[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
Superintendent of Documents, Congressional Sales Office, Washington, DC 
                                 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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