pollution Control);
      --33 U.S.C. Sec. 1285 (Construction Grants); and
      --33 U.S.C. Sec. 1383 (Revolving Loan Funds).
        As noted above, the National Estuary Program is advancing from the
    developmental stage into the implementation stage. Whereas in years
    past there were just a dozen or so NEP's receiving around $12 million
    to develop CCMP's, there are now 17 implementing CCMP's with another 11
    in the developmental stage. For this reason, we are requesting this
    Subcommittee to assist the National Estuary Program by calling for EPA
    to allocate $28.0 million to the National Estuary Program through the
    National Estuary Program (33 U.S.C. Sec. 1330) authorization of
    appropriations for fiscal year 1998, to fund the continued development
    of CCMP's and refinement of approved CCMP's. The increased funding is
    necessary because there are now 28 National Estuary Programs, and
    federal partnership support at a minimum of $1.0 million is needed to
    fully advance the mission and goals of each NEP.
        Further, as the National Estuary Program progresses into the
    implementation stage, the need for coordination with other Clean Water
    Act programs increases. The success of the National Estuary Program's
    implementation depends on our ability to do what the Clean Water Act
    requires of us--coordinate with the Construction, Non-point Pollution
    Control and Revolving Loan Fund programs. Our implementation funding is
    contingent upon receiving a portion of these other Clean Water Act
    program funds. For this reason we are requesting this Subcommittee to
    assist the National Estuary Program by recognizing the significance of
    fulfilling one of the central missions of the Clean Water Act by
    getting 17 CCMP's approved. We ask this Subcommittee to direct the U.S.
    Environmental Protection Agency to (1) give priority consideration to
    the use of the following funds for CCMP Implementation, and (2) to
    relay the same priority consideration to the States in agreements
    concerning the use of such funds: Construction Grant Funding (33 U.S.C.
    Sec. 1285); Nonpoint Pollution Control Program Funding (33 U.S.C.
    Sec. 1329); and Revolving Loan Funds (33 U.S.C. Sec. 1383).
        To assist this Subcommittee with your work, we offer some suggested
    Report language to assist the National Estuary Program with its
    mission. Thank you, Mr. Chairman, for the opportunity to present our
    views to this Appropriations Subcommittee.

                           SUGGESTED REPORT LANGUAGE

        In making this fiscal year 1998 authorization of appropriations,
    the U.S. Congress recognizes the national importance of bays and
    estuaries to the economic health of the country, as well as the
    standard of living of its citizens. We also recognize the increasing
    pressures being brought to bear on these finite resources. Further, we
    recognize the success of the National Estuary Program in bringing
    together local citizens with all levels of government to develop and
    implement long-term management plans. Such efforts have created
    enduring partnerships that are in this nation's best interest to
    support. The National Estuary Program minimizes the regulatory burden
    of the federal government, and reduces litigation over resource
    conflict, while at the same time protecting these vital economic and
    biological resources from further degradation--and actually improving
    them. Therefore, it is our intent that the U.S. Environmental
    Protection Agency allocate $28.0 million through the National Estuary
    Program (33 U.S.C. Sec. 1330) authorization of appropriations for
    fiscal year 1998. Further, it is our expectation that the U.S.
    Environmental Protection Agency will give priority consideration and
    support to the use of the Construction Grant Program (33 U.S.C.
    Sec. 1285), the Nonpoint Pollution Control Program (33 U.S.C.
    Sec. 1329) and the Revolving Loan Funds (33 U.S.C. Sec. 1383) for the
    implementation of approved CCMP's. The U.S. Environmental Protection
    Agency should likewise relay the same priority consideration to the
    States in agreements concerning the use of these funds.
                                     ______

      Prepared Statement of John H. Sullivan, Deputy Executive Director,
                        American Water Works Association

                                  INTRODUCTION

        The American Water Works Association (AWWA) appreciates the
    opportunity to present its views on the Environmental Protection Agency
    (EPA) budget for fiscal year 1998. AWWA is the world's largest and
    oldest scientific and educational association representing drinking
    water supply professionals. The association's 55,000 plus members are
    comprised of administrators, utility operators, professional engineers,
    contractors, manufacturers, scientists, professors and health
    professionals. The association's membership includes over 3,800
    utilities which provides over 80 percent of the nation's drinking
    water. Since our founding in 1881, AWWA and its members have been
    dedicated to providing safe drinking water.
        AWWA utility members are regulated under the Safe Drinking Water
    Act (SDWA) and other statutes. AWWA believes few environmental
    activities are more important to the health of this country than
    assuring the protection of water supply sources, and the treatment,
    distribution and consumption of a safe and healthful supply of drinking
    water. AWWA strongly supports adequate levels of funding for EPA's
    drinking water and ground water programs.
                                request overview
        Adequate funding for capitalization of the Drinking Water State
    Revolving Fund (DWSRF) and funding drinking water research are the two
    major areas of concern to AWWA in the EPA fiscal year 1998 budget
    request. AWWA does not believe that the fiscal year 1998 EPA budget
    request for capitalizing the drinking water state revolving fund and
    for drinking water research is adequate. AWWA recommends an increase
    over the funds requested by EPA for these programs. It should be noted
    that these programs, particularly drinking water health effects
    research, involve areas where relatively small funding increases offer
    significantly great public health, environmental and economic benefits
    to the nation's population. In the fiscal year 1998 EPA budget, AWWA
    recommends that the following funding be specifically appropriated for
    the indicated purpose:
      --For the drinking water state revolving fund: $1,000,000,000.
      --For drinking water research: $39,500,000. (Designate adequate
            funding specifically for health effects research.)
      --For the EPA/AWWA Research Foundation drinking water research
            partnership: $5,000,000 (to be matched by the AWWA Research
            Foundation and public water suppliers).
      --For the arsenic research partnership: $1,000,000 (to be matched by
            the AWWA Research Foundation and public water suppliers).
      --For public water system supervision (PWSS) grants to states:
            $100,000,000. (Total state, local and tribal drinking water
            program grants: $114,300,000.)
      --For the EPA drinking water program: $105,300,000.

                  DRINKING WATER STATE REVOLVING FUND (DWSRF)

        AWWA does not believe that the fiscal year 1998 EPA budget request
    for capitalizing the newly authorized DWSRF is adequate to meet the
    nation's drinking water needs. The SDWA Amendments of 1996 authorized
    for the DWSRF $599,000,000 for fiscal year 1994 and $1,000,000,000 for
    fiscal years 1995 through 2003. The SDWA further authorizes that
    authorized funds not appropriated in a fiscal year may be appropriated
    in subsequent fiscal years until fiscal year 2004. Through fiscal year
    1997, Congress has appropriated approximately $1.3 billion--a shortfall
    of $2.3 billion from funds authorized for the DWSRF.
        According to the EPA Drinking Water Infrastructure Needs Survey
    released on January 31, 1997, $12.1 billion is needed in the immediate
    future to protect drinking water supplies. Of this amount, $10.2
    billion, or 84 percent, is needed to protect water from microbial
    contaminants which can produce immediate illness or death. Over the
    next 20 years $138.4 billion will be needed to upgrade the
    infrastructure of the nation's water utilities.
        Given that funding for the DWSRF is already behind and the enormous
    need, now is not the time to be scaling back federal commitment to the
    DWSRF to $725 million for fiscal year 1998. Congress and the
    Administration should be playing catch-up AWWA urges Congress to
    appropriate at least the $1 billion authorized for the DWSRF in fiscal
    year 1998.
        Although it represents only a fraction of the need, the amount
    recommended by AWWA for the DWSRF will be a start and provide a source
    of much needed loans for financial disadvantaged communities which
    cannot obtain financing through other means. The federal funds will
    leverage state resources by ultimately becoming a revolving fund that
    would no longer require federal funding. The DWSRF would partially fund
    the unfunded mandates of the SDWA.
        Recommended action in the fiscal year 1998 budget.--Appropriate at
    least $1,000,000,000 for capitalization grants for the drinking water
    state revolving fund.

                        DRINKING WATER RESEARCH FUNDING

        AWWA does not believe that the fiscal year 1998 EPA budget request
    for drinking water research is adequate. The use of good science as the
    foundation of the new drinking water standard-setting process under the
    SDWA amendments of 1996 will require extensive drinking water
    research--particularly health effects research.
        Funding for drinking water research is becoming more of a critical
    issue. The use of good science as the foundation of the new standard-
    setting process under the 1996 SDWA Amendments will require extensive
    drinking water research. The 1996 SDWA Amendments require EPA to
    develop comprehensive research plans for Microbial/Disinfection By-
    Products (M/DBP) and arsenic as well as other contaminants. An
    estimated total of over $100 million is needed for the combined arsenic
    and M/DBP research plans promulgating regulations within the next five
    years as required by the SDWA amendments of 1996, and this figure does
    not include other needed drinking water research on radon, sulfate,
    endocrine disrupters, and other contaminants that will require
    additional occurrence, treatment, and health effects research based on
    EPA's new Contaminant Identification Method. It will take at least five
    years to conduct the necessary arsenic and M/DBP research based on
    EPA's fiscal year 1998 budget request of $35.9 million for drinking
    water research (out of a total research budget request of $614.3
    million)--a decrease of $3.5 million from the fiscal year 1997 level.
    This level of drinking water research does not meet the statutory needs
    of the 1996 SDWA Amendments and will result in either delayed
    regulations or regulations promulgated without the necessary research.
        Given that drinking water research has long been underfunded and
    the enormous need for immediate research to meet the deadlines of the
    SDWA amendments of 1996, now is not the time to be scaling back federal
    commitment to drinking water research by nearly $3.5 million for fiscal
    year 1998. AWWA urges Congress to restore the $3.5 million decrease and
    appropriate at least the $39.5 million authorized for drinking water
    research in fiscal year 1998 by the House Committee on Science in H.R.
    1276.
        Health effects research.--The decline in real funding levels for
    drinking water programs is nowhere better illustrated than in health
    effects research. As requirements to regulate drinking water
    contaminants have grown dramatically, the health effects research
    budget has decreased precipitously. Despite the mandate of the 1986
    amendments to the SDWA, which more than quadrupled the number of
    contaminants EPA was to regulate, funding for health effects research
    on contaminants has dropped continuously from a 1982 level of almost
    $10 million to the fiscal year 1996 EPA budget's all time low request
    of less than $2 million. In fiscal year 1997 Congress designated $10
    million for EPA to spend on health effects research. AWWA appreciates
    this appropriation and thanks the members of the committee. Without
    such substantial investments on a continuing annual basis, EPA and
    public water suppliers cannot assure the American public that the
    contaminants selected for regulation are the appropriate ones or that
    health standards have been adequately established.
        The SDWA amendments of 1996 require EPA to reserve $10 million from
    the drinking water state revolving fund (DWSRF) appropriation for
    health effects studies on drinking water contaminants. The DWSRF set
    aside would provide a continuous stream of funding for the much needed
    health effects research through fiscal year 2003. EPA is already
    falling behind in the research needed to implement the SDWA amendments
    of 1996 making this additional dedicated source of funding all the more
    critical. AWWA urges Congress and the Administration to reserve the $10
    million from the DWSRF in addition to the drinking water research funds
    recommended by AWWA for the fiscal year 1998 EPA budget.
        Microbial contaminants, disinfectants and disinfection by-
    products.--Research on microbial contaminants and disinfectants and
    disinfection by-products is a critical need. Each day there are roughly
    50,000 deaths in the world attributed to microbial contamination of
    drinking water. This threat has essentially been eliminated in the
    United States through disinfection of drinking water. It is now known,
    however, that disinfection of drinking water can produce chemical by-
    products, some of which are suspected potential human carcinogens or
    may cause other toxic effects. Controlling risks from these by-products
    must be carefully balanced against microbial risks to ensure that when
    reducing disinfection levels to lower by-product risk, significant
    microbial risks faced by the majority of the world's population are not
    created.
        Research on disinfectants and disinfection by-products, as endorsed
    by the National Academy of Sciences and EPA's Science Advisory Board,
    is essential. The cost to the nation of disinfection by-products
    regulation under the SDWA could be as low as several billion dollars or
    as high as $60 billion or more. An appropriate investment in health
    effects research will ensure that costs of regulation will be
    commensurate with the health benefit and not driven to extremes because
    of the lack of data.
        Cryptosporidium has emerged as a microbial pathogen of major
    concern to drinking water supplies. The Centers for Disease Control, in
    correspondence with EPA, has pointed out that extensive research on the
    health implications of the pathogen and dramatic improvements in
    analytical methods for its detection are necessary before it is
    possible to evaluate the public health implications of its occurrence
    at low levels and determine the appropriate regulatory response.
    Adequate funding for research on cryptosporidium is essential to
    protect the health of millions of Americans.
        Recommended action in the fiscal year 1998 budget.--Appropriate
    $39,500,000 for drinking water research; and designate adequate funds
    specifically for continuing health effects research to meet the
    requirements of the SDWA.

                            RESEARCH MATCHING GRANTS

        EPA/AWWARF research partnership.--In a separate statement, the AWWA
    Research Foundation (AWWARF), (an organization independent of AWWA),
    requested that $5 million in drinking water research funds be
    designated specifically for the EPA/AWWARF drinking water partnership.
    AWWARF and public water suppliers will match the grant dollar-for-
    dollar. AWWA strongly believes that this kind of local/federal research
    partnership is a wise and cost effective use of public funds and the
    only way to secure science based drinking water regulations in these
    difficult budgetary times. The AWWARF funds are being used to support
    priority drinking water research needs including disinfection by-
    products and cryptosporidium.
        Arsenic research partnership.--The regulation of arsenic, which
    occurs naturally at low levels in some drinking water supplies,
    presents a unique regulatory situation. While the effects of arsenic at
    levels in excess of those typically found naturally in the nation's
    water supplies are well studied, there is a lack of data and serious
    scientific debate on the effects of the naturally occurring low levels
    of arsenic in drinking water. EPA, AWWARF and the Association of
    California Water Agencies (ACWA) have joined in a partnership to
    examine this complex issue. In a separate statement, AWWARF requested
    that $1 million in drinking water research funds be designated
    specifically for the Arsenic Research Partnership. AWWARF and public
    water suppliers will match the grant dollar-for-dollar.
        Recommended action in the fiscal year 1998 budget.--Appropriate
    $5,000,000 specifically designated for the EPA/AWWA Research foundation
    drinking water research partnership (to be matched by the AWWA Research
    Foundation and public water suppliers).
        Appropriate $1,000,000 specifically designated for the arsenic
    research partnership (to be matched by the AWWA Research Foundation and
    public water suppliers).
                     public water system supervision grants
        To comply with the SDWA, Congress intended that EPA develop
    drinking water regulations and that the states implement and administer
    the program to ensure compliance with and enforcement of its
    provisions. Implementation, administration, compliance and enforcement
    activities are collectively known as ``primacy'' requirements and
    federal grants to the states are known as Public Water System
    Supervision (PWSS) grants. The massive demands on states arising from
    the SDWA have become increasingly apparent because of the dramatic
    increase in the number of regulated contaminants over the past few
    years.
        As each regulation is added, state resource shortfalls become more
    acute. The SDWA authorizes a federal share of up to 75 percent, but
    federal funding has approximated only 35 percent. The difference
    between state and federal shares of the program has become so great
    that states have been threatened continuously with the loss of primacy.
    Should this occur, public health protection will suffer a major
    setback. According to the Association of State Drinking Water
    Administrators, the present PWSS needs in all states is over $200
    million per year with additional regulations scheduled to be
    promulgated over the next few years. Additionally the SDWA Amendments
    of 1996 added new responsibilities for the states such as source water
    assessments, a consumer confidence report program and alternative
    monitoring programs.
        EPA's budget request for fiscal year 1998 would not raise PWSS
    funding for states from its present level of $90,000,000. The increase
    in state, local and tribal drinking water program grants to a total of
    $104,300,000 reflects an increase for tribal grants only and not the
    PWSS grants to states. AWWA strongly urges Congress to appropriate the
    $100,000,000 authorized for PWSS grants to states as the minimum
    necessary.
        Recommended action in the fiscal year 1998 budget.--Appropriate
    $100,000,000 for Public Water System Supervision (PWSS) grants to
    states. (Total state, local and tribal drinking water program grants:
    $114,300,000.)

                           EPA DRINKING WATER PROGRAM

        EPA's drinking water program took on greatly increased
    responsibilities in the 1996 SDWA amendments. These responsibilities
    included developing a new regulatory process requiring additional
    science and risk analysis for regulations, create a contaminant
    occurrence data base and methodology to select contaminants for
    regulation, promulgate microbial and disinfectant/disinfection by-
    products regulations, identify new treatment technologies for small
    systems, administer the newly created drinking water state revolving
    fund, and develop regulations and guidelines for consumer confidence
    reports, operator certification programs, source water assessment and
    monitoring relief
        In satisfying these requirements, EPA has involved the public in
    the regulatory process to an extent not equalled by another federal
    agency and stands as a model for federal rule making. EPA has involved
    private citizens, scientists, drinking water professionals, medical
    professionals, public health officials, economists, and environmental
    and consumer advocacy representatives, as well as other experts in
    providing recommendations and how to carry out these new regulatory
    responsibilities. EPA and the Office of Drinking Water and Ground Water
    are to be commended for taking this new approach which should result in
    better regulations that protect public health.
        Because of its exemplary approach to reforming the regulatory
    process, the EPA drinking water program budget request should not be
    cut to meet overall federal budget constraints. AWWA believes that the
    funding requested for the EPA drinking water program in the EPA fiscal
    year 1998 budget request is vital to continue this new regulatory
    approach and urges Congress to appropriate the requested funds.
        Recommended action in the fiscal year 1998 budget.--Appropriate
    $105,300,000 for the EPA drinking water program.
        This concludes the AWWA statement on the fiscal year 1998 EPA
    budget.
                                     ______

      Prepared Statement of James H. Schlender, Executive Administrator,
                Great Lakes Indian Fish and Wildlife Commission

        Agency involved: Environmental Protection Agency
        Fiscal year 1998 Appropriations requested: $330,280
        Project: Intertribal Lake Superior basin initiative
        Project description: To build on previous successes, the Commission
    requests that Congress earmark $330,280 from the EPA's fiscal year 1998
    Great Lakes National Policy Office and Coastal Environmental Management
    (CEM) Programs to:
      --through intergovernmental partnerships and liaison with other
            organizations, develop, coordinate, and implement tribal
            strategies to protect the Lake Superior ecosystem in
            conjunction with the Binational Program, Lake Superior Lakewide
            Management Plan (LaMP); International Joint Commission (IJC)
            meetings; and State of the Lakes Ecosystem Conference (SOLEC)
            forums at a cost of $60,000; and
      --assess off-reservation environmental impacts from activities
            proposed by Crandon Mining Company and other potential mining
            projects in Wisconsin at a cost of $196,404; and
      --expand cooperative contaminant studies for fish, animals, and
            plants used by tribal members under rights reserved in the 1837
            and 1842 treaties with the United States at a cost of $73,876.
        Authorization: The Clean Water Act designates the Great Lakes
    National Program Office (GLNPO) to develop and implement action plans
    to carry out the United States' responsibilities under the Great Lakes
    Water Quality Agreement and subsequent amending Agreements. GLNPO is
    directed to perform these functions in cooperation with tribal
    agencies, among others. 33 U.S.C. Sec. 1268(c). In the Commission's
    view, this is sufficient authority for Congress to provide funding for
    tribal organizations, such as the Commission, to undertake initiatives
    related to Great Lakes water quality. In fiscal year 1997, GLIFWC will
    administer $101,383 in Coastal Environmental Management (CEM) funds
    from the EPA to facilitate tribal participation in the Binational
    program and address environmental concerns from activities proposed by
    Crandon Mining Company.

                                   BACKGROUND

        Comprised of eleven tribal governments located throughout
    Minnesota, Wisconsin, and Michigan, the Commission's purpose is to
    protect and enhance treaty guaranteed rights to hunt, fish, and gather
    on inland territories ceded under the Chippewa treaties of 1836, 1837,
    and 1842; to protect and enhance treaty guaranteed fishing on the Great
    Lakes; and to provide cooperative management and protection of these
    resources. Tribal members rely upon fish, wildlife, and plants for
    religious, ceremonial, medicinal, subsistence, economic, and cultural
    purposes. Any contamination from environmental degradation threatens
    the health, safety, and economy of Chippewa people.
        It is essential to maintain and expand EPA funding levels in fiscal
    year 1998 or much of the Tribes' progress in the environmental arena
    will be lost. Existing Commission funding sources, in particular BIA
    funds, are increasingly stressed because of a required expansion of
    Commission services to its member Tribes throughout the 1837 ceded
    territory. Recent court developments have resulted in tribal
    implementation of treaty rights in the entire 1837 ceded territory
    which includes the northern third of Wisconsin and the central portion
    of Minnesota. Continued progress on environmental initiatives depends
    upon the Commissions's fiscal year 1998 EPA Appropriations request
    being funded.

        GREAT LAKES DECISION MAKING AND INTERGOVERNMENTAL PARTNERSHIPS
                                   COMPONENT

        EPA's Indian Policy stresses the themes of strengthening tribal
    self-government and working with tribes on a government-to-government
    basis. Unfortunately, lack of adequate funding has made this policy
    ineffective in regard to tribal participation in the development and
    implementation of strategies to protect the Great Lakes ecosystem. The
    Commission is requesting that Congress earmark $60,000 immediately from
    the Great Lakes National Policy Office or Coastal Environmental
    Management (CEM) Program to rectify this problem and to:
      --provide a capacity-building grant to enable the Commission to
            participate in Great Lakes environmental policy-making, and
      --provide funds for technical projects so that the Commission is able
            to contribute to technical working groups and adequately review
            technical documents.
        EPA funding will be used by GLIFWC to research environmental
    issues, facilitate discussion and build consensus between tribal
    leaders, and develop formal positions to be forwarded to appropriate
    agencies. These efforts would complement the ongoing efforts by
    Commission member tribes to develop their governmental positions.
        Funding from EPA is also needed to facilitate the Commission's long
    term participation in the development of Remedial Action Plans (RAP's)
    and the Binational Program to Restore and Protect Lake Superior. The
    Commission is proposing to participate in both the Binational Program's
    Task Force of senior governmental natural resource managers and
    Workgroup comprised of technical and scientific professionals.
        The Commission would further assist member tribes in establishing
    meaningful liaison with the wide number of organizations working to
    protect the Great Lakes basin ecosystem, including the International
    Joint Commission (IJC) and the Binational Executive Committee for the
    Great Lakes.

       ASSESSMENT OF OFF-RESERVATION ENVIRONMENTAL IMPACTS FROM PROPOSED
                               MINING ACTIVITIES

        Tribes are concerned that mining development within the 1837 and
    1842 ceded territories will have environmental impacts upon treaty
    harvested resources. The Commission is requesting a $196,404 earmark
    from EPA to fund scientific and policy analysis capabilities to address
    mining related issues. Currently 15 mineral deposits have been
    identified in the ceded territory. These deposits are expected to
    possess a wide range of mineral resources including copper, zinc,
    uranium, lead, and vanadium.
        The extraction of these resources poses significant environmental
    dangers. For this reason, mining proposals will be highly controversial
    both politically and scientifically. Tribes will require sound science
    and rational policy development to effectively address mining issues.
    The Commission's ability to provide this expertise to its member tribes
    will assist in analyzing technical issues, communicating factual
    information, and developing partnerships with other governments and
    resource managers. Funding to address off-reservation environmental
    concerns is particularly urgent given the Wisconsin Department of
    Natural Resource's announcement that it intends to complete and submit
    its Environmental Impact Statement (EIS) for public comment in 1998.

                COOPERATIVE CEDED TERRITORY CONTAMINANT STUDIES

        The Commission is requesting a $73,876 earmark from EPA to fund
    cooperative contaminant studies in the 1837 and 1842 ceded territories.
    Tribes are concerned that the fish, wildlife, and plants upon which
    they rely for subsistence, cultural, and economic purposes are becoming
    degraded, threatening their health, safety, and reservation economies.
        Tribal members retain a close relationship to their environment and
    are directly impacted when toxins enter the Great Lakes food chain.
    Under treaty reserved rights, tribal members harvested, processed, and
    consumed: 86,045 walleye; 1,740 musky; 1,757 northern pike; 11,045
    whitetailed deer; 153 bear; 5,725 ducks; geese; and 70,424 pounds of
    wild rice from 1993 to 1995.
        In recent years, potentially dangerous levels of mercury, PCB's,
    and other chemicals have been documented in fish throughout the Great
    Lakes region. Scientific studies have confirmed the direct correlation
    between consumption of fish with high mercury and PCB levels and
    adverse health effects. These include short-term memory and attention
    deficits in children. The Wisconsin Department of Health recommends
    limiting consumption of fish with .5 ppm and no consumption of fish
    with 1 ppm or greater. Given the tribes' heavy consumption of fish, the
    risks are obvious.
        In 1996, the Commission collected 384 walleye samples from 66 study
    lakes in Wisconsin to test mercury levels and establish a baseline from
    which contaminant trends can be identified in the future. Samples were
    then tested in a laboratory under a cooperative agreement with U.W.-
    Superior's Lake Superior Research Institute. Geographic Information
    System (GIS) maps were prepared from this data informing both tribal
    members, and their non-Indian neighbors, which lakes possessed walleye
    containing mercury levels at or above .5 ppm--the level at which the
    Wisconsin Division of Health advised pregnant women, breast feeding
    mothers, and children should restrict their consumption of fish.
    Findings and data from this tribal project is now being used by the
    University of Wisconsin Medical College at Milwaukee in Agency for
    Toxic Substance and Disease Registry (ATSDR) research analyzing
    environmental risks to Indian people who consume fish. On the last page
    of this testimony I have submitted a GIS map indicating mercury levels
    in fish harvested and consumed by Lac Courte Oreilles tribal members
    including myself.
        The Commission requests $13,726 annually to continue testing methyl
    mercury levels of fish harvested on long term study lakes and lakes
    with insufficient data. This will assist scientists in monitoring long
    term mercury trends in walleye harvested by tribal members and more
    effectively protect the health and safety of tribal members in lakes
    previously not sampled.
        ``Monitoring the health of wildlife provides an early warning
    system for declining quality of ecosystems, allows understanding of the
    effects of environmental pollutants at the population level, and serves
    as a means for estimating risks to human health''. (Contaminants in
    Minnesota Wildlife 1989-1991, Keren L. Ensor, Minnesota Pollution
    Control Agency, July 1993). To address tribal concerns the Commission
    is requesting an EPA earmark of $20,000 to conduct heavy metal testing
    on wildlife and establish a baseline from which contaminant trends can
    be identified in the future. This program would be integrated into
    ongoing ecosystem inventories and assessments being conducted by the
    Commission in the 1837 and 1842 ceded territories.
        In addition to harvesting natural resources for subsistence and
    cultural purposes, tribal members also harvest and market Lake
    Superior's commercial fishery. This fishery is important to the economy
    of tribes on Lake Superior and from 1993 to 1995 totaled 405,319 pounds
    of lake trout; 366,563 pounds of siscowet trout; 977,023 pounds of
    white fish; and 143,317 pounds of herring. Trend information on
    contaminants is needed to determine if contaminant levels are
    increasing, decreasing, or remaining stable. Spatial information (i.e.
    GIS mapping formats) on contaminants in indicator species is needed to
    determine whether contaminant levels differ among areas within the Lake
    Superior basin that are fished, harvested, consumed, and marketed by
    tribal members.
        The Commission is requesting $40,150 to establish baseline
    contaminant levels for mercury, copper, cadmium, lead, PCB's, and
    organochlorines in eight indicator species of Lake Superior fish.
    Composite samples are to be taken from spawning reefs in conjunction
    with ongoing stock assessments and include all Lake Superior fishery
    food chain levels--bottom feeders, prey and predators.
        The expanded program we propose would provide more and better data
    on ecosystem contamination, permitting contaminant analysis from a
    long-term perspective. Our goal is to provide more complete information
    so that tribal members can make well-informed decisions about eating
    natural resources harvested under treaty, and involved governments can
    adopt necessary pollution control measures.
                                     ______

         Prepared Statement of Gary A. Glenn, President, Massachusetts
            Foundation for Excellence in Marine and Polymer Sciences

        I am proud to submit this testimony on behalf of a grouping of
    communities in Vermont, California, Massachusetts, Hawaii, and
    elsewhere that are involved in testing a low cost, ecological
    technology for reviving and reusing wastewater. The communities are
    putting their own hard pressed resources into this cost effective but
    still experimental technology, and are pleased that Congress has
    provided funds to EPA to assist in the project. The data from the
    locations where the new technology is being tested, taken together, and
    in accordance with EPA guidelines, will provide the best conceivable
    basis for determining the extent to which this technology can be
    adopted by communities across the country. The different locations
    represent varied geographical conditions so that the results will
    represent a true cross section of the United States. In order to
    complete testing at the demonstration projects already begun, and to
    provide for assembly and testing of a demonstration ecological unit, we
    request $2.25 million for fiscal year 1997. These funds will allow
    approximately $1.5 million for a project in the State of Hawaii that
    will focus on use of native Hawaiian plants and animals in wastewater
    cleansing; and $750,000 to continue essential testing of the state-of-
    the-art facility in Vermont.
        This project fits very well into the ideas and concepts enunciated
    by both parties in this Congress. This technology is intended to be
    community-based and community-specific, as opposed to being centrally
    mandated. Each and every local community in the United States will be
    able to select from a menu of wastewater treatment options, and can
    weigh cost factors, speed of clean-up, size of facility, and water
    reuse alternatives. Thus local communities (as well as counties and
    states) will have expanded freedom in deciding upon wastewater
    treatments.
        The role of the federal government in this project is very limited,
    very specific, and very short term. The only reason for federal
    government involvement is to collect carefully calibrated data on the
    operation of each system so that local communities will have the data
    necessary for decision making. Once this data has been collected over a
    period of time sufficient to demonstrate the technology's effectiveness
    and cost, no further federal funds will be necessary for demonstrating
    the system.
        It is intended that operation of advanced ecologically engineered
    systems will be less expensive for treatment of wastewater than other
    kinds of technologies. This will save taxpayer dollars at the federal,
    state, and local levels.
        The purpose of advanced ecological engineering systems is to treat
    wastewater and its by-products by using natural processes of sunlight,
    plants, and animals in a carefully balanced ecosystem. Untreated or
    inadequately treated sewage, septage and sludge have become one of the
    world's most pressing problems, causing the contamination of drinking
    water supplies and coastal marine waters. This is a particularly acute
    problem in the U.S. because of our high rate of consumption and
    multiple use pressures on our water systems. Public support for
    environmental conservation and reuse of resources continues, but new
    methods for dealing with the protection of our waters are needed.
        The ecologically engineered system that has been developed by Dr.
    John Todd and his associated scientists and engineers removes both
    nutrients and toxic substances from polluted water by channeling it
    through a series of cylindrical tanks or raceways placed in rows inside
    a greenhouse. The tanks are exposed to sunlight and contain a carefully
    designed progression of bacteria, algae, snails and fish. Wastewater is
    pumped into the first tanks where microscopic bacteria attack or
    consume organic matter, thus causing their populations to grow. Algae
    thrive on the nutrients released by the bacteria, and they increase.
    Snails consume the algae, and the cycle goes on, all the while
    transforming the wastewater. Further on, different varieties of plants
    are grown on the surface of the water, allowing their oxygen-rich roots
    to fall beneath the surface where snails and higher organisms graze. In
    the last tanks fish such as tilapia and bass swim around in clean
    water. By imitating the way nature purifies water, only more quickly
    and thoroughly, this system represents a dramatic departure from
    conventional methods.
        This ecological wastewater system is truly effective--not only
    because it uses new and unexpected ways of treating wastewater, but
    also because it asks all of us as citizens to think about what
    ``waste'' means. The traditional method of dealing with vast quantities
    of wastewater produced by our homes and businesses has been to add
    chemicals to kill the potentially toxic organisms and to neutralize the
    toxic inorganic chemicals. All cities in America have at least one and
    often several major treatment plants that attempt to kill and/or
    neutralize wastewater toxicity. These plants use the same kind of
    approach that farmers use with unwanted bugs (applying chemical
    pesticides) or localities use with solid waste (burning it or dumping
    it in the ocean or filling the land with it). The principle behind
    ecological engineering is deceptively simple: let nature take care of
    breaking down the toxins in wastewater in its own way, that is, with
    natural organisms including microbial life forms, plants, and animals.
    In practice, however, the engineering of a dedicated living ecosystem
    containing hundreds or thousands of organisms is phenomenally complex.
    It is only because of scientific breakthroughs in microbiology, plant
    science and pathology, biotechnology, and ecology/environmental science
    that have occurred in recent years that this kind of system engineering
    is now possible.
        The Massachusetts Foundation for Excellence in Marine and Polymer
    Sciences is acting as the coordinator for the various locations where
    this nature-based technology is being tested. We collect data from all
    locations, prepare comparative reports, and interact with EPA on
    matters of consortium interest. On behalf of the participating local
    and state entities, we request the support of this committee in
    providing continuation funding from EPA so that we can maintain
    operations, testing, and facility assembly at demonstration sites in
    Vermont, Hawaii, California, Massachusetts, and elsewhere.
                                     ______

    Prepared Statement of Dr. Robert J. Mason, Director, Environmental Lung
              Center, National Jewish Medical and Research Center

        Mr. Chairman, and Members of the Subcommittee, thank you for the
    opportunity to submit testimony to the hearing record regarding the
    newly established Environmental Lung Center at the National Jewish
    Medical and Research Center in Denver, Colorado. The National Jewish
    Center, formerly the National Jewish Center for Immunology and
    Respiratory Medicine, is the world's foremost center for the study and
    treatment of lung disease.
        As you know, there was a $750,000 set aside in fiscal year 1997 EPA
    Appropriations for research at the Environmental Lung Center. We are
    currently in the process of applying for that funding through the
    Environmental Protection Agency's peer review process and, after some
    preliminary discussions with EPA officials, we believe that a very
    productive relationship with the agency has been fostered. Essentially,
    the mission of the Environmental Lung Center will be to provide the
    sound science necessary to assist the agency with regulatory policy in
    specific areas.
        Generally speaking, the Environmental Lung Center is building upon
    100 years of expertise in this specific science. The goals of the
    Center include discovering the molecular mechanisms for environmental
    and lung disease, including asthma and lung cancer; providing a
    scientific basis for evaluating health hazards of indoor air pollution;
    identifying the genetic and molecular basis for individual
    susceptibility to environmental lung disease; and identifying the risk
    and effect of air pollution on patients with pre-existing pulmonary
    disease.
        This research is extremely important given the fact that in the
    United States, lung disease is the leading cause of death. It is now
    well known that man-made environmental and occupational pollutants
    contribute significantly to the rising numbers of those afflicted,
    particularly impacting residents and commuters to urban areas and those
    who work in occupations such as mining, construction, textiles and the
    military. Indoor air pollution and improper ventilation also cause the
    spread of respiratory illnesses. To eradicate these illnesses and
    address general environmental concerns, the Clean Air Act authorized
    EPA to set exposure standards for six widespread air pollutants. As you
    know, these standards continue to provoke heated debate in the
    scientific and regulatory communities. Our task is to find out the
    extent to which the exposure thresholds are true, as measured against
    individual susceptibility, and to assist the regulatory bodies in this
    country to come up with decisions regarding toxic thresholds of
    compounds and the medical relevance of the EPA's fixed testing-station
    data to surrounding populations.
        As the only high ranking institute in the nation that concentrates
    on lung disease and the only one that sees patients as well as conducts
    research, National Jewish has made great contributions to the
    advancement of medical knowledge about the effects of environmental
    pollutants on the human pulmonary system. Its location in Denver is
    significant in that the city is plagued with environmental pollutants
    (nearly 300,000 Colorado residents have chronic lung disease, which is
    well above the national average, although our patients come from all 50
    states). Our dedicated research at National Jewish has shown definite
    linkages between certain types of ambient air pollutants and asthma. We
    are currently exploring this further, along with the effects of certain
    pollutants on other lung and pulmonary diseases.
        The Environmental Lung Center's research efforts will range broadly
    from studies of molecular biology and immunology, to direct studies of
    air pollution on patients with lung disease. The focus of our work
    during the current year will be on the special features of the lung as
    an immune organ, the pathogenesis of oxidant and particulate inhalation
    injuries, and two specific cohorts of patients, chronic beryllium
    disease and asbestosis. For the purposes of this testimony, I will
    describe the proposed studies in a very general way that will give the
    Subcommittee a view into the complexities of determining safe levels of
    airborne toxins given human susceptibility factors.
        We know that the lung has a unique microenvironment to suppress
    inflammation so as to minimize injury to its delicate gas exchange
    units. We believe that alterations in these specific adaptations
    account for individual susceptibility to environmental hazards. So, in
    terms of the immune system, we will focus on the critical components of
    immunity affecting the mucosal (pertaining to the mucous membranes)
    immunity. These components are called the gamma/delta T lymphocytes. In
    addition, we will focus on two surface-active proteins which are a
    unique part of the immune system of the lung. We have been able to
    clone these proteins and make recombinant proteins for determining
    precise structure and function relationships. We are studying the
    effects of these proteins to block specific infections. In another
    project, we will characterize the antioxidant properties of the lung
    which are critical to protection to the ozone and particulates. We will
    begin our studies on respiratory viral infections, which we believe
    greatly worsen the effects of air pollution, particularly those with
    pre-existing lung disease. One of the most common occupational
    pulmonary diseases in the aerospace industry is chronic beryllium
    disease. We are close to determining the molecular mechanism of this
    important immunologic disease. This will be the first time that an
    antigen receptor on a T lymphocyte has been defined precisely for a
    metal. We also have a cohort of patients with asbestosis which will
    provide us with the opportunity of evaluating the value of sputum
    cytology for the detection of lung cancer in this highly susceptible
    population. Although it may seem that sputum cytology would be useful
    for screening for lung cancer, earlier studies (which may have been
    flawed) with lower risk patients did not establish the benefit of this
    approach for this purpose. This may be worth exploring again in the
    future since lung cancer is the number one killer in this country.
        In the next year we are requesting $750,000 to continue these
    projects and develop our ability to perform gene transfer and gene
    knock out experiments in mice. The most exciting new technology is the
    use of inducible promoters to turn on a certain gene in a specified
    cell at a particular time. The technical components for doing this in
    the respiratory epithelium are available, but accomplishing this feat
    remains an exciting but formidable challenge for the next year. With
    this technology we will be able to turn on a specific gene at a
    particular site in the lung to defend against an environmental agent of
    interest.
        The major thrust for the next five years is to take advantage of
    modern molecular biology and genetics in order to study environmental
    lung disease. Never before have researchers had the ability to
    determine the genetic basis for individual susceptibility and the
    molecular mechanisms of disease. Our institution is internationally
    known for its research in immunology, and we want to utilize this
    expertise to study environmental lung disease. In order to accomplish
    this goal, we need to expand our research facilities and core units in
    order to accommodate these new programs. We will commit at least 2.5
    million dollars in matching funds, and we are requesting 2.0 million
    dollars to develop these research facilities.
        Mr. Chairman, we believe that we are the best partner to provide
    the type of sound scientific research necessary to assist the agency
    with its regulatory decision-making goals. Our desire is to grow this
    relationship and hope that the subcommittee will provide $750,000 to
    continue this relationship for another year. Mr. Chairman, our mission
    is taking us to a new level of research, compounding our need to
    renovate and expand our current research laboratory. Therefore, we
    would also like to take this opportunity to present our need for $2
    million as a federal share, to be matched by National Jewish, in order
    to expand our research space. This federal investment will enhance our
    nation's commitment to protecting the health and safety of its workers,
    citizens and individuals the world over. The research conducted by the
    Center will lead to medical breakthroughs and environmental findings
    that will assist the federal government to set new standards for both
    government and business. Your support for these efforts will save lives
    and ultimately, save costs for the federal government and for
    businesses who are currently struggling to comply with new standards.
        Thank you.
                                     ______

      Prepared Statement of Terrence J. O'Brien, President, Metropolitan
                 Water Reclamation District of Greater Chicago

        I am Terrence J. O'Brien, President of the Metropolitan Water
    Reclamation District of Greater Chicago, and on behalf of the Water
    Reclamation District, I want to thank the Subcommittee for this
    opportunity to present our priority for fiscal year 1998, and express
    our appreciation for your support of our requests over the years. The
    Metropolitan Water Reclamation District (MWRD) is the sponsor for the
    federally approved combined sewer overflow (CSO) project, the Tunnel
    and Reservoir Plan (TARP), in Chicago, Illinois. Specifically, we are
    asking that $30 million be included to continue construction of this
    project in the Subcommittee's VA, HUD and Independent Agencies
    Appropriations Bill for fiscal year 1998. The following outlines the
    project and the need for the requested funding.

                                  INTRODUCTION

        The Metropolitan Water Reclamation District was established in 1889
    and has the responsibility for sewage treatment, flood control and
    stormwater management in Cook County, Illinois. In fact, the District
    was established, in response to an epidemic which killed 90,000 people
    in 1885, for the purpose of addressing the local sewage problems and by
    1900, had reversed the flows of the Chicago and Calumet Rivers to carry
    combined sewage away from Lake Michigan, the area's main source of
    water supply. The District has been involved with major engineering
    feats since its inception.
        In an effort to meet the water quality goals of the Clean Water
    Act, to prevent backflows into Lake Michigan, and to provide an outlet
    for flood waters, the Metropolitan Water Reclamation District of
    Greater Chicago designed the innovative two-phase Tunnel and Reservoir
    Plan. TARP Phase I, which was judged by the EPA on two occasions as the
    most cost-effective plan available to meet the enforceable provisions
    of the Clean Water Act, is a combined sewer overflow elimination
    system. TARP Phase II, also under construction, will provide flood
    control relief to hundreds of thousands of residents and businesses in
    the Chicagoland area.

                           TUNNEL AND RESERVOIR PLAN

        TARP Phase I is an intricate system of drop shafts, tunnels and
    pumping stations which will capture combined sewer overflows from a
    service area of 375 square miles. Chicago will remove four times the
    amount of combined sewer overflow (CSO) pollution as Boston's projected
    removal--for approximately the same cost. The Calumet system will
    provide 3.6 million pounds of biological oxygen demand (BOD) removal
    versus Boston's one million pounds of BOD removal per year. In fact,
    Chicago's CSO pollution problems are worse than the combination of
    Boston, New York, and San Francisco's pollution problems. The Chicago
    Metropolitan area's annual BOD loading is 43 million pounds per year.
    This contrasts with the combination of Boston, New York, and San
    Francisco's combined annual BOD loading of 35 million pounds.
        A good portion of the remainder of the TARP system is to be built
    in the southeast side of Chicago and the southern suburbs (Calumet
    system), a low-income, highly neglected and highly polluted area. This
    community suffers from tremendous land, air, and water pollution--
    literally a dumping ground for multi-media pollution ranging from
    chemical waste to serious water pollution.
        Due to the enormous risk to the community, the Water Reclamation
    District, as the local sponsor, cannot afford to leave the citizens
    vulnerable. Therefore, it is imperative that this work must continue.
    Because the construction industry is already doing work in the area,
    the climate is favorable for proceeding with this work at this time,
    producing a significant cost savings. What we are seeking, then, is
    funding to advance federal work.
        We have a proven and cost-effective program. In fact, we have
    estimated that TARP's cost is about a quarter of the cost of separating
    the area's existing combined sewer systems into separate sewage and
    stormwater systems. Upon reanalysis, the EPA has consistently found the
    TARP program to be the most cost-effective solution that will reduce
    the impacts by the greatest degree to meet the enforceable requirements
    of the Act, with the least amount of dollars. The project, while
    relating most specifically to the 52 tributary municipalities in
    northeastern Illinois, is also beneficial to our downstream communities
    such as Joilet and Peoria. These benefits occur because of the capture
    of wastewater in the tunnels during storm periods and by treatment of
    the discharge before being released into the waterways.
        TARP was designed to give the Chicago metropolitan area the optimal
    environmental protection that could possibly be provided. More
    importantly, no other project was found to be as cost-effective. In
    addition, the beneficial use of the project is being enhanced by the
    addition of the flood control reservoirs now being designed and
    constructed by the Corps of Engineers, which will be connected to the
    tunnels for additional capture and storage of combined sewage during
    flood events. We believe TARP stands as a tribute to our nation's Clean
    Water goals and one that is being accomplished within the most economic
    constraints.

                                REQUESTED ACTION

        The $30 million we are seeking in fiscal year 1998 funding in the
    Subcommittee's bill will reimburse the local sponsor for the
    construction of the Torrence Avenue Leg of the Calumet system of the
    TARP project. We greatly appreciate the Subcommittee's endorsement of
    our request over the years to advance the construction of this work.
    This fiscal year 1998 work will go a long way to address serious water
    quality, stormwater and safety problems. It will have a tremendously
    beneficial impact on a community which suffers from water pollution and
    significant flooding problems. The facilities plan for the overall TARP
    project has been approved by the EPA and design has been completed. The
    EPA has identified this particular segment of work as the next critical
    section of the plan to be constructed based on significant water
    quality benefits.
        Once on-line, the Torrence Avenue Leg of the Calumet System will
    capture 2.6 billion gallons of CSO's per year and will protect 21
    square miles of the City of Chicago from raw sewage backup and
    flooding.
        We urgently request that this funding be included in the
    Subcommittee's bill for the construction of the Calumet System of the
    TARP project. We thank you in advance for your consideration of our
    request.
                                     ______

     Prepared Statement of Hon. Ed Jennings, Mayor, City of Gainesville, FL

            the sweetwater branch/paynes prairie stormwater project
        Mr. Chairman: On behalf of the City of Gainesville, Florida I
    appreciate the opportunity to present this written testimony to you
    today. The City of Gainesville is seeking federal funds in the fiscal
    year 1998 VA-HUD Appropriations bill, in order to assist our efforts to
    protect the Florida aquifer from stormwater runoff. In particular, we
    are hopeful that the Subcommittee will provide the City with $2 million
    as an EPA Special Assistance Grant.
        In Gainesville, the Sweetwater Branch basin contains approximately
    1,710 acres and is located in the southeast central portion of the
    City. The outfall from this basin discharges into Paynes Prairie, a
    state owned preserve and park system, which eventually flows into the
    Alachua Sink, a natural sink hole that drains directly into the Florida
    Aquifer. This Aquifer provides the majority of drinking water to
    Florida's a residents and has a direct impact on Florida Everglades.
        The Sweetwater Branch drainage basin contains urban, commercial,
    industrial, and residential area stormwater runoff. Because the branch
    runs through some of the oldest portions of Gainesville, most
    stormwater runoff is directly discharged into the Branch with very
    little flooding or pollution removal treatment. The runoff has the
    potential to affect threatened and endangered wildlife such as the Bald
    Eagle, the Woodstork, the Florida Sandhill Crane, and the Southeastern
    American Kestrel. In addition, many domestic water wells are used to
    obtain water from surficial and intermediate aquifers in the area. In
    summary, the situation has created a concern among environmentalists,
    business leaders, and concerned citizens throughout the region that
    Paynes Prairie and the Florida aquifer are being compromised.
        With this in mind, the City of Gainesville, Alachua County, St.
    Johns River Water Management District, Florida Department of
    Environmental Protection and local citizens are all seeking a
    comprehensive ecosystem management solution to the problem of
    stormwater runoff from downtown entering Sweetwater Branch, Paynes
    Prairie, and the Alachua Sink. The project devised by these groups
    would reduce or eliminate the sediment, debris, nutrients and general
    pollutants currently being discharged. Current projections are that the
    project would consist of the following three components:
      --the purchase of undeveloped property in the vicinity of State Road
            331 and Sweetwater Branch;
      --the construction of maintainable sediment and debris removal
            systems; and
      --the construction of maintainable nutrient removal systems.
        An in-depth engineering analysis of the creek system, property
    topography, associated wetlands, and other pertinent factors is needed
    to determine the optimum and appropriate scope of property purchase and
    facilities construction. The City is prepared to pay some of the cost
    for this analysis, but we are simply unable to bear the entire burden.
    As a result, we request that the Subcommittee appropriate $2 million as
    an EPA Special Assistance Grant to assist our efforts. Once the project
    construction is complete, Gainesville Stormwater Management Utility, a
    public utility, would provide the required annual maintenance for the
    facility and no federal maintenance funds would be needed.
        This is a critical and much needed project for the City of
    Gainesville, as well as the entire State of Florida, and we
    respectfully ask the Subcommittee for its consideration of the
    Sweetwater Branch/Paynes Prairie Stormwater Project.
                                     ______

    Prepared Statement of Joe L. Mauderly, Senior Scientist and Director of
           External Affairs, Lovelace Respiratory Research Institute

        It is proposed that the U.S. Environmental Protection Agency
    establish and support a National Environmental Respiratory Center for
    the purpose of coordinating research and information transfer
    concerning health risks of breathing airborne contaminants in the
    environment. Federal support is specifically requested as part of the
    fiscal year 1998 appropriation through an account the Subcommittee
    determines to be appropriate.

                  THE ENVIRONMENTAL RESPIRATORY HEALTH DILEMMA

    U.S. Health Burden of Respiratory Disease

        The magnitude of the national health burden caused by respiratory
    diseases is not widely appreciated. These diseases now kill one out of
    four Americans. Among cancers, the second leading cause of death, lung
    cancer is the single largest killer. Nearly 195 thousand new cases of
    respiratory tract cancer will be diagnosed this year, and 166 thousand
    Americans will die from these cancers. Lung cancer kills more than
    twice as many women as breast cancer, and more than twice as many men
    as prostate cancer. Pneumonia and heart-lung failure are the terminal
    conditions for many of our elderly. Excluding cancer, chronic
    respiratory diseases and pneumonia are the third leading cause of death
    in the U.S., killing over 188 thousand Americans in 1995. Asthma,
    growing unaccountably in recent decades, now afflicts 15 million
    Americans, including 5 million children. The incidence of asthma
    increased 61 percent between 1982 and 1994, and asthma deaths among
    children nearly doubled between 1980 and 1993. Viral respiratory
    infections are the most common cause of hospitalization of infants and
    cause a tremendous loss of productivity in the adult workforce.
    Occupational lung disease is the number one work-related illness in the
    U.S. in terms of frequency, severity, and degree of ``preventability''.
    Worldwide, three times more people die from tuberculosis than from
    AIDS.

    Critical Uncertainties Regarding Contributions of Airborne
            Environmental Contaminants

        Pollutants inhaled in the environment, workplace, and home are
    known to aggravate asthma and contribute to respiratory illness, but
    the extent of their role in causing respiratory disease is not clear.
    It is known that it is possible for airborne irritants, toxins,
    allergens, carcinogens, and infectious agents to cause cancer,
    degenerative disease, and infections directly, or indirectly through
    reduction of normal defenses, but the portion of such diseases caused
    by, or strongly influenced by, pollution is uncertain.
        EPA is repeatedly faced with estimating the health effects of
    environmental air pollution on the basis of very limited information
    and in the presence of large uncertainty. For example, environmental
    radon gas is estimated to be the second leading cause of lung cancer
    (after smoking), but this estimate comes from our experience with
    uranium mining, in which the exposure conditions and exposed population
    were quite different from those in the general environment. As another
    current example, it is estimated that as many as 40 thousand Americans
    may die annually from breathing particulate environmental air
    pollution, but this estimate comes from epidemiological data that do
    not provide a clear understanding of individuals who were affected, the
    nature and magnitude of their exposure, the biological processes by
    which death might have occurred, or the extent to which the effects of
    particles were independent of other pollutants.
        It is difficult to associate health effects with specific pollutant
    sources. Most environmental air contaminants have multiple sources
    which produce species of overlapping, but slightly different physical-
    chemical types. There are few biological markers of exposure which can
    be used to link health effects to past exposures to pollutant classes,
    much less to specific pollutants and sources. This makes it very
    difficult to associate specific pollutant species with specific health
    effects, identify and prioritize the sources whose management would
    most efficiently reduce the effects, and compare potential health gains
    to the financial, technological, and lifestyle commitments required to
    achieve them.
        EPA faces a critical problem because we have little scientific or
    regulatory ability to deal with pollutant mixtures. It is recognized
    that all exposures to air pollutants involve inhalation of complex
    mixtures of materials, but there is very little research on the health
    effects of mixtures, or the significance of interactions among combined
    or sequential exposures to multiple pollutants. The present approach to
    implementing the National Ambient Air Quality Standards (NAAQS)
    addresses individual contaminants, or contaminant classes, in
    isolation. There is little framework for considering the effects of
    pollutant mixtures, and little ongoing research that will provide a
    basis for such a framework. We know that multiple pollutants can cause
    common effects, such as inflammation. We know that some pollutants can
    amplify the effects of others. We can presume that a mixture of
    pollutants, each within its acceptable concentration, could present an
    unacceptable aggregate health risk. We face the possibility,
    exemplified by current uncertainties about particulate matter, that a
    pollutant occurring in a mixture might wrongly be assigned sole
    responsibility for a health effect that, in fact, results from the
    mixture or an unrecognized copollutant that varies in concert with the
    accused species. This issue will become increasingly important as
    pollutant levels are pushed ever lower, and needs coordinated,
    interdisciplinary attention.
        As air pollutant levels are reduced, the problems of correctly
    linking health effects to the correct species and sources, and of
    making difficult cost-benefit policy judgments, will increase. The
    levels of many environmental air contaminants have decreased due to
    technological developments and regulatory pressures. For example,
    between 1985 and 1995, concentrations of airborne lead, sulfur dioxide,
    and carbon monoxide in the U.S. decreased 32 percent, 18 percent, and
    16 percent, respectively, and levels of airborne particulate matter
    decreased 22 percent between 1988 and 1995. Levels of ozone levels and
    several other pollutants have also decreased. As background levels are
    approached, decisions regarding: (a) the benefits of further reductions
    in man-made pollution; (b) the need to consider pollutants as a mixture
    rather than as individual species; and (c) the point at which small
    biological changes represent health effects warranting control, will be
    more difficult and will require additional focused, coordinated
    research.
        EPA is repeatedly faced with estimating effects in particularly
    sensitive or susceptible subpopulations. For example, the proposed new
    NAAQS for ozone and particulate matter are driven largely by effects
    thought to occur in exercising asthmatics and elderly people with
    preexisting lung and heart disease, respectively. It is seldom
    appropriate to conduct studies in which adverse effects are
    intentionally elicited in the most sensitive people. Until recently,
    there has been little emphasis on developing laboratory animal models
    of human heart-lung conditions thought to render people susceptible to
    pollutants. More emphasis needs to be given to developing and
    validating these research tools, and to coordinating such efforts
    across agencies and research disciplines.
        EPA repeatedly faces uncertainties regarding the relevance of
    laboratory results to human health risks. As one of several examples,
    uncertainties about the relevance of the lung tumor response of rats to
    diesel exhaust to human lung cancer risk has impeded the development of
    unit risk estimates and delayed completion of EPA's diesel health
    assessment activity. Much of our understanding of the toxicity of
    inhaled airborne materials comes from studies using animals and cells
    to identify toxic agents, understand biological responses, and
    determine relationships between dose and effect. Such studies produce
    detailed information on the response of animals or cells, but there is
    too little emphasis on ensuring that the responses are similar to those
    that occur in humans. Development of information having little
    relevance to humans wastes resources. The validation of responses of
    animals and cells used to provide the scientific basis for national
    environmental policy needs to be given greater emphasis and
    coordination.

    Lack of Interagency and Interdisciplinary Coordination

        EPA does not have the mandate or resources to resolve all of these
    interrelated issues alone; the resources of other agencies and non-
    federal sponsors are critical. Current efforts are funded by EPA and
    other agencies, including CDC/NIOSH, FDA, DOD, DOE, NIH (NHLBI, NIEHS,
    NCI, NLAID, NIDA), and by health advocacy organizations, industry,
    labor, and private foundations. Existing coordinating activities within
    and among these groups do not provide sufficient integration and
    synergism. Progress will require a wide range of laboratory
    researchers, atmospheric scientists, epidemiologists, and clinical
    researchers. Focusing and resolving the issues will require
    interactions among researchers, health care professionals, and policy
    makers in an iterative manner that fosters rapid information transfer
    and development of joint investigative strategies. There is no
    mechanism for national coordination of this interagency and
    interdisciplinary effort. As a result, some efforts are duplicated and
    some important issues are being inadequately addressed. The lack of a
    national center for focusing and facilitating this effort will
    increasingly create inefficiencies and impede progress.
        There is also no national center for collecting and disseminating
    information on the health impacts of airborne environmental
    contaminants. Researchers, federal agencies, Congress, industry, and
    the public do not have a centralized source of information on ongoing
    research or recent findings.
        There is no designated national interagency user facility with the
    specialized facilities, equipment, core support, and professional
    collaboration required for many types of investigations to study the
    complex airborne materials and health responses of concern.
    Investigators seek access to specialized facilities in EPA and other
    laboratories on an individual basis, but there is no coordinated
    national effort to facilitate the work of investigators in
    universities, federal laboratories, and industry by identifying and
    providing shared resources or standardized samples.
        EPA and other agencies have intramural research centers or
    administrative structures that serve internal programmatic coordination
    needs, but these efforts rarely extend across agency lines. EPA and
    other agencies also fund extramural centers to study, or facilitate the
    study, of specific issues related to environmental respiratory health.
    EPA's Mickey Leland National Urban Air Toxics Research Center funds
    research and information transfer on the class of compounds designated
    in the Clean Air Act as ``air toxics''. The Leland Center serves a
    useful coordinating and research sponsorship function for air toxics,
    but does not have the facility or scientific resources to meet the
    broader needs described above. NIEHS center grants at universities
    provide core support and coordinating functions for thematic
    collections of projects on occupational and environmental health, but
    again, are not suited to meeting the broader needs.
        The lack of a national coordinating center is notable, considering
    its small cost compared to the loss of productivity, the reduction in
    quality of life, and the loss of life caused by respiratory diseases
    and considering the importance now ascribed to the role of
    environmental factors in respiratory disease.

              THE NATIONAL ENVIRONMENTAL RESPIRATORY CENTER (NERC)

    Location and Staffing

        The Lovelace Respiratory Research Institute (LRRI) proposes to
    establish a national center to meet the coordinating, user facility,
    and information needs described above. The physical location of the
    NERC will be the government-owned Inhalation Toxicology Research
    Institute facility on Kirtland AFB in Albuquerque, NM. This facility is
    already developed at taxpayer expense, having been established by the
    DOE to conduct research on long-term health risks from inhaled
    radioactive particles. Having fulfilled that mission, the facility was
    recently released from DOE laboratory status, and is now leased by LRRI
    to conduct respiratory health research for federal agencies, industry,
    and private sponsors. This 270,000 square foot, world-class facility
    contains $50 million in government-owned equipment, and has unmatched
    potential as a national user facility. The facility is well-equipped
    and staffed for intramural and collaborative research on airborne
    materials of all types, including reproducing pollutant atmospheres,
    conducting inhalation exposures of animals, determining the dosimetry
    of inhaled materials, and evaluating health effects ranging from subtle
    genetic and biochemical changes to clinical expression of disease.
        The interests and expertise of LRRI are well-matched to the
    proposed activities of the Center. While managing the facility for DOE,
    LRRI contributed heavily to our present understanding of the
    respiratory health impacts of airborne pollutants. LRRI has conducted
    research for EPA, and has contributed heavily to the research cited as
    scientific basis for air quality regulation. The group is well-known
    for its efforts to understand airborne materials, link basic cellular
    and tissue responses to the development of disease, validate the human
    relevance of laboratory findings, and coordinate complex
    interdisciplinary studies. The LRRI group has conducted the world's
    most extensive research program on the effects of combined and
    sequential exposures to multiple toxicants. The group is well-known for
    its participation in advisory roles on EPA committees, and for
    coordinating multidisciplinary and interinstitutional efforts.
        LRRI envisions a ``virtual center'' that will also encompass nearby
    institutions and an expanding group of collaborating investigators
    nationwide. Academic affiliation with the University of New Mexico,
    primarily through its Health Sciences Center will extend research and
    training capabilities. Other local technology and collaborative
    resources include Sandia and Los Alamos National Laboratories, the
    National Center for Genome Resources, and the growing New Mexico
    biotechnology and clinical research communities. The NERC would
    interact closely with the Leland Center and with intramural research
    centers within EPA and other agencies.

    Principal Functions

        1. Provide information resources.--The Center will provide
    centralized information resources to researchers, EPA and other
    agencies, congress, industry, and the public. Literature searches,
    topical summaries, and answers to specific inquiries will be provided
    via the internet, electronic mail, and telephone. Emphasis will be
    given to providing access to relevant information nationwide through a
    single point of contact and assistance.
        2. Facilitate interagency and interinstitutional coordination.--The
    Center will coordinate meetings, workshops, information transfer, and
    other activities aimed at integrating and prioritizing national
    research efforts and integrating results into useful summaries.
        3. Provide user facilities and facilitate access to research
    resources.--The Center will disseminate information on the availability
    of specialized facilities, equipment, collaborative resources, and
    samples at the Center and elsewhere, and will facilitate the use of
    these resources by researchers in other institutions.
        4. Provide training.--The Center will provide graduate training
    through the Toxicology, Biomedical, and Public Health programs at the
    University of New Mexico, and by hosting thesis research from other
    universities. Postdoctoral and sabbatical appointments will also be
    provided. Workshops and training courses will be conducted.
        5. Conduct and sponsor research.--While it is envisioned that
    limited intramural research will be conducted with Center funding,
    intramural research will be principally funded by direct sponsorship of
    Agencies, industry, and the public through grants, contracts, and
    donations. Through the Center, extramural research aimed at critical
    information gaps not addressed by other sponsors will be funded.
            funding of the national environmental respiratory center
        LRRI seeks authorization and subsequent appropriations through EPA
    for core funding, with additional sponsorship from other agencies for
    research aligned with individual agency mandates and strategic goals.
        An initial appropriation of $2 million per year for 5 years,
    beginning in fiscal year 1998, will establish the Center and its core
    information, educational, and administrative functions. This amount
    will provide for critical computing and communication infrastructure,
    and limited facility renovations and equipment acquisitions. This
    amount will provide very little intramural or extramural research
    support; additional support for these purposes will be sought in
    coordination with the lead sponsoring agency as the Center is
    established. The goal is to develop research support principally
    through sponsored programs, and to use the core Center support
    principally to provide coordinating and information services and
    sponsor limited collaborative research.
                                     ______

              Prepared Statement of the American Chemical Society

       fiscal year 1998 budget request for the environmental protection

                       AGENCY'S RESEARCH AND DEVELOPMENT

        The American Chemical Society urges Congress to support the
    Administration's fiscal year 1998 request for the Environmental
    Protection Agency's Science and Technology Account ($614.3 million) and
    for Superfund Research ($39.8 million). The combined research funding
    from these EPA accounts would provide the Office of Research and
    Development (ORD) with the minimum resources needed to focus on the
    greatest risks to human health and the environment, and also to
    determine where the greatest contribution to reducing those risks can
    be made.
        Since the American Chemical Society believes that ORD should be the
    highest priority in the Agency's budget, appropriate funding for ORD
    should be supported even at the expense of other EPA programs.
    Additional funding above the requested level could be well spent for
    research in support of decisionmaking and to avoid future environmental
    problems. If ORD is supported at the requested level (a $50 million
    increase to $554 million), then:
      --The Science to Achieve Results programs receive almost $115 million
            for extramural grants and fellowships, which are awarded in
            peer-reviewed competitions to conduct important environmentally
            related research, and for the Environmental Research Centers,
            which continue with level funding.
      --In-house research continues to be strengthened through risk-based
            priority setting, peer review, and competitions for research
            projects.
      --Work increases to reduce uncertainties in priority areas such as
            risks to children, endocrine disruptors, drinking water
            disinfectant byproducts and microbes, particulate matter, and
            urban toxics.
      --Quality science is provided in support of the Safe Drinking Water
            Act Amendments and the Food Quality Act, passed by Congress
            last year.
      --Research leads to a better understanding of stresses on the
            ecosystem and links to human health.
      --New tools, technologies, and methods for pollution prevention are
            developed and introduced. The Advanced Measurement Initiative
            accelerates the application of enhanced measurement and
            monitoring tools. Testing continues to determine the
            performance of environmental technologies developed in the
            public and private sectors.
        The Superfund Account also transfers funds for research purposes to
    the National Institute for Environmental Health Sciences and to the
    Agency for Toxic Substances and Disease Registry. These transfers
    should be supported at least at the fiscal year 1997 level of funding--
    $32.5 million and $64.0 million, respectively.
        Your support for the Science and Technology Account request and the
    transfers for research from the Superfund Account will help to secure
    the quality science and research needed for sound decisionmaking and
    cost-effective regulations.
                                     ______

        Prepared Statement of the Water Environment Research Foundation

        The Water Environment Research Foundation (WERF or Foundation)
    appreciates the opportunity to submit this statement and request for
    funding to the Subcommittee. WERF is a non-profit organization that
    funds and manages water quality and wastewater technology research. It
    is a unique public/private partnership between municipal utilities,
    corporations, academia, industry, and the federal government, together
    focusing resources on developing good science and technology for
    rational environmental decision making. The results of WERF's research
    allow regulators to better understand the costs and benefits of
    different regulatory approaches and to select the least-cost
    environmentally-beneficial approach.
        WERF was created in response to the fact that federal funding for
    practical wastewater treatment technology and process research has
    declined from $15.6 million annually to virtually nothing today.
    Likewise, funding for municipal water pollution engineering research at
    the U.S. Environmental Protection Agency's (EPA's) Water Research
    laboratory in Cincinnati has fallen from $7.4 million in 1982 to almost
    zero today. Overall EPA water quality research funding has fallen from
    $67 million in 1980 to $26 million in 1996. Most of the available money
    is being used by EPA to support the development of regulations. This
    has resulted in the stagnation of advances in wastewater control
    technology and missed opportunities for better, more cost-efficient
    wastewater management, and has prevented our nation from achieving full
    benefit from the $65+ billion federal investment in wastewater
    infrastructure.
        WERF provides an objective forum for peer reviewed water pollution
    control research to benefit the public and private sectors. Each year
    WERF surveys its Subscribers, as well as a broad cross section of the
    water quality profession, to develop consensus on the most pressing
    scientific and technological research needs. Once the statistical
    analysis of the survey is complete, WERF synthesizes the data into a
    comprehensive 5-Year Research and Development Plan. To the extent
    funding allows, research proposals are solicited on a priority basis.
    An independent advisory Research Council, made up of experts from
    municipal utilities, academics, engineering firms, regulatory agencies
    and equipment manufacturers, helps WERF select researchers, oversees
    studies, and provides periodic review and advice. WERF's customer
    orientation facilitates creation of a consensus-based research agenda
    addressing the needs of the people who govern and manage water quality
    protection facilities. WERF's close association with the users of
    research results, the Water Environment Federation, and EPA ensures the
    practical application of findings.
        WERF's funding is overwhelmingly contributed by municipal agencies
    that represent more than half of the sewered population of the United
    States. WERF members also include equipment manufacturers, consulting
    firms and large industrial companies. These members are geographically
    diverse and represent most of the country, including 38 states. WERF
    has also received modest federal funding through the EPA budget (in
    fiscal years 1991, 1993, 1994, 1995, and 1996) and through
    Congressional add-ons to EPA's budget (in fiscal years 1991, 1992,
    1993, and 1996). The appropriations bill passed by the Congress for
    fiscal year 1997 included $1.5 million for WERF.
        Since its inception in 1989, WERF has leveraged federal funding at
    a 6:1 ratio including in-kind contributions and co-funding from
    municipal utilities and the private sector. Only 12.6 percent of the
    Foundation's budget is used to pay for fund raising and administrative
    costs. The rest is spent on research. Since its inception in 1989, WERF
    has initiated over 100 research projects valued at some $30 million.
    Completed research has resulted in 25 published reports, with ten
    additional reports expected to be printed by the end of 1997. Reports
    due in 1997 include studies on optimizing wastewater treatment plant
    operations, biosolids stability criteria, guidance for performing use-
    attainability analyses and wet weather protocols (among others).
        WERF respectfully requests that this Subcommittee include a $5
    million appropriation for the Foundation in the fiscal year 1998 EPA
    budget so that the critical research agenda developed by the Foundation
    and its public and private partners (including EPA) can be carried out
    to the fullest extent possible. This amount would reflect federal
    matching of state and local government commitments to WERF. Simply
    stated, the technology of today is based upon the research of the past.
    The promise of the future is based on the research of today.
                                     ______

    Prepared Statement of the California Industry and Government Coalition
                                on PM-10/PM-2.5

        Mr. Chairman and Members of the Subcommittee: On behalf of the
    California Industry and Government Coalition on PM-10/PM-2.5, we are
    pleased to submit this statement for the record in support of our
    fiscal year 1998 funding request of $1.0 million in the EPA budget for
    the California Regional PM-10/PM-2.5 Air Quality Study.
        The San Joaquin Valley of California and surrounding regions exceed
    both state and federal clean air standards for small particulate
    matter, designated PM-10/PM-2.5. The 1990 federal Clean Air Act
    Amendments require these areas to attain federal PM-10/PM-2.5 standards
    by December 31, 2001, and the proposed PM-2.5 standards by mid 2003.
    Attainment of these standards requires effective and equitable
    distribution of pollution controls that cannot be determined without a
    major study of this issue.
        According to EPA and the California Air Resources Board, existing
    research data show that air quality caused by the PM-10/PM-2.5 problem
    has the potential to threaten the health of more than 3 million people
    living in the region, reduce visibility, and impact negatively on the
    quality of life. Unless the causes, effects and problems associated
    with PM-10/PM-2.5 are better addressed and understood, many industries
    will suffer due to production and transportation problems, diminishing
    natural resources, and increasing costs of fighting a problem that begs
    for a soundly researched solution.
        PM-10/PM-2.5 problems stem from a variety of industry and other
    sources, and they are a significant problem in the areas that are
    characteristic of much of California. Typical PM-10/PM-2.5 sources are
    dust stirred up by vehicles on unpaved roads, and dirt loosened and
    carried by wind during cultivation of agricultural land. Soil erosion
    through wind and other agents also leads to aggravation of PM-10/PM-2.5
    air pollution problems. Chemical transformation of gaseous precursors
    are also a significant contributor to PM-2.5, as are combustion
    sources.
        The importance of this study on PM-10/PM-2.5 is underscored by the
    need for more information on how the federal Clean Air Act Amendments
    standards can be met effectively by the business community, as well as
    by agencies of federal, state and local government whose activities
    contribute to the problem, and who are subject to the requirements of
    Title V of the Clean Air Act. There is a void in our current
    understanding of the amount and impact each source of PM-10/PM-2.5
    actually contributes to the overall problem. Without a better
    understanding and more information--which this study would provide--
    industry and government will be unable to develop an effective
    attainment plain and control measures.
        Our Coalition is working diligently to be a part of the effort to
    solve this major problem, but to do so, we need federal assistance to
    support research and efforts to deal effectively with what is
    essentially an unfunded federal mandate.
        Numerous industries, in concert with the State of California and
    local governmental entities, are attempting to do our part, and we come
    to the appropriations process to request assistance in obtaining a fair
    federal share of financial support for this important research effort.
    In 1990, our Coalition joined forces to undertake a study essential to
    the development of an effective attainment plan and effective control
    measures for the San Joaquin Valley of California. This unique
    cooperative partnership involving federal, state and local government,
    as well as private industry, has raised more than $14 million to date
    to fund research and planning for a comprehensive PM-10/PM-2.5 air
    quality study. Our cooperative effort on this issue continues, and our
    hope is that private industry and federal, state and local governments
    will be able to raise an additional $13 million over the next three
    years to fund this important study.
        The following is a list of PM-10/PM-2.5 research projects which are
    in progress:
      --Planning.--Development of protocols for emissions, field
            monitoring, data analysis and modeling.
      --Technical support studies.--Suitability of data base; (1995
            Integrated Monitoring Study); micrometeorological parameters;
            fog formation/dissipation; ammonia from soils.
      --Modeling.--Demonstration of modeling system for application in
            SIP's.
      --Data analysis.--Analysis of existing data to aid project planning.
      --Demonstration studies.--Almond, fig, walnut, cotton, harvesting;
            unpaved agricultural roads; unpaved public roads; unpaved
            shoulders of paved roads; dairies, feedlots, poultry, dry
            cereal grain.
        For fiscal year 1998, our Coalition is seeking $1.0 million in
    federal funding through the U.S. Environmental Protection Agency to
    support continuation of this vital study in California. We respectfully
    request that the Appropriations Subcommittee on VA, HUD and Independent
    Agencies provided this additional amount in the EPA appropriation for
    fiscal year 1998, and that report language be included directing the
    full amount for California.
        The California Regional PM-10/PM-2.5 Air Quality Study will not
    only provide this vital information for a region identified as having
    particularly acute PM-10/PM-2.5 problems, it will also serve as a model
    for other regions of the country that are experiencing similar
    problems. The results of this study will provide improved methods and
    tools for air quality monitoring, emission estimations, and effective
    control strategies nationwide. Consequently, the beneficial results of
    this study will contribute to national policy concerns as well.
        The Coalition appreciates the Subcommittee's consideration of this
    request for a fiscal year 1998 appropriation of $1.0 million for EPA to
    support the California Regional PM-10/PM-2.5 Air Quality Study.
                                     ______

         Prepared Statement of the Association of State Drinking Water
                                 Administrators

                                  introduction
        The Association of State Drinking Water Administrators (ASDWA) is
    pleased to provide written testimony to the VA, HUD and Independent
    Agencies Subcommittee on Appropriations for fiscal year 1998. ASDWA
    represents the drinking water programs in each of the fifty states and
    six territories in their efforts to ensure the provision of safe,
    potable drinking water to over 250 million consumers nationwide.
    ASDWA's primary mission is the protection of public health through the
    effective management of state drinking water programs that implement
    the Safe Drinking Water Act (SDWA).

                                request overview

        Adequate funding for state Public Water Supply Supervision (PWSS)
    programs, the Drinking Water State Revolving Fund (DWSRF), and drinking
    water health effects research are three areas of significant importance
    to ASDWA. ASDWA also supports adequate funding for state source water
    protection programs and the Environmental Protection Agency's (EPA)
    Drinking Water Program to effectively address new provisions in the
    SDWA.
        The SDWA, if fully implemented, contains provisions that will
    significantly improve the provision of safe drinking water in this
    country. In order to ensure this success, ASDWA respectfully requests
    that the following funding be appropriated for the indicated purpose:
      --State Public Water Supply Supervision (PWSS) Programs.--$100
            million (as authorized)
      --Drinking Water State Revolving Fund.--$1 billion (as authorized)
      --Drinking Water Health Effects Research.--$35.9 million
      --EPA/AWWA Research Foundation Drinking Water Research Partnership.--
            $5 million (to be matched by AWWARF and water suppliers)
      --Arsenic Health Effects Research Partnership.--$1 million (to be
            matched by AWWARF)
      --EPA Drinking Water Program.--$105.3 million
      --State Source Water Protection Programs.--$10 million
             state public water supply supervision (pwss) programs
        With passage of the SDWA, states must implement myriad new
    requirements--many with very short timeframes for program development
    and implementation. The new law requires states to develop drinking
    water state revolving loan fund programs; delineate and assess all the
    source waters in the state within a two-year timeframe; develop
    capacity strategies to ensure that water systems have adequate
    financial, managerial, and technical capabilities; provide drinking
    water quality information annually to the public in a readily available
    and accessible format; and expand operator certification programs,
    among other provisions. This is in addition to their current
    responsibilities which have not been reduced. While states support
    these new provisions to improve drinking water quality in this country,
    they also recognize that successful implementation will require
    significant new resources.
        ASDWA has testified that state PWSS programs have been
    significantly underfunded in the past with states already contributing
    approximately 65 percent of the funds necessary to implement this
    Federal law. The President's budget request for fiscal year 1998 does
    not raise the PWSS funding level for state programs from the fiscal
    year 1997 funding level of $90 million even though the SDWA authorizes
    states to receive $100 million for fiscal year 1998. The only increase
    provided is $3.78 million for Indian tribes.
        Now that the SDWA Amendments of 1996 have been enacted, it is
    critical that states have the resources necessary to develop and
    implement the new provisions of the Act as well as resources to support
    the ongoing activities of state and Federal drinking water programs to
    protect public health. States are concerned that without the infusion
    of additional resources, they will be unable to successfully meet many
    of these new requirements. States must begin work today to ensure
    adequate capability to meet the deadlines for many of these provisions.
        The SDWA authorizes $100 million per year through fiscal year 2003
    to support the PWSS Program. The authorization level recognizes the
    increased responsibilities placed on state drinking water programs
    under the Act and reflects Congressional awareness that these programs
    must be undertaken in addition to current state responsibilities. These
    existing state responsibilities include requirements to continue
    regulation of 84 contaminants, the conduct of sanitary surveys to
    ensure water system integrity, certification of laboratories to analyze
    compliance monitoring samples, certification and training of water
    system operators, review of water system plans and specifications for
    infrastructure improvements, enhancement and expansion of data
    management systems, the conduct of disease surveillance investigations,
    and response to emergency situations.
        ASDWA respectfully requests that the Subcommittee appropriate the
    $100 million as authorized to support the PWSS Program for fiscal year
    1998.
                  drinking water state revolving fund (dwsrf)
        The new SDWA authorizes $1 billion annually for fiscal year 1995
    through fiscal year 2003 to establish and support drinking water state
    revolving funds (DWSRF). The primary purpose of the DWSRF is to
    facilitate water system compliance with national primary drinking water
    regulations through the provisions of loans to water systems to improve
    drinking water infrastructure.
        In January 1997, EPA released its Drinking Water Infrastructure
    Needs Survey Report to Congress that identified a total need of $138.4
    billion for community water systems to comply with the requirements of
    the SDWA over the next 20 years--$34.4 billion of which is needed now
    to address current SDWA compliance and SDWA-related needs. Of the $34.4
    billion current need, $10.2 billion is needed to meet treatment
    requirements for microbiological contaminants such as total and fecal
    coliform and Giardia that can lead to gastrointestinal illness and in
    extreme cases, death; $1.9 billion is needed to address compliance
    requirements for other acute and chronic health risk contaminants
    including nitrate; and $22.3 billion is needed for replacement of
    distribution piping that poses a threat of bacterial contamination to
    community drinking water systems.
        The remaining $104 billion will be needed over the next 17 years to
    support ongoing installation and rehabilitation of drinking water
    transmission and distribution systems; to meet treatment requirements
    that ensure public health protection against both acute and chronic
    contaminants; to provide adequate storage; and to address
    rehabilitation and development of drinking water sources.
        According to the EPA report, the $138.4 billion in needs should be
    considered conservative since many water systems were unable to provide
    documentation for all of their needs for the 20-year period and some
    systems were not able to provide adequate documentation for all of
    their identified needs. In addition, the survey examined only the needs
    of community water systems and did not include the needs for nonprofit
    non-community water systems.
        In addition, a portion of the DWSRF may be used to support other
    non-infrastructure related activities such as health effects research,
    assistance for disadvantaged communities, and technical assistance and
    training. In order to maximize the use of the funds for both
    infrastructure and non-infrastructure related activities, it is
    imperative that the full authorization of $1 billion be appropriated
    rather than the President's request of $725 million.
        ASDWA respectfully requests that the Subcommittee appropriate the
    full $1 billion in drinking water state revolving loan funds as
    authorized for fiscal year 1998.
                     drinking water health effects research
        The use of sound science as the foundation of the new SDWA
    standard-setting process will require extensive drinking water
    research, particularly in the area of health effects. Research is
    needed for microbial and disinfection by-products, arsenic, radon,
    sulfate, endocrine disrupters, and other contaminants that will require
    additional occurrence, treatment, and health effects information. Much
    of this information will be needed in order for EPA to determine
    whether a particular contaminant should be regulated in the future. EPA
    must also consider the implications of health effects on sensitive
    subpopulations such as children, the elderly, pregnant women, and
    persons with a history of serious illness. ASDWA supports the fiscal
    year 1998 budget request of $35.9 million for drinking water research
    to ensure that future standards are based on sound science and credible
    health effects data.
        ASDWA also strongly supports the continuation of the EPA/AWWA
    Research Foundation Drinking Water Research Partnership and the Arsenic
    Health Effects Research Partnership funded at $5 million and $1 million
    respectively. Such public/private partnerships represent an effective
    mechanism to leverage additional dollars and to ensure that the
    appropriate focus remains on priority drinking water research needs. As
    in the past, these resources will be matched dollar-for-dollar by the
    AWWA Research Foundation.
        ASDWA respectfully requests that the Subcommittee appropriate $35.9
    million for drinking water health effects research; $5 million for the
    EPA/AWWA Research Foundation Drinking Water Research Partnership; and
    $1 million for the Arsenic Health Effects Research Partnership.
                           epa drinking water program
        With the passage of the 1996 SDWA, the EPA Drinking Water Program
    assumed many new responsibilities including development of a new
    regulatory process requiring additional science and risk assessment in
    order to promulgate regulations, development of a national contaminant
    occurrence database, identification of new treatment technologies for
    small systems, administration of the new DWSRF, development of
    regulations and guidelines for consumer confidence reports, and
    development of source water protection guidance.
        To address many of these issues, EPA has actively sought
    involvement from interested stakeholder groups through the auspices of
    the National Drinking Water Advisory Council. While this commendable
    outreach effort has significantly added to the Agency's workload, it
    should result in the development of guidance, policies, and regulations
    that are supported by a broad spectrum of interested parties including
    states, water utilities, and the general public.
        The President's budget request of $105.3 million for the Office of
    Water's Drinking Water Program will allow the Agency to publish
    guidance on water system capacity, develop national guidelines on
    operator certification, oversee funding to water systems through states
    to ensure improvements of drinking water infrastructure, and continue
    to develop regulations related to microbial and disinfection by-
    products and the information collection rule.
        ASDWA respectfully requests that the Subcommittee appropriate
    $105.3 million for the EPA Office of Water's Drinking Water Program to
    implement the new provisions of the SDWA.
                     state source water protection programs
        The 1986 Amendments to the SDWA, required states to develop
    programs to protect wellhead areas from contaminants that may have any
    adverse effect on public health. Although a total of $145 million was
    authorized as grants to states to assist in the development of these
    programs, no funds were ever appropriated. In spite of this, almost 45
    states managed to develop some form of wellhead protection program.
    Many of these programs, however, have been significantly underfunded
    and will need additional resources to meet the numerous new
    requirements under the SDWA Amendments of 1996.
        In addition, the new SDWA significantly expands on requirements to
    protect sources of drinking water through the development of state
    source water protection programs. Both surface water and ground water
    are included as sources of drinking water that must be delineated and
    assessed in each state. Although the statute is clear about the
    requirement to identify sources of contamination, it is relatively
    silent on the next step of implementing programs to prevent source
    water contamination. Unfortunately, the limited funding and short
    timeframe for states to develop and conduct these assessments and
    delineations will likely prevent many states from actively implementing
    source protection programs.
        The SDWA of 1996 provides various funding authorizations for states
    to ensure the coordinated and comprehensive protection of source waters
    within their state. The appropriation of a portion of these funds could
    be used effectively by the states to enhance current ground water
    protection programs and to move into source water protection
    activities.
        ASDWA respectfully requests that the Subcommittee appropriate $10
    million for states to ensure coordination and comprehensive protection
    of source waters.
        The states look forward to the opportunities and challenges
    provided by the new SDWA. They welcome the opportunity to focus
    resources on those issues of greatest concern to their citizens, to
    improve partnerships with local governments, and to provide drinking
    water systems with funding to meet critical infrastructure needs. A
    strong drinking water program supported by the Federal government,
    states, water utilities, and the public will ensure that the quality of
    drinking water in this country continues to improve and that the public
    can be assured that a glass of water is safe to drink no matter where
    they travel or live. Achieving these goals, however, will require a
    significant financial commitment from all parties. This testimony
    acknowledges the major contributions that have been made by all parties
    and asks the Subcommittee to provide adequate funding at the Federal
    level to ensure the successful implementation of the SDWA.
        ASDWA appreciates the opportunity to present its funding requests
    for the Subcommittee's consideration.
                                     ______

      Prepared Statement of Billy Frank, Jr., Chairman, Northwest Indian
                              Fisheries Commission

        Mr. Chairman, and honorable Members of the Committee, I am Billy
    Frank, Jr., Chairman of the Northwest Indian Fisheries Commission
    (NWIFC), and on behalf of the tribes in Washington State, I would like
    to thank you for the opportunity to offer written testimony concerning
    the Environmental Protection Agency's (EPA) fiscal year 1998
    appropriations.
        We are specifically requesting that programmatic funding levels to
    the Northwest tribes be included in EPA's budget under Section
    104(b)(3) of the Clean Water Act. The purpose of our request is to
    continue implementation of the model Coordinated Tribal Water Quality
    Program for twenty-six participating tribes and tribal organizations in
    Washington State for fiscal year 1998. Strong congressional support for
    and implementation of this tribal initiative began in 1990 and is
    present today. However, we are losing ground in the implementation of
    this effort. Erosion of base level funding is jeopardizing the federal
    government's long-term investment in this efficient and effective
    tribal water quality protection program. It is essential that it
    continues into the future.
        We respectfully request Congress to either:
        (1) Appropriate $3.10 million into the EPA's funding base.--Under
    Section 104(b)(3) of the Clean Water Act, Section 319 of the Clean
    Water Act, or within EPA's Assessment and Watershed Program,
    appropriate $3.10 million into EPA's funding base for twenty-six (26)
    participating tribes and tribal organizations in Washington State to
    fully implement the model cooperative tribal water resource program for
    environmental protection, or
        (2) Direct the Agency to utilize existing $3.10 million in agency
    funding.--From existing Section 104(b)(3) of the Clean Water Act,
    Section 319 of the Clean Water Act, or EPA's Assessment and Watershed
    Program funds, provide $3.10 million for twenty-six (26) tribes and
    tribal organizations in Washington State to continue implementation of
    the model cooperative tribal water resource program for environmental
    protection.
        Justification for this funding request is based on:
      --legal rights and obligations for the federal government to protect
            the treaty-reserved rights of the tribes,
      --the United State's trust responsibility to protect the health and
            environment of the tribes on a government-to-government basis,
      --cost effectiveness by utilizing a cooperative intergovernmental
            strategy to accomplish national clean water goals, and
      --minimize conflict between multiple jurisdictions who manage water
            quality.
        We ask that you put monies in the above-mentioned mechanisms. By
    placing these funds in the EPA General Assistance Program (GAP), which
    are dedicated to planning, it limits the tribe's ability to proceed
    with implementation activities.
        To assist the Committee members, I would like to summarize
    background relevant to our request.

                                   BACKGROUND

        The NWIFC request is on behalf of our nineteen (19) member treaty
    fishing tribes and the Hoh, Chehalis and Shoalwater Bay Tribes in
    western Washington, and the Yakama Indian Nation, Colville
    Confederated, Spokane, and Kalispel Tribes in eastern Washington. The
    funding request is to continue implementing the model Coordinated
    Tribal Water Quality Program that began in 1990.
        Washington State has been blessed with bountiful rivers and
    streams. Five species of Pacific salmon and three species of anadromous
    trout utilize Washington State's streams during the fresh water stages
    of their life cycles. Historically, there were ample supplies of fish
    for ceremonial, subsistence, commercial and recreation purposes. Old
    growth conifer removal, riparian zone impacts, farming activities, and
    channelization of the streams has reduced the productive capacity of
    these streams to extremely low levels. Currently, there are concerns
    that hundreds of salmon stocks are at significantly low levels and many
    warrant a threatened or endangered listing status under the Endangered
    Species Act.
        In 1979, the United States Supreme Court re-affirmed the treaty
    tribes' right to harvest half of the harvestable number of anadromous
    fish passing through tribal usual and accustomed areas. In 1980, the
    federal district court held that the United States and the State of
    Washington must not permit degradation of fish habitat which would
    diminish the treaty harvest right, including point and non-point
    pollution sources. The federal courts have recognized that protection
    of water quality and other attributes of fish habitat are necessary to
    secure the Constitutionally protected rights of the tribes to harvest
    fish.
        The sovereign authorities of the Tribes and the legal principles
    enunciated in United States v. Washington and other federal court
    decisions support justification upon which the tribes are involved with
    on and off-reservation environmental issues. As a result of federal
    court decisions, the State of Washington has recognized the tribes as
    ``co-managers'' of the fish resource and water quality in our state. As
    co-managers in Washington, the tribes must have the resources to
    adequately participate in environmental protection programs.
        The Environmental Protection Agency's (EPA) Indian policy (1984) of
    working with federally recognized tribes on a government-to-government
    basis concerns more than 375 Indian tribes in the lower 48 states
    controlling over 52 million acres of land base. In our state, tribal
    reservations make up approximately six percent (6 percent) of the State
    of Washington. Our tribes also have retained treaty rights not ceded to
    the United States. These usual and accustomed fishing grounds include
    most of the State of Washington. The combined area of Indian
    reservations nationally is larger than all of New England, yet EPA now
    devotes only a tiny fraction of its personnel and funds to
    environmental protection for the tribes.
        This is clearly a discriminatory prioritization of federal funds.
    On a national level, tribal reservations represent three percent (3
    percent) of the land base of this nation. Although the EPA has worked
    closely with the states to implement adequate environmental programs,
    until recently, little has been done to accomplish the same for the
    tribal governments. Indian tribes are over two decades behind the
    states both in resources received from the EPA and in technical
    assistance provided by the EPA in developing tribal water program
    offices. A ``front end'' investment will promote cooperation and
    increased tribal involvement in environmental protection as has been
    the case between the EPA and state governments for the past twenty
    years. Already, the Coordinated Tribal Water Quality Program is
    enabling cooperative interjurisdictional partnerships and has been
    matched by an additional $2 million in federal, state and tribal funds.
        We want it to be recognized that we do support and appreciate the
    successful efforts that have been made to improve EPA Indian Programs
    and tribal funding. And further, we support the President's fiscal year
    1998 budget request of $38.6 million for the General Assistance Program
    (GAP), and the $9.8 million increase for tribal water quality
    management programs through Section 106 of the Clean Water Act. We see
    these activities as important and positive steps, but believe that we
    have a long way yet to go in meeting the existing environmental
    protection needs in Indian Country.
        Additionally, since the GAP funding is legislated for program
    development, there must be complimentary sources of implementation
    funding for these tribal programs. Tribes in Washington State are
    further along in the development of their programs than EPA's Indian
    funding policy development. While EPA is accomplishing important
    strides in improving their Indian Programs, tribes with previously
    established programs are experiencing a break in support while EPA
    plays catch-up with tribes across the nation. Our request for Section
    104(b)(3) funding is intended for stabilizing existing program
    implementation activities. Another possibility may be within Section
    319 of the Clean Water Act. However, because of legislated formula, the
    $100 million available nationally translates into only $300,000 (one-
    third of percent restriction) for tribal programs. This means that 535
    tribal governments (including Alaska Native Villages) must compete for
    a very small pool of tribal non-point source pollution management
    program funds. Clearly, a means must be found to support the long term
    funding of tribal programs that seek to protect tribal treaty rights
    such as ours, or the efforts being made by EPA will not be successful.

                               TRIBAL/STATE ROLES

        Beginning in 1990, the State of Washington has supported tribal
    involvement in environmental protection both off and on-reservation.
    The State is committed to work with the tribes on a government-to-
    government basis as ``co-managers'' of the water resources in the
    implementation of this program (see attached letter). The federally
    recognized Indian tribes in Washington have developed a process with
    state, local government officials, and representatives of agriculture,
    industry, and environmental communities to address water resource
    issues on a government-to-government basis. The results of these
    discussions have outlined a cooperative process between the tribes,
    state agencies and programs, and local units of governments in areas of
    environmental protection. This process was highlighted as a case study
    example to countries around the world at the 1992 United Nations
    Conference on Environment and Economic Development in South America.
        The tribes must be part of the solutions to prevent and control
    water pollution in Washington State. The tribes must participate in
    these activities to protect their governmental interests and treaty
    fishing rights. Neither we, nor the resources, can afford to lose
    programs integral to our intergovernmental cooperative watershed
    program. The Cooperative Tribal Water Quality Program is one such means
    to protect our nation's environmental heritage.

                                   CONCLUSION

        For the past six years, Congress has recognized the importance of
    the Coordinated Tribal Water Quality Program and supported funding for
    the tribes to participate in environmental programs which helps EPA
    realize its long-range objective of including tribal governments as
    partners in decision-making and program management on reservation
    lands. Adequate and stable funding is necessary to maintain this
    coordinated tribal environmental program.
        We appreciate the difficulty Congress is facing in making decisions
    for this next fiscal year. In the case of the EPA, Congress and the
    Administration will probably direct their resources to address those
    areas of highest risk to human health and the environment. Therefore,
    we want to reiterate that tribal reservations and protection of their
    treaty resources have not been adequately addressed for the past twenty
    (20) years and represents the highest of risk to this nation. To do
    otherwise, would represent environmental genocide to Native Americans.
        Sufficient and permanent funding is necessary to continue the
    tribal cooperative program. Certainty of funding is necessary for the
    tribes to hire permanent and professional staff to implement this
    program. Without an ongoing investment by Congress, much of the good
    that has been accomplished to date will be lost.
        Please consider our request for $3.10 million for the Washington
    State Tribal Water Quality Program. Once again, thank you for the
    opportunity to provide testimony. Thank you also for your assistance in
    helping to develop a national model program of how tribal governments
    can address environmental protection in a cooperative watershed
    approach with state and local governments.
        Thanks to this Committee, we are making significant progress. This
    initiative is being supported at all levels of our governments. We hope
    you and the Committee will continue to look favorably on our request.
                             letter from gary locke
                                   State of Washington,
                                        Office of the Governor,
                                           Olympia, WA, April 14, 1997.
    Hon. Christopher S. Bond,
    Chairman, Senate VA, HUD and Independent Agencies Appropriations
            Subcommittee, Washington, DC.
        Dear Chairman Bond: The purpose of this letter is to express my
    support of the twenty-six federally recognized tribes in Washington
    State in their efforts to continue implementation of the Coordinated
    Tribal Water Quality Program. This program is a national model that
    demonstrates how tribes can address their water quality protection
    needs in coordination with local, state and federal governments.
        Tribes are an integral part of protecting and improving water
    quality in Washington State. The Coordinated Tribal Water Quality
    Program helps our governments work together to address both on-
    reservation and off-reservation water quality issues. This cooperative,
    watershed based program replaces interjurisdictional barriers with
    government-to-government partnerships.
        I urge your continued support of this important and effective
    program.
                Sincerely,
                                                    Gary Locke,
                                                              Governor.
                                     ______

                      FEDERAL EMERGENCY MANAGEMENT AGENCY

        Prepared Statement of Brad Iarossi, P.E., Legislative Officer,
                   Association of State Dam Safety Officials

        The Association of State Dam Safety Officials (ASDSO) is pleased to
    have the opportunity to comment on the Clinton Administration's fiscal
    year 1998 Budget Request of $432,000 for the dam safety program in the
    Federal Emergency Management Agency's (FEMA) budget.
        ASDSO is a national organization of more than 1,500 state, federal
    and local dam safety officials and private sector individuals dedicated
    to improving dam safety through research, education, and communication.
    Our goal is to save lives, prevent damage to property and maintain the
    benefits of dams by preventing failures.
        I would like to first begin by commending Chairman Bond for his
    outstanding leadership on including the National Dam Safety program
    into the Water Resources Development Act (WRDA) of 1996. (The Dam
    Safety Program was formerly a Presidential Directive). This legislation
    recognized the need for a federal role in dam safety and established a
    cost-effective means to improve state dam safety programs. We
    appreciate your leadership and look forward to your continued support.
        While much progress has been made to advance dam safety in this
    country, the fundamental goals of this program have yet to be
    completely realized. Dam safety is an ongoing effort and much more
    needs to be accomplished.
        The fiscal 1998 budget request of $432,000 for the dam safety
    program in FEMA's budget falls short of the funds needed to
    successfully implement the program. This request is an alarming step
    backwards for public safety at a time when natural disasters, including
    the recent floods in Ohio, Kentucky, and Indiana, continue to ravage
    our country. Situations like these call for increased federal attention
    and funding to dam safety, not less.
        ASDSO respectfully opposes the Administration's fiscal year 1998
    proposal for the dam safety program and requests the Subcommittee's
    support for full funding of the $2.9 million appropriated in fiscal
    year 1998 in order for FEMA to implement the program. In doing so, we
    suggest that the $2.9 million be appropriated to conduct the following
    activities:
      --$1 million for incentive grants to states to upgrade their dam
            safety programs;
      --$500,000 for training programs for state dam safety inspectors;
      --$1 million for a federal research program developed to improve
            techniques and equipment for rapid and effective dam
            inspections and updated devices for monitoring dams for safety
            purposes; and
      --$400,000 for FEMA to administer the program.
        This modest, yet vital funding would help to reduce the risks to
    life and property due to dam failures by providing states with
    resources to improve their dam safety programs. Compared to the $54.3
    million spent on repair costs in 1994 (most recent available
    statistics), investment in prevention will reduce the loss of life,
    property damage and much larger expenditures after dams fail.

                             SAFETY AND REGULATION

        Regulation is essential for the reduction of the hazards involved
    with dams. That responsibility rests almost entirely with the states.
    States regulate about 95 percent of the 75,187 dams on the National
    Inventory of Dams. While the majority of states have been working to
    improve their programs in the last 20 years, most are still struggling
    with minimal budgets and staff. A handful of states do not even have
    adequate programs in place to regulate the safety of their dams. The
    1995-96 National Inventory of Dams revealed that a majority of high or
    significant hazard dams do not have Emergency Action Plans in place
    which would mean the difference between timely downstream evacuation
    and disaster.
        Safety is essential to all regulated dams, but most importantly to
    the approximately 9,500 dams determined by regulators to be high-hazard
    (category I), meaning they could threaten human life and cause
    significant downstream damage should they fail. Even more significant
    are the 1,800 dams which are considered to be unsafe. Many of these are
    also in high-hazard locations. This means they have deficiencies which
    leave them more susceptible to failure. Thirty-five percent of the
    high-hazard dams have a last inspection date prior to 1990. A recent
    survey conducted by the Association of State Dam Safety Officials
    (ASDSO) showed thousands of other dams are in need of rehabilitation to
    keep them from becoming unsafe. These repair projects are put on hold
    because of a lack of funding
        Every member of this subcommittee has high-hazard dams impounding
    water within their state. Nearly every member of the subcommittee has
    at least one unsafe, high-hazard dam operating in their home state.
    California, Pennsylvania, Missouri, Texas, and North Carolina have over
    500 high hazard dams each in their states. North Carolina has the most
    high hazard dams. In Ohio there are 450 unsafe structures. In New York
    there are 372 high-hazard dams, and of these 57 are unsafe. Missouri
    has 658 high-hazard dams with 87 classified as unsafe. Tennessee has
    136 high-hazard dams of which 28 are unsafe. In nearby Maryland there
    are 55 high-hazard dams with six being unsafe.
        A chart of states' dam inventory data is included at the end of
    this written testimony.
               need for full funding of fema's dam safety program
        Over the past year, flooding across the country resulted in scores
    of deaths and millions of dollars in property damage. Statistics have
    shown that downstream damage and dam repairs caused by recent failures
    in only eight states totaled $54.3 million. In California, flood-waters
    that descended from the Sierra Nevada mountains in January caused dams
    to overflow and levees to brake in 32 places. Nine people were killed,
    and more than 120,000 people were evacuated. Property damage exceeded
    $1.7 billion. This does not include emergency relief costs to states
    and to the federal government.
        Lack of proper maintenance and resources put the nation at risk of
    future disasters. The National Oceanic and Atmospheric Administration
    predicted March 17 that heavy snows in the High Plains and Rocky
    Mountains will lead to the worst spring flooding in a decade.
        Putting the weather aside, statistics show that 25 percent of all
    dams in this nation are over 50 years old, and by the year 2020, that
    number is expected to jump to 85 percent. We must plan now to make
    certain that these structures will be safe and that they will continue
    to provide the benefits for which they were built.
        It is therefore incumbent upon the federal government to recognize
    the need for a strong National Dam Safety Program and to fund it to the
    fullest extent possible.
                                   conclusion
        Dams are a critical part of our national infrastructure. They
    provide benefits upon which our communities and industries depend.
    However, along with the benefits is the need to maintain safe and
    reliable structures.
        It is unfortunate that, historically, most state dam safety
    programs do not receive additional funding or personnel until loss of
    life occurs as a result of dam failure. The total economic and social
    damage of one dam failure, not to mention the incalculable loss of
    life, easily exceeds the cost of the dam safety program. Full funding
    of the National Dam Safety Program would provide the needed tools to
    help improve the national infrastructure and would encourage states to
    advance their safety programs, thereby enabling them to prepare for
    disasters before they strike.
        We strongly urge this subcommittee to recognize the benefits of
    this modest investment in public safety by providing full funding of
    the $2.9 million in order for FEMA to implement the National Dam Safety
    Program. ASDSO looks forward to working with the subcommittee and its
    staff on this critical public safety issue and would be happy to
    respond to any questions.

                                              1998 STATE DAM INVENTORY DATA
    ----------------------------------------------------------------------------------------------------------------
                                                                                            State
                                                  Total       Total State   State high-   regulated      Government
                      State                      national    regulated \2\  hazard \3\      known      ownership \5\
                                              inventory \1\                             deficient \4\
    ----------------------------------------------------------------------------------------------------------------
    Alabama.................................         1,570          1,704          184           150             25
    Alaska..................................            99             87           18  .............            55
    Arizona.................................           274            212           73            23             92
    Arkansas................................         1,184          1,215          154            44            364
    California..............................         1.512          1,220          272  .............           536
    Colorado................................         1,648          1,809          275           189            486
    Connecticut.............................           707          2,679          238            NR            251
    Delaware................................            73             88            8            NR             76
    Florida.................................           572             NR           NR            NR             15
    Georgia.................................         4,951          4,704          359            30            633
    Hawaii..................................           129            129           72  .............            27
    Idaho...................................           343            431          100            13             80
    Illinois................................         1,212          1,212          155            NR            355
    Indiana.................................           663          1,212          241            NR            311
    Iowa....................................         2,465          2 514           66             2          1,437
    Kansas..................................         6,057         13,113          189            30          1,363
    Kentucky................................           941            915          144             3            374
    Louisiana...............................           381            311           12  .............            90
    Maine...................................           498            462           47           278             19
    Maryland................................           273            358           55             6            162
    Massachusetts...........................         1,528          2,921          324            28            686
    Michigan................................           910          1,049           79            21            381
    Minnesota...............................           930            850           40            NR            530
    Mississippi.............................         3,191          3,328          238            10            121
    Missouri................................         3,452          3,832          658            87            208
    Montana.................................         3,187          3,518          152             6            829
    Nebraska................................         2,035          2,035           88  .............           977
    Nevada..................................           463            571          107            13            130
    New Hampshire...........................           613          3,106           87  .............           583
    New Jersey..............................           806          1,580          183            32            350
    New Mexico..............................           501            522          156             3            156
    New York................................         1,633          5,645          372            57            676
    North Carolina..........................         2,699          4,369          839            40            199
    North Dakota............................           481            524           26             5            280
    Ohio....................................         1,654          2,673          480           450            454
    Oklahoma................................         4,550          4,388          165            12             87
    Oregon..................................           827          3,705          122  .............           186
    Pennsylvania............................         1,291          2,842          728             9            502
    Puerto Rico.............................            36             36           33  .............            31
    Rhode Island............................           186            506           17  .............            80
    South Carolina..........................         2,256          2,237          143             5            283
    South Dakota............................         2,392          2,252           48             4            140
    Tennessee...............................         1,044            593          136            28            382
    Texas...................................         6,894          7,190          802           116          2,642
    Utah....................................           636          1,819          187            NR            150
    Vermont.................................           334          1,034           49  .............           134
    Virginia................................         1,496            467          101            48            325
    Washington..............................           653            865           94            13            238
    West Virginia...........................           537            346          242            49            233
    Wisconsin...............................         1,165            983          136            NR            722
    Wyoming.................................         1,230          1,368           83             5            163
                                             -----------------------------------------------------------------------
          Total.............................        75,401        100,467        9,496         1,804         19,607
    ----------------------------------------------------------------------------------------------------------------
    \1\ Includes Federal and non-Federal dams over 25 feet in height or 50 acre-feet in volume; or anything above 6
      feet in height with downstream damage potential should it fall.
    \2\ Includes all dams under State regulatory control.
    \3\ High-hazard by State definition derived from State inventory in column 2.
    \4\ Dams with identified deficiencies by State definition (varies State to State) derived from State inventory
      in column 2.
    \5\ Derived from national inventory in column 1 = Not reporting. Some States do not keep data on ``high-hazard''
      and/or ``unsafe'' categories.

    Note: Inventory sizes vary from State-to-State because of number of dams, but also because State laws vary on
      which dams are included under their jurisdiction.

                                     ______

        Prepared Statement of John N. Peabody, Jr., President, American
                 Federation of Government Employees Local 1983

        Good morning Mr. Chairman, members of the subcommittee. I
    appreciate this opportunity to provide information to the subcommittee
    as the elected representative of the bargaining unit employees who work
    at the National Emergency Training Center (NETC) in Emmitsburg,
    Maryland.
        As you may be aware, the training center is a multi-purpose
    facility housing several elements of the Federal Emergency Management
    Agency (FEMA) including the United States Fire Administration (USFA)
    and most of FEMA's training division. NETC is the home of the National
    Fire Academy (part of the USFA) and the Emergency Management Institute
    (part of the training division) who together provide most of FEMA's
    training and education for Federal, State and local emergency managers,
    the fire service, and allied professions.
        Also located at NETC are the studios of the Emergency Education
    Network which broadcasts fire and emergency programs nationwide. In
    addition, NETC has the world's finest library for fire and emergency
    information. This facility is a national asset and is the envy of the
    rest of the world's fire and emergency services. However, budget cuts
    and staffing cuts are constraining and even crippling many of the
    important services we provide.
        FEMA's Director, James Lee Witt, has clearly given the top priority
    to promoting hazard mitigation and to more efficient and effective
    response and recovery operations. He has been remarkably successful,
    and we appreciate and applaud his efforts. It is a pleasure to work for
    an agency that is respected for helping to solve problems instead of
    causing problems. Unfortunately, the reinvention of FEMA has had
    significant costs, and the staff at NETC have had to ``pay'' in many
    ways to the detriment of our programs and the organizations and people
    we serve.
        The staff understand that Mr. Witt has been placed in a very
    difficult situation. As FEMA began to be more successful and effective,
    there were rising expectations for each new disaster. And the disasters
    have increased in both number and complexity (75 in fiscal year 1996--a
    record number!) So, what in 1993 seemed like a requirement for running
    a hundred yard dash 30 times a year has turned into an endless marathon
    across the country at sprint speed. At the same time, the folks with
    the green eyeshades at the Office of Management and Budget have been
    telling FEMA to do more and more with less and less.
        The director has been faced with the dilemma of meeting an
    avalanche of new requirements with very limited resources. So, he has
    had to take resources from some missions and functions and apply them
    to the highest priority needs. This approach was reasonable in the
    short run, but in the long run it has had a significant impact on NETC.
        We do not believe that it is the intent of Congress to force the
    Director to continually re-cut an ever-shrinking pie. We support FEMA
    and the Director's initiatives, but we think we are important too, and
    it is our hope that Congress will provide the necessary positions and
    funds for us to do our job.
        Simply stated, our job is to help develop and maintain the highest
    possible level of professional skills and knowledge for the Nation's
    fire services, emergency managers, and allied professions. Just as the
    Armed Forces must constantly train and exercise to maintain readiness
    and improve their skills, the Nation's first responders must do the
    same. Quality training and education do not come cheap, but ignorance
    is much more expensive.
        The remainder of this statement outlines employee concerns and our
    recommendations for corrective actions in two areas--the Emergency
    Management Institute and the United States Fire Administration.
        The Emergency Management Institute (EMI) is operated by the
    training division of FEMA's preparedness, training, and exercises
    directorate. EMI has a staff of 42. EMI has been fortunate compared to
    USFA in recent years. EMI has enjoyed good management and a relatively
    stable budget. The staff have been very productive, and morale has been
    good. Feedback from across the country (and even from other countries)
    has been very, very positive. EMI training and related activities is
    helping Federal, State, and local agencies, private sector
    organizations, and individuals to reduce damage potential and respond
    effectively and efficiently to emergencies.
        The problem facing EMI is its success has created an enormous
    growth in interest/demand for training, and EMI is having to decide who
    can be served and when. It is very difficult to tell a community that
    they will have to wait for a year or more because we do not have the
    travel money or the staff time to give them what they want and
    certainly need. This situation has suddenly gotten worse because EMI
    has recently lost 2 valued employees, had its travel budget cut by 36
    percent, and had course development funds cut by $700,000.
        The EMI staff believe that more could and should be done. The need
    is there and the benefits are readily apparent. One only has to ask
    officials in Oklahoma City or Los Angeles or Sioux City or a thousand
    other communities across the country.
        The following recommendations are provided for your consideration
    to enhance training division capabilities at the Emergency Management
    Institute:
        I. Provide additional staff (FTE)
      --4 training specialists in exercise design and control to conduct
            offerings of the very popular integrated emergency management
            course for medium and small cities.
      --2 training specialists in structural engineering and design to
            develop and conduct additional hazard mitigation courses for
            architects, engineers, building contractors, and building
            officials.
      --2 training specialists in managing the consequences of terrorism to
            support the interagency training in this area.
      --2 training specialists in response and recovery operations.
      --2 program assistants to provide training support.
      --Total: 12 additional positions--$850,000 additional S&E.
        II. Provide additional funds
      --Restore the 36 percent travel budget cut ($37,000) and add $60,000
            (total travel increase $97,000). These travel funds will make
            it possible to go to the States to pilot test new courses and
            help the States conduct community-specific training. It should
            be noted that it is more cost effective to send instructors to
            the students than to bring students to the instructors.
      --Restore the 6.5 percent cut in program (EMPA) funds ($700,000) and
            add $600,000 to develop, test, and deploy new courses that have
            been requested by the States (total EMPA increase $1.3
            million).
      --Total $1.4 million.
        At this time, I would like to address the situation at the United
    States Fire Administration (USFA).
        USFA employees are very hard working and mission oriented. They
    have achieved a solid record of accomplishments, and they want to
    maintain the high standards of quality service that Congress and the
    American people expect. However, the employees are concerned that
    Congress may not be aware that there are serious problems facing USFA.
        The problems which are outlined below all stem from a growing
    disparity between increased responsibilities and shrinking resources.
    Over the years, since 1979, the nature of the challenges facing the
    fire service has changed dramatically, and USFA has been asked to
    assist in a broad range of activities concerning arson, hazardous
    materials, terrorism, firefighter health and safety, emergency medical
    services, incident command systems, disaster response, and integrating
    new technologies into the fire service. During this same period, USFA
    staff had to suffer a number of very painful cuts.
        In 1979 when USFA became part of the Federal Emergency Management
    Agency (FEMA), USFA had 240 employees which included a staff of 80
    working in the National Fire Academy (NFA) and a staff of 12 dedicated
    to public education. Currently, USFA is authorized only 101 positions
    (FTE) including only 37 in NFA and only 1 full-time person devoted to
    public education. So, fewer people have been expected to do more and
    more. Many of the staff now have more on their plates than they can say
    grace over. To make matters worse, the difficulties facing the staff
    have been exacerbated by recent cuts in funds for facilities
    maintenance, travel, employee training, and research.
        So, what impact does all this have on the staff and on mission
    accomplishment? (The following problems are shown separately but are
    essentially intertwined.)
        1. Very few vacancies have been filled within USFA in recent years
    (some positions have been taken by FEMA to meet other priority needs).
    The work of these unfilled positions has been given to remaining staff.
    The result--some important areas are not receiving enough staff time
    and attention. Staff are frustrated and morale is low.
        2. The new technologies available today require new skills, but
    USFA has not been able to hire new people who have these skills and
    lacks employee development funds to train current staff to develop
    these skills in-house. The result--USFA will not be able to meet the
    future needs of some of its customers in the fire service.
        3. In fiscal year 1997 travel funds have been cut by over 37
    percent. The result--there will be substantial reduction in attendance
    at meetings of fire service groups across the country for coalition
    building, program coordination, technical assistance, project
    monitoring, etc.
        4. Over the past few years, funds have been shifted from research
    to development of a simulation laboratory in NFA and for other
    purposes. The result--so far in fiscal year 1997, there have been no
    new initiatives in firefighter health and safety research or in
    adapting new technologies for prevention, detection, and suppression.
        Many USFA employees are not only concerned and upset about the
    current difficulties, but also feel that USFA should be doing more--
    much more in every area symbolized by the four ``stars,'' outlined in
    Public Law 93-498.
        1. The first star is the National Fire Data Center. This
    underfunded, poorly staffed group does not have one statistician to
    analyze the data and does not have sufficient resources to help the
    States expand and improve the national fire incident reporting system.
    Good data is essential to define the fire problems in each State and
    indicate where more research, training, and public education may be
    needed.
        2. The second star is research into new fire technologies. Some of
    the funds originally allocated for these purposes have been cut and/or
    diverted to other purposes. The staff feel that more needs to be done
    to investigate ways to make protective clothing, self-contained
    breathing apparatus, communications, and other equipment lighter,
    stronger, more effective, and less expensive. Other under-explored
    areas include alternatives to sprinklers, use of compressed-air foam in
    structural firefighting, and use of advanced technology developed by
    the Department of Defense in firefighting.
        3. The third star is public education. Even the best pamphlets,
    public service announcements, and news magazine articles will not reach
    the low-income populations that have a significant number of fires in
    the United States. A new, more aggressive approach is needed. USFA
    should have the staff and resources to work with each State to help
    build coalitions/partnerships with State and local agencies, school
    districts, churches, and community groups to coordinate a broad range
    of fire, crime prevention, hazard mitigation, and other public safety
    programs for a comprehensive safety campaign. The one full-time person
    assigned to public education cannot do this job.
        4. The fourth star is training and continuing education of the
    management of the fire service across the country. The staff of NFA are
    stretched to the breaking point. The staff have no back-up. They are
    five miles wide and one inch deep. And, they are asked to do more and
    more. Management wants new courses developed for independent distance
    learning to reach 300,000 students in the fire service and allied
    professions. However, the staff are not themselves trained to develop
    distance education programs. They recognize the potential, but are
    frustrated that they lack the skills to develop effective training in
    this new milieu and do not have the resources to hire those that do--
    either as employees or as contractors/consultants.
        When all aspects are considered, the four ``stars'' could be and
    should be shining brighter.
        In summary, the staff believe that the cuts have been too deep for
    too long and have gone beyond what Congress had intended. Therefore, we
    appeal to you to restore the USFA to an appropriate level commensurate
    with mission requirements (our recommendations are attached).
        You may hear from others who might not support our requests because
    of concerns about the cost. However, we believe that the cost of having
    an effective USFA will be more than offset through saving tax dollars
    in other areas.
        For example, when USFA was a larger and stronger organization, it
    helped bring about a dramatic reduction in the number of fires, fire
    deaths, and injuries. However, since USFA was weakened, the decline
    slowed and leveled off. If a revitalized USFA can help reduce the
    numbers further, it will benefit everyone. If you just consider the
    staggering social and financial costs to treat burn injuries, the
    potential savings in this alone could be a dramatic return on
    investment.
     united states fire administration/national fire academy supplemental
                                 budget request
    I. Critical, additional staff needs
        National Fire Academy
      --2 Distance education specialists
      --1 Simulation laboratory manager
      --1 Computer media specialist
      --1 Branch chief for distance delivery programs
        National Fire Data Center
      --2 statisticians
        Fire Prevention and Public Education
      --2 Public education specialists
      --2 Arson prevention specialists
      --1 Fire management specialist (wildfire)
        Technology and Research
      --2 Fire protection engineers
      --1 EMS specialist
        Support
      --Convert 5 term employees to permanent (no cost)
        Total
      --15 additional positions--$1 million additional S&E cost
    II. Additional Funding Needs
      --Restore $2.2 million for research;
      --Restore travel funds to $250,000;
      --Provide $50,000 for individual employee training and development;
      --Provide $2 million additional per year for 4 years to develop,
            test, and deploy distance education courses;
      --Provide $2 million additional per year for 4 years for the national
            arson prevention initiative combined with improved public
            education initiatives;
      --Provide $1 million additional per year to meet increased operating
            and maintenance costs;
      --Total: $7.5 million

        Note.--The requested positions and funding should not be taken from
    other elements of FEMA. ``Robbing Peter to pay Paul'' would cause more
    harm than good.
                                     ______

    Prepared Statement of Larry A. Larson, Executive Director, Association
                          of State Floodplain Managers

        The Association of State Floodplain Managers (ASFPM) is pleased to
    have the opportunity to advise you of our overall support for the
    budget request of the Federal Emergency Management Agency (FEMA) for
    fiscal year 1998. In particular, we support the agency's request for
    $50 million for a Pre-disaster Mitigation Fund.
        Association members are your state and local ``partners'' helping
    to reduce current and future flood losses. Our members consist
    primarily of state and local officials engaged in flood disaster
    mitigation, coordination with the National Flood Insurance Program,
    coordination with the Corps of Engineers and other federal agencies
    involved with floodplain issues, floodplain management planning and
    protection of public health and safety. Also among our members are
    private flood planning, engineering, and mitigation specialists.
        In the face of major amounts needed for disaster response, it is
    critical to explore ways to mitigate disaster losses. Significant work
    has already been done through cooperative FEMA, state and local efforts
    to plan and implement mitigation strategies. It is important to note,
    however, that it can be difficult to define and give an accurate dollar
    figure to the losses which, as a result of mitigation, did not occur.
    When a disaster happens, it is much easier to count up and document the
    damage than to count up and document damage that did not occur because
    of mitigation.
        FEMA Director James Lee Witt has focused significant attention
    during his tenure on the importance of mitigating disaster impacts
    before they happen. As the former Arkansas State Emergency Management
    Director, he understands first hand the kinds of steps that could be
    taken by local and state governments in cooperation with others, which
    could result in important reductions in loss of life and damage to
    property in the event of natural disasters. These kinds of measures,
    however, do require planning, organizing, often political decisions and
    cooperation among various groups and interests.
        In response to the seemingly ever increasing dollar and human costs
    of natural disasters, FEMA has made major strides toward more rapid,
    efficient response during and after disasters. Progress has also been
    made towards streamlining, simplifying, and improving internal agency
    processes. The strong focus on mitigation has produced results. An
    especially clear example involved the relocation of thousands of houses
    and other buildings from the floodplain following the major Midwest
    floods of 1993. When, incredibly, the same areas flooded again in 1995,
    the homes were not there to flood.
        Due to the foresight of the House and Senate Appropriations
    Committees, FEMA was asked to undertake a new effort to explore avenues
    of pre-disaster mitigation in the current fiscal year. The agency's
    initial efforts in that regard have made clear the need for a more
    substantial initiative, which will save taxpayers more than the cost of
    the mitigation measure.
        ASFPM strongly and enthusiastically supports the pre-disaster
    mitigation initiative. Although the details have not been finalized, we
    are supportive because we recognize the importance of FEMA having this
    ability to step outside of regular program areas to bring creative and
    thoughtful effort to a potentially very fruitful endeavor. Successful
    mitigation could result in major cost savings. We urge the Subcommittee
    to provide at least the $50 million sought in the FEMA fiscal year 1998
    budget request.
        The current flooding in North Dakota demonstrates the need for pre-
    disaster mitigation. It especially demonstrates the need for greater
    levels of mitigation for critical facilities, including hospitals and
    water supply facilities. All too often, people first think of
    structural measures, such as levees and dams. These measures are
    expensive; they require continual maintenance, and they are always
    subject to overtopping and failure. These failures cause more
    catastrophic damage. The focus for the pre-disaster mitigation funds
    must include non-structural measures.
        On another matter, we urge the Subcommittee to take action again
    for fiscal year 1998 to provide an additional $50 million in borrowing
    authority for the National Flood Insurance Fund. Although that matter
    may be addressed by the authorizing committee, if it becomes necessary,
    we hope that the VA-HUD Independent Agencies Subcommittee could again
    provides assistance to ensure that the Flood Insurance Fund can
    continue to pay the claims filed by flood insurance policy holders. An
    exceedingly large amount of flooding has occurred in recent years,
    taxing the resources of the Flood Insurance Fund (which is funded by
    policy premiums and administrative fees). Changes in the NFIP were
    effected by the 1994 Flood Insurance Reform Act designed to update,
    correct and improve the NFIP and to reduce losses through mitigation
    measures. Many of those improvements are just now being implemented
    through finalized regulations. Studies mandated by that Act will, no
    doubt, also point toward further improvements. In the meantime, in the
    face of dramatic instances of severe flooding, it seems wise and
    prudent to continue the additional $50 million in borrowing authority
    beyond its current September 30 expiration date.
                                     ______

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

     Prepared Statement of Steven Charvat, CEM, NCCEM President, Emergency
                  Management Coordinator, City of Phoenix, AZ

        The National Coordinating Council on Emergency Management (NCCEM)
    appreciates the opportunity to comment on the 1998 budget request by
    the Federal Emergency Management Agency (FEMA). NCCEM is a national
    organization dedicated to promoting the goals of saving lives and
    protecting property during emergencies and disasters. With over 1,600
    members, NCCEM is the primary organization that brings together
    emergency management and disaster response professionals from
    government, the military, the private sector, and volunteer
    organizations at the local, state and federal levels.
        NCCEM supports FEMA's fiscal year 1998 request, and we urge you to
    provide the full funding requested. It could be much higher, and not be
    wasted. However, in deference to the laudable efforts by both Congress
    and the Administration to control runaway federal spending, we are not
    begging for large additions to the request.
        Nevertheless, we in NCCEM want to state most strongly that this
    nation cannot afford any further erosion of our preparedness to deal
    with emergencies and disasters--which now have to include the
    consequences of terrorist acts. In the name of budget balancing, we
    have seen the scissors waved not only over after-the-fact disaster
    relief, but over the planning and preparedness funds which are the only
    way those post-disaster relief costs can be forced down.
        Some areas are particularly important, from our perspective:
        State and Local Assistance.--This item in FEMA's budget now
    subsumes the old Emergency Management Assistance (EMA) program. The
    money provided through EMA to each of more than 5,000 local
    jurisdictions has never been a princely sum, but it has had a catalytic
    effect. In a quick survey two years ago, a dozen local jurisdictions
    reported receiving EMA funds in the range of $20,000 to $30,000 a year,
    which represents anywhere from 6 percent to 30 percent of their
    emergency management departmental budget. Because it has been a 50-50
    match program, every million dollars cut from EMA has meant two million
    dollars less in emergency preparedness.
        NCCEM believes it is most important to maintain FEMA's funding for
    State and Local Assistance (SLA). This item has been cut as far as
    possible, and if any more reductions are made to FEMA's budget, NCCEM
    urges that they be borne by programs other than SLA.
        Some local programs already are suffering greatly, in part because
    of FEMA's recent conversion to the more flexible Performance
    Partnership Agreement (PPA) with states. Before the PPA, a percentage
    of EMA funds was required to be passed on by states to local
    jurisdictions. It provided a minimum-level skeleton emergency
    management program for many jurisdictions, and served to cement the
    local/state/federal partnership that is vital to an effective disaster
    response. Under FEMA's new Performance Partnership Agreements, the
    agency is eliminating the distinction among its various funds-sharing
    programs. Thus there no longer is a requirement for any funds to be
    passed through to the local level; FEMA merely expects states to work
    cooperatively with local jurisdictions.
        That works well in some states, not so well in others. The
    uncertainty of funding levels creates serious difficulties for some
    local jurisdictions, whose programs depend on a regular amount of
    federal funding to maintain stability and continuity. Even if a
    specific pass-through percentage is not mandated, NCCEM would like to
    see FEMA require states to consult and share the funding with
    jurisdictions, or face some consequence, such as greater FEMA control
    over their state programs. Aggressive action is needed to assure that
    local governments get an adequate share of available federal money for
    disaster preparedness.
        Program stability and continuity also would be enhanced if SLA
    funding could be on a two-year cycle. Many states operate on a biannual
    budget cycle, and all states require time to adjust to change funding
    formulas. Thus NCCEM urges that a transition period of at least two
    full fiscal years be provided for a state to accommodate to agreed
    changes.
        Mitigation.--NCCEM fully supports FEMA's request for a $50 million
    pre-disaster mitigation fund. We all recognize the importance of
    mitigation, but it can be costly. Federal leadership is important in
    this area, both in disseminating information and providing seed money
    to encourage the application of more state and local resources to
    mitigation activities. More will be needed, but the $50 million
    appropriation is a solid start.
        Disaster Relief Funds/Stafford Act.--NCCEM favors retaining the
    original language of the Stafford Act, relating to a 75 percent federal
    cost share for disaster relief. Already, despite the current nominal 75
    percent federal share, the federal government effectively contributes
    less than 50 percent of the cost of local government disaster response
    and recovery.
        Consistent application by FEMA of all regulations and policies
    would greatly help state and local governments prepare by learning from
    the experiences of others who have undergone Presidentially declared
    disasters. Right now, the rules change from disaster to disaster, and
    FEMA even tries to apply revised rules in mid-recovery instead of
    prospectively.
        Above all, though, NCCEM urges this committee to appropriate all
    the funds requested by FEMA. The programs are too important to the
    nation's health to suffer any further cuts. And with FEMA's current
    emphasis on mitigation, this money spent up-front will help reduce the
    growing sums spent on disaster relief after the fact.
        Thank you for hearing us. Please contact our headquarters at the
    address on the letterhead if there is any further information we could
    help you gather.
                                     ______

    Prepared Statement On Behalf Of University of California at San Diego's
     Scripps Institution of Oceanography and Columbia University's Lamont-
                           Doherty Earth Observatory
        On behalf of the University of California at San Diego's Scripps
    Institution of Oceanography and Columbia University's Lamont-Doherty
    Earth Observatory, we urge you to include $5 million in the FEMA
    Mitigation section of the fiscal year 1998 Veterans Affairs, HUD, and
    Independent Agencies appropriations bill to improve the quality and
    U.S. utilization of seasonal to interannual climate prediction data for
    weather-related disaster planning and mitigation.
        Scientists are close to being able to forecast long-term climatic
    conditions and the likelihood of extreme events, providing an
    opportunity to allay the devastation and uncertainty they bring. These
    funds could be used to capitalize on opportunities associated with
    emerging forecasting capabilities on seasonal-to-interannual time
    scales. This will allow the United States to build optimal decision-
    making into weather- and climate-sensitive sectors of the economy, such
    as agriculture, construction, energy production and use,
    transportation, insurance and water resources management.
        This funding would be used for a peer-reviewed, competitive,
    external grants program to support the development of regional
    partnerships (Federal, State, local governments, scientists, and the
    private sector) to improve and utilize climate prediction information
    in weather-related disaster planning. The funding should be included in
    FEMA (Mitigation Directorate) section of the bill and could be
    accompanied by language directing FEMA to work in consultation with the
    NOAA, USDA and the Department of the Interior on the development of the
    Request for Proposals and the proposal review process.
        Recent catastrophic flooding provides a stark example of the huge
    cost of natural disasters to the U.S. economy. As the nation sacrifices
    to balance the federal budget while still investing in economic growth,
    health and national security, the costs of unmitigated natural
    disasters are no longer affordable. Investments must be made now to
    improve prediction, mitigation and response to natural disasters and
    reduce future costs.
        Hydrometeorological hazards, from droughts to tornadoes, are
    responsible for 85 percent of the Presidentially-declared disasters in
    the United States. Floods have caused a greater loss of life and
    property, and have disrupted more families and communities than all
    other natural hazards combined. In a 1-year period, Hurricanes Andrew
    and Iniki, the March 1993 ``storm of the century,'' and the Midwest
    floods cost the country over $50 billion. NOAA's Climate Data Center
    estimates that 15 major weather-related disasters alone resulted in
    direct and indirect losses of $70 billion between August 1992 and
    January 1996.
        Continued U.S. population growth, increased urbanization, increased
    capital and physical plant and concentration in hazard-prone areas
    virtually guarantee that economic losses from weather-related disasters
    will continue to rise. The rising toll of insured losses, government
    expenditures and other indicators provide mounting evidence that the
    U.S. government must develop resilience to weather-related disasters.
        Some weather-related disasters, if predicted far enough in advance,
    offer opportunities for active intervention and significant cost-
    mitigation. Today public and private decision-makers have access to
    operational weather forecasts and warnings of extreme events which
    allow for some protection of life and property from immediate threats.
    This information is only of limited value, however, for long term
    planning and strategic mitigation. Recent research offers exciting new
    capabilities to forecast climatic conditions, seasons to a year in
    advance.
        While there is an ongoing program in seasonal/interannual climate
    research and experimental forecasting, there is no program targeted at
    applying these new insights in a focused mitigation research effort. $5
    million should be included in the FEMA Mitigation section of the fiscal
    year 1998 Veterans Affairs, HUD, and Independent Agencies
    appropriations bill to improve the quality and use of seasonal to
    interannual climate prediction data for weather-related disaster
    planning and mitigation.
        This program will allow the U.S. to build optimal decision-making
    into weather- and climate-sensitive sectors of the economy, such as
    agriculture, construction, energy production and use, transportation,
    insurance and water-resources management. These partnerships should
    also include emergency response professionals and promote coordinated
    regional planning and action.
        Research advances offer cost-savings opportunity.--Much of what
    makes weather-related disasters so terribly disruptive is that there is
    inadequate time to prepare. Scientists are on the verge of being able
    to issue long-term guidance on climatic conditions and the likelihood
    of extreme events providing a chance to allay the devastation and
    uncertainty they bring. This program will help to shift the focus from
    reaction to anticipation on the basis of seasonal to interannual
    climate predictions and comprehensive, coordinated regional planning
    and action.
        Partnership is critical.--Because warnings and dissemination
    necessarily involve both the giving and receiving of information,
    partnership is therefore fundamental. Reducing losses caused by extreme
    weather events requires that probability prediction of extreme
    conditions be transferred to the user community, including various
    State and local agencies, private industry and the public, and that the
    user community be actively involved in the creation of appropriate
    prediction-information products. By providing funds to link researchers
    and local users, the program will encourage regional partnerships to
    integrate all available knowledge so there is benefit from the
    continuous flow of new knowledge from ongoing research.
        Interagency partnerships.--A key component of this program is
    linking research agencies with agencies affected by weather/climate-
    related disaster. This program should leverage the interest and
    expertise of other federal agencies and should include FEMA, NOAA, the
    Department of Interior and the Department of Agriculture.
        Evaluation component.--The program will include an evaluation
    component requiring that each project ensure that the work performed
    contributes to reduction in future damages and hardship in a reasonable
    amount of time and in a cost-effective manner and that regional
    partnerships are effectively transferring ideas or technology into
    information products that can be readily understood and applied by
    users to identify, assess, and mitigate natural hazard risks. The
    program should also develop the means to disseminate information
    nationally on best-practices developed by regional partnerships.
        External grants program.--A majority of the program funds should be
    used for an external grants program. FEMA should quickly release a
    joint request for regional partnership proposals which use seasonal to
    interannual climate forecasts to mitigate costs of extreme weather
    events and capitalize on economic opportunities which these forecasts
    provide to critical sectors such as energy, transportation, and
    agriculture. Successful partnerships should address the need for
    improvements in research, the translation of research results into
    cost-effective mitigation approaches, and the dissemination of this
    information to those who can act. Regional partnerships should also
    include a cost-sharing component which increases during the life of the
    partnership.
                                     ______

     Prepared Statement of Dr. Anjay Elzanowski, the Humane Society of the
                              United States [HSUS]

        On behalf of The HSUS, the nation's largest animal protection
    organization, representing more than 4.7 million members and
    constituents. We thank you for the opportunity to present testimony
    today. We are going to limit our comments to the controversy
    surrounding appropriations for the Bion spaceflights, in which animals
    are flown on an unmanned, automated satellite.
        Bion spaceflights are a joint venture between the U.S., France, and
    Russia. The most recent flight (Bion 11) alone cost the U.S. $13.6
    million and Bion 12, to be launched in 1998, will cost American
    taxpayers $19.6 million.\1\ Previously, the U.S. contributed $25
    million for Cosmos flights launched since 1974.\2\ In 1996, the House
    of Representatives voted 244 to 171 to slash the funding for animal
    experiments in Bion 11.
    ---------------------------------------------------------------------------
        \1\ Budgetary Resource Requirements for Bion 11/12. Life &
    Biomedical Sciences and Applications Division, NASA. 1995
        \2\ Life Sciences input to FOIA U95-1013, NASA. 1995
    ---------------------------------------------------------------------------
        Bion 11 involved extremely inhumane experiments on young rhesus
    macaques. The primates were subjected to a combination of acute pain
    from the wounds inflicted in the process of instrumentation and severe
    distress caused by the start and landing, immobilization, and motion
    sickness resulting from space flight. It is unlikely that an average
    Animal Care and Use Committee would approve this project because of its
    cruelty and doubtful benefits.
        One of the macaques, Multik, died after returning to Earth. Multik
    choked on his own vomit while under anesthesia, which suggests
    inadequate care (NASA's official report on the cause of death is still
    outstanding). NASA reacted by suspending its participation in primate
    research on the Bion 12 mission. However, NASA's announcement does not
    guarantee that primates will not be used by the other participating
    countries or on subsequent missions. The announcement mentions the use
    of other animals referred to as ``appropriate models''. Therefore, it
    is important to avert any further escalation of unnecessary and
    egregious harm done by NASA and its partners to sentient animals, as
    they have done during the last two decades.
        The HSUS requests the inclusion of language in the fiscal year 1998
    VA, HUD and Independent Agencies Appropriations Bill that prohibits
    NASA from the use of any Bion funds for flights and/or experiments
    involving non-human mammals.

                               BION'S INHUMANITY

        The macaques were strait-jacketed for the entire two weeks of
    flight (to prevent them from tearing out wires implanted in their
    limbs). These wires, which were tied to 14 electrodes, were implanted
    into arm and leg muscles, tunneled under the skin and exited from a
    hole in the monkey's back. A thermometer was surgically buried in each
    monkey's abdomen, with a wire exiting another hole in the back. To
    fully immobilize their heads, metal Evarts crowns (``halos'') were
    fixed to their skulls using eight screws. The research protocols call
    for multiple survival surgeries, at least six including de-
    instrumentation, and state themselves that the surgeries are very
    painful.
        Dr. Roger White (Board-Certified Anesthesiologist, Mayo Clinic)
    characterized the implantation processes as ``the most invasive
    experimental procedures ever imposed on an animal'' and the
    immobilizing head crown as ``particularly aggressive, to the point of
    being macabre as well as cruel.''
        Dr. Jennifer Leaning (Board-Certified Internal/Emergency Medicine,
    Harvard Medical School) reviewed the Bion 11/12 protocols and stated
    that ``this kind of animal experimentation might have proceeded only a
    few years ago with little or no comment or objection. Now it cannot and
    must not. If humane alternatives cannot be identified, as the
    investigators assume, then this project should be abandoned or
    radically revised and reviewed again.''
        The animal protection community has drawn public scrutiny to the
    inhumanity in the Bion project. These concerns were validated in two
    independent reviews of the Bion project. The first review, which
    resulted in the Fettman Report of April 1995, followed in the wake of
    the resignation of Dr. Sharon Vanderlip, Chief of Veterinary Services
    at NASA's Ames Research Center (ARC) in Moffett Field, California. In
    her resignation letter to NASA Administrator Dan Goldin, Dr. Vanderlip
    wrote: ``In my 15 years as a laboratory * * * veterinarian, I have
    never encountered the arrogance and blatant disregard for policies,
    regulations and animal welfare that I witnessed at the [ARC] * * *.
    During my service * * * (July 1993 until my resignation in March 1994),
    a review of the medical records of the non-human primates indicated
    NASA's failure to provide appropriate surgical monitoring, pre- and
    post-operative care, and analgesia. Post-operative deaths were not
    uncommon * * *. NASA officials told me NASA had no control over the
    care of Bion monkeys in Russia. Veterinarians participating in the
    project who had visited the Russian facility and observed the animals
    on location told me conditions were `draconian' and that the animals
    received food of little or no nutritional quality.''
        Dr. Vanderlip also tells of being ``specifically ordered to
    disregard the animal welfare act, violate regulations, and to purge
    documents of botched experiments.'' She adds that: ``[many] of the
    individuals associated with the animal research component of Bion 11
    are the same individuals who demonstrated a total lack of respect for
    or understanding of animal welfare, laws, policies and procedures while
    I was Chief of Veterinary Services for NASA.''
        The second review (the Fettman Report of August 1995) was in
    response to 27 allegations of inadequate or negligent care made by
    People for the Ethical Treatment of Animals (PETA). These failings
    resulted in the death of more than 20 primates at the ARC. The
    investigation found that ten of the allegations were true and that
    seven of the remaining seventeen allegations could not be proved nor
    disproved by the NASA/ARC medical records. The investigation found poor
    communication between the animal caretakers, project managers and
    veterinarians, and medical record-keeping inconsistent with standard
    operating procedures.
        The report cites chilling incidents of neglect and mistreatment.
    Two squirrel monkeys died of water deprivation. A monkey described as
    lethargic, limping, bruised and anorexic from a recent surgery, was
    deemed fit a week later and then died during surgery the following
    week. Monkey # 524 was accidentally overdosed on Telazol. Monkey # M103
    had lesions associated with chair restraint and complications with the
    instrument implantation sites intermittently over a three year period.
    The panel found that Rhesus monkeys being used for the Bion project
    were ``chaired'' for days at a time and were being checked only twice a
    day.
        In addition to the two Fettman investigations, NASA convened a
    ``Task Force'' on July 1, 1996 for what was to be the final review of
    Bion 11/12. The lone ethicist on the panel objected to the absence of
    an ethical review of the project. The panel agreed that no subsequent
    Bion studies should proceed without an ethical review process in place.
    The panel also recommended a broad study of NASA's entire life sciences
    research program, including a look at the care and treatment of
    animals.
        Responding to the panel's recommendations, NASA's ARC convened a
    workshop that resulted in the ``Sundowner Report.'' This is a two-page
    document that ends with a surprisingly progressive statement:
    ``Vertebrate animals are sentient * * *. Unless the contrary is
    established, investigators should consider the procedures that cause
    pain or distress in humans may cause pain or distress in other sentient
    animals.''

        When confronted with pain and distress inflicted upon the Bion
    macaques, this statement shows a disturbing incoherence between NASA's
    declarations and deeds. At the recent Public Responsibility in Medicine
    and Research (PRIM&R) Conference (San Diego, March 1997) NASA's
    delegate used the ``Sundowner Report'' as a smokescreen by discussing
    it without any reference to their irresponsible experimentation in Bion
    11.
        NASA's use of animals is on the rise. While all other federal
    agencies report a decrease in the use of rats and mice, NASA's use has
    increased by 227 percent.\3\
    ---------------------------------------------------------------------------
        \3\ Davis, C. Animal use Trends in the United States 1986-1994.
    Tufts University School of Veterinary Medicine, 1996. p. 17.
    ---------------------------------------------------------------------------
                             BION'S INEFFECTIVENESS

        As it often happens, the inhumaneness reveals a poor experimental
    design. NASA's data from Bion 11 is of highly questionable relevance to
    human beings on several counts. The number of monkeys on this flight
    was two, with one dying shortly after the flight. It doesn't take a
    statistician to figure out that a sample of one or two can yield
    unreliable data. This problem is compounded by the usual pitfalls of
    extrapolating information from animals to people (macaques and humans
    belong to different families of primates) let alone extrapolating data
    from immature, restrained animals to adult, unrestrained astronauts.
    Long-term restraint affects most body functions including bone
    metabolism, and severe distress compromises research on the regulatory
    physiology. These known pitfalls of animal experimentation for
    biomedical purposes are aggravated in space by the fact that large
    animals, that may in some respects simulate human conditions, have to
    be immobilized and small animals, such as rodents, are too dissimilar
    to provide relevant data. These are problems that continue to be
    overlooked by NASA even though they were cited as problems during the
    peer reviews. As a result, 22 years of flying rats and monkeys into
    space, suspending rats by their tails for weeks at a time, and
    confining monkeys in full body casts for weeks on end has yielded a
    morass of conflicting information that generates more animal research
    rather than helping understand human medical problems.\4\ \5\
    ---------------------------------------------------------------------------
        \4\ Globus, R.K., Bikle, D.D. and Morey-Holton, E. Effects of
    Simulated Weightlessness on Bone Mineral Metabolism. Endocrinology,
    Vol. 144, No. 6, pp. 2264-2270, 1984.
        \5\ Anderson, S.A. and Cohn, S.H. Bone Demineralization During
    Space Flight. The Physiologist, Vol 28, No. 4, 1985. pp. 212-217
    ---------------------------------------------------------------------------
        It is obvious that human studies are much more relevant to human
    health problems. In addition, human experiments in space are not
    compromised by the extreme distress and restraint. According to Dr.
    David O. Wiebers (Board-Certified Neurologist, Mayo Clinic): ``[H]uman
    data would be far more valid and cost-effective than animal data. Many
    of the surgical procedures are minor for humans (anesthesia being
    necessary in animals for restraint.) A cooperative human subject would
    not require some procedures which are done for fixation. * * * I am
    convinced that this project as currently designed will provide no
    meaningful information. * * * Based on my medical training and
    experience, it is not unrealistic to expect that these experiments
    could be done with human subjects, if they need to be done at all.''
        The details of Bion 11/12 research program are specified in two
    proposals: ``Musculo-Skeletal Physiology and Behavior'' and
    ``Regulatory Physiology''. All of the tests called for by the Musculo-
    Skeletal proposal can be performed, with modifications, in humans. In
    fact, many astronauts do provide tissue samples. Several studies, some
    of which were conducted at NASA facilities, have examined the effects
    of simulated weightlessness on humans, many of which involved the
    biopsy of the participant's bone, bone marrow or muscle tissue.\6\ Bone
    biopsies are performed for patients suffering from osteoporosis. NASA
    routinely requires astronauts to submit to dual energy X-ray
    absorptiometry (DEXA) scans which enable researchers to definitively
    measure calcium resorption and determine where the most bone loss
    occurs. The possibilities of obtaining useful human data will be
    rapidly increasing with the progress of medical technology.
    ---------------------------------------------------------------------------
        \6\ Arnaud, S.B., Sherrard, D.J., Maloney, N., Whalen, R.T. and
    Fung, P. Effects of 1-Week Head-Down Tilt Bed Rest on Bone Formation
    and the Calcium Endocrine System. Aviation, Space and Environmental
    Medicine, 1992; 63:14-20.
    ---------------------------------------------------------------------------
        There is no obvious need for studying the decrease of bone density
    in space and Bion 11/12 does not provide any valid rationale for doing
    it. NASA admits that bed-rest provides a good simulation of
    microgravity and that more studies of this type are needed.\5\ \7\ It
    is textbook knowledge that the decrease in skeletal mass in astronauts
    is caused by a decrease in the load that bones are subjected to and the
    mechanisms of this process can and have been studied in humans.\8\
    According to Dr. Paul W. Gikas, Emeritus Professor of Pathology (The
    University of Michigan Hospitals, Ann Arbor, MI): ``This information
    has been known for years, and I question the need for additional
    studies. If there is adequate justification for additional studies,
    these experiments could be done with human subjects. Currently, open
    biopsies as well as large bore needle or trocar biopsies of bone and
    skeletal muscle are being performed to study various disease processes
    in humans who have given informed consent. Such studies conducted in
    human volunteers would obviously eliminate the disadvantages of not
    producing human data.''
    ---------------------------------------------------------------------------
        \7\ Tipton, C.M. and Hargens, A. Physiological adaptations and
    countermeasures associated with long-duration spaceflights. Med. Sci.
    Sports Exerc., Vol. 28, No. 8, pp. 974-976, 1996.
        \8\ Cotran, Ramzi S. Robbins, Pathologic Basis of Disease, Fifth
    Edition, W.B. Saunders Company, Philadelphia, pp. 1214, 1216, 1220,
    1221.

        Out of nine parameters listed in the Regulatory Physiology proposal
    only one--brain temperature--cannot be measured in unrestrained humans.
    The Scientific Advisory Council of The HSUS strongly believes that the
    measurement of 8 out of 9 parameters in unrestrained humans is by far
    more reliable and useful than the measurement of 9 out 9 parameters in
    stressed and immobilized animals.
        Instead of obtaining questionable data from animals, NASA should
    recruit astronauts willing to provide the necessary tissue samples,
    information that would help their fellow astronauts. The astronauts in
    the American space program are devoted to the betterment of that
    program and the future welfare of their fellow astronauts. Astronauts
    on spaceflights as early as the Gemini series and on several of the
    Apollo and Skylab missions submitted to a battery of pre- and post-
    flight examinations and sampling.\5\ \9\ If bone and other routine
    biopsies are really necessary, participation in a mission can and
    should be made contingent upon giving an informed consent to these
    biopsies.
    ---------------------------------------------------------------------------
        \9\ Fogelman, I. and Ryan, P. Measurement of Bone Mass. Bone, 13,
    S23-S28 (1992).
    ---------------------------------------------------------------------------
                                   CONCLUSION

        In conclusion, we believe that (1) the philosophy and design of the
    Bion program were flawed from the very outset; (2) flying animals into
    space, at least in the way it has been done by NASA so far, is terribly
    inhumane, ineffective scientifically, and wasteful economically; (3)
    information that is useful for future manned flights should be obtained
    in humans, hundreds of which have and continue to spend time in space;
    and that (4) given the budgetary constraints that our space program
    continues to experience, any tax dollars appropriated to NASA should be
    restricted to only vital studies meeting the highest standards, not for
    highly questionable animal research.
                                     ______

        Prepared Statement of Dennis Olivares, President, International
          Federation of Professional and Technical Engineers, Local 29

                                  INTRODUCTION

        Madam Chairman and Members of the Subcommittee: I deeply appreciate
    this opportunity to testify today about my recent experiences in the
    federal government and the tangible recommendations I believe need to
    be implemented in order to bring NASA Appropriations into line with
    modern political mandates concerning cost-effective, or ``reinvented,''
    government. My name is Dennis Olivares, and for the past 6.5 years I
    have been employed by NASA at Goddard Spacefilght Center (GSFC) as a
    Communications/Electronics Engineer. However for the last half of that
    period, I have not been permitted to perform meaningful--or lately even
    any--engineering or project-management-type work for the government.
    Alas, where there's smoke there's generally fire, and accordingly much
    of my recent career destruction stems directly from this Agency's
    illicit retaliation against my longstanding, open, and occasionally
    effective opposition to the waste, mismanagement, and abuse of
    discretion I have personally encountered in GSFC operations and on
    three major Flight Projects (ie., Space Station/EOS Platforms, ISTP/
    GGS, and TDRSS). To maintain and hopefully restore my civil-service
    status, I have undertaken a number of defensive initiatives which have
    caused this Agency and I to be locked in legal combat for over 4 years,
    but I do not intend to discuss these today. However, those ongoing
    battles coupled with my official, employee--representational duties as
    an elected Union Officer have provided me with many additional insights
    such that I helped found and am engaged in leading the Whistleblower's
    Alliance and Relocation Network (WARN) on an extracurricular basis;
    many of the recommendations I make today in this Statement are derived
    from the legislative proposals now being advocated by that Group, aptly
    nicknamed WARN.

                                REQUEST SUMMARY

        Senators, I am herewith requesting that this Subcommittee reexamine
    the budget package submitted by my Agency and seriously consider doing
    the following:
      --Cutting at least $1.3 Billion from the total life-cycle costs of
            the TDRSS and/or TDRSS-II Program(s);
      --Totally defunding the NASA Inspector General's Operations in
            perpetuity (c. $210 million per year);
      --Cutting at least $20 Million from Space Technology ``R&D'' Programs
            devoted to Spacecraft Data Systems;
      --Cutting at least $200 Million from the EOS AM/PM Platform
            Project(s) pending a formal investigation of the same;
      --Cutting at least $9 Million from GSFC Quality-Assurance Operations
            relating to the Unisys/Paramax Support Contract (c. $85
            Million) pending a format investigation of the same; and
      --Increasing funding by at least $100 Million for the Large/Small
            Explorers, Earth Probes, and Spartan Programs whose historical
            payback rates have been positively proven ``at the bank.''
        That concludes the oral portion of my Statement. I would like the
    written remainder of my Statement to be herewith appended and included
    in the record without exception. Finally before proceeding, I trust
    that it is recognized that I am submitting this Statement to the
    Congress in good faith and complete honesty pursuant to 5 U.S.C.
    Sec. 7211 and related protective statutes. Although obvious, I
    reiterate this extra protection of First-Amendment rights because I am
    uncertain what awaits me in the following weeks.

                                  BACKGROUNDS

        I was hired at Goddard at the tail-end of 1986 via response to an
    advertisement in the Washington Post for GS-13/14-level communications,
    electrical, and systems engineers. Despite my somewhat mature,
    journeyman professional statue, I came into the government with, what
    in retrospect has proven to be, severe naivete regarding the Merit
    System as well as the actual innovation mission of NASA/GSFC. Yet for a
    while, I enjoyed significant career success, although nowhere near the
    levels of achievement and recognition I was able to reach in the
    private sector.
        Although this Agency has recently and pretextually chosen to attack
    my academic credentials, technical competence, and overall
    credibility--and is being sorely taken to task for such defamation--I
    assure you that the following observations and conclusions are true,
    valid, and objectively verifiable in copious publications of both the
    print and electronic media during the past four years. If I were
    remotely mistaken about any of these issues, I assure you I would not
    risk this Statement here today. I firmly believe these abuses need to
    be checked cold and, if possible, reversed and prohibited for the
    future health and integrity of NASA.
        Although I have previously had numerous low-key/low-output dealings
    with the Government Affairs Committee, the GAO, and other enforcement
    and investigative entities over some of these issues, it has recently
    occurred to me that nothing could focus an Agency's attention on a
    problem as quickly or efficiently as impinging on its future
    appropriations in a way that forces a swift resolution of that problem.
    To me, this amounts to a revolutionary end-run around the traditional
    watchdog mechanisms which simply do not work at all or anywhere near
    well enough to give a fair return on taxpayers' investment in NASA. The
    spirit of the times (i.e., government accountability) and basic
    concepts of justice demand that such an experiment be undertaken.
    Accordingly, I have made five recommendations along these lines--five
    areas where I know significant waste, mismanagement, and abuse of
    discretion has occurred and is mostly still occurring. I propose that
    the Congress cut these pre-identified amounts from the fiscal year 1994
    and subsequent NASA Budgets, less, perhaps, 5 percent for the
    administrative or litigation costs to recover those amounts, which the
    GAO should certify, increase or decrease. These are not trivial sums,
    and the effort would be worth it, particularly the exemplary effect it
    would have on other profligate federal agencies once such seismic waves
    resonate throughout the government. An agency suitably starved for
    funds would thus have no choice but to take the due care and serious
    efforts (which they should have done before) and recoup their misspent
    funds and discipline their management problems--and quickly! The page-
    limitation imposed by the Subcommittee for these purposes forces me to
    disclose nothing beyond brief clues regarding the budget cuts proposed
    in the five above-identified areas. I place myself at the disposition
    of the Members and their staff regarding further evidence and
    information to support my stated positions.

                    TDRSS, ATDRSS AND TDRSS-II COST OVERRUNS

        The seeds of my own career destruction were inadvertently sown in
    early 1987 when, despite (or, in retrospect, possibly because of) my
    inexperience in government, I was chosen by the Engineering Directorate
    (Code 700) to be detailed to the Tracking Data-Relay Satellite (TDRS)
    Project Office (Code 405) to help them evaluate complex and voluminous
    set of fixed-price and cost-plus proposals from TRW and CONTEL. These
    proposals were an omnibus set of level-of-effort claims against the
    government, and they were collectively referred to as ``Shuttle-Delay
    and Related Claims''; for shorthand purposes they were called ``P6''
    which stood for Period 6 of the Master Contract NAS5-25000 which ran
    from April 1, 1986, until the end of 1993. The original nominal dollar
    amount for these P6 claims totaled around $165 Million. Previously, the
    P5 Technical Evaluation Team had taken a somewhat ``hard-line''
    approach was instrumental in recouping around $11 Million from the
    TDRSS Contractors TRW an CONTEL. They were so mortified by our P6 fact-
    finding questions that they withdrew their Proposals. Later, TRW and
    CONTEL resubmitted ``R1'' P6 Proposals around February of 1988. These
    were revised and somewhat descoped versions of what they had sent in
    earlier (i.e., with only the fixed-price part of the Contract
    addressed), but now costs had been inflated up to a nominal $178
    Million. Later, I was to prove that the actual overall proposed costs
    were higher still--near $187.4 Million--and the Evaluation which I
    spearheaded ended up recommending loaded-cost disallowances totaling
    $54.3 Million dollars! This was no mean feat nor paltry sum. Although
    sent to this Project as a relative ``tenderfoot,'' I quickly overcame
    my deficiencies and acquired the requisite skills such that I was
    recommended for promotion (to GS-14), step-increase, and cash award.
        But then, ``funny things'' began to happen to me. No promotion to
    this day for starters, and although the most technically competent
    engineer to assist in the P6 Negotiations I was deliberately and
    systematically kept away from the proceedings. Later, I learned that
    about $29 Million had been recovered for the government, and I felt
    good; that money was my early contribution to the ``amortization'' of
    my own career costs. I more than paid for myself with that one effort,
    even if I live to be 500 years old! However, $29 Million was good to
    have, but over $54 Million had been proven and profusely documented. I
    figured we were due about another $20 Million from the grossly
    mismanaged Contractors. No manager has the discretion to hand out tips
    and gratuities on that scale, so I began to ask questions that never
    got answered to this day. Therefore, the Congress should slash $20
    Million from the TDRSS line item(s) until such time as those answers,
    or that misspent money, are forthcoming. Immediate reorganization and
    restaffing of that Project Office should also be required at once; the
    elevation of the TDRS Project Manager from GM-15 to SES, as has
    recently been advertised, should be halted or undone as well.
        Instead of answers, a wall of silence was erected in 1989, and I
    was reassigned to the prestigious Advanced-TDRSS (ATDRSS, since renamed
    to TDRSS-II) Procurement Development Team to keep me quiet and busy. A
    $70 Million question also arose on the F7 and F8 Satellite Contracts to
    TRW, but that one proved almost impenetrable for me. (I have since
    learned that the NASA IG may have heeded my clues in this area at long
    last.) And all that pointless showboating--and expensive--
    transcontinental travel the TDRS Project Office still engages in!
    Needless to say, I did not last long in Code 405, especially when I
    began to openly oppose and get reluctantly changed deeply imbedded
    biases which favored the awarding of the ATDRSS contract to TRW through
    the political mandating of such requirements as the so-called ``Cluster
    Satellite Architecture.'' The job I had was assumed by obedient in-
    house service contractors--and openly advertised about a year later--
    and I was sent back home to Code 735 where I essentially have not been
    able to secure any further meaningful assignment. So I became active in
    the Engineers' Union and the Automobile Club, and of course the quest
    for legal redress. The rest of the technical details of this story have
    been provided to the Congress through the Government Affairs Committee,
    which details how 4 or 5 satellites, especially now that Ka-band
    service has been abandoned, can do the job that the Agency has
    specified for 10 satellites, which is a life-cycle-cost impact of an
    additional $1 Billion or so. Space News has indicated that these funds
    have already been pulled back. Good! ``Ghost stories'' about a
    potential deficit in data-traffic-handling capacity in upcoming years
    can be readily debunked by a critical examination of the Space Network
    Mission Model.

                         INSPECTOR GENERAL'S OPERATIONS

        Also as detailed in my 16-page Statement last year to the
    Government Affairs Committee, the NASA OIG is virtually a drone entity
    and wholly ineffective WARN, of which I am the current Vice-President,
    has legislative proposals floating about which recommend the outright
    abolition of the Office of Special Counsel (OSC) and all the Agency
    OIG's as creatures of the Agencies per se. The replacement would be an
    Office modeled on the autonomous Federal Reserve Board and would absorb
    the individual agency IG's as direct-subordinate branches. We would
    eliminate the IG's current discretion to ignore problems by having the
    option to conduct either an ``audit'' or an ``investigation.'' Both
    need to be utilized each time a project or an activity is brought under
    scrutiny. Agency-located IG Branch Offices would be staffed with cross-
    trained project engineers and auditors from the agency's ranks--
    possibly on a rotational basis. Such personnel, unlike the common fare
    in a typical agency's OIG, would be competent and could converse
    fluently in the agency/industry jargon and would not be intellectually
    unarmed in a technical discussion with a shrewd and willful project
    manager or engineer whose motives might not necessarily stem from the
    Code of Ethics. Much of what is currently swept under the carpet would
    cease by virtue of this lone reform!
        The replacement strategy is well-described elsewhere, and I will
    not reiterate those details now. Instead, I simply can upon the
    Subcommittee to anticipate this Enactment and totally defund the NASA-
    OIG to the tune of around $210 Million annually. Substantially more
    money can be saved by the self-financing OIG for the United States
    which is being proposed along with its operating concept which will
    establish a competent, committed, and protected corps of oversight
    professionals.
                  in-house ``research and development'' abuses
        One of the first oddities I encountered when I entered NASA from
    the private-sector was all the duplication and triplication of design
    efforts relating to data systems and data-handling components for space
    or earth applications. Nobody else's system is good enough for
    collaboration, to the extent it is even known, because it was ``Not
    Invented Here''. Thus do we joke about the NIH Syndrome at Goddard.
    Some managers see such quests as healthy competitive contests, and
    others view it as therapeutic to cure the ignorance of the vast numbers
    of college fresh-outs we lately employed. However, I believe that both
    such motivations are improper when it amounts to mere reinvention of
    the wheel and does not offer substantial improvement over commercially
    available off-the-shelf. I and my colleagues have estimated that the
    latest Spacecraft Data System Developments done in-house by GSFC
    personnel and a cadre of service contractors have spent between $15
    Million and $60 Million to reinvent a ``wheel'' that does not
    transport/store data any faster than the industry's norm (2 Mbps). That
    is an expensive in-house training program! That is the NIH Syndrome at
    its worst. Accordingly, I take a conservative estimate of $20 Million
    and ask the Subcommittee to withhold this amount from next year's
    ``R&D'' funding in the hopes that some real advances in the state of
    the art might be forthcoming.
              space station platforms/earth-observing system (eos)
        It is when significant aerospace-contractor effort becomes
    involved, especially on macro-projects involving large and/or multiple
    spacecraft, that NIH Syndrome becomes truly expensive--hundreds,
    instead of merely tens, of millions of dollars get wasted. GE Astro
    (now Martin Marietta) has expended around $450 Million doing
    ``Viewgraph Engineering'' and producing no significant spacecraft
    hardware for their macro-Platform which formerly was under the aegis of
    Space Station and now under EOS, where between $52 Million and $140
    Million has gone into the EOS-AM design. They too could make use of
    commercially available subcontracts for standard hardware which would
    save tons of money. Instead, they have been allowed to get away with
    proposing ultra-profitable in-house fabrications--a disastrous strategy
    as GSFC Management should well know via the experiences with the 2
    ISTP/Global Geospace Science Satellites.
        I urge the Subcommittee to have the GAO examine this Project and
    recommend a $200 Million cut to get some attention to this situation.
                      the quality-assurance empire at gsfc
        Through the handling of a grievance over an employee who was
    constructively fired for engaging in responsible oversight regarding
    the UNISYS/Paramax Support Contract for Code 300, I have become aware
    of substantial areas for concern. Since litigation is pending in this
    area, I will merely recommend that the Subcommittee cut $9 Million from
    this QA line item and dispatch the GAO to sources of information that I
    shall designate at a subsequent time * * *.
        suggested projects and cost-centers for increased appropriations
        Based on past performance as well as prudent risk-assessment
    theory, I urge the Subcommittee to increase funding for small-satellite
    endeavors by at least $100 Million. Macro-spacecraft just never seem to
    get off the viewgraphs, and when they do (e.g., TDRS, HST, UARS, GRO,
    GOES-Next, Magellan, etc.) they are plagued by all manner of technical
    troubles. The Explorers generally deliver more and quicker. EOS should
    be descoped to use more small-sats as well. Spartan deserves to
    demonstrate the concept of ``recyclable spacecraft'' in the manner of
    EURECA.
                                  conclusions
        Poor, poor contractor oversight, desertion of role as national R&D
    leader, wholesale abandonment of Merit-System Principles are the three
    greatest evils that NASA must exorcise from its ranks. Also true is a
    variation on the cliche ``You can't legislate morality,'' e.g., federal
    integrity, in view of the current structure of government which
    actually rewards that perversion of institutional cooperation (i.e.,
    being a team-player) which seeks to suppress, cover-up or distort the
    truth about ``controversial'' federal programs and to punish all those
    who fail to go along with the scheme. These anti-values are constantly
    reinforced with admonitions about not rocking the boat or about the
    inability to fight ``the System,'' which needs to be totally redesigned
    to attenuate all those existing disincentives to responsible government
    service, especially where contractor-oversight is involved. Those who
    would oppose wrongdoing or advocate and implement genuine reforms are
    literally and brutally sacrificed! What follows are my supplemental
    recommendations to effectuate some very badly needed reforms in a
    technologically oriented agency like NASA.
                          supplemental recommendations
        (A) Conduct a moratorium on dealings with the OSC or any agency IG
    Office until such times as the following necessary reforms have been
    implemented.
        (B) To enable Whistleblowers to come forward as was intended, but
    not realized by the Whistleblower Protection Act of 1989, abolish the
    farcical Office of Special Counsel (OSC), and transfer its core
    functions to either the OMB, the FBI or perhaps some wholly new and
    truly independent agency to be known as the USIG (Office of the
    Inspector General for the United States).
        (C) Eliminate or cut back on agency Procurement Officers, who as a
    professional class are usually even less well-educated than IG agents
    as regards the mission, projects, and technology of the agency/
    industry. They are even easier to control by unethical managers and
    engineers who frequently form unholy alliances with these contract
    officers to ``pacify'' complaining contractors to the tune of billions
    of wasted dollars each year. They are widely thought to be ``in the
    way'' by conscientious individuals, thus making the current arrangement
    a kind of welfare program for procurement-types. As such, their
    authority far outstrips their understanding; they are truly support
    personnel who presume to lead an enterprise they do not adequately
    comprehend.
        As a replacement, the adoption of the private sector's ``engineer-
    manager concept'' is suggested: Weed-out generic managers and
    nontechnical bean-counters! Train technical engineers in the business
    sciences, and retain the better procurement officers and train them in
    the agency/industry technology in the manner of physics-for-poets
    courses. Then give this new corps of engineer-managers plenary
    responsibility, including both credit and blame, over the key aspects
    of their project work. Such a new method of doing business would tend
    to raise the stakes of performing well and create a much-needed locus
    for accountability. The present System diffuses--and often outright
    obscures--true accountability, which guarantees cost overruns, poor
    employee performance, malignant management oversight, undeserved
    advancement, poor overall morale, and the negative cycle just continues
    to spiral inward on itself.
        (D) Insist on the use of Firm-Fixed-Price Contracts for the
    procurement of all major elements of hardware and engineering support
    services, and then police these contracts strictly and with adequately
    trained (and suitably committed) engineer-managers. Cost-Plus Contracts
    have proven an absolute disaster in recent NASA spacecraft programs for
    a complex array of reasons. Do not let NASA escape its mandate of last
    year which requires the promulgation of cost-recovery procurement rules
    for poor-performing contractors!
        (E) Upgrade the overall competence of so-called Quality Assurance
    Engineering groups, where far too many nontechnical, generic engineers
    find a convenient haven to flex bureaucratic muscle at the expense of
    rational cost and proper mission goals for agencies (like NASA) charged
    with core R&D function on behalf of taxpayers. Much of this function
    can be plowed directly back into the engineer-manager corps, where it
    rightfully belongs; even Ford Motor Co. recognizes that ``Quality is
    job one!''
        (F) Strengthen Federal Unions by eliminating the gross inequities
    engineered into Title VII of the Civil Service Reform Act
        First, change 5 USC Sec. 7106 to equalize matters and permit
    competent unions (i.e., those with scientists, engineers,
    mathematicians, and programmers) to negotiate over matters of
    substance, instead of only limited ``procedures.'' This would include
    the prioritization of major capital projects, staffing and skill-mix
    (to insure against pre-engineered incompetence), internal cost-benefit
    analyzing, improper contracting-out of core agency functions,
    improvident bestowal of performance awards to contractors as well as
    agency units, union-initiated transfers or details of whistleblowers to
    ``safe havens'' to thwart illicit retaliatory campaigns, and similar
    things which go to the heart of the agency's mission, productivity, and
    accountability to both the taxpayers and the Merit System.
        Secondly, amend 5 USC Sec. Sec. 7116(d) and 7123 to enable federal
    unions to obtain temporary restraining orders and other injunctive
    relief (through the currently hostile and politicized Federal Labor-
    Relations Authority) for instances where they assist and subsequently
    have to defend a whistleblower from agency-sponsored retaliation. At
    present, the FLRA is abusing their discretion by adopting ultra vires,
    nonstatutory restrictions in the application for TRO's by refusing to
    seek relief for ``mere'' individuals, etc.
        Thirdly, provide federal unions the statutory right to proceed
    directly to federal district court for a de nova review of unfavorable
    appeals from the FLRA General Counsel--at least in cases involving
    whistleblower defenses. Such cause(s) of action should provide for
    sanctions and/or damages against both the agency and the FLRA for
    harmful error, abuse of discretion, and other willful conduct.
        I hope these suggestions have been helpful.
                                     ______

     Prepared Statement of Mary L. Sandy, Chair, National Council of Space
                                Grant Directors

            the national space grant college and fellowship program
    I. Historical Overview
        In 1988, Congress established the National Space Grant College and
    Fellowship Program which is administered by NASA. The program was
    developed to ``increase the understanding, assessment, development and
    utilization of space resources by promoting a strong education base,
    responsive research and training activities, and broad and prompt
    dissemination of knowledge and technology'' (Public Law 100-147). The
    program uses state-based consortia of universities, industry and state
    and private partners to:
      --Build research infrastructure and capabilities in aerospace
            related/high technology fields;
      --Improve math, science, technology and engineering education at all
            levels, kindergarten through graduate;
      --Foster partnerships among industry, government and private entities
            to meet Space Grant goals; and
      --Enhance public science literacy.
        There is a Space Grant consortium in each state, as well as in the
    District of Columbia and Puerto Rico. These state-level Consortia,
    which are heavily networked at the national level, represent a
    tremendous national resource for high technology workforce preparation,
    and U.S. research and technology competitiveness. The program now has a
    well established infrastructure for fostering the creation of new and
    innovative partnerships for science and technology research, as well as
    for providing a venue for using technology applications at the grass-
    roots local level.
        By 1991, all 52 Consortia had been established. Nationally the
    program has grown by over 68 percent from 348 member institutions in
    1991 to 586 member institutions today. For every NASA dollar invested
    in the program in 1995 (the latest year for which full data is
    available), the Nation reaped rewards of more than $3 of cash and in-
    kind contributions from non-program resources. For 1995, this seed
    money, well spent at the state and local level, yielded:
        (1) 332 Higher Education programs involving 28,000 participants
    with activities including student and faculty development, new
    curriculum development, publications and institution development
    programs. As part of this effort five new centers, seven new majors, 22
    new minors and 79 courses in aerospace-related fields of science and
    technology were established.
        (2) 1,700 Graduate Fellowships and Undergraduate Research
    Scholarships totaling in excess of $8.5 million. These awards, while
    open to all students, encourage participation by females and
    underrepresented minorities.
        (3) 409 programs to build Research Capability. NASA funding of $1.6
    million was leveraged ten fold with $16.3 million to create programs
    reaching many participants. This funding supported such activities as
    seed research grants, establishment of research collaborations, and
    faculty release time for the development of innovative research
    proposals. Proposals won through this initiative in 1995 totaled $29.5
    million.
        (4) Precollege (K-12) programs which reached 700,000 participants
    through 507 programs. NASA funding of nearly $2 million was leveraged
    nearly five to one with state, private and other federal support. A
    broad range of activities included teacher preparation and enhancement
    programs, curriculum development and dissemination, and support of
    student opportunities, many offering real world research and hands-on
    experiences.
        (5) A NASA investment of $445,758 in public service/external
    relations programs which netted in excess of a five to one match.
    Programs, including radio, television and other public programs--260 in
    all--raised public science literacy of nearly 3 million participants.
    II. The Need for Expanded Resources
        Recognizing that the National Space Grant College and Fellowship
    Program is a national asset, and the significant contributions of the
    Space Grant Program in:
      --Bringing benefits of aerospace science and technology to the people
            of the nation;
      --Creating community-based, public-private partnerships;
      --Strengthening education and training at the K-12, higher education,
            public outreach levels; and
      --Building high technology research infrastructure at colleges and
            universities in conjunction with industry and government
            partnerships.
        The National Council of Space Grant Directors has evaluated the
    program's status and its needs in order to continue to adequately serve
    its constituents and to meet growing program demands. This review
    considered:
      --The high leveraging capability of the program and its demonstrated
            success in meeting science and technological goals at the state
            and national levels;
      --The fact that the number of program participants has grown by 68
            percent since 1991 while funding to the National Space Grant
            Consortia has remained flat since 1991, with an actual decrease
            in national program funding;
      --The growth in programmatic demands placed upon the state-based
            consortia;
      --The eligibility of many states/consortia (including but not limited
            to Alaska, Delaware, District of Columbia, Kansas, Indiana,
            Minnesota, Missouri, New Hampshire, New Jersey, North Carolina,
            Oregon, West Virginia, Wisconsin) to raise their status and
            funding levels to those of the Phase I awardees; and
      --The need to work with state and local agencies to ensure that
            aerospace technologies are available for use at the most
            practical local level.
        In light of the success of the program and the needs indicated
    above, the Council urges Congress to provide a permanent budget
    increase of $10 million to commence with the fiscal year 1998 year,
    which will allow:
      --An increase in the funding to the 52 consortia to bring them in
            real dollars to the 1990 funding levels and permit a
            continuation of the consortia programs as envisioned in the
            original legislation. ($3.5 million)
      --States funded at less than a Phase 1/Designated Space Grant level
            to compete for full funding and appropriate designation and to
            provide more equitable funding to the larger state consortia.
            ($2.8 million)
      --Extended resources to establish a Space Grant program of state-wide
            partnerships to encourage the practical application of
            aerospace technology and science (e.g., local dissemination of
            remotely sensed data to end users such as farmers, natural
            hazards programs, land use planners, marine resource managers
            and others) in partnership with established state extension and
            natural resources programs. This will build the capacity to
            develop appropriate deliverables and to partner with extension
            networks in the transfer of technology for solving high
            priority problems of individuals and communities. It will
            accelerate the translation of data into useful information, and
            design educational programs that foster adoption of
            technologies and practices that address local needs. ($3.7
            million)
        The Council hopes that Congress will provide this funding as an
    increase to the NASA budget in lieu of taking funding from other NASA
    programs.
        Ten years ago, another Congress wisely recognized the urgent need
    for a technically competent and motivated workforce and created the
    National Space Grant College and Fellowship Program. The Space Grant
    Program has been both effective and efficient--in spite of dwindling
    resources. The seed has been planted and the roots are established. But
    the program is now at a critical point--it will either wither on the
    vine or it will blossom and bear fruit. The National Council of Space
    Grant Directors urges the committee to support the program at the full
    $23.3 million level, to protect the investments already made and to
    harvest the benefits of an outstanding program.
                                     ______

                          NATIONAL SCIENCE FOUNDATION
                    Prepared Statement of SRI International
                           the polar cap observatory
                               executive summary
        The National Science Foundation has proposed the establishment of a
    Polar Cap Observatory (PCO) funded in the amount of $25M out of their
    Major Research Equipment (MRE) funds in fiscal year 1998. The requested
    funding has been deferred by the Congress pending resubmission by the
    NSF with appropriate supporting documentation. This memorandum
    summarizes some of the key scientific, technical, and logistical issues
    associated with the proposed PCO.
        Science.--The polar cap region is the last remaining largely
    unexplored frontier for upper atmospheric science. It is at these high
    latitudes that the major interactions between the solar wind and the
    Earth's environment takes place. One can always say that science is
    ``good'' and leading edge science is even better. Clearly, the proposed
    PCO will result in new leading edge science. However, there are also
    practical consequences of the polar cap science. It will provide the
    heretofore unobtainable measurements needed to model and predict the
    effects of the solar interactions with man's environment and thus
    enable mitigating actions to be taken. For example, some solar storms
    create communication outages on both satellite- and ground-based links.
    They create surges on power lines that lead to power outages over very
    large portions of the world. They affect the resolution of our space-
    borne imaging systems. They can even lead to failures of semiconductor
    components on spacecraft and thus the loss of multimillion dollar
    sensing and communication platforms in space.
        Technical.--The technical specifications for the PCO have been
    studied and reviewed for almost a decade. The main instrument is a
    powerful radar (called an incoherent scatter radar), akin to a few
    others that exist in the world, none within the polar cap. However, the
    radar proposed for the PCO is of a modern design (a phased array) that
    would make it significantly more flexible than those currently in
    operation. The added flexibility is very important because of the
    dynamic polar cap environment in which the system will operate. In the
    polar regions, ionospheric effects happen on time scales of seconds,
    requiring electronic rather than mechanical steering of the radar
    antenna. Complementing the radar is an array of sophisticated optical
    instrumentation to provide a more complete picture of the polar cap
    phenomenology. A technical challenge to be dealt with is the effects of
    the severe Arctic environment on the instrumentation. SRI has
    successfully dealt with comparable technical challenges for over 25
    years with research facilities we have built and operated in Alaska,
    Canada, Antarctica, Scandinavia, and Greenland.
        Logistics.--The logistical challenges of building a major
    instrument at a remote location are well known and planned for in the
    proposal for the PCO at Resolute. We currently operate a small-scale
    research facility at that location for the NSF. We operate a major
    research facility in Greenland. We have dealt with and are currently
    working with the major Canadian construction firm that is responsible
    for construction and maintenance at Resolute and many other Canadian
    arctic locations. This firm would be the construction subcontractor for
    the PCO and was instrumental in working with us to develop the
    construction and logistics plans for the facility. Detailed plans have
    been developed and are spelled out in the successful (but yet unfunded)
    proposal to NSF for the PCO.

                                   DISCUSSION

        The paragraphs which follow expand on the scientific, technical,
    and logistical (including construction schedule) considerations.
        Scientific Basis.--Our planet is embedded in the outer reaches of
    the Sun's atmosphere which expands at a very high velocity. This solar
    wind carries energy and momentum to the vicinity of the Earth. The
    Earth's magnetic field, which extends far into space, plays a crucial
    role in absorbing and directing this energy and momentum toward the
    atmosphere. Most of the energy transfer to the Earth from the solar
    wind is accomplished electrically, and nearly the entire voltage
    associated with this process appears in the polar cap region. The total
    voltage across the polar cap can be as large as 100,000 volts, rivaling
    that of thunderstorm electrification of the planet in magnitude. This
    polar cap electric field is the major source of large-scale horizontal
    voltage differences in the atmosphere. Moreover, the dynamic polar
    region accounts for a large fraction of the variability inherent in our
    upper atmosphere, variability due to chaotic changes in the solar wind
    magnetic field which produce large-scale restructuring of the cavity
    that encloses the Earth's magnetic field. This restructuring visibly
    manifests itself most clearly in the production of ionized plasmas and
    the associated distribution of aurora high over the north and south
    polar regions. In turn, the Earth's lower atmosphere (that part
    responsible for weather phenomena) undergoes variations in composition
    and dynamics influenced by these coupling effects through a complex,
    and as yet not fully understood, feedback system. A polar cap
    observatory suitably equipped with radar and optical instruments will
    be able to determine the characteristics and variability of crucial
    terrestrial parameters during a time when a number of satellite
    platforms record the variations in the solar wind and in the Earth's
    near-space region.
        Presently, there are very few observations of the upper atmosphere
    over the polar cap. Yet observations of this region are crucial because
    this is where the solar wind most directly couples with the Earth's
    atmosphere. Lack of polar cap observations represents the most
    conspicuous gap in our understanding of the Earth's upper atmosphere.
        The scientific need for a PCO, as summarized above, was identified
    and strongly supported in a series of community-driven meetings and
    symposia that resulted in a comprehensive report entitled ``The Polar
    Cap Observatory: The Next Step in Upper Atmospheric Science.'' This
    report was the final and consensus product of a workshop held at
    Cornell University in 1989 in which more than 100 atmospheric
    scientists participated.
        From a more practical standpoint, the PCO will provide measurements
    needed for modeling and understanding the conditions in the space
    environment, called Space Weather, that can influence the performance
    and reliability of space-borne and ground-based technological systems.
    Space Weather storms can cause disruption of satellites,
    communications, navigation, and electric power distribution grids. Both
    the electric fields and particle precipitation in the polar regions are
    direct indicators of the state of space weather.
        In addition to space science, the PCO will contribute important
    information to address critical problems in atmospheric sciences. For
    example, the highest clouds in the Earth's atmosphere occur in the
    summer polar region, clouds which may never have formed before the
    emergence of widespread human habitation of the Earth. Clearly,
    understanding the complex interplay between lower atmosphere, solar
    wind, and local sources of energy and momentum in the tenuous upper
    atmosphere is an important challenge for atmospheric science in its
    attempts to understand and mitigate the significant, long term, and
    potentially deleterious impact of man on his environment.
        The proposed location of the PCO at Resolute Bay, Canada, is within
    6 degrees of the magnetic north pole, well within the polar cap. There
    is no location in U.S. territory within about 20 degrees from the
    magnetic pole making it impossible to do the frontier polar cap
    research from a U.S. location. Resolute Bay location is also at the
    apex of two existing chains of radar facilities, both of which will
    derive enormous benefits from the added information about energy
    transferred directly from the solar wind into the polar regions.
        Technical Issues.--As a result of the compelling community-wide
    scientific support for the PCO, the NSF granted three awards in 1990 to
    develop more detailed technical designs for the major components of the
    observatory:
      --A Design Study for the Incoherent Scatter Radar for the PCO;
            conducted by SRI International; 1991
      --Design Study for a Polar Cap Observatory Radar Data Acquisition
            System; conducted by MIT; 1991
      --The Polar Cap Observatory Optical Interferometry and Spectroscopy:
            A Design Study Plan; conducted by University of Michigan and
            Boston University; 1991
        The final reports from these studies, together with the initial
    comprehensive report, established both the scientific importance and
    technical feasibility of constructing and operating an upper
    atmospheric observatory deep within the northern polar cap.
        The main component of the Polar Cap Observatory will be a state-of-
    the-art incoherent scatter radar consisting of a high-power
    transmitter, a large antenna, and sophisticated receiving and signal
    processing equipment. The antenna will be steerable, allowing
    measurements over a large portion of the polar cap. Incoherent scatter
    radars provide the only ground-based opportunity to measure ionospheric
    electron density, electron temperature, ion temperature, ion
    composition, ion collision frequencies, and ion velocities over a range
    of altitudes from 80 km to over 1,000 km. In addition, the facility
    will include a suite of optical and radio devices for remotely sensing
    atmospheric parameters not measured by the incoherent scatter radar.
    The final Observatory will provide, by far, the most comprehensive set
    of polar cap diagnostic instruments in the world, meeting the research
    needs of many scientists in both the national and international
    communities.
        Logistical Issues.--Resolute Bay was selected as the site for the
    PCO after NSF-funded visits to several candidate locations in the
    Arctic. Of all the candidate sites, Resolute Bay had the most favorable
    logistical support base: an airport sufficient to handle jet cargo
    planes and a port capable of handling a large cargo ship. Under NSF
    funding, the proposed PCO site has been instrumented as a small-scale
    radio and optical observatory of polar cap phenomena. The existing
    facility consists of a 1,640 square foot structure and associated power
    generator building together with a small suite of scientific
    instruments that have already produced some tantalizing new scientific
    results. Development of this ``Early Polar Cap Observatory'' has given
    SRI valuable experience in establishing, sustaining, and supporting a
    research station at Resolute. Relationships have been established with
    local support contractors and detailed knowledge is at hand on logistic
    support availability, Arctic construction issues, and Canadian
    government requirements and environmental regulations. The major
    Canadian construction contractor currently operating at Resolute has
    provided the expertise, designs, and costing included in the winning
    proposal for construction of the PCO. Thus the best possible logistic
    and construction advice has been obtained. In addition, members of the
    town council of Resolute have been informed of the plans for a PCO and
    are excited about its potential for providing the town with new
    educational and tourism possibilities. Memoranda of Understanding have
    been negotiated by NSF with the Canadian authorities concerning the use
    of Resolute for the proposed PCO.
        Construction Schedules.--As with any Arctic construction, the PCO
    activities will be dictated by two crucial factors: the limited
    shipping season and the weather. Bulky and/or massive items must,
    necessarily, be transported to Resolute Bay by ship, as the
    availability of air-freight for those items is limited to the cargo
    capacity of a C-130 and would be cost-prohibitive. The shipping season
    consists of basically a single opportunity each year, the High Arctic
    Eastern Sealift, which usually arrives at Resolute Bay around the first
    week in September. Items to be placed on that shipment must reach the
    port in Montreal before the end of July. This constraint is determined
    by the relatively short period during which the local sea ice
    conditions allow vessels into this region.
        The weather is, of course, also a limiting factor for construction.
    For example, the foundations for the various structures cannot be
    installed before the ground is clear of snow. This generally occurs in
    July. Outdoor construction activities also tend to be much less
    efficient during the inclement winter months.
        Given these constraints, SRI proposed the following schedule,
    balancing shipping and logistics considerations with the desire for
    access to the facility by the scientific community as close to solar
    maximum as is feasible:
        In the first year, the site is prepared and the building and
    antenna foundations installed. At SRI, the structural and electrical
    design of the antenna will be completed and fabrication of the antenna
    elements will begin.
        In the second year, the antenna structure is fabricated and shipped
    to Resolute Bay. Prior to shipment, the structure will be test
    assembled at the fabricator's facility to eliminate uncertainties in
    either fabrication or erection techniques. Members of the on-site
    construction team will be present for the test assembly in California
    to ensure that the assembly proceeds smoothly in Resolute Bay. At the
    site, construction of the main building is completed and work is begun
    on installing radar equipment, optical instruments, and data
    acquisition hardware and software.
        During the third year, the antenna support structure will be
    completed at the site and integration of the individual antenna
    elements units (AEU's) will begin. The AEU's will have been tested in
    California, but they will be shipped in a disassembled state to reduce
    the bulk and packaging requirements. They will then be reassembled in
    an enclosed area in Resolute Bay, tested, and integrated onto the
    antenna panels. Testing will begin on the antenna, the computer
    network, radar instrumentation and data acquisition system.
        In the fourth year, final integration and testing of the radar
    system will be completed, as will final testing of the optical
    instrumentation. Scientific operations will then begin.
        Project Management.--During the construction phase, SRI
    International will maintain a Polar Cap Observatory Project Office to
    provide the day to day management of the project. Monthly, the PCO
    Project Office will provide status reports to NSF and to the Canadian
    Government Liaison covering such items as construction schedule,
    budget, and quality control of the project. The PCO Project Office will
    be responsible for coordinating infrastructure and logistics support
    for all activities to be conducted at the site.
        After construction is completed, SRI's PCO Project Office will
    continue to serve as the center for logistics and infrastructure
    support for the facility. It will coordinate the facility's use, ensure
    the safety and reliability of the instruments and buildings, provide
    scientific and technical advice to users of the facility, and conduct
    training courses in the use of the radar.
        Oversight of the project will be conducted by the NSF with the
    assistance of its expert advisory panels. The Canadian Government has
    chosen the Canadian Space Agency to act as the official Canadian
    Government Liaison to NSF in matters relating to the PCO. In addition,
    SRI and NSF will work continuously with the proper local authorities in
    the Northwest Territories of Canada to provide and receive advice as
    required on logistic, environmental, political, and management aspects
    of the PCO project.
        Timeliness.--With the approaching maximum phase of the 11-year
    solar cycle (around 2001), development of the PCO is especially timely.
    If construction is started in 1998, the Observatory will be operational
    in time to observe near solar maximum when the most dynamic processes
    and interactions occur. Also, in 2001 the suite of satellites launched
    as part of the International Solar Terrestrial Physics (ISTP) program
    will still be operational leading to excellent opportunities for
    collaborative science. With a one-year delay, the status of the ISTP
    satellites will be more uncertain. And the declining phase of the solar
    cycle will have started. This phase of the solar cycle is marked by the
    frequent occurrence of intense magnetic storms and by the arrival at
    Earth of energetic electron streams from the Sun, so-called ``killer
    electrons'' because of their deleterious effects on satellite systems.
    It should be pointed out, however, that significant observations can be
    made throughout the solar cycle, even through the minimum. Determining
    the solar cycle dependencies of the Sun-Earth interactions is
    critically important to understanding the phenomenology.

                                    SUMMARY

        The Polar Cap Observatory is truly an exciting project. In this
    memorandum we have touched on some of the scientific drivers of the
    PCO. Not only will it lead to important new insights in basic science,
    but it will contribute immediate societal benefit in addressing
    problems related to Space Weather (such as effects on man-made
    communications, navigation, power distribution and space-based imaging
    systems) and Global Change (including impact of man on the Earth's
    climate).
        Technically, the PCO incoherent scatter radar will be one of the
    most advanced and powerful in the world and will reestablish U.S.
    leadership in the field. It has been about three decades since the U.S.
    has built an incoherent scatter radar facility, even though the success
    of such facilities has been borne out by the scientific breakthroughs
    they have inspired, and by the fact that they are all still operating
    with continued high demand for observing time.
        The site at Resolute Bay has been carefully selected on the basis
    of its proximity to the magnetic pole and because logistically it is
    the most favorable settlement in the Arctic. The PCO has the potential
    to become a source of pride for the local community at Resolute and
    will represent a shining example of U.S. ingenuity standing out in this
    remote and harsh environment. It will also encourage and solidify the
    historically excellent scientific collaboration between U.S. and
    Canadian scientists.
        Finally, we note the importance of embarking on this project as
    quickly as possible to take advantage of the maximum phase of the solar
    cycle and the coordinated observations provided by an international
    suite of satellites launched as part of the ISTP program.
                                     ______

       Prepared Statement of Bruce S. McEwen, Ph.D., for the Society for
                                  Neuroscience

        I am testifying on behalf of the Society for Neuroscience, the
    largest scientific organization in the world dedicated to the study of
    the brain and spinal cord, and the more than 50 million Americans with
    brain disorders. Mr. Chairman, we are very grateful for this
    opportunity to present our testimony and for all that the Subcommittee
    has done in the past to support neuroscience research. The Society for
    Neuroscience consists of more than 26,000 basic and clinical
    neuroscience researchers affiliated with universities, hospitals and
    scientific institutions throughout North America and abroad.
        I would like to advocate for increased research funding for the
    National Science Foundation (NSF) and the Department of Veterans
    Affairs (VA). The Society for Neuroscience is well aware of the tight
    fiscal constraints facing this nation, but we also recognize the
    importance of increased funding for scientists and researchers. In the
    past, the NSF and VA have faced particularly tough limitations on their
    research programs due to limited federal dollars.

                          NATIONAL SCIENCE FOUNDATION

        For fiscal year 1998, the Administration's budget request is $3.367
    billion for the NSF. The Administration requested $2.5 billion for
    Research and Related Activities, a 3.4 percent increase over fiscal
    year 1997, which includes $330.8 million for Biological Sciences and
    $129.7 million for Social, Behavioral and Economic Sciences. The
    Society for Neuroscience urges this Subcommittee to raise the budget of
    the NSF to $3.505 billion for fiscal year 1998, a 7.1 percent increase
    or $232 million over fiscal year 1997.
        We believe that NSF-sponsored research is a major source of
    knowledge for today's researchers and provides a setting in which
    tomorrow's researchers are trained. The NSF funds researchers at more
    than 2,000 colleges, universities and other institutions in the United
    States. These researchers have added to the advancement of scientific
    knowledge while furthering technological developments around the world.
    In fact, five out of the eight Nobel Laureates in the natural sciences
    in 1996 received NSF funding at some point in their career. A further
    decline in federal support would have grave effects on the NSF
    resulting in a lowering of both basic science and science education.
        Basic research is the key to understanding neurological and mental
    disorders, and medical breakthroughs cannot be achieved without a
    significant increase. The NSF funds hundreds of studies on the
    fundamental properties of the central nervous system, and much of what
    we know about complex higher nervous and cortical function has been the
    result of basic brain research. The NSF also supports basic research in
    molecular genetics, which is highly important to understanding the
    brain. Much of basic neuroscience research is at the cellular and
    molecular level, and it is a realistic goal that we will have a
    comprehensive understanding of brain function at the molecular and
    cellular level by the year 2000.
        Some of the most exciting and challenging scientific research
    opportunities address the mapping of function onto the structure of the
    brain. The NSF plays the pivotal role in the development and support of
    this multidisciplinary research area through activities that provide
    unique opportunities for neuroscientists to collaborate with
    investigators in mathematical, computer and information sciences and
    engineering. Teaming modern brain scientists employing molecular
    biology, neurogenetic, neurophysiological, psychological and
    computational techniques with investigators in these other scientific
    disciplines provides a broad essential scientific infrastructure which
    will ultimately lead to the development of novel solutions to problems
    in neuroscience research. A few examples of the important research
    conducted at the NSF is listed below:
      --NSF-sponsored research supports a great deal of this country's
            research in developmental neurobiology, a field dedicated to
            how the brain evolves, develops and changes.
      --NSF-sponsored research programs have pioneered the development of
            cognitive neuroscience, which combines the study of behavior
            and cognition and artificial intelligence systems with basic
            neurobiological studies.
        NSF-sponsored research has improved imaging techniques that enable
    physicians to improve the quality of patient care by altering the way
    people look at themselves. These new imaging techniques are faster and
    more cost-effective than in the past.
        NSF-sponsored research studies the physiological and psychological
    processes involved in the production and perception of speech and on
    the biological bases of language in the central nervous system.
      --NSF-sponsored research programs in neuroendocrinology establishes
            the only activity in the federal government in which
            neuroendocrinology, an area of research important for
            integrating physiological processes throughout the body from
            development tonging, is fostered as a distinct comprehensive
            discipline supporting comparative studies across all species.
        The Society for Neuroscience is deeply and firmly committed to the
    basic science approach and strategy represented by the NSF. It is at
    the NSF where basic and fundamental questions about brain structure and
    function are supported. Research conducted at the NSF serves as the
    very foundation that scientists build upon. A wide spectrum of studies,
    ranging from single cell organisms to the human brain, are included in
    the research portfolio of the NSF.
        The NSF deserves the level of support we are requesting. The
    Congress can feel comfortable in knowing that it is money well spent,
    and that ultimately this research will bring benefits to millions of
    citizens in this country.

                         DEPARTMENT OF VETERANS AFFAIRS

        For fiscal year 1998, the Administration has requested $234.4
    million for the VA Medical and Prosthetic Research Program, a 10.5
    percent reduction over fiscal year 1997. Again, we recognize the tight
    fiscal constraints faced by this Subcommittee, but we urge you to
    increase funding for the VA to at least $280 million for fiscal year
    1998. Without this increase, the VA will be unable to keep up with its
    current research efforts. In 1986, the VA funded 2,434 investigator-
    initiated research projects. Because of decreasing resources, the VA
    has only been able to fund approximately 1,414 programs in 1997.
    Currently, the VA only funds 15 to 20 percent of approved health
    research projects--an all time low for funding opportunities for VA
    researchers.
        A few examples of the important research conducted at the VA is
    listed below:
      --VA-sponsored research in neuroscience has begun to develop
            promising discoveries in brain and spinal cord trauma,
            epilepsy, Parkinson's disease, amyotrophic lateral sclerosis,
            schizophrenia, multiple sclerosis, Alzheimer's disease and
            depression.
      --VA-sponsored research is vital for the ongoing conduct of basic and
            clinical studies in the cause and the effective treatment of
            crippling and disabling mental disorders.
      --VA-sponsored research has developed an Alzheimer's disease
            assessment scale that helps diagnose the condition early while
            also enhancing the quality of life for sufferers of Alzheimer's
            disease by producing memory therapy, a non-pharmacological
            technique.
      --VA-sponsored researchers are developing treatments for
            schizophrenia after finding that the severity of schizophrenic
            symptoms is associated with the level of dopamine breakdown in
            the spinal fluid and blood.
        A decreasing level of funding in VA research, as proposed by the
    Administration for fiscal year 1998, would seriously compromise, and
    lead to the ultimate demise of the important research conducted at the
    VA. Every day, these programs are developing new methods to understand,
    diagnose and treat devastating disorders. The decreasing level of
    research funding will in a very direct sense compromise the health of
    tens of millions of our veterans. In addition to our veterans who will
    suffer from a decrease in funding, so will society at large, as it is
    advances in research conducted at the VA that have a profound and long
    lasting impact all over the world.
        In the past, more than half of the nation's physicians received
    some part of their medical training through the VA. The VA medical
    system provides an excellent opportunity to conduct large clinical
    trials, and veterans receive highly skilled medical care through
    various affiliation arrangements. However, inadequate funding has
    inhibited the VA's ability to recruit high quality researchers as it
    has done in the past. In fact, the VA has not been able to award any of
    its Career Development Awards in the past two years. As a result, the
    VA has had to reduce its staff, consolidate hospitals and clinics, and
    lower a number of existing services at medical centers. Because of the
    continuing shortfall of research funding within the VA, the status and
    the very integrity of the entire VA research program is in serious
    jeopardy. This would be tragic for the nation's millions of veterans.
        In conclusion, the Society for Neuroscience recognizes the
    constraints that the drive for deficit reduction has placed on all
    discretionary programs for fiscal year 1998. We are also fully aware of
    the many critical programs this Subcommittee must fund; however, we
    strongly believe that the research programs we are advocating are
    investments for the future, and we urge you to place NSF and VA
    research among the Subcommittee's highest priorities.
        Thank you for your consideration of our requests. I would be
    pleased to answer any questions the Subcommittee may have.
                                     ______

     Prepared Statement of John W. Suttie, Ph.D., President, Federation of
                  American Societies for Experimental Biology

        Mr. Chairman, Ms. Mikulski, and Members of the Subcommittee: I am
    John Suttie, current President of the Federation of American Societies
    for Experimental Biology (FASEB). I am also a Professor of Biochemistry
    at the University of Wisconsin, Madison, as well as a Professor and
    Chair of the Department of Nutrition Sciences at that institution. It
    is as President of the Federation that I come before you today in
    support of the important life sciences research conducted at three
    agencies under your jurisdiction--the National Science Foundation
    (NSF), the Department of Veterans Affairs (VA), and the National
    Aeronautics and Space Administration (NASA). While these agencies have
    very different missions, they all have one unique characteristic in
    common--the fundamental biomedical and biological research funded
    through these institutions enriches the scientific knowledge base, and
    results in substantial medical and technological advancements.
        For those of the committee not familiar with it, FASEB is a
    coalition of 14 societies with a combined membership of more than
    43,000 scientists who work in life sciences research at all the major
    universities and corporate research laboratories. The Federation was
    created in 1912 to provide an organization that could represent the
    views of the basic research scientist in the science policy debates of
    its day. More than 80 years later, this still remains the fundamental
    purpose of the Federation. FASEB, through its annual policy development
    process, provides a vehicle for the basic scientist to be heard in
    public policy deliberations which affect biomedical and life science
    research in this country. We bring a unique perspective to the
    difficult policy questions this Subcommittee must face in allocating
    scarce federal resources.

                          NATIONAL SCIENCE FOUNDATION

        NSF is the sole federal agency with the mission to promote a broad
    program of basic research and education in science. While the focus of
    the FASEB membership is on life sciences, the growing interdependence
    of all scientific disciplines compels a new approach for the 21st
    century. Discoveries in physics affect biology, and new mathematical
    approaches have effects on physics. Findings in materials science are
    of critical importance to medicine and engineering. Breakthroughs in
    engineering and computational technologies are important to all areas
    of the nation's economic and health-related scientific endeavors. It is
    for this reason that FASEB has worked closely with the Coalition for
    National Science Funding and nearly 80 other scientific societies to
    request a 7.1 percent increase for the NSF in fiscal year 1998.
        The scientific advancements made possible by NSF-funded research
    lead to industrial development and economic growth, including new jobs,
    and continue to improve the quality of life for our citizens. For
    example:
      --NSF-sponsored fundamental research on microorganisms lead to the
            discovery of DNA-cutting enzymes, called restriction
            endonucleases, that have played an essential role in the
            development of the field of molecular biology and biotechnology
            industry it has spawned.
      --Student participation in NSF-funded research at universities
            develops the workforce to support development and growth of the
            biotechnology industry; NSF also supports science education at
            all levels from kindergarten through postdoctoral.
      --It is estimated that at least half of all economic growth in the
            United States results from advances in technology. Basic
            research supported by NSF fosters new advances that sustain
            this growth.
        Yet, despite these exceptional contributions to our nation, NSF
    will be able to fund in fiscal year 1997 only a fraction of the
    proposals rated highly meritorious in the peer-review process.
    Moreover, the purchasing power of NSF grants is declining. In 1995, the
    NSF received $3.27 billion; in 1996 that number decreased to $3.18
    billion. While that amount was restored to $3.27 billion in 1997, it
    still means that the NSF budget has lost 6.1 percent of its purchasing
    power since 1995 because of inflation--a decrease in real average value
    per grant from about $80,000 two years ago to $73,300 this year. There
    has been only a modest increase of about 1 percent in the number of
    grants funded by NSF since 1995. Thus, although funding of scientific
    grants is central to NSF's purpose, the number of grants has stagnated
    while the purchasing power has decreased. Continued decline will delay
    our progress in science as important new proposals remain unfunded and
    weaken the technical infrastructure that demands a workforce educated
    in the disciplines of science.
        Because of this alarming trend and its implications for the
    nation's technological competitiveness, FASEB recommends $3.504
    billion, or a 7.1 percent increase, for NSF for fiscal year 1998. This
    will replace the 6.1 percent inflationary loss sustained since 1995 and
    provide a modest 1 percent growth in the NSF appropriation. This small
    increment would permit funding of a larger fraction of the outstanding
    science projects which will contribute to our improved health, economic
    growth, and quality of life. This figure is similar to the amount for
    fiscal year 1998 approved last week by the House of Representatives
    when it passed H.R. 1273, the National Science Authorization Act.
                       veterans affairs medical research
        I now will focus on FASEB's recommendation for the Department of
    Veterans Affairs (VA) medical research. Our nation has the obligation
    to provide the highest quality health care to U.S. veterans. The VA
    research and development program enhances the quality of veteran's
    health care in several ways: it brings a cadre of highly trained
    physicians to the VA and contributes greatly to the health needs of our
    former fighting men and women. This program integrates clinical needs
    with fundamental research and assures the rapid transfer of new
    knowledge from the laboratory to the bedside. It has also produced
    outstanding developments in the field of biomedical research affecting
    the greater population at large. Recent examples include:
      --VA-sponsored research was responsible for identifying new mutations
            in the presenilin gene associated with some forms of hereditary
            (autosomal dominant) forms of Alzheimer's disease.
      --VA investigators led the successful effort to identify and clone
            the gene defective in Werner's syndrome, a rare human disorder
            in which the affected individuals exhibit a number of features
            of premature aging. This has been considered a viable, if
            accelerated, model of the aging process and the function of the
            identified gene in the aging process of normal individuals is
            now under investigation.
      --VA researchers have applied molecular biologic techniques to the
            rapid diagnosis of tuberculosis, allowing diagnosis in two days
            rather than the 4-6 weeks usually necessary for growth of the
            organism. This should result in earlier treatment and reduced
            periods of hospitalization.
        Yet, despite these important discoveries, VA-sponsored research is
    in serious jeopardy. The budget for VA research has not kept pace with
    inflation, resulting in missed opportunities to address research issues
    related to veterans' health, deterioration of the VA research
    infrastructure, and a growing inability to provide opportunities for
    research career development. In recent years, there has been a general
    decrease in the number of programs funded--in 1994, the number of
    funded programs was below the 1981 level.
        In light of this history of stagnant funding, the $28 million cut
    for VA research included in the administration's fiscal year 1998
    budget request would be even more devastating. This cut represents a
    10.5 percent decrease in actual dollars; 15 percent when adjusted for
    inflation. If adopted, it would lower the funding for this vital avenue
    for research from $262 million to $234 million for the upcoming fiscal
    year. The resulting damage to these highly regarded programs would be
    irreparable. The VA research programs are an important part of the
    nation's biomedical research foundation and a major factor enhancing
    the quality of health care for our veterans and others. It is essential
    that funding for VA-sponsored research be stabilized and given modest
    increases.
        Along with other groups, such as the over 70 organizations that
    make up the Friends of VA Medical Care and Health Research, FASEB urges
    the members of the subcommittee to soundly reject any cuts in these
    critical programs. We further call on you to appropriate an additional
    $18 million for VA research for a total of at least $280 million.
                 national aeronautics and space administration
        Finally, Mr. Chairman, FASEB has funding recommendations for the
    National Aeronautics and Space Administration (NASA). NASA's life
    science research programs explore the role of gravity in fundamental
    biological processes. These programs are designed to help protect and
    enhance human life in space and to add to our knowledge of fundamental
    biological processes for earthbound animals and plants.
        In recent years, NASA has made progress in implementing merit
    review for its relatively small biomedical research program in the
    Office of Life and Microgravity Sciences. We are concerned that NASA
    maintain a stable and viable basic biomedical research program, and
    that this research not be interrupted because of delays in space
    station construction or other exigencies. For fiscal year 1998, FASEB
    recommends $55 million for research and analysis, $5 million above the
    previous year.
        Our detailed recommendations are included in the written report
    previously submitted to the committee. Mr. Chairman, this concludes my
    statement for the record.
                                     ______

    Prepared Statement of Dr. Raymond E. Bye, Jr., Associate Vice President
                     for Research, Florida State University

        Mr. Chairman, thank you for the opportunity to present testimony to
    this Subcommittee. When at the National Science Foundation, I had the
    pleasure of many hours with this Subcommittee over a number of years.
    This Subcommittee has always done outstanding work by making difficult
    decisions. No fiscal times in the past have been more constrained than
    these times facing you and your colleagues on the Committee on
    Appropriations. Yet I am confident you will continue to make the
    difficult choices with the best interests of the Nation guiding you.
        One of the decisions that I think this Subcommittee should be most
    proud is the support for the decision made by then-Director Erich Bloch
    and the National Science Board to locate the National High Magnetic
    Field Laboratory in Tallahassee, Florida. The proposal to NSF
    demonstrated that there was a truly unique opportunity for a federal
    partnership between the NSF and the State of Florida, as well as
    between the consortium involved in the NHMFL--the Florida State
    University, University of Florida, and Los Alamos National Laboratory.
    NSF's recent decision to extend the Laboratory for another five years
    at an enhanced level of funding is commendable in these tight fiscal
    times. The development of the magnet systems now in place at the
    Laboratory, the world-class quality of the scientific and engineering
    talent working at the NHMFL, and the new knowledge and potential
    applications emerging from the Laboratory are testimony to the wise
    decisions made at NSF and supported by this Subcommittee.
        As the NHMFL moves toward the next century, we hope to expand the
    role the Laboratory plays in an array of areas. For instance, we are
    striving to enhance the federal partnership to include the National
    Institutes of Health as a full partner with NSF and the Department of
    Energy. This would allow major support for biological and medical-
    oriented research to be conducted at the NHMFL. We are seeking the
    assistance of the NSF--as the founding father of the NHMFL--to work
    with us on conveying to NIH the opportunities inherent in their
    involvement as a federal partner. Furthermore, upgrading and
    replacement of the equipment and instrumentation at the NHMFL should
    also be a very high priority for the scientific community. The federal
    and state investment in this facility is substantial; as a world-class
    facility, the challenge in the present and future constrained fiscal
    environment is how to upgrade and advance the instrumentation to
    continue to lead the world in this important area. We have begun
    discussions with NSF on how to provide funding for this major research
    equipment.
        One of the key components that the NHMFL is focussing upon is to
    assist the United States in the redevelopment of magnetic-related
    industries that had all-but-vanished from the U.S. soil. Partnering
    with small and large companies is key to meeting this part of the
    challenge. Last month, EURUS Technologies, Inc., a small firm
    specializing in high-temperature superconducting leads, relocated its
    facilities from a foreign and non-Florida base to Tallahassee in order
    to work more closely with the NHMFL. We are optimistic that this is the
    beginning of substantial redevelopment of the U.S. magnet industry, and
    we are confident the NHMFL will be a significant part of this rebirth.
        The advanced instrumentation at the NHMFL is continuing to allow
    new analyses in novel areas not previously explored. For instance, we
    have a proposal into the U.S. Environmental Protection Agency to fund
    some environmentally-related work on the Kissimmee River restoration
    project in south Florida. With EPA funding for some aspects of this
    Kissimmee River work, we are also discussing with the U.S. Army Corps
    of Engineers a unique addition to the EPA-funded project that would
    employ mass spectrometry and nuclear magnetic resonance spectrometry,
    along with other unique instrumentation at the NHMFL, to provide the
    USACE with analyses that would allow them to potentially make more
    environmentally-sound decisions in their future construction projects.
    These types of analyses, not previously possible, will allow for cost-
    effective decisions to be made based upon the results of this work.
        Mr. Chairman, we strongly request this Subcommittee's support for
    the highest possible level of funding for the National Science
    Foundation. The President's proposal to provide an overall increase of
    approximately 3 percent is an absolute minimum for such an important
    investment in our Nation's future. The return on your investment--the
    young people educated, the knowledge developed and utilized by
    industry, the jobs created and the taxes paid--makes the funding you
    are able to provide the National Science Foundation probably the most
    cost-effective investment this Subcommittee can make. Its overhead is
    very low and its return very high; it is clearly a long-term investment
    for our citizens.
        Finally, I also wish to commend the support provided by this
    Subcommittee to the initiatives by the Environmental Protection
    Agency's Science to Achieve Results (STAR). The establishment of a
    strong, merit-based university research program will do much to enhance
    the quality of EPA research. The research and fellowships provided for
    the requested $115 million level is also an important commitment made
    by EPA. I hope this Committee is able to provide that full request.
    Thank you for the opportunity to convey these views to the
    Subcommittee.
                                     ______

    Prepared Statement of Cornelius J. Pings, Ph.D., President, Association
                            of American Universities

        Mr. Chairman and members of the subcommittee: I am submitting
    testimony today on behalf of the Association of American Universities
    (AAU) and the National Association of State Universities and Land-Grant
    Colleges (NASULGC). Our two associations include universities and
    colleges in every state that perform the research and education
    projects funded by the National Science Foundation (NSF), as well as
    scientific research that furthers the mission of the National
    Aeronautics and Space Administration (NASA). While our universities
    also have an interest in other agencies funded through your
    subcommittee, such as the Environmental Protection Agency (EPA) and
    others, this testimony will focus on NSF and NASA.

                                      NSF

                                    OVERVIEW

        NSF plays a crucial role in the support of university research.
    Although NSF represents only 3 percent of the federal budget, it
    provides close to 50 percent of the federal investment in academic
    basic research in nonbiomedical fields. Despite its comparatively small
    size, NSF has an extraordinarily large impact on American scientific
    discovery, as the only federal agency with responsibilities that cover
    research and education in all science and engineering fields. Moreover,
    NSF accomplishes its mission with remarkable efficiency. Only 4 percent
    of the agency's annual budget goes toward its own internal operations.
    The remainder, 96 percent, goes to support the actual conduct of
    research and education.
        AAU and NASULGC are grateful for the bipartisan support for NSF
    shown by the members of this subcommittee through the years. As you
    prepare for markup of the fiscal year 1998 appropriations legislation
    for the Foundation, we hope you will continue your strong support for
    this outstanding agency.

                           INVEST 7.1 PERCENT IN NSF

        As you know, for fiscal year 1998 the Administration has requested
    $3.367 billion for NSF. This represents a 3.0 percent increase over the
    final fiscal year 1997 appropriation of $3.27 billion. While the fiscal
    year 1998 NSF budget request is a good blueprint for continued
    scientific and academic excellence, we along with our colleagues in the
    Coalition for National Science Funding (CNSF) believe that an increase
    of 7.1 percent over the current year is both warranted and appropriate.
    Such an increase would compensate for two years of inflation, plus
    permit 1 percent real growth in fiscal year 1998.
        For three years now, NSF's budget has not kept pace with inflation.
    A 7.1 percent increase would permit NSF to augment modestly the number
    and size of its research and education grants. NSF is currently only
    able to fund about one-third of the approximately 30,000 proposals it
    receives each year, and a 7.1 percent increase would allow it to fund
    more of the proposals ranked ``highly meritorious.''
        The NSF provides financial support for research in all major
    scientific and engineering disciplines, with a majority of funded
    projects supporting the work of individual investigators with small
    teams of students and technicians. Payoffs from NSF-funded research
    include major scientific and technological breakthroughs, the education
    and training of today's and tomorrow's workforce and an overall
    increase in national productivity.
        With a 7.1 percent increase in its budget, totalling $232 million,
    NSF could pursue many exciting new initiatives in 1998 that would
    advance the United States' scientific, technological and competitive
    edge. One particular initiative--Knowledge and Distributed
    Intelligence--would promote linkages and collaborations between the
    science of learning and cognition and the development of interfaces and
    technologies for teaching and learning. NSF's role in the proposed Next
    Generation Internet project is also part of this package. This project
    would create a ``smart'' infrastructure for research and education at
    colleges and universities--one that facilitates collaboration across
    great geographic distances as well as great intellectual distances.
        A well-educated workforce is essential to the economic well-being
    of the nation. As a result, NSF is dedicated to the integration of
    research and education at all levels. Students at even the earliest
    levels of education are provided with discovery-rich environments that
    begin preparing them for tomorrow's challenges. NSF supports similar
    efforts through the secondary, undergraduate, and graduate levels.
        In the almost 50 years since the National Science Foundation was
    created, tremendous changes have taken place in our world and society.
    NSF has played a significant role in stimulating those changes through
    its investment in basic scientific and engineering research and through
    its development of new scientific and engineering talent. In fact, it
    has been estimated that at least half of all economic growth in the
    United States results from advances in technology fostered by academic
    research.
        NSF support has yielded invaluable results and has contributed to
    an improved quality of life for all Americans. As we approach the dawn
    of the 21st century, it is ever more important that the nation continue
    its investment in science and engineering. Federal investment in the
    NSF improves the U.S. position by strengthening our nation's worldwide
    economic competitiveness and our scientific preeminence.

                                      NASA

        Many AAU and NASULGC universities also have a strong interest in
    NASA programs. I would like to discuss briefly several issues affecting
    NASA science programs.
        First, AAU and NASULGC applaud the progress which has been made in
    restoring stability to NASA's projected outyear budget. The declines
    predicted in the fiscal year 1997 budget submission would have severely
    damaged the entire space science enterprise, and we appreciate the
    efforts that were made by Congress and the Administration to prevent
    this from happening.
                            office of space science
        We are pleased to see a number of new starts included in the NASA
    science accounts. The Space Infrared Telescope Facility (SIRTF), in
    particular, has long been a major priority of the space science
    community, and we support its inclusion in the budget.
    Mission Operations and Data Analysis (MO&DA)
        Mission operations are a critical portion of the NASA Space Science
    budget, allowing us to reap the benefits of the high launch rate of
    recent years. Over the past several years, NASA has made substantial
    progress in cutting the costs of mission operations by removing
    redundancy, accepting slightly higher levels of risk, and taking
    advantage of modern data processing capabilities. We applaud these
    efforts and urge that NASA continue to seek out such efficiencies that
    will allow greatly increased returns from existing missions.
        The Office of Space Science (OSS) has requested $507.4 million for
    Mission Operations and Data Analysis (MO&DA) activities in fiscal year
    1998. This is a decrease of $75.9 million or 13 percent from fiscal
    year 1997. The proposed reduction occurs at a time when a number of new
    missions are being launched. By the end of fiscal year 1998, OSS plans
    to be flying 29 spacecraft compared to 18 at the beginning of fiscal
    year 1995. Moreover, NASA has proposed to cut MO&DA for Galileo by 54
    percent in fiscal year 1998, MO&DA for the Compton Gamma Ray Laboratory
    by 62 percent, and MO&DA for the ISTP mission by 45 percent. MO&DA
    funding for small spacecraft would decline by almost 20 percent in
    fiscal year 1998.
        Further cuts are anticipated in fiscal year 1999. The International
    Solar Terrestrial Probes (ISTP) program, for example, expects a further
    drop so that the decrease from fiscal year 1997 to fiscal year 1999
    would be about 85 percent, despite the fact that ISTP was originally
    presented to Congress as a comprehensive study of solar-terrestrial
    interactions through the upcoming solar maximum (2000-2001) of the 11-
    year solar cycle. The proposed reductions would impact scientists'
    ability to study this important event.
        These large cuts in existing programs would be made to free up
    funds for new missions being launched in fiscal year 1998, such as AXAF
    and Cassini. While it obviously makes sense to phase out some missions
    so others can begin, we are concerned that NASA is not properly funding
    the science phases of its current missions and, through premature
    downsizing, is not securing full value of the taxpayer's investment.
        In August 1994, in anticipation of an overall decline in the
    agency's budget, NASA cut most space science MO&DA budgets for fiscal
    year 1998 by about 50 percent. Even when the budgetary picture
    improved, funds were not restored. Since the 1994 cuts, the space
    science community has worked hard to increase science return per dollar
    by realizing efficiencies in operations. Operating costs for missions
    such as Voyager and Galileo have been cut by more than 50 percent, and
    recently Goddard Space Flight Center has worked to identify methods to
    cut the operations cost for the ISTP program by about 70 percent.
    Hubble Space Telescope was just serviced, and those savings will be
    reflected in the MO&DA line. Nevertheless, the cuts imposed in 1994 are
    so deep that efficiencies cannot nearly address them. We urge Congress
    to restore some of the fiscal year 1998 MO&DA cuts.

                       OFFICE OF MISSION TO PLANET EARTH

        The Office of Mission to Planet Earth (MtPE) has undergone dramatic
    restructuring over the past few years as the Earth Observing System
    (EOS) has been downsized from a 1990 program of large spacecraft
    carrying 30 instruments at a total cost of $17 billion, to the current
    1994 version of 24 fundamental measurements provided by instruments
    carried on smaller spacecraft for a cost of $7.25 billion.
    Nevertheless, a number of further recommendations have recently been
    made regarding the Mission to Planet Earth program. We support this
    reexamination and the efforts to improve its scientific component.
        Specifically, NASA's Earth System Science and Applications Advisory
    Committee (ESSAAC) has recommended: (1) the focus of EOSDIS be
    tightened, and Principal Investigators be given a greater role in data
    processing tasks; (2) all missions, starting with Chem-1, be
    reexamined; and (3) the balance within MtPE be shifted to substantially
    increase the current fraction of resources devoted to in-situ and
    process studies, modeling and analysis (R&A and mission-oriented
    science) to meet current strategic goals. Since 1994, MtPE R&A has been
    significantly reduced. As the total MtPE budget has increased during
    this period from $1.07 billion to $1.36 billion, R&A funding has
    declined from $178.9 million to $123.6 million. While it is important
    to develop and update the scientific basis for interpreting EOS
    measurements, this role is very different from that of R&A, and funding
    for the two is not exchangeable.
           office of life and microgravity sciences and applications
    Bion
        We are aware that there may again be efforts to cancel U.S.
    participation in the Bion 12 mission. The Bion missions are designed to
    study the biological effects of low gravity and the space radiation
    environment on the structure and function of individual physiological
    systems and the body as a whole. While the loss of muscle and bone mass
    during space flight is well documented, scientists tell us that neither
    the rate nor the specific mechanisms involved are well understood. The
    Bion missions have been peer-reviewed and approved by five independent
    panels over the past eight years, and we continue to support the use of
    merit review to determine how limited federal funds may most
    productively be spent for scientific research.
    Space Station Facilities and Utilization
        Both Life and Microgravity sciences are moving ahead into the Space
    Station era by virtue of the participation in the Shuttle-Mir program.
    Initial experiments in a number of disciplines have demonstrated the
    value of this early access to extended duration experiments that Mir
    affords. There has been excellent international cooperation and
    considerable mutual benefit at the scientific level, and this bodes
    well for interactions on the International Space Station. There is,
    however, a great deal of uncertainty as to the impact of the recent
    developments in the Mir and Space Station programs, and there is
    concern that utilization opportunities are being compromised, if not
    altogether lost.

                                   CONCLUSION

        As the budget allocations available for discretionary domestic
    spending continue to shrink, your subcommittee faces a very difficult
    task in choosing among the many agencies of vital importance to our
    nation which come under your jurisdiction. As you make these tough
    choices, AAU and NASULGC hope you will continue to invest in the
    premier scientific agencies whose work will improve the quality of life
    and knowledge base of future generations.
        Thank you again for the opportunity to submit testimony for your
    consideration.
                                     ______

    Prepared Statement of the American Society for Engineering Education on
                 Behalf of the Engineering Education Coalition

        Mr. Chairman and Members of the Subcommittee: On behalf of the
    Engineering Education Coalition, we are pleased to provide our views on
    the fiscal year 1998 budget for the National Science Foundation. The
    Engineering Education Coalition is comprised of three organizations
    working together on behalf of engineering education and research: the
    National Society of Professional Engineers (NSPE), the National
    Association of State Universities and Land Grant Colleges (NASULGC),
    and the Engineering Deans Council of the American Society for
    Engineering Education (ASEE).\1\
    ---------------------------------------------------------------------------
        \1\ Member organizations of the Engineering Education Coalition
    are:
        The Engineering Deans Council of the American Society for
    Engineering Education (ASEE), the leadership organization of the more
    than 300 colleges of engineering in the United States and Canada.
        The National Association of State Universities and Land Grant
    Colleges (NASULGC), a higher education association whose member public
    colleges and universities educate more than two million of the nation's
    students each year.
        The National Society of Professional Engineers (NSPE), a
    professional society representing 70,000 engineers in industry, private
    practice, construction, government and education.
    ---------------------------------------------------------------------------
        Mr. Chairman, we greatly appreciate the strong leadership that you
    and your colleagues have shown on behalf of the National Science
    Foundation (NSF). We ask your continued support for the Foundation by
    providing a budget of $3.5 billion for NSF in fiscal year 1998, a 7.1
    percent increase over the previous year. This $232 million increase
    would enable the Foundation to make up for inflation losses over the
    past three years and provide one percent real growth.
        Sustaining the science and engineering base.--If the Congress
    intends to foster the nation's economic growth, it must ensure there is
    a strong base of scientific and engineering research and education to
    support technological development. The National Science Foundation both
    supports research across all scientific and engineering disciplines and
    stimulates partnerships among universities, industry and government to
    leverage the federal investment. Equally important, the Foundation
    assists in educating the engineers and scientists whose high-level
    skills are necessary for turning ideas into reality and keeping the
    nation globally competitive. Consequently, the Foundation is an
    important national resource whose activities must be sustained,
    especially in tight budget circumstances.
        Important new initiatives in research and education.--As exciting
    new fields of study are created at the interface of disciplines--such
    as bioengineering or human factors research--NSF is at the forefront,
    with the flexibility to create new programs or reconfigure existing
    ones to accommodate promising areas. An excellent example of such
    leadership is the Foundation's plan in fiscal year 1998 to expand in
    its current efforts in computer systems engineering to a new Knowledge
    and Distributed Intelligence (KDI) initiative.
        In our view, the networking and systems improvements that will come
    from this effort will not only create new research opportunities in all
    areas of engineering and science, but have the capacity to improve
    significantly the way we work, learn and use computers.
        We also are pleased that the Foundation plans to expand its
    graduate traineeship program to encompass interdisciplinary work in
    education and research, including awards directed at the new KDI
    initiative. The special value of traineeships is that they enable the
    Foundation to target key national priority areas--such as
    environmentally conscious manufacturing--and to foster active faculty
    involvement in recruiting women, under-represented minority and
    disabled students. Traineeships also enable schools across the country
    to participate; although the program is highly-competitive and merit-
    based, smaller schools have been able to compete effectively by
    focusing their resources and demonstrating that their proposals
    dovetail with their school's strategic plan.

                              ENGINEERING RESEARCH

        What is basic engineering research?--Engineering is a field of
    study and practice most commonly associated with application
    activities. However, there is another stage of engineering that is less
    visible, but serves as the basis upon which applications can take
    place. This stage, basic engineering research is the investigation of
    the systems and processes of the natural and constructed world. It is
    largely performed in the nation's universities.
        NSF provides one-third of the total federal support of basic
    engineering research at academic institutions. While much of that
    support is through the Engineering Directorate, funding for engineering
    is also provided by the Computer and Information Science and
    Engineering (CISE) Directorate, the Division of Materials Research in
    the Mathematics and Physical Sciences Directorate and others.
        A few areas of expanded opportunity in the fiscal year 1998 budget
    request for the Engineering Directorate demonstrate the leadership and
    breadth of NSF activities: Learning and Distributed Systems, Next
    Generation Biomedical Technologies, and Civil Infrastructure Systems.
        Learning and intelligence systems.--In this area, the Engineering
    Directorate is focusing on such areas as systems and network research
    in optical and wireless technologies, and on methods for incorporating
    biological learning mechanisms into artificial systems. For example,
    one area of research aims to create molecular-sized machines for
    advanced computing. Another area of research would enable development
    of a system of structural materials (such as in a bridge) that could
    monitor a structure's condition, detect impending failure, and control
    damage.
        Next generation biomedical technologies.--This research area
    integrates sensor-based microelectronic-mechanical systems with
    biological systems. Researchers are using their findings to develop
    such devices as an artificial retina that could be controlled by human
    neural systems and to design and build machines that have many of the
    characteristics of biological cells.
        Technologies that avoid environmental harm.--The Engineering
    Directorate focuses its support in such fundamental areas of
    environmental research as transforming pollutants into benign
    substances, finding ways to produce fuels and useful chemicals from
    living organisms, and developing sensors to better track the movement
    of environmental contaminants. There is continuing emphasis in not only
    remediating pollution, but in creating processes and products that
    avoid pollution all together.

                             ENGINEERING EDUCATION

        Leadership in engineering education.--Unlike many fields, most
    engineers pursue a professional career after earning a baccalaureate
    degree. For that reason, the quality and content of undergraduate
    education is particularly important to the engineering community.
        Engineering education is undergoing great renewal and change. As a
    community, we are working to broaden the educational experience of our
    students to prepare them for engineering practice in a global
    environment. This means incorporating teamwork activities and design
    experience into the curriculum, as well as making our programs
    accessible to students from all backgrounds. We are also working to
    better integrate research findings and experiences into the curriculum.
    At the intellectual center of these efforts is the National Science
    Foundation's Engineering Directorate, which is stimulating and
    supporting these changes in engineering education. This is a vital,
    catalytic role that merits continued strong support.
        The largest and potentially most significant undergraduate
    education activity conducted with Engineering Directorate funds is the
    Engineering Education Coalitions program. The coalitions are consortia
    of diverse engineering colleges whose purpose is to develop and
    disseminate coordinated innovations in curricula. Sixty engineering
    colleges currently participate in eight NSF-supported coalitions. Along
    with developing innovations in the curriculum, the coalitions are
    taking the best of their work and actively sharing it with the non-
    coalition engineering schools.
        The Engineering Directorate has also shown leadership in helping
    engineering faculty members broaden their perspectives and incorporate
    their research findings and real world'' experiences into their
    teaching. The CAREER program recognizes young faculty members who
    integrate their research and teaching activities. The GOALI program
    provides opportunities for faculty members to spend time in industry,
    and vice-versa. Both of these Engineering Directorate innovations have
    been expanded to become Foundation-wide activities.
        The importance of NSF's undergraduate division.--NSF also provides
    valuable support for undergraduate engineering education--particularly
    in laboratory improvement for instruction--through the undergraduate
    division of the Education and Human Resources (EHR) Directorate. The
    Division also provides important support for the improvement of lower
    division courses in such areas as physics and chemistry. These programs
    are important to all engineering and science disciplines, as well as to
    the nation's future high school science and mathematics teachers. We
    urge the Congress to provide the $99 million requested for the
    Undergraduate Division in fiscal year 1997.
        In sum, the Coalition For Engineering Education urges the
    Subcommittee to provide the National Science Foundation with at least
    $3.5 billion for fiscal year 1998. Strong financial support for the
    Foundation is a vital, front-end investment in the nation's economic
    future. Thank you for your consideration of our views.
                                     ______

                                 MISCELLANEOUS

          Prepared Statement of the American Society for Microbiology

        The American Society for Microbiology (ASM), the largest single
    life science organization in the world, comprising more than 42,000
    members, welcomes the opportunity to submit written testimony to the
    Senate Appropriations Subcommittee on VA, HUD and Independent Agencies
    and provide comments and recommendations for the fiscal year 1998
    appropriations for the scientific research programs within the
    Environmental Protection Agency (EPA) and the National Science
    Foundation (NSF).
        The ASM is made up of scientists who work in academic, governmental
    and industrial institutions worldwide. Microbiologists are involved in
    research on problems related to human health, the environment,
    agriculture, and energy. The mission of ASM is to enhance the science
    of microbiology to gain a better understanding of basic life processes,
    and to promote the application of this knowledge for improved health,
    and for economic and environmental well being.

                        ENVIRONMENTAL PROTECTION AGENCY

        The Environmental Protection Agency's scientific research and
    development programs are of interest to many of ASM's members who work
    throughout the fields of applied and environmental microbiology.
    Research on environmental microbiology is essential for maintaining
    air, water, and soil quality; for assuring the safety of potable water
    supplies; and for providing safe means for waste disposal. Support of
    applied research in the field of environmental microbiology can lead to
    enhanced environmental quality and help protect human health. The ASM
    believes that sound public policy for environmental protection depends
    upon adequately funded programs of intramural and extramural research
    based on a system of peer review to assure that support is awarded to
    research programs having both quality and relevance.
        The Administration's overall budget request for the Environmental
    Protection Agency (EPA) in fiscal year 1998 is $7.6 billion, an
    increase of $846 million over last year's appropriation. The request
    includes $555 million for the EPA's Research and Development programs,
    about $51 million more than the enacted fiscal year 1997 funding level.
    Our testimony will focus on the EPA's Office of Research and
    Development programs, including the Science to Achieve Results (STAR)
    program, the Graduate Environmental Fellowship Program, the Safe
    Drinking Water research program, interagency research programs, and the
    EPA's peer review process.
        Last September, the General Accounting Office report, Peer Review,
    EPA's Implementation Remains Uneven, concluded that peer review
    practices within the EPA were inconsistent. Some of the EPA's divisions
    followed adequate peer review procedures while others had little or no
    peer review for programs that required it. The environmental research
    programs the ASM is testifying about fall within the EPA's Office of
    Research and Development (ORD). According to the GAO report the ORD
    ``has used peer review for obtaining critical evaluations of certain
    work products for more than 20 years.'' The report also stated,
    however, that the EPA's peer review process could be improved even
    within the ORD. The EPA has taken action to strengthen the peer review
    process throughout the agency. The ASM supports efforts to ensure that
    the highest scientific standards are adhered to in all the federal
    government's scientific research and development programs to produce
    sound, reliable science for the nation's benefit.
        An important extramural research initiative, the EPA's Science to
    Achieve Results program, is targeted to receive $115 million, a 21
    percent increase over last year's budget of $95 million. This program
    funds important environmental research proposals from scientists
    outside the federal government and is a valuable resource for the EPA
    in finding solutions to many of the complex environmental problems we
    face today. Grants made under the STAR program last from two to three
    years and provide about $150,000 of scientific support per grant year.
    In 1996, the STAR program funded 195 new grants in 45 states and 136
    institutions totaling $96.5 million. Additionally, the STAR program
    works with many other Federal agencies including the National Science
    Foundation, Department of Energy (DOE), Office of Naval Research (ONR),
    and the National Oceanic and Atmospheric Administration (NOAA). Last
    year 29 STAR grants were made by agencies, other than the EPA, using
    their own funds. Although it is a high quality program that merits full
    funding of the Administration's request, the ASM is concerned that the
    STAR program has focused on environmental chemistry problems and has
    not adequately funded areas of environmental research with a focus on
    environmental microbiology. We urge the Congress to fund the STAR
    program and to insert language that mandates the EPA to take steps to
    ensure the adequate incorporation and funding of projects and
    fellowships related to microbiological aspects of environmental
    quality, especially those having direct impacts on human health such as
    the microbiological quality of water. In this regard, the ASM also
    requests that the Congress instruct the EPA to work with the National
    Institute of Environmental Health Sciences (NIEHS) to develop research
    activities and fellowships that will lead to safer potable waters.
        Within the STAR program, the Administration's budget request
    includes $15 million in fiscal year 1998, for the Graduate
    Environmental Fellowship Program, a $7 million increase over last year.
    This is an effort to restore the vital funds deleted by Congress last
    year. The EPA's Graduate Environmental Fellowship Program is one of the
    many initiatives the federal government must fully support to ensure
    that we are prepared to answer the complex scientific questions of the
    future. Both the public and private sectors will need a steady stream
    of well trained environmental specialists. The fellowship program
    encourages promising environmental graduate students to pursue careers
    in environmentally related fields. The ASM supports the
    Administration's funding request for this program and encourages the
    EPA to fund environmental microbiology fellowships in such research
    areas as bioremediation and the detection of pathogenic microorganisms
    in potable water supplies and the disinfection of such waters. These
    fellowships will provide adequate human resources to conduct
    environmental microbiological research and apply the results of that
    research to improving environmental quality. Absence of such support
    will leave a shortage of qualified individuals to assist in the
    prevention and remediation of environmental problems.
        With the President's signing of the Safe Drinking Water Act and the
    Food Safety Act into law this past year, the Administration has
    proposed increasing EPA's funding by $35 million for the implementation
    of these new laws. However, the Safe Drinking Water research program
    would experience a $3.5 million decrease from fiscal year 1997 to bring
    the funding level to $35.9 million in fiscal year 1998. This is a
    result of last year's Congressional earmarks which added $5 million to
    the Safe Drinking Water budget for specific programs. The EPA did not
    request earmarked funds this year. The net budget result is a decrease
    for fiscal year 1998 in the Safe Drinking Water research program,
    unless Congress provides the additional funds.
        One of the EPA's highest priorities for the Safe Drinking Water
    research program is to establish standards to protect human health from
    microbiological contaminants and disinfectant/disinfection byproducts
    (M-DBP). The ASM believes it is imperative to provide sound reliable
    science to support the EPA in its effort to promulgate responsible
    regulations to protect human health from the risks associated with such
    contaminants. For example, much research needs to be conducted to
    control the outbreaks of human exposure to the protozoan
    Cryptosporidium in our drinking water. To date, hundreds of people have
    died and many thousands have become ill as a result of exposure to this
    potentially lethal microbe. In 1993, 400,000 people became infected
    with Cryptosporidium from Milwaukee's water supply. The ASM urges
    Congress to increase funding for drinking water research in this area.
    There are still many questions to be answered about the ways in which
    to ensure the safety of the nation's drinking water supply. It is
    essential that the EPA in conjunction with the NIEHS conduct extensive
    research on the factors that lead to outbreaks of pathogens, such as
    Cryptosporidium, in our water supply. The EPA must develop advance
    warning systems that increase protection of public health and enable
    the nation to avoid future incidents such as the devastating
    Cryptosporidium outbreak in Milwaukee that was disseminated via the
    municipal potable water supply. The protection of the American people
    from the potential health risks of exposure to microbial contaminants
    in their drinking water is reason enough to increase funding for this
    program.
        The ASM supports the many joint research programs supported by the
    EPA. Three of these programs, currently underway, are the Joint EPA/NSF
    Partnership for Environmental Research, EPA/NASA Joint Program on
    Ecosystem Restoration, and the EPA/DOE/NSF/ONR Joint Program on
    Bioremediation. The ASM urges Congress to continue funding for
    interagency research programs which seek to find cross-disciplinary
    solutions to the nation's scientific environmental problems.

                          NATIONAL SCIENCE FOUNDATION

        The ASM welcomes the opportunity to comment on the Administration's
    fiscal year 1998 budget request for the National Science Foundation.
    The NSF's long standing record in fostering basic research has provided
    the critical foundation for advancing the health of the nation's
    people, environment and economy. Federal support for the NSF is an
    investment that creates and strengthens the economic growth of the
    United States and allows the United States to remain competitive in a
    global market. The President's fiscal year 1998 budget request for the
    NSF of $3.367 billion is only 3 percent or $97 million, more than was
    appropriated in fiscal year 1997. Based on the rate of inflation, which
    is approximately 2.6 percent, the NSF would be level funded for the
    next fiscal year under the President's request. At the same time, our
    global competitors have made commitments to increase funding for
    science and technology. For example, Japan has committed to increase
    its support for basic research over the next five years by 50 percent.
    The United States may be in danger of losing its lead in science and
    technology as the 21st century approaches if it does not increase
    federal funding for basic research.
        The ASM, a member of the Coalition for National Science Funding
    (CNSF) and its steering committee, supports the CNSF's recommendation
    of $3.5 billion for the NSF in fiscal year 1998, an increase of 7.1
    percent over the fiscal year 1997 appropriation. NSF Director Neal Lane
    stated before this Subcommittee that the NSF's original budget request
    was $3.5 billion, a funding level that would allow the United States to
    remain a world leader in the area of science and technology. The ASM is
    deeply concerned with the inadequacy of the President's NSF budget
    request and its impact on the NSF's ability to meet the scientific
    challenges of the 21st century. The ASM urges this Subcommittee to
    support the CNSF's recommendation of $3.5 billion for the NSF in fiscal
    year 1998.
        New initiatives within the NSF reflect the partnership between
    research and education and the need to encourage research in new areas
    of science. The ASM applauds NSF's proactive stance to promote research
    across disciplines that will lead to the development of information
    technologies in order to unify experimental and theoretical concepts. A
    program called Knowledge and Distributed Intelligence (KDI). KDI is an
    effort designed to realize the full potential of emerging technologies
    in communications, computing and networking and revolutionize science
    and engineering and the way people learn and work. The new Integrative
    Graduate Education and Research Training (IGERT) initiative will
    spearhead the need to provide graduate students with multi-disciplinary
    research and educational training opportunities. Graduate students will
    benefit from IGERT through broader training and greater flexibility in
    attaining future employment. A focused program begun in fiscal year
    1997, Life in Extreme Environments (LExEN), is a critical component in
    understanding the interplay between microorganisms, plants and animals
    in earth's environment and how humans impact the microbial world. The
    study of life in extreme environments can provide important new
    insights into how microorganisms evolve, and the extent their adaptive
    mechanisms allow them to function in their environments. Once
    researchers are able to understand these mechanisms, they will be able
    to employ them in other capacities such as in bioprocessing and
    bioremediation.
        Members of the ASM, whose activities include research concerned
    with the impact of microorganisms on the well-being of humans, animals,
    plants, and the environment, are very supportive of NSF's increased
    focus on microbial biology and the diversity of microorganisms, an
    initiative begun in fiscal year 1996 under the auspices of the NSF's
    Directorate for Biological Sciences (BIO). For years, research efforts
    have concentrated on the study of microbes in human and animal health.
    The unknown microbial biomass provides opportunities to discover new
    knowledge about microbial life-forms and their potential application in
    industry, medicine and agriculture. In addition, microbiological
    research continues to provide the foundation for today's advances in
    biotechnology. These advances are based on understanding the molecular
    basis of microbial physiology and the genetics of viral, yeast and
    bacterial plasmid vectors. Future accomplishments and their application
    to increased agricultural productivity (an important by-product of
    biotechnology) will not be possible without NSF funded basic research.
        The NSF is one of the few government agencies that funds basic
    research. Leadership by the United States in opening new avenues of
    science and technology will be lost without sufficient funding for
    basic research. Most of today's scientific achievements in areas such
    as global warming, bioremediation of oil spills and industrial
    pollution, new antibiotics and drugs, biopesticides, and gene therapy,
    are the outgrowths of basic research. The United States is faced today
    with many challenges that can be met only through the potential of
    basic research to generate the crucial new scientific knowledge
    required to advance the welfare of all people worldwide.
        New knowledge is required in order to address a broad range of
    societal problems including those inherent in the emergence of
    antibiotic resistant bacteria, new infectious diseases facing the human
    population and the agricultural community, and environmental pollution.
    The NSF plays a critical role in furthering our basic understanding of
    molecular and cellular processes. NSF-supported research can unravel
    the basic, molecular complexities of many health issues including
    cancer, aging, developmental abnormalities, and the body's immune
    response. There is a long history of outstanding achievements by NSF-
    funded investigators, namely:
      --DNA in living organisms is the blueprint for making all the
            organism's protein. A large portion of DNA, known as ``junk
            DNA,'' in most organisms is not used for proteins and appeared
            for a long time to have no function. Recently, however,
            researchers have determined that junk DNA has a very important
            function. In certain situations, it is involved in assuring
            that, when a cell divides into two daughter cells, two copies
            of each chromosome find their way into each daughter cell. This
            is the first time researchers have identified a function for
            junk DNA and it may have far-reaching impacts. For instance,
            developmental abnormalities, such as Down Syndrome in humans,
            are caused by the presence of more than two copies of one of
            the chromosomes. Researchers can now examine the role of junk
            DNA and define ways to avoid such abnormalities.
      --Researchers supported by NSF have identified a gene in a common
            weed that allows the plant to extract iron from soil whenever
            it is starved for the essential nutrient. This discovery has
            important implications for both crop yields and human
            nutrition. Iron deficiency is the leading nutritional disorder
            in people worldwide. Most people get their daily iron supply in
            the form of plant foods. By understanding how plants absorb
            iron, researchers could develop crops that are more efficient
            users of iron in soil and richer sources of iron in foods.
        Plants have a remarkable capacity to filter or metabolize large
    amounts of particular pollutants. Scientists have used this capacity to
    clean up contaminated soils, a process known as phytoremediation. Now,
    with genetic engineering, it is possible to engineer ``super-
    remediators.'' NSF-supported scientists have isolated and transferred a
    bacterial gene that converts the ionic form of mercury into a less
    toxic metallic form. The resulting plants can survive in contaminated
    soil with a relatively high level of mercury. Studies to expand this
    research to other toxic heavy metals are underway.
        Investing in basic research is an investment in the future. The ASM
    urges this Subcommittee to support a budget of $3.5 billion, a 7.1
    percent increase, for the NSF in fiscal year 1998.
        Mr. Chairman, on behalf of the more than 42,000 members of the
    American Society for Microbiology, thank you for the opportunity to
    testify on these important programs. I would be pleased to respond to
    questions and to provide any additional information that you may need.
                                     ______

     Prepared Statement on Behalf of the Golden Gate University, Monterey,
                                       CA

        Mr. Chairman, members of the Subcommittee, I thank you for the
    opportunity to submit this statement on behalf of Golden Gate
    University and its Agriculture Business Resource Center located in
    Monterey, California. The Agriculture Business Resource Center is part
    of the Monterey campus of Golden Gate University, and has been in
    existence for twenty-six years.
        Although degree programs are, and have been, the traditional focus
    of Golden Gate, the Monterey campus has significantly broadened its
    focus to include training programs which are targeted at specific
    industries. Most notable among these programs is one oriented toward
    the agriculture industry, created in response to the demands of various
    growers, processors and shippers which are part of California's $22
    billion per year agriculture industry.
        Unlike many industries, the agriculture industry has traditionally
    been under-represented in training programs except for ad-hoc
    workshops. In addition, the industry has an unusually inflexible
    schedule which necessitates innovative program design and delivery. For
    example, many Salinas Valley growers and processors move their
    operations and employees to Yuma, Arizona in the winter to ensure year-
    round production. Golden Gate has responded by transporting instructors
    to the Yuma sites so that employees can be trained without interruption
    to production cycles.
        Mr. Chairman, this subcommittee is exceedingly familiar with the
    importance of the agriculture industry to the U.S. economy, and the
    positive trade balances the industry has produced over the years.
    California has played a key role within the industry, leading all
    states in the production of more than 75 crop and livestock
    commodities. In fact, California's agriculture industry produces a
    total of 250 different crop and livestock commodities which generate
    some $22 billion in direct production, and another $70 billion in
    related activity. In 1994, the state produced exports of $12 billion
    which represented 15 percent of all U.S. agriculture exports. That
    trend continues today as exports are holding to record proportions.
        The response to the Golden Gate Agriculture Business Resource
    Center has been overwhelming. In large part, this response is driven by
    the export potential for expanding the sales of California agriculture
    products into existing and developing markets overseas. For example,
    the Pacific rim countries continue to provide expanding market
    opportunities for California agriculture products. Additionally, the
    traditional European markets have further opened to U.S. products, as
    have the components of the former Soviet bloc. In the case of these
    ``new republics,'' shipments of fresh products and seeds are increasing
    at a dramatic pace.
        In the domestic U.S. market, consumer tastes have changed as people
    have become more health-conscious and demanded more fresh vegetables
    and fruits in their diets. In addition, so-called ``convenience'' items
    continue to be produced on a broader scale to accommodate the needs of
    middle class families where two-earner households are prevalent.
        Each of these market demands--rising market expectations in other
    countries, domestic expectations of more fresh vegetables and more
    convenience foods--are welcomed in the grower, processing and shipper
    communities in California. But those demands which come to the growing
    regions force changes and new needs within the industry.
        Perhaps the greatest general need which accompanies these growing
    market demands is the requirement for companies to have a skilled,
    permanent, year-round workforce so as to increase job retention. This
    way, all growers, processors and shippers will be better able to meet
    growing domestic and export demands. At the same time, from the
    employee perspective, training provides employees with enhanced skills
    and knowledge levels which, in turn, allow them to advance within their
    companies.
        The need for a skilled, permanent and year-round workforce is very
    important for companies to remain competitive in an industry which is
    being driven in many new directions. As you know, for example, foreign
    competition is always a threat due, in large part, to lower operating
    costs. Nevertheless, Monterey County, California, as an example, has
    been able to compete with Mexico and Latin America in the fresh fruit
    and vegetable markets as these countries have not been able to
    distribute fresh value-added products effectively in the U.S. Rather,
    the value-added products exported to the U.S. from these areas remain
    canned and frozen.
        A large part of the success in the case noted above is rooted in
    the development and adoption of new technologies which allow for light
    processing and packaging of vegetables. This facilitates the ability of
    the Monterey County growers and processors to better compete with lower
    cost rivals. To remain competitive, however, the various technologies
    must be continually updated and adapted so that cost-saving production
    processes are enhanced.
        An excellent example of the value of enhanced production can be
    found in the value-added sector of the agriculture industry. This
    sector, which came into existence in the 1960's, is now one of the
    strongest segments in California's agriculture industry in general, and
    that of Monterey County in particular. Over the years, since its
    inception, this sector has been enhanced in great leaps.
        The highly specialized, value-added sector requires in-house
    company laboratories, research and development staff and equipment, the
    latest automated packaging equipment, sophisticated and modern
    facilities and a highly skilled workforce. This means that agriculture
    companies must train and retrain employees to meet the challenges of
    new and expanding technology bases.
        It is the need for increased skill levels which has motivated the
    various companies in the Monterey County agriculture industry to seek
    ways to develop employee skills on a continuing basis. As mentioned
    earlier, the companies need a skilled, year-round and permanent
    workforce to meet market demands. In providing opportunities for
    employees to enhance their skills, the company ensures continuity of
    its workforce because employees can be promoted from within.
        The Golden Gate Agriculture Business Resource Center has designed
    and is carrying out a broad-scope program which addresses the needs of
    the agriculture companies and employees in the Monterey County growing
    regions. With its high-quality, flexible approach, the Center's
    programs cover all levels of employees in a way which does not
    interfere with production schedules of the individual companies.
        Golden Gate implements its program through various customized
    curricula designed to address the training needs of individual
    companies. Companies benefit from employees who are trained in the
    latest production techniques, product distribution methods, computer
    technology, refrigeration engineering and a range of other subject
    areas which are important to the agriculture industry. The employees
    benefit from programs carried out at work sites which eliminates their
    having to take time off to enroll in traditional academic programs.
        The range of the Agriculture Center program crosses all skill
    levels, allowing for workers with low levels of education to be trained
    in ways which facilitate advancement. It is not uncommon to see lesser-
    educated workers who have moved to supervisory positions from jobs in
    the growing fields. The program also allows for the identification of
    people coming out of the welfare system who are potentially suited for
    agriculture industry employment. If, for example, a company has a need
    for entry-level workers, the Golden Gate Center will design a regimen
    to identify and train such personnel so that they are in a position to
    fit into the company system.
        A large portion of the success of the Golden Gate program is based
    on a clearing-house system which monitors the educational and training
    needs of the agriculture industry, particularly in the Monterey County
    area. Those needs are translated into high quality training programs
    which utilize state-of-the-art methods and technology for delivery. In
    this sense, the Agriculture Business Resource Center is part of a long-
    range, comprehensive vision to provide skills necessary for employees
    seeking job advancement, displaced workers who need marketable skills
    and young people looking for alternatives to traditional college
    degrees. In each case, the very important agriculture sector of
    California's economy will benefit, particularly that portion of the
    industry in the Monterey County growing regions.
        Mr. Chairman, as the demands for diversified training on the part
    of the Central Valley agriculture industry have grown, Golden Gate has
    adapted and expanded its programs accordingly. As part of the
    evolution, Golden Gate has dedicated two buildings, located at Fort
    Ord, California, which were acquired through base closure and re-use
    development activities.
        The buildings and the surrounding area are in relatively good
    condition though in need of renovation. Golden Gate's plan is to locate
    the Agriculture Business Resource Center in these two buildings, given
    their proximity to the Central Valley California growing regions. From
    this headquarters site, the entire area can be serviced through mobile
    classrooms, distance learning and on-site training. Further, the site
    will allow for additional program development in the future. The total
    cost of the entire project is $2 million which includes building
    renovation and internal resource development. Golden Gate will operate
    the Center with its own resources.
        Mr. Chairman, California is the world's sixth largest exporter of
    agricultural products. For each $1 billion in export sales, nearly
    30,000 jobs are created. Monterey County is the top vegetable producing
    county in the nation, with the agriculture industry employing 25
    percent of the county labor force. All of this is to say that there is
    significant opportunity for the California agriculture industry to
    expand and further enhance its role in the U.S. economy.
        The Golden Gate Agriculture Business Resource Center, based on
    existing industry needs and demands, can be a catalyst to move this
    growth forward. In so doing, we will strengthen the state and local tax
    and employment bases many times over the level of this modest grant
    assistance request. I ask that you consider this request as one that is
    good for the U.S. agriculture industry, and can be a model for other
    states in the future.
        Thank you.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    A'zera, Veronica, national legislative director, AMVETS, prepared
      state- ment....................................................   723
    American Association of Homes and Services for the Aging,
      prepared statement.............................................   827
    American Association of Retired Persons, prepared statement......   762
    American Chemical Society, prepared statement....................   880
    American Heart Association, prepared statement...................   737
    American Network of Community Options and Resources, prepared
      state- ment....................................................   837
    American Public Power Association, prepared statement............   858
    American Society for Engineering Education on behalf of the
      Engineering Education Coalition, prepared statement............   921
    American Society for Microbiology, prepared statement............   923
    Anderson, Julie, Acting Associate Administrator, Office of
      Congressional and Legislative Affairs, Environmental Protection
      Agency.........................................................   247
    Arc, prepared statement..........................................   834
    Armstrong, Spence M., Associate Administrator for Human Resources
      and Education, National Aeronautics and Space Administration...   601
    Association of National Estuary Programs, prepared statement.....   864
    Association of State Drinking Water Administrators, prepared
      statement......................................................   883

    Backhus, Stephen P., prepared statement..........................   513
    Bauer, Roger, Vice Chairman, Board of Veterans' Appeals, Office
      of the Secretary, Department of Veterans Affairs...............   511
    Bennett, Hon. Robert F., U.S. Senator from Utah, questions
      submitted by...................................................   408
    Berenson, Aimee R., director of Government affairs, AIDS Action
      Council, prepared statement....................................   806
    Blum, Jared O., president, Polyisocyanurate Insulation
      Manufacturers Association, Washington, DC, prepared statement..   859
    Bond, Hon. Christopher S., U.S. Senator from Missouri:
        Prepared statement...........................................     2
        Questions submitted by.......................................
          23, 44, 162, 191, 221, 351, 445, 489, 560, 645, 706........
    Bordogna, Dr. Joseph, Acting Deputy Director, National Science
      Foundation.....................................................   457
    Bowen, Jerry, Director, National Cemetery System, Office of the
      Secretary, Department of Veterans Affairs......................   511
    Boxer, Hon. Barbara, U.S. Senator from California, prepared
      statement......................................................   626
    Boyd, Merle, acting principal, chief, Sac and Fox Nation,
      prepared state- ment...........................................   781
    Brickhouse, Eugene, Assistant Secretary for Human Resources and
      Administration, Office of the Secretary, Department of Veterans
      Affairs........................................................   511
    Brown, Ann, Chairman, Consumer Product Safety Commission.........   155
        Prepared statement...........................................   158
    Brown, Hon. Jesse, Secretary, Office of the Secretary, Department
      of Veterans Affairs............................................   511
        Prepared statement...........................................   536
    Brown, Lynne P., associate vice president for Government and
      community relations, New York University Center for Cognition,
      Learning, Emotion and Memory, prepared statement...............   815
    Browner, Carol M., Administrator, Environmental Protection Agency   247
        Prepared statement...........................................   257
    Burns, Hon. Conrad, U.S. Senator from Montana, prepared statement    12
    Bye, Dr. Raymond E., Jr., associate vice president for research,
      Florida State University, prepared statement...................   917
    Byrne, Leslie L., Director and Special Assistant to the
      President, Office of Consumer Affairs, Department of Health and
      Human Services.................................................   169
        Prepared statement...........................................   170

    Cagey, Henry M., chairman, Lummi Indian Nation, prepared
      statement......................................................   778
    California Industry and Government Coalition on PM-10/PM-2.5,
      prepared statement.............................................   882
    Calkins, Charles L., national executive secretary, Fleet Reserve
      Association, prepared statement................................   732
    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado:
        Prepared statement...........................................   604
        Questions submitted by.......................................   235
    Campion, Raymond J., Ph.D., president, Mickey Leland National
      Urban Air Toxics Research Center, prepared statement...........   849
    Cannon, Jonathan Z., General Counsel, Environmental Protection
      Agency.........................................................   247
    Carozza, Shirley C., Deputy Assistant Secretary for Budget,
      Office of the Secretary, Department of Veterans Affairs........   511
    Catlett, D. Mark, Assistant Secretary for Management, Office of
      the Secretary, Department of Veterans Affairs..................   511
    Charvat, Steven, CEM, NCCEM president, emergency management
      coordinator, city of Phoenix, AZ, prepared statement...........   896
    Christensen, Michael D., Associate Administrator for Headquarters
      Operations, National Aeronautics and Space Administration......   601
    Ciaccia, Julius, Jr., president, Association of Metropolitan
      Water Agencies, prepared statement.............................   855
    City of Miami Beach, FL, prepared statement......................   846
    City of Newark, NJ, prepared statement...........................   811
    Cole, Dr. Mary Louise, president of ICARE Bay Point Schools,
      prepared statement.............................................   825
    Consortium for Citizens With Disabilities Housing Task Force,
      prepared statement.............................................   830
    Coronado, Gil, Director, Selective Service System................   145
        Prepared statement...........................................   146
    Craig, Elizabeth, Director, Budget Division, Environmental
      Protection Agency..............................................   247
    Craig, Hon. Larry, U.S. Senator from Idaho, questions submitted
      by.............................................................
      236, 403.......................................................
    Cunninghame, Donna, Chief Financial Officer, Corporation for
      National and Community Service.................................    81
    Cuomo, Andrew, Secretary, Department of Housing and Urban
      Develop- ment..................................................   665
        Prepared statement...........................................   674

    D'Amours, Norman E., Chairman, National Credit Union
      Administration.................................................    63
        Prepared statement...........................................    64
    DeHan, Rodney, ground water manager, Florida Department of
      Environmental Regulations and Ground Water Protection Council,
      prepared statement.............................................   842
    DiPasquale, Nicholas A., president, Solid Waste Management
      Officials, prepared statement..................................   844
    Dola, Steven, Deputy Assistant Secretary for Management and
      Budget, Office of the Assistant Secretary of the Army for Civil
      Works, Cemeterial Expenses, Army, Department of Defense--Civil.   139
        Prepared statement...........................................   140
    Duffy, Dennis, Assistant Secretary for Policy and Planning,
      Office of the Secretary, Department of Veterans Affairs........   511

    Elzanowski, Dr. Anjay, the Humane Society of the United States
      [HSUS], prepared statement.....................................   899

    Fields, Timothy, Acting Deputy Assistant Administrator, Office of
      Solid Waste and Emergency Response, Environmental Protection
      Agency.........................................................   247
    Fox, Dr. Peter, Arizona State University and Margaret Nellor,
      county sanitation districts of Los Angeles County, prepared
      statement......................................................   862
    Fox, J. Charles, Associate Administrator, Office of Reinvention,
      Environmental Protection Agency................................   247
    Frank, Billy, Jr., chairman, Northwest Indian Fisheries
      Commission, prepared statement.................................   886

    Gall, Mary Sheila, Commissioner, Consumer Product Safety
      Commission.....................................................   155
        Prepared statement...........................................   162
    Gardiner, David, Assistant Administrator, Office of Policy,
      Planning and Evaluation, Environmental Protection Agency.......   247
    Gibbons, John, Director, Office of Science and Technology Policy,
      Executive Office of the President..............................   433
        Prepared statement...........................................   438
    Glenn, Gary A., president, Massachusetts Foundation for
      Excellence in Marine and Polymer Sciences, prepared statement..   872
    Golden Gate University, Monterey, CA, prepared statement.........   926
    Goldin, Daniel S., Administrator, National Aeronautics and Space
      Administration.................................................   601
        Prepared statement...........................................   605
    Goldman, Lynn R., Assistant Administrator, Office of Prevention,
      Pesticides and Toxic Substances, Environmental Protection
      Agency.........................................................   247
    Gorosh, Kathye, project director, the CORE Center, prepared
      statement......................................................   760
    Gross, Robert L., Inspector General, National Aeronautics and
      Space Administration...........................................   601

    Hansen, Fred, Deputy Administrator, Environmental Protection
      Agency.........................................................   247
    Harkin, Hon. Tom, U.S. Senator from Iowa, questions submitted by.
                                                             426, 594
    Harper, Sallyanne, Acting Chief Financial Officer, Environmental
      Protection Agency..............................................   247
    Hawke, John H., Jr., Under Secretary of Treasury for Domestic
      Affairs, Community Development Financial Institutions,
      Department of the Treasury.....................................    27
        Prepared statement...........................................    29
    Herman, Steve, Assistant Administrator, Office of Enforcement and
      Compliance Assurance, Environmental Protection Agency..........   247
    Herrling, Gen. John P., U.S. Army (retired), Secretary, American
      Battle Monuments Commission....................................   121
        Prepared statement...........................................   123
    Huggett, Robert J., Assistant Administrator, Office of Research
      and Development, Environmental Protection Agency...............   247
    Huntress, Wesley T., Associate Administrator for Space Science,
      National Aeronautics and Space Administration..................   601

    Iarossi, Brad, P.E., legislative officer, Association of State
      Dam Safety Officials, prepared statement.......................   889

    Jennings, Hon. Ed, mayor, city of Gainesville, FL, prepared
      statement......................................................   876
    Johnson, Gary D., Chief Financial Officer, Federal Emergency
      Management Agency..............................................   193
    Johnson, Jacqueline, chairperson, National American Indian
      Housing Council, prepared statement............................   804
    Jollivette, Cyrus M., vice president for Government relations,
      Miami University, prepared statement...........................   756
    Jurado, Kathy E., Assistant Secretary for Public and
      Intergovernmental Affairs, Office of the Secretary, Department
      of Veterans Affairs............................................   511

    Keener, Mary Lou, General Counsel, Office of the Secretary,
      Department of Veterans Affairs.................................   511
    Kizer, Kenneth W., M.D., M.P.H., Under Secretary for Health,
      Office of the Secretary, Department of Veterans Affairs........   511
    Knight, George, Executive Director, Neighborhood Reinvestment
      Corpora- tion..................................................    63
        Prepared statement...........................................    68
    Koelemij, John, past president, National Association of Home
      Builders, prepared statement...................................   750

    Lane, Jay, director, program planning and development, Laconia
      Housing and Redevelopment Authority, prepared statement........   740
    Lane, Jay, president, Jay Lane Associates, prepared statement....   758
    Lane, Neal, Director, National Science Foundation................   457
        Prepared statement...........................................   458
    Langrigan, Philip, EPA Consultant, Children's Office,
      Environmental Protection Agency................................   247
    Larson, Larry A., executive director, Association of State
      Floodplain Managers, prepared statement........................   895
    Lautenberg, Hon. Frank R., U.S. Senator from New Jersey,
      questions submitted by.........................................   422
    Lawrence, Jeff, Associate Administrator for Legislative Affairs,
      National Aeronautics and Space Administration..................   601
    Leahy, Hon. Patrick J., U.S. Senator from Vermont, questions
      submitted by...................................................   412
    Lemons, Stephen L., Acting Under Secretary for Benefits, Office
      of the Secretary, Department of Veterans Affairs...............   511
    Local Initiatives Support Corp., prepared statement..............   769
    Lower, Dennis E., executive director, University Heights Science
      Park, Newark, NJ:
        Biographical sketch..........................................   822
        Prepared statement...........................................   820

    Mason, Dr. Robert J., director, Environmental Lung Center,
      National Jewish Medical and Research Center, prepared statement   873
    Mauderly, Joe L., senior scientist and director of external
      affairs, Lovelace Respiratory Research Institute, prepared
      statement......................................................   877
    McCabe, W. Michael, Regional Administrator, EPA Region III,
      Environmental Protection Agency................................   247
    McEwen, Bruce S., Ph.D., for the Society for Neuroscience,
      prepared statement.............................................   913
    McGinty, Kathleen, Chair, Council on Environmental Quality and
      Office of Environmental Quality, Executive Office of the
      President......................................................     1
    Merriman, William, Deputy Inspector General, Office of the
      Secretary, Department of Veterans Affairs......................   511
    Mikulski, Hon. Barbara A., U.S. Senator from Maryland:
        Prepared statement...........................................
          156, 533...................................................
        Questions submitted by.......................................
          78, 127, 238, 593..........................................
    Moore, Thomas H., Vice Chairman, Consumer Product Safety
      Commission.....................................................   155
    Moy, Kirsten, Director, Community Development Financial
      Institutions, Department of the Treasury.......................    27
        Prepared statement...........................................    32
    Mullen, James H., Jr., vice president for student affairs,
      Trinity College, prepared statement............................   764

    Nasif, Teresa, Director, Consumer Information Center, General
      Services Administration........................................   165
        Prepared statement...........................................   166
    National Council of State Housing Agencies on behalf of the
      Nation's State Housing Finance Agencies, prepared statement....   753
    Nebeker, Hon. Frank, Chief Judge, U.S. Court of Veterans Appeals.   109
        Prepared statement...........................................   110
    Nichols, Mary, Assistant Administrator, Office of Air and
      Radiation, Environmental Protection Agency.....................   247
    Nicogossian, Arnauld E., Acting Associate Administrator for Life
      and Microgravity Sciences and Applications, National
      Aeronautics and Space Administration...........................   601
    Nitze, William A., Assistant Administrator, Office of
      International Activities, Environmental Protection Agency......   247

    O'Brien, Terrence J., president, Metropolitan Water Reclamation
      District of Greater Chicago, prepared statement................   875
    Olivares, Dennis, president, International Federation of
      Professional and Technical Engineers, Local 29, prepared
      statement......................................................   902
    Opfer, George, Inspector General, Federal Emergency Management
      Agency.........................................................   193

    Paz, Harold L., M.D., dean, UMDNJ-Robert Wood Johnson Medical
      School, prepared statement.....................................   809
    Peabody, John N., Jr., president, American Federation of
      Government Employees Local 1983, prepared statement............   892
    Perciasepe, Robert, Assistant Administrator, Office of Water,
      Environmental Protection Agency................................   247
    Pesachowitz, Al, Assistant Administrator, Office of
      Administration and Resources Management, Environmental
      Protection Agency..............................................   247
    Peterson, Malcolm L., Comptroller, National Aeronautics and Space
      Administration.................................................   601
    Pings, Cornelius J., Ph.D., president, Association of American
      Universities, prepared statement...............................   918

    Quickel, Kenneth E., Jr., M.D., president, Joslin Diabetes
      Center, Boston, MA and Blake E. Waterhouse, M.D., CEO, Straub
      Clinic and Hospital, Honolulu, HI, prepared statement..........   735

    Rhea, Larry D., deputy director of legislative affairs, Non
      Commissioned Officers Association of the United States of
      America [NCOA], prepared statement.............................   725

    Sandy, Mary L., chair, National Council of Space Grant Directors,
      prepared statement.............................................   907
    Schlender, James H., executive administrator, Great Lakes Indian
      Fish and Wildlife Commission, prepared statement...............   869
    Schmoll, Kathryn S., Comptroller, Environmental Protection Agency   247
    Schumacher, John D., Associate Administrator for External
      Relations, National Aeronautics and Space Administration.......   601
    Scott, Edward, Assistant Secretary for Congressional Affairs,
      Office of the Secretary, Department of Veterans Affairs........   511
    Shelby, Hon. Richard C., U.S. Senator from Alabama, questions
      submitted by...................................................   399
    Socolar, Milton J., prepared statement...........................   525
    SRI International, prepared statement............................   909
    State and Territorial Air Pollution Program Administrators and
      the Association of Local Air Pollution Control Officials,
      prepared statement.............................................   852
    Stevens, Hon. Ted, U.S. Senator from Alaska, questions submitted
      by.............................................................   125
    Sullivan, John H., deputy executive director, American Water
      Works Association, prepared statement..........................   865
    Surratt, Rick, assistant national legislative director, Disabled
      American Veterans, prepared statement..........................   728
    Suttie, John W., Ph.D., president, Federation of American
      Societies for Experimental Biology, prepared statement.........   915

    Tinsley, Nikki L., Acting Inspector General, Environmental
      Protection Agency..............................................   247
    Townsend, William F., Acting Associate Administrator for Mission
      to Planet Earth, National Aeronautics and Space Administration.   601
    Trafton, Wilbur C., Asssociate Administrator for Space Flight,
      National Aeronautics and Space Administration..................   601

    U.S. Conference of Mayors, the National Association of Counties,
      the Association of Local Housing Finance Agencies, and the
      National Community Development Association, prepared statement.   801
    Uhlig, Mary Louise, Acting Associate Administrator, Office of
      Regional Operations and State/Local Relations, Environmental
      Protection Agency..............................................   247
    University of California at San Diego's Scripps Institution of
      Oceanography and Columbia University's Lamont-Doherty Earth
      Observatory, prepared statement................................   898
    University of Tulsa, prepared statement..........................   813

    Water Environment Research Foundation, prepared statement........   881
    Weinstein, Michael, president, AIDS Healthcare Foundation,
      prepared statement.............................................   817
    Whitehead, Robert E., Associate Administrator for Aeronautics and
      Space Transportation Technology, National Aeronautics and Space
      Administra- tion...............................................   601
    Widener, Mary Lee, president, Neighborhood Housing Services of
      America, Inc...................................................    63
    Witt, James L., Director, Federal Emergency Management Agency....   193
        Prepared statement...........................................   202
    Wodraska, John R., general manager, Metropolitan Water District
      of Southern California, prepared statement.....................   839

    Wofford, Harris, Chief Executive Officer, Corporation for
      National and Community Service.................................    81
        Prepared statement...........................................    91

    Zaterman, Sunia, executive director, Council of Large Public
      Housing Authorities [CLPHA], Washington, DC, prepared statement   742

                                 SUBJECT INDEX

                                  ----------

                      AMERICAN BATTLE MONUMENTS COMMISSION

                                                                       Page
    ABMC:
        Cemeteries and memorials, 1997 Memorial Day and other events
          at.........................................................   125
        Special events and services to the public....................   125
    American Battle Monuments Commission.............................   126

                       CONSUMER PRODUCT SAFETY COMMISSION

    Cigarette lighters/cost benefit analysis.........................   164
    Commission programs, reduced funding limits......................   160
    CPSC FTE's.......................................................   162
    Information technology is needed, investment in..................   151
    Multipurpose lighters............................................   163
    1998 priorities..................................................   163
    Programs, fiscal year 1998.......................................   159
    Recent accomplishments...........................................   158

                 CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

    Chief Financial Officer..........................................   101
    Financial statements.............................................   102

                          DEPARTMENT OF DEFENSE--CIVIL

                           Cemeterial Expenses, Army

    Army--Interior land transfers....................................   142
    Budget overview, fiscal year 1998................................   140
    Ceremonies.......................................................   141
    Claims and settlements...........................................   142
    Construction projects............................................   141
        Recently completed...........................................   141
    Funerals.........................................................   141
    Master plan......................................................   142

                    DEPARTMENT OF HEALTH AND HUMAN SERVICES

                           Office of Consumer Affairs

    Air bag safety...................................................   183
    Consumer Resource Handbook.......................................
      185, 190.......................................................
    CPSC:
        Budget.......................................................   177
        Initiatives..................................................   180
        Should work with DOT.........................................   184
    Disseminating information electronically.........................   186
    Fraud perpetrated against elderly................................   179
    OCA's effectiveness, measuring...................................   187
    Other agencies, working with.....................................   181
    Small Business Regulatory Enforcement Fairness Act [SBREFA]......   175
    USOCA:
        Helpline data base...........................................   187
        Travel fund for fiscal year 1998.............................   190

                  DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    Brownfields......................................................   692
    Decisionmaking to locals, redirection of.........................   667
    Elderly care.....................................................   691
    Emergency CDBG funding, use of...................................   703
    Empowerment zones, review of.....................................   704
    Homeless assistance for smaller States...........................   689
    Homeless programs, consolidation of..............................   690
    Homeless services, proposed restrictions on......................   690
    HOPE VI reforms..................................................   694
    HUD:
        Programs, additional.........................................   695
        Reforms, need for............................................   666
        Staff, introduction of.......................................   670
    Management transition plan.......................................   683
    Manufactured housing.............................................   696
    NAPA recommendations, implementation of..........................   693
    Preservation program.............................................   699
    Priority:
        Averting section 8 crisis....................................   671
        Expanding affordable housing.................................   672
        Making welfare reform work...................................   673
        Management reforms...........................................   674
        Restoring public trust.......................................   673
    Public housing units:
        Alternatives to selling......................................   701
        To tenants, sale of..........................................   700
    Rehabilitation units, cost of....................................   701
    RESPA, proposed rule on..........................................   697
    Reverse mortgages, Senate measure on.............................   694
    Section 8:
        Contract renewal reserves....................................   684
        Costs, increase in...........................................   666
        Reserves:
            Departmental policy on...................................   687
            GAO estimate on..........................................   684
            Need for varying amounts of..............................   686
            Recapturing..............................................   688
            The supplemental bill....................................   685

                           DEPARTMENT OF THE TREASURY

                  Community Development Financial Institutions

    CDFI projects....................................................    34
    Performance standards............................................    38

                         DEPARTMENT OF VETERANS AFFAIRS

                            Office of the Secretary

    Compensation original claims processing..........................   557
    Cost efficiency goals............................................   558
    Federal supply schedules.........................................   558
    Health care employment reductions, savings achieved through......   549
    Medical research funding:
        Reduction....................................................   557
        Reduction in.................................................   555
    Medicare subvention..............................................   553
    Montgomery GI bill usage rate....................................   546
    NAPA recommendations.............................................   548
    New patient mix..................................................   551
    Outreach clinics, Maryland community-based.......................   556
    Per-patient cost reduction, 30 percent...........................   544
    Perry Point modernization........................................   556
    Third party reimbursement legislation............................   554
    User fee proposal................................................   543
    VA health care restructuring savings.............................   543
    Veterans education benefits......................................   546
    Veterans, treating more..........................................   552
    Year 2000 computer problems......................................   548

                        ENVIRONMENTAL PROTECTION AGENCY

    Brownfields:
        Initiative...................................................   269
        Sites........................................................   279
    Budget priorities................................................   279
    Chesapeake Bay Program...........................................   270
    Children as a high priority......................................   256
    Clean Air Act reviews............................................   299
    Closing remarks..................................................   350
    CSI and project XL...............................................   345
    CWSRF............................................................   336
    E4E program......................................................   346
    EPA/State relationships..........................................   326
    Fine particles...................................................   343
    GPRA: Budget prioritization......................................   339
    Green programs...................................................   347
    International program vision.....................................   283
    Lake Champlain management plan...................................   303
    Mercury study....................................................   302
    Methylbromide....................................................   329
    NAAQS:
        Clean Air Act................................................   297
        Proposals....................................................   271
        Protocal for accessing data..................................   278
        Scientific data..............................................   272
        State grant request..........................................   335
    NAPA studies.....................................................   344
    National mining strategy.........................................   332
    New legislation..................................................   256
        Implementation...............................................   334
    Ozone NAAQS: CEA letter..........................................   298
    Peer review......................................................   349
    PM-2.5...........................................................   342
    PM and ozone standards...........................................   304
    Risk decisions in 1998 budget....................................   340
    Safe Drinking Water Act..........................................   300
    Salmon, ID.......................................................   341
    SBREFA...........................................................   348
    South Lake Tahoe.................................................   331
    Superfund:
        Budget, fiscal year 1997.....................................   281
        Increase, proposed...........................................   267
        New York Times article.......................................   268
        Reauthorization..............................................   281
        Reform.......................................................   283
    Transuranic waste................................................   328
    WIPP.............................................................   327
        Review.......................................................   331

                       EXECUTIVE OFFICE OF THE PRESIDENT

      Council on Environmental Quality and Office of Environmental Quality

    CEQ, elimination of..............................................     8
    Project XL.......................................................     9
    Small business regulatory enforcement............................    18
    Spending priorities..............................................    17

                    Office of Science and Technology Policy

    National research investment portfolio...........................   440
    National Science and Technology Council..........................   441
    1996 accomplishments.............................................   442
    OSTP:
        Budget request...............................................   442
        Mission......................................................   440
    President's Committee of Advisors on Science and Technology......   442
    Science and technology, recent advances in.......................   439
    Twenty-first century, shaping the................................   440

                      FEDERAL EMERGENCY MANAGEMENT AGENCY

    Dam safety, requirements for.....................................   219
    Disaster appeals.................................................   212
    Disaster assistance:
        For recreational facilities..................................   212
        For sports facilities........................................   213
    Disaster close-outs..............................................   208
    Disaster cost-cutting proposals..................................   212
    Disaster criteria, timetable for.................................   214
    Disaster program changes, getting Governors involved in..........   199
    Disaster relief fund, status of..................................   206
    Disasters:
        Criteria for rehabilitation from.............................   209
        Funding for..................................................   208
    Fallen Firefighters Foundation, Maryland representation in.......   219
    Flood mitigation in Maryland.....................................   209
    Hazard mitigation................................................
      211, 217.......................................................
    Incentives for States............................................   218
    Inspector general recommendation.................................   219
    Institutionalizing reform........................................   214
    Insurance for public facilities..................................   216
    National flood insurance fund, status of.........................   218
    Northridge, cost for.............................................   207
    Ohio River flooding and tornado disasters, estimates for recent..   207
    Performance partnership agreements, criteria for.................   218
    Private, nonprofit entities, eligibility of......................   217
    Seismic algorithm................................................   213
    State and local assistance.......................................   219
    State cost share.................................................   216

                        GENERAL SERVICES ADMINISTRATION

                          Consumer Information Center

    CIC program......................................................   165

                 NATIONAL AERONAUTICS AND SPACE ADMINISTRATION

    Aeronautics program..............................................   641
    Aircraft consolidation plan......................................   625
    Consolidated space operations contract [CSOC]....................   629
    Earth Observatory system data information status [EOSDIS]........   623
    Expendable launch vehicles, upgrading............................   643
    Internation space station........................................   620
    Mars mission.....................................................   639
    Mergers and consolidations.......................................   642
    Mission to plant Earth...........................................
      627, 628.......................................................
    NASA:
        Budget.......................................................   625
        Budget/reserves..............................................   626
        Faster, better, cheaper......................................   640
        Outreach programs............................................   628
        Response to pursuing the right paths/options.................   635
        Russian situation............................................   628
    Research aircraft, plans for.....................................   625
    Russian situation................................................   631
    Science missions.................................................   627
    Scientific benefits..............................................   637
    Shuttle program..................................................   636
        Cost vs. Saturn/Apollo Program cost..........................   634
        Vs. Saturn Program...........................................   634
    Shuttle safety...................................................   632
    Space science programs...........................................   630
    Space station....................................................   637
        Benefits.....................................................
          635, 638...................................................
        Funding caps.................................................   621
        Internation cooperation......................................   637
        Out-year request.............................................   633
        Program......................................................   636
        Yes or no?...................................................   634
    X-33.............................................................   639
        Cost effectivess of..........................................   644
        Program......................................................
          635, 640, 643..............................................

                      NATIONAL CREDIT UNION ADMINISTRATION

    CDFI.............................................................    75
    Credit unions, Supreme Court decision on.........................    76
    Efficiency measures..............................................    68
    Financial services, modernization of.............................    78
    Home Program.....................................................    74
    Hope IV in Baltimore.............................................    72
    Lessions learned.................................................    67
    Navajo partnership for housing...................................    74
    Rural housing concerns...........................................    75
    Southern Baltimore, goals for....................................    72

                          NATIONAL SCIENCE FOUNDATION

    .................................................................
    Agricultural research, funding for...............................   479
    Arabidopsis genome project.......................................   478
    Communication/coordination, need for better......................   476
    Corn genome study, potential.....................................   479
    Evaluation and performance.......................................   487
    Federal R&D investment...........................................   465
    Genome studies...................................................   477
        Future of....................................................   480
    Goal setting.....................................................   471
        Examination of...............................................   482
    GPRA.............................................................   472
    Impact of research, measuring the................................   472
    Interagency meeting, request in..................................   480
    Knowledge and distributed intelligence...........................   482
    Life and Earth's environment.....................................   484
    OSTP in space issues, role of....................................   467
    Public investment in research and development....................
      466, 467.......................................................
    Russia's role in space station...................................   468
    Science and technology budget....................................   465
    Setting priorities and measuring programs........................   488
    Space program, safety of.........................................   469
    Space programs...................................................   469
    Strategic research...............................................   470
    Success indicators...............................................   484
    Year 2000:
        Computer dilemma.............................................   473
        Flipover.....................................................   475
        Flipover issues..............................................   476
        Issue, role White House has in solving.......................   474
        Issues.......................................................   474

                            SELECTIVE SERVICE SYSTEM

    ABMC:
        Informational services.......................................   153
        Infrastructure...............................................   149
        Infrastructure and backlog...................................   151
        Memorial Day and other ceremonies............................   153
    America initiative:
        Costs of service to..........................................   150
        Results of service to........................................   152
        Service to...................................................   145
    Responsibilities.................................................   150
    Selective Service, future of.....................................   150

                         U.S. COURT OF VETERANS APPEALS

    Budget summary...................................................   110
    Case backlog.....................................................   109
    Pro bono representation program..................................   120
    VA decision process..............................................   118

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