[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
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_______________________________________________________________________
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                      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.
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    \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.
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    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.

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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.

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    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.
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    \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.
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    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.

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       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.

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     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.

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    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.

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 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.

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               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.
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    \5\ GAO Report, Page 22.
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 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
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                                 ______
                                 

                              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.
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    \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.
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    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\
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    \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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