    [Senate Hearing 106-314]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-314

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2000

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

                                    HEARINGS

                                    before a

                              SUBCOMMITTEE OF THE

                COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                       on

                               H.R. 2490/S. 1282

     AN ACT MAKING APPROPRIATIONS FOR THE TREASURY DEPARTMENT, THE UNITED
       STATES POSTAL SERVICE, THE EXECUTIVE OFFICE OF THE PRESIDENT, AND
     CERTAIN INDEPENDENT AGENCIES FOR THE FISCAL YEAR ENDING SEPTEMBER 30,
                          2000, AND FOR OTHER PURPOSES

                                   __________

                           Department of the Treasury
                       Executive Office of the President
                           Nondepartmental witnesses

                                   __________

             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
    54-236 CC                   WASHINGTON : 2000
    _______________________________________________________________________
                For sale by the U.S. Government Printing Office
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                                     20402
                               ISBN 0-16-060084-7

                          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             FRANK R. LAUTENBERG, New Jersey
    MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
    CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
    RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
    JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
    ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
    BEN NIGHTHORSE CAMPBELL, Colorado    BYRON DORGAN, North Dakota
    LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
    KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
    JON KYL, Arizona
                       Steven J. Cortese, Staff Director
                     Lisa Sutherland, Deputy Staff Director
                   James H. English, Minority Staff Director
                                     ------

                Subcommittee on Treasury and General Government

                  BEN NIGHTHORSE CAMPBELL, Colorado, Chairman
    RICHARD C. SHELBY, Alabama           BYRON L. DORGAN, North Dakota
    JON KYL, Arizona                     BARBARA A. MIKULSKI, Maryland
    TED STEVENS, Alaska                  ROBERT C. BYRD, West Virginia
      (ex officio)                         (ex officio)

                               Professional Staff

                              Patricia A. Raymond
                                  Tammy Perrin
                                  Lula Edwards

                             Administrative Support

                         Barbara A. Retzlaff (Minority)
                          Elizabeth Blevins (Minority)

                                C O N T E N T S

                                  ----------

                          Thursday, February 25, 1999

                                                                       Page

    Department of the Treasury: Internal Revenue Service.............     1

                            Thursday, March 4, 1999

    Executive Office of the President: Office of National Drug
      Control Policy.................................................    53

                            Thursday, March 25, 1999

    Department of the Treasury: Office of the Secretary..............   111

                            Thursday, April 15, 1999

    Department of the Treasury.......................................   159
        U.S. Customs Service.........................................   183
        Bureau of Alcohol, Tobacco and Firearms......................   213
        U.S. Secret Service..........................................   239
        Federal Law Enforcement Training Center......................   253
        Financial Crimes Enforcement Network.........................   269
    Material submitted subsequent to the conclusion of hearing:
        General Services Administration..............................   283
        Office of Personnel Management...............................   284
        Office of Management and Budget..............................   288
        Merit Systems Protection Board...............................   291
    Nondepartmental witnesses........................................   295

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2000

                                  ----------

                          THURSDAY, FEBRUARY 25, 1999

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:02 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell and Dorgan.

                           DEPARTMENT OF THE TREASURY

                            Internal Revenue Service

    STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER
    ACCOMPANIED BY:
            JOHN LAFAVER, DEPUTY COMMISSIONER, MODERNIZATION
            BOB WENZEL, DEPUTY COMMISSIONER OPERATIONS
            JOHN DALRYMPLE, CHIEF OPERATIONS OFFICER

                                opening remarks

        Senator Campbell. The Treasury Subcommittee will come to
    order. This will be the first fiscal year 2000 budget hearing
    for the Subcommittee on Treasury and General Government.
        Commissioner, did you bring all those notebooks with you.
        Mr. Rossotti. Yes, just a few props.
        Senator Campbell. We will not be here long enough for you
    to go through all of them.
        Mr. Rossotti. I do not intend to review them in any detail.
        Senator Campbell. You are well-prepared. First, I would
    like to take this opportunity to welcome a colleague and
    friend, Senator Dorgan, as a member of the subcommittee.
    Senator Dorgan and I came in as freshmen together on the House
    side, as I remember, and served on several committees together
    on both sides of the Hill, and I certainly welcome you to this
    committee.
        Senator Dorgan. Mr. Chairman, thank you.
        Senator Campbell. I might also mention, we both just came
    from a hearing where there were so many opening statements, we
    ran out of time and never did get to ask any questions of the
    people that were making the presentation, Secretary Richardson.
    We will not go through that lengthy opening here, but I would
    like to say a few things.
        This morning we will be discussing the fiscal year 2000
    budget for the Internal Revenue Service, and the current status
    of changes at the agency. Appearing before us today, of course,
    is Commissioner Rossotti. I certainly appreciate the new energy
    you have brought to the IRS, and your personal commitment to
    get around the country to talk to people who have felt, for all
    kinds of real or imaginary reasons, about the behavior that
    they feel they have received at the IRS. I know that you are
    making some rapid and good changes. That is not the kind of
    thing that gets turned around overnight, but I know you have
    put your best energy toward it and I certainly do appreciate
    that.
        As one of the largest Government users of computer
    technology, the IRS is faced with a huge task of correcting the
    year 2000 recognition problem. Emergency funding was provided
    last year for the IRS Y2K conversion costs, $483 million in
    fact. The fiscal year 2000 budget requests a little more than
    half as much again. Hopefully, that will be enough to finish
    the job before the clock changes. We are certainly interested
    in knowing how that process is going.
        So I think with that, in the interest of time, Commissioner
    Rossotti, I will ask Senator Dorgan if he has an opening
    statement and get right to your comments.

                           senator dorgan's statement

        Senator Dorgan. Mr. Chairman, thank you very much. I
    appreciate your work on this subcommittee and I am pleased to
    join you. You do know that I was a tax administrator in North
    Dakota for a good number of years, so I understand some of the
    job that the commissioner has in administering a tax code that
    seems at times quite complex, and trying to make sure that
    administration is fair and collects the revenue for this
    country that it expects to get from the system.
        I would expect that I speak on behalf of the chairman and
    myself, that we want the Internal Revenue Service to succeed.
    We want the Internal Revenue Service to have the resources and
    the capability to succeed.
        I would say, as I have told Commissioner Rossotti, I was
    disturbed by the hearings last year. I think everyone
    understood that those hearings disclosed some practices that
    had occurred with some people in the Internal Revenue Service.
    And I know the Internal Revenue Service was disturbed as well
    by some of those disclosures, and the Service has taken action
    to respond to it. We think that, Mr. Commissioner, your
    stewardship of this agency is refreshing, and I know that you
    bring a reform-minded notion of wanting to do the right thing,
    and to make changes in the Internal Revenue Service to see that
    the Service does what it is supposed to do for this country.
        Especially because I was a tax administrator at one point,
    I understand, as you well do, any time anyone alleges
    inappropriate or improper behavior on the part of those who
    have the enforcement capability, especially in the tax area
    where we deal with people's most sensitive information, it is
    very serious. I know that you have taken it that way and have
    taken immediate steps to respond to it, and for that I am
    appreciative.
        I want to mention a couple of items that are of special
    concern to me. Obviously one is that one of the words in the
    Internal Revenue Service is service. I have spoken to you, Mr.
    Commissioner, and many of your predecessors about that.
    Notwithstanding the Code that we create here in Congress, the
    Tax Code, whether it is more or less complicated,
    notwithstanding that, one way or another the Internal Revenue
    Service must be involved in providing service. Not just
    enforcement, but service. Because part of compliance with the
    Tax Code for the taxpayers is to be able to understand and take
    reasonable steps on their own behalf to comply with the code.
        I have made the point to many commissioners that the
    Internal Revenue Service, like the rest of the world, seems
    intent on consolidating. You take folks out of the rural parts
    of the country and move them into the big city someplace. We
    have seen a steady stream of folks going from North Dakota to
    St. Paul. It is all under the name of centralizing and
    improving services. Regrettably, it has never really improved
    service. It has simply taken services away from folks in the
    more rural States.
        If I might just show a chart, it shows that in our part of
    the country there are very few areas where people could get
    taxpayer assistance. This is an Internal Revenue Service chart.
    You can see the large white areas. Up in North Dakota you have
    got three little dots. There is where people can reasonably
    expect to show up and get assistance. But most of the other
    folks cannot.
        Now I understand that you are not able to, because you do
    not have the staff, put people in every little small town, and
    every shopping center, and extend yourself to say, service
    means that we are going to reach out and help everybody. I
    understand that.
        By the same token, I think service means not just folks in
    the big cities. It means reasonably covering the rural States
    as well with some modicum of service and helping people comply
    with their tax responsibilities. That is something that I will
    be working with the chairman on, and working with you and the
    Service on as well, to see if we cannot reverse the fortunes of
    some of the less-populated areas, at least to extend on a
    temporary basis from time to time, better service.

                                transfer pricing

        Finally, I am going to submit a statement for the record,
    but I do want to state for the record that one of my special
    concerns is the issue of transfer pricing. I have discussed
    that with you as well. I remain convinced that at a time when
    we say to the working men and women of this country who pay a
    very significant payroll tax--in most cases their payroll tax
    is higher than their income tax. They pay a payroll tax, they
    pay an income tax, and we say to them, you do not have any
    choice. We have payroll tax and then we have withholding on
    your income tax, and you do not have any flexibility.
        At the same time that we are telling working folks that
    message--and it is appropriate--we are also allowing large
    multinational and international corporations to avoid their tax
    responsibility. Some 70 percent of the corporations, foreign
    corporations doing business in this country, pay zero in
    Federal income taxes--zero. And those would all be brand names
    that everyone in the audience would recognize if I mentioned
    the corporations that do billions and billions of dollars of
    business here and pay zero in corporate income taxes.
        My feeling is, you do business here, you make profits here,
    you should pay taxes here. And through transfer pricing
    incredibly sophisticated schemes are developed by which wholly-
    owned subsidiaries and parents can sell and buy things from
    each other, charging $15 for toothbrushes, and $7.50 for
    tractor tires, either under-pricing or over-pricing, and just
    move profit wherever they want to move profit, especially away
    from the tax collector.
        There are a couple folks who have done some studies that
    say that the loss to this country is perhaps $40 billion a
    year. Some tax professionals scoff at that. I, frankly, scoff
    at the tax professionals who scoff at that. I think the tax
    professionals are wrong. I think this is massive tax avoidance
    to the tune of perhaps $10 billion, maybe $15 billion a year at
    least.
        In the meantime, you have folks down in the enforcement
    division who are trying to use buggy-whip, antiquated
    approaches to connect in effect, as I have described it,
    connecting the ends of two plates of spaghetti on individual
    transactions to see if they can put together the relationship
    between parents and subsidiaries to determine at what price
    they sold each other goods, and how did they transfer, if they
    did, profits, either in or out. And the fact is, it does not
    work at all. It is a miserable failure.
        Some advance pricing agreements have been done, of course,
    in secret that I think represent themselves an admission that
    the current system does not work at all. Our tax courts are
    clogged with all this nonsense.
        I want to work with you. I know I do not serve on the
    Finance Committee, but I served on the Ways and Means Committee
    for 10 years in the other body, and I am determined and have
    been determined for some long while to get my hands around this
    and do something that addresses it. I want to work with you on
    the enforcement side of this so that we understand exactly what
    is the size of this problem, and how do we change tax law, if
    necessary, to get at it, or how do we add enforcement muscle to
    your agency to get at it.
        I am sorry to take a little extra time to do that, but it
    was therapeutic for me, even if it does not resolve anything in
    the future. [Laughter.]
        But I will be a thorn on this issue just because I feel so
    strongly about it. I want you to have the muscle and the
    capability to say to those people that make $2 billion in
    profits doing business in America, that all the folks out there
    who work for you are paying taxes because they have no
    flexibility, and you make $2 billion of income and then
    transfer it out with $15 toothbrushes to inflate the price so
    that you do not have to pay taxes here. This country will not
    accept that, and will not put up with it any more.
        So that is a thumbnail sketch of a long story that I hope
    to work with you on in the future.

                               prepared statement

        Mr. Commissioner, thank you. I will put the rest of the
    statement in the record.
        [The statement follows:]
                      Prepared Statement of Senator Dorgan
        Thank you Mr. Chairman. This is my first hearing as ranking member
    of the Treasury General Government Subcommittee and I want to take this
    opportunity to say that I am looking forward to working with you, Mr.
    Chairman, on the critical issues decided by this important
    subcommittee.
        Today let me welcome Commissioner Rossotti. Mr. Commissioner, as we
    discussed when you came to my office I am very interested in the
    Internal Revenue Service. As a former tax commissioner of North Dakota,
    I know that the mission of the Internal Revenue Service is to collect
    the appropriate level of taxes while providing America's taxpayers the
    highest level of assistance to understand their tax liability. Last
    year, Congress passed the Internal Revenue Service Restructuring and
    Reform Act of 1998. From my conversations with you Mr. Commissioner,
    and others in the tax community, I believe that important changes are
    occurring--changes that will make the Internal Revenue Service the
    first class organization our taxpayers deserve.
        Let me take this opportunity to say the vast majority of Internal
    Revenue Service's employees are hard working, honest people trying to
    do a good job. Rather then vilify them as a group, we should commend
    them as hard working individuals. But let me also say, I have no
    tolerance for IRS employees who have no regard for taxpayer's and their
    privacy. Mr. Commissioner, I want your assurance that you will take
    swift and direct action if an IRS employee has abused their position,
    violated our taxpayer's privacy of if a supervisors employ polices that
    are convenient for them but are damaging to taxpayers rights.
        While we are discussing customer service, I would like to address
    an issue that impacts my state, North Dakota and I expect other rural
    communities. I am aware of the changes being proposed for the IRS--
    redesigning the services along taxpayers rather than geographic lines.
    However, I am concerned that face to face tax service has been reduced,
    particularly in rural states. Why, in Minot, North Dakota alone, nine
    IRS positions were lost. I hope you are willing to look at this issue
    and make adjustments as necessary, to ensure all taxpayers are able to
    receive the same level of service whether they are in an urban area or
    in a rural location 50 miles from the nearest walk-in service centers.
    This is an issue we can explore further during the question and answer
    portion of this hearing.
        While I am eager to see the IRS focus its resources on efforts to
    improve customer service, I am concerned that we may not be providing
    the appropriate level of attention to other important aspects of the
    IRS and revenue collection.
        Let me give you an example. The General Accounting Office did a
    study that indicated that 73 percent of foreign controlled
    multinational firms are transacting hundreds of billions of dollars of
    business in this country and are not paying taxes. In fact 46 percent
    of the largest corporations--firms with more than $100 million in
    assets--are not paying taxes. And, it is not only the foreign-based
    corporations. U.S. based companies fair little better. Many
    corporations doing business around the globe are finding ways to avoid
    paying any taxes through the use of transfer pricing which allows them
    to move their profits outside the United States. Mr. Commissioner, we
    are losing billions of dollars annually because the IRS is forced to
    respond to transfer pricing and other complicated tax issues with
    resources that cannot compete against the private sector. I hope we can
    work together to plug this and other tax loopholes.
        One other area I would like to address today is the need to examine
    the status of tax exempt organizations. More than one million
    organizations are approved for tax-exempt status because of their
    charitable, educational, social welfare or member benefit purposes.
    Most charities are working hard to get help to individuals that in many
    cases the government cannot provide. But I continue to see reports,
    such as the GAO report ``Tax Exempt Organizations--Additional
    Information on Activities and IRS Oversight'', about abuses within some
    of these organizations. And, at a time when we have seen a phenomenal
    growth in tax exempt organizations the IRS has not had a similar growth
    in resources dedicated to ensure these organizations are operating as
    intended.
        Again, thank you Mr. Commissioner for joining us this morning to
    discuss the improved Internal Revenue Service. I welcome the
    opportunity to work with you to ensure that the IRS has the resources
    and direction to carry out its mission effectively and appropriately.

                         Statement of Charles Rossotti

        Senator Campbell. I do not feel any need of therapy, so
    maybe we can get right to this. I notice you have Deputy
    Commissioner John LaFaver with you, and Deputy Commissioner Bob
    Wenzel. Will they have comments too, or do you want them to
    come to the table?
        Mr. Rossotti. I think in response to specific questions I
    think I might ask Mr. LaFaver to actually, later on, respond to
    your comment about the service in the rural areas, Senator
    Dorgan.
        Senator Campbell. Why do you not go ahead and proceed,
    Commissioner.
        Mr. Rossotti. Thank you very much, Senator Campbell and
    Senator Dorgan. I think I would like to just give this brief
    overview statement, and then I think as we get into the
    questions I would like to try to more specifically say a few
    things about the two points that you raised in your opening
    comments, Senator Dorgan.
        But first let me just summarize by saying that I think the
    fiscal year that we are currently in, 1999, and fiscal year
    2000 coming up, really represent a crucial period and almost a
    turning point in the long history of the IRS. It is because
    this is the period in which we are really aggressively trying
    to address the problems that were identified over the last few
    years by the Congress and the people.
        As we know, as was mandated in the Restructuring and Reform
    Act, we know that our agency is expected to do a much better
    job in serving the taxpayers based on an actual understanding
    of the taxpayer's point of view. That is really the mandate
    that we are attempting to deliver on in the fiscal year 2000
    budget.
        I believe that the many problems that were identified can
    be solved. They will require fundamental change in order to
    modernize, really, almost all aspects of the IRS. I do want to
    be honest and say that this process carries with it not only
    some costs, but some risks. We may have to change our plans
    from time to time, make adjustments. We may make some errors.
    But I think the important point is, I do not think there is any
    low risk plan to do the massive job we have.
        I would just like to mention some of the things that are
    currently underway. They are kind of listed in brief form on
    this chart. Of course, we are in the midst of carrying out our
    1999 filing season, which is made particularly challenging
    because of all the technology change and tax law change that we
    are encountering. We are also completing our year 2000
    compliance program to make our computers compliant, which is
    over a $1 billion job.
        We are implementing at the present time 157 near-term
    initiatives to improve service and treatment of taxpayers, of
    which about half are mandated by the Restructuring Act. At the
    same time we are implementing about 1,260 changes in the tax
    code from the last two years' worth of tax bills. Many of
    these, or at least some of them, require rather significant
    interpretations to guide our employers, and our taxpayers, of
    course.

                            Modernized Organization

        We are completing the planning for a fundamental
    reorganization of the IRS, which is specifically designed to
    improve accountability for serving taxpayers, particular kinds
    of taxpayers with particular needs. We are taking the first
    steps to modernize and redesign and actually replace our
    antiquated base of technology.
        We are implementing a completely new system for measuring
    performance of people and organizations within the IRS,
    throughout the whole organization. Then, of course, we are
    doing a great deal of training that is related to all of these
    other changes for, or actually affecting all of our 100,000-
    plus employees.
        We plan to complete the planning for our new organizational
    structure this year, but we have already begun implementing
    parts of it, and much more implementation will be occurring
    during fiscal year 2000. We have also, under the authority
    granted to us by Congress, really put in place a new top
    management team and we are actively recruiting to fill top
    leadership positions as we establish our new operating units.
        Updating our business practices for dealing with taxpayers
    will require almost a complete replacement of our IRS
    information technology systems, which are today built on a 30-
    year-old, fundamentally deficient foundation which cannot do
    two of the main things it needs to do, which is provide
    accurate, up-to-date information about taxpayer accounts, and
    as the GAO has repeatedly reported, it really cannot provide
    reliable financial information for managing the agency. Those
    are very serious problems.

                             PRIME SYSTEMS CONTRACT

        In December of last year we awarded a prime systems
    integration contract with Computer Sciences Corporation and
    other vendors, and we are currently working with them to update
    our strategic systems plan, which is a long term plan. We will
    also begin to implement some near term projects which focus on
    improved phone service and electronic filing.
        Now, Mr. Chairman, despite the fact that we have got a lot
    of these changes ahead, in preparing our budget request for
    fiscal year 2000 we, of course, are well aware of budget
    constraints that exist. Therefore, we have requested, we
    believe, the bare minimum that is necessary to continue
    progress at least at a steady pace. Without this funding, we
    think that progress could be stalled and the risks would
    increase.

                        Fiscal Year 2000 Budget Request

        Specifically, the request for fiscal year 2000 is $8.105
    billion, which is essentially level with the resources we
    received last year, which were $8.103 billion. Last year that
    included $483 million from the year 2000 emergency fund.
        Now on the face of it this seems to be an unlikely
    combination in that we are having a lot of major changes that
    require investments, but at the same time we have essentially a
    flat budget. We think we can do this in fiscal year 2000 for
    three particular reasons. One is that simply because of the
    stringency of the fiscal constraints we are carrying out many
    of the changes by diverting or reallocating resources from
    ongoing programs such as compliance.
        Secondly, the Congress did advance fund our Information
    Technology Investment Account in a level that will sustain us
    through fiscal year 2000, but we will need additional funds for
    fiscal year 2001.
        Thirdly, based on our currently known requirements for the
    year 2000 program for fiscal year 2000, they are less than the
    cost for fiscal year 1999.
        So when you put these three together, it did enable us to
    include in our budget request, even though overall it is level,
    some essential items for moving forward. These include $40
    million for implementing the Restructuring and Reform Act's
    customer service and electronic filing initiatives, $17 million
    for some additional training to train our employees in the tax
    laws that Congress has passed, and $140 million for
    implementing the overall modernization plan which is also
    called for in the RRA, and particularly for retraining and
    reallocating our employees.

                                    Training

        I just want to make one last point and talk about training
    so our employees can learn what they need to learn to deliver
    on the mandates that Congress has given us. About 70 percent of
    our 100,000 employees deal directly with taxpayers in their
    everyday jobs. We believe that taxpayers have a right in every
    encounter that they have with an IRS employee which could be
    from just answering a phone call about how to fill out a tax
    return, to meeting with a revenue agent about an audit, to know
    that the IRS employee should be expected to understand the
    current tax law and also have the skills to understand the
    particular facts and circumstances of that taxpayer's case.
        Frankly, when I took office a little over a year ago it
    quickly became very clear to me that we had a very major
    deficit in this area. Of course, since then we have had even
    more tax law changes, and of course, a mandate to restructure
    the whole way we do business with taxpayers. And I know that
    training sometimes seems a little abstract so I did bring some
    examples. I do not intend to go through them in detail, but
    there is a long list of changes. I just want to mention three
    of them.
        This one is what is called Section 3401, which is called
    due process in collections; a very important one to give
    additional rights to taxpayers who are in collection
    situations. But what it means is that we have about 11,000
    people who are involved in collection activities that really
    have to be retrained significantly in the whole way that they
    have done business for many, many years.
        This is a book that gives just the first version of the
    training that we are giving to these people. We have given it
    to them, and we know that it is really not even yet sufficient.
    We are going to have to do another round of training this year.
        This one is called Section 1203, which our employees take
    very seriously because this one lists what are referred to
    inside the agency as the 10 deadly sins. This gets at the point
    that Senator Dorgan made. These are 10 specific kinds of
    violations or offenses for which the penalty is mandatory
    termination for any employee. So our employees take this very,
    very seriously. There is a lot of anxiety about this. Over
    100,000 people have to go for either a half a day, to a day
    initially, of familiarization training with this. We are
    working on this.
        Then finally this one here, which I am not going to lift
    because it is too heavy, is known inside the IRS as IRM 21.
    This is the set of manuals which is constantly being updated
    which is given to our 21,000 employees who deal with taxpayers
    and are called customer service representatives. They deal with
    taxpayers.
        If you call in on the phone and you have a question about
    your account or taxes, or you write in, these are generally
    people at the GS-8 level, which means they make about $35,000 a
    year. This is the documentation that has just been updated to
    indicate the information that they have to be familiar with to
    answer these kinds of calls.
        So I think you can see, when I say that we are really
    seriously in need of money for training, we really, really mean
    this. I think it is really essential, the money we have both in
    the modernization account and in the base account, in order to
    begin to rectify this deficit.
        So let me just summarize by just making one last point,
    which is that with the budget that we have requested, it will
    continue the trend of the last six years in which the IRS
    workforce will actually be shrinking in relation to the size of
    the economy. In fiscal year 2000 we are going to have, of
    course, a growth in workload.
        The economy is growing. Tax returns are growing, and we
    have all these new provisions in the acts. But the workforce
    size by this budget will be about the same or just slightly
    declining. I think we can achieve this trend, but it will only
    be possible if we do make the investments that are proposing in
    organizing, training, and technology.

                               PREPARED STATEMENT

        So Mr. Chairman, just to say, I recognize the risks and
    challenges ahead, and it is a long road, but with the continued
    support of Congress, this committee, and the American people,
    we are confident that we can succeed.
        Thank you.
        [The statement follows:]
                   Prepared Statement of Charles O. Rossotti
        The year 2000 represents a crucial turning point in the
    modernization of the IRS. We are systematically and aggressively
    addressing the problems described by Congress and the American people--
    problems that include antiquated systems and a workforce inadequately
    trained and inadequately equipped. We now have the opportunity to turn
    that situation around and achieve meaningful change at the IRS and
    provide better service to America's taxpayers.
        The bipartisan IRS Restructuring and Reform Act of 1998 (the
    Restructuring Act), which overwhelmingly passed Congress, points the
    IRS in the right direction. The IRS was told that it was expected to do
    a far better job serving the public based on a much better
    understanding of the taxpayers' point of view. Our fiscal year 2000
    budget represents the Agency's commitment to deliver on the sweeping
    congressional mandates contained in that landmark bill.
        That new course is expressed in the new IRS mission statement we
    released last fall, in response to the mandate in the Restructuring
    Act. It is: ``Provide America's taxpayers top quality service by
    helping them understand and meet their tax responsibilities and by
    applying the tax law with integrity and fairness to all.'' The mission
    statement sets a higher performance standard for the IRS.
        If we are successful, millions of taxpayers and thousands of IRS
    employees will benefit for years to come: taxpayers because they will
    have a tax agency providing the service they expect and deserve;
    employees because they will work for an IRS that is trusted by those
    both within and outside the Agency.
        Rising to the challenge is not a simple task. Our efforts thus far
    represent only a beginning. Modernizing the IRS will require
    fundamental change in almost all aspects of the IRS and will affect the
    way employees work with taxpayers and with each other. This process
    also carries with it considerable risk. Our plans may need to be
    revised and operational problems may occur. However, there is no low
    risk plan for the massive job we must do at the IRS. Specifically,
    today we are in the midst of major activities:
      --carrying out a 1999 filing season that is extremely challenging
            because of the massive amount of technology changes made to
            ensure that our systems will meet the Year 2000 challenge and
            numerous tax law changes;
      --completing the Year 2000 compliance program, including the
            installation of our Integrated Submission and Remittance
            Processing System and Mainframe consolidation, and conducting
            our full scale end-to-end test of all of our renovated
            technology;
      --implementing 157 near-term initiatives to improve service and
            treatment of taxpayers, of which 82 are mandated by the
            Restructuring Act;
      --implementing 1,260 tax code changes from the Taxpayer Relief Act of
            1997 and the Restructuring Act of 1998, many of which require
            significant and complex interpretations to guide taxpayers and
            employees;
      --completing the planning for a fundamental reorganization of the IRS
            to increase accountability for meeting taxpayer needs;
      --taking the first steps in a long-term effort to redesign and
            replace our business systems and supporting information
            technology;
      --implementing a completely redesigned and balanced system for
            measuring performance throughout the organization; and
      --providing essential training related to these many changes to
            nearly every one of our over 100,000 full time and seasonal
            employees, including technical and procedural changes in the
            tax law, changes in business process and technology related to
            service improvements, and changes in performance standards
            related to our new goals and mission.
        These changes all represent steps along the way to implement the
    specific mandates and the intent of the Restructuring Act. The Act,
    together with the concepts I presented to the Congress last January,
    which we broadly refer to as modernization, form the basis for the most
    significant changes to the IRS organization, operations and culture
    since the last major reorganization of the Agency in 1952. We are on a
    path to revamping our business practices in all areas in which we
    interact with taxpayers, including filing, customer service,
    collections and examination--all aimed at understanding, preventing and
    solving problems from the taxpayers' point of view.
        Some of our changes will improve service to the public this year
    through a series of initiatives such as providing 24 hour a day/7 day a
    week phone service; rewriting some notices; expanding walk-in service;
    making it easier to get forms and information from our web site and by
    fax; and improving service to small businesses.
        Many other changes will take several years to complete, but
    important progress will be made during this fiscal year and fiscal year
    2000. We will complete the plan for our new organization structure this
    year and have already begun implementing parts of it. Much more
    implementation will occur in fiscal year 2000. Using the authority
    granted by Congress, we put in place a new top management team and are
    actively recruiting to fill leadership positions in our new operating
    divisions.
        Updating our business practices for dealing with taxpayers requires
    almost a complete replacement of IRS information technology systems,
    which are built on a 30-year old fundamentally deficient foundation
    that cannot provide accurate up-to-date information about taxpayer
    accounts. On December 9, 1998, the IRS awarded a Prime Systems
    Integration Services Contract (PRIME) to Computer Sciences Corporation
    (CSC) and their partners. We are currently working with CSC in an
    intense planning phase which we expect will result in award of work
    orders in mid-1999 for the first releases of the new technology
    blueprint, which will focus on improved phone service and electronic
    filing options.
        Mr. Chairman, the stakes at the IRS are high and fiscal year 2000
    will be a crucial test. If we succeed, the IRS will: fix one of the
    most massive Year 2000 computer problems in the U.S., complete a filing
    season involving many complex changes, and launch lasting changes to
    improve service to America's taxpayers. Despite these many challenges,
    in preparing the budget request for fiscal year 2000, we are well aware
    of funding constraints and have therefore requested the bare minimum.
    Without this funding, the entire reform and restructuring program
    demanded by Congress and the public could stall and the risks increase.
                        fiscal year 2000 budget request
        The fiscal year 2000 resource request of $8.105 billion will enable
    steady progress on the many changes needed to deliver on the reform and
    restructuring program and the Year 2000 Conversion. This request in
    total is essentially flat with resources provided in fiscal year 1999,
    which totaled $8.103 billion including $483 million from the Y2K
    emergency fund. This unlikely combination--a flat budget while carrying
    out major changes requiring investment--is only possible for three
    reasons: first, because of fiscal constraints many of the changes are
    being carried out by diverting resources from on-going programs such as
    compliance, potentially imposing long term costs and revenue losses;
    second, the Congress ``advance funded'' the Information Technology
    Investments account to a level that will sustain us through fiscal year
    2000; and third, our current estimates of specifically identified and
    known Year 2000 costs are less than the costs for fiscal year 1999.
        Overall, this budget will continue the trend of the last six years
    in which the IRS workforce has been shrinking in relation to the size
    of the economy. In fiscal year 2000, while the workload grows as a
    result of the growth in the economy and the additional demands of the
    Restructuring Act, the total workforce size will remain approximately
    constant.
        Although we are asking for only a very small increase, funding at
    the level that I am requesting is crucial in order for us to implement
    the Restructuring Act and to continue the Year 2000 Conversion.
    Modernizing the IRS as Required by the IRS Restructuring and Reform Act
            of 1998
        Implementing the Restructuring Act is the IRS's top priority in the
    fiscal year 2000 budget request. Our many initiatives and programs,
    including employee training on the provisions of the Act, implementing
    taxpayer protection provisions, expanding electronic filing, and
    modernizing the IRS, all support our efforts to deliver on the mandates
    contained in the Restructuring Act. The IRS's fiscal year 2000 budget
    request is critical to carrying out this landmark legislation on behalf
    of America's taxpayers.
    Enhancing Customer Service Through Improved Training
        About 70 percent of IRS employees deal directly with taxpayers on
    matters that affect the taxpayers' tax situation. Taxpayers have every
    right to expect that in every such encounter with an IRS employee,
    whether it is a phone call asking a question about how to fill out a
    return, or a meeting with a revenue agent in an audit, the IRS employee
    understands current tax law and has the skills needed to understand the
    facts and circumstances of the taxpayer's situation and to help the
    taxpayer address promptly any issues that may be identified. In order
    to meet this fundamental expectation of the public, the IRS must
    provide regular and on-going training to employees on a wide range of
    matters, including current tax law, IRS procedures, and technology
    needed to get essential information, all of which are complex and
    constantly changing. In addition, the major change in focus to provide
    improved service can only be achieved by training employees how to
    serve taxpayers effectively in a wide range of situations.
        Regrettably, a major gap in this area developed over the past
    years. This was due to divergent and contradictory trends of
    increasingly rapid change of both tax law and public expectations, on
    the one hand, and reduced and inadequate training resources on the
    other hand. Given the massive and pervasive change taking place in the
    IRS, we cannot succeed without a major and sustained increase in the
    quality and quantity of training, a fact which is recognized and
    mandated by the Restructuring Act.
        For fiscal year 2000, we are requesting $17 million for tax-related
    technical training. This will provide funding for the first phase of a
    several year effort to provide essential training to increase
    competencies of IRS employees as mandated by the Restructuring Act.
    Given the gap between the public's expectations and our current
    performance, we are requesting in fiscal year 2000 a permanent
    adjustment of $17 million to the IRS training base to support
    development of training materials. This level will restore the base
    funding levels for employee technical and proficiency training.
        Additional training resources to support the modernization effort
    and the new performance management system are required to support these
    major transitions, and are included in the budget request for
    modernization.
    Implementing Taxpayer Protection Provisions and Expanding Electronic
            Filing
        The IRS operational organizations estimate that they will spend
    over $200 million in fiscal year 1999 to implement taxpayer protection
    provisions of the Restructuring Act. This money will come largely from
    the curtailment of compliance activities and could result in reduced
    direct compliance revenue. Full implementation of the Restructuring Act
    in fiscal year 2000, and thereafter, including implementation of the
    taxpayer protection provisions and expanding electronic filing, is
    dependent upon receipt of the requested funds. The two program areas
    for which we are requesting funds in fiscal year 2000 are:
        Taxpayer Protection and Rights.--$27 million and 500 FTE to
    implement major taxpayer protections and rights provisions of the
    Restructuring Act. Of the $27 million, we are requesting 500 FTE and
    $18.6 million for the Processing, Assistance, and Management
    appropriation to support staffing costs. The 300 FTE in Submission
    Processing are needed to meet increased notice activity and processing
    for innocent spouse relief [Section 3201] and due process in collection
    actions (pre-levy notices) [Section 3401]. The 200 FTE in Telephone and
    Correspondence are required to provide Spanish language taxpayer
    assistance [Section 3705]. Other support costs include $4 million to
    fund additional grants for Low Income Taxpayer Clinics [Section 3601],
    included in the Tax Law Enforcement appropriation, and an additional $4
    million to fund toll-free circuitry and equipment costs and enhanced
    Internet access [Section 2003], included in the Information Systems
    appropriation.
        Electronic Filing.--$13 million for Electronic Tax Administration
    (ETA). Of this, $5 million would be used to better inform and educate
    taxpayers and practitioners about the benefits of electronic filing and
    the Electronic Federal Tax Payment System; $5 million would be used to
    deliver enhanced ETA products and services through partnership with the
    private sector, including such critical areas as signature alternatives
    and electronic payments; and $2.5 million would be used to provide
    incentives to the more than 90,000 IRS-authorized Electronic Return
    Originators (EROs), who provide electronic filing services to taxpayers
    [Sections 2001 and 2002]. The plans for this initiative are directly
    aimed at meeting the Restructuring Act goal of 80 percent
    electronically-filed tax and information returns by the year 2007.
    Modernizing the IRS
        A major part of the reorganization of the IRS will take place in
    fiscal year 2000. This reorganization will affect the jobs of nearly
    every IRS manager and nearly all front-line employees. $140 million is
    required for a series of organizational investments to restructure,
    reorganize, and retrain the IRS workforce. This covers all aspects of
    organizational change that will complement the Service's systems
    modernization efforts and implementation of the Restructuring Act
    reorganization mandate. The requested resources build on $25 million
    provided by the Congress in fiscal year 1999. The funding will support
    realigning and shifting the focus of the IRS from its own internal
    operations to an agency with greatly increased accountability for
    meeting the specific needs of each taxpayer.
        The modernization blueprint plans call for establishing four main
    operating divisions based on customer segments: wage and investment,
    small business/self-employed, large and mid-size business, and tax
    exempt. This will require an additional investment of $140 million in
    fiscal year 2000 to realign, revise, and retool certain occupations
    through buyouts, relocations, and retraining of IRS staff. We
    anticipate that base funding will have to be spent to deliver on other
    aspects of the modernization concept. These include: contract support,
    continued support of the IRS teams and facilities modifications,
    computer support, and other expenses for establishing the four new
    operating divisions while also realigning the other divisions (Appeals,
    Chief Counsel, Information Systems, Criminal Investigation, Shared
    Services, Taxpayer Advocate, and the National Office).
        Given the enormity of the organizational changes, it is absolutely
    essential that they be implemented promptly with the greatest part of
    the change occurring in fiscal year 2000.
    Funding for Year 2000 Conversion
        We are requesting $250 million and 239 FTE to assure continued
    operation of IRS's information systems into the new century. This
    includes staffing, telecommunications, and related support to convert
    and ensure Y2K compliance of the programming code operating IRS tax
    administration systems, including acquisition of new software or
    hardware when appropriate. The funding also supports resources for
    consolidation of mainframe computers in the data centers, replacement
    of the antiquated systems used to enter tax return data into IRS's
    automated systems, and management of tax payments with an Integrated
    Submission and Remittance Processing System.
        The CIO is planning multiple activities that will be required to
    ensure that all measures are taken to reduce risk and ensure a
    successful Y2K implementation. This funding represents our estimate of
    specific needs known at this time and is $200 million less than was
    spent in fiscal year 1999. We must emphasize that the current 1999
    filing season is a high-risk period for Y2K problems.
    Information Technology Investments (ITI) and the PRIME
        In fiscal year 2000, we are not requesting any additional funds for
    the ITI Appropriation. This is possible because Congress ``advance
    funded'' the Information Technology Investments account to a level,
    $506 million, that will sustain us through fiscal year 2000. However,
    we are requesting fiscal year 2001 advance funding of $325 million.
        The IRS, in partnership with the PRIME, has begun to develop the
    detailed processes needed to manage this large undertaking and to
    update the business and technology plan to reflect the overall
    modernization concept. In early January 1999, the Core Business Systems
    Executive Steering Committee was established to provide IRS-wide
    strategy planning and budgeting for core systems replacement, to
    oversee core business systems modernization, and to review and approve
    major core systems projects at initiation and key points in the systems
    life cycle. In mid-July, we plan to submit for Congressional approval
    an expenditure plan, as required by the 1999 Appropriations Act.
    The Earned Income Tax Credit Funding Outside the Discretionary Caps
        We are requesting $144 million and 2,095 FTE. This is the account's
    third year. The account is funded outside the spending caps and is
    shown separately in the overall Treasury request. It provides for
    expanded customer service and public outreach programs, strengthened
    enforcement activities, and enhanced research efforts to reduce
    overclaims and erroneous filings associated with EITC.
                                   conclusion
        Mr. Chairman, the $8.105 billion is requested to implement the IRS
    Restructuring and Reform Act of 1998, continue the Year 2000
    Conversion, maintain current services, and invest in critical systems
    projects. While recognizing the enormous challenge and the long road
    ahead, we are nevertheless convinced of the necessity and value to
    America's taxpayers of reaching the higher level of performance for the
    IRS. With the continued support of the Congress and the American
    people, we are confident we can succeed.

                                    Training

        Senator Campbell. Thank you, Mr. Commissioner. I have some
    questions that Senator Kyl submitted, because he cannot be
    here. He is in another hearing. I would like to send them to
    you and have you answer them in writing for him, if you would.
        Mr. Rossotti. Sure.
        Senator Campbell. Let me ask a little bit about this
    training. I was looking at your chart. You have 157 new near-
    term initiatives to improve service. Is training one of those
    initiatives?
        Mr. Rossotti. Training is what we need to do in order to
    deliver on the initiatives. The initiatives are things like,
    for examples, opening up more hours of service for walk-in
    sites on Saturdays during the filing season, longer hours on
    the phone, some of the taxpayer rights provisions such as I
    just mentioned; the due process in collections. It goes on and
    on. Those are the kind of things----
        Senator Campbell. Is this training primarily for the
    employees that are there?
        Mr. Rossotti. Yes.
        Senator Campbell. Does this include something for new
    hires, too?
        Mr. Rossotti. We do not have very many new hires, but yes,
    it would include entry level training. But mostly it is
    training for the people who are already there. As I mentioned,
    you have got due process in collections as an example, which is
    really a fundamental reform in the way collections is done in
    the IRS. So everybody that is involved in collections really
    has to understand this, and it is rather complicated. That is
    what we mean by training.
        Then you have just the ordinary tax law.
        Senator Campbell. Yes, I remember a few years ago somebody
    made a study and they made a half dozen or 10 calls to
    different IRS agents to get some information on what they would
    owe on a tax return and they got 10 different answers.
        Mr. Rossotti. Well, I would have to say, this book, which
    is the book that the people you call have to know to refer to,
    many of the people I saw when I went around to these sites
    personally, did not even have up-to-date copies of the law. It
    was not because--you know, it was just because the system of
    getting them out there was not very good.
        It should not even be on paper. It should be on computers.
    This is the first year that we are starting to put some of it
    out there to the people in any volume on computers.
        Senator Campbell. Of that 100,000 employees, 21,000 are
    customer service people, the ones that would be dealing
    actually with the customers?
        Mr. Rossotti. Yes.

                      Costs of Organization Modernization

        Senator Campbell. Let me ask you about funding a little
    bit. Do you believe the funding contained in your fiscal year
    2000 request is going to be enough to cover all the costs, or
    are we going to have to have a number of outyears of funding in
    addition to that?
        Mr. Rossotti. Beyond fiscal year 2000? Oh, yes, we will
    definitely have additional costs in the outyears beyond fiscal
    year 2000 for a number of these things. I think in terms of the
    organizational part of what we are doing, we will complete most
    of that in fiscal year 2001. But beyond that, of course the
    really long term, the biggest part of the cost is going to be
    for the technology. That is going to be many years.

                                   Year 2000

        Senator Campbell. And you are currently completing your
    end-to-end testing for Y2K?
        Mr. Rossotti. We are in the middle of doing our end-to-end
    testing.
        Senator Campbell. When will you finish that?
        Mr. Rossotti. That is the biggest job we have for the rest
    of this year.
        Senator Campbell. The rest of the year? By January 1st it
    should be done?
        Mr. Rossotti. The rest of the year.

                               Taxpayer Advocate

        Senator Campbell. As part of the Restructuring and Reform
    Act last year we created the Office of Taxpayer Advocate, and
    they are primarily responsible for managing taxpayer advocates
    across the country. How do you get along with them? How would
    you characterize your working relationship?
        Mr. Rossotti. I think that has been one of the things on
    which we have put the first emphasis. First of all, as you
    might have heard, we recruited a new national Taxpayer Advocate
    from outside the agency. He is actually from the State of Utah,
    Mr. Val Oveson. He had his first testimony before Ways and
    Means just a few weeks ago. I think it was well-received.
        We have, as you indicated, implemented the first phase of
    the reorganization so that those taxpayer advocates around the
    country, including the one out in your State, and all the
    States, reports up directly to Mr. Oveson. So they no longer
    report, as they used to, to the local district and the
    compliance functions. We are in the process now of going to the
    second step where we are going to move a lot of the casework
    directly under him.
        This has already had an effect. I think we had some very
    good comments. Yesterday I was at the Ways and Means Committee
    and the House Appropriations Committee and several members said
    that they have already seen an effect of this directly in their
    States. I think this is a very important initial step to deal
    with these particularly difficult kinds of cases that--some of
    the ones such as we encountered out in the hearing that you
    had, Senator. I think it has had an effect already. I think
    this is one of the near term steps that we have taken.
        Senator Campbell. Have you had any real major hurdles in
    dealing with it though?

                                    TRAINING

        Your fiscal year 2000 request includes $17 million for the
    customer service training. This year as we move into the tax
    season in just a short period of time, are we going to see any
    kind of a significant change as a result of spending that $17
    million?
        Mr. Rossotti. This is for fiscal year 2000, of course. But
    I think that that part of it is basically to deal with this
    basic kind of training in the tax laws provisions, and the
    procedural changes that have been mandated. That is what the
    purpose of that is. I think that really, while it says that it
    is $17 million, in reality we have been spending some money by
    diverting it from other sources. So it is not really as much of
    an increase as it might seem.
        I think that what we will see over time--and I do not want
    to make the claim that it is going to be instantaneous, but I
    think what we will see over time is simply that the people who
    are dealing with taxpayers will have a more accurate knowledge
    of the current tax law, and be able to give more accurate
    responses, number one.
        Number two, as we know, we are trying to change the way
    that people interact with taxpayers in terms of being more
    sensitive to the specific needs of taxpayers, and there is a
    certain amount of training that is required to make that kind
    of change.
        So I think if we sustain this over a period of several
    years, yes, we will see an impact in the sense of getting
    better information quicker, resolving taxpayer's problems
    quicker, and less chance of cases dragging on and resulting in
    the kinds of stories that none of us like to hear.
        Senator Campbell. The training program that you initiated,
    is that all done in-house?
        Mr. Rossotti. A good deal of it is done in-house, but we
    are starting to use some outside sources. Actually, that is one
    of the things, over time, that we want to take a harder look
    at, because there are many good sources for, even in some
    cases, tax law training. Right now almost all the tax law
    training is done in-house, but we do use outside sources for
    things like customer service training, and leadership training,
    and those kinds of things.
        As a matter of fact, one of our new recruits is a new
    Assistant Commissioner for Human Resources who has come in with
    a great deal of experience from the Defense Department mainly,
    and they use a wide range of training resources. So we are
    counting on him to help us.
        Senator Campbell. So you use training from other agencies
    as well as the private sector too, and contractors?
        Mr. Rossotti. I think this is where we are going to be
    going.

                               IRS REORGANIZATION

        Senator Campbell. You have announced your intention to
    reorganize the IRS in four main operating divisions. Will that
    impact your budget?
        Mr. Rossotti. I think that we have included in here the
    money that we need to make the transition. In terms of the long
    term budget, it will not impact the budget because we are
    basically doing that with the idea that it has to stay within
    our budgetary resources. But there is a transition cost any
    time you change, and that is what----
        Senator Campbell. Will that affect retirements or buyouts
    or anything of that nature?
        Mr. Rossotti. In the $140 million that we have got in the
    budget, that is part of what that money is intended for. As we
    begin to change the structure and we change people's jobs there
    will be some people--we are trying to avoid relocation as much
    as possible--but there will be, inevitably, some relocation.
    But mainly there may be some people whose jobs are changed
    sufficiently that they prefer to not adapt, in that way, and we
    want to have the flexibility to do the buyouts.
        So retraining is the key item. Buyouts may happen in some
    cases, where people, either for various reasons cannot make the
    transition, and for a relatively small number of people,
    relocation. Those are the three ways that we have to do it.
        Senator Campbell. Personally, before I turn it over to
    Senator Dorgan, I have to tell you, I think you have done a
    terrific job and I appreciate that. I sometimes think though,
    the way bureaucracies get so institutionalized back here, that
    when we get new people in that have really great ideas and they
    really want to make some changes, that some of the old guard
    simply waits them out until they go home again, and they just
    go back to the same old thing. So I hope that some of the
    changes you are implementing really stay with us and mean
    something.
        When you came out to Colorado, I remember you talked
    personally to some of the people that expressed some of the
    real problems they had: the lady that lost her home, and the
    fellow who has a brother that committed suicide, those kinds of
    things. It is my understanding, from my own staff in Colorado
    that of all the different cases that we were dealing with that
    came before the committee and they testified, that only one of
    them has been cleared, but all the rest seem to be stalled
    somewhere.
        I do not know exactly the reason, but I would appreciate it
    if you could have somebody report back----
        Mr. Rossotti. We will.
        Senator Campbell To the subcommittee or to me personally
    before April about why or what is the reason this cannot be
    resolved. Could you do that?
        Mr. Rossotti. Certainly.
        Senator Campbell. I'll appreciate that.
        Senator Dorgan, do you have some questions?

                           RURAL TAXPAYER ASSISTANCE

        Senator Dorgan. Mr. Chairman, thank you. Let me just
    explore a couple of the areas. Perhaps first we could explore
    the area of taxpayer assistance in the less populated States in
    the country. Mr. Commissioner, would you want to comment?
        Mr. Rossotti. Yes. I am going to ask Mr. LaFaver to join me
    here just to say what we are doing. In almost all these things,
    in terms of improving service there is one basic point which I
    just want to make which is, we are trying to approach this in
    what we can do quickly and what is going to take long. I mean,
    that is just fundamental. With resources and other changes, we
    cannot do everything.
        In the short term, what we are doing is we are simply
    opening up the sites that we have for Saturday hours, for
    example, for longer hours, and we are adding a few sites. But
    basically we are primarily just extending the hours and making
    it more convenient for people.
        But the longer term strategy is exactly what Mr. LaFaver's
    main job is right now. It is rethinking our whole structure.
    The chart that you showed actually, I believe, came from the
    work that his team was doing, where we are trying to go back to
    fundamentals, and what should it be. And of course, we have
    limitations of resources, but I will just ask John to comment
    on some of the ideas that we hope to do longer term.
        Mr. LaFaver. Thank you, Mr. Chairman and Senator Dorgan.
    Let me start and make it very clear that, the effort that we
    are involved with now in terms of restructuring contrasts with
    the consolidation effort that I am sure the senator remembers
    from three or four years ago where a significant number of
    offices were closed and staff moved to the more populous areas.
    That is not what this effort is all about. We are committed to
    providing top level of service in every State.
        As someone who has had many of the same responsibilities
    that you had in North Dakota, I have run the tax agencies in
    Montana and Maine and Kansas. And from the vantage point of
    those States, when you are in the State capital trying to make
    the tax agency work, it is a very different task and a very
    different challenge to, for example, provide service in Topeka
    as it is in Ulysses. It is a very different task, as you know,
    to provide it in Fargo than it is in Williston.
        Thankfully, here in the last few years technology has given
    people access to tax information and tax filing at an
    unprecedented rate. Certainly in terms of Telefile, in terms of
    being able to phone in and get tax issues resolved, that is an
    important asset. There is no way that, for example, the State
    of North Dakota or the State of Montana could put people in
    every rural site. But now with the real magic of technology,
    you can provide virtual assistance in very powerful ways that
    simply were not available when you and I started in the tax
    business. So that is an important asset that we are going to
    continue to utilize.
        At the same time, we realize that there is a need, an
    imperative, to have face to face help. While that is not always
    going to be possible when you look at the map, again, to have
    face to face assistance with someone who works for the IRS, a
    revenue agent as an example, there are people in many rural
    areas whether they are AARP, whether they are enrolled agents,
    whether they are other tax preparers, whether they are
    officials of State tax agencies. A very important part of the
    effort that we are involved with is to provide very specific
    responsibilities to IRS people in the field to develop those
    partnerships.
        So both from the partnership standpoint, from the use of
    technology that is now available, as well as from the
    commitment to utilize the sites that we have now and, if
    possible, strengthen them, I do not believe that you are
    going--I certainly hope and pray that as we roll this out you
    will not have anything like the concerns that I am sure that
    you had in 1995. That is not what this effort is all about.
        Senator Dorgan. I am trying to understand the effort. Can
    you sharpen the pencil a little bit for me to tell me what will
    we see a year, two years, or five years from now that is
    different than what now exists? What now exists is the use of
    existing resources to provide much more substantial assistance
    to those in the urban areas.
        My notion some years ago with then-Governor Dukakis and
    some others who put together a plan called the IRS Across
    America, in which the Internal Revenue Service would, with a
    smile, provide service moving out in teams to shopping centers,
    and with mobile vans and so on to say, part of the service here
    is to say we understand you have an obligation. We want to help
    you meet that obligation.
        So can you just provide a bit more grist for me so that I
    understand what it is you are talking about.

                               IRS REORGANIZATION

        Mr. LaFaver. From a structural standpoint, we are talking
    about four units. One that focuses on the needs of wage and
    investment taxpayers. Those are, of course, by far the most
    numerous, that have generally the most straightforward tax
    forms.
        Second, we are talking about a structure that handles small
    business issues. Those are, by and large, the most complex.
    Most of the issues that were raised by the Senate Finance
    Committee comes from that group of taxpayers. A staff that from
    top to bottom would focus on the unique needs and issues and
    problems of those taxpayers.
        The third unit is large and mid-sized. Those are the firms,
    the very large firms--who, of course, pay a very large amount,
    a very large percentage of total revenues, but there are
    relatively few of them: about 180,000. Again, a staff that from
    start to finish focuses on the unique issues and unique
    problems that arise with that group.
        Then the final group is the tax-exempt. While there is not
    a lot of tax money that comes from there, there are a host of
    tax issues that are extremely important.
        In terms of looking at where those units would be, for
    example, in North Dakota, without looking and auditing exactly
    all of the people there, my hunch is that most of the field
    staff there now would be assigned to the small business area.
    Likewise though, there would be staff from the wage and
    investment unit whose primary purpose would be to form the
    partnerships and alliances that I was speaking about.
        So from a national standpoint, that is the type of
    structure that we will be rolling out, and most of it will be
    rolled out by the end of 2000.

                             SERVICE AND COMPLIANCE

        Mr. Rossotti. I would just like to add one point because I
    think it is relevant, I think directly to your point about
    service versus compliance. Right now if you just look at the
    relative balance of resources, and we can divide it in a simple
    way to everything we do to help taxpayers get their return
    right, and just the filing and then what we call post-filing,
    which is compliance. Only about 9 percent of the budget
    resources go to the front end, the service part of it to help
    them get it right. Over 70 percent goes to the back end in the
    form of compliance.
        Now we cannot change that overnight. But a big part of the
    strategy in terms of the structure is, for example, as John
    mentioned, the small business and the wage and investment--
    especially in the wage and investment and small business. That
    is where we need to put more emphasis on the service element.
    Over time--and this may take three to five years as we move
    this.
        Once we get the structure in place, a part of this is to
    specifically put people in charge of what we call the front
    end, the pre-filing, the actual service to taxpayers to help
    them get it right. Right now that is, frankly, somewhat of an
    afterthought. I mean, it is kind of--you have a compliance
    function and then they have secondary responsibilities to
    provide service.
        So a big part of this is to put people directly in charge.
    They would be in charge in each area, in each geographical area
    as well of not just the compliance--that is certainly very
    important--but also the taxpayer education, the outreach, and
    the assistance. Much of it we can do with partnerships.
        I was out in Utah, for example, and we had a cooperative
    site that we established with the State tax agency, and other
    agencies. We called it a one-stop tax shop where people could
    come in and get service from the IRS, as well as the State
    agency, as well as motor vehicle and other things.
        Those are the kinds of things, as John says, with a
    partnership that we hope to do over time in ways that are
    appropriate to each State. Some of it may be mobile vans. I
    mean, we are right now doing a little bit of this in terms of
    opening up shopping center locations on Saturdays, for example.
    As we roll this out, we hope we can do more of that.

                              TELEPHONE ASSISTANCE

        Senator Dorgan. Where do you do your phone servicing?
        Mr. Rossotti. We have about 25 phone sites around the
    country that do phone service of different kinds. As a matter
    of fact, that is one of the other major issues. They have been
    managed in a very fragmented way until very, very recently.
    This is one of the reasons that the phone service has not been
    up to par. We are now beginning to manage them as a nationwide
    network so that--you know, when you call an 800 number, you
    expect to get service. It really does not matter too much where
    the call goes as long as you get good service.
        So we are now beginning--and this is where part of the
    technology comes in, to be able to manage these as integrated
    networks, which every big company does, and thereby, over time,
    gradually be able to provide basically what people want. They
    want to get through to somebody who knows the answer to their
    question and can solve the problem for them on the first try,
    if at all possible. We have made progress in that in the last
    year, but none of us would claim that we are anywhere near up
    to a level that is what you would expect, for example, in a
    commercial environment.

                      AUDITS OF TAX--EXEMPT ORGANIZATIONS

        Senator Dorgan. I would like to get information--I will
    just seek information later about your phone servicing and the
    resources for that.
        Let me ask a couple of other questions, if I might. One is
    about tax-exempt organizations and audits and so on. I recall a
    year or two ago about tax-exempt--more than that actually,
    three or four years ago, and the explosion of tax-exempt
    organizations in our country. A literal explosion. Everybody
    starts a tax-exempt organization for their own deal, and then
    sends out mailings trying to get contributions, tax-exempt
    contributions, and so on.
        One of the things that I recall from those previous
    initiatives was that almost never had the Internal Revenue
    Service revoked the tax-exempt status of an organization,
    despite the fact there were tens and tens and tens of thousands
    of them, and the number of new tax-exempt organizations just
    exploded. Has that changed at all? What is the enforcement in
    that area, and what kind of situation exists with revocation?
        Mr. Rossotti. I would have to get back to you on the
    numbers. I really do not have those numbers. But there is a
    compliance program for tax-exempt organizations that has a
    field staff that does auditing throughout the country, and they
    do review the compliance of tax-exempt organizations. I do not
    have the exact numbers, and I will get them for you, Senator.
        [The information follows:]

        The Service's responsibility in the Exempt Organizations area is to
    apply, evenly and fairly, the Federal tax rules that govern tax-exempt
    organizations.
        Given the large number of exempt organizations, and that many
    exempt organizations are small and run on a voluntary basis, we believe
    that the most effective way to achieve compliance is through taxpayer
    education and assistance, and by working individually with
    organizations to bring them into compliance with the Federal tax laws.
        The enforcement program begins with the determination letter
    process, a careful review of an organization's application for tax-
    exempt status. The determination letter process serves as a vital up-
    front check on compliance. In 1997, the Service processed over 75,000
    applications for exemption. Of that number, less than 55,000 were
    finally approved. The balance either received denials for exemption, or
    were never completed because the Service questioned some aspect of the
    application, or the applicant, for whatever reason, declined to pursue
    the matter.
        Education and determination letter programs are not the entire
    answer, however, and so we also have an active examination program. In
    fiscal year 1995, we conducted examinations of approximately 10,497
    returns; in fiscal year 1996, 11,020; in fiscal year 1997, 10,700; and
    in fiscal year 1998, 10,353.
        Generally, we view the revocation of an organization's tax-exempt
    status as the least desirable enforcement technique available to us,
    due to its draconian nature. We believe that working with an
    organization to correct errors, thereby bringing it into compliance
    with the Federal tax laws, is usually a much more effective approach.
    Nonetheless, where necessary, we will, and do, revoke tax-exempt
    status.

                               TAX-EXEMPT SECTOR

        Mr. Rossotti. But here again with the organization, this is
    a very interesting, specific point because right now, as you
    say, this tax-exempt sector is extremely important, and it is
    growing. There is actually, if you add up everything, about $5
    trillion of assets that the IRS has the responsibility of
    regulating in the tax-exempt sector, of all types. That
    function, because it is not really a revenue-generating
    function, tends to be a little bit buried underneath the big
    structure that we have throughout the country.
        Specifically, the point you mentioned about compliance is
    handled through four, what are called key districts, around the
    country. There are people, for example, in the Los Angeles
    district who have responsibility for the Western part of the
    country.
        But what we are going to do in this new structure is
    really, I think, have a much greater focus on that. We are
    going to have a whole unit at the top level that will be
    responsible for all functions related to the tax-exempt sector.
    They will have both the initial approval authority to grant
    tax-exempt status, for example, but they will also have people
    throughout the country that will be directly responsible for
    checking up on compliance. We have that now, but the
    responsibility is very fragmented.
        So I will get you the specific numbers that you asked in
    terms of revocations and audits and so forth.
        Senator Campbell. Would you yield for an additional
    question along that line?
        Senator Dorgan. Yes.
        Senator Campbell. I understand you have some pretty well-
    defined criteria for tax-exempt groups that are nonprofits.
        Mr. Rossotti. Yes.
        Senator Campbell. One of the really complicated ones, as I
    understand, are how you define a religion or church that is
    tax-exempt. Are you trying at all to deal with that?
        Mr. Rossotti. I am afraid that that gets into a highly
    technical area, Senator.
        Senator Campbell. It really has nothing to do with your
    budget, but since Senator Dorgan opened that line, I would be
    interested----
        Mr. Rossotti. I would be happy--I cannot honestly say that
    I know enough to respond to you--on that topic to respond very
    intelligently to your question. I would have to get some help
    from some experts on that topic. There are defined criteria,
    but of course, it is also a sensitive kind of an area and it
    requires a great deal of application of judgment to that.
        [The information follows:]

        Under the Internal Revenue Code, a church need not approach the
    Service seeking tax-exempt status. Many do, however, in order to assure
    themselves that they meet exemption requirements, and that the
    contributions they receive are tax-deductible by the donors. When a
    church does apply for recognition, the Service recognizes the sensitive
    nature of the process of determining what is or is not a tax-exempt
    ``church.''
        However, consistent with the First Amendment, neither the Internal
    Revenue Code nor the Internal Revenue Service defines ``religion.'' Nor
    do we examine or question the validity of the religious beliefs of any
    individual or organization.
        The standards the Service uses to define a church are those
    determined by the Federal courts. For example, in American Guidance
    Foundation, Inc. v. U.S., 490 F. Supp. 304 (D.D.C. 1980), the court
    said that, at a minimum, a church must include a body of believers that
    assemble regularly in order to worship. A church must also be
    reasonably available to the public in its conduct of worship, in its
    educational instruction, and in its promulgation of doctrine.
        The court identified fourteen criteria used to determine if an
    organization is a church. These criteria are as follows: A distinct
    legal existence; A recognized creed and form of worship; A definite and
    distinct ecclesiastical government; A formal code of doctrine and
    discipline; A distinct religious history; A membership not associated
    with any other church or denomination; Ordained ministers ministering
    to its congregations; Ordained ministers selected after completing
    prescribed studies; A literature of its own; Established places of
    worship; Regular congregations; Regular religious services; Sunday
    schools for religious instruction of the young; and Schools for the
    preparation of its ministers.
        We also consider any other relevant factors.

        Senator Dorgan. It is sensitive and obviously most of these
    organizations are wonderful organizations doing wonderful work.
    In 1985 a colleague and I had the GAO do an analysis for it and
    it showed this growth of 140 percent, 45 percent, 47 percent,
    in these categories. The point is, these tax-exempt
    organizations are just exploding.
        Mr. Rossotti. Yes. I actually have some numbers here that I
    have gotten now and I can give you. They verify your point. In
    1981 there were 862,000 exempt organizations. Today there is
    1.4 million, and our staffing is about level. So clearly we
    have had a decline in----
        Senator Dorgan. In 1992 and 1994, according to the GAO, 2/
    100ths of 1 percent lost their tax-exempt status--2/100ths of 1
    percent. The point is that it happens very rarely.
        The reason I asked the question is, just yesterday on my
    desk I received two letters from constituents in North Dakota
    who had gotten very interesting, fancy, wonderful mailings that
    cost a great deal, by organizations neither of which I knew
    anything about that had--they clearly had a political agenda.
    They had a tax-exempt capability. And this happens on all sides
    of these issues.
        So the constituents wrote and said, what is this
    organization? Can you tell me anything about it? Frankly, I
    cannot. I do not know anything about either organization. But
    they are soliciting tax-exempt contributions from my
    constituents and others around the country.
        As I thought about that and thought about the GAO report, I
    just wanted to ask questions. Perhaps you can submit, have your
    staff submit some information about what has happened since the
    GAO report with respect to compliance in this area. How
    aggressive is it?
        Mr. Rossotti. Yes.
        [The information follows:]

        GAO Report GAO/GGD-95-84BR, dated February, 1995, entitled ``Tax-
    Exempt Organizations Information on Selected Types of Organizations,''
    stated, at page 44, that in fiscal years 1992, 1993, and 1994, the
    Service revoked the tax-exempt status of 17, 27, and 23 organizations
    (social welfare organizations, labor and agricultural organizations,
    and business leagues) respectively.
        The Service revokes the tax-exempt status of relatively few tax-
    exempt organizations, preferring, as previously stated, to work with
    organizations to bring them into compliance with the Federal tax laws.
    This is reflected in the number of organizations that have lost their
    tax-exempt status. For example, in fiscal year 1997, 17 charities
    (501(c)(3)s) lost their tax-exempt status, and, in fiscal year 1998, 38
    charities lost their tax-exempt status.
        For other types of tax-exempt organizations, the Service's
    management information system tracks revocations by return rather than
    by entity. In fiscal year 1997, 72 returns were closed by revocation,
    and, in fiscal year 1998, 59 returns were closed by revocation. In some
    instances, several revocations may be attributable to a single
    organization, so the number of organizations that lose their tax-exempt
    status in a given year may be less than the number of returns closed by
    revocation for that year.
        Most recently, Congress has recognized the draconian nature of the
    act of revoking the exempt status of an organization, and has provided
    alternative remedies--so-called ``intermediate sanctions''--in the form
    of excise taxes in the case where the earnings of an organization inure
    to the benefit of those with influence over the organization (see, IRC
    section 4958), and in the case of political activity (see, IRC section
    4955) and excessive lobbying (see, IRC section 4911) by certain tax-
    exempt organizations.

        Senator Dorgan. Even as I say that, let me say, as you will
    say, that many of these organizations are wonderful
    organizations. I am not suggesting in any way that there is
    anything untoward about them. But there are some, clearly on
    the edges, that grow up only for purposes of harvesting that
    tax-exempt contribution for their own interest. It is very
    important, that in order to preserve this for the wonderful
    groups that do great work, that we make sure it is enforced
    properly.
        Mr. Rossotti. Sure. We agree, and that is why we are trying
    to put more emphasis on this area by the organization. But we
    will get you the numbers in terms of what has happened. And
    there have been some new initiatives, which we will get back to
    you on, to try to deal with the compliance issue in a more
    practical way.
        [The information follows:]

        The Service is well along in the process of designing a new
    organizational structure under which we will be reorganized into four
    Operating Units, each of which will focus on a distinct group of
    related taxpayers. One of the four is the Tax Exempt Operating Unit,
    which will have full responsibility for exempt organizations, as well
    as for employee plans, tax-exempt bonds, and state and local
    governments. Indeed, we expect the Tax Exempt group to be one of the
    first of the four Operating Units to begin operating in the new
    configuration.
        Responsibility for all aspects of exempt organizations will be
    vested in the management of the Tax Exempt Operating Unit. The
    placement of exempt organizations and other tax-exempt taxpayers in one
    of only four Operating Units assures high visibility within the Service
    for this important sector of the economy. Moreover, we expect the
    concentration of responsibility for the entire tax exempt program in
    the management of the Tax Exempt Operating Unit to bring about a more
    focussed and effective program.
        In addition, a number of changes and initiatives have occurred in
    the area of Exempt Organizations enforcement.
        We have developed plain-language publications, such as the recent
    ``Gaming Publication for Tax-Exempt Organizations'' (Pub. 3079, April,
    1998).
        We have realigned and refocussed the Exempt Organizations field
    staff. The processing of applications for exemption has been
    centralized in Cincinnati; the processing of Forms 990 has been
    centralized in Ogden, and Exempt Organizations examination agents now
    have a broader array of enforcement tools as result of Congressional
    enactment of IRC sections 4911, 4955 and 4958.
        The Exempt Organizations' examination program is focussing on
    assessments of particular segments of the exempt community. A good
    example of this is our Coordinated Examination Program (CEP) that
    focuses on large, complex tax-exempt organizations, such as hospitals
    and universities.
        Further, in recognition of the significant enforcement effect of
    public disclosure, Congress recently expanded the requirement under IRC
    section 6104(e) that exempt organizations make their Forms 990 publicly
    available. We are currently completing the regulations that implement
    the new statutory requirements.

        Senator Dorgan. I would like to ask about transfer pricing,
    but I would be happy to yield if----
        Senator Campbell. I have no further questions except the
    ones submitted for the record by other senators.
        Senator Dorgan. Might I just ask then briefly about
    transfer pricing?
        Senator Campbell. Sure.
        Senator Dorgan. I do not know if you have someone on your
    staff available to----
        Mr. Rossotti. Yes. Let me just make some general comments
    and I might ask Mr. Dalrymple to come up for a second and make
    some more comments. But clearly, as you indicated, this is one
    of the more important compliance areas or compliance issues,
    one of the more difficult ones, especially in the large
    business sector.

                                TRANSFER PRICES

        There has been one significant initiative that was taken in
    the last few years, prior to my arrival but it is beginning to
    play out now. With the help of some legislation, and some
    regulations from Congress, a significant change occurred in
    that there was a requirement for contemporaneous justification
    by taxpayers for submission of justification of transfer
    prices.
        One of the more difficult points, as you indicated, is
    simply getting accurate and complete information on what
    actually these transfer price arrangements are, under the
    existing laws. When you are auditing something that was two or
    three or four or five years ago, and trying to find out what
    happened, just the process of getting to the bottom of it is
    very difficult.
        Now this requirement went into effect in about 1995, I
    believe, and by the time the regulations came out and we began
    to audit, we are just starting to get to, to find out what the
    results of this initiative are. So we do not really have yet, I
    would say, a good handle.
        But I would like to ask Mr. Dalrymple, who has been
    instrumental in some of this, to make some comments.
        Mr. Dalrymple. I guess I need to reiterate a couple of
    things. Prior to 1994 there was no requirement for taxpayers to
    document their transfer pricing methodology. So because of that
    we had to literally construct a methodology during the
    examination, and that extended the audit for quite a while. It
    led to controversy and a lot of disagreements between our
    examination people and, of course, the tax representatives for
    these large companies, and frankly, even in our appeals
    organization.
        The law changes in 1994 gave us--required taxpayers to
    contemporaneously document their transfer transactions or
    pricing transactions. And the other significant thing is it
    required them to provide us the documentation within 30 days of
    request, which was a major difference.
        That really gets to a couple of questions you asked earlier
    also, Senator, and that was how many people do we have involved
    in this operation, and what have they been doing? We have about
    650 international examiners, and frankly, about half of that is
    spent on pricing agreements. So that is somewhere in the
    neighborhood of 375 examiners. We have been able to leverage
    their time much more over a much larger number of these issues
    since the regulation went into effect because of the
    requirement now, and the fact that they do not have to
    construct the documentation that has to be provided to them.
        Senator Dorgan. The chairman has another responsibility
    this morning and I want to be attentive to that, so let me do
    this. Let me submit some questions to you, and then with two
    other points. You are required under last year's appropriation
    to make a report to us on this area and I expect that is coming
    soon?
        Mr. Dalrymple. It is underway.
        Senator Dorgan. But is it coming soon?
        Mr. Dalrymple. I do not have a date that we expect to
    finish now. I think the language in the appropriation said
    March----
        Senator Dorgan. Underway is a term of art. I am just trying
    to----
        Mr. Dalrymple. You are correct, it is a term of art. I am
    not trying to be evasive, but I do not have a date that we
    expect it. We have joined with Treasury tax policy to put this
    report together. But we will get back to you with literally the
    date that we expect the report to be completed.
        [The information follows:]

        The Service expects to complete the report no later than May 31,
    1999.

                                TRANSFER PRICING

        Senator Dorgan. I appreciate that.
        Mr. Chairman, I am going to meet with the IRS and suggest
    something with respect to this appropriation. I am going to
    suggest that we take a group of taxpayers, perhaps 20, perhaps
    10, and on current filings, sanitize them if we need to, and do
    a real test on a contemporaneous basis of what is there and
    what is not. I understand the three-year cycles and all that
    sort of thing. I am interested in getting at what is the level
    of enforcement here or lack of compliance. And that relates to
    what we might want to invest in the Service in this particular
    area versus other areas.
        So I will talk to you all about that on just a pilot basis
    that we could do on top of the study that you are now going to
    report to us on.
        Mr. Dalrymple. Absolutely.

                              SUBMITTED QUESTIONS

        Senator Dorgan. Then I will submit a list of questions, and
    I thank you for being attentive to this. I will get with you at
    some other point.
        Mr. Chairman, thank you very much.
        [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 Campbell
                            internal revenue service
                                      y2k
        Question. Do you believe that the funding contained in your fiscal
    year 2000 request for Y2K conversion will be sufficient to cover those
    costs?
        Answer. At this time we believe that the $250 million in our fiscal
    year 2000 request will meet our needs. However, as we complete our
    independent validation and verification (IV&V) and end-to-end
    integration testing efforts, we may identify additional Y2K issues that
    need to be addressed.
        Question. How many outyears of funding do you anticipate having to
    request for Y2K conversion costs?
        Answer. The IRS anticipates completing its Y2K conversion
    activities in fiscal year 2000. Resources will need to be realigned to
    operations and maintenance (O&M) costs in fiscal year 2001 to support
    ongoing costs of Y2K-compliant systems and products such as software
    licenses, and operations of the Integrated Submission and Remittance
    Processing System (ISRP) and the Service Center Mainframe Consolidation
    program. There is, however, a small chance that some additional Y2K
    funds will be needed in fiscal year 2001.
                              telephone assistance
        Question. Will Taxpayers be able to receive accurate and timely
    answers to their questions on the first telephone call they make
    concerning a problem?
        Answer. The Service's focus on improving customer service includes
    enhancing our assistors' ability to provide accurate and timely answers
    to taxpayers on their first telephone call. Early in fiscal year 1999
    Customer Service commissioned a task group to redesign and improve
    employee reference materials. The Internal Revenue Manual was revised
    and includes a user-friendly index, glossary and a comprehensive table
    of contents; job aids were developed to ensure consistency and
    accuracy, and to expedite resolution of a taxpayer's inquiry; training
    was provided to each employee on how to use the new reference
    materials; and extensive training was provided on new tax laws. Also,
    the primary Customer Service quality review system was modernized and
    centralized. This improved system maximizes independence of the review
    process and reliability of the data and provides diagnostic information
    on quality, customer satisfaction and courtesy, providing the
    organization increased ability to evaluate organizational performance
    as well as focus on improvement opportunities, such as training.
        Question. What specific actions has IRS taken or does IRS plan to
    take to improve the Telephone Routing Interactive System?
        Answer. The Telephone Routing Interactive System (TRIS) represents
    the automated portion of the IRS toll-free telephone service. TRIS
    consists of two components: First, the Master Customer Service Script
    which is the basic telephone script a caller hears when calling the
    toll-free assistance line that routes all touch tone callers to the
    appropriate assistance--either an interactive application or a customer
    service representative. Second, TRIS also provides callers the
    opportunity to receive assistance via several automated, interactive
    applications.
        To enhance assistance to customers, this filing season we
    implemented two new automated applications: (1) The Refund Release
    application which allows callers whose tax refunds are being held by
    IRS due to name or SSN mismatch to resolve the discrepancy and have
    their refund released and (2) The Refund Trace application which allows
    callers to file a claim for a lost, stolen, or destroyed current year
    refund. (Callers NOT eligible to file a telephonic claim are sent the
    appropriate form (Form 3911) to mail in a claim.)
        Additionally, two of the existing TRIS applications were made
    available on the account and refund toll-free lines in addition to the
    general tax assistance toll-free line. And, we added the Location
    application to the account product line (previously it could only be
    accessed via the 1040 line). The Location application provides callers
    with the appropriate IRS mailing address depending on caller's ZIP
    code, what form is being filed, and whether a payment is being made. We
    determined that many callers to these other toll-free lines were
    requesting refund status or location information and could easily be
    serviced in automation--thereby freeing time for Customer Service
    Representatives to address more complex issues.
        System improvements were implemented which will make it easier to
    add and delete from the TRIS script time-sensitive messages required to
    address specific hot issues. For example, to include messages (1)
    routing callers needing locations/times of Saturday service or other
    walk-in assistance during filing season; (2) routing callers with
    questions regarding our electronic filed return and credit card payment
    options pilot; and (3) routing callers with innocent spouse issues. The
    TRIS hardware and software were upgraded to increase capacity and
    provide Y2K compliance. Also, TRIS is now available nationwide.
        For January 2000 we plan to implement a Spanish version of the
    Master Customer Service Script and automated TRIS applications. Also,
    the eligibility criteria for the Voice Balance Due (Installment
    Agreement) application will be adjusted to allow eligible callers to
    set up streamlined installment agreements of up to $25,000 (up from
    $15,000). This will allow more callers to complete business in the
    application. The Refund Trace and Refund Release applications will be
    enhanced to service callers who have data at more than one service
    center, thereby increasing the number of callers who can complete
    business in these applications. Additionally, in fiscal year 2000, we
    plan to remove the ``touch tone callers, press one'' prompt from the
    beginning of the script. According to the contractor currently working
    with us on an assessment of TRIS, industry practices show that the
    prompt encourages callers to opt out of automation.
        Question. Please provide the number of taxpayers who accessed,
    abandoned, and completed the different applications.
        Answer: We are continually looking at ways to enhance the
    effectiveness and responsiveness of service to our customers. In fiscal
    year 1999, we procured consultant services to conduct an assessment of
    TRIS and recommend improvements to make the automated applications more
    user friendly thereby encouraging callers to take advantage of the
    automated applications. In fiscal year 2000 we plan to solicit direct
    feedback from customers on the effectiveness of TRIS via an automated
    voluntary, survey offered to a sample of taxpayers who complete TRIS
    applications. The chart below reflects the usage of the TRIS
    applications for fiscal year 1999 (October 1, 1998 through March 5,
    1999).

    ----------------------------------------------------------------------------------------------------------------
                                                                                  Calls        Calls
                           Application \1\                           Calls      Completed    Routed to      Calls
                                                                    Received     in TRIS        CSRs      Abandoned
    ----------------------------------------------------------------------------------------------------------------
    Master Customer Service Script..............................   18,435,900          N/A   14,828,300    3,607,600
    Refund Inquiry..............................................    7,000,000    4,270,700    2,382,600      346,600
    Voice Balance Due (Installment Agreement)...................    1,025,000       96,600      893,800       34,600
    Payoff......................................................      484,000       40,300      397,800       46,000
    View Debit..................................................      479,400        9,300      415,100       55,000
    View Credit.................................................      333,200       18,500      275,700       39,000
    Location....................................................      318,700       70,100      222,000       26,600
    Transcript Request..........................................      260,300       49,900      133,500       77,000
    PIN Maintenance.............................................      179,200          200      152,800       26,200
    Refund Trace................................................        3,200        1,800        1,300          200
    Refund Release..............................................        2,000          400        1,500          100
                                                                 ---------------------------------------------------
          Totals................................................   28,520,900    4,557,800   19,704,400    4,258,900
    ----------------------------------------------------------------------------------------------------------------
    \1\ TRIS Application Definitions.

        Refund Inquiry--allows caller to obtain status of refund.
        Voice Balance Due (Installment Plan)--allows caller to set up
    payment plan.
        Payoff--allows caller to hear payoff balance(s) as of call date and
    balances up to 120 days in the future. Also allows caller to obtain the
    address of the nearest IRS office and menu option into VBD to set up
    payment plan.
        View Debit--allows the caller to listen to account information. It
    is a spoken explanation of the information on an account transcript.
        View Credit--allows the caller to confirm receipt of payment(s)
    sent to IRS and to hear how those payments were applied.
        Location--allows caller to get the mailing address of the IRS. The
    address given is based on the zip code of the caller, type of form to
    be filed and whether a remittance is also mailed.
        Transcript Request--allows the caller to request the form to order
    a photocopy of return, an account transcript, or return transcript (for
    student loans, etc.)
        PIN Maintenance--allows the caller to block, delete, or change
    existing PIN number.
        Refund Trace--allows a caller to file a claim telephonically to
    request a replacement check for a current year refund which has been
    lost, stolen, destroyed, or was never received.
        Refund Release--allows a caller to correct three situations where a
    name/SSN mismatch is preventing a refund from being issued.
        Question. How many dollars and FTE's does IRS plan to devote to
    assisting taxpayers in fiscal year 2000? How does that plan compare
    with actual expenditures in fiscal year 1998 and expected expenditures
    in fiscal year 1999?
        Answer. Expenditures for taxpayer assistance are as follows:

                                       FTE
    ------------------------------------------------------------------------
                                                   Fiscal year--
                 Service              --------------------------------------
                                           1998         1999         2000
    ------------------------------------------------------------------------
    Toll Free Telephone..............        7,399        7,089        7,289
    Walk-In Service..................        1,127        1,170        1,174
    Taxpayer Education...............          225          252          253
                                      --------------------------------------
          Total......................        8,751        8,511        8,716
    ------------------------------------------------------------------------

                                                      LABOR DOLLARS
    ----------------------------------------------------------------------------------------------------------------
                                                                                    Fiscal year--
                              Service                          -----------------------------------------------------
                                                                      1998              1999              2000
    ----------------------------------------------------------------------------------------------------------------
    Toll Free Telephone.......................................      $296,981,000      $301,050,000      $324,807,000
    Walk-In Service...........................................        10,999,000        13,234,000        13,342,000
    Taxpayer Education........................................        47,125,000        51,774,000        53,390,000
                                                               -----------------------------------------------------
          Total...............................................       355,105,000       366,058,000       391,539,000
    ----------------------------------------------------------------------------------------------------------------

        In addition to the labor dollars cited above, a total of $6 million
    is planned for grants for Low Income Taxpayer Clinics.
        In fiscal year 2000, 200 FTE are added for Spanish language toll
    free telephone assistance.
        Question. How much does the IRS expect to actually spend on
    customer service improvements in fiscal year 2000?
        Answer. In fiscal year 2000, IRS will continue to implement 157
    near-term initiatives as part of an on-going Taxpayer Treatment and
    Service Improvement Program. Over half of those initiatives are
    directly related to the IRS Restructuring and Reform Act of 1998
    (RRA98). The $40 million requested increase for implementing Titles II
    and III of RRA98 includes $17.5 million for customer service
    improvements in such areas as Spanish-language telephone assistance,
    Low Income Taxpayer Clinics and enhanced Internet access for taxpayers
    and practitioners. Absent an activity-based cost accounting system,
    only such program increases and information systems costs (not base
    resources in Operations programs) can be clearly associated with the
    broad concept of ``customer service improvements.''
        Related technology costs total $22 million--including investments
    in such projects as Forecaster/Scheduler, Telephone Routing Interactive
    System (TRIS) and Servicewide Electronic Research Project (SERP).
    Finally, in fiscal year 2000, IRS expects to spend $120.9 million from
    the Information Technology Investment Account (in partnership with the
    Prime Alliance) on customer service improvements, including Call
    Routing and Management and Customer Service Infrastructure and
    Security.
        Question. I understand that there has been customer service
    training at the IRS in the past, so how will you raise the bar in order
    to deliver customer service that's on par with private industry?
        Answer. The IRS is fully committed to becoming a world class
    customer service organization delivering world class quality service to
    its customers, the taxpayers of America. In support of this commitment,
    the Agency has committed financial and human resources to the
    development and delivery of quality training programs to meet the needs
    of the employees charged with serving America's taxpayers.
    Specifically, the IRS has conducted benchmarking studies against
    private industry organizations and engaged outside vendors in the
    validation of our customer service strategies. Customer service tenets
    are being embedded in technical training as additional reinforcement
    and functional curricula are being reviewed to ensure adequacy and
    consistency with the move to a more customer focused approach in
    dealing with the American taxpayers. All of these initiatives are being
    blended into a comprehensive approach that complements the Agency's
    modernization initiatives to maximize the effectiveness of the training
    and the employees' receptiveness to the training interventions. On
    March 5, 1999 IRS provided the Congress a report required by Section
    1205 of RRA 98 which describes in detail how IRS will accomplish these
    actions and achieve this goal. The centerpiece of these activities is a
    course we call World Class Customer Service Training which will be
    delivered later this fiscal year.
                               irs reorganization
        Question. What assurances can you provide that training will be
    revamped to reflect the kind of IRS you envision?
        Answer. To ensure that our training efforts fully support the
    transition to a customer-focused organization, we are obtaining
    feedback on our processes from a broad base of both internal and
    external stakeholders, including front-line IRS employees, the National
    Treasury Employees Union, and members of the taxpaying public.
                            customer service funding
        Question. Will IRS be carrying over into fiscal year 2000 any prior
    year Customer Service training funding? If so, what will that funding
    be used for?
        Answer. The IRS does not anticipate carrying over any prior year
    Customer Service training funding into fiscal year 2000.
                                 union support
        Question. Have employees and the employees' union been supportive
    of testing and training? What concerns have been raised?
        Answer. Employees and their union have concerns with regard to
    Customer Service testing, both with the validity of the tests and how
    the tests will be used. In general the tests are being used to identify
    training needs or measure the attainment of training objectives, once
    training has been completed. We continue to work with the union on
    these issues.
        In general, the employees and their union are supportive of
    Customer Service training. However, there are concerns by all parties
    with regard to the necessity of balancing program roll-out demands and
    available resources with our goal of providing employees with complete
    and timely training to enable them to perform their duties.
                               irs reorganization
        Question. You have announced your intention to reorganize the IRS
    into four main operating divisions. How will the current regional
    structure be affected by this new organization?
        Answer. Although regional and district offices will not exist in
    the new IRS organization structure there are no plans to reduce the
    number of employees in the Service. Everyone will have a job but roles
    may change. The Commissioner has pledged that employee movement will be
    minimal. The impact will be managed in a methodical, sequenced manner
    taking into account the start-up schedules of new business units,
    emerging career management strategies and various personnel options.
                                     irra98
        Question. Will your fiscal year 2000 request for taxpayer
    protection--$27 million--provide the funding necessary to implement all
    of the measures to protect the taxpayer as mandated by the
    Restructuring Act?
        Answer. During fiscal year 1999, IRS will absorb--from base
    resources--nearly $160 million and 2,300 FTE in staffing and support
    costs necessary to implement the Restructuring and Reform Act of 1998
    (RRA98). Of the total, $135 million is directly related to Title III--
    Taxpayer Protection and Rights. Fiscal year 2000 costs will increase by
    at least $10 million and 400 FTE as new provisions take effect. For
    example, beginning January 1, 2000, Section 3705 requires that IRS
    provide Spanish-language telephone assistance (including a ``live
    assistor'' option). The $27 million and 500 FTE requested as part of
    this $40 million program increase will also fund service center
    workload increases associated with ``innocent spouse'' and ``pre-levy
    collection notice'' provisions in the service centers--and an expansion
    of taxpayer education programs such as the Low Income Taxpayer Clinics.
    [Note: The remaining $13 million supports Title II--Electronic Filing.]
        Question. If not, when do you expect the IRS to have this area of
    the Act fully implemented?
        Answer. IRS is committed to fully implementing taxpayer protections
    by their effective dates as mandated by the Restructuring Act--most of
    which were effective at the date of enactment. Since the program
    increase requested represents only 20 percent of estimated costs, the
    balance will be accomplished within the IRS budget base.
        Question. How are you going to be able to reach into the depths of
    the organization and energize all at the IRS--management, regions, and
    most importantly, the employees of the IRS--to give them the same
    energy and commitment to change that you have in order to really affect
    a culture change?
        Answer. The best way to create commitment to change is to
    communicate a clear vision to employees and involve them in the change.
    Our vision is clear. We have a variety of efforts underway to
    continuously communicate about the change as we make progress. For
    example, we have a newsletter which has an exclusive focus on
    modernization. Employees have been actively recruited for the
    modernization Design Teams. The Design Teams not only include
    employees, but they have solicited their input through focus group
    interviews to get ideas on barriers to be overcome and actions the
    Service can take to better serve taxpayers. Employees ideas and
    questions are also captured through a web site set up for this purpose.
    We believe if we treat our employees well they will, in turn, treat our
    customers well. Therefore, as part of our balanced measures, one major
    focus is on employee satisfaction. This Spring all employees will be
    invited to participate in an employee climate survey which will give us
    input into how they feel about working in IRS. We have commissioned a
    process (Treatment of Taxpayers and Service Improvements) which
    oversees our strategic initiatives including a category titled ``Create
    an IRS culture that values employees and rewards top quality service.''
    Fourteen separate initiatives have begun to further this goal. Other
    activities to promote our culture change include: establishing a
    Customer Service expectation for employees and managers to ensure that
    they know what performance is expected. Employees will receive training
    on providing customer service. The top grade level of Customer Service
    representatives has been raised to recognize the complexity and
    importance of their roles in helping taxpayers comply with tax laws.
    Although each of the previous initiatives will help promote buy in by
    employees and managers, we are also planning to pull it altogether
    through a Culture Change initiative, which will use world-class
    contractor support to help us in our efforts.
        Question. What has IRS done (or plan to do) to get managers,
    employees, and union officials to buy into and support the
    reorganization? How will employee position descriptions and career
    paths be changed to reflect the different operating divisions? How is
    the National Treasury Employees Union involved in making these
    decisions?
        Answer. The Design Teams are made up of more than 200 executives,
    management, and bargaining unit members to ensure full participation in
    the planning, design, integration, and implementation of the
    Modernization initiative. The Teams are continuously seeking input from
    managers and employees as well as conducting focus groups with them.
    Having NTEU (bargaining unit) employees as part of the design teams is
    ensuring that major changes, issues and concerns for bargaining unit
    employees are identified and factored into the implementation planning
    and timing.
        NTEU has been involved with management in all phases of activities
    to design the new business lines in the modernized IRS. The
    Commissioner and President of NTEU have ongoing discussions about
    modernization and the President of NTEU is involved in all Executive
    Steering Committee briefings on Modernization. NTEU is currently in the
    process within the labor statute, of negotiating over these changes
    with IRS. There is also a communication package that will be employee
    friendly to get them the information they need.
        Position Classification Specialists are engaged at the earliest
    possible step of any job redesign. In concert with the Design Teams,
    the Position Classification Specialist reviews the current position
    descriptions to determine the impact of these changes. When changes are
    significant or new positions are needed, the Design teams, subject
    matter experts and personnel specialists meet to describe these new
    positions, and subsequently new or amended position descriptions are
    prepared.
        Career and future career paths both within and outside each
    operating division are being explored during discussions with the
    Design Teams. Employees of the newly created Career Management
    Organization, which includes Personnel and Training professionals, are
    working with successive Design Teams to identify the competencies and
    tasks of newly created positions. A review of the competencies required
    will result in the initial identification of opportunities for movement
    both within and across operating divisions.
        Question. How will IRS inform taxpayers of the reorganization and
    the different options they have for getting assistance and resolving
    problems?
        Answer. A key objective of the reorganization is improved
    communication with and service to taxpayers. However, this will happen
    gradually. IRS will continue to use various forms of media (print,
    television, Internet) to inform taxpayers of the reorganization. In
    addition, just as companies develop particular products and marketing
    programs to reach customers with differing needs, most IRS business
    practices can be tailored to address particular taxpayer needs and
    problems. Pre-filing assistance programs, such as customer education
    and telephone and Internet assistance, and publications and forms
    design, all represent opportunities for clear and effective
    communications. Filing related programs, such as electronic filing,
    telephone account assistance and notices also can be tailored to suit
    the needs of individual, small business and large business taxpayers.
                             submission processing
        Question. Specifically, how was the $71 million increase for
    Submission Processing computed? Does that request reflect expected
    savings from increased electronic filing in fiscal year 2000?
        Answer. The $71 million increase for Submission Processing
    represents increases for the pay raise and non labor increases based on
    general inflation. This request reflects expected savings from
    increased electronic filing in fiscal year 2000. The savings are
    reflected in two actions--(1) FTE were reprogrammed from Submission
    Processing to Employee Plans/Exempt Organizations and Statistics of
    Income in the Tax Law Enforcement appropriation, and (2) No increase
    was requested in Submission Processing for projected workload growth
    due to increased filers.
                         alternative dispute resolution
        Question. The IRS Restructuring and Reform Act requires better use
    of alternative dispute resolution methods. What has been done to expand
    the use of ADR? Will this result in any savings? If so, what is the
    expectation?
        Answer. Early Referral.--Revenue Procedure 96-9,1996-1 C.B. 575,
    contained the procedures that allowed Coordinated Examination Program
    (CEP) taxpayers to request early referral of an issue from Examination
    to Appeals. New IRC section 7123 provides that the Secretary shall
    prescribe procedures by which any taxpayer may request the early
    referral of one or more unresolved issues from the Examination or
    Collection Division to the Internal Revenue Service Office of Appeals.
    The Service is preparing a revenue procedure which will expand the
    early referral process and describe the method by which a taxpayer
    requests such an early referral. This revenue procedure will also
    describe the method by which a taxpayer may request early referral of
    one or more unagreed issues from the Employee Plans/Exempt
    Organizations Division (EP/EO) to the Office of Appeals. We expect to
    publish this revenue procedure in the near future.
        Mediation.--Appeals has tested the use of mediation for Coordinated
    Examination Program (CEP) cases assigned to Appeals Team Chiefs.
    Announcement 95-86, 1995-44 I.R.B. 27, and Announcement 97-1, 1997-2
    I.R.B. 62, contained the procedures that taxpayers previously used to
    request mediation. In Announcement 98-99, 1998-46 I.R.B. 34, Appeals
    has expanded the mediation test to allow taxpayers to request mediation
    for factual issues involving an adjustment of $1 million or more that
    are already in the Appeals administrative process. The mediation
    procedure is effective for requests for mediation made during the two-
    year test period beginning on November 16, 1998, the date Announcement
    98-99 was published in the Internal Revenue Bulletin.
        Additionally, new IRC section 7123 provides for expansion of
    mediation below the $1 million threshold contained in Announcement 98-
    99. Appeals is currently developing procedures to expand the
    availability of mediation as required by the new law. We have also
    solicited comments from the public on the expansion of the mediation
    process.
        Arbitration.--New IRC section 7123 also provides that the Secretary
    shall establish a pilot program under which a taxpayer and the Internal
    Revenue Service Office of Appeals may jointly request binding
    arbitration on any issue unresolved at the conclusion of: (A) appeals
    procedures, or (B) unsuccessful attempts to enter into a closing
    agreement under IRC section 7121 or a compromise under IRC section
    7122. Appeals is developing procedures for a pilot program to test
    binding arbitration. This would allow taxpayers to request arbitration
    for factual issues that are already in the Appeals administrative
    process. We expect to publish an announcement with the arbitration
    procedures for public comment in the near future.
        Savings from the use of ADR methods.--The Appeals ADR programs are
    cost effective for taxpayers in relation to the alternative of
    litigating issues not resolved in Appeals, and must also be compared to
    the amount of time spent in the audit and other dispute resolution
    processes.
        Our ADR techniques are tools that address the heart of the
    Administrative Dispute Resolution Act of 1996 and the IRS Restructuring
    and Reform Act of 1998. These programs are alternatives to litigation.
    If any one of these ADR techniques prevents one or more issues from
    being litigated, then they will have served their purpose.
                      earned income tax credit compliance
        Question. As you know, Congress appropriated $138 Million (for
    2,358 FTE) in fiscal year 1998 and 143 Million (for 1,972 FTE) in
    fiscal year 1999 for the Earned Income Tax Credit Compliance
    Initiative. The purpose of this separate appropriation is to help
    address non-compliance issues which was expected to in turn save money.
    How much as actually saved in fiscal year 1998? How much is expected to
    be saved in fiscal year 1999?
        Answer. For fiscal year 1998, Enforcement Revenue and Revenue
    Protected $977.2 M. For fiscal year 1999, Enforcement Revenue and
    Revenue Protected is projected to be $1,259.9B.
                                     ______

                       Questions Submitted by Senator Kyl
                              problem solving days
        First, just a comment. My staff in Arizona reports that the IRS
    problem solving days you've scheduled in the state appear to be very
    successful and well-attended. We're not receiving as many complaints
    about the local IRS offices since they started their new taxpayer-
    friendly programs. So I want to congratulate you for the progress being
    made there, and recognize the good work of the IRS staff in Arizona.
        We are still receiving complaints that the IRS service centers--for
    example, in Ogden--are not as taxpayer-oriented as the local offices,
    and I will be in touch with you with specific examples of that as they
    arise. But I think it is appropriate here to note the success of the
    problem solving days in Arizona.
                                 insider fraud
        Several weeks ago, the media carried reports about the high risk of
    insider fraud in certain federal agencies. A Knight Ridder report, for
    example, suggested that employee theft or embezzlement at the IRS
    amounted to $5.3 million from 1995 to 1997. Some schemes were
    apparently as simple as changing a check made out to the IRS to ``I.R.
    Smith'' and cashing it. Others were more complicated. One employee,
    according to the report, using financial data on a submitted check from
    a large corporate account, made a duplicate of it and pocketed
    $590,000.
        According to a General Accounting Office report, delays in
    receiving background and fingerprint checks have resulted in the IRS
    hiring employees with previous arrests or convictions. The GAO found
    unarmed couriers, traveling alone, transporting multi-million dollar
    tax payments into IRS centers. One bicycle messenger delivered daily
    deposits as high as $100 million at one district office. Another
    courier left unattended a $200 million payment in an unlocked van. The
    GAO found receipts and returns at one center stored in a hallway
    accessible to a nearby fitness center, ready for any willing check
    washer to come by and steal them.
        Question. My understanding is that the IRS has taken some action to
    better protect returns and payments, but the GAO contends it does not
    go far enough. Can you tell me what the IRS has done--both with regard
    to the problem of insider fraud, as well as the security of receipts
    and returns? Could you respond specifically with regard to the
    recommendations made by the GAO?
        Answer. In response to GAO recommendations, IRS has taken the
    following actions to mitigate the problem of insider fraud, as well as
    the security of receipts and returns:
        We are in the process of reevaluating the risk classification of
    all positions in IRS' Receipt and Control Branch and will reclassify
    such positions where appropriate.
        All applicants are fingerprinted and the fingerprints submitted to
    the Office of Personnel Management and forwarded to the Federal Bureau
    of Investigation (FBI). We will reemphasize our procedures for
    fingerprinting job applicants and include a policy for fingerprinting
    potential employees upon receipt of an application.
        We have issued guidelines to our personnel offices regarding the
    feasibility of obtaining local police checks for prospective employees.
        Most notably, we have procured live scan fingerprint equipment for
    the personnel offices servicing each of our service centers. The
    equipment is compatible with the FBI's Integrated Automated Fingerprint
    Identification System (IAFIS) which is scheduled to be implemented
    summer 1999. The IAFIS will provide fingerprint check results in
    approximately 5 days in lieu of 15 to 120 days. The equipment has been
    installed and tested and employees trained in its use. The IRS has
    taken the lead in preparing for IAFIS.
        All service centers store receipts and returns in secured areas
    during off-peak times; however, some service centers store mail in an
    unsecured area during peak due to space and resource limitations. We
    are working with our service centers to improve physical security
    controls over receipts and returns stored in overflow areas and to
    ensure that all final candling activities are located in a restricted
    access area. We expect both actions to be completed by the next filing
    season.
        New procedures are in place for storing discovered remittances in a
    secure container and properly recording the required information. We
    are also in the process of obtaining suitable containers for storing
    unmatched checks.
        We have established a supplemental procedure to reinforce
    overstamping of returned refund checks as soon as they are extracted.
        We have initiated a contracting action for a study on the various
    security methods available for transporting deposits to the depository.
    The contract will be used to determine the best method to help ensure
    that the Government's assets are not exposed to loss, theft, or damage
    in transit. A policy will then be developed. We are also working on the
    best solution for limiting courier access to service center premises
    for deposit pick-up.
        We have completed locker feasibility studies at the service centers
    and are in the process of negotiating with the National Treasury
    Employees Union. When completed, we will procure and install lockers
    for use by all employees who work with remittances. The employees will
    be required to store coats, purses, backpacks, and related items in
    their locker before entering the work area.
        Additional actions taken by IRS include:
        We convened a task team to look at the issues of recruitment
    background and security investigations. The task team proposed and
    management approved 7 recommendations which have been or are in the
    process of being implemented. Many of the task team's recommendations
    (e.g. procurement of live scan fingerprint equipment) were shared with
    GAO and incorporated into their recommendations. We developed an action
    plan that includes the recommendations of the task team as well as
    other actions related to mitigating the risk of loss, theft, or
    embezzlement in service center remittance processing areas. The GAO
    recommendations relating to recruitment background and security
    investigations were added to the action plan. The majority of
    significant actions are scheduled for completion by September 30, 1999.
        We developed action plans for the protection of monetary
    instruments. For example, our summary action plan addresses protection
    of monetary instruments in general terms. It includes actions such as
    security awareness training, lockers for remittance processing area
    employees, development of related action plans, etc. We developed site-
    specific action plans for the Receipt and Control Branch at each
    service center. The actions include construction of slab-to-slab walls,
    installation of motion sensors under raised floors and above ceilings,
    installation of intrusion detection and alarm devices, etc.
        Funding for lockers for our service centers is an immediate need.
    The estimated cost is $1 million.
        Question. Do you believe there are sufficient resources at the
    Inspector General's Office to help deal with these problems? What needs
    do you have, in terms of additional funding or legislative authority,
    to adequately respond here?
        Answer. (Provided by the Acting Treasury Inspector General for Tax
    Administration): The Office of the Treasury Inspector General for Tax
    Administration (OTIGTA) was established by the IRS Restructuring and
    Reform Act of 1998 and became effective on January 18, 1999. Most of
    the resources of the former IRS office of the Chief Inspector
    transferred to this new Office. The Acting Treasury Inspector General
    for Tax Administration has commenced establishing the structure of this
    organization to meet its new responsibilities. The nomination of the
    Treasury Inspector General for Tax Administration is pending before the
    Senate.
                                     ______

                     Questions Submitted by Senator Dorgan
                              compliance programs
        Question. Even though you state that the fiscal year 2000 budget
    request is flat, the IRS' operating budget is a 6.3 percent increase
    over the fiscal year 1999 enacted level. In light of that please
    elaborate on two comments in the Commissioner's written statement . . .
    ``current estimates of specifically identified and known Year 2000
    costs are less than the costs for fiscal year 1999'' and ``because of
    fiscal constraints many changes are being carried out by diverting
    resources from ongoing programs such as compliance, potentially
    imposing long term costs and revenue losses''. Can you explain why, if
    costs are decreasing and the fiscal year 2000 request is a 6 percent
    increase over the fiscal year 1999 enacted level, fiscal restraints
    require a diversion of funds from compliance programs?
        Answer. The 6 percent increase was specifically requested to fund
    $40 million in new requirements for RRA98, $17 million for customer
    service related training, $140 million for Organizational
    Modernization, $250 million for Year 2000 costs, and $250 million for
    the costs of pay raises less non-recurs.
        Therefore, increases needed to fund other programs must be funded
    by diverting resources. In fiscal year 1999, the Service will absorb
    the full cost of implementing RRA98 by diverting approximately $160
    million and 2,300 FTE from compliance programs. Since the resource
    needs of RRA98 are recurring, the redirection of these compliance
    resources is permanent. The modest program increase of $40 million in
    fiscal year 2000 will not allow any of the diverted resources to be
    returned to front-line compliance programs because the increase is
    needed to fund the statutory RRA98 mandates that take effect in fiscal
    year 2000.
        In addition, in fiscal year 2000, the IRS is taking a $50 million
    cut to its base to fund non-labor inflationary needs. This cut will
    result in an additional reduction of 580 FTE.
        Question. In the fiscal year 2000 request, it appears that around
    2,500 employees are being diverted away from traditional exam and
    compliance work. What is the effect of this diversion of resources on
    exam coverage and collection of revenue?
        Answer. Although the Service estimates that implementation of the
    Restructuring and Reform Act of 1998 (RRA98) will require diversion of
    some 2,300 FTE and nearly $160 million in fiscal year 1999, Examination
    and Collection account for only 1,022 FTE. The remainder of nearly
    1,278 FTE are in other program areas--including Appeals, Chief Counsel,
    Submission Processing, Customer Service, Information Systems and
    Management and Finance. Absorption of these increased resource needs
    from the existing budget base will reduce audit coverage rates and
    direct enforcement revenue. In terms of overall audit coverage,
    Servicewide rates will decline from .99 percent in fiscal year 1998 to
    .84 percent in fiscal year 1999 and 2000.

                          Examination--Coverage History

                                                                 Total Audit
            Fiscal year                                   Coverage (Percent)
    1992..............................................................  1.08
    1993..............................................................  0.95
    1994..............................................................  1.08
    1995..............................................................  1.62
    1996..............................................................  1.62
    1997..............................................................  1.28
    1998..............................................................  0.99
    1999..............................................................  0.84
    2000..............................................................  0.84

        This reduction represents the combined impact of absorbing RRA98
    workload (389 FTE) and absolute reductions to Examination's base (180
    FTE) to offset unfunded increases to non-labor MCL's (i.e.,
    inflationary increases). Beyond reductions in audit coverage,
    absorption of RRA98 costs in Collection (676 FTE)--plus a reduction of
    100 FTE for non-labor MCL's--will result in some reduction to direct
    enforcement revenue.
        Despite short-term reductions in dollars collected in the
    Examination and Collection programs, IRS is committed to a long-term
    shift in emphasis--away from traditional approaches that rely on one-
    on-one, face-to-face enforcement--to wholesale treatments that
    emphasize systemic solutions to noncompliance in identifiable market
    segments (e.g., industry groupings and/or classes of taxpayers who
    share common filing patterns and economic/demographic characteristics).
    New program initiatives target educational programs and outreach
    efforts aimed at improving voluntary compliance--and total dollars
    collected--through partnerships with customer groups and external
    stakeholders.
        Question. In terms of all compliance programs, how are resources
    allocated? How will they be allocated along taxpayer categories?
        Answer. Available resources are allocated among major Compliance
    program areas to achieve a balanced enforcement presence that addresses
    known compliance problems and promotes voluntary compliance throughout
    the economy. Over the last several years, Operations has made a
    concerted effort to move the focus to up-front, early detection and
    systemic approaches and compliance treatments that minimize reliance on
    costly, intrusive face-to-face enforcement actions by revenue agents,
    tax auditors, revenue officers and special agents. Annual executive-
    level reviews of program budgets and priorities have required
    significant base realignments to support new initiatives.
        The Modernization Design Teams are looking at the best way to
    allocate resources by taxpayer category. We expect to have preliminary
    staffing numbers by the time the fiscal year 2001 budget is submitted.
    The goal is to tailor tax administration practices and strategies to
    address specific taxpayer needs and problems.
                                    training
        Question. In the Commissioner's testimony, he stated that the
    request for training funds is pivotal to driving the improvements in
    service that we want to provide our taxpayers. The fiscal year 2000
    budget requests a $17 million increase in the base funding for tax
    related technical training. This is a 25 percent increase over the $66
    million base. What percentage of the total training needs does the
    fiscal year 1999 budget provide?
        Answer. We estimate that at base funding levels the Service will be
    able to meet approximately 72 percent of the training needs identified
    by management. With the fiscal year 2000 budget, we will invest in
    Workforce Modeling that integrates workforce planning with training
    needs assessment. The model will enable the Service to project the
    skills needed to meet our objectives based on employees' occupations,
    their career path and competencies, and, the business needs of the
    Service. Using the workforce-planning model, we will more accurately
    project the resources needed to implement a strategic human resources
    approach.
        Question. Please define tax-related technical training.
        Answer. Tax-related technical training is training in tax law and
    IRS procedures for employees who have direct contact with taxpayers or
    tax returns. These employees examine tax returns, make technical
    corrections and adjustments to tax returns, compute tax liability and
    interest, provide information to taxpayers regarding tax procedures,
    collect unpaid taxes, or secure unfiled returns. This category includes
    basic, advanced, and specialty training for Customer Service
    Representatives, Revenue Officers, Revenue Agents, Appeals Officers,
    Criminal Investigators, and other professional employees in the
    Customer Service and Compliance functions.
        Question. Of the training funds requested please explain how they
    will be distributed by taxpayer segments.
        Answer. We have not yet prepared a distribution of the fiscal year
    2000 training budget by taxpayer segments. For planning purposes,
    Corporate Education will prepare a tentative distribution based on the
    current location of employees to be trained. As those employees and
    their workload are aligned to the new business units, training funds
    will be distributed to the appropriate organizations.
        Question. Are the IRS employees being trained on the impact of
    Section 1203(b) Termination of Employment for Misconduct? Does this
    constitute a marked change from the IRS's previous reaction to employee
    misconduct?
        Answer. Beginning July 1998, we began the process of educating IRS
    managers and employees on Section 1203. Initially, we provided a
    Commerce Clearinghouse publication to all subject matter experts. In
    September, we developed and distributed a Section 1203 guide, ``IRS
    Restructuring and Reform Act of 1998 (RRA 1998) Conduct Provisions--
    Employee Guide'', which included a plain language interpretation of the
    new law, templates, procedural guidance, and questions & answers.
        In addition, the following training materials were developed and
    delivered to all employees: An Organizational Change video featuring
    the Commissioner and Deputy Commissioner; A Section 1203 Training Video
    providing scenarios and discussions for employees and managers; and,
    Section 1203 Employee and Manager Training Guides.
        Since October, we have been conducting mandatory Section 1203
    training for all Service executives, managers, and employees. To
    further our training efforts, we will continue to develop and
    distribute materials and procedural guides for all employees. In
    addition, Section 1203 information will be added to our new employee
    orientation sessions and specific aspects will be included in all
    appropriate curriculums for IRS personnel. We will also conduct annual
    all employee briefings to reinforce employee Section 1203 awareness.
        The Service has also set up a Section 1203 Hotline and e-mail
    address, where personnel can ask questions and obtain additional
    guidance. In addition, we have established two internal web sites, to
    provide additional information and guidance with regard to Section 1203
    as well as other RRA 1998 provisions.
        Previously, the Service has provided annual manager/employee
    training and briefings on standards of conduct. Employees have always
    been expected to observe and practice good conduct in the performance
    of their work. What has now changed are the consequences of employee
    violations of Section 1203 provisions.
        Question. Can the committee expect these requirements to reduce in
    the future, after a basic training program has been instituted?
        Answer. The funds requested for fiscal year 2000 for the Improve
    Customer Service Through Training initiative constitute an increase to
    the training base. Training budgets for the last several years have
    been insufficient to meet the total training demand and we expect the
    demand for training to increase as the Service strives to create an
    environment in which employees are able to perform to their fullest and
    focus on the customer.
                                customer service
        Question. IRS personnel providing walk-in assistance in rural
    states, such as North Dakota, has been dramatically reduced over the
    past few years. In fact North Dakota has loss dozens of IRS employees
    who were providing front line assistance. In the Commissioner's
    statement for the record he indicates the IRS is on a ``path to
    revamping our business practices in all areas'' including ``expanding
    walk-in service''. Please explain: how will the services be expanded.
        Answer. As part of Modernizing America's Tax agency, we intend to
    significantly expand walk-in assistance by redirecting in excess of 500
    staff years to this operation. Not only will we be adding employees, we
    will provide service utilizing new and improved methods. A key
    component of our strategy will be the use of mobile vans staffed by
    trained personnel that can not only assist our customers in the
    preparation of their tax returns/answer tax law questions but also
    enter into payment agreements and/or resolve examination issues. We
    believe the mobile van initiative will be particularly helpful in our
    effort to provide assistance in less populated, rural areas.
    Additionally, we intend to offer service thru kiosks in retail
    locations. We believe the kiosk concept will enable our customers to
    conduct their transactions with IRS at the same time and place they
    complete other commercial interactions. We also envision renting space
    for temporary offices, which would make us far more accessible to our
    customers. Such temporary space may be open for a portion of the year
    and/or for certain days of the week.
        All three of these avenues (mobile van, kiosk and temporary space)
    will enable us to spread our staff over more locations thereby
    providing greater access to our customers and reducing their travel
    time and frustration regarding their inability to receive service.
    While these initiatives will benefit all of our customers, we believe
    they will be of particular interest to individuals in rural areas.
        Question. Will the expansion incorporate ``problem solving days''
    principals into the IRS' day-to-day operations?
        Answer. While Problem Solving Days (PSD's) will be continued
    through the end of calendar year 1999, PSD principals will be
    incorporated into our everyday operations to make ``every day a problem
    solving day''. We have learned from PSD's what features taxpayers find
    most desirable including: the ability to schedule an appointment;
    having teams of employees (Collection, Customer Service, etc.,)
    available to facilitate one stop service; providing service outside of
    normal business hours; and, locating PSD's in different locales outside
    normal IRS facilities.
        If these features can be successfully incorporated into our daily
    operations the need for separate PSD's may be eliminated.
        We intend to incorporate ``problem solving days'' into daily
    operations by the creation of a position tentatively titled Tax
    Resolution Representative (TRR). Individuals selected for these
    positions will be trained on a range of disciplines including
    collection techniques, Audit/Examination procedures and Tax Law. We
    believe that these individuals will be able to offer ``full service''
    to customers seeking our assistance. They will be expected to take
    ownership of customer problems and work them through resolution. Their
    focus will be on timely resolution of problems.
        Question. Will there be an increase in the level of resources
    dedicated to walk-in services?
        Answer. Our vision for the future walk-in service increases the
    resource levels dedicated to assisting customers. This will be achieved
    by redeploying existing resources into a new position that is focused
    on resolving customer problems. This position will have the skills and
    training necessary to assist customers with issues that span across
    traditional IRS functional boundaries (walk-in, customer service
    accounts, exam, collection).
        As mentioned earlier there will be an increase in resources devoted
    to walk-in. Additionally, resources will be added to our efforts to
    reach our customers through partnership with public and private
    organizations who share a common a common interest/connection to
    segments of the public we serve. For example, we intend to partner with
    financial institutions, state tax agencies and volunteer/community
    organizations such as AARP to leverage our resources to provide greater
    access for our customers.
        Question. How will the resources be allocated?
        Answer. Our first priority when allocating resources will be
    maintaining positions in the same geography for existing employees. All
    employees will have a position in the new organization. We have not
    completed a geographic footprint which would reflect distribution of
    resources. However, it is our intent to distribute a significant
    portion of the resources to smaller offices to ensure adequate coverage
    and back-up.
        Question. Many states, particularly rural states, are at a
    disadvantage in receiving the benefits of services provided by the IRS
    such as ``problem solving days''. For rural areas, the use of mobile
    units to provide problem solving services, as well as general taxpayer
    assistance, would make greater sense. Has the IRS looked into this
    option? Is consideration being given to conducting a mobile unit
    demonstration project?
        Answer. During the fiscal year 1999 filing season we are conducting
    two mobile unit demonstration projects in the Georgia District and the
    Pacific-Northwest District. The purpose of these projects is to provide
    tax return preparation, tax form distribution and technical assistance
    to taxpayers who do not have ready access to an IRS office. We will
    analyze the results of these projects after the filing season ends.
        Question. Between November 1997 and July 1998 the IRS ``problem
    solving days'' provided taxpayer services to 22,000 taxpayers. These
    ``problem solving days'' incurred an incremental cost of $11.5 million
    (in the form of overtime salaries and related personnel compensation).
    In terms of the people assisted one could say that the cost to the IRS
    we percent 522.72 per taxpayer provided service. That cost does not
    include the cost to the taxpayer of traveling to the participating IRS
    office. Do you believe the cost of a mobile unit would far exceed those
    related to conducting the ``problem solving days''?
        Answer. We cannot answer this question at this time as there is
    insufficient data.
                         electronic tax administration
        Question. The Internal Revenue Service Restructuring and Reform Act
    of 1998 (RRA) requires an increase in electronic tax filing. The Act
    has set a goal requiring that 80 percent of all filings be made
    electronically by calendar year 2007. To ensure this occurs $5 million
    was allocated in 1998 (for Electronic Tax Administration marketing), $8
    million was allocated in 1999, and $13 million is requested in fiscal
    year 2000. Is this goal achievable?
        Answer. In December 1998, the IRS issued for public comment its
    first-ever Strategic Plan for Electronic Tax Administration which was
    designed to make significant progress toward (i) the congressionally
    mandated goal of 80 percent of all tax and information returns being
    filed electronically by the year 2007, and (ii) the interim goal that,
    to the extent practicable, all returns prepared electronically should
    be filed electronically for taxable years beginning after 2001.
        In conjunction with the issuance of the Strategic Plan, the
    professional forecasters under the Assistant Commissioner (Research and
    Statistics of Income) developed IRS' official projections of
    electronically filed individual returns for 1998-2007 as indicated
    below.

                                  [In millions]

                                                                      E-File
            Year                                                 Projections
    1998..........................................................      24.6
    1999..........................................................      29.6
    2000.......................................................... 32.5-39.3
    2001.......................................................... 35.1-44.5
    2002.......................................................... 37.4-48.8
    2003.......................................................... 39.8-53.0
    2004.......................................................... 42.1-57.3
    2005.......................................................... 44.5-61.6
    2006.......................................................... 47.0-66.0
    2007.......................................................... 49.4-70.4

        These projections represent baseline extrapolations of current
    trends, existing market approaches, enacted legislation, and confirmed
    (or reasonably certain) IRS program changes including recent
    enhancements to IRS' e-file programs such as this year's credit card
    and signature alternative pilots. However, these projections do not
    reflect the full impact of all of the initiatives contained in the
    Strategic Plan. At this time, the IRS does not have sufficient
    information to make reasonable projections for many of the future
    initiatives. As the IRS gains more experience with the impact of the
    recently announced initiatives as well as the additional enhancements
    reflected in the Strategic Plan, increases to the current projections
    are expected.
        Question. How will this money be spent?
        Answer. An additional $5 million or a total marketing budget of $13
    million is needed in fiscal year 2000 to better inform and educate
    individual taxpayers, small and large businesses and practitioners
    about the benefits of electronic filing and electronic payments and to
    take advantage of the provision contained in the IRS Restructuring and
    Reform Act of 1998 which authorizes the use of mass communications to
    promote and encourage the benefits of ETA programs. The majority of the
    funding increase would be spent on paid advertising in the print media,
    radio and television. It is important to note that similar product and
    services launches in the private sector are typically allocated five to
    seven times this amount on an annual basis.
        Question. What kind of return can we expect on this investment?
        Answer. The IRS cannot specifically quantify the return on
    investment for our marketing initiatives at this time. However, we do
    know that similar product and service launches in the private sector
    are typically allocated five to seven times that allocated for ETA
    marketing.
        The IRS is continuing to gather quantitative data to better assess
    the impact of our marketing efforts on changes to taxpayer filing
    habits which we believe will be considerable. IRS' experience with
    marketing ETA products and services during the base years of 1998, 1999
    and 2000 will provide the data and information necessary to better
    answer this question. Specific initiatives underway include:
      --To measure whether the level of awareness and filings has increased
            nationwide as well as in specific markets as a result of paid
            advertising by monitoring specific zip codes and building on
            awareness to influence behavior.
      --To quantify taxpayer and Electronic Return Originators satisfaction
            with the e-file products and services we now offer, identify
            perceived strengths and weaknesses (diagnostics) of current ETA
            products and identify opportunities for future ETA product
            development by capturing customer and non-customer ideas about
            how ETA can improve or add to its electronic product offerings.
      --To quantify taxpayer attitudes towards and usage of technology, how
            they segment attitudinally in terms of technology and how these
            segments can be reached.
      --The ETA Marketing Database has also been constructed to
            demographically profile taxpayers, establish baselines,
            identify taxpayer eligibility to use various products such as
            TeleFile, On-Line and practitioner e-file, measure product
            usage, and make informed decisions to direct resources towards
            new marketing campaigns or product development. It currently
            contains two years of individual return information and will be
            expanded to include three years of individual, business and
            payment data.
        Question. Does the IRS have adequate systems to accommodate a
    significant growth in electronically filed returns?
        Answer. The IRS is working with the Prime Alliance on a long-term
    plan to expand ETA's capabilities to ensure that we are capable of
    meeting the goals required by the Internal Revenue Service
    Restructuring and Reform Act of 1998. Significant increases in capacity
    are expected with the redesign of the programs and systems that
    receive, process and store electronic data under the auspices of the
    Prime contract during the next few years.
        Question. The RRA authorizes the IRS to pay appropriate incentives
    for electronically filed returns. Should the IRS be paying these
    incentives? Why? What is the IRS requesting to provide these
    incentives?
        Answer. The IRS has decided to engage in a practitioner incentive
    program as authorized under the IRS Restructuring and Reform Act of
    1998. Tax practitioners authorized to electronically file tax returns
    to the IRS (Electronic Return Originators or ERO's) must be recognized,
    supported and motivated as ETA product and service distributors. Much
    as the private sector employs store front operations (whether
    independent, franchise or corporate owned), the IRS depends upon tax
    practitioners to promote electronic filing and payment to taxpayers. In
    support of this vital channel, ETA will seek to support ERO's by
    establishing an Extranet consisting of management information system,
    account resolution and tax law capabilities; expanding the marketing
    support available to ERO's including national advertising and
    promotional kits; implementing a program of product and service
    incentives, rewards and special recognition depending upon an ERO's
    success in marketing ETA products and services; and establishing
    account management programs.
        For fiscal year 2000, the IRS is requesting $2.5 million to begin
    implementing a program of distributor incentives/services to support
    the more than 90,000 IRS-authorized Electronic Return Originators
    (ERO's) who provide electronic filing services to taxpayers.
        Question. Is the IRS requesting any additional funding for
    Electronic Tax Administration?
        Answer. In addition to the $5 million requested for ETA marketing
    (see S36) and the $2.5 million requested for distributor incentives/
    services (see S39), as indicated below the IRS is also requesting
    additional funding of $5 million for private sector partnering and
    $300,000 for training, travel and support for the Electronic Tax
    Administration Advisory Committee (ETAAC).
        Private Sector Partnering--$5.0 million.--In order to achieve
    significant growth in electronic tax administration, the IRS must
    embark on a new stage in its relationship with external stakeholders to
    deliver enhanced ETA products and services through partnership with the
    private sector. $5 million is needed in fiscal year 2000 to continue to
    implement the results of ETA's initial Request for Proposals (RFP) in
    such critical areas as signature alternatives and electronic payments
    and to pursue additional pilots and RFP's including those affecting
    business taxpayers.
        Training, Travel and Electronic Tax Administration Advisory
    Committee Support--$300K.--An additional $300,000 is requested to cover
    the costs of supporting the ETAAC which was required by the IRS
    Restructuring and Reform Act and for additional travel and training for
    ETA employees in such critical areas as marketing and finance which
    will enable Electronic Tax Administration to operate more like the
    private sector.
                       information technology investments
        Question. The IRS budget request does not include a fiscal year
    2000 request for the Information Technology Investment Account. That
    account, which is not part of the IRS operating budget, has a balance
    of more than $500 million. The IRS projects fiscal year 1999
    expenditures of less than $70 million, leaving a balance of more than
    $400 million. Please tell the committee how this $400 million and how
    the $325 million advanced appropriation will be obligated?
        Answer. Our current schedule for obligation of funds is being
    revised in coordination with the PRIME contractor. By June 1999, a
    multi-year expenditure plan will be completed which will show proposed
    obligations of the funds that are currently available and the
    anticipated requirements for funding in fiscal year 2001.
        The level of funding by year will be determined as a result of the
    detailed planning that is currently taking place. IRS strategic plans
    that incorporate congressional guidance together with analyses of best
    practices will result in an expenditure plan that details costs based
    upon strategic goals. The expenditure plan will reflect costs for
    ongoing modernization activities which include: Program management;
    Blueprint and Sequencing Plan updates; Development of prioritized
    modernization projects; and Future work driven by business systems
    planning, alternatives analysis, electronic tax administration, and
    organizational modernization.
        Question. What services is the Prime Contractor providing now?
        Answer. The first task orders for the PRIME include: Building
    process maturity to manage Modernization, such as the
    institutionalization of the PRIME's CatalystSM methodology
    as our Enterprise Life Cycle (ELC) and developing processes,
    procedures, and plans for program management; Developing the business
    and information technology strategic plan including evaluating
    alternatives for migrating to the Modernization Blueprint; and Planning
    and design of the first subreleases of the Modernization Blueprint in
    support of Customer Service and Compliance. These subreleases are:
    Subrelease 1.1--Primary Telephone Call Routing and Management,
    Subrelease 1.2--Enhanced Secondary Telephone Call Routing and
    Management, and Subrelease 1.3--Infrastructure and Security.
                             low income tax clinics
        Question. The Restructuring and Reform Act of 1998 authorizes the
    IRS to fund Low-Income Tax Clinics in the amount of $6 million. The
    funding will be distributed in the form of grants which will provide
    matching funding of up to $100,000. The fiscal year 1999 appropriation
    bill provided $2 million in start up costs for this program. How will
    the program be implemented?
        Answer. The program is being implemented through the development of
    a Low Income Taxpayer Clinic Program Guidelines and Application
    Package. We consulted with the IRS Chief Counsel and appropriate
    external stakeholders prior to completion of this package. We placed a
    draft Low Income Taxpayer Clinic (LITC) Application Package on the IRS
    Web Page on January 11, 1999 and in the Internal Revenue Bulletin (IRB)
    on January 25, 1999. A notice of the availability of the application
    package on the IRS Web Page appeared in the January 14, 1999 Federal
    Register. The public was given until February 27, 1999 to provide
    comments regarding the draft application package. Their comments are
    currently being reviewed. We plan to publish a Federal Register notice
    in April 1999 announcing the availability of the final application
    package. We plan to award grants to qualifying organizations in July
    1999.
        Question. Who will be eligible for the matching funds?
        Answer. Qualifying organizations that provide legal assistance to
    low-income taxpayers in controversies with the Internal Revenue Service
    and inform individuals for whom English is a second language of their
    tax rights and responsibilities. A qualifying organization is either an
    accredited law, business or accounting school where students represent
    taxpayers in controversies with the IRS; or an organization described
    in section 501(c) that is exempt from tax under section 501(a). A
    qualifying clinic cannot charge more than a nominal fee and must
    provide either representation or referral of taxpayers and/or
    dissemination of information to individuals for whom English is a
    second language regarding their tax rights and responsibilities.
        Question. What criterion is being developed to prioritize requests?
        Answer. Eligibility standards, prescreening guidelines
    administrative procedures and selection criteria are currently being
    developed for the program.
        Question. Are the IRS employing outreach efforts to ensure all
    eligible institutions are aware of the availability of these funds?
        Answer. Yes. We have participated in two LITC workshops sponsored
    by the American Bar Association. Over 100 individuals attended these
    workshops but we do not know how many of them will apply for a grant.
    We placed a notice of the availability of the draft LITC Application
    Package on the IRS Web Page, in the January 11, 1999 Federal Register,
    and in the January 25, 1999 IRB. A national news release was issued by
    our Communications Office to coincide with the notices. In addition, we
    have mailed out notices to 50 external stakeholders who have a
    potential interest in the availability of the LITC matching grant
    funds.
                              exam audit coverage
        Question. Over the past few years funds have been depleted in the
    audit coverage activity. What impact has that had on revenue
    collection?
        Answer. The purpose of Examination audit coverage, in addition to
    determining the correct amount of tax, is to ensure voluntary
    compliance. IRS is committed to a long-term shift in emphasis--away
    from traditional approaches that rely on one-on-one, face-to-face
    enforcement--to wholesale treatments that emphasize systemic solutions
    to noncompliance in identifiable market segments (e.g., industry
    groupings and/or classes of taxpayers who share common filing patterns
    and economic/demographic characteristics). New program initiatives
    target educational programs and outreach efforts aimed at improving
    voluntary compliance--and total dollars collected--through partnerships
    with customer groups and external stakeholders.
        Question. How does the IRS allocate the available resources?
        Answer. Examination staffing is allocated using a resource
    allocation model. This model allocates resources where they can be used
    in the most effective manner, within certain constraints. Such
    constraints include the projected revenue agent and tax auditor
    staffing and the number of returns which can be examined per year. The
    key component of this allocation model is the DIF (Discriminate
    Function) return scoring system. Through DIF we are able to rank our
    inventory of returns with the greatest probability of error on a
    national basis. In addition to providing resources to audit classes
    where we believe the potential for error is greatest, resources are
    also allocated to maintain minimum levels of coverage in each audit
    class and to support special compliance programs. Staffing for a
    district will be equal to its share of the highest potential for error
    DIF returns and special program staffing.
        Question. Are the resources being dedicating (sic) to cases that
    represent a substantial portion of the estimated ``tax gap'' (e.g.,
    large and mid size corporations) to those cases where it is easier to
    get a faster return?
        Answer. Revenue agents examine the ``large and mid size
    corporations'' (defined as corporations with assets of $5 Million or
    more). As the question indicates, between fiscal year 1997 and fiscal
    year 1998 revenue agent examination time decreased. The percentage
    decrease in the time applied to large and mid size corporations was 6
    percent. This compares to a decrease of 17 percent of the revenue agent
    time spent examining individual returns. Overall coverage of individual
    returns was 0.99 percent and about 19 percent of the large and mid size
    corporations in fiscal year 1998.
                          organizational modernization
        Question. The IRS is requesting $140 million for implementing the
    Modernization concept to restructure, reorganize, and retrain the IRS
    workforce. How will that request be allocated?
        Answer. The IRS is asking for Congressional support in the fiscal
    year 2000 appropriation process as it works to finalize the
    modernization blueprint and refine the projected costs to modernize the
    agency. We anticipate that the costs of modernization will shift within
    the $140 million as projections for staffing and the geographic
    footprints of the headquarters of the four new operating divisions are
    finalized. Regarding staffing, the ``human behavior'' factor, which is
    difficult to predict and will probably cause changes in our cost
    projections for buyouts and relocations, must be considered. In some
    cases, managers and employees will choose new jobs requiring additional
    skills; and they must be provided with appropriate training. In other
    cases, they will choose to take jobs in different cities; and their
    relocation expenses must be provided. In addition, there will be those
    who will opt for a buyout. Given those factors, the Service currently
    estimates that the $140 million would be applied as follows: $53
    million for buyouts, $41 million for relocations, $3 million for
    recruitment, $36 million for training related to organizational change,
    and $7 million for moving and realigning computer equipment.
        Question. The fiscal year 1998 and fiscal year 1999 appropriation
    bills included $46.6 million to hire contractors to carry out this
    modernization. The fiscal year 2000 budget requests an additional $21
    million. What have the contractors provided?
        Answer. The contractor has analyzed and validated the initial
    organizational concept, and has subsequently supported the development
    of a corresponding implementation plan that would reorganize the IRS
    and refocus its attention on our various customer segments and their
    needs. A variety of deliverables were submitted as this effort was
    undertaken as described below:
    Phase I deliverables: Completed and delivered April 1998:
        Identification of customer segments
        Analyses of the particular needs of our customer segments
        Baseline organizational report
        Organizational design principles and overall management
    architecture
        Migration and transformation plan
        Communication plan
        Final report and executive summary
    Phase II deliverables: All deliverables on target for delivery April
            1999:
        Initial organizational hypotheses and approaches
        Key findings
        Preliminary blueprint of new organization
        Refined blueprint of new organization
        Comprehensive team deliverable, which merges individual team plans
        Integrated blueprint
        Archival support data
        Question. Although there will be ongoing costs associated with the
    organizational modernization, much of the fiscal year 2000 request
    associated with the modernization are one time costs that should not be
    built into the IRS baseline. Should the appropriations committee
    consider separating these costs by establishing a separate account to
    track organizational modernization costs?
        Answer. The IRS will track Organizational Modernization costs
    regardless of how funding is provided and reflect one-time needs as
    non-recurring in the subsequent budget submission.
        Question. GAO's fiscal year 1998 Financial Audit issues a qualified
    opinion of IRS's administrative functions. In part, the qualified
    opinion was due to IRS's inability to reconcile its fund balance with
    Treasury, and its understatement of property and equipment on its
    financial statement. In addition, there are outstanding issues
    concerning the IRS's Statement of Budgetary Resources. These problems
    are indicative of weak financial management. What mechanisms has the
    IRS developed to ensure that you will receive an unqualified audit in
    the future?
        Answer. First, the IRS has made this a top priority and has
    established a corrective action team under the direct control of the
    Chief Financial Officer (CFO) to address the issues, concerns, and
    weaknesses raised in the report. The team is working with the
    Department of Treasury, OMB, and GAO to achieve buy-in on the plan,
    which will be shared with Congress. The team anticipates that the plan
    will be completed by March 31, 1999.
        Second, while the Service's systems were not designed to meet
    today's standards and are in non-compliance in some cases, interim
    solutions are being planned and implemented to bridge the gap until
    enhanced or new integrated systems can be delivered over the next
    several years. The Chief Information Officer (CIO) is bringing on board
    an executive with expertise in addressing management and finance
    systems issues to assist in this effort. The CFO will be working with
    the CIO to identify priorities and resources necessary to complete
    these systems solutions.
        Third, outside experts will be brought in during fiscal year 1999
    to assist internal staff in clearing up already known deficiencies and
    problems in administrative activities and to assist in designing
    solutions to these problems.
        The IRS regrets that the fund balance with Treasury was a problem
    in fiscal year 1998 and is taking immediate action to ensure that this
    does not happen in fiscal year 1999. On the property and equipment
    issue, the Service follows Treasury policy on the capitalization of
    property and equipment. GAO has been advised that this is a government-
    wide problem and probably needs to be addressed by the Chief Financial
    Officer's Council. While a clean opinion in fiscal year 1999 cannot be
    guaranteed, the Service is fully committed to meeting all
    Congressionally mandated and other legal requirements, complying with
    financial accounting and reporting standards, and making the necessary
    improvements in its financial systems and financial management
    processes to secure a clean opinion on its financial statements as soon
    as possible.
        Question. What systems are you establishing to ensure that your
    financial systems can report critical audit information?
        Answer. The IRS has developed extensive ``work around'' procedures
    to meet these financial requirements and track this information. The
    Service's requirements for enhanced or new systems include the
    capabilities to track this information and provide the necessary
    financial information to support financial statements; however, this
    solution is some years down the road. Until then, the Service will need
    to use and refine these interim procedures to produce its financial
    statement information.
                             year 2000 date change
        Question. The fiscal year 2000 budget requests $250 million and 239
    FTE (Full Time Equivalents) to meet Year 2000 requirements. Please
    explain these continuing requirements--$123.4 million for staffing,
    telecommunications, and contractual support, $26.4 million for
    Integrated Submission and Remittance Processing, and $100.6 million for
    the Service Center Mainframe Consolidation.
        Answer. The IRS has made significant progress in preparing for the
    Year 2000. As of January 1999, nearly all of our mission-critical
    systems were made Y2K compliant and were placed back into production
    for the 1999 Filing Season. Approximately half of these systems have
    been successfully tested ``end-to-end'' with the clocks rolled forward.
    We will continue focusing our repair efforts on mission critical
    systems from now until the end of March. From April through the end of
    1999, most of the effort will be applied to wrapping up some smaller
    systems and, most importantly, completing the full-scale end-to-end
    testing.
        While this picture is generally positive, there is still a great
    deal of risk and some trouble spots. In fact, we believe that the next
    90 days represent the riskiest period. The massive amount of changes
    made to our systems in the last year, coupled with the extremely heavy
    volumes of processing that occur during the filing season, may cause
    localized problems. We have organized an internal process to identify
    and respond to such problems immediately and to eliminate or mitigate
    any possible impact on taxpayers.
        Because of the complexity and integrated nature of the Service's
    computer systems, the Y2K conversion was planned and scheduled to take
    place over several years; consequently there are a significant number
    of critical Y2K related tasks and monitoring activities that are
    scheduled for completion during fiscal year 2000.
        Of the $250 million requested, $123.4 million will be used to fund
    the staffing, telecommunications and contractual support required to
    manage and complete the remaining conversion work and ensure that all
    IRS tax and critical systems are Y2K compliant as of January 2000.
    Specifically, the Service will concentrate on conducting a final, all-
    inclusive code review to ensure compliance with IRS/Treasury/OMB
    standards, on conducting owner-sponsored end-to-end integration testing
    to ensure integration with year 2000 filing season changes, on
    continuing the formal risk management (identification, monitoring,
    resolution) process, and on implementing an ``End Game'' strategy
    designed to reduce risk. ``End Game'' activities include establishing
    and operating a Situation Response Center (SRC) equipped to resolve all
    Y2K related problems/issues, providing back-up SRC activities and
    communications, providing storage for mission-critical supplies and
    services and expanding testing and technical help-desk support. In
    addition, the Service will maintain the test beds, software packages
    and telecommunication products used in converting the nationwide
    telecommunications infrastructure.
        Within IRS' overall Y2K program, the Mainframe Consolidation
    project and the ISRP project represent the two efforts that contained
    the largest degree of risk, and hence required the most sophisticated
    project management techniques. In the past, IRS was overly focused on
    simply meeting dates, rather than focusing on strategic priorities. The
    management process we are using today is managing risk more effectively
    by being flexible, constantly evaluating our options, adjusting
    schedules to meet constantly changing business priorities and jointly
    managing project between the Information Systems and Business
    Operations organizations. All projects are run with a focus on
    maximizing benefits for the taxpayer and obtaining the best utilization
    of our limited resources, both human and capital.
        With respect to the Integrated Submission and Remittance Processing
    (ISRP) project, we chose to delay installing remittance processing in
    the last four centers because we did not want to increase the risk on
    the 1999 filing season. We will have all sites fully operational in
    time for next year's filing season, and we will have a full year of
    operational experience behind us in six sites and two full years in one
    site. During fiscal year 2000, the system will require $26.4 million to
    fund hardware/software maintenance, continued program development,
    contract support for testing, technical management, integration
    testing, and the Phase 2 rollout and implementation of the Remittance
    Processing System (RPS) component at the Cincinnati, Philadelphia,
    Atlanta, and Fresno Service Centers.
        The addition of disaster recovery capabilities recommended by the
    GAO, along with the need to devote resources to Y2K work, has extended
    both the timeframe and cost of the Mainframe Consolidation effort.
    After delivering on all Y2K requirements, implementing basic disaster
    recovery and fully consolidating three mainframe sites, the Mainframe
    Consolidation effort will require $100.6 million to manage and complete
    the consolidation of the Service's mainframe computing operations.
    Specifically, costs include system maintenance costs for the Service
    Center Replacement System (SCRS), the Security and Communications
    System (SACS), and the Integrated Collection System/Automated
    Collection System/PRINT (I/A/P) systems; recurring lease-to-purchase
    costs for SCRS and I/A/P; software maintenance costs for SCRS and I/A/
    P; third party (vendor) software maintenance costs; and disaster and
    business recovery costs. In addition, the IRS has identified
    requirements that impact fiscal year 2000 Mainframe Consolidation
    efforts, including standardizing service center operating processes,
    staffing computing centers and year 2000 end-to-end integration
    testing.

                                             FISCAL YEAR 2000 Y2K INITIATIVE
                                                  [Dollars in millions]
    ----------------------------------------------------------------------------------------------------------------
                                       Cost of FTE
                                  --------------------   Non-     Program
               Program                         Labor     Labor     Total               Program Activities
                                      FTE     Dollars   Dollars
    ----------------------------------------------------------------------------------------------------------------
    Year 2000 (Y2K)..............       209     $21.8    $101.6    $123.4  Complete final, all-inclusive code review
                                                                            to ensure compliance with IRS, Treasury,
                                                                            and OMB standards.
                                                                           Conduct owner-sponsored end-to-end
                                                                            integration testing to ensure
                                                                            integration with the CY 2000 filing
                                                                            season changes.
                                                                           Continue formal risk management process.
                                                                           Implement an ``End Game'' strategy, which
                                                                            includes: implementing/operating a
                                                                            Situation Response Center (SRC) to
                                                                            resolve problems; providing back-up SRC
                                                                            and communications; providing storage
                                                                            for critical supplies and services;
                                                                            expanding testing and technical help
                                                                            desk support; maintaining test beds,
                                                                            software, telecommunications products
                                                                            used in converting the nationwide
                                                                            telecommunications infrastructure.
    Integrated Submission and            30       3.2      23.2      26.4  Hardware/software maintenance.
     Remittance Processing (ISRP).                                         Continued program development.
                                                                           Contract support for testing.
                                                                           Integration testing.
                                                                           Technical management.
                                                                           Phase 2 Implementation of the Remittance
                                                                            Processing System (RPS) component at the
                                                                            Cincinnati, Philadelphia, Atlanta, and
                                                                            Fresno Service Centers.
    Service Center Mainframe       ........  ........     100.6     100.6  Complete the consolidation of mainframe
     Consolidation (SCMC).                                                  computing operations from ten Service
                                                                            Centers to two Computing Centers through
                                                                            lease-to-purchase acquisition/
                                                                            maintenance agreements.
                                                                           Data transmission.
                                                                           Contractual support activities.
                                                                           Implement and test improved Disaster
                                                                            Recovery.
                                                                           Independent validation/verification.
                                  ----------------------------------------
          Initiative Total.......       239      25.0     225.4     250.4
    ----------------------------------------------------------------------------------------------------------------

        Question. Should these requirements be considered an ``emergency'',
    in other words shouldn't the funds be requested from the fiscal year
    1999 Emergency Fund so we would not impact our scarce fiscal year 2000
    allocation? Were these costs known when the fiscal year 1999 Emergency
    Funds were requested?
        Answer. The funding for these requirements should not be considered
    an emergency. The $250 million was requested in the fiscal year 2000
    budget because the need for this funding was known when the fiscal year
    2000 budget was being formulated (and the time when the fiscal year
    1999 Emergency Funds request was made).
        Question. What happens to the 239 FTE in fiscal year 2001?
        Answer. These FTE will be moved from Y2K work into roles supporting
    modernization and continued implementation of legislative changes.
    Specifically, these resources will be used to:
      --Provide development staffing to support the Modernization
            Blueprint/PRIME. Tasks and activities include development of
            requirements for legacy bridge programs that support key
            modernization initiatives, configuration management, planning,
            scheduling, systems analysis, technical evaluation, software
            and system modifications, and PRIME partnership support.
      --Provide Capacity and Performance Review resources to support the
            PRIME contract and Modernization bridges and initiatives; and
            to conduct capacity and performance impact analysis of
            modernization and near term initiatives in support of the PRIME
            contract.
      --Perform a substantial number of coding changes and the realignment
            of systems operations to reorient tax processing to the
            requirements of the four new tax divisions of the Service.
      --In the long term, support the redesign and evolution of batch and
            paper-oriented core data repository to an online, interactive
            database architecture and to facilitate the resolution of
            issues involving legacy corporate processing.
      --Provide development/maintenance staffing for system application
            changes resulting from the IRS Restructuring and Reform Act of
            1998 and other anticipated/proposed legislative requirements.
        With the completion of Y2K work, Information Systems will resume
    making enhancements, based on defined business needs, to existing
    systems. There is at least a two year backlog of necessary systems
    application change requirements from the Taxpayer Relief Act of 1997,
    the IRS Restructuring and Reform Act of 1998 and required program
    (customer service, collection, examination) changes. Staff previously
    devoted to Y2K testing will be redirected to increase the number of tax
    processing program changes tested in Product Assurance before release
    to production. Staff who have been devoted to Y2K related program/
    project management activities will be redirected to integrated product
    teams working with the PRIME contractor to define requirements, oversee
    contractor performance, validate the quality of contractor
    deliverables, and implement systems in accordance with the new Systems
    Life Cycle.
                                transfer pricing
        Question. How many employees at the IRS are currently working on
    transfer pricing compliance issues? Please describe the nature of their
    work and the length of time they have worked on such issues.
        Answer. International Examiners (IE's).--IE's (approximately 650
    nationwide) are responsible for all the international issues associated
    with an examination. They routinely examine transfer pricing issues on
    corporate examinations. Approximately 50 percent of total IE direct
    examination time is spent on section 482 issues in cases closed during
    each fiscal year.
        International Field Assistance Specialization Program (IFASP).--
    IFASP specialists support field examination work by providing case
    assistance and training to field international personnel nationwide.
    The four section 482 specialists have approximately 70 years experience
    in the international arena, most of which was at the examination level.
    They have played a significant role in recommending changes and
    additions to the section 482 regulations, which assist the field in
    better enforcement of the transfer pricing area.
        Competent Authority.--Two groups of professionals (23 employees)
    work on double taxation cases with treaty partners regarding transfer
    pricing issues. Their inventory also includes bilateral and
    multilateral Advanced Pricing Agreements (APA's).
        Associate Chief Counsel (International).--Approximately 10
    attorneys are devoted to transfer pricing, which includes
    interpretation of the law, issuance of regulations, and numerous
    guidance projects.
        Advanced Pricing Agreement (APA).--The APA program affords a means,
    in appropriate cases, of addressing the principal section 482
    compliance and enforcement problems. Through that program, a taxpayer
    and the IRS can negotiate and agree upon a system of records and an
    appropriate transfer pricing methodology. In bilateral and multilateral
    cases, the competent authority of treaty partner countries may also
    participate, so that the maximum amount of certainty and predictability
    regarding future tax treatment of specified types of transactions can
    be obtained. As mentioned below, there are currently 18 professional
    employees directly responsible for APA's; in addition, the field
    expends approximately 16 to 20 direct examination staff years as part
    of the APA Team.
        Question. How many Advanced Pricing Agreements (APA's) have been
    reached between the IRS and corporate taxpayers? How many of these
    corporate taxpayers are foreign based? How many are U.S. based
    companies?
        Answer. Since the issuance of the first APA on January 15, 1991,
    through March 3, 1999, 174 APA's have been agreed to between the IRS
    and corporate taxpayers. Due to improvement of the process for issuing
    APA's over time, 130 of these agreements have been completed in the
    last three years. Of the 174 completed APA's, 101 are with foreign-
    based parent companies and 73 are with U.S.-based parent companies.
        Question. How many IRS employees are directly or indirectly
    involved in the APA program?
        Answer. There are currently 18 full time professionals and three
    support staff assigned to the APA Program in the Office of the
    Associate Chief Counsel (International). In addition, IRS field
    employees assist in the evaluation of taxpayer requests for APA's that
    conduct their business operations within the boundaries of the District
    office. Nationwide, according to time reports filed by examiners, it
    appears that approximately 16-20 field direct staffyears annually have
    been incurred in coordinating APA's.
        Question. Does the IRS believe that its APA program is improving
    transfer-pricing compliance? If yes, how does the IRS measure its
    success in this area?
        Answer. In terms of compliance, every APA that is entered into with
    a taxpayer essentially results in 100 percent voluntary compliance with
    the rules governing transfer pricing for that taxpayer. That is, by
    signing the agreement, the taxpayer agrees to file tax returns that
    fully comply with the arm's length standard. In the opinion of many
    transfer pricing experts, in both the public and private sectors,
    establishing ``up front'' guidelines for compliance for a particular
    taxpayer in this manner is less costly than the traditional adversarial
    process of audit and litigation. To date, however, the APA program has
    not developed a method for measuring these resource savings.
        As an alternative dispute resolution program, the APA program
    serves an important role in the Service's overall transfer pricing
    compliance strategy. In recent years, Congress has enhanced the ability
    of the Service to enforce transfer pricing compliance by enacting
    documentation requirements and strict penalty provisions. These
    measures are designed to encourage taxpayers to report their transfer
    prices correctly at the outset. The APA program complements these
    measures by providing a mechanism by which taxpayers can achieve early
    certainty that they will avoid the large penalties and heavy expenses
    that accompany a post facto transfer pricing dispute.
        Finally, the APA program is voluntary and nonadversarial, which
    allows for a cooperative environment where taxpayers are willing to
    provide information freely. Such information not only can be utilized
    in connection with the specific case, but can also allow the Service to
    obtain a more current understanding of industry conditions and
    practices, which, in turn, enables the Service to develop more
    responsive general guidance and more effective regulations.
        Question. In the past, the IRS has been recovering only about 20
    cents on every dollar it believes is owed to the U.S. government by
    companies due to transfer pricing. What is the IRS's current sustention
    rate on Section 482 transfer pricing adjustments?
        Answer.
                                                                  Sustention
            Year                                                   (Percent)
    1993.............................................................. 33.00
    1994.............................................................. 19.41
    1995.............................................................. 34.00
    1996.............................................................. 17.00
    1997.............................................................. 14.00
    1998.............................................................. 29.00

        Our Centaur database includes both Appeals and Counsel disposals.
    These rates reflect the net Appeals/Counsel sustentions.
        Question. The IRS is currently studying the estimated revenue loss
    due to transfer pricing abuses. In a more limited study in 1994, the
    IRS determined that the possible revenue losses from improper transfer
    pricing by foreign based companies was between $1-2 Billion a year. But
    the IRS admitted that its audit adjustment based methodology might
    significantly understate the true size of the losses. How will the IRS
    improve its current study to give a more accurate assessment of the tax
    gap in this area?
        Answer. IRS's current estimates of revenue loss due to transfer
    pricing abuse, like the estimates in its 1994 study, are once again
    based on operational audit adjustment data, as these are the best data
    currently available on which to base these estimates. It is true that
    estimates based on operational audit data are not as good as estimates
    based on the random, intensive audits of IRS's Taxpayer Compliance
    Measurement Program (TCMP). However, the only TCMP data available for
    corporations date back to 1987 and are limited to small (under $10
    million in assets) corporations.
        IRS's current estimates are based on operational audit data for
    fiscal years 1995-1998. These data are more detailed than the
    operational audit data used in IRS's 1994 study. The estimates in the
    1994 study could only distinguish in general between FCC revenue losses
    due to ``international adjustments'' and those due to ``domestic
    adjustments.'' IRS's current estimates, however, will focus on section
    482 issues, and particularly on transfer pricing adjustments. In
    another improvement over the 1994 study, IRS's current estimates will
    include revenue loss estimates for U.S.-based multinational
    corporations as well as for FCC's.
        Question. Has the IRS used, or plan to use, the authority to
    increase wages that Congress granted it in last year's major IRS reform
    bill to help retain the best-trained and most experienced IRS employees
    working in the international tax area?
        Answer. The IRS is using critical pay authority as judiciously as
    possible. Starting with some top level positions, we will fill new key
    operating division head and selected critical positions in other parts
    of the organization using critical pay. We will soon begin to explore
    the feasibility and business needs for positions below senior
    leadership. We are currently in the process of exploring all options
    including paybanding, retention allowances, and demonstration projects.
    In doing this, we are coordinating closely with Treasury, the Office of
    Personnel Management and the National Treasury Employees Union. We
    expect to have more definitive plans in this arena in the next 90-180
    days. These plans will address our front line occupations including
    those in the international tax area.
                                     ______

                    Questions Submitted by Senator Mikulski
                            new carrollton facility
        Question. What are the IRS staffing plans for the New Carrollton
    facility--both in civil service and contractor personnel?
        Answer. The New Carrollton facility master plan accommodates a
    total of 4,440 employees (4,160 IRS employees, and 280 contractor
    employees). New Carrollton has also been identified as the new
    Headquarters location of the Small Business & Self-Employed Business
    Division and the Information Systems function. Through 2002, employees
    will be realigned into and out of New Carrollton to fully staff these
    two primary business units.
        We also have additional National Office employees in the following
    Maryland suburbs: Bethesda (67 IRS employees, and 10 contractor
    employees); Constellation Building in Oxon Hill (260 IRS employees, and
    21 contractor employees); and Salubria Building in Oxon Hill (89 IRS
    employees, and 468 contractor employees).
        Question. The IRS has announced that new headquarters locations
    will be set up in the Washington D.C. area for Small Business and Self-
    Employed Operating Division and the Tax Exempt Operating Division. Will
    either of these organizations be located in New Carrollton?
        Answer. The Small Business and Self-Employed Operating Division
    will be located in New Carrollton, Md. The Tax Exempt Operating
    Division will be located in Washington D.C.
        Question. What is your projection for the staff buildup for the
    newly awarded IRS Prime Contractor? How many of these jobs do you
    expect to be in the New Carrollton area?
        Answer. There are no projected staffing increases for the IRS to
    support the newly-awarded IRS PRIME Contract. However, the PRIME
    intends to have about 50 staff on board in April 1999 and will ramp up
    to about 100 staff by September 1999, with increases based upon the
    defined work. The PRIME intends to locate these staff in the New
    Carrollton, Maryland area.
        Question. With the award of the PRIME, how do you see New
    Carrollton becoming a technical center of excellence for the IRS, much
    like Goddard is for NASA?
        Answer. The Information Systems organization is embarking on
    several initiatives that will ensure that the technical expertise
    required to deliver and maintain its programs and systems is available.
    Partnering with the Prime contractor is a major factor in direction.
    The Information Systems' personnel located in the New Carrollton
    facility, supported by the Prime contractor, will form the core of our
    nation-wide technical support that will provide all systems' customers
    with quality products and services no matter where they are located. As
    we restructure our Information Systems organization to meet the
    challenges before us, our technical personnel will receive the training
    they need to make our New Carrollton facility the center of excellence
    our internal and external customers expect and deserve.
        Question. How do you see this affecting the local communities?
        Answer. Internal Revenue Service employees have traditionally been
    extremely supportive of the communities in which they live. Not only is
    the local economy positively affected by the many IRS workers who buy
    goods and services at this time, we anticipate that as Prime contractor
    personnel and supporting partners visit our facility, the economy will
    be even more positively affected. In addition, many of our New
    Carrollton personnel--as well as those in all of our locations
    nationwide--support local charitable and civic organizations with their
    time and money. As our center of technical excellence grows, so will
    our support of the communities that support us.
        We expect that any impact on the New Carrollton area will be
    positive. The New Carrollton site is geographically convenient for many
    current and future occupants due to its accessibility to public
    transportation and major roadways. We anticipate that many new recruits
    for the New Carrollton facility will be relocating to the Maryland
    area. Current employees in the New Carrollton facility utilize the
    local vendors including a variety of restaurants and shopping areas.
    This, coupled with an already steady economy, should be beneficial to
    the immediate New Carrollton area including the surrounding local
    communities.
                              service to taxpayers
        Question. How will the Prime Contractor be used to help improve the
    service that IRS provides taxpayers?
        Answer. Initially, the PRIME will support the IRS to develop the
    business and IT strategic plan with insight from commercial ``best
    practices'' and to establish the prioritized Modernization initiatives
    with a focus on improving service to taxpayers. The PRIME will also be
    jointly responsible and accountable for effectuating our Modernization
    effort. Early initiatives will provide enhanced call management, a
    single database for refund and fact-of-filing inquiries, daily posting
    of fact-of-filing, and better security, auditing, and managing
    information data. Infrastructure improvements include modern Internet
    technology and infrastructure development and deployment plans. These
    increased technical capabilities will provide taxpayers with improved
    telephone services and expanded Internet capabilities while protecting
    privacy, as well as allowing IRS to better manage operations that will
    increase the quality of service.
        Another early initiative provides infrastructure and security for
    employee access to modernized and legacy data through a single
    universal secure workstation. The implementation of the Interim
    Regional Infrastructure Services (IRIS) at field locations and enhanced
    national infrastructure services will provide: Standardized
    identification and authentication security; Employee access controls
    through the Authentication Database (AUTHDB); and Expanded audit trail
    data collection to include legacy access audit information via secure
    workstations.
        Universal Secure Workstations (USW) supported through the
    implementation of IRIS enable access to modernized and legacy systems.
        Question. What is the schedule for achieving some of these service
    improvements?
        Answer. The initial deployment of some of these improvements will
    be piloted during mid-2000 and then made available to the taxpayer in
    January 2001. Subsequent capabilities will be deployed on an
    incremental basis over the next several years.
        Question. Will some of the new service being provided to taxpayers
    include more opportunities for taxpayers to interact with the IRS
    electronically?
        Answer. Yes. Working with the Prime Alliance, the IRS expects to
    enable expanded and improved services to taxpayers. Some of the early
    releases of functionality the IRS is seeking funding for from the
    Information Technology Investment Account (ITIA) includes electronic
    self-service applications such as fact of filing and refund inquiry.
    Additionally, the IRS and the Prime Alliance will be working this
    spring to review the electronic filing, payment, and communications
    capabilities called out in ETA's strategic plan, ``A Strategy for
    Growth.'' This review will help determine which electronic service
    capabilities are best suited for partnering with the Prime Alliance for
    delivery in the near term.
        Question. When will the average taxpayer be able to file his or her
    taxes over the Internet?
        Answer. Most taxpayers can file their taxes over the Internet now.
    In partnership with the IRS, the private sector has enabled
    sophisticated tax preparation and e-filing capabilities on the Internet
    using the World Wide Web (WWW). The fastest growing method for e-filing
    is the ``on-line filing'' channel, which is a combination of taxpayers
    using WWW products and personal computer tax preparation software to
    file their taxes electronically.
                                prime contractor
        Question. What are some of the other major initiatives that the IRS
    and the Prime Contractor will be undertaking?
        Answer. Other initiatives to be undertaken with the PRIME in the
    next stage of Modernization are now being identified as part of an
    ongoing business and IT strategic systems planning. We expect to
    identify a limited number of high-priority and high-impact initiatives
    that can be developed in the next five years.
        Question. The previous CIO testified that the IRS has almost 60
    stovepipe databases that make it very difficult for the IRS to provide
    immediate answers to taxpayers questions. When do you expect to begin
    developing new IRS master files that integrate these stovepipe
    databases into a single integrated database that allows IRS customer
    service representatives to provide timely information to taxpayers?
        Answer. Migrating taxpayer records from the existing MasterFile
    into a single integrated database is a vast, complex, and risky
    undertaking that will require many years to complete. In order to limit
    risk and to accomplish this effort in the mostly timely manner, we are
    undertaking detailed planning considering both technical and business
    requirements and impacts. We are currently in the process of developing
    an approach to accelerate migrating taxpayer records from the existing
    systems to the new integrated database in support of our new operating
    divisions and consistent with our Modernization strategic planning
    efforts. We are studying the feasibility of beginning with selected
    market segments to validate our concept, minimize risk, and deliver
    early benefits. These early benefits will provide more timely service
    and more accurate information for taxpayer customer service.
        Question. What will be the Prime Contractor's role in this
    development?
        Answer. The PRIME has the responsibility and accountability to
    deliver the single integrated database. This includes the: Associated
    program management; Procurement administration to select from among
    competing alternative business solutions; and Horizontal integration
    with the legacy environment as well as the evolving Modernization
    environment.
        Question. What assurances can you give the committee that the money
    we appropriate for modernization will be well spent?
        Answer. The IRS is investing in the solid foundation needed to
    manage and execute Modernization effectively. To that end, we have
    implemented an agency-wide Governance structure and processes to manage
    Modernization. This Governance is under the direction of the IRS Core
    Business Systems Executive Steering Committee (CBS ESC), chaired by the
    IRS Commissioner. Members include the top executives across the
    Service, Treasury, National Treasury Employees Union (NTEU), and the
    PRIME. This committee directs Modernization and strategic planning and
    oversees critical program management activities and major programs. The
    CBS ESC is responsible for making investment decisions following a
    process consistent with commercial and government ``best practices.''
        Day-to-day management of Modernization and the PRIME activities is
    the responsibility of the Program Management and Architecture (PM&A)
    organization under the direction of the CIO, and the Business Systems
    Modernization Planning (BSMP) office under the direction of the Deputy
    Commissioner for Modernization. This management responsibility and
    accountability includes program control for Modernization. This is
    supported by a strategic risk management process to identify and
    mitigate potential problems in cost, schedule, and performance. We are
    leveraging the PRIME's best practices and existing proven processes for
    our program management and execution policies and procedures to ensure
    the best business case development and cost control over execution.
        Question. One problem the IRS has had in the past is that business
    and technology goals were not always in alignment. How do you plan to
    correct this problem?
        Answer. As described above, the Modernization governance and
    program management is a shared responsibility between the business and
    information systems organizations. We have adopted the PRIME's
    CatalystSM methodology as our Enterprise Life Cycle (ELC).
    CatalystSM is a combined business process reengineering
    (BPR) and software development methodology which is designed for timely
    implementation of the information systems necessary to enable the
    implementation of redesigned processes.
        Throughout the ELC, the business and information systems
    organizations work closely together. The first phase of the ELC
    involves the integration of business strategic planning and information
    technology and is jointly led by business and information system
    executives. Throughout the other stages of the ELC, from business
    process reengineering through deployment, business and information
    systems staff work side-by-side in integrated product teams with the
    PRIME. This extensive partnership ensures that business and technology
    goals are aligned.
        Question. The IRS has used contractors in the past for some
    programs that did not turn out well. How will your use of the Prime
    Contract be different than previous attempts to use contractors?
        Answer. The fundamental difference from our previous use of
    contractors is the creation of an IRS and PRIME strategic partnership.
    In order for Modernization to succeed, it is essential for the IRS and
    the PRIME to form a strategic partnership in which the IRS contributes
    its knowledge of tax administration and the operational systems, while
    the PRIME provides project management, business reengineering, systems
    engineering, design, development, and integration expertise. This
    partnership begins with high-level Governance, where the PRIME sits on
    the CBS ESC.
        The PRIME is an integral component for management at the program
    level and co-leads integrated product teams focused on specific project
    execution. IRS employees will work side-by-side with the PRIME to
    develop modernized systems, and will operate and maintain them once
    they are delivered. This is not the traditional turn-key contracting
    relationship where IRS throws business requirements over the fence and
    the contractor delivers a completed system.
        Another difference is that the PRIME is the integrator for
    Modernization, including both business process change and technology.
    The IRS intends to contractually require that the PRIME contractor, as
    the single systems integrator, share the risk of performance. This
    intention is reflected in the PRIME contract, which identifies that the
    IRS will use Performance Based and Fixed Price task orders where
    appropriate. The selected PRIME contractor clearly demonstrated its
    commitment to risk sharing in its proposal.
        Question. Have you achieved the managerial and technical
    sophistication needed to effectively manage the Prime Contractor?
        Answer. We have achieved a significant measure of the managerial
    and technical sophistication we need to effectively manage the PRIME
    contractor. Using the authority granted by Congress, we have put in
    place a new top management team with extensive private and public
    sector experience. This team, and IRS staff engaged in Modernization,
    are supported by our private sector partners, such as the PRIME and our
    Federally Funded Research and Development Center (FFRDC), who bring
    strong disciplined management techniques proven through experience. We
    are deliberately and steadily maturing our processes and investing in
    the training and development of our staff. We are confident that we can
    and will effectively manage the PRIME.
        Question. How do you plan to manage the Prime Contractor so that it
    most effectively contributes to your success?
        Answer. At the highest level, we have established the Core Business
    Systems Executive Steering Committee to direct Modernization and
    strategic planning, and oversee critical program management activities
    and major programs. At the next level, the Assistant Commissioner for
    Program Management & Architecture (PM&A) is responsible for managing
    the PRIME contractor relationship. The PM&A organization is responsible
    for program management and control, project management, technical
    contract management, and management of the overall architecture. PM&A
    is implementing formal processes to assess contractor performance at
    both the strategic and tactical levels.
        The Business Systems Modernization Planning office is responsible
    for defining the scope and objectives of proposed major business
    technology modernization programs, preparing business cases and
    assisting in developing and maintaining a modernization activity
    sequencing plan which includes identification of business requirements.
        Working with PM&A is our Procurement organization. The Contracting
    Officer is responsible for the overall administration of the PRIME
    contract. The day-to-day requirements of the PRIME contractor will be
    reflected in many individual task orders administered by several IRS
    contracting officers who report directly to the PRIME contract
    Contracting Officer. These task order contracting officers are
    supported by several technical representatives (Contracting Officer
    Technical Representatives or ``COTR's'') and many Government Task
    Managers (GTM's) who monitor and inspect the contractor's performance
    on a daily basis.
        Question. In addition to the Prime Contractor, the IRS has several
    other major contractors that are performing major elements of work,
    such as Booz-Allen, TRW, and Mitre. How will you ensure that the
    efforts of these and other contractors are seamlessly integrated into a
    coherent whole? Please delineate the roles of each of these contracts
    and their dollar values as well.
        Answer. We have strategically defined and managed our Modernization
    related contracts. These contracts have expressly different purposes
    and scope, and we are carefully defining their roles and
    responsibilities. The PRIME has the responsibility and accountability
    to provide: Program Management, under the direction of the IRS, to
    provide comprehensive systems life cycle and program management
    functions; Procurement administration to select from among competing
    alternative business solutions; Modernization infrastructure to
    maintain the architecture and standards reflective in the Modernization
    Blueprint; and Horizontal integration of business solutions to include
    the integration of business solutions into the legacy environment as
    well as the evolving Modernization environment.
        The Integration Support Contractor, TRW, has the responsibility to
    provide assistance for knowledge transfer of the legacy environment and
    current Modernization Blueprint to the PRIME. They are also a secondary
    source for integration support services acting under the PRIME for:
    Development of business requirements; and Integration, test, and
    deployment of modernized systems.
        The organizational modernization contractor, Booz, Allen &
    Hamilton, is supporting the Organizational Modernization and
    implementation of new balanced performance measures.
        The Federally Funded Research and Development Center, MITRE, with
    its freedom from conflict of interest and special relationship with the
    Government, supports the IRS in government activities for: Strategic
    management; Assessment of major program management activities;
    Independent evaluations; Independent verifications and validations;
    Research; and Technical advice.
        The dollar values of each of these contracts are based on task
    orders as approved through the Governance and Program Management
    processes and do not have predefined yearly values.
        The PRIME, as the overall integrator, has the responsibility to
    manage and coordinate the work of its sub-contractors. When the IRS
    contracts resources other than the PRIME, such as from the ISC, the
    PRIME works with the IRS to manage and coordinate these resources. The
    Enterprise Life Cycle (ELC) will be utilized by the IRS and PRIME,
    thereby ensuring a consistent management structure for the oversight of
    all contractor activities.
        Question. Is there some potential that the work of these
    contractors will overlap?
        Answer. We recognize the potential that the work of our various
    contractors could overlap. With our constrained funding we cannot
    afford to allow for duplication of efforts or ineffective use of our
    contracting resources. To minimize this potential, we have established
    contracts with expressly different purposes and scope, and are
    carefully defining their roles and responsibilities. We are actively
    managing the utilization of these contractors. This includes formal
    processes to resolve utilization issues that may arise.
        Question. Do you have defined roles for each of these contractors?
        Answer. We recognize the need for clear delineated roles among our
    various contracts in order to minimize the potential for overlap and
    ensure proper use of contracting services. The description of the
    various contracts and roles is given above.
                              performance measures
        Question. Do you have measurable goals that you will use to
    determine that the IRS has achieved improved levels of taxpayer
    satisfaction?
        Answer. One of the components of the balanced measurement system is
    customer satisfaction. This element of the balanced measures will be
    based on results from various customer satisfaction surveys that are
    being administered by a third party to a statistically significant
    sample of taxpayers who have interacted with the IRS. The surveys are
    designed to measure taxpayers' perceptions of how they were served. In
    this transition year to the balanced measurement system, we have not
    set a goal for customer satisfaction because the new measures are being
    baselined. The IRS will use the baselines identified during fiscal year
    1999 to establish goals for future years. Currently, customer surveys
    are administered in the following areas: Toll-free, Walk-in, Exempt
    Organizations (EO) Determination, Employee Plans (EP) Determination,
    Collection, Examination, Automated Collection System (ACS), Service
    Center Examination, EO Examination, EP Examination, and Appeals. The
    use of surveys in other areas will be considered as the balanced
    measurement system is implemented and adopted throughout the entire
    organization.
        Question. How will the average taxpayer know that the IRS has
    achieved its goals for improved customer service?
        Answer. While Congress will be able to assess IRS' progress in
    improving service to customers through specific measures in the
    balanced measurement system such as timeliness, level of service,
    quality, and accuracy, taxpayers will know that the IRS has achieved
    its goals for improved customer service based on their direct
    experiences. For example, as taxpayers receive easy-to-understand forms
    and notices, or when callers can quickly reach an IRS assistor through
    telephone service that is now available 24 hours a day, seven days a
    week or through visits to walk-in offices that offer longer hours and
    Saturday services, or when questions or problems are resolved during
    the initial contact, taxpayers will experience a change in the level
    and quality of service delivered by the IRS.

                              SUBCOMMITTEE RECESS

        Senator Campbell. Thank you. We have no further business,
    Mr. Commissioner, thank you so much for coming.
        Mr. Rossotti. Thank you.
        Senator Campbell. This hearing is recessed.
        [Whereupon, at 10:56 a.m., Thursday, February 25, the
    subcommittee was recessed, to reconvene at 9:30 a.m., Thursday,
    March 4.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2000

                                  ----------

                            THURSDAY, MARCH 4, 1999

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met, at 9:48 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Kyl, and Dorgan.

                       EXECUTIVE OFFICE OF THE PRESIDENT

                     Office of National Drug Control Policy

    STATEMENT OF GENERAL BARRY R. McCAFFREY, DIRECTOR

                                opening remarks

        Senator Campbell. Good morning. The Treasury Subcommittee
    will come to order. Senator Dorgan will be along. We were in an
    energy meeting, and he is still up there, so he will be down in
    just a few minutes. We will go ahead and start.
        I would like to welcome Barry McCaffrey, the director of
    the Office of National Drug Control Policy before the committee
    once again. Today, we are here to discuss your fiscal year 2000
    budget submission. I once again apologize that we could not get
    the camera that you requested. We needed 48 hours in order to
    do that, and we just did not get the request soon enough.
        We are here today to discuss your fiscal 2000 initiatives,
    and specifically I have an interest in receiving an update of
    the current trends of drug use and availability and how your
    2000 budget request addresses these issues. I know that the
    members of the committee are also interested in discussing the
    media campaign. You mentioned to me just a moment ago, General,
    that you do have some tapes. I would be very interested in
    seeing those even if I have to look at them in the office.
        To date, that campaign has received $380 million in
    funding, and in your fiscal year 2000 budget, if this is
    approved, we will have appropriated over $500 million for this
    one project alone, which is the single largest portion of your
    budget request. I know when you first came to this committee
    asking for this money a few years ago, some of us were a little
    bit wary, but I think it is moving along nicely and I would
    look forward to you talking about that a bit in your opening
    statement and testimony.
        Obviously, we want to ensure that the program is achieving
    its goal and that we are getting a good return on the
    Government investment. I did read your testimony and from the
    contents of your testimony it does look like there's been a
    decrease of drug use among teens. I notice from over 12.9
    percent down to 12.1 percent. I would hope that that has
    something to do with that media campaign that youngsters are
    watching, and I will be interested in listening to your
    testimony on that.
        I am also interested in knowing more about the achievements
    over the last fiscal year and how the emergency drug
    supplemental funding specifically translated into reducing drug
    problems in this country. When we fund initiatives like the
    media campaign, those are big ticket items and it is not like
    we have so many resources that we do not have to reduce
    spending somewhere else.
        One of the concerns, of course, was if there would be a
    decrease in donated media time on the part of the private
    industry if we increased money availability so that they could
    tap into that. The budget situation is so tight we often have
    to make very conscious and careful decisions.
        Therefore, I would ask you to go ahead, General McCaffrey,
    and we look forward to your testimony.
        General McCaffrey. Mr. Chairman, thanks very much for the
    opportunity to be here and to address your own concerns and
    listen to your viewpoints and those of your fellow committee
    members. I look forward to working with Senator Dorgan also. I
    have not had an opportunity to work with him before.
        Let me, if I may, ask for your permission to enter into the
    record the written statement.
        Senator Campbell. Yes, without objection, your complete
    testimony will be included in the record.
        General McCaffrey. As you know we do an enormous amount of
    work to try and make sure that is an accurate depiction of
    where we are, and we will put that up on our web page later on
    today, making it available for the many people who watch very
    closely what we are doing and the drug problem.
        Let me also, if I may, mention some of the many people who
    have helped craft our drug strategy and who are really doing
    the preponderance of the work around the country. We have
    several in this hearing today. I am honored to be joined by
    Major General retired Art Dean, and Sue Thau of the Community
    Anti-Drug Coalitions of America. As you know, they represent
    more than 4,000 community coalitions and have acted as an
    umbrella organization for a lot of the community activity
    around the country.
        Dick Bonnet and Mike Townsend from Partnership for a Drug-
    Free America are also here. And you know, Jim Burke has really
    been, in many ways, the driving force behind the notion of
    talking to America's youth using modern means of communication
    and helping change youth attitudes. I am very grateful for
    their partnership and their continuing influence.
        Dr. Linda Wolf-Jones is here. She is with Therapeutic
    Communities of America, representing what is possibly the
    single easiest payoff for us, which is to address America's 4.1
    million chronic addicts with effective drug treatment. I know
    we will talk about that more during the hearing.
        Jim McGivney is here, deputy director of DARE America.
    Arguably, there is certainly no larger or more effective
    school-based prevention program than the 26 million-plus young
    people involved in DARE, now growing rapidly in the
    international community, particularly in our hemisphere. So we
    are grateful for their revised curriculum and their engagement
    in schools across America.
        Kathleen Sheehan from NASADAD is here. They have been very
    heavily involved in trying to bring sensible management at
    State level to these Federal resources you have provided to us.
    And Johnny Hughes from the National Troopers Coalition, who has
    been a personal friend and an advisor throughout the last three
    years.

                            CONCEPTUAL ORGANIZATION

        Mr. Chairman, if I may, let me just for the record talk
    about the conceptual organization of our national drug control
    policy. With your permission, I will just hold up and briefly
    talk about five volumes.
        Beginning with the National Drug Control Strategy which you
    are obviously familiar with, as is your staff. There is a
    difference though. This year, thanks to the omnibus legislation
    that you passed last year which reauthorized the National Drug
    Control Policy Office. It was the subject, as you remember, of
    two years of sort of intense negotiations, and I am very
    grateful for the bipartisan involvement of Congress in getting
    that bill passed.
        So this National Drug Control Strategy is now not only
    mandated by law that I produce it, but it is operative for five
    years. So I will come down each year and explain if it still
    fits the environmental circumstances. But this is now a long
    term document that we are proud to put in play, the 1999
    National Drug Control Strategy.
        That strategy has been revised from last year. We went out
    to more than 4,000 institutions and individuals throughout the
    country. We sought their advice. We have read their input and
    it is on the table to guide our actions.
        The second document, if I can underscore it, is the five-
    year drug budget summary. So we have submitted not only Fiscal
    Year 2000 drug budget, but also a five-year projection. It is
    better than last year's five-year projection. It still is not
    very good.
        But there is a key difference, that last year it was the
    OMB director and I who got through collegial discussion, my
    colleagues to agree to submit a five-year budget projection.
    This year they did it because you changed the law last year,
    though I will submit each year a new five-year budget
    projection. I expect we will get more informed debate as we
    look at the long term trade-offs between prevention, treatment,
    law enforcement, and interdiction. I commend that to your
    attention.
        Mr. Chairman, the third volume in the national drug control
    strategy are Performance Measures of Effectiveness. We have
    again revised this document which we presented to you last year
    for the first time. We think it is even more effective. If you
    look at it, there are now 12 target outcomes where we looked
    out 10 years and asked, where do we expect to be, and then we
    designed a way to measure achieving our objectives.
        There are also 85 subordinate variables which allow to
    determine whether or not we are getting to those 12 outcome
    objectives.
        We have to design data bases, but this is a serious
    management effort to look at what we are actually achieving
    year by year with the money you give us.
        There is a fourth volume that is available through your
    classified controlled procedures, a secret, noforn volume
    entitled, Classified Annex on Drug Interdiction, International
    Law Enforcement Policy and Programs. Mr. Chairman, that is the
    second year we have put that out. It is an attempt to give the
    intelligence community, Department of Defense, and law
    enforcement communities standing guidance on how to achieve our
    purpose.
        Finally, we have a tabbed booklet for your consideration
    which is Congressional budget submission, which tries to pull
    together the various aspects of the ONDCP budget, which of
    course is reasonably small in terms of the $17.8 billion total
    in the nine appropriations bills that have some drug funding in
    them.

                                  ONDCP BUDGET

        My own operating budget in ONDCP is $21.9 million; a fairly
    modest amount. It is about one-tenth of 1 percent of the
    Federal drug control budget.
        Finally, Mr. Chairman, if I can, let me just summarize a
    snapshot, because there has been a lot of back and forth on
    whether we should be spending more? How much more? Is there a
    decrease in interdiction?
        I asked Dr. John Carnavale, my budget expert, to focus on
    the period Fiscal Year 1996 to Fiscal Year 2000, and to take a
    snapshot. Those are the budget years that the team I have
    assembled under the new law have been able to effect.
        If you look at those budget years, we have increased
    prevention dollars by 55 percent. We have increased treatment
    dollars by 25 percent. Research, particularly in NIDA, National
    Institute of Drug Abuse, is up by 35 percent. Domestic law
    enforcement is up by 24 percent, interdiction by 47 percent,
    and our international programs have increased 120 percent.
        Now I say this because at the end of the day, if you look
    at the whole Federal counter-drug budget, it has increased in
    those budget years by about one-third. There has been a 32
    percent increase. It went up $1 billion a year. I say that
    because I understand in a tight budget environment that we have
    to produce results with those dollars. I think the intent of
    Congress is being met, and I think the budget as it is evolving
    is supporting our strategy.
        Some quick comments. First of all, in the National Youth
    Anti-Drug Media Campaign--and I will expect that you will want
    to talk about that with your own questions--the initial results
    are pretty encouraging. We have now hired some extremely
    sophisticated people to work with us on this program.
        It is being executed by Partnership for a Drug-Free America
    and the Advertising Council. Essentially, more than 200
    advertising corporations are doing this work for free. We are
    paying for production costs, but these are essentially donated
    efforts garnered through both PDFA and the Ad Council. The
    Actors Guild waives their fees. We are getting a lot of impact
    for our money.
        We are meeting our matching goal. That is encouraging news.
    There was legitimate concern that the PSA time would dry up.
    And we are essentially achieving 107 percent of what we asked.
        There has also been a rather significant corporate in-kind
    contribution. And depending on how you measure it, and we have
    got rather conservative assessments, it is probably a $41
    million in-kind contribution. We are also seeing the
    entertainment industry team up with us, and we think we are
    doing extremely well on addressing minority concerns. This
    effort by the end of the summer will be in 11 languages and
    some $33 million worth of our effort is targeted to minority
    and ethnic audiences.

                                   DRUG ABUSE

        A quick snapshot on drug use in America. As you are aware,
    there is some good news and some bad news. Let me talk about
    the bad news. Drug use in America is unacceptable; 6 percent of
    the population is abusing drugs. That is 14 million Americans.
    Most of that is poly-drug abuse; marijuana and alcohol and
    other stuff.
        Now some of the drug abuse patterns are changing, and in
    ways in which we're going to have to be very careful to measure
    it. Heroin abuse in the last decade is clearly going up. Huge
    quantities of high purity, low cost heroin are appearing. New
    drugs are showing up. Methamphetamines may be the worst drug to
    ever hit America. And if we are smart, and I think we are
    trying to work it in that fashion, we will get in front of the
    meth epidemic as we did not for the crack epidemic in the mid
    1980s.
        We are also seeing other drugs like MDMA, PCP, Rohypnol,
    other chemically manufactured drugs showing up in the rave
    scene and affecting new subpopulations.
        It is clear that the impact of older, sicker chronic
    addicts is causing devastating impact on America. We say it is
    $110 billion a year damages, and probably 16,000 dead. If you
    look at hospital emergency room admission rates, they have gone
    steadily up as this chronic addict population has aged.
        Now turning around on the other hand, the results of the
    last two monitoring the future studies and national household
    survey data leaves room for encouragement. Our strategy
    essentially posits the argument that if you can reduce the
    number of American adolescents who are exposed to gateway drug-
    taking behavior, over time you will reduce the addict
    population.
        We have seen two years ago, after five years of steadily
    worsening attitudes, and four years of increasing drug abuse by
    American youngsters, two years ago we saw a leveling out of
    those statistics. Then last year, although Secretary Shalala
    and I were careful to downplay expectations, we saw an
    unequivocal decrease in drug abuse and an improvement in
    attitudes almost across the board among 12th graders, 10th
    graders, and eighth graders. The most dramatic impact was among
    eighth graders, as you would expect, the newer populations
    hitting the drug exposure zone.
        We think if we keep that up for an additional 10 years we
    are going to see remarkable impact on abuse rates throughout
    the country.
        There is reason to believe we are on the right track and
    that if we deliver on some shortcomings, and the shortcomings
    we have left in front of us is to more effectively tie drug
    treatment to the criminal justice system. That is a big one.
    Secretary Shalala, Attorney General Reno and I have done the
    groundwork. We have the conceptual organization. There is a
    great willingness among the States and localities to support
    this attempt.
        But that is the next emphasis. How do we go to that 1.8
    million Americans who are behind bars, half of whom, 50 percent
    to 80 percent of whom have an alcohol or drug-related
    compulsive use problem, how do we get them into mandated
    treatment? So there is a series of programs, many of them
    driven by the Attorney General.

                            DRUG REDUCTION PROGRAMS

        The drug court system has grown explosively. Three years
    ago we had 12 drug courts. Now we have about 500 either
    operating or being formed up. I hope by the time we walk out of
    office we will leave more than 1,000 ongoing.
        We have expanded the Break the Cycle program, which
    essentially mandates drug testing and treatment regardless of
    your offense. The drug court is sort of a front end diversion
    program. Break the Cycle says, if you are arrested, violent
    criminal or not, and you test positive, you are going into
    treatment and your compliance with that treatment protocol will
    affect how we deal with you in the criminal justice system.
        So we have got now three adult test sites, and we have gone
    to two juvenile test sites. I think that shows great promise,
    along with prison-based drug treatment and post-release follow-
    on monitoring.
        We also owe you better organization of the Southwest Border
    and America's ports of entry. We have done a lot of work. The
    situation is better. We have completed our studies on how to
    reorganize our intelligence collection system to support the
    drug issue. Now Director Tenet and Attorney General Reno and I
    will try and give the President a package of recommendations on
    how to ensure that our intelligence system better supports law
    enforcement.
        There is also a lot of work going on to rationalize the
    more than 15,000 Federal employees who work along the 2,000
    mile southwest border, to make sure it is a more coherent,
    results oriented operation that depends on non-intrusive
    technology as opposed to National Guard soldiers unloading 18-
    wheelers cargo and drilling holes in the wall looking for
    drugs. You just simply cannot do it that way.
        Finally, there is a lot of reason to believe that our HIDTA
    program is showing great payoffs. We have got a wonderful new
    associate, Mr. Joe Peters, who is going to help us organize the
    HIDTA program. As you know, it has grown from six to 21 HIDTAs.
    You have put significant amounts of money into it. I am
    concerned about managing it the right way, so I am going to ask
    for funds to make sure I have got an external audit going on
    that program.
        But having said that, local, State, and Federal law
    enforcement and prosecutors are making good use of that fund,
    and there are many other applicants for HIDTA status. By this
    summer I will have a study done that will probably be a better
    guide for Congress and me on how to expand the HIDTA program,
    if we choose to do so.

                               PREPARED STATEMENT

        On that note, Mr. Chairman, I thank you for the chance to
    appear in front of the committee and I look forward to
    answering your questions.
        [The statement follows:]
                Prepared Statement of General Barry R. McCaffrey
                                i. introduction
        All of us in the Office of National Drug Control Policy thank the
    Committee for the opportunity to testify today about the Office of
    National Drug Control Policy's (ONDCP) Fiscal year 2000 budget.
    Chairman Campbell, Senator Dorgan distinguished members of the
    subcommittee, your interest in all aspects of drug control policy and
    your commitment to bipartisan support of a comprehensive response to
    the nation's drug abuse problem are much appreciated. We welcome this
    opportunity to review the fiscal year 2000 budget request for ONDCP.
    However, to provide a framework for understanding this budget, this
    testimony must begin with an overview of the 1999 National Drug Control
    Strategy and an analysis of current drug trends.
            ii. overview of the 1999 national drug control strategy
    The Requirement for a National Drug Control Strategy
        The Office of National Drug Control Policy Reauthorization Act of
    1998 required the President to submit to Congress by February 1999 a
    comprehensive National Drug Control Strategy for reducing drug abuse
    and the consequences of drug abuse in the United States by limiting the
    availability of and reducing the demand for illegal drugs.
    Specifically, the Act required that the strategy include:
      --Comprehensive, research-based, long-range, quantifiable, goals for
            reducing drug abuse and the consequences of drug abuse in the
            United States.
      --Annual, quantifiable, and measurable objectives and specific
            targets to accomplish long-term quantifiable goals that the
            Director determines may be achieved during each year of the
            period beginning on the date on which the National Drug Control
            Strategy is submitted.
      --Five-year projections for program and budget priorities.
      --A review of international, state, local, and private sector drug
            control activities to ensure that the United States pursues
            well-coordinated and effective drug control at all levels of
            government.
        ONDCP has prepared the following documents in compliance with this
    Act:
      --The National Drug Control Strategy.
      --Drug Control Budget: fiscal year 2000.
      --Performance Measures of Effectiveness: Implementation and Findings.
      --Classified Annex.
        It was the sense of the Congress in this Act that substantial
    progress could be made toward achieving specific reductions in drug
    supply and demand by the year 2003 as well as during the intervening
    years. This Strategy sets in motion policies and programs designed to
    make progress toward these targets. It contains careful analysis of
    what is achievable by specified years. Specifically, it proposes a
    multi-year conceptual framework to reduce illegal drug use and
    availability by 50 percent. If this goal is achieved, just 3 percent of
    the household population aged twelve and over would use illegal drugs.
    This level would be the lowest recorded drug-use rate in American
    history. Drug-related health, economic, social, and criminal costs
    would also be reduced commensurately. The Strategy also presents a
    detailed performance measurement system that links goals, objectives,
    and mid- and long-term targets. As we succeed in reaching our targets,
    we will continue to achieve even further reductions insofar as
    resources and other developments allow.
    Annual Strategy Report
        The ONDCP Reauthorization Act of 1998 also requires the President
    to submit to Congress each February a report on progress in
    implementing the Strategy. The 1999 Strategy contains a detailed report
    (in Chapter II) on: progress in reducing drug use and availability in
    the United States; the consequences of drug abuse; and the
    effectiveness of prevention, treatment, enforcement, interdiction, and
    international programs. A summary of the report contained in the
    Strategy follows:
        Overall Trends.--In 1997, there were 13.9 million current users of
    any illicit drug in the total household population aged 12 and older,
    down from the peak year of 1979, when 25 million (or 14.1 percent of
    the population) abused illegal drugs. The 13.9 million number
    represents 6.4 percent of the total population and is statistically
    unchanged from 1996. 36 percent aged twelve and older have used an
    illegal drug in their lifetime. Of these, more than 90 percent used
    either marijuana or hashish and approximately 30 percent tried cocaine.
    There are an estimated 4 million chronic drug users in America: 3.6
    million chronic cocaine users (primarily crack cocaine) and 810,000
    chronic heroin users.
        Juvenile Trends.--Drug use among 12-17 year olds declined slightly
    in 1997 and 1998. Among 8th graders, past month use of illicit drugs
    declined from 12.9 percent to 12.1 percent. Among 10th graders, the
    percentage declined from 12.9 to 12.1. Among 12th graders, the decline
    was from 26.2 percent to 25.6 percent. These declines follow an earlier
    four-year trend or increasing drug use rates among 12-17 year olds.
    Between 1992 and 1996, past month illicit drug use had increased from
    6.8 percent to 14.6 percent among 8th graders, increased from 11
    percent to 23.2 percent among 10th graders, and increased from 14.4
    percent to 24.6 percent among 12th graders. Use of inhalants declined
    among 8th graders from 5.6 percent in 1997 to 4.8 percent in 1998. In
    1998 alcohol use decreased among 10th graders, and remained stable
    among 8th graders and 12th graders, albeit at unacceptably high levels.
    Past-month use of cigarettes slightly declined among 8th, 10th, and
    12th graders from 1997 to 1998. We are concerned that every day more
    than 6,000 people aged eighteen or younger try their first cigarette,
    and more than 3,000 people aged eighteen or younger become daily
    smokers.
        Drug Availability.--In 1997, an estimated 289 metric tons (MTs) of
    cocaine were available in the U.S., the lowest amount since the 1980s
    and far below the peak of 529 MTs in 1992. 145 MTs of cocaine were
    seized enroute to the U.S. in 1998. Marijuana remains readily
    available. Information about heroin price and purity is imprecise. In
    1998 the average retail price for a pure gram of heroin was
    approximately $1,799; the wholesale price was $318. These prices were
    significantly lower than in 1981, when the retail price per gram was
    estimated to be $3,115 and the wholesale price $1,194. The average
    purity for retail heroin in 1998 was 25 percent, much higher than
    1991's average of 19 percent. Methamphetamine remains the most
    prevalent synthetic drug. Americans spent $57 billion on illegal drugs
    in 1995, down 37 percent since 1988.
        Consequences of Drug Abuse.--Drug-related deaths climbed throughout
    the 1990s but have leveled off at about 9,300. Drug-related medical
    emergencies remain near historic highs but remained statistically
    constant, with 514,347 episodes in 1996 and 527,058 in 1997. Illegal
    drugs cost our society approximately $110 billion each year.
        Drugs and Crime.--More than 60 percent of adult male arrestees
    tested positive for drugs in twenty major cities in 1997. Drug
    offenders account for 25 percent of the growth in the state prison
    population and 72 percent of the growth in the federal prison
    population since 1990.
        Drugs and the Workplace.--6.7 million current illegal drug users
    were employed full-time in 1997. Another 1.6 million current users
    worked part-time. Drug abuse is twice as prevalent among the unemployed
    compared to those employed full-time. Drug users are less dependable
    than other workers and decrease workplace productivity. They are more
    likely to have taken an unexcused absence in the past month; 12.1
    percent did so compared to 6.1 percent of drug-free workers. Illegal
    drug users get fired more frequently (4.6 percent were terminated
    within the past year compared to 1.4 percent of non-users). Drug users
    also switch jobs more frequently; 32.1 percent worked for three or more
    employers in the past year, compared to 17.9 percent of non-drug-using
    workers. One-quarter of drug users left a job voluntarily in the past
    year. This high turnover increases training and other productivity-
    related costs to American businesses.
    Goals and objectives of the 1999 National Drug Control Strategy
        Goals.--The Strategy's five goals are comprehensive in that they
    cover the three broad aspects of drug control: demand reduction, supply
    reduction, and adverse consequences of drug abuse and trafficking. In
    addition, these goals are national in that they state what we must
    collectively achieve; they are not markers for solely a federal effort.
    Finally, these goals are research-based, quantifiable, and long-range.
    The five goals and thirty-one objectives reflect the need for
    prevention and education to protect all Americans, especially children,
    from the perils of drugs; treatment to help the chemically dependent;
    law enforcement to bring traffickers and other drug offenders to
    justice; interdiction to reduce the flow of drugs into our nation;
    international cooperation to confront drug cultivation, production,
    trafficking, and use; and research to ensure policy is based on
    science.
                Goal 1: Educate and enable America's youth to reject
                        illegal drugs as well as alcohol and tobacco
        The Strategy focuses on youth for both moral and practical reasons.
    Children must be nurtured and protected from drug use and other forms
    of risky behavior to ensure that they grow up as healthy, productive
    members of society. As youngsters grow, they assimilate what they
    observe. Drug use is preventable. If children reach adulthood without
    using illegal drugs, alcohol, or tobacco, they are unlikely to develop
    a chemical-dependency problem. To this end, the Strategy fosters
    initiatives to educate children about the real dangers associated with
    drugs. ONDCP seeks to involve parents, coaches, mentors, teachers,
    clergy, and other role models in a broad prevention campaign. ONDCP
    encourages businesses, communities, schools, the entertainment
    industry, universities, and sports organizations to join these national
    anti-drug efforts.
                Goal 2: Increase the safety of America's citizens by
                        substantially reducing drug-related crime and
                        violence
        The negative social consequences of drug-related crime and violence
    mirror the tragedy that substance abuse wreaks on individuals. A large
    percentage of the twelve million property crimes committed each year
    are drug-related as is a significant proportion of nearly two million
    violent crimes. The nation's estimated 4 million chronic drug users
    contribute disproportionally to this problem. Drug-related crime can be
    reduced through community-oriented policing and other law-enforcement
    tactics, which have been demonstrated by police departments in New York
    and other cities where crime rates are plunging. Cooperation among
    federal, state, and local law-enforcement agencies also makes a
    difference. Operations targeting gangs, trafficking organizations, and
    violent drug dealers have contributed to declining violence associated
    with illegal drug markets. Equitable enforcement of fair laws is
    critical. We are a nation wedded to the prospect of equal justice for
    all. Punishment must be perceived as commensurate with the offense.
    Finally, the criminal justice system must do more than punish. It
    should use its coercive powers to break the cycle of drugs and crime.
    Treatment must be made available to the chemically dependent in our
    nation's prisons.
                Goal 3: Reduce health and social costs to the public of
                        illegal drug use
        Drug dependence is a chronic, relapsing disorder that exacts an
    enormous cost on individuals, families, businesses, communities, and
    nations. Addicted individuals frequently engage in self-destructive and
    criminal behavior. Treatment can help them end dependence on addictive
    drugs. Treatment programs, moreover, can reduce the consequences of
    addictive drug use on the rest of society. The ultimate goal of
    treatment is to enable a patient to become abstinent and to improve
    functioning through sustained recovery. On the way to that goal,
    reducing drug use, improving the addict's ability to function, and
    minimizing medical consequences are useful interim outcomes. Treatment
    options include therapeutic communities, behavioral treatment,
    medication (e.g., methadone, levo-alph-acetyl-methadol (LAAM), or
    naltrexone for heroin addiction), outpatient drug free programs,
    hospitalization, psychiatric programs, twelve-step recovery programs,
    and treatment that combines two or more of these options. Providing
    treatment for America's chronic drug users is both compassionate public
    policy and a sound investment. For example, the recent Drug Abuse
    Treatment Outcome Study (DATOS) found that outpatient methadone
    treatment reduced heroin use by 70 percent, cocaine use by 48 percent,
    and criminal activity by 57 percent, and increased employment by 24
    percent. The same survey also revealed that long-term residential
    treatment achieved similar successes.
                Goal 4: Shield America's air, land, and sea frontiers from
                        the drug threat
        The United States is obligated to protect its citizens from the
    threats posed by illegal drugs crossing our borders. Interdiction in
    the transit and arrival zones disrupts drug flow, increases risks to
    traffickers, drives them to less efficient routes and methods, and
    prevents significant quantities of drugs from reaching the United
    States. Interdiction operations also produce information that can be
    used by domestic law enforcement agencies against trafficking
    organizations. Each year, more than sixty-eight million passengers
    arrive in the United States aboard 830,000 commercial and private
    aircraft. Another eight million individuals arrive by sea, and a
    staggering 365 million people cross our land borders driving
    approximately 115 million vehicles. Ten million trucks and cargo
    containers and ninety thousand merchant and passenger ships also enter
    the United States annually, carrying some four hundred million metric
    tons of cargo. Amid this voluminous trade, drug traffickers seek to
    hide approximately three-hundred metric tons of cocaine, thirteen
    metric tons of heroin, vast quantities of marijuana, and smaller
    amounts of other illegal substances.
                Goal 5: Break foreign and domestic drug sources of supply
        The rule of law, human rights, and democratic institutions are
    threatened by drug trafficking and consumption. International supply
    reduction programs not only reduce the volume of illegal drugs reaching
    our shores; they also attack international criminal organizations,
    strengthen democratic institutions, and honor our international drug-
    control commitments. The U.S. supply-reduction strategy seeks to: (1)
    eliminate illegal drug cultivation and production; (2) destroy drug-
    trafficking organizations; (3) interdict drug shipments; (4) encourage
    international cooperation; and (5) safeguard democracy and human
    rights. The United States continues to focus international drug-control
    efforts on source countries. International drug-trafficking
    organizations and their production and trafficking infrastructures are
    most concentrated, detectable, and vulnerable to effective law-
    enforcement action in source countries. In addition, the cultivation of
    coca and opium poppy and production of cocaine and heroin are labor
    intensive. For these reasons, cultivation and processing are relatively
    easier to disrupt than other downstream aspects of the trade. The
    international drug control strategy seeks to bolster source country
    resources, capabilities, and political will to reduce cultivation,
    attack production, interdict drug shipments, and disrupt and dismantle
    trafficking organizations, including their command and control
    structure and financial underpinnings.\1\
    ---------------------------------------------------------------------------
        \1\ Additional information about international drug-control
    programs is contained in the Classified Annex to the Strategy.
    ---------------------------------------------------------------------------
        Objectives.--The Strategy also presents thirty-one objectives that
    are more narrowly focused than these five goals and stipulate the
    specific ways in which the goals will be attained. Under the prevention
    goal (Goal 1), for example, nine supporting objectives articulate the
    specific ways that illegal drug use and underage consumption of alcohol
    and tobacco products will be discouraged. Programmatic initiatives will
    be tied directly to one or more of these objectives. The national youth
    anti-drug media campaign, for example, supports objective 2 (``pursue a
    vigorous advertising and public communications program'') and objective
    7 (``create partnerships with the media, entertainment industry, and
    professional sports organizations'') of Goal 1.
    The Supporting Performance Measures of Effectiveness (PME) System
        Strategy links ends, ways, and means. Progress toward a strategy's
    goals and objectives must be constantly assessed in order to gauge
    success or failure and adjust the strategy accordingly. ONDCP has
    developed--in conjunction with national drug-control program agencies,
    Congress, state and local officials, and private citizens with
    experience in demand and supply reduction--a Performance Measurement of
    Effectiveness (PME) system to orient drug-control efforts. This system:
    assesses the effectiveness of the Strategy; provides information to the
    entire drug-control community on what needs to be done to refine policy
    and programmatic directions; and assists with drug program budget
    management.\2\
    ---------------------------------------------------------------------------
        \2\ The overall performance system is described in details in the
    companion volume to the Strategy--Performance Measures of
    Effectiveness: Implementation and Findings.
    ---------------------------------------------------------------------------
        The PME system identifies ninety-seven performance targets, of
    which twelve indicate the impact of national drug-control activities on
    the Strategy's five overarching goals. The other eighty-five measure
    progress toward the Strategy's thirty-one supporting objectives. These
    targets represent desired end-states for the years 2002 and 2007. They
    are ``stretch targets'' in that they require progress above that
    attained in previous years. This assessment is in keeping with
    recommendations of the National Academy of Public Administration, the
    General Accounting Office, and other organizations advocating good
    government practices.
        Progress toward each goal and objective will be gauged using
    existing research and new surveys. Monitoring the Future and the
    National Household Survey of Drug Abuse, for example, both estimate
    risk perception, rates of current use, age of initiation, and life-time
    use for alcohol, tobacco, and most illegal drugs. The Arrestee Drug
    Abuse Monitoring System (ADAM) and Drug Abuse Warning Network (DAWN)
    indirectly measure the consequences of drug abuse. The State
    Department's annual International Narcotics Control Strategy Report
    (INCSR) provides country-by-country assessments of initiatives and
    accomplishments. INCSR reviews statistics on drug cultivation,
    eradication, production, trafficking patterns, and seizure along with
    law-enforcement efforts including arrests and the destruction of drug
    laboratories. The Subcommittee on Data, Research, and Interagency
    Coordination will consider additional instruments and measurement
    processes required to address the demographics of chronic users,
    domestic cannabis cultivation, drug availability, and data shortfalls
    related to drug policy.
        The relationship between goals, objectives, targets, and federal
    and non-federal resources will be reassessed and refined continuously
    to reflect the dynamic drug-abuse problem and progress in reducing its
    scope. Non-achievement of a target over a period of time will trigger
    an in-depth interagency program evaluation to identify problems and
    recommend corrective action. Such measures might include a range of
    options such as modifying programs, reinforcing them with more
    resources, or eliminating them altogether. This ongoing review process
    will also allow reinforcement of successful programs.
    [GRAPHIC] [TIFF OMITTED] T13MA04.001

     Figure 1. National Drug Control Budget: Funding Trend up Fiscal Year
                             1996-Fiscal Year 2000

        iii. the supporting fiscal year 2000 federal drug control budget
        In total, drug control funding recommended for fiscal year 2000 is
    $17.8 billion, an increase of $735 million (+4.3 percent) over fiscal
    year 1999 regular appropriations of $17.0 billion. In addition to
    regular appropriations, federal drug control agencies received $844
    million for emergency purposes in fiscal year 1999. With this emergency
    funding, drug control appropriations total $17.9 billion in fiscal year
    1999. Spending that supports drug education, prevention and treatment
    programs increases by $210.0 million (+3.6 percent) in fiscal year 2000
    over fiscal year 1999 regular appropriations. Spending that supports
    drug law enforcement efforts increases by $524.8 million (+4.7 percent)
    in fiscal year 2000 over fiscal year 1999 regular appropriations. Major
    increases in the budget submitted by the Administration follow:
    1. Youth Prevention
      --School Coordinators: (Total $50 million, an increase of $15M).
            These additional resources will expand the School Coordinator
            program, started in fiscal year 1999. With this increase, total
            funding for this initiative will be $50 million in fiscal year
            2000. This program will support the hiring of drug prevention
            coordinators in nearly half of the middle schools across the
            country to help improve the quality and effectiveness of drug
            prevention programs.
      --National Youth Anti-Drug Media Campaign: (Total $195 million, an
            increase of $10 million). This additional funding brings the
            budget for ONDCP's Media Campaign to $195 million in fiscal
            year 2000. With this money, ONDCP will continue its targeted,
            high impact, paid media campaign designed to change naive
            adolescent perceptions of the dangers and social approval of
            drugs.
      --Youth Tobacco Prevention. (Total $169 million, an increase of $61
            million). The Centers for Disease Control and Prevention will
            receive an increase of $27.0 million in drug-related funds to
            extend state-based efforts to conduct comprehensive programs to
            reduce and prevent tobacco use. The Food and Drug
            Administration will receive an additional $34.0 million in
            drug-related funding in fiscal year 2000 to expand
            implementation of its final rule intended to halt the supply of
            tobacco products to children.
    2. Criminal Justice Programs
      --Drug Intervention Program: (New program--$100 million). This
            initiative, funded through the Office of Justice Programs, will
            provide drug abuse assistance to state and local governments to
            develop and implement comprehensive systems for drug testing,
            drug treatment and graduated sanctions for offenders.
      --Drug Courts: (Total $50 million, an increase of $10M). This program
            provides alternatives to incarceration through using the
            coercive power of the court to force abstinence and alter
            behavior with a combination of escalating sanctions, mandatory
            drug testing, treatment, and strong aftercare programs.
    3. Treatment
      --Treatment Capacity Expansion Grants: (Total $110 million, an
            increase of $55 million). This additional funding will help the
            Substance Abuse and Mental Health Services Administration
            (SAMHSA) expand the availability of drug treatment in areas of
            existing or emerging treatment need.
      --Substance Abuse Block Grant Program: (Total $1.615 billion, an
            increase of $30 million ($24.8 million drug-related)). This
            increase for SAMHSA's Substance Abuse Block Grant will provide
            funding to states for treatment and prevention services. This
            program is the backbone of federal efforts to reduce the gap
            between those who are actively seeking substance abuse
            treatment and the capacity of the public treatment system.
    4. Law Enforcement & International Programs
      --Southwest border--INS: (Total $450.8 million, an increase of $50
            million. ($7.5 million drug-related)). INS will continue to
            deploy the Integrated Surveillance Information System (ISIS).
            ISIS, which incorporates infrared and color cameras with ground
            sensors, will aid Border Patrol enforcement efforts and drug
            interdiction along the Southwest border.
      --International Programs--State: (Total $265 million, an increase of
            $29 million). These new resources over fiscal year 1999
            (excluding emergency funding) are requested for the Bureau of
            International Narcotics and Law Enforcement Affairs (INL). This
            additional funding includes support for Andean countries,
            Mexico, and assistance to international organizations.
      --DEA Drug Intelligence: (Total spending for DEA is $1.469 billion.
            Spending on intelligence will increase by $22 million) This
            funding will provide $13 million to accelerate implementation
            of DEA's FIREBIRD office automation system. FIREBIRD includes
            e-mail, uniform word processing and other forms of office
            automation that will provide DEA with more sophisticated
            electronic investigative records. Once fully deployed, FIREBIRD
            will allow DEA components located around the world to act as
            one cohesive unit through instantaneous access to critical law
            enforcement and intelligence information. In addition, $9
            million will enhance DEA's Special Operations Division by
            providing critical support for Title III investigations aimed
            at dismantling drug trafficking organizations.
      --Forward Operating Locations--DOD: (New program--$70.6 million). The
            drug control budget for the Department of Defense includes
            these additional resources in fiscal year 2000 for
            restructuring SOUTHCOM's theater counterdrug architecture,
            which will include the development of three Forward Operating
            Locations (FOLs). These FOLs will support transit and source
            zone air operations in SOUTHCOM's area of responsibility.
        This Administration request for $17.8B represents a record budget.
    If approved by Congress, federal drug control spending will have
    increased by more than a billion dollars a year since fiscal year 1996
    (for a total of 32 percent). Spending increase by broad category
    follow:
    Demand Reduction
      --Prevention UP 55 percent (+ $776.3 million)
      --Treatment UP 25 percent (+ $639.5 million)
      --Research UP 35 percent (+ $175.1 million)
    Supply Reduction
      --Domestic Law Enforcement UP 24 percent (+ $1.768.5 billion)
      --Interdiction UP 47 percent (+ $616.3 million)
      --International UP 120 percent (+ $347.4 million)
        The following shows how federal spending is distributed among the
    Strategy's five goals.

    Fiscal year 2000 Budget by Goal

            Five Goals                                               Percent

    Goal 1............................................................  11.8
    Goal 2............................................................  43.4
    Goal 3............................................................  19.8
    Goal 4............................................................  12.9
    Goal 5............................................................  12.0
                         iv. ondcp's coordinating role
        The Office of National Drug Control Policy's statutory
    responsibilities are established in the following laws and executive
    orders:
        The Anti-Drug Abuse Act of 1988. A key provision of that Act was
    the establishment of ONDCP to set priorities, implement a national
    strategy, and certify federal drug-control budgets. The law specifies
    that the strategy must be comprehensive and research based, contain
    long-range goals and measurable objectives, and seek to reduce drug
    abuse, trafficking, and their consequences. Specifically, drug abuse is
    to be curbed by preventing youth from using illegal drugs, reducing the
    number of users, and decreasing drug availability.
        The Violent Crime Control and Law Enforcement Act of 1994 extended
    ONDCP's mission to assessing budgets and resources related to the
    National Drug Control Strategy. It also established specific reporting
    requirements in the areas of drug use, availability, consequences, and
    treatment.
        Executive Order No. 12880 (1993) and Executive Orders Nos. 12992
    and 13023 (1996) assigned ONDCP responsibility within the executive
    branch for leading drug-control policy and developing an outcome-
    measurement system. The executive orders also chartered the President's
    Drug Policy Council and established the ONDCP Director as the
    President's chief spokesman for drug control.
        The Office of National Drug Control Policy Reauthorization Act of
    1998 expanded ONDCP's mandate and authorities and set forth additional
    reporting requirements and expectations, including: Development of a
    long-term national drug strategy; Implementation of a robust
    performance-measurement system. Commitment to a five-year national
    drug-control program budget; Permanent authority granted to the High
    Intensity Drug Trafficking Areas (HIDTA) Program, along with
    improvements in HIDTA management; Greater demand-reduction
    responsibilities given to the Counter-Drug Technology Assessment Center
    (CTAC); Statutory authority for the President's Council on Counter-
    Narcotics; Increased reporting to Congress on drug-control activities;
    Reorganization of ONDCP to allow more effective national leadership.
    Improved coordination among National Drug Control Program agencies and
    Establishment of a Parents Advisory Council on Drug Abuse.
                   v. ondcp's fiscal year 2000 budget request
    Salaries and Expenses: $21.933 Million
        ONDCP's budget provides $21.933 million for salaries and expenses
    to support ONDCP's requested 158 Full Time Equivalents (FTEs)--128 full
    time employees and 30 detailees. This $21.933 million for salaries and
    expenses is the smallest programmatic component of the ONDCP budget.
    However, this funding is the linchpin for all the other programs funded
    through the ONDCP budget. Without a fully staffed and funded ONDCP,
    none of these other initiatives can be carried out. ONDCP is an
    organization of committed professional men and women. The fiscal year
    2000 request for $21.933 million represents a $2.791 million increase
    over the enacted fiscal year 1999 total of $19.142 million. Major
    expenses include:
      --$9.768 million for compensation of 128 FTEs. This represents an
            increase of $822,000 over the fiscal year 1999 enacted total of
            $8.946 million, to support pay raises, within grade increases,
            and 4 additional FTEs for two growing areas within ONDCP.
      --$2.210 million for total personnel benefits.
      --$5.845 million for guard services, professional services contracts,
            maintenance services, and related costs. Over the last year, we
            have taken prudent steps to increase the security of both our
            personnel and sensitive information within the office's
            purview.
      --$2.202 million for rental payments to GSA.
      --$754,000 for travel and transportation costs.
      --$847,000 for communications, utilities, printing, reproduction, and
            related miscellaneous costs.
      --307,000 for equipment, supplies and materials, and representational
            allowance.
    Educating America's Young People, Empowering Communities, and Advancing
            Our Understanding of America's Drug Problem: $225.3 Million for
            the Special Forfeiture Fund
    The National Youth Anti-Drug Media Campaign
        The President requests $195,000,000 for the National Youth Anti-
    Drug Media Campaign. The anti-drug media campaign began in January 1998
    in twelve test sites and was expanded nationwide in July. Once ads
    began to run in the twelve test sites, anti-drug awareness increased
    and requests for anti-drug publications increased by more than 300
    percent. The campaign harnesses a diverse mix of television, video,
    radio, Internet, and other forms of new media to deliver anti-drug
    messages. Its objectives are ``universal,'' aiming at all adolescents,
    parents, and primary caregivers. Messages and channels through which
    they are being delivered are tailored for specific regional, ethnic,
    cultural, gender, and age differences among members of the target
    audiences. Advertisements are being prepared in eleven different
    languages. Paid and public service advertising, news, public-affairs
    programming, and entertainment venues are being used in the media
    campaign.
        So far, media outlets are matching paid advertisements with public-
    service time for advertisements and pro-bono programming content on
    more than a one-for-one basis. In the past year, we received $165
    million in free public service announcement spots and $40 million in
    corporate contributions. Public-service advertising space generated by
    the paid campaign is being dedicated to messages that target underage
    drinking and smoking, as well as other messages related to the
    campaign's communications objectives. We have also developed
    partnerships with a broad range of community and civic groups,
    professional associations, government agencies, and corporations. The
    entertainment industry is also responding favorably. In 1998, thirty
    television programs focused on themes and messages supportive of the
    campaign. While the campaign's goal was to reach 90 percent of the
    target audience with four messages a week, by January 1999, 95 percent
    of the target audience was receiving seven anti-drug messages a week.
        The outstanding results attained during the first year of this
    media campaign are a function of the outstanding support of the private
    sector. The firm Porter-Novelli developed our strategic communications
    plan. Bates Advertising and Zenith Media planned and bought ad time and
    space in the initial phases of the campaign. Ogilvy and Mather is
    ONDCP's long term contractor for ad planning and placement. Fleishman-
    Hillard is our contractor for non-advertising media (entertainment
    industry collaboration, Internet initiatives, partnerships with major
    organizations serving youth and parents, and public education and media
    outreach). The Partnership for a Drug-Free America continues to produce
    most of the ads for the paid component of the campaign. The Ad Council
    serves as a clearing house for public service ads which are supported
    by campaign-generated ads. The American Advertising Federation and the
    National Association of State Alcohol and Drug Abuse Directors
    (NASADAD) form the core public service task force at the local level to
    ensure local and community organizations are supported by matching
    funds/air time. The support of most of the major television networks,
    the Disney Corporation, America Online, and other multimedia companies
    is indicative of the breadth of support this campaign has generated.
    The Drug-Free Communities Program
        The President requests $22,000,000 to continue the Drug-Free
    Communities Program. Government response is only a small part of the
    national effort to counter illegal drugs. Communities are significant
    partners for local, state and federal agencies working to reduce drug
    use, especially among young people and deserve continued support. This
    program provides grants, information, and other essential support to
    communities around the country as they organize to confront drug abuse.
    Thousands of communities around the country have formed coalitions that
    coordinate local reactions to the illegal drug problem. Coalitions
    typically include schools, businesses, law enforcement agencies, social
    service organizations, faith communities, medical groups, and youth
    groups, as well as county and local government. Community Anti-Drug
    Coalitions of America (CADCA) supports these organizations through
    technical assistance, leadership development, and information
    dissemination.
        The Drug-Free Communities Act of 1997 provides vital support to
    communities. The program's genesis and growth has been fueled by an
    unprecedented level of bipartisan support. In fiscal year 1998, $10
    million in grants were provided to 92 coalitions in 46 states. ONDCP
    also conducted an initial training and technical assistance conference
    and a presidentially appointed Advisory Commission was established. In
    fiscal year 1999, we project that support will be provided to the
    original 92 recipients and that an additional 119 communities will be
    awarded grants. This fiscal year 2000 request will support the
    coalitions that received grants in fiscal year 1998 and fiscal year
    1999 and will fund an additional 68 grants. A key feature of this
    program is ease of application and reporting requirements. Grants will
    be made to coalitions of representatives of youth, parents, businesses,
    the media, schools, youth organizations, law enforcement, religious or
    fraternal organizations, civic groups, health care professionals,
    state, local, or tribal government agencies, and other organizations.
    The requirement for participating communities to match funding will
    help ensure local initiatives, support, and accountability.
        An Advisory Commission on Drug-Free Communities has been
    established to advise, consult with, and make recommendations to the
    ONDCP Director concerning activities carried out under the Program. In
    addition to providing outright support for coalitions, ONDCP and its
    partners--OJJDP and CSAP--are providing training and technical
    assistance to individuals and groups to enable them to start up
    coalitions in their communities.
    Director's Discretion
        The President requests $8,300,000 for the ONDCP Director's
    discretion to enhance drug control activities and address emerging drug
    threats. We believe that it is essential for the ONDCP Director to have
    discretionary funds with which to respond to unforeseen contingencies.
    We would be delighted to brief Congress on a regular basis concerning
    programs funded and accomplishments.
        At least $3.3 million will be used to improve the Federal Drug
    Related Data Systems. This past February, ONDCP issued its first annual
    report on the Performance Measures of Effectiveness (PME) system for
    the National Drug Control Strategy. The PME is the first federal
    performance measurement system cutting across departments and agencies
    on a single area. It contains 97 performance targets for the 5 goals
    and 31 objectives of the Strategy. We have conducted a gap analysis to
    determine the number of targets for which data need to be developed.
    ONDCP's Subcommittee on Data, Research, and Interagency Coordination
    will review existing Federal data systems, within the context of the
    gap analysis, to determine what additions/modifications can be made to
    existing data systems to provide the measures for the PME system.
        This funding request will provide support for agencies to modify or
    add to their existing data systems. Some projects targeted include:
    deriving annual estimates of the social costs of drug abuse; developing
    SAMHSA's National Treatment Outcome Monitoring Study; and developing
    estimates of drug availability. Funds will be transferred to agencies
    once a plan to redesign/modify/add to an existing data system has been
    submitted to and approved by ONDCP. Outyear funding is required to
    support ONDCP's continual data development projects. Agencies will be
    required to provide continuation funding in the out years through their
    own appropriations.
    Strengthening Law Enforcement: $185.777 Million for the High Intensity
            Drug Trafficking Area Program
        High Intensity Drug Trafficking Areas (HIDTA) are regions with
    critical drug-trafficking problems that harmfully affect other areas of
    the United States. These locations are designated by the ONDCP Director
    in consultation with the Attorney General, the Secretary of the
    Treasury, heads of drug-control agencies, and governors. There are
    currently twenty-one HIDTAs. HIDTAs assess regional drug threats,
    design strategies to address the threats, develop integrated
    initiatives, and provide federal resources to implement these
    initiatives. HIDTAs strengthen America's drug-control efforts by
    forging partnerships among local, state, and federal law enforcement
    agencies; they facilitate cooperative investigations, intelligence
    sharing, and joint operations against trafficking organizations. In
    1998, new HIDTAs were designated in central Florida (including Orlando
    and Tampa), North Texas, the Milwaukee metropolitan area, and the
    marijuana-growing regions of Kentucky, Tennessee, and West Virginia.
    HIDTAs have been established in the following locations:
        Since January 1990, counties in 21 areas across the United States
    have been designated as HIDTAs:
    1990
    New York/New Jersey.
    Los Angeles.
    Miami.
    Houston.
    Southwest Border (which contains the five partnerships of the
            California Border, Arizona, New Mexico, West Texas, and South
            Texas).
    1994
    Baltimore/Washington, D.C.
    Puerto Rico/U.S. Virgin Islands.
    1995
    Chicago
    Atlanta
    Philadelphia/Camden
    1996
    Rocky Mountain (Colorado, Utah, and Wyoming)
    Gulf Coast (Alabama, Louisiana, and Mississippi)
    Lake County (Lake County, Indiana).
    Midwest (Iowa, Kansas, Missouri, Nebraska, and South Dakota).
    Pacific NW (Washington Cascades).
    1997
    Southeast Michigan.
    San Francisco Bay.
    1998
    Central Florida.
    Kentucky/West Virginia/Tennessee.
    Milwaukee.
    North Texas.
        This fiscal year 2000 request for $185,777,000 for HIDTA is $1.8
    million greater than the fiscal year 1999 enacted HIDTA budget. The
    additional funding is required to retain independent auditors to
    perform financial and programmatic reviews of the HIDTAs. At least half
    of the resources will go to state and local participants to support
    more than 250 task forces and initiatives.
    Deploying Advanced Technologies to Fight Drugs: $19 Million for the
            Counterdrug Technology Assessment Center
        The ONDCP Reauthorization Act of 1998 reestablished within ONDCP
    the Counter-Drug Technology Assessment Center (CTAC) to serve as the
    central counter-drug technology research and development organization
    of the United States Government. CTAC's responsibilities include:
      --identify and define the short-, medium-, and long-term scientific
            and technological needs of Federal, State, and local drug
            supply reduction agencies, including: advanced surveillance,
            tracking, and radar imaging; electronic support measures;
            communications; data fusion, advanced computer systems, and
            artificial intelligence; and chemical, biological, radiological
            (including neutron, electron, and graviton), and other means of
            detection
      --identify demand reduction basic and applied research needs and
            initiatives, in consultation with affected National Drug
            Control Program agencies, including: improving treatment
            through neuroscientific advances; improving the transfer of
            biomedical research to the clinical setting; and in
            consultation with the National Institute on Drug Abuse, and
            through interagency agreements or grants, examining addiction
            and rehabilitation research and the application of technology
            to expanding the effectiveness or availability of drug
            treatment
      --make a priority ranking of such needs identified in subparagraphs
            (A) and (B) according to fiscal and technological feasibility,
            as part of a National Counter-Drug Enforcement Research and
            Development Program;
      --oversee and coordinate counter-drug technology initiatives with
            related activities of other Federal civilian and military
            departments;
      --provide support to the development and implementation of the
            national drug control performance measurement system; and
      --submit requests to Congress for the reprogramming or transfer of
            funds appropriated for counter-drug technology research and
            development.
        CTAC is pursuing a comprehensive research and development (R&D)
    program in support of the long-term National Drug Control Strategy.
    This R & D program has three essential elements:
      --Projects to support the development of federal law enforcement and
            drug abuse treatment technology.
      --Technical assessments and operational test and evaluation of
            emerging drug detection and tactical counterdrug technology for
            field transition.
      --A program to transfer federal counterdrug technology directly to
            state and local law enforcement organizations.
        Supporting activities include a variety of regional one-day
    workshops, technical symposia, and ad hoc studies to promote the
    exchange of relevant information throughout the scientific and
    technical community. These outreach activities serve to reduce
    unnecessary duplication of effort and provide the mechanism for CTAC to
    oversee and coordinate counterdrug technology initiatives with related
    activities of other federal, civilian and military departments. This
    oversight and coordination effort extends to include developments in
    the industrial, academic and federal laboratory sectors, as well.
        CTAC has organized its R&D program according to five technology
    categories or areas of work:
      --Non-intrusive inspection technology development.
      --Tactical technology development for federal agencies.
      --Demand reduction technology.
      --Technical assessments and operational test and evaluation of
            emerging technology.
      --Transfer of federally developed technology directly to state and
            local law enforcement organizations.
        National laboratories, private industry and academic institutions
    are the sources for the expertise needed for technology development
    efforts and have performed the research within the R&D Program.
    Standard and centralized test and evaluation activities performed under
    CTAC sponsorship are used by the law enforcement community to validate
    expected system performance in the field and assist in rapid transfer
    of successful technology to the end-users.
    Expanding Our Understanding of the Problem: $1.2 Million for ONDCP-
            Coordinated Policy Research
        The President requests $1,200,000 for policy research in fiscal
    year 2000, an increase of $100,000 over fiscal year 1999. This increase
    is primarily to provide funding for evaluations to be conducted in
    support of ONDCP's Performance Measures of Effectiveness (PME) system.
    ONDCP conducts policy research to develop and assess drug policy,
    identify and detail changing trends in the supply of and demand for
    illegal drugs, monitor trends in drug use and identify emerging drug
    problems, assess program effectiveness, and improve the sources of data
    and information about the drug situation. The requested funds will
    support a wide range of policy research areas, such as:
      --Drug-Flow Modeling.--ONDCP is currently leading an interagency
            process to estimate the flow of drugs, from source country to
            distribution in the United States. The four drugs of interest
            are cocaine, heroin, marijuana, and methamphetamine. No single
            agency provides the data for the entire process, rather many
            agencies have key pieces. For example, the CIA's Crime and
            Narcotics Center provides data on potential cultivation, the
            Coast Guard and DOD provided data on events and seizures in the
            transit zone, and Customs provide data on seizures at ports of
            entry. We are working with the relevant agency staff to review
            their data, improve their estimates, and fit their data into
            the overall model. The resulting estimates will be used to
            measure progress in achieving several of the targets in the
            Performance Measures of Effectiveness system of the Strategy.
      --Price of Illicit Drugs.--This yearly project generates quarterly
            and annual illicit drug prices and purities for the United
            States and selected cities. Results of the project are used to
            monitor market trends and support other research projects
            related to the illicit drug market. Statistical models based on
            data from the DEA are used to estimate typical prices for
            standardized purchases of heroin, cocaine, and marijuana. The
            paper includes price trends for these standardized purchases
            over time.
      --Deterrence Study.--The purpose of this study is to develop a
            reliable functional relationship between the allocation and
            application of interdiction resources and the deterrence of
            illegal drug smuggling. The analysis is principally confined to
            deterrence associated with interdiction operations against all
            routes and modalities of illegal drug smuggling in the Source,
            Transit, and Arrival Zones. It addresses domestic U.S.
            disruption activities only to the extent that these activities
            affect interdiction operations or suggest changes in smuggling
            routes likely to alter the flow of drugs in the Source,
            Transit, and Arrival Zones. The first half of the study was
            supported with fiscal year 1998 funds from ONDCP, the Coast
            Guard, and Customs.
      --Gallup--Consultation with America Survey.--This project is a follow
            up of a similar survey conducted by the Gallup Organization for
            ONDCP two years ago as part of ONDCP's Strategy consultation
            process. The survey asks respondents their attitudes and
            perceptions regarding a number of drug-related issues,
            including their perception of the importance of the problem
            relative to other national issues. The information obtained
            from the survey will be useful to the development of the
            National Drug Control Strategy and as a measurement source for
            several PME targets.
      --Federal Grant Directory.--The Directory produced every 2-3 years
            assists state and local governments, community coalitions,
            researchers, and others in identifying and applying for Federal
            grants by cataloging Federal programs that award drug-related
            grants. It also provides information on how to identify and
            contact private foundations that also may provide valuable
            resources in the field. The third edition of the Directory is
            currently being prepared.
      --Pulse Check.--This report, issued twice each year, provides details
            on current drug use and emerging trends based on qualitative
            information from the police, ethnographers, and epidemiologists
            working in the field, and providers of drug treatment services
            across the country. The report contains separate sections on
            marijuana, cocaine, and heroin markets and patterns of use.
      --Technical Paper: What America's Users Spend on Illegal Drugs.--The
            report is prepared once every two years and estimates the
            amount of drugs available in the United States and how much
            Americans spend to purchase them. The report focuses on the
            retail sales value of cocaine, heroin, marijuana, and other
            illegal drugs. It currently provides ONDCP's estimates of the
            size of the hardcore user population.
    National Alliance for Model State Drug Laws--$1,000,000
        State drug laws play a critical role in the effort to reduce drug
    availability and use. In recognition of this fact, in 1988 Congress
    mandated the creation of a bipartisan, presidentially appointed
    commission to develop model state drug legislation. The resulting
    President's Commission on Model State Drug Laws developed forty-four
    exemplary drug laws. Since 1993, the Alliance for Model State Drug Laws
    has been holding workshops throughout the country to focus attention on
    state policies and laws concerning drugs. The adoption of the Model
    State Drug Laws, and the continued efforts of the Alliance, are
    important to national drug-control efforts. The National Alliance for
    Model State Drug Laws (Alliance) encourages States to adopt and
    implement model laws, policies, and regulations to reduce drug use and
    its adverse consequences. The Alliance's success in promoting model
    laws among the States has prompted interest in assessing outcomes
    associated with such laws. The fiscal year 2000 request funds the
    Alliances' administrative costs.
                                 vi. conclusion
        The Office of National Drug Control Policy's budget request of
    $454.210 million is a modest component of the requested $17.8 billion
    federal drug control budget. However, the importance of this funding
    cannot be overstated. This support will provide ONDCP the resources
    necessary to ensure the successful implementation of the 1999 National
    Drug Control Strategy, which will have broad reaching, positive impacts
    on this nation and its citizens.
        All of us at ONDCP are proud of the growing partnership between the
    Executive and Legislative branches on drug control issues. This
    Strategy responds to long-standing congressional concerns over the
    adequacy of the federal response to the drug problem. It provides
    detailed long-term plans for addressing domestic and international
    trends in drug use, production, and trafficking. This Strategy is
    national in scope and purpose. The federal government cannot accomplish
    the objectives laid out in this Strategy without the support of the
    fifty states and four U.S. territories, as well as the thousands of
    city, county, and local governments threatened by illegal drugs. This
    Strategy also recognizes that it is only the federal government that
    can undertake international drug-control efforts, consequently, it also
    promotes vigorous international cooperation. Finally, the Strategy
    addresses congressional concerns over lack of accountability of drug-
    control programs by including specific benchmarks for a base year
    (1996) against which to measure progress and hard data results for 1997
    and 1998 (where such data is available).
        We look forward to working with committee members and, indeed, the
    entire Congress to ensure that the federal response to the nation's
    drug problem is comprehensive, appropriately resourced, and completely
    supportive of states, cities, counties, communities, families, and all
    citizens who share our commitment who share our commitment to
    confronting the cancer of drug abuse.

        Senator Campbell. Thank you, General. I appreciated some of
    your testimony, having visited with you to the drug court in
    Denver a couple of years ago. I was very impressed and we
    talked at that time about not only expanding drug courts, but
    the juvenile drug courts. You said there were two?

                        JUVENILE DRUG COURTS AND HIDTAS

        General McCaffrey. Break the Cycle. The juvenile drug
    courts are more than that. I would have to give you a number.
    There are 500 total drug courts either operating or in the
    process of starting up.
        Senator Campbell. A couple of pilot projects for juveniles
    courts though, too?
        General McCaffrey. Yes, absolutely.
        Senator Campbell. I think they are in the right direction.
    The HIDTAs, I think also are doing well. There was some
    resistance early on to the growth of those. But the one that is
    in our area in Colorado seems to be doing very well. I check
    regularly with different departments, police department,
    sheriff and so on, and they are very pleased with it. They
    think it is really providing a service so they are not
    duplicating efforts and it helps them coordinate their efforts.
        I am also pleased that you are putting more emphasis too on
    rehabilitation; something that we do not talk about often in
    politics. We like to sound tough and tell everybody how we are
    going to build bigger jails and put them all away. But I know
    the revolving door problem we have with people that are
    addicted, too, and until we break that cycle including helping
    the ones that are already incarcerated getting away from it, it
    will never put a big dent in the drug usage. So I appreciate
    your comments.
        Before I ask you some questions though, since this is the
    first time our new ranking minority member, Senator Dorgan, is
    here with us for this hearing, I would ask him if he had a
    statement he would like to make.

                               PREPARED STATEMENT

        Senator Dorgan. Thank you, Mr. Chairman. As you know I was
    over at the Energy Committee and then I went to the wrong room
    actually, so I was a bit delayed and would ask that my
    statement be made a part of the record.
        [The statement follows:]
                      Prepared Statement of Senator Dorgon
        Thank you, Chairman Campbell. I also want to welcome you to the
    subcommittee today, General McCaffrey. I appreciate having this
    opportunity to discuss with you my concerns with drugs and their impact
    on our society.
        Over the past eight years, the Federal Government has invested more
    than $165 billion in drug control strategies. This year $17.8 billion
    is requested. And, certainly that is not too much to pay, if we are
    making strides in stemming the supply of drugs entering the country and
    reducing the level of drug usage, particularly of our youth. I am
    confident that you, General McCaffery, will use today's hearing as a
    forum to show us how we are succeeding in reaching these goals. And, I
    know you will give us information that proves that our expenditures are
    having a real impact.
        I hope that during this hearing we can also explore some of the
    very important programs you are involved with, such as the Drug Media
    Campaign, International Drug Supply and Interdiction efforts, and the
    reduction in overall drug usage.
        The committee has provided $380 million for the Drug Media
    Campaign. It is my understanding that this campaign includes not only
    the T.V. ad's we are all familiar with, but it links these ads to
    community partnerships, corporate sponsorships, and entertainment
    industry's ``in-kind'' contributions. As a newcomer to the
    subcommittee, I would like to take this opportunity to learn more about
    this media campaign and its effectiveness.
        International drug supply and interdiction efforts are another area
    I am interested in discussing. The United States and its allies have
    made gains in drug crop reduction. The continuing downward trend in
    illicit coca cultivation has resulted in a reduction of 17 percent in
    the overall coca cultivation in the Andean countries. However, in
    Columbia we see a sharp rise in coca cultivation resulting in Columbia
    becoming the premier coca cultivating country. Yet, in the last year,
    the United States has more than tripled aid to Columbia.
        We have again been asked to approve the President's certification
    of Mexico. The certification process has been in effect for more than
    twelve years. It is a good tool. It promotes openness and viability.
    But, I am afraid we are going to eliminate the certification process's
    ability to effect change in other countries' drug efforts--especially,
    if we continue to certify countries that are obviously not making
    strides in stopping the drug trafficking to the United States. Mexico
    now rivals Columbia for dominance of the Western Hemisphere drug trade.
    Drug corruption has reach unprecedented levels, and drug seizures by
    the Mexican police have fallen significantly. I understand the politics
    surrounding the certification issue, but I find it difficult to agree
    with certifying that Mexico has been a fully cooperative ally in
    fighting illegal drugs.
        Finally, I want to discuss drug usage. Our primary concern is
    seeing evidence that monies provided are leading to a reduction in drug
    use. Current studies and the ``Data snapshot'' information do not
    confirm reductions. In fact, your charts show that the current use
    of"any illicit drug'' among youth is increasing. Use of marijuana is
    the highest since 1985, and heroin use has increased by close to 700
    percent.
        I know these are areas you want to address General McCaffery, and I
    look forward to your testimony.
        Thank you very much, Mr. Chairman.

        Senator Dorgan. But, General, thank you very much. I am
    impressed with the work you and your agency are doing and am
    interested in--I am new to this issue and new to this
    subcommittee but I am interested in working with the chairman,
    Senator Campbell, and you and others on these matters.
        I have a number of questions I would like to ask, but a
    couple of the things that I am especially interested in, one,
    the drug media campaign. I happen to think it is an important
    and useful tool. I also know that it costs a great deal of
    money, and the management of it, and the measurement of results
    from it I think are critical to determine whether this is an
    investment that it is yielding the returns we expect.
        I am also especially interested in the question of
    addiction and the amount of money available for treatment
    centers. You indicate in your statement, General, that there
    are 4 million chronic drug users in this country. That does not
    include alcohol I assume?
        General McCaffrey. Does not include it, right.
        Senator Dorgan. When you take a look at addiction to drugs
    and alcohol and evaluate the amount of money available for
    treating that addiction, we simply are not nearly where we
    ought to be. We can interdict drugs, but if we do not interdict
    the addiction we are going to have people out there committing
    crimes to feed their addiction. So I want to talk to you a bit
    about that today and think through how we can improve in that
    area.
        I noted in your statement also you talked about the success
    of the methadone treatment programs and the reduction in
    addiction, and also the reduction in crime resulting from those
    programs. I was encouraged and heartened by that.
        I am especially interested in one of the last points you
    raised about Break the Cycle and other kinds of programs. It
    seems to me that no one ought to leave prison who has not gone
    through some sort of addiction counseling or addiction program
    if they in their life of crime have been affected by drug or
    alcohol addiction. I would like to talk about how we accomplish
    that and I will do that during the question portion.
        Mr. Chairman, you no doubt have some questions. Why don't I
    defer to you and then I will ask a series of questions.
        Senator Campbell. Okay, thank you.
        General, let me associate myself with Senator Dorgan on the
    concern that we had at the beginning, as you remember, about
    putting all this huge amount of money into the media campaign.
    I have been pretty supportive of it, as you know, but it has
    been a chunk of money. As I mentioned in my opening statement,
    as of this year, this budget will be something like $500
    million in that program. I think it has been somewhat
    effective, I am just not sure how much. But I think it has
    headed in the right direction.
        But I am a little bit concerned because, in my view, any
    program is as good as the administrator of the program. And if
    you are to have long term continuity of a new program then the
    person who really energized it, which in this case is you,
    General McCaffrey, I think the committee would like to be
    assured that you are going to continue on with this thing.
        I only mention this because I noticed in the newspaper, the
    Washington Times, February 12th, that you were, according to
    the Washington Times you were going to be leaving this office
    and going to get a new job with the Red Cross. Of course, that
    has changed now and the Red Cross has picked a new president
    and it is obvious you are going to stay at least where you are
    for the time being.
        I notice this is maybe a little personal and you are
    welcome to do what you want in your own personal life, but I
    think you could reassure this committee that this kind of a
    very expensive program is going to go on and continue what we
    want it to do by putting that much money in it under your
    leadership. I think it would make us very happy.
        General McCaffrey. Senator, I told people--I called the
    Washington Times, the Post, and had to explain this to the
    President and to the Red Cross. I was flattered by the article
    along with other speculation, but there was no substance to
    those news reports at all. Although I was not a volunteer for
    this position at all, I am honored to be part of it. I think we
    are moving in the right direction, and as long as I retain the
    confidence of the U.S. Congress and the President and my
    associates, I am glad to continue to serve.
        Senator Campbell. Thank you. There is something else that
    is kind of close to my heart. As you probably know, since Bill
    Bradley left the U.S. Senate, I am the only one here who was on
    a U.S. Olympic team and still am very active in the Olympic
    team. Your office has provided us with the estimates and costs
    of your recent trip to the International Olympic Committee's
    anti-drug conference.
        And by the way, Senator Hatch and I have been working with
    the Olympic committee on trying to resolve some of the problems
    you have read about in the paper, and everybody has read about
    in the paper of collusion and all kinds of mismanagement and
    special gratuities and so on for some of the members of the
    International Olympic Committee, which has nothing to do, by
    the way, with the American Olympic Committee. That is a
    separate issue.
        But as I understand it, when you went over to Switzerland,
    the four-day trip cost about $68,000 including an estimate of
    $25,000 for administrative and logistic expenses for seven
    attendees and seven marshals. That, as I also understand it, is
    about 11 percent of your total travel budget. I would like to
    know, which account is going to cover those costs, because as I
    remember they were not anticipated before in last year's
    budget?

                         INTERNATIONAL RESPONSIBILITIES

        General McCaffrey. Senator, I do not have a clue about 11
    percent. It doesn't sound likely. We spend a lot of money on
    travel. What I essentially do is move around the country, the
    Hemisphere, the Pacific Rim, and Europe acting both as
    spokesman and organizer on the drug effort. Our presence at
    Lausanne I think was timely. It was productive. We made a huge
    impact, along with the European Union, the Brits, the Germans,
    and particularly with the Australians and the Canadians.
        It was, of course, a ``doping conference'' and I was
    probably less concerned about 5,000 international world-class
    athletes than I was the hundreds of thousands of kids all over
    the world who model their behavior on getting to the top. So
    that was our purpose in being there.
        I think the trip was a tremendous expenditure of energy on
    our part and I am very proud of what we were able to do. The
    mechanics of how we paid for it; it was a tiny expense. I am on
    the road almost one-third of the year.
        Senator Campbell. It is an interesting area of discussion
    and we will not have time to get into all of it. But having
    been very active in the Olympic team, have you ever heard of
    what they commonly call blood doping?
        General McCaffrey. Sure, absolutely. When I went over there
    I took along one of the country's leading experts on doping. I
    had to get him under contract. He was our NIDA person. As you
    know, NIDA funds 85 percent of the world's total expenditures
    on drug abuse. I also took along my deputy, Dr. Don Vereen, who
    is a nationally ranked drug abuse research expert, was the NIDA
    Deputy Director.
        So we had a series of meetings where ever we went. We were
    working on this probably since last summer. We wrote a proposal
    for the IOC in October and sent it to them.
        Senator Campbell. And during that proposal, that is when
    you proposed you would provide $1 million in funding to the
    IOC?
        General McCaffrey. Exactly. They started down the wrong
    direction. They were going to do with Prince Maraud of the IOC,
    an inadequate institutional approach, and we did not think they
    were adequately serious about it. So we think we have got them
    rethinking it, and I hope in the coming months we end up with
    something that makes it appear as if we are acting to protect
    the international Olympic movement.
        Senator Campbell. I support it. I am just a little
    concerned about the Federal Government's role in it since the
    Olympic Committee does--they have a budget of something like
    $400 million every quadrennial, every four years. I am just not
    sure about how much the Federal money ought to be put in it.
    But if you can justify that, I do not have a problem with it. I
    just wanted to throw that out to you.
        General McCaffrey. The $1 million really we are not going
    to give them. We are going to do research which supports the
    doping issue.
        Senator Campbell. Where is that $1 million going to come
    from, out of what part of your budget?
        General McCaffrey. It is part of the CTAC. CTAC organized
    that approach.
        Senator Campbell. And you will be able to do that without
    diminishing some of the other CTAC projects or areas?
        General McCaffrey. Presumably.
        Senator Campbell. Some of the things, by the way--Senator
    Dorgan may already know this and you may, too. There are some
    things that are against Olympic rules that are probably not on
    anybody's law as being illegal.
        General McCaffrey. Sure.
        Senator Campbell. I mentioned blood doping.
        General McCaffrey. There is no common standard. Not only in
    the Olympic movement, but there is none here in the United
    States. Certainly this Mark McGwire and andro and creatine
    brings that to bear. He was not violating any U.S. standard nor
    law by using andro, which is outlawed in other sports here in
    the United States and also in some Olympic competitions.
        Senator Campbell. Even some things like----
        General McCaffrey. Artificial testosterone, blood packing,
    human growth hormone.
        Senator Campbell. Yes, and even withdrawing your own blood
    over a period of time before you compete and then pumping your
    own blood back into you, which is highly oxygenated which gives
    you sort of a supercharged effect for two or three days. That
    comes under the general classification as against the rules----
        General McCaffrey. Methamphetamines, other stimulants.
        Senator Campbell [continuing]. But it is probably not
    against anybody's law.
        General McCaffrey. Yes.
        Senator Campbell. I got a little far away. Let me get back
    to some specific questions. The current law requires that ONDCP
    secure corporate contributions equal to 40 percent of the
    appropriated amount of the campaign, which is roughly about $74
    million. Could you give us the status of that effort? You
    mentioned it in your opening statement.

                             CORPORATE INVOLVEMENT

        General McCaffrey. Right. I was asked that yesterday by
    Congressman Kolbe in the House hearing, and to be honest, I did
    not have an answer. I am not sure either one of us knew what we
    were talking about. So since then, last night I researched it.
        During the omnibus appropriations act there were a series
    of things that were proposed for that bill that we thought were
    harmful. This was one of them, but it got in there. So it is in
    the law right now, and essentially seems to mandate $40 million
    corporate in-kind contribution to first year, growing by
    percentages to 100 percent in 2002. It almost seems to imply
    that it might be cash contributions.
        Senator Campbell. No, it is in-kind.
        General McCaffrey. Right. So as we look at it right now, if
    you look at the enormous in-kind contributions of the
    advertising world to both Partnership for a Drug-Free America
    and the Ad Council, we have totaled up $41 million of in-kind
    contributions. So we are achieving that goal as well as,
    thankfully, the matching 100 percent requirement, which we have
    exceeded.
        On top of that, I would suggest that by May we will have
    put the last contract into play. I will have a firm to work
    corporate partnerships.
        Having said that, Senator, I would ask us to look carefully
    at that requirement. It may be that that is a very unwise
    mandate.
        Senator Campbell. That report was due at the end of January
    and I do not think it is in yet. Could you give us a specific
    date that you think you will have it to us?
        General McCaffrey. Sure. We can give it to you right away.
    I am not sure we really focused on that.
        But again, if I may suggest, we will need to consider
    whether this is feasible or desirable to have that as a
    requirement in the law. It implies that by 2002 there would be
    $185 million of corporate in-kind contributions. That, by the
    accounts of those who do this for a living, is not even
    beginning to be realistic.
        Senator Campbell. Frankly, I am not sure it is realistic
    either, but it was to really--if you remember, it was kind of
    to alleviate the concern of the members, including me, that
    thought the more Federal money we pour into advertising on
    television, the less they might be inclined to donate if they
    thought they had sort of a new cash cow. That is what brought
    it about in the first place.
        General McCaffrey. Yes. I think we are pleased and
    encouraged by the response.
        Senator Campbell. So your donated time has not decreased?
        General McCaffrey. No. And we were worried about not only
    the donated time, but also to not dry up other campaigns with
    PSA access requirements. We have got a committee that verifies
    these for the Ad Council. Ruth Wooden and her associates have
    been tremendous about it, and so far I think we are doing good.
    So Mothers Against Drunk Driving has got more access, not less.
        Senator Campbell. That will be in your report, I assume,
    good hard evidence of it.
        The tech transfer that we did, I have gone to, I guess,
    three of them around the country and they were very widely and
    happily received by local departments. Originally, when we put
    that in place there was some reluctance, as I remember, to
    expand that. But it sure seems to be doing well out in the
    local departments. In fact, this year I was happy to see that
    that program requested under your salaries and expense account
    is being supported.
        It was supported, by the way, last year to the tune of
    about $13 million, each of the last two years. But this year
    you requested only $3 million. But we have roughly $30 million
    in requests from different police departments. I would like to
    know how you propose to meet those needs.
        General McCaffrey. My records as of 1 March 1999 indicate I
    have got $59 million plus in requests outstanding. This is
    enormously popular. It is extremely useful, particularly along
    that southwest frontier where we are asking local police
    departments to help defend all of America. So I think it is a
    wise use of Federal dollars. It ought to be looked at very
    carefully by the Congress.
        In a tight budget year OMB funded it at a lower level than
    many of us would have wished to see. And I will listen very
    carefully for your own views about this.
        Senator Campbell. I think it ought to be funded to a higher
    level and I would hope that you would see it that way, too.
    Because I have been out there and I think that it has made a
    tremendous difference. Local departments have no way of ever
    being able to afford some of that technology that they can
    access through this program. Some of that stuff, I mean to tell
    you, it is just absolutely Buck Rogers things. I had no idea
    the sophistication of some of the apparatus that they were
    demonstrating.
        The process by which it is explained to the local
    departments as to how they can get it, how the training is
    included with it, I mean it is just a widely popular program.
        General McCaffrey. We have had Fort Wachuca managing that
    program for us. They have done a splendid job, and I agree, I
    think it is a big payoff program.
        Senator Campbell. All right, I thank you.
        I will ask Senator Dorgan if he has some questions. I want
    to do another round of them, but I do not want to monopolize
    all the time.
        Senator Dorgan. Thank you, Mr. Chairman.
        Again, General, let me tell you my admiration for you and
    your agency and the work you do. But I do have a number of
    questions because I am trying to understand what we are doing
    and the effect of what we are doing. Let me start with the
    national media campaign.
        Obviously, when we spend as much money as we are spending
    on that campaign, we want to try to understand what we are
    accomplishing with it. This subcommittee, I believe, required
    that evaluations be completed. For example, phase one, phase
    two evaluations should be completed and submitted. My
    understanding is we have not met those timelines.
        I guess I would ask the question, if we are going into
    succeeding phases with quantities of money in the hundreds of
    millions of dollars without understanding what the consequences
    or effects of the first phases were, are we able to assure the
    taxpayers that we know what we are doing with that money?

                                 MEDIA CAMPAIGN

        General McCaffrey. Senator, again this came up yesterday
    and I discussed this my own staff yesterday. We will be more
    effective in horizontal communication with committee staffers.
    Obviously there has been a shortfall here.
        We have complied with the law. There is a Phase One
    evaluation report. I have signed it out to all the governors in
    the country, to Congressmen, to NGOs who follow this issue very
    carefully. There is also additional work going on Phase One
    evaluation looking at the survey. We are going to do a good
    baseline. Those 12 cities, the 12 control cities were looked at
    pretty carefully. There was extremely positive feedback.
        We have moved forward into Phase Two expenditures of money.
    We have gone nationwide, but we are not at 75 percent
    expenditure rates.
        In addition, I would suggest to you, I have got a packet up
    there for you of information. One of them is a March 4 memo I
    wrote, National Youth Anti-Drug campaign reviews and safeguards
    and ad development. I can assure you, this is very carefully
    monitored.
        Thank God, we are beyond the Phase One where now I have got
    three of the most knowledgeable, sophisticated firms in the
    country. Ogilvy Mather is doing our advertising placement, $129
    million. We have got Fleishman-Hillard doing the online
    Internet and affecting program content in the entertainment
    industry. We do have a NIDA watchdog, National Institute of
    Drug Abuse. Westat Corporation is the evaluator external for
    that program. We do have, Partnership for a Drug-Free America;
    creative review committee, and we do have a scientific review
    process.
        Then finally, I personally approve and expect to be held
    accountable for the execution of the program. All of that I
    will provide to Congress so you can watch the evolution.
        But the bottom line is, I would just suggest to you as
    strongly as I can, we do know what we are doing, and we are
    getting some pretty solid feedback. There is a lot to be
    learned here now. We are on a new map sheet here, so we have
    got to be prudent in safeguarding the public's money. I am very
    aware that you have given me $1 billion campaign to carry out.
        Senator Dorgan. I ask the question because I remember
    reading recently about the wonderful milk check-off that we all
    approved, so we see all of these ads all over the country with
    people with milk mustaches. And then we start reading about how
    much money has been available in these campaigns and how it has
    been used, and it is very hard to control the use of money when
    you have that quantity of money.
        You talk about some of the biggest and best names in the
    business. They would also probably be the most expensive in the
    business. Do you have some good newer firms that are less
    expensive and move more quickly and more innovatively to
    develop ads and do those kinds of things?
        General McCaffrey. These were partnerships. We bid them.
    They get recompeted each year, so if they do not perform for me
    they will lose the contract next year.
        Senator Dorgan. You indicated you have support and
    cooperation from the entertainment industry. What kind of
    support? When you use entertainment figures in these ads--I do
    not know that you do that, but if you do, do you get pro bono
    services from entertainers?
        General McCaffrey. Again, any time there is an Actors Guild
    fee involved, they have waived it. There is also in the
    matching component considerable amounts of Fox Family TV, ABC,
    NBC, CBS, et cetera, who are producing PSAs themselves, in some
    cases using their own talent. Univision. We have got a lot of
    Spanish language ads on the air now. So, yes, there is
    employment of visible figures in some of these ads.
        But the appropriated piece of it, the centerpiece of that
    is Partnership for a Drug-Free America and the advertising
    industry. But we now give PDFA written guidelines and there is
    a scientific, medical review process so that we ensure that
    what is up there is not only persuasive, compelling, but will
    be remembered. In other words, will hit all these advertising
    requirements, but it is also scientifically accurate.
        I think some of the anecdotal information is really quite
    interesting. Are the ads being noticed? Yes. By the way, the
    coming year is important to us because what we are using now is
    existing stock that PDFA had. But now that the advertising
    firms see that their material is on the air, and is being
    viewed, the creative energy in this process has gone up. I have
    just approved the second wave and the third wave of these
    products. They are getting really first-rate.
        Senator Dorgan. I just want to learn a little more about
    them and I look forward to doing that in conversations with
    you.
        Two other quick areas. One is the addiction treatment
    capabilities, and especially dealing with prisons. But let me
    first ask, we have 4 million drug users in this country who are
    addicted to drugs. How many slots are available? Let's assume
    that someone is a heroin addict on the streets of New York
    City. What is the likelihood of that heroin addict, if they
    choose to want to get treatment, being able to access
    treatment?

                            DRUG ADDICTION TREATMENT

        General McCaffrey. Those are very difficult numbers to get
    at. It has been interesting trying to pin people down, what is
    a treatment bed, a slot? What is the addicted population? So
    the numbers I will give you are a puzzle to varying responses.
    Let me suggest what I think is an answer which have some value.
        My associate just handed me the number. We believe that we
    have probably got half of the treatment capacity that we need
    for the chronic addict population. And I say that, that is sort
    of sort data but it suggests--and we have closed it somewhat,
    but it has gone down in three years by about 300,000 treatment
    slots.
        Part of the problem with my response is if you ask for an
    ideal treatment response, right now probably the conclusion of
    some of these people in the year would be this: Go for a year
    of residential treatment followed by five years of follow-on
    supervised care, with the one magic component of attendance at
    NA and AA daily for the first year, and then two or three times
    a year the following year. That would be the ideal.
        We cannot afford that. I do not believe we will ever
    provide a year of residential treatment in a campus-like
    setting for 4.1 million chronic addicts. So we are not going to
    get there, and we are not going to try and get there.
        We are going to try and go to other community-based
    approaches, and we are going to try to get the user, when he or
    she show up in the criminal justice system, for sure, to get
    into treatment.
        Senator Dorgan. But that is not happening now.
        General McCaffrey. A lot of it is beginning to happen--it
    darn sure is. We have got enormously increased dollars in
    Department of Justice and Health and Human Services programs
    for drug treatment. As I reported, it has gone up 25 percent in
    four budget years.
        Senator Dorgan. Just on that point. Last year we funded
    $4.5 million for a drug-free prison zone, to fund some
    treatment programs in Federal prisons. Can you tell me how that
    has been used or how that is structured?
        General McCaffrey. By the way, I will give you a written
    answer, because there is a series of programs, and although I
    probably know more about it than most people in the country, I
    would be hard-pressed to give you every one of Lori Robinson's
    Department of Justice programs.
        The Federal prison system is doing better than most.
        Senator Dorgan. Right, and they have 5 percent or 8 percent
    of the inmate population. Most of it is----
        General McCaffrey. A tiny amount. They have got 105,000
    people behind bars. There is 900,000 at State level. There is
    600,000 at the local level.
        The Federal programs will claim, I think it is 51
    institutions, have some form of drug treatment. I believe that
    most of them have modest capabilities and a few are beginning
    to implement a comprehensive program.
        But having said that, the prison-based component, if it is
    done alone, is of little value. We have to follow the chronic
    drug abuser back into community life and keep them under
    supervised drug treatment, drug testing. That component has not
    been implemented except in the State of Delaware is starting to
    do it, California is beginning to do it, et cetera.
        Senator Dorgan. But a prison program that does not exist is
    of no value. My feeling is that there ought not be anybody that
    goes into prison, especially violent offenders, but there ought
    not be anybody that goes into a prison who has a drug problem
    and comes out without having been forced into an addiction
    treatment program.
        General McCaffrey. I absolutely agree. I think you are----
        Senator Dorgan. I will tell you, all over the country that
    happens now.
        General McCaffrey. Right. No, I am well aware of it.
        Senator Dorgan. Some of that is changing, but not very
    fast. I am interested in any strategies that we can use,
    including mandates, which is a word that a lot of people do not
    want to use around here, that would put in place the
    requirement that if you have somebody in any prison in this
    country, you do not let them out unless they are required to
    have gone through these addiction treatment programs.
        But let me turn back the time just to say this. I have
    skipped a couple things. My understanding is that there are a
    couple hundred thousand spots in treatment programs available
    and if you are an addict, if you are a heroin or a cocaine
    addict on the streets someplace, you have a devil of a time in
    most cases getting access to--if you want to shed that
    addiction, getting access to a good treatment program.
        As we deal with all of this, one part is to try to stop
    people from starting on drugs, and that is especially children.
    The second part is to deal with these people who are on drugs
    to try to get them off of drugs and shed their addiction and
    stop the crime that results from it. I think on the addiction
    treatment side, the chairman indicated and I fully support, we
    are woefully short of the needed funds to provide addiction
    treatment center spots for those who want to shed their
    addiction.
        General McCaffrey. I agree.
        Senator Dorgan. We must address that. And if we do not
    address that, we are going to continue to see this cycle of
    addiction among those hard drug users that results in all of
    the crime and all of the other related issues.
        Now many of them go in and out of prison, so one of the
    places we can at least begin to address it is to require them
    to go through this counseling in prison, and then try to follow
    them on the outside.
        General McCaffrey. I agree.
        Senator Dorgan. I have got some other questions, Mr.
    Chairman.

                           DRUG TREATMENT AND PARITY

        General McCaffrey. Senator, I wonder if I could just
    respond. Secretary Shalala has $3.054 billion in the fiscal
    year 2000 budget on drug treatment. That is a huge amount of
    money. But it goes to one piece of the population. So if you go
    to a lot of these treatment programs, it is very deceptive. You
    will see an awful lot of minority people in publicly-funded,
    supported drug treatment.
        There are two other pieces of it. One is to get to the
    criminal justice system. Whether you end up behind bars or not,
    if I am using drugs I will end up in trouble with the law.
    Physicians have one of the highest rates of drug abuse in our
    society, and will end up in trouble with the law if they are
    abusing drugs. They have got effective drug treatment if I am
    an addicted medical person. And we have got to extend that.
        One of the bills Senator Wellstone and others have
    supported is a notion of health care parity for drug treatment.
    I think in the coming year we are going to try and come down
    and make a sensible argument on why we need to support that
    approach as a taxpayer's relief to the damage done by me.
        The number I use, if I am addicted to drugs and you do not
    do something about it, or my family does not have access to
    drug treatment, I will cost you $42,000 a year in damages
    untreated. Then you can lock me up for $26,000 a year. And if
    you add in the treatment component, it is a taxpayers' relief
    payoff. So I think you are right on the correct answer.
        Senator Campbell. I would like to welcome Senator Kyl. Do
    you have some questions, Senator, before we begin our second
    round here?
        Senator Kyl. Thank you, Mr. Chairman, yes, I do.
        I apologize for not being here during your testimony,
    General McCaffrey. We have three different subcommittees going
    on and I wanted to be able to be here to ask you some
    questions.
        The first has to do with the creation of a new HIDTA in
    Arizona. You should be receiving this week the plan and the
    budget for a new central Arizona HIDTA. You have been very
    supportive of the existing HIDTA in Arizona. This one was just
    newly created. It has the support of the existing HIDTA. It is
    a new central Arizona HIDTA.
        This will be especially important to our ability to combat
    drug use both in the southern portion of the State where so
    much of it comes in, but also in the central part of the State
    where the bulk of our population is. I think you may recall
    that in Arizona the drug use among kids is one-third higher
    than the national average. So we have a huge drug problem with
    our youth.
        But I hope that you will look favorably upon the
    designation of this new central Arizona HIDTA and that in
    providing the funding will provide adequate new funding for
    that second HIDTA rather than cutting up the existing pie for
    the money that has been coming to Arizona so far.
        If you have any comment on that, go ahead, but I wanted to
    give you an advance notice that you should be receiving that
    this week.

                                     HIDTA

        General McCaffrey. I think we talked earlier about the
    growth in HIDTAs from six to 21. There are an enormous payoff.
    This is a good concept. Smart prosecutors and law enforcement
    understand the requirement to integrate local, State, and
    Federal efforts. And I think the Southwest Border, and Puerto
    Rico, Virgin Islands, the Gulf Coast States, South Florida have
    a special responsibility since you are really acting in
    protection of a lot of the rest of the country.
        I also am concerned, as you are, that two years from now
    there not be 40 HIDTAs with the same level of funding, or it
    will just be another inconsequential Federal program. So we are
    going to look very closely at that.
        I have got a study due by this summer which will try and
    overlay on a county-level analysis of the country where are
    indications of drug abuse in the United States. I am reasonably
    sure that that analysis will tell you what you already know
    anecdotally and by Arizona data, that you have got a huge
    problem which probably could be supported by HIDTA designation.
        But we have to be a little careful. I have got nine regions
    have now submitted applications for new HIDTAs.
        Senator Campbell. How many was that, nine regions?
        General McCaffrey. Nine more. So let me go look at them,
    get an analytical response, and come down and give you my
    recommendations. But I think basically this is a good payoff
    for the American people.
        Senator Kyl. I can tell you anecdotally, the law
    enforcement community in Arizona, from all of the different
    Federal agencies, to all of the different State and county
    agencies have told me that they have never come together before
    in the way that they have in support of the HIDTA. The HIDTA
    program actually was the cause for them to come together really
    for the first time ever in the cooperative, coordinated way
    that they have.
        It has been a tremendous benefit, and they all, I think,
    have recognized that it was the HIDTA, the one HIDTA that we
    have, that brought them together. So I can provide at least
    that anecdotal support for the benefits of the program.
        As I say, I hope you will look very carefully at the
    recommendation for the second one. It was not done lightly. It
    has the support, as I say, of the existing HIDTA. They simply
    see it as a little better division of the responsibilities to
    address the problem.
        The second question I have results partially from meetings
    that I just came from. I think it might be interesting for
    Senator Dorgan, coming from a State that you do that is not
    highly populated, on the Canadian border--and, incidentally,
    you have talked about treatment. I share all of those thoughts.
    Now here is another perspective of another area of the battle
    that we have to fight.
        In fact, General McCaffrey, you called it shield America's
    air, land, and sea frontiers from the drug threat. Well, we
    have got a very leaky shield, as you know.
        On my border, the border with Mexico we have got a huge
    problem, and here is just an illustration. I do not know the
    population of some of your border communities in North Dakota
    but think of this. Just in the month of February, the last
    month that we had here, 49,000 apprehensions of illegal
    immigrants just in one sector. This does not even count the
    Yuma area, which is over by California. It is just the sector
    south of Tucson.
        Douglas, Arizona, a sleepy little town, is the hottest spot
    for illegal crossing in the country now. And the people coming
    across are carrying a lot more drugs than they ever used to.
    Many of them are now being used by these coyotes to carry them
    on their backs. And they are much more violent than they used
    to be.
        So 49,000 just in one month. Average daily, just in this
    sector--not the whole border--in Arizona is over 1,500 a day.
    And of course, there is no estimate of how many they miss, but
    it is clearly at least twice that many. So we have a very
    porous border.
        Now, General McCaffrey, my question is this. Because you
    have such an outstanding reputation as fighting for what we
    need to win this war on drugs, and since a key component of it
    is providing this shield on our border, I would like to know
    your view of the Administration's budget request of exacting
    zero funding for new Customs agents and new Border Patrol
    agents.
        I think you have stated in the past that our Border Patrol
    levels, the quotation I have is, are completely inadequate to
    patrol the 2,000 miles of U.S. border with Mexico. We are doing
    better with the training of some new agents but it is still
    very porous. And the statistics that I have here show that
    between 50 and 70 percent of illegal drugs enter through the
    southwest border.
        So I would like to get your views on the Administration's
    budget request that there be no new funding for Border Patrol
    agents for fiscal year 2000, as is required incidentally by the
    1996 law that we passed to train 1,000 per year, and no new
    funding for additional Customs agents or inspectors.

                                 BUDGET CHOICES

        General McCaffrey. It is a question I rush to avoid. We
    have obviously got a zero balanced budget. You know, there were
    some hard budget choices made. I would be glad to provide this
    committee with the budget I certified at agency level and the
    budget I certified at department level by function. It is
    clearly our own view--the Border Patrol requested initially
    money for additional agents, and Customs Service in my
    impression needs to be right-sized.
        What we have completed is a study on how we provide a
    better coherent defense of America on our southwest border. And
    it is a bit stuck now in the interagency debate with two
    components. One is the intelligence piece, which we have
    completed. We have done the analysis. Director Tenet, the
    Attorney General and I now owe the President our recommendation
    on how do we get the intelligence system better support, Border
    Patrol sector commanders, DEA SACs, Customs SACs, et cetera.
        I think we know how to do that, but I am going to have to
    get some kind of a package together and give it to the
    President before summer comes around. Some different
    viewpoints, but I think we will achieve consensus.
        We also have a white paper on how to better organize the
    southwest border. In my view, the Border Patrol and Customs
    Service have to have the right technology, manpower, and
    training, and organizational concept to do their job. There is
    no sense in pounding on the Customs Service for failure to find
    heroin and cocaine in trucks unless we give them the tools that
    will achieve their purpose, which we have not done.
        I do not think this budget necessarily reflects long term
    wisdom, but I do believe we will be better off, and I finally
    got a document to the President that says, here is what we
    recommend you do. I have used some figures to finally stimulate
    the debate which said the Border Patrol probably ought to be
    20,000 people. It was 3,000 when we started. It is 7,000 now.
    But that ought to be the product of analysis, not me asserting
    that that is probably about the minimum size to protect 12,000
    miles of U.S. frontier, to include Canada.
        As we succeed in the south, drugs are going to get pushed
    around. The Vancouver corridor now is a major drug smuggling
    route. So we have got to look at this, and the amount of----
        Senator Kyl. But, General, may I just interrupt you. I hate
    to do it. But you have been so effective in cutting through the
    baloney. You are a get-the-job-done guy, and I have supported
    your efforts because you have the right attitude toward this,
    you are committed to it, and you have done a lot of good, and
    you have come up with some great, innovative programs.
        But here is the situation where we do not need any more
    analysis. You had it right. At 7,000 we do not have too many. I
    mean, we do know that; we do not have too many.
        We passed a law in 1996 that said we were going to train
    1,000 per year for five years and then take stock of where we
    were. The Administration put exactly zero money in to fund that
    law.
        Now their response is not that we need to do a white paper
    or a study, or that we do not need the people. The response is
    that it is hard to recruit that many people. So the answer is
    to put zero money in the budget? How about taking an idea from
    what we just passed last week with our Soldiers and Sailors
    Relief Act, you could probably teach us all here a lot about
    what it takes to recruit and retain top quality people in the
    military to do the job. We finally figured out that we needed
    to put some money against that problem, and we have taken our
    first steps toward doing that.
        So if $18,000 or $20,000 a year is not enough for a new
    border agent--and it clearly is not--the answer is not to say,
    we are not going to put any more money in the budget for
    training anybody this year because it is awfully hard to
    recruit them. We have just sort of run out of recruits. The
    answer is, fine, does it start a $25,000 starting salary or a
    $30,000 starting salary? How much more in a few millions of
    dollars would that add to our budget? And therefore, how much
    more successful could we be?
        I know this is not your job. But I urgently request you, I
    implore you, because your job is dependent upon the successful
    funding of these other two programs, in part, to weigh in on
    this and say, from my perspective it is not adequate to have a
    zero funding for Customs and Border Patrol agents.
        Now to the Administration's credit, there is money for
    technology for Customs, which you rightly point out we need
    more of. That is great. That is fine. But you need more agents
    too. When we have a two-day wait on our border--two days--that
    is not acceptable. And when we have the kinds of things going
    on on our border that I just articulated, it is not acceptable
    to say, we need a time-out until some more people decide that
    they want to join the ranks of the INS or Customs Service.
        So I urge you to go back and tell the Administration to
    take another look at this and support our efforts to try to put
    more money in. Here is our problem on the Appropriations
    Committee. I go to Fritz Hollings and Judd Gregg on another
    subcommittee and say, would you put some money in? Well, what
    did the Administration request? They requested zero.
        Well, Judd Gregg comes from a State, and Fritz Hollings
    comes from another State that are not too tied in with the
    southwest part of the border. But Senator Feinstein and I were
    just having a meeting and we are going crazy trying to figure
    out how to get a handle on this in our own States.
        So I just have to ask you, would you please make a request
    of the Administration to take another look at this and to
    understand that they are not providing this shield that you
    talked about if they have zero funding for two of these
    critical elements of the effort.

                                 BORDER ISSUES

        General McCaffrey. Senator, one thing I think we ought to
    underscore is this is not a problem of the four border States.
    Colorado is on the front lines of drug smuggling out of Mexico.
        Senator Kyl. Absolutely.
        General McCaffrey. So I try to make the case, this is not
    the four border States' problem.
        Senator Kyl. Absolutely.
        General McCaffrey. I think the second argument, perhaps
    that has bothered me, is the notion of having the right culture
    to these Federal law enforcement agencies that protect the
    country. There is no reason we should ever say that there are
    not lots of young Americans who would not be proud to serve in
    uniform in the Border Patrol protecting America's frontiers,
    and not just as an anti-immigration force. This is Federal law
    enforcement, protecting U.S. laws along our frontiers.
        So I do not believe that there are not lots of people who
    would be glad to serve for five years in uniform in Eagle Pass,
    Texas or in Douglas. I think part of it may be money. Part of
    it is recruiting. Part of it is having their own identifiable
    culture. Part of it is getting the Border Patrol having a
    uniformed service staff here in Washington responsible to
    civilian authority.
        We have some work to do. And I agree with you, I do not
    think the current approach is adequate and we had better
    organize it in the two years we have remaining.
        Senator Kyl. Thank you.
        Thank you, Mr. Chairman.
        Senator Campbell. I have gotten a little confused listening
    to that dialogue. As part of last year's deal to strike an
    effective budget deal there was a last minute push for a
    significant amount of emergency drug funding. As you remember,
    $280.7 million according to my notes. I understand agencies
    like the Customs Service are still trying to figure out a plan
    on how to spend it because they had not anticipated that
    additional money.
        Can you comment on that?
        General McCaffrey. It is a little more than $800 million.
    The supplemental appropriation, a little more than $800
    million, of which we scored a little more than $600 million as
    drug related. We were involved in some pretty intense
    negotiations on that in the five or six days--the $870.2
    million of which $843.9 million was scored as drug related by
    us.
        A lot of that is going to be a tremendous contribution of
    the American people. So I finally signed up for it. It was done
    hastily. It was ill-advised. It was not done with analysis by
    the executive branch. Some of this concerns me. Money for
    Customs P-3 aviation. The appropriations bill was okay. The
    authorization bill put 30 P-3 aircraft into the Customs Service
    in the coming three years.
        Senator Campbell. That was additional aircraft?
        General McCaffrey. Aircraft, Coast Guard ships, radars. We
    got some of it diverted to the southwest frontier. We tried to
    work with them. The appropriations was not completely out of
    line, but let me just state that we are about to create the
    second biggest air reconnaissance force on the face of the
    Earth, will be the U.S. Customs Service. The biggest will be
    the U.S. Air Force. The third will be the Soviet Air Force,
    former Soviets.
        Senator Campbell. Do you have the manpower to run all that?
        General McCaffrey. I have asked them to show me their
    basing concept, their operational concept, their maintenance
    concept, their manning and training. Where are the MOUs to co-
    base with the Navy? How much will they charge them?
        Senator Campbell. Senator Kyl's problem is a manpower
    problem. Cannot some of those resources be transferred under
    your own authority to manpower from some of that hardware?

                               LOGISTICAL ISSUES

        General McCaffrey. We put a piece of appropriations bill
    out that can be worked with. I mean, again I did not feel that
    this was a fall-on-your-sword issue, but this is not the way to
    do public policy. I have asked the Customs Service--they have
    had two briefings for me that I found inadequate--to go get
    RAND Corporation or somebody and hire a bunch of Air Force
    retired colonels to go do a study and tell them how they are
    going to employ this amount of machinery.
        Where is it going to be parked? What are you going to do
    with it? How you are going to maintain it? How are you going to
    train the manpower?
        This is a huge operation. And oh, by the way, the drugs are
    not in the air.
        Senator Campbell. That is right.
        General McCaffrey. If you gave me this amount of money in
    cash, I would not have spent it on P-3Bs. The drugs are on
    small boats going into the coastal Central America and coming
    through Mexican-U.S. border.
        So we just have a screwy way of doing public policy here
    and we are going to need to be a little careful about it.
        If you want to spend money, you need to buy $3.5 million
    non-intrusive x-ray technology back scatter radar devices and
    give the Border Patrol, the Customs Service, the DEA, the HIDTA
    program, the manpower to do their job. That is not to argue
    against a robust air interdiction effort, but there are
    probably different ways we would go about it if you asked me
    for a recommendation, which is really what we are supposed to
    do.
        Senator Campbell. Clearly, I am sure I can speak for
    Senator Kyl and I both, that we need to work with you and the
    Administration in supporting the Customs Service.
        General McCaffrey. This was the Senator DeWine-Congressman
    McCollum bill. Again, you know, they are good people but it was
    done in haste with inadequate analysis.
        Senator Campbell. Let me just ask you the last question and
    that is the staff attrition rates within ONDCP. As I understand
    it, your attrition rate is around 18 percent, which sounds very
    high. What is the cause of that high attrition rate and how are
    you going to address it, if you could tell me that?

                                 ONDCP STAFFING

        General McCaffrey. We are fortunate--we have 124 people;
    124 civilian employees, 30 detailees. We have recruited
    probably some of the best people I have never seen in
    Government. There are 30 or more applicants for secretarial
    positions in ONDCP. We are also a separate line item
    appropriation. So we have had great results in the quality of
    the people we get.
        I think we have had 24 people depart. Half of them left
    because they got promoted. We are a great place to go fish out
    a GS-15 and----
        Senator Campbell. They did not just leave Government, they
    are working for other agencies now?
        General McCaffrey. No, half of them got promoted. One got
    pregnant, one was a termination, two retired----
        Senator Campbell. What was the termination for?
        General McCaffrey [continuing]. One died. So we are really
    very blessed with the quality of the people. But we do not have
    any upper growth potential is one problem. So if you want to be
    an SES I have got to help you get a job in another agency.
        Plus, it is pretty tough work. I mean, this is not a sleepy
    hollow. We are working seven days a week, and this is tough
    going.
        Senator Campbell. Try running for office. [Laughter.]
        Senator Dorgan, did you have any questions, that was the
    last of my questions.
        Senator Dorgan. Let me ask just a question. It is not about
    funding but it is probably you expect on the issue of
    certification, because that relates to the question of how much
    money we need to spend and how we spend it. The certification
    of Mexico and Colombia, you know, in the newspaper this morning
    they were quoting the DEA Chief Constantine and his statements
    about Mexico.
        Are you comfortable with all of this? I know there is a lot
    of politics about all of this. Some people kick this all around
    for political reasons. Others kick it around for other reasons.
    I think some of us just are curious whether this whole
    certification process is good policy, number one. But second,
    as long as we have it and are certifying countries like Mexico
    and Colombia, whether it is on the level.
        So are you comfortable with these certifications?

                                 CERTIFICATION

        General McCaffrey. It has been interesting to me. I have
    worked the Latin American region off and on a good bit of my
    life, and although I have a great sense of humility on what I
    do not know, I have been every foot of the ground from
    Patagonia to the U.S.-Mexican border. I speak atrocious
    Spanish. I know all the political-military leadership.
        The day I got sworn in at 9:00 in the morning, March 1
    three years ago, at 10:30 we did the certification. And the
    President, thankfully, appointed me the head of the U.S. High
    Level Contact Group to go work the Mexican issues. I say that
    because two years earlier Dr. Perry, who is one of the greatest
    people I have met in public life, and I were the first two to
    set foot in Mexico, the first SECDEF, the first U.S. CINC that
    ever went down there, and against the advice of all U.S.
    authorities. Said do not go there, there is tremendous official
    animosity.
        So I have worked this for five years now. And the
    certification process, as a Federal law, is something I do not
    comment on. I am going to comply with it. And there are two
    pieces of it, and I have looked at the two pieces. You look at
    a foreign majors list identified country, you say, are they
    trying to achieve the objectives of the 1988 Vienna Convention,
    number one? And number two, or are they trying to cooperate
    with the U.S.? They do not have to do the second if they are
    doing the first.
        When you apply that standard, it is not how well are they
    doing, it is are they trying to achieve those objectives?
        By the way, if you applied the same rule to us you would
    have to ask, is the U.S. serious about drug abuse? Of course we
    are. Have we achieved drug eradication, drug abuse rates,
    criminal conduct, et cetera?
        Senator Campbell. That is exactly the point. They cannot
    achieve theirs unless we achieve ours. We are the buyers.
        General McCaffrey. There is a lot of creative hypocrisy in
    this. We are the ones spending $57 billion a year on illegal
    drugs, and the engine sucks drugs through Mexico and the
    Caribbean. And the corrosive impact of violence and corruption
    on democratic institutions in the hemisphere as well as our
    own, in border communities in particular, is atrocious.
        Now let me, if I can, give you two snapshots. When Dr.
    Perry and I went to Mexico five years ago, I think it is not
    much of an overstatement to say that--not in the economic and
    political areas, but in drug cooperation, military to military
    cooperation, there was zero. It was absolutely absent. And in
    the space of five years we have gone to--Mexico has gone
    through revolutionary change. It is incredible.
        We now train military, navy, the Coast Guard and the
    Mexican navy cooperate at sea. We exchange intelligence.
    Although they are uncomfortable when I talk about this in
    public, we have Customs aircraft parked on the ground flying
    out of Mexico. They allow us to fly through their airspace with
    their permission; 85 percent compliance rates. They let our
    Coast Guard and Navy go in and refuel in their ports with less
    than 24 hours notice. There is an enormous amount of
    cooperative effort going on.
        But unfortunately, Mexico is--President Zedillo and these
    incredibly good people that are trying to reorganize Mexico's
    future are pulling on levers that are attached to institutions
    that are inadequate. So I have got some sympathy. The
    cooperation at the highest levels is excellent. I have great
    admiration for the Mexican police and army, who lost their
    lives in trying to protect Mexico. But there is a lot of
    problems.
        Senator Dorgan. But, General, I respect that, and I also
    respect the notion that the demand in this country is what
    creates the giant sucking sound in this direction for drugs. I
    respect that. But just two weeks ago in the Washington Post it
    says, senior Administration officials said that drug corruption
    in Mexico has reached unprecedented levels. The Mexican
    government has made little progress in combating.
        So when you are answering effort, I am asking what has been
    the result.
        General McCaffrey. The result is increased cooperation with
    Mexico, almost dramatic in nature. But we are looking at
    Mexican law enforcement and judicial institutions that are
    threatened by incredible levels of violence and threatened by
    internal corruption.

                              TREATMENT IN PRISON

        Senator Dorgan. I appreciate your answer. Let me just ask
    one quick small question that relates to the issue of drugs in
    prison. If an addict, drug addict, heroin user is sent to a
    Federal prison, any one of the Federal prisons today, will that
    addict be required to take treatment for that addiction in a
    Federal prison before the addict is released?
        General McCaffrey. Let me give you a response in writing,
    but the answer is yes, we have mandated that. The Department of
    Justice Director has a mandatory drug testing program in the
    Federal prison system, and in theory we have drug treatment
    available. I do not believe though that that is an adequate
    response. I think some of them have better programs than
    others. Very few----
        I would also caution you, Federal prisoners do not tend to
    be the compulsive drug user. They are traffickers. So we have
    got 60,000-some-odd people behind bars in the Federal system,
    but a lot of them had a ton of pot. So the Federal prison is
    not where these people end up. They end up in State and local
    incarceration.
        Senator Dorgan. The reason I was asking about the Federal
    prison is if you are proposing a mandate on State and local
    authorities, they will say, what are you doing at the Federal
    level?
        My thought is that States, all of the States provide good
    time off for good behavior for all criminals, even violent
    criminals, and many of them provide very generous good time
    off, as you know. I have been trying for some while to connect
    that good time to some positive result, one of which might be
    that if you are addicted, you do not receive good time credits
    unless you go through a drug treatment program.
        General McCaffrey. Absolutely.
        Senator Dorgan. End of story. Now that would be a mandate,
    but a mandate it seems to me that would be very worthwhile.
        General McCaffrey. Yes. There is considerable amount of
    Federal money in there. One program, which is dying out, was
    the Federal prison construction fund. That 10 percent of those
    funds, if the State requested, could be diverted. But the
    program is tapering to zero. So there is other money----
        Senator Dorgan. We have other money with which to connect
    that mandate. I know the Senate would have a significant debate
    about that, but the question of whether we allow good time
    credit against sentences in the entire criminal justice system
    seems to me ought to relate to a couple things, one of which
    ought to be if you are addicted, you have drug treatment before
    you are able to be released early under good time credits.
        Well, I appreciate your appearance and it is a pleasure to
    have the opportunity to visit and work with you.

                              SUBMITTED QUESTIONS

        Senator Campbell. I might mention before I ask Senator Kyl
    for any closing questions that I introduced a bill dealing with
    certification last year. We are trying to rewrite it this year,
    and I have not been a real big supporter of this sort of
    unconditional certification. The bill that I introduced would
    have given a conditional certification but could be withdrawn
    if they did not reach certain targets. We are trying to rewrite
    that. You might want to look at that, Senator Dorgan, and work
    with me, too.
        Senator Kyl, did you have any additional questions?
        Senator Kyl. No. Thank you, General.
        [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 Campbell
                                     travel
        Question. Which Specific Account Will Be Covering the Estimated
    $68,000 in Costs Associated with Your Recent Four-day Trip to
    Switzerland to Attend a Meeting at the International Olympic Committee
    Anti-doping Conference?
        Answer. All costs associated with my trip to Switzerland were paid
    from appropriated resources in ONDCP's Salaries and Expenses account.
        Question. While Attending this Conference, You Promised the Federal
    Government Would Provide $1 Millon in Funding to Assist the IOC in Drug
    Testing That Would Come from ONDCP. Is this $1 million Included in Your
    fiscal year 2000 Budget Request, If So from What Account Is it Being
    Funded?
        Answer. No, the fiscal year 2000 request does not include a request
    for $1 million. The $1 million we set aside from the fiscal year 1999
    CTAC $16 million base R&D program. The $1 million will be used to study
    innovative approaches to testing athletes for drug abuse and
    performance enhancing drugs. The results of the research projects will
    be made available to the USOC and the IOC. One extremely interesting
    areas of research has already been identified the potential to develop
    an assay instrument capable of indicating combinations of drugs which
    were previously not known as performance enhancing drugs.
                      media campaign corporate sponsorship
        Question. The Current Law Requires That ONDCP Secure Corporate
    Contributions Equal to 40 percent of the Appropriated Amount of the
    Campaign for That Year, or $74 million. What's the Status of this
    Effort? How Does ONDCP Anticipate Meeting the Mandated Sponsorship of
    40 percent? If So How?
        Answer. Since the National Youth Anti-Drug Media campaign began,
    ONDCP has received almost $218 million in public service and in-kind
    contributions from corporate America. These contributions have come in
    the form of media time and space, programming, ad creation and
    production costs, educational materials, interactive services such as
    design and maintenance of web sites, film, cash and other materials or
    services.
        While ONDCP believes corporate support of the media campaign will
    continue to grow, we do not believe that it will reach levels recently
    expected by Congress. We are also concerned about adding new
    requirements in appropriation language after the campaign has been
    planned and launched.
        When Congress first appropriated funds for the media campaign in
    fiscal year 1998, it identified seven concerns or stipulations that
    were to apply to the operation of the campaign. One stipulation was to
    ensure that ONDCP's campaign not undermine existing public service
    contributions from media contributions which had been steadily
    declining largely because of competitive and structural changes in the
    television industry. To ensure that ONDCP's campaign would not further
    contribute to this decline, ONDCP established the concept of a ``public
    service match'' which became part of its negotiating position with each
    media outlet. When media time or space is purchased on a network or
    local outlet, the media must also provide an equivalent dollar for
    dollar match in public service contributions. This can come in the form
    of public service time or space, on-strategy programming, educational
    programs or materials for youth and teachers, community anti-drug
    events, etc. This past year, ONDCP's media buyers negotiated an average
    of 107 percent value in public service contributions. All of the public
    service time was shared with 33 drug-related non profit organizations
    such as America's Promise, Mothers Against Drug Driving, The Fatherhood
    Initiative, the National Crime Prevention Council, and the Partnership
    for a Drug Free America.
        We want to emphasize that the concept of a ``match'' was ONDCP's,
    and it was created specifically to safeguard public service messages of
    other organizations. Additionally, in initial appropriation language
    there was not a specific dollar fundraising goal, nor even an
    indication that the phase ``private sector participation'' meant cash
    contributions.
        The difficulty comes now when language in our appropriation calls
    for very large sums of corporate support in addition to the support we
    are also receiving from corporate America from the pro bono match. Each
    of the several experts with whom we have consulted on this issue
    believes the specific goals set in the most recent appropriations
    language are not attainable without the pro bono match given the other
    requirements and restrictions on the campaign.
        ONDCP is however, issuing a Request for Proposals for a Corporate
    Involvement contractor. This is expected to be announced in May with an
    award in early fall. The contractor will develop a corporate
    sponsorship effort (to raise funds), and a range of corporate
    participation efforts. ONDCP believes that corporate participation is
    often even more valuable in attaining the objectives of the campaign
    than financial contributions. For example, reaching parents through the
    workplace is a key strategy and campaign goal. If a large corporation
    would agree to a drug prevention/parenting strategy education program
    for its employees, it would be particularly effective from both a cost
    and impact perspective, much more so than an equivalent cash
    contribution.
                      pro bono match for campaign ad time
        Question. In Your Budget Submission, You Listed That The Campaign's
    Purchases of Ad Time Has Generate a 109 percent Match of Donated Public
    Service Time Being Shared With Non-profit Organizations With Other
    Drug-related Messages. Of This 109 percent Match, How Much of This Is
    Resulting From Direct Intervention/activity by ONDCP? What Portion of
    These Matches Have Been Non-paid Commercial Ads And What Is Their
    Dollar Value? How Has This Effort by ONDCP Increased or Decreased The
    Public Service Time in The Market And by How Much? How Do You Verify
    this?
        Answer. We have received well over 100 percent matching
    contributions from media vendors from whom we have purchased ads. This
    has ensured that the Campaign is helping public service efforts that
    target the risk factors that make youth drug use more likely--such as
    early alcohol use--and the protective factors that help prevent drug
    use--such as mentoring.
        The Campaign has provided Mothers Against Drunk Driving, the
    National Council on Alcohol and Drug Dependency, and the Department of
    Transportation with public service time, derived through the Campaign's
    match component, to attack both underage drinking and drunk driving.
    Since July of 1998, the National Council on Alcohol and Drug Dependency
    effort against underage drinking benefitted from 2952 individual PSAs
    (including network, local and cable TV, and radio), at a total value of
    $1.17 million. Similarly, during this period the Council's effort
    against drunk driving benefitted from 2,369 spots, at a total value of
    $6.14 million.
        Other organizations that help America's young people grow up safely
    and lead productive lives are also seeing the benefits of the Campaign.
    For example, the National Crime Prevention Council received 6,078
    spots, at a total value of $8.3 million. General Colin Powell's
    organization, America's Promise, dedicated to improving the lives of
    our young people, benefitted from 1,014 spots, at a total value of $2.5
    million. The 4-H's youth mentoring initiative has received 3,226 spots,
    at a total value of $3 million. The ``I Am Your Child'' parenting
    initiative saw 744 spots broadcast, at a value of $2.1 million. As
    these results from just the last seven months clearly show, the
    Campaign is increasing America's awareness about both the protective
    factors that help our children grow up drug-free, and the risk factors
    that can increase their chances of suffering a drug problem.
        The only scientific measurement of PSA play is done by the AD
    Council utilizing electronic monitoring. They have reported a
    significant increase in the PSA play as a result of the media campaign.
    Further, ONDCP media buyers indicate when they negotiate for time and
    space that public service time for other issues must not diminish as a
    result of ONDCP's media purchase. The purpose of this policy is to
    further safeguard public service time for other issues.
         technology transfer program to state and local law enforcement
        Question. How Do You Propose to Meet the Outstanding Need of the
    State and Local Law Enforcement Given the Request Is Only $3 million?
    Can You Explain Why You Only Requested $3 million to Fund this Program
    in fiscal year 2000?
        Answer. State and local law enforcement officials become aware of
    the technology transfer program through our one-day workshop outreach
    program. The program's success can be measured by the enthusiastic
    response of state and local law enforcement officials to the technology
    demonstrated at the workshops. Understandably, it will be impossible to
    satisfy more than $3 million of the applications processed from their
    organizations. We will depend on the program's regional law enforcement
    experts and technical review specialists to select the organizations
    which will receive transfers of technology.
        In fiscal year 1999, the President's budget request included
    language acknowledging the existence of the technology transfer program
    without requesting an appropriation. Congress responded with a $13
    million appropriation. This year the President's fiscal year 2000
    budget included $3 million for the program. While the President's
    fiscal year 2000 budget submission was being prepared, several more
    workshops were conducted which resulted in $59 million of applications
    for technology to improve their capabilities to defeat drug crime. To
    prevent raising expectations beyond the program's ability to meet them,
    we will cut back holding workshops.
                          national drug strategy goal
        Question. The current drug strategy goal is that the US, through
    your office, will reduce drug use and availability by 50 percent by the
    year 2007. Given this, has drug use and availability declined by 15
    percent since 1997? At the current rates, are you on target to meet the
    Strategy's goal of a 50 percent reduction by 2007? If you're not
    meeting your goal, then how do you expect to make up any shortfall by
    2007?
        Answer. The two targets referred to are Impact targets that reflect
    the overall effect of national drug control activities upon drug use
    and availability. These are ``stretch targets'' representing normative
    end states to motivate the drug control community to ``stretch'' beyond
    previous performance levels. We have been developing action plans, with
    over 200 interagency representatives, on how best to achieve each
    target. We plan this year to incorporate state, local, and private
    sector input into these action plans. By integrating the budget and the
    evaluation, we will increase the likelihood of target achievement.
        With respect to measuring progress toward achieving these targets,
    we are using a variety of data sources. It is important to note that
    for any data system there are lags in reporting. In most cases the most
    recent data for a measure is 1996 or 1997. For tracking drug use, we
    are relying primarily upon the National Household Survey on Drug Abuse
    (NHSDA). The NHSDA is conducted annually by the Substance Abuse and
    Mental Health Services Administration. Preliminary data for any given
    year are typically available by August of the following year (e.g.,
    Data collection for 1998 ended in December; preliminary data will be
    available in August 1999). The most currently available data are for
    1997. For drug availability we are developing estimates based on drug
    flow models. We are developing estimates of the availability of
    cocaine, heroin, marijuana, and methamphetamine, from cultivation/
    production, through the transit zone, to the U.S. border, and
    ultimately to distribution within the United States. We anticipate
    having estimates based upon these models by the fall of 1999.
                     performance measures of effectiveness
        Question. Last year, your office launched the Performance Measures
    of Effectiveness to rate federal agencies ability to succeed in
    national drug control efforts. As you've begun to put these measures
    into place, are the measures assisting you in determining where further
    work needs to be done and are the agencies you are rating both
    receptive and compliant? What programs have you eliminated because they
    are determined ineffective based on your standards? Which programs show
    the most promise based on your rating?
        Answer. The Performance Measures of Effective (PME) System
    indicates the extent of progress made by the national drug control
    community towards the 97 performance targets that reflect desired end
    states for the Strategy. Since the system constitutes an aggregate
    assessment of the entire drug control community, it does not separate
    out the effect of federal, state, local, private or international
    efforts. It does not, therefore, provide a report card on any
    individual federal or non-federal agency (the Annual GPRA Progress
    Reports submitted by each agency represent such reports.)
        The PME System has begun showing where further work needs to be
    done through the Action Plans that were drafted for the first time in
    1998. For each target (or group of targets) a team of federal agency
    experts determined, first, what factors were known to influence the
    achievement of the target (for instance, peer pressure, media messages,
    etc. known to affect youth perception of drug use.) This logic modeling
    exercise then proceeded to identify efforts already in place (e.g., the
    Media Campaign) and areas where further effort was needed (for
    instance, to influence Internet messages.) These preliminary ``Action
    Plans'' reflect the first time federal agencies have collaborated to
    plan out the best way to achieve specific, measurable long-term
    targets. This exercise will be further refined this year through the
    explicit incorporation of state, local, and private sector ideas and
    efforts. At the end of 1999, we will have intergovernmental action
    plans that will lay out what needs to be undertaken by whom. Until this
    is completed, agencies will not have reason to be compliant or
    otherwise. This process should be greatly facilitated by the
    integration of budget and evaluation this year.
        In the meantime, we shall continue to monitor progress towards the
    targets, initiating interagency program evaluations in situations where
    trend data indicate that intended targets have not been met.
    Performance measurement experts recommend a monitoring period of a few
    years before action is taken so that we can analyze whether the data
    indicates a trend or merely a random occurrence. It also reflects the
    high expense of conducting in-depth program evaluations to identify
    what led to failure: errors in the underlying logic, poor program
    management, insufficient funding, etc. The decision to alter the
    funding of a program is one that should be taken only after interagency
    evaluation following accepted methodological standards.
                  shout program funding from fiscal year 1999
        Question. In Last Year's Appropriation Bill, We Provided a Line
    Item to The Shout Program Through Your Appropriation. Shout Stands For
    Stay Healthy--oppose Using Tobacco And Is a Partnership Between
    Schools, Students, Local Businesses And County Health Services to
    Encourage Youth Between The Ages of 10 And 18 to Avoid Using Tobacco.
    Can You Provide The Status of The Funding And What You Are Doing to
    Resolve Any Outstanding Issues?
        Answer. In last year's appropriation bill, the line item for the
    SHOUT program could not be accommodated, as neither ONDCP not its
    procurement agent have direct grant-making authority within the
    salaries and expense account.
                         staff attrition rates at ondcp
        Question. In last year's conference report, the Congress included a
    provision for you to detail your attrition rates of employees at ONDCP,
    which you have submitted and it shows your attrition rate is 18
    percent. What is causing this high attrition rate? What are you doing
    to address it? For example have you put a program in place to deal with
    this problem?
        Answer. It Is Accurate That ONDCP's attrition rate in 1998 was 18
    percent. To provide some context for this figure, overall attrition
    rate in the EOP for calendar year 1998 was 20.99 percent. ONDCP
    accounts for just 6 percent of the overall rate.
        We acknowledge that there is a threshold rate of attrition in any
    demanding, highly-specialized agency like ONDCP. Given the robust
    qualities of the economy in the greater Washington area, ONDCP
    personnel are occasionally recruited to other professional
    opportunities.
        In this current fiscal year the ONDCP personnel selection process
    is still moving forward in an aggressive manner and consistent with
    Federal civil service laws and regulations.
           drug free communities act (dfca) fiscal year 2000 request
        Question. While The Budget Caps For fiscal year 2000 Severely
    Constrain The Amount of Funding Available For Discretionary Programs,
    The DFCA Warrants an $8 million Increase Over The President's fiscal
    year 2000 Requested Level. The Community Coalition Approach Has Proven
    Effective in Reducing Teenage Drug Use in Communities Around The
    Country, And This Additional Funding Will Allow Hundreds of Additional
    Communities to Build And Sustain Effective Efforts. If DFCA Has Proven
    Effective, Why Are We Reducing Funding by $8 million?
        Answer. During the preparation of the President's fiscal year 2000
    budget, ONDCP requested the full authorized level--$30 million--for the
    Drug Free Communities Program. Budgetary limitations necessary to meet
    balanced budget legislation requirements and other competing priorities
    led OMB to initially reduce that amount to $20 million. The Director
    interceded directly with the President and the amount was ultimately
    raised to $22 million, a $2 million increase of fiscal year 1999. ONDCP
    shares the committee's view on the importance of the Drug Free
    Communities Program and looks forward to working with the committee to
    find opportunities for the program to reach its full potential.
                        drug free communities act grants
        Question. With Regards to the Letter That Went out February 10,
    1999 Announcing a 25 percent Reduction for Grantees Renewing Grant
    Requests: Who Determined Their Would Be a 25 percent Reduction for 2nd
    Year Grantees? Under What Authority Were These New Guidelines
    Implemented? Was the Advisory Commission Consulted? How Can These
    Reductions Be Explained If the DFCA, the Act Clearly Authorizes
    Matching Grants of up to $100,000 for Communities That Can Raise the
    Dollar for Dollar Local Match?
        Answer. The policy of awarding second-year continuation grants of
    up to 75 percent of the original award, and third-year grants of up to
    50 percent is completely consistent with both the original authorizing
    statute, congressional intent as represented in House report language,
    and the recommendations of the Advisory Commission on Drug-Free
    Communities. The law leaves to the discretion of the program
    Administrator the amount of renewal grant award, as well as the
    decision as to whether a renewal grant is to be made. Section 1032(b)
    IA(3i) of Public Law 105-20 states that ``The Administrator may award a
    renewal grant to a grant recipient under this subparagraph for each
    fiscal year following the fiscal year for which the initial grant is
    awarded in an amount not to exceed the amount of non-Federal funds
    raised by the coalition, including in-kind contributions, for that
    fiscal year, during the four-year period following the period of the
    initial grant (italics added).''
        Congress clearly envisioned hat the purpose of Federal support was
    to leverage ongoing local support for community coalitions. In the
    conference report accompanying H.R. 956, the Committee on Government
    Reform and Oversight stated, at page 19:
        ``The Committee wants to maximize the utility of Federal resources
    so that a smaller amount to Federal support tracks strong local
    commitment and financial support. The Committee believes that the
    Federal government should be providing support to those communities
    that have efforts that are effective and substantial, not be a
    substitute for local community effort. It is hoped that Federal
    financial support will act as a catalyst to enhance what communities
    are already doing well an to spur the creation of other sustainable
    community anti-drug efforts.''
        The Advisory Commission on Drug-Free Communities discussed the
    issue of continuation grants at their inaugural November 23, 1998
    meeting. At that meeting the members of the Commission heard a
    presentation by Shay Bilchik, Administrator of the Office of Juvenile
    Justice and Delinquency Prevention (OJJDP), ONDCP's interagency partner
    responsible for the execution of the grant program. Mr. Bilchik
    recommended to the Commission that renewal grants be funded at 75
    percent of the initial grant. After some discussion, the Commission
    advised the Director, ONDCP, that, in the words of the minutes: ``The
    award should decrease each year and the match should increase each
    year.'' ONDCP agreed with this recommendation, and so informed the
    Commission in a February 17, 1999 letter from Deputy Director Donald
    Vereen. We subsequently receive no correspondence or phone call from
    Commission members indicating either that we had mischaracterized their
    recommendation, or that the continuation grant policy was unwise.
        In addition to encouraging coalitions to leverage sustainable non-
    Federal support for their activities, our continuation grant policy
    frees up Federal resources with which to assist other coalitions. For
    example, in fiscal year 1999 we will be able to fund an estimated 26
    additional community coalitions over and above what could have been
    funded if continuation grants were at the full first-year levels. This
    approximately 25 percent increase in the number of grants awarded
    would, over the five-year authorization of the program, result in overs
    180 additional coalitions receiving support. Each state potentially
    will benefit from this greater number of Federally-assisted coalitions.
    Smaller grant awards would be unaffected by the continuation grant
    policy. Awards of $50,000 or less would not be reduced in the second
    and third year, and awards of between $50,000 and $66,000 would be
    reduced to no less than $50,000.
        Our goals for the Drug-Free Communities Program are identical to
    those of the Congress: to strengthen and proliferated effective, broad-
    based community anti-drug coalitions throughout the country. We believe
    that the policy on continuation grants will serve those ends.
                  fiscal year 1999 emergency drug supplemental
        Question. The President's Budget Does Not Provide For Funding to
    Hire Personnel to Operate Additional Customs P-3s And Citations as
    Authorized in The Western Hemisphere Drug Elimination Act. If We Don't
    Have The Money to Fund The Personnel to Fly The P-3 Aircraft, How Do
    You Intend to Perform Goal 4 Interdiction Mission That Is Stated in The
    ONDCP Drug Strategy?
        Answer. The Western Hemisphere Drug Elimination Act (H.R. 4300 Sec
    101.a.1-11) authorizes $886 million for the addition of 20 P-3 aircraft
    to the Customs fleet. It also provides for an additional $71 million
    for various purposes including the delivery of 10 Citation aircraft per
    year in fiscal year 1999-01. The act clearly contributes to the
    continued progress of U.S. efforts in the areas of Goal 4 (Shield
    America's air, land, and sea frontiers from the drug threat) and Goal 5
    (Break foreign and domestic drug sources of supply) of the President's
    National Drug Control Strategy.
        ONDCP supports the additional funding authority in the Western
    Hemisphere Drug Elimination Act and the appropriations for six
    additional P-3 aircraft contained in the fiscal year 1999 Emergency
    Supplemental. These six P-3 aircraft are scheduled for delivery
    beginning in fiscal year 2001 and ending in fiscal year 2002. ONDCP has
    been assured that the fiscal year 2000 President's budget included the
    necessary follow-on funding for implementation of policies and
    operation of assets that were appropriated in the fiscal year 1999
    Emergency Supplemental. OMB recently agreed to allow Customs to use the
    fiscal year 1999 emergency supplemental money to hire needed new air
    crews. The fiscal year 2001 President's budget is anticipated to
    include funding to support the additional personnel that Customs may
    require to operate the new P-3s as they join the Customs fleet.
        The National Drug Control Strategy's Goal 4 interdiction mission of
    shielding America's air, land, and sea frontiers from the drug threat
    is being accomplished through the continuance and enhancement of U.S.,
    bilateral, and regional interdiction operations. Initiatives are
    underway to harness the potential of new technologies to improve
    interdiction performance. Along the Southwest Border, U.S. interdiction
    personnel are benefitting from the addition of new equipment, including
    devices that employ non-intrusive inspection technologies. A
    Relocatable Over-The-Horizon Radar (ROTHR) system is being installed in
    Puerto Rico to augment our counter-drug surveillance capabilities in
    the Caribbean and the Andean Ridge. Podded radar technology is being
    developed for use by partner nations to improve their own drug
    trafficking detection capabilities. These types of new technologies are
    expected to have a significant positive impact on interdiction efforts
    supporting the Goal 4 mission.
                                     ______

                     Questions Submitted by Senator Shelby
                            national media campaign
        Question. Could You Please Tell Me Why ONDCP Has Selected Channel
    One as a Main Outlet for the Anti-drug Message? Could You Please Tell
    Me the Amount of Money That ONDCP Is Spending on the Channel One
    Advertisements? Are the Prices for Air Time on Channel One Competitive
    with Those of Other Advertisements? Are You Aware of Concerns Regarding
    the Presence of Channel One in the Schools? In Light of the Fact That
    Many Parents Are Troubled by Channel One, Troubled by the Presence of
    Commercials in the Classrooms, Do You Think That it Is Appropriate for
    ONDCP to Continue to Use Taxpayer Funded Resources in this Manner?
    Isn't There Another Means That You Could Choose to Get Your Important
    Message to School Kids Without Taking Time That Could Be Spent on
    Academics. Couldn't ONDCP Target its Advertising in a Manner That
    Compliments Rather than Competes with Our Schools? Rather than ``Bump''
    Geometry with One of Your Commercials Couldn't You Interrupt Some
    Commercial Television Programming in Order to Reach Kids?
        Answer. ONDCP selected Channel One as a media outlet for our media
    campaign for several reasons. First of all, it is perhaps the best
    targeted of potential media vehicles: 8 million young people and
    400,000 adults see the program every day. No other media vehicle (other
    than the Super Bowl) reaches as great a number of youth in our target
    age range. Moreover, because students watch Channel One in a school
    environment, we believe they are more likely to take the message
    seriously than if they were watching many of the shows on broadcast or
    cable television, which may offer mixed messages and images about
    illegal drugs. The context of a news program helps as well. For some
    youth, the 10 minutes of current events they receive each day on
    Channel One may be the only such information they receive, since they
    do not read newspapers or watch TV news or public affairs programming.
    Students discuss much of the material they see on Channel One with each
    other and their teachers, a fact substantiated by the 99 percent
    renewal rate among schools and other surveys. Additionally, Channel One
    is very well represented in rural and inner city schools.
        Although Channel One is economically competitive with major network
    and cable stations, it in fact is a particularly effective use of
    public funds since there is no ``waste.'' On Channel One, 100 percent
    of the viewing audience is in the key target age ranges for the media
    campaign; on commercial television there is always large portions of an
    audience that are either younger or older than our age targets. Channel
    One is in only middle and high schools and we are not paying a premium
    for a wider, non target viewer group. Channel One cost per thousands
    (CPM) of $34.73 is one of the most cost efficient broadcast CPMs (for
    teens 12-17) when compared to Fox Broadcasting's $105.36 or WB's
    $43.15.
        We are aware that there are some groups that have taken issue with
    the concept of putting commercials in the classroom. It is our
    understanding, however, that from a national perspective most educators
    who work with Channel One highly approve of the programming. The 10
    minutes of current events, along with two minutes of commercials (many
    of which are for health or other public programs) appear to be a minor
    trade off for the benefits received. Further, the Channel One ``feed''
    is typically seen during homeroom which has minimum impact on purely
    academic subjects. While we do advertise on broadcast and cable
    channels as well, we find Channel One particularly effective for the
    purposes of this campaign. To us, anti-drug messages are as important
    as other educational lessons and we do not see our effort negatively
    impacting the education of youth. Each Channel One school receives
    televisions for each classroom, videotape recorders and a satellite
    dish to download a range of high quality educational programs for use
    at the discretion of each teacher, including 250 hours of commercial
    free Channel One programming each year. ONDCP has worked with Channel
    One on some of these programs and we think the work is very accurate
    and high quality. Additionally, for many schools in the nation,
    particularly those in areas struggling with tight education budgets,
    the services and facilities made available by Channel One make the job
    of teaching easier since teachers can use the televisions and VCRs for
    any educational purpose.
        We are not aware of any current national studies that document
    parents' attitudes about Channel One, however we believe most parents
    support having our anti-drug messages in schools. Since Channel One is
    an effective means of communicating such messages to kids, we believe
    ONDCP's use of that delivery mechanism is an appropriate use of
    taxpayer funds.
        Last year ONDCP spent approximately $8.2 million on Channel One.
    This was matched by 100 percent in public service, including some
    outstanding programming on youth drug use issues. In the last year,
    Channel One has produced six different 20 minute anti-drug feature
    videos and 16 substances abuse news stories. Finally, on March 17,
    Director McCaffrey participated in a Channel One Town Hall meeting
    exclusively on illicit drugs. It was seen by the entire Channel one
    audience and took the place of the regular 12 minute feed. A 45 minute
    form of this session is available to any school in the county.
                                     ______

                     Questions Submitted by Senator Dorgan
                                     drugs
        Question. Do You Believe That the Report Compiled by the National
    Institute of Medicine Will Radically Differ from the International
    Narcotics Control Board's Recommendation?
        Answer. Both reports are complimentary to each other. In February
    1999, the INCB issued a report and renewed its call for additional
    scientific research on the use of cannabis for certain medical
    purposes.
        Question. Isn't it True That Licensing and Other Control Methods
    Used for Other Narcotic and Psychotropic Substances Would Move
    Marijuana into a Pharmaceutical? Wouldn't That Eliminate the Issue You
    Raise That Medical Use of Marijuana Would Send a Message to Our Youth
    That Marijuana Is Good for You?
        Answer. The active ingredient in marijuana is 9-tetrahdrocannabinol
    (THC). If this drug or any other cannabinoid were re-scheduled as a
    pharmaceutical and its delivery was provided in an appropriate clinical
    setting via a medically approved device, the risk of sending the wrong
    message to our youth might be minimized. On the other hand, if the
    medicine is smoked marijuana itself, and the appropriate regulatory
    processes for determining whether it was safe and suitable for medical
    use are not followed, then ONDCP would be concerned about the message
    that we are sending then to our youth.
        Pharmaceutical development rests on a basis of sound basic and
    clinical research before any drug can be deemed safe and suitable for
    medicinal use. This research and development process is within the
    purview of the Department of Health and Human Services.
        Question. In the Director's written statement, he states that over
    the past two years, youth drug rates have leveled off and, in many
    cases fallen. However, ONDCP's document, Pulse Check National Trends in
    Drug Abuse, reports an increase in young users of marijuana and a
    continuing rise in the number of new, young users who snort or smoke
    heroin. In addition, the Director's statement says that trends in drug
    use indicate that 1997 drug usage is statistically unchanged from
    fiscal year 1996.
        Can ONDCP clear up what appears to be conflicting information? The
    Director often suggests marijuana is a gateway drug--leading youth to
    other ``harder'' drug usage. We have information that one-third of all
    clients receiving treatment for marijuana abuse in all regions of the
    country are under the age of twenty. Is this treatment effective? Are
    there sufficient facilities providing this treatment? Is ONDCP
    including treatment information in the materials you provide as part of
    the media campaign?
        Answer. Conflicting Information. The apparent conflicting
    information stems from the fact that the information is drawn from
    various sources that have differing methodologies, purposes, and time
    frames. There are two main sources of youth drug use data in the
    general U.S. population, the National Household Survey on Drug Abuse
    (NHSDA) and the Monitoring the Future (MTF) study. Both are probability
    based nationally representative surveys. The NHSDA, conducted each year
    by the Substance Abuse and Mental Health Services Administration,
    collects data on the noninstitionalaized U.S. population 12 and older.
    Data are presented by age category, including ages 12-17. Data are
    collected continually throughout the year. Preliminary data for a given
    year are typically available in August of the following year (e.g., the
    1998 NHSDA data will be available in August 1999). The MTF, conducted
    each year by the University of Michigan through a grant from the
    National Institute on Drug Abuse, collects data on 8th, 10th, and 12th
    graders. Data are collected in the first quarter of each year.
    Preliminary data for any given year are available by December of that
    year. The most recent data are for 1998. Relevant data from each year
    are:
      --The most recent year for which data are available from the NHSDA is
            1997. Data from the NHSDA indicate that past month use of any
            illicit drug by youth 12-17 rose from 9.0 percent in 1996 to
            11.4 percent in 1997. This increase was driven mainly by an
            increase in marijuana use--from 7.1 percent in 1996 to 9.4
            percent in 1997.
      --The most recent year for which data are available from the MTF is
            1998. Data from the MTF indicate that past year use of any
            illicit drug use decreased among 10th graders (from 38.5
            percent in 1997 to 35.0 percent in 1998) and remained level
            among 8th and 12th graders. Additionally, past year use among
            8th graders is down significantly from 1996 (from 23.5 percent
            to 21.0 percent). This is the source for the Director's
            comments that drug use among youth has leveled off and in many
            cases fallen over the past two years. We shall have to wait
            until August 1999 to see whether the NHSDA parallels these
            trends.
      --Data from the 1997 NHSDA also indicates that past month use of any
            illicit drugs among the U.S. general population 12 and older
            remained unchanged between 1996 and 1997 (from 6.1 percent in
            1996 to 6.4 percent in 1997, not a statistically significant
            change)--the increase in drug use compared to 1996 was seen
            only for youth. This is the source of the Director's statement
            that drug use in 1997 was statistically unchanged from 1996.
        ONDCP's Pulse Check, unlike the NHSDA and the MTF study, is not a
    probability-based, nationally representative survey. Rather, it is a
    report based upon structured interviews with police officers, treatment
    providers, and street ethnographers in selected metropolitan areas. Its
    purpose is to provide current information on trends in drug use, drug
    markets, and emerging drugs. It provides ONDCP with a more ``real-
    time'' snapshot than the more methodologically rigorous surveys, which
    typically take 9 to 12 months after then end of data collection to
    report out. Information from the Pulse Check is often later confirmed
    by the NHSDA or MTF (e.g., the appearance and subsequent spread of the
    use of ``blunts''--cigars that are unwrapped, the tobacco removed, and
    replaced with marijuana). Pulse Check sources have reported that
    marijuana use among youth is widespread and increasing. These are the
    impressions of professionals who have direct contact on a daily basis
    with the heaviest drug using portion of the population. The NHSDA and
    the MTF, on the other hand, are surveys of the general U.S. population.
    Trends observed among the heavier using population may signal trends
    that are about to emerge in the general population. The Pulse Check's
    finding that marijuana use among youth is increasing is not
    inconsistent with data on marijuana initiates from the NHSDA. The 1997
    NHSDA reports that between 1991 and 1996 (the last year for which data
    on initiates is available), marijuana initiation increased from
    1,376,000 to 2,540,000, an increase of 85 percent. However, initiation
    as measured by the NHSDA indicates the time when a person first used
    marijuana. This measure includes those who used it once and never
    again, those who used it a few times, but stopped, as well as those who
    continue to use. This helps explain why initiation may be rising, yet
    past month use may not be going up as sharply or remaining unchanged
    from year to year.
        Treatment Effectiveness.--The effectiveness of treatment is usually
    measured by assessing positive changes in client characteristics such
    as illicit drug use, involvement in criminal activities, employment,
    physical and mental health, and other socio-economic status. Results
    from treatment studies for overall illicit drug use, including
    marijuana, declined. Clients improved in a range of other life factors
    as a result of their treatment and reduced substance use. Specifically
    for marijuana, clients studied in one outcome study, the Services
    Research Outcome Study (SROS), showed a 28 percent decline in marijuana
    use five years after treatment. SAMHSA has not analyzed the marijuana
    data specifically for the under 20 year olds age group.
        Nationally for all age groups, including the under 20, there is
    insufficient treatment capacity to address the need for treatment.
    ONDCP's Performance Measures of Effectiveness system contains targets
    that calls for the reduction in the number of people that need
    treatment and those that receive it (the so-called treatment gap) by 20
    percent by year 2002. A 50 percent reduction is required by year 2007.
    Closing the treatment gap will require substantial funds from Federal
    and State Government and the private sector. The Federal drug control
    community has developed a plan to assess funding requirements that
    includes the role of parity in insurance coverage, and for better
    disseminating research findings that report improved treatment
    efficiency and effectiveness.
        National Youth Anti-Drug Media Campaign.--Some of the Media
    Campaign's ads contain a ``call to action'' encouraging viewers/readers
    to call a toll-free number to obtain prevention materials published by
    either HHS or DOE. A caller might also ask the information specialist
    at the SAMHSA Clearinghouse (which mans the toll free number for the
    media campaign) for treatment information, though our ads don't direct
    them to do so. Also, some of the locally tagged ads list local
    prevention coalition numbers that also serve as treatment referral.
    Lastly, our television pro bono match reel (administered for ONDCP by
    the Ad Council) includes ads that are treatment oriented.
        Question. What Can We Do to Stop These Drugs at the Source, Before
    They Take Hold?
        Answer. Understanding that the some of the chemical components of
    certain synthetic drugs (i.e. methamphetamine) are readily and easily
    attainable as legal products, the current measures being undertaken are
    an answer to how we stop the production of these drugs. As you are
    aware the Chemical Diversion Trafficking Act of 1989 provided a list of
    regulated chemicals (i.e. ephedrine, pseudo-ephedrine, etc.) whose
    production and distribution is closely monitored. The same law gave the
    Drug Enforcement Administration (DEA) the authority to add to the list
    after following the established procedure of announcing it in the
    Federal Register and soliciting comments. Subsequent acts, such as the
    1996 Comprehensive Methamphetamine Control Act, further restricted the
    amount of ``dosage units'' that could be sold in a pharmaceutical
    product containing any of several precursor chemicals. This control is
    still one of the best methods to stop synthetic drugs at the source.
    DEA continues to monitor precursor chemicals through its Chemical
    Diversion Unit as well as their agents in the field.
        Additionally through aggressive enforcement action, DEA along with
    state and local law enforcement agencies are responding using task
    force tactics to seize active clandestine drug labs before the product
    reaches the distribution network. Although law enforcement operations
    are risky because of the hazards involved, clandestine methamphetamine
    labs continue to be seized as well as the products being prepared.
        Question. What Measures Is ONDCP Taking to Combat the Epidemic
    Spread of Methamphetamine Through the Midwest? How Effective Have These
    Efforts Been in Term of Methamphetamine Usage and Distribution?
        Answer. The Midwest HIDTA, designated in 1996, has placed a special
    emphasis on the explosive problems of methamphetamine usage and
    distribution in a five-state region consisting of counties in Iowa,
    Kansas, Missouri, Nebraska, and South Dakota. The State of North Dakota
    has just recently been added to the Midwest HIDTA. The Chicago HIDTA,
    designated in 1995, has also created special initiatives to attack the
    methamphetamine problem in the City of Chicago, Cook County and the
    surrounding areas. The importation and distribution of methamphetamine
    is common in all of these states; however, the clandestine
    manufacturing phenomenon is currently concentrated in Missouri, Kansas,
    and of late, Iowa. Local methamphetamine production is considered the
    single most important public safety and health hazard to citizens in
    the Midwest HIDTA region. Related violent crime is increasing at
    alarming rates.
        The following initiatives are being implemented as part of the
    Midwest HIDTA strategy to address the methamphetamine problem:
        Midwest HIDTA Investigative Support Center.--Assists HIDTA task
    forces and other federal, state, and local enforcement agencies within
    the region in exchanging information/intelligence by linking each of
    the five states electronically.
        Co-Located Task Forces.--The Iowa Division of Narcotics
    Enforcement/State Fire Marshal/Division of Criminal Investigation have
    been co-located at a HIDTA site to focus on the methamphetamine problem
    in that state. During the past year, 118 clandestine methamphetamine
    labs have been seized in Iowa.
        High Impact Area Task Forces.--The HIDTA Program has allowed for
    the enhancement of task forces in Muscatine County and the cities of
    Des Moines and Sioux City to serve as the focal point of HIDTA
    activities in areas impacted most by methamphetamine trafficking.
        Drug Enforcement Task Forces.--Two multi-agency task forces provide
    operational support for the narcotics units of the Kansas Bureau of
    Investigation and investigate methamphetamine producers and traffickers
    in the state of Kansas. For the period 6/1/97 to 5/31/98, 150
    methamphetamine labs were seized in Kansas. Highway interdiction
    seizures of methamphetamine attributed to the HIDTA effort increased
    from 96.9 pounds in CY 1997 to 144 pounds in CY 1998.
        Missouri Task Force Initiatives.--Collocated and multi-agency task
    forces targeting the methamphetamine problem were responsible for
    seizing 436 clandestine labs from June 1997 to May 1998. During this
    same time period Missouri recorded 679 methamphetamine-related arrests,
    with 502 classified as clandestine lab operators. The U.S. Attorney
    obtained 173 convictions on 178 methamphetamine-related cases with
    assistance provided from the various HIDTA task forces.
        Nebraska Law Enforcement Enhancement.--The HIDTA Program provides
    direct support to four of Nebraska's drug task forces whose mission is
    to measurably reduce methamphetamine drug trafficking and related
    criminal activities. As a result of this initiative 50 pounds of
    methamphetamine was seized between January and May 1998. The HIDTA
    enhancement has also provided numerous intelligence gathering training
    activities for the Nebraska State Patrol, the Nebraska Crime Commission
    and various local law enforcement organizations.
        South Dakota Statewide Drug Task Force.--Numerous ``hotspot''
    counties in South Dakota have been designated as part of the Midwest
    HIDTA initiative. Due to the rural nature of the state the South Dakota
    initiative includes specific elements to provide local assistance
    overtime, augmentation of personnel and equipment, an Intelligence
    Analyst and specialized training for a variety of federal, state and
    local law enforcement officers. During 1998 there were 61 federal state
    and local agencies participating in the HIDTA Program.
        North Dakota.--Has recently been added to the Midwest HIDTA. Two
    elements will be introduced into North Dakota to help in the battle
    against the spread of the methamphetamine problem. First is increased
    training for law enforcement officers to provide them with the basic
    skills to translate street contacts into workable intelligence, leading
    to increased seizures and arrests. The second is a sharing of
    intelligence/information among and between law enforcement
    organizations operating in the state of North Dakota.
        In addition, a supplement to the fiscal year 1998 HIDTA Program
    budget provided $8.8 million in special funding to specifically address
    methamphetamine reduction. Information available to ONDCP indicated
    that the top methamphetamine production and distribution areas are
    California, Missouri, Arizona and Utah/Colorado. This HIDTA effort was
    to concentrate on the most critical areas first and address other areas
    in the outyears. The emphasis was on the development of a centerpiece
    task force in the most critical areas and a network of task forces in
    the next most critical areas. The centerpiece HIDTA task force
    developes and shares state-of-the-art investigative methodologies to
    reduce methamphetamine trafficking. The following HIDTAs were funded in
    this first phase in the following amounts: Las Angeles HIDTA ($2.25
    million), Midwest HIDTA-Kansas City ($1.5 million), Rocky Mountain
    HIDTA-Utah & Colorado ($1.5 million), San Francisco HIDTA ($.75
    million), Southwest Border HIDTA-Arizona ($.75 million), Southwest
    Border-California ($.75 million), HIDTA Assistance Center ($.75
    million), EPIC-National Database ($.55 million). The HIDTA
    methamphetamine task forces will be electronically tied to the National
    Clandestine Laboratory Database at EPIC. The HIDTA Assistance Center
    established a methamphetamine reduction ``best practices'' evaluation,
    collection, and dissemination capability and support for mobil training
    teams to all HIDTAs.
        Available information and trend patterns indicate that the Midwest
    HIDTA region will continue to experience an increase in the clandestine
    manufacturing and importation of methamphetamine. Intense efforts by
    the various HITDA task forces, coupled with harsher penalities in
    recently enacted legislation have impacted the clandestine lab
    situation in Missouri. The Midwest HIDTA continues to adjust to the
    importation of Mexican methamphetamine as well as the displacement of
    local methamphetamine production operations. However, these positive
    forces have caused the clandestine lab operators to become more mobile,
    increasing the number of labs in other states in the region.
                          government-wide drug budget
        Question. There is a disparity between the amount dedicated to law
    enforcement ($11.74 billion or 66 percent) and the amount provided for
    education, treatment, and prevention ($4.6 billion or 34 percent).
        ONDCP supports both components, supply reduction and demand
    reduction, but requests funds indicating that supply reduction has
    twice the level of impact on the nation's drug abuse problems.
        Please provide the committee with some statistics that quantify the
    benefits received from the increased spending on law enforcement
    activities.
        Answer. For the fiscal year 2000 budget request, the supply/demand
    reduction split is $11.74 billion (66.0 percent) vs. $6.04 (34.0
    percent). Of the $11.74 billion for supply reduction, $9.16 billion
    (51.5 percent) is for domestic law enforcement.
        We have seen significant benefits from the funding of domestic law
    enforcement. There is a clear and substantial nexus between crime and
    drugs. The FBI reports each year on crime in the United States through
    its Uniform Crime Reports (UCR). The UCR data includes the Crime Index,
    a summary of seven selected offenses: murder, forcible rape, robbery,
    aggravated assault, burglary, larceny theft, and motor vehicle theft.
    While it is not known what proportion of these offenses are drug-
    related, police and researchers acknowledge that drugs play a major
    role. Between 1996 and 1997 there was a 3.2 percent drop in the rate
    per 100,000 population of Crime Index offenses (from 5,086.6 per
    100,000 to 4,922.7 per 100,000). This decrease in Crime Index offense
    rates was led by murders (down 8.1 per 100,000 population) and robbery
    (down 7.8 per 100,000 population). The arrest rate for drug abuse
    violations increased from 594.3 per 100,000 population in 1996 to 601.6
    per 100,000 population in 1997. Arrests for drug abuse violation in
    1997 are up 48 percent from 1988, 38 percent from 1993, and 2 percent
    from 1996.
                            national media campaign
        Question. How Much of the ONDCP'S Media Campaign Resources Are
    Dedicated to Methamphetamine? How Does ONDCP Provide Coverage in the
    Sparsely Populated Midwestern Areas, Where Methamphetamine Is
    Experiencing Some of its Largest Growth?
        Answer. Approximately one-third of ONDCP's local media
    communication in areas where methamphetamine usage incidence is above
    national norms is dedicated to an anti-methamphetamine message. Since
    local delivery represents half of the youth-targeted effort (as opposed
    to adult-targeted efforts which are national for reasons of cost
    efficiency), the total resources dedicated to anti-methamphetamine
    advertising represents roughly 8.3 percent of the aggregate adult and
    youth budget in these markets. In general, however, the campaign is
    designed to address entry level drugs (primarily marijuana and
    inhalants) for young teens.
        All available statistical studies have been employed to target the
    methamphetamine message. The markets which receive special anti-
    methamphetamine emphasis are as follows: Phoenix and Tucson, Arizona;
    Sacramento, California; Denver and Colorado Springs Colorado; Honolulu,
    Hawaii; Indianapolis, Indiana; Des Moines, Cedar Rapids and Davenport,
    Iowa; Kansas City, Kansas; St. Louis and Springfield, Missouri; Omaha
    Nebraska; Albuquerque, New Mexico; El Paso, Texas; Salt Lake City,
    Utah; and Milwaukee, Wisconsin.
        Question. Were there any methodological data collection or analysis
    limitations or problems that have affected the Phase I report?
        Answer. No, there have not been any methodological data collection
    or analysis limitations or problems that have affected the Phase I
    report. The evaluation has employed standard data collection and
    analysis procedures that have yielded a thorough and informative
    evaluation of Phase I. Briefly, the ONDCP evaluation used a matched
    comparison design wherein the 12 target sites were matched with 12
    comparison sites on the basis of region, size, demographic composition,
    drug problems, and level of prior anti-drug advertising. Data were
    collected through school-based surveys (for youth and teens) and
    telephone interviews (parents). Analyses focused on net differences
    (i.e., the difference between the target and comparison sites on pre/
    post measures) in awareness of the campaign, particularly recall of
    specific ads. The results were consistent with media data indicating
    the reach and frequency of the advertising. A detailed description of
    our methodology is presented as an appendix in the evaluation report.
        Question. When will the final Phase II report be available to the
    Subcommittee? Your report on the Phase I evaluation states ``due to
    cost constraints, qualitative data will be collected during Phase II in
    12 markets areas only. Why are you experiencing cost constraints in the
    evaluation of the program?
        Answer. ONDCP anticipates submitting the Phase II report to the
    Subcommittee by May 1999. Baseline data for Phase II were collected in
    May and June, 1998. Followup data for Phase II were collected in
    October and November, 1998. The evaluation contractors are currently
    analyzing the quantitative (nationally representative surveys of youth,
    teens, and parents) and qualitative (focus groups and key informant
    interviews in 12 selected metropolitan areas) data, after which they
    will draft the report.
        For the first year of the Media Campaign (fiscal year 1998)--the
    period that included Phase II, Congress appropriated $195 million, $17
    million of which could not be obligated until September 30, 1998.
    During Phase II $145.656 million was spent, $140 million on advertising
    and $5.546 million on nonadvertising components (clearinghouse
    activities, consultants, invoicing support, travel, and the
    evaluation). Of the $5.546 million in nonadvertising costs, $2.4
    million was spent on the evaluation. It has always been ONDCP's
    priority to use as much of the congressional appropriation as possible
    to get ads in front of the American public. To do so requires that we
    hold the costs down for items not directly related to placing the
    advertising. The budget of $2.4 million for the Phase II evaluation was
    considered sufficient to fund the national surveys of youth, teens, and
    parents, visit 12 sites around the country to collect qualitative data,
    and produce the report. Conducting the site visits in the selected
    metropolitan areas is labor intensive (two contractor staff spend
    approximately one week at the site conducting focus groups and
    interviews with key community leaders). Typically several teams of
    evaluators cover the 12 sites within a 2 to 3 week window. In order to
    have sufficient funds to conduct the surveys and produce the report, it
    was determined that we could include 12 sites for qualitative data
    collection in the evaluation.
        Question. Will the delay of Phase I report have any impact on the
    completion of Phase II or in the ``start-up'' of Phase III?
        Answer. The fiscal year 1999 appropriations bill required ONDCP to
    submit to Congress a report on the evaluation of Phase I of the Media
    Campaign prior to obligating up to 75 percent of the fiscal year 1999
    funds. This report was submitted on October 1, 1998; it presented the
    results of focus groups conducted with youth, teens, and parents and
    interviews with key community leaders in the target and comparison
    sites 8-10 weeks into the Campaign. ONDCP prepared a second or final
    report for Phase I, submitted to Congress on March 22, 1999. This
    report presented the results of the surveys of youth, teens, and
    parents. It was originally scheduled for submission in to Congress in
    December 1998. The delay in submitting this report has been due
    primarily to ONDCP's efforts to cooperate fully with the ongoing audit
    by the General Accounting Office (GAO). We have been working closely
    with GAO to ensure an accurate, thorough, and timely report. We have
    provided GAO with full access to our evaluation contractors and to the
    data and drafts of the report as they were being analyzed and prepared,
    and devoted considerable time responding to GAO's technical questions.
    This has been a very helpful process in focusing and clarifying our
    description of the evaluation methodology and results. It also has
    unavoidably delayed the submission of the final report to the
    Committee. However, we believe the final report has benefited greatly
    from this process.
        We anticipate that the delay in submitting the Phase I final report
    will have minimal impact on the submission of the Phase II report.
    Followup data collection was completed in November 1998. Since that
    time the contractors have been analyzing the data. This task is nearly
    complete, after which the report will be drafted. ONDCP's schedule is
    to submit the report to the Committee by May 1999.
        The delay in submitting the Phase I final report will have no
    impact on the start-up of the Phase III evaluation because the two
    evaluations are being conducted by separate contractors, and the Phase
    III evaluation is not the primary focus of the GAO audit. The Phase III
    evaluation is currently in the final stages of planning. Draft survey
    instruments are being tested prior to submission to OMB for approval.
    Upon OMB approval the instruments will be pilot tested. Assuming a
    successful pilot test, the Phase III baseline data collection will be
    fielded in August/September 1999.
        Question. Will the evaluation of any of the phases specifically
    address documented changes in national drug use rates and attitudes?
        Answer. The underlying concept of the Media Campaign is that
    through intensive targeted paid advertising, supported by community and
    corporate involvement, we can affect changes in people's attitudes
    toward drug use and subsequently their drug use. The first step in this
    process is to increase the target audience's (in our case, youth,
    teens, parents, and other adult influencers) awareness of the messages.
    With effective and memorable advertising, this can be done within a few
    months. Because Phases I and II were test phases lasting only 6 months,
    the only outcome measure for which we expect to be able to detect
    changes is awareness. In fact, for Phase I we have found significant
    levels of awareness among the target audiences. Phase III marks the
    implementation of the fully integrated Media Campaign. We expect to see
    changes in attitudes within 1 to 2 years of the start of Phase III.
    These changes in attitudes will be followed by changes in behavior,
    which we expect to see within 2 to 3 years of the start of Phase III.
    It is only in Phase III, which is scheduled to run for the next 4
    years, that the Media Campaign will have been in place for a sufficient
    length of time to affect changes in attitudes and behavior (i.e., drug
    use).
        Question. Will ONDCP be able to provide quantitative results from
    its surveys or will it have to rely on qualitative (anecdotal)
    information?
        Answer. ONDCP's evaluation plan for the Media Campaign calls for
    the collection of both quantitative and qualitative data. The
    quantitative data includes surveys of youth (9-11 year olds), teens (12
    to 18 year olds), and parents. The qualitative data includes focus
    groups with youth, teens, and parents and interviews with key members
    of the community. It is inaccurate to describe the qualitative data as
    ``anecdotal''. Qualitative evaluation data are collected in a
    systematic manner by trained researchers so that data across sites can
    be compared. The resulting data are analyzed using sophisticated
    content analysis computer software. Collecting both types of data is
    standard evaluation methodology. The two types of data compliment one
    another; the qualitative data provides detailed insight from
    respondents that helps to illuminate and provide context for the
    quantitative data. A detailed description of the evaluation methodology
    accompanies each evaluation report.
        For Phase I, we surveyed approximately 18,000 youth and teens and
    4,200 parents. We conducted 384 focus groups composed of approximately
    2,300 youths, teens, and parents. We conducted approximately 1,200 key
    informant interviews. The quantitative data were collected at two
    points, baseline (November 1997 through February 1998) and followup
    (May and June 1998). The qualitative data were collected at three
    points, baseline, intermediate (8-10 weeks into the campaign), and
    followup. The intermediate data were collected in order to provide a
    quick snapshot of the early impact of the campaign. Our primary outcome
    measure for Phase I was awareness of the campaign, which advertising
    experience tells us can be achieved within a few months with an
    effective campaign. Results from the intermediate data collection were
    presented in the Phase I, Report No. 1 issued in September 1998. This
    report was followed up by the results from the quantitative, survey
    data collection, which are presented in Phase I, Report No. 2, issued
    in March 1999.
        For Phase II, we are conducting nationally representative surveys
    of youth and teens and parents. We also conducted a similar number of
    focus groups and interviews with key community members in 12 cities as
    we did in Phase I. The quantitative and qualitative data were collected
    at two points, baseline (May and June 1998) and followup (October and
    November 1998). The Phase II report will be submitted by July 1999.
        For Phase III, we are conducting nationally representative surveys
    of youth and teens and parents. The youth and teen surveys will be
    linked with the parent surveys in that a parent and one youth or teen
    from the same household will be surveyed. We also will be collecting
    detailed longitudinal (i.e., the same people will be surveyed once a
    year for four years) data in four sites. Data collected at these four
    longitudinal sites will be both quantitative and qualitative. Data for
    Phase III will be collected every 6 months, starting with baseline data
    collection in August/September 1999. Reports will be issued every 6
    months starting in May 2000.
        Question. Given ONDCP's Milestone Schedule, Was There Sufficient
    Time to Implement the Lessons Learned from Phase I into the Program and
    Evaluation Component of Phases II and III? (What Was the Purpose of
    Having Three Phases If You Were Not Going to Incorporate the Findings
    of Phase I or II into III?)
        Answer. Because the Media Campaign was implemented in three
    distinct phases, ONDCP decided to conduct three distinct and
    independent evaluations. Additionally, since the plan was to have the
    phases run one after another without interruption, it was not intended
    that the evaluation for one phase be completed prior to the start of
    the next phase. However, the Phase I evaluation was able to inform the
    planning for the Phase III evaluation. The primary lesson learned from
    Phase I was that school-based surveys have several severe limitations,
    including active parental consent requirements, schools refusing to
    participate due to being over-surveyed, and district or individual
    school scientific review boards that require prior approval of survey
    methodology and instruments. These limitations affect access to
    schools, cause delays in implementing surveys, and tend to reduce
    response rates. As a result of ONDCP's experience with school-based
    surveys in Phase I and following the recommendation of an expert panel
    of survey design experts convened by NIDA, ONDCP decided for Phase III
    to switch from a school-based survey to a household-based survey.
        The purpose of having three Phases was to use Phase I and Phase II
    to test the implementation of the advertising component. The first
    Phase gathered data from twelve cities. This provided the opportunity
    to gather information on copy rotation, served as the impetus for
    feedback on ads, allowed us to learn more about the advertising's
    effects on communities. Phases I and II also improved communication
    between ONDCP and its drug abuse constituencies.
        Question. Media Campaigns Can Be an Effective Way of Selling a
    Product. And, The Committee Understands That These Ads Target
    Behavioral Changes Which Are More Difficult That Just Getting Someone
    to Buy a Product. But, Is ONDCP Providing The Target Audience Enough
    Information to Make Informed Decisions About The Next Steps or Where to
    Go For Help And/or Assistance? The Already Know Drugs Are Bad, But Do
    The Ads Give The Viewer Enough Information, Such as a Phone Number or
    Locations, Where They Can Receive Additional Information?
        Answer. All locally targeted messages in any medium provide a phone
    number or location where viewers or listeners can receive more
    information. In addition, we have requested that PDFA include phone
    numbers on a greater percentage of ads, including all numbers on all
    messages directed at parents and other adult influencers of youth.
    Other components of the media campaign (interactive, public education,
    partnerships, and collaborations with entertainment industry) also
    provide comprehensive information to both youth and parents. The most
    recent examples are the Parent Resource Center on SOL and Disney's
    youth oriented freevibe.com which are exclusively devoted to providing
    information on drugs to these audiences. The response to the media
    campaign has been extraordinary. Calls to the National Clearinghouse
    for Alcohol and Drug Information are up 318 percent. Calls to many
    local prevention or treatment organizations have also approached that
    level.
        Question. According to GAO, at least some of the Phase I ads did
    not get aired in the media at the appropriate times nor with the
    appropriate frequencies. Can you explain this situation? Do you have
    any information about how this impacted the evaluation of Phase I? What
    about for Phases II or III?
        Answer. It is inaccurate to say that some of the Phase I ads did
    not get aired at appropriate times and frequencies. Phase I of the
    Media Campaign consisted of over 60 individual advertising messages for
    television, radio, newspapers, and billboards. These messages were
    targeted at three general audiences, youth, teens, and parents, and
    both African American and Spanish language media outlets. For Phase I,
    60 percent of the advertising was directed at youth and teens. Parents,
    at 40 percent were a secondary target, particularly for television;
    therefore, parent ads had a lower frequency and reach that did teen
    ads, by design. For parents radio and newspapers played a more
    prominent role in delivering the message. Because parents were a
    secondary target, with fewer television ads aimed at them, the
    increases in awareness were smaller as measured by the evaluation.
    However, responses to other questions that asked parents about their
    perceived effectiveness of anti-drug messages (including radio and
    newspapers) suggest that parents were receiving the messages and found
    them to be effective. We do not anticipate this being a problem in
    Phases II and III. For these Phases, parents and other adult
    influencers will be targeted with 50 percent of the advertising,
    including an increase in television ads. As the Campaign enters the
    fully integrated phase, all audiences will be receiving the Campaign's
    messages through television, radio, print, newspaper, outdoor, and
    newspaper ads, over the Internet, and through programming.
        Question. How Can You Be Sure Whether Reports on Increases in Ad
    Awareness Are Due to The National Anti-drug Media Campaign as Opposed
    to Some Other Extraneous Events or Conditions?
        Answer. This is one of the key questions for the Campaign
    evaluators--how do we know whether observed changes in outcomes are the
    result of the Campaign. There are three key outcome measures for the
    Campaign: awareness of the Campaign's message, anti-drug attitudes
    (e.g., perceived harmfulness of drugs, and disapproval of drug use),
    and drug use. ONDCP expects to be able to detect changes in awareness
    within a few months of the implementation of the Campaign, changes in
    attitudes within 1 to 2 years, and changes in drug use within 2 to 3
    years. Given the short time periods of both Phases I and II (i.e., 6
    months), the only outcome measure for which we expect to observe change
    is awareness. This indeed has been the case for Phase I (we are
    currently preparing the final report for Phase II). If all ONDCP was
    interested in was whether the outcome measures improved over the period
    of the Campaign, we could simply track annual data from the National
    Household Survey on Drug Abuse and the Monitoring the Future Study.
    However, that is not all that ONDCP is interested in; we want to know
    whether any observed improvements in the outcome measures are
    attributable to the Campaign rather than other ``extraneous events or
    conditions.''
        ONDCP has taken a number of steps in designing the evaluations for
    the three Phases of the Campaign to ensure that we have this ability.
    For Phase I, which was implemented in 12 cities across the country, we
    matched the 12 target (treatment) sites with 12 control sites. This is
    the classic experimental design of matched treatment and control
    groups. The underlying theory is that, all things being equal between
    the target (treatment) and control sites, then any differences observed
    between the two after the implementation of the program (the
    intervention), can be attributed to the program. This design is the
    only methodological approach that can demonstrate cause and effect; it
    is typically used in clinical trials where conditions between the
    treatment and control groups can be manipulated by the researcher. When
    applied to a social experiment, as with the Media Campaign, it is
    considered a naturalistic experiment in which the conditions between
    the target and comparison sites cannot always be manipulated and
    controlled by the researcher. To compensate for this limitation, the
    researcher attempts to match the target and control sites as closely as
    possible. For the Media Campaign, we attempted to match sites on the
    basis of region, population size, population demographics, level of
    prior anti-drug media activity, and drug problem. Additionally, we
    conducted extensive site visits to identify any local activities, such
    as local anti-drug media campaigns, increased police activity directed
    toward drug dealing/use, and overdose deaths, that may have impacted
    results. As a result of this methodology, ONDCP is confident that the
    positive outcomes of increased awareness of the anti-drug message
    observed for Phase I can be attributed to the Campaign. For Phase I we
    consistently observed increases in awareness outcome measures in the
    target sites from baseline to followup and either decreases or no
    change in the control sites.
        For Phases II and III, the Campaign is national in scope;
    therefore, we do not have the ability to use control sites.
    Consequently, ONDCP employed other means to attribute positive outcomes
    to the Campaign. In Phase II we selected 12 sites to conduct extensive
    site visits to identify possible competing explanations for observed
    outcomes, similar to the approach used in Phase I. For Phase III, which
    is being managed for ONDCP by NIDA, we convened a panel of survey and
    instrument design experts to advise on this and other issues. Based
    upon their recommendations, ONDCP and NIDA have incorporated two design
    elements that, in the absence of matched treatment and control sites,
    will provide assurance that future increases in anti-drug attitudes and
    decreases in drug use can be attributed to the Media Campaign. First,
    ONDCP and NIDA are implementing a nationally representative household-
    based survey that will sample a parent/guardian and one child from the
    same household, thereby linking parent and child responses. This will
    enable the evaluators to associate responses between parents and their
    children on the perceived and observed impact of Campaign messages.
    This analytic capability will strengthen our ability to attribute
    outcomes to the Campaign. Second, ONDCP and NIDA have selected four
    sites around the country in which to collect extensive longitudinal
    data (i.e., we will be surveying the same individuals each year) over
    the course of the Campaign. This approach will enable researchers to
    ask respondents from year to year whether they believe the Campaign was
    responsible for any perceived or observed changes in their attitudes or
    behavior. ONDCP is very confident that with this methodological
    approach, we will be able to attribute changes in the outcomes to the
    effect of the Media Campaign.
                             international--mexico
        Question. The Current Law States That Countries That Do Not Fully
    Cooperate in Fighting Illegal Drugs Will Be Decertified. However, it
    Appears That the Decertification Process Is Losing Some of its
    Credibility. What Should Be Done to Ensure That the Threat of
    Decertification Remains a Real One? Should the Standards for Evaluating
    Countries and the Penalties Be Changed?
        Answer. The certification process has been a valuable tool in the
    past. In 1998 alone, we have seen major performance improvements in
    several countries, including Peru and Bolivia--based upon a concerted
    USG effort utilizing certification in conjunction with other tools.
    However, the following shortfalls in the current certification process
    have been identified:
      --Certification encourages confrontation.--Many countries resent the
            idea of the United States unilaterally ``grading'' their
            performance on drug control, particularly when the demand for
            drugs in the U.S. is so great. The certification process is, in
            effect, an annual public airing of these most sensitive issues.
            Resentment and concerns about national sovereignty--both of
            which damage counterdrug cooperation--are the inevitable
            result. Certification promotes an ``us versus them'' mind set
            which is damaging to common efforts against drug trafficking.
      --Certification as a foil for nationalism/anti-Americanism.--In many
            countries, opposition parties seek to cast the government as
            the lackeys of the U.S. The directive nature of the
            certification process (i.e. the U.S. issuing an annual demarche
            with specific steps to be taken and then assessing compliance
            with the demarche) is certainly not in keeping with the concept
            of a community of nations united in pursuit of a common goal.
            There is a very real threat that the certification process will
            lead to the popular association abroad of counter drug
            activities with servility to America and, conversely to the
            popular association of drug trafficking with independence and
            rejection of U.S. domination. Most states on the majors list
            have a long and unhappy familiarity with colonialism and great
            power intervention. The current flawed certification process
            conjures up these unhappy memories more readily than it does
            the ideals of multinational alliances.
        The solution would be a certification system that maximizes the
    following principles:
      --Accountability.--Americans have a right to demand results of the
            efforts of their government. Results must be determined from
            objective indicators as well as from the subjective evaluations
            of policy makers, law enforcement personnel, diplomatic and
            intelligence analysts and other informed observers. These
            indicators must be constant and evaluated in the same manner
            over time so as to allow the drawing of valid comparisons and
            conclusions.
      --Flexibility.--The issues and concerns surrounding drug abuse are
            multifaceted, and must be dealt with in different manners. An
            effective joint campaign against drug production and
            trafficking must take the unique circumstances and
            characteristics of each nation into account. Any certification
            or alternative process must allow the U.S. government to
            respond to drug production and trafficking with agility and
            adaptability.
      --Cooperation.--The United States cannot solve the problem of drug
            abuse singlehandedly. The use of our allies and multilateral
            organizations is key. We must continue to convince the rest of
            the world to see drug abuse as a shared problem. We must
            continue to work cooperatively with other nations in developing
            criteria in which to assess drug control programs, such as the
            joint U.S.-Mexico performance measures of effectiveness.
      --Complimentarity.--Certification or post-certification should be
            structured so as to enhance, rather than degrade, existing and
            proposed international counter-drug efforts.
        ONDCP looks forward to working with Congress on implementing a more
    effective certification process which maximizes each of these
    principles.
        Question. Is Mexico Concerned That the U.s. Demand for Extradition
    Is Impinging on Mexico's Sovereignty?
        Answer. Mexico is always very sensitive to issues involving
    national sovereignty. However, in recent years the government of Mexico
    has worked closely with the government of the United States in
    extradition cases. Twelve fugitives were physically extradited from
    Mexico to the United States in 1998, including three Mexican nationals
    (two accused child molesters, one accused narcotics trafficker/murderer
    of a Border Patrol agent). By comparison: 1997, 13 extradited (no
    Mexican nationals); 1996, 13 extradited (five for narcotics offenses,
    one Mexican national, and one dual U.S./Mexican national on non-
    narcotics offenses); and 1995, Five extradited (none for narcotics
    offenses, no Mexican nationals)
        In 1998, the Mexican Foreign Secretariat (SRE) entered extradition
    orders against 19 fugitives, including 10 for serious narcotics
    offenses and also including five Mexican nationals. Of the total of 19,
    six have already been surrendered; the others are appealing their
    extradition, serving sentences on Mexican charges, or had their
    extradition cases overturned by the Mexican courts.
        Progress in the area of extraditions and deportations between
    Mexico and the United States has been sustained and productive over the
    past three years. Although no major Mexican narcotics trafficker has
    yet been extradited, there have been favorable signs, at least from the
    Foreign Ministry, that one would eventually pass through the long
    Mexican judicial process and be turned over to U.S. authorities. Recent
    judicial decisions in Mexico pose potentially serious threats to our
    expectations, in particular because the limited capacity of the
    Executive branch to influence court decisions.
        Question. Does ONDCP Think the Threat of U.S. Economic Sanctions
    Has Had an Impact on Mexico's Efforts to Reduce the Supply of Drugs
    into the U.S.?
        Answer. The threat of economic sanctions resulting from
    decertification has probably influenced Mexico to attempt spectacular
    actions in time to influence the certification decision. It is not
    clear if this influence on the timing and profile of Mexico's efforts
    has had much of an impact on real reduction of drug production or
    impact against drug trafficking organizations.
        President Zedillo and his government recognize the threat that
    drugs poses to Mexican institutions, and have made combatting drugs
    their top priority. To this end, they have focused their military
    efforts and geared their institutional reform efforts to combatting
    drugs. It is difficult to separate the influence of the threat of U.S.
    economic sanctions, but it is hard to believe that the threat of
    sanctions was ever a major factor. Geography and a recognition of the
    importance of Mexican economic development to the United States
    dictates that sanctions were never a real possibility.
        Question. There Have Been Questions about Whether the Certification
    Process Is Good Foreign Policy. Isn't it Possible That Decertification
    of a Country Could Lead to an Economic Situation Where Drug Production
    Would Be More Attractive?
        Answer. Congress granted the President sufficient discretion in
    administering the certification process--to include imposing economic
    sanctions that could actually harm our counterdrug interests. There are
    mandatory penalties associated with decertification. Most of these
    penalties are economic in nature, and could harm business and
    infrastructure development in the decertified country. These penalties
    include: Denial of sales or financing under the arms export control
    act; Denial of non-food assistance under Public Law 480; Denial of
    financing by the Export-Import Bank; Withholding of most non-
    humanitarian assistance under the Foreign Assistance Act and U.S. must
    vote against proposed loans from six multilateral development banks.
        The President also has the discretion to avoid these penalties by
    granting a country a Vital National Interest Certification. In such
    cases, the country has not made sufficient progress to be certified,
    but applying the penalties inherent in decertification would damage
    U.S. interests. For example, this year Haiti received VNIC. The law as
    enacted grants the President the discretion to manage the certification
    process to avoid the situations described in the question.
        Question. In February, the Mexican Government Announced a $400
    Million Three-year Anti-drug Plan. As Part of the Program, Mexico Will
    Buy Counter-drug Equipment Such as Infrared Cameras for Airplane
    Surveillance, Special X-ray Machines at Border Crossings, and Encrypted
    Satellite Communications Gear. They Said 40 New Speed Boats and Three
    New Airplanes Will Be Added to the National Anti-drug Fleets. Does
    ONDEP Believe That Increased Spending on Technology Will Increase
    Mexico's Viability as a Partner in the War on Drugs, or Do You Think
    the Overall Strategy must Be Revamped Before the Mexican Government
    Invests in Technology?
        Answer. The Government of Mexico informs us that the current
    initiative builds upon President Zedillo's August 1998 call for a
    National Crusade Against Crime and Delinquency. The August plan is a
    more general move against crime, it is not focused on drug trafficking
    and thus may have received less attention in the United States than the
    February 1999 announcement. The National Crusade initiative provides
    for: Better training of judicial police officers, public prosecutors
    and expert investigators; Expanding preventative coverage, and
    improving crime investigation and criminal arrest capabilities;
    Establishment of modern communications, information and intelligence
    systems; Improving equipment and infrastructure; Improving the legal
    framework; Strict control over private security services and Promoting
    civic participation.
        The February 1999 plan focuses on drug trafficking and
    technological enhancements. It also includes increased personnel
    vetting and performance monitoring for the counterdrug law enforcement
    officials.
        Increased spending on technology can be effective against drug
    trafficking. Whether technology will have the desired effect in this
    case cannot be known in advance. The decision to spend such a large
    amount of money in a time of declining resources is clearly one that
    the government of Mexico has considered carefully and one in which it
    has considerable confidence.
                            international--colombia
        Question. What guarantees does the committee have that the funds
    provided are actually being used to reduce drug supplies?
        Answer. Colombia has long been the processor and transshipper of
    about 80 percent of the cocaine entering the United States. In the
    past, Colombian drug traffickers imported the majority of their coca
    base from growers in Peru and Bolivia. Over the last several years,
    however, successful counterdrug programs in Peru and Bolivia have
    disrupted trafficker activities there resulting in significant
    decreases in the amount of coca cultivation. This, in turn, caused the
    traffickers to grow more and more coca in Colombia so that they have
    more control over the supply of their raw material. Colombia's coca
    cultivation has doubled since 1992, and, beginning in 1997, Colombia
    became the leading coca cultivator in the world. (It is important to
    note, however, that overall coca cultivation has decreased 11 percent
    in the Andean Region since 1995, and overall potential cocaine
    production dropped from an estimated 750 metric tons in 1995 to an
    estimated 550 metric tons in 1998.)
        Colombian heroin is an increasing problem in the United States as
    well. Though Colombia accounts for only a small percentage of the
    world's heroin supply (potentially 6 metric tons annually), DEA reports
    that, in 1997, 75 percent of the heroin seized and acquired in Federal
    undercover buys was identified as Colombian heroin. The prevalence of
    Colombian heroin in the US market can be explained in part by the high
    purity of the product combined with aggressive marketing techniques
    that ``piggyback'' on already-established cocaine distribution
    networks.
        Given that Colombia has become the center of gravity for drug
    production and distribution in this hemisphere, our cooperative
    counterdrug programs have been designed to attack Colombia's drug trade
    in a comprehensive manner. The vast majority of the support provided
    directly to Colombian counterdrug forces goes to the Colombian National
    Police who are responsible for the eradication of both coca and opium
    poppies, lab interdiction, chemical control, disruption of trafficking
    organizations and arrest of major traffickers, registration and
    inspection of general aviation aircraft, and other programs. The USG
    also provides funds to train and support prosecutors and judges to
    assist them in carrying out their duties such as prosecution of drug
    traffickers and handling money laundering and asset forfeiture cases.
    We also provide some funding to support alternative development
    projects that help give the small drug crop farmers licit alternative
    means to make a living. The Colombian military also receives some
    direct counterdrug assistance because they have counterdrug
    responsibilities such as air interdiction; riverine, coastal and sea
    operations; lab interdiction; and support to the National Police,
    especially in areas controlled by the heavily-armed guerrilla or
    paramilitary groups that are involved in narcotrafficking. The USG also
    provides some indirect assistance such as detection and monitoring
    assistance and the development of target packages for counterdrug
    operations.
        All USG support to the Colombian government is governed by
    memoranda of understanding (MOU) or other agreements between our
    government and the entity receiving the support. These agreements state
    clearly that the assistance is for counterdrug purposes. We have worked
    extensively, both within our government and with the Government of
    Colombia, to create programs targeting the most critical and vulnerable
    nodes of the drug industry. We have end-use-monitoring program in place
    to ensure compliance with the terms if the MOUs. We also monitor these
    programs to ensure that they are working well and that we can adapt to
    the ever-changing drug trafficking trends.
        Question. The fiscal year 1998 Supplemental Included $96 Million
    for Black Hawk Helicopters; $40 Million for Upgrading and Arming 34
    Huey Helicopters; Gun-ships; and $40 Million for Helicopters, Transport
    and Surveillance Planes, Patrol Boats and Weapons and Equipment for the
    Colombian Military and National Police. What Commitment Is the United
    States Getting for That Level of Investment? How Much Is Being Provided
    for Crop Eradication and Agricultural Research and Education?
        Answer. The USG has historically had a good and mutually
    cooperative relationship with Colombian counterdrug entities at the
    tactical level even in the worst days of our bilateral relationship.
    The police, military, prosecutors and judges have long demonstrated a
    commitment to fighting the drug industry and its corrupting influence,
    often paying with their lives. Hundreds of police and military
    personnel have been killed, wounded or captured in the course of
    performing counterdrug operations, and many remain in the hands of
    their guerrilla captors.
        In 1998 the combined Colombian National Police/US State Department
    eradication program sprayed a record number of hectares of coca, often
    receiving ground fire from guerrilla groups protecting their
    investment. An eradication surge campaign against opium poppy was
    started in November 1998 with the goal of completely eliminating
    Colombian opium poppy, and therefore Colombian heroin, in the next two
    to three years. The National Police continue to pursue trafficking
    organizations aggressively; they arrested several major traffickers in
    1998. In 1998, the police seized over 57 metric tons of coca products,
    57 tons of marijuana, and 418 kilograms of heroin, most of which was
    destined for the United States. The also destroyed 145 cocaine base
    labs, 40 cocaine HCl labs, and 10 heroin labs. In addition, the police
    seized or grounded over 80 aircraft, 300 vehicles, and 300 boats, and
    they destroyed 39 illegal airstrips. More than 1,400 persons were
    arrested on drug trafficking charges in 1998.
        The Colombian military have shown great commitment to counterdrug
    efforts. The military forces carried out 9,970 counterdrug operations
    in 1998 resulting in the seizure of 27 metric tons of cocaine, 174
    vehicles, 24 airplanes, and 38 boats. They also destroyed 229 cocaine
    laboratories and 75 illegal airstrips. The Colombian Air Force
    increased fourfold the number of successful end games against drug
    trafficker flights over the previous year. The Colombian Navy continues
    to cooperate with the USG in maritime search and seizure operations.
    The Navy also significantly increased (almost wholly at their own
    expense) the number the number of riverine combat elements which are
    responsible for patrolling the extensive river network in search of
    traffickers, drugs, and precursor chemicals. The creation in March 1998
    of the Joint Task Force at the Tres Esquinas Base in southern Colombia
    was an important step in establishing enhanced military/National Police
    cooperation in counterdrug efforts. The Army is in the process of
    establishing a dedicated counterdrug battalion to further increase
    their participation in counterdrug efforts.
        Since the Pastrana administration took office in August 1998,
    cooperation with the USG and unilateral counterdrug efforts at all
    levels of the Colombian government have improved. President Pastrana
    signed a ``Declaration of Alliance Against Illicit Drugs'' with
    President Clinton during the State Visit in October 1998. President
    Pastrana has put together an honest and competent team committed to the
    fight against drug trafficking, and his administration produced a
    national counterdrug strategy that creates a framework for aggressive
    action against the narcotraffickers. We continue to work with the
    Government of Colombia to ensure that our counterdrug assistance is
    used appropriately and effectively.
        INL will provide approximately $43 million in fiscal year 1999
    funding to the Colombian National Police to support the aerial
    eradication program which, is the cornerstone of our program in
    Colombia. That amount includes funds from the Colombia country program
    and INL air wing support to the Colombian eradication program. It is
    difficult to quantify exactly how much goes to the program, since both
    eradication and interdiction operations use many of the same air assets
    and host nation personnel, and the program can be adjusted throughout
    the year to adapt to changing trafficker patterns and trends. The $43
    million figure does not include the funding from the Emergency
    Supplemental Bill earmarked for acquisition and upgrade of aircraft and
    base construction, most of which is directly related to the eradication
    program.
        The State Department's Bureau of International Narcotics and Law
    Enforcement Affairs (INL) provided $500,000 to the Government of
    Colombia in 1998 to assist them in developing an alternative
    development plan. Additionally, INL will provide $15 million over the
    next three years to implement the program which will be designed to
    provide licit alternatives to small farmers currently engaged in
    cultivation of illicit crops.

                              SUBCOMMITTEE RECESS

        Senator Campbell. General, we appreciate you being here
    very much. I know you have a tough job to do and I think you
    have found a lot of support with this committee. I look forward
    to working with you for the remainder of this Congress.
        General McCaffrey. Yes, sir. Thank you.
        Senator Campbell. Thank you. This subcommittee is recessed.
        [Whereupon, at 11:11 a.m., Thursday, March 4, the
    subcommittee was recessed, to reconvene at 10:04 a.m.,
    Thursday, March 25.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2000

                                  ----------

                            THURSDAY, MARCH 25, 1999

                                           U.S. Senate,
               Subcommittee of the Committee on Appropriations,
                                                        Washington, DC.
        The subcommittee met at 10:04 a.m., in room SD-138, Dirksen
    Senate Office Building, Hon. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Kyl, Stevens, and Dorgan.

                           DEPARTMENT OF THE TREASURY

                            Office of the Secretary

    STATEMENT OF ROBERT RUBIN, SECRETARY
    ACCOMPANIED BY NANCY KILLEFER, ASSISTANT SECRETARY

                                OPENING REMARKS

        Senator Campbell. The Subcommittee on Treasury will be in
    order. Good morning, Mr. Secretary. We appreciate your being
    here today.
        The Treasury Department has a unique role in the Federal
    Government. Though the overall budget may be small in
    comparison to some of the other appropriations bills, I cannot
    think of another agency with such a variety of
    responsibilities, printing money, minting coins, protecting the
    President, ensuring a sound domestic financial market,
    regulating and monitoring the banking industry, collection of
    taxes, fighting financial crimes, combating the drug trade, and
    a number of other things it is probably the broadest mission in
    the Government today. That is just to name a few.
        While the Treasury's responsibilities are limitless,
    available resources are not, as everyone knows, regardless of
    the need or worthiness. Therefore, it is our responsibility as
    appropriators to seek a way to do all we can to further the
    work of the department and still stay within our fiscal
    constraints. This requires us to make tradeoffs, sometimes most
    of us would prefer not to do. As you know, every tradeoff has a
    consequence and I think that we need to be able to understand
    the full impact of the choices that we have to make.
        The fact that the Administration is proposing to fund the
    salaries of approximately 4,000 Customs personnel already on
    board with a user fee bothers me. I think it is a budget
    gimmick, very frankly, and nothing more. I do not understand
    how the Administration expects Congress to respond to that.
    Essentially, what they are telling us is that Congress has to
    either enact new fees or extend the existing fees to cover
    these salaries, or force the Customs Service to lay off the
    workers.
        Coming from a State which is near the southwest border, I
    am sure Senator Kyl would agree with me, that is a political
    game of chicken that has no positive future for this country.
        Mr. Secretary, I look forward to your testimony and thank
    you for being here.

                   RANKING MINORITY MEMBER'S OPENING REMARKS

        Senator Dorgan, did you have an opening statement?
        Senator Dorgan. Mr. Chairman, let me just ask to submit my
    entire opening statement. I want to say to the Secretary that I
    especially appreciated his stewardship at the Department of the
    Treasury.
        I noted in one of our national magazines his face
    prominently displayed in the context of the success of our
    economy. It is probably not accidental that we have the world's
    strongest economy at this point, but our strong economy exists
    in a world of great uncertainty with plenty of challenges in
    Asia, Russia and Brazil. I know the Secretary spends much of
    his day with his staff working on these challenges.
        The day to day issues in Treasury, I was surprised to learn
    when I became ranking member of this subcommittee, includes a
    substantial responsibility for law enforcement. As much law
    enforcement exists in the form of resources in the Treasury
    Department as it does in Justice.
        Also the Customs Service is a very important function. I am
    especially interested in making certain that we have the
    resources and the capability in Customs to protect our economy
    and border, not in a manner that is exclusive to fair
    competition, but in a manner that does prohibit the import of
    unsafe food, pornography, products produced with children's
    forced labor in other countries. Those are the kinds of things
    that are very important in the conduct of our economic affairs
    and the Treasury Department is pivotal and central to all of
    those issues.
        I want to say that I have in my career in Congress, had the
    opportunity to really hit very hard the Secretary of the
    Treasury when he would come to the Congress. I can recall one
    Secretary of the Treasury who said, this junk bond situation--
    this is in the late 1980s now--this junk bond situation is just
    fine. Do not worry about it, Mr. Dorgan. If there are any
    problems, they will be self-correcting.
        Well, that Treasury Secretary did not last all that long.
        Secretary Rubin. Nor did a lot of the junk bonds.
        Senator Dorgan. Nor did a lot of the junk bonds. And the
    hood ornament of that excess, of course, was that the United
    States Government ending up owning much of the non-performing
    junk bonds that were parked in savings and loans, and that was
    precisely the case I was making to the Treasury Secretary. I
    will not revisit all that.
        But my point is, that while I have had a lot of trouble
    with some Treasury Secretaries, I think that your stewardship
    at the Department of Treasury is something that this country
    can feel very good about. Let us hope that you will stay around
    for a while and that our economy will remain strong.
        But I will want to talk about Customs and some other
    issues.
        I would say to the chairman that I believe I am the second
    amendment after the Kennedy amendment on our side, so at some
    point I will have to go to the floor to offer an amendment to
    try to strengthen the farm program.
        One final point. While our country is doing very well, in
    the center part of our country we are being depopulated. I
    should show you the chart on that. But people are just leaving.
        Senator Kyl. We appreciate that, by the way.
        Senator Dorgan. We do not, as a matter of fact. It is true
    that some of them end up in Arizona. But the fact is our farm
    program is a terrible failure and we have just desperate
    conditions, Depression-era farm prices at the moment with
    massive failure ahead of us unless we do something, and that
    will be the subject of the amendment I offer in the next hour
    or so. But we also have to work very hard on that. I know the
    Secretary is well aware of that.

                               PREPARED STATEMENT

        Mr. Chairman, thank you, and I will have some questions.
        [The statement follows:]
                      Prepared Statement of Senator Dorgan
        Thank you Mr. Chairman. Secretary Rubin, it is pleasure to have you
    appear before us today. There are a number of issues I would like to
    discuss with you, Mr. Secretary, and I appreciate having this forum for
    that discussion.
        Over the last few years we have seen the economic turmoil that can
    occur when the fiscal stability of a nation changes. Understanding the
    world's economy requires a detailed understanding of the behavior of
    financial markets and how they can cause and direct capital changes.
        I believe that the continuing strength of the Department of the
    Treasury will be based on it's ability to focus on both the financial
    markets of the major industrial nations and on emerging market
    economies. But, the international expertise must be balanced by
    providing the appropriate level of resources to formulate and recommend
    domestic financial, economic, and tax policies.
        I hope we will discuss the Department's resource requirements while
    we discuss the resource requirements of Russia and their request for
    renewed funding from the International Monetary Fund.
        As you mentioned in your written statement, the need to provide
    resources to allow the Internal Revenue Service to comply with the
    requirement of the Restructure and Reform Act of 1998 is an important
    part of the Treasury's fiscal year 2000 request. Those requirements
    along with the need to increase IRS's customer services, particularly
    in the rural states, are areas I am very concerned about, and are ones
    that I hope we have an opportunity to discuss during this hearing.
        During our discussions on the IRS, I also hope to address transfer
    pricing. As you may know, this committee instructed the IRS to study
    this issue and to determine the amount of revenue lost as a result of
    abuses by multinational companies. Transfer pricing is a problem I am
    planning to address in this year's appropriation bill. And, I hope that
    you, Mr. Secretary, will take a personal interest in this issue.
        The very important issue of Y2K compliance must also be discussed.
    Setting policy, directing programs, and having reliable information
    systems are all important components of successfully managing the
    financial operations of the Department of the Treasury. The Office of
    Management and Budget's Report ``Progress on Year 2000 Conversion''
    stated that certain IRS and Financial Management Service systems may
    not meet the government-wide goal. I want to make sure this is not a
    pervasive problem or one that will negatively impact Treasury's ability
    to fulfill it's mission in fiscal year 2000.
        Finally, I want to discuss Treasury's law enforcement agencies and
    the need to continue our support of these activities. I know there has
    been a lot of debate on whether Treasury has received the same level of
    resources as the Justice Department for its law enforcement activities.
    I am not interested in that argument. What I want to know is whether
    the resources provided the Treasury law enforcement agencies is
    adequate to perform their mission.
        In particular, I want to be sure that Customs has adequate
    resources to enforce our laws and strengthen our borders against the
    importation of child pornography, unsafe foods, and products made by
    forced labor. I want to know that ATF can provide children with the
    necessary training to avoid the violence of guns or gangs. And, I want
    to be sure that Secret Service and FinCEN can protect our citizens
    against credit card and other financial frauds.
        Mr. Secretary, I look forward to having a discussion on these and
    other Treasury related topics. Thank you Mr. Chairman.

                               TRADE FACILITATION

        Senator Campbell. Thank you.
        Senator Kyl, did you have a statement?
        Senator Kyl. Mr. Chairman, yes. I did not mean to make
    light of specific economic conditions in any region of the
    country. As a matter of fact, because of the strong performance
    of the economy, as you know, we have a wonderful, robust trade
    between the United States and Mexico.
        My own State of Arizona, however, lags far behind in the
    infrastructure capability of handling that two-way trade. As
    much in the way of imports from Mexico as exports to Mexico.
    Our border stations are totally inadequate in Nogales and Yuma
    to handle the traffic. Douglas is also very difficult. And the
    request of zero funding for new Customs agents is simply
    totally unworkable, and I will be asking you some questions
    about that.
        Thank you, Mr. Chairman.
        Senator Campbell. With that, Mr. Secretary, if you would
    like to proceed, we will be delighted to hear from you. Your
    complete written testimony will be included in the record. If
    you would like to abbreviate or expand on that, please do.

                           TREASURY'S BUDGET REQUEST

        Secretary Rubin. Thank you, Mr. Chairman. Let me make a few
    comments if I may, and then why don't we discuss whatever you
    would like.
        As you know, our overall request is for $12.659 billion. We
    can get into a discussion later, Mr. Chairman, about the offset
    with respect to the Customs fee. I agree with you that the fee
    is a difficult offset, and it is not clear to us exactly how
    this is going to work its way through. But we have had similar
    situations in the past. Somehow or other, Congress is going to
    have to deal with the fact that there is more need for non-
    defense discretionary spending than the caps allow.
        I do not know how that is going to be dealt with. We
    thought this fee was a way to try to deal with this. But I do
    not disagree with your comment that it is a very difficult way
    to go, and there may be other, better ways. My instinct is to
    think that just as happened last year, this debate will go on
    until the end of the year and then Congress and the
    Administration together are going to have to find some way to
    fund these programs.
        The thing we wanted to get on the record was the full
    program, particularly the full request for Customs, for the
    reasons that you all have discussed.
        There is also an offset from the forfeiture fund, as you
    know. The net appropriation is $12.205 billion. There are
    detailed presentations in the materials in our request. I will
    not go into those. I will comment very briefly on five items:
    reforming the Internal Revenue Service, international economic
    affairs, law enforcement, financial systems, and Y2K
    conversion.

                               IRS MODERNIZATION

        With respect to the IRS, I think under our new commissioner
    there really has been a remarkable job done on the path back,
    but that path is going to be a long path, and none of us have
    any illusions about that. There are, as you know, substantial
    mandates in the IRS Restructuring and Reform Act, which turned
    out to be a good piece of legislation. We had a lot of back and
    forth on that through its life and there were a lot of
    problems, at least in our judgment, and Senator Dorgan was very
    helpful in trying to get this into a decent place.
        I think we actually wound up with a good piece of
    legislation. But there are a lot of mandates in there and we
    have to implement those mandates, and the funding for that
    implementation plus commitments more generally to reform the
    IRS are an important part of this budget.
        There is $197 million requested for both implementation and
    other aspects of moving forward and reforming the IRS. We focus
    particularly on taxpayer protection, on improving customer
    service.
        Let me emphasize a third focus, transforming the
    organization. Charles Rossotti, our new commissioner, who is a
    businessman out of the private sector, created a new structure
    which realigns the IRS to be in accord with the taxpayer groups
    that it serves. It is our judgment that this will be a far more
    efficient and far more effective way to function, and also far
    better serve taxpayers. But it does take money to accomplish
    that.
        Secondly, the legislation requires us to have to have a
    separate Treasury inspector general for tax administration. We
    have now gone through setting that up, but that will require
    funding to carry forward with.
        Finally, there is modernizing information systems. We have
    now awarded our PRIME contract. We did that in December of
    1998. I think we now have a very effective systems management
    program in place between our assistant secretary, Nancy
    Killefer, Charles Rossotti, and the others in the IRS.
        We have requested funds for Y2K for the IRS in our budget,
    roughly $250 million as I recollect it. We did not request
    additional money this year for the modernization program
    because we have an ITA fund set up and we can use that. But we
    are requesting advance funding for next year.
        Senator Dorgan said, Mr. Chairman, that while our economy
    is doing very well, we do exist really in a global economy,
    unfortunately, of considerable uncertainty. We are the only
    major part of the global economy right now that has strong
    domestic demand-led growth.

                          DEPARTMENTAL OFFICES BUDGET

        The Treasury Department is critically involved in providing
    leadership not just for this country but really for the world
    in many ways on dealing with these issues over the last year
    and-a-half. We are asking for 14 additional FTEs in our
    international group in the departmental offices.
        What they will do is work across country lines so as to
    bring the analysis of the different countries together so that
    we can have cross-country analysis more readily available. I
    think that is a very important function. In addition, some of
    them will function like a SWAT team that can move to whatever
    issue they are most needed at a particular time.

                             CUSTOMS BUDGET REQUEST

        In terms of drugs and crime, a lot of our focus here is on
    Customs, as you have suggested. There is focus on additional x-
    ray equipment, because that is a very effective way of trying
    to deal with drugs coming into the country, and also x-ray
    equipment to deal with money laundering with cash that people
    are trying to take out of the country.
        In our Customs request we also request additional money for
    training and to focus on internal affairs and integrity, and
    there is an IG request that relates to putting more IG
    capability in the areas that Customs is most active in.

                             SECRET SERVICE AND ATF

        We have a Secret Service request that relates to the year
    2000 campaign and the need for additional protection for
    candidates, and additional security measures at the White
    House.
        Then finally, the fourth key area is the reduction of
    criminal misuse of firearms, and that basically builds on the
    work that the ATF does in preventing violent crime with
    firearms, including ATF's youth crime gun interdiction
    initiative, which is a very good program, the Brady law, and
    various and other matters.
        I would like to mention two other features of the law
    enforcement budget, if I may. Number one, ATF needs a new
    building, and the consideration here is safety. In this budget
    we have $15 million in our budget to acquire a site, and then
    the GSA budget has, I believe, $85 million, if I remember
    correctly--$83 million. That is an advance appropriation for
    next year, for 2001, so that we can get this building done.
    That is a safety----
        Senator Campbell. Will that be here in Washington?
        Secretary Rubin. Yes, it will be in D.C., and that is
    driven predominantly by safety concerns.

                               AUTOMATION ISSUES

        The other law enforcement item I would like to mention is
    the automation system within Customs. The existing automation
    system is woefully inadequate and it breaks down from time to
    time. We strongly endorse a new system, ACE, but we propose
    spending this year working to develop a sound system. We are
    going to learn from what happened to the IRS. We do not want to
    have another IRS modernization effort. We want to develop a
    sound system this year and then we will begin implementing it
    next year.
        A fourth major priority in the budget is modernizing
    governmental financial systems, and that includes the Bureau of
    Public Debt and FMS.
        Then finally, there is Y2K. We expect to have virtually all
    of our major critical systems completed by the end of March;
    that is, by the end of this month. Obviously, testing and so
    forth will lie ahead. In the year 2000 itself there will still
    be some additional work to do, and there will be testing, and
    then of course, there will be contingencies to deal with
    anything that might not be functioning correctly.
        Let me just conclude, if I may, by saying that, having been
    at Treasury now a little over four years, I think we have a
    truly remarkable group of people. I had that impression when I
    was in the White House, and even when I was in the private
    sector for that matter. But it really is a remarkable group.
    This is one, and there may well be others--I do not know. But
    this is one agency of Federal Government that really is able to
    attract extremely good people, and retain them.
        As a consequence, Mr. Chairman, Senator Dorgan, I think all
    of us can feel very comfortable about the hands into which we
    are putting the funds that are appropriated. I think the key
    for us is to continue to build on this excellence. One of the
    highest priorities that we have had is to focus on the
    management of the institution and maintain its excellence going
    forward.
        We have worked very well with this committee in the years
    that I have been Secretary. We look forward to working with you
    this year.

                               PREPARED STATEMENT

        Nancy Killefer, our assistant secretary for management, and
    I would be delighted to respond to any questions.
        [The statement follows:]
                     Prepared Statement of Robert E. Rubin
        Mr. Chairman, Senator Dorgan, and members of the Committee, I
    appreciate the opportunity to testify on the Treasury Department's
    fiscal year 2000 budget request.
        Mr. Chairman, for fiscal year 2000, Treasury is proposing a program
    level that totals $12.659 billion for all operations. This level is
    offset by $454 million from proposed fees as well as the use of
    Treasury Forfeiture Fund, resulting in a net appropriation request of
    $12.205 billion. Our request is critical to supporting Treasury's
    important and wide-ranging mission.
        As you know, the Treasury plays a key role in the core functions of
    government, including tax administration, revenue collection, law
    enforcement, financial management, tax policy, banking policy,
    international economic policy and domestic economic policy. Our budget
    supports Treasury's core current service requirements, maintaining a
    balance of restrained staffing growth with enhanced technological
    investments and capital support to strengthen Treasury's ability to
    manage its programs efficiently and effectively.
        We have provided the Committee detailed presentation materials on
    our fiscal year 2000 budget request. Let me now highlight five major
    priorities in the budget: reforming the Internal Revenue Service;
    exercising leadership in international economic affairs; strengthening
    our ability to fight drugs and crime; modernizing our financial
    systems; and Y2K conversion.
        Let me begin by discussing the IRS. Last year, Congress passed the
    IRS Restructuring and Reform Act, building on the process of reform the
    Administration began nearly four years ago. This legislation mandates
    changes to tax laws and procedures, and the modernization of IRS's
    organization and systems. In addition, in this spirit, IRS, Congress
    and the Administration have pledged to the American people to reform
    the IRS RR-3038 and give taxpayers the service they deserve and have
    come to expect from the private sector. To follow through on this
    commitment and to implement the Act, the IRS budget supports a major
    investment of $197M to meet the reform and restructuring goals.
        IRS restructuring and reform is centered on four areas.
        First, protecting the taxpayer: The Reform legislation includes
    more than 70 tax law changes to improve taxpayer protections. The Act
    also strengthens the Taxpayer Advocate's organization and has
    provisions to help ensure internal accountability and integrity.
        Second, improving customer service: The Reform Act mandates efforts
    to increase electronic filing and improve assistance to taxpayers. This
    budget supports 24 hour-7 days a week phone access, expanded walk-in
    service, enhanced service to small business, and Spanish language
    telephone assistance.
        Third, transforming the organization: The IRS has in place a new
    management team with a new mission and vision. In 1998, the IRS
    Commissioner unveiled a new IRS structure which focuses on service from
    the taxpayer's point of view. IRS will be organized around specific
    taxpayer groups, consistent with the mandates of the Reform Act. In
    addition, the Restructure and Reform legislation established the
    Treasury Inspector General for Tax Administration. The budget supports
    the independence of this organization through transfer of funding from
    the IRS, as directed by the legislation.
        Fourth, modernizing information systems: In December 1998, IRS
    awarded its PRIME systems contract for systems modernization. IRS is
    currently working in partnership with the PRIME contractor to revamp
    the systems modernization blueprint to reflect organizational changes
    and business process re-engineering. Concerning technological needs at
    the IRS, the IRS request funds the continuation of the Y2K program.
    Recognizing the difficult funding restraints present this fiscal year,
    we are also foregoing a deposit into the IRS Technology Account in
    fiscal year 2000 because we believe we have sufficient funds in this
    account to fund system modernization through fiscal year 2000. Instead,
    we are asking for an advance appropriation for fiscal year 2001 of $325
    million to continue funding for this multiple year program of systems
    modernization.
        The second major priority in the budget is to continue exercising
    leadership in international economic matters. Treasury plays a critical
    role in domestic and world economic affairs by providing expertise and
    analysis vital to formulating sound economic policy. Never has this
    role been more important than during the last year and a half, when we
    at Treasury have been enormously focused on and involved in the effort
    to restore stability and growth in countries affected by the
    international financial crisis B which in turn very much affects our
    own economic well being. To strengthen these efforts, this budget
    expands the market analysis capability in the Office of International
    Affairs.
        Our third major priority in the budget is to strengthen our ability
    to fight drugs and crime. As this committee well knows, Treasury has
    critical and extensive law enforcement responsibilities in a number of
    agencies including Customs, the Secret Service, the Bureau of Alcohol,
    Tobacco and Firearms, the IRS, FINCEN, and the Federal Law Enforcement
    Training Center.
        To strengthen these critical efforts, our budget requests moderate
    increases to support the Administration's major law enforcement policy
    emphases. Specifically, our budget is focused on four key law
    enforcement areas.
        The first key area is the reduction of trafficking, smuggling and
    use of illicit drugs. The Customs Service is committed to improving the
    efficiency and effectiveness of its drug interdiction at U.S. ports.
    This budget supports additional x-ray and telecommunications equipment
    to examine suspected drug couriers in a less intrusive and more
    effective fashion. In addition, the request of Customs, the IRS, and
    FINCEN all support efforts to combat money laundering, which often
    provides an effective means for prosecuting drug traffickers. Customs
    continues to improve its interdiction of the illicit proceeds of drug
    sales and the budget funds additional x-ray inspection equipment for
    use at border crossings to prevent the exit of drug proceeds.
        Second is the integrity of law enforcement operations. As part of
    Treasury's ongoing effort to improve law enforcement effectiveness,
    this budget supports Customs' goal of strengthening its integrity
    awareness and operational oversight activities. The Customs request
    also supports the establishment of a comprehensive education, training,
    and workforce development program which covers the entire cadre of
    Customs personnel, with a special emphasis on law enforcement
    personnel. Furthermore, this budget also supports strengthening of
    Treasury's Inspector General's investigative unit.
        Third is protection of high-level U.S. and foreign officials. The
    Secret Service continues efforts to ensure that protectees are safe
    from increasing threats of counter-terrorism. This budget supports
    protection for candidates and nominees in the 2000 campaign and
    additional security measures at the White House complex.
        The fourth key area is the reduction of the criminal misuse of
    firearms. The budget continues to build on Departmental and ATF
    initiatives started during the past two years to prevent violent
    firearms crimes, including those committed by the nation's youth. This
    efforts include expansion of ATF's Youth Crime Gun Interdiction
    Initiative; full implementation of the Brady Law; and strengthened
    efforts to investigate and help prosecute persons who illegally attempt
    to purchase firearms at gun shows and similar venues.
        Let me mention two other features of our budget related to law
    enforcement. For several years, Treasury has understood the need to
    provide a safe headquarters building for ATF employees and the budget
    supports funding in GSA for this effort. In addition, funding is also
    included in this budget to shore up Customs' current system for
    commercial processing, which is struggling to meet the needs of today's
    modern trade community. We support the need to replace Customs' aging
    system and intend to use fiscal year 2000 to develop an integrated plan
    for a new system, and then launching implementation of that plan in
    2001.
        Our fourth major priority in the budget is modernizing government
    financial systems, including re-targeting and realigning existing
    resources to meet workload changes at the Financial Management Service,
    and upgrading financial technology and systems infrastructure at the
    Bureau of Public Debt.
        The final major priority in the budget is completing system
    conversion to operate smoothly in the Year 2000.
        As the agency responsible for the distribution of most government
    payments, the collection of most government revenue, and with
    operations that affect virtually every aspect of government and the
    private sector, we at Treasury are enormously focused on the Y2K
    problem. We have made a great deal of progress; February, for example,
    marked the fifth month in a row that distribution of Social Security
    payments were Y2K compliant.
        However, there is still much to do. At Treasury, every mission
    critical system is being upgraded or replaced to ensure smooth
    operations in the year 2000. The IRS is the largest part of the date
    conversion effort. The bulk of its fiscal year 2000 activities will
    involve the completion of its data center consolidation and the last
    three months of preparation before the end of the century, including
    end-to-end system testing, as well as any contingencies that must be
    implemented to deal with potential but unexpected failures.
        I would like to bring to your attention to one final item that has
    been of great interest to the Department, and that is the North
    American Development Bank. We have been working hard to make the
    domestic window of the North American Development Bank fully
    productive, and I urge you to support this year's request.
        Mr. Chairman, let me conclude on a personal note. Throughout my
    four years as Secretary of the Treasury, I have been continually
    impressed by the intelligence, professionalism and dedication of the
    Treasury people with whom I've had the opportunity to work. I think
    this should give you and the Committee confidence in the uses that are
    being made of taxpayer's funds. In that spirit, I ask that you approve
    our fiscal year 2000 budget request to support the work of the Treasury
    Department in fulfilling its wide range of responsibilities in serving
    the American people. The Treasury Department has had a very productive
    relationship with this Committee and we look forward to working with
    you throughout this year. Thank you very much.

        Senator Campbell. Thank you. I might say from my own
    perspective, it has been difficult for the Federal Government
    to attract people of Mr. Rossotti's credentials, and yours too,
    and I have enjoyed working both of you. I have heard some
    gossip, for whatever it is worth, that sooner or later people
    go back to their private life, and you may be going to it
    sometime. I just want to tell you that we certainly wish you
    good luck whether you stay with the agency or go back to your
    private life. I think you have made the Nation a little better
    by deciding to do some public service.
        I guess it is out of the question to ask you if we can have
    that ATF building in Colorado, so let me ask you something else
    that is within----
        Secretary Rubin. We will take it under advisement, Mr.
    Chairman. You could speak to Eleanor Holmes Norton about that
    if you would like.
        Senator Campbell. Right. I understand the tug of war on new
    buildings.

                                  GUN VIOLENCE

        President Clinton announced this past weekend during his
    radio address that the Treasury and Justice Departments are
    working together on a plan to reduce gun violence, and I am
    sure all of us, on both sides of the aisle, really support the
    reduction of gun violence. Have you begun to develop the plan
    that he mentioned in his radio address, and do you envision any
    further restrictions on private gun ownership?
        Secretary Rubin. My recollection is the radio address--and
    correct me if I am wrong--focused on gun shows where I think
    they do----
        Senator Campbell. It may have.
        Secretary Rubin. I believe that there is a view that there
    is a real problem and a problem that needs to be dealt with.
    And also on minors who have a history of violence having access
    to guns. Those were, as I recollect at least, were the two
    focal points of the radio address.
        Senator Campbell. There are a lot of places where guns are
    bought and sold in America that do not come under the purview
    of many of the bills that have been passed and signed into law,
    including classified ads, in newspapers and things of that
    nature, which are private sales, and so on.
        The Project Exile in Virginia, are you familiar with that
    by any chance?
        Secretary Rubin. I am not, but----
        Senator Campbell. It is a process to utilize existing law
    to get criminals off the street that have used guns. But if you
    are not familiar with it, I will not ask any questions about
    that.

               TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

        The office of the Treasury inspector general for tax
    administration was established as part of the IRS Restructuring
    and Tax Reform Act. Many of us here on Capitol Hill applaud
    that effort, and feel it has really been a step in the right
    direction. I want to make sure that we support the new tax IG
    any way we can. We do have one concern, and that is the issue
    of overlapping responsibilities.
        Can you explain how the role and responsibilities of that
    office will relate to the Treasury IG and how are you going to
    keep them from duplicating their efforts?
        Secretary Rubin. That is a good question. As you know, we
    now have two IGs. In fact, under Nancy Killefer's aegis I met
    with the new tax IG and his top management. There are about
    1,000 people in that group. It is really a very large group. It
    almost doubles the size of the departmental office.
        In any event, what has been done is to lay out a distinct
    list of responsibilities for each of the two, the regular IG
    and the Tax IG. But, as you correctly say, some of these may
    overlap, and where they overlap they have agreed to coordinate
    and to work together to figure out how to do this right. Nancy
    can expand on that, but I think I at least am satisfied, having
    discussed this----
        Senator Campbell. Do you have some type of working group
    now to define what may be the overlap?
        Ms. Killefer. Yes, immediately after the bill we set up a
    task force to set up the new IG. It went into effect, as you
    know, in mid-January. So, a joint task force worked together
    and laid out the issues. We actually transferred many of the
    cases that were in the Treasury IG on January 18th over to the
    tax IG. They have clearly delineated responsibilities in terms
    of the handling of cases, as well as the audit function.
        I think what the Secretary refers to is that the work has
    already been done. What the Secretary is referring to is,
    invariably other issues may arise over time. The Treasury IG
    and the Tax IG are working together and have a joint meeting
    weekly to resolve any issues that may arise. We have actually
    arranged for them to be co-located in one office. It is not
    their permanent offices, but an office in the Treasury building
    to ensure that communication happens as necessary.
        Senator Campbell. With the tax IG, will people be able to
    send complaints or problems directly to them?
        Ms. Killefer. Yes.

      FISCAL YEAR 2000 IMPLICATIONS OF FISCAL YEAR 1999 EMERGENCY FUNDING

        Senator Campbell. Thank you. The Senate budget resolution
    also assumes that emergency spending programs funded by the
    fiscal year 1999 omnibus bill late last year will not continue
    unless the funding is again designated as emergency funding. As
    you are aware, the Secret Service received $80.8 million for
    antiterrorism, much of which was for additional personnel.
        The fiscal year 2000 budget for the Secret Service requests
    a continuation of $30.6 million of that amount as part of their
    base appropriations. What would be the impact to the Secret
    Service if that funding is not available as part of the fiscal
    year 2000 budget?
        Secretary Rubin. My recollection--but Secretary Killefer,
    correct me if I am wrong--is that we included $54 million, but
    we did it within the caps. So we did not do it on an emergency
    basis because we felt it was requisite to perform their
    protective functions with respect to terrorists.
        Ms. Killefer. We have included it in caps because it does
    allow for additional agents for protection in terms of
    antiterrorism and the additional threats that we are seeing.
        Secretary Rubin. But we took it out of the emergency status
    and put it in, as Secretary Killefer said, under the caps.
        Senator Campbell. Fine. By the way, I just had an
    opportunity about an hour ago to spend some time with Brian
    Stafford, the new head of the Secret Service. A very fine man
    and I commend you for having him on board. The only complaint I
    have is that you cut short his Daytona bike week vacation.
        Secretary Rubin. He was on a motorcycle down there. It
    occurred to me that you might relate to that.

                       CUSTOMS AUTOMATION AND FEE FUNDING

        Senator Campbell. Yes, that is what he told me. He had to
    leave it at the airport to fly back for his appointment.
        Mr. Secretary, the Congress has provided approximately
    $66.8 million for the Customs automation effort. As you are
    aware, there have been numerous GAO reports confirming
    Congressional concern relating to the development, the timing,
    and the cost of this project. In your fiscal year 2000 budget
    submission there is appropriated funding for the Customs
    automation effort. Instead, as I have it, you have proposed the
    enactment of a user fee to offset the program's cost.
        How does the Treasury and Customs expect to meet those
    demands if the user fee is not enacted by the authorizers?
        Secretary Rubin. Could I ask just one question, if I may,
    for clarification? Are you talking about the general fee right
    now, the $312 million fee or the ACE fee?
        Senator Campbell. Staff tells me that it is not the general
    fee.
        Secretary Rubin. You are talking about the ACE fee? I think
    we have got a very difficult problem. The ACE fee was fenced
    off for use next year.
        Let me tell you our overall approach to this. Having
    suffered through a very difficult situation which some of your
    staff are familiar with with respect to the Internal Revenue
    Service systems modernization, the conclusion, and I think
    rightly, that we drew here was that we wanted to go about this
    very carefully and make sure we had a plan that not only worked
    as a systems plan but also was congruent with the business
    needs of the Customs Service.
        That work is going on right now, and it is really a joint
    project, if you will, between the Customs people and Treasury.
    It is a Customs project, but the systems people at Treasury,
    and Assistant Secretary Killefer, are very much conversant with
    systems problem. The systems people at Treasury are working
    with the Customs people on that.
        We do not need any funding for the ACE this year, but we
    are seeking the fenced-off fee for next year. If we do not get
    it, then we are going to have to figure out some other way to
    fund this. But I do not think there is any question, zero
    question if you speak to people who are involved in trade in
    this country, cross-border trade, that the existing system is
    breaking down and we have to have a new system.
        Senator Campbell. All right. I have some other questions,
    but I know Senator Dorgan has to leave.
        Secretary Rubin. By the way, I might add, Mr. Chairman, the
    private sector is going to participate with us in developing
    this system which, number one, will give us access to their
    capabilities. And number two, it may give them more of a sense
    of investment in and ownership of the system, which might help
    get support for the funding.
        Senator Campbell. Thank you.
        Senator Dorgan.

                                CALLABLE CAPITAL

        Senator Dorgan. Mr. Chairman, thank you very much.
        Mr. Secretary, last night the U.S. House passed their
    version of the emergency supplemental, and it is critical that
    this thing get completely through Congress. We have got ag
    loans, emergency loans for producers, family farmers who need
    to get some short term loans to buy some fuel and some seed to
    get in the field this spring in just a matter of weeks. The
    Agriculture Secretary says they have got 13,000 loans--they are
    not making any loans--13,000 loan requests that are unfunded.
    Now this is critical in the next 24, 48 hours that this thing
    get done.
        Now last night the U.S. House passed their version and they
    used as an offset $648 million in reduction in callable
    capital, or the money that is set aside to guarantee loans by
    international development banks. We have an aggressive debate
    here in the Senate about whether emergency funding should be
    offset. I happen to think that it is a terrible precedent to
    set, to decide that emergency funding must be offset. We
    specifically provide in law that it need not be. But those who
    suggest it always must be, one day are going to get caught in
    an awful bind with this precedent.
        But having said all that, tell me what the impact of the
    House action would be on the $648 million they are using on
    this reduction in callable capital. Does that have
    consequences? If so, what are they?

            FINANCIAL MARKET REACTION TO CALLABLE CAPITAL RESCISSION

        Secretary Rubin. I think it does have consequences,
    Senator. I think it has very substantial potential
    consequences. It is deeply disturbing to me. I spoke this
    morning to the president of the World Bank, Jim Wolfensohn, who
    is, to say the least, at least equally disturbed. And I spoke
    to their chief financial officer, whom I knew when I was in the
    private sector, and he was in another private sector
    institution. He too is very deeply disturbed.
        The problem is that the AAA rating and the view of the
    World Bank by the underwriters and the creditors are very much
    affected by the appropriated callable capital of the United
    States. They do not look at the total callable capital. There
    is a skittishness about U.S. support for international
    institutions. So they limit their focus to the appropriated
    callable capital.
        It is the view, and it is a view I share, of several people
    I spoke to who are familiar with the financing of the World
    Bank--something that I used to do when I was in the private
    sector, or at least I did some of it--that the skittishness is
    such that even a small rescission could be viewed, and might
    well be viewed by those who provide credit, as foreshadowing a
    much larger withdrawal of appropriated callable capital. Such a
    rescission could have a substantial impact on the cost of money
    to these institutions, which in turn would adversely affect
    what they can do in the world.
        I think it is a very serious problem. We sent a letter to
    the effect that the senior advisors to the President would
    recommend a veto based on this item.
        But we agree with you about the importance of the
    supplemental, and I think the thought has really been to get
    this issue into conference, and then work and find a solution.
    We also agree with you, by the way, that the emergency should
    not be offset. In 1997, as you well said, in the balanced
    budget agreement, there was specific provision for not
    offsetting emergency funding.
        But leaving that aside, our view is to deal with this in
    conference in some acceptable fashion.

                          NO TAX RETURN FILLING SYSTEM

        Senator Dorgan. Mr. Secretary, let me talk to you just
    about two policy areas. I know we are talking about
    appropriations here, but the two policies are, first, the IRS.
    I am not going to talk to you about formulary apportionment and
    all those issues which you feel so strongly about and which I
    feel we are not doing well on.
        But let me talk to you about the area--I have introduced
    legislation in past Congress and will reintroduce it, on the
    opportunity to create a no tax return filing system. Some 30
    countries have variations of systems where you do not have to
    file an income tax return.
        Now there is a way for us to allow 70 million, 80 million
    Americans to not have to file any tax return. I have described
    it to you where when you check in at your workplace you file a
    W-4. You add about two boxes to the W-4 and it becomes a rough
    justice form of an income tax system. But you say, I am in the
    $40,000 bracket, I own a home; a couple extra checks. I have
    less than $2,500 in capital gains and interest income.
    Therefore, my withholding becomes my exact tax liability and I
    do not have to file a tax return.
        You could have 70 million to 80 million people achieve that
    form of rough justice, which would be a much better tax system,
    and have 80 million fewer tax returns, 80 million fewer people
    worrying about audits. It is a remarkable way to simplify
    dramatically the income tax system for tens of millions of
    Americans.
        I know that you are working on electronic filing down at
    the IRS. I hope you will work with me to see if we can create
    some variation of what 30 countries already have, a no tax
    return filing system, using the W-4. The fact is, we could use
    the W-4 with very few variations that would not impact
    businesses. I have met with many of the business groups and
    they do not have any heartburn about it. We could, with one
    stroke, dramatically simplify the income tax system by
    eliminating the requirement to file a return at all for some 70
    million Americans.
        Secretary Rubin. Do you know offhand, Senator, whether that
    would have a budgetary--whether on net we would collect less
    money or more money or the same?
        Senator Dorgan. Those are details. [Laughter.]
        I am talking policy, Mr. Secretary. It is a fair question.
        Secretary Rubin. But it may not have a negative effect.
        Senator Dorgan. You are right.
        Secretary Rubin. It actually sounds like a very
    constructive idea to pursue.
        Senator Dorgan. It is a fair question. You do have some
    small effect, because in order to achieve rough justice you
    would have to say there is a threshold of both capital gains
    and interest income below which you do not have to report. The
    reason for that is, if you are trying to track every penny that
    someone has in other than wage income, you cannot use a W-4 for
    a rough justice tax system and a no return filing system.
        But I was not trying to be funny. The details, obviously,
    are a little more complicated than I have described. But this
    is a very achievable system. I have talked to folks at the
    White House about it. I have talked to some of my colleagues
    about it. We could do this. If ever we had a notion that we
    could dramatically simplify the income tax system, this is one
    way to do it.

                                      IRS

        Ms. Killefer. I think one of the things that will help this
    is, when we move to what I describe as a business unit
    structure at the IRS aligned with taxpayers. What I would
    describe as the wage and income group, which are those people
    that largely receive wages from an employer that are reported,
    80 million taxpayers, will actually be a single unit. That unit
    will focus on actually how to ensure compliance, but also make
    the job easier for these taxpayers in terms of complying with
    the law.
        I think this is an important point to look at. I know a
    study is being done that was actually requested by Congress and
    we will be working with you on that. I would only point out
    that there is experience in other countries such as the U.K.
    that is not positive, where they are thinking about going back.
    There are complications to this.
        So I think it is an interesting idea. We are certainly
    desirous of making filing easier for people, and I think many
    of the electronic programs have done exactly that. But I think
    we need to be cautious about this program.
        Senator Dorgan. There are some other experiences that are
    very positive, and I think there is a way to make this----
        Secretary Rubin. The answer is we would be delighted to
    work with you in a constructive way, because if you can make it
    work it would be a terrific thing to do, as Secretary Killefer
    said, if Great Britain is pulling back, their reasons and so
    forth. But we would be delighted to work together.
        Ms. Killefer. Yes, and we are.
        Senator Dorgan. Great Britain is not a repository of
    progressive thought, as you know, in a lot of areas. But this
    is something----
        Secretary Rubin. We will pass that on to them.

                               THE TRADE DEFICIT

        Senator Dorgan. With my compliments.
        Let me just ask about one additional area, and that is
    trade. Mr. Secretary, you are in the pivotal position of
    dealing with this country's economic policy. I have always
    found it interesting, the trade deficit, which is the one dark
    spot on the horizon. It is record high, growing nearly every
    month, expected to be much higher.
        The numbers that the Washington Post reports, of course,
    really minimize it because they do, rather than the merchandise
    trade which I am much more interested in. The merchandise trade
    describes what is happening to the productive sector of our
    economy. That merchandise trade deficit is going to be probably
    what, $250 billion, $280 billion in this coming year?
        So I am wondering, some economists have said, the reason we
    have a trade deficit is because we have a fiscal policy
    deficit. That is what they used to say. And if we just balance
    the budget we will not have a trade deficit any more. Now the
    same economists are still making money downtown giving advice,
    but we have largely dealt with our fiscal policy problem and
    our trade deficit is getting worse.
        I want to ask you this question. Are you concerned about
    the size of the trade deficit? And will it continue to get
    worse? And are there things we can do to make it better?
        Secretary Rubin. I think my answer would be fourfold, if I
    may, to your three questions. I think what economists were
    saying several years ago was that if you increase the national
    savings rate then you will reduce the trade deficit. And at the
    time we had a fiscal deficit constituted Federal dissaving.
        Yes, I think that the trade deficit is sustainable for some
    period of time. You and I have had this discussion before. But
    I think over time it is clearly a problem. And the larger it
    gets, the larger that foreign claims become as a percentage of
    our economy, the more of a problem that could become.
        Having said that, I do think we can sustain it for quite
    some period of time. And at this particular moment in history,
    with respect to the global economy that you and I were
    discussing before, since we are the only part of the world's
    economy that has robust, domestic demand-led growth, I think
    what we need to do is to continue to grow, to continue to
    maintain our open markets, to work with the countries that are
    in trouble and try to help them get back out.
        Unfortunately, countries that have crises initially do have
    to export their way out. I think when people engage in unfair
    trade practices we should be enormously vigorous in using our
    trade laws. And I think that we should work with the industrial
    countries, the G-7, particularly Japan and Europe, to do
    everything we can to encourage them to do two things. Number
    one, increase domestic demand-led growth. And number two, to
    open their markets.
        The one silver lining in what I agree with you is, in a
    long run sense, a problem is that unlike the 1980s when the
    deficit was going predominantly to fund consumption, investment
    in equipment and machinery is either at record highs, or close
    to record highs as a percentage of GDP. So we are funding
    investment, and assuming that the judgments being made are
    reasonable, then the return should exceed that which we have to
    pay back.
        But your point, nevertheless, is still a valid one in the
    long run sense. I think it is a concern. But I think the
    absolutely wrong thing to do would be to close our markets as a
    result.
        Senator Dorgan. I would just observe that----
        Senator Campbell. We are getting pretty far outfield from
    this budget request.
        Senator Dorgan. I understand, but I did not ever think I
    would meet a Secretary of the Treasury in my lifetime, and
    having the opportunity----
        Senator Campbell. Now that you have him.
        Senator Dorgan. Coming from a town of 300, and having the
    opportunity to visit with him about policy is important.
        Secretary Rubin. I never thought I would meet a senator.

            CUSTOMS' TECHNOLOGY, TRADE FACILITATION, and Fee-Funding

        Senator Dorgan. Let me just ask one additional question
    about the Customs Service. Their job is a pretty awesome job,
    given the increasing global economy, the globalization of our
    economy and the amount of goods moving in and out. Are you
    pretty satisfied at this point that we have the resources that
    we need to deal with the issues confronting Treasury on the
    quantity of goods coming in, and meet their responsibilities?
        Senator Kyl asked a question that kind of related to that,
    or made a comment about that. Are you pretty confident that we
    have the resources that are required at that point?
        Secretary Rubin. Let me give you several pieces to the
    answer. One is that we do have the problem the chairman raised,
    that part of our funding this time comes from a fee that is not
    universally popular. And on the off chance that that fee is not
    enacted, we are going to have to find some other way to provide
    the funding. I think that problem, it seems to me, permeates
    the entire budget and that this is a broader appropriations
    question that is going to have to be dealt with somehow or
    another.
        There is tremendous promise in technology that is already
    being used to do things more efficiently and more effectively.
    I have actually seen, these x-ray machines at the border, both
    the coming in and the going out. So there is a lot to be gained
    there.
        Having said all that, I do think the Customs does have a
    very difficult job. What we did, the Administration functions
    on--I serve as Secretary of Treasury in terms of our budget.
    But then we have a small group around the White House, which I
    am on, that does the overall budget, and we try to make
    judgments within the constraints that we have. I think Customs
    could use more resources.
        But on the other hand, I think within the constraints we
    had, and weighing and balancing everything, the Administration
    made the best judgment they could as to how to allocate its
    very scarce resources, and that is how we came up with this
    number for Customs. But they are clearly hard-pressed. They
    have got a very strong new leader, and I think that is very
    constructive. But I agree with you, they are hard-pressed.
        Senator Dorgan. Mr. Chairman, thank you.
        Senator Campbell. Senator Kyl, I just bet you have some
    questions about Customs.

     COMPETING INTERESTS OF TRADE FACILITATION AND CONTRABAND INTERDICTION

        Senator Kyl. Yes, and it goes right to the point that
    Senator Dorgan just raised.
        In your statement, Mr. Secretary, you said the third major
    priority in the budget is to strengthen our ability to fight
    drugs and crime. The first key area is the reduction of
    trafficking, smuggling, and use of illicit drugs. The Customs
    Service is committed to improving the efficiency and
    effectiveness of its drug interdiction at U.S. ports.
        Now from fiscal year 1997 to fiscal year 1998, the number
    of inspectors in Tucson, Customs inspectors I am talking about,
    is reduced, not increased. I know that in your budget, in the
    2000 budget request to Treasury, the Customs Service requested
    506 full-time equivalent inspectors for land ports of entry.
    But OMB reduced that to zero. No increase in Customs
    inspectors.
        The wait times at the ports of entry in San Luis, south of
    Yuma, Nogales, Douglas, if we could get it down to two hours
    people would be happy. For commercial traffic, they have to
    wait overnight in many cases. Talk about an inefficiency in
    commerce.
        Then we talk about the drugs. The State Department's 1999
    international narcotics report says Mexico is the principal
    transit route for cocaine produced in South American countries.
    Estimated that 60 percent, several hundred metric tons of the
    Colombian cocaine that makes its way to the U.S. passes through
    Mexico, and it is coming in more creative ways than ever.
    Containerized cargo, commercial trucks, rail, automobiles, off-
    road vehicles, as well as the individuals.
        I could ask you why the Administration zeroed it out. You
    would answer, well, they had to balance interests. But what I
    really want to ask you is this. Do you believe that a zero
    increase in Customs agents is good policy? If not, will you
    work with us to restore the funding at least for the request of
    Customs for 506 new Customs full-time equivalent inspectors?
    And will you do so by helping us find offsets so that we do not
    have to get to the end of the year with an omnibus
    appropriation bill and fund the new programs that the
    Administration took money out of Customs and INS to fund?
        For example, there is about $600 million in new cops
    programs. Now cops are local responsibilities, and State
    responsibilities. We may have a national crime problem, but
    that is not a Federal crime problem. Whereas, the control of
    our borders is a Federal issue. We are the only ones with
    responsibility. And you have part of that responsibility with
    respect to Customs.
        So what we need is your support in restoring the funding
    and finding the offsets in other requests that the
    Administration has made. There are about three major questions
    in there, and I will engage you in a dialogue on them.

            ALTERNATE APPROACHES TO FUNDING SUFFICIENCY FOR CUSTOMS

        Secretary Rubin. Let me see if I can pick them up in
    response. I do think that Customs, if the resources were
    available, could use additional resources very effectively.
        I do think the Administration made very difficult judgments
    in choosing amongst different possible uses of resources, and
    we could disagree about them. I was part of the group that was
    originally involved in the 100,000 new cops decision. It seemed
    to me a very sensible decision. Law enforcement people seemed
    to think it was a very useful addition.
        Senator Kyl. I supported that original program.
        Secretary Rubin. Yes, it was a good program. So then the
    question is, do you continue this in the manner we just
    described or do you allocate the resources someplace else; for
    example, Customs. I personally think we made a pretty sensible
    decision myself.
        I think we are going to come out, Senator--this is my view
    and time will tell whether it is right or it is wrong. I think
    across the whole budget you find similar kinds of problems. The
    non-defense discretionary part of the budget is a part of the
    budget that has very little political appeal to people. It is
    the part of the budget that people very often will most quickly
    diminish in order to accomplish various other purposes. But as
    your comments made clear, and I think you are absolutely right,
    it is a part of the budget that serves the American people very
    well.
        I think what is going to happen at the end of the year is
    in some fashion or other, the Congress and the Administration
    working together are going to have to find more resources for
    the non-defense discretionary area. That is my view.

                         LAW ENFORCEMENT POLICY CHOICES

        Senator Kyl. Here is the point. The Administration created
    new programs. This $600 million is a new program. And part of
    the reason for it was that there were reports that some police
    reports had some ethical problems, some public relations--well,
    they were more than public relations. They were not treating
    people properly, for example. And the President said, we need
    more police training to ensure that people's civil rights are
    not degraded in any way by our law enforcement.
        Now at the border we have Customs agents who are harried
    from the moment they take their station to the moment they
    leave. They have an impossible job to do, and frankly, a lot of
    them get frustrated and I hear stories from my constituents who
    say they got harassed. I hear a lot more reports of harassment
    by Customs agents than I do of local police in Arizona.
        So if we are going to pay attention to harassment of
    people, and if we are going to try to increase, as you said,
    our ability to fight drugs and crime--and we know that they are
    coming across the border. And if--and I know you share this
    goal--we are going to try to enhance our commercial
    opportunities, it is absolutely impossible to do all of those
    things without an increase in Customs agents.
        So I am stunned by your comment that you agree with the
    Administration's decision to have zero increase in Customs
    agents, and that you think it is better to balance these needs
    by having Federal dollars go to local cops programs, and that
    you support that Administration decision. I am stunned by that,
    given your responsibilities to protect the border, to enhance
    trade, and to prevent drugs coming in.
        Secretary Rubin. Senator, I take very, very seriously our
    responsibilities with respect to Customs and we have, I think,
    done a great deal to try to make Customs a stronger
    institution. I might have--I will get to the last piece of your
    question in a second. And I might point particularly in this
    budget to the places we most need help. We need to have the x-
    ray technology because that is a more efficient way of doing--
    --
        Senator Kyl. I am going to get to that in just a minute. I
    agree with you.
        Secretary Rubin. And we need to have it going in both
    directions. We also need to have additional resources to deal
    with training and internal affairs, because these are both
    issues in which there are difficulties in Customs.
        I would very much like to see Customs get additional
    resources. But I think within the existing caps you do get
    competing priorities, and one has to make a judgment. These are
    the judgments the Administration made. You may disagree with
    them. You may be right, you may be wrong.
        I think, as I said a moment ago, that that is not where the
    debate--at least in my opinion, that is not where the debate is
    going to end because I think the Nation needs more in terms of
    the kinds of services that get covered in the non-defense
    discretionary part of the budget and that a budget allows. So I
    think somehow or other, just as we did last year, this year
    there is going to have to be some way of dealing with that at
    the end of the year. At that point, it seems to me, we can
    address the kinds of issues that you are raising.
        Senator Kyl. I will just say it one more time. I think the
    time to address it is in the budget. Now it is true that----
        Secretary Rubin. I agree you need to deal with it in the
    budget. I just do not think that these caps can be the way this
    budget ultimately gets resolved.

             TREASURY RESPONSIBILITY FOR BORDER ENFORCEMENT ISSUES

        Senator Kyl. I agree with you that reasonable people can
    differ about where to put the money and how to create the
    budget. But you have the responsibility on the border, and that
    is why I am stunned that--and you have a tremendous amount of
    authority in this Administration and influence. You are deemed
    to have successfully presided over a department and been
    responsible for successful--been part of our successful
    monetary and economic and trade policy. So I am just greatly
    disappointed that you are not acting as an advocate here.
        Secretary Rubin. Do not misunderstand me, Senator. Within
    the debates within the Administration, I am, and we are, very
    strong advocates for----
        Senator Kyl. Well, you got zero. You requested 506 and you
    got zero.

                      PURPOSE OF CUSTOMS FUNDING INCREASE

        Secretary Rubin. No, I think we had about a 5 percent
    increase in funding, did we not?
        Senator Kyl. I am not talking about overall funding, I am
    talking about for Customs.
        Secretary Rubin. No, in Customs we had about a 5 percent
    increase.
        Senator Kyl. I am talking about for Customs agents.
        Ms. Killefer. Not agents; funding.
        Secretary Rubin. They are not agents. We decided to use the
    money for technology and other things. That is another debate.
        Senator Kyl. How many new x-ray machines are going to be
    put on the border in the Tucson sector as a result of the
    funding?
        Secretary Rubin. I do not know. Do you know, Nancy?
        Senator Kyl. What is the request?
        Ms. Killefer. No. As you know, Nogales has just put in
    theirs. I have been down and visited and I know what you are
    talking about. I think about 8 x-ray systems are going to the
    Arizona border.
        Senator Kyl. But the point is that x-ray machines--I mean,
    I would love to see new x-ray machines in San Luis and Douglas
    as well as a sufficient number in Nogales. It is fine to have
    more x-ray machines because there are new, unique ways of
    bringing this stuff in, and you need the handheld units as
    well. I mean, all of these things are very useful.
        But you need people to operate them. And it is unacceptable
    to have two-hour lines as the norm, to have overnight stays for
    commercial truck traffic. This is an emergency situation. Even
    if we put in money right now, we could add 500 Customs agents a
    year for five years and still not have enough. That is why I am
    just so disappointed that essentially your answer is, you think
    you would like to have more resources too and maybe at the end
    of the year we will all agree to a big omnibus bill
    appropriation bill so we can fund everything.

    GOVERNMENT-WIDE COMPETITION AMONG MERITORIOUS PROPOSALS WITHIN FUNDING
                                      CAPS

        Secretary Rubin. No, that is not my answer, Senator. No,
    that was not my answer. My answer is that I think the Customs
    could very effectively use additional resources. When we have
    our discussions within the Administration we are very strong
    advocates for Customs and I think we have been very effective
    advocates for Customs. In a budget that overall has very little
    room we are increasing funding for Customs by about 5 percent.
    I think within Customs you can argue what the money should be
    used for.
        What I said was, and I do believe it is the case, that the
    Customs instance is a good example, and there are large numbers
    of similar instances all over the Government, of various
    important public needs of the kind that you have identified
    that cannot be met within these caps. That is why I believe
    that in the final analysis when this all gets resolved, as we
    did last year, something is going to have to be done so that
    the non-defense discretionary part of the budget has funds in
    addition to those that are permitted by these caps. That is my
    view.
        I can assure you that in that context we will continue to
    be very strong advocates, if that happens, to make sure the
    Customs is appropriately treated at that time.
        Senator Kyl. Mr. Chairman, what we have here is a budget in
    which Customs asked for 506 new Customs agents. You have the
    department saying one of their top priorities is to improve the
    drug interdiction at the border as well as--you did not say it
    but I am sure you would add the commercial needs at the border
    as well. We all agree on that. Yet when the budget comes out it
    has zero money for new Customs agents.
        I have been trying to get the Secretary to say he will help
    us fight for that. I do not have a specific answer, but we have
    a general answer that by the end of the year there will be more
    money for everything, and therefore, we will not have to make
    difficult offsets, I guess.
        Secretary Rubin. No, that was not my answer. Let me, just
    to characterize my own answer. My answer was that you have
    identified a very important public need. This was weighed and
    balanced against a lot of other important needs. We were
    extremely strong advocates for Customs within our budget
    process.
        When I then changed hats from the advocate for Customs to
    part of this small group in the Administration that does make
    the ultimate decisions about budgets, I was part of the group
    that arrived at these decisions and all of us support the
    decisions that the Administration made.
        I think that the public needs that are not met within the
    current caps are such that at some point there is going to have
    to be, just as there was last year, some way to find additional
    resources to meet public needs. And I would, once again, be an
    extremely strong advocate for Customs sharing appropriately in
    those funds because I think what you said is absolutely
    correct.

                         COST OF 500 NEW CUSTOMS AGENTS

        Senator Kyl. Just one more. Do you have an idea off the top
    of your head about how much it would cost? Is it about $50
    million for 500 new Customs agents?
        Secretary Rubin. The $50 million for 500 agents comes out
    to $100,000 agent. The cost per agent in the first year is
    closer to $130,000 when you consider the equipment and other
    items required to support an agent. If 500 agents came on the
    rolls, the cost in the first year would be approximately $65
    million.
        Ms. Killefer. The $130,000 figure is an all inclusive
    figure for the agent. 500 additional agents would require some
    additional support personnel and additional supervisory
    personnel.
        Senator Kyl. Thank you.
        Senator Campbell. Let me defer to the chairman of the full
    committee. Did you have any statement or any questions?
        Senator Stevens. I do not want to interrupt the process.
        Senator Campbell. Go ahead.

                       INTERNATIONAL--OFFSETS AND OUTLAYS

        Senator Stevens. I am concerned, Mr. Secretary, as I am
    sure you are, about the overall process that we are going
    through right now in terms of offsets for the emergency bill. I
    think that has a lot to do with the end game that you were
    talking about with the senator from Arizona. I would be pleased
    to have your comments before we go to conference on some of the
    items that are in that bill.
        There is no question that the House has targeted some of
    the IMF funds and other funds. I am going to have a meeting
    with Mr. Griffin, and the head of CBO, and Senator Gramm this
    afternoon to go over the principles involved in that bill.
        The difficulty is that we have a series of senators who
    believe that when we reprogram emergency money for expenditure
    in the same year that there has to be reanalysis of the outlays
    of the expenditures on the program to which the funds are
    transferred. There was no analysis in the first instance of the
    funds as they were appropriated. Both outlays and budget
    authority were outside the confines of the budget process and
    therefore, deemed an emergency, approved by the President as
    well as the Congress as an emergency.
        And now that we want to reuse them within the same year for
    another prospect, they say that we must now take into account
    the outlay scoring. That is what really has led us into the
    quagmire we are in now, because we have one amendment that cuts
    $2.9 billion off the omnibus bill of last year. It has the
    unfortunate consequence of having such a large offset that all
    these other amendments were offset, so I could not oppose them.
    We were taking a lot of things to conference that would
    otherwise not be in conference because of that one amendment.
        But I do need your guidance in terms of some of those
    monies. It may be that some of those monies will not be
    obligated this year. And if they are not going to be obligated,
    our deferral is just the same as a total offset. We can defer
    funds to the next fiscal year, or even the following fiscal
    year if it is possible. I do not know what the obligation rates
    might be in terms of some of those funds, and I would seek your
    assistance before we go to conference on how the outlay problem
    affects your monies.
        Secretary Rubin. I cannot give you an answer offhand, but
    we can certainly have somebody take a look at it and I will
    continue to work with you to reach a solution in conference.
    But which offsets are you thinking of specifically, Mr.
    Chairman?
        Senator Stevens. IMF and those accounts that they just
    offset last night.

                   DEFERRAL OF CALLABLE CAPITAL AVAILABILITY

        Secretary Rubin. You are talking about the callable capital
    issue?
        Senator Stevens. Yes.
        Secretary Rubin. Let me say, Mr. Chairman, if I may--and I
    think you and I briefly discussed that--I think that is an
    enormously serious problem and it goes much beyond the money
    that----
        Senator Stevens. I understand that, and I agree with you.
        Secretary Rubin. But there is no outlay.
        Senator Stevens. What is the effect then of saying there
    cannot be an outlay until October 1? Up here they score it.
    This is a problem of scoring on the chart. What is the effect
    of saying--they offset it by saying, we are going to cut that
    amount. What is the effect if I just changed that and say, you
    cannot change it--in any event, you cannot spend it until
    October 1?
        Secretary Rubin. I understand. In other words, instead of
    rescinding the BA, you would say we will defer it, the
    appropriated callable capital, so it cannot be used until
    October 1.
        Senator Stevens. That way there could be no outlays, and
    that way it is an offset.
        Secretary Rubin. I understand the question. I think it
    raises roughly the same problem that you had--in fact, really
    just about the identical twin of the problem you have right
    now. The problem that you have in the World Bank the other
    multilateral development banks is that there is a serious
    skittishness. I spoke to President Wolfensohn about it this
    morning, actually. There is a serious skittishness amongst
    underwriters, creditors, and to some extent, the rating
    agencies with respect to American commitment to the
    institutions, rightly or wrongly, based on the length of time
    it took to get the IMF funding, and the fact that we are still
    in serious arrears to the United Nations.
        And the concern that the financial officials at the World
    Bank have--and I have spoken to a few of the people in the
    financial community so I think this is a valid concern--is that
    any sort of a rescission or a withdrawal--and I understand you
    are talking about a deferral rather than a rescission, or I
    guess it is technically a deferral de facto rather than a
    rescission--I think anything that looks like we may be pulling
    back could have--I am not saying it necessarily would have, but
    I think could have, Mr. Chairman, a very serious negative
    impact on these institutions in terms of their ability to raise
    money.
        The concern that I had when I first heard about this, which
    I guess was two weeks ago or thereabouts, was that if members
    of Congress felt that there was some $12 billion, which is the
    total amount--$12 billion of appropriated callable capital out
    there that was easier to use because very few people support or
    understand the importance of these multilateral development
    banks--I know you do because we have discussed it a lot, but
    very few people do--that there might be a tendency to look much
    beyond just the $600 million or $700 million that the House was
    looking for.
        Senator Stevens. I understand what you are saying, but----
        Secretary Rubin. I think the deferral would have an effect
    not very different than the rescission, because I think people
    would be afraid that if you defer it once----
        The glitch here in using callable capital as an offset is
    not in terms of budget authority, it is in outlays. There are
    no outlays. In terms of needing offsets, we just have a
    tremendous problem this year and probably next year, and then
    the pressure is gone.
        But I think the problem that you are going to run into with
    the deferral approach, Mr. Chairman--or I should say, we are
    going to run into, we being the world--is that if we do this I
    think that it is then going to resubject us to a congressional
    process, even though it is a deferral to a date certain. After
    all, access to the callable capital could be then deferred
    again. I think the effects would be not very different from----
        Senator Stevens. There may be some other funds that are
    there that have already been appropriated that are not going to
    be used this fiscal year, if there is any at all that you can
    identify that we could put behind a wall to defer until October
    1st it would have the same effect.

                      OTHER OFFSET OPTIONS TO BE EXPLORED

        Secretary Rubin. Let me say this. I know, because I have
    talked to Jack Lew about this a lot of times, and you know this
    because you have spoken to him a lot too. In fact, I was with
    him this morning. OMB is very intently focused on trying to see
    what they can do once they get to conference. I would very
    strongly urge----
        Senator Stevens. They are very innovative right now, I know
    that.
        Secretary Rubin. Well, the innovativeness----
        Senator Stevens. I am having a hard time finding some of
    the money they say I have got to spend.
        Well, I do look forward to working with you on that. I am
    constrained to say I think it might be better to talk about
    some of these things around the 4th of July when the chairman
    here and I try to do a little marine research up our way. Maybe
    you ought to come join us.
        Secretary Rubin. Are you going fishing?
        Senator Stevens. Yes. We will talk about that later.
        Secretary Rubin. There is a thought, Mr. Chairman, that is
    worthy of consideration. [Laughter.]
        Senator Stevens. Nice to see you. And I am anxious to say
    hello to your colleague. Your last name, Killefer, is the same
    as one of my great friends for a long, long time. So I need to
    find out where you are from.
        But I thank you very much, Mr. Chairman.
        Senator Campbell. Thank you.

           JUSTIFICATION FOR ADDING POSITIONS TO DEPARTMENTAL OFFICES

        Mr. Secretary, the Congress, funded 47 new positions within
    main Treasury during the last fiscal year, and this year you
    are asking for 18 more. Will this meet your goals for fiscal
    year 2000? And what is the status of those positions, the ones
    last year and this year? What are they doing, the 47 you asked
    for last year?
        Secretary Rubin. The 47 I think became 33 on a full-time--
    --
        Senator Campbell. Say that again.
        Secretary Rubin. I think on a full-time basis there are
    about 33 or so. I can give you the answer on the 18. I do not
    know the answer on the 47 or 33, whichever you call it.
        Ms. Killefer. I want to thank you for supporting us last
    year. The positions we requested last year actually ranged
    across the department to address a variety of needs. Based on
    what you did for us last year we were able to allocate those
    out to the offices and they are now in the process of hiring to
    fill those positions.
        What we are asking for this year, as opposed to last year,
    which really put us in reasonable shape, is a very targeted
    request for international affairs and four people in tax policy
    for e-commerce issues. We have some requirements in
    International Affairs that are country-specific. There was a
    whole range of need last year and they are in the process of
    hiring.
        Senator Campbell. The second part of my question, is this
    going to meet your current needs, the 18 that you need?
        Secretary Rubin. Yes; 14 of them, as I mentioned before,
    will be in the international area, and they will do the cross-
    border stuff, plus there will be a SWAT team. The other four
    will be in tax policy, and that is really predominantly--or
    maybe, I think, totally--for this electronic commerce
    initiative.
        It will meet our needs, given that we define our needs in a
    very constrained fashion because of the caps we are operating
    under.
        Ms. Killefer. I must say, people had many more requests
    than this. These are the critical requests that we narrowed it
    down to.

               EFFECT OF HIGHER PAY RAISE ON PERSONNEL RETENTION

        Senator Campbell. At one of our other hearings a week or
    two ago we heard some testimony that there is some problem with
    retention in some of the agencies within Treasury such as
    Customs and I wanted to ask you a little bit about that. The
    budget resolution is currently working its way through the
    Senate this week and it assumes that the historic pay parity
    between Federal and civilian and uniformed military employees
    will be maintained, and that any increase over 4.4 percent
    provided in the President's budget would be absorbed within
    existing budgets.
        Assuming that the uniformed military receives a 4.8 percent
    increase in their pay--that is in the defense authorization
    bill which passed the Senate--what would be the impact of the
    pay parity on Treasury agents? Would that help your retention
    problem?
        Secretary Rubin. I imagine if you have a larger increase, I
    presume any larger increase would help retention. The problem
    is it costs us about $24 million, and we do not have an ability
    to absorb that. So somebody is going to have to find some money
    to pay for it.

                       CDFI-Native American Lending Study

        Senator Campbell. Let me ask you a question that was
    submitted by one of my other committees, Indian Affairs, that
    deals with the Community Development Financial Institutions
    Act.
        Secretary Rubin. CDFI, yes.
        Senator Campbell. The requirement of the Department to
    study the barriers to lending and capital development in Indian
    country. Do you know what the status of that effort is?
        Secretary Rubin. Yes, I do, Mr. Chairman. The CDFI program
    is a terrific program. It really is, and something that was
    started about--it was put in place about three or four years
    ago. It is up and running. It is providing capital to
    distressed areas across the country. And unlike much of what is
    done in the Government, we are even now trying to evaluate the
    results so that we can determine how effective it is and make
    course corrections if need be.
        We either have two or three--Secretary Killefer advises me
    it is two. We have two full-time people now at CDFI who are
    focused on the exact question you are raising, barriers to
    lending in Indian territories.
        Senator Campbell. I know that CDFI is very important to
    Senator Dorgan's State as well as in Indian country, so could
    you give the committee a written report on what progress they
    are making, what they are doing, if you would?
        Secretary Rubin. We will absolutely do so.
        [The information follows:]
         Progress Report on the CDFI Fund Native American Lending Study
        Congress directed the CDFI Fund under the Riegle Community
    Development and Regulatory Improvement Act of 1994, Public Law 103-325
    to conduct a study on lending and investment practices on Indian
    reservations and other land held in trust by the United States.
        The components of the study were to:
      --Identify the barriers to private financing;
      --Identify the impact of such barriers on access to capital and
            credit for Native American populations;
      --Make recommendations with respect to any necessary statutory and
            regulatory changes to existing Federal programs;
      --Make policy recommendations for community development financial
            institutions, insured depository institutions, secondary market
            institutions, and private sector capital institutions; and
      --Submit a final report to the President and Congress.
    CDFI FUND PROCESS
        To assist in completing the study, the Fund has incorporated a
    strategy and action plan process to address key financing issues as
    defined by the local community. This plan will be developed through 13
    regional workshops.
    PARTICIPANTS
        At each workshop, Tribal leaders, Tribal economic development
    professionals, U.S. government officials (federal financial supervisory
    agencies, other federal agencies, secondary market organizations),
    commercial banking organizations, and state agencies will identify
    barriers to private financing, and describe the impact of such barriers
    on access to capital and credit. In addition, the participants will
    create strategies and actions to address these barriers.
    SCHEDULE
        The workshops will:
      --Be conducted over a six-month period starting in mid-March 1999
      --Be held in 13 locations in the continental U.S., Alaska, and Hawaii
    PROGRESS TO DATE
        The CDFI Fund has hired two full-time experts in economic
    development in Native American communities to design and conduct the
    lending study. As noted above, the lending study has incorporated a
    workshop process to assist in accessing local and regional information
    concerning the barriers to lending in Native American communities. Two
    workshops have been conducted in Seattle, Washington and Phoenix,
    Arizona. The next scheduled workshops will be in Albuquerque, New
    Mexico on April 28-29, 1999 and in Reno, Nevada on May 12-13, 1999. The
    response by local participants has been very good. At this point, we
    have just begun to collect data and have not arrived at any study
    conclusions. After all the workshops have been conducted, the data
    collected will be synthesized and included in recommendations in the
    final report.
        As the Fund conducts the lending study, it is anticipated that the
    following outcomes will be accomplished:
      --Through the workshop process, the Fund will be working closely with
            local organizations seeking their recommendations and adding
            value to their initiatives.
      --The Study/Action Plan process will provide a vehicle to elevate
            local concerns to the National policy arena.
      --The Study/Action Plan process will integrate local recommendations
            and ideas into a National strategy to expand lending and
            investment in Native American communities.

        Senator Campbell. All right, I appreciate that. The
    remaining few questions I have, I am going to submit to you in
    writing, if you would get back to me on those.
        Secretary Rubin. Thank you, Mr. Chairman.

                    FUNDING PRIORITIES WITHIN SPENDING CAPS

        Senator Campbell. Senator Dorgan, do you have any
    additional questions?
        Senator Dorgan. Mr. Chairman, I waited to make a comment. I
    was hoping my colleague Senator Kyl would stay. I frankly would
    have been stunned if you had come to this committee and not
    supported the President's budget. I am sure he was tongue in
    cheek saying he was stunned that you would not somehow be
    critical of the budget. But he could not be stunned by that.
        The point you made about caps is an important point. The
    priorities that we determine important are going to have to be
    fitting in some set of circumstances, given all the other needs
    and all the other interests that we have. The budget is on the
    floor right now, and I was hoping to say to my colleague that
    my understanding is the budget resolution on the floor right
    now provides $1.5 billion less for fiscal year 2000 than fiscal
    year 1999. So the place to take this case is right to the floor
    right now.
        The budget resolution contains $400-some million for
    courthouses that the Administration did not ask for. So the
    place to go get the $400-some million--if one says, my priority
    is Customs officers to deal with these issues, go get the $400-
    some million from courthouses that are stuck in this budget
    resolution, build back the number a bit, and put it into
    Customs.
        The question of priorities is a function of the
    Administration budget, yes. And I respect you waged a fight and
    lost it in the Administration. Nothing wrong with that. But I
    would be surprised if you would come up here and trash the
    Administration budget. That is not what you are hired to do.
        But the place to resolve these issues is to go over to the
    floor and deal with the budget resolution that now exists in
    which Congress says, not only are we not going to give you more
    Customs agents, we are going to take $1.5 billion out of your
    hide and we are going to build $400-some million worth of
    courthouses to boot at the same time. So I would just say to
    all my colleagues, if you have a problem with the priorities
    here, rush to the floor right now. This is the time. This is
    the moment; 24 hours remain before we finish this budget bill
    and now is the time to go take that case and see what one's
    colleagues would say about it.
        I would say to you, Mr. Secretary, keep waging the fight.
    You win some and lose some, I am sure. But I am not stunned
    that you would not come to this table and be critical of the
    President's budget. You are part of that team and I assume you
    come to support a budget that was put together with your input.
        Secretary Rubin. Might lose my year-end bonus. [Laughter.]
        Senator Dorgan. But let me just finish by saying, Senator
    Kyl's points are passionate and important. All of us would like
    to see more resources. But the fact is, you cannot add $100-
    some billion to defense and say, by the way, we are going to
    hold the caps where they are, and we are going to take it out
    of the hide of the rest of the discretionary programs. That is
    not going to work. This is all going to come to a screeching
    halt at some point.
        The question of priorities is going to force a choice for
    every single one of us. Do you want it all? If you want it all,
    then the caps are going to have to change somehow. But you
    cannot say, let us keep the caps because we are fiscal
    conservatives, let us increase defense and say that we want
    more Customs agents, and then also stick something in to build
    $500 million worth of courthouses.
        All that does not add up. Somehow, something is going to
    give. And I think I agree with you, later this year the forced
    reconciliation between our wants and needs, and the resources
    that exist to satisfy those, are going to come crashing down on
    us and we are going to have to figure out a way all of us,
    Republicans, Democrats, to reconcile the current circumstance
    that we find ourselves in.
        Secretary Rubin. Senator, I agree with what you said. I
    actually think you could be a very serious fiscal
    conservative--not fiscal conservative, but very seriously
    focused on fiscal responsibility, as I know you have, and still
    believe that while this should be capped, these caps simply are
    not going to--are not the right balance between fiscal
    responsibility and the needs of the public. And as you say, the
    budget resolution that is pending right now would substantially
    reduce discretionary spending, so it takes it in exactly the
    wrong direction.
        Senator Dorgan. Thank you, Mr. Secretary.
        Senator Campbell. Thank you, Mr. Secretary. Speaking of
    courthouses, if I am not mistaken, two are in North Dakota and
    one in Colorado. [Laughter.]
        Senator Dorgan. Let the record show that the only
    courthouse in America that has been built in a manner in which
    the senator from that State required that half of the money be
    cut out was built in Fargo. A $46 million courthouse was cut in
    half because I insisted that $46 million was about twice as
    much money than ought to be spent, and I cut the appropriation
    from $46 million to $23 million, and made a lot of people
    unhappy. Now they have a wonderful $21 million courthouse, and
    I have no idea what they would have done with the other $23
    million had I let them spend it.
        But I truly am a conservative when it comes to those
    issues, even in my home State.
        Senator Campbell. He surely is. He is not much fun, but he
    is a conservative. [Laughter.]
        Senator Dorgan. It was therapy to be able to say that, Mr.
    Chairman.

                              SUBMITTED QUESTIONS

        Senator Campbell. Good, and for the record now, too.
        Mr. Secretary, we have additional questions for the
    Department and we would ask that you respond as quickly as
    possible.
        [The following questions were not asked at the hearing, but
    were submitted to the Department for response subsequent to the
    hearing:]
                           Department of the Treasury
                    Questions Submitted by Senator Campbell
                                   year 2000
        Question. The Office of Management and Budget has just released the
    latest quarterly report to Congress on efforts to address Year 2000
    (Uk) computer conversion issues. According to MOB, the Department of
    the Treasury is still listed in Tier Two--making progress but there are
    still concerns.
        While the Department is making good progress in some areas, and
    most bureaus have achieved compliance, concern was expressed about the
    IRS and the Financial Management Service. What are you doing to make
    sure that these agencies are ready?
        Answer. The Department has been closely monitoring the Year 2000
    progress of these Treasury bureaus. Treasury maintains ongoing, daily
    communications with them from the Executive levels through the Year
    2000 Program Offices and staffs. For example, the Assistant Secretary
    for Management and Chief Financial Officer, and two Deputy Assistant
    Secretaries including the Chief Information Officer, participate in the
    monthly Year 2000 executive sessions chaired by Commissioner Rossotti.
    The Department coordinates with FM to facilitate addressing external
    interface requirements and cross cutting revenue issues. Treasury is
    confident that these bureaus will be prepared to continue providing
    uninterrupted services in the Year 2000 and beyond.
        Question. Concern was also expressed that there be a Department-
    wide business continuity and contingency plan. What is the status of
    that plan?
        Answer. Each bureau is developing Year 2000 Business Continuity and
    Contingency Plans (BCCP) consistent with guidelines issued by the
    General Accounting Office (GAO). The Departmental Offices (DO) BCCP
    will address unified or Department-wide Year 2000 continuity and
    contingency planning. The DO BCCP will also encompass bureau issues and
    provide the linkages required with the bureau plans. Working drafts of
    the DO BCCP have been developed, and the final plan is scheduled to be
    completed by the end of May. The BCCP is being developed by the
    Department's Office of Emergency Preparedness and Automated Systems
    Division in conjunction with the Treasury Year 2000 Program Office and
    the bureaus.
                              reduce gun violence
        Question. President Clinton announced over the weekend that he has
    instructed the Departments of Treasury and Justice to work together to
    develop a plan to reduce gun violence. He specifically mentioned
    ``Project Exile,'' a program in Richmond, Virginia designed to
    prosecute those who use firearms in the commission of a crime under the
    most stringent laws, usually ATF Federal statutes, in order to get
    violent offenders off the streets.
        Have you begun developing that plan?
        Answer. Yes. ATF is working with Treasury Under Secretary James
    Johnson and the Department of Justice to develop documents that will go
    to ATF Division Directors and United States Attorneys. These documents
    will direct these officials to develop plans tailored to the firearms
    violence problems in their geographic areas.
        Question. Do you envision recommending further restrictions on gun
    ownership?
        Answer. No. This initiative involves the development and refinement
    of strategies to enforce current law. However, the President has made a
    number of legislative proposals to deal with the unauthorized access to
    firearms by youth. One of these proposals would ban the possession of
    semi-automatic assault weapons by anyone under 21 and raise the age of
    the youth handgun ban from 18 to 21.
        Question. How much emphasis will be placed on utilizing existing
    law to get criminals off the streets much like ``Project Exile?''
        Answer. The thrust of the initiative is to have local ATF
    officials, working with their United States Attorney, as well as State
    and local officials, develop strategies appropriate to the problems of
    the area. Project Exile might be appropriate in Richmond but in other
    areas another approach might be best. In all cases the use of existing
    laws to get criminals off the streets will be the overall goal.
        There is a continuing interest in having ATF get more involved in
    making sure that the rightful, legal owner of a stolen registered
    firearm is notified when that weapon has been recovered. As you know,
    last year the Senate report directed ATF to work with State and local
    law enforcement to ensure that the legitimate owner has been notified
    when the firearm turns up.
                         electronic funds transfer act
        Question. The Electronic Funds Transfer Act requires that by 2000
    all Federal payments are to be made electronically, and so the
    recipients must have a bank account or a designated agent to receive
    the funds. The Act allows for waivers for Native Americans--is it the
    Administration's policy to simply provide these waivers and not work to
    make sure Indians have access to banking services?
        Answer. The Debt Collection Improvement Act of 1996 requires that
    most Federal payments be made electronically by January 1, 1999,
    subject to waivers granted by the Secretary of the Treasury. A hardship
    waiver is available to any individual who receives a Federal payment
    and determines that payment by electronic funds transfer would impose a
    hardship due to a physical or mental disability or a geographic,
    language, or literacy barrier or would impose a financial hardship.
    Treasury's EFT rule also establishes that any Federal benefit payment
    recipient is eligible to open an ETA (electronic transfer account) at
    any Federally-insured financial institution that offers ETAs. The ETA
    will be made available to maximize opportunities for Native Americans
    and other persons receiving Federal payments electronically to have
    access to an account at reasonable cost and with the same consumer
    protections as other account holders. Treasury believes that financial
    institutions of all sizes will likely offer the account--including
    financial institutions that serve Native Americans.
        Secretary Rubin is committed to helping transition Native Americans
    and other persons without an account at a financial institution into
    the financial services mainstream. Treasury considers the ETA to be a
    critical stepping stone to more full service banking relationships and
    will conduct a comprehensive ETA public education and outreach program
    targeted at key constituencies, including Native Americans.
                                southwest border
        Question. The Southwest Border of the United States is where a lot
    of illegal drugs and illegal immigrants cross our borders. Is there any
    Federal-Tribal-State coordinated effort to join forces and resources to
    create a seamless border?
        Answer. Yes. The Border Area Narcotics Network (BANN) is a task
    force headquartered in Sells, Arizona, on the Tohono O'Odham Nation.
    Participants include Customs; the Tohono O'Odham Tribal Council,
    Department of Public Safety, and police; DEA; and Arizona state law
    enforcement officers. The task force works to investigate and control
    smuggling along the 150-mile long Tohono O'Odham Nation-Mexico border,
    and engages in coordinated law enforcement and community outreach
    throughout the Nation's lands.
        BANN is but one example of multi-agency coordination in drug
    interdiction and enforcement activities along our border with Mexico.
    The two principal agencies responsible for drug interdiction, however,
    are the U.S. Customs Service and the U.S. Border Patrol. Coordination
    among the various organizations involved in drug interdiction is
    accomplished through the multi-agency Operation Alliance, the regional
    High Intensity Drug Trafficking Areas (HIDTA), several Organized Crime
    Drug Enforcement task Forces (OCDETF), and the joint Customs-Border
    Patrol Border Coordination Initiative (BCI).
        Under Operation Alliance, the HIDTAs, and the OCDETFs, several
    multi-agency multi-jurisdictional task forces which include state and
    local agency representation cooperate to ensure that agencies work
    together on major investigations, coordinate and deconflict enforcement
    operations, and share intelligence and resources.
        In August 1998, the Departments of Treasury and Justice established
    the BCI. BCI is a strategic plan to coordinate efforts between INS and
    Customs to increase cooperation along the Southwest border to interdict
    drugs, illegal aliens, and other contraband. BCI is a commitment from
    INS and Customs to create a seamless process at and between the border
    ports of entry by building a comprehensive, integrated border
    management system that effectively achieves the mission of each agency.
    This includes intelligence sharing, integrated communications, joint
    air and maritime support, and joint enforcement operations. The 24 BCI
    Field Areas along the border are linked to each other, as well as to
    other federal, state, and local agencies through the HIDTAs and
    OCDETFs.
                             indian arts and crafts
        Question. Into the U.S. each year comes an estimated $500 million
    in fake Indian arts and crafts. What role does the Customs Service play
    in protecting Native American artists?
        Answer. Title 18, Section 1158, Counterfeiting Indian Arts and
    Crafts Board Trade Mark, is the statute that concerns counterfeiting
    Government trade marks that have been devised or used by the Indian
    Arts and Crafts Board in the Department of the Interior.
        Despite several allegations over the past five years that imitation
    Native American goods are entering the U.S. without the country of
    origin markings required by law, Customs has found the great
    preponderance of these goods to be in compliance. In June 1997, Customs
    initiated a 60 day Cargo Selectivity criteria operation against
    importers and exporters identified by the Indian Arts and Craft
    Association and another source as dealing in imitation Native American
    jewelry, arts and crafts. Customs established 117 separate criteria for
    this operation, yielding a total of 230 hits. Of these hits, only 4
    detected marking violations, the balance being ``clean on
    examination.'' With a compliance rate in excess of 98 percent, the
    criteria were canceled after the 60 days.
        If the country of origin markings are being removed after
    importation, such allegations should be referred to the appropriate
    Special Agent in Charge office for possible investigation. We believe
    the U.S. Attorney in Arizona is knowledgeable in this area as well.
                                 imf gold sales
        Question. I understand that the Treasury Department has expressed
    support for a proposal to sell a portion of the International Monetary
    Fund's gold reserve to support the IMF's Heavily-Indebted Poor
    Countries (HIPC) initiative. As you are aware, there is a statutory
    requirement that the U.S. representatives to the IMF receive formal
    Congressional authorization in order to vote in favor of transactions
    involving gold. Will the Treasury Department seek this formal
    authorization? If so, how and when can we expect to receive this
    request.
        Answer. The Treasury Department is seeking formal Congressional
    authorization in order to vote in favor of a sale of IMF gold, for
    which the earning on the invested profits of such sales would be
    directed to the ESAF/HIPC Trust of the IMF. We expect to provide to the
    Congress a letter requesting such authorization, with draft legislative
    language, in the near future.
        Question. The United States ranks second behind South Africa among
    the gold producing nations. Gold mining is an important part of the
    rural economics of thirteen of our western states. The current price of
    gold is at its lowest point in twenty years and the major mines in
    rural Nevada and elsewhere in the west have had to lay off thousands of
    workers. What consideration has the Department given to the effect of
    this proposal on our own domestic gold mining industry?
        Answer. We are reasonably confident that any sales of gold would be
    conducted in a manner that would minimize any adverse impact on gold
    holders, producers, and the gold market. The amount of sales that is
    currently under discussion--five to ten million ounces, with sales
    spread over a number of months or years, as warranted--represents a
    small part of the 100 million ounces or so that come on the gold market
    in a typical year.
                          performance-based management
        Question. What specific steps have you taken as the head of the
    agency to achieve performance-based management within your agency, as
    required by the Government Performance and Results Act?
        Answer. Treasury has taken several steps to institute performance-
    based management throughout the Department:
      --The Secretary and Deputy Secretary were personally involved in
            development of Treasury's Strategic Plan during 1997, and will
            lead the process to update the next version of the plan.
      --Beginning in fiscal year 1997, we integrated both the Annual
            Performance Plan and Annual Performance Report into our budget
            justification documents, thus ensuring that performance data
            and resource data are presented in tandem and readily available
            to Congressional decision-makers.
      --We have just instituted a new budget formulation process focused on
            using our strategic plans and priorities to guide the
            development of the budget. The process incorporates reviews of
            bureau program performance and progress toward achieving
            results in considering resource requests.
      --We are piloting a web-based Performance Reporting System, a
            department-wide tool to eventually allow for frequent reporting
            of performance data from all of Treasury's bureaus. This system
            will bring current information to the fingertips of the
            Secretary and other policy offices to help track performance
            more regularly and systematically. The Department's longer-
            range goal is to link performance and financial data under a
            comprehensive financial analysis and reporting system.
        Question. How are your agency's senior executives and other key
    managers being held accountable for achieving results?
        Answer. Treasury has taken a number of steps to ensure
    accountability for achieving results:
      --We have developed (and are about to implement for fiscal year 1999)
            a mandatory Results Act element in all SES performance
            standards sets. This element addresses 1) program performance
            as measured by the relevant published performance targets; 2)
            the timeliness of performance information; and, 3) data
            accuracy and validity issues.
      --Senior policy officials were assigned by the Secretary as ``lead''
            officials in overseeing the implementation of Treasury's
            strategic objectives. They reported on their progress as part
            of the fiscal year 1998 Annual Performance Report (included in
            the budget justification documents and the Budget in Brief) and
            the Department's fiscal year 1998 Accountability Report.
      --The new Performance Reporting System should also improve
            accountability, allowing for regular, standard and customized
            progress reports on performance.
        Question. How is your agency using performance information to
    manage the agency?
        Answer. Treasury is using performance information in several ways
    to manage the Department:
      --As part of our new budget formulation process, mid-year performance
            reviews are held between the Deputy Secretary, the Assistant
            Secretary for Management and CFO, and the Bureau Heads. During
            these mid-year reviews the performance of the bureau is
            discussed and assessed against its year-end target. Mid-year
            performance that indicates year-end goals will not be achieved
            is highlighted and alternative approaches are discussed and
            agreed upon.
      --Bureau year-end performance is reported to Treasury's senior
            leadership by means of the Annual Performance Report. This
            report is integrated with our budget justification document. As
            out-year budget and resource allocation decisions are being
            made at both the bureau and Department level, prior year
            performance is assessed via the Annual Performance Report.
      --Treasury's Performance Reporting System is designed to provide more
            regular program performance reporting, with the goal of
            improving overall program management.
        Question. How did program performance factor into your decisions
    about the funding you are requesting in fiscal year 2000? Please
    provide examples.
        Answer. Treasury presented to OMB all new resource proposals for
    fiscal year 2000 separated out by Mission areas and Goals in accordance
    with the Strategic Plan for fiscal year 1997-2002, which was submitted
    to the Congress on September 30, 1997. Those mission and goal areas
    that related to resources requested in the Budget Request are shown
    below. The summary justification materials to the Congress also
    includes a presentation of fiscal year 2000 initiatives linked to the
    Strategic Plan in this manner.
    Mission.--Economic
        (1) Goal: Promote Domestic Growth
        (2) Goal: Maintain U.S. Leadership on Global Economic Issues
    Mission.--Financial
        (1) Goal: Collect Revenue Due to the Federal Government
        (2) Goal: Manage the Federal Government's Accounts
    Mission.--Law Enforcement
        (1) Goal: Combat Financial Crimes and Money Laundering
        (2) Goal: Reduce the Trafficking, Smuggling, and Use of Illicit
    Drugs
        (3) Goal: Fight Violent Crime
        (4) Goal: Protect our Nation's Leaders and Visiting World Leaders
        (5) Goal: Provide High Quality Training of Law Enforcement
    Personnel
    Mission.--Management
        (1) Goal: Improve Management Operations
        (2) Goal: Improve Program Performance
        The deliberative process with OMB to determine final request levels
    to be included in the President's Budget was sensitive to concerns
    about unmet performance expectations. For example, many of the Internal
    Revenue Service (IRS) Customer Service initiatives use performance
    measures to benchmark current levels of service (phone coverage in
    hours and numbers of calls received) and explain how much more would be
    done with additional money. Other request items focused primarily on
    the large number of program stakeholders and constituents, who are
    principally concerned about program coverage levels (in terms of
    staffing, level of effort, and major equipment deployment), and view
    level of effort as a proxy for expected outcomes. Consequently, budget
    decisions and outcomes were balanced to include performance assessments
    and measurable outcomes, as well as responding to stakeholder concerns
    about equitable resource deployment. Treasury will continue to pursue
    opportunities to meld performance information with resource decision-
    making.
        Question. What specific program changes have you made to improve
    performance and achieve the goals established in your strategic and
    annual plans?
        Answer. The primary focus of Treasury's strategic management
    process is performance improvement. This process includes goal-setting,
    periodically measuring our progress, and using performance information
    to make necessary adjustments in order to meet our stated goals and
    objectives. Some examples of changes that have been made to improve
    performance are presented below:
      --IRS expanded the availability of its toll-free telephone service to
            make filing easier (which supports the IRS Strategic Goal of
            ``Service to Each Taxpayer''). To be available when customers
            want or need to contact the IRS, they went to a full-service
            mode of 7 days-a-week/24 hours-a-day availability in 1999.
      --In support of that same strategic goal, and to make filing easier
            and more convenient for taxpayers, IRS put an emphasis on
            Electronic Tax Administration (ETA). As of April 23, 1999, 29
            million individual taxpayers filed their tax returns
            electronically, a 19.1 percent increase over the same period
            last year. Over 1 million taxpayers participated in signature
            alternative pilots, which provided a paperless filing
            experience for those taxpayers who were eligible. And over
            53,000 taxpayers charged their balance due using a credit card.
      --The Financial Management Service (FMS) manages the Department's
            debt collection responsibilities under the Debt Collection
            Improvement Act. To achieve its strategic and performance goal
            to ``concentrate Federal delinquent debt collection efforts and
            produce improved results,'' FMS worked with the IRS to merge
            the Tax Refund Offset program into the Treasury Offset Program.
            Tax refund collections for CY 1999 already exceed those for CY
            1998. FMS also improved system functionality that allows
            matches against multiple taxpayer identification numbers.
        Question. How does your budget structure link resource amounts to
    performance goals?
        Answer. Treasury's budget structure, as presented in the
    justification of appropriations, consists of one or more budget
    activities described under each appropriation. Budget activities
    roughly equate to major programs within each bureau. Beginning in
    fiscal year 1997, Treasury defined performance goals for each budget
    activity and integrated into our budget justification the proposed
    performance plan for the budget year, and the final performance plan
    for the current year. Therefore, in the budget justification document
    itself, the resources requested under each budget activity are linked
    to their respective performance goals and supporting performance
    measures.
        Question. What, if any, changes to the account and activity
    structure in your budget justification are needed to improve this
    linkage?
        Answer. Treasury annually asks its bureaus to review budget
    activity structures, in light of new programmatic emphases or
    stakeholder concerns. Any contemplated changes to budget activities are
    considered in light of financial management and accounting issues to
    ensure that over time bureaus have the capacity to account for
    appropriated dollars accurately and consistently. While budget activity
    structure improvements that respond to emerging concerns are generally
    desirable, we also discourage frequent successive changes, so that
    Congress can see and review reliable historical information. This is
    because budget activity restructuring may require complex analytical
    crosswalks to the former structure if funding decisions require
    comparisons with prior year levels of effort.
        Question. Does your fiscal year 2000 Results Act performance plan
    include performance measures for which reliable data are not likely to
    be available in time for your first performance report in March 2000?
    If so, what steps are you planning to improve the reliability of these
    measures?
        Answer. We expect reliable data to be available for most, if not
    all, of our measures in March 2000. In our fiscal year 2000 budget
    submission, bureaus were asked to rate their performance data as having
    either ``reasonable accuracy''--meaning the data is accurate enough to
    be used for programmatic decision-making or as having ``questionable or
    unknown accuracy.'' Nearly all measures received a ``reasonable
    accuracy'' rating. Measures for which data has been identified as
    questionable or unknown, either through self-reporting or by external
    review entities, are being evaluated to determine what needs to be done
    to improve the reliability of the data.
        Question. How will your future funding requests take into
    consideration actual performance compared to expected or target
    performance?
        Answer. As the amount and quality of performance data grows more
    robust, Treasury will continue to deliberate its budget proposals based
    on performance gap concerns. The perennial dilemma is whether
    performance improvements respond better to funding incentives or
    penalties, or whether funding should be reallocated to a competing
    activity that might be achieving better results but is less compelling.
    In many cases, demand-driven workload may be challenging the capacity
    to achieve acceptable results. Those cases may justify resource
    enhancements for sensible investments in technology that improve
    productivity while also improving quality (e.g., non-intrusive
    inspection equipment for ports and border crossings).
        Question. To what extent do the dollars associated with specific
    agency performance goals reflect the full costs of all associated
    activities performed in support of that goal? For example, are overhead
    costs fully allocated to goals?
        Answer. In budget presentations for most Treasury bureaus,
    administrative overhead and policy oversight are embedded in
    programmatic budget activities, typically through a pro-rata formula
    based on program staffing or funding. Hence, those activities reflect
    the full cost of proposed or realized performance levels. However,
    there are instances, such as the IRS Rent and Utilities budget
    activity, where funding magnitude and stability is so critical that it
    is important to provide explicit information for appropriators and
    stakeholders. The performance goals for that activity have to do with
    efficient use of available space rather than with agency program
    performance goals.
        Question. What specific performance goals and measures has Treasury
    established in the fiscal year 2000 performance plans for its major
    bureaus and offices to resolve major management challenges and high-
    risk areas identified by GAO and its Inspector General?
        Answer. The Department and the heads of the three principal bureaus
    with high-risk areas or major management challenges (IRS, the U.S.
    Customs Service, and FMS) recognize the need to resolve the issues
    raised by GAO and the Office of Inspector General (OIG) and have
    developed and are implementing action plans to do so. In some cases,
    the performance plan contains a specific measure and target related to
    the high-risk area. In others, the bureau has taken steps to address
    the problem.
        One FMS challenge, for example, is to effectively fulfill its
    responsibilities under the Debt Collection Improvement Act. The FMS
    performance plan includes two related measures:
      --Increase collection of the debts referred to Treasury from fiscal
            year 1998 baseline ($1.988 billion) by $8.5 million in fiscal
            year 1999 and $93.1 million in fiscal year 2000 through the
            addition of more Federal payment types and agency referrals
            into the centralized administrative offset program by fiscal
            year 2000.
      --Increase the amount of delinquent debt that is referred to Treasury
            for collection, as compared to the amount of delinquent debt
            that is eligible for referral. Total percentage will reach at
            least 75 percent by fiscal year 2000. Baseline is fiscal year
            1997 (32 percent).
        IRS has taken steps to correct management and technical weaknesses
    in its systems modernization program:
      --In December 1998, IRS awarded a prime contract for its major
            systems modernization program, and the Commissioner hired a new
            Chief Information Officer to work with him on this program. The
            use of a prime contractor to serve as the developer and
            integrator for the IRS represents a significant departure from
            past IRS practices.
      --In addition, the Commissioner set up a management structure that
            includes an executive oversight board. GAO and the Treasury
            Inspector General for Tax Administration have been invited to
            all the board's meetings to provide input on ways to improve
            the process. IRS expects to submit a plan to Congress in
            September for the first release under the prime contract.
        The U.S. Customs Service over the last year made significant
    management improvements that resulted in Customs being removed from
    GAO's high-risk list. Customs now has initiatives underway to address
    its management challenges, such as short-and long-term plans for
    controlling access to sensitive data in the Treasury Enforcement
    Communications System (TECS) and Seized Assets and Case Management
    Tracking System (SEACATS).
        Question. Does your agency have the means to capture accurate and
    useful performance data?
        Answer. Capturing performance data that is both accurate and useful
    is critical to implementing GPRA. All Treasury components are required
    in their performance plan to state how they collect their data and to
    verify and validate the accuracy of the information. The Office of
    Budget and the Office of Strategic Planning and Evaluation review
    information provided by the components, raising questions where
    information is either unclear or questionable. Additionally, the
    Treasury OIG plans to review data reliability in a number of our
    bureaus this year to determine whether sufficient systems are in place
    to accurately report on performance measures.
                                     ______

                     Questions Submitted by Senator Dorgan
                                 international
        Question. Last year's global financial market crisis, particularly
    in Asia and Russia, has appeared to have a more limited effect on the
    U.S. economy than was initially expected. Although U.S. manufacturing
    and commodity sectors remain weak, it has been offset by strength in
    consumer spending and growth in the service sector.
        Are the economy's resilience linked to the self-correcting nature
    of long-term interest rates?
        Answer. Some financial market observers feel that such an effect
    has become more prominent in recent years. On this view, interest rates
    have responded more quickly and predictably to economic conditions than
    in the past. When the economy has speeded up, interest rates have
    risen, and dampened the increase in activity. When the economy has
    slowed down, interest rates have fallen, and provided some positive
    cushioning effect. The clearest example of such a mechanism may have
    emerged in the housing sector with the securitization of the mortgage
    market and the growing sensitivity of homeowners to refinancing
    possibilities.
        While these developments are interesting and important in their own
    right, they may not have played a major causative role in the seeming
    imperviousness of the U.S. economy to financial turmoil late last
    summer and into the early fall. In the wake of the Russian devaluation
    and effective debt default at mid-August, there was a massive shift in
    investor preferences toward less risky assets. In this country,
    Treasury yields dropped sharply. At the same time, businesses with the
    lowest credit ratings faced substantially higher costs of borrowing.
    And across a wide range of credit ratings, the spread between private
    rates and the rates on Treasuries widened sharply. These developments
    raised fears of a credit crunch that might slow the U.S. economy in a
    significant way. In response, the Federal Reserve cut the Federal funds
    rate by 25 basis points at the FOMC meeting at the end of September, by
    25 basis points again in an unexpected intra-meeting move in October,
    and by another 25 basis points at its November FOMC meeting.
        Also during this period, there was a temporary substitution of net
    lending by the commercial banking system for direct financing in the
    credit markets. In the first three quarters of 1998, the net lending of
    the commercial baking system averaged about $225 billion at a
    seasonally adjusted annual rate, or about 11\1/2\ percent of total net
    lending. In the fourth quarter, commercial bank lending more than
    doubled to about a $555 billion annual rate, or about 22 percent of
    total net lending.
        In summary, Federal Reserve policy actions and a shift of credit
    demands to the commercial banking system seem to have been the major
    factors shielding the economy, rather than a self-correcting adjustment
    in long-term interest rates.
        Question. What about the equity markets? Last fall, the economists
    predicted a market plunge would generate negative wealth effects
    lowering the stock market values. With so many consumers participating
    in the market, that lowering could have created a noticeable drop in
    consumer confidence. What occurred to avert that situation?
        Answer. The stock market reached its 1998 peak in mid-July of that
    year at about 9340 on the Dow-Jones industrial index. The growing
    financial turmoil in the late summer and early fall contributed to a
    correction the dimensions which suggested to some that a bear market
    had begun. The Dow reached nearly 7600 by the early fall, a downward
    move of close to 20 percent from the high in July. It was during the
    late stages of this process that there was considerable discussion in
    the financial press of the negative wealth effects that might be
    generated by a plunge in the market. The chief factor that occurred to
    avert even more serious discussion of that possibility was the return
    of the market to a strong upward trend, which has continued in 1999 and
    carried the market to new, higher levels.
        Most studies of the wealth effect suggest that the effects of a
    change in stock market values on consumer spending would be spread out
    gradually over time. Short, temporary drops in the market seem to have
    very little, if any, measurable effect on consumer spending. Farther
    back in time, the drop in the market of more than 20 percent on a
    single day in October, 1987 and the market uncertainty that followed
    led many to fear that the economy might be affected seriously. Growth
    in real consumer expenditure flattened out temporarily in the fourth
    quarter of 1987, but there was a renewed burst of consumer spending in
    the first quarter of 1988, suggesting only transitory effects and
    little lasting impact on consumption from the market decline.
        The most encouraging feature of the current situation is the good
    economic fundamentals that have persisted during the current expansion.
    Solid economic growth continues to be combined with a very subdued rate
    of inflation.
                              imf loans to russia
        Question. At the House Appropriations hearing the Secretary said
    that much of the $4.8 billion in loans sent to Russia last summer by
    the International Monetary Fund ``may have been siphoned off
    improperly.'' And, in a recent U.S. News editorial Morton Zuckerman
    said that the IMF cannot be expected to advance more money to Russia,
    since the IMF's credibility as a lender has been hurt by the way Russia
    has flouted to conditions attached to its loans. Zuckerman said the IMF
    aid to governments should be tied to economic and political reforms and
    earmarked for projects that can be monitored. IMF funding decisions are
    made in response to financial crises.
        Isn't it true that a requirement to conduct a programmatic review
    have a detrimental impact on the need to dispatch funds rapidly?
        Answer. The need to formulate a program that will be successful in
    fostering the needed adjustment of the economy and the ability of the
    country to repay the IMF cannot be avoided. Every effort is made in
    urgent cases to expedite the process. In the case of the 1997 programs
    for Asian countries, they were negotiated very quickly. And the IMF has
    in place procedures to expedite Executive Board review in crisis cases.
    However, every effort is and should be made within these constraints to
    develop a thoroughly well-grounded program.
                             imf voting procedures
        Question. The U.S. has about 18 percent of the IMF votes and
    provides about 22 percent of the money.
        Does any other country have enough votes to veto a U.S. decision?
        Answer. The United States cannot by itself decide all issues before
    the IMF Executive Board. Board decisions on country programs require
    approval by a 50 percent majority of voting power (decisions on certain
    policy issues require larger majorities). Thus on routine issues no
    country by itself can either effect a Board decision or block such a
    decision. On those major policy decisions requiring an 85 percent
    majority of voting power, the United States can block a Board
    decision--no other country by itself holds sufficient voting power to
    block such decisions.
                        monitoring imf funding to russia
        Question. Is there some way the U.S. can ensure the funds are being
    used appropriately without structuring a number of bureaucratic
    requirements that could result in slowing down the distribution of
    funds?
        Answer. When a borrower country agrees to an IMF program, the bulk
    of IMF financing provided is tranched in phased disbursements so that
    later disbursements can be made based on the country's adherence to the
    conditions set forth in the underlying arrangement and associated
    commitments. These commitments range from general undertakings (e.g.,
    to cooperate with the IMF in formulating and implementing policies) to
    specific, quantified plans for macroeconomic and structural policies.
    IMF staff closely monitor a country's observance of the qualitative and
    quantitative performance criteria and overall implementation of its
    program. This is accomplished through visits of staff, resident
    representatives (present in over three-quarters of the countries that
    have IMF arrangements), and frequent communications with the countries'
    authorities. Periodic reviews of countries' programs are reinforced by
    selective audits of central banks, such as that being conducted
    regarding the placement of Russian Central Bank funds in 1994-96. This
    monitoring does not serve to slow down disbursement of financing unless
    the conditions set forth in a program are not met and agreement cannot
    be reached on how to deal with the problem.
        With strong U.S. support, the IMF has recently undertaken a number
    of steps to promote greater openness in public sector activities and
    other measures that will help ensure that official resources are being
    used appropriately. Also, the Treasury Department is in the process of
    exploring the desirability and feasibility of a number of further
    enhancements to the IMF's traditional means of assuring compliance with
    the conditions of IMF programs and safeguards on the use of IMF
    resources, and has discussed the general issues with IMF staff.
                               russia imf program
        Question. Russia's Prime Minister Primakov was scheduled to visit
    the U.S. this week seeking an IMF agreement to borrow enough to cover
    $4.5 billion in Russian loan repayments due to the IMF this year.
    Russia's total debt due this year is $17.2 billion or 80 percent of it
    national budget.
        What level of resources should the U.S. be providing Russia at this
    time?
        Answer. The U.S. has not and is not contemplating any direct budget
    support loans for Russia. As regards IMF funding to Russia, the
    appropriate amount of lending is still being negotiated. The eventual
    amount agreed by the parties will reflect the level of Russian economic
    reform and the country's financial situation. Any disbursement will be
    contingent on the IMF's being satisfied that funds will be used for
    their intended purpose.
        Question. Is it possible that the delay could increase Russia's
    chances of winning approval for reinstating its IMF loans at this time?
        Answer. The delay in Prime Minister's Primakov's visit to
    Washington should not affect Russia's chances of securing an IMF
    program. An IMF program for Russia depends on Russia's willingness to
    agree to a set of economic measures that will stabilize the economy and
    lay the groundwork for economic growth. IMF Managing Director Camdessus
    traveled to Moscow in late March where he and Prime Minister Primakov
    agreed on a framework for an IMF agreement. An IMF mission continues to
    negotiate with Russian officials on remaining issues.
        Question. If we do not provide these resources what will be the
    cost of bailing out an economically devastated Russia?
        Answer. The implications of a full-scale economic breakdown in
    Russia are extremely serious and would be detrimental to a range of
    U.S. interests, including our security interests. Economic breakdown
    and the possibility an associated political backlash could increase the
    threat of weapons proliferation, international organized crime, and a
    humanitarian crisis.
        That said, resources alone cannot assure long-term economic
    stability in Russia. That is why IMF resources provided to Russia must
    be associated with a program of economic reform and fiscal adjustment
    coupled with strong implementation.
                      international financial architecture
        Question. Last year, discussions were being held on changes to the
    architecture of the international financial system--changes that would
    have provided for greater transparency and disclosure of the
    International Monetary Fund and other international systems.
        Are these discussions continuing? When can the committee expect the
    recommendations and the implementation plan?
        Answer. We have been working with our G-7 colleagues on a broad
    range of potential measures to strengthen the international financial
    system. This is an extremely complex issue which will take a sustained
    effort to resolve in all its facets. Our approach has been to press
    forward with concrete steps in line with the framework set out in
    October of last year by G-7 Leaders.
        At a meeting on April 26th of this year, G-7 Finance Ministers and
    Central Bank Governors assessed progress we have made so far on the
    broad agenda outlined in October:
      --The IMF has adopted a comprehensive format for disclosure of full
            information on reserves as part of the strengthening of its
            Special Data Dissemination Standard (SDDS). This enhanced
            reporting of reserves and related liabilities will go into
            effect on April 1, 2000. To strengthen the SDDS further, the G-
            7 has called on the IMF to enhance the requirements for
            disclosure of external debt data and for release of information
            on financial sector soundness.
      --The IMF Board has agreed to establish a Contingent Credit Line,
            which will help countries with sound policies insulate
            themselves from contagion. We believe that the CCL will help to
            encourage prompt and effective measures to ward off contagion,
            with appropriate private-sector involvement, and promote
            adoption of sound policies in areas that we see as crucial for
            avoiding susceptibility to crisis, notably, debt management,
            sustainable exchange rate regimes, transparency, a strong
            financial sector, and adherence to internationally agreed codes
            and standards.
      --We have established a new group, the Financial Stability Forum,
            which will provide a vehicle for the regular exchange of
            information on systemic vulnerabilities in the financial
            system. The Forum held its first meeting on April 14th. Working
            groups are being established on highly leveraged institutions,
            to address implications from their role as both lender and
            borrower; offshore financial centers; and short-term capital
            flows' effect on global financial stability. We have emphasized
            the importance of including representation from a broad range
            of relevant countries in this work.
      --The World Bank is making progress in distilling a set of general
            principles of good practice in social policy aiming to promote
            social cohesion, make economies more robust and provide a
            structure to make countries more resilient to financial crisis.
            We encourage the World Bank to take forward its work, in
            cooperation with the IMF, to develop a set of policies and
            practices that can be drawn upon, by donors and borrowers
            alike, in the design of adjustment programs to ensure
            protection of the most vulnerable, particularly during crisis
            periods.
        The United States has also pressed to include a wide range of
    countries in the discussion of the reforms to the international
    financial architecture. Two seminars have been held (on March 11 and on
    April 25) to exchange ideas on economic architecture issues with a
    diverse group of economies. Representatives of 33 governments and
    central banks participated in the discussions of a broad range of ideas
    and initiatives. These seminars have been valuable, and we have
    emphasized the need for inclusive dialogue and broad consultation on
    issues of systemic importance.
        The G-7 Finance Ministers and Central Bank Governors will report to
    G-7 Leaders on progress to date and recommendations for the
    implementation of further reforms at the Cologne Summit in June. We
    expect this report will be endorsed by the Heads of Government and made
    public at that time. Our work between now and then will continue to
    focus on the broad range of issues we have identified, including: the
    scope for strengthened prudential regulation and supervision in
    industrial countries; further strengthening of financial systems in
    emerging market economies; sustainable exchange rate regimes in
    emerging market economies; crisis prevention and response, including
    proposals for ways to improve IMF programs and procedures in this area;
    and minimizing the human cost of as well as improving the social policy
    response to financial crisis.
        In addition, as required by statute, we will provide a written
    report to Congress on these efforts by July 15.
        Question. Are the resources requested in the fiscal year 2000
    budget (e.g. 14 FTE and $1.1 million) going to address the changes in
    the architecture of the international financial system?
        Answer. The 20 additional positions (14 FTE and $1.1 million,
    annualized to 20 FTE in fiscal year 2001) are needed to improve
    coverage of emerging markets; expand macroeconomic analyses of country
    and regional economies; and broaden Treasury's expertise to monitor
    financial and economic transactions between and among foreign countries
    including direct capital flows, financial reform, structural integrity,
    openness and transparency, and crisis resolution. Treasury's Office of
    International Affairs is the primary organization in the Executive
    Branch tasked with understanding and responding to international
    financial complexities and with developing and articulating global
    economic development policy. This increase will reverse a decline in
    staff of 10 percent since 1993. The 20 additional positions will help
    Treasury implement reforms in the architecture of the international
    financial system, as initially outlined in October 1998 by the G-7.
        Question. What kind of change will be made? Will the Office of
    International Affairs be working on plans to bring the private sector
    into these discussions on how to structure aid requirements or to take
    up specific ventures that would be guaranteed by the U.S. government?
        Answer. Our recommendations for reforms of the international
    financial architecture will focus on the key areas outlined by the G-7
    for work in October, 1998. They are: the scope for strengthened
    prudential regulation and supervision in industrial countries; further
    strengthening financial systems in emerging market economies; exchange
    rate regimes in emerging market economies; crisis response and greater
    participation by the private sector in crisis containment and
    resolution; proposals for strengthening the IMF and the Interim and
    Development Committees; and minimizing the human cost of financial
    crisis.
        The appropriate form of private sector involvement in the
    resolution of crises will depend on the circumstances. In response to
    the particular needs of the Asian economies hit by the financial
    crisis, the United States has played a key role in formulating the
    Asian Growth and Recovery Initiative, which is designed to help
    revitalize private sector growth. One aspect of the initiative, the
    Asian Growth and Recovery Program, envisages use of credit enhancements
    by bilateral or multilateral donors to help governments in the region
    in financing the cost of bank recapitalization. However, the United
    States government does not plan to act as a guarantor under this
    program. The U.S. Export-Import Bank and Overseas Private Investment
    Corporation are supporting the initiative through the provision of
    trade finance, risk insurance, project financing and other traditional
    products that help to mobilize private sector finance.
                     resignation of german finance minister
        Question. German Finance Minister, Oskar Lafontaine resigned on
    March 11th. Mr. Lafontaine dominated Germany's financial policy, was
    instrumental in shutting down the voice of pro-business moderates, and
    was instrumental in reducing the value of the Euro by demanding the
    European Central Bank lower its interest rates and campaign for
    controls over exchange rates.
        What kind of changes can be expected in German financial policies
    now that Chancellor Schroder has the opportunity to develop pro-
    business financial policies?
        Answer. The Schroder government, elected September 27, 1998, is
    still relatively new. Policies are evolving. The new Finance Minister,
    Hans Eichel, officially assumed his post on April 12. While it is too
    early to anticipate the direction German financial policies may take, a
    number of analysts anticipate a more moderate policy stance and
    relationship with the business community.
                            internal revenue service
        The Internal Revenue Service Restructuring and Reform Act of 1998
    requires a number of changes in the way the IRS does business. The
    initiatives include implementing additional taxpayer protection
    provisions, expanding electronic filing, and modernizing the IRS. To
    accomplish these requirements the IRS has requested $197 million with
    approximately $140 million required for a series of organizational
    investments to restructure, reorganize and retain the workforce.
        Question. How will the IRS of the future be different from the IRS
    today?
        Answer. The Restructuring and Reform Act of 1998, provided the IRS
    with a clear direction: it must do a better job in meeting the needs of
    the taxpayers. This direction is expressed in the new IRS mission
    statement:
        ``Provide America's taxpayers top quality service by helping them
    understand and meet their tax responsibilities and by applying the tax
    law with integrity and fairness to all.''
        The concept for a modernized Internal Revenue Service revolves
    around the following guiding principles:
      --Understand the customer's point of view, and use this understanding
            to prevent and solve problems and provide quality service
            Enable managers to be accountable with the requisite knowledge,
            responsibility and authority to take action to solve problems
            and achieve IRS goals Align measures of performance at all
            organizational levels Foster open, honest communication Insist
            on total integrity
        The goals are:
    Top Quality Service to Each Taxpayer
      --Make filing easier
      --Provide first quality service to each taxpayer needing help with
            his or her return or account
      --Provide prompt, professional, helpful treatment to taxpayers in
            cases where additional taxes may be due
      --Increase fairness of compliance
      --Increase overall compliance
    Productivity Through a Quality Work Environment
      --Increase employee job satisfaction
      --Hold agency employment stable while the economy grows and service
            improves.
        To move us towards our new mission, the Service has also identified
    five levers of change to modernize the agency. They are:
        Revamped Business Practices.--Business practices will be geared
    toward understanding, solving and preventing taxpayer problems.
    Emphasis will be placed on customer education and service. Compliance
    efforts will be forward-looking to prevent most common taxpayer
    problems and geared toward early intervention to keep taxpayers
    compliant. These changes will enhance the many customer service
    initiatives already begun this year. For example, telephone customer
    service will be available 24 hours, seven days a week and e-file
    services will be expanded.
        Four Operating Divisions.--The IRS will reorganize into four
    customer segments with end-to-end responsibility for serving taxpayers
    with similar needs. They are: Wage and Investment; Small Business &
    Self-Employed; Large & Mid-Size Business and Exempt Organizations
        Balanced Measures of Performance.--Current IRS performance measures
    are oriented toward IRS internal operations. The new measures will be
    externally validated and entail a balanced system tied to the agency's
    goals. The new measures will take into account business results,
    customer satisfaction, employee satisfaction, and the agency's
    continuous improvement.
        Management Roles with Clear Responsibility.--Managers in the new
    organization will have end-to-end responsibility for meeting the needs
    of their customers. The new organization will have fewer management
    levels.
        New Technology.--the IRS is committed to move forward on upgrading
    and improving its technology. The award of the PRIME contract
    identifies those private-sector organizations IRS will partner with
    over the next 10-15 years to build the new technology. While it will
    take the better part of a decade to modernize our fundamental computer
    systems, taxpayers will be able to see results as early as calendar
    year 2000.
        The benefits of this modernization apply to taxpayers as well as to
    IRS employees. For taxpayers, the benefits are:
      --More useful help in understanding and filing their taxes
      --Fast, accurate service if they have a question about taxes they owe
            or their refund
      --Professional, courteous help if they fall behind in paying their
            taxes
      --Professional, courteous treatment if their return is selected for
            examination
      --Greater confidence that their fellow citizens are paying their
            taxes as required by the tax law in the same way they are,
            regardless of their occupation, location, type of business or
            income level
      --Clear, effective means of identifying problems of law or regulation
            that cause unfairness or disproportionate administrative
            burdens on particular groups of taxpayers and communicating the
            information to the right level of authority to fix the problem.
        For IRS employees, the benefits are:
      --Greater respect from the public
      --Balanced measurements comprising three categories--customer
            satisfaction, employee satisfaction, business results
      --Flatter organization structure will connect them better
      --Stabilization of work force Increased emphasis on training and
            quality
        Question. Ultimately, how much will it cost to move the IRS into
    that improved position?
        Answer. The IRS has not yet determined the total cost of
    organizational modernization as the final design is still under
    consideration.
        The Reform Act includes other tax law changes to improve taxpayer
    protections. The Act also strengthens the Taxpayer Advocate
    organization and has provisions to ensure internal accountability and
    integrity.
        Question. What steps are being taken to ensure these requirements
    are being met? In other words what changes have been made to fulfill
    the Act's requirements?
        Answer. The IRS is vigorously working on the implementation of the
    Restructuring and Reform Act of 1998 (RRA98). Extraordinary steps have
    been taken to ensure the process is managed and appropriate actions are
    taken throughout the agency.
        RRA 98 includes 143 provisions, of which 115 require IRS action. 87
    percent of the provisions were effective within six months of
    enactment; 20 percent were retroactive, 47 percent were effective on
    date of enactment (July 22, 1998), 20 percent were effective by January
    19, 1999. The remaining 13 percent become effective between February 1,
    1999 and 2007. 432 amendments were made to the Internal Revenue Code.
        75,000 employees are receiving technical training and all employees
    are receiving training on section 1203, Termination of Employment for
    Misconduct. 132 million taxpayers were affected.
        On July 24, 1998, an RRA98 Executive Steering Committee (ESC) was
    established and began bi-weekly meetings to review implementation
    progress and resolve issues.
        The IRS has identified approximately 1300 actions required to
    implement all of the provisions in the Act, many of which have been
    completed. The actions are grouped by provision. The actions include
    the development of 2 new forms (706C/706D); the revision of 153 forms;
    and the modification of 39 publications. Chief Counsel has published 30
    items (14 regulations, 5 revenue procedures, and 11 notices/
    announcements). To date, 66 guidance memoranda have been issued to the
    field.
        With respect to the Taxpayer Advocate's organization a number of
    actions have been taken. Local taxpayer advocate telephone numbers have
    been placed in telephone directories or are scheduled to be listed
    pending updates of those directories. The Taxpayer Advocate's program
    and new toll-free telephone number have been highlighted in the 1998
    Tax Packages and in national publicity. Advocates have been designated
    for each state and reporting has been established through the Taxpayer
    Advocate organization independent of District or Service Center
    Directors. A web site ``National Resource Center'' has been created to
    answer field questions on RRA98, and new TAO procedures have been
    developed and training for all employees is in process
        Question. Great strides are being made in electronic filing and I
    give you and your staff tremendous credit for moving the IRS in that
    direction, but, what about walk in service, particularly in rural
    areas. North Dakota has lost a number of customer service
    representatives. Does the IRS have any new plans for expanding that
    face to face contact? I have heard that the IRS leases three mobile
    units (taxmobiles) that provide customer assistance in Georgia,
    California and the Pacific Northwest. Has any thought been given to
    leasing additional units to provide these types of services to rural
    states, such as North Dakota? How much could those leases be $19 or $20
    thousand--that plus the cost of a couple revenue agents and maybe
    someone from the tax advocates office? It sounds like a cost-effective
    way to provide customer services?
        Answer. As part of modernizing America's Tax agency, we intend to
    significantly expand walk-in assistance by redirecting in excess of 500
    staff years to this operation. Not only will we be adding employees, we
    will provide service utilizing new and improved methods. A key
    component of our strategy will be the use of mobile vans staffed by
    trained personnel that can not only assist our customers in the
    preparation of their tax returns/answer tax law questions, but also
    enter into payment agreements and/or resolve examination issues. We
    believe the mobile van initiative will be particularly helpful in our
    effort to provide assistance in less populated, rural areas.
    Additionally, we intend to offer service through kiosks in retail
    locations. We believe the kiosk concept will enable our customers to
    conduct their transactions with IRS, and, at the same time, allow them
    to complete other commercial interactions. We also envision renting
    space for temporary offices, which would make us far more accessible to
    our customers. Such temporary office space may be open for a portion of
    the year and/or for certain days of the week.
        All three of these avenues (mobile van, kiosk and temporary space)
    will enable us to spread our staff over more locations thereby
    providing greater access to our customers. While these initiatives will
    benefit all of our customers, we believe they will be of particular
    interest to individuals in rural areas.
        We have gathered some preliminary data on the number of taxpayers
    served by these mobile units: The Georgia District ``We're on Wheels''
    project assisted 1,574 taxpayers during the first two weeks of
    operation (February 1-12, 1999). The Pacific Northwest (PNW) Taxmobile
    assisted 1,490 taxpayers from February 1 through March 12, 1999. We are
    waiting for the data from the remaining PNW tours and the final results
    will be evaluated at the end of this filing season.
        One of the key components of the design team vision for Walk-In
    will be the expanded use of mobile vans in an effort to provide
    assistance in less populated, rural areas.
        Question. In order to meet both the concept of providing walk-in
    service and to move toward expanding electronic filing, can you outfit
    the mobile units (taxmobiles) with computers that would show people how
    to file electronically?
        Answer. We will look into the cost and feasibility of providing
    computers for electronic filing demonstrations in future taxmobile
    units.
                                transfer pricing
        Question. Last year, this committee, instructed the IRS to report
    back to the committee after determining the amount of revenue lost by
    transfer pricing, to determine if adequate systems are in place to
    prevent transfer pricing abuses by multinational companies, and to make
    recommendations for improving IRS enforcement tools to ensure that
    multinational companies doing business in the United States are paying
    their fair share of United States taxes.
        Answer. IRS appreciates and understands the ongoing concerns the
    committee has with the issue of transfer pricing. In response to these
    concerns, and in accordance with a specific directive found in IRS's
    fiscal year 1999 Appropriations legislation, the Service is currently
    preparing a report to the Congress on transfer pricing which will
    address the specific areas raised by the committee. This report should
    be ready by the middle of April 1999, and will focus on estimates of
    potential tax revenue lost due to transfer pricing, detailed
    information on IRS's current administration of Internal Revenue Code
    section 482, and suggestions for improving transfer pricing
    enforcement.
                                   year 2000
        Question. In fiscal year 1999, $570 million was provided to the
    Department of the Treasury from the Emergency Reserve to resolve Y2K
    problems. The Department's fiscal year 2000 budget requests an
    additional $255 million to meet the continuing requirements. We have
    constantly been assured that the Department would be able to meet the
    Y2K validation and implementation deadlines. On March 19th the Office
    of Management and Budget issued its quarterly report on the ``Progress
    on Year 2000 Conversion''. According to the report: ``The rate of
    renovation, validation, and implementation must improve if IRS and FMS
    (Financial Management Service) are to meet the Government wide goals.
    Treasury must continue to work toward a unified Department-wide
    business continuity and contingency plan.'' In addition, the report
    states that three systems with the Bureau of Alcohol, Tobacco and
    Firearms (ATF) will miss the March 31st deadline for implementation.
        What is Treasury's plan for meeting the government-wide goals for
    Y2K compliance?
        Answer. The following by March 31, 1999 Treasury bureaus and
    offices met the goal of attaining Year 2000 compliance for their
    mission critical systems: Office of the Comptroller of the Currency,
    U.S. Customs Service, Departmental Offices, Bureau of Engraving and
    Printing, Financial Crimes Enforcement Network, U.S. Mint, Bureau of
    the Public Debt and Office of Thrift Supervision.
        The following bureaus are projected to complete compliance for
    their mission critical systems by the end of April: Financial Crimes
    Enforcement Center, Office of the Inspector General and Secret Service.
        Treasury has 328 mission-critical systems, nine of which are being
    retired and 298 (91.3 percent) of which are Year 2000 compliant as of
    March 31. The three bureaus above are projected to implement 11 of the
    remaining 26 systems by the end of April. The remaining 15, belonging
    to the Bureau of Alcohol, Tobacco and Firearms, the Financial
    Management Service and the Internal Revenue Service, are expected to be
    implemented by mid year, with the exception of two new IRS systems that
    will be implemented in the fall. Treasury has consistently monitored
    the progress of the systems and is confident that they will be
    operational in a compliant mode well before the year 2000 rollover. In
    addition, Treasury is continuing with an aggressive approach in
    addressing Non-IT devices that contain embedded chips and
    telecommunications systems. To date, Treasury is over 90 percent
    compliant in our Non-IT mission critical systems and expects to be
    fully compliant by mid June. We expect to complete interoperability
    testing and analysis, and independent verification and validation
    (IV&V) of Treasury's corporate voice telecommunications systems in May,
    and of the data network, the Treasury Communications Systems, shortly
    thereafter. Contingency planning and continuity of business planning
    have long been an area of emphasis by Treasury. As we near completion
    of achieving Year 2000 compliance for the mission critical systems,
    Treasury is focusing more on the development of contingency and
    business continuity plans to ensure that all of Treasury's key
    processes will function normally on January 1, 2000 and thereafter.
        Question. Has the department developed unified contingency plans if
    the agencies do not meet the government deadlines?
        Answer. The Departmental Offices (DO) Business Continuity and
    Contingency Plan (BCCP) will address unified or Department-wide Year
    2000 continuity and contingency planning. The DO BCCP will also
    encompass bureau issues and provide the linkages required with the
    bureau plans. Working drafts of the DO BCCP have been developed, and
    the final plan is scheduled to be completed by the end of May. The BCCP
    is being developed by the Department's Office of Emergency Preparedness
    and Automated Systems Division in with the Treasury Year 2000 Program
    Office and the bureaus.
        Question. The Financial Management Service oversees the collection
    and the processing of more than $2 trillion in federal revenues and
    issues over 869 million payments a year. What is the status of these
    tax collection and FMS payment systems?
        Answer. FMS manages the collection and processing of more than $2
    trillion in federal revenues each year. The Electronic Federal Tax
    Payment System (EFTPS) through which FMS collected $1.1 trillion or 56
    percent of the government's total collections in fiscal year 1998 was
    determined to be compliant in December, 1998. The collection systems,
    including the Internal Revenue Service (IRS) Lockbox, General Lockbox,
    Plastic Card Network and other collection systems, that account for the
    remaining 44 percent in federal government revenue were compliant as of
    the end of March, with the exception of one of the 25 IRS Lockbox
    applications, one plastic card application, and two applications in the
    Electronic Data Interchange System. Three of these applications are
    expected to be compliant by the end of April, and the fourth will be
    implemented in June 1999.
        As of March 31, 1999, FMS is able to make 90 percent of its
    payments--over 775 million annual payments--using Year 2000 compliant
    and tested systems. This includes monthly Social Security and
    Supplemental Security Income payments, Veterans' benefit payments, IRS
    tax refunds, Railroad Retirement Board annuity payments, Federal salary
    payments, and vendor/miscellaneous payments. The remaining payment
    systems are on target for implementation in April, including the Office
    of Personnel Management Payment System through which FMS issues Federal
    annuity payments. The system is already compliant but cannot be
    implemented until mid-April due to a dependency on required interface
    control changes.
                                     ______

                              U.S. Customs Service
                     Questions Submitted by Senator Dorgan
                                   user fees
        Questions. Under the various user fees legislation, the Government
    collects a separate fee to pay the cost of inspecting arriving
    international passengers by three Federal Agencies. Although the three
    agencies (Customs/INS/Agriculture) user fee legislation was enacted at
    different times for different reasons, they are all similar as to
    purpose and collection process.
        The Office of Inspector General conducted an audit of the Customs
    Passenger User fees. The audit, published last spring, indicated that
    the government could have realized nearly $49 million of additional
    user fees revenue if the agencies had applied a coordinated single
    audit approach to the user fees over a five-month period. Customs would
    benefit the most, with recoveries increasing from $7 million to over
    $30 million. Customs agreed with the audit and said they would take
    action to implement the recommendation.
        What actions has Customs taken to correct this system?
        Answer. Customs finalized a Memorandum of Understanding (MOU) with
    the Agriculture Plant and Health Inspection Services (APHIS) and the
    Immigration and Naturalization Service (INS) in which the agencies
    agreed to share information regarding the collection of air passenger
    fees. Customs signed an Interagency Agreement with APHIS in which APHIS
    will perform a total of twenty-six (26) air passenger fee audits on
    behalf of Customs. Sixteen (16) audits have been completed as of March
    22, 1999.
        Question. What increase in recoveries has been realized?
        Answer. The total findings to date--from 16 air passenger fee
    audits by APHIS--are approximately $5,962,215 with actual collections
    of $3,429,302. The realized return on investment for this agreement is
    3,760 percent with an overall potential return of 6,537 percent.
        Customs has collected $57,990,846 in delinquent air passenger fees
    due from fiscal years prior to fiscal year 1998. Estimated receivable
    for air passenger fees due prior to fiscal year 1998 total $10,432,177
    (16 percent). This represents 16 percent of the total estimated air
    passenger user fees due as of the close of fiscal year 1998. The
    estimated receivable for air, vessel, and rail user fees was reduced
    from a fiscal year 1997 receivable of $101,116,074 to an estimated year
    end receivable for fiscal year 1998 of $68,838,323. This represents a
    32 percent reduction in the estimated year end receivable from fiscal
    year 1997 to fiscal year 1998.
                             funding the ace system
        Question. The fiscal year 2000 budget proposes a fee for the use of
    Customs automated systems. The fee would be charged to users of the
    Customs automated system and would be based on the amount of user data
    input. This fee would offset the cost of modernizing the automated
    system.
        Has the authorizing legislation to establish these fees been
    transmitted to the appropriate authorizing committees?
        Answer. No, the authorizing legislation has not yet been
    transmitted to the committees.
        Question. When will that legislation be transmitted to Congress if
    offered by the Department?
        Answer. The Administration is preparing a package to be sent to the
    Congress which includes proposed legislative changes and new user fees
    to support all the fee proposals included in the President's Budget.
                        international trade data systems
        Question. The International Trade Data System (ITDS) is a Federal
    government information technology initiative to implement an
    integrated, government-wide system for the electronic collection, use,
    and dissemination of international trade and transport data. What is
    the problem with the current environment that the ITDS will correct?
    What trade agency missions will ITDS support? How will ITDS be funded?
        Answer. There are several problems with the current environment.
    One is that multiple agencies of the federal government, in carrying
    out their enforcement or regulatory responsibilities at the border,
    impose paperwork (data reporting and record keeping) requirements that
    duplicate requirements of other agencies. The cumulative effect of
    these requirements, imposed in an uncoordinated manner, places a
    substantial burden on private commercial parties and on the economy as
    a whole. The duplication of efforts also causes unnecessary costs for
    the Federal government.
        A second problem is that the lack of coordination among agencies in
    collecting and using information reduces their effectiveness in
    carrying out their enforcement and regulatory missions at the border.
    Some of the methods by which agencies compensate for these limitations
    create yet more burdens on the trade.
        Finally, the current environment does not produce for Congress, the
    Executive Branch, or the public the kind of consistent, timely data on
    international trade that they need to make policy and business
    decisions.
        ITDS is aimed at (1) reducing the cost and burden of processing
    international trade transactions and transport for both government and
    the private trade community by substituting standard electronic
    messages for the multiple and redundant reporting-often on paper form-
    that occurs today; (2) improving administration of laws and regulations
    that apply at the border to carriers (for example, highway safety and
    vessel clearance), people (drivers and crews of commercial
    conveyances), and goods (several hundred laws including those
    addressing public health and safety, animal and plant health, consumer
    protection, enforcement of trade agreements, etc.); and (3) providing
    convenient access for Congress, Executive Branch agencies, and the
    public to international trade data that are more accurate, complete,
    and timely.
        ITDS will support the missions of all Federal agencies that have
    responsibilities for regulating the movement of goods, people, or
    carriers into or out of the United States. It will also support the
    missions of Congressional and Executive Branch staff who need
    convenient access to better and more timely data in order to make
    decisions about legislation or other policymaking.
        Development of the ITDS to date has been paid for out of direct
    appropriations to the Treasury Department. The fiscal year 2000 Budget
    proposes to fund ITDS through user fees in fiscal year 2000 and fiscal
    year 2001.
                                     ______

                                   U.S. Mint
                     Questions Submitted by Senator Dorgan
                      lewis and clark commemorative coins
        Question. What is the status of the legislation issuing a Lewis and
    Clark commemorative coin?
        Answer. The Lewis and Clark Commemorative Coin legislation is
    currently pending before the House Banking Subcommittee on Domestic and
    International Monetary Policy.
        Question. Last year there were some problems on the mintage level.
    Have those problems been resolved?
        Answer. These issues have been resolved. The current legislation
    calls for 500,000 one-dollar silver coins, which is within the
    specified guidelines of the Commemorative Coin Reform Act of 1996.
                                  dollar coin
        Question. How are things proceeding on the dollar coin? Have the
    designs been confirmed?
        Answer. The Mint is on schedule to have the new dollar coin
    available to be distributed for public use in early 2000.
        Transitioning from the Susan B. Anthony (SBA) dollar to the
    Sacagawea dollar is expected to be successful. Minting this new dollar
    coin presents the same level of difficulty as the SBA, but the
    challenges are in different areas of production. According to a dollar
    coin study performed by Oxford and Associates, the vast majority of
    current SBA dollar coin usage is associated with the automated vending
    industry (i.e., vending machine operators, mass transit systems, car
    washes, automated postage stamp machines). The greatest challenge is to
    design an alloy with a magnetic signature that cannot be economically
    duplicated in slugs, but can be easily accommodated by vending
    machines. There are two possibilities: the Mint could develop an alloy
    that matches the SBA's magnetic signature exactly or the Mint could
    create a hard-to-duplicate signature that is completely distinct from
    the SBA. We continue to partner with the vending industry to ensure
    that the industry is ready to accept the new dollar coin alloy.
        The Secretary of Treasury charged the Dollar Coin Design Advisory
    Committee with developing a single design concept recommendation for
    the obverse of the new dollar coin. The Dollar Coin Advisory Committee
    sought public input, conducted hearings, reviewed historical United
    States coin designs, and ultimately recommended that the obverse of the
    new dollar coin bear a design of Liberty represented by a Native
    American woman, inspired by Sacagawea. The Secretary accepted their
    recommendation and asked the Mint to proceed with creating a coin
    design representing Sacagawea. The Mint commissioned over a dozen
    outside artists and Mint engravers to prepare sketches. A public
    viewing was held to narrow down the design alternatives. We solicited
    and received over 120,000 emails as well as other comments and
    preferences, including comments from the Commission on Fine Arts. This
    response rate from the public represents more input than the Mint has
    received for any other coin design. After receiving this input, several
    designs were recommended to the Secretary, who is expected to announce
    the final design decision this Spring, 1999.
        Question. When and where will they be publicly announced?
        Answer. These plans have not been finalized pending various
    scheduling requests. We anticipate that the designs will be unveiled by
    late Spring of this year.
                          Financial Management Service
                   individual indian money account litigation
        Question. As part of Treasury's statutory responsibilities they
    report the balance of the Individual Indian Money (IIM) account to
    Congress. The Interior Department who has primary fiduciary
    responsibilities for this account, selects the investment vehicles and
    make the distributions from the central account to the individual
    Indians. On June 10, 1996, a class action suit was filed by
    approximately 300,000 beneficiaries that have alleged that the
    Secretaries of Interior and Treasury have mismanaged the account.
        What are the respective roles of Interior and Treasury in
    overseeing the Individual Indian Money account? Does Treasury control
    the debits and credits made by Interior to the IIM account?
        Answer. By statute, the Secretary of the Interior has complete
    responsibility for managing the IIM funds. Since the IIM account at
    Treasury is a deposit fund account, Treasury does not control whether
    funds are deposited into or withdrawn from the account. Therefore,
    Interior deposits funds received from outside sources, for example,
    from leases and royalties, into either the IIM deposit fund account at
    Treasury or into accounts held outside of Treasury. Interior also has
    statutory authority to disburse payments from the IIM deposit fund
    account at Treasury to individual Indians and issues Treasury checks to
    individual Indians. In addition, Interior determines how funds in the
    IIM deposit fund account should be invested and either directs Treasury
    to invest in Government securities with a maturity specified by
    Interior or Interior invests the IIM funds itself outside of Treasury.
        Treasury has three roles with respect to the IIM deposit fund
    account. First, as part of Treasury's statutory responsibilities to
    provide central accounting and reporting to Congress, Treasury reports
    to Congress the total IIM deposit fund account balance. The total
    balance is based on information Treasury receives from Interior which
    reflects net withdrawals from and deposits to the IIM deposit fund
    account. Second, at the direction of Interior, Treasury invests IIM
    funds in Government Account Series securities. Third, Treasury reports
    to Interior--as it does for all Government agencies--the status of
    outstanding checks, that Interior writes on the IIM deposit fund
    account which are not negotiated within one year from date of issuance.
    Treasury recredits unnegotiated funds to Interior, and all other
    Government agencies, through Limited Payability Cancellations. Funds
    are recredited because the payee's entitlement to the funds still exist
    and the agency is responsible for maintaining records on the recredited
    funds.
        Question. What is the status of the litigation?
        Answer. On February 22, 1999, the court issued an order after a
    contempt hearing held in January 1999, that held the Secretary of the
    Treasury, the Secretary of the Interior and the Assistant Secretary for
    Indian Affairs at Interior in civil contempt based on the failure to
    substantially comply with the Court's November, 1996 document
    production order.
        The court acknowledged that Treasury was not asked to produce
    canceled checks until early November 1998 and that Treasury's
    compliance is dependent on receiving certain prerequisite information
    from the Department of the Interior.
        A trial date has been set for June 10, 1999, to address the issue
    of ``fixing'' the Interior trust accounting system. A second trial date
    will be set at a later time to address the issue of providing a proper
    accounting to the IIM beneficiaries.
        Question. What has Treasury done to bring itself into compliance
    with the court's order?
        Answer. Treasury has produced and delivered to the Department of
    Justice all information that it can identify as being responsive to the
    Court's discovery order. However, in response to the Court's contempt
    order, Treasury has filed a document production protocol with the
    Special Master appointed by the Court to oversee document production.
    The protocol provides that when the prerequisite information is
    received from Interior, Treasury will search its systems to determine
    if the checks were negotiated.
        In addition, Treasury has selected an individual to serve as
    project manager for document production in this litigation. This
    individual's responsibilities include working with the Legal Division
    and the Special Master to ensure that, with respect to Treasury,
    discovery in the litigation proceeds promptly, efficiently, and without
    inadvertent destruction of relevant records.
        Question. What agency is responsible for auditing the account? Does
    Treasury have responsibility for independently auditing the account
    balance?
        Answer. The Department of the Interior is responsible for auditing
    this account because this account is included on the Department of
    Interior's financial statement.
        Treasury does not have responsibility for independently auditing
    the account balance.

                              SUBCOMMITTEE RECESS

        Senator Campbell. Mr. Secretary, thank you very much for
    appearing.
        Secretary Rubin. Thank you, Mr. Chairman.
        Senator Campbell. This subcommittee is recessed.
        [Whereupon, at 11:11 a.m., Thursday, March 25, the
    subcommittee was recessed, to reconvene at 9:33 a.m., April
    15.]

      TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2000

                                  ----------

                            THURSDAY, APRIL 15, 1999

                                           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. Ben Nighthorse Campbell (chairman)
    presiding.
        Present: Senators Campbell, Kyl, and Dorgan.

                           DEPARTMENT OF THE TREASURY

    STATEMENT OF JAMES E. JOHNSON, UNDER SECRETARY OF THE
                TREASURY (ENFORCEMENT)

                      OPENING REMARKS OF SENATOR CAMPBELL

        Senator Campbell. Good morning. The Treasury Subcommittee
    will be in session. This is the final hearing of the Treasury
    and General Government Appropriations Subcommittee for this
    fiscal year. Today we will hear from the Department of the
    Treasury law enforcement bureaus, including Customs, ATF,
    Secret Service, FLETC, and FinCEN.
        There are a number of new people with us here this morning.
    But before I talk about them, I would like to welcome a very
    special group of guests in our audience. If they would stand
    up. They are the students from the Academy of Law, Justice, and
    Security at Anacostia High School. We are very happy to see
    you.
        This academy provides these students with an in-depth study
    of law enforcement and the criminal justice system in
    partnership with many of the law enforcement agencies that are
    here testifying this morning. For you young people, as you look
    towards your future in law enforcement, I would suggest you
    consider the Secret Service. Who knows, you may go from there
    to being the heads of some of the agencies that you see sitting
    here, and then you can sit in front of this committee and be
    scalded regularly about the budget. [Laughter.]
        In any event, we are very happy that you are here this
    morning, and I would like to welcome you and recognize LaKeda
    Martin, Michael Matthews, David Craddick, Kelly Bryant, Al
    Ashby, Mary Watson, Andrew Washington, and Cameron Shield.
    Thank you.
        I would also like to welcome Mr. Johnson, who has been at
    Treasury for quite a while. I think it has been about three
    years, Mr. Johnson, but this is the first time that he has
    appeared in front of this committee, and we will be looking
    forward to talking to him.
        The new director of the Secret Service, Brian Stafford, who
    has been the director for about a month and-a-half. I
    understand Brian, by the way, to my colleagues, that our new
    head of the Secret Service is a big biker, as I am. So I am
    looking forward to going riding with him.
        Jim Sloan, who was sworn in as the director of the
    Financial Crimes Enforcement Network, or FinCEN, just about
    three days ago, so we will be rather gentle for your first
    appearance here.
        And John Magaw, my friend who has been here so many times
    before us, the director of the Bureau of Alcohol, Tobacco, and
    Firearms. Welcome back.
        Ralph Basham, who has taken over the responsibility for
    FLETC. We met with you once last year. Glad to have you back.
        And Ray Kelly, who switched roles and is now the
    commissioner of Customs.
        Today is tax day in this committee, and as I was preparing
    for this hearing it occurred to me that many of our Treasury
    law enforcement agencies work hand in hand in trying to reduce
    the individual tax burden. As an example, the Customs Service
    is responsible for collecting about $22 billion in revenue. ATF
    collects $12.5 billion in taxes and fees.
        The consolidation of the majority of Federal law
    enforcement training under the FLETC umbrella saves an
    estimated $160 million a year, not to mention that all the
    Federal law enforcement agencies are helping to protect
    taxpayers from losing some of their hard-earned money because
    of schemes, frauds, misrepresentations, thievery, and assorted
    efforts by those people that would rather prey on their fellow
    man than work for a living.
        This is going to be a difficult bill. The needs are great.
    Resources are not there as much as we would like them to be.
    But it is not a matter of deciding whether to fund it or not,
    or to go with some kind of whiz-bang technology or some
    important initiative. It will simply come down to trying to
    decide what programs have to be reduced or eliminated to stay
    within our caps and to accommodate greater needs.
        In any event, I am looking forward to all the testimony
    here and I will ask Senator Dorgan if he has an opening
    statement.
        Senator Dorgan. Mr. Chairman, thank you very much.
        I would say to Mr. Stafford that I traveled all of last
    week with Senator Campbell, and it did not matter where we were
    in the world, he was looking for a Harley Davidson.
        I appreciate very much the appearance of the students.
    Welcome to Capitol Hill this morning. And welcome the
    witnesses.
        Most Americans, I believe, have scant understanding that a
    substantial portion of our Federal law enforcement is in the
    Treasury Department. Our job, of course, as appropriators, is
    to make certain that the money we appropriate here is used for
    good purpose and to accomplish important goals for our country.
        I would say from the review that I have done, Mr. Chairman,
    that the agencies before us here have a proven track record in
    combating crime, and I am very appreciative of their efforts
    and the efforts of their many agents, the men and women around
    this country who do dedicated work often at risk to themselves.
    I think it is important for us to say we appreciate that work.
        The initiatives that will be discussed today and for which
    we will appropriate money are as diverse as investigations into
    forced and child labor. That is done over in the Customs
    agency. Youth crime gun interdiction initiative, which is ATF.
    And so many others. I know that each of these agencies have
    some very valuable and some very important programs to discuss
    with us today. I look forward to hearing from them.
        My hope is that we can once again, through these hearings,
    not only determine what kind of funding we want for the current
    initiatives, but to evaluate with these agencies what kind of
    additional initiatives might be appropriate to further complete
    their mission. So I want to thank them.
        Mr. Johnson, welcome to you. And Mr. Kelly, Mr. Magaw, and
    Mr. Stafford, thank you for appearing today.
        Senator Campbell. Senator Kyl, I know you can only be with
    us a short time this morning because of a conflict. Did you
    have some comments?
        Senator Kyl. Yes, thank you, Mr. Chairman. I would advise
    the witnesses, unfortunately, that we are marking up the
    bankruptcy bill in the Judiciary Committee and that is a big
    deal and I am going to have to go in just a few minutes to
    that. But I thank you very much, Mr. Chairman. I will look
    forward to reading the testimony.
        Senator Campbell. Okay, with that we will go ahead and
    start. The first panel will be the Honorable James Johnson,
    Under Secretary of the Treasury, the Honorable Ray Kelly,
    Commissioner of the United States Customs Service, John Magaw,
    the director of the BATF, and Brian Stafford, director of the
    Secret Service. So why don't we just start in that order with
    Mr. Johnson first.

                      UNDER SECRETARY'S OPENING STATEMENT

        Mr. Johnson. Thank you, Mr. Chairman, Senator Dorgan,
    Senator Kyl. It is a pleasure for me to be able to appear
    before you this morning to support the fiscal year 2000 budget
    for Treasury's law enforcement bureaus and offices. With me are
    the heads of each of Treasury's law enforcement bureaus, John
    Magaw, the director of the Bureau of Alcohol, Tobacco, and
    Firearms; Ray Kelly, the commissioner of the U.S. Customs
    Service; Ralph Basham, the director of FLETC, the Federal Law
    Enforcement Training Center.
        And we are pleased, more than pleased, to be joined by two
    new members of the Treasury enforcement team, Brian Stafford,
    the director of the U.S. Secret Service, and James Sloan, the
    new director of the Financial Crimes Enforcement Network. I
    believe as you get to know the new members of the team you will
    find that we have strengthened Treasury's enforcement team with
    the addition of these two members. Both were appointed by the
    Secretary within the last month. Both bring a wealth of law
    enforcement experience to the challenge of their new roles.
        Mr. Chairman, I would ask that my full written statement be
    entered into the official record of these proceedings.
        Senator Campbell. Without objection, all statements will be
    included in the record. You may all wish to abbreviate.

                        TREASURY LAW ENFORCEMENT MISSION

        Mr. Johnson. What I would like to do is take the remainder
    of my time to share briefly with you my thoughts summarizing
    that statement. And of course, I would be available for
    questions and to discuss the issues as we proceed.
        Each year, as the world becomes a more complex place,
    Treasury's law enforcement mission grows in complexity, and
    scope, and in importance. Secretary Rubin has repeatedly noted
    that our bureaus must continue to meet these challenges as they
    perform their critical role in advancing America's law
    enforcement priorities, which include but are not limited to,
    as you noted in your opening statements, protecting our
    leaders, protecting our borders from drug traffickers, and our
    streets from the threats of bombs, arson, and gun violence,
    safeguarding our financial institutions from money launderers
    and fraud, and importantly, collecting revenue.
        To ensure excellence in achieving these missions and in
    keeping with the spirit of the National Performance Review and
    the Government Performance and Results Act, Treasury continues
    to engage in a comprehensive, strategic management process to
    enhance and improve the results we deliver every day to the
    American people. Overall, the bureaus performances against
    established strategic plans have been excellent, and while not
    every goal was met, our results were very significant.
        With the objective in mind of continuing to perform our
    varied mission at the highest level of excellence, the
    President's fiscal year 2000 budget seeks a Treasury
    enforcement program level of approximately $3.5 billion, which
    would support 27,422 direct FTEs. This excludes, of course, the
    Internal Revenue Service criminal investigative division. They
    perform an integral role in Treasury law enforcement and their
    budget request is $384.3 million which would support
    approximately 4,049 FTE.
        We believe these budget requests take a pragmatic approach
    to two goals, contributing to balancing the Federal budget and
    supporting effective approaches to law enforcement. It is also
    important to note that the requested Treasury program level
    allows us to combat crime while depositing more than $34
    billion in revenues collections into the U.S. Treasury. This is
    a tremendous return on investment.

                      OFFICE OF ENFORCEMENT STRATEGIC PLAN

        Mr. Chairman, I will focus in the remainder of my time on
    two things. First, the Office of Enforcement and the goals of
    our five-year strategic plan developed by the bureaus in
    conjunction with the Office of Enforcement. This format
    highlights our bureaus specific requests and areas of
    expertise, as well as our cross-cutting expertise on financial
    crimes matters.
        As you know, through the strategic management process,
    Treasury Enforcement, all of us together have developed a set
    of five goals that provide a comprehensive overview of our
    bureaus' mission: reducing the trafficking, smuggling, and use
    of illicit drugs; combating financial crimes and money
    laundering; fighting violent crime; protecting our Nation's
    leaders and visiting world leaders; and providing high quality
    training for law enforcement personnel. The Office of
    Enforcement's goal is to assist our bureaus in enhancing their
    performance in the context of these overarching goals.
        What do we do in the Office of Enforcement? We recognize
    that the role of our enforcement bureaus is enhanced through
    the support, oversight, and policy guidance provided at the
    departmental level. In this regard, I am pleased to report that
    the Office of Enforcement has worked diligently over the past
    year to fulfill these responsibilities.

                         OFFICE OF ENFORCEMENT--SUPPORT

        I will talk first about support. As Senator Dorgan
    mentioned, it is often the case that the substantial contingent
    of Federal law enforcement within the Treasury Department is
    not always given as high a prominence in discussions about law
    enforcement. So part of our goal is to provide support for
    these bureaus.
        Over the past year we have worked in support of each of our
    bureaus individual goals as well as for the advancement of
    issues of significance to all of the enforcement bureaus. We
    have done this by bringing together working groups including
    bureau personnel to work on challenging issues. Such working
    groups have addressed issues ranging from the development of a
    fleet management policy, to the development of an
    implementation plan for the demonstration pay project.
        We also provide and need to provide oversight. During the
    course of the last year we have worked with our bureaus to
    identify issues before they have become problems, and to work
    on problems before they become crises. This subcommittee's
    support of the Office of Professional Responsibility is helping
    us to meet this goal.
        Since receiving funds in the fiscal year 1998
    appropriations bill, we have made considerable progress in
    staffing this unit, which assists in the provision of oversight
    on such important issues as internal affairs, training, and
    inspection.

                     OFFICE OF PROFESSIONAL RESPONSIBILITY

        Among other things, OPR has carried out work begun by
    former Under Secretary Raymond Kelly by continuing to make
    integrity a priority. Indeed, last February, fulfilling a
    Congressional request, OPR issued a report on Customs' Office
    of Internal Affairs. This study represents a thorough and
    comprehensive analysis and reflects the important oversight
    role this subcommittee and Congress envisioned for OPR.
        Additionally, during the past year OPR has worked with ATF
    to enhance its enforcement of firearms laws, and operations at
    the National Tracing Center. We have analyzed EEO and diversity
    issues at all of the Treasury bureaus, and participated in the
    implementation committee overseeing the renewal of the Federal
    Law Enforcement Training Center.

                     OFFICE OF ENFORCEMENT--POLICY GUIDANCE

        A third major function of the Office of the Enforcement is
    providing policy guidance, providing leadership in the
    formulation and coordination of policy for Treasury
    Enforcement. In the last year, we have convened the financial
    crimes policy steering committee, which again brings together
    the bureaus as well as Office of Enforcement personnel, to look
    at financial crimes policy across our bureaus. This group is
    developing a strategic response to what we believe to be a
    dangerous and highly profitable money laundering system, the
    black market peso exchange, which is a process by which
    Colombian narcotraffickers, drug kingpins, convert their ill-
    gotten dollars into ostensibly clean pesos.
        The financial crimes policy steering committee is also the
    primary vehicle by which the Office of Enforcement is leading
    the development of a national strategy against money
    laundering.
        We have taken other steps to enhance our support and
    oversight missions. Among other activities, we continue to work
    closely with Customs, with ONDCP and others, to ensure close
    cooperation on anti-narcotics matters. We have maintained a
    lead role within the Administration on the national church
    arson task force. And in conjunction with the ATF and the
    Department of Justice we have responded to the President's
    directive to analyze the problems on a variety of firearms
    issues.
        On the trade and regulatory side, the Office of Enforcement
    has taken the lead in initiatives to streamline and modernize
    the regulatory and trade law enforcement operations of the
    enforcement bureaus.

                 HIGHLIGHTS OF LAW ENFORCEMENT BUREAU MISSIONS

        You have before you the bureau heads who will go through
    and detail their missions. I would just like to highlight how
    their missions fit into our overall strategic plan.
        Goal one of the strategic plan is to reduce the
    trafficking, smuggling, and use of illicit drugs. The Customs
    Service has the primary role for the Treasury Department and
    one of the primary roles for the Nation in interdicting drugs
    and other contraband at the border, and in ensuring that all
    goods and persons entering and exiting the United States do so
    in accordance with the law.
        The Customs Service discovers or seizes more illegal drugs
    than all Federal authorities in the United States combined
    every single year. Customs seized over 1 million pounds of
    cocaine, heroin, and marijuana in fiscal year 1998, exceeding
    its target of 953,000 pounds.
        Goal two, combating financial crimes and money laundering.
    One of the Treasury Department's most important missions is the
    fight against money laundering and financial crimes. In
    addition to its substantial efforts to counter illicit drugs,
    Customs also plays a vitally important role in combatting money
    laundering.
        The Financial Crimes Enforcement Network also plays a
    significant role in Treasury's efforts to fight financial crime
    and to fight money laundering. As a network, FinCEN is a vital
    link between the law enforcement, financial, and regulatory
    communities. It brings together Government agencies and the
    private sector in this country and around the world to maximize
    information sharing among these communities, and thereby
    further efforts to prevent and detect money laundering
    activities.
        Your support for FinCEN's fiscal year 2000 budget request,
    as well as your support for the Customs Service's fiscal year
    2000 budget request will further strengthen the quality of our
    efforts in this area.
        Goal three, fighting violent crime. One of the goals of the
    Clinton Administration has to be to reduce violent crime on our
    Nation's streets. During fiscal year 1998, ATF received over
    180,000 gun trace requests from Federal, State, local, and
    international law enforcement agencies.
        It also expanded its youth crime gun interdiction
    initiative from 17 to 27 cities. We are grateful for the
    support that this committee has already provided to that very
    important program which is designed to supplement and
    strengthen ATF's illegal firearms trafficking program. We ask
    that you support the expansion of the program for an additional
    10 cities for a total of 37 cities in fiscal year 2000.
        I would also like to note in this context that the efforts
    to fight violent crime in Treasury Enforcement bureaus extend
    beyond the ATF: To provide effective responses to fighting
    terrorist attacks; guarding against the smuggling of weapons of
    mass destruction; enforcing laws directed at the most common
    instruments of terror; protecting potential terrorist targets;
    and enforcing economic sanctions against countries and groups
    that promote terrorism.
        Treasury's central role in the counter-terrorism effort is
    performed by the ATF, by the Secret Service, by the Customs
    Service, by the Office of Foreign Assets Control, by FinCEN,
    and by FLETC; all of our enforcement bureaus.
        Our fourth goal is to protect our Nation's leaders and
    visiting world leaders. During fiscal year 1998, the Secret
    Service successfully managed protective service for its
    protectees as well as for several major events. In the last
    year, the President signed Presidential Decision Directive 62
    which names the Secret Service as the lead agency for security
    design, planning, and implementation at designated national
    special security events.
        During fiscal year 2000, the Service will continue its
    preparations for the 2000 presidential campaign and has
    budgeted $35.247 million to come from the department's asset
    forfeiture fund to cover the cost of providing protection for
    the candidates and nominees involved in campaigns and the two
    national party conventions.
        Finally, all of this would not be possible without meeting
    our fifth goal, which providing high quality training for law
    enforcement personnel. One of the reasons that the Treasury law
    enforcement is so successful is the quality of training that
    its agents receive and its inspectors receive at the Federal
    Law Enforcement Training Center.
        Currently, 71 agencies participate in more than 200
    different training programs at the FLETC. Additionally, FLETC
    has been involved in providing law enforcement training
    overseas for 20 years and has trained more than 5,000 foreign
    law enforcement officials for more than 102 different
    countries.
        As reflected in this overview of bureau activities, the
    responsibility of Treasury law enforcement is wide-ranging.
    Guided by the five strategic goals set forth previously, we in
    our bureaus remain committed to ensuring that Treasury
    Enforcement remains at the vanguard of Federal law enforcement
    into the 21st century and beyond.
        The President's budget request will enable Treasury law
    enforcement bureaus to work toward meeting the challenges that
    we all face together. I am confident that you will find this to
    be a responsible budget as it considers the growing demands of
    law enforcement in the constrained budget environment.

                               PREPARED STATEMENT

        I would like to express my appreciation for all the support
    this committee has provided to Treasury Enforcement in the
    past, and I would be pleased, Mr. Chairman, to answer any
    questions that you and members of the committee have at this
    time or after you have heard from the Treasury Enforcement
    bureau heads. Thank you very much.
        [The statement follows:]
                     Prepared Statement of James E. Johnson
        Thank you Mr. Chairman, Senator Dorgan, and members of the
    Subcommittee. It is a pleasure for me to be here today to support the
    fiscal year 2000 budget for Treasury's law enforcement bureaus and
    offices.
        With me today are the heads of the Treasury law enforcement
    bureaus: John W. Magaw, Director of the Bureau of Alcohol, Tobacco and
    Firearms (ATF); Raymond W. Kelly, Commissioner of the United States
    Customs Service (USCS), and W. Ralph Basham, Director of the Federal
    Law Enforcement Training Center (FLETC). We are pleased to be joined by
    two new members of the Treasury Enforcement Team: Brian L. Stafford,
    Director of the United States Secret Service (USSS), and James F.
    Sloan, Director of the Financial Crimes Enforcement Network (FinCEN).
    Both were appointed by Secretary Rubin last month. Both bring a wealth
    of law enforcement experience to the challenges of their new roles.
        I welcome this opportunity to share with you my thoughts on
    Treasury Enforcement's mission today and into the 21st century, and on
    how President Clinton's fiscal year 2000 budget request supports us in
    achieving this mission.
        Each year, as the world becomes a more complex place, Treasury's
    law enforcement mission grows in complexity, scope and importance.
    Secretary Rubin has repeatedly noted that our bureaus must continue to
    meet these challenges as they perform their critical role in advancing
    America's law enforcement priorities, which include, but are not
    limited to, protecting our leaders, protecting our borders from drug
    traffickers and our streets from the threat of bombs, arson, and gun
    violence, safeguarding our financial institutions from money launderers
    and fraud, and collecting revenue.
        To ensure excellence in achieving these missions, and in keeping
    with the spirit of the National Performance Review and the Government
    Performance and Results Act, Treasury continues to engage in a
    comprehensive strategic management process to enhance and improve the
    results we deliver to the American people. Overall, the bureaus'
    performances against established strategic plans were excellent. And
    while not every goal was met our results were very significant.
        With the objective in mind of continuing to perform our mission at
    the highest level of excellence, the President's fiscal year 2000
    budget seeks a Treasury Enforcement program level of $3.5 billion and
    27,422 direct FTE, excluding the Internal Revenue Service Criminal
    Investigation Division (IRS/CID). IRS/CID, however, does play an
    integral role in Treasury law enforcement efforts with its fiscal year
    2000 $384.3 million and 4,049 FTE request. We believe the President's
    budget request takes a pragmatic approach to two goals. On one hand, it
    permits Treasury to contribute substantially towards balancing the
    federal budget. On the other, it supports effective approaches to law
    enforcement. Also, it is important to note that the requested Treasury
    program level allows us to combat crime while depositing more than $34
    billion in revenues and collections into the U.S. Treasury. This is a
    tremendous return on investment.
        My remarks today will focus on two things: the role of the Office
    of Enforcement and the goals of our five-part strategic plan that was
    developed by the bureaus working with the Office of Enforcement. This
    format highlights our bureaus' specific areas of expertise, activities
    and budget requests, as well as our cross-cutting expertise on
    financial crimes matters. During my testimony, I will highlight several
    key initiatives that Treasury is undertaking in the law enforcement
    context.
                             office of enforcement
        We recognize that the role of our enforcement bureaus is enhanced
    through the support, oversight and policy guidance provided at the
    Departmental level. In this regard, I am pleased to report that the
    Office of Enforcement has worked diligently over the past year to
    fulfill these responsibilities, and has a plan in place for maximizing
    such efforts over the next year.
    Support
        Over the past year, we have worked to support each of our bureaus'
    individual goals, as well as for the advancement of issues of
    significance to all of the enforcement bureaus. We have often done this
    by bringing together working groups including bureau personnel, to work
    on challenging issues. Many of these efforts are led by bureau
    personnel either dedicated to the project or detailed to the Office of
    Enforcement to work on such matters.
        For example, working groups consisting of personnel from the Office
    of Enforcement, the Office of Management and the enforcement bureaus
    developed a fleet management policy that balances the needs of law
    enforcement with Congressional concern for assurance that vehicles are
    being used in conformity with sound management principles. A combined
    team of Enforcement and Management staff recently reported to the
    Subcommittee on the results of those efforts. Similarly, a working
    group was formed to develop an implementation plan for the
    demonstration pay project. It is our hope that the use of personnel
    interventions identified by this working group will enable us to
    improve our capacity to recruit, develop, and retain high-caliber
    employees. Finally, the Office of Enforcement, Office of Management,
    and enforcement bureau representatives have jointly undertaken a major
    effort to respond to the Congressional request that we analyze the
    implications of the imminent agent retirements.
    Oversight
        Over the last year we have worked with our bureaus to identify
    issues before they become problems, and work on problems before they
    become crises. The Office of Professional Responsibility (OPR) is
    helping us to meet this goal. Since receiving funds in the fiscal year
    1998 appropriations bill, we have made considerable progress in
    staffing this unit, which assists in the provision of oversight on such
    important issues as internal affairs, training and inspection. Among
    other things, OPR has carried on work begun by former Under Secretary
    Kelly, by continuing to make integrity a priority. Indeed, last
    February, fulfilling a Congressional request, the Office of Enforcement
    issued an OPR report on Customs' Office of Internal Affairs. This study
    represents a thorough and comprehensive analysis and reflects the
    important oversight role envisioned for OPR.
        Additionally, during the past year, OPR has worked with ATF to
    improve enforcement of the firearms laws and operations at the National
    Tracing Center, analyzed EEO and diversity issues at the Treasury
    bureaus, and participated in the Implementation Committee overseeing
    renewal of the FLETC. OPR also conducted an assessment of training at
    the Customs Service. Its findings and recommendations fully support
    Commissioner Kelly's decision to establish an Office of Training at the
    Assistant Commissioner level.
    Policy Guidance
        A third major function of the Office of Enforcement is to provide
    leadership in the formulation and coordination of policy for Treasury
    Enforcement. In this regard, in the past year, we convened the
    Financial Crimes Policy Steering Committee which consists of
    representatives from all of the Treasury Bureaus and offices, at the
    Assistant Director level, who are tasked with helping to formulate
    policy in the area of Treasury's financial crimes jurisdiction. Among
    other things, I have tasked this group with the development of a
    strategic response to what we believe to be an insidious money
    laundering system, the Black Market Peso Exchange, which is a process
    by which Colombian narcotraffickers convert their ill-gotten dollars
    into ostensibly clean pesos. On a broader level, this group is the
    primary vehicle by which the Office of Enforcement is leading the
    development of a nationwide strategy against money laundering.
        As a former prosecutor, I understand that the effectiveness of our
    bureaus is constrained by the legal and administrative infrastructure
    under which they operate. We are working to ensure that those rules
    function to make our bureaus work as effectively as possible. For
    example, the impact of successful investigation may be undercut by
    Sentencing Guidelines that do not adequately reflect the severity of
    the crime. The Office of Enforcement and General Counsel within
    Treasury have been working with our bureaus to formulate and recommend
    to the Sentencing Commission certain changes in the Guidelines.
        The Office of Enforcement also has taken other steps to enhance its
    support and oversight missions. Among other activities, we continue to
    work closely with Customs, ONDCP, and others to ensure close
    cooperation on anti-narcotics matters; we have maintained a lead role
    within the Administration on the National Church Arson Task Force; and
    in conjunction with ATF and the Department of Justice, we have
    responded to the President's directive to analyze the problem of the
    gun show loophole, and remain at the forefront on firearms issues.
        On the trade and regulatory side, the Office of Enforcement has
    taken the lead in initiatives to streamline and modernize the
    regulatory and trade law enforcement operations of the enforcement
    bureaus. In recent years, Treasury has been a major force behind
    changes to the way the alcoholic beverage industry and the firearms
    industry are regulated by ATF, re-organization of the Customs Service
    to provide better service to the public, re-invention of Customs'
    business processes for both import and export transactions, and
    Customs' enforcement of intellectual property laws.
        More globally, the Office of Enforcement represents the United
    States in an initiative by the G7 governments to develop standard
    electronic documentation for trade among the G7 countries. This
    initiative will greatly simplify the experience of exporting for small
    U.S. companies, and it will reduce the expense of international
    transactions for all U.S. businesses.
        Providing key support, sensible oversight, and sound policy
    guidance are the principles that govern the work of the Office of
    Enforcement. I trust they will become clear as we discuss in greater
    detail the implementation of Treasury Enforcement's strategic plan.
    Goal: Reduce the Trafficking, Smuggling and Use of Illicit Drugs
        Treasury brings essential counter-narcotics and money laundering
    expertise to the implementation of all aspects of the President's
    comprehensive anti-drug strategy. Customs plays a leading role in the
    fight against illicit drugs through our anti-smuggling efforts at the
    border and our substantial air support to interdict illegal narcotics
    at the source. Treasury's anti-narcotics role is also pursued through
    anti-money laundering activities, efforts to reduce narcotics-related
    violent crime, and demand reduction programs. The following examples
    highlight in greater detail the roles our individual bureaus play in
    Treasury's efforts to achieve the goal of reducing trafficking,
    smuggling, and use of illicit drugs.
        The Customs Service has the primary role for the Treasury
    Department--and one of the primary roles for the United States--in
    interdicting drugs and other contraband at the border, and in ensuring
    that all goods and persons entering and exiting the United States do so
    in accordance with the law. The Customs Service discovers or seizes
    more illegal drugs than all federal authorities in the United States
    combined each year.
        Customs has tremendous responsibilities. As you know, Customs must
    deal with significant challenges in its efforts to execute its drug
    interdiction mission. For example, the Customs Service processed over
    460 million people, over 139 million land, air and sea carriers, and
    $955 billion worth of imported merchandise. Customs performed the
    initial checks, processes, and enforcement functions for over 40
    federal agencies and applied hundreds of laws and regulations. It
    performed these tasks by servicing more than 300 ports of entry
    sprawled across 7,000 miles of land border, and also provided air
    support to the U.S. Government's source control efforts in South and
    Central America. Customs pursued all of these enforcement missions
    while collecting approximately $22 billion in revenue for the United
    States in the form of duties, taxes, and fees.
        Customs constantly strives to improve its ability to stem the flow
    of drugs while dealing with the increasing volumes of cargo and
    passengers into and out of the United States. Indeed, the number one
    operational priority for the Customs Service is preventing the
    smuggling of narcotics into the United States. It pursues this mission
    through interdiction, intelligence and investigative capabilities that
    disrupt and dismantle smuggling organizations. Customs seized 1,116,000
    pounds of illegal drugs in fiscal year 1998, exceeding its target of
    953,000 pounds. Customs' increase in seizures resulted, in large
    measure, from Operation Brass Ring, a six month effort to increase the
    amount of narcotics seized.
        Customs will continue to develop the capabilities to meet the
    ongoing smuggling threats on our southwest land border, in the
    Caribbean, and at all borders and ports of entry across the country.
    Customs also remains an active participant in multi-agency criminal
    investigations, and continues to strengthen its partnerships with the
    private sector, cooperative foreign governments and other federal
    agencies in order to continue its active role to counter narcotics
    smuggling.
        Customs' fiscal year 2000 budget proposal includes increases for
    integrity awareness and training initiatives, and non-intrusive
    inspection technology and automation, all of which will help us achieve
    our goal of maintaining the best possible workforce while reducing the
    trafficking and smuggling of illicit drugs in an effective and
    efficient manner.
        We also are proud of such efforts as ATF's campaign against armed
    narcotics traffickers, through its Achilles Program, and Youth Crime
    Gun Interdiction Initiative, the work of all of our bureaus on HIDTA
    and ICDE task forces, the use of our financial crimes expertise to
    attack the financial underpinnings of the drug trade, and valuable
    prevention efforts such as ATF's GREAT program.
    Goal: Combat Financial Crimes and Money Laundering
        One of the Treasury Department's most important missions is the
    fight against money laundering and financial crimes. Treasury's unique
    structure permits us to use both our regulatory and investigative
    expertise to follow the money trail and thus undermine criminal
    enterprises. Since our last appearance before you, there have been
    several developments in this area. For example, as mentioned earlier,
    the Treasury Department, in conjunction with federal, state, local and
    private sector entities, is now in the final stages of developing a
    national money laundering strategy as directed by the Money Laundering
    and Financial Crimes Strategy Act of 1998. The Office of Enforcement
    has taken the lead role in this effort. We have reached out to other
    agencies as we have worked to develop the strategy, and we look forward
    to continuing work on its further refinement and, ultimately, its
    implementation. Indeed, we believe that the strategy will make an
    important contribution to the battle against money laundering.
        We have continued to press forward with international efforts
    against money laundering. Last May, President Clinton announced the
    Administration's International Crime Control Strategy (ICCS), which
    includes as one of its goals countering international financial crime.
    Treasury's Office of Enforcement and its law enforcement bureaus played
    an active role in the development of the ICCS and continue to play
    important roles in its implementation. As advances in technology and
    the removal of other barriers allow money to move with increasing speed
    among nations, an effective, long-term anti-money laundering strategy
    will require other nations to adopt strong anti-money laundering
    measures in the legal, regulatory, and law enforcement areas. This,
    too, is a component part of the ICCS and an area in which FinCEN, in
    particular, is actively involved. Also, we have continued to strengthen
    the capability of our bureaus to fight money laundering in a
    coordinated fashion. Treasury Enforcement's Financial Crimes Steering
    Committee, established in 1998, brings together the full spectrum of
    Treasury agencies that play a role in efforts to combat financial
    crime. This group currently oversees an interagency working group that
    is developing an action plan to combat an insidious form of drug money
    laundering--the Colombian Black Market Peso Exchange.
        In furtherance of our goal of protecting the integrity of our
    nation's financial systems, we are also focused on continuing to
    develop anti-counterfeiting strategies that employ all appropriate
    technological and investigatory methods to combat designers and
    traffickers in counterfeit currency and instruments. Working with the
    State Department, we are expanding the Secret Service's overseas
    presence to combat more effectively the burgeoning international
    criminal threat to our financial systems. We are also enhancing our
    leadership role by continuing to develop partnerships with the
    financial community and others in the private and public sectors.
    Recognizing the importance of our combined efforts to combat this
    problem, in 1998, Secretary Rubin asked Attorney General Reno and the
    Justice Department to coordinate with Treasury in working with the
    Sentencing Commission to review and enhance the guideline ranges for
    imprisonment in counterfeiting cases.
        Some of our bureaus' individual efforts in the fight against money
    laundering and financial crimes include:
                                customs service
        In addition to its substantial efforts to counter illicit drugs,
    Customs also plays a vitally important role in combating money
    laundering. During fiscal year 1998, Customs' money laundering
    investigations resulted in 1,035 arrests and 928 criminal indictments.
    Its investigative strategy is focused on disrupting two key business
    functions that are necessary for sophisticated international money
    laundering operations to function: laundering profits and investing the
    proceeds of their criminal activity. In this context, I note the
    significance of Operation Casablanca, the largest drug money laundering
    investigation in U.S. history, which to date has resulted in the
    arrests of 168 individuals. While I will defer to Commissioner Kelly to
    discuss the public details of this ongoing investigation, I note that
    this case represents a fine example of the important work that Customs
    is doing to eliminate the scourge of money laundering.
                                 secret service
        The Secret Service is the nation's lead agency in investigating
    counterfeiting, forgery, and access device fraud. As the nation's
    counterfeiting expert, the Secret Service has investigated fictitious
    financial instruments, counterfeit currency and credit card schemes
    both domestically and internationally. Because United States currency
    is counterfeited around the globe--approximately 70 percent of all
    counterfeit currency detected domestically is of foreign origin--the
    Secret Service devotes a large portion of its investigative resources
    to battling international counterfeiting issues.
        The Secret Service has learned through experience that the best
    method to manage this problem is to address counterfeit issues at their
    source, with the permanent stationing of Secret Service agents at
    foreign posts. In addition, the Secret Service leverages its resources
    by enlisting international law enforcement agencies to identify
    counterfeit currency and suppress counterfeiting plates. These efforts,
    primarily carried out through counterfeit detection seminars, have
    promoted a cooperative international law enforcement effort to detect,
    suppress and prosecute counterfeit violations.
        Moreover, to prevent financial fraud schemes, the Secret Service
    has developed and implemented longstanding and effective partnerships
    with private industry to better understand various financial systems
    and combat significant losses. Assisting the industry and their
    financial systems with ``systemic fixes,'' aggressive analysis, and
    proactive security enhancement measures has increased the overall
    security of these financial systems. Proactive joint initiatives with
    the industry, such as public awareness campaigns, media programs,
    speeches, seminars, and security training are having a positive impact.
    These partnerships have reduced the ability of criminal organizations
    to target financial institutions.
        In addition to its work with the private sector, the Secret Service
    plays an active role in law enforcement task forces aimed at
    identifying and targeting fraud schemes intended to victimize
    individuals, banks, credit card issuers, or other financial
    institutions.
                                     fincen
        While Customs, Secret Service and IRS-CID are the financial crime
    investigators, the Financial Crimes Enforcement Network serves as
    Treasury's principal support arm for such investigative efforts. As its
    name states, FinCEN is a network, a link between the law enforcement,
    financial, and regulatory communities. It brings together government
    agencies and the private sector, in this country and around the world,
    to maximize information-sharing among these communities, and thereby
    further efforts to prevent and detect money laundering activities.
        FinCEN's fiscal year 2000 budget request focuses on those programs
    that are at the core of its support to law enforcement: the Gateway
    system; direct case support to law enforcement; sophisticated research
    and analysis support to the regulatory and law enforcement communities;
    expanding the use of technology tools to research Bank Secrecy Act
    databases; expansion of secure communications; financial intelligence
    unit development; and a study to gauge the magnitude of money
    laundering. Your support for FinCEN's fiscal year 2000 budget request--
    which reflects a commitment to essential programs rather than an
    expansion into new initiatives--will strengthen the quality of the
    support that it provides to law enforcement.
                                    irs-cid
        Although IRS-CID is not a part of this appropriations hearing, I
    want to say a few words about its important contribution to Treasury's
    law enforcement efforts. Fighting financial crime is a job well-suited
    for the special agents of IRS-CID. They are known for their ability to
    ``follow the money trail'' and stop the criminal when no one else can.
    IRS-CID agents are financial experts in combating money laundering and
    tax evasion. Their expertise is sought in investigations of all types
    of financial crimes, including health care fraud, pension fraud,
    insurance fraud, bankruptcy fraud, telemarketing fraud, gaming,
    narcotics, and public corruption. IRS-CID continues to play an
    invaluable role in Treasury Enforcement's efforts to combat the range
    of financial crimes facing us, and we look forward to our continued
    partnership with them.
    Goal: Fight Violent Crime
        One of the goals of the Clinton Administration has been to reduce
    violent crime in our nation's streets. Treasury is working to fight
    violent crime by arresting the most violent armed offenders, denying
    criminals and juveniles access to firearms, reducing the risk of
    violent crime in our communities, safeguarding the public from arson
    and explosive incidents and strengthening our capability to fight
    terrorist threats to the United States. During fiscal year 1998, ATF
    received over 180,000 gun trace requests from federal, state, local and
    international law enforcement agencies. It also expanded its Youth
    Crime Gun Interdiction Initiative (YCGII) from 17 to 27 cities,
    focusing on the sources of firearms recovered from juvenile and
    youthful offenders.
        To safeguard the public from arson and explosives incidents, ATF
    maintains the highest standards of investigative expertise and state-
    of-the-art technology to respond most effectively to those incidents.
    We endeavor to prevent criminal misuse of explosives in crimes of arson
    through enforcement, regulation, and community outreach and investigate
    thefts and illegal diversion of explosives.
        On the international front, we continue to work to maintain
    appropriate firearms importation and international illegal firearms
    trafficking policies and to share crime gun tracing and anti-smuggling
    expertise with the international community in order to combat illegal
    firearms trafficking.
                                      atf
        As will be clear from Director Magaw's testimony, ATF plays the
    leading role for Treasury--indeed for the entire federal government--in
    the fight against armed violent crime. ATF is responsible for
    enforcement of the federal firearms laws as well as for regulation of
    the firearms and explosives industries. It investigates some of the
    most destructive, dangerous, and controversial crimes in the United
    States, including bombings of abortion and family planning clinics,
    church arsons, illegal firearms trafficking, and other firearms and
    explosives violations.
        In an effort to reduce violent crime, ATF focuses its investigative
    efforts on violent criminals, career criminals, armed narcotics
    traffickers, violent gang offenders, and domestic and international
    firearms traffickers that supply the illegal firearms market. It
    strives to deny criminals, gang members and juveniles access to
    firearms, safeguard the public from bombings and arson, and imprison
    violent criminals.
        Through its Violent Crime Coordinators (VCCs), ATF is focusing its
    investigations on armed recidivist and violent career criminals. The
    VCCs will continue to assist in removing the armed criminals that pose
    the greatest threat to society by identifying and investigating the
    most violent offenders, analyzing the best route to prosecution and
    working closely with the United States Attorneys' Offices to maximize
    the effectiveness of our investigative efforts.
        Through its YCGII, which was launched by President Clinton, ATF
    continues its efforts to further reduce the illegal trafficking of
    firearms to gang offenders and juveniles. As we reported to you last
    year, due to the positive reception of the program in the 17 pilot
    cities and to ATF's first comprehensive trace analysis report designed
    for agents and police departments, the 10 additional cities were added
    to the program in fiscal year 1998. We are grateful for the support you
    have already provided to this program, which is designed to supplement
    and strengthen ATF's illegal firearms trafficking program, and ask you
    to support expansion of the program for an additional 10 cities (total
    of 37) in fiscal year 2000.
        In addition, as recently announced, the Administration is working
    to deny prohibited persons access to firearms, including those sold at
    gun shows. The President's fiscal year 2000 budget includes additional
    resources for enhanced overall firearms law enforcement.
        ATF is also renowned for its expertise in the areas of arson and
    explosives. Through its certified fire investigators, National and
    International Response Teams, accelerant and explosives detection
    canine program, its accredited laboratory, its arson and explosives
    repository, and numerous other programs, ATF maintains its role as the
    leader and innovator in these areas. Its expert work on the National
    Church Arson Task Force has helped produce a 34 percent clearance rate
    for the arsons under investigation, a rate that is more than twice the
    average rate for arson crimes in general. In late 1998, the Attorney
    General established the National Task Force on Violence Against Health
    Care Providers. This joint effort is required to effectively address
    the recent increase of violence against women's health care clinics and
    their providers nationwide.
        ATF, having the largest contingency on the Task Force, contributes
    its expertise in arson, explosives and firearms and brings 16 years of
    investigating abortion clinic bombings and arson incidents. It is also
    an active participant in the Southeast Bombing Task Force, which is
    investigating, among other things, the 1996 bombing at Olympic Park in
    Atlanta.
        ATF assists state and local authorities with arson investigations
    falling under federal jurisdiction and having a significant impact on
    their community, particularly when the nature or extent of the problem
    extends beyond the available resources or expertise of the locale
    involved. ATF also provides training to other federal, state, and local
    enforcement agencies in the detection and investigation of arson,
    particularly arson-for-profit, and post-blast bombing investigation.
        To ensure that its vital work continues in as safe and secure an
    environment as possible, the President's budget supports the proposed
    new ATF headquarters building. We ask you to support this request.
    Overall, the President's fiscal year 2000 budget request will enable
    ATF to continue its critical work in the battle against violent crime.
    Counterterrorism
        One essential aspect of our anti-violent crime efforts is
    Treasury's contribution to our nation's antiterrorism fight. Treasury
    enforcement bureaus have the legal authority and the essential
    expertise to perform missions that are critical to the success of the
    counterterrorism effort. Treasury's counterterrorist activities are not
    new, but derive from authority that Treasury has exercised for decades
    and from expertise developed in the course of Treasury's longstanding
    performance of its missions.
        Treasury enforcement bureaus provide immediate and effective
    response to terrorist attacks, guard against the smuggling of weapons
    of mass destruction, enforce laws directed at the most common
    instruments of terror, protect potential terrorist targets, and enforce
    economic sanctions against countries and groups that promote terrorism.
    Treasury bureaus are equipped not only to respond to specific threats
    and attacks, but also to conduct the proactive operations within their
    areas of expertise that help defeat terrorist plans.
        Treasury's central role in the counterterrorism effort is performed
    by ATF, Customs, the Secret Service, the Office of Foreign Assets
    Control (OFAC), the FinCEN and the FLETC. As set forth above, ATF
    investigates bombing and arson cases. Customs, as the lead agency
    responsible for enforcement of anti-smuggling laws, is charged with
    preventing the illegal import or export of nuclear, hazardous, or
    otherwise illegal materials. OFAC enforces sanctions laws, including
    those directed at governments that sponsor terrorism. The Secret
    Service is responsible for protecting the President, the Vice
    President, foreign dignitaries, and other designated protectees.
        In addition, Treasury's unrivaled expertise on financial crime
    investigations provides an invaluable mechanism for sanctioning those
    who commit terrorist acts. The IRS/CID, the Secret Service and FinCEN
    figure prominently in the discovery and analysis of financial
    information about terrorists and their organizations. The IRS is also
    the sole agency responsible for investigating income tax violations,
    commonly committed by groups that advocate violence against the U.S.
    Government.
        Coordination among agencies is crucial to the fight against
    terrorism, and law enforcement agencies throughout the federal
    government have always recognized and relied upon the essential work of
    Treasury's law enforcement bureaus. As evidenced by the response to the
    World Trade Center bombing, Oklahoma City bombing, and Unabomber
    investigation, Treasury closely coordinates with Justice and other
    federal, state, and local law enforcement. This coordination continues
    into the policy making arena, where Treasury works closely with Justice
    on the Attorney General's Core Agency Group against terrorism, and
    participates actively in the NSC's coordination groups on Weapons of
    Mass Destruction and counterterrorism.
    Goal: Protect Our Nations Leaders and Visiting World Leaders
        As I noted at the outset of my testimony, as the world becomes an
    increasingly more complex and dangerous place, Treasury's law
    enforcement mission grows in complexity as well. Treasury is striving
    to manage the ever-changing nature of threats by developing, acquiring
    and deploying necessary countermeasures. The Secret Service, as
    described below, continues to carry out its critical responsibility of
    protecting the President, the Vice President and other specially
    designated protectees against any potential threat.
                                 secret service
        The Secret Service must accomplish its protective and investigative
    missions in an increasingly dangerous society--and it has done so quite
    effectively. During fiscal year 1998, the Service successfully managed
    protective security for its protectees as well as for several major
    events. Importantly, last year, the President signed Presidential
    Decision Directive 62, which names the Secret Service as the lead
    agency for security design, planning and implementation at designated
    national special security events.
        The Service has also continued its efforts to combat the increasing
    threat from weapons of mass destruction, and is working to develop
    measures to ensure the safety of the President and other protectees
    against the threat of such weapons. In fiscal year 2000, the Secret
    Service looks forward to training additional chemical/biological teams
    to support its protective responsibilities.
        Also during fiscal year 2000, the Service will continue its
    preparations for the 2000 Presidential campaign and has budgeted
    $35,247,000 to come from the Department's Asset Forfeiture Fund to
    cover the costs of providing protection for the candidates and nominees
    involved in the campaign and the two national party conventions. The
    Secret Service's budget request will further advance its ability to
    maintain the highest level of physical protection possible for its
    protectees through the effective use of human resources, protective
    intelligence, risk assessment and technology.
    Goal: Provide High Quality Training for Law Enforcement Personnel
        Assuring the excellence of training of federal law enforcement is
    of vital importance to the future effectiveness of our law enforcement
    efforts. As the training agent for the majority of all federal law
    enforcement agencies, we currently have 71 agencies participating in
    training programs at the FLETC. We are committed to enhancing basic and
    in-service training programs to meet the changing needs and increasing
    demands of federal law enforcement as we combat increasingly
    sophisticated, technologically advanced and globally linked crime. Our
    objective is to develop and operate state-of-the-art facilities and
    systems responsive to interagency training needs.
        To meet the goal of quality training while keeping within a limited
    budget, to meet current training needs and to prepare for the future,
    we will maintain and improve FLETC's physical plant by implementing the
    master plan to guide the expansion of facilities to meet projected
    training needs. We will also develop alternative training delivery
    systems, such as distance learning capabilities, thereby effecting long
    term cost savings. Additionally, the Office of Enforcement is working
    with FLETC to expand the use of advanced technology in training and
    support, especially in the areas of computer-based training and
    simulation, to provide not only state-of-the-art training but long-term
    budget savings as well. We will also continue to provide international
    training in support of the International Law Enforcement Academies.
                                     fletc
        One of the reasons that Treasury law enforcement is so successful
    is the quality of training that its agents and inspectors receive at
    the FLETC. Since its establishment by a memorandum of understanding in
    1970, FLETC has built a reputation for providing high quality, cost
    effective law enforcement training. As you know, there are many
    advantages to consolidated training for federal law enforcement
    personnel, not the least of which is an enormous cost savings to the
    government. Currently, 71 agencies participate in more than 200
    different training programs at FLETC. Additionally, FLETC has been
    involved in providing law enforcement training overseas for over 20
    years and has trained more than 5,000 foreign law enforcement officials
    from more than 102 different countries. We expect this growth to
    continue as more agencies recognize the many benefits of consolidated
    training. Through the National Center for State and Local Law
    Enforcement Training, FLETC also has been an excellent resource for
    providing over 50 highly specialized advanced training programs to
    State and local law enforcement officers within the United States.
    These programs include training related to hate-bias crime issues,
    computer and financial fraud and rural drug enforcement matters.
        Over the last several years, the FLETC has seen an unprecedented
    increase in its workload. Current projections indicate continued
    workload growth for several more years. During fiscal year 1998, FLETC
    graduated 25,762 students representing 120,399 student-weeks of
    training, the largest workload in the history of the Center. In fiscal
    year 1999 the workload is expected to grow to 35,315 students. As
    Director Basham notes in his testimony, the majority of this increase
    is attributable to recent Congressional and Administration initiatives
    to control immigration along our nation's borders. Other contributing
    factors include counter-terrorism activity and security enhancements at
    federal facilities and new federal prisons coming on line.
        To permit FLETC to train the law enforcement agents in the skills
    needed for the future, it has continued to implement its master plan
    for facilities. This plan was first introduced in 1989 and when fully
    implemented, will permit FLETC to achieve its goal of further
    developing, operating, and maintaining state-of-the-art facilities and
    systems responsive to interagency training needs.
        In addition to relying on temporary training facilities to
    accommodate the increased workload, the Center has also implemented a
    dual-shift schedule at Glynco in order to accommodate the training
    being requested in fiscal year 1999.
        In addition to its domestic training responsibilities, the FLETC is
    also being called upon to play a larger and more important role in
    support of the Administration's and Congress' foreign policy
    initiatives involving the training of foreign law enforcement
    officials. Indeed, as Director Basham reports, foreign training
    requests have grown substantially in recent years, with student weeks
    of training increasing by almost 200 percent since 1994.
    Conclusion
        In summary, the Treasury Department is proud of the contributions
    that its law enforcement bureaus have made and continue to make to this
    nation. Treasury and its bureaus have defined goals and objectives to
    ensure our excellence in protecting our borders, fighting violent
    crime, defeating financial crimes and training our law enforcement
    agents for the challenges of countering increasingly sophisticated
    criminals. The fiscal year 2000 President's budget request will enable
    Treasury's law enforcement bureaus to meet the current challenges and
    to begin preparations for the challenges of the 2lst century. I am
    confident you will find this to be a responsible budget, as it
    considers the growing demands of law enforcement in a constrained
    budget environment.
        I would like to express my appreciation for all the support the
    Subcommittee has provided us. With your permission Mr. Chairman, I
    would like to ask the Directors of the Treasury law enforcement bureaus
    to describe in more detail those strategies and goals we see as playing
    a key role in the coming fiscal year, as well as our recent
    accomplishments. After which we would be pleased to answer any
    questions you or Members of this Subcommittee may have.
        Thank you.

        Senator Campbell. Thank you, Mr. Under Secretary. You have
    not appeared here for a few years, but I am sure you are aware
    that this committee has been very supportive of all of the
    agencies. Since you are also on the second panel, you will just
    be there as support for FLETC and FinCEN, but your complete
    statement pretty much is the one you finished; is that correct?
        Mr. Johnson. Yes, and it is a summary, believe it or not,
    of the statement that I have submitted for the record.

                         REVIEW OF THE INTEGRITY ISSUES

        Senator Campbell. I am sure glad of that.
        Well, I think what I am going to do then is ask you a few
    questions, and ask Senator Dorgan to also ask some before we go
    to the other agencies, since your missions are all a little bit
    different, if that is all right with you.
        Let me start by asking you about the--tell us a little bit
    about the office's review of integrity issues as it relates to
    Customs. I understand that you carried out a review independent
    of Customs internal review. Can you tell us about that a little
    bit?
        Mr. Johnson. The review was conducted by the Office of
    Professional Responsibility, which is an institution within
    Treasury Enforcement that was initially designed by now-
    Commissioner Kelly. The review of integrity issues was a review
    that was commenced under the leadership of Ray Kelly when he
    was under secretary. The goal of the review, and the goal in
    part of all of Treasury Enforcement is to ensure that when the
    public interacts with us, when the public is concerned about
    our mission, they know that our law enforcement officers are
    proceeding with integrity.
        There were issues raised about the management and structure
    of the Office of Internal Affairs, and the review primarily
    focused on the Office of Internal Affairs and how it carries
    out its functions within the Customs Service.
        There were several significant findings of the review
    ranging from the leadership of the Office of Internal Affairs,
    to its interaction with the Office of Investigations and other
    components within the Customs Service. Its structure and
    location within the Customs Service management structure,
    initially it did not report to the commissioner of the Customs
    Service. It now does.
        The report was transmitted not only to the Hill, but
    clearly to Commissioner Kelly, who continued after he moved
    from the position of under secretary to be very much a part of
    the review process. Many of the recommended changes were
    undertaken by Commissioner Kelly before the report was issued.
        But we continue to work with the Customs Service. We
    continue to support Commissioner Kelly's efforts to make strong
    changes within the Office of Internal Affairs. For a period of
    45 days I detailed a member of our staff to the Customs Service
    to assist with the ongoing efforts to make the Office of
    Internal Affairs a top flight organization.

                               FIREARMS VIOLENCE

        Senator Campbell. All right. On March 20th, President
    Clinton issued a memo to the Secretary of the Treasury and the
    Attorney General directing them to develop an integrated
    firearms violence reduction strategy, and he specifically
    mentioned ATF's Project Exile as an example of Federal, State,
    and local cooperation. In 30 seconds or less, I would like you
    to answer a couple of questions about that.
        First of all, what is the status of the development of the
    plan?
        Mr. Johnson. Right after the review was required, or rather
    the directive was issued, Treasury and Justice have come
    together, along with ATF, to continue to develop the plan based
    on the principles set forth in the President's directive.
        Senator Campbell. It is ongoing. When do you think that the
    final status will be completed?
        Mr. Johnson. We were instructed to finish it within 90 days
    and I am going to try to meet that deadline.
        Senator Campbell. As you might guess, here on the Hill
    there is always an ongoing discussion about guns, some wanting
    to put more emphasis on the people owning them, and others of
    our colleagues wanting to put more emphasis on the people who
    use them. I am sure you are aware of that discussion.
        I would like to know, do you envision recommending further
    restrictions on gun ownership?
        Mr. Johnson. What we are looking towards and what we have
    done is two things. One, enhance enforcement, and the
    President's instruction to us asked us to enhance enforcement.
        Two, there are areas, for instance, with respect to gun
    shows, that form a loophole by which people that we would none
    of us would like to see handling guns, can get guns, and we are
    looking to that particular problem.

                            TREASURY/JUSTICE FUNDING

        Senator Campbell. When we look at the funding request for
    Treasury law enforcement compared to the Department of Justice
    law enforcement, in the President's fiscal year 2000 budget
    request, Justice has an increase of 10 percent over last year
    while Treasury has been reduced by 8 percent. Do you have any
    suggestions for ways to encourage greater parity between the
    agencies?
        Mr. Johnson. This subcommittee's concern with the issue of
    parity is something that we have been concerned about for a
    long time and have fought to see that the issue of parity was
    injected in the budget-making process. If you look at Secretary
    Rubin in his testimony, if you look at the program levels of
    comparable functions within Treasury and Justice, there has
    been an effort to achieve parity between comparable program
    levels between Treasury and Justice.
        Senator Campbell. FLETC has a temporary training center
    that opened in Charleston, South Carolina and was supposed to
    be operational for three years. But the INS and the USBP
    demands are greater than the Glynco facility can handle so they
    are going to continue the operation of that facility, as you
    know. Let me ask you, what is being done to ensure the closure
    of that as it was originally planned?
        Mr. Johnson. We are working with, and Director Basham have
    been working closely on this issue, not only with the INS but
    also with interested members of Congress who are interested in
    the Charleston facility.
        Senator Campbell. Interested in closing it or keeping it
    open?
        Mr. Johnson. Who have an interest in the issue on both
    sides. Our goal is to close the facility.
        Senator Campbell. The fiscal year 2000 budget request
    assumes that $140 million will be in the Treasury's forfeiture
    fund. How confident are you that that level of funding will be
    available? And what happens if the funds are not available?
        Mr. Johnson. There is concern about various levels, issues
    within the budget, one of which is the funding on the
    forfeiture level. Our goal, as Secretary Rubin testified, in
    putting together the budget was to at least do our very best to
    make sure that the program levels are sent forward from the
    Administration, and the asset forfeiture figures are part of
    that overall process. But there is, obviously, some risk to our
    programs if we do not get the funding levels.
        Senator Campbell. Do you have some alternative plan in
    place if the funding level is not met?
        Mr. Johnson. We will have to work, I believe, with the
    committee to go through our priorities.
        Senator Campbell. The FBI has requested additional funding
    for fiscal year 2000 for technology and personnel to accelerate
    investigation into computer crimes. The investigations have
    been conducted by the Secret Service since 1981. Does the
    Secret Service have sufficient resources to carry out that
    responsibility?
        Mr. Johnson. The Secret Service's resources have many
    pressures on them. They have been carrying out this mission
    very effectively, and to the extent that there is concern about
    overlap between the FBI and the Secret Service on this
    particular issue, there are ongoing efforts to make sure that
    our two missions are not overlapping.

                             PASSENGER INSPECTIONS

        Senator Campbell. All right, one last question before I ask
    Senator Dorgan. I happened to see this on the news, but I am
    reminded by my notes here too, there have been some reports and
    allegations regarding racially biased passenger inspections by
    Customs inspectors, and personal search too for targeted
    individuals. Can you address that and tell us if those are
    really valid reports, and what has Customs done to remedy that?
        Mr. Johnson. As a general matter, within Treasury
    Enforcement we are going to make sure that all citizens are
    treated fairly and appropriately and that we are not biased.
    Commissioner Kelly recently announced the formation of a panel
    that is going to address these issues, conduct fact-finding,
    and ensure that our passenger processing is within the highest
    tradition to our approach to processing----
        Senator Campbell. But you are reviewing it and looking at
    it?
        Mr. Johnson. Yes.
        Senator Campbell. I probably should have referred that to
    Mr. Kelly, but that answer is fine.
        Senator Dorgan, did you have some questions?

                               COUNTER-TERRORISM

        Senator Dorgan. Mr. Chairman, just a couple of questions.
        Mr. Secretary, you mentioned counter-terrorism and you
    indicated that the counter-terrorism enforcement activities are
    spread across several agencies. Can you describe for me the
    kinds of resources we commit to counter-terrorism and the
    effectiveness with which we commit those resources? And is the
    threat of terrorism growing? Obviously, the activities in
    counter-terrorism are critically important to respond to that
    threat.
        Mr. Johnson. The resources that we have run the gamut of
    our bureaus. Within the Secret Service you have really the
    world's premier agency that is designed to prevent terrorist
    activity before it has happened, particularly as it targets our
    Nation's leaders, as well as visiting foreign dignitaries.
        What the Secret Service does is provide safety and security
    at the White House, safety and security of the President and
    the Vice President, and the First Families when they leave
    their residences. The Secret Service, as a result of PDD-62 is
    now charged with the prevention aspect, that is terrorist
    prevention aspects of national security events.
        Within the Customs Service you have an entity that is
    designed to, one, preventing terrorist materials from coming
    into the United States. And two, preventing weapons of mass
    destruction, whether or not they are military equipment, from
    being exported from the United States.
        You have, within the ATF, a bureau that has responded to
    the major terrorist events that have struck the United States
    along--working closely with, obviously, the FBI, State and
    local authorities. In the World Trade Center bombing, the law
    enforcement officer that found the crucial piece of evidence
    which was a small piece of a VIN number, vehicle identification
    number, for the truck bomb that created that horrific damage
    was an ATF agent. They responded in full force to the bombing
    in Oklahoma City.
        In the Office of Foreign Assets Control we attempt to block
    the assets of terrorist organizations so that they cannot be
    used in the United States. The Federal Law Enforcement Training
    Center provides training to deal with--to enhance our counter-
    terrorism effort.

                             CUSTOM BUDGET REQUEST

        Senator Dorgan. Thank you. Let me ask about the Customs
    budget just for a moment. The Customs budget request, even if
    you consider the emergency supplemental $276 million, but take
    that out as a one-time appropriation, the Customs' request I
    think about 10 percent below the previous year. Is that a
    sufficient request to fund the initiatives at Customs that we
    want completed?
        Mr. Johnson. Within the challenges of this budget process,
    that is the request level that we could try to attempt to meet
    our law enforcement mission and our desire to balance the
    budget.
        Senator Dorgan. I am going to ask Commissioner Kelly about
    it. And I would not expect you to come up here and not support
    the President's budget request, but in terms of the
    requirements and the mission, it just seems to me that a
    reduction in Customs funding is probably not what we ought to
    be doing at this point. But I will ask further questions of
    Commissioner Kelly.

                                 COUNTERFEITING

        One last question, if I might. The new currency that we
    have put in circulation, Mr. Secretary, your role is also with
    your agencies to deal with the counterfeit activities. Are we
    seeing some significant difficulties with counterfeiters with
    the new currency? What is your impression of that?
        Mr. Johnson. We think the new currency contains some very
    important security devices to help defeat counterfeiters. That
    does not mean that people will not attempt to counterfeit the
    currency, but we think that the security devices from the color
    shifting ink, to the imbedded threads, and the security threads
    will effectively deter, or at least enable us to detect
    counterfeiters.

                              SUBMITTED QUESTIONS

        Senator Dorgan. Mr. Johnson, thank you very much.
        [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 Dorgan
                            general law enforcement
                                    vehicles
        Question. Customs is requesting $8,6000,000 and ATF is requesting
    $6,300,000 from the Treasury Forfeiture Fund for vehicle replacement. I
    assume that if these requests and all other agencies' requests for
    vehicle funding is approved the acquisition will be consistent with the
    vehicle management systems being established by your office. According
    to the last report on the vehicle management system, your office hoped
    to have a contractor on board by March 30, 1999 to analyze Treasury's
    motor vehicle program.
        Please provide a progress report on the contract.
        Answer. On April 13, 1999 a contract was awarded to review and
    analyze the Treasury Department's law enforcement fleet motor vehicle
    programs in order to make recommendations concerning the functional
    design, implementation and operation of a Departmental vehicle
    management system.
                        international trade data system
        Question. What kind of trade related questions will the Federal
    Government be able to answer after ITDS is developed that we cannot
    answer now? Will ITDS provide data that can help in trade negotiations
    or in identifying potential business opportunities?
        Answer. By creating a standard set of trade data elements for
    imports and collecting data in a standard time frame, ITDS will allow
    comparisons of data that cannot be made now for purposes of better
    policy and economic analysis, and more effective and efficient
    administration of trade laws. Currently, agencies' data collections
    differ in definitions, timing, and format, thus preventing comparisons
    and aggregation of data.
        ITDS will allow fully electronic filing of data at the level of
    detail normally carried in commercial documents rather than requiring
    its aggregation into tariff categories. This will have two benefits:
    (1) questions about trade can in many cases be answered at the level of
    detail of a commercial invoice, the level at which the commodities are
    traded, and (2) accurate answers can be developed about what happened
    this month, this week, or yesterday, without waiting for the
    compilation and publication of monthly or quarterly statistics.
        ITDS's use of the same data elements for both exports and imports
    will eliminate data incompatibility that has complicated analysis of
    the composition of the U.S. trade balance. In combination with
    agreements with other countries on standardization of data, ITDS's use
    of streamlined electronic data reporting mechanisms will help to reduce
    the under-reporting of U.S. exports that has distorted measures of the
    U.S. trade balance.
        With respect to trade negotiations, the Office of the United States
    Trade Representative and the Congress would have access to the ITDS
    database, and the greater precision, accuracy, and timeliness it will
    offer. Current trade data are not ideally structured for analytical
    uses, and there is no single source of trade information. In the
    current environment, USTR and congressional staff may be required to
    search several different sources in order to obtain the information
    they need, and will encounter data incompatibilities that make it
    difficult to develop a coherent picture.
        The need to protect confidential data from disclosure will
    necessarily obscure some of the finest details from business users, but
    the potential for improved timeliness and precision of the data for the
    analysis of business opportunities is still considerable. Additionally,
    the ITDS will provide a single window to web sites at the Department of
    Commerce and elsewhere with information on potential business
    opportunities.
        Question. A funding request of $5,400,000 is being requested for
    the International Trade Data System as part of the Customs budget. Why
    has funding been tied to a project that is currently experiencing some
    setbacks?
        Answer. The fiscal year 2000 budget for ITDS is included in the
    Customs Service budget because the Administration's air and sea
    passenger processing fee proposal offset the appropriation for the ITDS
    as well as certain Customs Service operations. Although the ITDS
    complements Customs' ACE system, it is not tied to it.
        Question. Can ITDS be funded as a stand-alone system? What is the
    total cost of the ITDS system?
        Answer. Yes, ITDS can be funded as a stand-alone system. ITDS is
    designed to serve a single data collection mechanism (a common ``front
    end'') for automated systems in several Federal agencies, but it is not
    intended to be an integral part of any of those systems. Therefore,
    ITDS could serve as the data collection mechanism for the current
    Customs' automated commercial system, as well as the new ACE system
    when it comes on line. However, the overall performance of the Federal
    government's border clearance process, and the benefits to the trade
    community, will be greater if agencies to which ITDS sends data are
    able to build modern automated systems, such as ACE, to process the
    data.
        The ITDS was initially projected to cost around $250-260 million
    over the first five years, including both deployment, and operation and
    maintenance. However, the interagency ITDS board of directors is
    considering other options for deploying ITDS that could significantly
    reduce this cost.
                           financial management acts
        Question. Neither the Secret Service nor the Customs Service have
    substantially complied with the Federal Financial Management
    Improvement (not Integrity) Act (FFMIA). Is the oversight adequate to
    ensure that the financial compliance of the law enforcement agencies is
    adequate?
        Answer. As is required under FFMIA, both the Customs Service and
    Secret Service have developed specific remediation plans to bring about
    full compliance with the law. The lack of compliance at Secret Service
    was brought to management's attention in late calendar 1998, a formal
    plan was submitted to the Department in March 1999, and suggested
    modifications to that plan are scheduled for completion by June 30,
    1999. Full compliance should be achieved by the end of fiscal year
    2000. The remediation plan prepared by Customs has been affected by
    funding issues attendant to development of its Automated Commercial
    Environment, and full compliance with FFMIA will not be possible until
    some level of funding has been restored. In the interim, Customs is
    making progress on its financial management situation as resources
    allow.
        Yes, we believe oversight of our law enforcement bureaus is
    adequate to achieve compliance with FFMIA. Levels of oversight include:
    1) executive management in each bureau and enforcement entity; 2)
    offices under the Department's Deputy Chief Financial Officer, which
    track progress on remediation plans to address financial management
    deficiencies; and 3) offices under the Under Secretary for Enforcement,
    which have fairly continuous involvement with all enforcement entities,
    as well as with other Departmental management offices, on FFMIA and all
    other significant issues.
                    Questions Submitted by Senator Campbell
                 u.s. customs service asset forfeiture program
        Question. Asset forfeiture programs, administered by the Customs
    Service and Justice, have been on GAO's ``high-risk'' list since the
    inception of the list in 1990. These programs continue to have
    significant weaknesses.
        What is the status of Customs efforts to resolve this high-risk
    problem?
        Answer. In the January 1999 GAO High Risk Series Update GAO cited
    three reasons Treasury remains on the high-risk list in the area of
    Asset Forfeitures (A through C below).
        A. Treasury reported material weaknesses relating to seized
    property in its fiscal year 1997 Accountability Report. Customs is
    accountable for two--``Data in Customs Seized Property Accounting
    Systems are unreliable'' and ``Customs has problems with the integrity
    of data in its Fines, Penalties, and Forfeiture (FP&F) files''.
        Action: Customs expects to close both of these material weaknesses
    by implementing numerous enhancements to its Seized Asset and Case
    Tracking System (SEACATS) which will significantly improve the existing
    currency and property records and complete the remaining case,
    financial, and reporting functions necessary for data integrity in the
    FP&F file. The target completion date for these enhancements is
    September 1999.
        B. For fiscal year 1997, SEACATS did not contain accurate and
    sufficient data to prepare the analysis of changes in forfeited and
    seized currency and property without substantial manual intervention
    and reconciliation.
        Action: Customs was able to produce the analysis of changes in
    seized and forfeited property disclosure from SEACATS for fiscal year
    1998, reducing the number of manual adjustments to prepare the
    disclosure. Information provided from SEACATS will be used to produce
    currency disclosure at the end of fiscal year 1999.
        C. GAO continues to recommend Treasury and Justice consolidate the
    management and disposition of all noncash seized property to reduce
    administration costs.
        Action: No action is being taken. Customs and Justice have argued
    against GAO's position. Current policy, as established by Congress with
    the creation of the Treasury Forfeiture Fund (1992) is clear that
    Treasury and Justice asset forfeiture programs should be managed
    separately. With separate and distinct financial, management, and
    contract structures in place for each department, consolidation would
    be significantly more complicated, disruptive, and costly today than in
    1991.
        Question. Have Customs and Justice found a way to cooperate in the
    management of their respective funds?
        Answer. Please see response 1C above.
        Question. Are any specific goals and measures in Customs fiscal
    year 2000 performance plan to resolve any remaining problems?
        Answer. Customs expects the enhancements it plans to implement by
    September 1999 to resolve its problems which have contributed to
    Treasury remaining on the high-risk list. Please see response 1A and 1B
    above.
                             information technology
        Question. An incomplete systems architecture hinders Customs
    ability to manage information technology investments, particularly
    large, mission-critical systems such as its Automated Commercial
    Environment system. How does Customs fiscal year 2000 performance plan
    specifically address this problem?
        Answer. The focus of Customs' performance plan is on improving the
    overall performance of mission critical areas. This is consistent with
    the goals and requirements of the Government Performance and Results
    Act. Customs considers the management of information technology
    investments to be a management control issue. Material weaknesses in
    management control areas are addressed through other reporting vehicles
    such as the Customs Service Accountability Report. This report
    addresses requirements associated with evaluative mechanisms such as
    the Federal Managers Financial Integrity Act (FMFIA), the Chief
    Financial Officers Act, and material weaknesses identified by GAO and
    Inspector General audits. The Accountability Report is a public
    document and can be found on the Customs Service web site.
        The organizational approach to measurement is that measures within
    the performance plan must be clearly focused on the key missions of the
    organization. By clearly focusing the performance plan on the mission
    areas, management can determine the overall mission health of the
    organization and use the plan to better manage mission related
    programs. Proliferating the performance plan with extraneous non-
    mission related measures and management control issues would only serve
    to dilute the plan's usefulness and deviate from its intended purpose.
                              U.S. Customs Service

    STATEMENT OF RAYMOND W. KELLY, COMMISSIONER
        Senator Campbell. Since we are dealing with Customs,
    Commissioner Kelly, why don't you go ahead and proceed?
        Mr. Kelly. Chairman Campbell, Senator Dorgan, it is a
    pleasure for me as well to appear before the subcommittee once
    again, this time as the commissioner of the U.S. Customs
    Service. I too have an opening statement which I ask to be
    included in the record in its entirety.
        Senator Campbell. It will be included in the record, and if
    you will just go ahead and abbreviate your comments.
        Mr. Kelly. Thank you, sir. I want to thank the committee
    for its consistent support of the U.S. Customs Service. Both
    the members and staff have been extremely helpful in making
    sure that Customs gets the resources it needs to carry out its
    mission.

                                  SEIZURE DATA

        Last year, Customs seized more illegal drugs than any other
    Federal law enforcement agency, 1.35 million pounds. That is
    more than one million pounds of cocaine, heroin, and marijuana
    that will not find its way onto our streets, or into our
    schools and communities.

                         TRADE AND PASSENGER PROCESSING

        Our trade and passenger processing numbers continue to
    soar. Last year, Customs processed 19.7 million trade entries,
    460 million passengers and pedestrians, 135 million
    conveyances, and $955 billion worth of goods. Customs is
    getting the job done, but we are by no means resting on these
    positive results.
        The demands of global trade and a relentless assault from
    drug smugglers require us to stay one step ahead in all that we
    do. As we look toward the future, Customs has laid out an
    ambitious agenda, equal to the trade and enforcement challenges
    of the new century.
        With your help, Customs will continue to build upon the
    successes it has achieved over the past year. Allow me to
    elaborate briefly on just a few of these.

                              OPERATION BRASS RING

        On the narcotics front, we learned many lessons from the
    success of Operation Brass Ring, our major counter-smuggling
    initiative in 1998. Customs set a new precedent for
    interdiction efforts with this operation which wove together a
    series of innovative tactics devised by our field personnel to
    surprise and catch unsuspecting drug smugglers. We want to
    replicate the methods pioneered in Brass Ring with the $725,000
    we have requested to conduct blitz type operations at land
    border ports. These rapid, unpublicized deployments of teams of
    inspectors, enforcement officers, and special agents not only
    catch drug smugglers off guard, they are also an effective
    deterrent against potential corruption.

                              OPERATION CASABLANCA

        Customs concluded Operation Casablanca almost a year ago,
    the largest, most comprehensive drug money laundering case in
    the history of U.S. law enforcement. The investigation spanned
    five years and involved the work and dedication of more than
    200 Federal agents. Casablanca resulted in 168 arrests and the
    indictment of three Mexican banks. Along the way, Customs
    seized more than $100 million in laundered money and a combined
    six tons of cocaine and marijuana.

                              OUTBOUND TECHNOLOGY

        For fiscal year 2000, Customs has requested an additional
    $2 million for outbound technology enforcement, to obtain the
    tools we need to detect drug proceeds heading out of the
    country. Due to constrained resources, examinations are
    currently conducted on a very limited basis. Despite this fact,
    we still managed to seize more than $68 million in outbound
    currency last year. The funds requested for fiscal year 2000
    will help us get far more.

                             OPERATION CHESHIRE CAT

        Customs is also breaking new ground in other enforcement
    areas. Operation Cheshire Cat led Customs agents via the World
    Wide Web into the diabolical world of international child
    pornography and sexual exploitation. What we uncovered in
    Cheshire Cat was an international alliance of approximately 200
    sexual predators operating in 47 countries. Thirty-five search
    warrants were executed in this operation resulting in 13
    arrests and more arrests are currently pending.

                                  ACTION PLAN

        As proud as we are of our enforcement accomplishments, we
    believe that there are some areas within our organization that
    need to be strengthened. We have developed a document we refer
    to as the action plan for 1999. It identifies the actions
    underway to improve Customs management and procedures in areas
    ranging from integrity, to training, to automation. I believe
    the subcommittee and subcommittee staff has copies of the
    action plan, but we certainly can provide updated copies if
    anyone wishes to see it.

                                   INTEGRITY

        First on our agenda is the issue of integrity, a foundation
    of all that we are doing at Customs. Integrity begins in our
    internal affairs office where we have made major changes over
    the last year. We named a new assistant commissioner for
    internal affairs; a career prosecutor with strong credentials
    in public integrity. Led by his office, we have established new
    discipline policies that will be administered in a fair,
    uniform, and consistent manner across Customs. Under this new
    system we are holding people accountable at the highest levels
    of the agency for disciplining employees for misconduct.

                                    TRAINING

        Integrity, however, cannot be instilled through discipline
    alone. It must be reinforced through training and leadership.
    Customs has created a new office of training which will be led
    by an assistant commissioner. Standardized training signals our
    commitment to provide all our employees with the skills and
    expertise they need to perform their jobs in accordance with
    the best practices we have set for them. The $5 million
    training initiative in the fiscal year 2000 budget request will
    cover the cost of instituting these programs for all Customs
    employees throughout their career cycle.

                                PERSONAL SEARCH

        The issue of personal search is high on our action agenda.
    Last year, more than 71 million passengers passed through
    Customs at our Nation's airports. Customs conducted
    approximately 51,000 personal searches of passengers. This is a
    very small number in percentage terms. But anyone who is
    subjected to a personal search is likely to find the experience
    very intimidating and disturbing.
        One of the first steps I took after becoming Customs
    commissioner was to identify ways to make the personal search
    process less unpleasant. Technology has played a key part in
    this effort. Customs has already gone online with non-intrusive
    body scan technology at two of the Nation's busiest airports,
    JFK, and Miami. These devices limit, or abolish in some cases,
    the need for physical contact during the personal search.
        To further our efforts we are requesting $9 million in
    fiscal year 2000 for additional personal search technology.
    This new funding will permit Customs to obtain more mobile x-
    ray facilities which will be placed in or near the
    international arrival area of our airports.
        In addition, just last week, as Under Secretary Johnson
    said, we announced the formation of an independent commission
    to review our passenger search procedures. We took this action
    due to allegations of racial bias in the way Customs selects
    travelers for personal search. Customs personal search review
    commission, made up of prominent public leaders in race
    relations and Government affairs will have unfettered access to
    Customs personnel and facilities. The commission will spend the
    next three months gathering the information it needs to assess
    these allegations and make published recommendations to me by
    July 15th.
        I take this matter very, very seriously. There is simply no
    place for bias, or even the perception of bias, in the U.S.
    Customs Service.
        Our ongoing efforts at internal reform are taking place
    against the backdrop of constant efforts by drug smugglers to
    introduce their contraband into this country. These groups are
    as resilient as they are insidious. Successful dismantling of
    such criminal enterprises requires a balanced and comprehensive
    strategy; one that integrates all Customs enforcement
    disciplines, investigations, intelligence, air, marine, and
    border interdiction.
        I want to thank the committee for the substantial
    additional funds provided in fiscal year 1999 for counter-drug
    operations. The funding for non-intrusive inspection
    technology, air, and marine interdiction, and investigations
    gives Customs the long overdue resources to carry out the job
    that Congress and the American people expect.

                        AUTOMATED COMMERCIAL ENVIRONMENT

        Having said that, the initiative most important to managing
    Customs trade and enforcement responsibilities is in an era of
    exploding global trade is what we call ACE, the automated
    commercial environment. Our current automated system, the
    automated commercial system is what we call it, ACS, is simply
    not up to the task. It is outdated and technologically
    inferior; inadequate for the trades fast-paced needs. ACS must
    be replaced.
        Our answer is the automated commercial environment. We
    spent the last several years working with the trades to develop
    the system both Customs and business need; fast, totally
    electronic, and in-step with industries' just-in-time demands.
    ACE will manage soaring volumes of goods while also ensuring
    improved compliance. It all adds up to better results for
    business, safer products for consumers, and fewer drugs
    crossing our borders.
        ACE represents a sizeable investment and has received
    considerable scrutiny. We want to remove whatever doubts remain
    as to Customs' ability to manage and maintain this system.
        To this end, we have put all the necessary safeguards in
    place. We have appointed a highly respected chief information
    officer to manage the agency's information technology
    operations. We have restructured our office of information and
    technology. We have enlisted private consultants to validate
    our cost estimation methods. We are now seeking the funding for
    a prime contractor to manage and develop an implementation of
    ACE. And we have engaged a congressionally-chartered Federally-
    funded research and development center, the Mitre Corporation,
    to help guide this project.
        Our top priority right now is to keep the current automated
    commercial system operational until ACE comes online. But make
    no mistake about it, we need the new system and we need it
    soon. Nothing less than the unhindered flow of trade across our
    borders is at stake. We hope the committee will work with us to
    find a way to ensure that funding is made available for both
    ACS and ACE.

                               PREPARED STATEMENT

        This concludes my remarks. Thank you, Mr. Chairman. I will
    be happy to answer any questions.
        [The statement follows:]
                     Prepared Statement of Raymond W. Kelly
        Good morning, Mr. Chairman and Members of the Subcommittee. It is a
    privilege to appear before the Subcommittee today to present to you our
    recent accomplishments, future plans, and the fiscal year 2000 budget
    request. Before I begin though, I would like to personally thank you
    for the strong support you have continued to provide to Customs. It has
    been a challenging year for us and I am proud to play a part in the
    effort we share to protect the Nation's borders and ensure the Nation's
    prosperity.
        Customs is an agency with a long and rich history, many proud
    traditions, and an extraordinary record of achievement. We recognize
    that our mission is not an easy one--standing as the front line of
    defense at the Nation's borders--but we continue to find ways to rise
    to the challenges that we face every day.
                                accomplishments
    Operation Casablanca
        In May 1998, Customs concluded Operation Casablanca, the largest,
    most comprehensive drug money laundering case in the history of U.S.
    law enforcement. This 3-year investigation conducted by our Los Angeles
    office exposed a relationship between a large number of Mexican banks
    and the Cali and Juarez drug cartels. This relationship allowed the
    drug cartels to launder their U.S. drug proceeds through accounts
    opened by corrupt bankers.
        The case was made possible because of the extraordinary undercover
    work performed by Customs special agents. They posed as money couriers
    and Cali Cartel operatives. They were so convincing that members of the
    Juarez and Cali Cartels introduced them to corrupt Mexican and
    Venezuelan bankers, who, in turn, introduced the undercover agents to
    other corrupt bankers. Members of the Juarez Cartel were so confident
    in the undercover special agents that they introduced the agents to
    high level members of the Juarez Cartel.
        When it was over, 26 Mexican banking officials from 12 commercial
    Mexican banks were indicted on charges of money laundering. Three
    Mexican banks, Confia, Banca Serfin, and Bancomer, and five associates
    of Venezuelan banks, were also indicted on money laundering charges.
    Through the course of the investigation, Customs special agents
    arrested 168 people and seized over $100 million. In addition, Customs
    special agents seized over four tons of marijuana and two tons of
    cocaine from both cartels.
    Operation Cheshire Cat
        Operation Cheshire Cat, a Customs-initiated worldwide investigation
    into the diabolical world of international child pornography and child
    sexual exploitation, exposed to the world the dark side of the
    Internet--a side that is invasive, insidious and incalculable. This one
    investigative action uncovered an international alliance of
    approximately 200 sexual predators in 47 countries including Australia,
    Great Britain and the United States.
        Before Operation Cheshire Cat, many people in the U.S. had a
    tendency to think of child pornography and child sexual exploitation as
    random acts involving nameless victims in some places far away from
    where they live. Operation Cheshire Cat proved those thoughts to be
    false. Forty-one search warrants were executed in big cities and small
    towns throughout the U.S. To date, 16 suspects have been arrested and
    more are anticipated. Four suspects committed suicide prior to arrest.
    One of the most gratifying results of this operation was that 18
    children who had been sexually molested by strangers, neighbors and
    even their own relatives, were located and referred to social services
    for counseling. The ring of sexual predators identified during
    Operation Cheshire Cat is indicative of the level of computer expertise
    possessed by criminals encountered by Customs in cyberspace. This
    particular ring utilized advanced communication methods and even an
    encryption technology, developed by the KGB for use during the Cold
    War, to distribute its morally abhorrent smut. Such expertise and
    technology have greatly complicated law enforcement's activity in this
    area.
    Operation Brass Ring
        Operation Brass Ring was a 180-day enforcement effort intended to
    dramatically increase drug seizures and the outbound illicit proceeds
    generated from the narcotics business at high-risk ports of entry.
    Enforcement action focused on the use of innovative, unpredictable and
    random enforcement operations at air, sea and land border ports of
    entry. It was a multi-faceted partnership effort that included
    inspectors, special agents, and union representatives. Unique in
    Customs enforcement history, Operation Brass Ring was field-based and
    field-driven, with emphasis on local solutions to local problems and
    sharing of best practices nationwide. Although 42 high-risk ports were
    initially required to participate in Operation Brass Ring, ultimately
    129 ports of entry submitted and carried out action plans as part of
    this historic operation.
        As a result of Operation Brass Ring, total amounts of cocaine,
    marijuana and heroin seized from February 1 to July 31, 1998, increased
    by 45 percent over the same time period as the last year. The amount of
    marijuana seized increased by 47 percent, the amount of cocaine
    increased by 32 percent and the amount of heroin increased by 13
    percent. Controlled deliveries skyrocketed by an incredible 100 percent
    during the same time period. The controlled deliveries resulted in an
    82 percent increase in arrests. Outbound currency seizures experienced
    a 59 percent increase in the amount of currency seized compared to the
    same time period in fiscal year 1997.
        Operation Brass Ring seizures totaled 548,262 pounds of marijuana,
    72,535 pounds of cocaine, and 1,280 pounds of heroin. Customs also
    seized $40.6 million in outbound undeclared currency and conducted 220
    controlled deliveries, resulting in 414 arrests. Customs will continue
    to build upon the success of this operation by capitalizing on the
    creativity and innovation that Operation Brass Ring engendered.
        Building upon the success of Operation Brass Ring, Customs
    established the Joint Narcotics Interdiction Plan (JNIP). The goal of
    JNIP is to maintain the momentum of Operation Brass Ring and to
    continue the increase of narcotics and currency seized and controlled
    deliveries conducted. The long term goal of this initiative is to
    achieve a 20 percent increase in these areas over the next 4 years.
    This approach supports the Office of National Drug Control Policy drug
    interdiction plan.
        The JNIP requires each Special-Agent-in-Charge (SAIC) and Customs
    Management Center (CMC) to submit a comprehensive narcotics
    interdiction plan and will include a plan for each Resident-Agent-in-
    Charge and Port Director in their area of responsibility. The JNIP will
    be agreed to and signed by each SAIC and CMC Director and will have
    included the National Treasury Employees Union (NTEU) in the
    formulation of all plans within their respective areas. Field visits
    and quarterly reports will be used to review the progress of the JNIP.
    Financial Management
        The General Accounting Office (GAO) removed Customs from its list
    of high-risk federal government programs this year because of the
    significant improvements made in our financial management. Customs, in
    fact, was the only agency to be removed from the list this year.
        Customs demonstrated that it had addressed the weaknesses that
    originally contributed to its designation as a high-risk organization.
    These weaknesses involved revenue and trade compliance issues; asset
    management and control issues; core financial system issues; and
    computer security, access, and development issues.
        The corrective actions which influenced the decision to remove the
    high-risk designation include: (1) receiving unqualified opinions on
    financial statements for the past two fiscal years; (2) statistically
    sampling commercial importations at ports of entry to better focus our
    enforcement efforts by projecting the level of the trade community's
    compliance with trade laws and associated loss of revenue; (3)
    improving the ability to detect and prevent duplicate or excessive
    drawback claims by enhancing the Automated Commercial System to
    identify those drawback claims exceeding the total amount of duty and
    tax paid on related import entries; and (4) aggressively pursuing
    collection of delinquent receivables, resulting in collections of over
    $37 million. Customs currently has several ongoing initiatives which
    will continue to improve Customs financial management.
    Performance Goals Met or Exceeded
        Customs had an outstanding year in narcotics enforcement results
    and in currency and monetary instrument seizures. It also continued to
    make progress in some key trade areas. This is even more significant
    since the results achieved were made while processing 19.7 million
    entries, worth an estimated $955 billion. This is more than 1.8 million
    entries above last fiscal year. Customs also processed almost 460
    million passengers and pedestrians, 13.1 million more than last fiscal
    year, and 135 million conveyances, 4.4 million more than last fiscal
    year.
        Seizures of heroin, cocaine, and marijuana were above expectations.
    We seized approximately 1.12 million pounds of these three narcotics
    which exceeded our goal by 167,000 pounds. These impressive results
    were, in part, the result of Operation Brass Ring. Overall, Customs
    accounted for a record number of seizures--more than 1.3 million pounds
    of all narcotics or controlled substances. As in past years, Customs
    continues to seize more illegal drugs than any other federal, state, or
    local law enforcement agency.
        Customs also exceeded its goal for seizures of currency, bank
    accounts, and other monetary instruments involving financial
    investigations. It ended the year with seizures totaling $362.9 million
    or 166 percent above projections. The culmination of Operation
    Casablanca contributed to this significant total with the seizure of
    over $100 million from Mexican and U.S. bank accounts. Overall, Customs
    seized or participated in the seizure of $426 million in currency and
    other monetary instruments. Of that amount, $68.4 million was outbound
    undeclared currency seized at ports as it was being smuggled out of the
    U.S. in passenger baggage, vehicles, and cargo.
        In the area of Trade Compliance, Customs successfully maintained a
    high compliance rate, and refined the analysis by which noncompliance
    is detected and addressed. Recognizing that all discrepancies are not
    equal, Customs convened two task forces, one internal and one in
    cooperation with the trade community. These groups determined the types
    of discrepancies to be considered materially significant, as opposed to
    ``letter-of-the-law'' discrepancies. The overall import compliance rate
    was maintained at 81 percent, while the compliance rate for imports in
    primary focus industries increased from 83 percent to 84 percent.
    Considering only the materially significant discrepancies, the
    compliance rate was 89 percent overall, and 90 percent for imports in
    the primary focus industries.
        Customs has also undertaken a new initiative called ``Focus On Non-
    Compliance'' (FONC). This initiative analyzes resource expenditures as
    compared to discrepancies found, and has allowed Customs to see which
    efforts are paying off and which are not. This improved focus and other
    improvements have resulted in Customs detecting more noncompliance.
    Becoming more effective at finding noncompliance has the effect of
    lowering measured compliance levels, but results in improved compliance
    in the long term. These refinements make year-to-year comparisons of
    performance difficult at this time, but the targeted improvements in
    compliance achieved by Customs are significant and well-supported.
        Finally, the air passengers' compliance rate increased slightly
    over last year to 97.7 percent. The rate of participation in the
    Advance Passenger Information System by the airlines improved to 75
    percent, which is 10 percent above projected results.
        Customs attained these accomplishments with a remarkably high level
    of support from the trade community and the public. Operation Brass
    Ring had the support of the trade community, even though they knew that
    it would mean more intensive examinations of imported goods. In
    addition, customer surveys from the trade and the public reflect
    satisfaction with Customs performance.
                                ambitious agenda
        Despite all the areas in which Customs is achieving unprecedented
    success, we recognize there are areas of our organization which need to
    be strengthened. The following are some of the areas of responsibility
    we will be changing in order to produce a more disciplined and
    effective Customs Service.
    Integrity
        The Office of Internal Affairs (IA) currently has changes underway
    to protect and enhance the integrity of Customs through various
    initiatives, programs, and processes. Most recently, Customs as a
    whole, with IA as pivotal participants, commenced a ``strategy for
    action'' to reshape our capability to swiftly and effectively address
    integrity violations and other allegations of misconduct. Specifically,
    the process for reporting allegations of misconduct has been
    standardized and streamlined. In addition, the manner in which IA
    intakes, evaluates, and processes cases has been centralized at
    Headquarters. Specialized training for investigators and fact-finders
    has been developed and is currently being conducted. Further, we have
    established a servicewide Discipline Review Board to ensure fair and
    consistent imposition of discipline in misconduct cases. Finally, we
    are raising to an appropriate level in the Customs organization, the
    authority to propose, decide, and settle disciplinary actions; thus,
    increasing decision-making consistency and accountability.
        IA is also working to enhance an automated case management system
    and integration with the Disciplinary and Adverse Action Tracking
    System (DAATS). Systems improvements will enhance Customs efficiency in
    reporting and monitoring investigations and administrative inquiries.
    Moreover, systems enhancements will permit useful analysis of trends
    and timeliness and improve identification of corrective actions. The
    Office of Human Resources Management is making comparable changes in
    its DAATS, in tandem with IA. When completed, these changes will allow
    Customs to track all identified allegations against Customs employees,
    from initial allegation through investigation, resolution, and the
    appeals process, if invoked. These changes are a measured step to
    insure that aspects of timeliness and equity of treatment are
    components of both the public and employee view of the Customs
    discipline process. Design work is commencing on a replacement for the
    IA and Human Resources systems.
        Finally, we have recently announced the selection of a new
    Assistant Commissioner for IA who has proven expertise as a career
    prosecutor and strong credentials working in the Department of
    Justice's Public Integrity Sector. This new AC will give Customs the
    leadership and credibility necessary to ensure the most effective
    function of our IA operations.
    Self Inspection
        One of our highest priorities is to build management accountability
    and strengthen management oversight throughout Customs. We are
    redesigning our Management Inspection Program to establish a self-
    inspection framework for our managers and to increase the frequency of
    on-site inspections by our Management Inspections Division.
        Customs has redirected the efforts of our current Management
    Inspection Program from conducting comprehensive inspections primarily
    of our ports and Special-Agents-in-Charge offices every 5 to 6 years to
    the development of a self inspection program. We want managers at all
    levels to evaluate their success in managing, assessing, reporting, and
    certifying the state of their operations every six months. Our
    Management Inspections Division will conduct inspections every 18-24
    months to verify and validate the self-inspection results of every
    unit. The redesign is well underway. The first full self inspection by
    all units began in late March; inspections by our Management
    Inspections Division will begin in July.
    Management Accountability Model
        To ensure that the service Customs provides to the trade and the
    traveling public is delivered in a consistent and uniform manner, we
    have implemented a Management Accountability Model which strengthens
    the Headquarters and field organizations by establishing greater
    management accountability and oversight within the organization. As
    such, we have created clear and specific service standards for which we
    intend to hold our employees and managers accountable.
        Our initial goal in implementing this model was to clarify
    managers' roles and responsibilities, improve effectiveness, achieve
    operational uniformity and enhance levels of service. We have
    accomplished this by clearly defining roles and responsibilities for
    Headquarters, Customs Management Centers (CMC) and Port managers;
    strengthening the Headquarters and CMC organizations in order to
    clarify lines of authority and provide greater operational oversight;
    holding managers accountable for their actions and operations;
    establishing a national Management Inspection Program; and establishing
    uniformity in policy dissemination, implementation, execution and
    oversight.
    Realigning organizational authorities
        Because Customs aviation and marine programs have such
    complementary missions, it is critical that the activities of these two
    interdiction components be coordinated. This is essential to ensure the
    employment of a cohesive interdiction strategy necessary to fulfill the
    Customs mission in support of the National Drug Control Strategy. In
    recognition of this, Customs is consolidating its Aviation and Marine
    Programs. The intent of this consolidation is to provide a better
    integrated, more efficient, and robust interdiction capability.
    Beginning in calendar year 1999, the Aviation and Marine Program began
    implementing an ambitious strategy to improve its efforts to combat
    marine smuggling through the creation of a unified Air and Marine
    Interdiction Division. Currently comprised of 114 operational aircraft
    and 87 vessels, the mandate of Customs Air and Marine Interdiction
    Program is to disrupt the flow of drugs and other contraband into the
    United States by vessel and/or aircraft.
        This mission will be accomplished through implementation of a
    three-pronged, intelligence, interdiction and investigative approach.
    This approach is already in use for aviation interdiction and will now
    encompass the marine threat as well, which is complemented by our
    ongoing coordination with the U.S. Coast Guard.
        Customs aviation assets and personnel will continue to support the
    President's International Drug Control Strategy, Ambassadors and
    Country Teams by providing detection and monitoring, interceptor
    support and training for employment in Mexico, Central and South
    America, and the Caribbean.
        In order to enhance the effectiveness and efficiency of the Office
    of Investigations (OI), three new SES Headquarters positions (Executive
    Directors, East, Central and West) were recently created.
    Responsibilities include overseeing and directing the investigative
    activities of all domestic field offices (Special Agent in Charge
    Offices). Another recent change included the creation of another SES
    Headquarters position: Executive Director for Investigative Programs
    whose responsibilities will include overseeing all Headquarters
    functions (Fraud, Strategic, Cybersmuggling, Financial, Smuggling and
    Investigative Programs). OI realigned organizational authority by
    having these four positions, along with the Executive Director, Foreign
    Operations Division, report directly to the Deputy Assistant
    Commissioner, OI. This change in itself has strengthened oversight of
    and coordination between foreign and domestic offices.
        Recent changes within the Office of Intelligence and Communications
    include creating a new Communications Branch to administer and manage
    the Customs Wireless Communications Program from the Headquarters
    level; adding line authority over the Area Intelligence Units (AIUs),
    which currently report to SAIC Offices, and adding functional authority
    over the Intelligence Collection and Analysis Teams (ICATS).
    Training/professionalism
        Professionalism means knowing your job, performing it well, and
    with courtesy. Customs regularly reviews its operations and training
    programs to ensure that our officers maintain a high level of
    professionalism. We have developed Passenger Interview and Vehicle
    Inspection Technique training for our land border inspectors. This
    program reviews the skills necessary to identify high-risk vehicles and
    passengers, and officer safety issues. It also provides training on how
    to prevent search inquiries from becoming confrontational.
        Passenger Enforcement Rover Training is conducted for inspectors
    from all over the country at Miami and JFK Airports to improve
    observational analysis and interview skills. The training has been
    developed and is delivered by our most successful enforcement
    inspectors. This training has generated a number of significant
    seizures by the inspectors within days of returning to their home
    ports.
        National Outbound Airport Currency Interdiction Training is being
    conducted to improve outbound inspectors' exam and interview skills.
    The training was developed and is delivered by the outbound inspectors
    at JFK. Inspectors attending the training have subsequently been
    involved in significant seizures upon return to their home ports. One
    example is the seizure of more than $1.6 million in outbound currency
    at Chicago O'Hare Airport. In addition, land border inspectors from
    Ports of Entry across the country travel to the Port of Nogales, AZ, to
    receive training that will improve their targeting, examination, and
    interview skills.
        To draw upon outside expertise, Customs has contracted with the
    International Association of Chiefs of Police (IACP) to provide two
    major programs to our workforce. The IACP is presenting cultural
    awareness training to inspectors at the top 15 airports, where 84
    percent of our passengers are processed. IACP has also begun training
    in decision-making for inspectors along the Southwest Border. This
    training enhances their ability to respond appropriately to violent,
    potentially life-threatening situations.
        In addition, Customs is establishing an Assistant Commissioner for
    Training and Development to provide leadership and direction to all
    Customs training programs and personnel engaged in training activities.
    All training and development activities, including technical training
    and support, specialty training, and supervisory and managerial
    development, will report to the Assistant Commissioner. The office will
    continue to rely on operating functions to ensure that mission-related
    training is provided, and on expertise outside of Customs to adapt the
    best practices for Customs use.
    Focus on the Recruitment of the Best
        Quality Recruitment provides an effective process for hiring the
    best qualified candidates. It includes utilizing multiple screening
    stages which rely upon objective, quantifiable data; using an
    electronic rather than paper process, and targeting an applicant pool
    with reasoning skills needed for the new millennium. The process, which
    is currently being used for entry level inspector, canine enforcement
    officer and pilot positions, will be implemented for agents in the near
    future.
        Quality Recruitment will result in the availability of a diverse
    applicant pool of highly qualified candidates for entry level
    inspector, canine enforcement positions, agent and pilot positions. As
    a result, the quality of the Customs workforce will increase, thereby
    better enabling Customs to accomplish its mission.
    Customer Service
        Customs has begun a number of activities to improve the public's
    understanding of our processes and authorities. We are developing
    improved informational outlets and working with airport authorities to
    put up signs that will better explain our authorities and travelers'
    rights. We will post instructions for registering complaints at the
    time of the incident or by mail or phone, and we have made comment
    cards available in the inspection area. These improvements will also be
    incorporated at our land border facilities.
        As part of the Border Coordination Initiative (BCI) to address our
    southern land border, Customs and the Immigration and Naturalization
    Service are working to establish queue time standards that give
    inspectors sufficient time to accomplish their respective enforcement
    missions while providing predictable service to the traveling public.
    We are establishing partnerships with the communities to foster a
    better appreciation of our enforcement responsibilities and agreement
    on how the wait times are measured.
        At international airports we continue to meet the goal of releasing
    95 percent of compliant travelers within 5 minutes of baggage claim. We
    continue to enhance the Passenger Service Representative program to
    ensure that traveler complaints can be handled on-the-spot.
        A Customer Satisfaction Unit has been established at Customs
    Headquarters to monitor all complaint and complimentary correspondence
    and phone calls. We will track and analyze complaints and ensure that
    corrective actions are taken if there is a recurring problem or a
    disproportionate number from a given location. We are also in the
    process of implementing a 1-800 number for people to call with any
    questions about Customs matters. The personnel assigned to this unit
    will have broad knowledge of our processes and will ensure the
    appropriate routing of a call that they cannot personally answer.
        Customs has conducted 356 formal workshops around the country for
    exporters and shippers (over 11,000 participants) to make them aware of
    export laws, rules, regulations, and port procedures. Individual
    contacts are also made with freight forwarders and consolidators,
    exporters, carriers, etc., to discuss specific and general export
    issues.
        Our responsiveness to information requests from the public will be
    reflected by the ``Contact Us'' feature of the Customs Web site, which
    will permit Web visitors to comment, ask questions, or request
    information by means of electronic mail. This service will be
    established in the next few months. Also, the Customs Electronic
    Bulletin Board (CEBB), long utilized by the trade as an information
    resource, has been linked to the Customs Web site to make access even
    easier by more persons.
        On the local level, a test program is underway in five ports
    (Champlain, NY; Charleston, SC; Nogales, AZ; Orlando, FL; and San
    Francisco, CA) in which Internet electronic mailboxes have been
    established for port directors at these locations, and these e-mail
    addresses published on the Customs Web site. The public and the trade
    are being encouraged to communicate with these port directors on issues
    of local concern and for requests for locally specific information. If
    successful, this program will be expanded to all service ports.
                                  partnerships
        Customs has established important partnerships with groups both in
    the private and public sectors. We continue to work in partnership with
    the National Treasury Employees Union (NTEU) on a number of issues
    facing Customs. While there are always issues on which union and
    management disagree, we have found the partnership to be a productive
    effort. We have gained invaluable employee input into our decision
    making process, allowing us to tap into the wealth of firsthand
    experience our people on the front line have. This input has resulted
    in better decisions on our part, and improved operations.
        One of the most successful examples of partnership was Operation
    Brass Ring which focused on aggressive, unpredictable, multi functional
    action plans proposed, designed, and implemented at the field level in
    cooperation with the NTEU. These plans were developed by Port
    Partnership Councils in conjunction with field offices of the Office of
    Investigations. Partnerships, such as Operation Brass Ring and the ones
    discussed below, are critical to the success of Customs mission in
    securing our borders without impeding the flow of legitimate trade.
    Border Coordination Initiative
        The Border Coordination Initiative (BCI) is a tactical plan
    developed by the Immigration and Naturalization Service (INS) and
    Customs in partnership to increase cooperation on the Southwest Border
    and to enhance the interdiction of drugs, illegal aliens, and other
    contraband. The purpose of the BCI is to create a seamless process at
    and between land border ports of entry by building a comprehensive,
    integrated border management system that effectively achieves the
    mission of each agency.
        During the past year, INS and Customs have built a strong platform
    of cooperation based on eight core initiatives: Port Management,
    Investigations, Intelligence, Technology, Communications and Aviation/
    Marine, Integrity and Performance/Budget. BCI will give direction to
    those efforts over the next five years.
        The drug and illegal immigration threat on the Southwest Border is
    the initial focus. However, as the BCI builds momentum and generates
    the anticipated results, we will expand it to other locations. A joint
    Office of Border Coordination has been established with both INS and
    Customs. Two Border Coordinators are responsible for overseeing border
    operations and ensuring the implementation of the BCI Action Plans. The
    unions at both agencies have also been involved, in partnership, in
    these activities.
    Industry
        In addition, Customs continued to expand its ``Industry
    Partnership'' programs with the development of the Americas Counter
    Smuggling Initiative (ACSI). Building upon the successes of the Carrier
    Initiative Program (CIP) and the Business Anti-Smuggling Coalition
    (BASC), ACSI will strengthen and expand Customs anti-narcotic security
    programs throughout Central and South America. These programs allow
    Customs to work with the trade community, both domestic and foreign, to
    reduce the ability of drug smugglers to compromise legitimate
    commercial shipments and conveyances. During fiscal year 1998,
    information from these programs resulted in 136 domestic and foreign
    seizures and interceptions totaling 63,882 pounds of narcotics.
          long-term commitment to the automated commercial environment
        Investments in trade modernization remain a priority for Customs.
    Continued reliance on the sixteen year old Automated Commercial System
    (ACS) will subject both Customs and the trade to risks of degraded
    service. ACS relies on old technology that is costly to maintain and is
    not conducive to supporting the requirements of the re-engineered trade
    compliance process. In the period from mid-September 1998 through
    early-March 1999, ACS experienced significant processing slow downs
    that adversely affected the trade's ability to process entries quickly
    and cost-effectively. Recent investments at the Customs data center
    will alleviate the problems in the short term. However, we can
    anticipate reoccurrences of these problems without additional and
    substantial investments at our data center; in a modernized data
    network technology; and in personal computers and desktop software to
    support our field personnel.
        Customs remains committed to the development of the Automated
    Commercial Environment (ACE) as the commercial system for the 21st
    century. ACE is necessary to: cope with 10 percent annual growth in
    international trade; meet legislative requirements for informed
    compliance and for improved financial controls over the nearly $20
    billion in duties collected annually; and meet the requirements
    articulated by the trade and Customs field personnel as part of the
    trade process re-engineering effort.
        Given the size of the investment that ACE represents, it has
    received substantial scrutiny. As a result, a number of issues have
    been raised about Customs ability to justify such a large project and
    to manage it successfully.
        Customs takes these concerns seriously and has taken or commits to
    take a series of actions to strengthen its ability to manage ACE and
    all other information technology projects and to improve the
    justification for the large investment that is required.
        To improve project management, Customs:
      --Hired a Chief Information Officer (CIO) with extensive experience
            in enterprise architecture and major systems acquisition.
      --Reorganized the Office of Information Technology to provide for
            improved accountability and program control. An important
            element of the reorganization was the establishment of staff
            offices for Technology and Architecture, Strategic Planning,
            Program Monitoring, and Resource Management that are
            responsible to the CIO for: improved investment management;
            further progress on the enterprise architecture; enhanced
            controls over software development; and the development and
            implementation of software process improvement plans.
      --Entered into negotiations with a Federally Funded Research and
            Development Center (FFRDC) to acquire critical support in the
            areas of strategic management, acquisition support, program
            management, technical management, and evaluation and audit.
            Customs expects to be able to have the FFRDC on-board in May.
      --Plans to acquire the services of a prime contractor to help plan,
            implement, and manage its information technology modernization
            efforts. The contractor will be responsible for implementing
            mature software development processes which Customs will adopt,
            and will assume the risks associated with delivering functional
            components of ACE and other software projects. Modeled after
            the experience of the Internal Revenue Service in addressing
            concerns about its tax modernization efforts, Customs will
            utilize the experience of the FFRDC from initial acquisition
            strategy development through solicitation development and
            source selection, award and contract management, to include
            support to Customs in overseeing prime contractor performance.
            Customs intends to give this the highest priority with the goal
            of having a contract in place within 12 months from the time of
            initiation. However, before the contract process begins,
            Customs needs a commitment on a reliable source of funding.
        To improve the justification for the investment in ACE, Customs:
      --Engaged a contractor to update and improve the Automated Commercial
            Environment (ACE) cost-benefit analysis (CBA) which will be
            available for external review in the coming weeks. This CBA
            will incorporate analytical approaches responsive to direction
            previously provided by General Accounting Office staff,
            including reflecting use of the International Trade Data System
            as the trade interface for ACE. However, Customs recognizes
            that still more work is required beyond the current effort and
            commits to follow-on work that will (a) analyze the costs and
            benefits of ACE functional increments; and (b) rigorously
            analyze alternative approaches to building ACE.
      --Engaged Klynveld Peat Marwick Goerdeler Limited Liability
            Partnership (KPMG) to provide an independent review of Customs
            methodology and assumptions for software development and
            infrastructure costs. KPMG's preliminary review found our
            approaches for cost estimation to be sound and appropriate.
            KPMG is now reviewing the completed CBA referenced above and
            advising on the follow-on work.
      --Will complete the enterprise architecture work regarding its trade
            compliance process in May 1999. As part of its investment
            management process, Customs has initiated a documented review
            process that ensures that all proposed investments comply with
            its architecture standards and are not redundant of other
            information technology projects.
        Before leaving the issue of justifying the investment in ACE, an
    important point should be made. The continuing controversy surrounding
    ACE is masking the issue of making the necessary investments in
    infrastructure modernization that are required to meet Customs mission
    responsibilities. Approximately 54 percent of estimated costs
    associated with ACE are for software development and maintenance over
    an eight year period. The rest of the investment is required to replace
    an outdated and problem plagued data network, to acquire additional
    computing capacity at the Customs data center, and to provide for
    regular updating of desktop computing capabilities necessary to stay
    abreast of rapidly changing technology. Almost all of these
    infrastructure investments are necessary even if Customs is forced to
    continue to rely on the outdated ACS.
        Customs inability to invest in infrastructure modernization is also
    adversely affecting its ability to implement targeting systems to
    better combat narcotics smuggling, better screen international
    travelers, and provide automated mission support to achieve improved
    management controls and operational efficiencies.
        The actions listed above are in progress and demonstrate Customs
    commitment to improve its management of information technology. These
    actions reflect Customs recognition of the concerns and we are working
    vigorously to correct them.
                             narcotics enforcement
        The demand for illegal drugs in the U.S. remains strong. In
    response, drug smuggling organizations continue to introduce their
    contraband into our country using every conceivable route and method.
    Drugs entering the country through the Southwest Border, South Florida,
    and Puerto Rico are transported to distribution and control centers in
    major cities like New York, Chicago, Miami, and Los Angeles. Unchecked
    and allowed to flourish, drug trafficking organizations bring with them
    violent crime, public corruption, money laundering, and the socially
    crippling effects of drug abuse.
        Drug smuggling organizations are as resilient as they are
    insidious. Successful dismantling of such criminal enterprises requires
    a balanced and comprehensive strategy, one that interfaces the
    functions of all Customs enforcement disciplines: investigations,
    intelligence, air and marine operations, and interdiction. Our strategy
    exploits the interrelationship of drug transportation and distribution
    by building an ``Investigative Bridge'' between border smuggling
    activity and criminal organizations located inland. We build this
    bridge each time the seizure of illegal drugs at the border leads to
    the identification of the controlling criminal organization hundreds of
    miles inland. We build it again when investigation of a trafficking
    group in an inland city leads to a drug seizure on the border.
    Controlled deliveries, undercover operations, and Title III
    investigations are our primary inroads into drug smuggling
    organizations. These tools complement and solidify the Investigative
    Bridge.
        It sounds simple and it really is. Customs recognizes that neither
    interdiction nor investigations individually add up to effective drug
    enforcement. Only by integrating the two processes can we put forth our
    best efforts in stemming the flow of drugs across our borders.
        Between our regular appropriations and the emergency supplemental,
    Customs received substantial additional funding in fiscal year 1999 to
    enhance our counterdrug operations. In the investigative area, this
    money will enable us to fill 27 new agent positions and to purchase
    radios, firearms, protective vests and vehicles for these new
    positions. The funding we received for our Marine Program will allow us
    to repair and outfit two Bluewater Vessels in inventory in South
    Florida, outfit one 47 foot Bluewater Vessel in New Orleans that was
    acquired from the Coast Guard and develop and construct a NightCat 40
    foot Interceptor Vessel. The $80 million received for Non-Intrusive
    Inspection Technology enabled Customs to accelerate its Five Year
    Technology Acquisition Plan for the Southern Tier. In addition, the $10
    million provided for Port Integrity will be used to not only stop the
    flow of drugs, but combat internal cargo conspiracies and cargo theft.
        The 1999 emergency supplemental provided $186 million for Air
    Program enhancements; $153 million of which is to fund the procurement
    of 6 additional P-3 aircraft. The current schedule calls for an October
    and December 2000 delivery of the two P-3 AEW aircraft. Delivery of the
    4 new P-3 ``Slicks'' is scheduled to begin in early- to mid-fiscal year
    2001 at a rate of one every four months.
                                  child labor
        Addressing the illegal importation of merchandise manufactured or
    produced with forced or bonded child labor is one of the most difficult
    tasks faced by Customs. Customs is pursuing a thorough, impartial and
    aggressive policy towards imports suspected of being produced with
    forced child labor.
        In recent months, special agents have visited Indonesia, Nepal,
    India, and Pakistan to meet with foreign government officials, non-
    government organizations and industry representatives on this very
    sensitive issue. Foreign law enforcement and other government agencies
    have stated their desire to work with Customs.
        Our public outreach program thus far has included mass mailings to
    U.S. importers of merchandise, often associated with forced child
    labor, advertisements in trade publications, participation in trade
    shows, presentations on the Customs Webpage and various press releases
    in print and television in the U.S. and several other countries.
    Additionally, our forced child labor special agents are meeting
    regularly with various non-government agencies that monitor child labor
    and other human rights violations in an effort to address issues as
    they arise.
        Our actions are beginning to bear fruit. Customs has identified
    some manufacturers of hand-knotted carpets who are believed to have
    produced carpets with forced child labor. Detention orders are in place
    to stop imports from those manufacturers at our borders. Should an
    importation from one of these manufacturers be attempted, Customs will
    require a certificate from the manufacturer stating that the goods were
    not produced with forced child labor. Customs will investigate the
    validity of the certificate submitted by the manufacturer. If the
    investigation substantiates the certificate, the goods will be allowed
    into the U.S. If the certificate proves to be false, we will not allow
    the goods to enter the U.S and will continue our investigation for any
    potential criminal or civil violations.
        Increased staffing will soon be in place in several of our foreign
    offices. Special agents have been added to our Bangkok, Hong Kong and
    Montevideo offices. These additional special agents will be dedicated
    to investigating allegations, and training and working jointly with
    foreign law enforcement agencies to address the child labor issue.
                                money laundering
        Customs has a broad grant of authority to conduct international
    financial crime and money laundering investigations. Jurisdiction is
    triggered by the illegal movement of criminal funds, services, or
    merchandise across our national borders and is applied pursuant to the
    authority under the Bank Secrecy Act, the Money Laundering Control Act
    and other Customs laws. Combined with our border search authority,
    Customs formidable enforcement efforts focus on the most significant
    international criminal organizations, whose corrupt influence often
    impacts global trade, economic and financial systems. Customs
    enforcement efforts are not limited to drug related money laundering;
    they extend to the proceeds of all crime.
        Customs has implemented an aggressive strategy to combat money
    laundering. Our approach involves interdiction efforts by Customs
    inspectors, criminal investigations by Customs special agents, and in
    partnership with Treasury, FinCEN, and others, the design and
    implementation of innovative regulatory interventions, unique to
    Treasury, that dismantle and disrupt systems, organizations and
    industries that launder ill gotten gains. Applying these techniques,
    New York's El Dorado Task Force, led by Customs, had tremendous success
    in removing and preventing the wire remitter industry from being
    exploited by drug kingpins to launder money.
        Customs also continues to pursue an aggressive program of
    undercover investigations directed at money launderers. The two largest
    single seizures of cash in the history of Federal law enforcement were
    made as a result of Operation Casacam in Miami and Operation Omega in
    Los Angeles. Together, these two seizures totaled over $41 million in
    cash. Moreover, it was Customs undercover operations that first exposed
    the criminal laundering activities of both Bank of Credit and Commerce
    International and American Express Bank International. And last May,
    Customs concluded Operation Casablanca, the largest, most significant
    drug money laundering investigation in the history of U.S. law
    enforcement.
        Customs operates the Money Laundering Coordination Center (MLCC)
    which has gone on-line this year. Physically located at FinCEN, and
    staffed by special agents and intelligence analysts, the MLCC is
    designed to coordinate intelligence between all U.S. Customs undercover
    money laundering investigations. It will be opened up to other agencies
    in the future. The MLCC will also be instrumental in developing a
    strategy to combat the black market peso exchange which has been
    described as the single most efficient and extensive money laundering
    system in the Western hemisphere.
        With funding approved by the Treasury Executive Office of Asset
    Forfeiture, Customs has trained and equipped 19 highly specialized
    Asset Identification and Removal groups consisting of special agents,
    auditors and data analysts. These groups, established throughout the
    United States, are designed to identify, track, and seize the assets of
    criminals and their organizations. They are responsible for the seizure
    of over $172 million in the past three years and have been integral to
    high profile investigations such as the Ruiz Masseiu case and Operation
    Casablanca.
        As we look toward the future, Customs plans on continuing to work
    in concert with other Treasury and federal agencies to dismantle and
    disrupt the systems used by international criminal organizations.
                                 anti-terrorism
        Equally challenging is our responsibility to protect the American
    public from the threat of international terrorism. Easier access to
    sophisticated technologies, including weapons of mass destruction,
    means that the destructive power available to terrorists is greater
    than ever. Customs is the first line of defense at our Nation's borders
    to prevent the introduction of weapons of mass destruction and other
    instruments of terror into the U.S. from abroad, and to prevent
    international terrorists from obtaining weapons of mass destruction
    technologies and materials, funds, and other support from sources in
    the U.S.
        Customs is active on a number of fronts to combat this threat. We
    are developing and deploying examination technologies, such as
    radiation detection equipment, to our ports for use in detecting and
    interdicting nuclear, chemical and biological materials in
    international shipments. We work in partnership with the Federal
    Aviation Administration and the airline industry to enhance security on
    international flights originating in the United States. We aggressively
    enforce U.S. export laws to prevent the illegal export of arms,
    military equipment and dual use technologies to proliferous countries
    and terrorist groups, and enforce U.S. economic sanctions to deny funds
    and other support to international terrorists. We actively participate
    in Department of Justice-sponsored Joint Terrorism Task Forces.
        Among the results of our strategic investigations this year, were
    the convictions of two weapons traffickers who not only had negotiated
    the sale of Russian-produced, shoulder fired surface to air missiles to
    undercover Customs special agents, but who had indicated they could
    also supply tactical nuclear weapons stolen from the Former Soviet
    Union. Also, indictments were handed down against seven individuals for
    weapons smuggling charges after members of the group were intercepted
    en route to South America in an attempt to assassinate Cuban president
    Fidel Castro.
        Customs also has a leadership role in working in partnership with
    our counterparts in foreign customs and law enforcement agencies in
    strengthening export control and law enforcement programs to deny
    weapons of mass destruction and other support to international
    terrorists. We provide training and technical assistance to the
    countries of the Former Soviet Union and South East Europe under the
    U.S. Customs/Department of Defense Counter Proliferation Program. And
    we co-chair joint U.S./Russian working groups coordinating customs and
    law enforcement matters related to non-proliferation and export
    control.
        The threat of international terrorism is perhaps one of the most
    serious national security threats emerging as we enter the 21st
    century. Customs is at the forefront of our Nation's efforts to address
    this threat. We are committed to providing the tools and the training
    necessary to our Customs inspectors and special agents to enable them
    to meet these challenges.
                          cybercrime/child pornography
        As we are all aware, technology, particularly in the realm of
    electronic information and communication technology, continues to
    advance at an astonishing rate. We see the results of such advancements
    in everything we do. We can talk to virtually anyone anywhere via e-
    mail; we can research any topic via the Internet from the warmth and
    comfort of our living rooms; and we can even order groceries from the
    neighborhood food market without ever leaving our homes. The same
    technology that provides us with the seeming sense of security that we
    get from being able to do so much over our home-based personal
    computers is the very same technology that allows the criminal element
    to penetrate even the most secure of our homes. Cyberspace recognizes
    no borders, no sovereignty, and no walls or doors. Neither does
    cybercrime.
        Without exception, violations of all of the over 400 laws enforced
    by Customs can, in some way, be abetted through the use of cyberspace.
    Indeed, three violations investigated by Customs, money laundering,
    Intellectual Property Rights violations, and child pornography/child
    sexual exploitation, can actually be committed via the Internet.
    Although money laundering and Intellectual Property Rights violations
    impact greatly the economic fabric of our Nation, it is child
    pornography and child sexual exploitation that tear at the moral fabric
    of our Nation and our future.
        For this reason, Customs has established the Customs CyberSmuggling
    Center in Fairfax, Virginia. The Customs CyberSmuggling Center is
    tasked with conducting all cyberspace-based investigations on behalf of
    Customs. In addition, the CyberSmuggling Center is providing training
    to thousands of Federal, state, local, and foreign law enforcement
    officers annually. In fiscal year 1998 alone, the CyberSmuggling Center
    trained over 3,000 law enforcement officers from four continents.
        Cybercrime is the newest challenge for law enforcement. Hardest hit
    by cybercrime are the holders of trademarks and copyrights. The actual
    losses attributed to counterfeiting and piracy can severely impact our
    economic stability if the problem is not adequately addressed. Customs
    and FBI co-chair the National Security Counsel (NSC), Special
    Coordinating Subgroup on Intellectual Property Rights and Trade Related
    Crime. As a result of the work being conducted by the subgroup, the NSC
    has requested a proposal for a single agency to be responsible for the
    coordination of all U.S. government activities in this area.
        Customs has proposed, through the NSC, to take the lead and
    responsibility for coordinating these efforts. We are proposing a
    multiagency effort to address law enforcement, training, intelligence
    and policy for the U.S., both domestically and internationally. This
    coordination effort will also include representatives from industry and
    trade groups as appropriate.
                technology for better enforcement and targeting
        In implementing our Five-Year Technology Acquisition Plan for the
    Southern Tier, we have sought to steadily increase the risk of
    detection across the Southern Tier from San Diego to San Juan. Without
    this across-the-frontier approach, our enforcement efforts in one area
    will be mitigated by the smugglers' ability to rapidly shift operations
    to an area where the threat of detection is lower. What remains
    however, is to begin installing this technology at high-risk ports
    elsewhere in the country, ports like Charleston, SC, where last fiscal
    year we had a seizure of almost 3,100 pounds of cocaine; and Newark,
    NJ, where we have historically seen commercial quantities of both
    marijuana and cocaine. We have started to look beyond the Southern
    Tier, to install automated targeting systems and other technology.
        With the increased funding we received in fiscal year 1999, Customs
    is aggressively pursuing a mix of technologies designed to complement
    one another and present a layered defense to smuggling attempts. Some
    of the technologies we are currently testing and evaluating include a
    mobile truck x-ray which has the same or better capabilities as our
    fixed-site truck x-rays and has the added benefit of over-the-road
    mobility allowing us to use it at several ports. This introduces more
    unpredictability into our operations since the smuggler can never be
    sure where the x-ray will show up next. In addition, a gamma-ray
    inspection system has been developed for trucks, other vehicles and
    railcars.
        Customs has been a good steward of the funding provided by the
    Congress. We are nearing completion of the truck x-ray system
    installation program. Seven of the nine systems are installed and have
    proven to be an effective law enforcement tool for the interdiction of
    smuggled drugs. In fact, the top five seizures made using these truck
    x-ray systems amount to almost 13,000 pounds of drugs. Customs is also
    seeing a decrease in the number of inspections per seizure giving us a
    preliminary indication that the x-rays are becoming the force
    multiplier we envisioned them to be. We have also fielded two mobile
    truck x-rays with two more prototypes in development.
    Land Border Automation
        We are working with our counterparts in the Immigration and
    Naturalization Service to install license plate readers (LPRs) and
    automated permit ports (APPs) and replace the terminals used by the
    inspectors to query the Interagency Border Inspection System (IBIS)
    database. Southwest Border ports and the major crossings on the
    Northern Border will also receive this LPR equipment. LPRs have the
    capability to count the number of vehicles, identify stolen vehicles,
    and identify vehicles which are positive IBIS hits. LPRs will allow
    Customs to gather intelligence from the data, plus data mining will
    enhance inbound and outbound targeting.
        One type of APP being tested at several locations along the
    Northern Border is the Remote Video Inspection System. This combination
    of card reader, video and audio technology allows travelers to cross at
    small, remote locations when there is no inspector on duty. Canada is
    installing a similar system at the adjacent ports to our test sites.
        Inspectors have at their disposal a wide range of technology and
    tools including the large truck x-rays, pallet x-rays, optical
    fiberscopes, laser rangefinders, and portable contraband detectors
    (a.k.a. busters) to name a few. What must be remembered is that without
    the consistent funding to operate and maintain these technologies in
    Customs base, the benefits will be short-lived.
    Compliance Measurement Examination data collection process (COMPEX)
        Customs uses the Compliance Measurement Examination data collection
    process (COMPEX), a random selection program in operation at major
    airports and nearly all land border ports to determine the overall
    compliance rate of arriving passengers and the threat at each location.
    We continue to work with the ports to reduce the burden of collecting
    the information and improve the data quality. We will be working to
    develop COMPEX for passengers arriving at small airports and by vessel,
    train, or bus, as well as COMPEX for outbound airport passengers.
    Anti-proliferation/Anti-terrorism
        Using the Nunn-Lugar anti-proliferation funding, and working
    jointly with the Department of Defense, Customs is evaluating
    technology to provide our inspectors with a device that not only
    quantifies the presence of radiation, but can classify the source of
    the radiation against a database to tell the inspector if the source is
    medical, industrial, or weapon-related material.
        We have also fielded approximately 1,500 personnel radiation
    detectors (a.k.a. radiation pagers) with the eventual goal of deploying
    3,800 around the country. We are installing radiation detector
    equipment in all Customs x-ray systems thereby providing a simultaneous
    screening for contraband and drugs as well as undeclared radioactive
    material.
        Better technology will allow Customs to maximize the efforts of the
    limited number of outbound inspectors. Better technology will allow
    inspectors to ``target smarter'' and with less wait-time for the
    traveling public and trade. Technology can be utilized to target
    undeclared outbound currency, stolen vehicles, munitions, and items
    which may pose a risk to aviation safety and security.
        To support antiterrorism and aviation safety and security efforts
    at 17 of the largest international airports, Customs has spent
    approximately $18 million of the $35.2 million authorized under the
    1996 Omnibus Appropriation to purchase and so far deploy the following
    equipment: 24 mobile x-ray vans equipped with explosive and radiation
    technology; 18 mobile support system airport tool trucks that provide
    inspectors the necessary tools to inspect cargo; 11 portable x-ray
    systems and 12 particle detectors capable of detecting trace amounts of
    explosives for mail/courier facilities; and 675 radiation pagers to
    address the threat of nuclear smuggling. Customs is currently working
    toward identifying additional non-intrusive inspection systems that can
    be purchased with the approximately $17 million remaining in ``no
    year'' funds to support aviation safety and security.
    Automated Targeting Systems
        The Automated Targeting System for Anti-Terrorism (ATS-AT) is a
    rule-based expert system designed to facilitate the targeting of high-
    risk outbound cargo. This could include terrorist devices, weapons,
    undeclared hazardous material and other contraband. The system was
    prototyped at John F. Kennedy International Airport and will be
    deployed to 14 additional airports in fiscal year 1999. ATS-AT allows
    inspectors to review more outbound documentation for potentially high-
    risk shipments, in less time.
        ATS is also being used in the air passenger environment. Customs is
    in the process of migrating a data base which will enhance the
    capability of the Passenger Analysis Units and line inspectors in the
    targeting of suspect travelers. The enhanced capability will ultimately
    result in more effective interdictive measures and passenger processing
    and will increase the opportunity of locating and positively
    identifying high-risk travelers involved in drug smuggling, terrorism
    and other transnational criminal activity. However, failure to provide
    funding to this project, which is funded out of base resources, will
    result in decreased connectivity to the first line inspectors in the
    field.
                        fiscal year 2000 budget request
        Customs proposed funding level for fiscal year 2000 totals
    $1,929,735,000 and 17,389 Full Time Equivalents (FTE), of which
    $1,617,335,000 will be directly appropriated, and $312,400,000 will be
    derived from a proposed increase to the passenger processing fee. Also,
    $35,000,000 is requested from the Treasury Forfeiture Fund Super
    Surplus Fund.

    Integrity..............................................$6 million, 0 FTE

        Corruption and unethical behavior results in serious repercussions
    to law enforcement, including an erosion or destruction of public
    confidence, which is difficult to restore. While there is no systemic
    problem of corruption in the Customs Service, this initiative is
    required to increase the likelihood that new hires to Customs will
    possess honesty and ethical principles, ensure that Customs complies
    with statutory provisions concerning periodic reinvestigations, and
    reinforce the awareness of all agency employees to possible integrity
    threats, e.g., bribery attempts and unethical behavior. Specifically,
    the funding is required to conduct polygraph examinations, upon Office
    of Personnel Management approval, for candidates applying for positions
    which are most susceptible to corruption (criminal investigators,
    Customs inspectors, canine enforcement officers, and contractors). This
    request will also fund the contracting out of the required periodic
    investigations, as well as fund the corruption prevention awareness
    efforts of the agency.

    Training...............................................$5 million, 8 FTE

        In order to attain the highest level of training, integrity and
    professionalism, Customs is requesting additional resources to
    establish a new office at the Assistant Commissioner level. This office
    will manage and direct the establishment of a comprehensive education,
    training, and workforce development program which covers the entire
    career of Customs personnel with an emphasis on law enforcement
    positions. In-service training and development will be provided on a
    regular and recurring basis, and programs will be implemented to
    maintain and improve on-the-job effectiveness. Special attention will
    be given to continuous training for law enforcement personnel on the
    day-to-day application of the unique border search authorities granted
    to Customs officers (including, but not limited to: 19 U.S.C.
    Sec. Sec. 482, 1461, 1467, 1496, 1581, 1582, and 1646b, 22 U.S.C.
    Sec. 401, and 31 U.S.C. Sec. 5316).

    Non-intrusive Mobile Personal Inspection Technology....$9 million, 0 FTE

        International commercial air travel is increasing each year and the
    numbers of narcotics couriers who ingest or conceal narcotics on or
    within their body are increasing dramatically. Detection of internal
    carriers can only be accomplished through the use of x-ray. Current
    procedures require that the suspected courier be transported from the
    international arrivals area of the airport, accompanied by two Customs
    officers, to a medical facility where the x-ray is administered. This
    procedure is time consuming and an inefficient use of staffing due to
    the time required and the safety precautions which must be observed
    (i.e., handcuffing the suspect for transport), and the procedure is
    exceedingly unpleasant for those suspects whose x-rays are negative.
        Therefore, as the fight to deter drugs and other contraband from
    coming into the United States continues, so does the development of new
    non-intrusive detection technology. Customs has developed a way to
    examine a suspected courier, with less embarrassment (in the likelihood
    of a pat-down and/or strip search), by using a facility staffed with an
    x-ray technician and equipped to digitally transmit the x-ray to a
    radiologist at a medical facility who will determine whether the x-ray
    indicates the presence of a foreign substance in the body. The facility
    will either be a fixed building in, or immediately adjacent to, the
    international arrivals area of the airport or a bus which is designed
    to fit into a custom docking facility built as an extension to Federal
    Inspection Services (FIS). Thus, the suspected courier could be
    transferred without handcuff restraints and through U.S. Customs
    Service corridors to avoid loss of control of the subject as well as
    public exposure. Customs is seeking a contractor who will provide a
    ``turn key'' operation.

    Land Border Blitzes..................................$1.4 million, 0 FTE

        The additional funding requested would allow Customs to conduct
    ``blitz'' type operations at land border ports. This initiative
    implements some of the lessons learned from last year's successful
    Operation Brass Ring. Blitz operations are characterized by the rapid,
    unpublicized deployment of a team of Customs Inspectors, Canine
    Enforcement Officers, and Special Agents into a targeted port or base
    port for varied durations (a day to several weeks) to conduct intensive
    inspectional and investigative operations. The size of the port being
    blitzed, the duration of the operation, and the objectives of the
    operation would determine the actual makeup of each team. The teams
    would perform the blitzes at unscheduled times moving from border
    crossing to border crossing, from one port to another, and within a
    port among passenger primary, secondary inspection, cargo inspection,
    and outbound areas. This flexibility will maximize the unpredictability
    of the operations to Drug Smuggling Organizations (DSOs).
    Unpredictability is a corruption deterrent as well. Use of non-
    intrusive technology would also be maximized. Mobile or transportable
    systems would be utilized at ports which do not have fixed NII
    technology. In other instances, suspect conveyances would be convoyed
    to other ports which have fixed NII technology.
        Customs Air Operations Support is vital to the rapid, fluid
    deployment of the teams. The use of air assets will allow the teams to
    maintain the element of surprise and maximize their time in the port
    instead of in lengthy transits between geographically dispersed border
    crossings. During Operation Brass Ring, the use of aircraft was shown
    to disrupt the normal activities of Drug Smuggling Organizations (DSOs)
    at the ports of entry. In addition, air assets provide enhanced
    security measures for ground personnel in the event of any escalated
    incidents.

    Forced Child Labor.....................................$2 million, 3 FTE

        The Customs Service is continuing its efforts to address the issue
    of forced child labor. Customs intention is to establish regional
    offices in Asia and increase staffing in foreign countries where there
    is significant potential for goods to be produced by forced child
    labor. This funding would provide for the hiring of special agents/
    representatives and a staff assistant.
        The need for foreign-based agents rather than domestic agents is
    crucial to the success of this initiative. Regular interaction with
    foreign governments and non-government organizations (NGOs) ensure that
    Customs can maintain an enforcement presence and exert pressure because
    ultimately verification of the use of child labor will require
    inspection of the suspect foreign facility and its records.

    Money Laundering (Outbound) Technology.................$2 million, 0 FTE

        The majority of undeclared currency going out of the U.S. involves
    proceeds from narcotic trafficking activities. The ever-increasing
    volume of cross-border traffic means that Customs should conduct more
    examinations more effectively, in order to keep up with the activities
    of the drug cartels. Outbound enforcement examinations are currently
    conducted on a very limited basis. In fiscal year 1998, although
    outbound exams were conducted only intermittently and with minimal
    resources, Customs seized more than $68.4 million in outbound currency.
    In order to maximize Customs enforcement efforts, non-intrusive
    technology and equipment (and infrastructure) are necessary to
    efficiently interdict undeclared currency.
        Technology will strengthen outbound enforcement efforts, while
    facilitating the public and legitimate trade. Due to the vast amount of
    cargo being exported out of the United States, Customs can only examine
    a percentage of these shipments. The procurement of mobile x-ray vans,
    tool trucks, and contraband detection kits will assist Customs in the
    examination of more cargo and conveyances at seaports, courier hubs,
    and on the Southern land border.
                                   user fees
        The fiscal year 2000 budget request includes two new user fee
    proposals. They are:
    Passenger Processing Fee
        The Administration proposes to increase an existing fee paid by
    travelers arriving by commercial aircraft and commercial vessel from a
    place outside of the United States, and to remove certain exemptions
    from this fee. Proceeds of the fee increase would partially offset
    Customs costs associated with air and sea passenger processing.
    Subsequent to the budget, authorization legislation will be transmitted
    to allow the Secretary to increase the fee paid by air and sea
    passengers and to remove existing exemptions from this fee. In order
    for Customs to be able to collect $312.4 million for fiscal year 2000,
    collections would have to begin on July 1, 1999.
    Automation Modernization Fee
        The Administration proposes to establish a fee for the use of
    Customs automated systems. The fee will be charged to users of Customs
    automated systems. Proceeds of the fee will offset the costs of
    modernizing Customs automated commercial operations and an
    international trade data system, and will be available for obligation
    after fiscal year 2000. Subsequent to the budget, authorization
    legislation will be transmitted to allow the Secretary to establish a
    fee for the use of Customs automated systems.
        This concludes my statement for the record. I appreciate the
    opportunity to appear before you today. I particularly want to express
    my appreciation to this Subcommittee for its tremendous support in
    providing Customs with increased funding in fiscal year 1999. This
    funding will provide Customs with the much needed tools to accomplish
    our mission, and I assure you that we will use these resources in the
    manner in which Congress intended them to be utilized, in the
    furtherance of international counterdrug efforts and our critical
    mission to protect the Nation's borders and to reduce the flow of drugs
    into the United States.

                                  SEIZURE DATA

        Senator Campbell. Thank you. And thank you for clarifying
    the searches. I wanted to just ask you something that just came
    to my mind though. In your testimony you mentioned the seizure
    of six tons of cocaine, did you say?
        Mr. Kelly. Six tons of marijuana and cocaine in the
    Casablanca operation.
        Senator Campbell. In the Casablanca operation alone. I know
    Senator Kyl is not here, but he has brought up in several
    forums here what he sees as a lack of enough resources going
    into this State. Is most of this seized at airports rather than
    coming across in cars?
        Mr. Kelly. In Arizona?
        Senator Campbell. Anywhere.
        Mr. Kelly. No, most drugs are seized coming across the land
    border.
        Senator Campbell. He mentioned in specific two or three
    times in hearings I have been in with him about the increase of
    drugs as well as illegal aliens coming through Bisbee. Were
    some of these seizures done at Bisbee? So I could pass that on
    to him.
        Mr. Kelly. I am sure there were, but we could get back to
    him with the specific seizures.
        Senator Campbell. Would you get back specifically to
    Senator Kyl? He needs it more than I do, if you would.
        Mr. Kelly. Yes, sir, we will do that.
        [The information follows:]

        Customs has experienced increases in drug seizures in the area
    encompassing Bisbee, at and between the Naco and Douglas Ports of
    Entry. During the first 6 months of fiscal year 1999, non personal use
    marijuana and cocaine seizures combined have increased in weight by 3
    percent above all of fiscal year 1998 (26,342 pounds vs. 25,486
    pounds). The number of seizures in this area is also running higher
    than in fiscal year 1998, with 130 through March 1999, compared to 153
    in all of fiscal year 1998.

                                PERSONAL SEARCH

        Senator Campbell. Let me ask you also on the searches,
    these non-intrusive methods, they are like x-rays I guess. If a
    person swallowed something in a balloon or a rubber bag, which
    I guess is not totally uncommon, would that show up on these
    non-intrusive x-rays?
        Mr. Kelly. No, it would not. Not on the body scans. We are
    looking for full-blown x-rays in the $9 million request for
    fiscal year 2000. But we have moved ahead with what we call a
    body scan. It will look through clothing but not through the
    body, and it is an alternative to a pat-down. We give people
    the option, to being touched.
        Senator Campbell. I have never seen one of these. Does that
    mean just when you look at it it looks like a person just
    standing there naked? It does not look inside them, it looks--
    --
        Mr. Kelly. There are various models. Some are more precise,
    you might say, than others. But we use female inspectors to
    look at the female subjects, and male inspectors for male
    subjects.

                            PASSENGER PROCESSING FEE

        Senator Campbell. Same sex lookers. Okay, good.
        Let me talk about your budget a little bit. It contains
    legislation authorizing $312 million, a little over $312
    million by extending an expired passenger processing fee to pay
    for existing, but not new, personnel costs for Customs. What is
    the status of that now? And how do you expect to deal with the
    $312 million shortfall if it is not enacted?
        Mr. Kelly. With great difficulty. That translates to about
    5,000 FTE for the agency, and it is an area of concern for me
    and for the Customs Service, no question about it. We know that
    the issue of user fees is controversial on Capitol Hill, so it
    is an area of concern. And even with the $312 million----
        Senator Campbell. Do you have a contingency plans just in
    case?
        Mr. Kelly. We would just have to go to work with the
    committee and with the Administration if fees are not
    authorized. But it translates into about 25 percent of our
    personnel.

                          AUTOMATED COMMERCIAL SYSTEM

        Senator Campbell. Your budget also includes $35 million for
    the maintenance and upkeep of the automated commercial system,
    the ACS system. As I understand it, that is the first time that
    this cost has shown up as a line item but you have carried
    approximately $32 million in your base over the last few years
    for the cost. If you add in how much you are spending in your
    base in fiscal year 2000 the funding will be a total of $67
    million. Why is there such a large increase in funding for
    fiscal year 2000?
        Mr. Kelly. Because the ACS system is in trouble. It is a
    15-year-old system using 21-year-old software. It is operating
    at over 90 percent of the capacity, sometimes at 100 percent of
    capacity. That is why we are strongly advocating the move
    towards the automated commercial environment. But the ACS
    system is of concern.
        If we had funding today for----
        Senator Campbell. Okay, that is good enough for me.
        Mr. Kelly [continuing]. ACE, we would still need that
    money.

                       VIOLENT CRIME REDUCTION TRUST FUND

        Senator Campbell. The Customs Service is also requesting
    $64.9 million for the violent crime reduction trust fund.
    Generally, when the bureaus submit request for the funding they
    provide kind of specific details on how they expect to use the
    funds. But as I understand it, you have not provided that
    breakout yet. Can you kind of give us an outline on how you are
    going to spend those funds?
        Mr. Kelly. Yes, sir. We did provide it. We provided it
    yesterday.
        Senator Campbell. That is all right. I understand we
    received it as of yesterday. But that request is for $64.9
    million, and when we add this list up we come up with a total
    of, it is about $10 million over. What is the discrepancy?
        Mr. Kelly. Over?
        Senator Campbell. Over the itemized list for fiscal year
    2000. The President's budget has $64.9 million, and the total
    itemized list comes out to $10 million more than the
    President's request.
        Mr. Kelly. Some of it may be forfeiture fund and some of it
    is violent crime trust fund. I do not have the list in front of
    me, but that might explain it.
        Senator Campbell. Okay, maybe so, because the forfeiture
    fund is not listed on there. All right.
        You also mentioned some educating--I understood just from
    listening to you, educating agents in their efforts at
    airports. But you are also working on a passenger education
    effort? What does that entail?

                        PASSENGER PROCESSING PROCEDURES

        Mr. Kelly. We brought on board a consultant to take a look
    at our passenger processing procedures and one of the things
    they found, which we suspected, was that we were not doing an
    adequate job of informing passengers that they--the potential
    to be----
        Senator Campbell. So they do not have a hissy fit because
    they are being asked questions or searched or something?
        Mr. Kelly. Right. First, they might be told or in the past
    told just to go to the secondary area. They are questioned and
    then some are people ultimately searched.
        Senator Campbell. Just doing that probably worries some
    people I guess.
        Mr. Kelly. Absolutely. So we need to do a more effective
    job of informing passengers. We have put up signs at airports.
    We have developed brochures. We are working with the airlines--
    --
        Senator Campbell. Of what they might expect?
        Mr. Kelly. Exactly. We have a problem, and this is a
    country with drugs, and potentially some of you might be
    searched; that sort of information. We are also attempting to
    redesign the declaration that is made out when you enter the
    country, goods that you are bringing in. To in essence add a
    cover to that declaration to inform people as to the potential
    of search, or at least what they can expect.

                          MONEY LAUNDERING TECHNOLOGY

        Senator Campbell. I think it is good you are doing that.
        One last question dealing with money laundering. You are
    requesting $2 million for technology to identify undeclared
    currency being smuggled into the country. What types of
    technology are you expecting to acquire?
        Mr. Kelly. In essence we are looking for mobile x-ray
    machines to identify money going out of the country. We do some
    outbound operations, but as I mentioned in my statement, we do
    not do enough.
        Senator Campbell. Are these going to supplement--you have
    got dogs, I understand, currency-sniffing dogs?
        Mr. Kelly. We have currency-sniffing dogs.
        Senator Campbell. This will supplement what the dogs do, or
    are you going to replace the dogs?
        Mr. Kelly. No, we would actually like more dogs. But we are
    at full capacity as far as the dogs are concerned in term of
    training and getting the dogs on line. So we would like to use
    both. We want to explore the possibility of using more dogs,
    but certainly this mobile x-ray technology will enable us to--
    --

                                 CANINE PROGRAM

        Senator Campbell. What kind of dogs do you use?
        Mr. Kelly. Any kind of dog. We use good dogs. Although we
    are breeding some of our own dogs.
        Senator Campbell. Yes, good dogs are better than bad dogs,
    I know. [Laughter.]
        Mr. Kelly. Good dogs that can detect drugs, and not all
    can.
        Senator Campbell. It seems like most of the Federal
    agencies--if I might tell my friend, Senator Dorgan, most of
    the Federal agencies it seems to me use German shepherds, which
    are fine. I have a German shepherd at home. They are very nice
    dogs. But I have also had bird dogs, and I want to tell you,
    Weimaraners and some of those dogs that are trained to--they
    have got a nose that will run circles around some of the German
    shepherds. But I have never seen any of the bird dogs used in--
    --
        Mr. Kelly. We cannot afford the luxury of specific breeds.
    We go to theses homes and take any dog that reacts in the
    appropriate way that indicates that they may be able to detect
    drugs. So we have all sorts of different breeds.
        Senator Campbell. Thank you.
        Senator Dorgan, any questions about dogs or anything else?
        Senator Dorgan. No, Mr. Chairman, you are the expert on
    this dog issue stuff. I actually did see a demonstration,
    however, of your department using dogs and it was really quite
    remarkable. In a huge warehouse they had actually planted a
    small box with some drugs and they showed me how those dogs
    work. And it really is quite remarkable to see them go through
    that entire warehouse and find one very small cardboard box
    with drugs. It is impressive.

                        AUTOMATED COMMERCIAL ENVIRONMENT

        Let me ask you about ACE, if I might. You are well
    familiar, I am sure, with the GAO report which is the scourge
    of every administrator who has them peeking around and poking
    around and looking at what agencies do. But the GAO is very
    important to us. They are our ability to take a look at what is
    happening inside of agencies.
        Their February report indicates, as you indicate,
    Commissioner, that the Customs department is having very
    significant problems with ACE. Their results, in brief, start
    by saying, Customs is not managing ACE effectively and does not
    have a firm basis for concluding that ACE is a cost-effective
    solution to modernizing its commercial environment.
        Because of the money that is being proposed here for the
    system and because of the importance of the system, can you
    give us some more feeling about what you are doing as a
    commissioner to respond to the GAO's assessment of where we
    are?
        Mr. Kelly. We think the GAO recommendations are sound. We
    are adopting those recommendations. We are moving, as I said in
    my remarks, to bring on board a prime contractor, and we are
    learning lessons from other Federal agencies in the past. We
    are moving aggressively to bring the prime contractor on. We
    need money to do that.
        In order to put together in essence an RFP to get the prime
    contractor working, we brought Mitre Corporation on, and we
    have just entered a contract with them. So I think this will,
    hopefully, significantly accelerate the process.
        There are concerns, and these are legitimate concerns. As I
    say in the past, these big ticket items have proven to be
    problems with other agencies. So we understand the scrutiny. I
    think that the prime contractor move is really the way to go
    and will change some of the atmospherics.
        Senator Dorgan. We will have the capability of learning at
    some point what the whole system will cost? One of the
    criticisms by the GAO is there is no capability of assessing
    what is all this going to cost? It is like starting to build a
    house without any notion of how much you want to put into it.
    Will the acquisition of a prime contractor, at I suppose a
    fairly substantial cost--none of those come very
    inexpensively--will that lead you to a point where you will be
    able to give Congress some assessment of what the final cost
    will be?
        Mr. Kelly. Yes, sir. One of the difficulties is that this
    is a bid process. So in other words, you put out a plan and
    then you get bids back, so it is hard to identify a specific
    dollar amount now. However, the latest estimate is for a total
    cost of $1.4 billion. Now we brought Peat Marwick on board to
    take a look at the process that we used to cost out the system.
    They found our procedures to be reasonable and sound in
    arriving at that figure at this point in time as to where the
    project stands.
        So the latest estimate is $1.4 billion. And again, the
    process used has been deemed to be a reasonable process. But
    obviously, as we move further along with the prime contractor
    we will have more precise figures.
        Senator Dorgan. I hope you will keep us closely informed as
    we move along because we will want to continue to ask questions
    about this as we proceed.

                              OPERATION CASABLANCA

        Just two other very quick questions. In your Operation
    Casablanca you talk about 12 commercial Mexican bank officials,
    three Mexican banks themselves that have been indicted. This
    does not have anything to do with your appropriation, but can
    you give me some background information after the hearing on
    what is happening to those banks themselves? It seems to me one
    of our problems is institutions, which are artificial people,
    seem never to pay the same price for illegal behavior as real
    people do. I am kind of curious whether this is one of those
    cases where you indict a bank and they keep on banking.
        Mr. Kelly. I can give you specific information. Two of the
    banks have pled guilty to criminal charges and there is
    significant forfeitures for the third bank, as well. But I will
    give you more specific information, Senator.

                           INTERNATIONAL CORPORATIONS

        Senator Dorgan. One other point. There are some people in
    Florida doing some research using your data, Dr. Pack and Dr.
    Zadanowitz, trying to determine from your data what is
    happening with respect to taxation of international
    corporations who do business in and out of this country through
    foreign corporations of wholly owned subsidiaries in this
    country and then sell and buy to and from themselves.
        Let me give you some examples that I just got from them the
    last couple of days. Importing toothbrushes from India, $171
    per toothbrush. Radial tires from Indonesia, $2,500 per tire.
    Exporting bicycles from the United States to Mexico for $11 per
    bicycle. Just to give you an example of what is in the bowels
    of your data bank that we need to find a way to get to the
    Internal Revenue Service so we stop wholesale cheating to the
    tune of about $35 billion a year by international corporations.
        That is not your responsibility, but we need to work with
    your agency to make sure your information is usable by the IRS
    to stop tax cheating by international corporations to the tune
    of tens of billions of dollars.
        Mr. Kelly. Yes, sir. I think we have agreed to do a pilot
    project with IRS on the transfer payment issue.
        Senator Dorgan. I have talked with you about that, and I
    appreciate your cooperation on it.

                               FORCED CHILD LABOR

        Let me thank you. You have a big role to play.
        Just one other point. I am especially interested in your
    initiative on forced child labor. I do not know how many agents
    you have in that area but I would like to get, if I could, a
    memorandum from you telling me what kinds of resources you are
    committing to that.
        You indicate you have been sending agents just recently to
    India, Nepal, Pakistan, Indonesia. We know what is happening in
    some of those areas with carpets and forced, effectively prison
    labor, of young children. You have all heard these stories of
    young children who have gunpowder put on their fingertips and
    then set on fire in order to create the calluses so that the
    later use of needles in rugs will not cause them to bleed and
    they will be able to lock these kids up and force them to keep
    making rugs.
        Some of that is horrible, horrible stuff. So your
    enforcement efforts in these areas is critically important. No
    American should want to buy a rug, for example, made under
    those conditions by kids in forced labor. I want to support you
    in those areas.
        I would like to get some more information about resources
    devoted to them.
        Mr. Kelly. Yes, sir.
        Senator Dorgan. Commissioner Kelly, thank you very much.
        Mr. Kelly. We are deploying additional agents this year to
    Hong Kong, Bangkok, and to Montevideo to conduct these
    investigations, thanks to the committee.

                              SUBMITTED QUESTIONS

        Senator Campbell. Thank you, Commissioner Kelly.
        [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 Campbell
                               forced child labor
        Question. Can you give the subcommittee a report on the Forced
    Child Labor Initiative? Is the $5 million adequate? Do you have a five
    year plan for this initiative which clearly spells out the initiative
    goals and steps that Customs must take to achieve the goals?
        Answer. Addressing the illegal importation of merchandise
    manufactured or produced with forced or bonded child labor is one of
    the most difficult tasks faced by the Customs Service. The Customs
    Service is pursuing a thorough, impartial and aggressive policy towards
    imports suspected of being produced with forced child labor.
        In recent months, special agents have visited Indonesia, Nepal,
    India, and Pakistan to meet with foreign government officials, non-
    government organizations and industry representatives. Foreign law
    enforcement and other government agencies have stated their desire to
    work with the U.S. Customs Service.
        Our public outreach program thus far has included mass mailings to
    U.S. importers of merchandise often associated with forced child labor,
    advertisements in trade publications, participation in trade shows,
    presentations on the Customs Webpage and various press releases in
    print and television in the U.S. and several other countries.
    Additionally, our Forced Child Labor Special Agents are meeting
    regularly with various non-government agencies that monitor child labor
    and other human rights violations in an effort to address issues as
    they arise.
        The Customs Service has identified some manufacturers of hand-
    knotted carpets who are believed to have produced carpets with forced
    child labor. Detention orders are in place to stop imports from those
    manufacturers at our borders. Should an importation from one of these
    manufacturers be attempted, Customs will require a certificate from the
    manufacturer stating that the goods were not produced with forced child
    labor. Customs will investigate the validity of the certificate
    submitted by the manufacturer. If the investigation substantiates the
    certificate, the goods will be allowed into the U.S. If, the
    certificate proves to be false, we will not allow the goods to enter
    the United States and continue our investigation for any potential
    criminal or civil violations.
        Increased staffing will soon be in place in several of our foreign
    offices. Special agents have been added to our Bangkok, Hong Kong and
    Montevideo offices. These additional special agents will be dedicated
    to investigating allegations, and training and working with foreign law
    enforcement agencies to address the issue in a joint fashion.
        In the fiscal year 2000 initiative, the Customs Service plans to
    open a regional office in south Asia to better address forced child
    labor investigations. In addition to the new office, Customs will also
    add a special agent to one of the offices in Central America to act as
    a regional coordinator. Since submission of our initial fiscal year
    2000 funding request, new information was developed warranting the
    creation of a Regional Attache office in either Argentina or Brazil,
    staffed with three special agents and support staff which would require
    an additional $1.4 million. In 1997, Customs established the
    Enforcement Systems Area to account for enforcement activities not
    inherent in the core business processes. The existing Customs 5-Year
    Strategic Plan, which was based on the three core business processes
    and two enforcement strategies of Narcotics and Money Laundering, is in
    the process of being revised to account for the new Enforcement Systems
    Area. Customs Forced Child Labor strategy is included in this revised
    strategy which is pending final approval and publication.
        Customs' strategy for addressing Forced Child Labor is also laid
    out in detail in Customs Investigative Strategy. Specifically, Customs
    will: Pursue an aggressive, multi-faceted investigative strategy. This
    strategy is based upon an intelligence development program that
    includes traditional and non-traditional intelligence collection and
    analysis. The outreach program has forged strong relationships with
    other Executive agencies, Congress, foreign government agencies, and
    non-government organizations. The intelligence and outreach programs
    are designed to provide investigative leads for jump teams to foreign
    countries and domestic investigations of suspect merchandise and
    importers. The investigative process is intended to provide a factual
    basis for detention orders, findings, other civil investigations and
    other criminal investigations.
        Question. What specific allegations has the Customs Service
    received concerning convict, forced, bonded or indentured labor in
    Central and South America? What resources would aid your investigative
    efforts in Central and South America?
        Answer. The Customs Service has received information about child
    labor in South American countries whose products are imported or may be
    imported into the United States that may meet the definition of bonded
    or indentured labor. A fact finding mission has recently gone to South
    America to follow-up on allegations received by the Customs Service.
    Also, in 1995, 1996 and 1998, the U.S. Department of Labor documented
    forced or bonded child labor in several non-export industries in the
    region. fiscal year 1999 funding will provide one Special Agent in
    Montevideo this summer but, the addition of one special agent will not
    resolve the large work load.
        The fiscal year 2000 funding request that includes an additional
    Special Agent position in Central America to act as a regional
    coordinator will provide the Customs Service with the opportunity to
    address historical allegations of forced or bonded labor in Central
    America. Currently there are only six Customs Special Agents posted in
    South America. Since submission of our initial fiscal year 2000 funding
    request, new information was developed warranting the creation of a
    Regional Attache office in either Argentina or Brazil, staffed with
    three special agents and support staff which would require an
    additional $1.4 million.
        Question. Can Customs construct a pilot program that would address
    these issues by tracking the country of origin for products made with
    forced child labor?
        Answer. No, Customs now has the ability to track country of origin
    for imported products but we cannot determine that the goods were
    manufactured with forced child labor merely by identifying the country
    of origin. Customs requires legally sufficient information that would
    best be obtained by an inspection of the manufacturing facility. Most
    foreign governments are reluctant to allow United States Customs
    Service to independently visit manufacturing facilities in their
    countries or to dedicate the manpower required to conduct joint
    inspections.
                              performance measures
        Question. How is Customs planning to adjust their performance
    measures (goals) to reflect the available resources?
        Answer. When Customs identified its first set of strategic
    performance goals, it had little outcome performance trend data on
    which to base these projections. However, in the spirit of the Results
    Act, Customs established several ``stretch'' outcome and output goals
    to challenge itself, particularly in the trade and passenger compliance
    arenas. It viewed the setting of easily met goals as potentially
    counterproductive, because it undermines organizational innovation and
    objective assessments.
        Now that we have four years of compliance outcome data under our
    belt, it is clear that our original trade compliance goals of achieving
    90 percent overall compliance and 95 percent compliance in the Primary
    Focus Industries (PFI) by the end of fiscal year 2000 were unrealistic.
    The fiscal year 2000 Annual Performance Plan adjusts the time for the
    attainment of these goals to fiscal year 2004. We continue to project a
    high level of revenue compliance, to reflect a continued focus on its
    importance.
        For Passenger Processing, the issue is more difficult. We only have
    two years of compliance outcome data. In addition, we have embarked on
    a major initiative with the Immigration Service to improve port
    management on the Southwest border. We are already receiving requests
    from field managers to expand the concept. In addition, we still have
    access to additional resources through COBRA user fees for air
    passenger processing. Consequently, only minor adjustments to our
    performance goals have been made.
        Available agency resources are a big factor to consider in the
    establishment and adjustment of performance improvement goals; however,
    they are not the only ones. The way the resources are used, the types
    of resources, building on experience gained, and the methods employed
    are also very important. In addition, external assistance needs to be
    factored into the goal-setting process.
        Question. Are any efforts being made to change Customs approach to
    improving trade compliance, such as targeting high-risk industries, to
    apply scarce resources to areas where they may be best utilized?
        Answer. Yes. We use Compliance Measurement, Compliance Assessment,
    and Account Management, as our methods to identify and target high-risk
    areas and deploy our resources accordingly. A major part of our focus
    is on improving compliance in the Primary Focus Industries (PFI's).
        Our primary trade measurement system, Compliance Measurement,
    provides a statistically valid level of trade compliance for all
    importations. Using this data, we can pinpoint areas of noncompliance
    in different commodities and industries. Using Compliance Measurement
    and other analytical data, Customs has undertaken, at the port level, a
    new initiative called ``Focus on Non-Compliance.'' It ensures port
    personnel are focusing their resources on the high-risk areas.
        Customs uses Compliance Assessments to review importers' systems,
    to assess their ability to produce compliant transactions and to
    identify systemic problems and areas for improvement. In addition,
    Compliance Assessments have resulted in the recovery of $100 million in
    revenue, $70 million of which was tendered with Prior Disclosures.
        Our Account Management Program enables Customs to assess the
    quality of high-volume importers' workload on an aggregate rather than
    on a transaction by transaction basis. Using this approach, Customs
    maximizes its limited resources to work with these high-volume
    importers to improve their compliance rates. Currently, there are 459
    accounts. Their workload accounts for 38 percent of all import
    transactions and approximately 29 percent of their value. Increasing
    this group's compliance will have a substantial effect on overall
    compliance rates.
        We are continuing our successful PFI program. Customs concentrates
    its efforts on PFI's, designated by Customs, to identify compliance
    problems and to design interventions to address them. PFI compliance is
    three percent higher than overall compliance, because of this approach.
        These integrated national programs allow Customs to identify the
    areas where risk is the greatest and to maximize the use of our
    resources to increase compliance and target noncompliance.
        The above programs utilize the informed compliance approach set
    forth in the Customs Trade Modernization Act. When an importer is new
    or demonstrates a willingness and capacity to improve, Customs works
    with the importer to improve compliance. However, when the informed
    compliance approach does not result in improvement or there is a
    deliberate attempt to not comply, enforced compliance measures, such as
    penalties, seizures, etc., will be employed.
        This dual approach is important, because trade workloads are
    expected to continue to grow at about 10 percent annually. Customs
    resources are not expected to keep pace. Available agency resources are
    a big factor to consider in the establishment and adjustment of
    performance improvement goals; however, they are not the only ones. The
    way the resources are used, the types of resources, building on
    experience gained, and the methods employed are also very important. In
    addition, external assistance needs to be factored into the goal-
    setting process.
                            polygraph investigations
        Question. What will the $4 million provide?
        Answer. The $4 million will pay for polygraphs examinations needed
    to qualify applicants for employment in a projected 1,900 positions
    (which include backfill positions) for special agents, inspectors,
    canine enforcement officers, and certain contractors. Polygraphs cost
    about $800 each. It is estimated that three examinations will be needed
    for each vacancy.
        Question. Has Customs applied to the Office of Personnel Management
    for authority to conduct the polygraph examinations?
        Answer. Yes. Application for authority to conduct polygraph
    examinations was made March 19, 1999 through the Department of
    Treasury, which endorsed the request. The request is now under review
    by OPM.
        Question. What criteria does OPM apply for providing this
    authority? Do the agencies have to provide a justification that agents
    are involved in counter-intelligence activities?
        Answer. OPM's polygraph examination authority criteria is
    established in the Federal Personnel Manual (FPM) 736-9, Subchapter 2,
    Background Investigation Requirements, Section 2-6, ``Use of the
    Polygraph in Personnel Investigations.'' Under this criteria, the
    requesting agency must justify that it has an intelligence or counter-
    intelligence mission that directly affects national security.
        Question. Since Secret Service and ATF are already conducting
    polygraph examinations, isn't there some way the funding could be
    combined and the examinations be conducted on a Treasury-wide basis?
        Answer. The Customs Service has attempted to establish a Memorandum
    of Understanding (MOU) with the Secret Service, the Federal Bureau of
    Investigation, and the Bureau of Alcohol, Tobacco, and Firearms. The
    Secret Service and the FBI presently lack the resources to accommodate
    Customs due to their own hiring initiatives. ATF has received authority
    to conduct polygraph examinations, but has not initiated an examination
    program yet.
        Question. Do you agree that the administration has, for the most
    part, abandoned efforts to secure the border? Do you agree that more
    Customs inspectors are needed on the border in 1999 and 2000? How many
    in each year? Do you agree that more Customs agents are needed in 1999
    and 2000? How many in each year?
        Answer. Increases in each of the last five fiscal years of total
    narcotics seized along the Southwest border are indicative of the steps
    taken by the administration to secure the border. The poundage of
    narcotics seized by U.S. Customs along the Southwest Border has more
    than doubled in the last 5 years: 863,067 pounds were seized in fiscal
    year 1998 compared to 369,628 pounds seized in fiscal year 1994
        Resources for personnel, equipment and infrastructure improvements
    have also increased over the last several years. In addition, Secretary
    Rubin and Attorney General Reno have created the Border Coordination
    Initiative (BCI) to increase the effectiveness of the principal border
    agencies.
        Question. Do you know how many of those newly proposed inspectors
    and agents requested by your agency but rejected by the OMB would have
    gone to Arizona? Every additional agent or inspector sent to Arizona is
    a big help to our state.
        Answer. When developing our budget request over a year ago, a
    tentative allocation/deployment strategy was used. The allocation of
    personnel is based on the level of threat and highest demands at the
    time. The recently developed Price Waterhouse Resource Allocation Model
    provides a more scientific approach to resource allocation and would be
    used to determine the appropriate number of employees for a given
    location. The initial numbers and distribution were subject to change.
            unfunded non-intrusive inspection technology for arizona
        Question. Do you know what equipment would have gone to Arizona if
    the administration budgeted the $48 million in technology and equipment
    for Customs, as Customs requested?
        Answer. The following equipment was slated for Arizona from the $48
    million which was not included in the fiscal year 2000 President's
    Budget request.

    ----------------------------------------------------------------------------------------------------------------
                                                                                                           Planned
                   Port of Entry                                       Technology                         Unit Cost
    ----------------------------------------------------------------------------------------------------------------
    Nogales....................................  Upgrade Fixed-Site Truck X-Ray System to Higher Energy       $2,000
    Douglas....................................  Mobile Truck X-Ray System.............................        2,200
    Nogales....................................  Mobile Truck X-Ray System.............................        2,200
    ----------------------------------------------------------------------------------------------------------------

        These locations are based on current threats and workloads at the
    individual ports-of-entry. Changes in these factors may cause
    adjustments in the assignment of technologies in order to meet
    prevailing conditions at that time.
        The planned unit cost is the current estimate for these
    technologies based on Customs projections. Equipment costs may change
    as Customs awards production contracts. Also, final installed system
    costs vary due to unique site preparation and construction efforts
    necessary to place the technology into service at each location.
        Question. Will you work with the committee to get the
    administration to come up with ideas for funding sources for inspectors
    and equipment?
        Answer. We are always willing to explore additional funding sources
    and are open to suggestions that could lead to enhanced resources. We
    appreciate the support of both the administration and the Congress.
        Question. Commissioner Kelly, if Maersk Sea-Land relocates its base
    of operation to the Port of Baltimore, will the U.S. Customs Service
    have sufficient personnel at the Port to handle the increased workload?
        Answer. Customs would likely need additional resources. The level
    of those resources would depend on:
      --the type of operations Maersk Sea-Land would transfer to Baltimore;
      --how quickly the operations are diverted;
      --whether the ships' cargo is intended for consumption in the Port of
            Baltimore or is intended to be shipped in-bond to other ports
            such as New York; and
      --whether the cargo is of narcotics source country origin.
        It could result in Customs needing as many as 9 additional staff.
        Question. If not, what will Customs do to achieve the necessary
    personnel needed to handle the increased workload?
        Answer. Again depending on the factors outlined above, Customs may
    be forced to reduce enforcement inspections of cargo, provide limited
    service to Maersk Sea-Land, and/or reduce service to other importers.
                     u.s. customs asset forfeiture program
        Question. Asset forfeiture programs, administered by the Customs
    Service and Justice, have been on GAO's ``high-risk'' list since the
    inception of the list in 1990. These programs continue to have
    significant weaknesses.
        What is the status of Customs efforts to resolve this high-risk
    problem?
        Answer. In the January 1999 GAO High Risk Series Update GAO cited
    three reasons Treasury remains on the high-risk list in the area of
    Asset Forfeitures (A through C below).
        (A) Treasury reported material weaknesses relating to seized
    property in its fiscal year 1997 Accountability Report. Customs is
    accountable for two--``Data in Customs Seized Property Accounting
    Systems are unreliable'' and ``Customs has problems with the integrity
    of data in its Fines, Penalties, and Forfeiture (FP&F) files''.
        Action: Customs expects to close both of these material weaknesses
    by implementing numerous enhancements to its Seized Asset and Case
    Tracking System (SEACATS) which will significantly improve the existing
    currency and property records and complete the remaining case,
    financial, and reporting functions necessary for data integrity in the
    FP&F file. The target completion date for these enhancements is
    September 1999.
        (B) For fiscal year 1997, SEACATS did not contain accurate and
    sufficient data to prepare the analysis of changes in forfeited and
    seized currency and property without substantial manual intervention
    and reconciliation.
        Action: Customs was able to produce the analysis of changes in
    seized and forfeited property disclosure from SEACATS for fiscal year
    1998, reducing the number of manual adjustments to prepare the
    disclosure. Information provided from SEACATS will be used to produce
    currency disclosure at the end of fiscal year 1999.
        (C) GAO continues to recommend Treasury and Justice consolidate the
    management and disposition of all noncash seized property to reduce
    administration costs.
        Action: No action is being taken. Customs and Justice have argued
    against GAO's position. Current policy, as established by Congress with
    the creation of the Treasury Forfeiture Fund (1992) is clear that
    Treasury and Justice asset forfeiture programs should be managed
    separately. With separate and distinct financial, management, and
    contract structures in place for each department, consolidation would
    be significantly more complicated, disruptive, and costly today than in
    1991.
        Question. Have Customs and Justice found a way to cooperate in the
    management of their respective funds?
        Answer. GAO continues to recommend Treasury and Justice consolidate
    the management and disposition of all noncash seized property to reduce
    administration costs. No action is being taken. Customs and Justice
    have argued against GAO's position. Current policy, as established by
    Congress with the creation of the Treasury Forfeiture Fund (1992) is
    clear that Treasury and Justice asset forfeiture programs should be
    managed separately. With separate and distinct financial, management,
    and contract structures in place for each department, consolidation
    would be significantly more complicated, disruptive, and costly today
    than in 1991. Please see response 1C above.
        Question. Are any specific goals and measures in Customs fiscal
    year 2000 performance plan to resolve any remaining problems?
        Answer. Customs expects the enhancements it plans to implement by
    September 1999 to resolve its problems that have contributed to
    Treasury remaining on the high-risk list.
        1. Treasury reported material weaknesses relating to seized
    property in its fiscal year 1997 Accountability Report. Customs is
    accountable for two--``Data in Customs Seized Property Accounting
    Systems are unreliable'' and ``Customs has problems with the integrity
    of data in its Fines, Penalties, and Forfeiture (FP&F) files''. Customs
    expects to close both of these material weaknesses by implementing
    numerous enhancements to its Seized Asset and Case Tracking System
    (SEACATS) which will significantly improve the existing currency and
    property records and complete the remaining case, financial, and
    reporting functions necessary for data integrity in the FP&F file. The
    target completion date for these enhancements is September 1999.
        2. For fiscal year 1997, SEACATS did not contain accurate and
    sufficient data to prepare the analysis of changes in forfeited and
    seized currency and property without substantial manual intervention
    and reconciliation. Customs was able to produce the analysis of changes
    in seized and forfeited property disclosure from SEACATS for fiscal
    year 1998, reducing the number of manual adjustments to prepare the
    disclosure. Information provided from SEACATS will be used to produce
    currency disclosure at the end of fiscal year 1999.
                             information technology
        Question. An incomplete systems architecture hinders Customs
    ability to manage information technology investments, particularly
    large, mission-critical systems such as its Automated Commercial
    Environment system. How does Customs fiscal year 2000 performance plan
    specifically address this problem?
        Answer. The focus of Customs' performance plan is on improving the
    overall performance of mission critical areas. This is consistent with
    the goals and requirements of the Government Performance and Results
    Act. Customs considers the management of information technology
    investments to be a management control issue. Material weaknesses in
    management control areas are addressed through other reporting vehicles
    such as the Customs Service Accountability Report. This report
    addresses requirements associated with evaluative mechanisms such as
    the Federal Managers Financial Integrity Act (FMFIA), the Chief
    Financial Officers Act, and material weaknesses identified by GAO and
    Inspector General audits. The Accountability Report is a public
    document and can be found on the Customs Service web site.
        The organizational approach to measurement is that measures within
    the performance plan must be clearly focused on the key missions of the
    organization. By clearly focusing the performance plan on the mission
    areas, management can determine the overall mission health of the
    organization and use the plan to better manage mission related
    programs. Proliferating the performance plan with extraneous non-
    mission related measures and management control issues would only serve
    to dilute the plan's usefulness and deviate from its intended purpose.
                    Bureau of Alcohol, Tobacco and Firearms

    STATEMENT OF JOHN W. MAGAW, DIRECTOR

                                  INTRODUCTION

        Senator Campbell. We will go now to Director Magaw. It is
    nice to see you here again.
        Mr. Magaw. Thank you, Mr. Chairman and Senator Dorgan.
        Once again, I have asked our executive staff to accompany
    me here today so they can listen to what you have to say
    firsthand. We welcome this opportunity to discuss the budget
    request and ATF's strategic goals for fiscal year 2000.

                                   ATF GOALS

        These goals are to reduce violent crime, collect the
    revenue, and protect the public. Our direct salary and expense
    submission is $584 million and 4,131 full-time equivalent
    positions. Additionally, we have asked for $13 million and 24
    FTE's from the Violent Crime Reduction Trust Fund to support
    the GREAT Program, and $15 million for site acquisition of our
    new headquarters building. Our total submission of $612 million
    represents a $54 million increase or 10 percent over the 1999
    budget.
        Soon after becoming the Director of ATF, I requested the
    assistance of this committee in restoring ATF's base operating
    level which had become alarmingly eroded. This was a situation
    that had not occurred overnight and, of course, would not be
    resolved overnight. However, because of your consideration,
    your oversight, and response to this problem we have gradually
    been able to strengthen our infrastructure, implement more
    sound management controls, and regain a healthier balance in
    our operations.

                              PROPOSED INITIATIVES

        Permit me to address the initiatives that ATF is expected
    to implement this year. I remain focused on the protection of
    the dedicated men and women of ATF and the customers that come
    into our building to be served. And we will use the requested
    $15 million to acquire an appropriate site for a safer
    headquarters location.
        Another initiative responds to demands from across the law
    enforcement community for the Youth Crime Gun Interdiction
    Program which targets the sources of illegal firearms
    trafficking to our youthful offenders. The program will expand
    from 27 cities to 37 cities at a cost of $11.2 million.
        ATF utilizes a unique blend of criminal investigation,
    regulation, and revenue collection to effectively enforce the
    Federal laws governing alcohol, tobacco, firearms, arson, and
    explosives. The resources provided by Congress have enabled ATF
    to achieve many successes in each of these areas.
        Once again, ATF can fully account for the funding that you
    have provided. For the fourth year in a row ATF has received
    the highest possible rating on the annual audit of our finances
    and internal controls. This audit was conducted by Price
    Waterhouse Coopers and the Treasury Inspector General's office.
        Finally, the $12.6 million requested for the Bureau's
    Integrated Violence Reduction Strategy will be utilized for
    several different components of firearms enforcement, which are
    aimed at reducing the illegal acquisition, possession, and the
    use of firearms by armed career criminals, firearms
    traffickers, and prohibited purchasers in violation of the
    Brady law.
        The $1.1 million requested for implementation of ATF's
    promotion assessment system and career development plan enables
    ATF to fulfill the last phase of our commitment under the
    African-American Special Agent class action settlement
    agreement. This commitment, I am very pleased to note, benefits
    all of our personnel. We feel this to be a prudent and wise
    investment of our resources.

                              ATF ACCOMPLISHMENTS

        Our national revenue center in Cincinnati, Ohio has applied
    technology and partnership to improve the consistency of our
    tax administration and provide timely trend analysis and
    industry statistics. In addition to investigating a significant
    number of arson and bombing cases and establishing a national
    repository of explosives and arson incidents, we have been in
    the forefront of research involving explosives detection and
    prevention.

                               PREPARED STATEMENT

        What perhaps cannot be adequately conveyed in the formal
    list of major accomplishments included in our general statement
    is the competence, the dedication, and the exceptional spirit
    of public service that drive the men and women of ATF as they
    go about their daily tasks. I am proud to serve this Nation
    with them.
        That completes my statement, Mr. Chairman.
        [The statement follows:]
                      Prepared Statement of John W. Magaw
        Thank you Mr. Chairman, Senator Dorgan, and members of the
    Subcommittee. I welcome this opportunity to appear before this
    subcommittee and further acquaint you with ATF and the value we bring
    to the American public.
        With me today are my executive staff members:
        Mr. Bradley Buckles, Deputy Director; Mr. William Earle, Assistant
    Director for Management and Chief Financial Officer; Mr. Andrew Vita,
    Assistant Director for Field Operations; and Mr. Jimmy Wooten,
    Assistant Director for Firearms, Explosives and Arson; Mr. Arthur
    Libertucci, Assistant Director for Alcohol and Tobacco; Mr. John
    Manfreda, Chief Counsel; Ms. Gale Rossides, Assistant Director for
    Training and Professional Development; Mr. Patrick Schambach, Assistant
    Director for Science and Technology and Chief Information Officer, Mr.
    David Benton, Assistant Director for Liaison and Public Information and
    Ms. Toby Bishop, Executive Assistant for Equal Opportunity.
                      atf fiscal year 2000 budget request
        I am here today to discuss ATF's portion of the President's Budget
    request. This includes a Direct Salary and Expense (S&E) request of
    $585.0 million and 4,131 full-time equivalent positions (FTE), a
    Violent Crime Reduction Trust Fund (VCRTF) request of $13 million and
    24 FTE and a Construction request of $15 million and no FTE. The ATF
    fiscal year 2000 S&E request includes $15 million recommended by the
    Domestic Policy Council for firearms enforcement programs. Our total
    request of $612 million represents an increase of $54 million, or 10
    percent over the total fiscal year 1999 enacted level of $557.6 million
    for Direct S&E and the VCRTF appropriations.
        This increase is required to offset payroll cost growth and other
    inflation that affects our ability to maintain current services ($28.7
    million); expand the Youth Crime Gun Interdiction program ($11.2
    million); implement the Tobacco Compliance initiative ($5.2 million);
    implement the Bureau's Integrated Violence Reduction Strategy ($12.6
    million); and implement the Bureau's Promotion Assessment System ($1.1
    million).
        In our fiscal year 2000 request, the Bureau is seeking $11.2
    million and 43 FTE for expansion of the Youth Crime Gun Interdiction
    Initiative program. This very successful program uses a multi-faceted
    approach to break the chain of illegal gun supply to youths and minors
    and reduces youth violence. ATF plans to continue providing partnership
    and comprehensive crime gun tracing with State and local law
    enforcement, provide rapid high volume crime gun tracing and crime gun
    market analysis through the National Tracing Center (NTC), and continue
    training ATF, State and local law enforcement. ATF is requesting to
    expand this program to an additional 10 cities in fiscal year 2000.
        ATF is also seeking $5.2 million and 38 FTE for the implementation
    of the additional revenue collection requirements provided by the
    Taxpayer Relief Act of 1997, (Tobacco Compliance law). Under the
    provisions of this law, ATF will collect an estimated $2.5 to $3
    billion per year in additional revenue by 2002. This will be derived
    from cigarette taxes at the higher rates. This new law requires two
    floor stocks tax increases effective January 1, 2000 and January 1,
    2001, plus a new permit system for importers of tobacco products. In
    future years, resources must be directed to increase compliance and
    anti diversion efforts.
        Additionally, ATF is requesting $12.6 million and 56 FTE for the
    implementation of the Integrated Violence Reduction Strategy that will
    focus on several different components of firearms enforcement aimed at
    reducing the illegal acquisition, carrying, and use of firearms. The
    Bureau has planned an integrated approach, through the use of
    investigation of criminal violations, laboratory forensic analysis of
    documents, and increased FFL inspections. The key element to success of
    this integrated approach is the effectiveness of data exchange and
    coordination. Through this effort ATF will maintain the integrity of
    commerce in firearms, ensure the maximum productivity of the Brady law,
    and further deter prohibited persons, especially those with criminal
    intent, who are actively attempting to acquire a firearm from FFLs and
    from illegal sales at gun shows and similar venues.
        ATF is also seeking $1.1 million to implement the Promotion
    Assessment system as proscribed by the settlement of the 1997 Class
    action settlement. ATF plans to use this as an opportunity to replace
    the existing system for special agent promotions with a vehicle that
    creates an equitable approach to law enforcement personnel promotions.
    ATF believes that the new system will assure the equitable treatment of
    all special agents who apply for competitive promotions.
                      link to strategic planning and gpra
        Our proposed budget funds ATF's three strategic activities.
        Reduce Violent Crime.--Effectively contribute to a safer America by
    reducing the future number and costs of violent crimes, complement
    enforcement with training and prevention strategies through community,
    law enforcement, and industry partnerships.
        Collect Revenue.--Maintain a sound revenue management and
    regulatory system that continues reducing taxpayer burden, improves
    service, collects the revenue, and prevents illegal diversion.
        Protect the Public.--Protect the public and prevent consumer
    deception in ATF's regulated commodities.
        The Bureau proposes a $461 million investment in programs and
    projects associated with our Reduce Violent Crime Activity. Some of the
    more notable examples of programs related to this activity include:
      --Deny criminals access to firearms, which includes projects such as
            the Illegal Firearms Trafficking program, the Youth Crime Gun
            Interdiction (YCGI) and the proposed Integrated Violence
            Reduction Strategy. The Illegal Firearms Trafficking program
            identifies and reduces illegal sources of firearms to
            criminals, while the Youth Crime Gun Interdiction program
            identifies and reduces illegal sources of firearms to youths
            and juveniles. The Integrated Violence Reduction Strategy will
            focus on several different components of firearms enforcement
            aimed at reducing the illegal acquisition, carrying, and use of
            firearms. All three programs are supported by the Bureau's
            National Tracing Center which received and processed more than
            180,000 requests for traces of firearms in fiscal year 1998. A
            major objective of ATF's ``deny criminals access to firearms''
            program is to ensure strong enforcement of the requirements
            outlined in the Brady legislation.
      --Safeguard the public from arson and explosives incidents which
            includes programs such as Prevent the Criminal Misuse of
            Explosives, the National Repository for Arson and Explosives
            Incident Information, Church Fire Investigations, Research
            Programs, Effective Post-Incident Response programs and the
            Bureau's very successful Canine Training Program.
      --Remove violent offenders from our communities, which includes the
            National Integrated Ballistics Information Network (NIBIN).
            NIBIN provides support to law enforcement agencies addressing
            serious firearms related violent crime. By partnering with the
            FBI and representatives from State and local law enforcement,
            ATF is ensuring that agencies interested in acquiring automated
            ballistics technology are provided an opportunity to do so.
      --Prevent violence through community outreach, which includes the
            Gang Resistance and Education and Training Program
            (G.R.E.A.T.). GREAT provides classroom instruction and a wide
            range of community based activities to the most susceptible
            teenagers. By enhancing their sense of self and decision-making
            capability, youth can be empowered to avoid violence and
            criminal activity.
        The Bureau also proposes to invest $68 million in programs and
    projects related to our Collect all Revenue Due strategy. During fiscal
    year 1998, the Bureau collected more than $12 billion in revenue from
    Federal taxes and fees on alcohol, tobacco, firearms and explosives. In
    addition, $10 million in assets was recently forfeited from the
    convictions resulting from the tobacco diversion investigation across
    the U.S./Canadian border. Examples of programs that comprise this
    activity include:
      --Collect all the revenue due which includes the Diversion and
            Smuggling program, and addresses alcohol trade issues.
      --Implement a permit system for importers of tobacco products.
      --Implement a floor stocks tax for tobacco products, which is
            estimated to generate $200 million in additional revenue.
      --Use electronic commerce, which involves the increased use of
            automated systems to disseminate information and collect and
            archive electronic documents as opposed to paper files. Our
            objective is to increase efficiency by using file space more
            productively.
        Finally, ATF proposes a $69 million investment to fund programs and
    projects associated with our Protect the Public Activity. Examples of
    programs related to this activity include:
      --Assure the integrity of the products, people, and companies in the
            marketplace, which includes programs such as Assuring Alcohol
            Product Integrity, Certificates of Label Approval, and Deny
            Prohibited or Ineligible Persons Entry into Regulated
            Industries.
      --Ensure compliance with laws and regulations through education,
            inspection and investigation which includes Federal Firearms
            Licenses and Inspections, Explosives Licenses/Permits and
            Inspections, Alcohol Industry Inspections, Industry Seminars,
            Firearms and Ammunition Importation, and the National Firearms
            Act requirements.
      --Inform the public, which includes Industry and State partnerships.
            Several noteworthy partnerships include the ATF's Office of
            Science and Technology ``Partnership Approval Process'' between
            ATF and beverage and flavor manufacturers. One example is ATF's
            Partnership with the Department of Transportation, which is
            assisting in the classification of explosive materials entering
            into commerce. Another example is the ATF partnership with the
            Institute of Manufacturers of Explosives and the American
            Pyrotechnic Association (APA) to develop an ``Advanced
            Explosives Training Class'' for all ATF inspectors. Nearly all
            ATF Inspectors have received the advanced training. A final
            example illustrating our commitment to partnering with industry
            to protect the public is the partnership ATF is forming with
            APA in encouraging citizens to turn in M80 devices using ATF's
            hotline number. ATF and APA are very interested in reducing
            injuries and accidents especially in light of the heavy
            anticipated use of these items in celebration of the year 2000
            New Year celebrations.
                      fiscal year 1998 atf accomplishments
        ATF is a law enforcement organization within the Department of the
    Treasury with a combination of responsibilities. Our vision is to
    ``Work for a Sound and Safer America . . . Through Innovation and
    Partnership.'' ATF responds to the public outcry against crime,
    violence, and other threats to public safety. Our vision helps us chart
    the course to best serve the public and achieve new levels of
    effectiveness and teamwork.
        Year after year, ATF works to make America a safer place for its
    citizens by fighting violent crime. ATF's position of being vested with
    the enforcement of Federal firearms and explosives laws, as well as the
    regulation of those industries, puts it at the forefront of violent
    crime enforcement. We also continue to efficiently collect revenue in
    accordance with current laws, contributing to the stability of Federal
    Government and national economy. This is achieved through responsible
    monitoring of regulated industries. Some accomplishments during 1998
    include:
      --Completed the Bureau's field restructuring to create an
            organization that is unified in both philosophy and structure.
      --Entered into a Memorandum of Understanding with the American Re-
            Insurance Company, the U.S. Fire Administration and the
            National Fire Protection Association to develop a state-of-the-
            art interactive CD-ROM for advanced fire investigation
            training.
      --Created the National Integrated Ballistics Information Network
            (NIBIN) that combines ATF's former CEASEFIRE and the FBI's
            Drugfire Programs into a single Federally-sponsored initiative,
            fostering partnerships between the ATF, FBI, State and local
            law enforcement.
      --Conducted more than 12,000 Federal Firearms Licenses inspections,
            disclosing more than 6,200 violations.
      --Conducted more than 7,000 Explosive Licenses inspections,
            disclosing more than 2,800 violations.
      --Conducted more than 165 seminars for firearm industry members.
      --Conducted more than 22 seminars for explosive industry members.
      --Initiated more than 330 stolen firearm investigations.
      --Expanded the NIBIN database to include more than 70,000 projectiles
            and 95,000 casings.
      --Made 39 ballistic matches with projectiles and 506 ballistic
            matches with shell casings.
      --Fourteen firearm examiners used NIBIN to accomplish the workload
            equal to 7,465 firearm examiners without NIBIN.
      --The National Tracing Center received more than 180,000 trace
            requests from Federal, State, local and foreign law enforcement
            agencies.
      --Initiated 183 explosive investigations that included 337
            defendants, resulting in 98 explosive indictments, and 258
            explosive convictions.
      --Expanded the Youth Crime Gun Interdiction Initiative to 27 cities,
            providing standardized published crime gun trace analysis for
            the cities, focusing on determining the sources of firearms
            recovered from juvenile and youthful offenders, and arresting
            traffickers.
      --Made significant contributions in the drafting of the ``Inter-
            American Convention against the Illicit Manufacturing of and
            Trafficking in Firearms, Ammunition, Explosives and Other
            Related Material,'' which was negotiated by the Organization of
            American States.
      --Trained and deployed internationally twenty-one explosive detection
            canines.
      --Trained and deployed three canines for other Federal agencies.
      --Trained three explosives detection canines for State/local
            agencies.
      --Deployed two explosives detection canines for ATF's canine program.
      --Trained and deployed six accelerant detection canines for State/
            local agencies.
      --Deployed ATF explosives detection canine teams on 57 search
            warrants, 2,155 consent searches, 1,527 security sweep/
            searches, and 127 field demonstrations.
      --Recovered with the 8 ATF explosives detection canine teams, 2
            bombs, 52 firearms, 4 machineguns, over 2,000 rounds of
            ammunition, over 50 pounds of black and smokeless powder, 203
            sticks of dynamite, 1 hand grenade, identified explosives
            residue during investigations, as well as post blast debris.
      --Initiated the design phase for the Fire Research Laboratory with
            construction anticipated to begin in late 1999.
      --Provided funding to 101 different State and local agencies to
            support their participation in the GREAT Program. Over 1,265
            communities have officers certified in the GREAT Program.
      --Conducted 22 ``train the trainer'' classes with 672 police officers
            participating from across the U.S. in ATF's GREAT program.
      --ATF trained more than 50,000 state, local, international, and
            Bureau personnel in fiscal year 1998 in all areas of ATF's
            expertise.
      --Partnered with the Department of State for international training
            of 920 police officials from 45 countries. ATF supplied the
            course development and instructors.
      --Established the ATF National Firearms Examiner Academy.
      --Developed and deployed the first Rapid Response Laboratory.
      --Conducted Technical Countermeasure Surveys of five ATF field
            offices in partnership with the U.S. Secret Service and with
            training provided by the National Security Agency in order to
            insure a safe and secure working environment for ATF employees
            assigned to those offices.
      --Provided field support in Bosnia by authenticating audio recordings
            for investigators of the International Criminal Tribunal for
            the Former Yugoslavia (ICTY) in their investigation of war
            crimes. These efforts have resulted in the indictments of the
            former president of the Serbian Republic and the former
            commander of the Serbian Army for planning and ordering the
            executions of approximately 7,000 men after the fall of
            Sebrenica in 1995.
      --ATF served as expert advisors in the on-going United States/
            European Union (EU) wine talks which attempt to resolve trade
            differences between the two sides.
      --ATF acted as the representative of the United States as a member of
            the International Organization of Wine and Vine (OIV) during
            meetings in Paris and Lisbon, Portugal.
      --ATF was involved as technical advisors in intellectual property
            rights discussions before the World Trade Organization, as they
            relate to geographical indications on wines and spirits.
      --ATF Specialists, lawyers, and Special Agents have been actively
            involved in the International Taxation Training program by
            acting as instructors and creating lesson plans. The purpose of
            the training program is to encourage the development of free
            market practices in emerging democracies. Three such courses
            were held in 1998, two in ATF Bureau Headquarters and one in
            Kiev, Ukraine.
      --As part of its role in informing ATF personnel about foreign
            products and standards, ATF's Alcohol Import-Export Branch
            completed the updating of the ``Foreign Appellations of Origin
            for Wine'' files. These files have to be updated periodically
            so ATF's Label Specialists can accurately process label
            applications for imported wines.
      --ATF completed a compilation of statistics relating to the
            international trade in wine, beer, and distilled spirits. This
            information will be provided to interested members of the
            alcohol industry.
      --ATF continued to promote a good working relationship with foreign
            governments through direct communication with foreign
            government officials in order to facilitate international trade
            in alcohol beverages and eliminate tariff and non-tariff trade
            barriers.
      --ATF's Diversion Branch was established during fiscal year 1998. The
            Branch was formed in an effort to look at all potential
            diversion related areas and has been quick to point out trends
            in this area.
      --ATF conducted approximately 140 alcohol and tobacco diversion
            investigations. Seizures of alcohol and tobacco monies and real
            property equaled $1.7 million in fiscal year 1998. Assessment
            of taxes in fiscal year 1998 totaled approximately $284,000.
      --ATF hosted the 4th annual Alcohol Diversion and Contraband
            Cigarette Trafficking Conference in Denver, Colorado on July
            21-23, 1998 which brought together those individuals who share
            a common interest in alcohol diversion and contraband cigarette
            trafficking. Participants included ATF, Assistant United States
            Attorneys, State Tax Administrators, representatives from state
            law enforcement agencies, as well as foreign government
            personnel.
      --ATF formed a national task force to look into the issue of slotting
            fees in the alcohol beverage industry. To date, ATF is
            conducting three national slotting fee investigations.
      --ATF personnel attended more than 25 meetings, seminars and trade
            shows held by members of the regulated industry in 1998. Over
            500 industry members attended either public or private seminars
            to discuss the trade practice regulations or industry concerns.
      --In fiscal year 1998, ATF identified products containing Ginseng.
            Labels of these products did not reflect the product's true
            alcohol content and beverage character.
      --ATF issued a press release to inform the public that Ginseng
            products contained alcohol and were being sold at retail
            outlets such as grocery stores, convenience stores and health
            food stores. ATF notified manufacturers, importers,
            distributors and retailers of the federal requirements involved
            with selling liquid Ginseng products that contain alcohol.
            State liquor authorities and U.S. Customs were also advised.
      --ATF established an internal ``Alcohol Policy Working Group'' (APG),
            to examine current ATF policies on labeling, advertising, and
            promotion of beverage alcohol in relation to health and youth
            issues.
      --ATF has been working closely with the Department of Health and
            Human Services, Treasury Officials, and the Wine Institute on
            the wording and placement on beverage alcohol labels of two
            different directional statements about the health effects of
            wine consumption.
      --During fiscal year 1998, ATF responded to over 100 complaints or
            requests regarding alcohol beverage products.
      --ATF contracted with the U.S. Research company to conduct a survey
            of consumer interpretation of claims made on wine labels. The
            survey was designed to assess whether wine consumers
            distinguish between standard wine and wine specialty products
            based on information on product labels and to assess whether
            placement of information on product labels (side only versus
            front and side) affects consumers' ability to discern between
            wine and wine specialty products.
      --ATF identified the need to improve customer service, improve its
            processes within ATF along with achieving the desired culture
            for ATF. The Federal Quality Consulting Group and members of
            ATF's Product Compliance Branch formed the Beverage Alcohol
            Streamlining Team (BAST). During fiscal year 1998 this team met
            regularly in order to accomplish their goal of conducting a
            business process review.
      --In fiscal year 1998, ATF representatives conducted labeling
            seminars at a Latin American trade show at the Miami World
            Trade Center for a French delegation visiting Washington, DC.
      --ATF was given primary responsibility for conducting a thorough
            study of alternative methods for taxing distilled spirits,
            specifically, moving the point of tax payment for distilled
            spirits to the wholesale level. Working with the U.S. Customs
            Service, the Office of Management Budget, and the Office of Tax
            Analysis at Main Treasury, ATF completed the study and
            forwarded a full report to the Under Secretary's office on
            March 13, 1998. The report was signed by the Under Secretary on
            April 15, 1998 and submitted to the Congress.
      --In August 1997, the Taxpayer Relief Act was enacted. This law
            contained numerous provisions that affected ATF-regulated
            operations, notably in the tobacco regulations. ATF evaluated
            the law and began work on implementing the applicable sections.
            Since October 1, 1997, ATF has published three procedures,
            three notices of proposed rulemaking, and two treasury
            decisions related to this law. Additional documents are in
            review.
      --ATF has formed a work group to make the necessary changes to
            regulations, forms and procedures to implement tobacco
            provisions of the Balanced Budget Act of 1997. ATF is preparing
            for the 2000 and 2002 tobacco tax increases, floor stocks
            taxes, new permit requirements for tobacco importation, and
            other significant changes.
      --ATF directed or assisted several projects to promote Electronic
            Commerce. These projects were started or worked on during
            fiscal year 1998: The use of Document Management and Imaging
            Software (using the Eastman Software). ATF obtained the
            software in fiscal year 1998 and it is in development phase.
            Conducted studies and received proposals for analytical
            software for trends and anomalies. Researched and oversaw a
            contract to convert historical files to images for filing. ATF
            developed a test system to provide the capability to taxpayers
            of completing forms on computers and then submitting the forms
            to ATF electronically. We have arranged a test project with
            four tobacco producers. ATF has also been working toward
            electronic payments, including electronic wallets, cyber cash,
            Internet debits, and automated clearing house (ACH). ATF has
            made arrangements to conduct a limited pilot program at NRC to
            accept Credit card payments for collecting some tax payments
            via telephone.
      --ATF streamlined the permit application process, so that all of the
            information and forms needed in order to enter one of the
            regulated industries can be downloaded from the ATF web site.
      --The National Revenue Center assumed nationwide responsibility for
            licensees/permittees and operations for most commodities. ATF
            coordinated the transfer of functions to the National Revenue
            Center from the Tax Processing Center, Cincinnati and from the
            remaining Technical Services offices. The Atlanta Technical
            Services office was closed and functions from Atlanta, as well
            as some functions from San Francisco and Philadelphia Technical
            Services, were transferred to the NRC.
      --Conversion and migration of information in Special Occupational Tax
            and Federal Excise Tax mainframe databases to a local
            ``Oracle'' based server environment was begun.
      --ATF Permits Issued/Registrations Processed in fiscal year 1998:

        Alcohol Fuel Plant............................................    13
        Beer--Brewery (Registration)..................................   271
        Wine--Bonded Winery/Bonded Wine Celler/Taxpaid Wine Bottleing.   264
        Distilled Spirits--Dillery....................................    42
        Non-Beverage Alcohol--Fruit Flavor Concentrate Plant,
          Specially Denatured Spirits, Tax-Free User..................   315
        Tobacco--Export Warehouse, Manufacturers......................    36
        Firearms--Tax-free Manufacturer (Registration.................     5
        Distributors--Wholesalers..................................... 1,015
        Distributors--Importers.......................................   727

      --Purchased 710 Astro-Spectra mobile radios, 122 Quantar repeaters,
            and over 150 Spectra-Consolette base stations, making ATF the
            lead among Treasury bureaus in deploying digital and narrowband
            capable equipment to field agents.
      --Distributed the 1st, 2nd, and 3rd quarterly editions of the ATF
            Reference Library CD-ROM to 2,500 field office personnel who
            now have ``at their fingertips,'' no matter where they are
            deployed, the most up-to-date information consisting of ATF
            directives, internal guidelines, forms, tax rates, and other
            data of import to the prompt and efficient performance of their
            official duties.
      --ATF has expanded its Internet site, http://www.atf.treas.gov, to
            include current information, links to the Federal Register,
            directorate information and expanded information on firearm
            questions. Congressional offices, the public and members of the
            industries that ATF regulates visit the site daily. In 1998,
            ATF received more than 8,000 e-mail queries from the public,
            the media, and industry members.
      --Experienced a 350 percent increase in ATF's Internet web site
            visits from 700 per day in fiscal year 1997 to over 2,500 per
            day in fiscal year 1998.
      --Continued Year 2000 date compliance efforts, and information
            systems security to ATF's 4,100-member user community.
      --Deployed the Enterprise System Architecture (ESA), utilizing the
            innovative ``seat management'' acquisition strategy to provide
            and maintain a nationwide high speed data communications
            network, standardized e-mail and office suite software,
            encryption-protected access to ATF data systems. Under ``seat
            management'', ATF leases information technology services,
            namely, management, operation, and maintenance of desktop
            computing services and the associated networks infrastructure,
            on a ``per seat'' basis. ESA supports 4,100 employees
            nationwide in 188 points of presence.
      --ATF's Intranet site was redesigned with each directorate and
            executive level office represented. The Intranet is the
            internal communication vehicle for employees to obtain
            information on ATF's activities, programs, forms, publications,
            current events, and initiatives.
      --Linked ATF's Intraweb to the Treasury Intranet and enhanced
            Intraweb services to provide employees access to an electronic
            resource library consisting of up-to-date ATF directives,
            internal guidelines, forms, and other information including
            broadcasts.
      --Received over 6,700 applicants for agent and inspector positions
            were gleaned out of recruitment activities during that year
            (e.g., (4) Special Agent and (1) Inspector announcement). On
            average 50 percent of those who applied were found to be
            qualified. 12 percent of those determined qualified were
            tentatively selected with more selections underway.
      --Obtained authorization from the Congressional Subcommittee on
            Public Buildings for the ATF Headquarters Relocation
            Prospectus, and narrowed the number of potential sites for the
            new Laboratory Center.
      --Implemented heightened security measures at Headquarters and
            standardized security requirements for all major field offices.
      --Implemented several external initiatives including the Welfare to
            Work Program, and the Federal Computers to Schools program.
      --Implemented a program which encourages employees to sell their own
            homes when relocating without use of third party relocation
            companies to help offset the rising cost of permanent change of
            duty station moves.
      --Completed the first phase of integrating a new procurement sub-
            system within Financial Management Information Systems.
      --Identified changes to the payroll interface and time and attendance
            systems to record payroll costs by ATF's major activities.
                            fy 1999 year in progress
        ATF and its predecessor agencies have rendered honorable and
    effective service for generations. As with all organizations, we have
    gone through changes. Effective organizations continuously re-examine
    the way they do business. Over the last several years, we have sought
    to improve internal controls, accountability, management training and
    operational processes and systems. These changes have provided the
    framework for making ATF a stronger more effective organization. With
    the strong support and encouragement of the Committee, we have begun to
    make significant strides in these areas.
        When I appeared before this subcommittee last year, I talked about
    implementing a series of operational changes. We have made substantial
    progress in implementing these changes. As part of our continued work
    to build a sound and safer America through innovation and partnerships,
    we face several important issues throughout fiscal year 1999,
    including:
      --Faced with a number of special agents eligible for retirement over
            the next 5 years, coupled with the need to staff the
            organization to effectively combat crime, identify tax revenue,
            and to address program needs, ATF has moved into an aggressive
            recruitment mode.
      --Hiring 162 special agents to support the Youth Crime Gun
            Interdiction Initiative Program.
      --Hiring special agents for the Violent Crime Coordinator program.
      --Completing the canine training building by May 1999. The kennel
            building is currently on schedule and should be completed by
            the summer of 2000.
      --Expanding the National Tracing Center and the NIBIN program.
      --Develop a plan for the tax gap study.
      --Implement Determine At Risk Taxpayers (DART) program. With this
            program, ATF generates lists of revenue facilities to be
            inspected. Since we do not have an automated system to analyze
            the data in our systems, the plants to be inspected were
            selected manually. By next year's planning cycle, we plan to
            have a software program in place to automate this process.
      --Implement Relational On-Line Analytical Program (ROLAP). Analytical
            software for trends and anomalies to be used to help predict
            problem areas and direct inspections where problems are more
            likely to be found.
      --Implement Pandora, a program to determine jeopardy to the revenue.
            There are several sub-programs listed under the Pandora
            Program. Inspections of these industry members are vital in
            determining whether any jeopardy to the revenue exists and the
            general compliance rate within certain industry segments.
            Inspections conducted under Pandora could generate additional
            indicators of revenue jeopardy, requiring adjustments to the
            DART Program.
      --Continue with consolidation of Technical Services offices into one
            National Revenue Center.
      --Complete Special Occupational Tax database and match to state data.
      --Complete new directive on resolving tax liabilities.
      --Initiate advanced training for inspectors and specialists revenue
            issues.
      --Provide training to field personnel on diversion schemes for
            alcohol and tobacco products.
      --Continue imaging of data at National Revenue Center.
      --Develop better criteria for proof of export of alcohol and tobacco
            products.
      --Participate in international training on revenue matters.
      --Coordinate with state agencies on diversion matters for alcohol and
            tobacco products.
      --Implement provisions of the 1997 Taxpayer Relief Act.
      --Implement Beverage Alcohol Streamlining Team (BAST). During fiscal
            year 1998 this team met regularly in order to accomplish their
            goal of conducting a business process review. Our goal is to
            implement, in segments, the team's recommendations and approved
            business improvements during fiscal year 1999.
      --Continue to provide guidance to industry on directional health
            statements.
      --Continue development of The Beverage Alcohol Manual (BAM), A
            Practical Guide.
      --Continue development of Alcohol and Youth policy.
      --Provide access to label approvals on the Internet.
      --Conduct Market Basket Samplings on specialty products.
      --Conduct slotting fees investigations.
      --Conduct label analysis on new products and/or new labels.
      --Conduct industry seminars.
      --Support U.S. Trade Representative's Office.
      --Participate in World Trade Organization discussions relating to
            geographical indications on wines and spirits.
      --Having received an approved prospectus, the Bureau plans to
            continue efforts to construct the new Laboratory and Fire
            Research Center.
      --Continuing efforts, with the committees support, to relocate the
            ATF Headquarters to a facility that will bring the Bureau in
            compliance with the recommendations of General Services
            Administration's security reviews.
      --During the past year, ATF's Year 2000 (Y2K) Program Management
            Office completed identification and assessment of the Bureau's
            IT and non-IT systems readiness for Y2K. Modifications and
            replacement of our non-compliant hardware and software is
            continuing in order to ensure proper systems operations as the
            century date changes. I am pleased to report that all mission
            critical systems will be fully compliant by the end of fiscal
            year 1999.
      --Pilot collaborative efforts with four communities, their police
            departments and the Boys and Girls Clubs to develop and
            continue experimentation of GREAT to include teaching the GREAT
            curriculum in non-school environments. In addition GREAT
            partnerships are being developed with the Boy and Girl Scouts
            of America and the police Athletic League in a number of
            communities. These partnerships will become part of
            comprehensive strategies to reduce youth violence and gang
            development at the local level. These partnerships assist
            communities in providing positive places for children to go in
            the summer months, where they have positive role models and
            adult leadership to reinforce the lessons taught during the
            school year in GREAT.
                     atf's efforts to combat terrorist acts
        The current Presidential Decision Directives (PDD) outline the
    responsibilities and lead authority for some agencies when dealing with
    terrorist incidents. The PDDs also direct the United States Government
    to use all of its available resources and expertise to combat terrorist
    incidents. ATF's expertise in the firearms, arson and explosives
    related fields are among the best in the world and will greatly benefit
    the United States in the fight to combat terrorism.
        ATF's mission includes the investigation of bombings, firearms
    trafficking, arsons etc. These functions are at the core of our
    mission. Regardless of the motive for committing the crime, ATF
    dedicates the necessary resources to investigate violations under our
    jurisdiction. ATF's laboratories are involved in other research
    projects such as explosive residue tests from large vehicle bombs,
    prevention of contamination and decontamination issues in bombing
    investigations, and advanced evidence packaging and preservation.
    Because of our unique mission, research is a necessary part of our job.
    We have a great deal of expertise in explosives research including the
    ``Dipole Might Study,'' a large vehicle bomb research program, funded
    in 1996, under the Anti Terrorism and Effective Death Penalty Act. ATF
    has also formed an Explosives Study Group to coordinate our research.
    Section 732 of the Antiterrorism and Effective Death Penalty Act of
    1996, including: the tagging of explosive materials for purposes of
    detection and identification; the feasibility and practicability of
    rendering common chemicals used to manufacture explosive materials
    inert; the feasibility and practicability of imposing controls on
    certain precursor chemicals used to manufacture explosive materials;
    and State licensing requirements for the purchase and use of commercial
    high explosives. ATF is continuing to research and test methods for
    efficiently rendering inert or desensitizing ammonium nitrate
    fertilizer.
         Congress also authorized the Secretary of the Treasury (through
    ATF) to establish the first National Repository of information relating
    to arson and explosives incidents. This system is still under
    development and includes information from more than 80,000 arson and
    explosives related incidents.
        Examples of the resources and expertise that ATF has include:
      --Investigating nearly 700 explosives incidents per year.
      --Laboratory (3) staff with 26 forensic chemists trained in the
            analysis of fire and explosives debris. The laboratories
            analyze evidence from nearly 700 bombings per year, including
            evidence sent by local law enforcement.
      --Four National Response Teams (NRTs) with 120 members including Fire
            Protection Engineers, chemists, bomb technicians.
      --International Response Teams (IRTs)--16 activations around the
            world in conjunction with the Department of State, Office of
            Diplomatic Security. ATF also conducts assessments of foreign
            response capabilities relating to explosives issues for the
            Department of State's Anti-Terrorism Assistance program.
      --Nearly 300 certified explosives specialists.
      --24 bomb technicians.
      --Mobile forensic laboratory which travels to the scene.
      --42 fully equipped NRT trucks.
      --75 Certified Fire Investigators.
      --An Explosives Study Group (ESG) tasked with a number of research
            and development projects relating to explosives used in
            bombings.
      --Additional explosives research projects such as Dipole Might,
            (large vehicle bomb study) and Pipe Bomb study (effects of pipe
            bombs); both are coordinated through the Technical Support
            Working Group (TSWG) which was formed by the National Security
            Council.
      --Partnership with the explosives industry and the fertilizer
            industry to form programs such as ``Be Aware For America.''
      --A world class Explosives Detection Canine Program. This training
            program has trained more than 170 explosives detecting canines
            for the Department of State's Anti-Terrorism Assistance
            Program. These dogs are stationed in 12 countries around the
            world. Additionally, ATF has 8 special agent handler teams in
            the United States and has trained canines for the CIA, IRS and
            other State or local department Congress also tasked the
            Secretary of the Treasury with developing ``odor recognition
            standards for explosives detecting canines.'' ATF developed
            these standards and they were published in September 1998.
      --Two arson/explosives profilers assigned to the FBI's Behavioral
            Science unit.
                             information technology
        As we approach the new millennium, ATF has worked diligently in an
    effort to keep pace with an extraordinary amount of technological
    change. The Office of Science and Technology (OST) supports ATF's
    strategic law enforcement and revenue collection activities. The Bureau
    will focus on four areas in fiscal year 2000 and beyond:
    Information Technology Infrastructure
        Agents, inspectors, and auditors deployed in field offices received
    notebook PCs with docking stations. Notebook PC as well as stationary
    PC workstations are connected via local area networks (LANs). The LANs
    are connected with a current technology high-speed wide-area network
    (WAN). The WAN links the offices within ATF to each other and becomes
    the electronic backbone of ATF's data communications.
        The new network infrastructure provides more efficient ways for ATF
    to manage and transmit data, text and images--facilitating key
    capabilities like electronic mail and access to the Internet, intraweb
    services, and other law enforcement.
    Laboratory Services
        ATF's laboratories specialize in examining arson, firearms, and
    explosive evidence and in analyzing alcohol and tobacco products.
    Controls are maintained to ensure the quality and integrity of
    laboratory operations including on-site investigative support of both
    national and international response teams. ATF's three forensic science
    laboratories are fully accredited by the American Society of Crime
    Laboratory Directors. ATF maintains an independent test sample service
    to persevere the proficiencies of individual examiners. A second
    examiner and a supervisor ensure accuracy, completeness, and
    scientifically validate conclusions by reviewing all examiner findings.
    ATF uses stringent evidence packaging protocols to detect and guard
    against contamination among forensic samples and cases. Eleven
    laboratory management personnel are subject matter experts within their
    specific disciplines. All ATF laboratories use analytical methods and
    procedures that meet the highest quality assurance standards for
    precision and accuracy.
    Audit Services
        ATF's field auditors provide an important investigative tool for
    solving financially motivated crimes such as arson and the illegal
    diversion of alcohol and tobacco products. Auditors determine the
    financial condition of the business and suspects, develop investigative
    leads and criminal charges through examinations of financial records,
    participate in the conduct of interviews, assist the case agent in
    determining, for example, if an insurance claim is fraudulent, and,
    ultimately, provide expert witness testimony at trial.
    Technical Support
        The Technical Support Division provides tactical radio
    communications, vehicles, new investigative equipment, investigative
    supplies, agent safety equipment including body armor, electronic
    surveillance technologies, computer forensics, training of tactical
    operations officers and technical enforcement officers, and audio,
    visual, graphics and photographic services.
                              training activities
        ATF's Office of Training and Professional Development provides our
    employees with high quality and innovative training programs by
    assisting in their professional development, thus improving performance
    and supporting our Strategic Plan. Training initiatives, which enhance
    employee development and performance, include our New Professional
    Training Program, Advanced Firearms Trafficking, Alcohol and Tobacco
    Diversion, Advanced Explosives for Inspectors and Certified Explosives
    Specialists, and other technical programs. Each of these training
    programs seek to expand the base of employee knowledge and
    understanding regarding ATF's roles, missions and capabilities, and to
    capitalize on the ever-increasing collaboration between agents and
    inspectors in the field. ATF also provides training to thousands of
    other Federal, State, local and international law enforcement officers.
    Training areas include arson investigation, explosive identification
    and regulation, firearms trafficking, and post blast investigations.
    During this FY, ATF's Office of Training and Professional Development
    has created a state-of-art Academy for State and Local Firearm and
    Toolmark Examiners which will be the first of its kind in Federal law
    enforcement.
        The GREAT Program is having a positive effect on preventing
    violence. Students, parents, GREAT officers, police chiefs, and
    sheriffs from all over the country testified before the Senate
    Appropriations Committee this past May. The constant theme echoed
    during that hearing was that ``GREAT works!'' The successes of the
    GREAT Program will continue to help our communities achieve the
    reduction in gang and youth violence that is so very important to the
    well being of American society.
                     management and administrative efforts
        During fiscal year 1998, ATF's Office of Management once again
    provided leadership, coordination, and direction, working in
    partnership with other senior Bureau officials in executing ATF's core
    business processes. The Office of Management focused on operating on a
    fiscally sound basis, meeting external mandates, and protecting the
    Bureau's resources, while continuously improving customer service. Some
    specific management accomplishments include:
      --Developing a Year 2000 contingency plan for mission critical
            information technology systems such as payroll, vendor payment,
            and building and facility security systems;
      --Providing Contract Officers' Technical Representative (COTR)
            refresher training for personnel handling significant
            procurements, thus improving internal management controls; and
      --Developing and implementing vault inventory (bar code) systems at
            two major field sites to track more efficiently asset
            forfeiture and seized property.
        A challenge facing ATF is relocating its Headquarters to a facility
    that is safe and secure. ATF is requesting $15 million and continued
    support from the committee to meet this challenge.
                              financial management
           fourth unqualified chief financial officers audit opinion
        I am proud to announce that after thorough review and audit by the
    Department of the Treasury Office of Inspector General and Price
    Waterhouse/Coopers, the Bureau received its fourth successive
    ``Unqualified Audit Opinion''. This yet again confirms that the
    Bureau's financial statements conform to all applicable guidance,
    regulations and statutes, and demonstrate sound financial management by
    a talented staff of professionals.
                          recruiting/promotion efforts
        ATF created a recruitment team to identify and maintain liaison
    with a number of sources including colleges and universities. ATF has
    also reorganized the Personnel Division to meet this need. To address
    diversity, ATF has increased the visibility of the Diversity Career
    Impact Program (DCIP), which aids our outreach efforts nationwide.
    Partnerships between headquarters and field personnel have made it
    possible for the Diversity Career Impact Program representatives and
    the Personnel Division to work together cohesively.
        ATF has aggressively marketed its recruitment efforts at over (19)
    Job/Career Fairs sponsored by organizations that are recognized for
    reaching significantly under represented communities in our work force.
    Examples of job/career fair organizations participating are:
      --National Congress of American Indians (NCAI Conference)
      --Hispanic Conferences (National Diversity Career Expo.)
      --John Jay College Career Fair
      --National Black Police Association
        Linked to these efforts the Bureau has pursued applicants for its
    vacancies in the primary areas of special agents and inspectors with
    the following results:
        Specifically, during the last six months of fiscal year 1998, 98
    new agents were added to our rolls. For the first half of fiscal year
    1999, 68 agents and inspectors will have reported; and another 42 have
    been scheduled to report by the end of June; 132 additional special
    agent selections have been made and are in the background investigation
    stage; 360 applicants for special agent positions are currently in the
    interview process; and 700 applicants are under initial review.
        Additionally, 114 inspector selections have been made and are in
    background investigation process; 314 of 923 applications for inspector
    positions paneled are currently in the interviewing stage; in addition,
    106 applications for the Outstanding Scholar Program are also in the
    interviewing stage.
        Our field offices have interviewed over 220 agent applicants, 91 of
    who are eligible candidates from the Treasury Enforcement Agent
    Examination Register. Selections from that group started in February
    and should be completed this month. Last but not least, we have opened
    another announcement for grade 9 special agents that closed March 30.
        For fiscal year 1999, ATF currently has an additional 6,000
    applicants in the pipeline from various sources. ATF is also working to
    improve the quality of our applicants by using various recruitment and
    information dissemination mechanisms such as: Office of Personnel
    Management (OPM), student programs, establishing relationships with
    colleges and universities for future pools of qualified candidates,
    Internet distribution and applications and the like. Cooperative
    Education Agreements have been established with 18 colleges and
    universities and we are continuing to pursue other educational
    facilities.
                                   conclusion
        We thank the committee for its continued support in our base
    restoration efforts over the last two fiscal years. The restoration of
    base funding has allowed the bureau to strengthen its infrastructure
    and foundation, in order to adequately support regular program
    activities and increasing demands as well as program expansion. Our
    focus on recruitment during fiscal year 1999 and fiscal year 2000 is an
    integral component of our base restoration and the achievement of our
    vision of working for a safe and sound America through innovation and
    partnership.
        Contributions from our non agent, non inspector staff has proven
    invaluable and provides critical infrastructure support to in all
    Bureau activities. Most importantly they are the diverse component
    ingredients of our fiscal year 2000 program initiatives. These are the
    talented ``behind the scene'' individuals that support our science and
    technology efforts in investigations and tracing, our accounting and
    finance operations when collecting the revenue, training objectives,
    human resource management operations and building management and
    security requirements.
        As we move into the 21st Century, I recognize the importance of
    having a strong balance among all elements of ATF's population, in
    order to meet our goals of reducing violent crime, protecting the
    public and collecting revenue. We encourage the committee to continue
    its support of our base restoration and recruitment efforts among these
    ranks.
        This completes my statement. I will be happy to answer any
    questions you may have and I would like to express my sincere
    appreciation for the support that the Committee has provided us. I look
    forward to working with the Committee to further our mutual goals of
    safeguarding the public and reducing violent crime.

                     INTEGRATED VIOLENCE REDUCTION STRATEGY

        Senator Campbell. Thank you, Director Magaw. Let me ask you
    a couple of questions here.
        The ATF is requesting additional funding as part of the
    violence reduction strategy dealing with gun shows, you
    mentioned those, and flea markets as sources of illegal
    firearms purchases. I have here, in my notes, a copy of a
    Spokane, WA, newspaper that states in a stakeout that they
    yielded no illegal firearm sales.
        I assume you have been conducting undercover investigations
    around. Could you tell me if you have gotten any handle on what
    percent of sales at these gun shows are illegal sales?
        Mr. Magaw. It is a little too early for us to give the
    percent. The study that you talked about, or the experiment
    that you talked about, did not involve any ATF personnel. We
    are not involved in that at all, and that is the direct
    opposite of what we are finding in the investigations that we
    conduct.
        Virtually almost every gun show in America over a weekend
    period of time will have some illegal gun sales.
        Senator Campbell. So a person goes to a gun store, and
    since they are somewhat regulated now with background checks
    and so on, he cannot get the gun he wants, he goes to a gun
    show and gets what he wants anyway? That is basically what is
    happening apparently.
        Mr. Magaw. When they do not want to go to a gun store
    because--they still are doing it through a gun store, though,
    through straw purchases. If I am an illegal and cannot
    present----
        Senator Campbell. Get somebody that is legal to buy it for
    me.
        Mr. Magaw. Take someone to buy it for me, yes. But as to
    wanting to stay away from all that, wanting to stay away from
    that risk, because some of them have felony warrants for their
    arrest. They just do not want to be noticed. They will go to a
    gun show to buy a weapon.

                                     GREAT

        Senator Campbell. The president has requested $10 million
    for grants to state and local law enforcement for the Gang
    Resistant Education and Training Program, which was commonly
    called GREAT. I have been a very big supporter of that program,
    as Senator Kohl was when he was ranking minority on this
    committee, as you know.
        Last year we provided $13 million and that probably was not
    nearly enough to fund all of the qualified applicants. But how
    many law enforcement agencies will receive GREAT funding this
    year?
        Mr. Magaw. How many law enforcement groups did?
        Senator Campbell. Yes.
        Mr. Magaw. In 1999 we had 109 cooperative agreements this
    year, right now, and spent $13 million for those 109
    cooperative agreements.
        Senator Campbell. How many requests did they have, do you
    know?
        Mr. Magaw. 316.
        Senator Campbell. What was the original number, 109?
        Mr. Magaw. We were able to fund 109 of the 316. We had
    estimated, remember last year when we talked, we estimated
    about $40 million would take--and that is about right. That is
    about what it would have worked out to be.
        Senator Campbell. We also, in a hearing last year, in the
    conference report there was supposed to have been a long-term
    evaluation about the impact of the program on youngsters. We
    urged the ATF to contract with the National Academy of Sciences
    to conduct that evaluation. Have you followed through with
    that?
        Mr. Magaw. The longitudinal evaluation is still in
    progress. We should have some final statistics back on that
    within a few months.
        Senator Campbell. Could you provide the committee with that
    result?
        Mr. Magaw. Yes, sir.

                  POLICY ON FEDERAL FIREARMS LICENSEE RECORDS

        Senator Campbell. Last year the ATF was directed to develop
    a written policy on collection and maintenance of Federal
    firearms licensee records. How is that policy being developed?
    Where is it in the mix?
        Mr. Magaw. I did not understand that question, Mr.
    Chairman.
        Senator Campbell. Last year the ATF was directed to develop
    a written policy on the collection and maintenance of Federal
    firearms licensee records and was asked to provide a copy of it
    to this committee. Is that report ongoing now?
        Excuse me, I apologize, we got it last night.
        Mr. Magaw. That report was delivered yesterday. It was 2
    weeks late, Mr. Chairman, and we apologize for that.
        Senator Campbell. I had not seen it. Without reading this
    thing myself, does this policy make any change in current
    practices? I see a couple of people shaking their heads no,
    back there in the audience.
        Mr. Magaw. The policy that we have now is two years on
    multiple sales purchases. And if they are not inquired or not
    part of an investigation we will keep them for eight years. The
    problem is that we are still continuing to look at that because
    it is such a new program because the 2-year period may, in
    fact, not be enough. But we want to be able to show that
    through inquiry and investigations.
        Senator Campbell. Just from my perspective, eight years
    seems like an awful long time to keep tracing information, too.
    But I will read that as length, as I can.

                                   CEASE FIRE

        The ATF and the FBI have ballistic ID systems, ceasefire
    and drugfire. Do they work totally independent, or are they
    compatible systems? And if they are not, why should we not have
    them----
        Mr. Magaw. They used to work totally independent. They do
    not work totally independent now.
        Senator Campbell. Does one program do something the other
    one would not?
        Mr. Magaw. Pardon me?
        Senator Campbell. Does one make some certain IDs that the
    other program would not?
        Mr. Magaw. Yes; what we have done is put them under one
    program, called the National Ballistic Information System.
    Drugfire, the one that the FBI had developed, does shell
    casings. The one that ATF developed does both.
        Now what we are trying to do, and we are very close to
    getting it done, is tying those machines together so that they
    will talk to each other, and therefore when a police department
    in one location of the country makes an inquiry, it would be
    checked through both drugfire and the old term ceasefire. We
    now refer to them as NIBIN.
        The funds being used cannot be spent now unless it is
    making the systems whole and one and benefit to the
    investigative organizations around the country.
        Senator Campbell. Very good. I have some further questions
    that I would like to submit in writing because we are running
    on in time a little bit here. So if you could get those answers
    back to me, I would appreciate it.
        Mr. Magaw. I would be happy to.
        Senator Campbell. Senator Dorgan, did you have some
    questions for Director Magaw?

                GREAT PARTICIPATION FROM INDIAN LAW ENFORCEMENT

        Senator Dorgan. Just brief questions. The Gang Resistance
    Education and Training Program, I heard your answer to Senator
    Campbell.
        We do not have much participation in that program from
    Indian Nation law enforcement programs or officers, do we?
        Mr. Magaw. That is correct, Senator. We have set aside
    money each year to work with the Indian reservations. But up
    until this point, we have not been able to get them to accept
    the program.
        Part of it may be our fault on communications. We are going
    to work harder at that in the next year because we do believe
    that it is--and it has shown around the country to be a very
    valuable program and we think that presented on Indian
    reservations by Native Americans to those children will be a
    benefit to them.
        Senator Dorgan. I think its value on Indian reservations
    would be extraordinary, so I would encourage you and want to
    work with you, as I am sure Senator Campbell would, to make
    sure that we extend that if we can.
        Senator Campbell. If the Senator would yield for a minute,
    one of the problems we have had with a lot of these programs
    that are available to Indian reservations is that they simply
    do not know they are available. The agencies, from my
    perspective, have really fallen down in just getting the word
    out and letting the tribes know that they can get in the mix,
    that they can avail themselves of the programs.
        Mr. Magaw. That is what we intend to do, to make sure we
    are going to those Indian reservations and doing a better job
    of selling the program. We thought that the funds sitting there
    would be used and in a couple of cases it has been $25,000 or
    more that has not been used during the year. So we are going to
    approach that.

                     BOOTLEGGING OF CIGARETTES AND ALCOHOL

        Senator Dorgan. Mr. Magaw, can you just tell me generally
    what kind of problem, or what size of problem, exists in this
    country with respect to bootlegging of cigarettes and alcohol
    without tax consequences? What kind of enforcement effort----
        Mr. Magaw. We constantly are working a fairly large number,
    and I would be happy to share that in private with you, a
    fairly large number of tax diversion cases. You have in this
    country States where their tax rate is about 5 cents on a pack,
    and others that are $.75 or $.80 or $.90 or $1. They are going
    up now more. And so you are finding truckloads of cigarettes
    being moved from one State to another, and huge amounts of tax
    being mispaid to that particular State.
        And as the Federal taxes go up, it does not create a real
    problem for the diversion, so much as when individual States go
    up. In fact, you have a situation right here now where Maryland
    tax is going to go up fairly substantially and the very lowest
    State, Virginia, sits right next to it.
        Senator Dorgan. We have a problem with Indian reservations
    in these issues?
        Mr. Magaw. Yes, there are a number of cases involving
    Indian reservations and we constantly have cases going on
    involving that. And we can share some of that information with
    you, also.

                          BRADY LAW BACKGROUND CHECKS

        Senator Dorgan. Let me briefly ask you a question about
    background checks for firearms with respect to pawnbrokers.
        There is a controversy with respect to a requirement of
    pawnbrokers to do an instant check, either when they check the
    gun in or when it is redeemed. Tell me a bit, if you can, about
    our experience with that? What is your impression of the
    importance of that and how does that fit in with the instant
    check system?
        Mr. Magaw. The pawnshop dealer has a real problem on their
    hands, because as a person walks in with a weapon to pawn it
    they want to make sure that weapon is not loaded. And so as a
    result what happens a lot of time is they check the weapon to
    make sure it is not loaded so it is not a danger to anyone else
    in their shop. Instead of giving it back to the individual and
    then run the check, they have it in their possession. And if
    they have it in their possession when they find out this is a
    prohibited person, they really cannot give it back to them.
        On the other hand, trying to work with them and work within
    what we think the Congress intended, which is to have them go
    ahead and check the safety of the weapon, hand it back to the
    individual, then they run the check. Now after they run the
    check and the individual is a person who is prohibited, the gun
    dealer now does not have it in their possession, the prohibited
    person does, and then they pick the phone up and notify local
    authorities. They have 48 hours to do that.
        So we think, within the way it is set up there is a way out
    for the pawnbrokers. Sure, they have it 24 to 48 hours before
    law enforcement catches up with them or might have a chance to
    talk with them, but it is really the only way we can see that
    it works, because it was fairly clear to us that the Congress
    did not intend for the pawnshop dealer to have to be the seizer
    of this weapon by running the check.
        Senator Campbell. If I might interject, that is a pretty
    confusing method. If he does not give the gun back, he risks
    some bodily harm possibly. If he does give the weapon back and
    it is not in his possession and the guy clearly is a criminal,
    then he may make the call but the guy that is going to use the
    gun has it and he is out of there.
        Mr. Magaw. That is right, it is a very difficult situation
    for them. And yet they cannot not look at the weapon to begin
    with because many of them are coming in with them loaded.

                       PROPOSED NEW HEADQUARTERS FACILITY

        Senator Dorgan. Mr. Magaw, in the interest of time, let me
    submit some questions to you. I wanted to ask about the
    building of a new facility for BATF. As you know, the Justice
    Department was evaluating security risks and I think BATF was
    judged to be a level 4, the highest risk. You are now in leased
    space. I understand you have other requirements and needs.

                              SUBMITTED QUESTIONS

        But I do want to ask a series of questions about siting and
    other issues, so let me send them to you and ask that you
    submit them to the subcommittee.
        Mr. Magaw. All right, sir, I would be happy to.
        Senator Campbell. I understand you are looking at Denver
    for a facility. [Laughter.]
        Senator Dorgan. It is actually Bismarck.
        Senator Campbell. I knew it was one or the other.
        [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 Campbell
        Question. President Clinton announced over the weekend that he has
    instructed the Departments of the Treasury and Justice to work together
    to develop a plan to reduce gun violence. He specifically mentioned
    ``Project Exile,'' a program in Richmond, Virginia, designed to
    prosecute those who use firearms in the commission of a crime under the
    most stringent laws, usually ATF Federal statutes, in order to get
    violent offenders off the streets. Have you begun developing that plan?
        Answer. Yes. ATF is working with Treasury's Office of Enforcement
    and DOJ to develop documents that will go to ATF Division Directors and
    United States Attorneys. These documents will direct these officials to
    develop plans tailored to the firearms violence problems in their
    geographic areas.
        Question. Do you envision recommending further restrictions on gun
    ownership?
        Answer. No. This initiative involves the development and refinement
    of strategies to enforce current law.
        Question. How much emphasis will be placed on utilizing existing
    law to get criminals off the streets much like ``Project Exile?''
        Answer. The thrust of the initiative is to have local ATF
    officials, working with their United States Attorney as well as State
    and local officials, develop strategies appropriate to the problems of
    the area. Project Exile might be appropriate in Richmond but in other
    areas another approach might be best. In all cases the use of existing
    laws to get criminals off the streets will be the overall goal.
        There is a continuing interest in having ATF get more involved in
    making sure that the rightful, legal owner of a stolen registered
    firearm is notified when that weapon has been recovered. As you know,
    last year the Senate report directed ATF to work with State and local
    law enforcement to ensure that the legitimate owner has been notified
    when the firearm turns up.
        Question. Have you identified ways to assist State and local law
    enforcement?
        Answer. ATF and law enforcement agencies cooperate and make every
    effort to ensure that firearms owners have their property returned.
    However, firearms taken into custody by law enforcement in most
    instances are considered evidence of a crime. This usually prohibits
    the return of the firearm until the criminal case has been thoroughly
    investigated and prosecuted and in some cases appeals are decided. This
    can take years for final adjudication. The return of firearms during
    this time would not be possible. When they are available for return law
    enforcement agencies are encouraged to contact ATF for tracing
    assistance. This assistance is limited as it can only identify the
    initial purchaser, who may not now be the legal owner.
        The return of a firearm to its rightful owner can be a complicated
    and man-power intensive search if the owner has not reported the theft
    or loss to local authorities.
        Question. What is the status of ATF efforts?
        Answer. These efforts are on going with the expectation that all
    law enforcement agencies will continue to make every effort to return
    firearms to the lawful owner.
        There is a provision in the fiscal year 1999 appropriations law
    which authorizes the Secretary of the Treasury to reimburse rifle
    importers for costs resulting from an Executive Order which prohibits
    the importation of such weapons. This is commonly called ``in-transit
    relief''. I understand that the responsibility for investigating these
    requests has been delegated to ATF.
        Question. What is the status of these reimbursements?
        Answer. ATF has completed the field verification of the claims and
    is presently awaiting the issuance of an order, which will delegate the
    authority to act on the claims under the statute from the Secretary of
    the Treasury to the Director, ATF. Once the delegation order is issued,
    ATF will immediately initiate the process to reimburse the importers
    pursuant to their claims, and to arrange for the disposal of the
    firearms.
        On Monday the Washington Post ran an article about a man in
    Illinois who lost one of his sons to gun violence, and his attempts to
    hold someone accountable. According to the article, he was able to
    obtain ATF firearm trace information on the gun used in the attack. The
    information developed by the National Tracing Center is a valuable
    investigative tool for Federal, State, and local law enforcement.
        Question. Under what circumstances is that information released to
    the public?
        Answer. The National Tracing Center (NTC) does not release
    information to the public. The NTC provides firearms tracing as a
    service to the law enforcement community as provided for in the 1968
    Gun Control Act which mandated ATF to support State and local law
    enforcement. Information generated as a result of firearms tracing is
    provided to law enforcement and government agencies in an effort to
    support State and local law enforcement.
        The public does have access to some NTC information through the
    means of a Freedom Of Information Act (FOIA) request. However, no names
    of individual dealers are ever released.
        Prior to 1999, no information was released that was dated within
    one year of the response. This changed in 1999 after three fields
    previously released were determined not to be releasable as they may
    potentially compromise an ongoing investigation. Those fields are
    Serial Number, Purchase Date, and Federal Firearm License number. As a
    result an extract of all NTC data was made up to the end of 1998. This
    information is now available in an electronic format (zip disk) and
    will be disclosed through the Office of the Assistant Director for
    Liaison and Public Information.
                                     ______

                     Questions Submitted by Senator Dorgan
                           law enforcement facilities
        Question. The Secret Service rent rate has increased $10.3 million
    at their new Headquarter facility. Of that amount, $4 million is
    related to the increase in square footage. ATF is starting to plan for
    their new headquarter facility. Is the Office of Real Property
    providing ATF guidance on the facility acquisition to ensure that the
    costs associated with this new facility can be captured within ATF's
    base funding?
        Answer. Yes, the Treasury Office of Real Property is providing
    guidance to ATF on the new Headquarters project. However, there are two
    developments associated with this issue for ATF. Base funding for ATF
    in the rent category will experience the most significant increase in
    fiscal year 2000 and 2001. GSA must extend the existing Headquarters
    space leases which will expire prior completion of the new building
    (currently estimated for fiscal year 2004), and ATF's square footage
    requirements have increased. Secondly, since the construction funding
    for the new ATF facility was only recently moved into the GSA budget
    (fiscal year 2000), it was not anticipated in prior year planning that
    ATF would be subject to rent in the new facility.
        It is the intent of ATF, with guidance by the Office of Real
    Property, to negotiate GSA rental payments for the new facility that
    fall within the limits of the increased rate at the current location,
    thus capturing them in the fiscal year 2000 and fiscal year 2001
    adjusted base.
                               counter terrorism
        Question. Did ATF participate in developing that plan, and if so,
    were ATF's recommendations included in the plan?
        Answer. ATF participated in the development of the plan as members
    of working groups charged with addressing specific issues. Some of
    ATF's recommendations were included in the report. The following are
    some key recommendations that were not included:
      --Create a ``Joint International Firearms Trafficking Center'' formed
            with ATF, Customs and the Department of State as the main
            participants. ATF believes this center would be useful,
            particularly since one of the main strategies of this report is
            to address the international firearms trafficking problem.
            Funding was tied to this recommendation. This strategy ties
            closely with the ``International Firearms Trafficking
            Training'' that was recommended in the report.
      --Expand ATF's arson and explosives repository to include
            international data. Congress authorized the Secretary of the
            Treasury (through ATF) to develop a repository of arson and
            explosives information in the United States. ATF's
            recommendation was that for minimal costs, this system could be
            expanded to collect and exchange international data. That
            information would make our system much more valuable to the
            United States when preparing for or responding to a terrorist
            threat.
      --The National Domestic Preparedness office (NDPO) should include
            Treasury as a representative. ATF and Treasury advised the
            Department of Justice of this recommendation, because we
            believe the NDPO will be coordinating the efforts of Federal,
            State and local agencies, and will be training them to respond
            to acts involving Weapons of Mass Destruction (WMD's). Title
            18, section 2332 (b) includes in its definition of WMD's
            ``destructive devices'' which fall under the purview of the
            Secretary of the Treasury.
      --Include ATF's research and development efforts relating to
            explosives in Federal research. The report identifies the need
            for coordinated research in explosive issues. ATF's research
            and development efforts relating to explosives, such as,
            ``Dipole Might'' (relating to the study of large vehicle bombs)
            should be included.
        Congress earmarked funding for this project. Additionally, Congress
    authorized and provided resources for ATF to study a variety of issues,
    including tagging explosives, rendering fertilizer inert, etc.
      --Include ATF in teams referred to by the report; including, the
            Foreign Emergency Response Teams (FEST) and the Domestic
            Emergency Response Teams (DEST). The report lists what their
            resources and capabilities are. ATF's capabilities through the
            National and International Response Teams fall under this
            category.
        Question. What role does ATF play with respect to counter terrorism
    and the level of expertise ATF brings to the investigations of counter
    terrorist bombings?
        Answer. ATF's mission is a blend of regulatory and enforcement
    activities. We regulate certain industries and enforce the Federal
    firearms and explosive laws; particularly, those involving the criminal
    misuse of firearms, explosives and fire. ATF's expertise in the
    firearms, arson and explosives fields is among the best in the world
    and should be used to its fullest extent.
        ATF's mission includes the investigation of bombings, firearms
    trafficking, arsons etc. These functions are at the core of our
    mission. The important thing to note is that the underlying crime is
    still a bombing, arson or firearms trafficking charge where existing
    statutory authority already exists, regardless of what the motive is.
    Therefore, regardless of what the motive for committing the crime is,
    ATF will dedicate the necessary resources to investigate violations
    under our jurisdiction. Because of our unique mission, we have a great
    deal of expertise in explosives research. Research is a necessary part
    of our job. Congress funded some of the existing research projects we
    have. For instance, in 1996, under the Anti Terrorism and Effective
    Death Penalty Act, the Congress funded a large vehicle bomb research
    program known as ``Dipole Might''. Additionally, ATF's laboratories are
    involved in other research projects such as explosive residue tests
    from large vehicle bombs, prevention of contamination and
    decontamination issues in bombing investigations, and advanced evidence
    packaging and preservation.
        ATF has formed an Explosives Study Group to coordinate our research
    in the explosives field. Their focus is to study concerns mandated by
    Section 732 of the Antiterrorism and Effective Death Penalty Act of
    1996 (April 24, 1996), of: the tagging of explosive materials for
    purposes of detection and identification; the feasibility and
    practicability of rendering common chemicals used to manufacture
    explosive materials inert; the feasibility and practicability of
    imposing controls on certain precursor chemicals used to manufacture
    explosive materials; and State licensing requirements for the purchase
    and use of commercial high explosives. ATF is continuing to research
    and test methods for efficiently rendering inert or desensitizing
    Ammonium Nitrate fertilizer.
        Congress tasked the Secretary of the Treasury with developing
    ``odor recognition standards for explosives detecting canines.'' ATF
    developed these standards and they were published in September 1998.
        Congress also authorized the Secretary of the Treasury (through
    ATF) to establish the first National Repository of information relating
    to arson and explosives incidents. This system is still under
    development and includes information from more than 80,000 arson and
    explosives related incidents. Additionally, ATF investigates nearly 700
    explosives incidents per year.
        Some of the resources and expertise that ATF has are:
      --Three laboratories staffed with 26 forensic chemists trained in the
            analysis of fire and explosives debris. Analyze evidence from
            nearly 700 bombings per year.
      --Four National Response Teams (NRT's) made up of 175 members,
            including Fire Protection Engineers, chemists, and bomb
            technicians.
      --International Response Teams (IRT'S) that were called into 19
            activations around the world in conjunction with the Department
            of State, Office of Diplomatic Security. ATF also conducts
            assessments of foreign response capabilities relating to
            explosives issues for the Department of State's Anti-Terrorism
            Assistance program.
      --Nearly 300 certified explosives specialists and 24 bomb
            technicians.
      --A mobile forensic laboratory which travels to the scene.
      --Forty-two NRT trucks (fully equipped).
      --Seventy-five Certified Fire Investigators.
      --An Explosives Study Group (ESG) tasked with a number of research
            and development projects relating to explosives used in
            bombings.
      --Additional explosives research projects such as Dipole Might,
            (large vehicle bomb study) and Pipe Bomb study (effects of pipe
            bombs). Both are coordinated through the Technical Support
            Working Group (TSWG) which was formed by the National Security
            Council.
      --A National Repository of explosive and arson related incidents.
            This system has records from more than 80,000 arson or
            explosives incidents from the past 22 years. The system links
            with other data collection systems. In addition, this system
            enables us to trace stolen and recovered explosives and
            compares things such as motives, component parts, device
            placement and initiating devices.
      --Partnership with the explosives industry and the fertilizer
            industry to form programs such as ``Be Aware For America.''
      --A world class Canine Explosives Detection Program. This training
            program has trained more than 170 explosives detecting canines
            for the Department of State's Anti-Terrorism Assistance
            Program.
        These dogs are stationed in countries around the world.
    Additionally, ATF has 8 special agent handler teams in the United
    States and has trained canines for the CIA, IRS and other State or
    local departments.
      --Two arson /explosives profilers assigned to the FBI's Behavioral
            Science unit.
        Question. Does ATF's role in counter terrorism conflict with the
    FBI's role? When does ATF take the lead in a terrorist bomb situation?
        Answer. There should be no conflict with the roles of ATF and the
    FBI when addressing legitimate terrorist incidents. ATF has always
    acknowledged the FBI's lead role in terrorist incidents and has
    supported them with our resources. Conflict does arise due to the
    constantly changing definition relating to ``domestic terrorism.'' ATF
    relies on the definition of terrorism outlined in Title 18 U.S.C.
    section 2332b(g)(5). Others use different definitions developed within
    their agencies. The term ``federal crime of terrorism'' relates only to
    the underlying crime, such as a bombing or arson.
        ATF approaches every investigation with an open mind in order to
    determine if a crime was committed and if so, who was responsible for
    the act. As mentioned earlier, terrorism is more of a motive. Motive is
    not an element that must be proven in many cases. In most cases, the
    investigative steps, regardless of whether or not it was committed by
    ``terrorists'' are handled the same way. The best way to handle these
    investigations is to share the best resources of each agency and work
    together to solve the crime.
        During the past five years, the United States has experienced an
    average of 2,500 explosive incidents per year. This includes categories
    such as thefts of explosives, bombings and attempted bombings.
    According to the FBI's latest Bomb Data Center report for 1996, there
    were 11 bombing and hoax device incidents included in the 2,579 overall
    incidents in 1996. According to the FBI's latest ``Terrorism in the
    United States'' publication for 1996, they listed 17 ``domestic
    terrorist'' incidents between 1990-1996. Of those incidents, 11 were
    bombings (6 were pipe bombs), and 5 were attributed to arson. When
    looking at the history of these types of incidents, the data is
    relatively constant.
        As one can see, it is fortunate that we experience very few acts of
    ``domestic terrorism.'' Therefore, ATF must continue to thoroughly and
    fairly investigate these other cases that have a Federal interest and
    not assume what the motive was. ATF has always welcomed the assistance
    of the FBI in bombing investigations and has shared information with
    the FBI in a timely manner. We have agreed that once a terrorist nexus
    is identified and validated, we would relinquish the lead investigator
    role to the FBI and assist them as necessary.
        Question. Does ATF have the capability to respond to foreign
    bombing such as the East Africa bombing?
        Answer. Yes, ATF does have the capability to respond to incidents
    such as those that occurred in East Africa. As a matter of fact, ATF's
    International Response Team (IRT) has responded abroad to 19 incidents
    involving fires and explosions. These IRT's are comprised of our most
    experienced forensic chemists with the most current forensic equipment,
    experienced explosive enforcement officers (bomb technicians) who
    regularly reconstruct bombs for investigative and court purposes,
    forensic crime scene mapping equipment, personnel trained in studying
    and documenting large vehicle bombs (Dipole Might), explosives
    detecting canine teams, and certified explosive specialists who
    regularly work on bombing cases. ATF has an agreement with the
    Department of State to provide technical and investigative assistance
    in foreign countries when it is required.
        The Department of State also uses our staff to train foreign
    nationals in pre- and post-blast investigations, and we perform
    critical assessments of the capabilities of these foreign nationals to
    address threats in their countries. ATF bomb technicians have performed
    numerous threat assessments throughout the world.
                           atf headquarters facility
        Question. What requirements exist for locating the entire
    headquarters staff of 900 within the District?
        Answer. The Secretary has stated that he is committed to keep ATF's
    Headquarters in the District. There are no specific ATF or Treasury
    policies requiring the entire Headquarters staff to be housed in the
    District. However, the dissection of Headquarters' mission functions,
    the majority of which require critical interaction and support with
    each other and provide for effective ATF field operation activities,
    would be costly and inefficient.
        Question. Does the Federal Government own any property in the
    District which is large enough to house the ATF requirement?
        Answer. GSA has been unable to identify a Federally owned site that
    meets ATF's requirements.
        Question. Is ATF investigating the use of this Federal land, which
    would ultimately cost the Federal Government less?
        Answer. GSA and ATF are pursuing options which would compare
    favorably in overall costs to development at a Federal owned site. GSA
    in cooperation with ATF has investigated several Federally owned sites
    within the District over the past several years. It has been determined
    in several instances that it would actually be more expensive to
    renovate existing facilities as opposed to constructing a new building.
        Question. Are there any remediation requirements on the other
    available sites?
        Answer. We are unaware at this time of the extent of remediation,
    if any, required on the District-owned site being evaluated for ATF
    Headquarters. Prior studies indicate minor contamination along the
    perimeter of the land. The original Southeast Federal Center site
    parcel offered for the ATF Headquarters required a contribution of
    approximately $5 million in remediation costs.
        Question. Has an environmental impact study been completed on the
    New York Avenue site? How does the construction of a headquarter
    facility impact the traffic flow on this major thruway?
        Answer. A preliminary site study, identifying the major impact
    factors of the ATF project, will be complete by the end of this fiscal
    year. The answer to the impact of traffic flow to the NY Ave. area by
    the Headquarters project, along with the other new major developments
    beginning in that vicinity, will probably not be known until the
    completion of a full environmental impact study by the end of fiscal
    year 2000.
        Question. Couldn't the proposed visitor's center have a potential
    security concern?
        Answer. The ATF space requirements include an area inside of the
    building entrance of approximately 1,000 square feet called ``Visitor
    Reception Center.'' This space is defined as the area for receiving and
    clearing visitors who have official business to conduct with ATF.
                     integrated violence reduction strategy
        Question. ATF has requested $12.6 million and 56 FTE for an
    Integrated Violence Reduction Strategy. The Strategy will focus on
    several components of firearms enforcement aimed at reducing illegal
    acquisition and illegal use of firearms. ATF proposes to use new
    Federal purchase denial information, obtained from the National
    Instacheck System, which performs background checks before the purchase
    of every firearm, by electronically receiving information from the
    120,000 referrals ATF receives, as a result of background checks. ATF
    is projecting an increase of each special agent's workload by seven
    violations per month. What is the current special agent's workload?
        Answer. Currently, each special agent initiates an average of ten
    investigations per year, or nearly one per month.
        Question. How many additional special agents are required to meet
    the demand of the increased workload as a result of the referral
    information?
        Answer. Our previous submissions for the period up to and including
    fiscal year 2005 called for a total of 346 new special agent positions,
    along with support and inspectors. This proposal was made with the
    assumption of a continued workload as provided above.
        Question. ATF proposed the use of National Instacheck Systems on
    purchases at gun shows. How would this system work? Would the seller
    conduct the background check or would ATF? How many gun shows are held
    annually? What level of increase in resources would be necessary to
    meet the referrals from these background checks?
        Answer. Current law requires that retail purchasers of firearms
    from FFLs, whether at the retail premises or at a gun show, be the
    subject of a background check directly through the FBI's NICS system,
    or through a State serving as a point of contact to NICS. The Gun
    Control Act allows exceptions from the check in certain circumstances,
    such as persons holding a qualifying firearms permit. A recent study
    conducted by the Department of the Treasury with ATF and the Department
    of Justice recommended statutory changes that would require NICS checks
    be conducted on all retail purchasers at gun shows, whether they
    acquire the firearm from an FFL or from a non-licensee.
        If this recommendation were enacted into law, a non-licensee would
    transfer a firearm to a purchaser only through an FFL. The FFL would
    enter the firearm into his or her records and would cause the purchaser
    to complete an ATF Form 4473, Firearms Transaction Record, and would
    conduct a NICS check. Only then could the purchaser take possession of
    the firearm. ATF would not be involved in conducting the background
    check.
        It is estimated that there are over 4,000 gun shows annually
    throughout the country. It is estimated that roughly 25-50 percent of
    sellers at these shows are unlicensed persons. Our estimates to date
    when considering the effect of proposed legislation have tried to take
    into account these levels, and to plan for appropriate levels of
    resources to conduct inspections, investigations and pursue additional
    referrals which would result. These preliminary estimates through the
    2003 outyear call for a total of 280 special agent, inspector and
    support positions for fiscal year 2001, 77 for fiscal year 2002 and 51
    for fiscal year 2003.
        Question. ATF proposed applying Federal statutes to firearm
    possessors if the Federal statute carries incapacitation and
    deterrence. Some have said that the criminal justice system is being
    federalized. Is this another step in that direction?
        Answer. No. ATF has been enforcing firearms legislation for the
    past 30 years. Our focus has been to reduce the number of illegal
    firearms that are trafficked.
                youth crime gun interdiction initiative (ycgii)
        Question. The February 1999 Youth Crime Gun Interdiction Initiative
    Performance Report states that the most immediate measure of success of
    YCGII lies in the investigations of illegal trafficking cases, which
    have resulted in participating YCGII cities submitting for prosecution
    almost 400 defendants. However, the report goes on to say that no
    baseline currently exists by which to measure changes in illegal
    trafficking. Has the compilation of this report lead to ATF's
    development of a baseline?
        Answer. The baseline is being developed through research, such as
    that conducted for this year's Performance Report. Even though this was
    the first year that Congress appropriated additional special agent
    positions for this effort, ATF felt that it was important to take an
    initial look at investigative efforts being conducted across the
    country in firearms trafficking and the relationships to juvenile and
    youth possession. We are currently revising our information systems to
    capture this critical information at the proper level of detail to see
    the effects that these cases have on the youth gun market and to
    measure changes in illegal trafficking. With this increased emphasis on
    the illegal market, along with Brady checks, we are seeing a decrease
    in the average number of guns handled by the typical trafficking
    defendant, which, in simpler terms, means that it has become much more
    difficult for these dealers to conduct their illicit businesses.
        Question. What is that baseline and when will the committee see
    some program performance indicators?
        Answer. The baselines being considered to evaluate this program are
    referenced in the YCGII report published this year on the 27 affected
    cities. One of the key pieces of analysis conducted for each city's
    trace report focuses on categorizing crime guns by three age groups,
    ``juvenile'' (17 and under), ``youth'' (18 to 24), and ``adult.'' We
    intend to achieve a continuing reduction in the percentages of crime
    guns associated with youth and juveniles.
        Question. Does the fiscal year 2000 request include the resources
    necessary to conduct the research and to conduct a longitudinal study
    of the program?
        Answer. Yes. Since the inception of this program, ATF has used
    technology to make full use of the unique assets of the firearms
    information under our control. We then tailor enforcement strategies to
    stem firearms trafficking by contracting with leading academic
    researchers. We have not only continued this partnership with
    institutions such as Harvard University and it's scholars, but we have
    also maintained flexibility in commissioning new research when needed.
    This was evident in the research presented to Congress in this year's
    Performance Report.
        Question. What type of annual reporting is ATF planning to provide
    on the YCGII program?
        Answer. We will continue to provide relevant trace analyses of the
    partner cities and report on the results of our investigations. We will
    focus on the reduction of illegally trafficked firearms, many of which
    end up in the hands of juveniles, youths, and prohibited persons. ATF
    will also continue to provide the results of this effort in conjunction
    with our established performance measures, which demonstrate the cost
    savings to society when the illegal flow of firearms is impacted.
                         tobacco compliance initiative
        Question. How will this tobacco tax be different from existing tax
    programs? In other words, why are additional employees needed to run
    this program?
        Answer. Effective fiscal year 2000 ATF is required by law (passed
    in 1997) to implement a tobacco tax program consisting of qualification
    of a new type of tobacco permittee, importers, and collect additional
    tobacco tax (floor stocks tax). The tax increases enacted for 1/1/2000
    and 1/1/2002 will require that floor stock taxes be collected on all
    unpaid inventory held in stock (over a small exempt amount), involving
    collections from approximately 15,000 first time taxpayers. Qualifying
    tobacco importer permittee applicants and collecting tobacco floor
    stocks taxes are activities that ATF is not currently engaged. ATF does
    not have the resources to do this work and asked for the additional
    resources in order to meet the requirements of the new law. In the
    first year, additional resources will be used to qualify new tobacco
    importers and collect the floor stocks tax.
        Question. In the future the employees will be utilized in
    increasing compliance and directing anti-diversion efforts. Will these
    agents be used for just tobacco programs or will this staff be used to
    expand the entire regulatory program?
        Answer. The requested employees will be utilized just for tobacco
    programs. After the initial period of conducting approximately 1500
    application inspections and floor stocks tax audits, these employees
    will be utilized to obtain compliance with the tobacco regulations,
    insure proper tax payments, investigate leads and develop cases
    pertaining to the illegal trafficking and diversion of tobacco
    products.
        Question. Wasn't the explosives inspection program dramatically
    increased last year?
        Answer. Explosives inspections increased from 7,924 in fiscal year
    1997 to 8,908 in fiscal year 1998. This was due primarily to the
    funding of 26 FTE through the Treasury Asset Forfeiture Fund (TAFF).
    During that timeframe, ATF had requested 53 FTE in order to accomplish
    100 percent of the explosives inspections. Presently, we are
    maintaining approximately an 85 percent completion rate. This level is
    expected to continue given the current resources and FTE dedicated to
    this effort.
        Question. The report accompanying last year's appropriations bill
    stated ``the Conferees directed the ATF to continue to fully fund its
    investigations on diversion and trafficking of contraband cigarettes,
    particularly on Indian lands.'' What can you tell us about some of
    those investigations? Are these investigations any different than other
    contraband cigarette cases?
        Answer. Contraband trafficking of cigarettes involving Indian lands
    is no different than contraband trafficking of cigarettes between
    States. Contraband trafficking off of Indian lands (reservations) has
    been on the rise over the past several years. Several of the cases have
    originated out of New York. Individuals travel from as far away as
    Michigan to purchase the cigarettes. They purchase these cigarettes
    State tax-free (NY), thus increasing their profit potential and
    withholding the required State taxes (MI or other target states). The
    Agency is investigating contraband trafficking cases out of Nebraska,
    Arizona and several other states. A majority of these types of
    investigations are centered around a tobacco store or smoke shop
    located on tribal lands. Native Americans receive substantial State tax
    breaks for the sale of tobacco and other products on their respective
    reservations. As a result, we have seen an increase of products
    purchased, State tax-free, on reservations and then taken off for
    consumption or sale. The States are the main reporters of loss in such
    circumstances. What makes this a Federal violation is when more than
    60,000 cigarettes, the threshold for a Federal violation under the
    Contraband Cigarette Trafficking Act, are purchased and then
    transported to another state for sale. ATF has participated in numerous
    investigations involving this type of activity.
        Question. The Director's written statement indicated that ATF
    provided funding to 101 different State and local agencies to support
    their participation in the G.R.E.A.T. program and that over 1,265
    communities have officers certified in the G.R.E.A.T. program. Can you
    tell the subcommittee how many Indian nation law enforcement officers
    have participated in the program and what efforts are being made to
    increase training to these groups?
        Answer. Our current records indicate that 61 Tribal Police Officers
    have been previously certified to teach G.R.E.A.T. Presently, 15
    officers are currently teaching the G.R.E.A.T. curriculum. These
    statistics are based on the number of student graduation certificates
    the officer orders.
        In fiscal year 1998, $300,000 was awarded to the Department of the
    Interior, Bureau of Indian Affairs (BIA), and $250,000.00 in fiscal
    year 1999. Unfortunately, no requests have been received from BIA
    soliciting reimbursement for funds incurred through their efforts to
    implement the G.R.E.A.T. Program.
        ATF is making efforts to establish a more positive and effective
    approach to increase active participation of the Tribal Police and BIA
    with regards to the G.R.E.A.T. Program. The Bureau Assistant Director
    for Firearms, Explosives and Arson, Jimmy Wooten, has been elected as
    an officer in the Native American Law Enforcement Association. One of
    their goals is to improve relations and enhance training.
        The Bureau will also continue efforts to attract more Tribal
    officers into the G.R.E.A.T. Program and let other Tribal Law
    Enforcement officials know that the program is available and their
    participation is welcomed. Communities that are currently being
    targeted for this effort include those in New Mexico, Wisconsin and
    Arizona.
        In June of 1998, the G.R.E.A.T. Program published an article in the
    Native American Law Enforcement Association's newsletter. The article
    described the program and its need for more Native American G.R.E.A.T.
    officers.
        Two separate meetings are scheduled for next week. One meeting is
    with BIA and the second is with the Boys and Girls Club of America
    (B&GCA). The B&GCA meeting is to discuss a proposal that would
    establish the G.R.E.A.T. Program at local Boys and Girls Clubs within
    the Tribal Police/BIA communities.
                              U.S. Secret Service

    STATEMENT BRIAN L. STAFFORD, DIRECTOR
        Senator Campbell. Okay, Mr. Stafford. You are on.
         Mr. Stafford. Mr. Chairman, Senator Dorgan, I am pleased
    to be here today. I have also submitted a more comprehensive
    statement.
        Senator Campbell. That will be included in the record.
        Mr. Stafford. With me today are Deputy Director Bruce Bowen
    and Assistant Directors Jane Vezeris and Kevin Foley.
        On March 4 of this year, I was sworn in as the 20th
    Director of the Secret Service. I have followed in the Secret
    Service tradition of being a career agent and I am proud to
    have served in this outstanding law enforcement agency for the
    last 27 years.
        In light of the fact that I am making my first appearance
    before the committee as the Director, rather than provide you
    with a statement outlining appropriations and budgetary issues,
    my oral statement will be brief and will address my commitment
    to you.
        I will also outline the challenges facing the Secret
    Service in the year ahead. I will seek your input on issues
    that arise of mutual concern to us and the American people and
    commit that I will always be available to respond promptly to
    any questions or inquiries from you or your staffs.
        As you know, the Secret Service is one of the oldest
    Federal law enforcement organizations. Created in 1865 to
    suppress counterfeit currency, we now have very important dual
    missions of safeguarding our Nation's financial systems and
    protecting world leaders. Our traditional investigative mission
    of suppressing counterfeiting has expanded into areas of
    financial and economic crimes in order to respond to the needs
    of the American people and mandates of Congress.
        Likewise, our protective responsibilities have expanded in
    scope beyond the President and Vice-President, former
    Presidents, visiting heads of states and others. We are now
    also mandated to take the lead role in the design, planning and
    implementation of security at events designated by the National
    Security Council as national special security events. Our role,
    as set forth in Presidential Decision Directive 62, is an
    example of how the Secret Service is recognized for one of its
    traditional areas of expertise, security planning and
    implementation.
        In the protection arena, the Secret Service has no equal,
    but we will be facing new challenges in the weeks and months
    ahead. In less than a week we will face a challenge we are
    accustomed to, to protecting more than 40 visiting heads of
    state in the North Atlantic Treaty Organization summit here in
    Washington, DC. This event has been designated as a national
    special security event and the Secret Service's role has
    expanded beyond our traditional one of physical protection. The
    Service will be coordinating the security for the event which
    will include more than 40 world leaders, 22 spouses of world
    leaders, and more than 180 total protectees.
        Furthermore, in the months ahead, as we have done since
    1968, we will be faced once again with the challenge of
    protecting presidential candidates.
        Mr. Chairman, part of our success comes from partnerships
    developed over the years, partnerships with Federal, state and
    local law enforcement and public safety entities that work with
    the Secret Service on a daily basis. Our partnership with
    Federal agencies is highlighted by my colleagues sitting with
    me today at this table. The United States Customs and the
    Bureau of Alcohol, Tobacco and Firearms are a few that lend the
    Secret Service such a helping hand.
        As you know, we also work closely with the FBI, FAA, FEMA,
    Department of Defense and the State Department to make these
    events come together.
        Mr. Chairman, in your own State of Colorado, during the
    Denver Economic Summit of Eight, you saw those partnerships in
    action when we worked closely with many law enforcement and
    public safety agencies throughout the State. I can assure the
    committee that today these partnerships remain as strong as
    ever on all levels.
        In our investigative mission, the Secret Service is dealing
    with challenges in the areas of counterfeiting and financial
    crimes. In the counterfeiting arena, the Secret Service is
    faced with a rise in production and passing of computer and
    color copier generated counterfeit Federal Reserve notes.
        The Secret Service remains committed to attacking the
    problem in three ways. First, we will continue to work with
    Congress for legislative enhancements to sentencing guidelines
    and forfeiture provisions. Second, the Service will continue to
    form partnerships with private industry to develop
    technological solutions to deter this form of counterfeit
    currency. And third, and equally as important a component, is
    educating the public throughout the world about the threat of
    these new forms of counterfeit currency.
        In the area of financial crimes, the Secret Service has
    increased its efforts to train and equip its personnel to
    address new and emerging high technology crimes in all areas of
    its jurisdiction. A key component in this arena is the
    electronic crimes special agent program. These highly trained
    agents are qualified as experts in the examination of
    electronic evidence and the use of the latest technology in the
    fight against new high technology financial crimes.
        In conclusion, I wish to thank the committee for its long
    history of support, not just for our mission, but for the
    actions you have taken to ensure that the men and women of this
    agency have the tools they need to do their job.

                    PREPARED STATEMENT OF BRIAN L. STAFFORD

        Mr. Chairman, this concludes my statement and I will be
    happy to answer any questions.
        [The statement follows:]
                    Prepared Statement of Brian L. Stafford
        Mr. Chairman and members of the Subcommittee, I am pleased to be
    here today, and to be afforded the opportunity to testify on the Secret
    Service's fiscal year 2000 Budget Request.
        With me today, Mr. Chairman, are Jane E. Vezeris, Assistant
    Director for Administration; Danny Spriggs, Assistant Director for
    Protective Operations; Barbara S. Riggs, Assistant Director for
    Protective Research; Kevin T. Foley, Assistant Director for
    Investigations; Gordon S. Heddell, Assistant Director for Inspection;
    Charles N. DeVita, Assistant Director for Training; Terrence Samway,
    Assistant Director for Government Liaison and Public Affairs; and John
    Kelleher, Chief Counsel.
                     fiscal year 2000 appropriation request
        The Service's fiscal year 2000 funding request totals $745.9
    million and 5,123 FTEs, and is comprised of four separate funding
    sources: the Salaries and Expenses appropriation; the Acquisition,
    Construction, Improvement and Related Expenses appropriation; transfers
    from the Violent Crime Reduction Trust Fund account; and reimbursements
    from the Departmental Super Surplus Forfeiture Fund. Together, the
    total budget for fiscal year 2000 is $17.3 million, or 2.4 percent,
    above the level of funding the Service has received this fiscal year.
        With this funding, the Service expects to further advance the
    attainment of its two mission goals, which are: to maintain the highest
    level of physical protection possible through the effective use of
    human resources, protective intelligence, risk assessment, and
    technology; and to protect the integrity of the nation's financial
    systems through aggressive criminal investigations and assessing trends
    and patterns to identify preventive measures to counter systemic
    weaknesses.
    Salaries and Expenses (S&E)
        The Service's Salaries and Expenses appropriation request for
    fiscal year 2000 totals $664,508,000 and 5,123 FTE positions, of which
    $3,196,000 shall be derived from the Violent Crime Reduction Trust Fund
    (VCRTF). This is a decrease of $39,230,000 and 71 FTEs from the fiscal
    year 1999 appropriated level of $703,738,000 and 5,194 FTEs. This
    request includes: $13,790,000 and 23 FTEs in program increases,
    $39,152,000 in upward adjustments necessary to maintain current program
    performance levels, and a transfer of $7,000 from the National Archives
    and Records Administration. These increases are offset by a reduction
    of $39,567,000 for non-recurring costs and program reductions totaling
    $14,180,000 and 220 FTEs. This account is further adjusted with a
    proposal that would fund $38,432,000 with the Department's Super
    Surplus Forfeiture Fund. With this amount from the Super Surplus
    Forfeiture Fund the Service will cover the costs of annualizing the
    staffing added in fiscal year 1999 with the Emergency Supplemental
    appropriation for Antiterrorism, the costs of the protective effort
    relative to the presidential campaign, and the costs of purchasing
    replacement vehicles.
    Salaries & Expenses Program Changes
        The Service is requesting $5,854,000 and 38 positions (19 FTE) for
    its Presidential and Vice Presidential Protective Divisions. The threat
    of terrorist activity directed at this country and its interests
    continues to be a major concern for the Secret Service and, because of
    this concern, security measures are constantly being reviewed and
    enhanced as necessary.
        Also included in this budget is $880,000 needed to purchase new and
    replacement protective equipment. This equipment includes a
    sophisticated computerized system that will be used by the Service's
    advance personnel to survey protective sites prior to the protectee's
    visit. Specifically, this equipment will enhance the survey process for
    the Service's countersnipers. By using data such as barometric
    pressure, elevation, bullet velocity, distance to the target, air
    temperature and slope, this automated system, when developed, will
    calculate the exact angle and distance to the target.
        The potential use of chemical and biological agents or other
    hazardous materials as weapons of mass destruction poses a very serious
    threat to the Service's protectees. With the increased number of
    intelligence reports involving the use or possession of chemical/
    biological materials, it is possible that the White House Complex could
    be a target of a chemical/biological (CB) attack in the near future.
    The incident in 1995 in Tokyo, Japan demonstrated the devastating
    effects of chemical agents. The intelligence community considers
    weapons of mass destruction to be an extremely serious threat.
    Terrorism experts are no longer talking about ``if'' an attack will
    occur. They are planning for the time ``when'' it occurs. The Service
    has budgeted $3,325,000, to come from the Department's Super Surplus
    Forfeiture Fund, to provide the means to purchase a variety of the
    latest, most sophisticated chemical/biological detection technologies,
    as well as decontamination and personal protective equipment,
    neutralizing materials and containment systems. It is extremely
    important that the Service have a deliberate, long-term concern for the
    potentially devastating impact of this type of terrorist activity.
        The fiscal year 2000 budget request also includes $3,857,000 and
    seven positions (4 FTE) to enable the Service to maintain, repair, and
    replace security systems and technologies at the White House in line
    with recent upgrades/enhancements in physical protection made there.
    The Service is continually involved in a risk assessment process as
    part of meeting its mandated protective mission. This ensures that
    appropriate security measures are in place. As part of this risk
    assessment process there must be adequate funding available to ensure
    that security systems for the White House continue to effectively
    counter new or evolving threats, and to remove vulnerability from those
    threats. This funding will allow the Service to take advantage of
    technological advances that can enhance security at the White House and
    during Presidential travel.
        This coming summer the Secret Service will consolidate its
    headquarters operations at 950 H Street in Washington, D.C. The fiscal
    year 2000 Budget includes funding to cover the increased rental costs
    the Service will incur, as well as building operations costs.
    Contractor support services for this newly constructed building are
    required to ensure a smooth transition of building management and
    operations from existing leased space locations to the consolidated
    site. These services will make certain that building operations at this
    new headquarters site will be proper, safe, and economical, and that
    this new facility is properly maintained.
        Finally, this budget includes the funding that the Service
    estimates will be required to provide for the protective effort
    relative to the upcoming 2000 presidential campaign. The Service has
    budgeted $35,247,000, to come from the Department's Super Surplus
    Forfeiture Fund, to cover the costs of providing protection for the
    candidates and nominees involved in the campaign, and two national
    party conventions.
    Acquisition, Construction, Improvement, and Related Expenses (ACIRE)
        The Service's fiscal year 2000 request for its Acquisition,
    Construction, Improvement, and Related Expenses (ACIRE) account is
    $4,923,000; a reduction of $3,145,000 from the fiscal year 1999
    appropriation of $8,068,000.
    Acquisition, Construction, Improvement, and Related Expenses Program
            Changes
        There are no program initiatives budgeted for this account.
    Results Act
        The Performance Report for fiscal year 1998 is included in the
    fiscal year 2000 budget request. This report presents actual fiscal
    year 1998 performance results.
        Fiscal year 1998 was an extremely productive and demanding year for
    the Secret Service. The total number of stops for all protectees was
    9.2 percent higher than the number estimated. Although permanent
    protectee travel was slightly under that which was estimated,
    protection of foreign dignitaries was significantly higher.
        The Secret Service closed 27,429 criminal cases during fiscal year
    1998, just 571, or 2 percent, below the level estimated. This is a
    remarkable achievement given the heavier than anticipated protective
    workload.
        For fiscal year 1998, the level of counterfeit money passed was
    held to $92 per million dollars of genuine currency. This was
    significantly below the $119 per million dollars of genuine currency in
    the performance plan, and means substantial savings in dollars lost to
    counterfeiting for the American public.
        The Service continues to focus its efforts to curb the
    counterfeiting of U.S. currency in foreign countries. A total of $3.2
    million in counterfeit currency was passed overseas during fiscal year
    1998. This was significantly below the total of $5.0 million in the
    performance plan.
                               protective program
        The Secret Service's protective operations program provides
    security for the President, the Vice President, their families, as well
    as former Presidents and other dignitaries and designated individuals.
    This program also provides security for the White House Complex, the
    Vice President's residence, and foreign missions within the Washington,
    D.C. area.
        The President and Mrs. Clinton, and Vice President Gore, continued
    to maintain extensive foreign travel schedules during fiscal year 1998.
    The President made 44 foreign stops, the First Lady made 62 foreign
    stops, and the Vice President made 28 foreign stops last fiscal year.
        The Service's Office of Protective Operations also successfully
    coordinated a number of major protective events. The Service provided
    individual protection for the 53rd annual United Nations General
    Assembly and the 20th United Nations Special Session on the World Drug
    Problem, as well as individual protection and event security at the
    17th Congress of the World Energy Council. This Congress of the World
    Energy Council was held in Houston, Texas, and was the first event for
    which the Secret Service assumed lead agency responsibilities for
    security in accordance with Presidential Decision Directive #62. This
    Presidential Decision Directive names the Service as the lead agency
    for security design, planning and implementation at events designated
    as national special security events.
        All of the above events take significant planning, deployment of
    resources, and coordination with Federal, State, and local law
    enforcement to be successful. In spite of the tremendous protective
    workload associated with the heavy travel schedules of individual
    protectees, the Service was able to complete the necessary preparatory
    efforts required to ensure that the security plans for each of these
    events were successfully implemented.
        In addition to the usual protective workload, this year the Service
    has also been involved with the large protective effort surrounding the
    visit to this country by the Pope. Also, the Service is currently
    planning for the upcoming presidential campaign, which will again place
    a heavy workload burden on all elements of the organization. In
    addition, a summit meeting of the North Atlantic Treaty Organization
    will be held in Washington, D.C., later this month. This event has been
    designated as a national special security event in accordance with
    Presidential Decision Directive #62.
        Protective intelligence serves a critical role in the Secret
    Service's protective mission. The Intelligence Division develops threat
    assessments in support of protectee visits to domestic and foreign
    settings; provides warning indicators for specific and generalized
    threat environments; maintains liaison with the mental health, law
    enforcement, and intelligence communities; and conducts operational
    studies that are needed to stay at the forefront of the effort to
    predict the likelihood of danger.
        To improve the Service's ability to process protective intelligence
    information, the Secret Service will be taking advantage of its newly
    developed PRISM system. PRISM is a state-of-the-art information
    technology system that facilitates case management and the preparation
    of threat assessments in support of protectees' foreign and domestic
    travel, and for protective intelligence investigations.
        Additionally, a recently completed behavioral research study, the
    Exceptional Case Study Project (ECSP), will enhance the Secret
    Service's ability to identify, assess, and manage persons who might
    pose a risk of violence toward its protectees. This study analyzed the
    thinking and behavior of all persons known to have attacked or
    approached with a weapon, a prominent public official in the United
    States since 1949. The information developed by this study has
    increased the Service's understanding of violence directed toward
    persons of prominent public status, and has benefited the Service's
    risk assessment procedures, physical protection techniques, and
    training methodologies. The findings of the ECSP and subsequent
    interest by the law enforcement and criminal justice communities led to
    the creation of the Secret Service National Threat Assessment Center.
    This center will be developing threat investigations and assessment
    protocols, and has been assisting State and local law enforcement
    agencies in the prevention of stalking and violence in both the
    workplace and schools. Through the National Threat Assessment Center,
    the Service's goal is to provide leadership and direction to the
    criminal justice community in its efforts to prevent targeted violence.
        The technical security program continues to develop measures to
    ensure the safety of the President, and other protectees, against
    weapons of mass destruction. Specifically, in response to the threat of
    chemical weapons, the Secret Service has developed a plan that
    incorporates detection, countermeasures, and survivability. The
    detection aspect is supported by baseline technology that will detect
    the presence of a chemical agent and activate an alarm. Countermeasures
    technology will not eliminate the threat from weapons of mass
    destruction, but will mitigate the effects. Survivability is
    accomplished through the transfer of protectees to areas that are
    equipped with special protective systems. In this program area, the
    Service has developed partnerships with the Massachusetts Institute of
    Technology's Lincoln Laboratories, the Lawrence Livermore Laboratory,
    the United States Army's Technical Escort Unit at the Aberdeen Proving
    Grounds, and the National Medical Research Institute.
        During fiscal year 2000, additional chemical/biological teams will
    be trained to support the Service's protective responsibilities. These
    teams will require protective clothing, life support equipment, medical
    antidote kits, and chemical/biological field sampling and analysis
    equipment. The Service will also provide each special agent and
    security specialist assigned to the field with the protective equipment
    necessary to counter chemical nerve agents and biological toxins. This
    measure is necessary due to the increasing number of domestic incidents
    involving extremist groups producing and storing lethal substances.
        The Service continues to enhance the physical security around the
    perimeter of the White House. This fiscal year, additional hydraulic
    barriers, interim booths, and fixed bollards are being installed around
    the northside of President's Park. Also, approval for the southside
    construction and design has been finalized. Funding requested in the
    fiscal year 2000 Budget will allow the Service to complete the security
    enhancements along the southside perimeter of President's Park.
        In fiscal years 1996, 1997, and 1998, the Service was appropriated
    approximately $35 million to enhance the physical security of the White
    House Complex. Nearly all of these enhancements have been completed,
    including an access control system, a technical surveillance
    countermeasures system, an air intrusion detection system, security
    gates and barriers, armored windows, x-ray equipment, etc. To properly
    maintain these systems and ensure their effective long-term operation,
    additional technical support personnel and funds are needed to cover
    maintenance contracts, replace critical systems components with
    periodic upgrades, and incorporate new technologies as needed.
                             information technology
        Completing a multi-year effort, the Service's wide-area
    communications network was transitioned to the Treasury Communications
    System (TCS) network. The TCS network architecture is designed to
    support the Service's future information technology needs. All domestic
    field offices have been transitioned to the TCS. Transition of
    headquarters and overseas offices will be completed in the fall of
    1999.
        The highest priority information technology initiative for the
    Secret Service is to ensure that all of its information technology
    systems are Year 2000 compliant. Significant progress has already been
    made for the compliance of personal computer and local area network-
    based systems, and the telecommunications infrastructure. Efforts will
    continue throughout 1999 to certify compliance of all information
    systems.
                             investigative program
        The Secret Service is responsible for domestic and international
    investigations involving financial systems crimes to include bank
    fraud; access device crimes; telemarketing crimes; telecommunication
    crimes (cellular and hard wire); cyber crimes (attacks on critical
    infrastructures; desk top publishing and network intrusions); automated
    payment system and teller machine crimes; crimes involving government
    entitlements; crimes involving identity takeovers; crimes involving
    counterfeit and fictitious financial instruments, obligations and
    securities; crimes involving counterfeit currency; criminal activity in
    the area of money laundering as it relates to certain specified
    unlawful activities; and the seizure and subsequent forfeiture of
    assets used to facilitate certain criminal activities, as well as the
    proceeds of those criminal activities.
        The Secret Service has long recognized the need to approach high-
    tech crime on a global basis. Through participation in the high-tech
    subcommittee of the G-8 and the drafting of the President's
    International Crime Control Strategy, the Secret Service has sought to
    bring actual cases based on investigative history to the forefront. At
    this time, the Secret Service recognizes that traditional methods of
    law enforcement practices in the international environment need to be
    changed. Through solid partnerships developed by our international
    field offices, including joint training initiatives with law
    enforcement and industry, significant high-tech investigations have
    been brought to successful conclusions by working beyond geographic
    boundaries.
        As discussed last year, the U.S. dollar continues to be the
    currency of choice worldwide. Approximately $480 billion of genuine
    U.S. currency is in circulation worldwide and nearly 60 percent of that
    is in foreign markets. As the General Accounting Office and the Federal
    Reserve Board have testified, foreigners have a tendency to hold U.S.
    currency, primarily because of their confidence in the dollar, and as a
    hedge against inflation affecting their own currency. This willingness
    to hold U.S. currency results in an interest free loan to the United
    States amounting to more than $25 billion annually. The taxpayers of
    the United States directly benefit from this activity.
        Competition for market share will be affected with the introduction
    of the ``Eurodollar.'' This represents a healthy challenge to U.S.
    currency remaining the currency of choice worldwide. The U.S. Secret
    Service will be tasked with increasing investigative efforts to combat
    the counterfeiting of the U.S. dollar both domestically and
    internationally in order to maintain confidence in the U.S. dollar.
        During the Service's briefing last year the significant changes in
    counterfeiting methods due to technological advances were highlighted.
    The methods counterfeiters use to produce counterfeit currency have
    dramatically changed over the last few years. In fiscal year 1995,
    counterfeit U.S. currency produced by advanced reprographic technology
    accounted for only .5 percent of the total amount passed in the United
    States. This percentage increased to 44 percent in fiscal year 1998.
        As the Service expected, there has been an increase of 30 percent
    in the amount of counterfeit currency passed from fiscal year 1997 to
    fiscal year 1998, the number of plant suppressions increased from 435
    in fiscal year 1997 to 616 in fiscal year 1998, and the number of
    arrests increased from 2,178 in fiscal year 1997 to 2,926 in fiscal
    year 1998. The increase in counterfeiting is directly attributed to
    counterfeit currency manufactured with inkjet and advanced reprographic
    technology.
        The Service's strategy to combat this problem remains the three-
    fold approach adopted in fiscal year 1997. The first part of this
    approach involves legislative proposals. In fiscal year 1998, Treasury
    Secretary Rubin asked the Justice Department to join with the Treasury
    Department in working with the Sentencing Guideline Commission to
    review and enhance the guideline ranges for imprisonment in
    counterfeiting cases. Attorney General Reno has been very supportive of
    efforts to heighten the awareness of prosecutors to the significance of
    successful counterfeit prosecutions as a deterrent to potential
    counterfeiters. Additionally, the U.S. Secret Service is aggressively
    seeking to obtain administrative forfeiture authority with regard to
    the equipment used to manufacture counterfeit U.S. currency. At this
    time, the Service must rely on formal Civil Forfeiture proceedings,
    carried out through the U.S. Attorney's Office. However, this formal
    Civil Forfeiture proceeding is often seen as a non-cost-efficient
    avenue due to the low dollar value of the manufacturing equipment. It
    is vitally important to take away the ``weapons'' used to perpetrate
    the crime, so as not to easily allow the offender to resume the
    criminal enterprise.
        The second part of the approach, initiated in October 1998,
    involves finding technological solutions to deter reprographically
    generated counterfeit currency. Approximately one hundred
    representatives from private industry (laser printer manufacturers,
    computer manufacturers, and desktop software publishers) gathered at
    John Hopkins University with the Secret Service, the Bureau of
    Engraving and Printing, the Federal Reserve and senior Treasury
    officials to discuss technological solutions.
        The third part of the approach made great strides in fiscal year
    1998 when Secret Service agents participated in over 1,400 educational
    and training seminars around the globe. These seminars were held to
    discuss counterfeit currency issues as well as to highlight the design
    changes and security features in the newly designed 1996 series Federal
    Reserve Notes. Furthermore, the Secret Service participated in 20
    national seminars co-hosted with the Federal Reserve Banks throughout
    the United States presenting these issues to the banking industry and
    merchants.
        The Secret Service is increasing its efforts to train and equip its
    personnel to address high-tech crime in all areas of its jurisdiction.
    The Electronic Crimes Special Agent Program (ECSAP), consisting of 70
    highly trained special agents qualified as experts in the forensic
    examination of electronic evidence, is the key component to this
    effort.
        The Electronic Crimes Special Agent Program (ECSAP) has evolved to
    be an essential component of the investigative and protective missions
    of the Secret Service. With the extensive use of computers by the
    criminal element in all areas where the Secret Service has an
    investigative and protective interest, the demand by the field for
    ECSAP support has predictably and dramatically increased.
        In accordance with Presidential Decision Directive #63, the Secret
    Service has provided personnel to staff the National Infrastructure
    Protection Center (NIPC) and Critical Infrastructure Assurance Office
    (CIAO). These two entities were designed for the facilitation of an
    inter-departmental approach to protection of the nation's critical
    infrastructures. The Secret Service brings unique capabilities and
    experience to this initiative with highly qualified investigators
    having significant high-tech experience, and with established
    partnerships in the computer, financial, and telecommunications
    industries.
        When Attorney General Janet Reno announced a Nigerian Criminal
    Enterprise Initiative, she acknowledged the investigative expertise and
    historical commitment of the Secret Service in this area. In fiscal
    year 1998, the Secret Service was the lead agency in 28 domestic task
    forces involving 54 law enforcement agencies throughout the United
    States. The goals of these task forces are to identify individuals,
    organized groups and/or assets from fraud schemes intended to victimize
    individuals, banks, credit card issuers, or other financial
    institutions.
        In one ongoing investigation involving fictitious instruments and
    bogus investment offerings, a seizure of approximately $4 million was
    made in the United States, and bank accounts totaling approximately $11
    million were identified overseas. This investigation accelerated the
    efforts of the Department of Justice to finalize a Mutual Legal
    Assistance Treaty (MLAT) with their counterparts in New Zealand. This
    agreement enables both nations to recover proceeds of transnational
    criminal activity. As a result, the accounts were frozen by authorities
    in New Zealand pending forfeiture proceedings in both countries.
        The Secret Service is acutely aware of the need for law enforcement
    to have a vision of the future as it relates to the transnational
    nature of financial crimes. Presidential Decision Directives #42, #62,
    and #63, along with the International Crime Control Strategy, have laid
    the foundation to implement this vision.
        Under the Law Enforcement Sub-Group of the G-8, a number of
    projects were developed which directly impacted the jurisdictional
    authority of the Secret Service. High tech crime, access device fraud
    and West African fraud were recognized as having a detrimental effect
    on the economies of the G-8 member nations. The Secret Service is the
    head of the U.S. delegations in both the access device fraud group and
    the West African fraud group.
        In response to initial findings of these groups, the Secret Service
    implemented a number of overseas initiatives to address these and other
    forms of transnational criminal activity. Three of these initiatives
    are recurring, and include temporary duty assignments of Secret Service
    Agents to the City of London Police Department, the German BKA, and
    Lagos, Nigeria.
        The banking industry has identified ``skimming'' (the replication
    of electronically transmitted magnetic stripe data to allow or enable
    valid authorization to occur) as the most significant financial problem
    facing the credit card industry today and for the near future. The
    Secret Service has taken the lead in the development of a database that
    will give credit card issuers and other members of the financial
    services industry the ability to provide time sensitive investigative
    leads to a central location.
        The Secret Service continues to take a very active role in matters
    involving missing and exploited children by making forensic technology
    available to Federal, State, and local law enforcement. During fiscal
    year 1998, forensic support for the National Center for Missing and
    Exploited Children (NCMEC) included polygraph examinations, handwriting
    examinations, ink analysis, voiceprint comparisons, audio and video
    enhancements, and fingerprint research and identification.
        Since initiating the Children's Identification System (KIDS), which
    provides parents with a printed document that contains the thumbprints
    and a photograph of their child, the Service has processed more than
    seven thousand children at different sites across the country. The
    Service utilizes Livescan fingerprint equipment and digital cameras to
    produce the documents. Frequently, KIDS support is provided at events
    hosted for state and local law enforcement personnel. At these events,
    the Service publicizes the availability of the forensic support
    described above for investigators actually tasked with suppressing
    these heinous crimes. The Service does not maintain or make any use of
    these KIDS records.
                              workforce diversity
        The Secret Service consistently recruits, hires, and retains a
    diversified workforce and has recently developed a three-year
    recruitment strategy for the continued achievement of this goal. This
    strategy encourages every employee of the Secret Service to become a
    recruiter for every position within the agency. This year the Service
    will hire 432 special agents, the largest special agent hiring in the
    history of the Secret Service. The three-year strategy is being
    published and distributed to all employees, along with recruiter
    handbooks which provide position descriptions, requirements and salary
    ranges to assist in advising of employment opportunities.
        The recruitment strategy is also responsive to Presidential
    Decision Directive #63 which requires the Secret Service to, among
    other things, vigorously recruit undergraduate and graduate students
    with the relevant computer-related skills for full-time employment, as
    well as for part-time work with regional computer crime squads.
    Presidential Decision Directive #63 also requires the Service to
    facilitate the hiring and retention of qualified personnel for
    technical analysis and investigations involving cyber attacks.
        The recruitment strategy also supports the International Crime
    Control Strategy by identifying employees with various language
    capabilities to fill overseas posts of duty.
                             rowley training center
        The Secret Service's Office of Training has embarked upon a number
    of major initiatives. Preparations have been made to conduct basic
    training for an unprecedented number of new agents and uniformed
    officers this fiscal year. Nearly 500 trainees will complete eleven-
    week training courses this year at the Service's James J. Rowley
    Training Center.
        Also, the training staff is working closely with the Service's
    newly created Major Events Division to develop and conduct training
    needed to prepare for the protective effort relative to next year's
    presidential campaign.
        The Office of Training has also begun the firearms training
    necessary for the Service to transition from using the 9mm Sig Sauer
    (P228) and the UZI submachine gun as standard equipment to the .357 Sig
    Sauer (P229) semi-automatic pistol and the Hechler and Koch MP5A3
    submachine gun. Over 4,000 law enforcement personnel will receive this
    training over the next two years.
        This office is also planning to intensify its academic relationship
    with Johns Hopkins University. In addition to enhancing the curriculum
    review and program validation projects already begun, staff members
    from the Police Executive Leadership Program at Hopkins are working
    with this office to develop new ethics and leadership courses for
    Service personnel.
        Finally, the James J. Rowley Training Center is in the midst of a
    significant capital construction program that includes a new tactical
    live fire training facility and new classroom and administration
    buildings. The classroom building will feature 14 classrooms, two
    computer laboratories, a library, a canteen, and the Security and
    Incident Modeling Laboratory (SIMLAB). When completed, these new
    facilities will enable the Secret Service to conduct state-of-the-art
    training and better prepare its personnel to confront the daily
    challenges of both the protective and investigative missions.
                   secret service headquarters consolidation
        Work on the Service's new headquarters building is proceeding on
    schedule, with construction expected to be completed this summer.
        Mr. Chairman, this concludes my statement. I would be pleased to
    answer any questions that you or other members of the subcommittee may
    have.

                   PRESIDENTIAL CANDIDATE/NOMINEE PROTECTION

        Senator Campbell. OK, I thank you. You mentioned that part
    of your responsibility is to protect presidential candidates.
    At the last count there was about 13 of them, I think. I know
    about half of them and the other half I wish I never heard of.
        But how do you possibly budget now when you have no idea
    how many are going to be in the race? There may be another 13
    for all we know.
        Mr. Stafford. Mr. Chairman, that is correct. It has always
    been a challenge for us to put together that budget.
        It really is divided up into four areas. The first one is
    the most difficult one, which this year we are asking for close
    to $20 million. Rather than try to determine how many
    candidates that there will be, we base it historically on past
    campaigns. We found that it costs approximately $30,000 per
    protection day, to protect each candidate.
        Senator Campbell. $30,000 a day.
        Mr. Stafford. Historically over the past five campaigns
    combined.
        Senator Campbell. Combined numbers of running, whether
    there is two running or 10 running?
        Mr. Stafford. Correct. Historically, that is the figure
    that we use to estimate that portion of the budget, which is
    variable.
        The other ingredient is the number of days of protection.
    We have estimated again historically that there will be
    approximately 654 days of protection at just a little over
    $30,000, which puts us at about $20 million, which is probably
    a conservative figure.
        The conventions, of which there will be two, one in
    Philadelphia and one in Los Angeles, are both in August. Those
    will cost us about $5 million each.
        Also coordinating centers, of which there will be two or
    three. And then we have some overhead costs of equipment and
    rental vehicles.

                               ARMORED LIMOUSINES

        Senator Campbell. I noticed also that part of your budget
    request is to buy armored all-terrain vehicles and sedans. I
    guess it would be too much just to have you issue each one of
    those candidates one of those and let them be on their own,
    would it not? [Laughter.]
        Let me ask you about these armored ATVs. First of all, how
    many vehicles do you think that is going to purchase, the
    requested amount, and what are you going to do with them?
        Mr. Stafford. The ATVs?
        Senator Campbell. Yes.
        Mr. Stafford. We asked for approximately $5 million for the
    armored fleet, which includes----
        Senator Campbell. I see. I should have asked staff. This
    was money we did provide and you want to redirect use of that
    money now. You are not buying----
        Mr. Stafford. That is correct, about $3 million of the $5
    million. And we need to redirect that to our primary limo
    program. The primary limos are the cars that the President
    uses. We have four of those that we are working with the
    contractor right now to build and that is the final payment,
    the final $3 million on the primary armored program.

                        NATIONAL SPECIAL SECURITY EVENTS

        Senator Campbell. All right, thank you. You mentioned the
    Summit of Eight that was in Denver that you were involved in,
    and you are going to, obviously, be involved with the 50th
    anniversary of NATO which will meet here in Washington, D.C.
    You coordinate with State and other Federal agencies and local
    law enforcement too. Is the NATO anniversary going to present
    any special and unique problems that the Summit of Eight and
    some of the other big international events you are involved
    with----
        Mr. Stafford. Well, they all present problems and risks, as
    you know. Right now with what is going on in the world there
    will be some unique problems. But we feel very comfortable with
    the security plan. As I said earlier, the NATO summit has been
    designated a national special security event, which really
    brings forth the full force of the U.S. Government, the Secret
    Service being the lead in the planning and implementation of
    that plan. We work very closely with the FBI who has the lead
    in----
        Senator Campbell. The dates have already been set for that,
    have they not?
        Mr. Stafford. Yes.
        Senator Campbell. What are the dates?
        Mr. Stafford. They are April 23rd through the 25th.
        Senator Campbell. April 23rd?
        Mr. Stafford. April 23rd through the 25th. It is three days
    of meetings that will involved--most of the meetings will take
    place in the Federal Triangle area, Customs building, Ronald
    Reagan building, and the Mellon Auditorium. There will also be
    about 13 other venues of social events which include the White
    House and the Naval Observatory.
        Senator Campbell. Would you send me a memo to remind me to
    be out of town? [Laughter.]
        Mr. Stafford. It will not be a good place to drive around
    Friday afternoon, that is true.
        Senator Campbell. Senator Dorgan.

                                ANTI-COUNTERFEIT

        Senator Dorgan. Mr. Chairman, let me ask Mr. Stafford the
    same question I asked Mr. Johnson. With the new currency that
    is in circulation you, I assume, agree with his assessment on
    its relationship to the ability to counterfeit. Are the anti-
    counterfeit features of the currency working in your judgment?
        Mr. Stafford. Yes, they are working extremely well, as
    evidenced by most of the counterfeits that we seize and that
    are passed are the older counterfeits, the pre-1996 series. So
    counterfeiters will continue to counterfeit the older series.
    We seized, nationwide, $110 million last year and most of that
    was generated from overseas and most of it was the older series
    of counterfeits.

                               PROTECTIVE THREATS

        Senator Dorgan. Mr. Stafford, we obviously appropriate
    money for the Secret Service to protect our President and
    candidates for President and perform many other important
    functions. In a world that is increasingly difficult to
    predict, with terrorist acts that occur from time to time
    around the world, what kind of experience are we having with
    threats these days? Are there more threats that you perceive,
    or fewer threats, pretty stable?
        Mr. Stafford. Threats specific to a protectee or just
    overall threats?
        Senator Dorgan. Threats to the protectee that the Secret
    Service is required to protect, whether it is candidates or the
    President, Vice President.
        Mr. Stafford. We track threats weekly. Actually, we track
    them daily for each of our protectees. Those numbers will vary
    depending on the protectee and depending on what happens to be
    going on in the world. The threats are up right now on our
    protectees. Particularly, we get probably sometimes up to 20
    threats a day just on the Internet that we have to address. But
    the threats are high right now.
        Senator Dorgan. My question is, what is the climate, and I
    guess you are answering that. That the climate in which we live
    is producing somewhat----
        Mr. Stafford. An increased threat level? Yes, it is.
        Senator Dorgan. And my expectation is that the action that
    is now occurring in Europe, of course, may even precipitate
    more.
        Mr. Stafford. That is correct.

                               ARMORED LIMOUSINES

        Senator Dorgan. Let me ask you one little question. I know
    it is a difficult one probably for you to answer, but the
    amount of money that has been requested and now being requested
    to finish the purchase of four vehicles, obviously, the primary
    limousines in which the President and others are transported.
        I have flown in Air Force One. In think the old Air Force
    One before the new 747s came was purchased, I think, in 1962 or
    so. I was on one of its last trips to Asia before it was
    retired. But I think it was used up until about 1989 by
    President Bush, so I think it had nearly a 25-year life as Air
    Force One for use by American Presidents. It was a great old
    airplane.
        But the limousines, it looks to me like we only get a few
    years' life out of them, and I cannot conceive of a President
    driving around very much. You do not wear those things out, I
    would not expect. Yet the cost of them are extraordinary. I
    will not describe all the cost data here, but----
        Senator Campbell. In addition, as I understand it, they are
    torn down or something. Because they are specially constructed
    vehicles, you just do not take them down to the used car lot
    and put them up for sale.
        Mr. Stafford. No, that is correct. There are only four in
    the primary armored program and those four are for the
    exclusive use of the President. The other armored limos are
    what we refer to as cut and stretch limos where they are
    standard vehicles that are stretched and cut and retrofitted
    with armor. The primary limos are built from the ground up. We
    need an assembly line unique just to those four vehicles. We
    have a very difficult time even finding a contractor.
        Senator Campbell. What is the oldest one in service now?
        Mr. Stafford. The oldest cut and stretch?
        Senator Campbell. No, the specially constructed one. Is the
    oldest one----
        Senator Dorgan. 1989, and three of them are 1993s.
        Mr. Stafford. Right. We have the four new ones, of which we
    need the $3 million to make the final payment on, they will be
    due in in October of next year.
        Senator Dorgan. I am just asking if you can give me some
    information about why so expensive. I mean, these are
    extraordinarily expensive. It is not 10 times or 20 or 40 or
    100 times more than an automobile--it is extraordinary.
        Mr. Stafford. I can give you the particulars. Basically the
    vehicles are built from the ground up. They are not standard--
    --
        Senator Dorgan. I understand. But my uncle Harold he could,
    if he had this kind of money, Uncle Harold could get you one of
    these, be perfectly safe from any threat. But just give me some
    information so I can understand what possibly could require a
    car company to charge that much, even building it from the
    ground up with every technology conceivable to protect against
    a threat. It seems to me like an extraordinary amount of money.
        Mr. Stafford. If I could just conclude--and I would be
    happy to supply that for you. But those vehicles first have to
    be designed. There is a no generation vehicle that are coming
    out now that are front-wheel drive versus rear-wheel drive, so
    that had to figure into that. So they have to be specifically
    designed, not only for the new generation of vehicles so they
    look like other cars, but also the armorment for the weight.
    And the assembly line, again, is unique to those four vehicles.
        So I know that it is not a money-making thing for the
    contractors. As I said, we have a very difficult time even
    getting contractors to be receptive to that program.
        Senator Dorgan. It is a fairly specific question and I do
    not mean to hit you with it. But if you could just give me a
    memo that describes some of the special circumstances, I would
    appreciate it.
        Mr. Stafford. I will be happy to.
        Senator Dorgan. Mr. Chairman, that is all I have. Thank
    you.
        Senator Campbell. Look at it this way, we are saving money
    by not putting any armor on motorcycles.
        Senator Dorgan. That is true. At this price though, I would
    encourage the President to drive around a bit. [Laughter.]
        Just get some mileage out of these cars and get some
    enjoyment out of them.

                              SUBMITTED QUESTIONS

        Senator Campbell. I thank this panel for appearing.
    Appreciate it very much, and if you would like to stay, you are
    welcome to. But if you have other things to do, thanks for
    being here. We look forward to working with all of you again.
        [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 Dorgan
                          candidate/nominee protection
        Question. Please explain the functions the Secret Service provides
    during presidential campaign years that are outside the scope of the
    Secret Service's regular activities.
        Answer. During presidential campaign years, the Service is required
    by law to provide protection for major presidential and vice-
    presidential candidates, nominees and their spouses, and to provide
    security at both major conventions. These functions are a part of the
    Secret Services mandated workload. None of the activities are outside
    the scope of the USSS' regular activities, however, they do not occur
    every fiscal year.
        Question. The Service provides protection for the major candidates.
    How does the Service determine the major candidates?
        Answer. Public Law 98-587 places upon the Secretary of the Treasury
    the responsibility for determining, after consultation with an advisory
    committee, which persons qualify as major presidential or vice
    presidential candidates and as such, should be furnished with Secret
    Service protection; unless such protection is declined. The committee
    consists of the majority and minority leaders of the Senate, the
    Speaker of the House of Representatives, the minority leader of the
    House of Representatives, and one additional member selected by the
    other members of the committee.
        The following guidelines assist the committee in advising, and the
    Secretary in determining, who the major presidential or vice-
    presidential candidates are, and thus who should receive protection.
        a. The candidate must have publicly announced his or her candidacy.
        b. The candidate must be entered in at least 10 primaries.
        c. The candidate must be seeking the nomination of a party who
    received at least 10 percent of the popular vote in the previous
    election.
        d. The candidate must qualify for matching funds of $2 million
    under 26 U.S.C.9031-9042.
        e. The candidate must register at least 5 percent in polls
    conducted by ABC, CBS, NBC and CNN, or receive 10 percent of the votes
    in two consecutive primaries or caucuses.
        f. After April 1 of the election year, the candidate will qualify
    if he/she has received 10 percent of the delegates Notes:
        a. Protection is only provided while the candidate/nominee is in
    the United States.
        b. Protection will not be withdrawn as long as the candidate
    continues to have the commitment of 10 percent of the delegates.
        The Secretary of the Treasury has the discretion to provide
    protection even if the above guidelines are not met.
        Question. Should the Service spend less than anticipated can the
    subcommittee anticipate the funds would be lapsed, (returned to the
    General Fund of the Treasury) or would the Service request the funds be
    reprogrammed for other Service activities, such as White House
    protection?
        Answer. The Service's fiscal year 2000 budget proposes that the
    Service seek reimbursement for candidate/nominee expenditures from the
    Treasury Asset Forfeiture fund for campaign related expenses. If
    funding is provided with this source, then no funding will be lapsed.
    However, if funding is ultimately provided with the Service's Salaries
    and Expenses appropriation, and the Service should spend less than
    anticipated on the campaign, any excess funding will either be lasped,
    or a proposal to reprogram these funds for another purpose will be
    made.
                               armored limousines
        Question. Given the weight and special engineering what is the
    average life of these vehicles.
        Answer. Due to the weight and constant use, armored primary
    limousines have an expected life of only seven to ten years.
        Question. What was the cost of the previous vehicles?
        Answer. When the previous vehicles were purchased, the Service
    accepted a bid from Cadillac to build three vehicles at a cost of
    $225,000. Upon completion of the first three vehicles, a fourth vehicle
    was purchased at cost of $150,000. In addition to the cost of building
    these vehicles, an additional $265,000 was expended by the Service to
    purchase armored glass and air filtration systems. These systems were
    provided to Cadillac for incorporation into the vehicles. Although the
    Service paid only $375,000 to Cadillac, it actually cost Cadillac $15
    million to build these vehicles.
        Cadillac is now familiar with the Service's armored limousine
    program, and what it costs to build the required vehicles. They are no
    longer willing to sustain a significant loss in order to win the
    contract to design and build these vehicles. Ford, who lost money
    building these vehicles in 1989, and Chrysler, were not interested in
    bidding for the most recent contract to build these vehicles.
        In October of 1998, the Service awarded to Cadillac a contract for
    $692,000 to do the feasibility study needed to provide the Service with
    the exact cost to engineer, design and manufacture four new primary
    limousines. The study was completed last year and Cadillac provided the
    Service with a proposal of $13,434,000 to design, engineer, test and
    deliver the vehicles. The Service is paying for the engineering and
    design of these vehicles only. Because of the exposure and recognition
    of the brand name that accrues to the manufacturer of these vehicles,
    Cadillac has agreed to spend an estimated $5,882,000, to manufacture
    these vehicles. The proposal calls for the Service to pay as follows:
    Fiscal year 1999--$692,000 for feasibility study; Fiscal year 1998--
    $4,608,000 phase I engineering and design; Fiscal year 1999--$6,555,000
    phase II engineering and design; Fiscal year 2000--$2,271,000 phase III
    engineering and design.
        Question. Did the Federal government purchase these vehicles?
        Answer. Yes, the federal government purchased these vehicles.
                    Federal Law Enforcement Training Center

    STATEMENT OF W. RALPH BASHAM, DIRECTOR
        Senator Campbell. Our second panel will--if Under Secretary
    Johnson wants to stay, he is certainly welcome to do so. It
    will be Ralph Basham, director of FLETC, and Jim Sloan, the
    director of the Financial Crimes Enforcement Network.
        Friends, if we could quiet down a little bit we will
    proceed with this panel. Under Secretary Johnson, you are
    welcome to stay, but if you have to go, we understand.
        We will go ahead with Director Basham first. As I mentioned
    to the other panel, please abbreviate your comments and we will
    make sure that all the testimony is in the record.
        Mr. Basham. Thank you, Mr. Chairman, Senator Dorgan. I am
    pleased to be here today to report on the current operations
    and performance of the Federal Law Enforcement Training Center
    and to support our appropriations request for fiscal year 2000.
    In the interest of time, I will submit a longer written
    statement for the record.
        Senator Campbell. That is fine.

                                  INTRODUCTION

        Mr. Basham. While I have only been the director of the
    center for approximately one year, I am well aware of the
    outstanding reputation this organization has acquired over
    nearly three decades of delivering high quality training to law
    enforcement officers across the country. Throughout the
    center's 29 years of service to Federal law enforcement, this
    committee has been extremely supportive and most generous in
    its funding of consolidated training. The success enjoyed by
    the center and success of the consolidated training concept are
    directly attributable to this committee's strong and consistent
    support.

                           TRAINING WORKLOAD INCREASE

        As I mentioned in my testimony last year, the Center
    continues to face an unprecedented increase in its training
    workload. In fiscal year 1998, the Center delivered more
    student weeks of training than in any other time in its
    history, and we expect the training workload to be even heavier
    this year. Further, based on projections of our participating
    agencies, we expect this trend to continue for the foreseeable
    future.
        The majority of increases in training workload result from
    initiatives to improve the effectiveness of the Immigration and
    Naturalization Service, counter-terrorism activity, security
    enhancement at Federal facilities, and the new Federal prisons
    coming on line. The initiatives outlined in our request are
    targeted at maintaining the quality of training and increasing
    the center's training capacity in response to this growing
    workload.

                                 STRATEGIC PLAN

        They tie directly to the goals outlined in the Center's
    strategic plan, which is in the process of being revised to
    better align it with the center's mission and to make it more
    meaningful to our staff, this committee, and other
    stakeholders. A copy of the revised plan will be provided to
    this committee and our other stakeholders for review and
    comment prior to being finalized.

                          MASTER PLAN AND CONSTRUCTION

        I would like to take a few minutes and briefly discussed
    the center's master plan and Construction initiatives outlined
    in our request. These initiatives are critical to the continued
    success of consolidated training.
        To meet the dramatic rise in the training workload, the
    Center is moving forward on its master plan construction
    program to increase capacity at both Glynco and Artesia.
    Through 1999, Congress has appropriated over $100 million for
    master plan construction projects. The plan has been updated
    several times over the last few years and copies of these
    updates have been furnished to the committee.
        It should be recognized that the cost of fully implementing
    the master plan has increased over time because of inflation
    and changes necessary to meet the training requirements of our
    customers. The FLETC will continue to work through Treasury,
    OMB, and Congress regarding adjustments to the plan.
        In the past two fiscal years, the center has completed
    construction on two additions to the main classroom building
    and a computer training facility at Glynco. Additionally,
    construction is well underway on one new dormitory, and
    construction recently began on a second new dorm as well.
    Further, construction of an administration building began this
    year and is nearing completion.
        In Artesia, construction on a 73-bed dormitory is completed
    and we expect to award a contract for construction of a
    classroom and practical exercise building very soon. Funds for
    a 300-bed dormitory at Artesia should also be obligated later
    this fiscal year.
        Our 2000 request includes $13.1 million for new
    construction, and these funds will be used to complete funding
    already partially appropriated for construction of a new
    classroom building, construction of a specialized facility
    required for implementation of new counter-terrorism training
    program, and expansion of the center's chilled water system to
    support facilities being constructed.

                               PREPARED STATEMENT

        The continued expansion of facilities at both Glynco and
    Artesia are vital if the closure of the temporary training
    facility in Charleston, South Carolina is ultimately to be
    realized.
        Thank you, Mr. Chairman, and I am ready to answer any of
    your questions.
        [The statement follows:]
                     Prepared Statement of W. Ralph Basham
        Mr. Chairman and Members of the Subcommittee, I am pleased to be
    here today to report on the current operations and performance of the
    Federal Law Enforcement Training Center (FLETC) and to support our
    appropriations request for fiscal year 2000. The Center has seen
    tremendous growth since its establishment in 1970 when a handful of
    agencies joined together and established the Consolidated Federal Law
    Enforcement Training Center. There are now 71 agencies which train at
    the Center, and we expect this growth to continue as more agencies
    recognize the many benefits of consolidated training.
        The Department of the Treasury has been the lead agency for the
    United States Government in providing the administrative oversight and
    day-to-day direction for the FLETC since its creation. Under the
    leadership of Secretary of the Treasury, Robert E. Rubin, and Under
    Secretary for Enforcement, James E. Johnson, the FLETC has received
    strong support and active assistance for carrying out its
    responsibilities. I am especially thankful for the assistance and
    counsel they have provided during my first year as Director of the
    Center. We are indeed fortunate to have these two individuals playing a
    leadership role as the FLETC prepares to embark on the next century.
    While I have only been Director of the Center for approximately a year,
    I am well aware that this Committee is also owed a debt of gratitude.
    Throughout the Center's 29 years of service to Federal law enforcement,
    this Committee has been extremely supportive and most generous in its
    funding of consolidated training. We extend our appreciation and look
    forward to working with you in the coming year.
        The Administration and Congress can be proud of the quality of the
    training being provided at the FLETC and the savings realized through
    consolidation.
        Today, I am prepared to discuss a number of our initiatives
    outlined in the President's fiscal year 2000 budget. The Center's
    fiscal year 2000 request is for a Salaries & Expenses (S&E)
    appropriation of $86,846,000 and 572 FTE, an increase of $11,375,000
    and 10 FTE from the fiscal year 1999 level. Further, the FLETC is
    requesting that an additional $900,000 be made available from the
    Treasury Asset Forfeiture Fund for the purchase of training vehicles.
    Our request for Acquisition, Construction, Improvements & Related
    Expense (ACI&RE) is $21,000,000 a decrease of $13,760,000 from the
    fiscal year 1999 appropriation. The FLETC is also asking that
    $4,600,000 be provided from Treasury's Asset Forfeiture Fund to support
    the expansion of the Center's chilled water system. The S&E and ACI&RE
    funding requested will support eight important initiatives: Counter
    Terrorism Training ($2,506,000 and 4 FTE); Cost Accounting System
    ($1,380,000 and 2 FTE); Audited Financial Statements ($500,000);
    Equipment ($1,973,000); Scheduling Automation ($350,000); Construction
    ($4,889,000--balance of funds for construction of a classroom
    building); Chilled Water System ($6,950,000--includes $4,600,000 from
    the Asset Forfeiture Fund and $2,350,000 from the FLETC's ACI&RE
    account); and New Training Building Support ($2,234,000 and 4 FTE). The
    Counter Terrorism Training initiative is split between the S&E and
    ACI&RE accounts because of the nature of the initiative. A breakout of
    the funding between the accounts for this initiative is as follows:
    Counter Terrorism Training--S&E, $1,216,000 and 4 FTE; ACI&RE,
    $1,290,000
        The S&E and ACI&RE request represents a decrease of $2,385,000 from
    the fiscal year 1999 appropriation. Coupled with approximately
    $38,000,000 in funds to be reimbursed to us for training related
    services, the total budget for fiscal year 2000 is $151,346,000.
        Before providing this Committee with an overview of Center
    operations and discussing each of the initiatives in more detail, I
    would like to take a moment to address progress being made in complying
    with the requirements of the Government Performance and Results Act
    (GPRA). As you know the GPRA requires agencies to publish annual
    performance plans that are tied to their strategic plans. Performance
    plans are to include measurable goals which agencies are required to
    report on after the year is completed. These performance plans are now
    an integral part of the budget documents sent to you each year.
        Included in our budget request this year is a report on whether or
    not the FLETC achieved each of the targets proposed for fiscal year
    1998. The performance measures used for the Law Enforcement Training
    activity in fiscal year 1998 included: (1) results of the student
    quality of training survey, (2) student-weeks trained: Federal Basic,
    (3) variable unit cost per basic student-week of training funded, and
    (4) number of personnel input forums conducted. The performance
    measures for the Plant Operations activity included: (1) student
    quality of services survey and (2) initiation of a comprehensive
    development plan.
        The student quality of services survey and student quality of
    training survey performance measures are outcome measures. The student
    quality of training index is based on a six point rating scale, and the
    student quality of services index is based a five point scale. Both
    indices are computed using evaluations completed by students attending
    Center programs. The variable unit cost per basic student-week of
    training funded is also an efficiency measure and is based on training
    dollars divided by funded student-weeks of training. The student-weeks
    trained outcome measure is based on whether the Center conducts 100
    percent of the basic training requested by its participating agencies.
    Finally, the plan called for the FLETC to conduct 4 personnel input
    forums.
        I am pleased to report that the Center's performance against
    established targets overall was excellent. The index for the most
    critical performance measure in our plan, the student quality of
    training survey measure, was ``5.9''. This exceeded the Center's
    performance plan target of ``5.0''. The student quality of services
    actual performance index was ``4.5'' which also exceeded our
    performance target of ``4.0''. Additionally the FLETC's training costs
    were below the cost figure established for the variable unit cost per
    basic student-week of training. The plan projected a per week cost of
    $137 and the actual was $129, a savings of $8 per week or 6 percent. In
    the Plant Operations activity performance measures were either met or
    exceeded.
        As stated earlier and in the Center's testimony last year, the
    FLETC will continue to refine its plan and existing performance
    measures and/or identify new performance measures in an effort to more
    accurately reflect its performance. Additionally, during fiscal year
    1999 the FLETC began the process of revising its strategic plan to
    better align it with the Center's mission. A copy of the draft will be
    provided to this Committee and our other stake-holders for review and
    comment when it is completed.
                             overview of operations
        Now Mr. Chairman, if I may, I would like to provide the Committee
    with a brief overview of the operations of the Federal Law Enforcement
    Training Center.
        The Center was established by a Memorandum of Understanding in 1970
    and has experienced tremendous growth over the last 29 years. With but
    a few exceptions, the FLETC currently conducts basic and advanced
    training for the vast majority of the Federal government's law
    enforcement personnel. We also provide training for state, local and
    international law enforcement personnel in specialized areas and
    support the training provided by our participating agencies that is
    specific to their needs. Currently, 71 Federal agencies participate in
    more than 200 different training programs at the Center.
        There are entry level programs in basic law enforcement for police
    officers and criminal investigators along with advanced training
    programs in areas such as marine law enforcement, anti-terrorism,
    financial and computer fraud, and white-collar crime. Training is
    conducted at either the main training center in Glynco, Georgia, our
    satellite training center in Artesia, New Mexico, or a temporary
    training facility in Charleston, South Carolina.
        The temporary training site in Charleston was established in fiscal
    year 1996, to accommodate an unprecedented increase in the demand for
    basic training by the participating agencies, particularly that of the
    Immigration and Naturalization Service (INS) and United States Border
    Patrol (USBP). The workload increase is the direct result of recent
    Administration and Congressional initiatives to control illegal
    immigration along the United States borders and efforts to protect
    Federal workers in the workplace.
        In addition to the training conducted on-site at one of the FLETC's
    residential facilities, some advanced training, particularly that for
    state, local and international law enforcement, is exported to regional
    sites to make it more convenient and/or affordable for our customers.
    The tremendous demand for basic training over the next three years will
    increase the FLETC's reliance on export training sites to meet these
    advanced training requirements. The Center's driver and firearms
    special training facilities cannot currently accommodate all of the
    training being requested. Therefore, much of the advanced training
    requiring the use of special training facilities will have to be
    accommodated elsewhere.
        Realizing that a short-term solution was needed to meet the
    advanced training needs of our Federal customers until additional
    facilities are completed under the FLETC's construction Master Plan,
    the Center began to identify state and local facilities that could be
    used to accommodate this training. Several sites have been identified
    and FLETC is continuing to work on specific arrangement protocols.
    These sites will be used on a reimbursable basis when required and
    there will be no use of FLETC funds for capital expenditures.
    Essentially, FLETC will serve as a ``broker'' in setting up training
    arrangements with selected non-Federal sites that can accommodate
    training that cannot otherwise be conducted at a FLETC site. Continued
    implementation of the Master Plan will eventually allow this advanced
    training to be returned and conducted at the Glynco and Artesia
    training centers.
        Over the years, the FLETC has become known as an organization that
    provides high quality and cost efficient training with a ``can do''
    attitude and state-of-the-art programs and facilities. In my first year
    as Director, I have quickly come to realize and have seen first-hand
    the many advantages of consolidated training for Federal law
    enforcement personnel, not the least of which is an enormous cost
    savings to the Government. Consolidated training avoids the duplication
    of overhead costs that would be incurred by the operation of multiple
    agency training sites. Consolidation also ensures consistent high
    quality training and fosters interagency cooperation and camaraderie in
    Federal law enforcement.
        We view FLETC and consolidated training as a National Performance
    Review concept ahead of its time. Quality, standardized, cost-effective
    training in state-of-the-art facilities, interagency cooperation, and
    networking are indisputable results of consolidation. However the
    concept of consolidated training is fragile and needs constant
    nourishment and support if it is to remain intact.
                                    workload
        As I mentioned earlier, the Center is facing an unprecedented
    increase in its training workload that began in fiscal year 1996 and is
    projected to continue for several more years. The majority of the
    increase in training workload is the result of the fiscal year 1995
    initiative by the Administration and Congress to increase the
    effectiveness of the INS in controlling our borders by increasing the
    number of INS and USBP law enforcement personnel. Other factors
    contributing to the Center's increasing workload include counter
    terrorism activity and security enhancements at Federal facilities and
    new Federal prisons coming on-line.
        During fiscal year 1998 the Center graduated 25,762 students,
    representing 120,399 student-weeks of training. This total included
    16,969 students who were trained at Glynco, GA; 3,565 students trained
    at Artesia, NM; 1,481 students trained at the temporary training site
    in Charleston, SC; and 3,747 students trained in export programs. There
    were 10,605 basic students; 11,038 advanced students; 3,494 state and
    local students, and 625 international students trained equating to an
    average resident student population (ARSP) of 2,315 Fiscal year 1998
    was the heaviest workload in the Center's history and as I mentioned
    earlier we expect this workload to grow over the next few years.
        The April 1998 participating agency projections indicate that
    during fiscal year 1999, the Center will train 35,315 students
    representing 167,449 student-weeks of training. This total includes
    25,418 students to be trained at Glynco; 4,539 students at Artesia;
    1,650 students at the temporary site in Charleston; and 3,708 students
    in export programs. A total of 15,809 basic students; 14,711 advanced
    students; 3,867 state and local students; and 928 international
    students are projected for a total ARSP of 3,220.
        Our participating agencies indicate that during fiscal year 2000,
    the FLETC will train a total of 38,201 students representing 184,360
    student-weeks of training. This total includes 26,430 students at
    Glynco; 6,683 students at Artesia; 1,650 students at Charleston; and
    3,438 students in export programs. A total of 16,948 basic students;
    15,918 advanced students; 4,407 state and local students; and 928
    international students are projected for a total ARSP of 3,545.
        The Center has experienced enormous growth in the training demanded
    by its participating agencies over the past decade. We have been able
    to accommodate many, but not all, of these increased training demands
    by being innovative and undertaking extraordinary measures.
        To accommodate training during fiscal year 1985 and again in fiscal
    year 1989, the Center had to temporarily expand its capacity for
    housing, dining, classroom, office space, storage, and special training
    facilities by using temporary buildings and contracted or licensed
    temporary facilities. Further, the Center has not always had space to
    accommodate all of our students in on-Center housing and has used
    contractual arrangements with local motels to house our overload. Many
    of the temporary measures taken to meet these training demands were
    costly, and they adversely impacted the Center's operations.
        The Center is again in a position where it has had to resort to
    using a temporary facility to meet the training needs of the
    participating agencies. As I mentioned earlier, a temporary training
    facility was established in Charleston, South Carolina, during 1996
    because our current facilities do not have the capacity to accommodate
    all of the training being requested. It is exclusively being used to
    conduct USBP training that cannot be accommodated at Glynco and
    Artesia. Plans called for Charleston to be closed in the early 2000's
    time frame, once the training requirements for the Border Patrol
    buildup are completed and/or new facilities become available to
    accommodate the training at FLETC's permanent locations. Given adequate
    funding to support planned new construction, FLETC should have
    sufficient capacity at Glynco and Artesia at that time to meet the
    overflow training requirements of the participating agencies now being
    accomplished at Charleston. As facility capacity increases over the
    next several years, training at Charleston can be phased out.
        In addition to having to rely on temporary training facilities to
    accommodate the increased workload, the training being requested in
    fiscal year 1999 has also made it necessary to implement a dual-shift
    schedule at Glynco. Two overlapping shifts, one that runs from 7:00
    a.m. to 4:00 p.m and the other which runs from 9:00 a.m. to 6:00 p.m.
    are being used. The overlap in the dual-shift schedule provides some
    additional facility capacity because the training day under the dual
    shift is ten hours instead of the normal eight allowing for expanded
    use of the special training facilities.
        The dual-shift schedule will increase usage of both training
    equipment and facilities and result in a shortened life cycle. Both
    will require earlier repair and/or replacement. Additionally,
    implementation of the dual schedule required numerous adjustments in
    FLETC's food, janitorial, transportation services, and role player
    contracts resulting in significant unprogrammed increases in operating
    expenses. There will be some impact on the quality of life for students
    and staff because some weekend training is also likely under the dual
    schedule.
        This is the third time since fiscal year 1985 that FLETC has taken
    extraordinary measures to meet the projected training demands of the
    participating agencies. More importantly, it is the second time in the
    last 10 years that a temporary training facility has had to be
    established.
        Opening temporary training facilities is a time-consuming and
    expensive process. Capital improvements must be made to bring the
    facility on line and, unlike capital improvements made at Glynco or
    Artesia, there is no permanent return on that investment. The dollars
    expended are lost when the facility is closed. It also impacts on the
    cost effectiveness of the training provided and on the student's
    quality of life and overall training experience.
                             facilities master plan
        Now, Mr. Chairman, I would like to brief you and the Committee
    members on progress being made in expanding the FLETC's facilities. The
    Master Plan, presented to Congress in June 1989, provided a basis for
    the efficient and orderly development of the Center's land and
    facilities resources to meet projected needs through year 1998. It was
    a comprehensive blueprint and orderly guide for expansion of the
    Center's facilities to meet the projected training workload.
        Over the years the original Master Plan has been updated to refine
    earlier estimates and incorporate changes necessary to meet the
    evolving training needs of our customers. It is important to note that
    this planning process is dynamic and on-going. We anticipate additional
    and continuous revisions to the Master Plan in response to ever-
    changing law enforcement training requirements and mission
    enhancements. Since 1989, Congress has appropriated $105,649,000 for
    construction. Of this amount $87,068,000 was for Glynco projects;
    $18,031,000 was for Artesia projects; $300,000 for Marana projects; and
    $250,000 for Davis-Monthan projects. In addition, funds have also been
    allocated from other sources (i.e. Treasury Asset Forfeiture Fund,
    etc.) for construction of new facilities at both Glynco and Artesia.
    Both the Marana and Davis-Monthan centers have been closed.
        At Artesia, major projects that have been completed include:
    rehabilitation of the cafeteria/student center complex and main
    classroom building; construction of a physical training complex;
    interim driver/firearms ranges; a road and sidewalk network; permanent
    firearms ranges; and a driver/firearms administrative support/classroom
    building. At Glynco, completed projects include: a dormitory; an
    expansion of the indoor firearms range complex; consolidation/expansion
    of the physical techniques facility; an expansion of the cafeteria;
    construction of two 25 firing point outdoor ranges; an addition to the
    Steed classroom building (two state-of-the-art classroom buildings);
    and an expansion of our driver training complex (the addition of a
    control tower, defensive driving and highway response ranges).
        In addition to those projects already completed, construction is
    underway on two new dormitories, an administrative building and a
    security/registration building at Glynco. These projects are expected
    to be completed in 1999 and 2000. Construction of a 73 bed dormitory in
    Artesia is nearing completion and funding for a second dormitory with
    300 beds will be obligated this year. Additionally, we also expect to
    award a contract for the construction of a classroom/practical exercise
    building at Artesia soon.
        The Center's fiscal year 2000 ACI&RE request is in the amount of
    $21,000,000, a $13,760,000 decrease from the fiscal year 1999 enacted
    level. The request includes $13,129,000 for new construction. Projects
    that would be funded include: $4,889,000 to complete funding already
    partially appropriated for construction of a classroom building,
    $1,290,000 for construction of a specialized facility for
    implementation of a new counter terrorism training program and
    $6,950,000 (includes $4,600,000 from the Treasury Asset Forfeiture
    Fund) for expansion of the chilled water system that will provide the
    additional capacity needed to cool new facilities being constructed.
        The construction initiatives outlined support goal two in FLETC's
    strategic plan which is develop, operate, and maintain state-of-the-art
    facilities and systems responsive to interagency training needs.
    Funding is required if the Center is to meet the training needs of our
    customers and to protect the government's investment in facilities. Not
    funding these initiatives will result in the continued reliance on the
    more costly method of establishing temporary training facilities to
    meet training requirements. It also endangers the concept of
    consolidated training as the larger agencies look at alternatives, such
    as individual agency sites, to meet their training needs.
        The Center continues to consult closely with its participating
    agencies so that the design features of each project will meet current
    and future needs. This close consultation sometimes prolongs the period
    it takes to design and construct facilities; however, the time and
    effort are well spent because it ensures that funds are efficiently and
    wisely used. In an effort to increase the number of construction
    projects underway simultaneously, the Center is currently negotiating a
    partnership arrangement with the General Services Administration to
    provide assistance with related projects.
        Obviously, changing events have and will continue to dictate
    modifications to the various projects outlined in the Master Plan. I
    assure you that we will continue to work through the Treasury
    Department, Office of Management and Budget, and the Congress in
    dealing with these changes.
        Mr. Chairman, I want to thank you and members of the Subcommittee
    for the support given the Center in its Master Plan development and
    implementation. We are pleased and grateful that Congress has seen fit
    to appropriate the funds necessary to expand our facilities and better
    equip the Center to meet the training needs of its customers. Only by
    doing so is the concept of consolidated training nurtured and
    strengthened.
        Now, if I may Mr. Chairman, I would like to take this opportunity
    to briefly discuss our funding request for the mandatory basic training
    workload increase and the remaining initiatives in the Center's fiscal
    year 2000 budget request that I briefly referred to earlier in my
    testimony.
                   mandatory basic training workload increase
        In our fiscal year 2000 request the Center is asking for $5,439,000
    and 18 FTE to support the direct cost of basic training. As I discussed
    in some detail already, the Center is faced with an unprecedented
    increase in its workload over the next three years. Spring 1998
    workload projections by the Center's participating agencies indicate
    that FLETC will conduct 149,171 basic student weeks of training in
    fiscal year 2000. The requested funding is essential if the
    consolidated training concept is to remain healthy. It supports goal
    one in FLETC's strategic plan--provide high quality law enforcement
    training.
        The request is in accordance with the OMB/Treasury/FLETC policy
    that requires funding of the direct cost of basic training. The
    participating agencies do not request funding for these costs in their
    budget submissions and are fully expecting and relying upon the FLETC
    to provide that funding.
                           counter terrorism training
        The increasing threat of terrorism requires that the government be
    more proactive and aggressive in developing plans to protect its
    workforce, citizens and infrastructure. Training will be a critical
    element of any plan to combat terrorism, especially against weapons of
    mass destruction. Our fiscal year 2000 request includes $2,506,000 and
    4 FTE for Counter Terrorism Training ($1,216,000 and 4 FTE S&E and
    $1,290,000 in ACI&RE) which will fund the development of two training
    programs and related facilities targeted specifically at combating
    terrorism, the Weapons of Mass Destruction/Nuclear, Biological, or
    Chemical (NBC) Training Program and Critical Infrastructure Protection
    Training Program. Both are train-the-trainer programs aimed at Federal,
    state and local law enforcement officers and emergency services
    agencies. The purpose of the first program is to prevent the first
    responders to an incident from becoming victims themselves upon
    arriving at incidents where large amounts of conventional explosives or
    NBC materials have been used. The second program is aimed at providing
    physical security training with an emphasis on prevention of terrorist
    attacks against facilities, utilities and cyber systems. This program
    would be conducted in a Special Classified Information Training
    Facility also funded by this initiative. The specialized facility is
    required because of the classified training that will be conducted.
    These initiatives support Goals 1 and 2 in FLETC's strategic plan--
    provide high quality law enforcement training and develop, operate, and
    maintain state-of-the-art facilities and systems responsive to
    interagency training needs.
                             cost accounting system
        The Statement of Federal Financial Accounting Standard Number 4
    requires all agencies to implement a managerial cost accounting system.
    This initiative requests $1,380,000 and 2 FTE. It would provide the
    FLETC with the resources necessary to develop and support a customized
    cost accounting system. The complexities of the FLETC system in dealing
    with several accounts--S&E, ACI&RE, Violent Crime Reduction Trust Fund,
    Treasury Asset Forfeiture Fund, reimbursables from 71 agencies plus
    numerous state, local, and foreign governments--make a customized cost
    accounting system necessary. The initiative supports Goal 3 in FLETC's
    strategic plan--effectively organize, develop, and lead FLETC's
    personnel in support of the Center's mission.
                          audited financial statements
        The Chief Financial Officers Act and the Government Management
    Reform Act requires that Federal agencies have their financial
    statements prepared and audited by an independent party. If the
    Treasury's Office of Inspector General (OIG) cannot conduct this audit
    for the FLETC, additional resources will have to be provided for
    contract services if the Center is to comply with the requirements as
    set forth in the Acts. The $500,000 requested in this initiative will
    allow the FLETC to contract with a certified public accounting firm for
    these services. The $500,000 estimate for an audit is based on a pre-
    audit survey conducted by the OIG and directly supports Goal 3 in
    FLETC's strategic plan--effectively organize, develop, and lead FLETC's
    personnel in support of the Center's mission.
                         new training building support
        As I mentioned earlier in my testimony, the Center is requesting
    $2,234,000 and 4 FTE for new training building support The funding and
    FTE requested is necessary to support the operation and maintenance of
    new facilities that will have already come on-line or will be coming
    on-line at both Glynco and Artesia. At Glynco these include two
    dormitories, two office buildings, firearms ranges, a security/
    registration building, and an explosives range. In Artesia it includes
    a dormitory, a classroom/practical exercise building, and expansion of
    the physical training building. The FLETC's request provides the
    necessary resources and personnel to support operation of the new
    facilities including utilities, contracts (janitorial/grounds
    maintenance), and minor construction and maintenance. It is essential
    to protect the Government's investment in these facilities and supports
    both Goals 1 and 2 in FLETC's strategic plan.
                                   equipment
        Our request includes $1,973,000 for equipment. As I mentioned
    earlier, the FLETC is experiencing a tremendous growth in its workload.
    The heavier training workload and extended workday schedule makes it
    necessary to increase our training equipment inventory. Additionally,
    it also increases wear and tear on existing equipment thus shortening
    the life of existing stocks and requiring more frequent replacement.
    Further, new types of equipment must be purchased as technology changes
    because it is vital that students receive training on the types of
    equipment they will use in the field. This initiative supports the
    purchase of new Digital Radios which have been mandated by the National
    Information Administration under the Omnibus Budget Reconciliation Act
    of 1993 and will be used by our graduates on-the-job. It will also
    provide FLETC with the necessary resources to modernize its computer
    equipment. This funding will allow the FLETC to maintain its quality of
    training and respond to the needs of our customers. It supports Goals 1
    and 3 in FLETC's strategic plan--provide high quality training for law
    enforcement and effectively organize, develop and lead the FLETC's
    personnel in support of the Center's mission.
                             scheduling automation
        This initiative requests $350,000 to begin development of an
    automated scheduling process. As previously mentioned, FLETC's workload
    has seen tremendous growth over the last few years and this growth is
    expected to continue. Not only are our participating agencies
    projecting ever increasing basic training requirements, additional
    advanced training for journey level law enforcement personnel will also
    be required as a result of this growth. Currently the scheduling of
    facilities is done manually. This initiative will begin the process of
    automating the scheduling process and will result in more effective and
    efficient use of the FLETC's training facilities when completed. It
    supports Goals 2 and 3 in FLETC's strategic plan--develop, operate, and
    maintain state-of-the-art facilities and systems responsive to
    interagency training needs and effectively organize, develop and lead
    the FLETC's personnel in support of the Center's mission.
        Now, Mr. Chairman, if I may, I would like to take a moment to
    briefly update the Committee on activities of our satellite training
    center in Artesia, New Mexico, and the activities of our National
    Center for State, Local and International Training.
                               artesia operations
        The Artesia center was purchased and became operational in 1989.
    Training facilities at Artesia include a 164-room dormitory, cafeteria
    with seating to serve 270 persons per sitting with a serving capacity
    of 400 per meal, and a physical training complex. There are also 21
    general purpose classrooms which will accommodate up to 675 students.
    Special purpose classrooms include a 24-person computer classroom and a
    24-person fraudulent document lab. Other specialized facilities at
    Artesia include but are not limited to practical exercise areas, a mock
    courtroom, driver training and firearms ranges, an obstacle course, a
    rappelling tower and recreational facilities for students.
        The Department of the Interior's Bureau of Indian Affairs (BIA)
    Indian Police Academy moved to Artesia during 1993 and is one of the
    largest customers. In addition to the BIA training that is conducted,
    Artesia also serves as an advanced training site for students posted in
    the Western United States. Further, because of its diverse special
    training facilities, it can accommodate overflow basic training that
    cannot be done at Glynco due to space limitations. Artesia is playing,
    and will continue to play, an important role in meeting the training
    requirements of the INS over the next three to five years.
        During fiscal year 1998, the Center trained 3,565 students at
    Artesia. In fiscal year 1999, our latest estimates indicate that we
    will train 4,539 students. April 1998 projections by our participating
    agencies indicate that 6,683 students will be trained in fiscal year
    2000. The majority of the increase in the fiscal year 1999 training
    workload is due to the increases in the BIA basic training requirement
    and the advanced training requirements of the INS, USBP, and the Bureau
    of Prisons.
        Other users of Artesia, in addition to those already mentioned
    above, include the Bureau of Land Management, National Marine Fisheries
    Service, and the FLETC's National Center for State, Local and
    International Training.
        The expansion of the Artesia center as authorized by the Congress
    is continuing essentially as planned. As I mentioned earlier in my
    testimony when discussing the Master Plan, many of the Artesia Master
    Plan projects have been completed and are in use. Construction of a 76
    bed dormitory will be completed soon and construction should begin on a
    classroom building/practical exercise complex and site security system
    this year.
              national center for state, local, and international
        Glynco's National Center for State, Local, and International
    Training was established in 1982 by the President to provide much
    needed training for state and local law enforcement agencies. Since its
    inception, the National Center has received broad support from the
    Federal, state, and local law enforcement communities. They provide
    subject matter experts for course and program development as well as
    instructional services.
        The National Center is charged with training personnel from state,
    local and international law enforcement agencies in advanced topics
    designed to develop specialized law enforcement skills. By combining
    the expertise of the participating agencies' and FLETC's staff with the
    specialized training facilities already available, the Center is able
    to provide participants with instruction in advanced programs that meet
    their specific needs. In most cases the training enables these agencies
    to be more supportive of Federal agencies and their missions.
        During fiscal year 1998, there were 3,494 state and local students
    trained through the National Center in more than 40 advanced training
    programs. In fiscal year 1999 we expect to train 3,867 students. In
    fiscal year 2000 we project that 4,407 students will receive training
    through the National Center.
        Because of the success of the National Center, many of these
    programs are being conducted on an export basis at sites across the
    country, including our Artesia center. This has proven to be a cost
    effective method to provide training to state and local agencies.
    Additionally, exporting training to state and local academies and other
    locations throughout the country increases the visibility of the
    Administration and Federal law enforcement and leads to improved
    cooperation between Federal and state and local agencies.
        The FLETC has been involved in international training for more than
    20 years and has provided assistance to selected foreign governments in
    a variety of ways, including operational briefings, technical
    assistance, and hands-on training programs. The same network and
    support structure in place to assist state and local agencies in
    meeting their training needs makes the National Center a logical focal
    point for international training at the FLETC.
        Since 1979 the FLETC has provided training to more than 5,000
    foreign law enforcement officials from more than 102 countries.
    Training has been provided at the Center (on a space available basis)
    or abroad with recent training focusing primarily on the areas of
    international banking and money laundering, financial fraud
    investigations, and telecommunications fraud.
        The number of foreign training requests have grown substantially in
    the last few years, with student weeks of training increasing by nearly
    200 percent since 1994. Two Administration and Congressional
    initiatives, the Freedom Support Act and the Support for Eastern
    European Democracies Act, are responsible for much of the upsurge in
    foreign training. As you know, these acts provide law enforcement
    technical assistance in combating organized crime, financial crime, and
    narcotics trafficking to Russia, the newly independent states of the
    former Soviet Union, and other eastern European countries.
        The majority of recent training has been provided under the
    sponsorship of the Department of State's Office of Antiterrorism
    Assistance and Office of International Criminal Justice. During the
    last three years programs have been conducted in Russia, Poland,
    Hungary, Romania and Moldavia. In addition to this training, the FLETC
    also provides instruction in financial crimes to students attending
    each session of the program conducted at the International Law
    Enforcement Academy in Budapest, Hungary.
        The FLETC maintains frequent contact and liaison with several
    foreign law enforcement academies, such as the Royal Canadian Mounted
    Police Academy, Bramshill Police College in England, and the Australian
    Police Academy to further collaborative efforts in training related to
    transnational crime.
        During fiscal year 1998 the Center trained 625 foreign students,
    representing 1,375 student-weeks of training. Although the majority of
    the foreign training is done at the request and under the sponsorship
    of the U. S. State Department, the Center stands ready and has the
    capability to assist other agencies in meeting critical foreign
    training needs, particularly for money laundering and financial crime
    training for western hemisphere countries.
                                    closing
        Mr. Chairman, I am committed to the mission of the Center to
    provide high quality training at the lowest possible cost. Substantial
    savings are being realized through the operation of the Center as a
    consolidated training facility. I look forward to your continued
    support as the FLETC strives to remain a partnership committed to
    excellence.
        I am available to answer any questions you may have concerning this
    appropriation request.

                              ARTESIA CONSTRUCTION

        Senator Campbell. I think we will proceed as we did before.
    We will each ask a few questions before we go to Mr. Sloan.
        You mentioned Artesia. Has the construction for the master
    plan been completed?
        Mr. Basham. No, it is ongoing.
        Senator Campbell. What facilities are still in the planning
    stage?
        Mr. Basham. We are currently working with GSA to assist us
    in completing the master plan construction projects. We
    currently have an additional classroom that is in the planning
    stages, as well as expanding our physical training facilities
    there. A new dorm is under----
        Senator Campbell. In these discussions with GSA, are these
    the projects they are taking on?
        Mr. Basham. We have just this past week--this week,
    actually, entered into a contract with GSA to support us in
    bringing these facilities on line at a more rapid rate. Again,
    as I stated, that will assist us in closing the Charleston
    facility hopefully in the next several years. But we will
    continue to develop plans and work on construction projects at
    FLETC as well.

                                 FIVE-YEAR PLAN

        Senator Campbell. Do you have a completion date the
    planning stage would be done?
        Mr. Basham. At this point we have a five-year plan which we
    have gotten support from the Department as well as the
    Administration. We feel that if we are able to get the funding
    we will be able to complete that within five years.

                          PROJECTED NUMBER OF STUDENTS

        Senator Campbell. Each year FLETC estimates the number of
    students that it is going to train at the center and they
    estimate them to increase each year. In 1998 you estimated that
    the Center would train over 32,000 students, but the actual
    number was 25,762 as my notes say, about 20 percent less than
    you expected. This year you are projecting over 38,000 for the
    year 2000; 38,000 students in the year 2000.
        Why is there such a large shortfall, and how do you
    determine the number of students that you expect to train?
        Mr. Basham. We work through our participating
    organizations. They provide us with estimates of the number of
    students, or the number of new hires that they anticipate
    getting through their own appropriations process. That happens
    generally a year prior to actually getting the funds. So they
    request training slots based on what they anticipate they are
    going to get. That does not always occur. Therefore, what they
    actually receive and what we actually end up training can
    differ considerably.

                           COUNTERTERRORISM TRAINING

        Senator Campbell. Early on when we started this hearing
    Senator Dorgan mentioned something about counterterrorism. Do
    we have any form of counterterrorism training at FLETC?
        Mr. Basham. As a matter of fact, Mr. Chairman, there is
    $2.5 million that we requested to do training for counter-
    terrorism. Part of that, approximately $1.5 million, will be to
    build a specialized facility to do the training, and the other
    is to provide for the resources to do that training. So if in
    fact we do receive the funding, we do intend to start that
    training in----
        Senator Campbell. That is good. That is the only questions
    I had of Director Basham. Did you have any questions of him?

                              EXPORT SITE CRITERIA

        Senator Dorgan. I would just like the director, perhaps to
    furnish if you could, a memorandum to us to tell us how you
    choose or what criteria is used to choose the export sites. You
    indicate that you have to export some of your more specialized
    training because you do not have site capability at your
    permanent sites, and additionally, you want to be out in
    regions of the country where that training is necessary. That
    seems to me to make a lot of sense, and I would like to find
    out where you are doing that, what the criteria is used to do
    that.
        One of the reasons for my question, obviously, is these
    more sparsely populated areas of the country, generally
    speaking do not do very well in those kinds of decisions. We
    are, in our region of the country, housing a fair number of
    contract Federal prisoners in State and local facilities,
    because States like our have fewer long term prisoners. We also
    are, obviously, more interested these days in recent years in
    developing training for our county sheriffs and police forces.
        Your facility makes a lot of sense to me, and your program
    makes a lot of sense. Having the capability of substantial
    providing outreach all around the country for specialized
    training, and also general law enforcement training is very
    helpful to law enforcement locally. But if you would just get
    me some information about that, I would appreciate it. I would
    like at some point to be able to come down and see your
    permanent facilities, and see what you are doing, and what kind
    of training you are providing.
        Mr. Basham. We are very aggressively pushing our programs
    in State and local training, and identifying sites around the
    country where we can deliver those services, products, because
    we do realize that it is needed. It is greatly needed, and we
    want to do what we can to provide that. But I will provide you
    with criteria.

                              SUBMITTED QUESTIONS

        Senator Dorgan. All right, thank you very much. No further
    questions.
        [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 Campbell
        Question. There has been some discussion of reclassifying the GS-
    1811 instructor positions at FLETC. Will you please update us on plans
    to reclassify these positions? How long will this take? How many GS-
    1811 positions are involved in this reclassification?
        Answer. As FLETC instructor positions now filled by personnel
    classified as 1811 are vacated or there is a need for additional
    positions to be filled by personnel with Federal criminal investigative
    backgrounds, FLETC intends to recruit personnel with the appropriate
    criminal investigative experience. These positions are being classified
    and announced as 1801 series positions. However, if the appropriate
    backgrounds cannot be recruited into 1801 positions, these positions
    will be filled by detailed criminal investigators from participating
    agencies. Historically, FLETC has pursued the practice of having an
    instructor staff consisting of both permanent FLETC staff and personnel
    detailed to FLETC from our participating agencies who have current
    criminal investigative field experience.
        In addition, personnel currently in 1811 positions have a three-
    year window effective January 1, 1999, in which the transfer from 1811
    to 1801 series. To help ease the transition on affected individuals,
    FLETC has agreed to reimburse salary costs, including LEAP, to those
    agencies which agree to move 1811 personnel from our rolls to their
    agency rolls. The FLETC will continue this reimbursement as long as the
    agency details the individual to the FLETC as an instructor or manager.
    Such details will not exceed three years. Effective January 1, 2002 any
    remaining FLETC positions classified as 1811 will be converted to 1801
    and the LEAP pay terminated.
        The FLETC currently has nine 1811 series instructors on the
    permanent staff. In addition, there are eight 1811 series personnel in
    supervisory/management/program specialist positions on the permanent
    staff at the FLETC.
        Question. Explain why it is such a lengthy process from beginning
    to end to complete a construction project.
        Answer. There are a number of factors which can affect the amount
    of time required to build a facility, ranging from whether it is a
    unique or special-use facility design (e.g, firearms ranges, targetry,
    technology, or special classroom requirements), the experience and
    reliability of the construction firm, to the amount of staff resources
    which can be devoted to a particular project. The actual construction
    of a building is usually accomplished within the normal industry
    standards, but can be impacted when significant unforeseen situations
    are encountered, (environmental assessment study of the proposed
    construction site, hidden subsurface conditions, etc.) The overall
    process required, subsequent to an appropriation (which includes the
    A&E award, A&E design, customer design reviews, contract award, and
    actual construction) can give the appearance of being an inordinately
    long time before the completion and occupation of a building. While a
    considerable amount of time is purposely allowed to ensure the full
    involvement in the design reviews from those persons who will be the
    ultimate users, or occupants of a building, FLETC's experience has
    shown this front-end investment of time yields a better final product
    and increased customer satisfaction. Also, there are several specific
    legal and regulatory requirements in the acquisition process which must
    be observed.
        Question. Which projects have been completed since the construction
    Master Plan was put into place? How many projects are currently under
    construction and what is the expected date of completion of these
    projects?
        Answer. The following projects have been completed:
    Glynco
      --Physical Techniques Consolidation/Expansion
      --Indoor Firearms Range 1
      --Outdoor Firearms Ranges 5 & 6
      --Driving Range Expansion
      --Cafeteria Expansion
      --Brunswick Residence Hall/Road Improvements
      --Two Classroom Buildings
    Artesia
      --Dormitory
      --Physical Training Facility
      --Interim Driver/Firearms Facility
      --Interim Firearms Ranges
      --Practical Exercise Area
      --Recreation Area
      --Walkways
      --Architect/Engineering Services
      --Permanent Driver/Firearms Facility
      --Permanent Driver Training Ranges
      --Permanent Firearms Ranges
    Marana
      --Driver Training Ranges and Practical Exercise Areas
    Davis Monthan
      --Site Preparation/Closedown
        The following projects, with estimated completion dates, are under
    construction:
    Glynco
      --Dormitory 2/June 1999
      --Administrative Office Building/June 1999
      --Dormitory 3/June 2000
      --Firearms Ranges 7 & 8/October 2000
      --Security/Registration Building/November 1999 Burn
      --Building/June 1999
    Artesia
      --Security System/July 1999
      --Classroom/Practical Exercise Lab
      --Building/February 2000
                                     ______

                     Questions Submitted by Senator Dorgan
        Question. FLETC is currently providing specialized training in
    alternative locations. FLETC acts as the broker in the identification
    of sites and develops specific arrangements. How are the alternative
    sites identified?
        Answer. The alternative sites are identified by regions. There are
    five regions containing five to seven sites in each region for a
    current total of thirty-two export training sites. These sites are
    located at various State and local police academies as well as police
    training institutes associated with colleges and universities.
        Question. What are the criteria for determining if a site meets the
    needs of FLETC?
        Answer. Site selection is based upon the training requirements of
    specific programs to be offered at a location, including the sites
    availability during the desired scheduling dates, and the level of
    interest in that area for the training to be offered. Certain programs
    require special facilities and logistical support which further
    restricts the site determination process. For example, the Airborne
    Counterdrug Operations Training Program requires two airports with
    runways exceeding 5,500 feet, and a location that is not in an active
    air traffic control (ATC) area. Only a limited number of sites across
    the country have these capabilities. Many of the selected sites are in
    small cities and rural areas to enable State and local officers access
    to training while reducing travel costs and time away from their
    respective agencies.
        Question. What cost factors does FLETC consider when identifying
    the alternative training sites?
        Answer. All of the advanced specialized training offered by the
    FLETC is on a reimbursable basis. Some programs are funded through
    appropriations such as the Small Town and Rural Law Enforcement
    initiative in the Crime Bill. Also, some sites may charge an
    administrative fee which the FLETC includes in its tuition cost.
        Question. How could a facility in North Dakota be considered by
    FLETC?
        Answer. As in the case with other States, a facility in North
    Dakota could request a site visit by writing the National Center for
    State, Local and International Law Enforcement Training. The request
    should indicate which programs the site would be interested in hosting,
    and when the site would be available to host the training. The National
    Center publishes a Catalog of Training Programs which outlines training
    available to State and local officers. This catalog is available upon
    request.
        Question. The Booze Allen Report indicated that there was a lack of
    support for the Artesia facility from Glynco and that there was poor
    communications between staff at the facilities. Have steps been taken
    to provide Artesia greater support?
        Answer. Numerous actions and activities have been undertaken to
    increase the level of support and communications to the Artesia Center.
    Beginning with Director Basham's visits to Artesia to personally assure
    the staff of his commitment to their success, there have been
    significant investments dedicated to improving communications,
    providing requisite staffing, increasing infrastructure support, and
    delegating decision making necessary for self-sufficiency. In addition
    to the staffing increases, reclassifications and promotions have been
    accomplished with 34 percent of the Artesia workforce being upgraded.
    Television/conference meetings with the entire Artesia staff are
    arranged so the Director and senior staff may interact with their staff
    on a personal basis, in addition to the on-site visitations. Weekly
    video conferences are held with the management staff, and regularly
    scheduled counterpart video/teleconference sessions are convened for
    specific functional areas. Artesia staff are invited to attend training
    and/or conferences at Glynco in person in order to have the advantage
    of personal interaction with their counterparts. In the area of
    facilities development, 55 percent of the resources requested and
    reflected in the Five-Year Plan for FLETC are specifically for Artesia
    requirements; in fiscal year 1999, $14,149K of $27,149K for new
    construction went to meet Artesia needs.
        Question. What actions are being taken to improve staff
    communications?
        Answer. Addressing and improving communications between the Glynco
    and Artesia staffs continues to be a priority initiative for the
    FLETC's management team. The Director has emphasized the absolute
    requirement that a consolidated FLETC viewpoint on issues is comprised
    of employee input from both the headquarters training facility at
    Glynco and the western-based training facility at Artesia. To this end,
    the Director has mandated that managers, specialists and technicians
    from both locations regularly visit the other site to review processes,
    systems, and issues that affect the overall FLETC operation as well as
    their respective component parts. In fact, the frequency of site visits
    of employees between both locations and use of video conferencing on a
    cross section of issues has increased within the organization. The
    result has been the opportunity for more consistent and productive
    communications across all employee levels.
        In addition, the Director and other management staff regularly
    visit Artesia and conduct meetings with all levels of employees on a
    variety of issues. Further, ``all-hands general staff meetings'' are
    conducted either in person or via video conferencing to facilitate a
    more personalized and meaningful approach to communications. Throughout
    the summer of 1998, the Director led various employee focus groups at
    Glynco and Artesia to identify issues, then acted upon the concerns
    raised by the employees in these forum. For example, the FLETC Employee
    Development Services (FEDS) at Glynco opened its doors in February
    1999. The work group included representation from the Artesia staff,
    who served on the team through site visits and via teleconference.
    Based on this experience, the FEDS is being duplicated at the Artesia
    facility.
        Question. The FLETC implementation response has indicated that all
    inherited sexual harassment allegations were settled informally. Please
    explain what is meant by inherited sexual harassment cases, and how
    with a goal of zero tolerance they were settled informally?
        Answer. In the FLETC's implementation response, the term
    ``inherited sexual harassment cases'' referred to allegations of sexual
    harassment that were pending at the time of the change in Directors.
    All those cases/allegations (of sexual harassment) have been resolved.
    Additionally, the zero tolerance sexual harassment policy is defined as
    top management's strong, aggressive stance of taking immediate,
    appropriate and equitable action, including corrective action, when
    warranted, on any and all allegations of sexual harassment. This policy
    is in accordance with Codified Federal Regulation and current case law.
                      Financial Crimes Enforcement Network

    STATEMENT OF JAMES F. SLOAN, DIRECTOR
        Senator Campbell. Why don't we proceed, Director Sloan?
        Mr. Sloan. Thank you, Mr. Chairman, Mr. Dorgan. I am
    pleased to be here today. As you may know, this is my first
    appearance before you. In fact, given the fact that I was sworn
    in on Monday, it is my first appearance anywhere. I consider it
    an honor to both testify before this subcommittee----
        Senator Campbell. Hopefully it will not be your last.
        Mr. Sloan. Hopefully. We will know at the end of this
    testimony.
        I consider it to be an honor to both testify before the
    subcommittee and to represent the Financial Crimes Enforcement
    Network, FinCEN. As the others before me have indicated, I will
    abbreviate my remarks and ask that my written statement be
    included in the record.
        2000 will mark FinCEN's first full decade. From what I have
    seen and heard over the past few weeks, the subcommittee's
    support and guidance during FinCEN's developing years has been
    invaluable. FinCEN began with programs which were pilot
    efforts, experiments in discovering what would work best in
    terms of quality products and the timely delivery of those
    products. Because of your help and assistance, we now know what
    works.
        Each of the programs I am going to describe, support
    FinCEN's mission, using our knowledge, technology, and
    partnerships, especially the partnerships, which is essentially
    our network, to assist law enforcement against the high tech,
    high speed world of financial crime.
        Our fiscal year 2000 budget request of $29.7 million
    includes the cost needed to maintain base funding of the
    programs which are now the core of our support to law
    enforcement. It is these programs which you, the Congress, and
    our law enforcement partners have told us are working and merit
    additional funding.

                                 DIRECT SUPPORT

        Briefly, the key programs. FinCEN's flagship program is its
    direct case support to Federal agencies. Last year, FinCEN
    worked with more than 150 agencies. Through the use of advanced
    technology and numerous data sources, FinCEN links together
    various aspects of a case, finding the missing pieces to the
    criminal puzzle.
        The experience we have gained in analyzing financial data
    to support criminal investigations, combined with improved
    outreach efforts, has resulted in greater demands for the case
    support services. For example, the casework which requires our
    immediate attention, that which we call rapid response
    requests, has increased by 73 percent over the previous year.

                                    PLATFORM

        Another program supporting Federal law enforcement agencies
    is the program known as ``Platform.'' This program permits
    others to use FinCEN's resources, including office space and
    database access, to work on cases being conducted by their own
    agencies. FinCEN has trained and is currently assisting 73
    Platform participants from 32 agencies. Work done through
    Platform is handled the same as traditional FinCEN case work in
    terms of case management and security.
        All told, using direct case support and the Platform
    concept, FinCEN supported approximately 7,000 cases last year,
    and we expect the demand to continue.

                                 GATEWAY SYSTEM

        In fiscal year 2000, FinCEN is requesting funding for
    recurring costs associated with the Gateway system, a critical
    program for State and local law enforcement. It provides rapid
    electronic access to information FinCEN collects under the Bank
    Secrecy Act to designated, specially-trained law enforcement
    coordinators in every State. In fiscal year 1998, the Gateway
    system processed almost 70,000 queries from our State and local
    law enforcement partners from around the country.
        If Gateway is to continue to provide this critical support
    to all of law enforcement, resources must be provided in our
    base funding.

                        IMPROVED ANALYSIS AND TECHNOLOGY

        In addition to providing valuable intelligence information,
    law enforcement also looks to FinCEN to combine analytical
    expertise with the latest in technology in order to dig deeper
    into today's complex money laundering schemes.
        The Suspicious Activity Reporting System, SARS, for
    example, is a good illustration of why FinCEN needs to
    reinforce both its analytical and technological capabilities.
    These reports of suspected criminal activity ranging from bank
    and tax fraud to embezzlement, money laundering, check kiting,
    and credit card fraud, are rapidly proving their value to more
    than a dozen Federal law enforcement and regulatory agencies. I
    would point out that the SARS have proven very useful in a
    number of suspected terrorism cases.
        As financial institutions improve the quality of the SAR
    reporting, and as law enforcement continues to benefit from the
    data contained in these reports, FinCEN is being looked to for
    creative ways to make the information even more meaningful.
        Additional analysts with specialized training in financial
    examination and technology who can further enhance our
    capabilities in data manipulation and data mining are
    critically needed to meet our customers' understandable
    expectations. The fiscal year 2000 budget request will provide
    funds for these additional analysts to enhance SARS and other
    Bank Secrecy Act database analysis.

                         REGULATORY EFFORTS: NON-BANKS

        In the regulatory arena, FinCEN will continue to focus on
    what we call non-banks. As the subcommittee knows, FinCEN has
    worked very closely with the financial services industry over
    the last 10 years to ensure that effective programs are in
    place to prevent money laundering. Banks and many other
    financial service providers have been very successful at
    cutting off these avenues to money launderers and other
    criminals through strong compliance with the Bank Secrecy Act
    regulations. The information provided by banks and others also
    creates a valuable financial trail for law enforcement to
    follow.
        FinCEN must be prepared to accommodate the additional
    information these regulations will generate. The sources of
    information make it absolutely necessary that we upgrade our
    computer systems and increase our pool of analysts in fiscal
    year 2000. Without the upgrade and resources requested in the
    2000 budget, the information will be far less useful to our law
    enforcement partners.

                             INTERNATIONAL EFFORTS

        FinCEN also continues to maintain a key leadership role in
    assuring that the United States has a strong voice in
    international anti-money laundering initiatives. A central
    objective has been the development of an international network
    of financial intelligence units, or FIUs. These organizations
    are willing and able to assist one another in practical terms
    in the fight against money laundering.
        Just as FinCEN is able to assist Federal, State and local
    law enforcement from various regions of the United States by
    bringing varied pieces of information and individual
    investigations together, so too FinCEN can reach out to other
    FIUs to obtain information that might prove critical to
    American Federal, State, and local investigations.
        That is the point. We want to have the best information for
    our investigators as quickly as possible, in order for them to
    pursue criminals around the world. FinCEN has already been able
    to support a number of investigations within the United States
    by gathering information from its FIU counterparts, and we will
    continue to improve this important link to foreign law
    enforcement entities.
        FinCEN will also continue to maintain its efforts to
    strengthen its international teamwork through venues such as
    the financial action task force and its satellite organizations
    in the Caribbean, Asia, and South Africa. Our 2000 request will
    enable us to continue to foster an FIU network, as well as
    supporting these key programs which promote international anti-
    money laundering standards.

                         MAGNITUDE OF MONEY LAUNDERING

        Finally, Mr. Chairman, FinCEN has learned to better
    identify what resources are needed to more effectively target
    our support to law enforcement. The programs I have described
    are aimed at providing that support in a variety of specific
    ways. But as we have stressed in our annual performance plan
    and in budget submissions, it is difficult to truly gauge the
    effectiveness of the Nation's battle against financial crime
    until we have found a way to measure the magnitude of the
    problem we are addressing.
        Fiscal year 2000 phase of our attempt to determine the
    magnitude of money laundering will also continue to use the
    expertise drawn from national research organizations and
    academic institutions in concert with the knowledge and
    experience of law enforcement, regulatory, and financial
    professionals. It is our expectation that the early estimate of
    the magnitude will result in elementary baselines which will be
    refined with greater precision over time. We will continue to
    keep the subcommittee informed about the progress on this
    difficult but very necessary effort.

                               PREPARED STATEMENT

        In conclusion, Mr. Chairman, I am honored to lead this
    organization of dedicated men and women, all professionals, as
    we begin the next decade and chapter in FinCEN's history. I am
    grateful to the subcommittee for its guidance and support as we
    continue to explore innovative ways to further our country's
    effort to combat financial crime and protect the integrity of
    our Nation's financial systems.
        Thank you, sir.
        [The statement follows:]
                      Prepared Statement of James F. Sloan
        Mr. Chairman and Members of the Subcommittee, I am pleased to be
    here today. As you know, this is my first appearance before you. I
    consider it an honor to both testify before the subcommittee and to
    represent the Financial Crimes Enforcement Network--FinCEN.
        2000, the year of the millennium, will also mark FinCEN's first
    full decade. This request reflects the directions we must take in
    fulfilling our mission as we move into the 21st century. FinCEN's key
    mission--support for law enforcement has not changed. Over the last
    nine years, FinCEN has learned how to capitalize on its network--a link
    between the law enforcement, regulatory, and financial communities.
    This strategy maximizes information sharing among its partners in these
    communities and fosters cost-effective and efficient measures to
    address the complex problem of money laundering. My testimony will
    briefly describe how FinCEN is applying that knowledge to assist all
    law enforcement in its battle to outsmart criminals in today's world of
    high-tech, high-speed financial crime.
        The Committee's support and guidance during these developing years
    has been invaluable. FinCEN began with programs which were pilot
    efforts--experiments in discovering what would work best in terms of
    quality products and the timely delivery of those products. With your
    help and assistance, we now know what works. A number of our pilot
    projects have become viable programs with a proven track record.
        Our fiscal year 2000 budget request of $29.7 million reflects our
    commitment to these important programs. This request includes the costs
    needed to maintain base funding of these programs which are now the
    core of our support for law enforcement. It is these programs which the
    Congress and our law enforcement customers have told us are working and
    merit more resources. I am referring to case support provided in
    various ways to our federal law enforcement customers: the Gateway
    System which supports the state and local enforcement community;
    research and analysis efforts provided to both the regulatory and
    enforcement community using enhanced financial databases and the latest
    technology; expansion of secure communications to expedite case support
    and share sensitive case information; continuing anti-money laundering
    regulatory efforts governing non-bank financial institutions;
    international outreach and training efforts to increase the number of
    Financial Intelligence Units (FIUs); and a study to gauge the magnitude
    of money laundering. FinCEN is committed to strengthening these
    essential programs--programs that are essential to our government's
    overall anti-money laundering strategy.
        All of these programs support FinCEN's mission--identifying,
    managing, packaging, and delivering, in a timely fashion, the massive
    amounts of information which investigators need to do their jobs.
                                  case support
    Direct, Platform and Gateway
        FinCEN's support to law enforcement is provided in two ways:
    through direct case support which consists of in-house staff of experts
    who respond to field requests for data searches and analysis; and
    through programs, called Platform and Gateway, which permit others to
    take advantage of our services while using their own resources. This
    second approach enables FinCEN to accommodate the increasing demand for
    our services by providing our law enforcement customers with access to
    our resources themselves in a variety of hands-on, interactive ways.
        Described below are these key programs, which successfully
    demonstrate how FinCEN uses its network to achieve its mission of
    providing case support.
    Direct Case Support
        FinCEN's flagship program is its direct case support to federal law
    enforcement agencies. Last year, FinCEN worked with more than 150
    different agencies. Through the use of advanced technology and numerous
    data sources, FinCEN links together various aspects of a case, finding
    the missing pieces to the criminal puzzle. The experience we have
    gained in analyzing and disseminating financial data to support
    criminal investigations, combined with improved outreach efforts has
    resulted in greater demands for our case support services. For example,
    in response to significant increases in priority or sensitive requests,
    rapid response and expeditious casework increased by 73 percent over
    the previous year. Requests for on-site field support are becoming
    equally as demanding.
        A new software program illustrates how FinCEN is assisting
    investigators with their on-site field support investigations. FinCEN
    has developed a new case management software system, Analytical System
    for Intelligence Analysis (AS IS) which has resulted in FinCEN
    providing assistance to a large number of entities in support of major
    cases. The software program is provided on a diskette to case agents as
    a type of ``fill in the blank'' process to save time in converting the
    raw data into a form that our analysts can easily merge with FinCEN's
    multi-source database information.
        AS IS has been very helpful in a number of investigations. For
    example, FinCEN supported the IRS and other federal agencies including
    the FBI and Postal Service in a large-scale investigation of money
    laundering, fraud, conspiracy, and tax violations. A team of FinCEN
    analysts and an IRS representative conducted research and analysis on
    more than 100 subjects, some with organized crime links. Using link
    charts and other analytical tools, including AS IS, FinCEN's products
    portrayed over $14 million in currency transactions, several million
    dollars in assets, and hundreds of links among individuals, businesses
    and various records.
        In another case, FinCEN supported the Customs Service and other
    federal and state agencies in a money laundering investigation
    involving an international scheme to defraud private citizens through
    fraudulent investments. FinCEN used currency transaction reports and
    suspicious activity reports, filed by banks, to link the subjects to
    banks, currency exchange houses, and casinos. Twenty-five subjects were
    responsible for approximately $100 million in illicit activity.
    FinCEN's support included link charts, analytical reports, and on-site
    field support through AS IS.
    Platform
        Another program supporting federal law enforcement agencies is
    called ``Platform.'' This program is a way to permit others to use
    FinCEN's resources directly to carryout their own work. FinCEN
    pioneered the ``Platform'' in 1994, offering training, office space and
    database access to employees of other federal agencies who come to
    FinCEN, on a part-time basis, to work only on cases being conducted by
    their own agencies. These individuals know the needs of their
    organization and can support that need directly through database
    access. FinCEN is currently assisting 73 Platform participants from 32
    agencies. Work done through Platform is handled the same as traditional
    FinCEN casework in terms of case management and security. Platform
    cases accounted for about 20 percent of the cases closed by FinCEN in
    1998.
        All told, using direct case support and the Platform concept,
    FinCEN supported approximately 7,000 cases last year.
    Gateway System
        The Gateway System supports state and local law enforcement by
    providing rapid, electronic access to information FinCEN collects under
    the Bank Secrecy Act. Access to the information--large currency
    transactions, for instance--is provided to designated, specially-
    trained, law enforcement coordinators in each state, the District of
    Colombia, and Puerto Rico. In fiscal year 2000, FinCEN is requesting
    $600,000 for recurring costs for this critical program, which was
    funded from the Violent Crime Reduction Trust in fiscal year 1999.
        Gateway saves investigative time and money because subscribing
    agencies can conduct their own research and not rely on the resources
    of an intermediary agency to obtain financial records. In fiscal year
    1998, the Gateway System processed 69,335 queries from our state and
    local law enforcement partners around the country, a 20 percent
    increase over fiscal year 1997.
        One of the most outstanding and useful features of this system is
    its ``alert'' mechanism that automatically alerts FinCEN that two
    agencies have an interest in the same subject. In this way, FinCEN can
    not only assist state and local law enforcement in coordinating their
    investigations among themselves, but also with federal agencies. The
    statistics for the Gateway System speak for themselves. The number of
    ``alerts'' issued in fiscal year 1998 rose to 1,429, a 55 percent
    increase over fiscal year 1997.
        If Gateway is to continue to provide this critical support,
    resources must be provided in our base funding.
        using technology to improve analysis and delivery of information
        The programs described above have demonstrated the importance of
    delivering valuable intelligence information as it relates to suspected
    money laundering and other financial crimes. Law enforcement also looks
    to FinCEN to combine analytical expertise with the latest in technology
    upgrades in order to dig deeper into the hidden folds of today's
    complex money laundering schemes.
    Improved Analysis and Technology
        The Suspicious Activity Reporting System (SARS), for example, is a
    good illustration of why FinCEN needs to reinforce both its analytical
    and technological capabilities. These reports of suspected criminal
    activity ranging from bank and tax fraud to embezzlement, money
    laundering, check kiting and credit card fraud are rapidly proving
    their value to law enforcement. Because of the centralized feature of
    the system, more than a dozen law enforcement and regulatory agencies
    are able to access its reports simultaneously. But as financial
    institutions improve the quality of their reporting and law enforcement
    discovers the benefits of the data contained in these reports, FinCEN
    is being looked to for creative ways to make the information even more
    meaningful. Additional analysts with specialized training in financial
    examination and technology who can further enhance our capabilities in
    data manipulation and data mining are critically needed to meet our
    customer's understandable expectations. The fiscal year 2000 budget
    request will provide funds for these additional analysts.
    Secure Communication
        But the value of our work is not just measured in terms of how well
    we manage data systems or what information our analysts uncover.
    Information is worthless if it does not get to the people who need it
    in time for them to act. Timeliness of delivery is just as important as
    the quality of the product in today's ``Information Age.'' FinCEN has
    been making a concerted effort to shorten the time it takes to analyze,
    package and deliver its analytical products to law enforcement. In
    addition to streamlining the time it takes our experts to analyze law
    enforcement data, our experts on the technical side have built a secure
    Internet system to facilitate law enforcement's ability to request and
    receive case support information electronically from FinCEN as well as
    rapidly exchange information with their counterparts within a secure e-
    mail system.
        Using fiscal year 1998 funds, the initial secure outreach system is
    allowing Treasury law enforcement bureaus to begin to communicate among
    themselves about sensitive law enforcement information. Through the
    application of sophisticated encryption and the Internet, this secure
    outreach network has the potential to provide a real time means of
    sharing information quickly and securely.
                         regulatory efforts: non-banks
        As the Committee is aware, FinCEN has worked closely with the
    financial services industry over the last 10 years to ensure that
    effective programs are in place to prevent money laundering at these
    institutions. Banks and many other financial service providers have
    been very successful at cutting off these avenues to money launderers
    and other criminals through strong compliance with Bank Secrecy Act
    regulations. The information provided by banks and others also creates
    a valuable financial trail for law enforcement to follow. FinCEN has
    worked very hard to cultivate partnerships within the banking community
    in order to encourage and assist them in improving their compliance
    program.
        It also is working to expand requirements of the Bank Secrecy Act
    to other segments of the financial services industry. FinCEN must be
    prepared to accommodate the additional information these regulations
    will generate. These sources of information make it imperative that we
    upgrade our computer systems and increase our pool of analysts in
    fiscal year 2000. Without the upgrades and resources requested in the
    fiscal year 2000 budget, the information will be far less useful to our
    law enforcement customers.
                             international efforts
        FinCEN continues to have a key leadership role in assuring that the
    U.S. has a strong voice in international anti-money laundering
    initiatives. A central objective has been the continued development of
    an international network of financial intelligence units, or FIUs.
    These organizations are willing and able to assist one another in
    practical terms in the fight against money laundering. Just as FinCEN
    is able to assist federal, state and local law enforcement from various
    regions of the U.S. by bringing disparate pieces of information and
    individual investigations together, so FinCEN can reach out to other
    FIUs to obtain information that might prove critical to a U.S. federal,
    state, or local investigation.
        One successful outcome of this effort is the Egmont International
    Secure Web System, developed almost entirely by FinCEN, this system
    permits members of the Egmont Group (the core group of FIUs) to
    communicate with one another via secure e-mail, and to post and access
    information on FIUs, money laundering trends, financial analysis tools,
    and technical developments.
        This international information exchange for tracking ``dirty
    money'' just helped uncover Australia's largest cocaine seizure--225
    one-kilogram blocks of cocaine recovered from a yacht off the coast of
    New South Wales. FinCEN provided critical information on financial
    transactions and property records in support of this investigation. In
    a recent news report, the head of the Australian FIU, Elizabeth
    Montano, praised FinCEN for its assistance with this case, saying ``the
    [exchange] with the United States has been amazingly successful in
    terms of providing us with lots of linkages, showing us that what we
    are following are not silly hares down rabbits' hollows that don't
    matter.''
        And that is the point-we want to have the best information for our
    investigators as quickly as possible in order for them to pursue
    criminals around the world. FinCEN has already been able to support a
    number of U.S. investigations by gathering information from its FIU
    counterparts and will continue to improve this important link to
    foreign law enforcement entities.
        FinCEN will also maintain its efforts to strengthen its
    international network through venues such as the Financial Action Task
    Force (FATF) and its satellite organizations in the Caribbean, Asia,
    and Southern Africa. FATF, a 26-nation organization created by the G-7,
    serves as the world leader in promoting the development of effective
    anti-money laundering controls and cooperation in counter money
    laundering investigations among its membership and around the globe.
        Another international priority for FinCEN is its efforts related to
    Presidential Decision Directive-42 (PDD-42). This directive focuses
    U.S. efforts on encouraging countries known to be money laundering
    havens to cooperate in denying criminals access to their financial
    systems. To that end, working with other agencies, FinCEN has provided
    results-oriented training and technical assistance programs. Our
    efforts are demonstrating the benefits of sharing our expertise with
    other governments.
        Our fiscal year 2000 request will enable us to continue to foster
    an FIU network, our PDD-42 efforts and other work, to include: devising
    coordinated strategies to combat money laundering schemes; and
    providing training and technical assistance.
                         magnitude of money laundering
        Finally, Mr. Chairman, FinCEN has learned to better identify what
    resources are needed to more effectively target our support to law
    enforcement. The programs I have described are aimed at providing that
    support in a variety of specific ways. But as we have stressed in our
    fiscal year 1999 and fiscal year 2000 Strategic Plans and budget
    submissions, it is difficult to truly gauge the effectiveness of this
    nation's battle against financial crime until we have found a way to
    measure the magnitude of the problem we are addressing.
        Our overriding objective then is to seek a workable methodology for
    creating estimates of the volume of laundered money. As we have pointed
    out in previous testimony, there have been a few attempts made by
    international organizations, such as the United Nations, as well as by
    governments to address the problem. These studies, however, have fallen
    short of their objective because of a lack of available data as well as
    standardized data collection systems within the international
    community.
        Keeping in mind the difficulties others have experienced, FinCEN
    allocated staff resources with the funding this Committee provided in
    fiscal year 1999 to look at the problem on both a national and
    international level. Because the problem is global, the first step in
    the process has been to approach the issue at a macro level. The U.S.
    led this effort by presenting a concept paper to the FATF plenary last
    spring. Although the national interests of the FATF members coupled
    with broad differences in the collection of relevant data make it
    difficult to proceed as quickly on the international level as we would
    like, FATF discussions have made it clear that the U.S. is in a
    relatively strong position to move forward with our own national study.
    We have been collecting data regarding drug supply and demand for
    sometime in this country, which will help provide the basis of a
    methodology to estimate money laundering.
        Under the direction of Treasury's Office of Enforcement, two
    committees of experts from a wide variety of federal law enforcement
    and economic policy agencies within our own government have been
    established and will begin to identify available data sources and
    analytical approaches to the study. The fiscal year 2000 request of
    $500,000 will support the implementation phase of the methodology
    currently being explored with fiscal year 1999 funds. This phase will
    include development of the survey instrument and initial collection of
    data. The fiscal year 2000 phase will also continue to use expertise
    drawn from national research organizations and academic institutions in
    concert with the knowledge and experience of law enforcement,
    regulatory and financial professionals. It is our expectation that the
    early estimate of the magnitude will result in elementary baselines,
    which will be refined with greater precision over time. We will
    continue to keep the Committee informed about progress on this
    difficult but necessary effort.
                                   conclusion
        In conclusion, Mr. Chairman, we have attempted in our testimony
    today, to describe those paths FinCEN has been following which are
    producing demonstrable benefits. As we continue to progress as an
    organization, it is essential that we receive base funding for those
    projects which have now become integral to the fulfillment of our
    mission. Again, we are grateful to this Committee for its guidance and
    support as we continue to explore innovative ways to further our
    country's efforts to combat crime.

                                   REGULATORY

        Senator Campbell. Thank you for your testimony. I am going
    to wing it a little bit here. I am sure Senator Dorgan is going
    to ask much more intelligent questions than I am because he has
    had a much stronger background in understanding this than I
    have. But let me ask you just a couple of questions, and maybe
    Under Secretary Johnson might want to chime in here, too.
        As I understand it, the money services businesses is really
    kind of the new wave of money laundering. You mentioned
    something along that line. Money launderers are turning to the
    unsupervised financial services because they do not have to
    register, nor do they have any rules to govern them. There are
    over 160 unregistered businesses nationwide with transactions
    of over $200 billion a year that do not maintain account
    relationships comparable to banks. So it is difficult for these
    businesses to know their customers well enough to identify any
    suspicious activity.
        I understand that the rules for registration are being
    written, or are written for governing the money services
    businesses but they are waiting on clearance from Treasury. Is
    that correct, and can you give us the status on those rules,
    either one of you?
        Mr. Johnson. After a notice and comment period the proposed
    rules have--the comment period closed and the proposed rules
    have left FinCEN and they are being evaluated within Treasury.
    The process, before we implement any program with respect to
    this new unregulated industry we need to make sure that the
    resources are available, and then we have----
        Senator Campbell. Once those rules are written you are
    going to have an increased workload, I assume.
        Mr. Johnson. Yes, sir, we are.
        Senator Campbell. Have you requested additional employees
    to handle that increased workload?
        Mr. Johnson. There is a component in FinCEN's budget that
    deals with the increased workload. There are also issues with
    respect to other elements of the workload. We had envisioned,
    at least in preliminary plans, was that it would be handled by
    IRS exam. We are still working through those issues with
    respect to implementation. And as you know, there have been
    changes within the structure of IRS as a result of the reform
    act of last summer.
        Senator Campbell. When is the expected date that the rules
    will be finalized?
        Mr. Johnson. We expect that, and this is with respect to
    the registration rule which is the first rule that would form
    the basis for the program. We have put together a group that
    expects to be able to report out to us, and for us to report to
    the Hill at the end of 45 days. And they will do the final
    analysis of the resource requirements, and at that time we
    would be in a better position to inform the committee as to our
    timelines.
        Senator Campbell. All right, if you would, I would
    appreciate that. I have two or three additional questions that
    I will put in writing, if you could get back to us.
        Mr. Johnson. Yes, sir.
        Senator Campbell. Senator Dorgan?

                                 INTERNATIONAL

        Senator Dorgan. Let me just ask briefly a question about
    the international aspect of this. We hear every day in Congress
    that this is a global economy. The implication of that is that
    there are really not many geographic borders any more when we
    are talking about trade and so on. I assume exactly the same is
    true with crime, especially financial crime. It is a global
    economy in financial crime, which means that international
    relations and arrangements are critically important to
    addressing it.
        Tell me, if you would, about your agencies' work in
    international relationships and creation of the state-of-the-
    art communications systems and so on to accommodate that.
        Mr. Sloan. Senator, I am very fortunate to have inherited
    an organization that has a very well established program that
    continues to work to develop and foster global anti-money and
    laundering strategies, policies, and programs in the
    international arena. As you may know, the G-7 Economic Summit
    created an organization known as the Financial Action Task
    Force which is comprised of 26 countries and is recognized as
    the leading organization is setting international anti-money
    laundering standards, if you will.
        As an outgrowth of that, many nations around the world have
    created parallel organizations similar to FinCEN, known as
    FIUs. FinCEN's relationship with these FIUs has been, as I have
    been able to determine in the few days that I have been here--
    because I have met with some of the counterparts from the
    foreign FIUs already--has been incredibly successful.
        You are absolutely right, our success or failure with
    regard to international anti-money laundering initiatives, the
    success would be non-existent if we did not pay attention and
    did not have the cooperation of foreign countries as far as the
    transmission of laundered cash.
        Senator Dorgan. You get fairly good cooperation?
        Mr. Sloan. It is my understanding, both from the historical
    perspective that has been presented to me and from my personal
    contact with several of the foreign representatives in the last
    several days, that the cooperation is outstanding.

                                    GATEWAY

        Senator Dorgan. Just one last question on the Gateway
    program. My understanding is that program supports State and
    local law enforcement by providing rapid electronic access to
    the information you have. What kind of utilization exists with
    that program by State and local, and do you have outreach
    efforts to make sure that State and local authorities know that
    this opportunity exists for them?
        Mr. Sloan. Yes, we do. In fact, the training continues. As
    I mentioned in my oral statement, we now participate with every
    State in the Union, as well as the District of Columbia and
    Puerto Rico relative to the Gateway project. There were close
    to 70,000 queries last year alone from the various States. Our
    training and our relationship with the States not only
    concentrates on their ability to take advantage of the system,
    but also focuses on making sure that the system is utilized for
    law enforcement activity exclusively.
        Senator Dorgan. Mr. Sloan, thank you very much. We
    appreciate the dedication of the employees in your agency and
    your work. Yours is one of those areas that is not very visible
    from the outside, but it is critically important to enable a
    lot of other law enforcement agencies to do their work in a
    very sophisticated area of financial crime here and also
    internationally. So thank you for your work.
        Mr. Sloan. Thank you.

                                 INTERNATIONAL

        Senator Campbell. Mr. Sloan, one last question. Senator
    Dorgan and I just came back from a CODEL to South America and
    most of our work down there dealt with trade. But in Argentina
    I noticed that dollars were almost interchangeable when you
    would purchase things as their own currency, and they seemed to
    be moving more and more towards that. In those countries that
    have almost unlimited use of dollars on the streets as well as
    their own currency, does that increase the difficulty of
    monitoring international laundering? With respect to crimes in
    the U.S. the dollars must first be ``placed'' into the
    financial system here, or smuggled out of the United States,
    before the situation in any other country is relevant. More
    generally, of course, the United States and its citizens derive
    significant continuing benefit from the fact that the dollar is
    one of the world's reserve currencies. Of the approximately
    $500 billion in circulation, it is estimated that approximately
    $300 billion or 60 percent, circulates overseas. Many
    government programs, including our programs to deal with money
    laundering, must take those basic economic facts into account.
        Mr. Sloan. To the degree that I could speak specifically
    about South America and Argentina I would probably have to
    respond after some research on my own and get back to you with
    an answer on that, sir.
        Senator Campbell. Would you do that?
        Mr. Sloan. Absolutely.
        Senator Campbell. I would be interested in knowing that.
        Mr. Sloan. I shall.
        Senator Campbell. Did you have anything further?
        Senator Dorgan. No, Mr. Chairman.

                              SUBMITTED QUESTIONS

        Senator Campbell. We have additional questions that will be
    submitted in writing to be answered for inclusion in the
    record.
        [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 Campbell
                 financial crimes enforcement network (fincen)
        Question. It has been noted that state investigators remain largely
    untrained and ill equipped to investigate money laundering, leaving the
    bulk of the investigating to Federal investigators who lack the staff
    to handle the entire job. Certain states do not utilize the Gateway
    automation commercial data base as much as others. How has FinCEN made
    these states aware of the resources available to them, and assisted
    them in their efforts to combat money laundering through Gateway?
        Answer. Over the past few years, FinCEN has worked with state and
    local law enforcement, policy makers, and prosecutors to stress the
    benefits and importance of attacking criminal proceeds. This outreach
    encompasses a three-prong strategy: working with states to ensure anti-
    money laundering and asset forfeiture laws are in place; encouraging
    them to utilize to the fullest extent possible the financial data
    available through Gateway; and promoting the establishment of financial
    intelligence units within the states. FinCEN has been joined in this
    strategic outreach effort by the National Association of Attorneys
    General (NAAG) and the International Association of Chiefs of Police
    (IACP).
        Approximately 26 states have been visited over the past two years
    in which this strategy was articulated. Overall, these efforts have
    resulted in a substantial increase in Gateway usage.
        FinCEN also provides more in-depth case support to its state and
    local enforcement customers through its Office of Investigative Support
    (OIV). Under OIV, FinCEN analysts provide support to more complex cases
    requiring greater in-depth analysis and expertise. In the last two
    years, approximately 1,000 cases were processed by OIV. This number is
    in addition to Gateway.
        Question. It is important to maintain an international network of
    Financial Intelligence Units (FIU's). Explain how this network works in
    the money laundering process.
        Answer. FinCEN continues to have a key leadership role in assuring
    that the U.S. has a strong voice in international anti-money laundering
    initiatives. A central objective has been the continued development of
    an international network of financial intelligence units, or FIUs.
    These organizations are willing and able to assist one another in
    practical terms in the fight against money laundering. Just as FinCEN
    is able to assist federal, state and local law enforcement from various
    regions of the U.S. by bringing disparate pieces of information and
    individual investigations together, so FinCEN can reach out to other
    FIUs to obtain information that might prove critical to a U.S. federal,
    state, or local investigation.
        One successful outcome of this effort is the Egmont International
    Secure Web System. Developed almost entirely by FinCEN, this system
    permits members of the Egmont Group (the core group of FIUs) to
    communicate with one another via secure e-mail, and to post and access
    information on FIUs, money laundering trends, financial analysis tools,
    and technical developments.
        A recent example helps illustrate the importance of this
    international information exchange for tracking ``dirty money.'' The
    information exchange helped uncover Australia's largest cocaine
    seizure--225 one-kilogram blocks of cocaine recovered from a yacht off
    the coast of New South Wales. FinCEN provided critical information on
    financial transactions and property records in support of this
    investigation. In a recent news report, the head of the Australian FIU,
    Elizabeth Montano, praised FinCEN for its assistance with this case,
    saying ``the [exchange] with the United States has been amazingly
    successful in terms of providing us with lots of linkages, showing us
    that what we are following are not silly hares down rabbits' hollows
    that don't matter.'' Importantly the information sharing was not one-
    way. AUSTRAC, Australia's FIU, provided U.S. law enforcement via FinCEN
    with important bank account information helping authorities to target
    drug proceeds here in the United States.
        In all these instances, FinCEN ensures that the information-
    exchanges adhere to privacy protection guidelines, policies, and
    regulations.
        In another example of information-exchange, Treasury's Office of
    Enforcement has asked FinCEN to find ways to expand access to cross-
    border data with the Mexican FIU. It is hoped that through this and
    similar activities, the two FIUs can establish additional cooperative
    efforts.
        The strategy behind all of these efforts is to have the best
    information for our investigators as quickly as possible in order for
    them to pursue criminals around the world. FinCEN has already been able
    to support a number of U.S. investigations by gathering information
    from its FIU counterparts and will continue its efforts to improve this
    important link to foreign law enforcement entities.
        Question. FinCEN's budget doesn't reflect any new initiatives;
    however, the overall increase is more than $4 million over fiscal year
    1999. Please explain the reasons for the increase.
        Answer. FinCEN, an agency that is just nine years old, is
    concentrating on ensuring the continuity of existing programs--which
    are proving valuable to law enforcement--rather than asking for
    additional funds for the new programs. The Committee's support and
    guidance during these developing years has been invaluable.
        A number of FinCEN's pilot programs, such as the Gateway Program
    and Secure Outreach (Internet Communication), have been funded out of
    the Violent Crime Reduction Trust Fund and Treasury Forfeiture Fund.
    These programs have been designated to improve FinCEN's ability to
    strengthen and broaden its information-sharing network among law
    enforcement agencies, and thus should be reflected as part of FinCEN's
    core funding.
        The additional funding also will address workload increases to meet
    increasing customer demand, especially for law enforcement case
    support, as well as mandatory cost increases.
                                     ______

                     Questions Submittted by Senator Dorgan
                                gateway program
        Question. What efforts is FinCEN making to ensure this program is
    being utilized by State and local law enforcement agencies to the
    maximum degree?
        Answer. Over the past few years, FinCEN has worked with state and
    local law enforcement, policy makers, and prosecutors to stress the
    benefits and importance of attacking criminal proceeds. This outreach
    encompasses a three-prong strategy: working with states to ensure anti-
    money laundering and asset forfeiture laws are in place; encouraging
    them to utilize to the fullest extent possible the financial data
    available through Gateway; and promoting the establishment of financial
    intelligence units within the states. FinCEN has been joined in this
    strategic outreach effort by the National Association of Attorneys
    General (NAAG) and the International Association of Chiefs of Police
    (IACP).
        Approximately 26 states have been visited over the past two years
    in which this strategy was articulated. Overall, these efforts have
    resulted in a substantial increase in Gateway usage. Currently, there
    are also 34 states with anti-money laundering legislation, with more
    anticipated in the near future.
                  international relations and law enforcement
        Question. Money Laundering is a global problem; it doesn't stop at
    our borders. What is being done to address the money laundering issue
    on an international scale? Are you utilizing international task forces
    or intelligence efforts?
        Answer. Fundamental to FinCEN's mission and ultimate success in
    fighting international crime and money laundering is its work with
    other governments. Enhancing bilateral and multilateral anti-money
    laundering efforts with foreign governments, such as identifying and
    working toward eliminating financial safe havens, is receiving
    increased focus by FinCEN. Most recently, FinCEN issued an Advisory to
    banks and other financial institutions to give enhanced scrutiny to all
    financial transactions routed into or out of Antigua. This advisory was
    immediately followed by a similar advisory from Britain. FinCEN's
    advisory resulted after months of U.S. interagency deliberations by a
    group set up to specifically look at money laundering havens around the
    world. After the decision to issue the advisory, FinCEN led the effort
    to inform the Financial Action Task Force (FATF), the Caribbean
    Financial Action Task Force (CFATF), and the Egmont Group of FIUs.
        FinCEN's work with other governments to fashion and put in place a
    regional and global response to the threat of money laundering is
    expanding. FinCEN continues to strengthen its international network
    through venues such as the FATF and its satellite organizations in the
    Caribbean, Asia, and Southern Africa. FATF, a 26-nation organization
    created by the G-7, serves as the world leader in promoting the
    development of effective anti-money laundering controls and cooperation
    in counter money laundering investigations among its membership and
    around the globe. FinCEN serves as the lead agency for coordinating the
    U.S. role within the FATF. We are strengthening and expanding
    multilateral efforts against money laundering in other forums such as
    the G-8, the Organization of American States and international
    financial institutions.
        In addition FinCEN coordinates and provides training and technical
    assistance to partner nations seeking to legislate against financial
    crimes, to put in place anti-money laundering regulatory regimes and to
    establish financial intelligence units (FIUs). Using information
    provided by banks and other sources, FIUs find innovative tools to
    delve into the information to make it useful for law enforcement and
    others. Whereas in 1995 there were 14 FIUs, today, there are 38--with
    many others in development. This international network of FIUs is
    willing and able to assist one another in practical terms in the fight
    against money laundering. FinCEN can reach out to other FIUs to obtain
    information that might prove critical to a U.S. federal, state or local
    investigation.
                             fincen regulatory role
        Question. What is the status of the three money services businesses
    regulations?
        Answer. The rules related to registration of Money Services
    Businesses (MSBs) and the reporting of suspicious transactions by MSBs
    are in the clearance process at the Department of Treasury. The rules
    are being reviewed by all affected Treasury functions to ensure that
    all of the issues involved are carefully considered.
        The rule concerning the reporting of foreign-bound wire transfers
    paid in currency is being reviewed at FinCEN. Since it would have a
    significant effect on resources, FinCEN is exploring a variety of
    options before finalizing the rule.
        In addition, it's imperative that the resources are in place to
    support implementation of the rules. A working group, which includes
    representatives from various Treasury agencies and offices, including
    FinCEN, is charged with devising a detailed strategy to implement the
    new program and to ensure its long-term viability. In recent testimony,
    Treasury's Office of Enforcement indicated that a report on the group's
    plans for implementation of the MSB regulations will be provided to the
    Congress in 45 days.

                             CONCLUSION OF HEARINGS

        Senator Campbell. I have no further questions, and I
    appreciate this panel for appearing. With that, these hearings
    are concluded. Thank you.
        [Whereupon, at 11:38 a.m., Thursday, April 15, the hearings
    were concluded, and the subcommittee was recessed, to reconvene
    subject to the call of the Chair.]

             MATERIAL SUBMITTED SUBSEQUENT TO CONCLUSION OF HEARING

        [Clerk's note.--The following agencies did not appear
    before the subcommittee this year. Chairman Campbell requested
    these agencies to submit testimony in support of their fiscal
    year 2000 budget request. Those statements and answers to
    questions submitted by the chairman follow:]
                        GENERAL SERVICES ADMINISTRATION
                    Questions Submitted by Senator Campbell
                           gsa's management controls
        Question. According to GSA's Inspector General (IG), GSA's
    reinvention initiatives to reduce administrative barriers and promptly
    respond to customers' needs have detracted from controls designed to
    deter fraud, waste, and abuse. GSA's fiscal year 2000 performance plan
    doesn't address goals or strategies to ensure that GSA's activities are
    protected from fraud, waste, and abuse. What goals and strategies does
    GSA have in this area?
        Answer. GSA sees the establishment of management controls to deter
    fraud, waste, and abuse as part of every performance goal. Clearly, no
    reinvention initiative, no matter how innovative, can be considered
    effective if it results in the likelihood that Government assets will
    be stolen or diverted to improper uses. As new approaches to meeting
    customer needs are developed, new means of management control to deter
    fraud waste, and abuse will also be developed.
        Question. What mechanisms does GSA have in place to ensure that the
    strategies and controls are working?
        Answer. At present, GSA primarily relies on IG reviews of
    activities to determine whether management controls are working. If
    problems are identified, we follow-up with the activity until the
    problems are corrected.
                         gsa's organizational structure
        Question. GSA's administrative processes, organizational structure,
    systems, and procedures were designed based on the needs of a large,
    central oversight agency. The organizational structure, created when
    GSA was a 40,000-employee organization included many headquarters and
    regional components that reflected a traditional hierarchical approach.
    According to the IG, GSA's organizational structure has not changed to
    keep pace with the downsizing, streamlining and reform that have taken
    place within the agency. GSA's fiscal year 2000 performance plan does
    not mention the organizational structure or the possibility of
    assessing it to foster efficiencies and economies. What is GSA's view
    on the IG's observation regarding GSA's organizational structure?
        Answer. The IG needs to take into consideration changes in GSA's
    organizational structure over the past years. Our processes, structure,
    systems and procedures have continually evolved from the time when we
    consisted of more than 40,000 employees until today with less than
    15,000. Recently we have made a number of changes to serve our
    customers better. For example, the Public Buildings Service now has 12
    Centers of Expertise around the country that function as corporate
    knowledge centers, offering specialized information and hands-on
    assistance quickly and efficiently to clients. Only four of these
    centers are based in Washington.
        Question. Would an organizational make-over better equip GSA to
    meet the performance goals identified in the fiscal year 2000 and
    future performance plans, such as reducing administrative barriers and
    improving customer service?
        Answer. GSA believes that a comprehensive ``organizational make-
    over'' is not warranted at this time and would, in fact, be a
    distraction from adding value and serving customers. We do, however,
    believe that the organizational structure must be fine-tuned from time
    to time to improve performance. For example, in supporting preparations
    for the Year 2000 Census, GSA has organized its support around our
    customer's regional structure (that is, the Census Bureau) rather than
    our own.
                                     ______

                         OFFICE OF PERSONNEL MANAGEMENT
               Prepared Statement of Janice R. Lachance, Director
        Mr. Chairman and members of the subcommittee. I appreciate this
    opportunity to discuss for the record the appropriations request for
    fiscal year 2000 for the Office of Personnel Management.
        In order to provide some context for the President's request for
    appropriations for OPM for the next fiscal year, it may be useful to
    review the recent history of our agency and the Human Resources
    Management (HRM) area generally before turning to the specifics of our
    budget.
        Although you may be familiar with our recent history, I believe it
    is imperative to reemphasize the dramatic changes that have occurred in
    OPM since 1993. Our reduction in our full-time equivalent employment
    level by 52 percent is virtually without parallel in the federal
    government. It was achieved not only by a thorough restructuring of our
    operations, but also through the privatization of two of our major
    components, training and investigations, with the latter being
    converted into an employee stock ownership plan, the first to result
    from a federal entity.
        This restructuring, along with our emphasis on tighter financial
    controls across all programs and increased accountability, enabled us
    to make the tough management decisions that are paying off today. The
    best evidence of our success is the elimination of the $48,800,000
    deficit which existed in our revolving fund at the end of fiscal year
    1994.
        Our successes in focusing on our core mission and doing more with
    less have provided leadership by example for the reinvention effort in
    the federal community. We have built on that position by supporting
    other agencies as they undertake workforce reductions and
    restructuring. Significant downsizing of human resources management
    staff in many agencies has created an even greater need for and
    reliance upon OPM expertise.
        We have responded to that challenge in numerous ways. Permit me to
    mention a few examples. In the area of performance management, our
    recently issued study of poor performers in the federal service has
    received considerable attention. But equally important to us and our
    agency constituents is our development of a booklet, CD-ROM, and web-
    based training on addressing and resolving poor performance. OPM staff
    is also focusing on assisting agencies with aligning individual
    performance plans to agency strategic plans, as envisioned by the
    Government Performance and Results Act.
        In addition, with two of our executives cochairing the Human
    Resources Technology Council, we are working with agencies to ensure
    that they are able to do more with less through the best and most cost-
    effective use of automation in their HRM activities. This year, we will
    complete a vision and concept of operations for a Federal Human
    Resources Data Network, a broader approach to the governmentwide
    application of human resources automation that encompasses the more
    limited objective of an electronic personnel folder.
        We have also placed increasing emphasis on communicating with
    agency HRM personnel through our web page and through focused
    conferences on a variety of subjects. From our annual benefits officers
    conference to our annual symposium on employee and labor relations, we
    have had great success in bringing together hundreds of HRM
    professionals to share information and experiences. Increases in demand
    and in satisfaction with our presentations have led to the
    consolidation of some of our workshops and seminars on leave, position
    classification, and performance management into a new total
    compensation conference.
        In fiscal year 1998, we engaged in outreach to provide a more
    diverse workforce. Our efforts included a strengthened nine-point plan
    to increase Hispanic employment, an initiative to improve black
    representation at higher grade levels, and targeted recruitment
    guidance for persons with disabilities and for women. During that
    fiscal year, representation in the federal workforce generally improved
    from 6.2 percent to 6.4 percent for Hispanics, from 17.0 percent to
    17.1 percent for blacks, from 4.0 percent to 4.1 percent for Asian/
    Pacific islanders. And from 42.8 percent to 42.9 percent for women.
        We also responded to evolving policy concerns relating to the
    quality of managed health care by implementing the patients bill of
    rights throughout the entire Federal Employees Health Benefits Program.
    This included issuing regulations barring health plans from imposing a
    ``gag rule'' limiting the disclosures physicians may make to patients
    regarding treatment options.
        Of course, we are involved in much more than just the management of
    existing systems. In fiscal year 1998, five personnel management
    demonstration projects were begun, and we are expecting four more to be
    implemented this fiscal year. By helping agencies design, implement,
    manage, and evaluate alternative approaches to personnel management, we
    not only improve the operations of those agencies, but also learn
    lessons to apply throughout the federal establishment.
        As rewarding as our accomplishments have been, we recognize that
    there is no room for complacency in view of the challenges facing us.
    Accordingly, we have established a set of priorities to carry us
    forward to address these challenges.
        First, we intend to continue to improve our ability to compete for
    skilled and motivated employees in the next century. A significant
    component of our ability to do so effectively will be our earned
    benefits package. The development of a center for benefits design and
    delivery will enable us to improve our benefits publications by using
    plain language and to move forward with appropriate enhancements, such
    as additional life insurance options and a long-term care insurance
    program for federal employees, annuitants, and their families. In that
    regard, we would urge the careful consideration of the administration's
    proposal for long-term care insurance which is currently pending before
    the Congress.
        Second, we have taken note of the requests by agencies for help in
    enhancing their ability to recruit and hire. We will be working with
    them to develop quick hiring programs tailored to their specialized
    needs. At the same time, we will give priority to enhancing employment
    opportunities for adults with disabilities, Hispanic Americans, and
    women, as well as to initiatives targeting computer security
    professionals.
        Third, we have rededicated ourselves to our core mission of
    providing oversight of the merit system. With many agencies already
    exempted from key provisions of civil service laws and many others
    seeking additional flexibilities, we must redouble our efforts to
    support compliance with the basic merit system principles. Additional
    oversight visits, coupled with our assistance to agency delegated
    examining units and our work on the development of agency internal
    accountability systems, will reduce the potential for mistakes and
    abuses.
        In fiscal year 2000, OPM will lead the effort to refocus attention
    on training and development programs for federal employees. By chairing
    the President's task force on federal training technology, I will be
    uniquely positioned to assist in the development of recommendations for
    using technology most effectively to promote lifelong learning
    throughout our workforce.
        We will also continue our internal work to modernize systems and
    processes in ways which complement the governmentwide vision of a
    federal human resources data network. Consistent with our leadership of
    the interagency human resources technology council, we have
    concentrated our efforts on significant improvements in our central
    personnel data file and on our retirement systems modernization
    project.
        Additionally, our ongoing commitment to family friendly programs in
    the federal workplace will be even more evident this year. The
    establishment of our family friendly workplace advocacy office will
    allow us to serve as a point of contact for those employees who need
    information about affordable child care, elder care, alternative work
    schedules, telecommuting, or any other related programs.
        Finally, we intend to build on the progress we have made in recent
    years in improving our financial management systems and procedures.
    Through the use of quality improvement teams which include
    representatives from various organizational components, including the
    Office of the Inspector General, we can eliminate the weaknesses in
    these areas and improve the quality of service we provide to all of our
    constituencies.
        Turning to our appropriations request for fiscal year 2000, we are
    seeking $91,600,000 in general fund basic operating expenses. The 733
    full-time equivalent positions supported by this request will enable us
    to continue to provide leadership to the human resources management
    community as well as pursue the priority goals discussed earlier.
        The requested increase of $6,200,000 over fiscal year 1999 includes
    a required reimbursement of the National Archives and Records
    Administration (NARA) in the amount of $3,400,000. This payment
    compensates that agency for the cost of storing and servicing the
    government's official personnel files, and reflects the decision to
    change NARA's financing from appropriated funds to a reimbursable
    basis.
        Another $2,000,000 of the increase will be devoted to the creation
    of a cyber corps. Developed at the request of the national security
    community, this program will involve outreach to high schools,
    colleges, and universities to address a critical need by facilitating
    the recruitment and training of students for information technology
    positions in the federal service, with particular emphasis on
    information security occupations, where we are currently experiencing a
    shortage of qualified candidates.
        The remaining $800,000 of the increase will be devoted to our
    efforts to ensure compliance with the merit system principles,
    principally through expanded oversight, and to improvements in OPM's
    information technology infrastructure.
        For the administration of the government's retirement and insurance
    programs for its employees, we are asking that $95,500,000 be
    transferred from the trust funds for those programs to support 1,357
    full-time equivalents. An increase of $4,000,000 in funding to remain
    available until expended is sought for the retirement systems
    modernization effort previously mentioned. In addition, a small
    increase of $300,000 will assist in the development of a new center for
    benefits design and delivery.
        Of course, a significant portion of the funding for OPM's Office of
    the Inspector General is also provided through transfers from the trust
    funds. I would note that, of their total request for $10,600,000 to
    support 111 full-time equivalents, $9,600,000 will be provided through
    such transfers. A more detailed explanation of their request will be
    provided by that office in a separate statement for the record.
        It is also important to note that OPM uses payments from other
    agencies to its revolving fund, to finance a wide variety of services.
    From providing training for federal managers and executives to
    providing employment information to the public, from conducting
    investigations of individual candidates for critical-sensitive
    positions to testing potential inductees for the Department of Defense,
    our fiscal year 2000 budget includes an estimated $194,100,000 million
    in obligations and 673 full-time equivalents to be financed through the
    revolving fund.
        As always, since annuitants have no employing agencies to
    contribute the government's share of the costs of the health benefits
    and life insurance programs on their behalf, mandatory appropriations
    to include those contributions are included in OPM's budget request.
    Given the mandatory character of these accounts, we are requesting a
    ``such sums as may be necessary'' appropriation for each of them.
        We estimate that, for the 280,000 non-postal annuitants retiring
    since 1989 and electing post-retirement life insurance, we will need
    $36,200,000 while the financing of the health benefits coverage of the
    1,900,000 annuitants will require an estimated $5,100,000,000.
        Also, consistent with the mandate of Public Law 91-93, which
    established the current retirement financing system, we are requesting
    a ``such sums as may be necessary'' appropriation for the civil service
    retirement and disability fund. In order to address the payment of
    annuities under special acts (such as lighthouse widows) and the 30-
    year amortization of liabilities produced by changes (principally pay
    increases) made since the date of that act (1969) which have affected
    benefits, we estimate that a payment of $9.1 billion will be required.
        Finally, we believe it is important to note that we have again
    included in the general provisions the necessary legislative language
    to ensure consistency in the levels of pay adjustments provided to
    federal blue-collar and white-collar employees.
        For those white-collar employees, the President's budget for fiscal
    year 2000 seeks a pay increase of 4.4 percent, with the appropriate
    distribution between an across-the-board raise and locality pay to be
    determined following discussions with interested parties, including
    employee and professional organizations and others.
        Thank you for this opportunity to submit this Statement for the
    record. I would be pleased to respond to any additional questions or
    provide such additional information for the record as the subcommittee
    may require.
                                     ______

                    Questions Submitted by Senator Campbell
                   merit system principles and flexibilities
        Question. One of OPM's priorities in its fiscal year 2000 Annual
    Performance plan is to prevent merit system abuses and enhance human
    resources management in agencies through systematic oversight of agency
    systems and practices. Human resources management authorities
    increasingly have been made more flexible. What is OPM doing to ensure
    that agencies, including those exempted from standard civil service
    provisions, adhere to merit system principles and requirements while
    preserving the benefits associated with more flexible human resource
    systems?
        Answer. The Office of Merit Systems Oversight and Effectiveness
    (O&E) within OPM ensures that agencies covered by standard civil
    service provisions adhere to the merit system principles and
    requirements through a comprehensive onsite evaluation program that
    covers all the major departments and agencies on a four-year cycle and
    the small and independent agencies on a five-year cycle. The emphasis
    of these reviews is two-fold: to determine if agency human resources
    systems are taking full advantage of new flexibilities, and to ensure
    that the systems are adhering to merit system principles and
    requirements. In addition, O&E works with agencies to establish their
    own accountability systems to help them ensure adherence to merit
    system principles and requirements. For agencies that are exempted from
    standard civil service provisions such as the Internal Revenue Service
    and the Department of Defense Laboratories, OPM ensures that the design
    of these alternative human resources systems has at its core the merit
    system principles and ensures that there are provisions for oversight
    and accountability. We are also continuing to review ways that we can
    assist agencies exempted in whole or in part from standard civil
    service provisions in establishing and maintaining accountability in
    their personnel systems.
                         internal control improvements
        Question. The independent audit of OPM's 1996 and 1997 financial
    statements noted internal control weaknesses in a number of areas for
    OPM's retirement, health benefits, and life insurance programs. One of
    OPM's strategic goals is to resolve material weaknesses and improve
    financial systems and internal controls to maintain the integrity of
    the benefit trust funds by the year 1999. What improvements has OPM
    made to its internal controls?
        Answer. We are pleased to report the following internal control
    improvements in OPM's administration of the retirement, health benefits
    and life insurance programs:
    Agency Oversight
        Our earned employee benefits systems rely on the accuracy and
    completeness of the data employing agencies provide to Office of
    Personnel Management (OPM). We have made significant progress in this
    area by working jointly with the Office of Management and Budget (OMB)
    on the issuance of OMB Bulletin 98-08. This bulletin requires
    Inspectors General and Independent Public Accounting (IPA) firms to
    review agency systems and procedures for collecting, updating and
    transmitting benefits information, and to report their findings to OPM.
    We have reviewed the first round of reports submitted by agencies and
    have determined that they do not contain findings or other reportable
    matters that, when taken as a whole, would have a material impact on
    the withholdings and contributions presented in OPM's fiscal year 1998
    financial statements.
    Annuity Payments
        The Retirement and Insurance Service (RIS), OPM's Office of the
    Inspector General (OIG), and the IPA firm under contract to OPM
    performed an audit of OPM's retirement benefits payment system (annuity
    roll) in early 1998. Although the IPA recommended that RIS establish
    additional controls to ensure the accuracy of payments, they issued an
    unqualified audit opinion on the fiscal year 1997 Retirement Program
    financial statements. In late 1998, RIS and the IPA performed
    additional test work to determine the accuracy of annuity roll
    payments. The results were consistent with the IPA's earlier
    determination that the impact of erroneous payments on the Retirement
    Program's financial statements did not rise to the level of
    materiality. Although not a material weakness we continue to address
    the IPA's recommended improvements.
    Health Benefits Program Claims Payments
        In consultation with OPM's Office of the Chief Financial Officer,
    OIG, carriers, OMB and the General Accounting Office, RIS fully
    implemented the Federal Employees Health Benefits Program (FEHBP)
    Carrier Audit Guide in 1998. This guide requires experience-rated
    carriers to have the FEHBP portion of their financial statements
    audited annually and provides procedural guidelines and standards
    covering a wide range of carrier activities, such as claims processing,
    benefit payments and funds management. We have reviewed the 1998 audit
    opinions and other reports submitted by carriers in accordance with the
    Guide, and have deter mined that they do not contain adverse opinions,
    findings, material weaknesses or other reportable conditions that, when
    taken as a whole, would have a material impact on the portion of OPM's
    fiscal year 1998 FEHBP financial statements relating to experience-
    rated carriers. Accordingly, OPM's IPA firm has issued an unqualified
    opinion on its fiscal year 1998 audit of the FEHBP financial
    statements.
    Financial Systems
        We have also made substantial progress towards correcting the non-
    conformance reported on the absence of a transaction-level General
    Ledger for the Employee Benefits System. On October 1, 1998, RIS
    implemented a new core financial system. This system meets OMB Circular
    A-127 and all other Government-wide financial management systems
    requirements. We also consider this non-conformance to be corrected.
        Although all material weaknesses reported for the fiscal year 1997
    financial statements have been downgraded and/or resolved, OPM's IPA
    did report a material weakness relating to financial reporting under
    the FEHBP in its audit of the fiscal year 1998 financial statements.
    This new material weakness arose due to a difference between the
    general ledger (GL) and the benefits accounting system. This material
    weakness had no effect on the overall audit opinion because OPM and its
    IPA were able to obtain the necessary information by extracting,
    eliminating and reconciling the general ledger accounts. We are in the
    process of reviewing and modifying our accounting structure to resolve
    this problem, and expect to do so by the end of fiscal year 1999.
                             pay adjustment process
        Question. OPM's fiscal year 2000 performance plan has a goal of
    proposing a credible annual pay adjustment process during fiscal year
    1999. In addition, OPM has committed to develop legislative proposals
    by 2002 under which annual pay adjustments would be considered in the
    context of a performance-oriented system of total compensation. What is
    OPM doing to follow through on its stated goals of developing a
    credible annual pay adjustment process and of considering pay in the
    future in light of the full compensation package available to Federal
    and non-Federal employees?
        Answer. The Conference Report on the Treasury and General
    Government Appropriations Act, 1999, directed the President's Pay Agent
    (the Directors of the Office of Personnel Management and the Office of
    Management and Budget and the Secretary of Labor) to provide the Senate
    and House Appropriations Committees by May 1, 1999, with any pay-
    setting methodology concerns it has with regard to the Federal
    Employees Pay Comparability Act of 1990 (FEPCA). The Pay Agent's
    report, dated April 30, 1999, discusses the Administration's major
    methodological and technical concerns about the annual pay adjustment
    process for General Schedule employees and suggests a few basic
    principles that should guide the Government's efforts to address these
    concerns. In a letter transmitting the report to the Senate and House
    Appropriations Committees, the Pay Agent stated that it would be
    pleased to work with Congress ``to fashion an appropriate package of
    legislative reforms that will go a long way toward achieving our mutual
    goal of establishing a credible annual pay adjustment process.''
        With respect to the longer-term effort to reexamine all aspects of
    Federal compensation and benefits, the present report touches on only
    one of those aspects, that is, the annual across-the-board adjustments
    to the rates of pay within the General Schedule salary structure. OPM's
    total compensation policy review will look at a much broader range of
    compensation issues such as the methods used to evaluate and classify
    work, better ways to emphasize and reward performance and results, the
    kinds of employee benefits that will help attract and retain a quality
    workforce in the next millennium, and effective approaches for meeting
    the merit system principle that private sector pay should be considered
    in setting the levels of pay for Federal employees. Stakeholders will
    be fully involved in examining these issues and considering options for
    possible legislative changes in the future.
                                     ______

                     Questions Submitted by Senator Shelby
                     advanced vehicle technologies program
        Question. The Advanced Vehicle Technologies Program is a joint
    Department of Transportation/Department of Energy program designed to
    demonstrate the market viability of U.S.-built medium and heavy duty
    vehicles that meet emission standards for 2004 and contribute to a
    reduction in greenhouse gases. The Research and Special Programs
    Administration is the lead agency on this program for DOT; the Office
    of Energy Efficiency and Renewable Energy is the lead office at DOE.
    Currently, the program is managed under the auspices of the Defense
    Advanced Research Projects Agency (DARPA) at the Department of Defense.
    Please detail the funding history of this program, from its inception
    through the funding levels requested for fiscal year 2000, in each
    applicable executive branch department, agency and office. Provide both
    the requested level, the appropriated level, and total for each year.
    What is the statutory authorization for this program? When does the
    authorization expire? Who is the congressional authorizing committee?
        Answer. In 1998, the Transportation Equity Act for the 21st Century
    (TEA-21) authorized the Advanced Vehicle Program (AVP) at $50 million
    annually through fiscal year 2003, to be directed by the Secretary of
    Transportation. The authorizing committee in the House was the
    Committee on Transportation and Infrastructure, and the authorizing
    committee in the Senate was the Committee on Commerce, Science and
    Transportation.
        Fiscal year 1999 marks the first year of existence for the Advanced
    Vehicle Technologies Program (AVP). In fiscal year 1999, a total
    Federal allocation of $14 million will be matched by at least an equal
    amount provided by the seven regional consortia, a partnership funded
    by public/private sources. fiscal year 1999 Transportation
    Appropriations included $5 million for the Research and Special
    Programs Administration (RSPA) of the Department of Transportation
    (DOT) to ``support a public/private partnership to design, develop, and
    deploy alternative fuel and propulsion systems focusing on medium and
    heavy vehicles.'' Congress directed the Department of Defense (DOD) to
    provide another $9 million from the Defense Advanced Research Projects
    Agency (DARPA) for this joint program. The fiscal year 1999 President's
    Budget requested $20 million for this program comprised of $10 million
    for DOT and $10 million for the Department of Energy (DOE), Office of
    Transportation Technologies; subsequently, no funding was requested by
    DOD or provided by Congress for DOE.
        The fiscal year 2000 President's Budget includes $20 million for
    DOT/RSPA to support the AVP and represents the total Federal investment
    requested for this program. A total estimated fiscal year 2000 program
    level of over $40 million leverages the Federal request for $20 million
    of DOT funding with an equal amount provided by the seven regional
    consortia, which represent a public/private partnership and conduct
    research under the program. In fiscal year 1999, the seven regional
    consortia developed 100 full proposals which requested over $40 million
    in Federal funding with more than a $40 million public/private sector
    match. The Department of Energy did not request funds for AVP in fiscal
    year 2000.
        The AVP represents the successful transition to civilian agency
    management of the Electric and Hybrid Vehicle Technologies (EHV)
    partnership program previously run by DARPA. Under DARPA management,
    the EHV program had been specifically earmarked within appropriations
    by Congress for $25 million in fiscal year 1993, $46 million in fiscal
    year 1994, and $15 million each for fiscal year 1995, fiscal year 1996,
    fiscal year 1997, and fiscal year 1998. This funding was not included
    in the President's Budget for those fiscal years. Having successfully
    transitioned EHV to civilian agency management, DARPA has no plans to
    continue funding support for the AVP after fiscal year 1999.
        The following represents DOD and other non-transportation
    investments in establishing the global positioning system, including
    the network of satellites. The summary table shows the Department of
    Defense (DOD) research and development, procurement and military
    construction investment in the Global Positioning System satellites and
    ground control systems from 1974-2005. Per the Committee's request, it
    does not include Department of Transportation funding. It also does not
    include DOD or other Department funding specifically related to the
    nuclear detonation detection capability which is installed on some GPS
    satellites; launch funding, or funding for development and procurement
    of applications, or user equipment.

     DOD and Other Non-Transportation Investments in the Global Positioning
                                     System

                            [In Millions of Dollars]

            Fiscal Year                                               Amount
    1974-1998.........................................................$4,179
    1999..............................................................   196
    2000..............................................................   284
    2001-2005......................................................... 1,555
                                                                      ______
        TOTAL 1974-2005............................................... 6,214
               magnetic levitation technology deployment program
        Question. Why has the Administration requested that a firewall-
    protected TEA-21 program, the Magnetic Levitation Technology Deployment
    program, be zeroed out in order to transfer the $20,000,000 in
    guaranteed highway trust funds to the Advanced Vehicle Technologies
    Program? Please provide a name, title, office location, and phone
    number for the staff coordinator in each participating agency.
        Answer. The Administration supports the eventual deployment of cost
    effective and economically justified Magnetic Levitation (Maglev)
    systems. In fiscal year 1999, the Federal Railroad Administration (FRA)
    received $15 million in guaranteed contract authority for Maglev pre-
    construction activities. These funds are being used to design up to
    five potential sites for Maglev development. TEA-21 also authorized
    $950 million in non-guaranteed funds for a competitively awarded grant
    for the construction of one of these sites.
        Most public and private studies conclude that Maglev's public
    benefits fall short of its public costs. FRA currently estimates that
    the public benefits from investing in Maglev would be less than half of
    public cost. To make Maglev a more cost-effective public investment,
    the President's fiscal year 2000 Budget requests $20 million for FRA to
    conduct research designed to reduce the costs of developing and
    implementing Maglev systems. At the same time, the President's Budget
    proposes to reallocate the $20 million provided for Maglev pre-
    construction in fiscal year 2000 to the Advanced Vehicle Technologies
    program. This program will play an important role in making
    commercially available vehicles which meet the 2004 emission standards.
        Federal Railroad Administration contact:
        James T. McQueen, Associate Administrator for Railroad Development
    (202) 493-6381, 400 7th Street, S.W., Stop 20, Washington, DC 20590
           nationwide differential global positioning system (ndgps)
        Question. In the fiscal year 1999 Senate Report 105-249
    accompanying the Transportation Appropriations bill, on page 112 the
    Department of Transportation was directed to submit a report to the
    House and Senate Committees on Appropriations as part of the fiscal
    year 2000 budget justification identifying the long-term costs,
    benefits, and cost sharing that might be reasonably expected for the
    nationwide differential global positioning system. The likely financial
    role of each affected federal agency, as well as states and the private
    sector were to be specified to the greatest extent possible. This
    report was not included in the Federal Railroad Administration's
    detailed justification. Was it included in another agency's
    justification? If so, please specify where that report is located. If
    not, please provide that report for the record.
        Please detail the funding history of this program, from its
    inception through the funding levels requested for fiscal year 2000, in
    each applicable executive branch department, agency and office. Provide
    both the requested level, the appropriated level, and total for each
    year.
        What is the statutory authorization for this program? When does the
    authorization expire? Who is the congressional authorizing committee?
    Please provide a name, title, office location, and phone number for the
    staff coordinator in each participating agency.
        Answer. The Federal Railroad Administration (FRA), the lead agency
    for the Administration in this effort, submitted it for final
    Administration clearance in early May. All participants in the program
    (including the Departments of Transportation, Commerce, Interior,
    Agriculture; the Army Corps of Engineers, and the United States Air
    Force) provided input to the report through their representatives on
    the DOT-chaired NDGPS Policy and Implementation Team (PIT). The report
    will outline the costs of deploying NDGPS and describe the potential
    benefits to be derived from the system as well as possible cost-sharing
    arrangements.
        Section 346 of Public Law 105-66, authorized the USDOT to
    establish, operate, and manage the NDGPS, including taking receipt of
    necessary Ground Wave Emergency Network (GWEN) sites and equipment.
    This provision does not expire. While Public Law 105-66 is an
    appropriations bill, the authorizing committees with jurisdiction are
    the House Transportation and Infrastructure Committee and the Senate
    Commerce Committee.
        The funding history for NDGP's capital is as follows: $8 million
    total was appropriated for fiscal years 1998 ($2.4M) and 1999 ($5.5M).
    For fiscal year 2000 the FRA is requesting $7.2 million for capital and
    $3.2 million for operating costs, both to be derived from the
    unanticipated increase in highway guaranteed spending resulting from
    higher than expected gas tax receipts, referred to as the Revenue
    Aligned Budget Authority (or RABA). This request reflects the full
    amount originally sought by the Department of Transportation in the
    fiscal year 2000 President's Budget. All NDGPS funding in fiscal year
    1998 and fiscal year 1999 was appropriated directly to the Coast Guard.
    On February 8, 1999, the Secretary of Transportation delegated his
    authority under Section 346 of Pub. L. 105-66 to the Federal Railroad
    Administrator to determine the Federal requirements for the NDGPS (64
    Fed. Reg. 7813, February 17, 1999).
        The following list provides the names, titles, office locations,
    and phone numbers for the staff coordinators in each participating
    agency which are serving as their agency's representative on the DOT-
    chaired NDGPS Policy and Implementation Team (PIT):
        James A. Arnold, Engineer and FHWA Representative, Federal Highway
    Administration, Room T201, Turner Fairbank Highway Research Center,
    6300 Georgetown Pike, McLean, Virginia 22101, 202-493-3265
        LCDR John Macaluso, PIT Chairman and OST Representative, USDOT
    (Office of the Secretary of Transportation, Office of the Assistant
    Secretary for Transportation Policy, Office of Radionavigation and
    Positioning), 400 Seventh Street, S.W., Room 10309, Washington, DC
    20590, 202-366-0362
        John A. Kern, Senior Attorney and Federal Railroad Administration
    Representative, Federal Railroad Administration, 1120 Vermont Avenue,
    N.W., Mailstop10, Washington, DC 20590, 202-493-6044
        Richard C. Shamberger, NDGPS Program Manager and Federal Railroad
    Administration Representative, Federal Railroad Administration, 1120
    Vermont Avenue, N.W., Mailstop 20, Washington, DC 20590, 202-493-6371
        LCDR Leonard W. Allen III, U.S. Coast Guard Representative, USCG
    Navigation Center, 7323 Telegraph Road, Alexandria, VA 22315-3940, 703-
    313-5888
        William Bergen, U.S. Army Corps of Engineers Representative,
    HQUSACE, 20 Massachusetts Avenue, NW, Washington, DC 20314-1000, 202-
    761-1553
        Richard Snay, U.S. Department of Commerce, NOAA/NGS (Room 8112),
    1315 East-West Highway, Silver Spring, MD 20910, 301-713-3205 ext 155
        In addition, representatives from other agencies are:
        Larry Hothem, Senior Physical Scientist, U.S. Department of
    Interior, U.S. Geological Survey, 1521 National Center, Reston, VA
    20192, 703-648-4663
        William Belton, U.S. Department of Agriculture, U.S. Forest
    Service, 201 14th Street, SW, Washington, D.C. 20250, 202-205-1428
        Stanley Howard, Lt. Col., U.S. Air Force, Chief, Readiness and
    Sustainment Division, Directorate, Communications and Information, U.S.
    Air Force, Langley AFB, VA 757-764-4166
                                     ______

                         MERIT SYSTEMS PROTECTION BOARD
                Prepared Statement of Ben L. Erdreich, Chairman
        Chairman Campbell, Ranking Member Dorgan, and Members of the
    Subcommittee. Thank you for the opportunity to submit this statement
    for the record and, as the Subcommittee begins its consideration of the
    appropriations for the U.S. Merit Systems Protection Board and other
    components of the Federal government's civil service system, to discuss
    MSPB funding for the next year.
        As we celebrate the 20th anniversary of the enactment of the Civil
    Service Reform Act of 1978, I must comment on what a different world
    the Federal workplace is than it was 20 years ago. It is much smaller--
    the workforce has been cut by some 300,000 jobs. It is more customer
    oriented. Regulations have been streamlined. Accountability and
    performance are the focus of management. And, information technology is
    changing everyone's daily work.
        But, despite all these changes, it is also true that the principles
    underlying the CSRA remain sound and viable. And, there is no change in
    the MSPB's commitment to promoting merit and fairness in the operation
    of the Federal civil service system. The Board's neutral, independent
    adjudication of employee appeals ensures a fair and efficient workplace
    and its published studies provide a broad view of trends, issues, and
    problems facing Federal employees and managers. Both functions are
    critical to preserve a merit-based employment system that benefits not
    only Federal employees but the public they serve.
                            managing for the future
        I am pleased to report that the MSPB today is 23 percent smaller
    than when I became Chairman in 1993, a decrease from 323 to 250
    employees. At the same time, we have not experienced the decline in
    case receipts that we had anticipated because of government-wide
    downsizing. Rather, the historic level of about 10,000 cases a year
    continues. To process cases at this level with our reduced resources
    has required significant organizational planning.
        The increasing complexity of cases has also shaped our long-range
    strategic plans. Basic adverse actions are becoming more complex. To
    claims of removals and suspensions, many appellants are adding
    allegations of disability, sex, race and/or age discrimination, Family
    and Medical Leave Act issues, claims of reprisal for whistleblowing,
    and Uniformed Services Employment and Reemployment Rights Act (USERRA)
    rights. All of these issues must be addressed, lengthening the time
    required for hearings and decision writing.
        In addition, Board jurisdiction and appealable matters are
    changing. The Board estimates that it might receive some 1,000
    additional appeals under the Veterans Employment Opportunities Act of
    1998. The Veterans Programs Enhancement Act of 1998 extended Board
    jurisdiction under USERRA to cover claims of violations that occurred
    before USERRA was enacted (October 13, 1994). The Presidential and
    Executive Office Accountability Act of 1996 extends the Board's
    jurisdiction to some 1,700 employees and requires the Board to apply
    civil rights and labor laws.
        In light of these circumstances and budget constraints, we have
    continued to review our operations, reducing management layers,
    consolidating field offices, eliminating administrative and support
    staff, and devoting more resources to critical case-processing
    functions. Even with all that, we determined that more must be done.
    After careful evaluation, we concluded the answer was to change our
    processes through information technology.
                             information technology
        MSPB is in the process of implementing an integrated document
    management and workflow system that will revolutionize the way we do
    business. After full implementation, agencies, representatives, and
    Board employees will have easy electronic access to documents in case
    records. The electronic filing system will improve employee
    productivity, allow the Board to reduce staff costs, reduce legal
    research and administrative costs, provide better customer service--and
    produce significant cost savings--some $1,015,000 to the Board,
    $250,000 to our customers, for a total of $1,265,000 annually. See
    attached analysis of projected savings.
        The first phase of the system includes modules for case management,
    document management, document creation, and legal research. The next
    phase involves on-line submission and acceptance of appeals, briefs,
    and other case-related materials and provides access to electronic case
    records by all Board employees. The project is being carefully
    implemented, step by step, using off-the-shelf software rather than
    expensive custom-designed--and untested--products. To avoid costly
    mistakes, we are using prototypes and pilot projects to test components
    during each phase of the development process. In this initiative, we
    have kept in mind the Government Paperwork Elimination Act that
    encourages use of electronic information technologies (Pub. L. No. 105-
    277 (1998)) and the recently proposed OMB regulations requiring
    agencies to provide optional use and acceptance of electronic documents
    and electronic record-keeping by October 2003.
                         alternative dispute resolution
        The MSPB has long looked to alternative dispute resolution to
    promote settlement of cases. The MSPB was authorized by the CSRA to
    experiment with alternatives to litigation and the Board early on
    established a policy to make settlement efforts in every case. For over
    a decade, the Board has settled some 50 percent of the cases not
    dismissed on jurisdictional or timeliness grounds. Last year, the Board
    settled almost 54 percent of cases not dismissed--a new high.
        In 1993, the Board initiated a program focused on settling cases
    pending for review of the initial decision by the full Board. Last
    year, the Board settled almost 30 percent of the cases selected for the
    program.
        The Board has also initiated planning for a formal training program
    to help agencies and employees achieve early resolution of potential
    cases. The program, to be conducted in partnership with the Public
    Administration Forum and a major university, is intended to develop a
    cadre of knowledgeable and skilled certified appeals resolution
    advisors who will be able to resolve cases prior to their being filed
    with the MSPB.
                                the mspb record
        The MSPB record remains strong. During fiscal year 1998, the
    Board's timeliness in issuing decisions meant that, on average, an
    appeal to the Board was processed through both initial and Board level
    review in about 10 months. This speedy processing is important because
    about 90 percent of Board appeals involve review of agency personnel
    actions--actions having a real impact on lives.
        At the same time, the MSPB has maintained the quality of its
    decisions. In fiscal year 1998, our principal reviewing court, the U.S.
    Court of Appeals for the Federal Circuit, left 92 percent of the MSPB
    decisions it reviewed unchanged.
        And, in the studies program, the MSPB provides relevant, timely
    assessments of basic personnel matters--important in light of the
    increasing decentralization of personnel authorities. MSPB studies of
    the civil service and merit systems are deliberately emphasizing issues
    of practical importance to Federal employees and managers. Recent
    reports focused on helping agencies recruit, select, motivate and
    manage a highly qualified workforce. Not only do Board studies provide
    useful recommendations, they also provide benchmarks against which
    current practices can be measured.
                                funding request
        Our fiscal year 2000 request is for $28,957,000 in appropriated
    funds and a $2,430,000 limitation on reimbursements from the Civil
    Service Retirement and Disability Fund. Because we believe the long-
    term ability of the Board to provide due process to those who come
    before it is at stake, we are exercising our budgetary bypass
    authority, 5 U.S.C. 1204(k), and request additional funds beyond the
    OMB passback level--an additional $1,371,000.
        Funding at the requested level is critical to maintain our current
    staffing levels--a bare minimum necessary to provide timely
    adjudication of cases and basic studies. We have assessed our operation
    repeatedly and further savings from cuts in personnel or operations are
    simply not feasible. We have little flexibility in our budget. In
    fiscal year 2000, about 74 percent of the budget will go for personnel
    compensation. Another 14 percent will go for fixed costs (11 percent
    for such things as rent, utilities, and maintenance costs and another 3
    percent for direct case processing costs, including travel, court
    reporting and legal research).
        The requested funding will also provide the resources necessary to
    implement the electronic case filing and document management systems,
    systems we believe are critical to our long-term ability to handle our
    cases. OMB expressed strong support for the integrated electronic case
    system but was only able to approve $529,000 of the $1,900,000 needed
    in fiscal 2000. As I noted, we have carefully planned this system to
    make our process more efficient, and, when implemented, to provide
    better service at lower cost.
        Thank you Mr. Chairman, Ranking Member Dorgan, and Members of the
    Subcommittee for your interest in and support of the civil service. We
    can all agree that neutral, third-party adjudication and oversight is
    essential to a Federal government that functions well. As you
    deliberate over the difficult funding choices this year, I ask you to
    take into account that litigation before the MSPB is not decreasing--
    either in volume or complexity. Support of our efforts to provide
    timely, quality adjudication of appeals through effective use of
    information technology will pay off.
        I look forward to working with you and your staff, and I will be
    happy to provide any additional information you would like.
              projected savings from the mspb adp improvement plan
        Under the Five Year ADP Plan the Merit Systems Protection Board
    well replace its outdated information technology with an integrated
    system featuring electronic filing, electronic publishing, and
    electronic case records. The plan provides a state-of-the-art system
    integrating case processing, case management, automated document
    preparation, and electronic storage of case documents. All components
    of the new system will be built using well tested commercially
    available off-the-shelf software (COTS). As a quality assurance check,
    the system will be implemented in phases using prototypes and pilot
    systems.

                         Summary of Annual Cost Savings

                             [At fiscal 1999 rates]

    Savings to MSPB...............................................$1,015,000
    Savings to our Customers......................................  $250,000
                        --------------------------------------------------------------
                        ____________________________________________________

        Total Annual Savings......................................$1,265,000

        (1) Reduce cost of legal research and end maintenance of outdated
    systems ($215,000 annually).
        (2) Reduce staff costs ($750,000 annually).
        (3) Reduce administrative costs such as paper, postage, and storage
    of documents ($50,000 annually).
        (4) Reduce customer costs and improve customer services ($250,000
    annually).
                projected savings the mspb adp improvement plan
    Explanation of Savings
        (1) Reducing costs of legal research and ending maintenance of
    outdated systems. ($215,000 annually)
      --Using Dataware software will reduce our on-line legal research
            costs of $23O,000 per year by approximately 50-60 percent for
            savings of about $115,000;
      --Using electronic legal research will reduce our paper subscriptions
            to research tools, saving MSPB about $50,000 annually; and
      --Eliminating obsolete hardware and ending software maintenance
            contracts will save about $50,000 annually.
        (2) Reducing staff costs. ($750,000 annually)
        The efficiency of the ADP system will increase staff productivity
    in adjudicating appeals. These efficiencies will be translated into
    savings through a combination of reducing staffing levels, if future
    workload levels permit, reassigning staff to other priorities, and/or
    reducing the overall grade levels required to process work.
      --Implementing a HotDocs based expert system and an improved Document
            Management System will reduce the time Administrative Judges
            and Headquarters attorneys spend on initially developing a
            case, and lower graded staff can be assigned to the early
            stages of case processing; and
      --Implementing an improved Case Management System, an Electronic
            File, Electronic. Filing, and a Document Management system will
            automate tasks such as preparing and mailing routine
            correspondence, orders and decisions, reviewing case files,
            entering data, and filing of briefs and pleadings, tasks now
            largely performed manually by MSPB attorneys and support staff.
        (3) Reducing administrative costs such as paper, postage, and
    storage of documents. ($5O,OOO annually)
        Using electronic correspondence and maintaining case records
    electronically through an enhanced Case Management System, Electronic
    Case File, Electronic Filing, coupled with an advanced Document
    Management System, will save about $50,OOO annually in paper, postage,
    and storage costs.
        (4) Reducing customer costs and improving customer services
    ($250,000 annually)
        Allowing our customers to file electronically will generate a
    savings of about $25 per appeal on the average 10,000 appeals MSPB
    receives each year.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--The following testimonies were received by
    the Subcommittee on the Treasury and General Government for
    inclusion in the record.
        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 separate hearings for
    nondepartmental witnesses.]
     Prepared Statement of Dr. Raymond E. Bye, Jr., Interim Vice President
                     for Research, Florida State University
        Mr. Chairman, thank you and the Members of the Subcommittee for
    this opportunity to present testimony. I would like to take a moment to
    acquaint you with Florida State University. Located in the state
    capitol of Tallahassee, we have been a university since 1950; prior to
    that, we had a long and proud history as a seminary, a college, and a
    women's college. While widely known for our athletics teams, we have a
    rapidly emerging reputation as one of the Nation's top public
    universities. Having been designated as a Carnegie Research I
    University several years ago, Florida State University currently
    exceeds $110 million per year in research expenditures. With no
    agricultural or medical school, few institutions can boast of that kind
    of success. We are strong in both the sciences and the arts. We have
    high quality students; we rank in the top 25 among U. S. colleges and
    universities in attracting National Merit Scholars. Our scientists and
    engineers do excellent research, and they work closely with industry to
    commercialize those results. Florida State ranks fourth this year among
    all U.S. universities in royalties collected from its patents and
    licenses, and first among individual public universities. In short,
    Florida State University is an exciting and rapidly changing
    institution.
        Mr. Chairman, let me describe an outstanding project that FSU is
    pursuing this year--The Institute on World War II and the Human
    Experience. This Institute is working to amass and make available to
    scholars, teachers, and the general public the letters, diaries,
    memories, oral histories, photos, and other memorabilia of millions of
    Americans who served under the colors or labored to equip those who
    did. The largest collection in the country, that of the Army at
    Carlisle Barracks, contains the donation of only 20,000 individuals;
    namely, less than one percent of one percent of those who served, not
    including defense workers. Unfortunately, much more of this
    irreplaceable material is being lost, misplaced, or destroyed than is
    being donated to institutions around the country. To protect the legacy
    of the surviving 6.5 million veterans, it will take a determined effort
    and the cooperation of all interested parties.
        FSU, through its World War II Institute (supported by the
    University's Archival and Oral History Programs), is endeavoring to
    create a national and comprehensive archive that will permit the
    writing of good social and cultural history of the late 1930s and the
    1940s. The papers that it has already collected reflect the experiences
    of men and women, of all branches of the service, and of every theater
    of operations during World War II. In addition to preserving the
    indispensable original documents necessary to write the history of this
    long neglected area (namely, the contributions and experiences of the
    ordinary American citizen during wartime), the WWII Institute is
    preserving the human interest anecdotes that are the key to interesting
    future generations of students in magnitude of the accomplishment of
    their grandparents. A uniquely interesting feature of the FSU effort is
    its collection of more than 3,000 student interviews (over a period of
    30+ years) with their grandparents about the older generation's lives
    during World War II.
        For the purposes of a broader education in American values,
    research into the true stories of ``GI Joe'' and ``Rosie the Riveter'',
    and instruction in civic duty exercised under the most stressful of
    circumstances, the Institute on World War II and the Human Experience
    is dedicated to bringing together as much of these insights as
    possible. Rather than the story of the unusual battle or the
    extraordinary general, its holdings reflect what one vet described as
    the life of the ``anonymous solider who won the war'' and another spoke
    of as those written memories that prove ``I existed and made a
    difference.'' The amazing volume of materials that vets have donated to
    FSU fully justify its on-going plans to raise a suitable endowment to
    run the WWII Institute and obtain archival space and resources for its
    rapidly-expanding collection of memorabilia and memories on paper of
    this wartime generation.
        The Department of Florida Veterans of Foreign Wars and American
    Legion support the Institute concept.
        Funding will be requested from the National Historical Publications
    and Records Commission of the National Archives at the $1 million level
    for fiscal year 2000. Private resources will be added to this effort as
    well.
        Mr. Chairman, this is just one of many exciting activities going on
    at Florida State University that will make important contributions to
    solving some key problems and concerns our Nation faces today. Your
    support would be appreciated, and, again, thank you for an opportunity
    to present these views for your consideration.
                                     ______

     Prepared Statement of Robert M. Tobias, President, National Treasury
                                Employees Union
        Chairman Campbell, Senator Dorgan and distinguished members of the
    subcommittee, my name is Robert M. Tobias and I am National President
    of the National Treasury Employees Union (NTEU). Our union represents
    160,000 dedicated federal employees in the Department of the Treasury,
    and twelve other agencies. The actions of this subcommittee directly
    affect their lives, livelihood and working conditions.
        Our members who work for agencies under this subcommittee's
    jurisdiction perform some of the toughest jobs in government. They
    enforce the tax and trade laws Congress sets and they face down vicious
    international drug cartels to stem the flow of illegal narcotics and
    contraband into our country. The employees of these agencies continue
    to confront rapidly increasing workloads with a static amount of
    personnel and fiscal resources. I urge that the subcommittee make wise
    choices to properly fund these agencies so that they can effectively
    perform the mission Congress has given them.
                            internal revenue service
        Last year, Congress passed the IRS Restructuring and Reform Act.
    Congress made many changes and needed reforms as to how the IRS works
    and how it can better serve the American taxpayer and its mission to
    enforce the tax law. If Congress was serious when it passed the
    Restructuring Act, it must now give IRS the resources necessary to make
    that legislation meaningful. Too much work and effort went into that
    legislation for it to be cavalierly ignored in the funding process.
        The Administration has requested $8,105,000,000 for fiscal year
    2000. This is only a mere $2,000,000 over the fiscal year 1999 budget.
    NTEU asks that Congress fund the full amount requested by the
    Administration in order to see that the restructuring effort is
    successful. Any less would seriously undermine the agency's work. The
    coming fiscal year will be the most critical one in determining if the
    changes desired in the IRS will stick. NTEU's members at IRS are poised
    to take on the challenges we have been given. But employee morale, so
    essential to bringing to fruition the vision of a customer service-
    oriented agency that meets its revenue collection mission, can be
    destroyed by underfunding of agency resources.
        Mr. Chairman, I need to mention one other matter that also has the
    possibility of undermining the IRS employee morale. NTEU believes that
    Section 1203 (b) of the IRS Restructuring and Reform Act regarding
    termination of employment for certain matters of misconduct is a
    sledgehammer approach with the potential for excessive unfairness to
    employees. Our members refer to Sec. 1203 (b) as ``The Ten Deadly
    Sins.'' Employees found to have committed one of the ``Ten Deadly
    Sins'' must be terminated. Once misconduct has been found, a lesser
    penalty cannot be substituted for the decision to remove regardless of
    the circumstances. NTEU finds this particularly troubling as many of
    the provisions are vague and untested. Under Section 1203 (b) every
    taxpayer complaint must be investigated by the newly created Treasury
    Inspector General for Tax Administration (TIGTA) and in many instances
    employees are not allowed to have a union representative present as was
    the case in the past. Employees are terrified that disgruntled
    taxpayers will make false claims that they will not be able to
    ``unprove.'' I fear that their fear will have a negative impact on tax
    collection efforts and I would ask this subcommittee to look into the
    potential of reduced revenue collection due to fears of 1203 (b)
    actions.
        More than just adequate funding is needed at IRS. The funding must
    be spent right. The purchase of improved technology is important, but
    even more critical is the need for greater employee training to handle
    increasing complex tax law and tax administration responsibilities. In
    the previous two years alone, Congress brought about over 1,260 changes
    in the tax code.
        The new IRS will become more accessible to taxpayers by providing
    24 hour/7 day a week telephone service, expanded walk-in service and
    improved service to small businesses. But expanded service is not true
    service unless these frontline workers have had the proper training and
    receive the necessary technology to do their job. The Administration
    proposal asks for $17,000,000 for technical training. NTEU is
    pessimistic that this in an adequate amount and certainly believes any
    less is courting disaster. I would note, Mr. Chairman, that in a recent
    IRS customer satisfaction survey, the areas of lowest needs for
    improvement was the general courtesy and professionalism of IRS
    employees. The areas of highest need was the accessibility of the toll-
    free line, expanded office hours at the walk-in centers and the
    shortness of time employees had to spend with customers.
        It is critically important that Congress fund the agency request of
    $140,000,000 for IRS to restructure, reorganize and retrain the IRS
    workforce. Realigning the IRS to four new operating divisions (wage and
    investment, small business/self-employed, large and mid-sized
    businesses, and non-profits) creates some temporary expenses for
    implementation, but without this funding the entire Reorganization Act
    can fall apart. This is not a huge sum considering the enormous changes
    Congress has asked the IRS to make. We do recognize it is a substantial
    increase from the $25,000,000 appropriated in fiscal year 1999.
    However, one could not find a better example of being penny wise and
    pound foolish than the failure to fund this request.
                              u.s. customs service
        The Administration has requested a funding level of $1,930,000,000
    and 17,389 FTEs for fiscal year 2000 for the U.S. Customs Service. The
    importance of the work of this agency cannot be overemphasized. Customs
    makes more drug seizures than every other federal agency combined,
    keeping 1,300,000 pounds of illegal drugs out of this country. Its
    employees processed 19,700,000 commercial entries (up 1,800,000 from
    last year) and 460,000,000 personal entries (up by 13,100,000 from the
    previous year). Despite the great successes of Customs employees in
    these fields, the growth in legitimate trade as well as illegal
    narcotic smuggling and currency laundering continues at incredible
    rates, far outpacing federal resources. In addition, the agency is
    underfunded in fulfilling its duty to stop the importation of products
    made by forced child labor and of child pornography sent over the
    Internet. Moreover, with the recent allied action in Serbia and the
    often violent reaction of America's critics in parts of the world, NTEU
    questions if the U.S. Customs Service's resources to combat terrorism
    are sufficient.
        NTEU strongly supports new funding for better employee training.
    The Administration proposes a new position of Assistant Commissioner
    for Training and Development. We believe this is a good start. NTEU
    supports expansion of the new employee training program for cultural
    awareness initiated last year at major airports. Customs inspectors
    must greet every arrival not knowing if they are facing someone trying
    to fill our children's veins with drugs or an elderly couple returning
    from their first overseas trip after a lifetime of scrimping and
    saving. It is a tough job and Congress should not be miserly in
    providing funds to help these workers do their job right.
        It is also important that Congress fund the Automated Commercial
    Environment (ACE) system. NTEU recognizes that this is an expensive and
    vital initiative. But the alternative is to rely on a 16 year old,
    dated system that makes it impossible for employees to do their work
    efficiently. The continued growth in trade, tourism and illegal
    activities show no signs of abating. Congress cannot leave Customs
    behind as the world moves into the third millennium.
        Our Union has been working with Customs management in a
    partnership. We believe that such a relationship is the most productive
    for the employees, the managers and the mission of the Customs Service.
    We appreciate Commissioner Kelly's statements that the extremely
    successful Operation Brass Ring would not have been possible without
    the labor-management partnership at Customs. NTEU members in the
    Customs Service are committed to accomplishing both the drug
    interdiction and trade facilitation missions of the agency, but they
    need adequate resources to be successful.
        The Administration's budget request proposed a number of user fees
    to fund the Customs Service. NTEU has no particular philosophical
    objection to any of these fees. We are very concerned, however, that
    failure to either enact such fees or find money elsewhere would cause
    extreme damage to the important work of Customs. Any cuts in funding
    from the proposed budget threaten to cause real disruptions in
    international trade and tourism, real barriers to drug seizures and
    terrorism prevention, real deficiencies in fighting child labor and
    money laundering. However the agency is funded, reductions in resources
    are not acceptable.
                              federal employee pay
        Finally, Mr. Chairman, let me address the issue of compensation for
    federal employees. Federal pay is governed by the Federal Employees Pay
    Comparability Act of l990 (FEPCA). Under FEPCA, federal employees
    should receive an annual nationwide pay adjustment based on the
    Employment Cost Index (ECI), plus a locality-based adjustment designed
    to close the gap between federal and private sector salaries. No
    federal pay raise since the law was signed have provided the full pay
    raise called for under its formula. The pay gap, as measured by the
    Bureau of Labor Statistics, is approximately 30 percent.
        FEPCA authorizes the President to issue an alternative pay proposal
    in the event of a ``national emergency or serious economic conditions
    affecting the general welfare.'' Each year, the President has used this
    loophole and declared an economic emergency--even in this year of
    budget surpluses.
        The federal budget is now balanced and the country has entered a
    period of budget surpluses, in no small part due to the sacrifices in
    federal pay and benefit cuts made by employees over the last decade. It
    is time for FEPCA to be followed and for federal employees to be paid a
    fair wage.
        President Clinton has recommended 4.4 percent raises for military
    and civilian federal employees in fiscal year 2000. Legislation
    providing a 4.8 percent military pay raise in January of 2000, a second
    substantial pay increase in July of 2000, and future military raises
    one-half percent more than private sector increases measured by the ECI
    is moving quickly through Congress.
        Parity between federal and military pay has been the norm for
    decades and federal civilian employees want parity with their military
    counterparts again in fiscal year 2000. Uniformed members of the
    military often work side by side with civilian federal employees. NTEU
    asks that the Appropriations Committee support parity between uniformed
    military and civilian pay in fiscal year 2000 and all efforts to close
    the pay gap between federal and private sector pay.
        I would like to thank the Subcommittee again for the opportunity
    for our Union to present its views on the proposed budget for fiscal
    year 2000. As we enter this exciting, new millennium, I know we can
    count on Congress to stand with federal employees as we look to a
    future of progress and social betterment for our nation.
                                     ______

    Prepared Statement of the Council for Citizens Against Government Waste
        The Food and Drug Administration's (FDA) consolidation project
    reminds one of the movie ``Terminator.'' In it, the monster calmly
    declares, ``I'll be back'' and sure enough, it never seems to die. It
    keeps rearing its ugly head, recreating itself and attacking the hero
    and heroine, no matter what weapons are used against it. Finally, good
    wins over evil, and the monster dies the final death it should.
        The FDA's monstrous consolidation project, formally known as the
    Taj Mahal or Kessler's Kastle, is once again rearing its ugly self in
    the President's fiscal year 2000 budget in the form of a $136,000,000
    funding request. The plan is to build a consolidated campus at the
    former White Oak Naval Surface Warfare Center in Montgomery County,
    Maryland. It will provide space for the Office of the Commissioner, the
    Center for Drug Evaluation and Research, the Center for Devices and
    Radiological Health, and the Center for Biologics Evaluation and
    Research. According to a General Services Administration (GSA) estimate
    in November 1998, the total cost for this consolidation is expected to
    be $484,813,000. It appears that GSA has a project and construction
    manager, a public-private partner and an architect for the project.
    Yet, it appears, no prospectus has been approved by Congress for this
    boondoggle.
        But this is nothing new. Apparently no prospectus has been approved
    by Congress for the construction of an FDA facility to support a campus
    for the Center for Food Safety and Applied Nutrition. Yet, construction
    is underway. Congress unwisely appropriated $55,000,000 in the fiscal
    year 1996 Treasury, Postal Service, and General Government
    Appropriations Act. GSA figured this was a green light to proceed but,
    according to Public Law 104-52 ``funds available to the General
    Services Administration shall not (emphasis added) be available for
    expenses in connection with any construction, repair, alteration, and
    acquisition project for which a prospectus, if required by the Public
    Buildings Act of 1959, as amended, has not been approved, except that
    necessary funds may be expended for each project for required expenses
    in connection with the development of a proposed prospectus.'' Is the
    GSA breaking the law and misusing taxpayer dollars? That question must
    be addressed by the subcommittee.
        Without a prospectus, how is Congress supposed to know how much
    these buildings will cost the taxpayer, what type of yearly
    appropriations will be needed and, no doubt considering the
    construction of most federal buildings, when and how much the project
    will be over budget? Will there be another scenario like the Ronald
    Reagan International Trade Building, originally expected to cost
    $362,000,000, but ended up costing taxpayers $818,000,000? Or how about
    the Patent and Trade Office building in Northern Virginia, estimated to
    cost taxpayers $1,600,000,000 billion over the next 20 years in
    construction and leasing?
        For years, FDA has been requesting a consolidated campus. But the
    one being proposed is not ``consolidated.'' There is one campus that is
    supposed to be built in Maryland's Prince George's County, another
    campus that is supposed to be built in Montgomery County, and there is
    already a laboratory facility in Beltsville. It appears that FDA
    consolidation is not really the issue. What is really happening is
    pork-barrel spending and the creation of a lush, suburban office
    complex, close to a golf course, for FDA bureaucrats.
        Since the era of big government is supposed to be over, the Council
    for Citizens Against Government Waste (CCAGW) questions why Congress is
    even considering building a huge campus for the FDA. In an era of
    downsizing, it would appear Congress' first priority should be how to
    make FDA smaller and more effective--not providing expensive campuses
    that would allow the FDA to grow and hire more bureaucrats so it can
    find new areas to regulate, fill the Federal Register with more rules
    and cause more mischief.
        Most FDA employees are not running off to meetings across town so
    spending millions of dollars to convenience a small percentage of FDA
    employees seems a bit much. Building a sprawling campus will not
    decrease drug and medical device approval times. Furthermore, the
    Montgomery campus is not located near a metro station, which will force
    most employees to drive to work. This seems to be in direct conflict
    with the Clinton administration's efforts to protect the environment
    and encourage citizens to take advantage of public transportation!
        If FDA offices need to be improved, it would be more cost-effective
    to spend money to remodel them or to move employees into existing
    buildings rather than build a brand new facility. Modern technology
    such as computers and telephone or video conferencing allow employees
    to talk to one another in an efficient manner. More and more private
    sector businesses are using these modes of communication, why not the
    government? Furthermore, spending huge sums of federal dollars in
    wealthy Maryland suburbs seems unfair. This process goes against the
    Clinton Administration's desire of revitalizing the District of
    Columbia's economy or encouraging the location of federal offices into
    historic buildings located in cities.
        It is time for once and for all for Congress to terminate this
    expensive monster and fight on the side of the taxpayers.
                                     ______

         Prepared Statement of the International Community Corrections
                                  Association
        On behalf of the International Community Corrections Association
    (ICCA), we are pleased to submit this statement addressing the United
    States Appropriations with respect to Treasury and General Government
    operations for fiscal year 2000. The International Community
    Corrections Association is a membership organization representing more
    than fifteen hundred residential and non-residential programs and over
    250 private agencies throughout the United States. Over the past twenty
    five years, ICCA has provided information, training, and other services
    to improve the quality of care for offenders and to promote effective
    management practices.
        ICCA's comments focus on federal drug control activities critical
    to improving community corrections and intermediate sanctions. ICCA
    urges strengthening ONDCP's resources for assuring that all appropriate
    offenders receive drug treatment in every community.
        Until recently, community corrections options have been a neglected
    part of the National Drug Control Strategy. Community corrections
    options include: pre-trial supervision, probation and parole, intensive
    supervision, fines and day fines, restitution, forfeiture, impoundment,
    ignition interlock, community services, victim-offender reconciliation,
    home confinement, electronic monitoring, day reporting, halfway house
    residential treatment, and other services for offenders. It is
    estimated that at least sixty percent or more of all offenders are in
    need of substance abuse services. Approximately twenty percent receive
    services. At least two thirds of all offenders who need treatment do
    not receive it. Recent research, cost analysis, and longitudinal
    studies show that offenders who receive such transition programs as
    education, substance abuse intervention, and job training are much less
    likely to return to prison.
        Many programs with components that improve community corrections,
    such as the National Institute of Corrections and the Federal Bureau of
    Prisons community corrections centers, are worthy of sustained support.
    However, these programs have only a small impact on the thousands of
    lives that are ravaged by substance abuse. The National Drug Control
    Budget and the Office of National Drug Control Policy's Office of
    Demand Reduction should receive increased funding to actively address
    drug treatment for those under correctional supervision in the
    community.
    National Drug Control Budget
        We support the ONDCP's priorities in the National Drug Control
    Strategy. A range of community corrections programs such as Treatment
    Accountability for Safer Communities (TASC), drug courts, the Federal
    Bureau of Prisons Drug Treatment Program, Break-the-Cycle, and the need
    for partnership between corrections and treatment professionals are
    mentioned. However, an inadequate amount of funding is dedicated for
    these programs and for ONDCP's efforts to coordinate this fragmented
    field. The ONDCP budget should reflect greater emphasis on developing
    treatment throughout the entire correctional system. At least a ten to
    twenty percent increase in funding and oversight is necessary to impact
    addicted offenders.
        With respect to the President's budget, ICCA supports the request
    for criminal justice treatment through the Break-the-Cycle programs.
    The Break-the-Cycle programs should be expanded to many more
    jurisdictions and there should be funding for graduated sanctions,
    relapse prevention, and structured transitions back into the community.
        At the present time, the Federal Bureau of Prisons (FBOP) supports
    halfway houses where inmates serve the last few months of their
    sentences, preparing for release into the community. During this time,
    many offenders who are substance abusers receive treatment, seek
    employment, and re-establish family and community ties. Over the past
    several years the FBOP has increasingly supported improved drug
    treatment in prison and quality treatment in halfway house beds in
    federal community corrections centers. ONDCP should be encouraged to
    seek similar improvements at the state correctional level and for the
    District of Columbia.
    Office of Justice Programs
        In recent years, Congress has excluded community corrections from
    many categorical and block grant programs in favor of other
    initiatives. We support the administration's proposed Drug Intervention
    Program for fiscal year 2000. However, A review of the Office of
    Justice Programs budget request for fiscal year 2000 reveals that with
    the exception of Break-the-Cycle and drug treatment and testing for
    offenders, there is insufficient funding for drug treatment for
    offenders in drug courts or other programs.
        ICCA urges this Committee to encourage ONDCP to expand the
    proportion of demand reduction to interdiction programs and to place a
    higher priority on the expansion of intermediate sanctions. The federal
    appropriation should provide resources and oversight to address the
    critical shortage of treatment slots in community corrections.
        In closing, we must emphasize that community corrections are most
    often a public and private partnership. To provide adequate leadership,
    ONDCP must include local, federal, and state governments as well as
    private agencies in its efforts. Federal, state, and local governments
    should be encouraged through the appropriations process to enter into
    partnerships to plan, implement, and deliver effective community
    corrections programs which include substance abuse treatment. The ONDCP
    is well-positioned to provide the valuable assistance needed to carry
    on this work.
                                     ______

       Prepared Statement of the American Association of Retired Persons
        AARP appreciates the opportunity to comment on appropriations next
    year for the Tax Counseling for the Elderly (TCE) program. Over the
    last two decades, TCE has helped millions of middle and low income
    older persons accurately prepare their Federal, State or local tax
    returns. The AARP Foundation--a separate 501(c)(3) corporation--
    operates the largest nationwide TCE program under a cooperative
    agreement with the Internal Revenue Service (IRS).
        In authorizing TCE, Congress found that elderly taxpayers are often
    confronted with confusing tax provisions, resulting in overpayments or
    reliance upon expensive professional tax services. It also concluded
    that the particular needs of the elderly population were not being
    adequately addressed by the Internal Revenue Service. Under TCE,
    volunteer tax counselors are specially trained regarding those tax
    provisions which affect older Americans. IRS reports that many people
    with incomes below a specific level needlessly file returns. This
    results in unnecessary costs for all concerned. TCE helps to prevent
    such occurrences.
        Electronic filing and other alternative methods are now utilized
    under TCE, all of which increase the accuracy of tax returns while
    being cost effective to the IRS. Electronic tax filings--both business
    and personal--have proliferated during this decade. IRS states that one
    of its goals is to have 80 percent of all personal income taxes filed
    electronically by 2007. The growing complexity of taxes makes this type
    of filing desirable for TCE ``customers''. The program managed by AARP
    has expanded its use of alternative filing methods. In 1997, they
    accounted for roughly 28,000 of returns. One year later, they accounted
    for 59,290 returns--an increase of 111 percent.
        Funding for TCE has remained at the current $3,700,000 level since
    fiscal year 1994. In light of continued program growth and expanded use
    of electronic filing, AARP recommends a slight increase next year--from
    $3,700,000 to $3,950,000. This modest amount will help address the
    growing demand for assistance while meeting increased costs.
        Tax Counseling for the Elderly enables the IRS to assist minorities
    more effectively as well as disabled and hard-to-reach taxpayers. This
    includes the rural elderly and shut-ins, especially those residing in
    nursing homes or senior housing. Last year, assistance was offered in
    25 languages including American sign language.
        Approximately 31,000 volunteers are involved in providing TCE
    services at more than 10,000 sites across the country. When the program
    first began, it helped 846,000 taxpayers. Currently, over 1,600,000
    people receive tax counseling annually. While we do not have complete
    data for the current tax season, we expect TCE to continue to grow in
    the future. There are several reasons why this is likely to happen.
        First, the elderly population is increasing.
        Second, the complexities of our tax code cause many aged taxpayers
    particular difficulty in computing their tax obligations. Moreover,
    many aged citizens are not aware of the changes made in our tax laws
    over the past few years.
        Third, the Internal Revenue Service has increasingly turned to TCE
    programs for assistance, in large part because budgetary constraints
    have stretched the ability of the agency to respond directly to
    numerous public inquiries. Volunteers are contributing millions of
    hours annually in direct public service to older taxpayers.
        Older taxpayers with dependent children or grandchildren are also
    counseled regarding their eligibility for the earned income tax credit
    (EITC). Many older low income wage earners find themselves responsible
    4 for providing care for their dependent children or grandchildren.
    EITC is an important benefit for these individuals.
        The TCE program will continue to participate in successful
    campaigns such as the Reduce Unnecessary Filing initiative. Three-
    fourths of the taxpayers notified by IRS regarding this effort last
    year were 61 years of age or older. Many of these individuals
    subsequently turned to the TCE program for clarification and advice.
        Thank you again for this opportunity to comment on appropriations
    next year for the Tax Counseling for the Elderly program.

                           NONDEPARTMENTAL WITNESSES

        [Clerk's note.--The following testimonies were received by
    the Subcommittee on the Treasury and General Government for
    inclusion in the record.
        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 separate hearings for
    nondepartmental witnesses.]
     Prepared Statement of Dr. Raymond E. Bye, Jr., Interim Vice President
                     for Research, Florida State University
        Mr. Chairman, thank you and the Members of the Subcommittee for
    this opportunity to present testimony. I would like to take a moment to
    acquaint you with Florida State University. Located in the state
    capitol of Tallahassee, we have been a university since 1950; prior to
    that, we had a long and proud history as a seminary, a college, and a
    women's college. While widely known for our athletics teams, we have a
    rapidly emerging reputation as one of the Nation's top public
    universities. Having been designated as a Carnegie Research I
    University several years ago, Florida State University currently
    exceeds $110 million per year in research expenditures. With no
    agricultural or medical school, few institutions can boast of that kind
    of success. We are strong in both the sciences and the arts. We have
    high quality students; we rank in the top 25 among U. S. colleges and
    universities in attracting National Merit Scholars. Our scientists and
    engineers do excellent research, and they work closely with industry to
    commercialize those results. Florida State ranks fourth this year among
    all U.S. universities in royalties collected from its patents and
    licenses, and first among individual public universities. In short,
    Florida State University is an exciting and rapidly changing
    institution.
        Mr. Chairman, let me describe an outstanding project that FSU is
    pursuing this year--The Institute on World War II and the Human
    Experience. This Institute is working to amass and make available to
    scholars, teachers, and the general public the letters, diaries,
    memories, oral histories, photos, and other memorabilia of millions of
    Americans who served under the colors or labored to equip those who
    did. The largest collection in the country, that of the Army at
    Carlisle Barracks, contains the donation of only 20,000 individuals;
    namely, less than one percent of one percent of those who served, not
    including defense workers. Unfortunately, much more of this
    irreplaceable material is being lost, misplaced, or destroyed than is
    being donated to institutions around the country. To protect the legacy
    of the surviving 6.5 million veterans, it will take a determined effort
    and the cooperation of all interested parties.
        FSU, through its World War II Institute (supported by the
    University's Archival and Oral History Programs), is endeavoring to
    create a national and comprehensive archive that will permit the
    writing of good social and cultural history of the late 1930s and the
    1940s. The papers that it has already collected reflect the experiences
    of men and women, of all branches of the service, and of every theater
    of operations during World War II. In addition to preserving the
    indispensable original documents necessary to write the history of this
    long neglected area (namely, the contributions and experiences of the
    ordinary American citizen during wartime), the WWII Institute is
    preserving the human interest anecdotes that are the key to interesting
    future generations of students in magnitude of the accomplishment of
    their grandparents. A uniquely interesting feature of the FSU effort is
    its collection of more than 3,000 student interviews (over a period of
    30+ years) with their grandparents about the older generation's lives
    during World War II.
        For the purposes of a broader education in American values,
    research into the true stories of ``GI Joe'' and ``Rosie the Riveter'',
    and instruction in civic duty exercised under the most stressful of
    circumstances, the Institute on World War II and the Human Experience
    is dedicated to bringing together as much of these insights as
    possible. Rather than the story of the unusual battle or the
    extraordinary general, its holdings reflect what one vet described as
    the life of the ``anonymous solider who won the war'' and another spoke
    of as those written memories that prove ``I existed and made a
    difference.'' The amazing volume of materials that vets have donated to
    FSU fully justify its on-going plans to raise a suitable endowment to
    run the WWII Institute and obtain archival space and resources for its
    rapidly-expanding collection of memorabilia and memories on paper of
    this wartime generation.
        The Department of Florida Veterans of Foreign Wars and American
    Legion support the Institute concept.
        Funding will be requested from the National Historical Publications
    and Records Commission of the National Archives at the $1 million level
    for fiscal year 2000. Private resources will be added to this effort as
    well.
        Mr. Chairman, this is just one of many exciting activities going on
    at Florida State University that will make important contributions to
    solving some key problems and concerns our Nation faces today. Your
    support would be appreciated, and, again, thank you for an opportunity
    to present these views for your consideration.
                                     ______

     Prepared Statement of Robert M. Tobias, President, National Treasury
                                Employees Union
        Chairman Campbell, Senator Dorgan and distinguished members of the
    subcommittee, my name is Robert M. Tobias and I am National President
    of the National Treasury Employees Union (NTEU). Our union represents
    160,000 dedicated federal employees in the Department of the Treasury,
    and twelve other agencies. The actions of this subcommittee directly
    affect their lives, livelihood and working conditions.
        Our members who work for agencies under this subcommittee's
    jurisdiction perform some of the toughest jobs in government. They
    enforce the tax and trade laws Congress sets and they face down vicious
    international drug cartels to stem the flow of illegal narcotics and
    contraband into our country. The employees of these agencies continue
    to confront rapidly increasing workloads with a static amount of
    personnel and fiscal resources. I urge that the subcommittee make wise
    choices to properly fund these agencies so that they can effectively
    perform the mission Congress has given them.
                            internal revenue service
        Last year, Congress passed the IRS Restructuring and Reform Act.
    Congress made many changes and needed reforms as to how the IRS works
    and how it can better serve the American taxpayer and its mission to
    enforce the tax law. If Congress was serious when it passed the
    Restructuring Act, it must now give IRS the resources necessary to make
    that legislation meaningful. Too much work and effort went into that
    legislation for it to be cavalierly ignored in the funding process.
        The Administration has requested $8,105,000,000 for fiscal year
    2000. This is only a mere $2,000,000 over the fiscal year 1999 budget.
    NTEU asks that Congress fund the full amount requested by the
    Administration in order to see that the restructuring effort is
    successful. Any less would seriously undermine the agency's work. The
    coming fiscal year will be the most critical one in determining if the
    changes desired in the IRS will stick. NTEU's members at IRS are poised
    to take on the challenges we have been given. But employee morale, so
    essential to bringing to fruition the vision of a customer service-
    oriented agency that meets its revenue collection mission, can be
    destroyed by underfunding of agency resources.
        Mr. Chairman, I need to mention one other matter that also has the
    possibility of undermining the IRS employee morale. NTEU believes that
    Section 1203 (b) of the IRS Restructuring and Reform Act regarding
    termination of employment for certain matters of misconduct is a
    sledgehammer approach with the potential for excessive unfairness to
    employees. Our members refer to Sec. 1203 (b) as ``The Ten Deadly
    Sins.'' Employees found to have committed one of the ``Ten Deadly
    Sins'' must be terminated. Once misconduct has been found, a lesser
    penalty cannot be substituted for the decision to remove regardless of
    the circumstances. NTEU finds this particularly troubling as many of
    the provisions are vague and untested. Under Section 1203 (b) every
    taxpayer complaint must be investigated by the newly created Treasury
    Inspector General for Tax Administration (TIGTA) and in many instances
    employees are not allowed to have a union representative present as was
    the case in the past. Employees are terrified that disgruntled
    taxpayers will make false claims that they will not be able to
    ``unprove.'' I fear that their fear will have a negative impact on tax
    collection efforts and I would ask this subcommittee to look into the
    potential of reduced revenue collection due to fears of 1203 (b)
    actions.
        More than just adequate funding is needed at IRS. The funding must
    be spent right. The purchase of improved technology is important, but
    even more critical is the need for greater employee training to handle
    increasing complex tax law and tax administration responsibilities. In
    the previous two years alone, Congress brought about over 1,260 changes
    in the tax code.
        The new IRS will become more accessible to taxpayers by providing
    24 hour/7 day a week telephone service, expanded walk-in service and
    improved service to small businesses. But expanded service is not true
    service unless these frontline workers have had the proper training and
    receive the necessary technology to do their job. The Administration
    proposal asks for $17,000,000 for technical training. NTEU is
    pessimistic that this in an adequate amount and certainly believes any
    less is courting disaster. I would note, Mr. Chairman, that in a recent
    IRS customer satisfaction survey, the areas of lowest needs for
    improvement was the general courtesy and professionalism of IRS
    employees. The areas of highest need was the accessibility of the toll-
    free line, expanded office hours at the walk-in centers and the
    shortness of time employees had to spend with customers.
        It is critically important that Congress fund the agency request of
    $140,000,000 for IRS to restructure, reorganize and retrain the IRS
    workforce. Realigning the IRS to four new operating divisions (wage and
    investment, small business/self-employed, large and mid-sized
    businesses, and non-profits) creates some temporary expenses for
    implementation, but without this funding the entire Reorganization Act
    can fall apart. This is not a huge sum considering the enormous changes
    Congress has asked the IRS to make. We do recognize it is a substantial
    increase from the $25,000,000 appropriated in fiscal year 1999.
    However, one could not find a better example of being penny wise and
    pound foolish than the failure to fund this request.
                              u.s. customs service
        The Administration has requested a funding level of $1,930,000,000
    and 17,389 FTEs for fiscal year 2000 for the U.S. Customs Service. The
    importance of the work of this agency cannot be overemphasized. Customs
    makes more drug seizures than every other federal agency combined,
    keeping 1,300,000 pounds of illegal drugs out of this country. Its
    employees processed 19,700,000 commercial entries (up 1,800,000 from
    last year) and 460,000,000 personal entries (up by 13,100,000 from the
    previous year). Despite the great successes of Customs employees in
    these fields, the growth in legitimate trade as well as illegal
    narcotic smuggling and currency laundering continues at incredible
    rates, far outpacing federal resources. In addition, the agency is
    underfunded in fulfilling its duty to stop the importation of products
    made by forced child labor and of child pornography sent over the
    Internet. Moreover, with the recent allied action in Serbia and the
    often violent reaction of America's critics in parts of the world, NTEU
    questions if the U.S. Customs Service's resources to combat terrorism
    are sufficient.
        NTEU strongly supports new funding for better employee training.
    The Administration proposes a new position of Assistant Commissioner
    for Training and Development. We believe this is a good start. NTEU
    supports expansion of the new employee training program for cultural
    awareness initiated last year at major airports. Customs inspectors
    must greet every arrival not knowing if they are facing someone trying
    to fill our children's veins with drugs or an elderly couple returning
    from their first overseas trip after a lifetime of scrimping and
    saving. It is a tough job and Congress should not be miserly in
    providing funds to help these workers do their job right.
        It is also important that Congress fund the Automated Commercial
    Environment (ACE) system. NTEU recognizes that this is an expensive and
    vital initiative. But the alternative is to rely on a 16 year old,
    dated system that makes it impossible for employees to do their work
    efficiently. The continued growth in trade, tourism and illegal
    activities show no signs of abating. Congress cannot leave Customs
    behind as the world moves into the third millennium.
        Our Union has been working with Customs management in a
    partnership. We believe that such a relationship is the most productive
    for the employees, the managers and the mission of the Customs Service.
    We appreciate Commissioner Kelly's statements that the extremely
    successful Operation Brass Ring would not have been possible without
    the labor-management partnership at Customs. NTEU members in the
    Customs Service are committed to accomplishing both the drug
    interdiction and trade facilitation missions of the agency, but they
    need adequate resources to be successful.
        The Administration's budget request proposed a number of user fees
    to fund the Customs Service. NTEU has no particular philosophical
    objection to any of these fees. We are very concerned, however, that
    failure to either enact such fees or find money elsewhere would cause
    extreme damage to the important work of Customs. Any cuts in funding
    from the proposed budget threaten to cause real disruptions in
    international trade and tourism, real barriers to drug seizures and
    terrorism prevention, real deficiencies in fighting child labor and
    money laundering. However the agency is funded, reductions in resources
    are not acceptable.
                              federal employee pay
        Finally, Mr. Chairman, let me address the issue of compensation for
    federal employees. Federal pay is governed by the Federal Employees Pay
    Comparability Act of l990 (FEPCA). Under FEPCA, federal employees
    should receive an annual nationwide pay adjustment based on the
    Employment Cost Index (ECI), plus a locality-based adjustment designed
    to close the gap between federal and private sector salaries. No
    federal pay raise since the law was signed have provided the full pay
    raise called for under its formula. The pay gap, as measured by the
    Bureau of Labor Statistics, is approximately 30 percent.
        FEPCA authorizes the President to issue an alternative pay proposal
    in the event of a ``national emergency or serious economic conditions
    affecting the general welfare.'' Each year, the President has used this
    loophole and declared an economic emergency--even in this year of
    budget surpluses.
        The federal budget is now balanced and the country has entered a
    period of budget surpluses, in no small part due to the sacrifices in
    federal pay and benefit cuts made by employees over the last decade. It
    is time for FEPCA to be followed and for federal employees to be paid a
    fair wage.
        President Clinton has recommended 4.4 percent raises for military
    and civilian federal employees in fiscal year 2000. Legislation
    providing a 4.8 percent military pay raise in January of 2000, a second
    substantial pay increase in July of 2000, and future military raises
    one-half percent more than private sector increases measured by the ECI
    is moving quickly through Congress.
        Parity between federal and military pay has been the norm for
    decades and federal civilian employees want parity with their military
    counterparts again in fiscal year 2000. Uniformed members of the
    military often work side by side with civilian federal employees. NTEU
    asks that the Appropriations Committee support parity between uniformed
    military and civilian pay in fiscal year 2000 and all efforts to close
    the pay gap between federal and private sector pay.
        I would like to thank the Subcommittee again for the opportunity
    for our Union to present its views on the proposed budget for fiscal
    year 2000. As we enter this exciting, new millennium, I know we can
    count on Congress to stand with federal employees as we look to a
    future of progress and social betterment for our nation.
                                     ______

    Prepared Statement of the Council for Citizens Against Government Waste
        The Food and Drug Administration's (FDA) consolidation project
    reminds one of the movie ``Terminator.'' In it, the monster calmly
    declares, ``I'll be back'' and sure enough, it never seems to die. It
    keeps rearing its ugly head, recreating itself and attacking the hero
    and heroine, no matter what weapons are used against it. Finally, good
    wins over evil, and the monster dies the final death it should.
        The FDA's monstrous consolidation project, formally known as the
    Taj Mahal or Kessler's Kastle, is once again rearing its ugly self in
    the President's fiscal year 2000 budget in the form of a $136,000,000
    funding request. The plan is to build a consolidated campus at the
    former White Oak Naval Surface Warfare Center in Montgomery County,
    Maryland. It will provide space for the Office of the Commissioner, the
    Center for Drug Evaluation and Research, the Center for Devices and
    Radiological Health, and the Center for Biologics Evaluation and
    Research. According to a General Services Administration (GSA) estimate
    in November 1998, the total cost for this consolidation is expected to
    be $484,813,000. It appears that GSA has a project and construction
    manager, a public-private partner and an architect for the project.
    Yet, it appears, no prospectus has been approved by Congress for this
    boondoggle.
        But this is nothing new. Apparently no prospectus has been approved
    by Congress for the construction of an FDA facility to support a campus
    for the Center for Food Safety and Applied Nutrition. Yet, construction
    is underway. Congress unwisely appropriated $55,000,000 in the fiscal
    year 1996 Treasury, Postal Service, and General Government
    Appropriations Act. GSA figured this was a green light to proceed but,
    according to Public Law 104-52 ``funds available to the General
    Services Administration shall not (emphasis added) be available for
    expenses in connection with any construction, repair, alteration, and
    acquisition project for which a prospectus, if required by the Public
    Buildings Act of 1959, as amended, has not been approved, except that
    necessary funds may be expended for each project for required expenses
    in connection with the development of a proposed prospectus.'' Is the
    GSA breaking the law and misusing taxpayer dollars? That question must
    be addressed by the subcommittee.
        Without a prospectus, how is Congress supposed to know how much
    these buildings will cost the taxpayer, what type of yearly
    appropriations will be needed and, no doubt considering the
    construction of most federal buildings, when and how much the project
    will be over budget? Will there be another scenario like the Ronald
    Reagan International Trade Building, originally expected to cost
    $362,000,000, but ended up costing taxpayers $818,000,000? Or how about
    the Patent and Trade Office building in Northern Virginia, estimated to
    cost taxpayers $1,600,000,000 billion over the next 20 years in
    construction and leasing?
        For years, FDA has been requesting a consolidated campus. But the
    one being proposed is not ``consolidated.'' There is one campus that is
    supposed to be built in Maryland's Prince George's County, another
    campus that is supposed to be built in Montgomery County, and there is
    already a laboratory facility in Beltsville. It appears that FDA
    consolidation is not really the issue. What is really happening is
    pork-barrel spending and the creation of a lush, suburban office
    complex, close to a golf course, for FDA bureaucrats.
        Since the era of big government is supposed to be over, the Council
    for Citizens Against Government Waste (CCAGW) questions why Congress is
    even considering building a huge campus for the FDA. In an era of
    downsizing, it would appear Congress' first priority should be how to
    make FDA smaller and more effective--not providing expensive campuses
    that would allow the FDA to grow and hire more bureaucrats so it can
    find new areas to regulate, fill the Federal Register with more rules
    and cause more mischief.
        Most FDA employees are not running off to meetings across town so
    spending millions of dollars to convenience a small percentage of FDA
    employees seems a bit much. Building a sprawling campus will not
    decrease drug and medical device approval times. Furthermore, the
    Montgomery campus is not located near a metro station, which will force
    most employees to drive to work. This seems to be in direct conflict
    with the Clinton administration's efforts to protect the environment
    and encourage citizens to take advantage of public transportation!
        If FDA offices need to be improved, it would be more cost-effective
    to spend money to remodel them or to move employees into existing
    buildings rather than build a brand new facility. Modern technology
    such as computers and telephone or video conferencing allow employees
    to talk to one another in an efficient manner. More and more private
    sector businesses are using these modes of communication, why not the
    government? Furthermore, spending huge sums of federal dollars in
    wealthy Maryland suburbs seems unfair. This process goes against the
    Clinton Administration's desire of revitalizing the District of
    Columbia's economy or encouraging the location of federal offices into
    historic buildings located in cities.
        It is time for once and for all for Congress to terminate this
    expensive monster and fight on the side of the taxpayers.
                                     ______

         Prepared Statement of the International Community Corrections
                                  Association
        On behalf of the International Community Corrections Association
    (ICCA), we are pleased to submit this statement addressing the United
    States Appropriations with respect to Treasury and General Government
    operations for fiscal year 2000. The International Community
    Corrections Association is a membership organization representing more
    than fifteen hundred residential and non-residential programs and over
    250 private agencies throughout the United States. Over the past twenty
    five years, ICCA has provided information, training, and other services
    to improve the quality of care for offenders and to promote effective
    management practices.
        ICCA's comments focus on federal drug control activities critical
    to improving community corrections and intermediate sanctions. ICCA
    urges strengthening ONDCP's resources for assuring that all appropriate
    offenders receive drug treatment in every community.
        Until recently, community corrections options have been a neglected
    part of the National Drug Control Strategy. Community corrections
    options include: pre-trial supervision, probation and parole, intensive
    supervision, fines and day fines, restitution, forfeiture, impoundment,
    ignition interlock, community services, victim-offender reconciliation,
    home confinement, electronic monitoring, day reporting, halfway house
    residential treatment, and other services for offenders. It is
    estimated that at least sixty percent or more of all offenders are in
    need of substance abuse services. Approximately twenty percent receive
    services. At least two thirds of all offenders who need treatment do
    not receive it. Recent research, cost analysis, and longitudinal
    studies show that offenders who receive such transition programs as
    education, substance abuse intervention, and job training are much less
    likely to return to prison.
        Many programs with components that improve community corrections,
    such as the National Institute of Corrections and the Federal Bureau of
    Prisons community corrections centers, are worthy of sustained support.
    However, these programs have only a small impact on the thousands of
    lives that are ravaged by substance abuse. The National Drug Control
    Budget and the Office of National Drug Control Policy's Office of
    Demand Reduction should receive increased funding to actively address
    drug treatment for those under correctional supervision in the
    community.
    National Drug Control Budget
        We support the ONDCP's priorities in the National Drug Control
    Strategy. A range of community corrections programs such as Treatment
    Accountability for Safer Communities (TASC), drug courts, the Federal
    Bureau of Prisons Drug Treatment Program, Break-the-Cycle, and the need
    for partnership between corrections and treatment professionals are
    mentioned. However, an inadequate amount of funding is dedicated for
    these programs and for ONDCP's efforts to coordinate this fragmented
    field. The ONDCP budget should reflect greater emphasis on developing
    treatment throughout the entire correctional system. At least a ten to
    twenty percent increase in funding and oversight is necessary to impact
    addicted offenders.
        With respect to the President's budget, ICCA supports the request
    for criminal justice treatment through the Break-the-Cycle programs.
    The Break-the-Cycle programs should be expanded to many more
    jurisdictions and there should be funding for graduated sanctions,
    relapse prevention, and structured transitions back into the community.
        At the present time, the Federal Bureau of Prisons (FBOP) supports
    halfway houses where inmates serve the last few months of their
    sentences, preparing for release into the community. During this time,
    many offenders who are substance abusers receive treatment, seek
    employment, and re-establish family and community ties. Over the past
    several years the FBOP has increasingly supported improved drug
    treatment in prison and quality treatment in halfway house beds in
    federal community corrections centers. ONDCP should be encouraged to
    seek similar improvements at the state correctional level and for the
    District of Columbia.
    Office of Justice Programs
        In recent years, Congress has excluded community corrections from
    many categorical and block grant programs in favor of other
    initiatives. We support the administration's proposed Drug Intervention
    Program for fiscal year 2000. However, A review of the Office of
    Justice Programs budget request for fiscal year 2000 reveals that with
    the exception of Break-the-Cycle and drug treatment and testing for
    offenders, there is insufficient funding for drug treatment for
    offenders in drug courts or other programs.
        ICCA urges this Committee to encourage ONDCP to expand the
    proportion of demand reduction to interdiction programs and to place a
    higher priority on the expansion of intermediate sanctions. The federal
    appropriation should provide resources and oversight to address the
    critical shortage of treatment slots in community corrections.
        In closing, we must emphasize that community corrections are most
    often a public and private partnership. To provide adequate leadership,
    ONDCP must include local, federal, and state governments as well as
    private agencies in its efforts. Federal, state, and local governments
    should be encouraged through the appropriations process to enter into
    partnerships to plan, implement, and deliver effective community
    corrections programs which include substance abuse treatment. The ONDCP
    is well-positioned to provide the valuable assistance needed to carry
    on this work.
                                     ______

       Prepared Statement of the American Association of Retired Persons
        AARP appreciates the opportunity to comment on appropriations next
    year for the Tax Counseling for the Elderly (TCE) program. Over the
    last two decades, TCE has helped millions of middle and low income
    older persons accurately prepare their Federal, State or local tax
    returns. The AARP Foundation--a separate 501(c)(3) corporation--
    operates the largest nationwide TCE program under a cooperative
    agreement with the Internal Revenue Service (IRS).
        In authorizing TCE, Congress found that elderly taxpayers are often
    confronted with confusing tax provisions, resulting in overpayments or
    reliance upon expensive professional tax services. It also concluded
    that the particular needs of the elderly population were not being
    adequately addressed by the Internal Revenue Service. Under TCE,
    volunteer tax counselors are specially trained regarding those tax
    provisions which affect older Americans. IRS reports that many people
    with incomes below a specific level needlessly file returns. This
    results in unnecessary costs for all concerned. TCE helps to prevent
    such occurrences.
        Electronic filing and other alternative methods are now utilized
    under TCE, all of which increase the accuracy of tax returns while
    being cost effective to the IRS. Electronic tax filings--both business
    and personal--have proliferated during this decade. IRS states that one
    of its goals is to have 80 percent of all personal income taxes filed
    electronically by 2007. The growing complexity of taxes makes this type
    of filing desirable for TCE ``customers''. The program managed by AARP
    has expanded its use of alternative filing methods. In 1997, they
    accounted for roughly 28,000 of returns. One year later, they accounted
    for 59,290 returns--an increase of 111 percent.
        Funding for TCE has remained at the current $3,700,000 level since
    fiscal year 1994. In light of continued program growth and expanded use
    of electronic filing, AARP recommends a slight increase next year--from
    $3,700,000 to $3,950,000. This modest amount will help address the
    growing demand for assistance while meeting increased costs.
        Tax Counseling for the Elderly enables the IRS to assist minorities
    more effectively as well as disabled and hard-to-reach taxpayers. This
    includes the rural elderly and shut-ins, especially those residing in
    nursing homes or senior housing. Last year, assistance was offered in
    25 languages including American sign language.
        Approximately 31,000 volunteers are involved in providing TCE
    services at more than 10,000 sites across the country. When the program
    first began, it helped 846,000 taxpayers. Currently, over 1,600,000
    people receive tax counseling annually. While we do not have complete
    data for the current tax season, we expect TCE to continue to grow in
    the future. There are several reasons why this is likely to happen.
        First, the elderly population is increasing.
        Second, the complexities of our tax code cause many aged taxpayers
    particular difficulty in computing their tax obligations. Moreover,
    many aged citizens are not aware of the changes made in our tax laws
    over the past few years.
        Third, the Internal Revenue Service has increasingly turned to TCE
    programs for assistance, in large part because budgetary constraints
    have stretched the ability of the agency to respond directly to
    numerous public inquiries. Volunteers are contributing millions of
    hours annually in direct public service to older taxpayers.
        Older taxpayers with dependent children or grandchildren are also
    counseled regarding their eligibility for the earned income tax credit
    (EITC). Many older low income wage earners find themselves responsible
    4 for providing care for their dependent children or grandchildren.
    EITC is an important benefit for these individuals.
        The TCE program will continue to participate in successful
    campaigns such as the Reduce Unnecessary Filing initiative. Three-
    fourths of the taxpayers notified by IRS regarding this effort last
    year were 61 years of age or older. Many of these individuals
    subsequently turned to the TCE program for clarification and advice.
        Thank you again for this opportunity to comment on appropriations
    next year for the Tax Counseling for the Elderly program.

           LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                                  ----------
                                                                       Page
    American Association of Retired Persons, prepared statement......   300

    Basham, W. Ralph, Director, Federal Law Enforcement Training
      Center, Department of the Treasury.............................   253
        Prepared statement...........................................   255
    Bye, Raymond E., Interim Vice President, Research, Florida State
      University, prepared statement.................................   295

    Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado........   159
        Questions submitted b26, 91, 139, 180, 207, 230, 264, 279, 283, 286
    Council for Citizens Against Government Waste, prepared statement   298

    Dalrymple, John, Chief Operations Officer, Internal Revenue
      Service, Department of the Treasury............................     1
    Dorgan, Hon. Byron L., U.S. Senator from North Dakota:
        Prepared statements......................................5, 71, 113
        Questions submitted b34, 97, 145, 153, 155, 178, 231, 251, 266, 280
        Statement of.................................................     2

    Erdreich, Ben L., Chairman, Merit Systems Protection Board.......   291

    International Community Corrections Association, prepared
      statement......................................................   299

    Johnson, James E., Under Secretary of the Treasury (Enforcement),
      Department of the Treasury.....................................   159
        Prepared statement...........................................   166

    Kelly, Raymond W., Commissioner, U.S. Customs Service, Department
      of the Treasury................................................   183
        Prepared statement...........................................   186
    Killefer, Nancy, Assistant Secretary, Office of the Secretary,
      Department of the Treasury.....................................   111
    Kyl, Hon. Jon, U.S. Senator from Arizona, questions submitted by.    32

    Lachance, Janice R., Director, Office of Personnel Management,
      prepared statement.............................................   284
    LaFaver, John, Deputy Commissioner, Modernization, Internal
      Revenue Service, Department of the Treasury....................     1

    Magaw, John W., Director, Bureau of Alcohol, Tobacco and
      Firearms, Department of the Treasury...........................   213
        Prepared statement...........................................   214
    McCaffrey, General, Barry R., Director, Office of National Drug
      Control Policy, Executive Office of the President..............    53
        Prepared statement...........................................    59
    Mikulski, Hon. Barbara A., U.S. Senator from Maryland, questions
      submitted by...................................................    47

    Rossotti, Charles O., Commissioner, Internal Revenue Service,
      Department of the Treasury.....................................     1
        Prepared statement...........................................     9
        Statement of.................................................     6

    Rubin, Robert, Secretary, Office of the Secretary, Department of
      the Treasury...................................................   111
        Prepared statement...........................................   117

    Shelby, Hon. Richard C., U.S. Senator from Alabama, questions
      submitted by..................................................96, 288
    Sloan, James F., Director, Financial Crimes Enforcement Network,
      Department of the Treasury.....................................   269
        Prepared statement...........................................   272
    Stafford, Brian L., Director, U.S. Secret Service, Department of
      the Treas-
      ury............................................................   239
        Prepared statement...........................................   241

    Tobias, Robert M., President, National Treasury Employees, Union,
      prepared statement.............................................   296

    Wenzel, Bob, Deputy Commissioner Operations, Internal Revenue
      Service, Department of the Treasury............................     1

                                 SUBJECT INDEX

                                  ----------

                           DEPARTMENT OF THE TREASURY

                                                                       Page
    Counter-terrorism................................................   177
    Counterfeiting...................................................   178
    Custom budget request............................................   178
    Firearms violence................................................   175
    Law enforcement bureau missions, highlights of...................   164
    Office of Enforcement............................................   163
        Mission......................................................   162
        Policy guidelines............................................   163
        Strategic plan...............................................   162
        Support......................................................   163
    Office of Professional Responsibility............................   163
    Passenger inspections............................................   177
    Review of the integrity issues...................................   174
    Submitted questions..............................................   178
    Treasury/Justice funding.........................................   176

                    Bureau of Alcohol, Tobacco and Firearms

    ATF:
        Accomplishments..............................................   214
        Goals........................................................   213
    Brady law background checks......................................   229
    Cigarettes and alcohol, bootlegging of...........................   228
    Cease fire.......................................................   227
    Federal firearms licensee records, policy on.....................   227
    Facility, proposed new headquarters..............................   230
    GREAT............................................................   226
        Indian law enforcement, participation from...................   228
    Integrated violence reduction strategy...........................   225
    Proposed initiatives.............................................   213
    Submitted questions..............................................   230

                    Federal Law Enforcement Training Center

    Artesia construction.............................................   262
    Counterterrorism training........................................   263
    Export site criteria.............................................   264
    Five-year plan...................................................   263
    Master plan and construction.....................................   254
    Strategic plan...................................................   254
    Students, projected number of....................................   263
    Submitted questions..............................................   264
    Training workload increase.......................................   253

                      Financial Crimes Enforcement Network

    Direct support...................................................   269
    Gateway..........................................................   278
        System.......................................................   270
    Improved analysis and technology.................................   270
    International..................................................277, 278
        Efforts......................................................   271
    Money laundering, magnitude of...................................   271
    Platform.........................................................   270
    Regulatory.......................................................   276
        Efforts: non-banks...........................................   271
    Submitted questions..............................................   279

                            Internal Revenue Service

    Fiscal year 2000 budget request..................................     7
    IRS reorganization...............................................    16
    Modernized organization..........................................     6
    Prime systems contract...........................................     7
    Organization modernization, costs of.............................    14
    Rural taxpayer assistance........................................    17
    Service and compliance...........................................    19
    Tax-exempt:
        Organizations, audits of.....................................    20
        Sector.......................................................    21
    Taxpayer advocate................................................    14
    Telephone assistance.............................................    20
    Training......................................................8, 13, 15
    Transfer:
        Prices.......................................................    24
        Pricing...................................................... 3, 25
    Year 2000........................................................    14

                            Office of the Secretary

    Automation issues................................................   116
    Callable capital.................................................   123
        Availability, deferral of....................................   133
        Rescission, financial market reaction to.....................   123
    CDFI fund native American lending study, progress report on the..   136
    Customs:
        Agents, cost of 500 new......................................   132
        Alternate approaches to funding sufficiency for..............   128
        Automation and fee funding...................................   122
        Budget request...............................................   116
        Funding increase, purpose of.................................   130
        Technology, trade facilitation, and fee-funding..............   127
    Departmental offices:
        Budget.......................................................   116
        Justification for adding positions to........................   135
    Effect of higher pay raise on personnel retention................   136
    Emergency funding, fiscal year 2000 implications of fiscal year
      1999...........................................................   121
    Funding caps, government-wide competition among meritorious
      proposals within...............................................   131
    Gun violence.....................................................   120
    International--offsets and outlays...............................   132
    IRS modernization..............................................115, 125
    No tax return filing system......................................   124
    Offset options to be explored, other.............................   134
    Policy choices, law enforcement..................................   129
    Secret Service and ATF...........................................   116
    Spending caps, funding priorities within.........................   137
    Submitted questions..............................................   139
    Trade:
        Deficit......................................................   125
        Facilitation and contraband interdiction, competing interests
          of.......................................................114, 127
    Treasury:
        Budget request...............................................   114
        Responsibility for border enforcement issues.................   130
        Tax administration, inspector general for....................   120
    U.S. Mint: Additional committee questions........................   155

                              U.S. Customs Service

    Action plan......................................................   184
    Automated commercial:
        Environment................................................186, 204
        System.......................................................   202
    Canine program...................................................   204
    Forced child labor...............................................   206
    Integrity........................................................   184
    International corporations.......................................   206
    Money laundering technology......................................   203
    Operation:
        Brass Ring...................................................   183
        Casablanca.................................................184, 206
        Cheshire Cat.................................................   184
    Outbound technology..............................................   184
    Passenger processing:
        Fee..........................................................   202
        Procedures...................................................   203
    Personal search................................................185, 201
    Seizure data...................................................183, 201
    Submitted questions..............................................   207
    Trade and passenger processing...................................   183
    Training.........................................................   185
    Violent crime reduction trust fund...............................   203

                              U.S. Secret Service

    Anti-counterfeit.................................................   249
    Armored limousines.............................................248, 250
    National special security events.................................   248
    Presidential candidate/nominee protection........................   247
    Protective threats...............................................   249
    Submitted questions..............................................   251

                       EXECUTIVE OFFICE OF THE PRESIDENT

                     Office of National Drug Control Policy

    Border issues....................................................    85
    Budget choices...................................................    84
    Certification....................................................    88
    Conceptual organization..........................................    55
    Corporate involvement............................................    76
    Drug:
        Abuse........................................................    57
        Addiction treatment..........................................    79
        Reduction programs...........................................    58
        Treatment and parity.........................................    81
    HIDTA............................................................71, 82
    International responsibilities...................................    74
    Juvenile drug courts.............................................    71
    Logistical issues................................................    87
    Media campaign...................................................    78
    ONDCP:
        Budget.......................................................    56
        Staffing.....................................................    87
    Prison, treatment in.............................................    90
    Submitted questions..............................................    90

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