    [Senate Hearing 106-182]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 106-182

                           NOMINATION OF SALLY KATZEN

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

                                    HEARING

                                   BEFORE THE

                                  COMMITTEE ON
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                           ONE HUNDRED SIXTH CONGRESS

                                 FIRST SESSION

                                     ON THE

       NOMINATION OF SALLY KATZEN, TO BE DEPUTY DIRECTOR FOR MANAGEMENT,
                        OFFICE OF MANAGEMENT AND BUDGET

                                   __________

                               SEPTEMBER 15, 1999

                                   __________

          Printed for the use of the Committee on Governmental Affairs

                          U.S. GOVERNMENT PRINTING OFFICE
    59-591 CC                     WASHINGTON : 1999

    _______________________________________________________________________
    For sale by the Superintendent of Documents, Congressional Sales Office
             U.S. Government Printing Office, Washington, DC 20402

                       COMMITTEE ON GOVERNMENTAL AFFAIRS

                       FRED THOMPSON, Tennessee, Chairman
    WILLIAM V. ROTH, Jr., Delaware       JOSEPH I. LIEBERMAN, Connecticut
    TED STEVENS, Alaska                  CARL LEVIN, Michigan
    SUSAN M. COLLINS, Maine              DANIEL K. AKAKA, Hawaii
    GEORGE V. VOINOVICH, Ohio            RICHARD J. DURBIN, Illinois
    PETE V. DOMENICI, New Mexico         ROBERT G. TORRICELLI, New Jersey
    THAD COCHRAN, Mississippi            MAX CLELAND, Georgia
    ARLEN SPECTER, Pennsylvania          JOHN EDWARDS, North Carolina
    JUDD GREGG, New Hampshire
                 Hannah S. Sistare, Staff Director and Counsel
                          Paul R. Noe, Senior Counsel
          Joyce A. Rechtschaffen, Minority Staff Director and Counsel
              Peter A. Ludgin, Minority Professional Staff Member
                     Darla D. Cassell, Administrative Clerk

                                C O N T E N T S

                                     ------
    Opening statements:
                                                                       Page
        Senator Thompson.............................................     1
        Senator Levin................................................     2
        Senator Voinovich............................................    12

                                    WITNESS
                         Wednesday, September 15, 1999

    Sally Katzen, to be Deputy Director for Management, Office of
      Management and Budget..........................................     4

                                    APPENDIX

    Biographical and financial information...........................    39
    Pre-hearing questionnaire from Senator Thompson with responses
      from Sally Katzen..............................................    49
    Letter to Senator Thompson, dated September 17, 1999, from Sally
      Katzen with an attachment......................................    86

    NOMINATION OF SALLY KATZEN TO BE DEPUTY DIRECTOR FOR MANAGEMENT, OFFICE
                            OF MANAGEMENT AND BUDGET

                                  ----------

                         WEDNESDAY, SEPTEMBER 15, 1999

                                           U.S. Senate,
                             Committee on Governmental Affairs,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:04 a.m., in
    room SD-628, Dirksen Senate Office Building, Hon. Fred
    Thompson, Chairman of the Committee, presiding.
        Present: Senators Thompson, Voinovich, and Levin.

                 OPENING STATEMENT OF CHAIRMAN THOMPSON

        Chairman Thompson. The Committee will come to order,
    please.
        This morning the Governmental Affairs Committee is holding
    a hearing to consider the nomination of Sally Katzen to be the
    Deputy Director for Management at the Office of Management and
    Budget. The Deputy Director for Management at OMB has two
    roles:
        The first is external, by providing government-wide
    leadership to Executive Branch agencies to improve program
    performance. This role involves working with the departments
    and agencies as well as the President's Management Council,
    Chief Financial Officers Council, and other management and
    financial groups.
        The second role is internal to OMB. As a member of OMB
    senior staff, the Deputy Director for Management participates
    fully with the Director, the Deputy Director and other
    appointees in determining how OMB will carry out its duties.
        By virtue of the Chief Financial Officers Act of 1990, the
    three statutory offices of OIRA, OFPP, and OFM report to the
    Deputy Director for Management.
        Ms. Katzen has filed responses to a biographical and
    financial questionnaire, answered pre-hearing questions
    submitted by the Committee, and had her financial statements
    reviewed by the Office of Government Ethics. Without objection,
    this information will be made a part of the hearing record,
    with the exception of the financial data, which is on file in
    the Committee offices.\1\
    ---------------------------------------------------------------------------
        \1\ The biographical and professional information appears in the
    Appendix on page 39.
    ---------------------------------------------------------------------------
        In addition, the hearing record will be open for 2 weeks.
        Our Committee rules require that all witnesses at
    nomination hearings give their testimony under oath. Ms.
    Katzen, would you please stand and raise your right hand? Do
    you solemnly swear to tell the truth, the whole truth, and
    nothing but the truth, so help you, God?
        Ms. Katzen. I do.
        Chairman Thompson. Please be seated.
        I want to yield to Senator Levin so that he can introduce
    Ms. Katzen to the Committee. Senator Levin.

                   OPENING STATEMENT OF SENATOR LEVIN

        Senator Levin. Mr. Chairman, thank you, and I am very
    pleased indeed to be introducing Sally Katzen to the Committee
    this morning. She has been before us many times, so in a sense
    she needs no introduction. But I am delighted to say a few
    words.
        Sally lives in Washington, so she doesn't have a home State
    Senator to sit next to her there. I think the reason that I was
    selected for what I consider to be a treat and an honor is that
    she is a graduate of the University of Michigan Law School, the
    connection that we are relying on here for this pleasure.
        We have a number of things in common, actually, Mr.
    Chairman. We both went to small schools. She graduated magna
    cum laude at her small liberal arts college--I graduated. We
    both went to prestigious law schools, where she was the editor-
    in-chief of her law review. That is where the similarity stops.
    I remember reading a law review article once, but that is about
    it.
        As a matter of fact, I believe, although I am not certain
    of this, that not only was she the editor-in-chief at the
    Michigan Law Review, but she, I think, was the first woman to
    serve in the capacity of editor-in-chief at any major law
    school in the United States. She has been a pioneer in many
    ways.
        After she finished law school, her career turned into a
    wonderful blend of private practice and devotion to public
    service. She has balanced being a partner at a leading law firm
    with a number of tours of duty in the Executive Branch. From
    1979 to 1981, Sally served as the General Counsel and Deputy
    Director for the Program on the Council of Wage and Price
    Stability under President Carter. And from 1993 to 1998, she
    served in one of the most difficult positions in any
    administration, which is the Administrator of the Office of
    Information and Regulatory Affairs of the OMB. Then from
    February 1998 to June 1999, she served as Deputy Director of
    the National Economic Council.
        I am most familiar with her work, and I believe probably
    most of us are most familiar with her work as the Administrator
    of OIRA. And at the center of a myriad of competing interests
    and concerns with consequences involving millions of lives and
    billions of dollars, she carried out her responsibilities there
    with intelligence and aplomb.
        She brings to her work not only a tremendous intellectual
    capacity, but a real passion for issues which make a big
    difference in the lives of people, but they are too often
    ignored by people because these issues can be dry ones. These
    are the ways to make government work better. It is what this
    Committee, led by our Chairman, spends so much time trying to
    achieve. Sally has devoted a good part of her life to trying to
    achieve common-sense government, government that cares,
    government that is working well, but government that is cost-
    effective, that doesn't squander resources, that tries to
    assure that benefits of regulation justify costs of regulation.
        I know both of us, Mr. Chairman, were particularly grateful
    for the work that she did working with you and me on making the
    Regulatory Improvement Act, Senate bill S. 746, a bill which
    the administration said the President could sign into law if we
    could get it to him intact. That took a lot of work on your
    part, Mr. Chairman, and a number of us on the Committee working
    on that bill, but Sally Katzen played an integral part in
    making that happen.
        And now she is up, as you pointed out, Mr. Chairman, for
    the Deputy Director for Management position at OMB. Few people
    come before us who are so well prepared for the position to
    which she has been nominated. She has worked in her OIRA
    capacity with every Executive Branch agency. She has worked
    with us here on the Hill. She has worked with the people at the
    White House. And, of course, her main goal has been public
    service so that the public gets their dollar's worth out of our
    efforts here in Washington.
        I don't know of any public servant who has got a greater,
    deeper respect for the institution of government, for the
    offices with which she has worked, for the people with whom she
    has worked. Sally Katzen is as bright as they come. She is a
    top-notch lawyer. She is a stickler for detail. She is an
    expert in the administrative process. As I indicated, she is
    dedicated to a government that works better, costs less, and
    delivers it services efficiently and effectively.
        Beyond that, she is a loving wife and mother. Her husband
    is with us this morning, and we welcome him. Sally Katzen
    brings a special love for life, for people. She has a very
    strong moral character. She has an extraordinary inner
    strength, which has been tested in recent years. And if I can
    add a personal note, she has a love for opera, which also makes
    her special in my book.
        Chairman Thompson. The Grand Ole Opry? [Laughter.]
        Senator Levin. I was just going to say it, Mr. Chairman.
    You beat me to the punch. I was going to say, I think at least
    for this morning's purposes, that includes the Grand Ole Opry.
    I think it may anyway include the Grand Ole Opry. But I am
    delighted to present Sally Katzen to the Committee. We know her
    well, so it is really, I guess, on behalf of many of us that I
    am introducing her to our Committee this morning.
        Chairman Thompson. Thank you very much for that wonderful
    introduction.
        At this point I would like to give Ms. Katzen an
    opportunity to introduce anyone that she might care to
    introduce who is with her here today.
        Ms. Katzen. Thank you, Mr. Chairman. I would like to
    introduce my husband, Timothy Dyk, who is a lawyer in private
    practice and who has been supportive of me during my tenure in
    this administration and encouraging me in this role as well;
    and next to him, our son, Abraham B. Dyk, who I see got here
    from school this morning and will be going directly back. He is
    a senior in high school and thinking about his future full-
    time.
        Chairman Thompson. Wonderful. We welcome them here this
    morning.
        Senator Levin, do you have any further opening comments to
    make?
        Senator Levin. No.
        Chairman Thompson. Ms. Katzen, do you have a statement that
    you would like to make at this time?

         TESTIMONY OF SALLY KATZEN, TO BE DEPUTY DIRECTOR FOR
              MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET

        Ms. Katzen. If I may, Mr. Chairman, a very short statement,
    because I wanted to thank you and the Members of the Committee
    for providing me this opportunity and for being so responsive,
    graciously and with courtesy throughout this process. I am
    truly appreciative of that.
        I am particularly appreciative of the comments that Senator
    Levin made on my behalf. It was indeed a glowing statement. I
    am going to remember it for a long time. Thank you.
        As both of you noted, this is the second time that I come
    before this Committee asking for favorable consideration on my
    nomination. Having reported me favorably for Administrator of
    OIRA in May 1993, I served in that capacity until February
    1998, and during that time I had a number of opportunities to
    work closely with the staff and with the Members of this
    Committee. I think I testified about 10 times.
        I was always impressed by the quality of the discussion,
    the seriousness of the questions, and the understanding and
    insight that the Chairman and Members of this Committee brought
    to the various policy issues. And I also know how much time and
    attention this Committee has spent on the management, the ``M''
    in OMB.
        I share your view of the importance of improving management
    of the Federal Government, and it is because I believe that
    these issues are so critically important that I was deeply
    honored to be nominated for this position of Deputy Director of
    Management. And, again, thank you very much for this
    opportunity.
        Chairman Thompson. Thank you. As indicated earlier, the
    Committee submitted some substantive pre-hearing questions to
    the nominee, and the nominee has also met with Committee staff
    to discuss a variety of issues of congressional concern
    regarding the Office of Management at OMB. Your written
    responses to these questions will be placed in the record.\1\
    ---------------------------------------------------------------------------
        \1\ The questionnaire appears in the Appendix on page 49.
    ---------------------------------------------------------------------------
        I will start my questioning with these three questions that
    we ask of all nominees.
        Ms. Katzen, is there anything that you are aware of in your
    background which might present a conflict of interest with the
    duties of the office to which you have been nominated?
        Ms. Katzen. Not at all, sir. I have recused myself from
    those matters that have been a subject that my husband has
    worked on or that I have had a financial interest in. My assets
    are in a blind trust, which has remained intact since it was
    approved by OGE in 1993. And I will follow diligently and
    completely any advice I get from the OMB ethics officer for
    particular matters as we proceed.
        Chairman Thompson. As I recall, the so-called blacklisting
    issue was one that you had recused yourself on.
        Ms. Katzen. I have recused myself.
        Chairman Thompson. Could you tell us what the line of
    responsibility then will be on that issue within OMB?
        Ms. Katzen. This is actually a matter within the Office of
    Procurement, OFPP, and there is a confirmed administrator of
    OFPP, Deidre Lee, who will be maintaining the responsibility
    for that. She is, until I am confirmed, the Acting DDM as well.
    So she has combined in single-stop shopping management
    responsibility for that issue.
        Chairman Thompson. And who will supervise, who will be----
        Ms. Katzen. The Director of OMB would ultimately be
    responsible for any actions emerging from OMB.
        Chairman Thompson. Do you know of anything, personal or
    otherwise, that would in any way prevent you from fully and
    honorably discharging responsibilities as Deputy Director for
    Management at the Office of Management and Budget?
        Ms. Katzen. No, sir.
        Chairman Thompson. Do you agree without reservation to
    respond to any reasonable summons to appear and testify before
    any duly constituted committee of Congress if you are
    confirmed?
        Ms. Katzen. Yes, I do.
        Chairman Thompson. All right. Thank you for those answers.
        Ms. Katzen, I want to lay out some areas of concern here
    this morning because this is one of the few opportunities that
    Congress has to do that, that means anything. It has nothing to
    do with your personal history or background. You have been an
    exemplary public servant in many respects over the years, and I
    have a great deal of personal admiration for you. But I am
    increasingly concerned about the way our government operates
    and how many of these agencies have operated and do operate. We
    don't seem to be making any progress, and you are going to be
    in a position to make a difference. And, frankly, I am not sure
    that you agree with me that there is that much of a problem,
    and I want to engage with you this morning on those issues.
        It seems to me we can start out on the basis of agreement
    on some things, and that is the ultimate responsibility of the
    government to be as free as practically possible of waste,
    fraud, abuse, and inefficiencies, and that agencies should
    always be trying and striving certainly to fulfill their
    obligations under the law and to do the best they can with
    regard to those matters.
        I think we can also agree that it is the responsibility of
    the Office of Management and Budget to manage, and that has to
    do with making these agencies do the right thing and making
    them try, making them attempt to do the best that they can do
    as far as saving the government money, not being inefficient.
        All the surveys we see now that come from the Pugh
    Institute and other national polling firms show, even in these
    good times, a falling respect for our government among people,
    especially among our young people. And so much of that,
    according to them, has to do with their perception that
    government is full of waste and fraud and abuse and
    inefficiencies, and it has done really for those who are in the
    business of governing instead of the public at large. I think
    that there is a basis for that concern.
        Then there is the responsibility of Congress, and
    particularly this Committee, and in response to all that,
    Congress has passed a series of statutes, financial management
    statutes such as the Chief Financial Officers Act, information
    management statutes such as the Clinger-Cohen Act, GPRA--the
    Government Performance Results Act that you are so familiar
    with--all in an attempt--recognizing this problem that we have
    and in an attempt to do something about it.
        So most recently I asked the GAO to do reports on the
    performance plans that these agencies have. As you know, under
    GPRA these agencies are supposed to come up with performance
    plans. How do they plan to do their job? And how do they plan
    to do their job better? And how are they going to address some
    of these, in many cases, long-term systemic problems that these
    agencies have?
        Once we get those plans done, we evaluate them, see if they
    are any good and how useful they are, and then the agencies
    have to come back later and give us an accounting as to whether
    or not they have met their goals and to what extent they have
    met their goals. And you have got your plan, and then you have
    got your results. It is called the Government Performance
    Results Act. So all that is now in the works.
        So we asked the GAO to take a look at these plans now that
    have been submitted. The second go-round of plans now have been
    submitted for fiscal year 2000. We had plans submitted for
    fiscal year 1999, and they were pretty inadequate, to say the
    least, for 1999. So we said let's take a look at them for 2000.
        We have had IG reports along the same lines with regard to
    some of these systemic problems.
        So now we have got the results back in from the GAO, and
    although there has been some marginal improvement in many of
    the plans from 1999, that is not saying very much. We see the
    same kinds of problems, and most disturbing to me with regard
    to so many of these systemic problems, most of these agencies
    don't even address in many cases up to half of the high-risk
    list problems that they have had on their books for a long,
    long time. They don't even set out goals for how they might try
    to go about changing them. It is like they don't have any fear
    that anything is going to happen if they don't.
        I get the impression that it is basically thumbing their
    nose at the Legislative Branch in not trying to at least come
    up with some kind of a plan or some kind of a goal to solve
    some of these problems.
        So I can't emphasize my concerns strongly enough. The
    conclusion is that OMB has not been doing its job. The
    management part of OMB has in many cases been ignored. And this
    leaves it up to Congress. What is our responsibility? And,
    again, this is nothing obviously personal towards you. We all
    have the greatest respect for you. But Congress, when it comes
    right down to it, only has two powers, and one is the power of
    the purse and the other one is the power of appointment. And
    the power of appointment is what we are dealing with here
    today.
        Despite your admirable public record, when I read your
    answers to questions--and I know you may have had some help
    with this, maybe more help than you wanted or maybe should have
    had. But I asked the question here: We appear to be making
    little progress in resolving mission-critical management
    problems that impede--I am reading from page 6 and 7 from your
    answers, our questions and your answers--problems that impede
    program performance, waste countless billions of dollars
    annually, and undermine public confidence in the Federal
    Government. The General Accounting Office and the inspectors
    general tend to report on the same seemingly intractable
    programs year after year. What changes do occur are mostly
    adding rather than subtracting problems. The most obvious
    example is GAO's high-risk list, which grows each time it is
    updated and now stands at 26 problem areas. In your view, what
    will it take to generate real movement on these problems?
        And your response indicates there really is no problem.
    Your response, you say: I am encouraged, rather than
    discouraged, by the progress that has occurred over the last
    few years. As noted above, the administration has identified 24
    priority management objectives (PMOs). These are areas that are
    in need of real change and which receive ongoing attention from
    OMB's senior officials. The PMOs are published annually in the
    President's budget, and OMB staff reports monthly to the
    director regarding ongoing efforts. I have been advised that
    most of the 26 mission-critical management problems discussed
    in GAO's high-risk list are addressed in the PMOs. Resolving
    each of the PMO objectives will require sustained commitment
    over many years. Nonetheless, I believe OMB has developed an
    effective approach to ensuring that senior officials remain
    focused on these objectives.
        So, I read this, and you looked at everything that causes
    me so much concern--and you are encouraged by it, and the
    administration has identified the problem. We publish it
    annually. We report monthly. We are focused. And OMB has
    developed an effective approach for ensuring that we remain
    focused.
        I wish you would let the rest of America know what this
    effective approach is that OMB has developed that is addressing
    these problems. So with all of that rather long-winded preface,
    Ms. Katzen, I think you see the overall nature of my concern. I
    want to talk to you in more specifics. But would you care to
    respond at this point?
        Ms. Katzen. Well, I am sorry that the impression from the
    answer has apparently led to a misunderstanding. I did not in
    any way, shape, or form intend to say that there is no problem
    and that we have got it all well in hand. What I was saying was
    simply starting as the optimistic cheerleader, I am encouraged
    by what has happened in the last several years.
        I have been living in this city now for almost 30 years and
    have seen a lot of different attempts to try to get better
    management of the Federal Government. And what I am encouraged
    by is that it seems to be taking hold now. When the GPRA was
    passed, it could have been just another law that was never paid
    attention to. I think it is taking roots. Instead I think it is
    actually going to have some results. But, it is going to take
    some time.
        And what I am encouraged by is that the agencies and
    departments do seem to be paying more attention to this than
    some of the other experiments in management that have happened
    during the 1970's, during the 1980's, and in previous times.
        I agree with you that there are serious management problems
    that need to be addressed. The PMOs, the priority management
    objectives, are exactly that. Twelve of them are cross-cutting
    across the government, government-wide. First, is managing the
    Y2K experience. There is nothing that was a greater management
    challenge, to this administration or to any administration,
    both in the private sector and State and local governments that
    had to wrestle with getting ready for Y2K. That was something
    that was a real challenge that needed to be wrestled with. That
    is the No. 1 PMO.
        The second one is using results to improve program
    management. That is GPRA in all of its beauty and all of its
    potential. And what I was trying to communicate here is that we
    have structured our review of this in a way that provides, I
    think, leadership. Can it be more focused? Yes. Can more be
    done? Yes. Does more need to be done? Absolutely yes. But it
    can't be a fiat from above. It has to be the agencies
    themselves institutionalizing these types of approaches, or it
    too will pass in the night. And for that reason, it seems to me
    that it is essential to work with the agencies to understand
    the different issues that have been raised.
        I understand that you recently sent letters to all the
    departments and agencies highlighting items on the high-risk
    list, items from IG reports, items from GAO, and asking for a
    status report. I think that is terrific, and there was a
    discussion of this at the last PMC meeting. Agencies and
    departments are expecting to be responsive and to let you know
    which of those problems have, in fact, been corrected, which of
    those remain a problem and why, and what they expect to do
    about them.
        So I think that we are heading in the right direction, and
    that is why I was emphasizing the positive and not in any way
    trying to disparage the job. That is one of the reasons I am
    interested in having this position as DDM--to be able to work
    on these kinds of issues--because I think more progress needs
    to be made. And I share your commitment to do that.
        Chairman Thompson. Well, I am interested in specifically
    what you plan to do to make change, and if you send out word to
    these agencies, if your appointment is a message to these
    agencies that I am looking forward to working with you or
    making progress and we need to partnership this thing on
    through the process for another couple, 3 decades--because
    people in the past have not done very well, either--then that
    is very troubling to me.
        Many of these things--you point out some of the things on
    the high-risk list are government-wide, which it is still under
    your purview. Then some are not. The high-risk list has
    included some HUD programs since 1994, student financial aid
    programs since 1990, farm loan programs since 1990, asset
    forfeiture programs since 1990, DOD inventory management since
    1990, DOD weapons system acquisition since 1990, DOD contract
    management since 1992, Department of Energy contract management
    since 1990, Superfund contract management since 1990, and NASA
    contract management since 1990.
        So these agencies continue year after year--since 1990, the
    year the list came into existence, the high-risk list has grown
    from 14 serious management problems to 26. And in the history
    of the list, only six areas have come off because either agency
    management was serious enough about solving the problem or the
    problem just went away, like the savings and loan crisis. But
    many of the original problems, 14, as a matter of fact, remain
    on the list today, almost a decade later, such as IRS
    receivables, student financial aid programs, DOD inventory,
    management I mentioned, and NASA I mentioned. Only one area has
    been removed in the last 5 years while seven have been added.
        Ms. Katzen. Well, the fact that they are still on the list
    means that they are getting and will continue to get attention.
    There has been some progress. There is the Department of
    Education's student financial area; with Congress' help this
    has become a PBO, a performance-based organization, where they
    are redoing the whole way that they are structuring that
    operation. And I think we are seeing preliminarily very
    positive results.
        There are certain remaining issues, and you are correct to
    point them out. My message to the agencies is not come let us
    reason together or be sweetness and light and all is well and I
    will just keep holding your hand. It is: I am here to support
    you, but we also have very high expectations. And when budget
    requests are submitted for the 2001 budget, we are taking, I
    think, another step forward in integrating performance measures
    and results----
        Chairman Thompson. Well, I think Congress and the OMB have
    both been derelict in that respect. There has been absolutely
    no response from anybody from a budgetary standpoint to any of
    these problems. You keep submitting the same thing, the same
    monies, or increased monies for the same programs year after
    year. We keep giving it year after year after year. So I am
    encouraged to hear you say that. We all need to do a better job
    there.
        But let me just quickly--and then I will relent here for a
    few minutes, but the next question then becomes: What are these
    agencies doing? Are they making an attempt? And you look at
    that and you get an even bleaker picture.
        Of the 24 agencies, GAO has identified 300 major management
    problems. GAO and the inspectors general, they have made
    hundreds of recommendations to these agencies which remain
    open. That means unresolved. That means nothing has been done
    on them.
        On the high-risk list alone, there are 26 major management
    problems. There have been over 700 recommendations by the GAO
    that remain open today. In total, there are over a thousand
    open, unresolved recommendations. Many of them are years old.
        And so we asked the GAO to go and look at their performance
    plans, and they come back and so many of these areas, in agency
    after agency after agency after agency, the agencies or the
    departments don't even address the problem areas.
        The Treasury, for example, there are five high-risk areas
    that are there. Treasury in its performance plan addresses one
    out of five. It doesn't even address goals for the other four.
        The IRS is zero out of four. They don't even address--and I
    could go on and on, and I think when it comes back around to
    me, I will--on some of these other departments. Many of them,
    in just thumbing through there, half of the problem areas, many
    of which have been there for years, their plans don't even
    address ways in which they plan to do anything about it. This
    is going to require more than working together. This is going
    to require leadership from the top. This is going to require
    consequences. That is all I am saying.
        It is imperative that the next person that holds this
    position understand that.
        I am going to relent now and call on Senator Levin.
        Senator Levin. Thank you, Mr. Chairman.
        I am looking at the high-risk list, and I am curious about
    one thing. By the way, I basically agree that failure to comply
    with requirements of law or internal requirements should have
    consequences. I agree with the Chairman on that. But I am
    curious about the high-risk list.
        For instance, I am very much familiar with DOD inventory
    management, DOD contract management, DOD weapons systems
    acquisition. They are on the high-risk list. Does this list
    show progress? Because I know for a fact there has been
    progress in inventory management at the DOD. There are still
    problems. I have no doubt it still belongs on the high-risk
    list. It is here. But there has been significant progress
    there.
        Just taking that one issue, does this list reflect any
    progress, or is it still on the list because there is a ways to
    go?
        Ms. Katzen. It remains on the list until it is resolved to
    GAO's satisfaction, whether or not there has been progress. And
    that was why I was referring to the Chairman's letters to the
    departments and agencies in which he has asked for progress
    reports, and DOD, among others, will be talking about the
    progress that they have made and the distance they have to go
    on inventory management, financial management, a number of
    other areas in which they have taken giant steps, but there was
    a very, very long way to go. And I think the responses to the
    Chairman's letter will show that because, otherwise, as you
    indicate, they are on the list and they stay on the list
    without any indications that we are working on them or have
    made any real progress.
        And it is quite varied throughout the government. Some
    agencies have made a lot of progress. Some have not made as
    much as we would hope that they will soon make.
        Senator Levin. And maybe some have made none. And so I
    think it is useful----
        Ms. Katzen. To review.
        Senator Levin [continuing]. The Chairman's effort here, to
    try to identify more detail. His letter I think is a very
    useful effort.
        Ms. Katzen. And we supported that--I am sorry.
        Senator Levin. I say I very much support it, but I do think
    it would be useful also if we could find a way maybe in our
    annual listing to indicate if there has been some progress,
    even though something is still on the list.
        I would treat a situation very differently if half the
    problems had been solved than if none of the problems had been
    solved. It would give us a fuller picture.
        By the way, Senator Lieberman--who is the Ranking Member of
    the Committee here--regrets that he cannot be here this morning
    because of a longstanding conflict. But he does extend his
    support for and his confidence in our nominee here, Mr.
    Chairman. I just wanted to mention that because I know he did
    look forward to this hearing but he had this other commitment.
        Can you tell us the relationship between your office and
    the National Performance Review, which has been established by
    the Vice President's office, which is outside of OMB? How do
    these two offices or your future office relate--assuming you
    are confirmed--how do they relate to each other?
        Ms. Katzen. Historically, and I believe for the future, we
    have worked very closely together. The NPR was originally
    designed to be a vehicle for bringing in front-line government
    employees from all the departments and agencies to talk about
    how to deliver services better to the American taxpayer. And it
    was a large group made up of detailees that was organized under
    the Vice President's office but worked through and closely with
    OMB, through the DDM's office and some of the other OMB
    offices.
        On regulatory issues, for example, I worked very closely
    with NPR when I was at OIRA. I know that others in the
    procurement office, on procurement reform and simplification
    which led to the legislation that this Committee enacted, they
    worked very closely with the NPR folks on that.
        It is an aspect of this administration that there are a
    variety of interagency groups. The Chairman mentioned as part
    of the responsibilities of the DDM that, if confirmed, I would
    chair the President's Management Council. There is a CIO
    Council. There is a CFO Council. We have been working in
    interagency groups, and NPR is one of those and brings together
    resources from a variety of agencies and experiences from a
    variety of agencies who were temporarily banded together.
        As their work has evolved, they have a smaller staff or
    reduced their staff, and we now work with them even more
    closely, both in close proximity and shared responsibility for
    this, because one of the aspects that they are looking at--
    indeed, several of the aspects of what they are looking at--
    have to do directly with management and, therefore, are clearly
    within the purview of OMB and its responsibility.
        Senator Levin. I know you believe, as many of us do, that
    agencies should do cost/benefit analyses before they select a
    particular regulatory approach. It may not be a be-all and end-
    all, but it is an important tool.
        What progress, if any, do you think we have made in the
    agencies in obtaining these, getting them done, and in the way
    that they are done? Could you comment on where are we? We have
    an Executive Order. We haven't yet passed the bill we hope to
    pass, but can you comment on the progress, if any, both in the
    number of--how often are they made and how well are they done?
        Ms. Katzen. I think there is improvement--I might borrow
    from GAO and say ``moderate improvement''--in the agencies' use
    of these tools. I can think of particularly striking examples
    where there was enormous resistance, and through working with
    the agencies, we showed them that by doing cost/benefit
    analyses it didn't mean that you don't pursue the regulation,
    but rather that you get much more benefits for the same amount
    of costs, or that you can achieve the same benefit that you
    wanted to at much less cost and, therefore, much greater
    credibility and much less opposition.
        Some agencies have moved very well and are doing more of
    them and are doing them better. Recent legislation has asked
    OMB to provide guidelines for cost/benefit analyses. I think I
    have seen those in draft form about to be circulated and to be
    subject to peer review. I think that will provide some greater
    commonality, more consistency, but it is like almost anything
    in the government: Different departments and agencies react
    differently.
        I was actually quite gratified during my tenure at OIRA by
    the number of instances where I heard from senior officials as
    well as staff people from the agencies saying, ``You know,
    considering alternatives really works. We came up with this
    interesting approach or this better way of doing it, and we
    thank you for helping us.''
        That reflects that they are now prepared to
    institutionalize it for themselves and to try it again and
    again and again. And that I think is the only way we are going
    to get progress.
        Senator Levin. I agree with the Chairman it is useful to
    get agencies to institutionalize and to see the value on their
    own. But it is also critically important that they do it. If an
    Executive Order requires it or if a law requires it or a
    regulation, it sometimes takes hitting someone with a two-by-
    four or having consequences. Hopefully people will see the
    value of it, but if not, there has got to be an effect of not
    following what either an Executive Order or a directive
    requires or a law requires.
        And I do agree with the Chairman that I think your instinct
    to try to show people the way and tell them it is really in
    their interest to do so and do it on a cooperative basis is
    fine, up to a point, but they have got to know that at the end
    of that approach they really have no alternative when they
    don't, when they should. So I will leave that, unless you would
    like to comment.
        Ms. Katzen. OMB's review under Executive Order 12866 will
    not clear a regulation for publication unless the agency has
    done a cost/benefit analysis. The most striking example during
    my tenure was the PM/Ozone rules where the statute precluded
    consideration of cost, but EPA nonetheless did a very
    reputable, very credible, thoroughly complete analysis of the
    costs and benefits. You can differ with EPA as to some of the
    specifics of the analysis, but they went through the exercise
    and they did that analysis, and that analysis was used both in
    congressional hearings and in court litigation on the issue.
    And that was because of the Executive Order and our insistence
    that the analysis be prepared.
        So I think there are, in fact, consequences, and the
    Executive Order is being adhered to in that respect.
        Senator Levin. My time is up. Thank you.
        Chairman Thompson. Thank you very much. Senator Voinovich.

                 OPENING STATEMENT OF SENATOR VOINOVICH

        Senator Voinovich. Good morning. First of all, I would like
    to start out and say that your credentials are very impressive.
    You certainly have had a great deal of experience at OMB. The
    real question that I have from my experience with your office
    and with you and my staff is whether or not you fit into, from
    a public policy point of view, the approach or attitude that I
    believe that someone should have at the Office of Management
    and Budget.
        According to my definition of the job, part of the
    responsibility is to work with State and local government
    organizations to improve and strengthen intergovernmental
    relations and provide assistance to such governments with
    respect to intergovernmental programs.
        We have had a chance to deal with your office and with you
    in your capacity with OIRA, and I have some very, very serious
    concerns about your attitude in terms of intergovernmental
    relationships and some of the responsibilities that you have
    had with OIRA.
        To begin with, the unfunded mandates reform legislation,
    which I was intimately connected with and lobbied for with
    Senator Glenn and with Chairman Roth at the time to get that
    legislation passed, I really feel that your input into that,
    for example, with Senator Glenn's staff in negotiating the
    judicial review during the conference committee to the point
    that UMRA's judicial review really is kind of toothless.
        And it is the same kind of thing, Mr. Chairman, that we are
    running into with the legislation that we are promoting right
    now. The attitude there is they don't want the judicial review.
    Just stay out of it, we don't need judicial review. And that is
    an attitude and that is your point of view, but it is one that
    I don't agree with.
        Implementation of Title II of UMRA, which required agencies
    to assess the impact of regulatory mandates on State and local
    governments and the private sector, GAO prepared a report for
    Senator Thompson that found that UMRA was not improving the way
    agencies made rulemaking decisions. As a matter of fact, the
    study examined 110 major regulations and found no risk
    assessment or cost/benefit analysis were conducted in 80 of
    these very, very important regulations. I think that was a
    responsibility of your office to make sure that that was done.
        In addition, I felt very strongly at the time that we ought
    to set up a commission to look at areas where the Federal
    Government could improve their relationship in terms of
    unfunded mandates, areas where they were reaching way out more
    than what they should. And I was finally convinced--and it was
    the administration's point of view--that we ought not to set up
    a separate commission. I don't remember if you were on the
    committee or not, Chairman Thompson.
        So we went along with the ACIR, and the ACIR did their
    study, and they came back and they had some very specific
    things that they thought the Federal Government had overreached
    and that needed to be looked at. And the bottom line was that
    that report was quashed by the administration and watered down,
    and now, of course, we don't have any ACIR. But the attitude
    seemed to reflect one of--it is none of their business. You
    know, I am interested in federalism. I am interested in moving
    more responsibility back to State and local government. I am
    for looking at cost/benefit and risk assessment. And, quite
    frankly, from my point of view, it hasn't happened.
        The same way with the Federalism Accountability Act, that
    is another area where cost/benefit was supposed to be looked
    at. And you mentioned Executive Order 12612 on federalism, the
    Reagan Executive Order. GAO released a report early this year
    that found that out of 11,000 rules studied, only 5 were
    accompanied by a federalism assessment as required by the
    Executive Order.
        That is one of the reasons why, Senator Levin, we are
    talking about putting this in statute because it wasn't done by
    the administration. And, quite frankly, I think it could have
    been done by the administration.
        And then the administration came up with a brand new
    federalism order, and instead of sitting down and meeting with
    the governors and the Big 7, they went ahead and did it. The
    President was off someplace else, and they released it. And we
    went berserk.
        And it would seem to me that somebody in your
    responsibility should have thought enough of the people in
    State and local government to sit down and not just drop a bomb
    on us. And, of course, we went to town to try to change this
    issue. And I was there with Governor Carper back in Milwaukee
    last year, and we kind of watered things down so we didn't have
    a major confrontation. And since that time, some of the
    problems have been reconciled.
        But I must tell you, from my perspective and what I
    consider from a public policy point of view, I don't think you
    are aggressive enough. I don't think that you have the right
    kind of approach and attitude that we need in someone in your
    position.
        I am being very candid with you. I am not for your
    nomination. From all the experience that I have had with you
    and your people, and my people have had, I don't believe--and I
    say it in all due respect, not in terms of integrity, and I
    hate to say this in front of your husband and your son. But I
    just disagree with your approach as I have seen it in many,
    many instances.
        Now, you talked about NAAQS. I spent 100 hours trying to
    get Congress and Carol Browner and the EPA and the
    administration to really look at the new ambient air standards
    for ozone and particulate matter. And OMB was supposed to look
    at that, and you just talked about the big stack of things that
    you did. But when OMB did their impartial, objective review of
    that, they came back and said that EPA hadn't done some things
    that they should have done and pointed out that there were some
    problems in terms of the cost versus the risk. And when it came
    time to submit that report by OMB, it was watered down because
    some people in EPA felt that it would hurt them in terms of
    their proposed ambient air rules--it wasn't supportive of what
    they were doing.
        Now, I consider OMB to be an independent agency and that
    they should have expressed their concern about this and the
    fact that there were some problems with it. And, quite frankly,
    I think if OMB had done their job and had been more aggressive
    within the administration, perhaps we wouldn't have had those
    ambient air standards for particulate matter and for ozone. And
    now we have had a lawsuit filed, and we have been successful,
    and now we are trying to negotiate some more. But the job of
    that office should be more aggressive. We are talking about the
    Government Performance Results Act today.
        From what I can see--I have looked at the Government
    Performance Results Act. I have looked at some of the things
    that--I have had two hearings with Health and Human Services
    and the Department of Education. There was a requirement there
    that there be some coordination when they are putting their
    performance plans together. It wasn't done. And finally
    Secretary Riley said to me, ``Well, I am glad you pointed this
    out, I am going to bring this into my office.''
        It just seems that we need to have some agency around
    here--and I think it is the Office of Management and Budget--
    that ought to be more aggressive in following through on some
    of these things and be very independent and not get rolled by
    agencies that say, what you are doing is interfering with what
    we are supposed to be--what we want to do. That is part of what
    the job is.
        I have had hearings and started hearings on quality
    management. I think the A-team, the culture of the A-team in
    the Federal Government is abominable. I have met with the
    presidents of the two largest labor unions. No quality
    management, no money for retraining, no incentive package. And
    then we have written to OMB, their attitude was we are not
    involved in quality, that is not our responsibility.
        And so I just have some real serious problems, not with you
    personally. You are a fine woman. You are qualified and so
    forth. But your attitude--your approach to it is not the
    approach that I believe that we need to have at the Office of
    Management and Budget. I think that it is very frustrating to
    see what is going on around this place. Report after report,
    and nobody seems to be following up and staying on top of it. I
    think that is the role that OMB--I want somebody in there that
    is aggressive, that is going to go after it and say the
    Executive Order says do risk assessment, by golly, you ought
    to--we are going to make sure you do it. And we are going to
    question it. You have the Government Performance Results Act.
    We want to make sure that you do that.
        So I just am very, very concerned, and I wanted to say this
    publicly so that you would have a chance, because I am going to
    continue to repeat it to my colleagues, and I am going to do
    what I can to make sure, very honestly, that you are not
    appointed to this position. And I think it is fair for me to
    lay it out for you today so that at least your side of it can
    come out.
        Ms. Katzen. Well, I appreciate your giving me an
    opportunity to respond because there are some aspects of your
    comments that I would like to address, whether or not it
    convinces you that my nomination should go forward.
        On the issue of federalism, part of my responsibility at
    OIRA was to enhance the relationships between the State and
    local governments. When we drafted Executive Order 12866, which
    is the regulatory review Executive Order, we crafted a
    particular section, which had never been in any of the Reagan
    orders at all, that said we would meet quarterly with State and
    local governments to find out what was on their mind, what
    their concerns are, what their thoughts were, and how best to
    proceed. That was a process that we set up. We set it up not
    just because I think it is important but also the President,
    having been a former governor and been very active in NGA, was
    very dedicated to strengthening the relationship between the
    Federal Government and our partners in State and local
    governments.
        Right after the President signed Executive Order 12866, we
    presented for him an Executive Order 12875. I remember these
    numbers because I spent hours and hours negotiating them with
    the agencies and I think being fairly aggressive in shoving
    down their throats some things that they were not particularly
    interested in that would require them to consult with State and
    local governments whenever there was any allegation of an
    unfunded mandate being imposed upon them. And it was Executive
    Order 12875 that was codified in the Unfunded Mandates Reform
    Act, which the President supported and which he signed. They
    had tried to get that through the Congress for a while, and it
    was not successful.
        We were able to have it enacted into law, and my office and
    I personally spent a substantial amount of time to make sure
    that it would happen and that we would have that kind of
    legislation.
        With respect to the failure to consult with the State and
    local officials before the promulgation of the revised
    Executive Order last summer, I have said that it was a mistake,
    a terrible mistake, a regrettable mistake, which I have spent
    the last year trying to rectify. And I think if you talk with
    the representatives of the Big 7, they will talk about the
    number of hours, the amount of effort, and somewhat of the
    passion that I have devoted to ensuring that we could produce a
    viable, good, solid, strong federalism order. And when we
    released the new Executive Order a couple of weeks ago or a
    couple of months ago, we had a letter in hand as well as
    statements from all of the Big 7 organizations, including the
    NGA, with Governor Leavitt and Governor Carper signing, saying
    that we had met with them, that we had proceeded in good faith,
    that we had been responsive to their concerns, that the order
    that we produced was stronger than the previous order, that it
    was more protective, that it was more in favor of a strong
    partnership.
        That was the work that I was trying to accomplish, and
    whether I was sufficiently aggressive at all of the different
    stages I will leave for others to judge rather than for myself.
        Senator Voinovich. May I respond to that?
        Ms. Katzen. Certainly.
        Senator Voinovich. Because I know I am the Leader's liaison
    between the Senate and the Big 7, and I spend a lot of time
    with them. They really weren't that happy, but they felt that
    it got--it was fine. It was just let's let it go, it is the end
    of the administration, fine, we worked it out. And I would like
    to say to you that they were not as enthusiastic as you have
    portrayed here today.
        I think the real issue here is that you have a former
    governor who is the President of the United States, who is the
    former chairman of the National Governors' Association, and
    within his own house, no consultation. In fact, the Big 7
    people who were there quoted you as saying there will be no
    Reagan Executive Order on federalism by the time this
    administration leaves office.
        In other words, from a governmental point of view, in terms
    of where your heart is, I am not sure it is where it ought to
    be in terms of the things that I think are important for that
    office.
        Ms. Katzen. Senator, I say to you under oath that I have
    been and will remain supportive of strong relations and
    partnerships with the State and local governments. When I said
    ``no Reagan Executive Order will be in place,'' I was
    responding to what the President had said in the East Room of
    the White House when he spoke to the NGA because he said it
    wasn't followed by the Reagan administration, it wasn't
    followed by the Bush administration. He wanted one that the
    agencies will follow.
        And so when I say we didn't want the Reagan order, it was
    that we didn't want one that was just a piece of paper. As you
    indicated, GAO found that there were 11,000-some regs that had
    never cited it. If GAO had done the exact same study 10 years
    previously, 5 years previously, they would have found the exact
    same thing because nobody had been following it.
        What we have in place now is, I trust, I hope, I pray, an
    order that can, in fact, will, in fact, live up to the
    expectations that we have because I do not disagree with you on
    the objective. And when I said no Reagan order, it is because I
    want one that will work. And President Clinton said he wanted
    to sign one that would make a difference. And that is what I
    think we produced.
        Now, one of the things, again, that we built into this
    Executive Order that was not in previous Executive Orders is
    that 180 days from the effective date, the Director of OMB, and
    the head of Intergovernmental Affairs, will sit down with the
    principals and the executive directors of the Big 7 to make
    sure that our expectations are being fulfilled, that we are not
    just on a paper process. That provision was put in the new
    Executive Order specifically to make sure that we got results,
    that we were able to live up to the expectations.
        If I am coming on a little bit stronger than I should, it
    is just because I believe our objectives here are the same. And
    what we wanted to do was have something that the agencies would
    follow that they could be held accountable for. There were a
    variety of areas in which we strengthened the Executive Order
    beyond the Reagan Executive Order, so that it would, in fact,
    work.
        Senator Voinovich. Well, see, from my perspective, in terms
    of what that required, that could have been handled from a
    management point of view. If the State of Ohio--I had an
    Executive Order, and it required our agencies to look at cost/
    benefit assessment, we would have had our people in. We would
    have talked to them. We would have had a program to follow up
    on it. I wouldn't have cared too much about what the language
    is. The purpose of it was to try and get--and I would have laid
    out a little plan for it, and I think that could have happened
    in this administration.
        Here we are at the end of the administration, and we
    finally got it, in 180 days you will be gone, and then we will
    have a new administration. And I am just saying that a lot of
    this--it is the aggressiveness that I am talking about. We have
    an Executive Order. Somebody should have--and OMB, that is
    their responsibility, should have taken hold and ran with it.
        The unfunded mandates legislation that also required review
    of things in terms of cost, was not done.
        Ms. Katzen. With respect to implementation of Title II of
    UMRA, the Unfunded Mandates Act, it talks about significant
    regulations, and we use the definition of economically
    significant--$100 million in costs. There is no finding that
    any of those that were within that framework that had any
    impact on State or local governments were not correctly
    analyzed. GAO was talking about all regulations, and not all
    regulations are subject to UMRA.
        There is a statutory dollar cutoff for legislation. There
    was a dollar cutoff for regulations. And OMB has submitted once
    a year a list of the regulations and the portions of the
    preamble where alternative approaches are considered, where
    there is a recitation of the amount of consultation that has
    taken place with State and local government officials, a
    summary of their concerns, a summary of what, if anything, was
    done to respond to their concerns, and, where their concerns
    were not responded to, why they were not responded to. Those
    are all in the preamble of the regulations which have been sent
    here to this Committee and to the Congress under UMRA.
        And so on that particular issue, I would have to, I am
    afraid, somewhat aggressively say that I think we have actually
    implemented the law as the law was written and as the Executive
    Order was written. But I will follow up on some of these other
    issues if you wish.
        Senator Voinovich. You disagree with the GAO report that
    said the study examined 110 major regulations and found that no
    risk assessment or cost/benefit analysis was conducted in 80 of
    these regulations as required by UMRA?
        Ms. Katzen. Because of the dollar cutoff that is set forth
    in the Executive Order and in the legislation, and that was the
    reason why.
        Senator Voinovich. We will follow up on that.
        Ms. Katzen. Thank you very much.
        Chairman Thompson. Thank you.
        The federalism issue, of course, is one that is of concern
    to me also, and I think all of us here this morning, we have
    worked on this issue. You can see the concern as we go forward
    as indicated by what has happened in the past. It is always
    difficult to confront an argument that prior administrations
    did these various things, so we are going to do the same thing.
    All I know is that my recollection is that President Bush
    directed, as the President of the United States, directed that
    these departments follow the Reagan Executive Order. Jim
    Miller, as head of OMB, directed that they be followed.
        When you all passed, in the dead of night over here this--
    abrogated the Reagan Executive Order and came up with something
    else, as Senator Voinovich said, the Big 7 went wild. I mean,
    there was some reason why they thought that was a worse thing
    for them than had been previously the case.
        I introduced a resolution that passed unanimously in the
    Senate calling for repeal of what you had done, and the White
    House suspended it and started working with the Big 7 to draft
    a new order. So that was all the background coming up to this
    resolution that came about. As the Senator pointed out, 11,000
    rules or regulations, 5 federalism assessments, over 1,900
    regulations that EPA issued between 1996 and 1998. GAO found
    that EPA had not prepared a single federalism assessment. It
    never even mentioned Executive Order 12612 in any of the 1,900
    final regulations issued.
        So the question of where you heart is a valid one as we go
    forward, especially when we look at the language. I don't know
    whether the Big 7 is delighted or just got tired and said we
    have fought this long enough, it is not going to last that much
    longer or what. But when I look at the language of the new
    Executive Order, it says, ``I am concerned that there are some
    weakening changes made to the Reagan order that would lead to
    the opposite result that you intend.''
        For example, the new Executive Order requires three hurdles
    to be crossed before a federalism summary impact statement is
    required. The regulation, first, must have federalism
    implications; second, must impose substantial direct compliance
    costs on State and local government; and third, this is not
    required by statute.
        It seems to me that this third condition, that the rule
    must not be required by statute, raises a high hurdle for the
    requirement for a federalism impact statement, because
    presumably most of the major rules that concern State and local
    governments are required by statute. I mean, what you have done
    here by setting out your criteria for when an impact statement
    is required, you have set the hurdle so high, you have exempted
    all of the stuff that really counts.
        So that is kind of the coup de grace, it looks to me like
    when you look at this, in terms of what State and local
    governments can expect in terms of consultation.
        And on the consultation issue, Senator Levin--and I just
    spoke with him about this. He asked the GAO to find out--you
    say you told him, consult and you are committed to
    consultation. Well, let's look at the results. The proof is in
    the pudding. Senator Levin asked GAO to find out how many major
    rules involved consultation with State and local governments,
    setting aside the issue of whether or not a federalism
    assessment was done.
        GAO reported to Senator Levin that based on a quick review
    of the 117 major rules issued between 1996 and 1998, December
    1998, 96 of those rules did not mention intergovernmental
    consultation, despite the fact that 32 of those 96 rules had a
    federalism impact. In fact, 15 of the 32 rules said that they
    were going to preempt State law.
        So, I must say when it comes to the issue of federalism and
    the history of the administration and your personal history in
    shepherding all this thing through, I think there is great
    cause for concern on the part of State and local governments.
        Ms. Katzen. If I could just make two modest points, the
    section that you were reading from is, I believe, subsection B,
    which was specifically an embodiment of the unfunded mandates
    legislation. It said that where there are unfunded mandates
    imposed by statute, that is a congressional decision that has
    been made.
        If Congress says you must do A, and the agency then does A,
    that would not trigger the full round of consultations because
    whatever consultations may take place are not going to affect
    the end result since the agency will do what Congress has told
    it to do.
        There is also subsection B in the Executive Order which
    does not have any statutory language. It says that if you have
    federalism implication and you preempt, you are to do the
    consultation. There is no limitation in any way, shape, or form
    about a statutory bar. That was what we added to this Executive
    Order to solve, I think, that problem.
        Second, with respect to whether or not the Reagan Executive
    Order was actually cited, I think Senator Levin's follow-up
    helped get us some part of the way to what types of
    consultation took place, whether or not they cited the
    Executive Order as such. And there are a number of different
    types of regulations which may have a federalism impact in some
    way, shape, or form that would be unaffected: Where you have
    something like auto safety standards, or where you have the Med
    fly attacks the peach crop in California and USDA has to issue
    a quarantine, that is done through regulation, and that would
    be done on an emergency basis. There are a variety of different
    explanations.
        I would be very interested and indeed most eager to sit
    down and look at the 36 instances where there is a federalism
    impact and no consultation took place and see what went wrong,
    because that shouldn't be happening.
        But I tell you that there probably are instances where the
    agency did not do what the agency should have done, and that is
    why I would like to know. We did this early on after the
    Congressional Review Act was passed, which requires that all
    regulations, once issued by the Executive Branch, come and sit
    before Congress. GAO did a study and said that there were 1,000
    regs that had never been sent to Congress, and I said I want
    the list. I want to go through these. I want to know which
    agency did not do what it should, who was responsible, and why.
        And it turned out that there were a couple of instances of
    good faith misunderstanding. But there were a number of
    instances where, in fact, they had been sent to the Congress
    but, they had been sent to the wrong committee. There were a
    number of different explanations.
        But I asked my staff and I personally got involved in
    reviewing that list, so that if an agency was not doing what it
    was supposed to do, we took them to task. And if I had to go to
    the Secretary of the Department I did that, and in one instance
    I did and said we are not getting the cooperation we need.
        So that is the kind of follow-up that I would take--when I
    said to Senator Voinovich that I would like to proceed in this
    area. If the agencies are not doing what they are supposed to
    do, I am happy to spend my time and my effort to make sure that
    they do what they are supposed to do and I would work with this
    Committee, as I have in the past, to make sure that they are
    following the rules.
        Chairman Thompson. Thank you. Senator Levin.
        Senator Levin. I want to go back to the federalism
    assessments for a moment. There have been previous Executive
    Orders on that subject which had been ignored, as I understand
    it. Is that correct?
        Ms. Katzen. Yes, it is.
        Senator Levin. This is under President Reagan and President
    Bush. Is that correct?
        Ms. Katzen. That is correct. That is my understanding. I
    was not there at the time, but this is what my staff, who was
    there, informed me.
        Senator Levin. So you came along or the President came
    along and attempted a new Executive Order which has been
    ignored in part, ignored mainly, complied with? How would you
    summarize it, on the federalism assessment question?
        Ms. Katzen. That was the order that was issued last summer
    which met with such scorn and derision that it was immediately
    suspended.
        Senator Levin. OK.
        Ms. Katzen. And so we have now issued a revised Executive
    Order, and I believe its effective date is within the next few
    weeks--if it hasn't been the last couple of weeks. So there has
    been no Executive Order signed by this President that would
    have required a federalism assessment during this period.
        Senator Levin. Does the order on consultation?
        Ms. Katzen. The order on consultation, Executive Order
    12875, that I believe was followed, was not applicable in areas
    of preemption, and that was why I wanted to look at the list.
    What Executive Order 12875 referred to was the unfunded
    mandates issue.
        When we first arrived in 1993-94, the issue we heard about
    constantly was unfunded mandates. No one was talking about
    preemption at that point. They were talking about unfunded
    mandates and the gross unfairness of having the Federal
    Government tell a State or local body: You must do something,
    but we are not giving you the funds to carry it out. And they
    were legitimately concerned about that, and that was the origin
    of Executive Order 12875 consultations.
        Senator Levin. A number of questions have been raised by
    Senator Voinovich, and one of those has to do with that GAO
    study about what percentage--in what percentage of cases has
    the unfunded mandates requirement been ignored. And you are
    going to submit that to us for the record, or we are going to
    double-check that, I think Senator Voinovich said, because what
    you have told us here this morning is that where it has not
    been complied with is where the law said it was not in effect.
    Is that correct?
        Ms. Katzen. My understanding is that under Title II the
    obligations to undertake the analysis were tied to the
    economically significant regulations, and that in those
    instances it was carried out. In other instances, it would have
    not been required to be carried out.
        Senator Levin. All right. I think it is a very important
    point. I think it is a fairness point, too. And Senator
    Voinovich is a very fair person. I think we all know him and
    admire him for both his directness but also for his fairness.
    And I would hope that at least on that point that we would
    withhold final judgment until we can get the clarification of
    that.
        Senator Voinovich. I am--that is why I brought it up now.
        Senator Levin. And so I do think it would be useful for
    whoever does that review, if I could ask my good friend,
    Senator Voinovich, whether you do the review or both do it,
    that it be shared with the Members of the Committee. Perhaps we
    could directly ask Ms. Katzen to also submit for the record her
    review when she goes back and looks at it. I think it would be
    useful to all of us.
        Chairman Thompson. Is that agreeable?
        Ms. Katzen. That is fine. Thank you.\1\
    ---------------------------------------------------------------------------
        \1\ The information appears in the Appendix on page 86.
    ---------------------------------------------------------------------------
        Senator Levin. We have recently approved in this Committee
    a bill which our Chairman and others of us have introduced. We
    have supported the Chairman on a Federalism Accountability Act.
    It is a very important bill. I think the vote was something
    like 12-2 in the Committee supporting this bill, and you have
    worked with us in creating this bill. But now apparently it is
    running into some other difficulties, including opposition from
    both the Chamber of Commerce and the environmental community.
    They are now apparently in league and opposed to our Federalism
    Accountability Act.
        One of the reasons for the act is that the requirement in
    the Executive Order that there be a federalism assessment has
    been ignored over the last decade, or however long that
    Executive Order of President Reagan was in effect. And we are
    trying to put into law something so that it can't be ignored by
    the agencies. When the agencies ignore an Executive Order, too
    often there are no consequences. If they ignore a law, it is at
    their peril. So one of the purposes of the bill is that we put
    into law the federalism assessment.
        I think we have worked out at least most of the problems.
    The administration hasn't signed off on it, apparently, but at
    least a number of the problems have been addressed in this
    bill. If we can get it to the floor, we will then run into
    opposition from a number of sources, including apparently,
    again, the Chamber of Commerce, environmental groups and so
    forth, but at least this Committee is trying very hard to get
    to the floor and get passed a bill which will put into law a
    federalism assessment so we don't rely on Executive Branch
    enforcement of an Executive Order, but we have a statutory
    requirement.
        Can you tell us as to whether or not in your judgment that
    requirement that there be an assessment should be in law given
    the history of ignoring an Executive Order on this point? Do
    you have any problem with our putting that into law, just that
    part that there be an assessment? Not the specifics on
    presumption and judicial review. I am just talking about that
    part of the bill.
        Ms. Katzen. My initial response would be that the agencies,
    when they know that the President is supportive of something,
    do what he has asked them to do, and that whether to codify it
    or not would depend on whether, once it takes effect, the
    agencies are following it.
        But on the substance, it seems to me to pass a law when
    there is no need is not all that productive. On the other hand,
    if we have----
        Senator Levin. Isn't there a proven need here if we had
    agencies ignoring an Executive Order?
        Ms. Katzen. It is my view that they have not been ignoring
    the Executive Orders that the President has, in fact, issued in
    this area, Executive Order 12875 I think being the principal
    one.
        If there is a pattern of disregard or if there is now so
    much suspicion that it is impossible to have any trust in the
    agencies, then on the policy I think that the provisions of the
    bill--it is S. 1214, I believe--as to what would be the content
    of a federalism assessment I think are responsible and
    represent what the agencies should be doing.
        Senator Levin. One last question. What would you estimate
    are the top, say, two areas with respect to management that you
    think need the greatest focus right now?
        Ms. Katzen. If I were confirmed as DDM, I have a top-three
    list. The first is better integration of the ``M'' and the
    ``B.'' I think that the management and the budget go hand in
    hand, and I think it is what the Government Performance Results
    Act is all about, trying to put together management and
    budgeting. OMB has taken a number of steps in getting ready for
    the better merger of management and budget, and this is
    something which I would like to see take a dramatic step
    forward.
        Second are the PMOs, the priority management objectives,
    from Y2K to agency specific issues, such as the HUD housing and
    the DOD inventory management. These are the issues which have
    been identified time and again as demanding heightened
    attention and aggressive behavior, and these are areas in which
    some progress has been made in some and not nearly enough in
    others. And they run the gamut, but they all bring efficient,
    effective government for the American people for the money that
    they spend.
        And I guess the third area is one that is not on this list
    now, and it is one that we have not really talked about, except
    it was touched on a little bit in the Chairman's opening
    comments, and that is the issue of human resources, the human
    capital issue. Do we have the right skill sets? Do we have the
    right training? Do we have the right incentives for the right
    people to come and serve in the government at all levels?
        I think that the human capital dimension is one that has
    too long been overlooked by everyone and that serious work can
    and should be done in that area. And that would be the third of
    my top three.
        Senator Levin. Thank you, Mr. Chairman.
        Chairman Thompson. Did you have a comment, Senator
    Voinovich?
        Senator Voinovich. I just had one comment, and it refers to
    approaches and attitude.
        We have been working on the Federalism Accountability Act,
    and we know that the administration has had some problems with
    judicial review. We thought that we accommodated the
    administration's concern when we removed part of the rule of
    construction.
        According to my staff, your staffers came in on Monday with
    a new list of changes and concerns that they have with respect
    to the federalism bill. And we were also told that this list
    was not exhaustive and there could be other suggested changes
    on the way.
        Now, we thought we had worked things out, and then, well,
    no, you haven't.
        Senator Levin. Would you yield on that?
        Senator Voinovich. Sure.
        Senator Levin. Just on that point, because my understanding
    is that we requested whether or not there were issues in
    addition to the ones which had been worked out, and I don't
    think it was ever represented to us that everything had been
    worked out. But our recollections may be a little different on
    that, but I thought I would at least say that we requested that
    list. That was for our purposes; we want to know whether or not
    the President would sign it, veto it, or what.
        Thank you for yielding.
        Ms. Katzen. My understanding is that when we were
    originally shown the bill, we indicated that there were two or
    three areas that it seemed to us were just non-starters and
    that we needed to really work through. And on those three
    areas, the amendments that were reported by this Committee were
    responsive to our concerns, thus sort of wiping out the veto
    threat hanging over the whole bill, as these changes were, in
    fact, responsive.
        We had identified a number of other things, and some of
    them are very trivial. For example, remember in the very first
    meeting I had, I noted that the definition of ``State''
    included territories. And I said, there is a very different
    constitutional relationship between Maine and the United States
    and between the Marianas and the United States. And there are
    certain things that we can do or should be doing with the
    Marianas that shouldn't be judged by what we can do or
    shouldn't do with Maine.
        And I said there are a host of these things. One of the
    issues that I understand raised a lot of concern was the
    definition of ``rule.'' Instead of using Section 553 from the
    APA, the bill uses Section 551, which includes policy
    statements. The Secretary of the Treasury has informed us that
    this would cover every time there is a request for a revenue
    ruling from any individual or any corporation to not have to
    pay a tax. Also, this will have federalism implications for
    those States that use the Federal base for calculating income
    taxes. As a result, the IRS cannot issue any revenue rulings
    without doing a federalism assessment; and that since revenue
    rulings come not just from headquarters here in D.C. but from
    regional offices throughout the country. They would have to
    shut down their entire declaratory judgment rulings process.
        Now, this came to me, and I said, that this is a problem.
    Let's take this up to the Committee staff. We got that comment
    by sending the bill around to all of the agencies. They came
    back with a whole host of things. We winnowed out the comments
    that we thought didn't make a whole lot of sense. But on
    something like that, I said, yes, go up and explain to them
    this is the problem and see if there is a response. I have to
    be able, when we go to the President and say he should sign the
    bill, not say, ``And the Secretary of the Treasury is going to
    shut down the IRS.'' So we need to have some discussion on
    these points.
        I don't know what the reaction was to the list. I am
    surprised that it was represented that it is either the
    beginning or the middle and not the end, because we did do what
    I understood Senator Levin had wanted us to do. We asked the
    agencies, ``Give us your problems,'' and we only presented
    those that struck us as reasonable, rational, and at least the
    subject of appropriate discussion. I don't know what the
    disposition of that would be, but we thought it important to
    raise it now rather than sandbag somebody afterwards and say,
    ``oh, here is this problem.''
        So, again, our staff was trying to be helpful in raising
    issues that the agencies had raised, and it is not my
    understanding that there is another list lying in wait or
    anything of that ilk.
        Senator Voinovich. So there wasn't any representation that
    it wasn't exhaustive and that there were no----
        Ms. Katzen. I don't know. I was not at the meeting. But I
    am surprised to hear that somebody would say it was not
    exhaustive, because it was intended to be a complete and
    comprehensive list. But I was not at the meeting, and I do not
    know. There was only one person from OMB that was there. We
    also invited members from the different departments and
    agencies who could speak firsthand. There was someone from the
    Treasury Department who could talk about this issue rather than
    having someone from OMB be the spokesperson. I don't know who
    may have made this representation or on what authority. But it
    didn't come from me. I do not believe it came from the OMB
    individual, but I will find out.
        Senator Voinovich. Thank you.
        Chairman Thompson. I would think the legislative language
    would be broad enough that by regulation you could exempt some
    of these things. I mean, when you throw out to all the agencies
    any theoretical possibility of any problem they might have, you
    know what results you are going to get. We are looking at it--
    for years the requirement has been ignored, and then we come up
    with some statutory language, and then, the world is going to
    come to an end because every time you turn around you are going
    to have to do an assessment. There has to be some reasonable
    middle ground here.
        Ms. Katzen. Yes.
        Chairman Thompson. But I want to talk about another subject
    that is under your jurisdiction, or was. As OIRA Administrator,
    you were responsible for, among other things, reviewing
    regulations to ensure that they comply with Executive Order
    12866, which requires a cost/benefit analysis on these rules
    and so forth.
        The GAO report and testimony show that the quality of
    agency cost/benefit analysis sometimes is very poor. Would you
    agree with that?
        Ms. Katzen. Yes.
        Chairman Thompson. Moreover, a study of Bob Hahn of the
    American Enterprise Institute shows that about half of the
    major rules he studied between 1990 and 1995, the benefits did
    not justify the cost. Finally, a Harvard study indicates that
    we could save 60,000 more lives per year at no additional cost
    by setting smarter priorities.
        That is in kind of background to the point I want to
    discuss, with you, and that is, the EPA PM/Ozone Rule that I
    think you referred to, and I think you used that as an example
    of where cost/benefit analysis was thick, anyway. And I assume
    you think it was well done. But apparently the court did not.
        OIRA staff, I think, originally raised problems with the
    EPA's cost/benefit analysis on particulate matter in ozone
    under the Clean Air Act. I think the OMB staff and other
    officials raised concern that EPA was not complying with the
    administration's guidelines for cost/benefit analysis and risk
    assessment and was grossly underestimating the cost of the
    proposed regulations. But EPA went forward anyway.
        In fact, the President announced this policy even before
    the final rule was reviewed by OMB, as I understand it, which
    raises real questions about how he views the role of OIRA and
    OMB and the administration's regulatory policy.
        But be that as it may, the D.C. court remanded the rule,
    EPA's rule, because, first, EPA failed to even consider the
    potential substitution risk of the ozone standard. For example,
    in reducing ozone to protect against asthma, EPA might be
    creating new risk from skin cancer and cataracts since ozone
    can shield people from the sun's ultraviolet rays.
        Second, the court held that EPA's interpretation of the
    Clean Air Act violated the non-delegation doctrine because EPA
    failed to establish any intelligible principles that would
    limit its discretion in implementing the act. Apparently, EPA
    was taking the position it could do anything it wanted to. And,
    ironically, applying the principles of our Regulatory
    Improvement Act arguably might have saved the largest
    regulatory initiative of this administration because EPA would
    have been required to consider substitution risk and could have
    used the risk assessment and substitution risk principles to
    guide this discretion in implementation of the Clean Air Act.
        So basically EPA was deficient, according to the court, in
    all these different respects, and the OMB staff in their
    analysis in their draft response, original OMB draft response
    of January 8, 1997, they said, ``While these analyses''--
    talking about the EPA analyses--``produce much useful
    information, there were several areas in which they did not
    fully conform to the principles discussed in the best practices
    document.'' That has to do with cost/benefit analysis and these
    other things we mentioned.
        But by the time it got to be the final OMB response,
    submitted to the Commerce Committee on January 15, you
    concluded that these analyses were consistent with the best
    practices document. So it looks to me like you had your
    professionals inside the OMB over there doing their job, and
    they saw what the court saw early on. And by the time it got up
    to official OMB response, their minds had been changed and they
    were consistent with best practices after all.
        To me, these things--if it is a policy matter, we can
    disagree on policy matters. But if it is a management matter
    and an objective professional analysis, that is something else.
    We really should not let pressure come to bear with regard to
    those matters. If we can't have an agreement as to sound
    management policies, then that doesn't leave us with very much
    to work with.
        So I must say that your statement earlier about EPA's cost/
    benefit analysis and all, I don't understand where you--how you
    feel comfortable with that and doing what the court did.
        Ms. Katzen. It has been several years since I taught
    administrative law, but I remember vaguely that the non-
    delegation doctrine, which had last been heard from in the
    early 1930's as a concern about some of the New Deal
    legislation and had not been heard of again except in dissents,
    goes to the question of whether there is ample guidelines given
    by the Legislative Branch to the Executive Branch agency to
    carry out a function or whether the agency has exceeded the
    delegation from the Legislative Branch. And the court here said
    that in the Clean Air Act there wasn't the kind of criteria
    that would enable the agency to proceed.
        As I understand it, this decision is not yet final. There
    has either been a request for rehearing or for rehearing en
    banc by the court on that particular point. But that does not
    go to whether or not they accurately did an analysis of the
    costs and the benefits.
        The correspondence that you are referring to was one that
    apparently a series of questions was asked. Staff drafted some
    answers. They were then reviewed by staff, as well as by policy
    people, who thought that the initial draft was, as initial
    drafts sometimes are, a little too strident, a little too
    critical, when it was not appropriate to do so. And this
    happens almost in any organization where the draft starts at
    the bottom and it gets drafted and as it gets----
        Chairman Thompson. At the bottom it says it is black and at
    the top it says it is white. That is a little more than
    stridency, I think.
        Ms. Katzen. But I think, that in terms of the ultimate
    objective, the thing that we care about is are people doing the
    analysis? Are agencies thinking about the alternatives?
        I was pleasantly surprised during my consultations with the
    NGA that they said that EPA was one of the best agencies, that
    EPA had one of the better State and local federalism officers,
    and that consultation on some of the regulations had been among
    the best that they had seen in the Federal Government. I
    thought that that was very important because so much of what
    EPA does impacts the States directly.
        That may have been one person's view, and it is not shared
    by others, and it may have only been in the case of one or two
    rules, which does not apply to other rules. But I am suggesting
    that the experiences of the agencies are quite varied. What I
    was talking about, the PM/Ozone rules, is that EPA was not
    required to do a cost-benefit analysis under the law. The Clean
    Air Act specifically says, ``without consideration of cost.''
    It is health-based standard.
        And yet because of the executive order, EPA did put
    together a very comprehensive, some might say flawed, in part,
    but they did do a very comprehensive cost-benefit analysis, and
    I thought that was something worth commending them for and
    encouraging even greater dedication.
        Chairman Thompson. Well, your original, your OMB staff said
    it was flawed originally.
        Ms. Katzen. And changes were made in the cost-benefit
    analysis during the review process.
        Chairman Thompson. Consider the thing in context. The GAO
    reports, and you agree, that a cost-benefit analysis sometimes
    is very poor. OMB's own people said that it did not conform
    with the best practices document. And then, at my request, the
    GAO reviewed OMB's two previous regulatory accounting reports
    under the Stevens Amendment and found much room for
    improvement.
        But relevant to this point, the GAO interviewed seven
    expert economists about the reports, and they criticized OMB on
    a number of points. For example, these experts criticized OMB
    for acting as, in their words, a mere clerk in taking wholesale
    agency estimates of benefits and costs without exercising any
    independent judgment on their plausibility and reliability.
        So a lot of problems with cost-benefit analysis. You are
    right, some of these statutes do not require it. But you have
    an executive order, and you get the best of both worlds. You
    put all of this stuff in the executive order, and you say it is
    all there, and we believe in it and so forth. But in
    practicality, whether it is issues of federalism, whether or
    not it is doing a decent cost-benefit analysis or any of these
    other things that make a difference in the real world,
    according to expert, after expert that has looked at it, it
    leaves a lot to be desired.
        I am going to change subjects again, Senator Levin, but I
    will bow to you for----
        Senator Levin. I just wanted to clarify one thing. It was a
    question that Senator Voinovich asked about representation of
    completeness of problems. And I think there may have been a
    disconnect, although I may be wrong, as to what meeting was
    referred to. And I want to make sure that there is no
    misunderstanding on that.
        When you answered, you referred to a meeting, was that the
    meeting this week that you were referring to in this list of--
    --
        Ms. Katzen. Yes. It was on Monday.
        Senator Levin. I am not sure that that was the reference
    that Senator Voinovich was making, and I may be wrong on this.
    I thought that Senator Voinovich was referring way back to
    whether or not there was a representation that problems that
    were identified were the only ones. But I just want to make
    sure, for the record, that the record is clear. The meeting you
    were referring to, where you laid out this list of things that
    you would like to see clarified or improved or whatever, that
    meeting was a meeting----
        Senator Voinovich. No. I am talking about, I know that that
    meeting went on, and I know that they tried to accommodate us--
    --
        Senator Levin. It was just this week, though.
        Senator Voinovich. This was just this week.
        Senator Levin. OK.
        Senator Voinovich. I think the explanation was that they
    went out and did a larger networking and came back with some
    ideas.
        Senator Levin. I was confused then because I thought that
    there was a reference to an earlier meeting.
        Senator Voinovich. No. There was a meeting this week and
    then the answer was, well, we are trying to get this bill ready
    to go.
        Senator Levin. Right.
        Senator Voinovich. Well, no, we have not given--we may have
    some other problems with it.
        Senator Levin. I wish our problems were mainly the problems
    of some parts the administration might have with it. I think we
    have got problems outside that are going to be our biggest
    hurdles, frankly. But any rate, it is important that we clarify
    what the problems are internal to the administration, and I
    just wanted to clarify as to what that reference was to. For my
    own purposes, I was confused on it, and that helps, that
    clarification. Thank you.
        Chairman Thompson. Let us go back to some of the concerns
    that I originally expressed this morning. First of all, I want
    to hit on a couple of areas, and this is just a matter of
    refocusing. Because I brought up some of these matters, for
    example, when Secretary Summers was confirmed, of some of the
    high-risk list items and so forth. He was obviously not even
    aware of what I was talking about.
        And I guess, in a way, it was unfair to hit him with that,
    considering all of the things that he probably had on his mind
    at that time. But, clearly, in the briefing to that point, they
    were not a matter of sufficient concern to his people. I was on
    the Finance Committee, so I had a chance to try to bring these
    to his attention.
        I want to re-emphasize a couple of things that I am sure
    that you already know. One has to do with these governmentwide,
    systemic problems that cause other kinds of problems. We are
    talking about the Government Performance Results Act and
    performance plans and so forth. In order for any of this to
    result in anything, you have to have reliable data. Although we
    have stated the importance of setting specific measurable goals
    for management, agencies do not have the systems in place to
    manage their performance. According to GAO's most recent
    analysis, few agencies appear capable of producing reliable
    performance data to provide a credible basis for their
    performance goals and measure their performance.
        According to GAO, none of the 24 agency plans analyzed
    provide full confidence that their performance data will be
    credible. Twenty of the 24 agency plans provide only limited
    confidence that their performance data will be credible. On the
    issue of information management, the deputy director for
    management is the chairman of the Chief Information Officer's
    Council, as you well know. And people ask what the ``I'' stands
    for in OIRA. Well, that is ``information.'' And that position
    should have the ability to effect change in the management of
    major information technology acquisition in the Federal
    Government.
        GAO calls information technology management one of the
    government's major management challenges for the 21st Century.
    In a recent report, GAO wrote, ``Billions of dollars have been
    wasted for computer systems that fail to deliver expected
    results. To the extent that billions in planned obligations for
    information technology is going to be spent more wisely,
    Federal programs will operate more efficiently with less
    costs.''
        Just a couple of underlying problems that have been there
    for a while that continue to haunt us. If we are going to have
    any good out of the Government Performance Results Act, we have
    got to do better.
        I am going to go through, again, just from the standpoint
    of highlighting and bringing together in one place a few of the
    things that the GAO has found with regard to some of these
    departments that we have been working with for so long. We get
    them up here one at a time and talk to them, and criticize
    them, and they plan to do better and say they are on the case,
    and come back next year and nothing has changed for a decade,
    in some cases.
        But I wrote to each of these departments and gave them
    GAO's assessment on their performance plans, and I have got
    some notes here from my letters I wrote them, which
    incorporates the GAO findings in many cases.
        Let us take the Department for Defense. GAO found that the
    fiscal year 2000 plan for the Department of Defense had several
    key weaknesses. It seems that, more than any other agency in
    the government, DOD has been plagued by mismanagement. The GAO
    identified six high-risk areas that are specific to DOD:
    Inventory management, for example. GAO reports that ``Of the
    $65 billion of secondary inventory on hand, more than half is
    not needed to support DOD war reserve or current operating
    requirements. In fact, DOD has no demand for about $11 billion
    of this inventory and continues to purchase inventory for which
    it retains a more than adequate supply. As mentioned above,
    financial management problems continue to plague DOD.
    Weaknesses in DOD's financial management operations continue to
    hinder its ability to effectively manage its $250 billion
    budget.''
        GAO recently wrote that ``DOD's biennial financial
    management improvement plan lacks critical elements necessary
    for producing sustainable financial management improvement over
    the long term.''
        There are about 50 open GAO recommendations made to improve
    the credibility of DOD's financial reporting. GAO evaluated the
    extent to which the plan contains specific performance goals to
    address the ten high-risk areas. DOD's plan contains such
    performance goals for five of the ten problem areas. So in half
    of the real problem areas, DOD's plan does not even address it.
        Contract management at DOE. I am sorry. I have switched
    departments here. This is the Department of Energy. Contract
    management at Department of Energy has been on GAO's high-risk
    list since the inception of the list in 1990, almost a decade
    ago. DOE relies on contractors to perform about 90 percent of
    its work. Recently, the Department significantly increased its
    use of competition in selecting contractors to manage and
    operate its major facilities, but it should do more. In
    addition, DOE is still not competitively awarding contracts for
    environmental restoration work at its national laboratories,
    even though it does at other facilities. GAO has made 11
    recommendations to DOE to improve its contract management. Four
    of those recommendations date back to 1994 and nothing has been
    done on them.
        According to information provided to the Committee by the
    DOE's inspector general and GAO, there are a number of audit
    recommendations outstanding, 30 unresolved recommendations.
        Over at HHS, the estimated annual error rate for Medicare
    fee-for-service payments has dropped dramatically over the last
    few years. But the error rate remains equally dramatic,
    amounting to $12 billion or over 7 percent of the total annual
    budget for fiscal 1998, as Medicare remains one of the single
    largest documented sources of waste and error in the Federal
    program.
        Medicare fraud and error was included in the GAO's original
    1990 high-risk list problem areas most vulnerable to waste,
    fraud, and abuse and mismanagement and has remained a high-risk
    program to the present. Since the beginning of fiscal year
    1997, GAO has issued more than 50 reports and testimonies
    relating to different aspects of the Medicare program. There
    are about 50 open GAO recommendations that HHS has yet to fully
    implement. There are a number of open audit recommendations
    addressing other major management problems at HHS as well, 79
    additional GAO recommendations on HHS major management
    problems, 26 of which are described in an enclosure that we
    sent over to HHS.
        Over at HUD, there are a number of open recommendations by
    the inspector general. Many of these recommendations date back
    to 1992. It points out that the annual audit of HUD's financial
    statements has identified eight material control weaknesses,
    most of which have been reported consistently for 6 or more
    years. For example, the IG reported HUD's control structure
    does not provide reasonable assurance that funding for rent and
    operating subsidies to housing authorities and multi-family
    project owners has been in compliance with applicable laws and
    regulations. Indeed, HUD itself estimates that excess rent
    subsidy payments totaled about $857 million in calendar year
    1997.
        GAO recently evaluated the extent to which HUD's fiscal
    year 2000 performance plans contain specific performance goals
    to address the 11 high-risk and other more serious management
    problems confronting the Department, the GAO and the IG for HUD
    has identified. According to the GAO evaluation, HUD's plan
    contains performance goals for only 3 of the 11 high-problem
    areas.
        Department of Justice. GAO review of Drug Enforcement
    Administration strategies and operations in the 1990's, GAO
    findings indicate that while DEA's funding almost doubled and
    its staffing increased substantially over the past decade, the
    Agency achieved no demonstrable results. The supply and use of
    illegal drugs remains largely unchanged during the decade and
    persisted at very high levels. GAO said, ``DEA has not
    developed measurable performance targets for disrupting and
    dismantling drug trafficking operations/organizations. Without
    such performance targets, it is difficult for DEA, the
    Department of Justice, Congress and the public to
    quantitatively assess, one, how effective the DEA has been
    using resources provided by Congress to achieve its strategic
    goals, and, two, the extent to which DEA's programs and
    initiatives have contributed to reducing the illegal drug
    supply.''
        It says, ``Justice must develop good performance data,
    since, according to the GAO, there is little confidence that
    its current performance information is credible.'' GAO notes
    that ``Justice has a strategy to deter illegal crossing at the
    southwest border, but lacks specific data and indicators to
    systematically evaluate the success of this strategy.''
        So I guess the best interpretation of this is that we have
    no idea whether or not this program is working. That is the
    best characterization you can put on it, I think. A problem
    area of particular concern is the management of forfeited
    assets by the Department of Justice and the Treasury
    Department. GAO designated forfeited asset management at both
    departments as a high-risk area in its original 1990 high-risk
    list. This problem has languished on the high-risk list ever
    since. Although it should have been resolved long ago.
        According to GAO, there is no acceptable reason for the
    long delays in completing the actions necessary to remove this
    high-risk designation. Furthermore, Justice and Treasury
    Departments have refused to implement a GAO recommendation
    dating back to 1991 to consolidate the management and
    disposition of properties. Indeed, Justice and Treasury
    Departments maintain separate contractors to handle seized
    assets at some of the same locations. GAO found in 1991 and
    continues to believe that consolidation of asset management and
    disposition function could reduce programs' administrative
    costs and area duplication.
        Fifty-seven unresolved recommendations by the IG, 28
    additional open GAO recommendations. Only half of the IG open
    audit recommendations are addressed to computer security
    problems. I am sorry. Almost half of the IG's open audit
    recommendations are addressed to computer security problems.
    Computer security is a governmentwide high-risk problem area.
    It poses particularly serious potential risk at the Justice
    Department, in view of its many highly sensitive information
    systems.
        An additional seven IG recommendations with regard to
    mismanagement and abuses of the naturalization process by the
    INS. All of the 28 GAO's audit recommendations relate to INS
    problem areas. Indeed, GAO recently testified that most of the
    Department's major management problems are found in INS. Many
    have persisted for years, and these problems are in need of
    what they call ``urgent attention.'' Sixteen high-risk list
    areas. Justice's plan to do something about it addresses 8 of
    16.
        Department of Labor. With regard to their high-risk and
    other most serious management problems, Labor has no specific
    goals for measuring 12 of 13 problem areas. One area without
    specific goals or measures is the year 2000 problem. It is also
    on the GAO's high-risk list. Absence of goals for nearly all
    major problem areas.
        Department of State. Like many other agencies in the
    Federal Government, the Department of State has been plagued by
    mismanagement. GAO and the IG's have identified major
    management challenges in numerous programs that are at high
    risk to loss from waste, fraud and abuse which apply to State.
    They are particularly concerned about outstanding
    recommendations in the area of information security, personnel
    operation and financial management.
        Department of Transportation. The Department of
    Transportation did have a pretty good plan, I must say,
    according to GAO, as far as their plan. I think it was probably
    the best in terms of their intention. But as far as the
    systemic problems, there are still problems.
        There are 22 open GAO recommendations related to systems
    architecture. FAA financial management was added to the high-
    risk list this year. According to the GAO and the inspector
    general, financial management weaknesses render FAA vulnerable
    to waste, fraud and abuse, undermine FAA's ability to manage
    its operations and limit the reliability of financial
    information provided to the decision-makers. FAA has been
    unable to pass financial audits, in part because property and
    equipment valued at almost $12 billion and inventory reported
    at $764--I believe that is million dollars--cannot be verified.
        Another area of concern is failure to fully implement IG's
    recommendation to improve inspection of trucks entering the
    United States, something the IG has been onto them for a while
    now. According to the IG, only 1 percent of trucks entering the
    United States from Mexico were inspected, and 44 percent of
    those that were inspected, did not meet U.S. safety standards.
        Secretary of Treasury. GAO found, ``real progress is not
    evident'' in correcting the weaknesses of the 1999 plan.
    Treasury is one of the three agencies that received the lowest
    quality ranking from GAO in all three core GPRA evaluation
    questions. On the high-risk list, Treasury's plan has no
    specific goals for 12 of these 21 problems.
        EPA. GAO found that the 2000 plan had no performance goals
    for mission-critical challenge of improving data management.
    GAO said the EPA needs to add goals for implementing the
    Clinger-Cohen Act. Now another year has passed, and the EPA's
    failure to include in its fiscal year 2000 plan any goals or
    time frames for the processes needed to make sound information
    technology investment decisions is a serious omission.
        One problem area of particular concern at EPA is the
    Superfund program management. EPA has yet to fully implement
    several GAO recommendations related to this high-risk problem
    area that are detailed in the enclosure. One example is a GAO
    recommendation from September 1994 that EPA expedite the
    issuance of the regulation on indirect costs. The proportion of
    Superfund dollars devoted to administrative support, as opposed
    to actual clean-up activities, remains a problem and one that
    is growing worse. GAO recently reported that the share of total
    Superfund expenditures for contractor clean-up work declined
    from about 48 percent in fiscal 1996 to about 42 percent. At
    the same period, spending for ``support activities'' increased
    from about 51 percent to 54 percent of total Superfund
    expenditures. Nonsite-specific expenditures also increased from
    about 36 percent to over 39 percent. EPA officials could not
    explain these changes in detail because they had not analyzed
    Superfund costs in this manner and were unaware of this decline
    until GAO presented their findings.
        NRC. NRC has been plagued by mismanagement. GAO has
    recommended that NRC develop strategies to act more
    aggressively on safety deficiencies when they are discovered.
        I am skipping over a bunch of this. SBA, there are a number
    of open audit recommendations addressing major management
    problems at SBA. According to GAO evaluation, which is detailed
    in the enclosure that I sent them, SBA's plan has no specific
    goals for any of the ten problem areas.
        So, Ms. Katzen, this is just, going through the highlights,
    do you come away from that with a feeling of optimism or does
    that concern you? I mean, what is your----
        Ms. Katzen. Do I still want the job? Is that what you are
    asking?
        Chairman Thompson. I beg your pardon? Do you still want the
    job? [Laughter.]
        Well, I guess that is a good question.
        Obviously, it is a big government, and there are a lot of
    problems out there. And I know it is easy to highlight things.
    Some of these reports, by the way, some were better than
    others. And I did not do full justice to some of them. Some of
    them are making progress in terms of better reports in 2000
    than in 1999.
        But, obviously, governmentwide there are systemic problems
    that are costing billions of dollars that are threatening our
    national security, in terms of vulnerability in some of these
    information systems especially, becoming bigger, and bigger and
    bigger. The IRS alone has spent billions of dollars trying to
    get its computers to talk to one another. That is one thing.
    But when you see the departments and agencies doing very little
    or making just slight incremental changes so that we have got
    20 massive problem areas, and we addressed two in 1999, and
    this year we are going to address four, that is not good
    enough.
        So you see, and I am sure you do not need to be told this.
    But I cannot emphasize too much that if you are confirmed, this
    is going to be an ongoing thing. I know you feel like we are
    being intrusive. We have not done, I do not think, a good
    enough job in overseeing a lot of this and bringing these
    things to bear. But I am telling you that this is viewed as a
    serious problem. And if you do not view it as a very serious
    problem and you are not willing to go in there and knock some
    heads together, then you are not the right person for this job.
    And I just need to tell you that and let you make any response
    that you want to.
        Ms. Katzen. I listened with interest. Many of the items
    that you had mentioned I have heard about, as I have been
    preparing for this. I am not in a position to do or say very
    much until I am confirmed. But I have been getting up to speed
    and learning a lot about these problems, reviewing the GAO
    reports, many of which I agree with completely.
        I think there has been some progress made. I mean, there
    was a reference to a department's Y2K problems. OMB filed a
    report, I believe, yesterday with the Congress saying that 97
    percent of mission critical systems are going to be Y2K
    compliant, something that nobody thought we would ever get
    close to a year ago. And this is, I think, some progress. Is
    there a lot more to be done? Yes, a great deal more has to be
    done.
        Each year OMB has revised the GPRA guidance. I was there
    when they were preparing this year's guidance, particularly on
    identification of management issues. Mission-critical
    management issues should be a part of the agency's performance
    plans. The reliability of the data, we have not yet seen the
    first performance reports to see what kind of data will be
    presented. We know the data they are relying on for their
    performance plans, and we have specified in our guidance that
    we want to know exactly where, how, when and from whom they are
    getting their data and what testing they are doing to ensure
    them. Also, we have worked with the IG community to try to have
    the IG community help us in validating and verifying
    performance data for some of these agencies.
        There is an enormous amount of work to be done. This is a
    very large enterprise, and the challenges are enormous. They
    are not, I do not think, overwhelming in the sense that we
    cannot make significant progress. And whether it is beating
    heads together, or trying to persuade, or a combination of the
    two, there should be some consequences.
        And as I indicated in the answer to some of the questions
    that had been submitted, I look forward to--and I would hope
    that I could be confirmed to participate in this year's budget
    review for the 2001 budget--at which all of these issues will
    be at the table. I would like to be at the table to speak to
    these issues to make sure that we are not spending money in
    ways that do not make sense or that do not have the management
    structure that they need to have. For that reason, I have
    continued to study, and I have continued to look through these
    areas and make modest recommendations for approaches. I would
    welcome working with you, with the other Members of the
    Committee, with the staff of this Committee, to bring forward
    some of the shared objectives that we have.
        Chairman Thompson. Thank you. Senator Levin.
        Senator Levin. Mr. Chairman, I would like to read from the
    GAO report to us on their high-risk analysis because it gives a
    somewhat different flavor than is projected by the focus just
    on the problems, which is accurate, by the way; the Chairman's
    reading of those problems is surely accurate.
        But I think the GAO report gives a different flavor and a
    different balance to it, and I want to read from it. This is a
    January 1999 letter from the Comptroller General, David Walker,
    and this is what he says in his letter to the president of the
    Senate, Speaker of the House. ``Since 1990, the GAO has
    periodically reported on government operations that we have
    identified as high risk because of their greater
    vulnerabilities to waste, fraud, abuse and mismanagement. This
    effort, which was supported by the Senate Committee on
    Governmental Affairs and the House Committee on Government
    Reform, brought a much needed focus on problems that are
    costing the government billions of dollars. To help, GAO has
    made hundreds of recommendations to improve these high-risk
    operations.''
        And then comes the next sentence, which surely gives a very
    different impression, I think, than what has been given in the
    report by the Chair this morning. Although, again, I have no
    quarrel with the accuracy of what the Chairman's statements
    were because they are, indeed, accurate. But here is what the
    GAO says: ``Overall, agencies are taking these problems
    seriously and making progress in trying to correct them.''
        Now, I do not know how they can say that, given the litany
    of problems that remain. That is my first impression. Well, how
    do you say that? Well, I have not read the whole book yet, but
    that is their conclusion. That is the very same GAO which has
    identified the problems, that has told us, in their report to
    us, that, overall, agencies are taking these problems seriously
    and making progress in trying to correct them.
        They also say, ``While progress has been made in correcting
    high-risk problems, sustained attention by the Congress in
    overseeing agency efforts is needed to make further headway in
    producing lasting solutions. Overall,'' Mr. Walker told us,
    ``as high-risk operations have been corrected and other risks
    have emerged, we have removed areas from the list and added new
    ones to keep the Congress current on areas needing attention.''
        And then the Executive Summary says this: ``In our 1997
    update to the 105th Congress, we reported that progress had
    been made in addressing the 20 high-risk areas being tracked at
    that time. We cautioned, however, that much more effort was
    needed to fully implement real solutions to these serious and
    longstanding problems.''
        ``Also, in 1997, we added five areas: The Year 2000
    computing challenge and information securities' governmentwide
    risks, the Supplemental Security Income program, Defense
    infrastructure, and the 2000 Decennial Census. Since 1997,
    agencies have focused on developing action plans and are trying
    to resolve weaknesses. The Congress has heightened its
    attention by reviewing agencies' progress and taking
    legislative action. Because of sustained tangible improvement
    in one area, the U.S. Custom Service's financial management, we
    are removing its high-risk designation, making this the sixth
    area to come off the high-risk list since the GAO began this
    effort in 1990.''
        ``In remaining areas, more needs to be done to achieve real
    and sustained improvements. In many cases, agencies have agreed
    with GAO recommendations, but have not yet fully implemented
    them. Also, many good plans have been conceived, but the more
    difficult implementation task of successfully translating those
    plans into day-to-day management reality lies ahead. It will
    take time to fully resolve most risk areas, most high-risk
    areas, because they are deep-rooted, difficult problems and
    very large problems in very large programs and organizations.''
        ``Continued perseverance in addressing the 26 areas that
    are the current focus of our high-risk initiative will
    ultimately yield significant benefits.''
        Now, one of the ironies here is that I think the nominee is
    one of the persons, in the agencies' view, as being the head
    knocker. I think when you talk to agencies, some of whom come
    to us, going around OMB at times, and going around folks like
    Sally Katzen, come to us seeking relief, I have gotten the
    flavor pretty strongly that the nominee who is in front of us
    is the person who has aggressively been pursuing things like
    cost-benefit analysis. And she has, of course, as is probably
    endemic, run into resistance at the agencies, which she has had
    some success at least, I believe, in overcoming.
        So it is kind of an irony here that Ms. Katzen, Sally
    Katzen here, has really, I believe, been a very strong advocate
    for some of the very approaches to government administration
    that we have so strongly been promoting in the Congress and has
    had, I believe, some very strong positive results. Will there
    always be resistance in the agencies? I think so. But it is
    surely better to have somebody who is strongly supportive of
    cost-benefit analyses, or risk assessment, as Sally Katzen is,
    at that table rather than to have somebody who is less strongly
    inclined in that same direction.
        So I would hope that we would be able to confirm Sally
    Katzen. I hope that the material she will supply for the record
    and other material that will be gathered will be able to allow
    us to vote on her nomination one way or the other. But in any
    event, I want to, again, express my belief that she has indeed
    shown that she is willing to address issues that are important
    to us, maybe not as effectively as some of us would like in the
    federalism area, but I think that is an area which is going to
    require our continuing attention, as well as the attention of
    people inside of the OMB.
        And I just hope that we can get our current federalism
    agenda adopted by our own Congress. That is going to require
    our continuing attention, and I hope we can do it because I
    think it is necessary that we have a federalism assessment, not
    just required by executive order. But given the history of the
    response of the agencies to those executive orders, at least in
    prior years, I think it is essential that we put that
    requirement into law, that is our responsibility.
        So I would look forward to any additional responses or
    materials, that our nominee can submit and other materials
    which Members here would put into the record. And hopefully we
    could have a decision made on this nominee as to whether we
    want it to go forward at the Senate or not. But we need
    somebody at that table in this position whom I think has proven
    to be the kind of experienced person and supporter of at least
    most of the issues that we have fought so hard for on this
    Committee.
        Chairman Thompson. Thank you very much. Senator Voinovich,
    do you want----
        Senator Voinovich. I have nothing more to say, except to
    say thank you very much. We put you through a pretty grilling
    experience, and I think you have handled yourself quite well.
    As I say, we just have a difference of opinion in terms of
    approach.
        Ms. Katzen. I hope we find some common ground. And I
    appreciate your indicating the areas, so that I can possibly
    address them to your satisfaction. So thank you very much for
    that, sir.
        Chairman Thompson. I think you call it a frank and open
    discussion of the issues, as they say in diplomatic circles.
    [Laughter.]
        But you are more than equal to the task of dealing with us,
    Ms. Katzen. And I compliment you on your many years of public
    service. And I think everyone on this Committee has the highest
    respect for you personally. Although we do disagree on some of
    the issues. But thank you for your being here today.
        Ms. Katzen. Thank you. Thank you, Mr. Chairman.
        Chairman Thompson. The record will remain open for 5 days
    after the conclusion of the hearing. We will be in recess.
        [Whereupon, at 12:20 p.m., the Committee was adjourned.]

                                A P P E N D I X

                                  ----------

    [GRAPHIC] [TIFF OMITTED] 59591.001

    [GRAPHIC] [TIFF OMITTED] 59591.002

    [GRAPHIC] [TIFF OMITTED] 59591.003

    [GRAPHIC] [TIFF OMITTED] 59591.004

    [GRAPHIC] [TIFF OMITTED] 59591.005

    [GRAPHIC] [TIFF OMITTED] 59591.006

    [GRAPHIC] [TIFF OMITTED] 59591.007

    [GRAPHIC] [TIFF OMITTED] 59591.008

    [GRAPHIC] [TIFF OMITTED] 59591.009

    [GRAPHIC] [TIFF OMITTED] 59591.010

    [GRAPHIC] [TIFF OMITTED] 59591.011

    [GRAPHIC] [TIFF OMITTED] 59591.012

    [GRAPHIC] [TIFF OMITTED] 59591.013

    [GRAPHIC] [TIFF OMITTED] 59591.014

    [GRAPHIC] [TIFF OMITTED] 59591.015

    [GRAPHIC] [TIFF OMITTED] 59591.016

    [GRAPHIC] [TIFF OMITTED] 59591.017

    [GRAPHIC] [TIFF OMITTED] 59591.018

    [GRAPHIC] [TIFF OMITTED] 59591.019

    [GRAPHIC] [TIFF OMITTED] 59591.020

    [GRAPHIC] [TIFF OMITTED] 59591.021

    [GRAPHIC] [TIFF OMITTED] 59591.022

    [GRAPHIC] [TIFF OMITTED] 59591.023

    [GRAPHIC] [TIFF OMITTED] 59591.024

    [GRAPHIC] [TIFF OMITTED] 59591.025

    [GRAPHIC] [TIFF OMITTED] 59591.026

    [GRAPHIC] [TIFF OMITTED] 59591.027

    [GRAPHIC] [TIFF OMITTED] 59591.028

    [GRAPHIC] [TIFF OMITTED] 59591.029

    [GRAPHIC] [TIFF OMITTED] 59591.030

    [GRAPHIC] [TIFF OMITTED] 59591.031

    [GRAPHIC] [TIFF OMITTED] 59591.032

    [GRAPHIC] [TIFF OMITTED] 59591.033

    [GRAPHIC] [TIFF OMITTED] 59591.034

    [GRAPHIC] [TIFF OMITTED] 59591.035

    [GRAPHIC] [TIFF OMITTED] 59591.036

    [GRAPHIC] [TIFF OMITTED] 59591.037

    [GRAPHIC] [TIFF OMITTED] 59591.038

    [GRAPHIC] [TIFF OMITTED] 59591.039

    [GRAPHIC] [TIFF OMITTED] 59591.040

    [GRAPHIC] [TIFF OMITTED] 59591.041

    [GRAPHIC] [TIFF OMITTED] 59591.042

    [GRAPHIC] [TIFF OMITTED] 59591.043

    [GRAPHIC] [TIFF OMITTED] 59591.044

    [GRAPHIC] [TIFF OMITTED] 59591.045

    [GRAPHIC] [TIFF OMITTED] 59591.046

    [GRAPHIC] [TIFF OMITTED] 59591.047

    [GRAPHIC] [TIFF OMITTED] 59591.048

    [GRAPHIC] [TIFF OMITTED] 59591.049

    [GRAPHIC] [TIFF OMITTED] 59591.050

                                       -