[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.
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    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\
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    \1\ The information appears in the Appendix on page 86.
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    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.]



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