[Senate Hearing 106-712]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 106-712
 
  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2001

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

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED SIXTH CONGRESS

                             SECOND SESSION

                                   on

                           H.R. 4871/S. 2900

 AN ACT MAKING APPROPRIATIONS FOR THE TREASURY DEPARTMENT, THE UNITED 
   STATES POSTAL SERVICE, THE EXECUTIVE OFFICE OF THE PRESIDENT, AND 
 CERTAIN INDEPENDENT AGENCIES FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 
                      2001, AND FOR OTHER PURPOSES

                               __________

                       Department of the Treasury
                   Executive Office of the President
                       Nondepartmental witnesses

                               __________

         Printed for the use of the Committee on Appropriations


 Available via the World Wide Web: http://www.access.gpo.gov/congress/
                                 senate

                                 ______


                    U.S. GOVERNMENT PRINTING OFFICE
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_______________________________________________________________________
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                                 20402





                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington             FRANK R. LAUTENBERG, New Jersey
MITCH McCONNELL, Kentucky            TOM HARKIN, Iowa
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
RICHARD C. SHELBY, Alabama           HARRY REID, Nevada
JUDD GREGG, New Hampshire            HERB KOHL, Wisconsin
ROBERT F. BENNETT, Utah              PATTY MURRAY, Washington
BEN NIGHTHORSE CAMPBELL, Colorado    BYRON DORGAN, North Dakota
LARRY CRAIG, Idaho                   DIANNE FEINSTEIN, California
KAY BAILEY HUTCHISON, Texas          RICHARD J. DURBIN, Illinois
JON KYL, Arizona
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
               James H. English, Minority Staff Director
                                 ------                                

            Subcommittee on Treasury and General Government

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

                           Professional Staff

                          Patricia A. Raymond
                              Tammy Perrin
                              Lula Edwards
                        Chip Walgren (Minority)

                         Administrative Support

                         Lis Blevins (Minority)






                            C O N T E N T S

                              ----------                              

                        Thursday, March 23, 2000

                                                                   Page

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

                        Thursday, March 30, 2000

Department of the Treasury.......................................    85
    Bureau of Alcohol, Tobacco and Firearms......................   115
    U.S. Customs Service.........................................   100
    U.S. Secret Service..........................................   126
    Federal Law Enforcement Training Center......................   148
    Financial Crimes Enforcement Network.........................   155

                         Tuesday, April 4, 2000

Department of the Treasury: Office of the Secretary..............   199

                        Thursday, April 6, 2000

Executive Office of the President: Office of National Drug 
  Control Policy.................................................   231
Material submitted subsequent to the conclusion of hearing:
    Merit Systems Protection Board...............................   285
    Office of Personnel Management...............................   289
Nondepartmental witnesses........................................   295


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2001

                              ----------                              


                        THURSDAY, MARCH 23, 2000

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell, Stevens, and Dorgan.

                       DEPARTMENT OF THE TREASURY

                        Internal Revenue Service

STATEMENT OF CHARLES ROSSOTTI, COMMISSIONER


                            opening remarks


    Senator Campbell. Good morning, the committee will be in 
order. This morning we will be talking with the Commissioner of 
the Internal Revenue Service, Mr. Charles Rossotti. Welcome, 
Commissioner. Glad to see you again.
    The IRS is requesting a 9 percent increase for fiscal year 
2001, almost $729 million more than this year. Over half of 
that is for inflationary increases to allow the agency to at 
least maintain current levels. The Commissioner has requested 
$119 million as the next installment for the information 
technology investments account. Congress has already provided 
$506 million for this computer modernization project with 
stringent requirements for the release of funds. We have 
approved the release of only $68 million so far and we are 
reviewing a third request to release $176.3 million. I am sure 
we will be talking about this in greater detail this morning.
    The Commissioner is also asking for $42 million more to 
reorganize the agency. Commissioner, the agency has come a long 
way, and we are very proud of it. I also have no doubt that the 
ongoing reorganization needs to be done, but I would like to 
know how they are going to spend the $140 million provided so 
far.
    Last, but certainly not least, the Commissioner is asking 
for a total of $217 million in supplemental and regular 
appropriations for staffing tax administration for balance and 
equity, also known as STABLE. As I understand it, this 
initiative would provide almost 2,000 additional staff 
throughout the IRS. Each of these requests might certainly be 
justified on their own merits. The problem arises when there 
just is not enough money to go around.
    It should be noted that the requested level for the 
Treasury and General Government bill is almost 20 percent more 
than last year, and last year was a good year for agencies 
under our jurisdiction I believe. As everyone is aware, 
Congress has not yet passed a budget resolution and therefore 
has not made a decision about the funding levels for fiscal 
year 2001. I think it is safe to assume that the allocation 
this subcommittee will receive will not be sufficient to fund 
all the requests made by agencies under our jurisdiction.
    Having said that however, I would like to note that the 
Commissioner is to be commended for what he has already 
accomplished at the Internal Revenue Service. Effecting changes 
at an agency the size of the IRS is like trying to turn an 
aircraft carrier around on a dime. I certainly appreciate the 
trips you have made to Colorado, as I am sure Senator Dorgan 
appreciates your trips to North Dakota. You have envisioned an 
agency which you believe can accomplish competing goals, and 
that is not easy. Being customer friendly, while at the same 
time collecting taxes due is a tough thing to do. It is my hope 
that we will be able to provide sufficient funding to help you 
in your efforts.
    With that I would like to turn to Senator Dorgan.


                  statement of senator byron l. dorgan


    Senator Dorgan. Mr. Chairman, thank you very much. Let me 
also thank the Commissioner for being here today with your 
staff.
    Last year, Mr. Commissioner, you talked about the efforts 
that you were undertaking to put the word service back in the 
Internal Revenue Service in a real way, and I must say that you 
have kept your word. In North Dakota, for example, we have tax-
mobiles moving around the State, and I met one of your 
employees in an airport recently and I could just see the 
excitement in her eyes as she was telling me about being out in 
the tax-mobile. She liked that. She liked it because she felt 
that as an employee of the Federal Government she was actually 
able to go out and help people and extend service. That is one 
of the employees down in the ranks someplace who appreciated 
it, not even discussing the appreciation I am sure the 
taxpayers in North Dakota and around the country have.
    You have done a number of other things, problem-solving 
days and a range of other changes in hours, and I think that is 
very important. As a former tax administrator I know, and you 
especially know, that this tax system of ours is still 
``voluntary.'' If 10 million people decide they are not paying 
taxes, you do not have a ghost of a chance to enforce 10 
million actions in court against them. People pay taxes on a 
voluntary basis in this country because they understand they 
have an obligation to do so and feel a responsibility to do so. 
As long as we have widespread compliance in this system, this 
system will work.
    Part of that is for the Internal Revenue Service to extend 
a helping hand through expanded service to taxpayers. So I want 
to just say, thanks for keeping your word and moving down the 
road in that direction. That I think is helpful to us and 
helpful to our tax system.
    I have some of the same comments that Senator Campbell has 
made. I do not know exactly how we are going to be able to deal 
with all of the interests and needs with respect to the 
allocations of the subcommittee, but we are going to do the 
best we can.
    Let me just include the rest of my statement in the record 
with just one additional statement. I remain interested, Mr. 
Commissioner, in a range of issues on enforcement, the 
aggressive use of tax shelters is very troubling these days. I 
have read a great deal about it. I continue to be very troubled 
by the issue of transfer pricing and wonder whether you have 
the resources to deal with that. So we will talk about a few of 
these issues, but let me put the rest of my statement in the 
record and welcome you and your staff to the subcommittee this 
morning.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Thank you, Mr. Chairman. As occurred last year, Commissioner 
Rossotti is the first witness before this subcommittee for this year's 
round of budget hearings. And as the Internal Revenue Service is the 
largest single component of this subcommittee's budget--in terms of 
both level of appropriations as well as total employees--it is only 
fitting that the IRS Commissioner go first.
    I want to first recognize the efforts that the Commissioner has 
undertaken to put ``service'' back into the Internal Revenue Service 
since we met approximately 13 months ago. At last year's hearing he 
made that a commitment to us and I believe he has made strides in 
meeting that commitment. I especially appreciate his willingness to 
make a ``taxmobile'' available to taxpayers in rural parts of my state 
of North Dakota. The taxmobile started making stops in North Dakota 
last month and it has been received warmly by taxpayers who value face-
to-face service from what is often viewed as a faceless and 
intimidating government entity. I have also had the opportunity to 
speak with IRS employees in North Dakota who also find great benefits 
with their experiences with the taxmobile--even though it may take them 
away from their regular duties for a day or two. I hope your people are 
reporting back to you that the taxmobile is working and perhaps we can 
see the program expanded to other rural areas.
    Your $8.841 billion budget request calls for a $729 million 
increase over last year's appropriation. This assumes a Supplemental 
request for $40 million in initial funding for your staffing initiative 
known as STABLE which--frankly--is unlikely to be approved. Your budget 
documents state that nearly half of this requested increase ($336 
million) is merely to maintain current levels for pay, benefits and 
non-labor inflationary costs. It does not reflect your expressed desire 
to increase staffing to stabilize and strengthen tax compliance and 
customer service programs. It does not include key aspects of your on-
going modernization efforts at reorganizing the IRS to meet the 
requirements of the IRS Restructuring and Reform Act of 1998. Nor does 
it reflect the $119 million you have requested for continued computer 
upgrades of your core business systems in the Information Technology 
Investment Account (ITIA).
    This troubles me because a compelling case can be made for the 
majority of these increases. Your submitted statement certainly lays 
out such a case. However, the Administration's budget request for this 
subcommittee seeks increases in funding for all the Departments and 
Agencies under our jurisdiction by nearly $2.5 billion--that's billion 
with a ``b''--over the levels we appropriated last year. It is 
extremely unlikely that we will get an allocation that will allow us to 
meet all of these requests and we are going to need your assistance in 
determining what are your highest priorities as we develop a spending 
plan for the coming fiscal year.
    During my round of questioning, I will want to follow up on some of 
the issues we discussed last year to learn how well your goals are 
being implemented. One area will be rural tax assistance. Mr. LaFever 
spoke last year of some goals he wanted to achieve and I want to 
explore how this service has improved. Another area was the ``one-
stop'' tax shops. Last year, Mr. Commissioner, you indicated you had 
established one in Utah. I want to explore with you how this service 
has expanded.
    I would also like to discuss with you several other matters that I 
know are of interest to the IRS and Congress. For example, what is the 
IRS doing to combat the peddling of aggressive corporate tax shelters 
and other schemes--including transfer pricing--that are used by large 
corporations to avoid taxes, and how are you allocating resources to 
respond to them? Does the IRS have the tools it needs to deal with this 
growing problem? What progress is the IRS making in its congressionally 
mandated study of one of the tools it now uses to improve its transfer 
pricing enforcement? There are a few other areas that I hope to discuss 
with you after your testimony, if time permits.
    Again, thank you Mr. Commissioner for joining us this morning to 
discuss the continued improvement of the IRS and your many budgetary 
requirements.

    Senator Campbell. With that, Mr. Commissioner, why don't 
you go ahead and proceed?

                     STATEMENT of Charles Rossotti

    Mr. Rossotti. Senator Campbell and Senator Dorgan, thank 
you for those opening comments. Some of the more specific 
questions I would be glad to respond to on tax shelters and 
some of the budget items, but let me just give an overview 
here.
    As you know, I think the committee knows that we are really 
guiding most of what we are doing by the directions that we 
felt we were given in the Restructuring and Reform Act which 
calls for probably the most significant changes in the way the 
IRS works in many, many years.
    I was glad to hear both of you note in your opening 
statements, I think we are already witnessing some positive 
results in the form of the implementation of the 71 taxpayer 
rights that were in the restructuring act, and delivering on 
improved service to taxpayers, for example, during this filing 
season. As well I should note the completion, very 
successfully, of our year 2000 conversion program, which was a 
major and risky program, but fortunately has concluded with 
very few problems as we entered this filing season.
    Despite those improvements, Mr. Chairman, it is a fact that 
we cannot claim today that the IRS is meeting what I would 
consider the legitimate service expectations of the compliant 
taxpayers that Senator Dorgan referred to. At the same time, 
our level of compliance activities is dropping. Also, as has 
been pointed out by many observers, the systems that we use to 
manage an account for our $1.8 trillion of tax revenue are 
inherently deficient. These problems are severe and if they are 
not addressed I think they would certainly, over time, 
undermine the fairness and viability of the Federal tax system.
    On the other hand, these problems are not new. They are not 
newly identified, nor do I believe that they are impossible to 
solve. In fact, I think we have in place today, at a top level 
at least, all the plans that we need that will allow us to 
address these problems. We have implemented the many and 
complex provisions, taxpayer rights provisions of the 
restructuring act.
    We have completed a whole system of measuring performance 
throughout the IRS. Our reorganization, which is aimed at 
increasing our customer focus as well as our management 
accountability and efficiency, is progressing rapidly. We have 
a whole new top management team in place.
    Building on that foundation, we are now beginning the long 
process of reengineering our business practices and our 
technology, which you noted, Mr. Chairman, in your opening 
statement. We have submitted some requests to this committee 
for release of the money. We believe that this will help us to 
increase service to taxpayers as well as our compliance 
effectiveness and our efficiency.

                         Trends in IRS Workload

    To succeed in all of this though, which is a massive 
change, we will need adequate budget resources in fiscal 2001, 
both to address our critical operational needs and to invest in 
new technology. I should note, as is noted here on this chart, 
that the rapidly expanding economy is steadily increasing the 
IRS workload.
    Just to give one example, since 1993, the number of 
individual tax returns with over $100,000 reported income, 
which are generally the more complex kind of returns, have 
increased by 63 percent. In the meantime, the IRS staff has 
dropped by 17,000 staff since that period.
    On top of those general trends, as you could see in the 
second chart, the Restructuring and Reform Act has, as we now 
know it, added about 4,500 full-time equivalent positions to 
administer the code sections listed there.
    Finally, since our compliance personnel, our auditors and 
examiners and collectors, represent the largest component of 
the budget and since they are the ones that are required to 
administer most of these provisions, our net compliance 
staffing available to do actual casework has declined very 
rapidly, which you can see on the red line on this chart.
    Now on top of that, besides these direct effects, there are 
some very pervasive changes in the way business is done under 
RRA, which understandably and as has been reported widely has 
created some uncertainty, some confusion, and a great deal of 
relearning of the way jobs are done among our employees and 
managers. So the effect of that has been to increase the amount 
of time required to complete each case.
    When it is all put together the bottom line is that our 
compliance activity, our number of exams and collections have 
been cut about in half since 1997. This is not because we have 
diverted people to service so much, because the service is 
also, while improving, still not at an acceptable level.
    That is why, Mr. Chairman, that we have asked in this 
budget, to meet these pressing operational requirements, for an 
increase in staffing, which as you noted we refer to as STABLE. 
This initiative requests a total of 2,833 additional staff. 
That was split between a fiscal year 2000 supplemental and a 
2001 request, but at a total annual cost of $188 million. With 
this staffing level we would expect that in 2001 the IRS will 
be able to stabilize the level of exam and collection 
compliance activity while still implementing these taxpayer 
rights provisions, and also allow us to maintain or maybe 
slightly increase our service levels.
    So the idea is that this staffing increment would enable us 
to meet our critical operational needs while we transition to a 
new and more efficient organization structure and new 
technology. That, as you noted, Mr. Chairman, is the second key 
part of our budget.

                          IRS Computer Systems

    The IRS depends entirely on our computer systems to 
administer the tax system and to properly account for our $1.8 
trillion in tax revenue. As many observers have noted, and I 
have to say having come in with 28 years in the technology 
business, it was quite a shock to me to see the systems that we 
depend on because they are really fundamentally, and I would 
say irremediably deficient. We cannot depend on these systems 
in the long term.
    Our plan for reengineering all these systems has been 
described in my testimony in more detail, and also in the 
submission we made to this committee. To sum it up, in 2001 we 
are requesting $119 million to continue progress on the 
information technology investment program. We have also 
requested, to ensure continued funding, an advanced 
appropriation for 2002. We have $40 million for pressing short 
term needs in 2001.
    I do want to note that while there is no way that we can 
avoid risk in managing a program of this size and complexity, 
we do feel that we can manage these risks and can achieve our 
goals just as we did with our $1.4 billion Y2K program. I think 
that we now have in place many of the elements that are needed 
to do this properly which were not really in place fully in the 
past.
    Just to note some of the key items that we have to manage 
this program. We now have a single centrally managed 
information systems organization, a very active top level 
governance process which I personally chair and which includes 
all of our key executives. We are adhering rigorously to 
architectural, technological, and methodological standards. We 
awarded a prime contract to manage the development and 
integration activities.
    I think most importantly, we have an unwavering commitment 
to an open process which includes all observers, GAO, TIGTA, 
OMB, Treasury and all of our internal people to get together 
and forthrightly confront problems and issues and make 
adjustments to schedules and scope as reality dictates. We will 
not hesitate to make changes to ensure that we get the value 
for the taxpayer's money in this program.
    So to conclude, Mr. Chairman, I believe we are making real 
progress on the goals and mandates that Congress gave us almost 
unanimously in passing the restructuring act. If Congress can 
provide continued and assured support for IRS modernization 
such as continue our 2001 budget request I think we will be 
able to produce visible, tangible changes in service, 
compliance, and productivity, which I believe is what the 
taxpayers of America deserve and expect.
    Thank you, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Charles O. Rossotti

                              introduction
    Mr. Chairman and distinguished Members of the Subcommittee, the 
fiscal year 2001 budget request is submitted at a remarkable time for 
the Internal Revenue Service and America's taxpayers. Following the 
clear directions set forth by the landmark IRS Restructuring and Reform 
Act of 1998 (RRA 98), the IRS is planning and implementing the most 
significant changes to its organization, technology and the way it 
serves taxpayers in almost a half-century. However, many years of hard 
work lie ahead to make this modernization a reality, and fiscal year 
2000 and fiscal year 2001 represent critical junctures in our efforts.
    Neither Congress nor the IRS could have anticipated all the 
implications, including resources, needed to implement the full scope 
of RRA 98 which covers 71 new taxpayer rights and organizational and 
technological modernization. Delivering on RRA 98's mandates remains a 
learning process. In the 20 months since this bill was passed we have 
learned a great deal and at this point I am convinced we can succeed 
through the combination of a limited increase in staff resources and 
investments in technology and organization.
    The fiscal year 2001 budget request provides an overview of the 
strategic direction that the IRS is following to meet the public's 
expectations. Since our program involves massive and complex change, 
there is considerable risk that progress will not always happen as 
planned or expected, and that setbacks will occur. Although there is no 
way to avoid risk, we can identify, confront and manage it carefully by 
adhering to best established practices and honestly communicating what 
the IRS is doing and why. This is our commitment to the Congress and 
the public.
    During fiscal year 2000, my senior management team and I will 
revise our strategic plan, as originally sent to Congress in 1997 (and 
revised through an interim update included in the fiscal year 2000 and 
fiscal year 2001 Congressional Justifications) to reflect the 
reorganized IRS. In addition, the revised strategic plan will address 
key external factors as part of our strategic and operational planning 
activities.
 how to deliver most efficiently and economically on rra 98's mandates
The Challenge
    Through the Restructuring Act, Congress asked the IRS to achieve 
three goals. One, we must respect taxpayer rights and provide high 
quality service to every taxpayer. Two, we must ensure that the taxes 
that are due are paid. And three, in an era of tight budget caps we 
must do all of this very efficiently. I cannot stress enough that we 
must achieve all of our goals to succeed. Our purpose is not to move an 
imaginary pendulum one way or the other; it is to improve the entire 
way the IRS works.
    Fulfilling RRA 98's mandate required changes in every aspect of how 
the IRS works, including implementing the taxpayer rights provisions I 
have mentioned, many of which were effective on the date of enactment. 
We also had to carry out changes in the way performance is measured, 
people are managed and evaluated, and the organization is structured. 
In addition, we began the long process of reengineering and replacing 
nearly every basic business system.
    At the same time, the IRS had to continue to fulfill essential 
operational requirements, including providing service to taxpayers 
during each filing season, administering roughly 801 tax law changes 
from the Taxpayer Relief Act of 1997, including nearly 300 new 
provisions, and completing the enormous Y2K program.
    The IRS also received recommendations from many sources to improve 
service or fix problems. For example, last year, the IRS received 58 
audit reports from the Treasury Inspector General for Tax 
Administration (TIGTA) containing 314 specific recommendations, and 74 
reports from GAO containing 42 specific recommendations. In addition, 
27 TIGTA and 36 GAO audits are underway. The National Taxpayer Advocate 
also identified and made recommendations on the top 20 problems 
affecting taxpayers. Addressing and managing these changes requires 
significant management attention, and many require additional 
resources, including information systems resources, to implement.
    Over the last 2 years, we have managed all of our major changes and 
risks by grouping them into a few basic change programs, each with a 
management process and a carefully planned and controlled schedule that 
reflected our best current judgment on priorities, resource limitations 
and risks.
    Our first priority was implementing RRA 98 taxpayer rights 
provisions. However, given the short time frames, and many competing 
demands, our capacity to provide guidance to the public and employees 
and to conduct training for 100,000 employees was stretched to the 
limit.
    Ensuring legal compliance was the initial focus. Often, we did not 
know the amount of time and resources needed to carry out these 
provisions. In fiscal year 1999, for example, we briefed and trained 
our staff on 55 RRA 98 provisions and provided a total of 2 million 
hours of training. We estimate that nearly 3,000 full time equivalent 
(FTE) personnel were required for RRA 98's specific administrative 
provisions.
    We are at the stage where we have implemented the RRA 98 legal 
provisions. However, we still have several years to make them work more 
efficiently and with higher quality. Training and management are the 
immediate challenges and in fiscal year 2000, we will continue a high 
level of training.
    I want to stress that we are wholly committed to faithfully 
implementing each and every one of the taxpayer rights provisions and 
make them work as intended, while still fulfilling our mandate to 
collect taxes that are due. We will get the job done and we will get it 
right. However, we will also make mistakes along the way and there is 
not yet an acceptable level of quality, efficiency and effectiveness 
for some of these provisions.
Two Different Paths: One Clear Choice
    Mr. Chairman, quite apart from RRA 98, or any problems or 
initiatives the IRS is pursuing, the expanding economy continues to 
steadily increase the IRS' workload. Over a period of years, this 
expanding workload has compounded to reach fairly significant levels. 
For example, since 1993, the number of individual tax returns with over 
$100,000 in reported income, which are generally the more complex 
returns, have increased by 63 percent. Meanwhile, because of budget 
constraints, the IRS staff has dropped by 17,000 FTE since fiscal year 
1993. At the same time, the new TRA and RRA 98 taxpayer rights required 
new procedures and increased time per case. These conflicting trends, 
increased demands, and reduced staff have not been addressed by new 
technology. During this period, almost all of the technology spending 
and focus were devoted to addressing the Y2K problem and responding to 
TRA and RRA 98.
    This conflicting set of trends has left the IRS in a position in 
which we are not yet meeting the legitimate service expectations of the 
vast majority of compliant taxpayers who voluntarily pay their taxes, 
while compliance activity, such as examination coverage and collection 
enforcement activity, is dropping rapidly, thus potentially undermining 
the fairness of the whole tax system.
    Broadly speaking, one can conceive of two ways to reverse this 
downtrend. The first is to add staff in the traditional manner to 
process more returns, answer more telephone calls and letters, and 
increase casework such as examinations and collection cases. This 
approach would require hiring more than 8,000 staff just to return to 
the fiscal year 1997 level of activity and then adding 2,000 more staff 
annually to remain even with the increasing workload.
    Given the growing economy and increased demands of complying with 
RRA 98, this approach would be extremely expensive. For the vast 
majority of taxpayers, it would also not meet modern expectations for 
service levels because no amount of staff can fully compensate for the 
IRS systems deficiencies. In addition, in today's labor market, the IRS 
would have difficulty attracting and retaining sufficient and qualified 
staff.
    There is, however, another way, and it is the basis for our fiscal 
year 2001 budget request. By investing in reengineering IRS' business 
practices and technology together with limited staffing increases, we 
will be able to perform all aspects of the IRS mission more effectively 
and efficiently and in line with the best private and public sector 
practices. This second approach will, over time, enable the IRS to meet 
public expectations for its mission with lower growth in staff and 
future budgets.
    Although we need additional staff resources to succeed, the amount 
is only modestly more than present levels of staff and would still be 
less than the IRS staffing level of 1997. This approach is possible 
since our basic strategy to meet increased workload and service demands 
depends on reengineering business practices and technology. Freeing up 
positions through business systems investment is a critical 
requirement. By investing in technology and improved business 
practices, the fiscal year 2001 budget request avoids the traditional 
staff increases that would otherwise be required. It is important to 
stress, however, that the investment in modernization is essential for 
this approach to work.
            strategic direction: ``standing up'' the new irs
    During the second half of fiscal year 2000 and throughout fiscal 
year 2001 and beyond, we will continue implementing the new IRS. This 
process includes realigning our personnel resources and putting in 
place: (1) revised business practices and strategies, (2) a new 
organization and management, (3) new information technology, and (4) a 
balanced performance measurement system.
               revised business practices and strategies
    How the IRS interacts with taxpayers is defined by its business 
practices. They determine how tax filing is performed, what notices are 
sent under what circumstances, the way phones are answered, how 
collections of balances due are carried out and how examinations are 
conducted.
    Closely related to business practices are the IRS strategies that 
guide them, such as how returns are selected for examination, what 
compliance issues are emphasized, and how we encourage electronic 
filing. Both strategies and practices are also constrained by, and to a 
considerable degree determined by, the established organizational 
structure and the installed technology base. These are the two 
principal instruments through which the IRS executes its business 
practices and strategies.
    The strategies the IRS will pursue include: (1) preventing taxpayer 
problems or addressing them as early as possible; (2) improving 
taxpayer communications; (3) making TRA and RRA 98 taxpayers rights 
work more efficiently and effectively; (4) broadening electronic tax 
administration use as mandated by RRA 98; (5) leveraging IRS resources 
through effective partnerships with tax administration organizations 
and groups that deal regularly with taxpayers; (6) tailoring practices 
and strategies to specific taxpayer needs and problems; and (7) 
addressing serious areas of noncompliance with specific strategies.
                    new organization and management
    Why is the IRS reorganizing? A key reason is that our slow progress 
to make improvements is due in large part to the twin barriers of 
organizational structure and obsolete computer systems. The traditional 
IRS structure does not adequately support taxpayer demands. It 
represents the way many businesses were organized for many years--
around internal technical disciplines and geographical locations. 
Following the directions set by RRA 98, the IRS is creating a 
modernized structure similar to those widely used in the private 
sector: organizing around customers' needs, in this case taxpayers. The 
future customer-focused organization consists of:
  --Four operating divisions--Wage and Investment Income (W&I), Small 
        Business and Self-Employed (SB/SE), Large and Mid-size Business 
        (L&MSB); Tax Exempt and Government Entities (TE/GE);
  --Two service organizations--Information Systems and Agency-wide 
        Shared Services;
  --Separate specialized independent channels for taxpayers--Appeals 
        and the Taxpayer Advocate Service;
  --Criminal Investigation, which is a line unit and will have sole 
        responsibility for investigation of criminal violations of the 
        tax law;
  --Chief Counsel, which will provide tax advice, guidance and 
        legislative services to all components of the IRS; and
  --A smaller National Headquarters office which will assume the 
        overall role of setting broad policy, reviewing plans and goals 
        of the operating units, and developing major improvement 
        initiatives.
    Each operating division will be responsible for creating and 
executing business practices and strategies to meet those needs, and 
managers at all levels will be expected to be knowledgeable in the 
substantive problems and issues that arise in administering the tax law 
in their respective divisions.
    The organization will be led by management teams, including 
individuals with the broad range of experience needed to lead each unit 
in the dual task of managing current operations while modernizing 
business practices and technology to achieve the new mission and 
strategic goals. The leaders of these units have now all been selected 
and are rapidly putting in place the remainder of the management 
structure in each unit.
                       new information technology
    Reorganizing the IRS' outdated structure and replacing its archaic 
technology will take years to fully accomplish, but it is absolutely 
necessary if we are to reach a higher level of performance. For any 
information-intensive, service-oriented enterprise, such as the IRS, 
information technology will continue to be an essential resource on 
which all organizational performance depends.
    The IRS is no different from the private sector in this respect, 
but it faces some unique challenges. IRS' core data systems are 
fundamentally deficient. The large and extremely fragmented nature of 
the IRS' technology inventory creates many problems, including poor 
service to end users, high cost, long timelines to implement changes 
and improvements, and control and security difficulties.
    Technology modernization is essential to carrying out RRA 98, 
organizational modernization and providing additional services and 
efficiencies, but it is risky by its very nature, size and complexity. 
In fact, there is no way to avoid risk. However, we are not repeating 
past mistakes. We are prudently and carefully managing the process, 
providing for a careful review and external validation of each and 
every part of the program and making necessary adjustments.
    The IRS is establishing an overall architecture for a set of new 
systems that will accommodate all essential tax administration 
functions according to modern standards of technology and financial 
management. During this process, the new and old systems must co-exist 
and exchange data accurately for an extended period until data is 
gradually converted from old systems to new ones. In 1998, the IRS 
established the Core Business Systems Executive Steering Committee to 
provide a framework for the overall management of this process. This 
committee consists of top executives, chaired by the Commissioner, and 
supported by key staff groups.
                     balanced performance measures
    The IRS Balanced Performance Measurement System is being developed 
as part of the effort to modernize the IRS and reflect the agency's 
priorities, as articulated in the IRS mission statement and in 
accordance with RRA 98.
    In September 1999, a ``Balanced Measures Regulation'' was issued to 
formally establish the IRS' new performance management system. The 
issuance of the regulation, which followed a public comment period, 
sets forth the structure for measuring organizational and employee 
performance within the IRS. The IRS has taken great steps to integrate 
its budget request with these balanced performance measures to ensure 
compliance with the Government Performance and Results Act of 1993.
    This year the IRS will adopt its strategic goals as its annual 
performance goals. This framework will assist the IRS in describing how 
programs and initiatives tie to achievement of the mission and goals as 
reflected in improvements in the measurement results.
    In CY 1999, balanced measures at the operational level were 
approved for Tax Exempt and Government Entities, Large and Mid-size 
Business, Appeals, the Taxpayer Advocate Service, Research, Statistics 
of Income, and additional Customer Service product lines. These 
measures are undergoing final design and implementation for use in 
field operations units. Other measures teams formed in CY 1999 that are 
expected to have approved balanced measures in early CY 2000 include 
Information Systems, Criminal Investigation, Counsel, Submission 
Processing, and Agency Wide Shared Services.
    By necessity, our first performance measures priority was to 
develop measures that were consistent with the IRS' strategic goals and 
with section 1204 of RRA 98 which prohibits use of enforcement 
statistics to measure the performance or set goals for any individual. 
In fiscal year 2000, we largely completed the initial development of 
operational performance measures, and will begin development of 
strategic measures. Strategic measures will measure broad performance 
of our four major operating divisions and for the IRS as a whole. Our 
strategic performance measures' objective is to provide quantitative 
indications of the overall success of each major unit and of the whole 
IRS in reaching our three strategic goals.
                    fiscal year 2001 budget request
    To deliver on the RRA 98 mandates for improved service and taxpayer 
treatment while also increasing compliance effectiveness, IRS requires 
increased funding in fiscal year 2001. With improved management and 
technology enabling the delivery of improved service and increased 
compliance effectiveness, the IRS will be positioned to succeed with 
limited resources in future years. As the streamlined management and 
new technology become effective, the IRS can also improve efficiency 
and maintain a stable workforce in relation to the economy. However, we 
face a major budget challenge in fiscal year 2000 and fiscal year 2001, 
which, unless addressed, will threaten not only the IRS reform and 
restructuring program, but the entire tax system.
    The fiscal year 2001 request is $8.841 billion (without the Earned 
Income Tax Credit Account), $769 million more than the final fiscal 
year 2000 enacted level of $8.072 billion. This is $729 million over 
the fiscal year 2000 proposed funding level of $8.112 billion, which 
includes a $40 million supplemental to stabilize the IRS workforce. Of 
this increase, $119 million is for resuming funding of the Information 
Technology Investment Account (ITIA) for which there was no funding in 
fiscal year 2000. The IRS requires this increase in fiscal year 2001 to 
deliver on the RRA 98 mandates, manage organizational modernization, 
and invest in critically needed information technology.
    Our budget request has two broad management categories: (1) 
Maintaining Current Operations, and (2) Modernization. Increases to 
maintain current operations include more FTE to assist in stabilizing 
enforcement activity levels and modestly increasing service levels, and 
to provide adequate non-labor resources for increasing electronic tax 
filing capability and contractual support for critical operational 
activities of the agency. Increases for modernization include funds for 
completing organizational modernization, business line investments, and 
replenishing of ITIA. The requested resources provide for full 
implementation of RRA 98 along with plans to modernize and realign the 
IRS organization, and fund the workforce.
                     maintaining current operations
    To implement RRA 98, the IRS must modernize its organizational 
structure and technological base. However, during this time, we must 
also maintain operational activity at acceptable levels.
    As I discussed earlier in my testimony, RRA 98 established 71 
taxpayer rights provisions, each of which imposed additional procedures 
or new requirements for tax administration. This increased the time 
required to handle existing cases and required the IRS to divert 
compliance personnel to handle new procedures such as Innocent Spouse 
and Third Party Notice provisions. In addition, other compliance 
personnel were re-assigned to provide extended hours of telephone and 
walk-in service. This came on the heels of declining staffing from 
fiscal year 1996 through fiscal year 1999.
    In part because of these changes and increased workload demands, 
the number of examination and collection cases handled declined by 
half. This illustrates the need to balance the continued improvements 
in customer service with funding adequate to maintain enforcement 
activity to collect unpaid taxes and address areas of potential under-
reporting of income.
Current Services Level
    The IRS is requesting a net increase of $336 million to maintain 
the current services level. The IRS is a labor-intensive organization 
and we must have a stable workforce. To maintain current operations, 
carry out a successful filing season, oversee tax administration 
programs, and implement organizational modernization, the IRS must have 
the resources to pay for the inflationary costs associated with 
statutory pay and other mandatory increases.
    Since 1992, the IRS workforce has decreased more than 16 percent 
while handling significant increases in workload due to tax law changes 
and customer demand. The downward trend in FTE is the result of: (1) 
reduced funding in general; (2) inadequate funding for pay components, 
such as costs of within-grades (WIGs) and promotions; and (3) 
insufficient funding of non-labor inflationary costs for required 
agency-wide shared services support costs. During the last few years, 
costs for Support Services have been cut to a bare minimum. In 
addition, the IRS has proactively reduced rent costs. From fiscal year 
1996 through fiscal year 1998, the IRS released 2.5 million square feet 
of space for savings of $40.8 million. There is little room for further 
cost reductions. Any further cuts in agency-wide shared services 
support will result in further FTE reductions.
    It is vital to note that the long-term decline in the IRS workforce 
due to funding constraints has led to a situation where virtually no 
hiring has been done since 1995 in critical front-line skilled 
positions. For example, in a revenue agent workforce that was over 
15,000 in 1995 and hovers at 12,000 today, the IRS has only hired 75 
revenue agents since 1995. Funding of our current services request, 
together with the STABLE initiative discussed next, will allow us to 
begin the process of meeting the need for critical skilled positions.
Stabilizing the Workforce (STABLE)
    The IRS is requesting $144 million and 1,633 FTE to stabilize and 
strengthen tax compliance and customer service programs in fiscal year 
2001 and $39.8 million and 301 FTE for a fiscal year 2000 proposed 
supplemental. This request is collectively known as the STABLE 
(Staffing Tax Administration for Balance and Equity) Initiative.
    Efforts have been made to improve toll-free service, improve access 
to new web-based products and information, and expand electronic 
filing/payment options. However, staffing resources devoted to critical 
compliance and enforcement programs have declined by more than 20 
percent over the last 5 years.
    Beyond the reduction in staffing levels, annual growth in return 
filings and additional workload from RRA 98 contributed to a steady 
erosion of enforcement presence, audit coverage, and case closures in 
front-line compliance programs. Current estimates of additional work 
directly related to RRA 98 total nearly 3,000 FTE for Compliance and 
Customer Service activities. Although the IRS is fully committed to 
delivering on every mandate and objective of RRA 98, it is essential 
that we restore and maintain adequate staffing levels in our key 
program areas.
    To ensure that the benefits of this initiative are realized as 
quickly as possible, the IRS has proposed a supplemental fiscal year 
2000 appropriation, which, if approved by Congress, would allow the 
hiring of 301 FTE in fiscal year 2000. This would ensure that most 
training of new hires would be undertaken in fiscal year 2000, allowing 
the impact of these new hires to be fully maximized in fiscal year 
2001.
    With this staffing level, we expect that in 2001, the IRS will be 
able to slightly increase levels of service and stabilize the level of 
exam and collection activity while complying with the taxpayer rights 
provisions of RRA 98.
Electronic Tax Administration (ETA)
    The IRS is requesting $3 million for ETA to continue progress 
toward achieving the congressional goal that 80 percent of all tax and 
information returns be filed electronically by 2007. In RRA 98, 
Congress established the interim goal that all returns prepared 
electronically, but filed on paper (approximately 80 million) be filed 
electronically by 2003. Increasing taxpayers' awareness and 
understanding of IRS e-file products, services and benefits will help 
close the gap between the projected range of 44.1-49.4 million returns 
being filed electronically in 2003 and the aggressive goals established 
by Congress. This funding will be used to expand marketing efforts that 
communicate the benefits of IRS e-file to both taxpayers and 
practitioners. The IRS plans to advertise in the television, radio, and 
print media; continue the launch of a business marketing campaign; and 
conduct the necessary marketing research to ensure that ETA products 
and services meet our customers' needs.
Contract Management
    In fiscal year 2001, we are requesting an increase of $44 million 
to fund necessary contracts that support general operations, mandatory 
contractual arrangements and necessary outside expertise. In prior year 
budgets, we funded these contracts--which were absolutely necessary to 
conduct business--by reducing funding available for staffing. This is 
in contrast to our fiscal year 2001 request that simply requests the 
necessary funding. Mr. Chairman, I would like to stress that 
contractual support is critical to maintaining operations and 
implementing RRA 98 and the Modernization program. Our contractual 
support is in three categories: mandatory, operational and expertise 
contracts. I would like to describe for you the type of contracts and 
provide examples:
  --Mandatory contracts make up 44 percent of the total budget and are 
        required by law, or agreement with other Federal agencies. 
        These include National Archives storage of tax records; 
        Treasury's Financial Management Service activities for tax 
        refunds and lockbox collections; and Low Income Taxpayer Clinic 
        grants.
  --Operational Contracts make up 32 percent of total budget and 
        support IRS operations. Examples include funding for Currency 
        Transaction Report processing, FedWorld management of the IRS 
        Web Site, and Multilingual Interpretation services for Walk-in 
        offices.
  --Expertise Contracts make up the remaining 24 percent and are 
        required to obtain expertise outside the IRS for activities 
        including outside services for customer satisfaction surveys 
        and rewriting of IRS Forms and Publications in plain English.
                             modernization
    The IRS budget is only a small part of the cost to the public of 
administering our tax system. Most of the costs, both tangible and 
intangible, are related to what the public encounters when it must deal 
with the IRS. The tangible cost is each taxpayer's time and money. The 
intangible cost is the frustration of being treated poorly when making 
an honest effort to comply with a complex tax code. Moreover, this 
frustration has occurred at a time when the level of service that many 
people are receiving from other service providers has been increasing. 
In order to provide better service to taxpayers across the board, we 
need to reengineer the entire way the agency does business.
    In addition, the tax system depends on each taxpayer who is 
voluntarily paying the tax owed having confidence that his or her 
neighbor or competitor is also paying. Modernization will enable the 
IRS compliance activities to identify more effectively areas of non-
compliance and to address them promptly, accurately and fairly.
Organizational Modernization
    In fiscal year 2001, an additional $42 million is being requested 
to cover IRS reorganization expenses. These costs will peak in fiscal 
year 2001, decline in fiscal year 2002, and end in fiscal year 2003. 
The IRS organizational modernization involves the first complete 
reorganization of the IRS since 1952. Essentially all management 
positions above the first line are being redefined; district and 
regional offices are being eliminated; and some new front-line 
positions are being created. This massive change is being done with the 
objective of minimizing physical relocation and associated costs. 
However, some relocation of personnel and a great deal of reassigning 
and retraining are required. In addition, some managerial and 
administrative positions are being eliminated and it is necessary to 
assist the incumbents in these positions either to find new positions 
in the IRS or to retire.
    Together with the $140 million included in the fiscal year 2000 
base for this effort, this request will be used to cover all the 
expenses of the reorganization. These costs include buyouts, 
recruitment, relocations, employee training, equipment, services and 
supplies, telecommunications moves and installations, and modifications 
of information systems to the new organizational structure. Resources 
are also requested for design work, space alterations, and contract 
movers to physically align employees with their operating divisions for 
the Area and Industry Offices, Chief Counsel Headquarters, Information 
Systems, and the National Office. These resources cover all aspects of 
organizational change that will complement the IRS' systems 
modernization efforts and implement the RRA 98 reorganization mandate.
Business Reengineering and Technology Investments
    The IRS depends entirely on its computer systems to administer the 
tax system and to collect and properly account for $1.9 trillion of tax 
revenue. Nearly every IRS employee depends on computer systems to 
perform his or her daily activities, such as processing returns, 
answering taxpayer questions, adjusting taxpayer accounts, sending out 
notices and letters, conducting examinations and collecting overdue 
accounts.
    However, the IRS base of existing systems, which evolved over a 40-
year period, is totally inadequate to support these activities at an 
acceptable level of service to the public, internal efficiency, or 
acceptable risk. GAO and TIGTA repeatedly identify serious problems and 
risks in IRS operations and financial management, many of which cannot 
realistically be rectified except by a near total replacement of IRS' 
systems.
    In addition, nearly all the numerous changes required to improve 
service to taxpayers under RRA 98, and to increase the effectiveness of 
compliance activities depend on improvements to IRS' information 
systems. As indicated earlier in the testimony, it would be extremely 
expensive and require very large increases in staff to meet the service 
and compliance demands of an increasing economy and the RRA 98 mandates 
by simply adding staff. Instead, the IRS must reengineer and replace 
its archaic processes and systems.
    Since reengineering the IRS' business practices and systems is a 
massive job that will take many years, it is necessary to set 
priorities and adopt time phased plans since the needs and 
opportunities for systems improvements are far greater than can be 
accommodated in any one year, or even a few years.
Business Line Investments
    Most of the largest scale and most complex systems' improvements 
will be accomplished through the agency-wide Core Business Systems 
program that is funded by the ITIA and is discussed below. However, 
there are dozens of smaller and more focused high-priority needs to 
support and improve operations. They are either too specific to be 
included in the Core Business Systems program, or, if they were 
included, would not be delivered for many years. The IRS has gone 
through a prioritization process for these business line investments 
and requests funding for $40 million in fiscal year 2001 for only the 
highest priority of such projects.
    We are requesting the $40 million to develop, redesign or acquire 
new systems to improve:
    (1) The Taxpayer Advocate's ability to identify problems and 
recommend changes to the business process by redesigning and 
consolidating multiple, stand-alone systems into one management and 
control system;
    (2) The management and reporting of taxpayer and employee 
complaints by designing a new system;
    (3) The new Tax Exempt/Government Entities organization's ability 
to process determination requests, contacts with requestors and track 
the deposits of fees;
    (4) The notices sent to taxpayers, including the clarity and 
reduction of the need for multiple contacts with taxpayers;
    (5) The Chief Counsel Case Management activities, including 
modernizing many business rules and updating the system to save costly 
manual work and improve Counsel's ability to timely deal with the 
Courts, taxpayers and IRS' needs; and
    (6) The walk-in sites' efficiency and service to taxpayers by 
providing automated management tools of tax information to about 125 
walk-in sites.
ITIA Funded Core Business Systems
    The Core Business Systems program is an agency-wide program 
designed to reengineer all of the basic IRS' business processes and the 
computer systems that support them. After the award of the PRIME 
contract in December of 1998, the IRS spent CY 1999 and the early part 
of CY 2000 building the management and governance process necessary to 
manage this huge program; developing plans for the near-term and 
medium-term projects; and beginning to update architectural and 
technology infrastructure plans. This program is being very carefully 
managed at the highest levels within the agency and adjustments to 
plans are made frequently based on experience to date and on risks 
anticipated.
    The first, relatively small projects to be delivered will provide 
for improved telephone service during fiscal year 2001 and provide 
improved tax computation capabilities to examiners. Further 
enhancements to taxpayer service over the Internet and increased 
electronic tax administration services will follow. Two critically 
important projects will be planned in detail in fiscal year 2000 and 
are expected to proceed to development stages in fiscal year 2001. They 
will replace the archaic tape-based system that maintains all taxpayer 
records and improve our financial management systems. Other critical 
projects to improve service and compliance programs, including 
correspondence, collection and exam are in the early states of design 
and further plans will depend on results of the design efforts.
    In support of these business projects, work will proceed in fiscal 
year 2000 to complete institutionalization of the ITIA governance 
process and the Enterprise Life Cycle methodology. This will provide 
for the first complete update of the technology blueprint since 1997 
and complete major infrastructure and architectural work necessary to 
support the other projects. Security issues are being given special 
attention in this work. In fiscal year 2001, continued update of the 
blueprint and other architectural and technology standards will be done 
and additional work on infrastructure will continue as necessary to 
support the business projects.
    The Congress through the specified ITIA wisely planned the funding 
for this core business systems program. This account represents a 
practical means of funding a long-term program such as the IRS 
technology modernization program. Under ITIA, Congress appropriates the 
funds for the program as a whole and the IRS is allowed to plan for 
continuity of the program subject to stringent reviews and safeguards. 
No funds are released from the ITIA until the IRS prepares a plan for 
specific increments of funding and is reviewed and approved by the 
Treasury, OMB, GAO and the two Appropriations Subcommittees. This 
approval, however, still only provides the IRS authority to proceed up 
to a certain funding level. No funds are actually obligated except 
through a rigorous internal process within the IRS, which is managed by 
the IRS Executive Steering Committee chaired by the Commissioner.
    In fiscal year 2001, we are requesting $119 million to continue 
progress as anticipated on the ITIA funded Core Business Systems 
program. In fiscal year 2000, we requested no funds for ITIA. Remaining 
balances from prior year appropriations plus the new $119 million 
request will support a spending level in fiscal year 2001 of $330 
million. To ensure continued funding, we are requesting an advanced 
appropriation of $375 million for fiscal year 2002.
                               conclusion
    Mr. Chairman, I believe we are making real progress on the goals 
and mandates set forth by the Restructuring Act to bring meaningful, 
positive changes to the IRS and America's taxpayers. It is true that no 
one fully understood everything that would be required to implement 
this far-reaching Act. However, if Congress can provide continued and 
assured support for IRS modernization, such as that contained in our 
fiscal year 2001 budget request, we will be able to produce the 
visible, tangible changes in service, compliance and productivity that 
America's taxpayers expect and deserve. Thank you. 
[GRAPHIC] [TIFF OMITTED] T13MA23.001

[GRAPHIC] [TIFF OMITTED] T13MA23.002

    Senator Campbell. Thank you. Before I ask some questions, 
Commissioner Rossotti, I would like to ask the chairman of the 
full committee, Senator Stevens--I know he has a burning 
interest in your office--if he has some comments.

                    STATEMENT of senator ted stevens

    Senator Stevens. Nice to see you here. I wrote to you last 
July about a problem that has developed, and I penned in a 
personal note to you about it. It comes about because, in 
connection with the Alaska Native Corporations NOL amendment of 
some years ago your office has seen fit to reverse and 
reinterpret the private letter rulings which were issued and 
relied upon by three of those corporations. The net result is 
these corporations who did recover despite a terrible period, 
the NOLs really allowed them to stay in business, now face 
substantial taxes and interest which would not be due at all if 
it had not been for the reinterpretation.
    I am sorry to say, I got a reply from one of your 
assistants who did not really respond to the problem of why 
should the IRS reverse a private letter ruling that applied to 
people in such dire straits. These are corporations for Alaska 
Native people primarily living in the Arctic. They are the 
Bering Straits, Cobb Inlet Regional Corporation and Aluet 
Corporation. They have tried to find ways to work this out. 
Their counsel, their tax advocate has come and seen me several 
times.
    I would not normally bring this up at a hearing. I know you 
cannot discuss it, the merits of the decision, but I urge you 
to go back and take a look at it. I think this is terrible 
policy to allow your people the ability to reverse private 
letter rulings which have been relied upon, decisions were made 
based upon those rulings. Now to go back and reassess the tax 
that was due then after the computation under the private 
letter ruling, I really just do not understand it.
    Commissioner, I would urge you to look at it. These people 
because of a lot of things that are going on in the world, 
primarily because of the restrictions on mining and oil and gas 
development during the period of this Administration, are back 
in hard straits again. The assessments that are coming from the 
IRS will in two instances bankrupt these companies. And they 
are companies that every person is a Native stockholder. That 
is, the stockholder is a Native person. Their employment is 
primarily Native. These corporations were created by an act of 
Congress.
    I just do not understand this reversal of policy, and I 
would urge you to personally take a look at it. That is my 
personal request on it. We have been working with these 
corporations now since 1971. Twelve of them were created then 
and 12 of them are still going now. None of them has ever gone 
bankrupt. The NOL legislation saved at least nine of them, and 
your predecessors issued those rulings and we see no reason for 
a reversal.
    I cannot find any justification other than people did not 
like what was done then. But you know, time passes and 
decisions are made upon past decisions and past 
interpretations. We should not have something like this to 
bring this kind of chaos into Alaska. I would appreciate it, 
Mr. Rossotti, if you could personally look into it.
    Mr. Rossotti. Senator, I promise you I will. I am aware of 
the issue. I have not delved into the details of it, but 
certainly based on your request, I promise you that I will look 
into it and we will look at every possibility for trying to 
work with those Native corporations.
    Senator Stevens. I was a Government lawyer for a long time, 
Mr. Rossotti. I do not mind telling you I saw a lot of things 
my predecessors did I would not have decided that way. I am 
afraid that is what your people have done, and had they been 
there at the time the circumstance would be different. But once 
the rulings are issued and relied upon, I just do not believe 
that you should permit your subordinates to reverse them. Thank 
you.
    Mr. Rossotti. We will take that very seriously, Senator.

           IMPLEMENTATION of the restructuring and reform act

    Senator Campbell. Mr. Rossotti, the IRS Restructuring and 
Reform Act of 1998 which is called the RRA Act of 1998 placed a 
number of requirements on the IRS and I would like to know a 
little bit about the cost and how it is implemented. Were those 
costs accommodated within your budget to implement the RRA?
    Mr. Rossotti. Mr. Chairman, I think that at the time RRA 
was passed there were many provisions and it was very difficult 
to estimate exactly how they would be administered and what the 
impact would be. We did make some attempts to do that and 
discussed them a little bit in last year's budget, but I do not 
think anyone could have known exactly how they would play out.
    I think we have much better information today and actually 
that is exactly what this chart is over here. This shows by 
code section the principal sections of the Restructuring and 
Reform Act which have created resource requirements.
    Just to pick out one example or a couple of examples, if 
you look under the innocent spouse case processing, that is the 
provision which I think many members of Congress and myself 
when I was working with the Congress were very interested in 
getting. It gives the opportunity for spouses who may have 
separated or had issues in their marriage to achieve relief 
from a liability on a return that they may have signed and may 
not have known about some of the issues that came up later 
after that return was signed.
    But we now have an enormous number of these claims in 
inventory and they have turned out to be extremely complex to 
adjudicate. We have about 46,000 of them which is a big 
backlog. There are about 700 FTEs assigned to that. Prior to 
the passage of the act it was basically negligible. I am not in 
any way complaining about this section because I think it was 
one of the ones that was most important to put in. It just has 
turned out to be extremely complex to administer.
    Senator Campbell. How much has it cost so far?
    Mr. Rossotti. These are in terms of personnel, but I think 
if you look at it--for example, we have requested 2,800 people 
in STABLE, which is the initiative that we have asked for to 
cover this and that would cost a total of $188 million a year. 
That would actually not cover everything that is in here but it 
would basically do as much as we think we need to do to cope 
with these sections.
    Senator Campbell. In the reform policies that you have 
implemented, can taxpayers actually see any difference in their 
interactions with the IRS now? As an example, when they make 
phone calls, are they getting better service and accurate 
information?
    Mr. Rossotti. Senator, I think that they can, and I will 
give you several examples. Just in the current filing season, 
for example, a taxpayer is able to get through about 65 percent 
of the time. Now that is not as good as it needs to be because 
if you were in the private sector you would get 90 percent. But 
last year it was about 50 percent and 2 years ago it was 20 
percent. I mean, you had an 80 percent chance of getting a busy 
signal.
    So this is the number one complaint that I get from 
congressional offices during the filing season, people say they 
are put on hold too long, and I am very well aware of it. But 
at least they are getting through 65 percent of the time, which 
is a lot better.

                          ASSISTING taxpayers

    The other thing is, as Senator Dorgan noted, we have put 
people out again into the field and we have field offices open 
on Saturdays and during extended hours during the filing 
season. We have these problem-solving days that have really 
helped to reduce the number of really difficult problem cases; 
some of the things that were raised in your hearing, for 
example. These are the kind of things that we have done 
already.
    Really what the whole point of the modernization is to make 
those kinds of improvements embedded in our whole way of doing 
business so that every taxpayer that deals with the IRS on 
every occasion, whether they are by phone, in person, or on the 
Internet, which we hope a lot of them will do, will be able to 
get through, get the information they want, get their problem 
solved, and be done with it. That is basically what the whole--
we have done some steps along the way but I would not claim 
that we are anywhere near to 100 percent. But I think there is 
visible progress.
    Senator Campbell. I remember one of the complaints we heard 
was they get different answers from different people.
    Mr. Rossotti. That is a fair statement also because some of 
these questions are complex and in the past every group was 
trying to answer every question. Now we have got it managed on 
a national basis so that we will basically be able to direct a 
call to the person that really understands how to answer that 
call. We are not quite there yet, but that is the way, the 
direction that we are going.
    Senator Campbell. Good. Do not direct them to me.
    Mr. Rossotti. Or me either.

                            IRS performance

    Senator Campbell. Your approach right from the beginning 
was to structure it more like a corporation, treating people as 
customers. I think that is a good idea. Do you send customer 
service questionnaires out, or do you have some way of tracking 
comments and responses on a card or a file?
    Mr. Rossotti. That is another major thing that we have done 
and the answer is yes. Now not on everything yet, but on most 
of our major interactions we have--actually, in order to be 
objective we have a third party, an outside party that sends 
out on a random sample questionnaires to people that have 
interacted with us, whether it is on the phone, or even on an 
exam or a collection, and they get back these things. They do 
not come to us. They come to the outside party and they 
tabulate them for us.
    What we have done now is we have gotten to the point now 
where we are actually building this part of it into the 
measurement system for our organizational units. So that the 
people in the organization as part of their measurement, what 
we call our balanced measurement system, the results of these 
feedback surveys, it is not just information on the shelf. It 
is part of the way we measure performance in the organization.

                            TAXPAYER rights

    Senator Campbell. In that restructuring act it also shifted 
the burden of proof from the taxpayer to the IRS and it also 
instituted specific protections for the taxpayer against the 
IRS. Does the IRS provide taxpayers with a clear disclosure of 
what their rights are?
    Mr. Rossotti. We do, Senator. It is not only a part of our 
policy, it is in many cases built into the act. We have here, 
for example, even in Spanish as an example, this kind of a 
flyer that goes in with every time we contact the taxpayer, and 
there are various types. For example, if we send out a notice 
saying that there might be a collection action pending, we will 
send out the specific----
    Senator Campbell. So they are made aware of it when you 
notify them that there may be action pending?
    Mr. Rossotti. In every single case. It is required as part 
of our process.
    Senator Campbell. Let me ask Senator Dorgan, so I do not 
hog the whole time here, if he would like to ask a few 
questions, and then I will get back to a couple more.

                          TELEPHONE assistance

    Senator Dorgan. I was going to ask about the response on 
the telephone inquiries. I think you would agree that even 65 
percent is short.
    Mr. Rossotti. It is.
    Senator Dorgan. I mean, 35 percent are trying to get some 
help and are not getting it. We need to find a way to put 
enough people on those phones and have enough phones so that 
people get through.
    Mr. Rossotti. Senator, that is exactly what we are doing. I 
said we need to be comparable to private sector, which would be 
90 percent, maybe even the best would be 95 percent. There are 
two answers to that. One is that we do need some more staff, 
and that is part of what the STABLE request is for.
    We are not attempting to do it all with staff though. The 
technology will also help us. The first project under our 
information technology program is actually improving the call 
routing and the call management. It will help us to get better 
quality and better quantity by getting the right calls to the 
right people by allowing taxpayers to get the information they 
need directly if that is possible.
    For example, on refunds, a lot of people just call us to 
see if we got their return and when they are going to get their 
refund. Those are very simple calls which we can--that is about 
one-quarter of our calls during the filing season. We can give 
that information to taxpayers very easily with technology.
    So we have basically these two prongs to solve that 
problem. One is we do need some additional staff and that is 
what STABLE is about. But we are not really attempting to solve 
the problem--we would need far too many staff years to be able 
to solve it entirely with staff. The other prong is with the 
technology.

                          PAPERLESS tax filing

    Senator Dorgan. Commissioner, another issue that I have 
been working on that relates to the amount of money you spend 
processing paper is a plan that would allow Americans like 
citizens of some 30 other countries to be able to file or 
comply with an income tax requirement without having to file a 
paper income tax return. You referred to electronic filing, 
which obviously is one way to do that.
    Another way to do it is to go to an elective system of 
filing for people with more of a rough justice approach to 
complying. By adjusting the W-4 just a bit you could actually, 
with the plan that I have been working on, allow up to 70 
million people to comply with their income tax obligation and 
yet not have to file an income tax return. It would save a 
great deal of time. Save you processing a lot of paper.
    I assume that would save money if we had a return-free 
system for 70 million people whose principal income is wages. 
Those who have de minimis other income, interest and capital 
gains, would then be exempt from tax. If you constructed a 
system like that, where 70 million people could elect this 
system and their withholding would then become their exact tax 
liability, I assume you would save a substantial amount of 
money in processing. Am I correct about that?
    Mr. Rossotti. As you may remember, there is a requirement 
in the restructuring act for us to provide a study of that and 
we are going to do that.
    Senator Dorgan. I did that. I put that in.
    Mr. Rossotti. We are doing it. We are going to do it. It is 
a bit complicated. I honestly do not know whether we would 
save. I think there are some offsetting costs because we then 
have to do some additional work to process the information we 
need to actually calculate the liability. I guess it would 
depend to some degree on whether the law was adjusted.
    Senator Dorgan. You are missing my point. My point is not 
that the tax agency would be the reconciler. Some countries do 
that where the tax agency reconciles and you actually make the 
calculation. That is not my point. My point is a return-free 
system in which the actual withholding on a table provided by 
the tax agency becomes the actual liability and there is no 
paper in the system.
    Mr. Rossotti. I think that would require legislative change 
in order to----
    Senator Dorgan. Oh, yes. That would be a very substantial 
change.
    Mr. Rossotti. Okay, I misunderstood. I think that becomes 
the issue. If we tried to do it with all the existing 
provisions of the statute we get into some fairly significant 
complications, because we really even with third-party 
reporting do not have all the information and we do not get it 
in time.
    If you change the law, maybe perhaps along the lines of 
what you are saying, then that might be an entirely different 
issue. But of course, that would then require the Congress to 
consider whether----
    Senator Dorgan. No, but my question of you is, if we do 
that, and I think Congress will be considering something like 
this, if you take people who elect to go off on a completely 
different track and have their actual withholding, with some 
adjustments on the W-4 form, some additional adjustments, the 
actual withholding becomes their actual liability. Therefore, 
no paper is required. No return filed.

                          PAPERLESS tax filing

    Let us assume that 70 million people did not have to file 
hard paper returns to the Internal Revenue Service. I am 
assuming that you save a fair amount of money.
    Mr. Rossotti. We would certainly save money if we did not 
have to do anything, did not have to process those returns. I 
would agree with that. I think we would have to look at though 
what--if it was implemented in such a way that there was no 
offsetting requirement to calculate the liability then I think 
that would be true.
    I think that would be the question that would have to be 
determined though, what would be the offset--what would be the 
Congress'--how would the Congress change the law to provide for 
the calculation of that liability through the W-4 process or 
through the withholding process? Because of course, right now 
it is not sensitive to that. I mean, it is just a withholding. 
It does not really determine your tax liability.
    Senator Dorgan. I understand that. But I am looking at the 
pony, you are looking at the manure here. I am trying to----
    Mr. Rossotti. Maybe that is the job I am in.
    Senator Dorgan. I am saying that there are examples of 
plans in other countries that have income taxes that allow 
people to file no return at all.
    Mr. Rossotti. Right, I am aware of that.
    Senator Dorgan. This is not a case where the tax agency 
reconciles.
    Mr. Rossotti. No, I understand. I do. I did not get it at 
first, but I think I do. I think it just depends on how the law 
was drafted. That is all.
    Senator Dorgan. I have been working on this for a couple 
years. We have talked to Treasury and the IRS a bit. So I guess 
I was just talking about whether money can be saved if you take 
paper out of the system.
    Mr. Rossotti. Sure.

                              tax SHELTERS

    Senator Dorgan. Let me ask one additional question on the 
issue of tax shelters. I know from having talked to the Service 
and Treasury that you face a very difficult prospect here of 
increasingly sophisticated tax shelters. I mean very 
sophisticated tax shelters that are beginning to allow some of 
the largest taxpayers to effectively avoid--or entities that 
should be some of the largest taxpayers--to effectively avoid 
their tax obligation through very sophisticated schemes. 
Treasury is very concerned about that as are you.
    Can you describe some of the challenges you face there?
    Mr. Rossotti. Senator, first of all, let me just say that I 
agree with you very much that this is one of the most 
significant compliance issues that we have. And it is not 
simply the money that is being lost. We do not know exactly how 
much it is but we know that it is a great deal; many billions. 
But it is also I think a threat to the fairness, the perceived 
fairness of the system because the average taxpayer if they 
think that the so-called big guy is getting away with 
something, it undermines their confidence in the system.
    As you said, if millions and millions of people decide they 
do not want to pay any more because it is not fair, we are 
really in trouble. So I take this very, very seriously.
    Secretary Summers has decreed this is a top priority, as we 
have, and I am pleased to tell you that I think at this moment 
I can say that we have the beginnings of a very vigorous and I 
hope will be a very effective program to deal with abusive 
corporate tax shelters as we call them.
    Just to tick off some of the things that we are doing, we 
are working cooperatively with Treasury on this. Just a few 
weeks ago we issued three new regulations that require 
increased disclosure from both the taxpayers and the promoters 
of these kinds of corporate tax shelters. That regulation which 
was issued between us and Treasury I think will give us the 
information we have to identify and discover these, because as 
you noted they are really quite hard to find.
    The other thing is part of our reorganization is going to 
help us very much on this because part of it is that we have 
set up one operating division for covering large and mid-sized 
taxpayers, which previously that responsibility was dispersed 
and we did not really have anybody directly in charge of it. 
Now we have, I think, a very good, very well qualified team in 
charge. They are going to get the information that we get from 
these disclosures that are required by these new regulations, 
and I think very actively pursue the ones that appear to be 
abusive, much more aggressively, or let us say effectively than 
we did in the past.
    We also then will be able to take advantage of what we 
learn from some of the casework that we do to feed this back 
into some additional notices. We have been issuing notices and 
various kinds of guidance when we find particular kinds of 
these things to stamp them out. Some of them, as you probably 
know, are really quite odd. I mean, you have a large U.S. 
corporation leasing a city hall over in a European country and 
then leasing it right back and claiming that that transaction 
results in a tax deduction. And there is an infinite variety of 
these things that come up.
    So I am not going to claim that we are going to be able to 
completely eliminate these, but I can I think fairly state to 
you that today, partly through some of the other changes we 
have made and with the cooperation of Treasury and the 
Secretary, we have a much more vigorous program to deal with 
this than we had even a few months ago.
    Senator Dorgan. Thank you, Commissioner.

                 tax return information on the INTERNET

    Senator Campbell. Commissioner, is the IRS considering 
allowing taxpayers to log on the Internet to check the status 
of their returns since you said that about one-fourth of your 
calls are people checking the status?
    Mr. Rossotti. That is one of our top priority initiatives 
in our modernization program. Certainly it is feasible to do 
that and we expect to do that, not in the next filing season, 
not in 2001 but perhaps the following one. The critical gating 
factor, the limiting factor there is really the privacy and 
security. That is the issue.
    Senator Campbell. Yes, we will have to plug in some PIN 
number or a license number or Social Security or something?
    Mr. Rossotti. That is the key. We have to be sure that the 
taxpayer who is signing on is the taxpayer who is really 
allowed to have that information. Of course, that is not an 
easy thing to do. It is not impossible but we are working on 
that very diligently. That is the gating factor.
    Our current goal, I would say, although I cannot guarantee 
that we will meet it, our current goal would be that in the 
2002 filing season--in other words, 2 years from now, that we 
would be able to do that. We do have a pilot project underway 
to use the Internet with some practitioners, with appropriate 
security with practitioners, and we are using that as a pilot 
to try this out right now.

                         TECHNOLOGY investments

    Senator Campbell. Let me talk about the total amount of 
money. In fiscal year 1998 and 1999 we provided a total of $506 
million for information technology investments. So far the IRS 
has been allowed to spend only $68 million and Congress is 
considering a request for another $176.3 million. You have also 
requested $119 million more in fiscal year 2001 and a 
commitment of an additional $375 million for fiscal year 2002, 
which is a total of over $1 billion, and that has a real ring 
to it.
    I hope that given the congressional requirements for the 
release of funds and the pace so far, could you give us some 
assurances that the IRS is going to be able to justify the 
expenditure of the remaining money, which is I guess over $261 
million?
    Mr. Rossotti. Let me just say, Senator, that because of the 
history of less than successful efforts in the IRS in the past, 
the modernization, I think the Congress very wisely--and this 
was done before I got here, but very, very wisely put in place 
a process which on the one hand puts money into this technology 
investment account so there will be an assured funding once the 
project starts, because if you start and stop a project, you 
kill it basically. So the money is allocated into this 
investment account.
    But there is also I think the other side to, as you noted, 
a very rigorous process for release of that money to the IRS 
which requires many reviews and many standards to be met, which 
is what----
    Senator Campbell. We did that because we thought some of 
the money was being misspent.
    Mr. Rossotti. I think that the way this was set up was 
really quite wise. I think if you look at the point you made 
that what we have spent so far, is that a third piece of this 
is our own responsibility internally. Even after it is released 
to us it just authorizes us to basically obligate this money 
for specific projects. But I can tell you that we have a 
process in place that I personally am very actively involved 
in, as is Mr. Cosgrave our CIO, and we do not release any of 
this money for any specific project unless we feel to the best 
of our knowledge that we know exactly what we are going to get 
for it and we have a reasonable assurance that it will produce 
what it is supposed to.
    That is why actually we have only spent $68 million so far, 
because we have been working very hard on the planning and the 
analysis and the preparation work that is needed before we go 
into what is really the much more expensive phase when you 
actually begin to deploy these systems. I think we are now at 
the stage where the first two--and they are still fairly 
small--of the actual development projects is part of our 
request before you now, which would allow us to put some things 
in for the 2001 filing season.
    As we get to later this calendar year we will be coming in, 
we hope, if we are successful, with some much more significant 
requests to begin some of the bigger projects. That is why the 
money ramps up.
    The thing that I really want to stress to the committee 
though is that myself, my deputies, Mr. Cosgrave, the CIO, we 
have an internal pledge to ourselves that we are not going to 
spend a dollar of this money any differently than we would if 
it was our own business, our own company. We are really going 
to do everything that we know how to do to make sure that when 
we commit money to one of these projects that we know what we 
are going to get for it.
    Even then, I do not say that we are not going to have risks 
and we could not have some failures along the way, but I think 
I can give assurance that we are not going to go down a path 
where we spend hundreds of millions or billions on something it 
does not produce anything, because we are just on top of it.

                         TECHNOLOGY investments

    Senator Campbell. That has happened before, as you know. Do 
you think you will be able to spend what you currently have 
before the end of the fiscal year?
    Mr. Rossotti. I think that we have a plan, if everything 
goes the way we expect, we will be ramping up and spending the 
money. But I think that we will have to work closely with the 
committee throughout the year, because we monitor this every 
month virtually. I think we need to work closely with your 
committee and the House Appropriations Committee to give you 
the reports, as well as to OMB. I can tell you that we are not 
going to spend the money just because it is there. That is the 
promise I will make to you.
    You will see the reports, as will Treasury and OMB. It is a 
very open process. We have these meetings and we have people 
from all sides attending. As those that have attended know, 
they are pretty hard-hitting. We really go into this in some 
detail. That is what you have to do to run a project like this.
    Senator Campbell. I thank you. Senator Dorgan, do you have 
any further questions?
    Senator Dorgan. Just one final question. Over the years 
serving on Ways and Means and now here in the Senate, we have 
gone through a lot of iterations with the IRS about the 
equipment purchases and new technology in order to respond to 
the challenges of processing and responding to taxpayers, and 
we have had some very large equipment purchases that did not 
work and did not produce the system that we expected. Where are 
we now with all of that?
    Mr. Rossotti. This is really what I was talking to Senator 
Campbell about. Let me just make one slight clarification 
because really the problem is not so much equipment. There are 
some equipment problems, but mostly we have at this point 
fairly modern equipment in terms of the actual computers. What 
we have is we have 1960s and 1970s software systems running on 
1999 computers. That is what we have.
    For example, our entire file of taxpayer records, every 
taxpayer in America, business, individual, is on tape files. 
This is because the system that does that accounting, that 
taxpayer accounting is the most basic system in the IRS, is 
still the same system that was written during the Kennedy 
Administration. I am not exaggerating this. This is a fact. 
This was a machine language system that was written in the 
1960s. It updates tape files. It gets updated once a week. It 
runs on modern equipment but it is still the same old system.
    This is what the whole modernization program is about. This 
is why I said in my opening statement, those systems are not 
fixable. There is not a matter of tweaking. We have to replace 
them completely.
    Now where are we? What we did is we----

                         TECHNOLOGY investments

    Senator Dorgan. The reason I ask the question again is to 
understand, were they not intended to be replaced about 10 
years ago when you went through the major modernization 
program?
    Mr. Rossotti. Yes.
    Senator Dorgan. If they were then, what happened?
    Mr. Rossotti. That was before I got here, of course, but--
--
    Senator Dorgan. I understand.
    Mr. Rossotti. I think that the answer is, as I understand 
it, yes, they were intended to be replaced.
    Senator Dorgan. Talking about the software?
    Mr. Rossotti. Yes. And to be fair, there was some software 
that was replaced. But it was more that new software was added 
on to the old software but they never replaced the irremediably 
deficient software. I think that is why the project was viewed 
as a failure. In reality, there were some things that were 
delivered from that money that was spent. It was not a complete 
waste.
    But unfortunately, what it did not do is it did not 
basically solve the problem, which is to replace these old 
systems. So that is what the whole technology modernization 
program is all about. It is not about adding on some new 
things. It is about replacing what is a just fundamentally 
inadequate base of systems. Not so much computers, hardware, as 
it is the systems themselves.
    In order to do that, it is not just the software. We have 
to really rethink the whole way we do business. As you were a 
tax commissioner, Senator Dorgan, you know the key to 
collecting when you have somebody that is overdue is to get to 
them quickly and clean up that account. Because of our systems 
we take years. I mean, most of our people that are collectors 
out in the field are working on accounts that are 2 or 3 years 
from when a liability was developed. A lot of that has to do 
with the whole process of collecting, as an example.
    Senator Dorgan. Thank you, Commissioner.
    Senator Campbell. Commissioner, we have no further 
questions. Thank you for being here. I think you have received 
some questions in writing from members who could not attend 
this morning. If you could answer those as quickly as possible 
in writing, we would appreciate it.
    Mr. Rossotti. We will certainly do that, sir.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. RRA 98 enhanced the Taxpayer Advocate's Office by making 
it an independent entity within the IRS, with advocates in the field 
reporting directly to the Advocate's Office in D.C. instead of to the 
IRS regional management structure.
    How is the Taxpayer Advocate's office assisting taxpayers?
    Answer. I am pleased to report that the new Taxpayer Advocate 
Service officially transitioned as a modernized organization on March 
12, 2000. We developed a modernized organization to deliver service to 
each taxpayer through our casework, and to every taxpayer through 
outreach, systemic analysis and advocacy.
    Every state now has at least one Local Taxpayer Advocate. Local 
Taxpayer Advocates work to resolve problems that individual taxpayers 
have with the Internal Revenue Service. They also address taxpayer 
problems when an IRS system, policy or procedure fails. Separate 
addresses, telephone and fax numbers for Taxpayer Advocates are 
included on notices of deficiency and are being published as the 
telephone directories are updated.
    We hired the Operating Division Taxpayer Advocate and several 
Advocacy Analysts for the Wage and Investment Operating Division. 
Advocacy Analysts identify and monitor the progress of procedural, 
systemic and legislative changes designed to benefit taxpayers. They 
also solicit feedback from taxpayers and key stakeholders about IRS 
problems. We will hire an Operating Division Taxpayer Advocate for the 
Small Business/Self Employed Operating Division and additional Advocacy 
Analysts as the new IRS Operating Divisions become operational later 
this year.
    Question. What happens if a taxpayer cannot resolve the issue with 
the assistance of the Advocate's Office? Are there any other remedies 
available to the taxpayer?
    Answer. Taxpayers always have the right to go to appeals or to the 
tax court. In some instances Taxpayers will need to follow judicial 
avenues to resolve their tax issues. This situation would occur if the 
Taxpayer Advocate Service cannot provide the relief requested because 
we don't have the delegated authority, or we feel that the action taken 
by the function was appropriate.
    Mr. Rossotti, Congress reaffirmed in RRA 98 your initial idea of a 
structure which allows IRS employees to concentrate on a group of 
taxpayers with similar needs, such as small business and self-employed 
or large and mid-size business. We provided $140 million this year for 
that effort.
    Question. What is the status of that reorganization?
    Answer. We are very much on course implementing Phase II 
Modernization Design blueprints, meeting time-phased plans and critical 
milestones. Our Tax Exempt/Government Entities Division was officially 
established in December 1999, while our Large and Mid-Sized Business 
Division will be in operation by June 2000. Both our Small Business/
Self-Employed and Wage & Investment Divisions are commencing the 
necessary steps towards meeting the October 2000 operations start-up 
milestone.
    We have also recently convened our Business Systems Modernization 
Organization Team to begin designing new and updating existing 
essential business systems infrastructure and architectural blueprint 
for the new IRS. This will provide for the first time complete update 
of the technology blueprint since 1997. In the midst of these 
modernization challenges and achievements, we continue to deliver day-
to-day business and operational activities at acceptable levels to 
American taxpayers.
    Question. Why does the IRS need an additional $42 million next 
year?
    Answer. In fiscal year 2001, an additional $42 million is being 
requested to cover IRS reorganization expenses. These costs will peak 
in fiscal year 2001, decline in fiscal year 2002, and end in fiscal 
year 2003. IRS organization modernization involves the first complete 
reorganization of this agency since 1952. Together with the $140 
million included in the fiscal year 2000 base for this effort, this 
request will be used to cover all expenses of the reorganization. These 
costs include buyouts, recruitment, relocations, employee training, 
equipment, services and supplies, telecommunications moves and 
installations, and modifications of information systems to the new 
organizational structure. Resources are also requested for design work, 
space alterations, and contract movers to physically align employees 
with their operating divisions for the Area and Industry Offices, Chief 
Counsel Headquarters, Information Systems, and the National Office. 
These resources cover all aspects of organizational change that will 
complement the IRS' systems modernization efforts and implement the RRA 
98 reorganization mandate.
    Question. At what point do you expect that the reorganization will 
be complete and the funding will be non-recurred?
    Answer. If we receive our fiscal year 2001 budget request, $182.4 
million would be in our base for organization modernization in fiscal 
year 2001. We expect to non-recur much of that base in fiscal year 2002 
and the remainder in fiscal year 2003.
    The Administration has requested almost $40 million in supplemental 
funding to allow the IRS to get a head start on a staffing increase, 
code named STABLE for Staffing Tax Administration for Balance and 
Equity. It now appears unlikely that Congress can agree to that 
request.
    Question. If that is the case, what would be the fiscal year 2001 
need for STABLE?
    Answer. In the President's Budget the IRS requested $224 million 
and 2,835 FTE for the STABLE initiative over a 2-year period which 
includes a fiscal year 2000 supplemental. This approach was taken to 
allow the IRS to advance hire and begin training earlier the new 
personnel that this initiative supports. Doing so would allow the new 
hires to be engaged in performing their jobs at a full level as early 
as possible. The IRS still believes that this is the most rational and 
sensible approach. If we were not to get the fiscal year 2000 
supplemental, the entire initiative would have to be implemented in 
fiscal year 2001.
    The Service has since reevaluated its needs for STABLE for fiscal 
year 2001 using the assumption that Congress might not fund the 
supplemental in fiscal year 2000. That recosting identifies needs of 
$213.2 million and 2,501 FTE in fiscal year 2001. The amounts 
identified in the fiscal year 2001 Congressional Justification for 
STABLE are higher because they assumed that 301 FTE, from the 
supplemental, would already have been in place on October 1, 2000.
    Question. How likely is it that the IRS will be able to hire almost 
3,000 new full-time employees (FTE) in one year?
    Answer. The IRS should be able to hire 3,000 new full-time 
employees (FTE) in one year. The recruitment process is gearing up for 
recruitment on college campuses this spring to bring revenue agents on 
board October, 2000. After receiving the ``Compliance Initiative'' in 
the fiscal year 1995 budget, IRS had a net increase of 4,671 on-rolls 
between June 30, 1994 and June 30, 1995.
    The IRS is requesting a total of $44 million for operational 
support contracts. I am told that these are necessary because the IRS 
does not have in-house expertise in certain areas.
    Question. What kinds of functions are covered by these operational 
contracts?
    Answer. Contractual support is comprised of three categories: 
mandatory, operational, and expertise. Below are some examples of each 
type of contract:
  --Mandatory contracts are required by law or agreement with other 
        Federal agencies. These include National Archives storage of 
        tax records; Treasury's Financial Management Service activities 
        for tax refunds and lockbox collections; and, Low Income 
        Taxpayer Clinic grants.
  --Operational contracts support IRS operations. Examples include 
        funding for Currency Transaction Report processing, FedWorld 
        management of the IRS Web Site; and, Multilingual 
        Interpretation services for Walk-in offices.
  --Expertise contracts are required to obtain expertise outside the 
        IRS. Some of these activities include developing and 
        administering customer satisfaction surveys and rewriting of 
        IRS Forms and Publications into ``plain English.''
    Question. How long will the IRS need to rely upon outside expertise 
in these areas? In other words, when can we expect that these funds 
will be non-recurred?
    Answer. The $44 million that the IRS is requesting is to restore 
our unfunded operational level. Operational costs have risen because of 
demands placed on the agency as a result of RRA 98, the reorganization, 
and lower staffing levels. The changes caused by RRA 98 and the 
reorganization have required expansion and adjustments to the scope of 
work of many operational contracts. We see contracting out for services 
as the best use of limited resources and as an enhancement to our areas 
of unfamiliar expertise. Therefore, we do not foresee that these funds 
will be non-recurred.
    The IRS fiscal year 2001 budget request includes $144 million and 
1,633 full time equivalent staff years (FTEs) for an initiative known 
as Staffing Tax Administration for Balance and Equity (STABLE). STABLE 
is intended to stabilize and strengthen tax compliance and customer 
service programs. The FTEs being requested for this initiative are 
allocated among submission processing, telephone and correspondence, 
document matching, examination, collection, and tax exempt and 
government entities.
    Question. How does the IRS determine the number of FTEs to allocate 
to each of the functional areas within the STABLE initiative?
    Answer. There were three objectives for the STABLE initiative: 
increase compliance activity, free up compliance staff that had been 
detailed to customer service areas, and increase customer service.
    We first applied staff to those areas that would allow new and 
additional audit coverage and increase compliance case closures. Those 
areas were defined as the Automated Collection System, Collection, 
Underreporter for Information Returns, Examination, Tax Exempt and 
Submission Processing. We also wished to free up half the staff from 
Examination and Collections that do walk-in and Toll Free work during 
the filing season (800 FTE). This allows 400 of these FTE to address 
the backlog of cases in exam and collection and consequently improve 
the audit coverage rate. Third, we wanted to increase customer service 
levels that support Walk-in and Toll Free telephone service to the 
taxpayer. This increase in fiscal year 2001 will allow IRS to perform 
all aspects of IRS' mission more effectively and efficiently.
    Question. Does the IRS have a business case showing the expected 
benefits and costs for each part of the STABLE initiative?
    Answer. The following performance information highlights the 
objectives of the STABLE initiative to balance continued improvements 
in customer service with targeted investments in compliance programs 
that focus on high-income filers and sectors of the economy with 
special enforcement needs.

------------------------------------------------------------------------
             Measure               Fiscal year 2000    Fiscal year 2001
------------------------------------------------------------------------
Toll-Free Level of Service......  65 percent \1\....  70 percent \2\
Field Audit Coverage > $100K....  0.76 percent......  0.81 percent
Field Collection Delinquent       751,745...........  1,009,774
 Accounts Closed.
------------------------------------------------------------------------
\1\ Actual level of service as of March 11, 2000.
\2\ This revision is dependent on a call demand consistent with
  experience thus far in fiscal year 2000, continued achievement of
  current telephone performance, and increased staffing of 500 FTE
  provided by the STABLE Initiative.

    As the chart on the following page illustrates, the total return on 
investment for the STABLE initiative is 5.3 to 1. Although STABLE is 
not a revenue-driven initiative, Examination, Collection and Document 
Matching functions will generate substantial direct enforcement 
revenue.

                                                                                      [Dollars in millions]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                          Fiscal year 20000   Fiscal year 20001                            Revenue Generated
                                                                        ---------------------------------------------------------------------------------------------------------------
                                                                                                                                                                               Total     6-year
           Budget activity                    Employment category                                                 Fiscal    Fiscal    Fiscal    Fiscal    Fiscal    Fiscal     fiscal      ROI
                                                                            FTE      Cost       FTE      Cost      year      year      year      year      year      year      years
                                                                                                                   2000      2001      2002      2003      2004      2005    2000-2005
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Enhancing Compliance:
    Automated Collection System......  Cust Svc Rep....................        75     $11.8       450     $32.2       $46      $428      $810      $900      $900      $900     $3,984      23.4
    Collection.......................  Revenue Officer.................  ........  ........        33       3.2  ........         4        28        39        45        45        161       8.1
                                       Other...........................  ........  ........        17       1.2  ........  ........  ........  ........  ........  ........  .........  ........
    Underreporter--Information         Tax Exam (Temp).................        40       4.8       200      12.8        15        68        93       104       108       108        496       7.9
     Returns.
    Examination......................  Revenue Agent...................         9       1.5       633      69.8  ........       -28       150       232       264       288        906       2.2
                                       Other...........................         2       0.2       189      13.6  ........  ........  ........  ........  ........  ........  .........  ........
    Tax Exempt.......................  Technical.......................         4       0.6        68       6.4  ........  ........        19        19        19        19         76       2.0
    Submission Processing............  Cust Serv Rep...................        50       5.7       408      28.9  ........  ........  ........  ........  ........  ........  .........  ........
                                                                        ------------------------------------------------------------------------------------------------------------------------
      Subtotal.......................  ................................       180      24.6     1,998     168.1        61       472     1,100     1,294     1,336     1,360      5,623       6.1
                                                                        ========================================================================================================================
``Freeing Up'' FTE:
    Walk-Ins.........................  Cust Serv Rep...................        48       6.3       200      15.4  ........        61        65        67        69        70        332       4.1
    Toll-Free Telephone Service......  Cust Serv Rep (Temp)............        50       6.1       200      13.2  ........        61        65        67        69        70        332       5.1
                                                                        ------------------------------------------------------------------------------------------------------------------------
      Subtotal.......................  ................................        98      12.4       400      28.6  ........       122       130       134       138       140        664       4.9
                                                                        ------------------------------------------------------------------------------------------------------------------------
      Total..........................  ................................       278      37.0     2,398     196.7        61       594     1,230     1,428     1,474     1,500      6,287       6.0
                                                                        ========================================================================================================================
Enhancing Customer Service:
    Walk-Ins.........................  Cust Serv Rep...................  ........  ........        33       2.5  ........  ........  ........  ........  ........  ........  .........  ........
    Toll-Free Telephone Service......  Cust Serv Rep (Temp)............        13       1.6       300      19.8  ........  ........  ........  ........  ........  ........  .........  ........
    Underreporter--CAWR..............  Tax Examiner....................        10       1.2       104       5.6  ........  ........  ........  ........  ........  ........  .........  ........
                                                                        ------------------------------------------------------------------------------------------------------------------------
      Subtotal.......................  ................................        23       2.8       437      27.9  ........  ........  ........  ........  ........  ........  .........  ........
                                                                        ========================================================================================================================
      Total--STABLE Initiative.......  ................................       301      39.8     2,835     224.6        61       594     1.230     1,428     1,474     1,500      6,287       5.3
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

    In its congressional justification, IRS notes, that ``staffing 
resources devoted to compliance and enforcement programs have declined 
by more than 20 percent over the last 5 years because of the need to 
transfer compliance staff to customer service activities.'' Also 
according to IRS, additional workload increases, including some 
associated with the IRS Restructuring and Reform Act of 1998 (RRA 98), 
have further eroded IRS' enforcement presence.
    Question. How much of the decline in compliance and enforcement 
programs stems from IRS employees' lack of understanding about how to 
implement the provisions of RRA 98 rather than the additional work 
associated with the provisions?
    Answer. While it is true that enforcement revenue declined by 6.5 
percent ($2.3B) between fiscal year 1998 and fiscal year 1999, total 
net revenue collected rose by 6.4 percent ($105B). Our purpose in 
shifting resources to customer service activities was to increase 
voluntary compliance, which would result in taxpayers filing a correct 
return, and paying the correct amount, thus increasing total net 
revenue collected. We believe that the opportunity cost of implementing 
RRA 98 provisions has resulted in an approximate 4 percent decline in 
``output'' for both Examination and Collection in fiscal year 1999. 
Reductions in various output measures beyond this can be partially 
attributed to some initial lack of understanding regarding RRA 98, 
especially in the Collection function. As stated in response to the 
previous question, we are aggressively taking actions via training and 
all-Collection and all-Examination manager's meetings to address the 
concerns of our front-line employees regarding how RRA 98 has and has 
not changed their job responsibilities.
    Question. What actions are being taken to help ensure that 
employees understand the specific requirements of RRA 98 as it relates 
to their jobs?
    Answer. The IRS has instituted an aggressive three-phased training 
program to ensure that employees understand how the IRS Restructuring 
and Reform Act of 1998 (RRA 98) affects their jobs.
Phase I (completed July 1998-January 1999)
  --Provided basic training to 51,318 employees to explain the overall 
        objectives of the legislation, the reasons it was enacted, and 
        its immediate and long-term impact on the IRS;
  --Posted information on IRS' internal web site and linked to an IRS 
        National Resource Center where employees could find information 
        and ask questions.
Phase II (completed May 1999-September 1999)
  --Provided formal training on specific Act provisions to employees 
        whose direct responsibilities were affected. The training had 
        clear learning objectives, testing and evaluation;
  --Delivered specialized training courses on: Due Process, Installment 
        Agreements, Offers-In-Compromise, Seizures, Relief from Joint 
        and Several Liability, Third-Party Contacts and Interest 
        Netting;
  --Provided section 1203 training to 97,965 employees; and
  --Delivered section 1204 training on the use of enforcement 
        statistics to all managers as well as all collection and 
        examination employees.
Phase III (to be completed during fiscal year 2000)
  --The overview training of Phase I and the technical training of 
        Phase II have been incorporated into the basic employee 
        training programs of all job types in the IRS.
    As part of the STABLE initiative, IRS has proposed a supplemental 
fiscal year 2000 appropriation that would allow the hiring of 301 FTEs 
in fiscal year 2000. That advance hiring, according to IRS, would 
ensure that most training of new hires would be undertaken in fiscal 
year 2000, allowing the impact of these new hires to be fully maximized 
in fiscal year 2001.
    Question. Since the persons hired in fiscal year 2000 will only be 
on board for part of the fiscal year, how many persons will the IRS 
have to hire in fiscal year 2000 to realize the 301 FTEs that year?
    Answer. IRS would hire 1,202 people in fiscal year 2000 in order to 
expend 301 FTE.
    Question. When in fiscal year 2000 would IRS have to bring those 
persons on board in order to ensure that most training is done in 
fiscal year 2000?
    Answer. We plan to hire these people at the beginning of July.
    As required by RRA 98, IRS is in the midst of a major 
reorganization designed to improve service to taxpayers. IRS plans to 
reorganize around four operating divisions, each with beginning-to-end 
responsibility for serving major groups of taxpayers. IRS has several 
units within the new division already in place and has said that it 
will ``stand-up'' the remaining units, including the two largest 
divisions, by October 2000.
    Question. What exactly does IRS mean when it says it will ``stand 
up'' the organization by October 2000? Will all employees be assigned 
to a new operating division by then?
    Answer. The term ``stand up'' refers to five critical elements that 
the IRS has determined must be met in order to efficiently and 
effectively ``stand up'' a new organization. Those elements are:
  --The Division Commissioner is in place and the key management 
        positions have been filled;
  --All personnel actions have been completed to non-competitively and 
        competitively realign employees to the new division;
  --The Budget has been created and financial management 
        responsibilities have been transferred to the Division 
        Commissioner;
  --The Division has the delegated authority to fulfill its mission; 
        and
  --Management Systems and necessary workarounds have been developed 
        and are in place to allow the Division to function.
    All employees will be assigned to the new operating divisions by 
10/1/00 because in order to effectively ``stand-up'' the organization, 
we must follow the second ``stand-up'' element (mentioned above) by 
completing all of the necessary personnel actions to non-competitively 
and competitively realign all IRS employees by 10/1/00.
    Question. What changes will be noticeable to taxpayers who try to 
contact IRS, and how does IRS plan to inform taxpayers of any such 
changes?
    Answer. Essentially, the reorganization will be transparent to 
taxpayers. However, they will be receiving an increased level of 
service when they contact the IRS via telephone and correspondence and 
e-mail resulting from enhanced modernization changes. The enhancements 
include procedural changes, the Taxpayer Bill of Rights, new 
technology, and new organizational structure.
    Additionally, the IRS will continue with Problem Solving Days, 
Taxpayer Advocate Service emphasis and the Citizens Advisory Panel to 
increase accessibility to IRS and resolve issues. Taxpayers are also 
beginning to experience enhanced services provided by the IRS' e-filing 
program offering them the option of e-filing their federal and state 
tax returns together, getting their telephone calls answered more 
timely and more often, and receiving identifying information from 
employees upon receipt of their call.
    Conversely, we have been notifying taxpayers for the past 2 years 
through a whole myriad of methods including press releases, marketing 
campaigns, the Internet, meetings with liaison groups, outreach to the 
Hill and Practitioner meetings. We plan to continue this method of 
information sharing throughout this process.
    The IRS request states that by investing in technology and improved 
business practices, the fiscal year 2001 budget request avoids the 
traditional staff increases that would otherwise be required.
    Question. What specific information system and business practice 
improvements to be implemented in fiscal years 2000 and 2001 will 
produce the efficiency gains implicit in this statement?
    Answer. Most of the business practice improvements we have been 
pursuing in fiscal year 2000 and plan to pursue in fiscal year 2001 are 
designed to improve our service to the taxpayer. These include:
  --Increasing the use of easy to use alternatives to paper filing;
  --Simplifying notices and correspondence;
  --Meeting demands for walk-in assistance;
  --Pursuing penalty reform;
  --Improving and increasing use of upstream education and delinquency 
        prevention techniques;
  --Identifying potential areas of non-compliance and developing 
        effective treatments;
  --Providing a quality work environment;
  --Providing better tools and training to enhance customer service;
  --Improving service by reorganizing and refocusing along customer 
        segments; and,
  --Measuring progress and performance against a balanced measurement 
        system.
    Although we will be implementing some new computer systems in 
fiscal year 2000 and 2001, the majority of the systems that will 
improve IRS efficiency will be implemented from fiscal year 2002 
onward.
    Question. If, during fiscal year 2001, IRS will still be in the 
process of aligning field staff and workloads to the new organizational 
structure, what kinds of efficiency improvements does IRS realistically 
expect during this transition?
    Answer. They will be minimal. Some of our performance measures will 
show slight increases in fiscal year 2001, based on the STABLE 
initiative being funded. However, the dramatic improvements in 
performance will only be realized when business practices are 
reengineered and technology is modernized. Unfortunately, almost all of 
the technology spending and focus in the last 2 years has been devoted 
to addressing the Y2K problem and responding to the IRS Restructuring 
and Reform Act of 1998 requirements. We are just now beginning the 
long-term program of business practice reengineering and technology 
improvement that will allow the IRS to provide improved service and 
taxpayer treatment while also increasing the effectiveness of 
compliance.
    Question. Has IRS considered the possibility that productivity may 
actually decline during this transition period due to a combination of 
factors, including employee uncertainty, management changes, and 
training demands?
    Answer. Although we realized that productivity would decline during 
this transition period for the factors mentioned, most of the decline 
to this point could be attributed to three other factors. First, the 
expanding economy continues to steadily increase the IRS workload. 
Since 1993, the number of individual tax returns over $100,000, which 
are generally more complex, has increased by 63 percent. Meanwhile, 
because of budget constraints, the IRS staff has dropped by 17,000 FTE 
since fiscal year 1993, resulting in fewer staff to handle a greater 
workload.
    Second, on top of these general trends, certain specific provisions 
of the IRS Restructuring and Reform Act alone have required about 4,000 
additional FTE to administer.
    Finally, almost all of the technology spending and focus in the 
last 2 years has been devoted to addressing the Y2K problem and 
responding to Taxpayer Relief Act of 1986 and RRA 98 requirements. We 
are just now beginning the long-term program of business practice 
reengineering and technology improvements that will allow the IRS to 
provide improved service and taxpayer treatment while also increasing 
the effectiveness of compliance.
    The impacts are that productivity has already declined in audit 
coverage, while improving in customer service. We have addressed the 
declining productivity in audit coverage with our STABLE initiative 
that will provide the compliance staff necessary to improve 
productivity. In fact, by proposing a ``jump start'' on the STABLE 
initiative through a fiscal year 2000 supplemental appropriation, we 
hope to train the new staff hired in fiscal year 2000 so that full 
performance and improved productivity are achieved more quickly.
    Another major focus of IRS' reorganization efforts have been to 
create pre-filing assistance groups within each operating division to 
increase emphasis on helping taxpayers before they file their returns. 
At the same time, IRS has said that most IRS employees and their front-
line supervisors will continue to do the same or similar work in the 
new organization.
    Question. To what extent will IRS be reallocating staff to pre-
filing groups, particularly in the divisions that serve individual 
taxpayers and small businesses?
    Answer. Investments in taxpayer education, and other pre-filing 
activities will help taxpayers better understand their tax 
responsibilities. In the end, these efforts will reduce taxpayer errors 
and generate lower demand for audit staff. There are about 1,300 full-
time positions involved in pre-filing activities. The reorganized IRS 
will require approximately 6,200 pre-filing positions in the Divisions 
that serve individual taxpayers and small businesses. These positions 
will provide taxpayer education and communication products and services 
to more than 156 million individual and small business taxpayers.
    IRS is currently calculating how many of these additional 4,900 
positions can be filled by internal realignments. Obviously, increasing 
the IRS staffing devoted to pre-filing functions by 4,900 will require 
realigning some positions currently providing audit coverage and other 
filing and post-filing activities. We were concerned about the effect a 
staffing shift of this magnitude would have on our already declining 
audit coverage rate in the short term. However, if our STABLE 
initiative in the fiscal year 2001 budget were funded, audit coverage 
rates would be stabilized and toll-free service, a key part of IRS pre-
filing activities, would slightly increase.
    Question. What is the expected impact of any reallocation on 
compliance staffing?
    Answer. We believe that increasing the number of staff dedicated to 
pre-filing activities will pay off in the long run in helping taxpayers 
understand and comply with the tax laws. This understanding will 
increase taxpayer compliance and reduce audit coverage requirements. 
Therefore, to meet the increased demand for positions performing pre-
filing activities, IRS plans to draw down compliance staffing over time 
as the W&I and SB/SE Divisions become operational.
    However, until we reach that level of taxpayer understanding, it is 
critical that taxpayers remain confident that everyone is meeting their 
tax responsibilities. Any reduction of staffing from current compliance 
levels will continue to aggravate a declining audit coverage rate. 
Funding of the STABLE initiative will stem the decline in audit 
coverage and lay a basis for long term taxpayer education efforts that 
will increase taxpayer compliance.
    Question. Does IRS' current staff have sufficient expertise to 
design and implement planned pre-filing initiatives? If not, how will 
IRS develop this expertise?
    Answer. Yes, we have the expertise in place to effectively design 
and implement planned pre-filing initiatives. We are more concerned 
whether staffing will be available to provide these initiatives.
    In the effort of designing and implementing planned pre-filing 
initiatives, the Service followed a three-pronged approach. The first 
aspect of this approach was to consult with various external 
stakeholders for input and advice in designing the future 
organizational structure based upon their needs as IRS customers.
    Second, the Service brought together the vast experiences of its' 
internal workforce to aid also in the design and implementation 
efforts. This workforce represents the experience of each of the 
current functions within the Service at various organizational levels. 
For example, members serving on the design and implementation teams 
include executives, top-, mid- and first-level management and first-
line employees representing each of various functions.
    The third aspect of this approach was the hiring of a major 
consulting firm to help guide the process and provide input and insight 
from a private-sector perspective. Based upon this approach we believe 
the design and implementation of pre-filing initiatives will represent 
the needs of our customers in the four operating divisions. For 
example, current walk-in employees are already involved in pre-filing 
(as well as filing and post-filing) activities and will be trained to 
accommodate new initiatives.
    However, if the STABLE initiative is not funded in fiscal year 
2001, the audit coverage rate will continue to decline as increased 
returns (for taxpayers over $100,000 in income) are handled by a 
constant or declining audit staff. Concerns over this continuing 
decline will then increase pressure to transfer staff from pre-filing 
activities (customer service) to post-filing activities (compliance). 
Therefore, any advantages to be gained from a better-educated taxpayer 
base will not be implemented. Moreover, customer service gains in the 
past 2 years will be lost.
    In its fiscal year 2000 appropriation, IRS received $140 million to 
fund the reorganization initiatives. IRS' request for fiscal year 2001 
includes an increase of $40 million on top of the $140 million base. In 
both years, these funds were to cover expenses related to such things 
as recruitment, relocation, buyouts, training, equipment, and 
information system modifications.
    Question. How is the $140 million for fiscal year 2000 being 
allocated among these various areas? And
    To what extent does IRS expect to use its buyout authority in 
fiscal year 2000?
    Answer. During the implementation of the Tax Exempt/Government 
Entities and Large and Midsize Businesses operating divisions in fiscal 
year 2000, the Service planned $10 million for buyouts; approximately 
330 employees at $30,000 per buyout which includes the Voluntary 
Separation Incentive Pay (the buyout), terminal leave and payment to 
the OPM Retirement Fund.
    Question. For fiscal year 2001, how is the total $182 million to be 
allocated among these areas?
    Answer. The following table shows the allocation of funding for 
fiscal years 2000 and 2001:

                   ORGANIZATION MODERNIZATION EXPENSES
                        [In millions of dollars]
------------------------------------------------------------------------
                                            Fiscal year     Fiscal year
                Category                  2000 projected   2001 estimate
------------------------------------------------------------------------
Services & Supplies (Contracts).........              17              29
Personnel Costs:
    Buyouts.............................              10              36
    Recruitment.........................               3               3
 Moving Expenses: Relocations...........              41              17
Equipment...............................               5               4
Training................................              27              27
Space & Housing.........................  ..............              27
Rent....................................               7               6
IS--Computer Moves......................              11              11
IS--RIS Implementation..................              19              22
                                         -------------------------------
      TOTAL FROM ORG MOD................             140             182
------------------------------------------------------------------------

    IRS is planning an extensive training effort in conjunction with 
the reorganization effort. This training is referred to as 
``modernization-related training.'' IRS also delivers other types of 
training, referred to as ``sustainment training,'' as part of its day-
to-day operations.
    Question. How do these two types of training relate to one another?
    Answer. As part of its design work, the Phase IIB Modernization 
Team defined modernization training as skills needed for working in the 
new business unit and/or preparing for new business unit. Sustainment 
training (e.g. CPE and advanced functional training) is defined as 
skills enhancement and training not included in modernization. The 
definition of modernization training evolved from being position-based 
to being focused on skills acquisition (modernization) versus skills 
enhancement (sustainment).
    The design team conducted a course by course analysis of the total 
training needs of each business unit, recommending 5.7 million hours of 
training for all business units at an estimated cost of $29.9 million. 
These costs were subsequently refined and adjusted downward based on 
revised stand up dates, applying alternative delivery methods and 
distinguishing between modernization and sustainment training.
    Day-to-day or sustainment training continues as we move towards 
standing up the new business units. Internal procedures guide decisions 
as resources and demands change. Training to deliver a successful 
filing season remains our top priority; followed by training to support 
business units that have stood up and training of new hires and 
employees assigned to new positions.
    Question. What type of modernization-related training is currently 
underway and what is planned for fiscal year 2001?
    Answer. Each business unit has identified its training needs for 
fiscal year 2000, and actions are being taken now to identify fiscal 
year 2001 needs. Determining training needs is a dynamic process and is 
changing as we bring the modernization plan from design to reality. 
This year, much of the training efforts are devoted to training needs 
assessment, analysis of needs, and design of training materials and 
products.
    In fiscal year 2001, design and development costs will continue, 
and delivery will be an additional cost as we produce and present the 
training to the various business unit populations Servicewide.
    Limited training has occurred except for those units with newly 
selected employees or employees already assigned to the new business 
units. For example, the Taxpayer Advocate organization has obligated 
$1.054 million this year. More training is anticipated as we move 
closer to stand up.
    Although we do not currently have an approved modernization 
training plan, by the end of this month, all business units will have 
validated their fiscal year 2000 training needs and certified as to the 
availability of staff hours to attend training.
    Question. For fiscal years 2000 and 2001, what is IRS' full 
training budget when both modernization-related and sustainment 
training are considered together? How much time would a typical front 
line or management employee expect to spend in training?
    Answer. The training budget totals $106 million in fiscal year 2000 
and $109 million in fiscal year 2001 for modernization-related and 
sustainment training. The fiscal year 2001 amount does not include 
additional funds for training new employees under the STABLE 
initiative.
    A typical manager could expect to receive 40-120 hours of training 
during fiscal year 2000 and fiscal year 2001 based on work assignments.
    The typical frontline Revenue Officer can expect to attend training 
amounting to the following number of hours.
    Fiscal year 2000: a range of 120 to 134 hours, depending on work 
assignments. This represents 40 hours of CPE, 6 hours of Electronic 
Research, 16 hours Automated Trust Fund Recovery, and 72 hours of RO 
Unit 4 for certain ROs.
    Fiscal year 2001: a range of 100 to 120 hours, depending on work 
assignments. This represents 40 hours of CPE, 8 hours of Electronic 
Asset Locator Training, 4 hours of Fraud Referral Training, 32 hours of 
Seizure Training and an undetermined number of hours for training 
related to the technical requirements in the Small Business/Self 
Employed Business Unit.
    The typical frontline Revenue Agent can expect to attend training 
amounting to the following number of hours:
    Fiscal year 2000--approximately 205 hours. Training will consist of 
80 hours CPE (optional and mandatory topics such as Electronic Research 
and Third Party Contact) and other specialty and mandatory training, 
e.g. TEFRA, Reports Generating software, UNAX, sexual harassment.
    Fiscal year 2001--approximately 188 hours. Training will consist of 
80 hours CPE (mandatory and optional topics), plus courses of varying 
length dealing with new procedures in the business unit and various 
mandatory training such as tax law changes, UNAX and sexual harassment. 
In fiscal year 2001, it is anticipated that 800 Revenue Agents recruits 
will be hired in April 2001. The new hires will receive Phase I and II 
training, totaling 21.4 weeks of training including classroom and OJT. 
New hires typically do not attend CPE.
    The typical front-line employee in Submission Processing Centers 
can expect to receive 40 to 45 hours of training, depending on work 
assignments, during fiscal year 2000 and 2001. When the transition to 8 
centers processing individual returns and 2 centers processing business 
returns, a typical front-line employee could expect to receive an 
additional 50 to 60 hours of training based on work assignments.
    The typical frontline Tax Auditor can expect to attend training 
amounting to the following number of hours:
    Fiscal year 2000--approximately 195 hours. Training will consist of 
80 hours CPE (optional and mandatory topics such as Electronic Research 
and Third Party Contact) and other mandatory training.
    Fiscal year 2001--approximately 174 hours. Training will consist of 
80 hours CPE, plus courses of varying length for new procedures in the 
business unit and various mandatory training such as UNAX and sexual 
harassment.
    The typical frontline employee in Tax-Exempt and Government 
Entities can expect to attend training amounting to the following 
number of hours.
    Fiscal year 2000--a range of 100-160 hours, depending on work 
assignments. Training will consist of 40 hours CPE, 40 hours 
automation, 6 hours electronic research, 16 hours orientation to new 
business unit, 120 hours for new hires in Phase I training, and 
mandatory training such as UNAX, sexual harassment.
    Fiscal year 2001--a range of 120-400 hours, depending on work 
assignments. Training will consist of 40 hours CPE, 40 hours Phase II 
automation, Phase I & II courses of varying length for new occupations 
in business unit, and the various mandatory training such as UNAX and 
sexual harassment.
    During fiscal year 2000 and 2001, the typical new front-line 
employee in Customer Service could expect to receive 64 to 176 hours of 
training, depending on work assignments. A typical experienced front-
line employee in Customer Service could expect to receive 84 hours of 
training, including 24 hours mandatory training, 40 hours continuing 
skills enhancement training, and 20 hours of training related to their 
work assignments.
    IRS experienced some difficulty in developing and delivering early 
training related to the Restructuring Act. This included (1) ``world 
class customer service'' training that was discontinued and redesigned 
on National Treasury Employees Union concerns and (2) section 1203 
training that, according to the Commissioner, contributed to confusion 
among employees.
    Question. What is the IRS doing to ensure that planned 
modernization-related training does not encounter similar problems?
    Answer. RRA 98 is a technical and procedurally complex piece of 
legislation with many provisions that required coordination between 
Office of Chief Counsel, functional operations and training activities. 
Decisions regarding procedures needed to be completed before technical 
instructional products could be issued.
    The configuration of the operating divisions calls for educational 
resources to be part of the organizational structure; thus 
accountability exists for ensuring alignment between procedural and 
instructional activities. Staffs working on the new procedures will, in 
large measure, be within the same entity as those developing training 
products.
    Training professionals are working with each operating division to 
ensure training needs are identified and integrated into plans for 
development and delivery.
    Section 1205 of Title I of RRA 98 requires IRS to establish a 
training program to ensure that IRS employees are trained in areas such 
as taxpayer protections. IRS fiscal year 2001 budget request also 
states that IRS shall maintain a training program to ensure that IRS 
employees are trained in taxpayer rights, dealing courteously with 
taxpayers, and cross-cultural relations.
    RRA 98 provides that it should be the goal of IRS to have at least 
80 percent of all federal tax and information returns filed 
electronically by 2007.
    Question. What percentage of federal income tax returns were filed 
electronically in 1999, and what percentage does IRS expect to be filed 
electronically in 2000 and 2001?
    Answer. In 1999, 23.4 percent of all individual income tax returns 
were filed electronically. In 2000, we expect to receive approximately 
27 percent of all individual income tax returns electronically. In 
2001, we expect to receive between 29.5-32.1 percent electronically.
    Question. What percentage of information returns were filed 
electronically in 1999, and what percentage does IRS expect to be filed 
electronically in 2000 and 2001?
    Answer. In 1999, 94 percent of information returns were filed 
either electronically or on magnetic tape. Updated projections for 2000 
and 2001 are currently being prepared by the Office of the Assistant 
Commissioner (Research and Statistics of Income). We will forward them 
to you as soon as they become available.
    Question. What annual growth rate in the electronic filing of tax 
returns is necessary if IRS is to achieve the 80 percent goal by 2007? 
How does IRS expect to achieve this growth rate?
    Answer. By 2007, IRS expects to receive approximately 138.6 million 
individual income tax returns. In order to reach the goal of 80 percent 
in 2007, IRS would need to receive 110.9 million tax returns 
electronically, or approximately 76 million more returns than the 
approximately 35 million returns that will be filed electronically this 
year. With 7 years to go to 2007, that means that the electronic filing 
volumes would have to increase by approximately 11 million per year.
    The IRS has developed a strategic plan for Electronic Tax 
Administration entitled ``A Strategy for Growth'' in order to make 
significant progress toward achieving the goals established by 
Congress. As required by the IRS Restructuring and Reform Act of 1998, 
the strategic plan was designed to eliminate barriers, provide 
incentives and use competitive market forces to make significant 
progress toward (1) the overriding goal of 80 percent of all tax and 
information returns being filed electronically by 2007, and (2) the 
interim goal that, to the extent practicable, all returns prepared 
electronically should be filed electronically by 2003. The strategic 
plan is updated annually to reflect new developments and to incorporate 
the suggestions received from the Electronic Tax Administration 
Advisory Committee and other interested stakeholders.
    Question. What does IRS plan to do to increase electronic filing by 
those taxpayers with a balance due?
    Answer. Because of the expanded electronic payment options that are 
being made available to taxpayers, more and more balance due filers are 
choosing to file electronically. Through March 31, 2000, 986,452 
taxpayers had electronically filed balance due returns compared to 
726,693 in the comparable period last year, an increase of 35.8 
percent.
    Last year over 53,000 tax payments were made by credit card and 
approximately 75,000 payments were made by Automated Clearing House 
(ACH) Direct Debit where taxpayers can authorize either their checking 
or savings to be debited as part of their electronic return. This 
filing season, more electronic payment options (credit card and ACH 
direct debit payment) have been made available to taxpayers, such as 
accepting debit payments through TeleFile and accepting credit cards 
for Forms 1040ES, estimated tax payments, and Forms 4868, extensions of 
time to file. As of April 1, 2000, we have achieved a 205 percent 
overall increase as compared to the same period last year. Under our 
electronic payments initiative, the IRS will continue to expand the 
electronic payment products and services available to taxpayers in 
future years.
    Question. Is there anything Congress can do legislatively to help 
achieve the 80 percent goal?
    Answer. Electronic tax administration would benefit from 
Congressional support in the following three critical areas:
  --Supporting the electronic filing provisions in the President's 
        fiscal year 2001 Budget;
  --Supporting IRS' request for additional funding for ETA in fiscal 
        year 2001; and
  --Supporting the privacy protections provision contained in the 
        Taxpayer Bill of Rights.
    The President's fiscal year 2001 budget request contains two 
provisions that are intended to make electronic filing of income tax 
returns more attractive to taxpayers. These provisions would provide 
taxpayers with:
  --A temporary, refundable tax credit for the electronic filing of 
        individual income tax returns. The credit would be for tax 
        years 2002 through 2006--$10 for each electronically filed 
        return other than TeleFile returns, for which the credit would 
        be $5; and
  --One or more no-cost options for preparing and filing individual 
        income tax returns over the Internet beginning no later than 
        tax year 2002.
    The IRS also needs support of its fiscal year 2001 budget request 
which includes $3 million for the expansion of electronic tax 
administration's highly successful marketing campaign. In addition, 
both the IRS and taxpayers would benefit from the privacy protection 
provision in regard to electronic tax administration that is contained 
in the Taxpayer Bill of Rights 2000.
    One legislative proposal in the President's fiscal year 2001 budget 
request calls for a refundable tax credit for persons who file 
electronically. The credit will be $10 for those who file on-line and 
$5 for those who file via the telephone.
    Question. How were the amounts of this credit determined? Why is 
the proposed credit less for persons who file via the telephone?
    Answer. A number of factors were considered, but generally the 
amount of the credit was set at the typical extra charge for electronic 
filing for taxpayers who prepare their own returns using electronic tax 
preparation software. If they choose to transmit their return 
information to the software publisher for electronic filing with IRS, 
the charge is typically about $10. Sometimes, there is no incremental 
charge to the taxpayer; instead the extra cost is built into the price 
of the software. The intent of the temporary tax credit is to encourage 
taxpayers--especially those whose returns are already being prepared by 
computer--to try electronic filing. We believe that once taxpayers try 
it, they will realize how much their own burden is reduced and how much 
faster and easier many types of errors are corrected that many or most 
will continue to file electronically even without a tax credit.
    The credit amount for taxpayers using the TeleFile system was set 
lower since there is no charge to the taxpayer to use this system. The 
$5 credit was viewed as a sufficient incentive to attract more eligible 
taxpayers to use TeleFile.
    Question. How do the credit amounts compare to the dollar savings 
IRS realizes as a result of electronic filing? How does IRS determine 
its dollar savings as a result of electronic filing?
    Answer. We know that the incremental cost of processing an 
electronic return is lower than the incremental cost of processing a 
paper return. The difference is even larger when the relative costs of 
correcting errors is considered. IRS, however, does not have good data 
on incremental costs, although we are currently engaged in a 
comprehensive review of the cost of processing electronic tax returns 
which will enable us to make such estimates in the future.
    Note that existing data shows that the average per return cost of 
processing electronically filed returns is slightly less than the costs 
for paper returns. Based on fiscal year 1999 return volumes, we 
estimate the per unit cost for an electronically-filed return at $4.14 
compared to $4.28 for a paper return. As electronic filing volumes 
increase, fixed costs will be spread over the greater volume, and the 
per return saving will increase substantially. The IRS also has 
undertaken several changes that will further reduce costs for handling 
electronic returns relative to paper returns. These include deploying 
an authentication approach which will eliminate the paper signature 
jurat, and consolidating and modernizing service center equipment and 
procedures used for electronic returns.
    Question. How many additional electronic returns does IRS expect 
will be filed as a result of this credit?
    Answer. In general, it is not possible to estimate the number of 
additional electronic returns that will be filed solely in response to 
the tax credit. This is attributable to the fact that recent data show 
significant increases in the number of taxpayers choosing to file 
electronically. We do not know whether or not the recent increase 
reflects a new trend; that would have a direct impact on projections of 
the number of additional returns that are e-filed as the result of the 
tax credit. However, it is likely that the tax credit would induce at 
least several million additional returns to be filed electronically.
    The STABLE initiative includes 408 FTEs for transcribing 18 million 
Schedule K-1s filed by partnerships, trusts, and S-corporations so that 
IRS' Document Matching Program can reconcile that data with information 
reported on individual tax returns.
    Question. How many Schedule K-1s does IRS currently transcribe? 
and,
    How many Schedule K-1 cases are currently worked in the Document 
Matching Program? And,
    What have been the results of those cases?
    Answer. IRS does not currently transcribe any K-1s received on 
paper. As a result, there are no cases currently being worked in our 
Automated Document Matching Program. As stated in the fiscal year 2001 
STABLE initiative, 18 million paper documents, together with 11.5 
million K-1s received electronically, provide information on income (or 
losses) distributed to individual partners, beneficiaries, and 
shareholders and represent in excess of $500 billion in total income. 
Processing these documents will allow IRS' Document Matching Program 
(Underreporter Program) to reconcile K-1 data with information reported 
on individual tax returns.
    Our plan, stated in the STABLE initiative, is supported in James R. 
White's testimony for GAO before the Subcommittee on Oversight, 
Committee on Ways and Means, House of Representatives on March 28, 
2000. Mr. White testified that the ``IRS' plan is consistent with a 
recommendation we made in 1995--namely that IRS devise ways to enter 
all Schedule K-1 onto the computer so they can be used in the document 
matching program and for other compliance programs.'' (GAO/T-GGD/AIMD-
00-133)
    The STABLE initiative includes 500 FTEs for toll-free telephone 
service for fiscal year 2000-2001. According to IRS, this staffing 
increase is ``designed to address declining staffing levels and the 
substantial increase in the amount of time required per case due to 
provisions of RRA 98.'' At this requested level of staffing, IRS says 
that it will be able to provide a 60-percent level of service.
    Question. To what extent has the actual staffing for toll-free 
telephone service declined between fiscal years 1998 and 2000? In 
providing this comparison, please show separately, for each year, the 
number of FTEs provided by (1) staff in the toll-free program; (2) 
detailees from other program areas in the Customer Service function; 
and (3) detailees from other IRS functions, such as Examination and 
Collection.
    Answer: FTEs for fiscal year 1998 to 2000 as well as detailees and 
support from other functions are as follows:

----------------------------------------------------------------------------------------------------------------
                                                                                   Fiscal years
                                                                 -----------------------------------------------
                                                                       1998            1999            2000
----------------------------------------------------------------------------------------------------------------
Toll Free \1\...................................................           7,399           8,191           7,593
Exam details to Toll-Free.......................................             309             654             569
Appeals (Referral-mail/E-Mail support) details To Toll-Free.....  ..............  ..............              99
----------------------------------------------------------------------------------------------------------------
\1\ Detailees from other program areas within Customer Service are included in the Toll Free FTE above but are
  not separately identifiable.

    Question. What are the provisions of RRA 98 that are increasing the 
time telephone representatives spend assisting taxpayers?
    Answer. Provision 3705 requires that the IRS provide Spanish 
language assistance and the option to taxpayers of speaking to a live 
assistor. In fiscal year 2000, the IRS received 200 FTE to implement 
this provision. We have identified an additional 259 FTE needed to 
satisfy this provision in fiscal year 2001 for the toll-free operation. 
Provision 3462, which addresses Offers in Compromise case processing in 
the Automated Collection System (ACS), will require 138 FTE in fiscal 
year 2001.
    Question. What has IRS done to identify the underlying reasons for 
this additional time, and what actions can IRS take to minimize such 
increases?
    Answer. Customer Service conducted a thorough analysis of the 
fiscal year 1999 telephone operations. The results indicate that we 
need to develop new methods of planning and preparing ourselves for 
rapid shifts in market needs. Some of the actions IRS is taking to 
minimize the effect of the increased need for live assistors (to 
address provision 3705) are:
  --Use of intelligent call routing;
  --Implementation of a nationwide telephone system messaging feature 
        to allow callers to leave messages requesting service from 
        taxpayer service assistors; and
  --Implementation of an integrated work planning and scheduling 
        process to more effectively align resources to provide service 
        to taxpayers.
    IRS has initiated a call content study to assist us in better 
defining taxpayer needs. We hope to use this information to provide our 
employees with the training and tools to allow them to better serve 
taxpayer needs.
    Question. What other factors, if any, have increased the time 
telephone representatives spend assisting taxpayers?
    Answer. The handle times for the three major product lines (i.e., 
1040, 8815, and 4262) have increased slightly overall. Although better 
call routing technology has enabled us to more efficiently direct 
customers to the appropriate assistance, the following factors have 
increased the time Customer Service Representatives spend providing 
service to taxpayers:
  --The types of calls our Customer Service Representatives handle have 
        also shifted to more difficult issues, which necessitate more 
        time to handle.
  --The screening of Referral-Mail, which refers taxpayer questions to 
        specialists for response, for compliance messaging. To improve 
        customer service this year, we use employees for Referral-Mail 
        screening to collect pertinent data to facilitate the messaging 
        process. As a result, a slight increase in the time spent on 
        calls is to be expected.
    One of the IRS' key performance indicators is ``toll-free level of 
service.'' IRS defines that measure as ``the number of calls answered 
(less those calls abandon while in the queue waiting for the next 
available assistor) compared to the total number of calls attempted.'' 
The toll-free level of service declined significantly between 1998 (70 
percent) and 1999 (53.3 percent). IRS' level of service goals for 
fiscal year 2000 and 2001 are 58 percent and 60 percent respectively.
    Question. What were the reasons for the decline in level of service 
in fiscal year 1999 and what has IRS done, or does IRS plan to do, to 
increase the level of service?
    Answer. The primary reasons for the decline in toll-free level of 
service in fiscal year 1999 are listed below:
  --The Service expanded its hours of operation in 1999 to 7x24 service 
        without additional funding for the increased hours of coverage;
  --There were technical problems with the nationwide implementation of 
        the Customer Service Intelligent Call Router, which allowed IRS 
        to manage the telephone operation on an enterprise-wide basis 
        for the first time; and
  --There were increased training demands to implement the new tax law 
        requirements.
    The 58 percent and 60 percent goals listed in the fiscal year 2001 
Congressional Justification were based on the experience of the fiscal 
year 1999 filing season. For the fiscal year 2000 filing season through 
March 11, 2000, we are at a 65 percent level of service (LOS) as 
compared to 50 percent for the same period in fiscal year 1999. Long-
term systems improvements that move IRS forward in our ability to 
provide the appropriate type of service to meet the taxpayer's need 
(for example, automation alternatives for basic questions regarding 
return fact of filing or refund status) were made for the fiscal year 
2000 filing season. These improvements include:
  --Improving work and staff scheduling processes;
  --Monitoring and reviewing telephone performance daily and 
        implementing appropriate corrective actions immediately;
  --Focusing resources during times that affect the most customers. 
        Beginning April 18, 2000, tax law assistance will be on a 16 
        hours a day, 6 days a week basis; and
  --Modifying tax packages to list TeleTax as the primary method of 
        resolution for tax refund inquiries and redesigning our 
        recorded script messages to provide more opportunities for 
        taxpayers to use the automated refund applications in Telephone 
        Routing Interactive System (TRIS) to reduce routine refund 
        calls handled by Customer Service Representatives.
    Based on the current Level of Service (65 percent), combined with 
reduced call demand from the systems improvements listed above, we are 
revising our fiscal year 2001 filing season Level of Service goal to 70 
percent. This revision is dependent on a call demand consistent with 
experience thus far this fiscal year, continued achievement of current 
telephone performance, and increased staffing of 500 FTEs provided by 
the STABLE initiative.
    This year, we plan to test a network prompt routing taxpayers 
immediately to our automated refund application in TeleTax, which we 
expect to further reduce demand for taxpayer calls to be answered by 
Customer Service Representatives.
    Question. Why does IRS not expect to regain or exceed 1998's level 
of service?
    Answer. Our ultimate goal is to provide a Level of Service that far 
exceeds prior years. We expect to provide our customers service 
commensurate with their experiences in dealing with ``best in class'' 
private sector companies. In keeping with ``best in class'' private 
sector companies, we believe it is imperative that we provide customers 
with enhanced automation alternatives when their needs can best be met 
through automation. For example, basic questions regarding return fact 
of filing or refund status can best be handled through automated 
services.
    Conversely, customers who have a problem with their refund or who 
have received a notice need to interact with a Customer Service 
Representative to resolve their problem. These types of more complex or 
more comprehensive calls take longer for a Customer Service 
Representative to complete than calls that will be handled by 
automation. Additionally, a large percentage of callers with tax law 
questions currently are not provided live assistance at the time of 
their call. Their questions are transcribed by a clerk screener, 
referred electronically to Compliance personnel, and generally answered 
within 2 business days. We expect to provide live assistance to callers 
with complex tax issues within the next few years. When implemented, 
this additional service will impact the amount of time it takes an 
assistor to answer the call.
    Question. What assumptions did IRS use to develop its performance 
goal for 2001?
    Answer. The 60 percent goal listed in the fiscal year 2001 
Congressional Justification was based on the experience of the fiscal 
year 1999 filing season. The fiscal year 1999 Level of Service of 53.3 
percent resulted from difficulties in providing experienced taxpayer 
assistors to cover the expanded hours of service and technical problems 
connected with the implementation of the Customer Service Intelligent 
Call Router.
    We have since revised our estimate for fiscal year 2000 to 65 
percent based on our actual level of service as of March 11, 2000. As a 
result of this improvement, we have increased our fiscal year 2001 goal 
to 70 percent. This revision is dependent upon a call demand consistent 
with experience thus far in fiscal year 2000, continued achievement of 
current telephone performance, and increased staffing of 500 FTE 
scheduled to be provided by the STABLE initiative.
    Question. What level of service should IRS strive to provide and 
how much would it cost? And
    How many additional employees would IRS need to increase the toll-
free level of service to 75, 85, and 95 percent? What would be the 
estimated cost for each of these increased service levels?
    Answer. The improvements in level of service we are projecting for 
fiscal year 2001 are based on a combination of ongoing managerial and 
technological enhancements, coupled with FTE increases described in the 
STABLE initiative. It is very difficult to segregate this improvement 
between additional FTEs and other enhancements.
    We also project that with an additional 875 FTE (875 + 500 FTE from 
STABLE initiative), we could raise our level of service from 65 percent 
to approximately 75 percent. This is assuming no significant change in 
customer demand due to factors such as passage of new tax legislation, 
increased notice issuance, or variance in taxpayers' filing patterns. 
Telephone service is difficult to improve beyond a 70 to 75 percent 
level of service with additional staff alone. Since ``customer 
abandons'' and ``busy signals'' influence level of service in addition 
to the number of calls answered, improving beyond 70 percent requires 
both an increase in FTE and significant improvements in technology. 
Therefore, projections beyond 75 percent level of service would be 
unreliable. The appropriate level of service is one that would allow us 
to provide world class customer service within a recognized number of 
seconds to all customers who contact IRS for service.
    IRS is requesting additional FTEs and plans to use information 
technology investment funds to implement Phase I of a customer 
communications modernization project in fiscal year 2001. Phase 1 of 
that project, according to IRS, is to ensure that taxpayers questions 
get answered correctly, either by enhanced automated systems or by 
customer service representatives who have quick access to needed 
information.'' Despite the additional FTEs and implementation of the 
modernization project, IRS congressional justification shows that IRS 
expects to answer the same number of telephone calls (118 million) in 
fiscal year 2001 and 2000.
    Question. Why is IRS not expecting an increase in the number of 
telephone calls answered in fiscal year 2001 given the additional 
resources expected that year?
    Answer. We do not anticipate an increase in the number of telephone 
calls answered in fiscal year 2001 for the following reasons:
  --Additional resources we have requested will improve the level of 
        service and reduce the average speed of answer (this is a 
        variable number while service level is a percentage answered 
        within a specific criteria--30 seconds for example), both of 
        which will contribute to reducing the volume of call attempts 
        (demand.); and
  --Technology improvements and customer access to the Internet 
        continue to drive demand down as customers research less 
        complex issues.
    Question. What level of improvement can be expected as result of 
the additional FTEs and the technology investments? Will those benefits 
be offset by an expected increase in demand? If so, what is the 
expected increase in demand?
    Answer. The FTE increase requested for Toll-free under the STABLE 
initiative is expected to yield an improvement of approximately 5 
percent in Level of Service. The filing season 2001 development and 
deployment activities will be limited to implementing communications 
infrastructure improvements in our customer communication (call center) 
operation and procuring a new tool for our large corporate tax 
examiners. The customer communications improvements will facilitate 
taxpayer access by offering improved service. This will include 
improved call responsiveness by increasing the capacity for handling 
incoming telephone calls, improved quality of responses by better 
directing of calls to knowledgeable experts, and improved self-help 
capabilities. These investments will also provide a platform for later 
improvements. We do not expect the benefits to be offset by an 
increased demand unless there are changes in the tax law, increased 
notice issuance or variance in taxpayers' filing patterns.
    Question. When is Phase I of the customer communications project 
expected to be operational?
    Answer. Phase I of the modernization project is scheduled for 
implementation by January 1, 2001.
    Two of the IRS' performance indicators relate to the accuracy of 
information provided to taxpayers through the toll-free telephone 
assistance program. According to IRS, the first measure, relating to 
accuracy of tax law information, declined from 96.1 percent in fiscal 
year 1997 to 74.1 percent in fiscal year 1999, but is expected to 
increase to 84 percent in fiscal year 2001. The second measure, 
relating to the accuracy of account information, also declined between 
fiscal year 1997 (91.1 percent) and fiscal year 1999 (81.7 percent). 
Unlike the tax law accuracy rate, however, the account accuracy rate is 
expected to continue to decline to 63 percent in fiscal year 2000 and 
remain at that level for fiscal year 2001.
    Question. What are the reasons for the declines in accuracy rates 
between 1997 and 1999?
    Answer. The primary reason for the declines in accuracy rates is 
that we changed the way we measure Tax Law Telephone Accuracy in fiscal 
year 1999. From 1990 through 1998, we measured Tax Law Accuracy with 
the Integrated Test Call Survey System (ITCSS). With ITCSS, we measured 
quality using scripted test questions. The two major weaknesses to 
ITCSS were:
  --IRS could not create test questions to cover every type of taxpayer 
        question; and
  --Over time, sites were often able to identify the test questions.
    To eliminate these problems, we switched from using test questions 
to monitoring live taxpayer Tax Law Telephone calls. In October 1997, 
we centralized and standardized our quality review with the 
implementation of the Centralized Quality Review Site (CQRS). Sites are 
now evaluated on the accuracy of actual calls they receive from 
taxpayers, rather than on test calls. We believe that our current 
review methodology provides a more accurate assessment of the quality 
of Tax Law Telephone calls than we received with ITCSS.
    Question. What has IRS done, or does IRS plan to do, to increase 
the accuracy of tax law information provided to taxpayers?
    Answer. IRS has taken, or will take, the following actions to 
increase the accuracy of the tax law information provided to taxpayers.
  --IRS has made a commitment to provide world-class customer service 
        training to its employees to provide them with the skills 
        needed to perform their jobs. A training staff was established 
        to coordinate a variety of initiatives such as:
  --conducting training needs assessments in conjunction with field 
        operations and Customer Service;
  --designing and developing refresher (Continuing Professional 
        Education) courses;
  --conducting focus-group interviews regarding the delivery of 
        refresher training; and
  --implementing a modularized approach to training that provides 
        targeted, timely, and effective training.
  --Beginning in June 1999, the IRS converted to the nationwide 
        standardization and centralization of the review process, the 
        Centralized Quality Review System (CQRS), which is a more 
        comprehensive quality review system with more stringent 
        guidelines than the previous review system-Integrated Test Call 
        Survey System. The CQRS reviews taxpayer inquiries in their 
        entirety and no longer allows for local discretion.
  --Local quality monitoring requirements have been doubled at several 
        sites and the defects most often made are now identified and 
        addressed continuously.
    As a result of the CQRS, accuracy rates dropped significantly and 
we had little basis on which to build accurate projections as to what 
might happen in fiscal year 2001. The ``no change'' forecast was a very 
conservative assumption--one that we will revise as soon as the filing 
season data is analyzed.
    Question. Why does IRS expect such a significant decline in the 
account accuracy rate in fiscal year 2000, and why is no improvement 
expected in 2001?
    Answer. Beginning in June 1999, the IRS converted to the nationwide 
standardization and centralization of the review process, the 
Centralized Quality Review System (CQRS), which is a more comprehensive 
quality review system with more stringent guidelines than the previous 
review system-Integrated Test Call Survey System. The CQRS reviews 
taxpayer inquiries in their entirety and no longer allows for local 
discretion.
    In addition, local quality monitoring requirements have been 
doubled at several sites and the defects most often made are now 
identified and addressed continuously.
    As a result of the CQRS, accuracy rates dropped significantly and 
we had little basis on which to build accurate projections as to what 
might happen in fiscal year 2001. The ``no change'' forecast was a very 
conservative assumption--one that we will revise as soon as the filing 
season data is analyzed.
    Question. What does IRS plan to do to reverse the expected decline?
    Answer. We are committed to improving the Account Quality Rate in 
fiscal year 2001. At the time we were setting performance targets for 
fiscal year 2000 and fiscal year 2001 we had just introduced a new 
performance measuring system for account quality--the Centralized 
Quality Review System's (CQRS). CQRS is a comprehensive quality review 
system with centralized remote monitoring of actual taxpayer inquiries 
in their entirety and no longer allows for local discretion. Accuracy 
rates dropped significantly under the new system, and we had little 
basis on which to build accurate projections as to what might happen in 
fiscal year 2001. The ``no change'' forecast was a very conservative 
assumption--one that we are taking steps to improve at every one of our 
call sites. For example, a modified Accounts Customer Service Guide has 
been developed and distributed to Customer Service Representatives 
(CSR) at one site. The guide will be made available on Servicewide 
Electronic Research Program (SERP). Daily CQRS error data is now shared 
with employees at several sites. A memorandum was distributed at 
another site detailing the most frequently occurring errors. The list 
of errors included omissions of history items and failure to warn of 
enforcement action. The errors attributed to these two issues have 
decreased as a result of this initiative. Local quality monitoring 
requirements have been doubled at several sites. Top defects are now 
identified continuously. Section Chiefs are doing ``group monitoring'' 
in conjunction with a front-line manager and a reviewer from the 
Quality Assurance staff. With assistance from the Customer Service 
Field Operation Deputy Commissioners, we will determine the extent that 
our initiatives actually improve quality. The Deputies are asked to 
comment on this issue as part of their monthly Operational Reviews. 
This topic was also included in site reviews that have been conducted 
at several sites.
    Other actions that have been taken to improve account quality 
include:
  --The Accounts Customer Service Guide developed by Ogden is now being 
        tested in Baltimore, Pittsburgh, and Atlanta. It is also now 
        posted on SERP. The sites have been encouraged to start using 
        the guide now.
  --Training has been provided on the use of the Quality Review 
        Database to isolate the root causes of the most frequently 
        occurring account errors. This information is then used to 
        target corrective actions, such as managerial monitoring, 
        employee feedback and coaching, and targeted training.
  --There is a Customer Service training group that is working with 
        Strategic Human Resources to develop Customer Service training 
        material that is organized into modules by application. This 
        will make it easier to train specifically on accounts 
        applications on short notice.
    Monitoring of responses to taxpayers is now occurring in the call 
centers. Directors have been provided with access numbers that enable 
them to monitor taxpayer calls in Customer Service Centers within their 
jurisdiction 24 hours a day, 7 days a week, from the office, or from 
home.
    Another IRS indicator related to its toll-free telephone service is 
``adherence to scheduled hours.'' IRS defines that measure as the 
``percent of work periods where scheduled hours are delivered/met.'' 
According to IRS' congressional justification, the toll-free sites are 
expected to improve adherence to scheduled hours from 24.7 percent in 
fiscal year 1999 to 40 percent in fiscal years 2000 and 2001.
    Question. How are scheduled hours determined?
    Answer. Scheduled hours are determined by taking into account the 
following factors:
  --Call demand projected from historical results;
  --Call volume allocations by site;
  --Staff availability based on skills and training;
  --Staff tours of duty;
  --Site hours of operation;
  --Hours/days where demand is highest; and
  --Budgeted resource availability.
    Scheduled hours are determined by the number of staff that can be 
funded with the right training level for the calls that are expected 
based on historical demand. Sites are funded at an agreed level, based 
on the budget, to answer a specific workload or volume of calls. Tours 
of duty and hours of operation are factors that are part of the 
equation with growth in FTE targeted to hours/days where demand for 
assistance exceeds supply.
    Question. Why are the toll-free sites having difficulty meeting 
expected schedules? What actions did IRS take to improve schedule 
adherence? What other actions does IRS plan to improve adherence?
    Answer. Due to a number of issues, scheduling and projecting 
adherence is complex.
  --Early in the year many sites lacked historic ``shrinkage'' 
        factors--that is, the number of phone employees who are not 
        available for phone work for reasons such as unscheduled leave, 
        breaks, lunch, meeting and read time or for discussions with 
        managers. As a result, the number of employees needed each 
        half-hour was sometimes over or underestimated. Trying to 
        schedule multiple, overlapping shifts with the accompanying 
        breaks and lunches exacerbated this problem. Good data were 
        also not available for call demand during late night/early 
        morning hours and on weekends, and in some cases, these shifts 
        were not staffed appropriately.
  --Adherence to schedule was defined very narrowly--95-110 percent of 
        scheduled staffing. In some cases a difference of one or two 
        employees in a half-hour would mean success or failure.
  --Further complexity resulted from our need to share resources across 
        all Customer Service functions in order to meet peak demand and 
        still deliver balanced programs. For example, an increase in 
        ``paper'' inventories means decisions must be made about 
        reducing staffing on phone programs to respond to the customers 
        who write to us.
    As the year has progressed, Customer Service has been very diligent 
in monitoring adherence. A ``snapshot'' is taken at each call site 
every half-hour to assess whether required staffing is met. Significant 
improvement and consistency have been achieved. The sites have 
realigned tours of duty including breaks, lunches and off-line 
activities in order to conform to schedule. We continue to refine the 
scheduling process to ensure that they are realistic and achievable. We 
have implemented schedule modifications to move staffing into busier 
times of day when sites have more employees on board and where demand 
is higher. We have also broadened the definition of ``meeting 
adherence'' so that minor deviations no longer results in a self-
defined failure. Additional changes in tours of duty, overtime and 
directing new hires to specific understaffed half-hours will continue 
to improve adherence.
    Question. Do customer service organizations in the private sector 
have a similar measure? If so, what percentage of adherence to schedule 
do the top performing organizations consider acceptable?
    Answer. Telephone service operations in the private sector do have 
a similar measure, often using quarter hour increments while IRS 
currently uses \1/2\ hour increments. It is our understanding that top 
performing organizations only consider 100 percent adherence to 
schedule to be acceptable.
    Question. What would it take to increase schedule adherence from 40 
percent to 55 percent and how would that increase improve the overall 
level of service for taxpayers?
    Answer. Schedule adherence is within a range. From 90 percent to 
110 percent of schedule is considered acceptable when calculating 
achievement. Through April 1, approximately 40 percent of the \1/2\ 
hour increments were within that range and an additional 36 percent of 
the \1/2\ hour increments exceeded the 110 percent ``cap''. Call 
centers must place staff on tours of duty that contribute to having the 
right number of people with the right skills on the phone at the time 
the customer calls, thus delivering their staffing requirement. Care 
must be exercised to avoid over-, and under-delivery. Call centers must 
also continue to ensure that staffs adhere to their individual work 
schedules.
    Another important IRS measure is employee satisfaction. Currently, 
IRS is only able to report employee satisfaction for its overall 
Customer Service function; it is unable to report separate employee 
satisfaction numbers for the various program areas within Customer 
Service, including the toll-free program. According to IRS, employee 
satisfaction in the customer Service function is expected to increase 
from 55 percent in fiscal year 1999 to 60.5 in fiscal year 2001.
    Question. What actions did IRS take to improve employee 
satisfaction and what other actions are planned?
     Answer. The IRS is developing employee satisfaction improvement 
strategies at the operational and strategic levels. At the operational 
level, all managers within the IRS are required to use their workgroup 
survey results in working with local NTEU representatives and employees 
to create employee satisfaction improvement action plans relevant to 
their individual workgroups. This process involves everyone working 
issues ``close to home.'' All managers have employee satisfaction-
related actions included in their performance management plans. At the 
strategic level, the IRS and NTEU senior leaders are using Servicewide 
survey results to plan strategies with a broad impact on employee 
satisfaction. These leaders are implementing strategies in four areas: 
management effectiveness, communication as it relates to empowerment/
involvement, training, and reprisal.
    Question. What is IRS' ultimate goal for employee satisfaction and 
when does IRS expect to achieve it?
    Answer. The IRS views its employee satisfaction efforts as an 
ongoing improvement process, and IRS management and NTEU expect all 
managers to strive for incremental improvements each year. Although the 
IRS does not have a numeric ``end'' goal for employee satisfaction, we 
have developed standards derived from normative data collected from the 
private and public sectors. The standards were calculated using the top 
10 percent of the scores from organizations with similar 
characteristics to the IRS. For a few employee satisfaction indexes, 
the IRS already scores higher than the standards (e.g., Immediate 
Manager Effectiveness); however, for other indexes (e.g., Upper 
Management Effectiveness), the IRS is below the standards. The IRS is 
encouraging all managers to consider these standards when developing 
employee satisfaction action plans for their workgroups. Statisticians 
internal to the IRS and contractors have determined that the strongest 
predictors of employee satisfaction are the Management Effectiveness 
and Empowerment/Involvement indexes. These two indexes are two of the 
four areas targeted by senior leaders for improvement this year. The 
IRS has been working with a contractor to study the linkages between 
the three categories of IRS measures: Employee Satisfaction, Customer 
Satisfaction, and Business Results. Once these correlations have been 
established, the IRS will use this information to establish a process 
for determining realistic goals.
    Question. Why is IRS unable to measure employee satisfaction for 
each of the program areas within Customer Service? Given this measure 
limitation how can the survey results be used to design improvements in 
a particular program area?
    Answer. The IRS measures employee satisfaction by organizational 
unit; the data is provided down to the smallest managerial unit within 
the organization. This is done so that every set of data has an 
``owner'' or a responsible official who will use the data according to 
their level of authority to make organizational improvements.
    The Survey 99 employee satisfaction ``scores'' were provided to 
each manager at the branch level and above within Customer Service and 
every other organization of the IRS. These scores were used by these 
managers as an indicator of how their employees within their direct 
``chain of command'' rated that organizational unit in employee 
satisfaction. Because these managers received scores that were directly 
relevant to their specific area of responsibility, they were able to 
develop goals and actions specifically designed to improve employee 
satisfaction within that area. In other words, scores below the level 
of Servicewide Customer Service were available to managers; however, 
the scores were calculated on management organizational units (branch, 
division, district, region, etc.) instead of program lines (e.g., Toll 
Free, Walk-In, Automated Collection System).
    The management chain of command and program activities are not 
often parallel--meaning that a branch chief does not often supervise 
only one activity. A branch chief frequently supervises Walk-In, Toll 
Free, and/or other activities making it difficult to separate data 
among program activities. For the SURVEY2000 cycle, the IRS is 
attempting to collect data in such a way that it is possible to 
calculate employee satisfaction scores for the program activities in 
Customer Service. However, the IRS will continue to provide branch 
level managers and above employee satisfaction scores based on survey 
data from all employees within their area of responsibility.
    The tax code is complex and IRS has in recent years been accused of 
applying disproportionate enforcement efforts to small individual 
taxpayers whose returns involve relatively simple aspects of the law. 
Some contend that IRS has been less vigorous in enforcing complex 
provisions of the tax law involving large businesses and wealthy 
individuals because, in such cases, IRS is likely to encounter a more 
sophisticated legal defense and lose the case on appeals.
    Question. What are the three most serious compliance problems 
associated with income tax returns filed by individuals? What are the 
three most serious compliance problems associated with income tax 
returns filed by businesses? Please provide some detail on the nature 
of those problems.
    Answer. There is no ready consensus in IRS as to the three most 
serious compliance problems for individuals and for businesses. 
Nevertheless, for the purpose of this question, we will discuss, for 
tax returns filed by individuals: (1) underreporting of business 
income; (2) failure to file required tax returns; and (3) improper 
claims related to ``family tax benefits.'' For businesses 
(corporations), we will discuss (4) abusive tax shelters; (5) transfer 
pricing; and (6) the research tax credit.
    (1) For individual taxpayers, underreporting of business income 
(including informal supplier income) is the largest single category of 
the income tax gap, accounting for an estimated $29.2 billion in 
underreported income taxes in 1992, the most recent year for which 
published data are available. Non-farm sole proprietors voluntarily 
report only 56 cents of every dollar of their net business income 
compared to 93 cents of every dollar for business and nonbusiness 
individuals combined. The principal cause of high noncompliance among 
non-farm proprietors is the presence of income not subject to 
withholding or covered by information reporting. Business income 
received by individuals from flow-through entities (partnerships and 
trusts) is covered by information reporting requirements. However, the 
complexity and rapid growth in the number of such entities poses a 
particularly serious challenge to IRS. Partnership and trust filings 
have grown rapidly since 1995 while corporation filings have declined. 
Tax shelter promoters are marketing the service of establishing trusts 
for the purpose of improperly reducing taxpayers' income tax and estate 
tax liabilities.
    (2) Failure to file required tax returns undermines the United 
States' system of voluntary compliance. IRS identifies potential 
individual income tax nonfilers by using third party data and 
historical filing information. For tax year 1996, IRS identified 
approximately 7 million individuals who had not filed returns but who 
appeared to have a legal obligation to file with a potential tax 
assessment of more than $200. Moreover, there were millions of other 
individuals who may not have been legally required to file but may have 
been eligible for refunds or credits. Many of these taxpayers may lose 
their right to refunds and self-employed taxpayers may forfeit Social 
Security Administration (SSA) credits if returns are not filed within 
certain prescribed time intervals.
    (3) Current family tax benefit issues include: filing status, 
exemptions for dependents, the child and dependent care credit, the 
earned income tax credit, the child tax credit, education credits, and 
adoption credits. The increasing number of Family Tax Benefits has 
resulted in different and sometimes conflicting rules that taxpayers 
find confusing and compliance has suffered as a result. The Earned 
Income Tax Credit and the duplicate use of Social Security Numbers for 
dependent exemptions and Child Tax Credit (claimed on multiple returns) 
are two of the most well known examples of this problem. The 
qualifications for benefits related to an individual and the 
relationship of the individual to the taxpayer often depend on 
information that IRS has limited ability to obtain without contacting 
the taxpayer.
    (4) Secretary Summers has said that the rapid growth of abusive 
corporate tax shelters may be ``the most serious compliance issue 
threatening the American tax system today.'' Abusive corporate tax 
shelters are transactions that have no economic substance; their only 
purpose is to reduce corporations' tax liabilities. Such transactions 
are appearing in an astonishing variety of forms. We believe that they 
account at least in part for the widening gap between corporate book 
income and taxable income and for the decline in corporate tax receipts 
during a year of excellent corporate profits.
    (5) The transfer-pricing problem is that commonly controlled 
corporations can manipulate prices charged between parents and 
subsidiaries to reduce the taxable income of one or the other and 
thereby reduce U.S. tax liabilities. For example, a foreign parent of a 
U.S. subsidiary may charge its subsidiary artificially high prices for 
raw materials supplied by the parent. This would reduce the taxable 
income of the U.S. subsidiary (a ``foreign-controlled corporation'') 
below what it would be if the subsidiary purchased its raw materials at 
``arm's length'' prices. The increased globalization of the United 
States economy has resulted in a rapid increase in the number of such 
transactions.
    (6) Section 41 of the Internal Revenue Code allows a credit for an 
increase in qualified research expenses. Issues involving this credit 
arise in almost every industry. A recent review found over $9 billion 
of research credit claims under examination. The development of these 
cases during examination is complicated by the fact that the issues 
often arise in the context of a refund, overpayment or offset 
situation, leaving insufficient time for thorough development of the 
issues. Because the cases require the understanding of complex 
scientific or industry-specific issues, IRS is required to devote 
extensive resources to the development of the cases to determine 
whether all requirements of section 41 are met.
    Question. What procedures and systems does IRS use to identify 
these compliance problems?
    Answer. (1) For individuals, the severity of the problem of 
unreported business income has been a consistent result of IRS's 
Taxpayer Compliance Measurement Program (TCMP) studies. The flow-
through entity aspect of this problem has been recently identified in 
the strategic assessment process for the new Small Business/Self 
Employed Division of IRS.
    (2) The size of the problem of nonfiling of required tax returns 
also was established by IRS's 1988 TCMP study. During fiscal year 1993 
through fiscal year 1995, a multifunctional national nonfiler strategy 
was conducted using Collection's open inventory. Those activities and 
subsequent analysis verified that nonfiling remains a serious problem. 
Moreover, IRS's renewed emphasis on customer service raises the 
importance of nonfilers since many of them are passing up refunds and 
credits to which they are entitled.
    (3) The family tax benefit issues were identified in part because 
we are finding that a large number of children are claimed on more than 
one tax return for various benefits. Also, the growing complexity of 
tax law in this area is cause for concern that compliance will suffer 
as a result.
    (4), (5), (6) For corporations, the three problems were identified 
by IRS' National Office Examination personnel. Their information is 
based on regular discussions with examiners in the field.
    Question. Does IRS have specific compliance initiatives directed at 
those problems? If yes, please provide information on the nature of the 
initiatives and the amount of resources devoted to them. If no, why 
not?
    Answer. (1) Underreporting of business income: IRS is restructuring 
itself to provide assistance to taxpayers to understand and meet their 
tax obligations. The Small Business/Self-Employed Division (SBSE) will 
have responsibility for providing such assistance to individuals who 
operate businesses. The Commissioner of this new Division will be 
Joseph Kehoe, who has extensive experience leading and improving 
service organizations in both the private and public sectors. To 
improve the quality of our enforcement programs for business 
individuals, IRS has developed its Market Segment Specialization 
Program (MSSP). A goal of the MSSP is to issue Audit Technique Guides 
(ATGs) that allow revenue agents and tax auditors better to understand 
the total business environment in selected market segments and become 
more efficient in their case evaluations. A continuing problem for 
enforcement in this area is that verifying a small business income 
often requires the use of audit techniques that may be regarded as 
overly intrusive, especially when the taxpayer's income statement is 
found to be reasonably accurate.
    IRS is now formulating a strategy for dealing with the rapid growth 
of partnerships and trusts. One of the elements of the strategy will be 
improved use of the information reports filed by partnerships and 
trusts. A large fraction of those reports are filed electronically, and 
IRS needs to make more effective use of them. Many of the reports are 
filed on paper; additional resources are needed to transcribe them so 
that they can be used to direct our outreach and assistance programs as 
well as our enforcement programs.
    (2) To address the problem of failure to file required tax returns, 
IRS has adopted a Service-wide National Nonfiler Strategy. The 
objectives of the strategy are to improve filing compliance and to 
provide better service to nonfilers who are due refunds or credits. The 
strategy includes initiatives in several areas with specific actions to 
take place over the next 2 years. For example, the Service will develop 
and implement communication, education and outreach programs to reach 
specific types of nonfilers. Emphasis will be placed, for example, on 
taxpayers that are at risk of losing refunds and SSA credits. The 
strategy envisions cooperation between IRS and other Federal agencies 
and State agencies to promote filing compliance. Other initiatives 
include designing and implementing a nonfiler management information 
system, improving traditional compliance techniques, exploring 
legislative opportunities, and studying the feasibility of contracting 
out certain activities related to nonfilers.
    (3) Family tax benefit issues: For duplicated use of SSNs IRS has 
for several years been able to identify dependents or EITC-qualifying 
children claimed on more than one tax return. ``Soft'' notices to the 
taxpayers involved have been successful in causing some of the 
taxpayers to file amended returns to correct the duplication or to 
discontinue the duplication in subsequent years. The Congressionally 
authorized EITC Compliance Initiative and special appropriation ($144 
million with 2,083 FTE in fiscal year 2000) have allowed IRS to address 
some of these issues as they apply to EITC and peripherally as they 
relate to associated issues (i.e. dependent exemptions). A substantial 
effort was made this year to visit high-volume EITC return preparers to 
discuss the need for increased emphasis on the taxpayer's eligibility 
to claim an EITC benefit and related benefits. About 72,000 labor hours 
went into these activities.
    IRS is currently testing a system that accesses historical IRS 
databases and information from the Federal Case Register of Child 
Support Enforcement Orders and from Social Security records. This 
system allows IRS to identify returns, as they are submitted, that 
appear to have inappropriate claims for tax benefits. The focus is to 
use information about individuals (typically children) and historical 
information about the relationship of the individuals to previously 
filed tax returns. The ready availability of this information allows 
IRS to take actions to educate taxpayers and tax return preparers, as 
well as better to identify tax returns requiring enforcement action. 
Should this initial test prove successful, IRS may be able to expand 
the system to capture additional information received from taxpayers, 
such as an indicator that a dependent is totally and permanently 
disabled or the type of Individual Retirement Arrangement (IRA) for 
which a deduction is being taken. (The latter item would assist IRS 
with another impending problem: with the aging of the ``Baby Boom'' 
generation, growing withdrawals of funds from IRA accounts will require 
IRS to know, at the time of the withdrawals, the type of IRA 
contributions particular taxpayers deducted over the years and the 
taxpayers' ages to determine the taxability of the funds being 
withdrawn.) Just as Income Reporting and Matching improved the 
reporting of income, it can be expected that as the IRS uses data in a 
more sophisticated manner to determine the eligibility of a taxpayer to 
claim family related and individual benefits, there will be improved 
compliance in this important area of tax administration.
    (4) The Department of the Treasury has undertaken several 
initiatives to deal with abusive corporate tax shelters. These include 
new regulations that are now in effect, administrative reforms, and 
proposed legislation. The administrative reforms include the 
establishment of the Office of Tax Shelter Analysis in the Large and 
Mid-Size Business (LMSB) Division. This office is responsible for 
planning, coordinating and providing assistance to our agents who are 
working tax shelter issues. The office also has a staff to coordinate 
closely with IRS Chief Counsel, receiving and distributing information 
as needed. IRS will be establishing a Tax Shelter Hotline, which will 
include a telephone number and e-mail address to provide an easy way 
for concerned taxpayers and practitioners to provide information on tax 
shelter promotions. Fifteen FTEs will be allocated to this office. We 
do not have detailed information on the resources being used in the 
field to work abusive tax shelter issues.
    (5) The IRS strategy for improving compliance in the transfer 
pricing area has been to shift the focus from after-the-fact audit and 
litigation of transfer pricing disputes to encouragement of up-front 
taxpayer compliance and advance resolution of transfer pricing issues. 
For example, under the provisions of Sec. 6662(e), IRS has moved to 
ensure that taxpayers apply the arm's length standard at the time they 
file their original return and have contemporaneous documentation 
establishing such compliance. Another initiative involves the 
International Field Assistance Specialization Program (IFASP), whose 
staff includes three transfer-pricing specialists who provide transfer 
pricing expertise and assistance regarding technical issue 
identification and case development throughout the country. A third 
important IRS compliance initiative directed at the transfer pricing 
problem is the Advanced Pricing Agreement (APA) program. Under the APA 
program, IRS and the taxpayer agree in advance on the appropriate 
pricing methods to be used by the taxpayer for transactions covered by 
the APA. An APA may protect against both Sec. 482 adjustments and Sec. 
6662(e) penalties. These and other specific IRS transfer pricing 
compliance initiatives are described in detail in IRS Publication 3218 
(4-1999), Report on the Application and Administration of Section 482, 
April 21, 1999. Rough estimates from the IRS Assistant Commissioner 
(International) function indicate that approximately 65 percent of its 
international programs field compliance efforts, or about $30 million 
annually, are devoted to transfer pricing issues.
    (6) IRS initiatives to cope with the research credit compliance 
problem include a new program to employ outside experts to deal with 
credits claimed for development of internal-use software. These experts 
have been employed mainly through the Federally Funded Research and 
Development Center sponsored by the Department of the Treasury. The 
experts are working with examiners in resolving research credit claims. 
We are also in the process of hiring experts to deal with research 
credits claimed by aerospace and motor vehicle firms. The cost of the 
experts has been at least $1.5 million per year, but this has not been 
enough to cover all of the cases that need this kind of resource.
    For pharmaceutical industry research credit claims, we have 
established a committee including IRS personnel (from Examination, 
District Counsel, Appeals, and Chief Counsel) and industry 
representatives from the largest pharmaceutical industry association. 
The goal of the committee is to find common ground to resolve research 
credit issues. For all industries, research credit cases are to be 
included in the Prefiling Initiative. Under this program, large 
business taxpayers may request examination and resolution of specific 
issues relating to tax returns expected to be filed in September 
through December of 2000.
    Question. What has IRS done to track better its enforcement efforts 
and results involving different categories of taxpayers (e.g., less 
affluent taxpayers versus more affluent taxpayers and large 
businesses)?
    Answer. We have been centrally compiling the results of our 
enforcement efforts since 1992 in the Enforcement Revenue Information 
System (ERIS). This system captures important information about all 
enforcement cases at many stages of the enforcement process, 
consolidating information from the existing information systems for the 
various enforcement functions. In most cases, the data can be 
aggregated by specific type of taxpayer. The database generates regular 
reports, and it can also support specific queries.
    According to IRS, the additional workload from RRA 98 contributed 
to a decrease in enforcement presence, audit coverage, and case 
closures in front-line compliance programs.
    Question. Please explain in detail the specific workload increases 
that contributed to these various decreases.
    Answer. The Taxpayer Protection and Rights section of the 
Restructuring and Reform Act of 1998 (RRA 98) alone contains over 25 
provisions affording additional protections to taxpayers. In addition 
to increased time to train employees in the requirements and 
ramifications of the RRA 98 provisions and the time to make the 
substantial alterations in IRS procedures dealing with the audit, 
taxpayer appeals, and other enforcement processes, the additional 
protections and new procedures have increased the workload and the time 
it takes to complete case processing.
    Substantial changes to the collection process increase the time to 
process collection cases. These changes range from requiring 
supervisory approval for certain collection actions, the review of 
jeopardy and termination levy actions by IRS Counsel to procedural 
changes to the Offer in Compromise program, expanded availability of 
Installment Agreements and extensions of time for taxpayers to provide 
additional information regarding their offers.
    Since the passage of RRA 98, the IRS has received 67,372 innocent 
spouse (provision 3201) requests that affect approximately 35,459 
taxpayers. As of March 6, 2000, there were 51,276 cases in inventory 
(affecting approximately 26,987 taxpayers) and the current volume is 
approximately 2,800 cases received each month. The average staff time 
required to resolve a request for tax relief through the innocent 
spouse provision ranges from 5 to more than 20 hours, depending on the 
complexity of the fact patterns in different cases. The IRS has 
incorporated new audit procedures to determine in each initial 
examination with the taxpayer whether there are innocent spouse issues 
that need to be addressed and implemented taxpayer education 
initiatives (including an ``Innocent Spouse'' questionnaire on the IRS 
Internet web page, ``The Daily Digital'').
    Some of the other workload increases are as follows:
  --Provision 3417, Third Party Notices, adds an estimate of 30 minutes 
        per case for Examination, Collection, Customer Service, and Tax 
        Exempt/Government Entities.
  --Provision 3705 requires that the IRS provide Spanish language 
        taxpayer assistance and the option to taxpayers of speaking to 
        a live assistor. Both of these requirements increase workload 
        for Toll-Free.
  --Provision 3462 resulted in modification to the Offer in Compromise 
        program and increased the time necessary to process cases in 
        the Automated Collection System (ACS) and Field Collection.
  --Notice activity and processing for innocent spouse (provision 3201) 
        and due process in collection actions (pre-levy notices) 
        [provision 3401] increased workload for Submission Processing.
    The IRS budget request includes about $1.9 billion and 22,900 FTEs 
for the examination activity. That activity includes not only IRS' 
audit functions but also its taxpayer education and appeals functions.
    Question. How much of the $1.9 billion and 22,900 FTEs is for 
audit, taxpayer education, and appeals?
    Answer. The ``examination'' budget activity consists of $1.6 
billion and 19,723 FTE for ``audit'' (examination), $20.8 million and 
223 FTE for taxpayer education, and $173.4 million and 2,063 FTE for 
appeals. The additional $100 million and 891 FTE is made up of 
approximately $40 million and 467 FTE for International and $60 million 
and 424 FTE for Compliance Research.
    During a January 2000 conference on IRS modernization, some 
concerns were raised about decreases in staffing for the Appeals 
function at a time when workload was increasing. Mention was made, for 
example, of the impact of the innocent spouse and collection due 
process provisions on Appeals' workload.
    Question. Please provide information on Appeals actual staffing 
levels and caseload for fiscal years 1998, and 1999; its expected 
staffing level and caseload for fiscal year 2000; and its budgeted 
staffing level caseload for fiscal year 2001?
    Answer. Appeals provides taxpayers and taxpayer representatives 
with a channel for impartial case settlement prior to cases being 
docketed in tax court.

----------------------------------------------------------------------------------------------------------------
                                                                           Fiscal years
                                                 ---------------------------------------------------------------
                                                       1998            1999            2000            2001
----------------------------------------------------------------------------------------------------------------
FTEs............................................           2,087           2,144           2,063           2,035
Closed Cases....................................          71,918          61,507          59,000      \1\ 57,000
----------------------------------------------------------------------------------------------------------------
\1\ Appeals does not control its inventory since all cases originate elsewhere in the IRS. With the major
  changes in IRS, RRA 98 and the pending Compliance supplemental, it is extremely difficult to predict workload.

    Question. How, specifically, have the innocent spouse and 
collection due process provisions affected appeals' workload so far, 
and what are the IRS' expectations for the future?
    Answer. Concerning the innocent spouse program, Appeals has always 
had these types of cases in inventory; however, with RRA 98 more cases 
have come to Appeals. In fiscal year 1999 we closed approximately 200 
innocent spouse cases, and in fiscal year 2000, through February, we 
have closed more than 200 cases already. Current inventory is 
approximately 650 cases. Considering the backlog of cases pending 
initial decision on claims filed and the Examination initiatives to 
resolve these cases, it is difficult to predict Appeals future 
workload. However, at a minimum, we expect our workload to increase by 
1,000 cases for fiscal year 2000 and fiscal year 2001.
    The collection due process provision has had a significant impact. 
In fiscal year 1999, we received approximately 5,300 collection cases. 
For fiscal year 2000 we expect the receipts to increase to 7,400, and 
in fiscal year 2001 to increase to 20,000.
    Question. Are there other provisions in RRA 98 or any 
administrative changes that have had or are expected to have a 
significant impact on appeals' workload, either positively or 
negatively, in 2000/or 2001?
    Answer. The other areas we expect to have a significant impact are 
Early Referral and Mediation, Arbitration, Offers in Compromise, and 
Tax Exempt Bonds. RRA 98 modified the procedure for Tax Exempt Bonds, 
which allows issuers to appeal an adverse determination. Appeals' is 
currently in the process of developing training classes to prepare the 
Appeals Officers for the Tax-Exempt Bond cases. The impact on Appeals 
will be more in fiscal year 2001 and the out years.
    The impact of RRA 98 on IRS' Collection function has been 
extensive. For example, Title III of the Act focuses on provisions to 
help ensure that taxpayers have adequate protections while dealing with 
IRS about their tax matters. IRS has stated that it is meeting the 
implementation requirements of the law. IRS also talks about the 
Collection function being committed to working its inventory base on 
``taxpayer-oriented priorities''.
    Question. What are these taxpayer oriented priorities?
    Answer. Collection's work has been reprioritized to emphasize 
service to taxpayers that have been proactive in attempting to resolve 
their problems. This means that Collection staff resources are directed 
toward:
  --Taxpayers that ``walk-in'' to an IRS office and wish to discuss 
        their tax liabilities. These ``walk-in'' contacts are usually 
        the result of computer-produced correspondence regarding an 
        unpaid tax bill or the non-filing of a tax return.
  --Investigating and bringing to resolution Offers-in-Compromise that 
        have been submitted by taxpayers that seek to resolve their tax 
        liabilities by paying less than the full amount owed.
  --Supporting Customer Service to deal with work overflows, especially 
        during the filing season, when taxpayers visit or phone with 
        tax questions.
    These taxpayer-oriented priorities come before work on other 
assigned collection accounts. The other assigned collection accounts 
consist of Taxpayer Delinquent Accounts, for which a tax liability has 
been assessed and unpaid, and of Taxpayer Delinquency Investigations, 
for which there is reason to believe that a tax return was due to be 
filed but was not received.
    Question. Are the priorities fair and equitable to taxpayers who 
pay their taxes when they are due or might they be seen as ``coddling'' 
delinquent taxpayers?
    Answer. We have focused our efforts to serve taxpayers that have 
contacted us. These efforts leave fewer resources to devote to 
delinquent accounts for which taxpayers have made no effort to resolve 
their liabilities. Some of this unassigned work consists of relatively 
high priority cases, including some employers who withhold income and 
Social Security taxes from their employees but fail to pay it over to 
the Treasury. This can be seen to be unfair both to those taxpayers who 
have timely filed all returns and paid all taxes due and to those who 
seek us out to resolve their liabilities. Unfortunately, if we expended 
our resources first on those taxpayers that were not seeking to 
voluntarily resolve their liabilities, there would not be sufficient 
resources to properly serve those who have come to us. These taxpayers 
would then justifiably believe that they were being treated unfairly.
    In order to stretch our available resources over more accounts, we 
have expanded the authority of various Service functions to enter into 
installment agreements with little or no verification of the taxpayer's 
financial condition and reduced the investigation required prior to 
declaring certain types of accounts to be ``Currently Not 
Collectible.'' Despite these efforts, the number of cases that cannot 
be assigned for active field investigation continues to grow. Our 
efforts to direct staffing toward the priorities listed above are 
partially responsible for the decline in enforcement activity against 
uncooperative taxpayers. Although some might perceive this as 
``coddling'' delinquent taxpayers, the Collection staff resources 
currently available do not permit us to properly work some relatively 
high priority matters.
    In its fiscal year 2001 budget request, IRS talks about 
streamlining the Offer-in Compromise program and decreasing the need 
for verification of financial information.
    Question. From a fairness and equity perspective, why is IRS making 
it easier for delinquent taxpayers to ``walk away'' (or to pay much 
less than the actual amount owed) from their tax debt? Shouldn't the 
standard in terms of justification be more stringent rather than less? 
What are the risks in terms of revenue and fairness?
    Answer. As part of our overall reengineering plan for the 
collection process we are incorporating the use of all collection 
alternatives into appropriate situations. Offer-in Compromise is one of 
the alternative approaches to ensure that all taxpayers have some 
option for making payment on their delinquencies. We anticipate that 
this expanded use of the offer program will increase the overall 
dollars collected by providing taxpayers whose liability may have 
previously been reported as uncollectible with a means of resolving 
their account.
    Information from the IRS' Collection Division indicates that many 
front-line employees have been reluctant to take all necessary actions 
needed to close cases because of fear of reprisal stemming from section 
1203 of RRA 98. Under that section, IRS employees are subject to 
termination for misconduct in their dealings with taxpayers.
    Question. What is IRS' strategy for ensuring that front-line 
employees follow enforcement guidelines and procedures needed to 
properly close cases?
    Answer. A number of actions have been taken to ensure that front-
line employees follow enforcement guidelines and procedures to properly 
close cases:
  --There have been several national video teleconferences, including 
        one with Commissioner Rossotti, in which the proper use of 
        enforcement actions was discussed.
  --Internal Revenue Manual have been rewritten to clarify enforcement 
        procedures after RRA 98.
  --A conference of all Collection division chiefs from the 33 district 
        offices was conducted. The proper use of enforcement actions 
        was a major topic during the conference.
  --A meeting of all Collection field group managers was conducted for 
        the first time. The Commissioner, the Chief Operations Officer 
        and the Assistant Commissioner (Collection) were present at 
        that meeting. The managers of the front line revenue officers 
        were advised that one of their major concerns should be the 
        evaluation of case activity to verify that enforcement actions 
        are taken when appropriate and that if such actions are not 
        being taken when appropriate, employee non-performance should 
        be documented.
  --The Collection Quality Measurement System, a post-closure case 
        review process, has been revised to include the review of 
        revenue officer judgments made during case processing. This 
        includes judgments regarding the use of enforcement tools for 
        appropriateness and timeliness.
    Some additional actions are underway:
  --A new course covering the asset seizure process is being developed 
        for revenue officers. This should clarify a number of areas 
        where uncertainties remain as a result of RRA 98 changes.
  --The Internal Revenue Manual Seizure and Sale Handbook is being 
        revised to incorporate additional instruction and guidance on 
        appropriate use of seizure as a collection tool.
    The proper use of enforcement has been an issue due to the major 
change in direction that now requires all alternatives to enforcement 
first be considered. This change in direction is partly based on policy 
change and partly on the new law. In the past, the mere failure of the 
taxpayer to act to resolve their liability was sufficient justification 
for enforcement action and failure to take immediate enforcement action 
in those cases was a reason for a negative employee evaluation. Now 
there are questions at the front line as to how intensive and 
exhaustive our attempts to secure voluntary taxpayer cooperation should 
be prior to enforcement. Since judgment must be used to deal with the 
range of potential delinquent taxpayer actions, situations, and 
attitudes, the guidelines must allow the flexibility to deal with the 
taxpayer in an appropriate manner. This leaves us with guidelines that 
are open to interpretation based on the facts of the individual case at 
hand and there can be differing judgments among individual front-line 
employees based on those facts.
    Question. What has IRS done and what is it planning to do to help 
employees better understand section 1203 and to allay any unjustified 
fears stemming from that section?
    Answer. The Service has taken a number of steps to deal with 
employee fears regarding section 1203. There have been:
  --A national video teleconference in which Commissioner Rossotti 
        directly addressed the issue and emphasized that it required a 
        willful act on the part of the employee to be found in 
        violation.
  --Formal Section 1203 training has been given to all employees.
  --At the recent meeting of all Collection revenue officer group 
        managers, Counsel discussed section 1203 with the front line 
        managers and provided guidance for them that should be shared 
        with their employees.
    Since very little time has passed since the most recent efforts to 
allay fears about section 1203, it is not felt that additional actions 
should be taken until we determine the effects of the information 
shared at the Collection group managers meeting.
    Section 1203 has raised issues other than unjustified fears based 
on a misunderstanding of the provision and its potential ramifications. 
One major issue has been the large number of procedural changes that 
make many formerly routine actions now a potential section 1203 
violation. Front-line employees are still in a period of adjustment. 
Practices that had become ingrained after decades of use have had to be 
abandoned or modified; many employees may be overly cautious while they 
get comfortable with the new procedures. Another major issue is the 
concern about an unjustified claim by a taxpayer or taxpayer 
representative that a section 1203 violation has taken place. To date, 
the vast majority of claimed section 1203 violations that have been 
investigated have been closed with no finding against the employee.
    However, there have been instances where an employee has incurred 
substantial legal expense and/or undergone considerable mental anguish 
during the course of the investigation before being found innocent of 
any wrongdoing. Stories that circulate about such incidents naturally 
put a chill on some potential enforcement actions where there is 
concern that a section 1203 violation, even if unjustified, may be 
claimed. There are no penalties for alleging a section 1203 violation 
that has no basis in fact and such an allegation may be used merely as 
a tactic to delay collection action.
    Section 1205 of Title 1 of RRA 98 requires IRS to establish a 
training programs to ensure that IRS employees are trained in such area 
as taxpayer protections. IRS' fiscal year 2001 budget request also 
states that IRS shall maintain a training program to ensure all IRS 
employees are trained in taxpayer rights, dealing courteously with 
taxpayers and cross-cultural relations.
    Question. What is the status of IRS' collections training? What are 
the projected costs for the RRA 98 training?
    Answer. All collection employees with public contact received 
training in conflict management by September 30, 1999 as required by 
Section 1205. A typical experienced front-line employee in Customer 
Service could expect to receive 84 hours of training, including 24 
hours mandatory training, 40 hours continuing skills enhancement 
training, and 20 hours of training related to their work assignments. 
The cost to develop and deliver the Section 1205 training is estimated 
to be $81,000 in fiscal year 1999, $32,000 in fiscal year 2000, and 
$40,000 in fiscal year 2001. These costs include the salaries of course 
developers and instructors, and other costs such as materials and 
supplies.
    Question. How will IRS determine the impact, or effectiveness, of 
this training?
    Answer. We will assess the effectiveness of the training by 
analyzing the customer satisfaction and employee satisfaction 
components of the balanced measures.
    IRS' plan for fiscal year 2001 includes the installation of 30 
additional Q-Matic systems at walk-in sits, bringing the total number 
of such systems nationwide to 106. IRS says that those systems ``ensure 
that taxpayer spend the shortest amount of time possible waiting to 
receive service.'' However, there is no information in IRS' budget 
request on taxpayer wait times at walk-in-sites.
    Question. How much of the $722 million and 10,785 FTEs being 
requested for IRS' Collection activity is being allocated to walk-in 
activities and how much is being allocated to field collection 
activities?
    Answer. The President's Budget for fiscal year 2001 includes $80 
million and 1,473 FTE for the walk-in activity. The remaining $642 
million and 9,312 FTE are allocated to field collection activities.
    Question. How much of the amount allocated to walk-in activities 
will be used to fund the proposed installation of 30 additional Q-Matic 
systems at walk-in sites?
    Answer. Approximately $1.5 million is included in the Information 
Systems budget activity to enhance current Q-Matic infrastructure 
(network) and to purchase the new Q-Matic systems.
    Question. How long, on average, did taxpayers have to wait to 
receive assistance at IRS' walk-in sites in fiscal year 1999? How did 
those wait times vary, if at all, between sites that had a Q-Matic 
system and sites that did not? How did those wait times compare to IRS' 
goal?
    Answer. In our Q-Matic sites, the average wait time varies from 2 
to 7 minutes. We do not have data available to gauge average wait time 
in offices without Q-Matic. Those offices measure and report how often 
taxpayers must wait beyond the established wait time goal of 15 minutes 
(30 minutes for return preparation). Generally, they report goals are 
met 97 percent of the time.
    As of part of the STABLE initiative, IRS is requesting an 
additional 233 FTEs for its fiscal year 2001 walk-in activities. IRS 
says that the staffing increase will allow IRS to increase ``level of 
service''.
    Question. What is the detailed breakout of these FTE's between 
headquarters and field locations? How many of these FTE's will actually 
be used to provide additional walk-in assistance at field locations?
    Answer. Since all of the FTEs will be front-line non-supervisory 
customer service positions, all of the FTEs will be in field locations 
to supplement the current Walk-In staff. The exact location of these 
FTEs will be determined during the Plan Development process wherein 
FTEs will be provided to those field locations exhibiting the greatest 
need.
    Question. How many of the 233 FTEs are intended to replace FTEs 
provided in the past by detailees from other activities, thus not 
resulting in any overall increase in the number of FTEs devoted to the 
walk-in program?
    Answer. 200 of the 233 FTEs are intended to replace FTEs detailed 
from other activities.
    Question. How does IRS measure the level of its walk-in service? 
How much of an increase in level of service does IRS expect in fiscal 
year 2001 compared to the level attained in fiscal year 1999 and the 
level expected in fiscal year 2000? And,
    What level of walk-in service should IRS ultimately strive to 
attain? How many FTEs beyond the 233 being requested would IRS need to 
achieve that level of service? Does IRS expect to be able to provide 
that level of support as a result of any staffing changes associated 
with its reorganization?
    Answer. IRS does not measure level of service for Walk-In offices. 
Each taxpayer coming into the office and waiting for an available 
employee is served. One measure of customer satisfaction for walk-in 
(rather than level of service--a telephone measure) is wait time. As 
previously stated, our current wait time goal is 15 minutes or less (30 
minutes or less for return preparation). The additional FTE requested 
will reduce the number of employees detailed to walk-in from other 
areas. This will enable us to use permanent walk-in employees to 
provide service faster, more completely and with greater accuracy. 
Trained, experienced walk-in employees can serve more taxpayers better 
than the same number of detailed employees. This will also enable those 
detailed employees to carry on with their regular job duties, enhancing 
their effectiveness and morale in their own organization.
    IRS' budget request list four performance measures related to its 
walk-in program customers satisfaction, walk-in quality, total walk-in 
contacts, and employee satisfaction.
    Question. To measure customer satisfaction, IRS surveys all walk-in 
customers for one week every fifth week. How useful will these results 
be in measuring customer satisfaction if IRS is only surveying 
customers every fifth week? Why doesn't IRS randomly survey taxpayers 
every week during the filing season, which is the time when walk-in 
sites are most busy?
    Answer. The Office of Program Evaluation and Risk Analysis, Pacific 
Consulting Group, Customer Service and the Statistics of Income 
Division developed the weekly schedule for survey administration based 
on a methodology that would allow the vendor to achieve the desired 
response rate and a statistically valid sample. The initial start week 
was selected at random with the month of March 1998 and marks the first 
week of survey implementation. Beginning with the first week, the 
schedule of rotating every fifth week was developed.
    Question. IRS says that it will be measuring walk-in quality ``in 
terms of accuracy and professionalism.'' Please explain how those 
characteristics will be measured and what IRS' performance goals are in 
those areas.
    Answer. Accuracy and professionalism will be measured through the 
walk-in Quality Review Visitation program. Reviewers will anonymously 
visit walk-in posts of duty (PODs), ask a question, respond to 
assistor's questions using a prepared (memorized) fact sheet, and 
complete a Quality Review Visitation Checksheet to document the 
contact. PODs are selected according to a sampling formula provided by 
the Statistics of Income division to obtain a precision margin of no 
less than 5 percent at the national level. Reviewers rate each contact 
by answering 13 questions ``yes'' or ``no''. The responses to these 
questions will measure the accuracy of the answer given and the 
professionalism of the employee. Since fiscal year 2000 is the first 
year these visitations will occur, no performance goals have been set. 
The results of the fiscal year 2000 reviews will serve as a baseline to 
set goals for improvement for fiscal year 2001.
    Question. IRS uses the Resources Management Information System 
(RMIS) to track the number of taxpayers visiting walk-in sites. How 
reliable is RMIS; how accurately does RMIS data reflect the actual 
number of taxpayers visiting walk-in sites?
    Answer. The RMIS system is accurate in collecting and providing 
data. However, the data that is input into RMIS is captured and input 
manually. As with any manual system, if there are errors in the 
original input, there will be errors in the resulting report. As a 
result, we review the initial reports to identify the errors we can. 
Those errors are then perfected and the report corrected.
    Question. Although IRS reports an employee satisfaction measure for 
its walk-in program, the value being reported is a composite value that 
covers all of IRS' Customer Service activities, including toll-free 
telephone service. Why is IRS unable to separately measure employee 
satisfaction for the walk-in program?
    Answer. The walk-in function is distributed among the 33 districts 
and reports organizationally in each office to Collection. At the same 
time, employees from other functions migrate to walk-in during peak 
times to supplement full-time employees. In 1999, an Employee 
Satisfaction score was calculated for all organizational levels branch 
and above, and walk-in constituted only a small portion of these 
branches.
    For 2000, we have developed the capability to identify workgroups 
whose focus primarily is walk-in service. We will be able to aggregate 
this data across offices to generate a Special Report for Servicewide 
Walk-In. In addition, a new survey item asks respondents to identify 
their function and this will provide a further check on the 
aggregation. Finally, the survey instructions ask respondents to fill 
in the manager code for their manager-of-record, thereby eliminating 
detailees from the aggregation whose full-time function is other than 
walk-in.
    Question. IRS currently has no measure for the timeliness of its 
walk-in service. Is timeliness an important indicator of the quality of 
walk-in service? If yes, what is IRS doing to measure it? If no, why 
not?
    Answer. Timeliness of walk-in service is currently measured as 
customer wait time. Serving customers in a timely manner is one 
indicator of the quality of walk-in service. It is one of the factors 
captured in the Walk-In Quality Review Visitation program data. The Q-
Matic system also captures time-related data that will be more 
significant when Q-Matic is fully rolled out to all targeted offices.
    Of IRS' $1.584 billion request for information systems, $40 million 
is for investments to enhance and develop systems.
    Question. Please identify the specific systems to be enhanced and 
developed, the business requirements being addressed by these 
enhancement/development efforts, the dollar amount being requested for 
each system, whether there is a business case for each effort, and each 
effort's expected return on investment.
    Answer. IRS prioritized the 15 original fiscal year 2001 business 
line investment projects (Tier B) using a model from MITRE Corporation, 
prioritizing by benefits to the three aspects of our Balanced Measures 
approach: Customer Satisfaction; Employee Satisfaction; and Business 
Results/Productivity. The result was a scoring of each investment 
relative to the other investments for each measure. The business units 
and IS estimated high-level project costs required to deliver the 
investment. The individual project cost estimates ranged from $.5M to 
$14.8M and currently total over $60M.
    Since the original assessment several new potential initiatives 
have arisen. In addition, some of the delivery requirements and cost 
estimates for these proposed business line investments may change in 
line with fiscal year 2000 budget execution decisions. Once the 
streamlined business cases (including expected returns on investment), 
project management plans and design reviews have been approved, the 
final determination will be made of which to include in the requested 
$40M Tier B funding allocation. This is scheduled for completion in 
June 2000. Those projects that do not get funded in fiscal year 2001 
will continue to be evaluated for potential implementation in 
subsequent years.
    Following are the 17 potential investments (including two 
additional projects which have been defined since the initial case 
screening was completed) in the Tier B category:
Integrated Case Processing NT--$3.35M
    ICPnt will dramatically improve taxpayer relations, employee 
satisfaction, and increase productivity for the more than 25,000 
Customer Service and Taxpayer Advocate employees. By providing more IRS 
customer service employees with a single work station that can access 
all legacy systems, taxpayers receive more complete and quicker 
answers. In addition, the case management database provided by ICPnt is 
able to identify prior taxpayer case activity.
Employee Plans/Exempt Organization Determination System--$2.75M
    Processing of determination requests, contacts with requestors and 
deposits of fees are not efficiently managed by the 15-year-old 
decentralized systems in use. Redesign of the system will improve the 
efficiency and effectiveness of IRS responses and actions.
Business e-file Program--$1.53M
    Not all forms and schedules for business filers are available for 
electronic filing. This effort will support the Service's goal of 
significantly increasing the number of electronically filed returns by 
allowing businesses and preparers to file additional types of business 
forms, schedules and statements electronically. This funding will 
enable the electronic filing of at least one class of business tax 
returns, possibly Form 1120.
Chief Counsel CASE Management Information System (CASE-MIS)--$2M
    The CASE initiative enables Counsel employees to accomplish their 
tasks in the most cost effective and efficient manner. CASE-MIS is the 
most critical component of CASE. It includes a number of custom 
applications for the Counsel organization. Organizational modernization 
will render obsolete many business rules in the fully automated Chief 
Counsel CASE-MIS environment. Updating the system (e.g., databases, 
reports, and forms) to incorporate the policies and procedures for the 
new business units will save costly manual work and maintain Counsel's 
ability to deal timely with the needs of the Courts, taxpayers and IRS.
Near Term Electronic Filing & Electronic Fraud Detection--$14.8M
    Not all forms and schedules for 1040 filers are available for 
electronic filing. In addition, taxpayers cannot submit multiple copies 
of schedules (e.g., Schedule C) nor submit comments or supporting 
information. Making these additional forms and schedules available for 
electronic filing supports the Service's goal of significantly 
expanding this capability to more individual filers. Paperless 
electronic filing will be possible through use of Personal 
Identification Number (PIN)-based electronic signatures. Because error 
rates are much lower for electronic returns than for paper returns this 
initiative will also result in less rework, requiring fewer contacts 
with the taxpayer and fewer delays. With increased volumes in 
electronic filing, the Electronic Fraud Detection System and the Tax 
Return Database will require additional analysis and system capacity.
Notice Improvement Projects--$3.8M
    Current notices to taxpayers are not easily understood and do not 
use the latest technology to support graphic print capabilities. This 
initiative will provide support for redesigning and printing taxpayer 
notices.
Audit Site Work Center Secure Access--$10.5M
    During an audit the revenue agent, officer and manager need access 
to research material, customer accounts, administrative services, and 
audit support tools from remote sites (e.g., taxpayer's business 
location). They must do this without disclosing privileged taxpayer 
information or compromising government security. This initiative 
provides security measures to ensure sensitive taxpayer information 
will be protected properly. It supports secure remote communications 
systems and infrastructure to enable the revenue agent and officer to 
be as informed and responsive to taxpayers as possible.
Taxpayer Advocate Service Management Information System Redesign--$1.7M
    Redesign and consolidation of multiple stand-alone systems will 
enhance the Taxpayer Advocate's ability to identify problems and 
recommend changes to business processes and systems that are causing 
repeated problems for taxpayers.
Queuing Management System--$1.7M
    To improve the efficiency of IRS response to taxpayers walking into 
IRS service sites, this investment deploys an automated management tool 
to about 125 Walk-In sites. The system is already available at selected 
major sites.
Commissioner's Complaint System--$.7M
    Four stand-alone IRS systems and the Treasury Inspector General for 
Tax Administration (TIGTA) database are used today to assure that 
taxpayer and employee non-taxpayer account related complaints are 
addressed. Aggregating this data into one database will enhance the 
complaint processing executive's ability to monitor progress, to look 
for patterns across the different complaint types and to suggest 
systemic improvements to eliminate causes of complaints.
Integrated Collection System Secure Dial In--$4.16M
    By expanding access to tax data, research and communications tools 
to Revenue Officers working in remote sites, IRS will resolve 
taxpayers' issues and questions more quickly.
Chief Counsel Web Authoring & Electronic Document Redaction System--$1M
    The Office of Chief Counsel issues legal opinions to taxpayers at 
their request on their tax liabilities. These documents are subject to 
public release under the Freedom of Information Act (FOIA) but only 
after taxpayer identifying information has been deleted. Once this 
information is deleted, the documents are considered ``redacted,'' made 
ready for publication. This project is required: (1) to better support 
the processes currently in place to comply with specific provisions of 
RRA 98 mandating the release of certain documents on the Internet; (2) 
to provide an overall document drafting environment that better 
supports the authorship of any document whose ultimate purpose is the 
analysis or explanation of law, and whose probable destination is the 
Internet; and (3) to significantly improve the final work product that 
is ultimately disseminated by Counsel to all taxpayers by means of the 
Internet. The eRedact project improves the current processes in place 
so as to raise the level of assurance that confidential taxpayer 
information (or other critically important privileged information) is 
never inappropriately disclosed through the release of such documents 
on the Internet.
World Class Customer Service Training--$3.23M
    Improving training for customer service representatives is 
important to meeting our customer service improvement goals. The 
investment will fund a proof of concept for providing training through 
state of the art computer based training (CBT) technologies.
Field Assistance Mobile Van Units--$.5M
    Taxpayers in remote locations have difficulty accessing IRS walk-in 
services. Mobile vans equipped with laptop computers, cell phones, fax 
machines and telecommunications and encryption support will expand 
walk-in services to remote locations.
Performance Management System--$2.67M
    Not all IRS managers and executives have performance measurement 
data consistently available to analyze in a timely or user friendly 
manner. Converting the current Executive Management Support Systems to 
the best web-based technology will expand access to this data to all 
management levels and increase managers' analytical capability.
Appeals Centralized Database System (ACDS)--Electronic Case 
        Processing--$4.73M
    Because cases and case information from Examination, Collection, 
Tax Exempt and Government Entities Division (TE/GE) and Counsel are 
currently received in Appeals in hard copy, processed and entered into 
ACDS manually, taxpayers are not receiving Appeals attention in the 
shortest possible time frames. Receiving cases, case information and 
issue data electronically will reduce the time for Appeals to respond 
to taxpayers. NOTE: This initiative was not defined during the initial 
project evaluation/assessment process.
Electronic Tax Law Assistance--$1.5M
    This initiative increases IRS' capacity to respond to taxpayers' 
growing requests for tax law assistance via the internet. NOTE: This 
initiative was not defined during the initial project evaluation/
assessment process.
    Question. Since these new systems are directly related to IRS' 
organizational modernization, why is IRS' request via the Information 
Systems appropriation rather than ITIA, where Congress has legislated 
specific controls over the use of systems modernization funding?
    Answer. The business line (Tier B) investments are not related to 
IRS' Organization Modernization or to enterprises-level systems model 
projects funded through the Information Technology Investment Account 
(ITIA). As new business operating divisions stand up, their near-term 
needs for Information Technology support are increasing. Business line 
investments (Tier B) modify or enhance existing systems, provide 
limited change in functionality, or provide a new system to support a 
limited implementation, and are often needed regardless of the changing 
organization structure.
    The ITIA funds the Business Systems Modernization Program. Related 
projects create or enable major business process change, provide 
significant new technical functionality in support of business change 
or form an integral component of the Modernization architecture. These 
projects are generally long-term and service-wide in nature.
    The Information Systems appropriation is funding the business line 
(Tier B) investments which modify or enhance existing systems, or 
provide a new system to support a more limited implementation to a 
specific business unit (e.g., Tax Exempt and Government Entities 
Division (TE/GE) or Large and Mid-Size Business Division (LMSB)) which 
will not be receiving support from the ITIA modernization initiatives. 
These systems generally provide limited change in functionality or 
provide a bridge between the current and Modernization architecture.
    According to IRS, the fiscal year 2000 budget included $250.4 
million for Year 2000 efforts, of which $214.6 million is being 
reallocated to operations and maintenance for fiscal year 2001 ``to 
fund essential IRS technology, continuing the work begun under the Year 
2000 program for the Integrated Submission and Remittance Processing 
System and Service Center Mainframe Consolidation, and achieving goals 
of Organizational and Business Systems Modernization.''
    Question. Please provide the specific dollar amounts allocated to 
each of those areas.
    Answer. The specific dollar amounts allocated for the Integrated 
Submission and Remittance Processing System is $22.1 million, Service 
Center Mainframe Consolidation is $81.6 million and the balance of 
$110.9 million is for Organizational and Business Systems 
Modernization.
    Within the $214.6 million funding level mentioned above, there are 
$16.5 million in labor related costs. This includes a small amount of 
training, travel and space/housing costs related to labor.
    Question. When does IRS anticipate completing the Service Center 
Mainframe Consolidation project?
    Answer. The Service Center Mainframe Consolidation Project will 
consolidate the last Service Center (Philadelphia Service Center) in 
December 2000. All sites will be consolidated prior to the filing 
season that begins in January 2001. Consolidation activities such as 
equipment removal, physical reconciliation against delivery orders and 
inventory, equipment maintenance and system enhancement will continue 
after this date. The IRS will conduct a broad post-implementation 
review covering hardware, software, staffing and management issues. 
During this time, production sites will identify lessons learned and 
the nature of improvements required for further action.
    In February 1998, GAO recommended, among other things, that IRS' 
Chief Information Officer (CIO) be given budgetary and organizational 
authority over all IRS systems development, research and development, 
and maintenance activities (GAO/AIMD/GGC-98-54, Feb. 24, 1998). In its 
current Information System budget request, IRS states that, in fiscal 
year 1999, it restructured the Information Systems (IS) organization 
and began the process of including regional and service center IS 
operations under the CIO. IRS also states that during fiscal year 2000, 
IRS is continuing to realign IS operations under the CIO.
    Question. When will the realignment be completed? Will the 
realignment give the CIO authority and budgetary control over all IS 
development and acquisition, including Research and Development? If 
not, what will be excluded and why?
    Answer. IRS continues to move closer to the Commissioner's vision 
of an IS-shared service support structure with centralized management 
of IS resources. Groups of non-IS employees performing key IS work such 
as systems development, systems operations, network management, 
telecommunications and desktop support will continue to be transitioned 
into IS through December 2000. The new structure centralizes IS 
management of Computing Centers, Telecommunication units, Desktop 
operations, Enterprise Services, Enterprise Technology Engineering and 
Infrastructure Projects under IS directors at IRS Headquarters.
    Delegation Order No. 261, ``Authority to Govern all Areas Related 
to Information Resources and Technology Management,'' and Policy 
Statement P-1-229, ``Management and Control of Automated Data 
Processing (ADP) Property,'' signed by the Commissioner on November 12, 
1999, gives the Chief Information Officer authority and control over 
all IS development and acquisition of ADP property in the IRS.
    IS has responsibility for activities to develop, deploy, operate 
and maintain most IRS applications systems. At this time, a number of 
memoranda of understanding have been signed, or are in process, that 
document the transition of IS functions from other organizations. Also, 
the CIO organization has begun discussions on centralization of IS 
functions within other organizations (e.g., Criminal Investigation, 
Procurement Compliance Research) not currently reporting to IS. For 
example, with respect to Compliance Research function, analysis is 
currently underway to determine which IS-related components should be 
realigned and which components are related to business based data 
analysis functions and should remain in Compliance Research. While the 
majority of IS resources have been centralized under the Office of CIO, 
the expected completion date for the centralization of non-IS 
information technology resources is December 2000. Part of the Phase 
III modernization includes ``standing up'' the new IS structure and 
completing the transition to the newly designed organization over the 
next several months.
    The goal of creating such investment account is to ensure that 
agencies request full funding in advance for the entire cost of a 
capital project so that the full costs are known at the time decisions 
are made to provide resources. In establishing these accounts, the 
Office of Management and Budget requires that (1) the capital assets 
support the agency's mission and (2) the assets have demonstrated a 
projected return on investment.
    Question. Why is IRS asking for an appropriation of $119 million in 
fiscal year 2001 and an advance appropriation of $375 million for 
fiscal year 2002, when it has $438 million remaining in ITIA from the 
fiscal year 1998 and 1999 appropriation acts?
    Answer. Planned Business Systems Modernization expenditures will 
require $119 million funding in fiscal year 2001 in addition to the 
funds remaining from prior fiscal years. The advance appropriation of 
$375 million ensures the continuity of projects approved at various 
milestone decision points, since delay of certain projects 
(particularly those modernizing IRS' infrastructure) would negatively 
impact the entire modernization effort. Recently, the Congressional 
Appropriations Committees approved release of $148.4 million from ITIA 
to the IRS, leaving $289.6 million in the fiscal year 1998 and fiscal 
year 1999 ITIA. IRS is now assessing the impact of the approved release 
on current plans in terms of the remaining availability in fiscal year 
1998 and fiscal year 1999 appropriations. These plans involve 
additional requests for release of funds before September 30 to support 
the Integrated Financial Systems (post Milestone 3 system design), 
planning and development for projects at various milestone decision 
points and for ongoing program management and architectural engineering 
activities.
    Question. Of the $438 million remaining in ITIA, about $230 million 
is set to expire on September 30, 2000. Given that the modernization 
program has been delayed and its scope scaled back, does IRS still need 
the entire $230 million between now and September 30, 2000? If so, why, 
and what is IRS' plan to address the expiration of these funds?
    Answer. IRS is assessing the impact of the response from the House 
Subcommittee on Treasury, Postal Service, and General Government 
approving the release of $148.4 million in ITIA funds from the fiscal 
year 1998 availability. We plan to request additional release of funds 
before September 30 to support the Integrated Financial Systems (post 
Milestone 3 system design), planning and development for projects at 
various milestone decision points and for ongoing program management 
and architectural engineering activities.
    Question. What investment does IRS plan to make with the $119 
million and $375 million? Please provide a list of the specific systems 
IRS plans to invest in; how each will support the agency's mission; 
whether each system investment is supported by a business case, and 
each system's expected return on investment?
    Answer. IRS requires the $119 million and the $375 million as a 
continuous funding source to support the known portfolio and the 
projects to come from the vision and strategy phase.
Vision and Strategy (Tax Administration)
  --Reengineering of business processes (Accept Filing, Provide Account 
        Assistance, Correct Non-Filing and Underreporting and Collect 
        Unpaid or Overdue Balance)
Vision and Strategy (Internal Management)
  --Development and deployment of the Integrated Financial Systems and 
        the Integrated Personnel System
Development and deployment
  --Fiscal year 2002 Release for Customer Communications, Customer 
        Account Data Engine (CADE), Security and Technology 
        Infrastructure Releases (STIR) and Enterprise Systems 
        Management (ESM)
  --Fiscal year 2002 Release builds on fiscal year 2001 Release to 
        improve the taxpayer's level of access to Customer Service 
        toll-free telephone systems
  --CADE will incrementally replace the Master Files and the Integrated 
        Data Retrieval System (IDRS) with new technology to provide IRS 
        with the capability to service taxpayers in a manner similar to 
        that provided by commercial-sector financial service 
        organizations
  --STIR delivers in incremental releases the common integrated 
        technical infrastructure to support and enable the delivery of 
        modernized business systems
  --ESM will deliver inventory and asset management, systems and 
        network management, problem resolution help desk support and 
        performance metrics to support service level agreements
Planning, development and deployment
  --Telecommunications Enterprise Strategic Program (TESP) will plan 
        the strategic direction of the IRS' telecommunications program 
        and build a business case for redesigning and rebuilding the 
        telecommunications infrastructure to support the target 
        modernized environment
  --CRM Exam (1120) will provide a commercial-off-the-shelf solution to 
        provide the majority of the tax computation functionality that 
        is now inadequate
Planning and development
  --Solutions Development Laboratory (SDL), Virtual Development 
        Environment (VDE) and Enterprise Integration and Test 
        Environment (EITE)
  --Projects will create the necessary development and test environment 
        for modernized applications and solutions.
    Funding will also be required for ongoing program management to 
include Enterprise Life Cycle (ELC) maintenance and support from the 
Federally Funded Research and Development Center (FFRDC) Contract for 
independent verification and validation services, support to the 
enterprise architecture and modernization blueprint and business 
integration.
    All business systems projects will be supported by a business case. 
The Customer Communications business case was presented, along with 
other Milestone 3 deliverables, at the May 22, 2000 Core Business 
Systems Executive Steering Committee meeting. The project was able to 
meet the criteria for exiting Milestone 3 and received approval to 
proceed to Milestone 4. Infrastructure projects will also be supported 
by business cases but without cost benefit information. Infrastructure 
projects are necessary because they help the agency meet standards or 
regulations, such as security, privacy and disclosure, or they provide 
some of the means for other projects to produce business benefits.
    Question. How does IRS know what its fiscal year 2001 and later 
investments and associated costs are when the organizational 
restructuring, business process reengineering, system modernization 
architecture, and system development life cycle--all of which will 
guide the modernization--have not yet been completed or implemented?
    Answer. IRS is aware of requirements for the fiscal year 2001 and 
later investments related to the known portfolio, based on the 
strategic business projects from the Business Systems Planning process 
and the ``in-process'' initiatives with required infrastructure and 
ongoing program management. IRS has slowed certain projects while 
accelerating program management, including completion of the enterprise 
architecture and deployment of the Enterprise Life Cycle (ELC). We have 
made substantial progress towards strengthening our program management 
capabilities. We are now working with contractors to obtain reliable 
cost and schedule estimates, and are confident in defining investments 
because we are so far along in those activities that are guiding 
modernization. However, there are certain unknowns at this point, such 
as the cost for the follow-on activity from business process 
reengineering; early estimates will be replaced by more reliable cost 
and schedule estimates as the activity moves to the milestone decision. 
In addition the IRS has tasked Booz-Allen & Hamilton, the 
organizational modernization contractor, to assist the IRS in the 
vision and strategy phase, focusing on organizational design, location 
and business processes. This business decision has resulted in 
additional cost; we have worked with the contractor to obtain reliable 
cost and schedule estimates.
    According to IRS, one of the projects to be funded from the 
information technology investment account is a commercial-off-the-shelf 
product to make certain complex tax computations. This, on the surface, 
appears to be an improvement to a legacy system. In addition, the 
congressional justification indicates that IRS used information 
technology investment account funds in fiscal year 1999 to procure 
automation hardware and software for the Taxpayer Advocate's Office and 
to procure additional automation equipment for customer service sites. 
(Note: IRS would like to clarify that the statement regarding the 
procurement of automation hardware and software for the Taxpayer 
Advocate's Office and additional automation equipment for customer 
service sites was inadvertently placed in the CJ under the ITIA 
category. The funding was actually from the ISY appropriation. IRS 
regrets any confusion.)
    Question. What criteria or decision making tool does IRS use to 
determine whether its information systems projects should be funded 
from the information systems appropriation or from ITIA?
    Answer. The ITIA funds the Business Systems Modernization Program; 
related projects create or enable major business process change, 
provide significant new technical functionality in support of business 
change or form an integral component of the Modernization architecture. 
These projects are generally long-term in nature.
    The Information Systems appropriation is funding the business line 
(Tier B) investments which modify or enhance existing systems, or 
provide a new system to support a more limited implementation to a 
specific business unit (e.g., Tax Exempt and Government Entities 
Division (TE/GE) or Large and Mid-Size Business Division (LMSB)) which 
will not be receiving support from the ITIA modernization initiatives. 
These systems generally provide limited change in functionality or 
provide a bridge between the current and Modernization architecture.
    When IRS submitted its initial expenditure plan in 1999, it 
requested funds to run its modernization initiatives through October 
1999, at which time IRS planned to submit another expenditure plan. Due 
to delays in preparing the plan, IRS, in December 1999, submitted a 
request for $33 million to provide ``stopgap'' funding until the second 
expenditure plan was submitted for congressional approval. In a 
December 22, 1999, letter to IRS approving the $33 million request, the 
Chairman of the Senate Appropriations Subcommittee on Treasury and 
General Government directed IRS to, among other things, expedite 
completion of its modernization systems architecture and implementation 
of its Enterprise Life Cycle.
    Question. As of March 1, 2000, how much had IRS obligated from 
ITIA? Please provide a list of specific accomplishments that have 
results from these obligations.
    Answer. IRS has obligated $55.7 million from ITIA to support 
planning and initial architecture activities. IRS installed a base of 
program management capabilities; funded support of improvements to the 
governance structure which resulted in the establishment of Sub 
Executive Steering Committees responsible for strategic planning and 
oversight of major projects. We funded the PRIME Program Management 
Office to include executive management, communication, quality 
assurance, program level configuration management, finance and 
administration, contracting and procurement, process management, and 
project directors. Funding supported Enterprise Life Cycle (ELC) 
deployment and training.
    IRS tasked the PRIME to begin establishing architectural 
approaches, principles and major projects for modernized systems 
development to clearly define how modernized systems will be designed, 
how they will fit together, what products will be used, and how/where 
those products will be applied. We tasked the PRIME to begin focusing 
on business integration goals, e.g., managing integration issues, 
partnering with integrated project teams, business operating divisions 
and business process owners, analyzing and assessing solutions based on 
best practices and maintaining the Blueprint for the business domains 
of change.
    The Business Systems Planning process was installed, allowing IRS 
initially to identify five strategic projects that will deliver 
substantial taxpayer benefit in the next 3 to 5 years. Integrated 
project teams were formed to support the strategic projects, the near-
term projects and infrastructure. IRS began design of an integrated 
technology infrastructure to support both the new and existing Business 
Systems Modernization projects. We also began refining the existing 
infrastructure projects to align with emerging priorities of the 
Program, and identified the need for a number of additional 
infrastructure projects to support those priorities.
    Question. Has IRS used any of these funds to purchase equipment? If 
so, what was purchased and for what activities?
    Answer. Of the obligated funds, $1.5 million for the Virtual 
Development Environment (VDE) project covered hardware purchases using 
ITIA funding. Funding purchased the development environment to support 
the Customer Communications project. VDE provides a software 
development environment enabling geographically distributed projects 
and developers access to standardized tools, information and services. 
Customer Communications, in fiscal year 2001, will deliver solutions 
that improve the taxpayer's level of access to Customer Service toll-
free telephone systems through hardware and software upgrades, 
increased telecommunications bandwidth and call-handling capacity, the 
development of new business processes, and the introduction of new 
automated services.
    In December 1998, IRS hired its PRIME contractor to ``partner'' 
with IRS in modernizing its systems. Since then, IRS has issued 
multiple task orders to begin work. In addition to the PRIME, IRS has 
other support contractors to assist with its modernization. GAO has 
reported in the past that IRS has not had a good track record in 
managing contractors (GAO/AIMD-96-140, Aug. 26, 1996). IRS has stated 
its intention to build the capability to effectively manage contractors 
before its starts acquiring modernized systems.
    Question. When does IRS expect to have verifiable information 
technology acquisition management capabilities defined and implemented? 
Until then, how will IRS effectively manage the PRIME and other 
contractors?
    Answer. One of our major deficiencies has been the lack of 
performance-based contracting, therefore IRS is restructuring the PRIME 
task orders to reflect clarified roles and responsibilities between the 
PRIME and IRS. These revised task orders will be reorganized to 
parallel the major program offices in order to allow for enhanced 
monitoring and accountability; the standard Statement of Work will 
require the acquisition teams to more clearly articulate their 
requirements, to specify deliverables and to more effectively outline 
acceptance criteria. Improvement of the acquisition management process 
and products resulting from this restructuring will evolve to 
performance-based contracting of ITIA-funded projects. In addition, IRS 
is completing the establishment of the Business Systems Modernization 
Office (BSMO) and focusing its management resources on implementing 
expanded procedures to track the progress of projects through earned 
value management, enforcing the Enterprise Life Cycle (ELC) and 
developing a central project management data system. As this effort to 
strengthen the program has proceeded, IRS has slowed most project level 
activity. IRS continues to manage the contract in a responsible manner.
    Question. What steps has IRS taken to ensure that it has an 
adequate number of experienced personnel in place to provide 
acquisition and contract management?
    Answer. The Business Systems Modernization Office (BSMO) is 
responsible for overseeing acquisitions for the Business Systems 
Modernization Program. BSMO has filled positions with individuals from 
within the Business Operating Divisions and Information Systems to 
ensure the right skill sets are available both managerially and 
technically. External hires have brought additional managerial and 
technical skills to augment the qualified resources already in place. 
We will continually assess and identify additional needed skill sets 
and we are building flexibility into the organization by realigning the 
BSMO to the Enterprise Life Cycle (ELC). Roles and will be established 
to allow BSMO to further identify needed skills in accordance with the 
ELC and to prepare to staff according to project and program needs. 
BSMO is working closely with IRS Contracting Officers assigned to the 
PRIME contract and Contracting Officer Technical Representatives 
directly support the Program Directors for BSM projects. BSMO is also 
working with subject matter experts from MITRE Corporation, the 
Jefferson Consulting Group and the Software Engineering Institute.
    Question. Please provide information on the organization and FTEs 
devoted to overseeing acquisitions for this year and next.
    Answer. Sixty-six (66) FTE are currently overseeing acquisitions 
related to the Business Systems Modernization Program in the Business 
Systems Modernization Office (BSMO) with planned growth to 75 FTE.
    BSMO is currently staffed with personnel from Business Operations 
and Information Systems organizations supporting the Program through 
program management, which includes project planning, program control, 
quality control and budget; program coordination and integration, which 
includes process management, process integration and communication; and 
architectural engineering. In addition, Program Directors are important 
components of BSMO and are responsible for management oversight of Tax 
Administration (Vision and Strategy), Infrastructure, Near Term 
Release, Customer Account Data Engine (CADE) and Internal Management 
projects.
    In June 1999, GAO reported that IRS' $35 million initial 
expenditure plan was the first in a series of incremental plans that 
IRS planned to prepare over the life of the modernization and as such, 
specified modernization initiatives through October 31, 1999 (GAO/AIM/
GGD-99-206, June 15, 1999). GAO also reported that, if implemented 
properly, the plan represented an appropriate first step toward 
successful modernization. However, GAO did express concern that the 
modernization roles and responsibilities of IRS, the PRIME contractor, 
and other support contractors had not yet been adequately defined. 
Accordingly, GAO recommended that IRS, in future expenditure plans, 
explain the nature and functioning of IRS' ``partnership'' with its 
contractors, including the respective roles and responsibilities of IRS 
and its contractors.
    Question. Has IRS defined the nature and functioning of its 
``partnership'' with the PRIME and other modernization contractors? If 
so, please describe. In providing your response, please explain each 
party's roles and responsibilities, including how IRS maintains an 
arm's length relationship in managing and controlling the contractors 
(including negotiating task orders and contracts), ensures that the 
interest of the government is adequately protected, and holds 
contractors accountable when they do not perform according to the task 
orders or contracts.
    Answer. IRS and PRIME have recognized the lack of a well grounded 
partnering process. This risk, if unmanaged, would result in continued 
confusion over who is responsible for specific deliverables, roles, 
responsibilities and accountabilities. The risk has been identified and 
is being managed by the Business Systems Modernization Office (BSMO). 
Our risk mitigation plan currently reflects joint IRS/PRIME activities 
towards the establishment of shared operating disciplines between the 
two organizations to be completed in June 2000.
    It is important to note the partnership concept was never intended 
to influence the way IRS is managing and controlling the PRIME 
contract. IRS is currently maintaining and will continue to maintain a 
formal government/contractor relationship in terms of managing the 
contract, including all negotiations, to ensure that the interest of 
the government is protected.
    Also, the IRS is restructuring the PRIME task orders to reflect 
clarified roles and responsibilities between the PRIME and IRS. These 
revised task orders will be reorganized to parallel the major 
initiative Program Offices in the BSMO. This will allow for enhanced 
monitoring and accountability. As part of this effort, a standard 
Statement of Work will be promulgated. This standard will require the 
acquisition teams to more clearly articulate their requirements, to 
specify deliverables and to more effectively outline acceptance 
criteria. Improvement of the acquisition management process and 
products resulting from this restructuring will evolve to performance-
based contracting of ITIA-funded projects.
    IRS has had the PRIME contract in place for over 14 months. To fund 
modernization initiatives during this time, Congress has authorized IRS 
to obligate $68 million from ITIA. IRS has also used selected IS 
appropriations to fund modernization support contractors and IRS 
personnel.
    Question. Since the PRIME contract was awarded, how much has been 
obligated and expended on modernization? Specifically, how much ITIA 
and IS appropriation funds have been obligated and expended on the 
PRIME contractor, other IRS support contractors (e.g., MITRE), and IRS 
staff dedicated to managing and overseeing modernization activities?
    Answer. PRIME: ITIA obligations are $53.5 million and expenditures 
are $8.3 million; IS obligations are $10.4 million and expenditures are 
$10.4 million. MITRE: ITIA obligations are $1.4 million and 
expenditures are $1.3 million; IS obligations are $14.3 million and 
expenditures are $9.7 million. ISC: ITIA obligations are $.836 million 
and expenditures are zero; no IS obligations. IRS staff: 66 FTE ($3.9 
million).
    Question. What benefit and progress does IRS have to show for the 
modernization funds invested thus far? In your response, please address 
whether program office management structures and processes are 
completely in place and the office fully staffed and operational, if 
the Enterprise Life Cycle has been implemented and staff trained to use 
it, and whether the system modernization architecture and sequencing 
plan have been completed. In addition, what specific modernized systems 
does IRS plan to implement for the 2001 filing season?
    Answer. The benefits and value realized to date include: 
establishment of a comprehensive business systems planning function to 
perform business process and reengineering analyses critical to 
facilitating the definition and prioritization of the IT investment 
portfolio; development, implementation, and pilot of program, project, 
and system life cycle management processes; completion of the 
conceptual framework for providing effective oversight of modernization 
program and projects; initiation of in-process milestone reviews of all 
near-term projects to determine their readiness to proceed with the 
next scheduled life cycle milestone activities; and reassessment of the 
delivery schedule and functionality of the near-term projects and 
reduction in the scope of some strategic projects to ensure that 
required infrastructure is aligned so that infrastructure deliverables 
are in place in time to support required functionality (security, 
corporate access to databases, etc.).
    The Business Systems Modernization Office (BSMO) will be fully 
established as an integral component in the governance of the Business 
Systems Modernization Program during fiscal year 2000. BSMO is 
currently staffed with personnel from Business Operations and 
Information Systems organizations supporting the Program through 
program management; program coordination and integration; and 
architectural engineering. Program Directors are responsible for 
management oversight of Tax Administration (Vision and Strategy), 
Infrastructure, Near Term Release, Customer Account Data Engine (CADE) 
and Internal Management projects. We continue to pursue realignments of 
personnel and publish competitive announcements to fill remaining 
vacancies.
    Management processes, however, are not completely in place. We have 
recently completed a mapping of roles and responsibilities to the 
Enterprise Life Cycle (ELC) and identified significant gaps and 
overlaps, which we have corrected by realigning the IRS and PRIME 
program management offices with major ELC processes. The effect of this 
realignment will be to clarify the boundaries and the interfaces among 
and between the IRS and PRIME program management offices for major ELC 
activities.
    The ELC is being implemented and deployed to the project teams, and 
we are now completing ELC deployment to BSMO personnel and key BSM 
program stakeholders. The Deployment Plan also calls for a completed 
BSMO Charter and Transformation Plan, with validated and integrated 
processes and procedures by July 7, 2000. The Plan will produce role-
based training for each role and individual as a result of skills and 
needs assessments. While training, coaching and other initiatives will 
be ongoing throughout the year, the Deployment Plan will first 
prioritize roles/training classes to ensure that the right classes are 
developed and delivered as needed. We will perform a Baseline 
Performance Assessment against our Metrics Program in the fourth 
quarter to identify gaps and deficiencies, and prepare a Process 
Improvement Plan to resolve those gaps and deficiencies.
    Over the last month, the Service has made significant progress in 
the development of the Enterprise Architecture. Detailed product 
definitions have been deployed, timelines have been built, and work has 
commenced to populate those products. To be useful, the Enterprise 
Architecture must be flexible and informed by current business 
strategies, priorities, and technology opportunities. The Service will 
deliver regular ``point in time views'' of the architecture. Blueprint 
2000 will be the first of these documents and will be delivered no 
later than September 30, 2000. Included within Blueprint 2000 are those 
products necessary to define the near-term sequence of modernization 
and transition initiatives.
    IRS plans to implement the Customer Communications project next 
spring, which will enhance the Customer Service automated call 
distributors (ACDs), install new centrally located voice response units 
to provide standard applications platform for telephone applications, 
develop a new automated tax refund software application, delivering 
both English and Spanish-language services, and add Automated 
Collection System (ACS) taxpayer calls to the list of telephone 
products using the Intelligent Call Routing capability.
    We understand that IRS is still working to establish a fully 
functioning program management office for its modernization effort.
    Question. What has accounted for the delays in establishing a fully 
functioning program management office?
    Answer. Members of the Core Business Systems Executive Steering 
Committee initiated many discussions with key representatives of the 
Business Systems Modernization Office (BSMO) and the PRIME regarding 
the content and approach of the projects composing the Business Systems 
Modernization program. These discussions concentrated on current 
stakeholder requirements, filing season schedules, capacity, and 
program risks. In turn, these discussions generated a full assessment 
of the BSMO program and projects. We learned that there was 
insufficient capacity to do the work envisioned in the time allotted, 
program level processes and procedures were not yet mature enough to 
effectively control and manage the program, risks and risk mitigation 
steps had not been fully identified, and there was a danger in allowing 
the projects to continue moving ahead of the program.
    As we implement a solution to prevent this from recurring, and 
establish goals and processes to ensure future successes, we are also 
revising and refining Program Office management structures and 
processes. As the first activity in the ELC Deployment Plan, we have 
recently completed a mapping of roles and responsibilities to the ELC 
and identified significant gaps and overlaps, which we have corrected 
by realigning the IRS and PRIME program management offices with major 
ELC processes. The effect of this realignment will be to clarify the 
boundaries and the interfaces amongst and between the IRS and PRIME 
program management offices for major activities.
    Question. What assurance does Congress have that IRS has spent the 
funds on modernization wisely if IRS does not yet have a fully 
functioning program office 14 months after hiring the PRIME contractor?
    Answer. First, it is important to note that although there was a 
recent change in management direction, the work produced still provides 
a base from which to move forward and the related funds were well 
spent. The Enterprise Life Cycle (ELC) products completed or in process 
at the time of the revised strategy are being assessed as part of the 
milestone readiness reviews. Rescoping the projects while accelerating 
program activities will ensure that projects will not pass a milestone 
decision until all documents are in place and approved. Stronger, more 
mature program management will be ensured with processes being put in 
place to track progress through earned value management, enforcement of 
the ELC, a central project management function and a risk mitigation 
program.
    When IRS submitted its initial expenditure plan in 1999, it 
requested funds to run its modernization initiatives through October 
1999, at which time IRS planned to submit another expenditure plan. Due 
to delays in preparing the plan, IRS, in December 1999, submitted a 
request for $33 million to provide ``stopgap'' funding until the second 
expenditure plan was submitted for congressional approval. In a 
December 22, 1999, letter to IRS approving the $33 million request, the 
Chairman of the Senate Appropriations Subcommittee on Treasury and 
General Government directed IRS to, among other things, expedite 
completion of its modernization systems architecture and implementation 
of its Enterprise Life Cycle.
    Question. What portion of the initiatives set forth in the initial 
expenditure plan were fully satisfied on time and within budget? For 
each not satisfied, explain the magnitude and the nature of the 
shortfall and the reason(s) for the shortfall.
    Answer. At a high level, in the category of building management 
capability, we planned to spend $12 million and actually spent $15 
million. The 25 percent variance was a direct result of funding the 
PRIME Program Management Office for 6 months rather than the three 
originally planned. In Supporting Business Goals, we planned to spend 
$16 million and actually spent $12 million. In general, project start 
up was slower than expected due to slippages in Business Systems 
Planning activity and delays in staffing teams. In Developing Enabling 
Infrastructure, we planned to spend $7 million and actually spent $8 
million. While there were schedule slippages in the start up of 
infrastructure project activity, the cost variance mentioned was due to 
initiation of additional contractor activities required to bring 
projects in compliance with the lifecycle.
    The initial expenditure plan reflected the start of the Business 
Systems Modernization planning phase. While the IRS has made 
substantial progress against the benefits and deliverables communicated 
in the plan, it is critical to note that the IRS has reassessed and 
revised the strategy for the program, recognizing the need to slow down 
project level activities while strengthening the program level 
activities. Lessons learned during this reassessment period are 
resulting in stronger and more disciplined program management 
practices.
    This reassessment means, however, that the targets set for 
deliverables in the initial expenditure plan are being revisited. The 
Business Systems Modernization Office (BSMO) has initiated a program-
wide milestone readiness review to determine the readiness of each 
project to proceed to Milestone 3 (system design). The major objectives 
of the review are to identify the gaps between Enterprise Life Cycle 
(ELC) work products and delivered work products, ELC required reviews 
and completed reviews, and delivered business cases and OMB Exhibit 
300B instructions. A team of IRS, MITRE and CSC personnel will prepare 
a report of each project's readiness and recommended next steps. The 
report for the first milestone review for STIR, CC and e-Services was 
completed March 2000. Other reviews are being scheduled as part of 
ongoing project/program monitoring procedures.
    Question. What progress has IRS made in completing the architecture 
and implementing its Enterprise Life Cycle? When precisely does IRS 
plan to have them completed? Does IRS envision moving forward with any 
of its projects before these two initiatives are completed? If so, 
please explain the risk of proceeding without their completion and how 
these risks are being effectively mitigated?
    Answer. Over the last month, the Service has made significant 
progress towards the development of the Enterprise Architecture. 
Detailed product definitions have been deployed, timelines have been 
built, and work has commenced to populate those products. To be useful, 
the Enterprise Architecture must be flexible and informed by current 
business strategies, priorities, and technology opportunities. The 
Service will deliver regular ``point in time views'' of the 
architecture. Blueprint 2000 will be the first of these documents and 
will be delivered no later than September 30, 2000. Included within 
Blueprint 2000 are those products necessary to define the near-term 
sequence of modernization and transition initiatives.
    The Service has made significant progress towards the development 
and deployment of the Enterprise Life Cycle (ELC). Specifically, we 
have completed the Business Case Procedure, which provides detailed 
``how to'' instructions on preparing business cases for all five ELC 
milestones, and integrated those instructions with the activities and 
work products that project teams will be performing/producing. We will 
complete the rest of the Investment Decision Management (IDM) 
procedures and the Review and Acceptance process for inclusion in the 
Process Access Library (PAL) by July 2000.
    The ELC is being implemented and deployed to the project teams, and 
we are now completing ELC deployment to Business Systems Modernization 
Office (BSMO) personnel and key Business Systems Modernization program 
stakeholders. The Deployment Plan also calls for a completed BSMO 
Charter and Transformation Plan, with validated and integrated 
processes and procedures by July 7, 2000. The Plan will produce role-
based training for each role and individual as a result of skills 
assessments and needs assessments. While training, coaching and other 
initiatives will be ongoing throughout the year, the Deployment Plan 
will first prioritize roles/training classes to ensure that the right 
classes are developed and delivered as needed. We will perform a 
Baseline Performance Assessment against our Metrics Program in the 
fourth quarter to identify gaps and deficiencies, and prepare a Process 
Improvement Plan to resolve those gaps and deficiencies.
    IRS is moving forward with the fiscal year 2001 Release. To avoid 
any development not in compliance with the latest IRS Blueprint, the 
fiscal year 2001 Release is limited to the first release of Customer 
Communications, which is consistent with the architectural principles 
of Blueprint 1997.
    IRS will move forward with projects that are more infrastructure 
oriented and will not be significantly affected by the areas that will 
undergo revision in Blueprint 2000. The major differences between the 
Modernization Blueprint published in 1997 and Blueprint 2000 will be in 
the Business Process, Organization and Location areas. Also, Blueprint 
2000 will comply with the definitions in the ELC. Projects that are 
primarily technology or infrastructure foundations will continue. These 
include the Customer Account Data Engine, the Security and Technology 
Infrastructure Release and some components of Customer Communications.
    Question. What is delaying IRS from submitting its second 
expenditure plan? Given that the $33 million provided in December 1999 
was supposed to fund the modernization through February 2000, how does 
IRS plan to fund the program past this timeframe?
    Answer. The second expenditure plan requesting the release of 
$176.3 million was delivered to Congress on March 10, 2000. This plan 
reflects spending requirements beginning April 1, 2000. Except for $6.3 
million planned for the Customer Communications Aspect upgrades, the 
$33 million provided in December 1999 is entirely committed.
    In January 2000, IRS began reassessing its modernization program 
management structures and approaches. In addition, IRS has rotated and 
re-assigned key personnel.
    Question. What was the cause of this reassessment? What were the 
results of IRS' reassessment? What changed as a result? What delays 
will this portend for the modernization initiatives underway? What is 
the status of the modernization program, including the initiatives 
funded thus far? What is the strategy and associated timeline for 
moving ahead, and when can we expect to see the next expenditure plan?
    Answer. Members of the Core Business Systems Executive Steering 
Committee, over the past several months, initiated many discussions 
with key representatives of the Business Systems Modernization Office 
(BSMO) and the PRIME regarding the content and approach of the projects 
composing the Business Systems Modernization Program. These discussions 
concentrated on current stakeholder requirements, filing season 
schedules, capacity, and program risks. During these discussions, 
shortfalls in our approach were identified and the lessons learned 
documented. These discussions, together with the lessons learned and 
recent directives from oversight bodies, resulted in a revised program 
strategy and redirection of some efforts.
    We learned that there was insufficient capacity to do the work 
envisioned in the time allotted. Neither were program level processes 
and procedures mature enough yet to control and manage the program 
effectively. Nor had risks and risk mitigation steps been fully 
identified, although there was danger in allowing the projects to 
continue moving ahead of the program.
    Therefore, IRS is implementing a near-term strategy to address 
lessons learned and oversight guidance. The strategy is to deliver 
near-term customer service improvements during the 2001 filing season, 
accelerate the establishment of the BSMO, assess the current status of 
the entire program, enforce Enterprise Life Cycle (ELC) requirements 
program-wide, update the Blueprint, improve coordination with the new 
IRS business organizations and revise the PRIME task orders. Specific 
program management changes include:
  --perform a program-wide milestone readiness review to determine the 
        readiness of each project to proceed to Milestone 3 (system 
        design); identify gaps between ELC work products and delivered 
        work products, ELC required reviews and completed reviews, and 
        delivered business cases and OMB Exhibit 300B instructions;
  --enforce the ELC milestone standards, rescheduling the strategic 
        business systems projects (except for Customer Account Data 
        Engine (CADE)) back to pre-Milestone 2 (concept definition) and 
        focus on the BSMO enforcing a stricter ELC process that demands 
        all artifacts at each decision milestone;
  --construct Blueprint 2000 and align with new business organizations, 
        incorporating into Blueprint 2000 the needs of the new business 
        organizations for Filing Season 2001 and Filing Season 2002 and 
        employ the latest, most efficient technical solutions to the 
        portfolio of projects under consideration; and
  --revise the PRIME task orders to reflect clarified roles and 
        responsibilities between the PRIME and the IRS and improve the 
        acquisition management process and products to evolve to 
        performance-based contracting of ITIA-funded projects.
    As we are revising the PRIME task orders, we are limiting spending 
to only the PRIME Program Management Office, the Customer Communication 
project for fiscal year 2001 and architecture-related activities. IRS 
has just received approval from the Subcommittee on Treasury, Postal 
Service, and General Government for the release of $148.4 million in 
ITIA funding against the fiscal year 1998 availability. These funds 
will be applied to the definitized task orders as directed by the 
Subcommittee in its approval letter. Before September 30, 2000, IRS 
plans to request additional releases of ITIA funding to support post-
Milestone 3 activity for the Integrated Financial Systems and for other 
Business Systems Modernization projects reaching various milestone 
decision points, for architectural engineering and for ongoing program 
management.
    Question. In light of the reassessment, what changes has IRS made 
to strengthen its readiness and capability to modernize?
    Answer. The IRS will to continue to make progress towards the 
Business Systems Modernization, as directed by Congress, by focusing on 
completing planning efforts for Phase I of Business Systems 
Modernization, completing the deployment of the Enterprise Life Cycle 
(ELC), completing the architectural blueprint efforts including the 
publication of Blueprint 2000, beginning development and deployment 
activities focused around filing season 2001, and completing the 
procurement, integration and deployment of a new examination tax 
calculating tool.
    One of the core activities to strengthen our readiness and 
capability to modernize will be the maintenance and update of the 
action plan which resulted from the program-wide milestone readiness 
review. This review determined the readiness of each project to proceed 
to Milestone 3 (system design); identified gaps between ELC work 
products and delivered work products, ELC required reviews and 
completed reviews, and delivered business cases and OMB Exhibit 300B 
instructions. In addition, the enforcement of the ELC milestone 
standards, rescheduling the strategic business systems projects back to 
Milestone 2 concept definition (except for Customer Account Data Engine 
(CADE)) and focus on the Business Systems Modernization Office (BSMO) 
enforcing a stricter ELC process that demands all artifacts at each 
decision milestone will add additional rigor and discipline to our 
Modernization Program. The construction of the Blueprint 2000 and its 
alignment with new business organizations, incorporating the needs of 
the new business organizations for filing season 2001 and filing season 
2002 and employing the latest, most efficient technical solutions to 
the portfolio of projects under consideration, will provide a cohesive, 
over-arching vision of how the new processes can serve their customers. 
Last, but of no less importance to the Program, the revision of the 
PRIME task orders to reflect clarified roles and responsibilities 
between the PRIME and the IRS will improve and add more structure to 
the acquisition management process and products to evolve to 
performance-based contracting of ITIA-funded projects.
    In IRS' fiscal year 2001 request ($119 million) and fiscal year 
2002 advance request ($375 million) for ITIA funds, IRS is proposing 
new legislative conditions that it must meet in order to obtain 
congressional approval to obligate these funds from the account. These 
conditions differ from those in the fiscal year 1998 and 1999 
appropriation acts. Under the existing conditions, for example, IRS' 
expenditure plan request has to, among other things, implement the 
Modernization Blueprint and comply with applicable federal acquisition 
regulations. Under IRS' proposal, this and other conditions would be 
eliminated. Instead, IRS would have to submit an expenditure plan to 
Congress that, among other things, meets the Office of Management and 
Budget's capital planning and investment control requirements.
    Question. Please describe the conditions that would be eliminated 
and those that would be added.
    Answer. The appropriation review language eliminates the following 
conditions that are present in the language for the fiscal year 1998 
and fiscal year 1999 appropriations: Provide a plan for expenditure 
that 1) implements the IRS Modernization Blueprint submitted to 
Congress on May 15, 1997; 2) meets the requirements of the May 15, 
1997, IRS SLC (Systems Life Cycle) program; and 3) complies with 
acquisition rules, requirements, guidelines, and systems acquisition 
management practices of the Federal Government.
    The appropriation review language also clarifies two original 
conditions: (1) the condition on meeting the OMB Information Systems 
Investment Guidelines established in the fiscal year 1998 budget has 
been clarified by the focus on the OMB Circular A-11, Part 3; and (2) 
the condition on submitting a plan for approval by IRS Investment 
Review Board (IRB), Office of Management and Budget (OMB), IRS 
Management Board and for review by GAO, has been reworded to reflect 
review and approval by Treasury and OMB and review by GAO.
    No additional conditions have been incorporated in the language.
    Question. What is IRS' rationale and justification for these new 
conditions? Is IRS encountering problems meeting the existing 
conditions? If adopted, would the new conditions apply to the 
previously appropriated ITIA funds? If yes, why?
    Answer. Part of IRS' rationale for the new conditions is that the 
two major focus areas of those conditions, implementation of the 
Modernization Blueprint and the Enterprise Life Cycle (ELC), will be 
completed and repeatable processes, thereby obviating the need for 
specific reference in the language for the fiscal year 2001 request or 
future requests. The revisions made to the conditions are not based on 
problems in meeting the existing conditions. On the contrary, given 
IRS' revised strategy of accelerating program activities while slowing 
project activities, IRS is confident that it will be able to 
demonstrate to oversight bodies that we have mature, disciplined 
practices in place to enforce the ELC and ensure strict adherence to 
the Modernization Blueprint.
    In addition, adoption of the requested language will help to 
streamline the process for requesting release of ITIA funding, allowing 
BSMO to manage the contracts more effectively. Finally, incorporating 
the OMB Circular A-11, Part 3, into the language serves to subsume some 
of the existing criteria while ensuring that investment decisions are 
tied to the latest standards and guidance on IT investments.
    The original conditions will apply to all ITIA spending plans 
submitted to Congress, requesting release of funding appropriated in 
fiscal year 1998 and fiscal year 1999. IRS' budget request for fiscal 
year 2001 includes $145 million for the fourth year of a 5-year Earned 
Income Tax Credit (EITC) compliance initiative, which is funded outside 
the discretionary spending caps. The initiative was begun in response 
to an IRS study, released in April 1997, which showed that of $17.2 
billion in EITC claimed by taxpayers for tax year 1994, $4.4 billion 
(or about 26 percent) was over-claimed. In fiscal year 1999, about 
2,400 FTEs were devoted to the EITC initiative, and IRS estimates that 
about 2,100 FTEs will be expended in both fiscal years 2000 and 2001. 
According to IRS, the initiative includes expanded customer service, 
strengthened enforcement, and enhanced research.
    Question. Of the 2,400 FTEs in 1999, how many were devoted to (1) 
customer service, (2) enforcement, and (3) research? Please provide a 
similar breakdown for the estimated 2,100 FTEs in fiscal years 2000 and 
2001.
    Answer. In fiscal year 1999 resources devoted to these areas were 
as follows:

Customer Service.................................................. 1,368
Enforcement.......................................................   666
Research..........................................................    28
Other.............................................................   323
                                                                  ______
        Total..................................................... 2,385

Note: other FTE includes Chief Communication and Liaison, Submission 
Processing, Taxpayer Advocate, Walk-In, Taxpayer Education, Counsel, 
Appeals, Information Systems, and Electronic Tax Administration.

    The estimated FTEs earmarked in fiscal years 2000 and 2001 are as 
---------------------------------------------------------------------------
follows:

Customer Service.................................................. 1,107
Enforcement.......................................................   651
Research..........................................................    33
Other.............................................................   289
                                                                  ______
        Total..................................................... 2,083

Note: other FTE includes Chief Communication and Liaison, Submission 
Processing, Taxpayer Advocate, Walk-In, Taxpayer Education, Counsel, 
Appeals, Information Systems, and Electronic Tax Administration.

    Question. What will happen to these FTEs once the initiative is 
over and the related outside-the-caps funding ends?
    Answer. None of these employees will lose their jobs. We will 
maintain an EITC compliance program-either from operating level 
resources or a separate appropriation-after the outside-the-caps 
authority ends.
    Congress is being asked to continue funding this initiative even 
though congressional justification for fiscal year 2001 contains no 
information on any results realized over the past 3 years.
    Question. Please provide, with as much specificity as possible, 
information on the results of this compliance initiative to date. We 
are specifically interested in such things as the amount of improper 
EITC payments that were identified and stopped as a result of IRS' 
efforts and any quantifiable evidence of improved compliance as a 
result of this initiative.
    Answer. The compliance initiative has allowed the IRS to improve 
awareness of the EITC eligibility process by enhancing local marketing 
and promotional efforts through IRS district offices. We have partnered 
with tax professionals to ensure they are aware of new tax law changes 
and due diligence guidelines through mailouts, internet bulletins, and 
publications, such as the 2000 EITC Tax Professional Kit and CD-ROM. In 
addition, the IRS has conducted 9,000 ``face-to-face'' educational and 
outreach visitations with practitioners that prepare high volumes of 
EITC returns.
    In fiscal year 1998, the first year of the EITC compliance 
initiative, a total of $977 million was protected and collected through 
the EITC initiative. (Protected revenue refers to refund dollars 
prevented from being issued prior to the start of examining an EITC 
claim for refund, and includes both EITC amounts and changes in other 
tax liabilities) This was accomplished through issuing over 600,000 
math error notices and opening over 800,000 cases for examination. In 
fiscal year 1999, the second year of the EITC initiative, a total of 
$1.1 billion in revenue was protected and collected through the EITC 
initiative. This was accomplished through completing nearly 600,000 
examinations and opening nearly 300,000 returns claiming EITC for 
examination. We also issued over 400,000 math error notices.
    Question. Why did the congressional justification not include any 
such specifics?
    Answer. Although the congressional justification did not include 
specifics on the amount of improper amount of EITC payments that were 
identified and stopped as a result of IRS efforts in the 
accomplishments of the Earned Income Tax Credit (EITC) Compliance 
Initiative, IRS does report this information on a quarterly basis in 
the IRS Tracking EARNED INCOME TAX CREDIT APPROPRIATION report. The 
report is provided each quarter to the Chairs of the Senate and House 
Appropriations Committees.
    The congressional justification says that IRS intends to ``measure 
the effects of Servicewide programs on compliance levels for the EITC-
eligible populations.'' IRS has said that it is going to use its study 
of tax year 1997 EITC returns as a baseline compliance measure.
    Question. When does IRS expect to have the baseline data? Why is 
IRS not using the results of the tax year 1994 study cited above as its 
baseline?
    Answer. The IRS is in the process of perfecting the 1997 study 
data. When these data has been fully developed and analyzed, a report 
will be issued.
    Prior to 1998, the Criminal Investigations Division had primary 
responsibility for conducting EITC compliance studies. When funding for 
the EITC compliance initiative began in fiscal year 1998, 
responsibility for the EITC compliance studies was assigned to the 
Assistant Commissioner for Research, which traditionally conducts 
compliance research for the Service. With the shift in responsibility 
to Research, there were changes to the methodology that was used in the 
TY 1994 studies. The change in methodology makes it difficult to 
interpret and compare the differences between the TY 1994 study and 
subsequent studies.
    Question. When does IRS expect to have data to compare to the 
baseline to show the overall effect of this initiative on EITC 
compliance? Why, in the third year of a $100 million plus initiative 
doesn't IRS have such information?
    Answer. Examinations on tax year 1999 returns have recently begun.
    The fiscal year 1998 study was conducted by auditing tax year 1997 
returns filed in 1998. The audits were completed in 1999. The results 
are currently being reviewed and analyzed for inclusion in a report on 
EITC Baseline Compliance.
    The chart on page SD-3 of IRS' congressional justification shows a 
proposed increase of 2,528 full-time equivalent positions for fiscal 
year 2001. All of that increase is in the ``policy/program professional 
staff'' category.
    Question. Normally, with an increase in professional staff, you 
would expect to see some increase in support staff, such as clerks and 
secretaries, but the chart shows no increase in those areas. Why?
    Answer. These 2,528 positions will be spread to IRS field offices 
throughout the nation. The staffing increase will be assigned primarily 
to front-line positions in direct support of each program. Many of the 
positions are permanent professional employees with specialized skills 
in such areas as tax exempt bond examinations or securing payments from 
delinquent taxpayers. These field offices, for the most part, have 
support staff in place. It is anticipated that the small increase in 
any individual office will not require significant additional support 
staff.
    IRS says that its workforce has decreased by more than 16 percent 
since 1992, while handling significant workload increases due to tax 
law changes and customer demand. On the other hand, IRS acknowledges an 
increasing reliance on contractor support and expertise.
    Question. What has been the level of contractor support in FTEs for 
1998, 1999, and 2000? What is the projected level of support for 2001? 
In providing this information, please distinguish between information 
technology-related contractor support and contractor support that is 
not information technology related.
    Answer. Information concerning the level of contractor support in 
FTE for fiscal years 1998, 1999 and 2000 is not available. In general, 
the Service does not mandate numbers of FTEs that contractors must use 
to perform work required under a contractual arrangement. This 
methodology in contract management has resulted from several changes in 
Federal contracting regulatory and policy guidance. These changes 
include the preference for performance-based changes in Federal 
contracting regulatory and policy guidance, and increased emphasis on 
acquiring commercial items and adopting commercial practices. One of 
the basic principles of performance-based concepts is to describe the 
work to be performed in terms of ``what'' is the required output or 
desired outcome rather than ``how'' the work is to be performed or 
specifying the level-of-effort to be applied. The commercial item's 
acquisition methodology does not include the old requirements for 
voluminous and detailed cost and pricing data to address every aspect 
of the contractors' proposals, which often included the number of 
personnel to be used to satisfy the requirements. Again, the overall 
emphasis in these cases is on ``results'' rather than detailed 
descriptions of ``how to.'' Consequently, the information requested is 
not available because it has not been specifically collected or 
tracked.
    The amounts approved for fiscal year 1998, fiscal year 1999, and 
fiscal year 2000 and requested for fiscal year 2001 for operational 
support contracts are as follows:

                        [In millions of dollars]

1998.............................................................. 128.7
1999.............................................................. 157.2
2000.............................................................. 209.5
2001.............................................................. 271.2

    The amounts spent for operational support contracts (OSC), 
Information Systems (ISY) and Information Technology Investment Account 
(ITIA) funded information-technology related contracts are as follows:

                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                           Fiscal year                                  OSC             ISY            ITIA
----------------------------------------------------------------------------------------------------------------
1998............................................................           128.7       \1\ 311.8  ..............
1999............................................................           157.2       \1\ 454.4            25.8
2000............................................................           209.5       \1\ 331.6       \2\ 268.4
2001............................................................           271.2       \1\ 284.7       \3\ 312.0
----------------------------------------------------------------------------------------------------------------
\1\ Fiscal year 1998 from month 15 actual; fiscal year 1999 from month 16 actual; fiscal year 2000 from current
  financial plan; fiscal year 2001 from ISB Congressional Justification.
\2\ $29.9M already spent in fiscal year 2000. Will spend an additional $12.2M against released money in fiscal
  year 2000. Will spend additional $226.3M against next ITIA releases in fiscal year 2000. The total anticipated
  expenditure for fiscal year 2000 is $268.4M. The $226.3M assumes release of $176M in April and a follow-on
  request in July.
\3\ The $312M assumes $119M appropriation request is approved by Congress.

    Question. How does this level of support offset the reported 
reduction in IRS's workforce (i.e., to what extent has contractor staff 
replaced IRS staff)?
    Answer. Contractor support for IS projects has, over the long term, 
replaced some IS personnel. After the IRS experienced a sustained 
reduction of FTEs starting in 1996, the IRS increased the number of 
contractors for Information Technology projects, to fill in the work of 
maintaining existing systems and operations. Contracting also allows 
the IRS to acquire needed state-of-the art expertise for short-term or 
transitional efforts.
    Other than Information Systems, much of the work in the Operational 
Supports Contracts is for new work for which we did not have staff or 
expertise (such as ETA Advertising) or increased workload (Beckley 
Accounting Support).
    The level of contractor support does not offset the reported 
reduction in IRS' workforce. Part of the reason for the decline in the 
IRS workforce is because funding was reduced for FTEs in essential 
functional areas to pay for the services provided by contractors.
    In July 22, 1999, testimony before the Subcommittee on Oversight of 
the House committee on Ways and Means, the Commissioner, among other 
things, discussed IRS' implementation of certain provisions of RRA 98, 
including the provision related to third party notices. That provision 
required that IRS give notice to taxpayers whenever it might be 
contacting a third party, such as a bank, about the taxpayers 
situation. The Commissioner noted that the notice IRS prepared to 
satisfy that provision ``was sent to many more taxpayers than needed'' 
and ``were poorly written, causing undue concern to many taxpayers. On 
February 14, 2000, IRS announced that it was replacing the problem 
notice with 15 new, more clearly worded, letters and notices that were 
designed for specific situations facing taxpayers.
    Question. Did the development of a poorly written notice and the 
decision to send it to many more taxpayers than needed reflect a 
failure of IRS to follow established procedures, a weakness in those 
procedures, or a combination of both?
    Answer. The implementation of RRA 98 section 3417 proved to be a 
major challenge for learning to properly and accurately apply new and 
complex statutory provisions to very sensitive taxpayer situations. The 
learning process required that we identify the specific situations 
where third parties could be contacted in order to understand the 
overall impact of the legislation. In negotiating this difficult 
learning curve we had to address a continuing stream of legal and 
policy issues.
    One issue involved the development of a letter that was intended to 
provide all taxpayers with the advance notice required by the statute. 
To ensure that all appropriate taxpayers received the notice, 
procedures were established to send the letter out whenever there was a 
possibility of a third party contact. This blanket approach assured our 
compliance with the law during the initial implementation period, while 
we negotiated the learning process described above.
    Fortunately, a great deal of progress has been made since the 
initial implementation. New letters have been developed and implemented 
and guidance and training materials have been provided to all 
employees. We are continuing to work through the legal issues and will 
be publishing draft regulations shortly which will help to clarify the 
requirements of the legislation.
    Question. What controls were in place then to ensure that notices 
were clear and properly directed? What was the Taxpayer Advocate's role 
in the notice preparation and/or review process? What was the role of 
the IRS executive known as the Notice Gatekeeper?
    Answer. The following procedures were in place for new or revised 
notices/letters:
  --The notice owner develops or revises their letter/notice. Employees 
        in the Taxpayer Correspondence Branch do not normally own 
        notices/letters.
  --The notice owner coordinates the notice/letter with all pertinent 
        stakeholders (i.e. Chief Counsel and affected operations 
        units). If a new notice/letter is created, the notice owner 
        obtains a number for the notice/letter.
  --The notice owner sends to the Taxpayer Correspondence Branch the 
        final version of the notice/letter along with a Form 1767 and 
        Notice Gatekeeper Form.
  --The Notice Gatekeeper reviews the Gatekeeper form for various 
        reasons, one being the impact on telephone operations. The 
        Correspondence Clarity analyst reviews the notice/letter for 
        clarity, makes recommended changes, and coordinates those 
        changes with the notice/letter owner.
  --After the notice owner and Correspondence Clarity analyst agree on 
        the changes, they sign the notice/letter. Then the notice owner 
        takes notice/letter to the appropriate area to produce and 
        issue the notice.
    The notice/letter owner has responsibility for ensuring that 
notices and letters are properly directed.
    The Taxpayer Advocate Service was not included in the initial 
implementation process; however that office was included in the 
subsequent implementation.
    The Notice Gatekeeper responsibilities include:
  --Review of the notices/letters to determine the effect of the 
        notices/letters on telephone operations;
  --Review and approval of notices/letters for expedited review, which 
        is the same as a limited review of notices/letters. If issues 
        arise that are not resolved between the notice owner and the 
        clarity analyst, the Notice Gatekeeper and an appropriate 
        representative from the owner's area will make the final 
        decision. If more than one functional area is involved, the 
        Notice Gatekeeper will call a meeting of the Correspondence 
        Council (directors or designees from all functional areas that 
        are affected by the notices) to resolve the issue.
  --After the owner's concurrence, the Notice Gatekeeper has the final 
        approval signature.
    The Notice Gatekeeper has numerous other responsibilities; however, 
they do not directly apply to the development or revision of notices/
letters.
    Question. How, if at all, have the controls, including the roles of 
the Taxpayer Advocate and the Notice Gatekeeper, been revised since 
then?
    Answer. The Notice Gatekeeper established an integrated project 
team to manage all ongoing notice projects. This team brings cross 
functional parties together to evaluate the projects and handle 
significant issues. In addition, a Notice Governance Council at the 
Assistant Commissioner level was established to provide oversight to 
the integrated project team. This high-level body provides guidance to 
and acts as a sounding board for the team. The Taxpayer Advocate's 
Office has representation on both councils.
    A separate unit has also been established within the Taxpayer 
Advocate Service to better focus on proactive, burden reduction 
oversight issues. This organization is not, as yet, involved in the 
notice review process.
    IRS has four pilot sites dedicated to looking behind the results of 
customer satisfaction surveys. These four sites are to determine the 
best way to integrate survey data into how IRS does business on a daily 
basis.
    Question. How were those four sites chosen?
    Answer. The IRS considered two primary factors when selecting the 
four field offices that would pilot the use of customer satisfaction 
survey data:
  --Did the office have sufficient survey data to begin identifying 
        underlying causes of taxpayer dissatisfaction?
  --Did the office have sufficient staff and resources available to 
        dedicate to a 9-month project on customer satisfaction?
    Volunteers for the pilot projects were also solicited. If sites 
that volunteered met the two criteria listed above, they were 
considered potential pilot sites. Using this information, sites were 
selected from across the country to better represent the different 
customers served by the IRS. The final site selections were made by 
senior IRS leadership.
    The four pilot sites are:
  --North Central District (working to improve service to Examination 
        customers)
  --Ohio District (working to improve service to Employee Plan and Tax 
        Exempt Organization Determination Request customers)
  --Southwest District (working to improve service to Collection 
        customers)
  --Kansas City Service Center (working to improve service to Service 
        Center Examination customers)
    Question. How will the survey results be used to improve walk-in 
and telephone service?
    Answer. Later this year, IRS will examine the results of the walk-
in and telephone service surveys to make recommendations regarding ways 
to improve service to taxpayers.
    Throughout its congressional justification, IRS list customer 
satisfaction measures for the following activities: Automated 
Collection Systems, Toll-free Telephone Assistance, Service Center 
Examination, Appeals, Walk-in, Exempt Organizations Determinations and 
Examinations, and Employee plans Determinations and Examinations. In 
each case, IRS' goal for fiscal year 2001 is the same as its plan for 
fiscal year 2000.
    Question. Why would IRS not be anticipating improved levels of 
satisfaction in those areas?
    Answer. Fiscal year 1999 was the first year that Customer 
Satisfaction was used as a balanced measure by the IRS. Because of the 
newness of this measure and the uncertainty of how actions may impact 
future results, it was difficult to project future year goals. In 
setting goals for fiscal year 2000 and fiscal year 2001, organizations 
set targets that reflected either slight increases or a rollover from 
the fiscal year 1999 results. The IRS needs additional experience using 
this measure, including time to conduct more in-depth analysis of the 
correlation between individual elements within each survey and the 
overall satisfaction score, in order to more confidently project future 
year results. Using fiscal year 2000 customer satisfaction results and 
more detailed analysis of fiscal year 1999 results, organizations will 
be expected to review and modify, as appropriate, the fiscal year 2001 
goals when the final performance plan for fiscal year 2001 is submitted 
as part of the fiscal year 2002 Congressional Justification.
    In an April 1999 report on IRS' customer service management 
strategy, GAO found that prioritizing many suggested short-term 
improvements initiatives would be a necessary first step in managing 
the improvements (GAO/GGD-99-98, Apr 30, 1999).
    Question. Please provide an update on the status of efforts to 
implement 157 short-term customer improvement initiatives-identified in 
January 1999 at the conclusion of a priority-setting process? And
    How will IRS determine the costs of implementing these initiatives 
and what improvements have resulted?
    Answer. The implementation of near-term customer service 
improvement initiatives has been and continues to be a high priority 
for the IRS. To oversee and ensure the successful implementation of 
these initiatives, the Service established the Taxpayer Treatment and 
Service Improvements Program Office in the spring of 1998. To date, 
many of the initial short-term customer service improvement initiatives 
(emanating from the President's National Partnership for Reinventing 
Government [NPR] and other prominent sources) have been implemented 
with several more significant initiatives scheduled for implementation 
this year. Examples of current accomplishments are depicted in the 
table below and shown respectively within the Service's three goals.

------------------------------------------------------------------------
                                                Productivity through a
   Service to each         Service to all      quality work environment
------------------------------------------------------------------------
Improved telephone     Implemented penalty    Provided enhanced
 service                reform by notifying    electronic research
   7x24 coverage        first time filers of   capabilities for customer
   Call routing         waived penalties and   service reps
    implementation      providing             Developed and implemented
Enhanced electronic     information on         customer service training
 filing and payment     prevention            Elevated grade levels of
   941 Tele-File       Expanded Low Income     Customer Service
    (Small Businesses   Taxpayer Clinics       positions
    filing by phone)                          Implemented pilots/tests
   Credit Card                                 to address issues
    Payments for                               identified in Customer
    balances due                               Satisfaction Surveys
Expanded Walk-in
 hours; evenings and
 Saturdays
Improved Power of
 Attorney processing
Enhanced education
 communication with
 small businesses and
 small business
 organizations
Conducted local and
 national Problem
 Solving Days
Increased
 accessibility to and
 simplification of
 alternative payment
 methods
------------------------------------------------------------------------

    Customer service improvements scheduled for implementation by 1/1/
2001 include centralizing the audit reconsideration process, continuing 
the expansion of small business outreach, increasing the oral abatement 
authority of front-line tax assistors, providing multi-lingual walk-in 
service via contracted telephone translation support, and expanding 
business hours of audits.
    The Service has implemented, and continues to implement, the noted 
projects primarily within its base budget. Although funding of $40 
million (and 500 FTE) was provided in fiscal year 2000 for several of 
the Reform and Restructuring Act of 1998 (RRA 98) provisions, most of 
these customer service improvements and the many RRA 98 provisions 
received no additional funding. While the Service has not specifically 
tracked the cost of implementing each initiative, it is apparent 
through the realignment of resources, that there has been a tradeoff 
within the IRS. The ramifications of such tradeoffs have yet to be 
determined. However, it is clear that with the implementation of the 
identified initiatives the IRS has and continues to significantly 
reduce taxpayer burden while serving the nation's taxpayers in a more 
effective, efficient, and convenient manner.
    Attached is an excerpt from the Commissioner's 2000 publication of 
``Modernizing America's Tax Agency.'' The material conveys additional 
information on completed customer service initiatives and RRA 98 
provisions.
    One improvement initiative was to have an intensive agency-wide 
special training program to introduce employees to the new customer 
service approach.
    Question. Has agency-wide customer service training been completed? 
What were the results of employee assessments of the quality and 
usefulness of the course?
    Answer. Course 8530, entitled ``IRS Balanced Measurement System: 
Customer Satisfaction Strategies,'' was created to support the 
Service's focus on providing top-quality customer service to taxpayers, 
and the requirements described in the IRS Restructuring and Reform Act 
of 1998. The course is being delivered to over 60,000 front-line IRS 
employees with direct taxpayer contact. The course first rolled-out to 
the field in July 1999, starting in the Examination function. To date, 
training has been delivered to the following functions: Examination, 
Customer Service, Collection, Submission Processing, and Appeals. Over 
61,400 front-line employees have received course 8530 training. The 
development and implementation of a version of course 8530 for the 
Taxpayer Advocate function is the last course 8530 training initiative, 
and should be completed in the near future.
    Course 8530 has been rated very highly by trainee assessments. The 
course format is interactive and readily encourages student 
participation, which many employees felt added to the overall quality 
of the course material. Employee feedback also indicated that the 
function-specific design of each version of course 8530 improved the 
usefulness of the course.
    Question. What was the cost to deliver this training? Please 
indicate what elements are included in your basis for calculating the 
cost (e.g., materials, salaries for course managers, instructors).
    Answer. To date, the cost incurred to develop and deliver Customer 
Satisfaction Strategies training is $3.5 million. This includes $1.4 
million in contract costs for the design and development of customized 
training for five separate operating functions having taxpayer 
interaction (Examination, Collection, Customer Service, Submission 
Processing, and Appeals) and the costs of training materials, pilot 
classes, and Train-the-Trainer sessions. The balance of $2.1 million 
represents the costs of field delivery, including travel expenses, and 
the rental of off-site space.
    Question. Do you plan to assess whether the training course had an 
impact on the quality of customer service provided? Why or why not?
    Answer. We expect to see the impact of this and other training in 
improved results in the customer satisfaction and employee satisfaction 
portions of the balanced measures. IRS managers are provided training 
on how to use balanced measures in a new course, ``IRS Balances 
Measurement Approach to Leadership.'' Balanced Measurement of 
Performance is one of the five ``levers of change'' IRS is using in its 
effort to change the agency's culture to support the new mission that 
gives equal weight to customer service and compliance. The balanced 
measures are designed to link directly to IRS' three strategic goals of 
service to each taxpayer, service to all taxpayers, and productivity 
through a quality work environment.
    A critical aspect of establishing an appropriate balanced 
measurement system is establishing the measures based on what IRS needs 
and wants to measure in order to achieve its strategic goals and 
mission, rather than simply what is most easily measured. This balanced 
measurement system must define quantities that are relevant to each 
strategic goal and that indicate progress on all three goals.
    Also critical to the measurement systems is following the guiding 
principle that measures must be aligned at all levels of the 
organization, from the top to front-line employees. This binds the 
organization around a common goal, rather than creating conflict and 
mistrust. IRS has made progress in developing and implementing balances 
measures, but given the magnitude of this challenge it admittedly has 
encountered problems. At this operational level, IRS is measuring 
customer satisfaction, employee satisfaction and business results.
    Question. What would constitute a balance between these sometimes 
competing goals? How will IRS know when the measures are in balance?
    Answer. The elements of the Balanced Measurement System--Customer 
Satisfaction, Employee Satisfaction, and Business Results--each 
represent an important aspect for assessing progress toward the 
organization's goals. Any activity involving balanced measures, such as 
setting goals, assessing progress, and evaluating results, must 
consider all three elements. While there is no formula to determine 
equilibrium among the measures, the impact of the actions taken by the 
IRS will be reflected in the measurement results and will help shape 
future plans and strategies for improving overall performance.
    In any given year, the mix of improvement programs and strategies 
proposed is likely to cover all three elements--customer satisfaction, 
employee satisfaction, and business results. The purpose of the IRS' 
balanced measurement approach is to ensure that each element is given 
due consideration. Working within a framework of limited resources, the 
senior management team must address some of the most pressing and 
critical issues by prioritizing and then selecting a mix of strategies 
and programs aimed at achieving overall progress toward the mission and 
strategic goals of the IRS.
    The second IRS strategic goal is service to all taxpayers, with 
objectives to increase fairness to all and increase overall compliance. 
IRS must apply the law with integrity and fairness to all, so taxpayers 
who do not comply are not allowed to place a burden on those who do 
comply. This aspect of IRS service is important both to protect 
revenues flowing to the Treasury and as a matter of fundamental 
fairness.
    Question. Please explain the linkage between the goal of ``service 
to all''--increasing fairness to all and increasing overall 
compliance--and the quality and quantity measures being used for that 
strategic goal.
    Answer. The IRS is developing both strategic and operational 
balanced measures tied to its strategic goals. The strategic measures 
will be used to assess the organization's overall performance in 
delivering on the mission and strategic goals. The strategic measure of 
``service to all'' will be a measure of voluntary compliance that the 
IRS is working on developing but which is currently not in place. This 
measure will allow the IRS to assess the impact of its programs and 
services on the overall level of compliance by taxpayer segments.
    The operational measures will be used the assess the effective 
execution of particular components of the organization (e.g., the 
compliance program in Wage & Investment, the customer assistance 
program in Small Business/Self Employed.) The Operational Measures of 
``service to all'' are measures of the quantity of cases/events and the 
quality of those cases/events.
  --The quantity measures provide information about the volume and mix 
        of work products and services provided by IRS operating units. 
        This information will assist the organization in assessing and 
        making future decisions about the levels of compliance and 
        customer assistance activities necessary across taxpayer 
        segments in order to assist taxpayers in meeting their tax 
        responsibilities and to also address compliance issues when 
        appropriate.
  --The quality measures provide information about how well IRS 
        operating units developed and delivered their products and 
        services. The quality measures help the organization ensure 
        fairness to all by regularly assessing such factors as whether 
        IRS personnel devoted an appropriate amount of time to a 
        matter, properly analyzed the issues presented, developed the 
        facts regarding those issues, correctly applied the law to the 
        facts, and complied with statutory, regulatory and IRS 
        procedures, including timeliness, adequacy of notifications and 
        required contacts with taxpayers.
    The third IRS strategic goal is to increase productivity by 
providing a quality work environment for its employees. IRS must not 
only provide top quality service to taxpayers, but it must do so 
efficiently, using the fewest possible resources.
    Question. Please explain why IRS anticipates that a single 
measure--employee satisfaction--will measure progress toward 
``increasing productivity through a quality work environment.''
    Answer. The development and implementation of the balanced 
measurement system at the IRS is an incremental process. The initial 
focus of the measures effort has been on the development of operational 
measures. The operational measure of ``Productivity through a Quality 
Work Environment'' is employee satisfaction by business unit. This 
information will assist each business unit at the IRS in assessing how 
well it is doing in providing a work environment that enables employee 
productivity through quality leadership, adequate training, and 
effective support services.
    At the strategic level, the IRS is using an overall servicewide 
employee satisfaction score and plans to begin the development of a 
measure of productivity in fiscal year 2001 that will help assess the 
organization's progress in using its resources with increasing 
effectiveness over time. Preliminary thinking is that the productivity 
measure will be an aggregate indicator of the services the IRS is 
producing compared to the resources used. There are complexities that 
will need to be addressed in developing this measure, however, such as 
determining a means to account for the mix of work performed and such 
factors as varying levels of complexity and difficulty across product 
and service lines.
    Balanced measures are indicators of organizational performance and 
a guide to Improve performance. Using them for this purpose requires 
IRS employees to ``get behind the numbers'' to understand what is 
really happening.
    Question. How well are IRS managers trained to ``get behind the 
numbers,'' and how successful have they been in developing action plans 
to address balanced measures results?
    Answer. By the end of fiscal year 2000, the majority of managers 
will have completed a 3-day course (Balanced Measures Approach to 
Leadership) designed to help them understand how to incorporate the 
Balanced Measurement System into their day-to-day management 
activities. As part of this course, managers have been provided with 
and trained to use a tool called the ``Balance Checking Matrix'' 
designed to facilitate ``getting behind the numbers'' and ensuring that 
each Balanced Measure area is considered in solving problems and 
determining courses of action. The Matrix also helps identify any 
Balanced Measure area where additional steps may be necessary in order 
to reduce possible negative impacts of a selected strategy or program.
    The IRS completed its first Business (Operations) plan under the 
Balanced Measurement framework for fiscal year 2000 and specific 
actions were identified at all levels of the organization (e.g., 
National Office, Region, District, Division, Branch, Group) in each 
area of balanced measures utilizing feedback from customer surveys, 
employee surveys and business results data. A review of progress 
against these plans is now underway as part of the IRS' mid-year 
Business Review. Information obtained from these reviews will be used 
to identify methods for improving the development of future action 
plans in alignment with the Balanced Measures.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

    Question. We have all read over the recent reports regarding the 
ongoing GAO study of the IRS, and other challenges the IRS is 
encountering in implementing the Restructuring and Reform Act. This 
year's request asks for an increase of $769 million over fiscal year 
2000, much of which is directed to Processing/Management, Enforcement, 
and Technology. Additionally, the request is looking to add over 2,500 
FTE in order to implement the necessary reforms.
    Can you describe for us some of the recent successes in reforming 
the IRS and also let us know which areas in the process still concern 
you?
    Answer. IRS has achieved some worthy successes in several essential 
areas:
  --Electronic Tax Administration is making excellent strides towards 
        reducing the burden associated with electronic tax preparation 
        and filing.
    --More people are able to file totally paperless returns in 2000 
            because the IRS expanded its Practitioner PIN Pilot to 
            include about 18,000 tax preparers.
    --Eleven (11) million postcards containing e-file customer service 
            numbers (ECN) were mailed to taxpayers who used a computer 
            to prepare their own return last year.
    --More electronic payment options (credit card and ACH debit 
            payment) have been made available to taxpayers this year.
--Marketing--ETA has launched a brand new marketing campaign this year 
        entitled ``30 million Americans Use IRS e-file.'' It is a fully 
        integrated campaign with new TV, radio and print advertising.
  --Internet--Millions of taxpayers have discovered that the IRS home 
        page on the World Wide Web is an excellent and convenient 
        source for tax forms and tax information.
    --Additional forms and schedules are now on the IRS home page. Some 
            of these include Schedule J--Farm Income Averaging; Form 
            8271 Investor Reporting of Tax Shelter Registration Number; 
            Form 8582-CR--Passive Activity Credit Limitations; Form 
            6781--Gains and Losses from Section 1256 Contracts and 
            Straddles.
    We have also included the following information on the IRS website:
  --Innocent Spouse information: To educate and inform taxpayers of 
        their rights under the new RRA 98 innocent spouse provisions 
        and help them to make correct and accurate claims;
  --Installment Agreements: This IRS site has an interactive calculator 
        that helps a person figure the monthly payment, and then prints 
        out an installment agreement form for the taxpayer to file;
  --Web Site Alerts: Alerts taxpayers and practitioners about problems 
        that could effect them;
    Other Web Site links have been established and include but are not 
limited to: Web Site Small Business Corner; Expanded Web Site Tax 
Professional Corner; Web-based Customer Service; Notice information on 
the Web; Expanded Web Site Orders; CD-ROMS, etc.
  --Media--The IRS ``Local News Net'' supplements the Web site's 
        Digital Dispatch (there are over 70,000 Digital Dispatch 
        subscribers) by providing localized, targeted and immediate 
        information for tax practitioners. It is a system capable of 
        reliable and efficient delivery of information to the tax 
        professional community across the nation.
    --Forms by Fax: Taxpayers can receive more than 150 frequently used 
            tax forms 7 days a week, 24-hours-a-day from IRS TaxFax;
    --Recorded Tax Information with 148 topics available 24-hours-a-day 
            using a touch-tone phone;
    --Automated Refund Information was accessed by 34 million taxpayers 
            in fiscal year 1999; through March 11, 2000 the number 
            stands at over 14 million.
  --Problem Solving Days continue to be a great success story on the 
        problem resolution front. Last year, nearly 32,000 people took 
        advantage of the program. According to the National Taxpayer 
        Advocate's 1999 Annual Report to Congress, the IRS handled over 
        57,000 cases during the first 2 years of the program.
  --The Citizen Advocacy Panels achieved several major successes during 
        the first year of operation. In addition to the South Florida 
        panel, three additional Citizen Advocacy Panels were 
        established in the Brooklyn, Pacific-Northwest and Midwest 
        Districts. Included in the accomplishments of the past year, 
        the Pacific-Northwest panel worked with their local district's 
        small business lab to develop software that analyzes questions 
        posed to the IRS through the Service's Web-site, the ``Digital 
        Daily''. The result should be improved categories of responses-
        more closely meeting the needs of taxpayers.
    The GAO states that in 1996 (the most recent year for which there 
are complete records), there were as many as 12 million suspicious 
returns with under reported taxes amounting to $15 billion. The IRS 
pursued only a portion of these, and ultimately wrote off over $10 
billion.
    Question. What drives the decision to determine which cases the IRS 
will pursue?
    Answer. The IRS receives over 1 billion information return 
documents annually. With Tax Year 1997 returns, which are currently 
being screened for the Underreporter Program, initial screening 
identified 13 million cases with potential discrepancies. Initially 
screened cases are then subject to further analysis to ensure that IRS 
applies its resources using risk-based analysis. The President's Budget 
does request additional resources to dedicate to this process in 2001.
    Question. How can the IRS do a better job of performing its dual 
missions; enforcing compliance and at the same time providing 
professional and informed customer service?
    Answer. The basis for our fiscal year 2001 budget request provides 
the best way for the IRS to meet the legitimate service expectations of 
the vast majority of compliant taxpayers who voluntarily pay their 
taxes and, at the same time, enforce compliance, which strengthens the 
fairness of the whole tax system. By investing in reengineering IRS' 
business practices and technology together with limited staffing 
increases, as proposed in the STABLE initiative, we will be able to 
perform all aspects of the IRS mission more effectively and 
efficiently.
    The additional staffing is only modestly more than present level 
and would still be less than the IRS staffing level of 1997. This is 
possible because our basic strategy to meet increased workload and 
service demands depends on reengineering business practices and 
technology. Freeing up positions through business systems investments 
is a critical requirement. By investing in technology and improved 
business practices, the fiscal year 2001 budget request avoids the 
traditional staffing increases that would otherwise be required. The 
investment in modernization is critical for this strategy to work.
    Question. Overall, how would you rate the restructuring process. Is 
the IRS about where it should be at this point?
    Answer. The restructuring process is on track and achieving the 
construction of the new IRS. An integral part of the overall IRS 
Modernization program is the establishment and implementation of 
balanced performance measures that support and reinforce achievement of 
the IRS' mission and overall strategic goals. We have designed, 
approved and implemented the new IRS Balanced Measures approach to 
leadership including a focus on three key elements: Employee 
Satisfaction (the employee's view of and satisfaction with their job), 
Customer Satisfaction (the customer's view of service provided) and 
Business Results (the accomplishment of business goals). Training for 
all employees is underway and near completion. All Executives, Top and 
Mid-level managers, Bargaining Unit employees and NTEU officials are 
receiving this training.
    Balanced measures implementation is just one of the five levers of 
change being implemented to establish the new IRS. For example, IRS is 
currently Revamping its Business Practices, establishing Four Operating 
Divisions to focus on specific customer segments, and developing new 
Management Roles with Clear Responsibility and acquiring New 
Technology. These five levers of change including Balance Measures will 
help IRS achieve its three strategic goals, driven by its five guiding 
principles and founded upon the IRS' Mission Statement.
    One of the key initiatives for the IRS in the fiscal year 2001 is 
the Staffing Tax Administration for Balance and Equity, or STABLE 
initiative. A portion of this request was to be funded through a 
proposed supplemental in fiscal year 2000 of the $40 million and 301 
FTE. The STABLE request for fiscal year 2001 is an additional $144 
million.
    Question. Assuming Congress will not fund your supplemental request 
for fiscal year 2000, can you briefly describe for us the priorities in 
the funding of STABLE in fiscal year 2001?
    Answer. In the President's Budget the IRS requested $224 million 
and 2,835 FTE for the STABLE initiative over a 2-year period which 
includes a fiscal year 2000 supplemental. This approach was taken to 
allow the IRS to advance hire and begin training earlier the new 
personnel that this initiative supports. Doing so would allow the new 
hires to be engaged in performing their jobs at a full level as early 
as possible. The IRS still believes that this is the most rational and 
sensible approach. If we were not to get the fiscal year 2000 
supplemental, the entire initiative would have to be implemented in 
fiscal year 2001.
    The Service has since reevaluated its needs for STABLE for fiscal 
year 2001 using the assumption that Congress might not fund the 
supplemental in fiscal year 2000. That recosting identifies needs of 
$213.2 million and 2,501 FTE in fiscal year 2001. The amounts 
identified in the fiscal year 2001 Congressional Justification for 
STABLE are higher because they assumed that 301 FTE, from the 
supplemental, would already have been in place on October 1, 2000.
    The first priority for these FTE will be to enhance compliance 
activities. In that vein, $198.8 million and 2,305 FTE will be devoted 
to new hires for the Automated Collection System, Examination, 
Submission Processing and the Underreporter Program for Information 
Returns, Examination, Field Collection, and the Tax Exempt Program. The 
IRS has detailed approximately 800 persons from Examination and 
Collection to Customer Service to meet filing season workload peaks in 
the Walk-In and Toll-Free Telephone programs. To allow some of these 
detailed compliance personnel to return to their compliance functions, 
we would also hire 400 staff in the Walk-In and Toll-Free Programs.
    Finally, the remainder of the funds, $14.4 million and 196 FTE 
would be applied to additional increases to the Walk-In and Toll Free 
Telephone Service programs and the Underreporter Program. These 
increases would allow the IRS to reach the 70 percent level of 
telephone service and offer extended hours and Walk-In assistance in 
non-traditional locations during the filing season. In addition, FTEs 
would be devoted to an interagency effort to reconcile payroll tax data 
with employee/employer contributions to the Social Security Trust Fund.
    results of the fiscal year 1999 financial statement audit by gao
    This past February GAO testified before the House subcommittee on 
Government Management, Information and Technology concerning the 
results of their fiscal year 1999 Financial Statement Audit of the IRS. 
They indicated that the IRS has made progress in addressing issues 
which were raised in the fiscal year 1998 audit. However, GAO stated 
that there are still pervasive material weaknesses in areas like 
automated financial management, accounting procedures, record keeping, 
and internal controls. GAO agrees that many of the problems facing the 
IRS will require a substantial and continuous commitment of resources, 
time, and expertise to correct. These issues may require long-term 
solutions. GAO indicates that some of the operational and financial 
management issues can be dealt with in the short-term.
    Question. Are you in agreement with GAO's conclusions?
    Answer. We agree with the GAO that there are material weaknesses. 
IRS identified these material weaknesses and included them in our 
annual Federal Managers Financial Integrity Act (FMFIA) Report to the 
Department of Treasury. The GAO validated these findings through their 
audit process. IRS has also self-certified noncompliance with the 
Federal Financial Management Improvement Act (FFMIA) requirements. 
Accordingly, IRS developed a Remediation Plan to bring the IRS into 
compliance [Remediation Plan attached].
    Question. What short and long term goals have you established to 
satisfy the requirements of the financial audit program?
    Answer. We have undertaken many short-term initiatives to remedy 
the material weaknesses, including:
  --Reconciled our fund balance with the Treasury;
  --Substantially cleared our Suspense Account of old items;
  --Addressed security issues regarding override authorities by 
        disabling the override capability in the accounting system to 
        override appropriation-level spending controls;
  --Developed subsidiary ledgers for GAO testing purposes; and
  --Developed an ad hoc ``work around'' process to sustain the 
        valuation of our assets. We began this effort in fiscal year 
        1999 by arriving at a satisfactory balance for our fiscal year 
        1999 financial statements.
    The long-term solution is a replacement for the current 
administrative and revenue accounting systems. IRS will only be able to 
achieve compliance with FFMIA through modernization of both the 
administrative and revenue accounting systems. The ability to integrate 
both systems will enable true cost accounting and performance reporting 
as required by the Federal Accounting Standards Advisory Board 
Statement #4. It is critical that adequate funding be provided for 
these initiatives.
                        tax shelter regulations
    Question. I have read with some interest recent reports concerning 
The Treasury Secretary's effort to close down some of the tax shelters 
which are used by corporations to avoid paying billions of dollars a 
year in taxes. He was quoted in the Washington Post as saying that this 
is the ``most serious compliance issue facing the American tax system 
today''. Also, in a meeting last month, the Secretary stated his 
concerns about these shelters further undermining the voluntary 
compliance with the tax system by customers. I realize that many of the 
regulations under consideration are still being formulated; however, 
other pieces of the package are well on their way to being enacted.
    Can you generally describe how this issue might impact operations 
at the IRS?
    Answer. This issue will impact operations at the IRS by impelling 
us to devote resources to the detection, investigation, and elimination 
of abusive tax shelters, whose sole raison d'etre is the avoidance of 
taxes. We have already established an office of ``Corporate Tax 
Shelters'' at the National Office under the Large and Mid-Size Business 
(LMSB) function to deal exclusively with this problem. We are expending 
resources to combat this problem by taking aggressive measures, 
including the issuance of summonses, where necessary, to identify 
taxpayers engaged in this form of enterprise. IRS will also initiate 
compliance action against companies identified as promoters of abusive 
tax shelters. In addition, we have established a ``hot'' line in the 
National Office, staffed by one of our senior analysts, to answer 
questions from the public regarding tax shelters. We hope to increase 
compliance in this area by a combination of taxpayer awareness and 
enforcement coverage.
    Question. What, if any, resources in your budget request are 
directly focused on addressing these concerns about corporate tax 
shelters?
    Answer. No additional funds have been requested in the fiscal year 
2001 budget specifically for the tax shelter program. However, the IRS 
will make efforts to internally redirect resources to this area. In 
addition to applying existing staffing resources, we will work 
internally to increase our travel and enforcement expenses budget in 
the shelter area. The increased enforcement expense efforts would 
include hiring outside experts in such areas as asset valuation and 
actuarial projections.
                       money laundering strategy
    Question. A new initiative in this year's budget request is the 
Money Laundering Strategy. The Administration is requesting $15 million 
and 42 FTE (7 of which are attributed to the IRS) for an organization 
which will be centrally located under the Department of the Treasury. 
Your agency plays one of the key roles in this initiative
    How will your agency's investigations regarding money laundering 
and currency reporting violations be impacted by this initiative?
    Answer. As a result of the National Money Laundering Strategy, IRS 
Criminal Investigation (CI) will join other federal agencies, as well 
as state and local law enforcement agencies in a concerted effort to 
combat money laundering, through multi-agency task forces. One key 
action item that the strategy calls for is the designation of High-Risk 
Money Laundering and Related Financial Crime Areas (HIFCAs). The 
designation of a HIFCA is intended to concentrate law enforcement 
efforts at the federal, state, and local level on combating money 
laundering in high-intensity money laundering zones, whether based on 
drug trafficking or other crimes. It should be noted that while CI has 
participated in joint investigations in the past, HIFCA differs from 
previous efforts in that it is a more organized way of concentrating 
the resources of all federal, state, and local law enforcement agencies 
as well as regulatory agencies. The Strategy also calls for increased 
cooperation among the various agencies by sharing their intelligence 
databases.
    CI is an integral member of the HIFCA Interagency Working Group. 
The Working Group recommended the first four HIFCA designations, which 
were subsequently approved by the Treasury and Justice Departments. CI 
will be an active participant in each of the HIFCAs and will utilize 
the seven FTEs requested in this initiative in support of the Strategy 
and the HIFCAs. The FTEs will be allocated as intelligence analysts, 
special agents, and/or supervisory personnel who will provide 
investigative and intelligence support to the HIFCAs. Part of the funds 
requested in this initiative will be used for the training of new 
personnel, additional computers and other equipment needs.
    The Strategy also calls for enhancing the flow of Suspicious 
Activity Reports (SAR) and other Bank Secrecy Act (BSA) information to 
the banking and regulatory communities. Under the authority of the Bank 
Secrecy Act, Treasury promulgated regulations relative to reporting 
requirements. These regulations require reports such as a Currency 
Transaction Report (CTR); a Currency Transaction Report by a Casino 
(CTRC); a Report of International Transportation of Currency or 
Monetary Instruments (CMIR); and a Report of Foreign Bank and Financial 
Account (FBAR). These reports are required for transactions in excess 
of $10,000. The BSA requires the filing of these financial reports with 
the IRS Detroit Computing Center (DCC).
    Beginning in 1996, banks and other financial institutions were 
required by federal regulators to report suspicious financial 
transactions to the Financial Crimes Enforcement Network (FinCEN) by 
filing SARs. The processing of the SAR forms is also performed by the 
IRS DCC.
    To enhance the use of BSA information, current multi-agency SAR 
review teams located in most of the districts will be expanded and 
incorporated into the HIFCAs. CI will also increase its current role in 
joint agency SAR review teams located outside of HIFCA locations by 
committing additional resources to these teams. The results of the SAR 
review teams and the utilization of SARs for law enforcement purposes 
will be recorded and accumulated by FinCEN.
    With the anticipated expansion of SAR regulations to include 
casinos, broker dealers, and money service business in the future, it 
is essential that alternative opportunities be explored to enhance 
electronic filing of SARs. A large number of the SARs are filed in 
paper format. In order to develop the technology to move toward the 
electronic filing of SARs, it will be necessary for IRS DCC to expend 
the resources requested in this initiative to evaluate alternative 
interfaces, and to evaluate the impact and the benefits to the 
financial institutions that will use electronic filing.
    I noted in the National Money Laundering Strategy for 2000 that 
your organization will be enhancing the resources you devote to 
conducting Bank Secrecy Act examinations of money service businesses 
(MSBs) and casinos. According to the Strategy, you will be meeting with 
Treasury in August to review your program.
    Question. Are you currently focusing attention and agency assets in 
examinations of MSBs and casinos?
    Answer. Yes. Per the Strategy Act, the lead on Action Item 2.2.4 is 
the Assistant Commissioner for Examination. The Secretary of the 
Treasury delegated IRS Examination regulatory authority for civil 
compliance with the Bank Secrecy Act (BSA) on Money Service Businesses 
(MSBs) and casinos. There are three aspects to the Examination Anti-
Money Laundering (AML) program-identify, educate, and enforce. Field 
examiners are responsible for identifying financial institutions that 
come under the new MSB definition, educating those financial 
institutions on BSA reporting and record keeping requirements and 
conducting compliance examinations to ensure that the financial 
institutions are in compliance with all provisions of the BSA. 
Examiners must also ensure that each casino has developed and 
implemented a written program designed to assure and monitor compliance 
with BSA requirements.
    Question. Do you have an outline of what your recommendations and 
requirements will be to adequately meet the goals of the Money 
Laundering Strategy?
    Answer. IRS Examination and the Financial Crimes Enforcement 
Network (FinCEN) have a joint task force studying these issues in 
preparing for the August 2000 meeting with Treasury. Among the 
potential requirements being reviewed are additional training, laptop 
computers, specialized computer training for Anti-Money Laundering 
(AML) field examiners, a national structuring database, and staffing to 
identify and educate Money Service Businesses (MSBs) on the new MSB 
registration and suspicious activity reporting (SAR) regulations. The 
task force will also be considering the use of full-time coordinators 
and examiners in the AML program.
    Question. Will the 7 FTE that you are allocated in this proposal be 
enough to properly execute the Strategy?
    Answer. The $3.1 million and 7 FTE, which are allocated to the IRS, 
allow us to begin implementation of the Strategy. We will evaluate any 
need for future resources as we implement the Strategy.
                     electronic tax administration
    Question. The IRS Restructuring and Reform Act of 1998 (RRA) 
requires an ambitious schedule in electronic tax filing. The Act 
requires that 80 percent of all filings be done through electronic 
means by 2007. To ensure this end you are again requesting funds for 
Electronic Tax Administration.
    Is the 2007 goal still realistic?
    Answer. As required by the IRS Restructuring and Reform Act of 
1998, the IRS has developed a Strategic Plan for Electronic Tax 
Administration (ETA) to help us make significant progress toward:
  --the overriding goal of 80 percent of all tax and information 
        returns being filed electronically by 2007, and
  --the interim goal that, to the extent practicable, all returns 
        prepared electronically should be filed electronically by 2003.
    We realize that these are formidable goals and reaching the interim 
goal for 2003 in particular will be extremely difficult.
    Included in the ETA Strategic Plan are IRS' official projections of 
electronically filed returns developed by the professional forecasters 
under the Assistant Commissioner (Research and Statistics of Income). 
These projections indicate that between 55.5-64.3 million returns will 
be received electronically in 2007, or 40-46.4 percent of all 
individual income tax returns, which would fall short of the 80 percent 
goal. However, it is important to note that these projections represent 
baseline extrapolations of current trends, existing marketing 
approaches, enacted legislation, and confirmed (or reasonably certain) 
IRS program changes. They do not reflect the full impact of all of the 
initiatives contained in the Strategic Plan. At this time, the IRS does 
not have sufficient information to make reasonable projections for many 
of the future initiatives. As the IRS gains more experience with the 
impact of the enhancements reflected in the Strategic Plan, increases 
to the current projections are expected.
    Question. Does the IRS currently have adequate systems in place to 
accommodate a significant growth in E-filed returns?
    Answer. IRS' legacy systems are not suited for the e-business 
challenges that lie ahead. Consequently, within the framework of the 
Modernization Blueprint the IRS is taking the necessary steps to ensure 
that the computing infrastructure for Electronic Tax Administration can 
handle the expected demands of the future. Not only does the IRS expect 
a significant increase in the number of Electronic Return Originators 
(EROs) and in the volume of returns that they transmit electronically, 
but it also envisions developing many new products and services which 
will enable individual taxpayers and businesses to transact and 
communicate directly with the IRS. Toward that end, last year the IRS 
awarded a PRIME contract to Computer Sciences Corporation and a team of 
leading technology and consulting firms to be major partners in 
managing the modernization of IRS' core business and technology systems 
with near-term focus on improved phone service and electronic filing 
options.
    Question. What is your present capacity?
    Answer. Our systems can currently support approximately 50 million 
electronic filers--more than enough capacity for near-term e-file 
growth projections.
    Question. The RRA authorizes the IRS to pay appropriate incentives 
to encourage E-filing.
    Do you believe the IRS should be paying these incentives?
    Answer. The IRS supports providing tax credits to individual 
taxpayers who file electronically, as well as providing support to tax 
practitioners who offer e-file products and services to the public.
    The IRS supports the President's fiscal year 2001 Budget that would 
provide individual taxpayers with a temporary, refundable tax credit 
for the electronic filing of tax returns. The credit would be for tax 
years 2002 through 2006 and would be $10 for each electronically filed 
return other than TeleFile returns for which the credit would be $5.
    The IRS previously assessed the benefit of providing cash 
incentives to practitioners. In the fiscal year 1998 Appropriations 
Bill, Congress authorized the IRS to pay up to $3. for each return 
filed electronically when the Commissioner of the IRS determines that 
it is in the best interest of the government to make such a payment. In 
September 1997, the IRS released a draft Request for Information (RFI) 
to explore the industry's interest in the cash incentive initiative as 
well as other arrangements. In response to the RFI, private industry 
responded that the IRS should invest first in correcting systemic 
deficiencies, introducing new products and services, and engaging in 
aggressive national marketing before engaging in direct cash subsidies 
to the private sector.
    The IRS believes that tax practitioners authorized to 
electronically file tax returns to the IRS (EROs) must be recognized, 
supported and motivated as ETA product and service distributors. Much 
as the private sector employs store front operations (whether 
independent, franchise or corporate owned), the IRS depends upon tax 
practitioners to promote electronic filing and payment to taxpayers. In 
support of this vital channel and based on their input, ETA will seek 
to support EROs by expanding the marketing support available including 
national advertising and promotional kits; implementing a program of 
product and service incentives, rewards and special recognition 
depending upon an ERO's success in marketing ETA products and services; 
developing an ERO Web site; and establishing an ETA accounts management 
program.
    Question. What is the IRS requesting to provide these incentives?
    Answer. The IRS is requesting $3 million in fiscal year 2001 to 
expand its marketing efforts to communicate the benefits of IRS e-file 
to both taxpayers and practitioners. The IRS plans to advertise in the 
television, radio and print media; continue the launch of a business 
marketing campaign; and conduct the necessary marketing research to 
ensure that ETA products and services meet our customers' needs. 
Previously, Congress approved IRS' fiscal year 2000 Budget which 
included $2.5 million to provide support and non-cash incentives to 
practitioners. No additional funding for incentives is being requested 
for fiscal year 2001.
                                training
    Question. In your opening statement you stress the importance of 
providing training to your personnel in light of the changes mandated 
by the IRS Reform and Restructuring Act of 1998. You claim you provided 
2 million hours of training in fiscal year 1999 to your employees. You 
also stated that ``training and management are immediate challenges and 
in fiscal year 2000 we will continue a high level of training.''
    I share your concern about the need for correct, disciplined and 
quality training for IRS employees--especially those on the frontlines 
providing tax assistance to your customers. Specifically, I am 
concerned about this because I recently have heard from IRS employees 
in my state who have informed me that they have not received quality 
training, that the training they have received is often inaccurate and 
that they have been provided out-dated materials when they have been 
trained.
    How much of your fiscal year 2001 budget request is dedicated 
solely to quality training for IRS employees. Also, how much of your 
resources in this current year are being directed to training?
    Answer. All of our training is designed using the Training 
Development Quality Assurance System (TDQAS) to ensure delivery of a 
quality product. This system uses a life cycle of assessment of the 
training need, design of a training product, development, delivery, and 
then evaluation of the training. During the evaluation stage, 
information collected from trainee and instructor evaluations is 
reviewed and comments are incorporated in revised materials in an 
effort to improve the quality of our training products. The training 
budget totals $106 million in fiscal year 2000 and $109 million in 
fiscal year 2001 for modernization-related and sustainment training. 
The fiscal year 2001 amount does not include additional funds for 
training new employees under the STABLE initiative.
    Question. How many employees will you have trained by the end of 
this fiscal year?
    Answer. Every employee will receive some type of training during 
fiscal year 2001; depending on their work assignments and career 
progression, some employees will attend more than one training class 
during the year. We expect to provide approximately 10 million hours of 
training to our employees in fiscal year 2001.
    Question. In what specific areas are you training your employees?
    Answer. Employees will attend technical training and Continuing 
Professional Education (CPE) depending on their work assignments. 
Employees also receive training in preventing unauthorized access to 
tax information and preventing sexual harassment (UNAX). Leadership 
training is provided to managers at all levels of the organization. 
Examples of typical training by key occupations follows:
    The typical frontline Revenue Officer (RO) can expect to attend 
training amounting to the following number of hours:
    Fiscal year 2000: a range of 120 to 134 hours, depending on work 
assignments. This represents 40 hours of CPE, 6 hours of Electronic 
Research, 16 hours Automated Trust Fund Recovery, and 72 hours of RO 
Unit 4 for certain ROs.
    Fiscal year 2001: a range of 100 to 120 hours, depending on work 
assignments. This represents 40 hours of CPE, 8 hours of Electronic 
Asset Locator Training, 4 hours of Fraud Referral Training, 32 hours of 
Seizure Training and an undetermined number of hours for training 
related to the technical requirements in the Small Business/Self 
Employed Business Unit.
    The typical frontline Revenue Agent can expect to attend training 
amounting to the following number of hours.
    Fiscal year 2000--approximately 205 hours. Training will consist of 
80 hours CPE (optional and mandatory topics such as Electronic Research 
and Third Party Contact) and other specialty and mandatory training, 
e.g. Tax Equity and Fiscal Responsibility Act of 1992 (TEFRA), Reports 
Generating software, UNAX, sexual harassment.
    Fiscal year 2001--approximately 188 hours. Training will consist of 
80 hours CPE (mandatory and optional topics), plus courses of varying 
length dealing with new procedures in the business unit and various 
mandatory training such as tax law changes, UNAX and sexual harassment. 
In fiscal year 2001, it is anticipated that 1,200 Revenue Agent 
recruits will be hired in April 2001. The new hires will receive Phase 
I and II basic training, totaling 21.4 weeks of training including 
classroom and On-the-Job-Training (OJT). New hires typically do not 
attend CPE.
    The typical front-line employee in Submission Processing Centers 
can expect to receive 40 to 45 hours of training, depending on work 
assignments, during fiscal year 2000 and 2001. With the transition to 
eight centers processing individual returns and two centers processing 
business returns is completed, a typical front-line employee could 
expect to receive an additional 50 to 60 hours of training based on 
work assignments.
    IRS is planning an extensive training effort in conjunction with 
the reorganization effort. This training is referred to as 
``modernization-related training.'' IRS also delivers other types of 
training, referred to as ``sustainment training,'' as part of its day-
to-day operations.
                               taxmobile
    Question. I indicated in my opening statement that the taxmobile 
providing tax assistance to citizens in rural North Dakota has been 
warmly received. In questions for the record last year I asked if the 
IRS was looking into the option of providing and expanding the use of 
taxmobiles (or mobile tax units). You indicated that you were 
conducting two mobile unit demonstration projects in the Georgia and 
Pacific Northwest Districts and that you planned to ``analyze the 
results of these projects after the (1999) filing season ends.''
    Can you tell us the results of your analysis, or provide us with 
those results for the record?
    Answer. The Georgia District used five vans for their taxmobile 
project entitled We're On Wheels (W.O.W). The service was initially 
available the first 2 weeks in February. After a very positive customer 
response, it was extended to cover the week of March 22, 1999. Thirty-
two sites were visited. All sites were at least 40 miles from an 
established IRS office. Service was available from 4:00 p.m. until 8:00 
p.m. A total of 1,843 taxpayers were assisted. The cost of the program 
was $36,000 in training and travel, and $6,300 for the van rental, 
flyers, posters and sign printing. The Georgia District's project 
received Vice President Gore's NPR Hammer Award.
    The Pacific Northwest District used a 30-foot mobile home for their 
project. The service was available from January 25 through April 15, 
1999. A second unit was placed in service from March 22 until April 15, 
1999. A total of forty rural and semi-rural communities were served. 
Both sites had extended hours of operation on April 15, 1999. A total 
of 4,871 customers were assisted. The cost of the program was $28,131 
for the vehicle lease, transportation expenses, lodging and meals.
    Several other districts including North Dakota, Los Angeles, 
Central California and Michigan have implemented taxmobile projects in 
fiscal year 2000.
            information technology investment account (itia)
    Question. Your budget requests new appropriations of $119 million 
(and an advance appropriation for fiscal year 2002 of $375 million) to 
continue the ITIA program. This fund continues the important initial 
phase of modernizing the IRS' business systems and ITIA has been 
generally supported by the Congress. We approved earlier requests for 
funds from the account and to date $68 million has been released. 
Recently we received a much larger request to release an additional 
$176.322 million. This request is currently under review.
    I am concerned about your fiscal year 2001 request for new funds to 
add to the ITIA account. Last October your staff envisioned that you 
would be requesting nearly $265 million from the ITIA account, yet your 
requests for this fiscal year are significantly lower than that level. 
In your spending plan for the $176 million you state that ``this 
difference reflects a significant change in management direction. . . . 
while simultaneously slowing many of the individual project 
activities.''
    Given the constraints this subcommittee is likely to face because 
of an expected low allocation, how can we justify adding a large level 
of funds to the ITIA account when--by your own admission--your spending 
plan calls for slowing many of the projected activities in ITIA?
    Answer. The management decision to slow project activity while 
accelerating program activities ensures IRS has disciplined, mature 
program management processes in place. The request reflects funding for 
this priority as well as appropriate funding for continued tax 
administration projects. In alignment with oversight guidance, we are 
focusing resources on deploying and enforcing the Enterprise Life Cycle 
(ELC), updating and publishing the Blueprint, realigning the IRS and 
PRIME program management offices with major ELC processes to clarify 
boundaries and interfaces, et cetera.
    IRS will require the continued funding level to support development 
costs, to include expected hardware and software purchases. Current 
plans show several projects scheduled for Milestone 3 (system design) 
decisions either at the end of fiscal year 2000 or early in fiscal year 
2001. In addition, continuous funding is critical to ensure deployment 
of the infrastructure to support business systems and ongoing program 
management.
    Question. Can you realistically expect to responsibly obligate and 
manage $119 million for ITIA in fiscal year 2001--assuming Congress 
approves your pending request?
    Answer. We expect to responsibly obligate and manage the $119 
million in fiscal year 2001, and also the $211 million in fiscal year 
1999 funds, for a total of $330 million. Current plans indicate that 
the funds appropriated in fiscal year 1999 with the fiscal year 2001 
appropriation, if approved, will be required to support project 
development, infrastructure and ongoing program management. IRS will 
have in place disciplined, mature processes to ensure the wise 
expenditure of funds in a responsible manner.
                           one-stop tax shop
    Question. During our discussion at last year's hearing, you 
discussed ways you were reaching out to enhance service in less urban 
areas. For instance, you mentioned that you had been in Utah and had 
established a cooperative ``one-stop'' tax shop site with that State's 
tax agency and other parties. Also, in my opening statement I discussed 
the success we are witnessing in North Dakota with the taxmobile.
    What was the experience with the ``one-stop'' shop in Utah? Is this 
another example of a partnership between the IRS and the customer upon 
which you want to expand? Are you budgeting for expansions of this type 
of partnership or do you have other examples?
    Answer. When it first opened, the Utah site only offered the 
distribution of forms and responses to tax questions. This office has 
subsequently expanded to become a full service office. In fiscal year 
1999, the Utah tax site served 8,525 customers. This office is one of 
several in which the IRS and state taxing bodies cooperate to the 
benefit of the public. For example, there is an IRS office in the 
Illinois Department of Revenue building in Springfield, IL. Some state 
tax authority employees are co-located in IRS offices as well. Also, 
some districts such as Georgia have state tax employees participating 
in the mobile van projects. Currently, there is no funding in the 
Customer Service budget for expansion of these projects.
                        tax exempt organizations
    Question. Last year we discussed my concerns about the status of 
tax-exempt organizations. You indicated that you planned to provide 
additional resources to enhance enforcement and compliance of these 
organizations with the tax laws. You said during the hearing that IRS 
has the responsibility of regulating about $5 trillion in tax exempt 
sector assets but because ``it is not really a revenue generating 
function, (it) tends to be a little bit buried underneath the big 
structure.'' But you also said that you hoped to further reorganize 
your key districts to check on compliance- in addition to having the 
districts grant tax-exempt status.
    Can you report to us on how the reorganization is proceeding? What 
resources have you directed to this effort?
    Answer. The Tax Exempt and Government Entities Division, which was 
designed specifically to meet the unique needs of the tax-exempt 
sector,commenced operations on December 5, 1999. The Division was the 
first of the four major operating divisions in the modernized IRS to 
begin operations. The mission of the Tax Exempt and Government Entities 
Division (TE/GE) is ``To provide Tax Exempt and Government Entities 
customers top quality service by helping them understand and comply 
with applicable tax laws and to protect the public interest by applying 
the tax law with integrity and fairness to all.'' Six geographic area 
offices responsible for exempt organizations examination programs have 
replaced the former key district office structure. Program and 
management direction for examination activities in these six areas has 
been centralized in Dallas to ensure equity and fairness to all exempt 
organizations.
    The resources available to TE/GE in fiscal year 2000 are 2,102 FTE 
and $156,600,000. For the first time in several years, the IRS budget 
dedicated to the regulation of the tax-exempt community has improved. 
For example, we are beginning the process of hiring field agents in the 
exempt organizations examination program. Assuming that this budget 
climate continues, TE/GE will be in a better position to meet its 
responsibilities. A portion of the fiscal year 2001 STABLE initiative 
is to increase oversight of the tax-exempt bond sector by adding 68 FTE 
and $12,054,000 to TE/GE.
    Question. Is there an increased focus on reviewing and revoking the 
tax-exempt status of these organizations?
    Answer. We believe the creation of the TE/GE Division, one of only 
four operating divisions within IRS, will increase focus within the 
Internal Revenue Service on ensuring compliance by tax-exempt entities. 
TE/GE will pursue compliance through both voluntary programs and the 
examination program. The primary focus is on promoting voluntary 
compliance by making available:
  --``Personalized'' Customer Service through a toll-free telephone 
        line dedicated to serving TE/GE customers available from 7:30 
        A.M. until 9:30 P.M.;
  --The Determination Letter Program which affords the IRS the 
        opportunity for an up-front review of an organization's 
        compliance as it begins to operate;
  --Customer Education and Outreach services to create and provide more 
        educational materials and increase outreach efforts to help 
        exempt organizations voluntarily comply with the tax laws; and
  --Voluntary Compliance initiatives which will encourage organizations 
        that have not been in full compliance to come to the IRS to 
        resolve their problems.
    We believe these initiatives, combined with other changes, for 
example, the new disclosure requirements, which are making information 
about exempt organizations more widely available to the public, are key 
aspects in promoting voluntary compliance.
    The TE/GE Examination Program for exempt organizations is also a 
vital component of our overall approach to ensuring compliance with the 
Internal Revenue Code. The examination program is a necessary 
counterbalance to voluntary programs, creating an incentive for 
organizations to self-regulate. While we do not intend to greatly 
increase the number of examinations of exempt organizations, we would 
note that for the first time in several years, the current budget 
allows us to hire field revenue agents to work in the examination 
program.
    Our examination efforts focus on promoting compliance by resolving 
problems and promoting future compliance. This is generally not done by 
revocation, but by less draconian means such as those envisioned by 
Congress in passing section 4958 ``intermediate sanctions'' excise tax 
on excess benefit transactions. As a result of our focus on future 
compliance, revocation of exempt status is a step that we take in only 
the most abusive situations.

                          subcommittee RECESS

    Senator Campbell. Thank you, and this hearing is recessed.
    [Whereupon, at 10:43 a.m., Thursday, March 23, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2001

                              ----------                              


                        THURSDAY, MARCH 30, 2000

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:03 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell, Kyl, and Dorgan.

                       DEPARTMENT OF THE TREASURY

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

          OPENING STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell. Good morning. The committee will be in 
session. We will go ahead and start. Senator Dorgan is on the 
way.
    This is the second hearing of the Treasury and General 
Government Appropriations Subcommittee on the fiscal year 2001 
budget request. Today, we will be concentrating on the Treasury 
Department's law enforcement agencies. Appearing before us is 
the Under Secretary for Enforcement, Jim Johnson. He is 
ultimately responsible for the actions and budgets of the 
Treasury law enforcement agencies. Joining Mr. Johnson on panel 
one will be the Commissioner of the Customs Service, Ray Kelly; 
the Director of the Secret Service, Brian Stafford; and the 
Director of the Bureau of Alcohol, Tobacco and Firearms, 
Bradley Buckles. This is Mr. Buckles' first time before our 
subcommittee and I certainly welcome him.
    Later, we will spend some time talking with Ralph Basham, 
Director of the Federal Law Enforcement Training Center, and 
William Baity, the Deputy Director for the Financial Crimes 
Enforcement Network.
    Before we get started, however, I would like to thank all 
of our witnesses for their participation in Tuesday's 
technology display. A number of our colleagues in the Senate 
came by. I was happy to see them there and certainly it gave 
people from the different agencies a chance to share some 
ideas. We have gotten a lot of positive feedback from our 
colleagues that attended the display.
    As you are aware, the budget resolution is making its way 
through Congress. While it remains to be seen what the final 
result will be, I think it is safe to say there probably will 
not be enough money to fund all of the $2.5 billion, that is 
billion with a ``b'', more than requested by the President for 
agencies under the jurisdiction of the subcommittee. Having 
said that, however, this morning, we will be talking about how 
much more Treasury law enforcement agencies need to simply 
continue doing what they are currently doing as well as some of 
the expanded and new initiatives requested for fiscal year 
2001.
    For example, the Bureau of Alcohol, Tobacco and Firearms 
needs $93 million more than last year just to maintain current 
operations, plus they have requested a total of $105 million 
for initiatives, including $41.3 million for expansion of the 
Integrated Violence Reduction Strategy. All of these, I 
believe, are very important initiatives.
    The Customs Service needs $193 million more just to break 
even and is requesting $41 million more for new and expanded 
programs, and that does not include the $210 million necessary 
to fund the Automated Commercial Environment, or ACE, program.
    The Secret Service needs an additional $95 million just to 
stay in business and wants $55 million more to be able to 
handle their increased workload. Although they have a smaller 
overall budget, FinCEN and FLETC still need about $13 million 
more between them to continue current operations.
    This morning, we will be looking at how the Treasury law 
enforcement agencies conduct their business, how they would 
like to expand it if sufficient funding is available. Much of 
what they would like to do certainly is laudable and I think 
they know that they have friends on this committee and we have 
always tried to do our best for our law enforcement agencies 
and we will continue to do so.
    With that, I am happy to see my colleague and friend, 
Senator Dorgan, is here. Did you have an opening statement, 
Senator Dorgan?

                  STATEMENT OF SENATOR BYRON L. DORGAN

    Senator Dorgan. Mr. Chairman, just very briefly, I 
apologize for being a couple minutes late. First of all, let me 
welcome the agencies that are here. As you probably have 
indicated, the folks who have come this morning representing 
agencies represent about 40 percent of all Federal law 
enforcement. I have had an opportunity to visit with all of 
them. The work they do and their agencies do is very important 
to this country.
    I met yesterday afternoon with the head of the Customs 
agency and I wanted to mention, we talked a bit about the issue 
of increased terrorism and the difficulty policing our borders. 
We witnessed at the turn of this past year the apprehension of 
a terrorist who was coming through a port of entry in 
Washington State. We were fortunate to apprehend that 
particular terrorist, or alleged terrorist, but had that 
terrorist thought through this a bit, there are other places to 
go through the border with a lot less inspection than a border 
in the State of Washington.
    I brought a cone. In North Dakota, we have a lot of border 
crossings and this represents----
    Senator Campbell. That is it?
    Senator Dorgan. This is it. Especially at night, folks 
coming across the border from Canada, we have videotape of 
folks who will get out of their car, move the cone, drive 
through, and the really polite ones will move the cone back.
    Senator Campbell. They could use that as a megaphone to 
announce their intentions and nobody would hear it.
    Senator Dorgan. That is right. But the point is this. With 
increased potential for terrorists who want to move into this 
country, we need to be concerned about all of our borders and 
ports of entry. I am not suggesting that we have an armada of 
people at remote ports in every circumstance, but we must be 
concerned about the staffing and what is happening in some of 
the more remote ports up in the North Dakota, Montana, Idaho 
area. So I am anxious to hear some of the testimony today.
    I wanted to make that point because, once again, we are 
talking about resources. I notice the administration has 
requested some significant additional resources in some of 
these areas and I support that. There is this big debate about 
enforcement of various things. Well, you can talk about 
enforcement all day long, but you have got to have the 
resources and this Congress must be, in my judgment, ready to 
provide the resources for enforcement in a range of areas if it 
is going to be criticizing certain policies.

                           Prepared statement

    Mr. Chairman, with that, I will submit my entire statement 
for the record and look forward to hearing the witnesses.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Thank you, Mr. Chairman.
    I want to join you in welcoming our witnesses here today. 
Collectively the people before us this morning represent approximately 
40 percent of all of Federal law enforcement. The women and men working 
for the agencies represented today perform a multitude of tasks--the 
vast majority of which are rarely reflected upon by the American 
taxpayer.
    They daily protect our borders, enforce our trade laws, collect 
revenue, prevent terrorist attacks, protect our currency, guard our 
leaders, stem money laundering and other financial crimes, try to 
prevent the sale of weapons to those who should not have them, and 
provide the technical muscle in many of our Federal investigative 
efforts.
    These are activities which I am confident would be strongly 
supported by the American taxpayers if they only had a greater 
awareness of what these men and women do each daily for them. They 
would agree that the tasks performed by these dedicated Federal 
employees are important and should be adequately funded.
    Mr. Chairman, you have correctly noted that it is unlikely--given 
the constraints which will be placed upon the Appropriations Committee 
by the Budget Resolution--that we will receive an allocation sufficient 
to maintain current operations for these agencies, much less fund the 
requested initiatives. I think this is wrong and I really question what 
are our priorities. If the average taxpayer were asked if she wanted 
the border guarded to prevent terrorist attacks or a tax cut amounting 
to pennies a day--I wager that she'd want to protect our border. Sadly, 
I fear this budget resolution may prevent us from doing that.
    If I may, I want to show the audience and the Subcommittee the sole 
nighttime defense of our Northern Border. This is what prevents 
terrorists, drug smugglers, illegal aliens and the like from entering 
the United States from Canada at many ports of entry across the North. 
Fortunately, the terrorist who attempted to enter the U.S. last 
December in Washington state did so at a fully staffed port of entry 
during the day. We might not have been so lucky had he tried to enter 
our country at night at the port of entry at Neche or Maida, North 
Dakota. In my state of North Dakota alone, out of 22 ports of entry, 15 
close at night and are guarded only by these cones. We must rely on 
these cones--and peoples' sense of responsible citizenship--to protect 
our border.
    I am not suggesting that we need to construct a wall or place 
Federal law enforcement personnel every 10 yards across our Northern 
Border, but I use this as an example of our priorities. The budget sent 
to us by the President does not come close to meeting the needs faced 
by each and every one of the agencies here today. The budget resolution 
we will soon start debating will further erode our ability to meet 
these many needs.
    Mr. Chairman, I look forward to working with you and the full 
Committee to do the best that we can to meet these many needs. I 
welcome our witnesses and will have questions for each of them.
    Thank you.

    Senator Campbell. In fact, of all the subcommittees, it is 
my understanding that the President's budget has the largest 
increased request, of something like 20 percent, through this 
subcommittee, which may help us when we have to do battle to 
try and make sure we have our fair share of the spending.
    Let us go ahead and start with the panel as listed, with 
the Honorable James Johnson starting first, followed by Ray 
Kelly and then Brad Buckles and Brian Stafford last. Go ahead.

                     Statement of james e. johnson

    Mr. Johnson. Thank you, Mr. Chairman, Senator Dorgan. I am 
pleased to have the opportunity to testify before you today on 
the fiscal year 2001 budget request for the Treasury 
Department's law enforcement bureaus and offices.
    As you have indicated, testifying with me today on this 
first panel are Raymond Kelly, the Commissioner of the U.S. 
Customs Service, Brian Stafford, the Director of the U.S. 
Secret Service, and Bradley Buckles, the Director of the Bureau 
of Alcohol, Tobacco and Firearms. On the second panel, we will 
be joined by Ralph Basham, the Director of FLETC, and Bill 
Baity, the Deputy Director of FinCEN, who will be testifying in 
the absence of Jim Sloan, who had a loss in his family and our 
hearts are with him now.
    Directors Buckles and Stafford are appearing before you for 
the first time in their current positions; I want to take just 
a moment to commend each of them for their outstanding long-
term performance in their careers, and their tremendous 
contributions to the ATF and the Secret Service, respectively. 
Over the years, the Treasury Department has benefited 
tremendously from their insight and intellect on countless 
occasions. We are especially pleased with their appointments.
    Mr. Chairman, so that each of the bureaus can have ample 
opportunity to present their statements and respond to your 
concerns, I will summarize and ask that my full testimony be 
included in the record of these proceedings.
    Senator Campbell. Without objection, it will be.
    Mr. Johnson. As to the Departmental budget, our request 
reflects the funding that we believe is necessary to most 
effectively carry out the important law enforcement mission 
areas for which we are responsible, and which so directly 
impact the lives of the citizens we serve.
    For example, if enacted, this budget would provide the U.S. 
Customs Service with 273 additional full-time equivalent 
positions, including 120 FTE for counter-narcotics work. The 
U.S. Secret Service would be enhanced by 193 additional full-
time equivalent agents to carry out its dual mission of 
protection and investigation. And ATF would benefit from more 
than 500 full-time equivalent personnel--that is agents, 
inspectors, and other staff with an emphasis on substantially 
enhancing our firearms enforcement efforts.
    Overall, the President's budget proposal would add roughly 
1,200 FTE to Treasury enforcement above the fiscal year 2000 
total enacted level. This represents the largest increase in 
Treasury law enforcement staffing in over a decade, and 
reflects Secretary Summers' highest enforcement priorities--
counter-narcotics enforcement, counter-money laundering 
activity, protection of our nation's leaders, firearms 
enforcement, and enhanced automation for the Customs Service.
    Funding is not the only element of strong law enforcement. 
Equally important are clear policies and a means for setting 
priorities. The Treasury Department seeks to provide support, 
oversight, and policy guidance to enhance the performance of 
our enforcement personnel and to facilitate an even stronger 
and more coordinated enforcement presence. That presence must 
also reflect the changing demographics of our population. Our 
need to recruit and retain the best qualified and most diverse 
workforce will gain even greater salience if the proposed 
budget is enacted.
    Our recruitment and retention objectives have been aided by 
the decision of the Office of Personnel Management to grant 
Schedule B excepted hiring authority to the ATF and to the 
Customs Service. There are still certain issues that we are 
working out with respect to executive orders for that 
authority, but we hope to work those out within the 
Administration in the near term.
    We have also been granted 20 Senior Executive Service 
positions by OPM for our enforcement bureaus, partially filling 
a longstanding and critical need to provide benefits more 
aligned with the high-level skills and expertise that we 
require of our personnel. While we still have challenges in 
this area, this number, 20, represents a 15 percent increase 
over previous levels.
    Another component in ensuring a high-caliber workforce is 
the ability to deliver the highest quality of training 
available. The Federal Law Enforcement Training Center is key 
to this goal. The expansion in recent years in the number of 
employees hired by the 73 law enforcement agencies that 
participate in FLETC has tested FLETC's ability to meet all 
training requests. Moreover, advanced training to keep law 
enforcement officers abreast of the latest trends in fighting 
crime cannot be compromised. Under the leadership of Director 
Basham, I believe we are meeting these challenges.
    In closing, I want to express my appreciation for the 
outstanding support of Treasury's law enforcement programs by 
the chairman, by the ranking member, by the entire 
subcommittee, and the staff. This was brought to bear, the 
support was brought in very concrete terms and also 
symbolically, in the presentation on Tuesday, which I know 
would not have happened without the support of you, Mr. 
Chairman, and your staff. It enabled us to show in very 
concrete terms the good work that Treasury law enforcement does 
as a unit and separately.

                           Prepared statement

    Our law enforcement bureaus have grown, they are better 
equipped, and they have become more professional as a result of 
your oversight and support. I look forward to answering any 
questions that you might have. Thank you.
    Senator Campbell. Thank you. We will continue on with the 
panel and then we will have some questions.
    [The statement follows:]

                 Prepared Statement of James E. Johnson

    Mr. Chairman, Senator Dorgan, and Members of the Subcommittee, I am 
pleased to be here today on behalf of Secretary Summers to introduce 
the fiscal year 2001 budget request for the Treasury Department's law 
enforcement bureaus and offices. Testifying with me today are the heads 
of each Treasury law enforcement bureau: Raymond W. Kelly, Commissioner 
of the United States Customs Service (USCS); Brian L. Stafford, 
Director of the United States Secret Service (USSS); Bradley A. 
Buckles, Director of the Bureau of Alcohol, Tobacco and Firearms (ATF); 
W. Ralph Basham, Director of the Federal Law Enforcement Training 
Center (FLETC); and William F. Baity, Deputy Director of the Financial 
Crimes Enforcement Network (FinCEN). FinCEN Director James Sloan 
suffered a loss in his family and will not be able to join us today.
    At the outset of my testimony, I want to thank the Members of this 
Subcommittee for their strong and continuing support for Treasury law 
enforcement. I welcome this opportunity to discuss with you the 
Treasury Department's accomplishments and plans in the important law 
enforcement mission areas for which we are responsible. I would like to 
focus on what we regard as the most significant challenges we are 
facing and how Treasury law enforcement is responding to them, covering 
our activities over the last year, our plans for the remainder of the 
current fiscal year, and our budget proposals for fiscal year 2001.
    While we continue to face fiscal challenges, the fiscal year 2000 
appropriation provides our Treasury bureaus with strong support for 
carrying forward increasingly complex and challenging missions. We 
appreciate the support you showed for Treasury's enforcement programs 
in the appropriations for fiscal year 2000. I am pleased to report that 
the President's fiscal year 2001 budget proposes a $4.2 billion program 
level for Treasury enforcement. If enacted, this budget will provide 
the ATF with an overall increase of more than 500 full-time equivalent 
agents, inspectors and other staff, and will substantially enhance our 
firearms enforcement efforts. This budget will provide the U.S. Secret 
Service with 193 additional full-time equivalent agents over the fiscal 
year 2000 appropriated level to enable the United States Secret Service 
to carry out its dual mission of protection and investigation. The 
President's budget also provides the U.S. Customs Service with 273 
additional full-time equivalent positions, including 120 for agents to 
conduct drug smuggling and money laundering investigations. Overall, 
the President's fiscal year 2001 budget proposal would add roughly 
1,200 full-time equivalent positions to Treasury enforcement above the 
fiscal year 2000 total enacted level. It represents the largest 
increase in Treasury law enforcement staffing in over a decade.
                         departmental oversight
    Funding is not the only element of strong law enforcement. It is 
also important that law enforcement agencies have clear policies and a 
means for setting priorities. We at the Treasury Department seek to 
provide support, oversight, and policy guidance to enhance the 
performance of our enforcement bureaus and to provide strong leadership 
in the enforcement community.
    Over the past year, we have continued to focus on accomplishing the 
Department's enforcement goals and our bureaus' individual goals. We 
have relied on the expertise of our professional staff and also on the 
talent and experience of bureau personnel to work on challenging 
issues.
    Hiring.--Our need to recruit the best qualified and diverse 
workforce will gain even greater salience if the proposed budget is 
enacted. We have undertaken two key initiatives in this area.
    (1) Schedule B--Late last year, in response to our appeal, the 
Office of Personnel Management (OPM) granted the ATF and the Customs 
Service Schedule B excepted hiring authority. This authority is 
somewhat similar to that currently used by the Secret Service, the 
Federal Bureau of Investigation, and the Drug Enforcement 
Administration for criminal investigator recruitment and selection. 
Some of the benefits of this authority are greater flexibility in 
targeting recruitment to meet skill requirements and diversity goals, 
the capability to focus on the large number of intangible skill sets 
and personal characteristics required, and the ability to find and hire 
quickly the best candidates for their jobs.
    (2) Diversity conference--Last fall, the Office of Enforcement, 
joined by Management, discussed with each of the bureaus their 
recruiting and hiring practices, focusing on diversity. We learned that 
each of the bureaus' recruitment programs had many commendable aspects, 
but concluded that all could benefit from hearing about the experiences 
of the other bureaus. Since that time, we have brought together the 
Equal Employment Opportunity managers from across the bureaus for a 
series of meetings which will culminate in a diversity conference, to 
be held next month, which will focus on best practices to recruit and 
hire a diverse workforce. The conference will also have a training 
module focusing on best practices for ensuring that, once recruited, 
minority employees have fair opportunities to advance through the 
organization over the course of their careers.
    Retention.--Retention of employees who have years of experience and 
in whom we have invested long hours of training is critical. In that 
regard, the Department has made progress toward meeting the challenges 
of improving our capacity to develop and retain high-caliber employees. 
Specifically, we have worked to address workforce retention and 
workload balancing issues within the Secret Service. My office 
established an Interagency Working Group on U.S. Secret Service 
Workforce Retention and Workload Balancing, which included 
representatives from Enforcement, Treasury's Office of Management, OMB, 
and the Secret Service. The analysis revealed that Secret Service 
agents have experienced an extreme increase in the amount of travel and 
working hours in the last few years due to the increase in the number 
of protectees and the enhanced level of protection necessary. In fiscal 
year 2001, the Secret Service will experience a further workload 
increase when the change of administrations occurs. To begin to 
alleviate these problems, Treasury's fiscal year 2001 budget proposal 
includes a significant increase in staffing for the Secret Service.
    Senior Executive Service (SES) allocations.--As the Subcommittee is 
aware, Treasury bureaus have had a critical need for SES positions. 
Last month, as a result of decisions within the OPM, we allocated 20 
additional SES positions to our enforcement bureaus. The lion's share 
of those positions went to the Customs Service, which, as you know, 
still faces significant challenges in this area. This is an issue that 
the Department will continue to work with our bureaus to address.
    Demonstration pay project.--In January, ATF implemented its pay 
demonstration pilot for scientific and technical positions. The 
demonstration project--developed by a team comprised of personnel from 
the Office of Enforcement, the Office of Management and the ATF--
emphasizes flexibility in approaches to recruitment, and establishes a 
pay-for-performance system designed to provide incentives to compete 
with state and local government and the private sector. To date, 223 
out of a possible 260 ATF employees have chosen to participate in the 
program, and the period for choosing to participate has not yet closed. 
We thank the Subcommittee for this authority as we look forward to 
making this capacity permanent.
    Retirement.--Schedule B authority, increasing SES allocations, and 
the pay demonstration project are particularly critical in light of the 
Department's report on retirement and the proposed budget. In response 
to Congressional direction, the Department, through a contract with the 
Office of Personnel Management, analyzed the large numbers of criminal 
investigator retirements that have occurred and will likely continue to 
occur in the next several fiscal years. Submitted to Congress last 
fall, the report included the findings and the implications for 
workforce planning, as well as related information about the recruiting 
market and selection problems that will affect Treasury's ability to 
hire criminal investigators and maintain staffing levels. Specifically, 
the report included an analysis of retirement and attrition patterns 
from the last 5 years, and the age and years of service of Treasury's 
criminal investigators. Based on this analysis, it was estimated that 
the Department would need approximately 2,662 new hires for its 
criminal investigator workforce between fiscal years 1998 and 2003 in 
order to maintain Treasury's 1998 fiscal year-end strength of 10,261 
criminal investigators. This means that, before we can take advantage 
of the increases contemplated in the President's budget, we must hire 
an average of approximately 600 additional investigators each year for 
fiscal years 1999 through 2003.
    Training.--Another aspect of our goal to recruit and retain a high 
quality workforce is assuring that Treasury law enforcement officers 
receive the highest quality of training available. The Federal Law 
Enforcement Training Center (FLETC) is key to this goal. The expansion 
in recent years in the number of employees hired by the 73 law 
enforcement agencies that participate in FLETC has stressed FLETC's 
ability to meet all the requests for training. Although FLETC continues 
to be able to provide all the basic training needed, currently by using 
a temporary facility in Charleston, South Carolina, increases in bureau 
hiring require coordinated increases in funding for FLETC.
    To address some of the strain from increased demand for training, 
we have also been exploring ways to use the latest technology to 
provide alternative means of delivering training courses. Recognizing 
that the FLETC facilities cannot accommodate all of the requests for 
training that are likely to arise in the future, we are searching for 
ways to use the Internet and video conferencing to provide needed 
training.
    Likewise, the need for advanced training to keep law enforcement 
officers abreast of the latest trends in fighting crime is critical. We 
have been working closely with FLETC to explore ways to enhance 
training to address high-tech crime. One example of this approach is 
Computer Investigative Specialist (CIS) 2000 training. This course, 
which includes agents from the Secret Service, Customs, the Internal 
Revenue Service Criminal Investigations Division, and ATF, uses state-
of-the-art training and equipment to teach agents how to deal with the 
latest computer and encryption technology that they may encounter in 
conducting an investigation. The CIS 2000 agents have achieved many 
notable successes in their investigations of counterfeiting, money 
laundering and various types of fraud as a result of this course.
    Through our Implementation Working Group, the Office of Enforcement 
also continues to monitor FLETC's progress in implementing 
organizational assessments of FLETC that my predecessor had done. Great 
strides have been made in addressing some of the problems that had 
developed at FLETC, and we hope to be able to conclude the 
Implementation Working Group's work later this year. The next meeting 
of the Committee will be held in Artesia, New Mexico this spring.
    Our budget request for fiscal year 2001 contains important 
initiatives for the Federal Law Enforcement Training Center (FLETC). We 
are seeking $6,969,000 for FLETC's mandatory workload. This funding 
will be used to address entry level training for additional agents and 
inspectors for ATF and additional agents for the Secret Service. This 
is the first major hiring initiative for Treasury law enforcement 
bureaus in many years. FLETC is a key component of Treasury's effort to 
meet this build-up. Funding also is included for new construction and 
renovation of older existing structures at FLETC to continue the 
planned upgrade of facilities crucial to the training of the vast 
majority of the federal government's law enforcement personnel.
    Office of Professional Responsibility.--One of the key functions of 
the Office of the Under Secretary (Enforcement), is to provide 
oversight to the Treasury law enforcement bureaus. Over the past few 
years, our efforts have been enhanced owing to the establishment of the 
Office of Professional Responsibility (OPR), which Congress directed. 
OPR completed a number of significant projects in 1999 and 2000, 
including the reviews of Customs' Office of Internal Affairs, ICDE 
funding needs, operations at ATF's Tracing Center, and the 
aforementioned Secret Service workforce review. A number of significant 
reviews are also underway, such as a prioritization of international 
training conducted by the bureaus, overseeing a year-long gathering of 
statistics on encounters with law enforcement to ensure ethnic and 
minority groups are not being unfairly targeted, and a review of ATF's 
role in the National Instant Check System (NICS).
                 money laundering and financial crimes
    Preventing abuse of our financial institutions to conceal tax 
evasion and the movement of money generated by criminal activities is a 
high priority. It is a problem that cuts across a broad spectrum of 
criminal activities, from violent crimes such as narcotics trafficking 
to white-collar crimes such as credit card fraud. This is a matter of 
great concern for the Treasury Department in our role as guardian of 
the integrity of the U.S. financial system and its financial 
institutions.
Current Activities and Priorities for Fiscal Year 2001
    Treasury's law enforcement bureaus and offices play a key role in 
our fight against financial crime. The Customs Service, the Secret 
Service, IRS-CID, and ATF all investigate money laundering stemming 
from the specified unlawful activities within their jurisdictions. 
Additionally, the Financial Crimes Enforcement Network (FinCEN) is 
charged with administering the Bank Secrecy Act, which prescribes 
transaction reporting and record-keeping requirements for financial 
institutions designed to insulate those institutions from money 
laundering, and to provide a paper trail for investigators. Just last 
August, FinCEN issued a final rule requiring all money services 
businesses to register with Treasury. FinCEN recently issued the final 
rule requiring a subset of these businesses--money remitters and money 
order and traveler's check issuers, sellers and redeemers--to file 
suspicious activity reports. FinCEN serves as the central point for 
collection and analysis of Bank Secrecy Act data and provides case 
support to law enforcement investigations.
    Over the last year we have undertaken or strengthened several 
initiatives aimed at addressing systemic vulnerabilities in our 
financial system.
    National Money Laundering Strategy.--In September 1999, in 
consultation with the Department of Justice, the Department of State, 
the federal financial supervisory agencies, and state and local law 
enforcement, Treasury published the first National Money Laundering 
Strategy. The Strategy for the first time articulates a coherent, 
broad-based attack against the pernicious effects of criminals hiding 
the proceeds of their crimes.
    Since the 1999 Strategy was released, a tremendous amount of 
progress has been made toward implementing it. Over a dozen interagency 
groups were formed to ensure progress on priority action items. Less 
than 6 months after the release of the 1999 Strategy, Treasury and 
Justice in early March released the 2000 Strategy. The 2000 Strategy 
announced a number of high intensity financial crime areas (HIFCAs), 
and described the results of a number of policy reviews. Substantial 
progress occurred in a number of areas, including a review of whether 
formal guidance should be given to financial institutions about how to 
meet their obligations to report suspicious transactions, the 
aforementioned issuance of suspicious activity reporting rules for so-
called money services businesses, a review of rules and practices 
currently in place to protect the privacy of U.S. persons by limiting 
access and controlling the use of information collected pursuant to the 
Bank Secrecy Act, developing a formal process to administer a grant 
program to support state and local efforts to combat money laundering, 
and encouraging countries around the world to join in the global fight 
against this problem.
    Particular progress was made this year in the multi-faceted attack 
on the Black Market Peso Exchange (BMPE) system of money laundering. 
The Treasury-led BMPE working group helped to produce improvements in 
investigative techniques used by law enforcement, awareness among the 
business community, and a multilateral working group of experts from 
affected governments throughout the hemisphere. In addition, Treasury 
continued its prominent role in the Financial Action Task Force (FATF), 
which is defining ``non-cooperative jurisdictions'' in order to 
identify and ultimately orchestrate counter-measures against them. The 
Department also issued a formal advisory encouraging the Government of 
Antigua and Barbuda to take constructive steps to address serious 
vulnerabilities in its system of anti-money laundering control. In the 
future, we expect to be in a position to meet the statutory deadline of 
February 1 for the annual strategy.
    Identity Theft Summit.--Each year American businesses and citizens 
lose more that $3 billion to credit card fraud. One of the key means by 
which this fraud occurs is identity theft. On May 4, 1999, President 
Clinton announced that the Treasury Department would convene a national 
summit on the subject of identity theft and work with the private 
sector to help prevent the occurrence of this crime. This summit is 
part of a larger identity theft initiative that includes case referral, 
a public education partnership, and sentencing enhancements, which will 
implement the new legislation that provides the U.S. Secret Service 
with authority to investigate identity theft violations. The summit, 
which took place on March 15 and 16, 2000, engaged 250 senior 
executives from the public and private sectors in a substantive 
dialogue that we expect will lead to better communication and 
cooperation on identity theft crimes.
    Financial Fraud.--During 1999 the U.S. Secret Service made almost 
4,500 arrests for financial crime offenses. The Secret Service also 
coordinated 28 task forces involving 54 law enforcement agencies 
throughout the United States. These task forces focused primarily on 
fraud schemes intended to victimize individuals, banks, credit card 
issuers, and other financial institutions.
    In fiscal year 2001, preventing abuse of our financial system to 
facilitate criminal activities remains a high priority for Treasury 
enforcement agencies. Our budget request for fiscal year 2001 supports 
Treasury's role in implementing that strategy. We are emphasizing (i) 
technical assistance to financial institutions as well as law 
enforcement agencies; (ii) enhanced collection and analysis of data 
that can help us to identify and pinpoint financial crimes; (iii) 
interdiction of outbound currency; (iv) giving our bureaus the 
resources to allow them to undertake lengthy investigations of complex 
illegal transactions; (v) specialized training for our agents; and (vi) 
partnership grants to state and local governments to leverage the 
resources they can bring to bear on this problem.
                           firearms violence
    Over the last 2 years, few events have so caught the attention of 
the American public, and indeed the worldwide audience, as the spate of 
senseless shootings in public places. In our schools, in our places of 
work, and on our streets, criminal violence and the easy availability 
of firearms to criminals have wrought havoc and caused Americans in all 
walks of life to feel unsafe. Over the last year, both the President 
and the Congress have responded to these concerns. Treasury, 
specifically the ATF, with the support of this Committee, has been at 
the center of this comprehensive response.
    The most important development of the past year has been our work 
with the Department of Justice to provide support for burgeoning 
collaborative federal, state, and local intensive firearms crime 
investigation and prosecution plans throughout the country. Between 
1993 and 1998, violent crime with firearms fell 37 percent and gun-
related homicides declined 36 percent. Firearms prosecutions are 
increasing. Department of Justice information shows that in 1999 
federal prosecutors brought 5,500 firearms cases in the federal courts, 
700 more cases than in 1992. Looking ahead, our primary focus continues 
to be on building firearms enforcement capacity, and providing the 
tools that enable federal, state, and local law enforcement to use 
their resources in a strategic manner that will have the most impact on 
armed crime reduction.
Current Activities and Priorities for Fiscal Year 2001
    Integrated Violence Reduction Strategy.--Last fiscal year, the 
Treasury Department and the Justice Department were directed by the 
President to provide an integrated violence reduction strategy to 
further reduce gun violence. The joint Treasury-Justice strategy will 
be released soon. It will call for more enforcement resources to combat 
armed violence as requested of Congress in the Administration's fiscal 
year 2001 budget request and ATF's fiscal year 2001 appropriations 
request, in order to maximize the impact of current laws on the 
reduction of gun violence. The strategy will also highlight legislative 
proposals discussed by the President to further reduce youth violence 
and improve public safety. Enforcement resources requested will be used 
to support and enforce current statutory authorities.
    The strategy proposes funding for 300 new agent positions, 200 
inspector positions and 100 other personnel for ATF to support local 
intensive prosecution projects like Project Ceasefire in Boston and 
Project Exile in Richmond, as well as for the Youth Crime Gun 
Interdiction Initiative, regulatory, and gun show enforcement 
activities (discussed below). These local strategic projects encompass 
investigations of armed criminals and illegal traffickers, and 
inspections of firearms dealers that are the sources of firearms to 
criminals, as well as those illegally attempting to acquire or 
illegally possessing firearms.
    Consistent with our budget request, the strategy will also call for 
an expanded effort to support state and local law enforcement agency 
capability to trace recovered firearms to determine their illegal 
sources and to speed up trace responses to state and local law 
enforcement agencies ($9.9 million), and to establish ballistics 
imaging capability to identify shooters and traffickers where the 
firearm itself is not recovered ($23.4 million). Our view is that all 
state and local enforcement agencies with a gun crime problem should 
have these capabilities, and be able to draw on ATF's information and 
analysis, expertise, and investigative experience. Expanded and shared 
information about the illegal gun market will enable more strategic use 
of federal, state, and local investigative and criminal justice 
resources.
    Commerce in Firearms in the United States.--Treasury strongly 
supports ATF's efforts to base its firearms inspection program on 
indicators of criminal access to firearms. In February, ATF released 
the first annual report on Commerce in Firearms in the United States, 
providing an array of information concerning the firearms industry and 
ATF's regulatory inspection program. The 2000 report informs Congress, 
law enforcement officials, and the public on the activities of ATF 
inspectors, and how ATF regulatory resources are focused in order to 
maximize their effectiveness in reducing firearms trafficking and 
abuse. The report shows the types of activities and inspection strategy 
for which we are requesting new inspectors and other personnel for ATF. 
A fair and focused inspection program will reduce the need for more 
costly criminal investigations and benefits public safety.
    Youth Crime Gun Interdiction Initiative (YCGII).--There is a 
continuing need to focus attention and resources specifically on 
reducing youth violence and preventing the illegal supply of firearms 
to juveniles and youth. A fundamental need is for investigators to find 
out how guns are illegally acquired by young people. In the past year, 
ATF and local police committed to establishing comprehensive crime gun 
tracing and youth gun violence reduction efforts with law enforcement 
agencies in eleven new cities, bringing the total number of cities 
participating in YCGII to 38 in its third year. In February 1999, 
Treasury and ATF issued the second year Youth Crime Gun Interdiction 
Initiative Trace Analysis report, analyzing over 76,000 crime gun 
traces from 27 cities. The report provides local law enforcement 
agencies with information about the number of firearms recovered in 
their jurisdictions, top crime guns in each city, and their geographic 
sources, in order to assist local law enforcement agencies with 
development of effective law enforcement strategies against youth 
violence. ATF also released the YCGII Performance Report, a survey of 
over 640 trafficking investigations nationwide involving juveniles and 
youth engaged in gun crime, demonstrating ATF's enforcement efforts to 
stop youth and juvenile access to guns through straw purchasers and 
other illegal channels. We endorse ATF's plan to expand YCGII to 75 
cities, and propose to add 12 new cities in fiscal year 2001 to work 
toward this goal by bringing the fiscal year 2001 participating cities 
to 50.
    Gun Show Report.--In February 1999, Treasury in coordination with 
the Department of Justice, released a report on gun shows, Gun Shows: 
Brady Checks and Crime Gun Traces. The report was prepared in response 
to a directive from the President that the Secretary of the Treasury 
and the Attorney General provide him with recommendations to address 
the gun show loophole, that is, the sale or exchange of firearms at gun 
shows without background checks or tracing records for those acquiring 
the firearm. The report led to legislation proposing that all 
transactions at gun shows include background checks and tracing records 
to prevent access to guns by prohibited persons and to allow law 
enforcement officials to trace firearms when they are recovered by law 
enforcement officials. Both licensed and unlicensed gun sellers at gun 
shows are sources of guns to criminals and other prohibited persons; 
where there is evidence of criminal activity, enforcement attention is 
required.
                           counter-narcotics
    Reducing the supply of dangerous drugs entering the United States 
continues to be another of our high priorities. It is also our most 
difficult challenge. We are confronted by well-financed criminal 
organizations that adapt quickly to every advance we make in the 
detection of illegal drugs. Moreover, interdiction is only one piece of 
a comprehensive drug control strategy that includes eradication of drug 
production abroad, sanctions against drug kingpins, investigation and 
disruption of trafficking activities within the United States, 
treatment of drug users, and, as mentioned above, combating money 
launderers.
Current Activities and Priorities for Fiscal Year 2001
    Border Coordination Initiative.--We continue to work to strengthen 
our coordination with other border enforcement agencies to assure that 
taxpayers get the most effective use of federal resources available for 
drug interdiction. In September 1998, Treasury and Justice initiated 
the Border Coordination Initiative (BCI), an innovative system for 
controlling the Southwest Border. BCI is a strategic plan for Customs 
and the INS to maintain a seamless, comprehensive, integrated border 
management system that increases interdiction of illegal drugs, illegal 
aliens, and other contraband while simultaneously facilitating legal 
migration and trade. Customs and the INS have set new standards for 
innovation, interagency cooperation, and operational effectiveness, 
with locally developed innovations leading to improved coordination and 
more efficient border operations. As a result of BCI, more than 120 
tons of cocaine, marijuana, and heroin were seized by Customs and the 
INS along the southwest border in 1999--an increase of more than 20 
percent over the previous year.
    For fiscal year 2001, the budget proposes several important 
initiatives to strengthen the enforcement and interdiction capabilities 
of the U.S. Customs Service, our main player in the counter-narcotics 
fight. Commissioner Kelly can address these programs in greater detail, 
but summarized briefly they include:
  --a $25 million request and 107 FTEs to aid Customs' investigations 
        into the criminal organizations that smuggle narcotics into our 
        country and distribute them in our communities;
  --a $10 million request to enhance Customs' ability to detect illegal 
        outbound currency movements; and
  -- a request of approximately $20 million in enforcement 
        infrastructure improvements, including a P-3 FLIR upgrade, 
        aircraft flight safety enhancements, surveillance equipment of 
        helicopters, and an upgrade of the air interdiction center 
        radar.
    Together, these initiatives would help Customs improve on record-
setting seizure statistics, while allowing it to better respond to the 
various smuggling routes and methods employed by narcotics traffickers.
    Intelligence Architecture Review.--Enforcement represented the 
Department in the inter-agency intelligence architecture review. The 
review, which also involved ONDCP, the Justice Department, CIA, and 
other agencies, led to a report, released last month, that contained a 
series of important action items to improve intelligence collection, 
dissemination, and use.
    Narcotics Kingpin Act.--On December 3, the President signed the 
Intelligence Authorization Act for fiscal year 2000, which contains the 
Foreign Narcotics Kingpin Designation Act (the Act). The Act 
establishes a global sanctions program targeting significant foreign 
narcotics traffickers and their organizations modeled along the lines 
of the President's IEEPA-based program targeting Colombian narcotics 
cartels. The Act requires the Office of Foreign Assets Control (OFAC) 
to identify significant foreign narcotics traffickers and closely 
associated entities and individuals throughout the world and impose 
financial and trade prohibitions, as well as asset blocking, against 
them.
    As a result of the significant workload increase driven by OFAC's 
responsibilities under the Act, the Department has included a request 
for $2.1 million and 20 FTE in the fiscal year 2000 supplemental 
request submitted to Congress in February. This would provide resources 
for OFAC to implement a global sanctions program targeting significant 
foreign narcotics traffickers and their organizations, as mandated by 
the Act. In addition, the fiscal year 2001 budget includes a request 
for $2.9 million and 11 FTE for OFAC to improve information gathering 
capabilities with respect to terrorist funding and narcotics 
trafficking and raise the quality of service to the public in the 
performance of OFAC's licensing function. OFAC currently has on-site 
staff gathering specialized information in Bogota, Colombia, on drug 
traffickers. Similar information gathering capability is needed in 
Dubai, United Arab Emirates to investigate terrorist funding, and in 
Panama and Bangkok to investigate drug traffickers. Sanctions programs 
are administered largely by licensing and the licensing function is 
OFAC's primary contact point with the public.
                   trade enforcement and facilitation
    The United States is the world's largest exporting and importing 
country, and the volume of both exports and imports is growing rapidly. 
Over the 5 year period 1994 to 1999, the dollar value of exports 
increased by over a third (about 36 percent). During the same period 
the dollar value of imports increased by more than half (about 51 
percent). These increases translate rather directly into increased 
workload for the Customs Service.
    Our trade with other nations is vital to our economic strength and 
our standard of living, and we want to do everything we can to assure 
that the movement of trade across our borders is as frictionless as 
possible. At the same time, however, we recognize our responsibility to 
assure Congress and the American public that laws enacted to protect 
public health and safety, as well as other interests, are being 
effectively enforced at the border.
Current Activities and Priorities for Fiscal Year 2001
    Improved Performance Measurement and Targeting of Violations.--The 
Customs Service has continued to improve the accuracy and specificity 
of its compliance measurement system. In 1999 Customs submitted its 
fourth annual report to Congress on the results of compliance 
measurement. Compliance measurement is not only a tool for targeting 
Customs' enforcement activities. It also enables us to account to the 
Congress and the American people on how effectively Customs' trade 
enforcement resources are being used.
    By illuminating where the problems are, compliance measurement also 
improves Customs' ability to implement a national risk management 
program that allows more efficient use of resources and more effective 
detection of violations.
    Automation.--Customs' struggle to modernize its automated 
commercial system is well known to this Subcommittee, and is a problem 
of a kind that is not unique to Customs. We believe that we have made 
substantial progress in the last year in responding to problems 
identified by the General Accounting Office in the development of 
Customs' new Automated Commercial Environment (ACE).
    As we work to develop a new automated commercial system, we are 
paying close attention to the reliability of the current system, the 
Automated Commercial System (ACS). The ACS is Customs' current 
mechanism for allowing importers, carriers, and others to transmit 
required information electronically, and enabling Customs to process 
and store the information electronically. ACS greatly accelerates 
transactions between the trade community and Customs, allows quicker 
release of goods, reduces the number of instances in which shipments of 
goods must be held by Customs owing to the absence of required paper 
documents, reduces filing errors, and improves law enforcement at the 
border by making possible electronic analysis of information for risk 
assessment purposes.
    However, the ACS was created in the early 1980s, and was developed 
with programming language that is now obsolete. The program is 
proprietary to Customs and not supported by any software vendor. 
Moreover, at the time ACS was created, the urgency of moving as rapidly 
as possible from a paper environment to an automated environment 
resulted in inadequate documentation of ACS programming. Customs is 
effectively prevented from modernizing its business practices--
including changes authorized by the Customs Modernization Act of 1993--
because of the difficulty and cost of modifying the obsolete and 
poorly-documented programming language on which ACS runs. Among the 
obsolescent features of ACS: (i) it is transaction based, that is, it 
treats the release of each shipment as a separate, taxable transaction, 
requiring the filing of an individual entry (tax return); and (ii) it 
is service-port oriented, requiring that entries be filed at the port 
at which goods are released from Customs custody.
    A little over a year ago, the ACS began to experience periodic 
failures, or ``brownouts''. Although these did not last long, they were 
sufficient to remind us of the absolute necessity of maintaining a 
reliable automated commercial system for Customs. Consequently, we have 
given very high priority to upgrading the capacity and reliability of 
the ACS. We expect to spend up to $79 million in the current fiscal 
year, and we are requesting $123 million in fiscal year 2001, to assure 
that the American public can rely on its government for effective and 
efficient enforcement of our trade laws.
    But we recognize that the trade community would like us to do more 
than simply assure the reliability of the current automated system. 
Each year the Customs Service must deal with the challenge of assuring 
that millions of freight containers and carriers entering the U.S. are 
in compliance with several hundred laws. In order for Customs to be 
effective at this job without becoming a serious impediment to 
commerce, it must become a more efficient collector and intelligent 
user of information.
    This is difficult to do with the ACS because, as I noted, it 
effectively locks Customs into obsolete business practices. Because it 
is difficult to modify ACS's software, Customs cannot even implement 
procedural reforms that were authorized in the 1993 Customs 
Modernization Act, let alone new procedures that have become possible 
since then.
    The Automated Commercial Environment, or ACE, is the proposed new 
Customs automated commercial system. It would operate on modern 
software and the programming would be fully documented to facilitate 
subsequent programming changes. ACE would allow periodic filing of 
consolidated entries to cover multiple transactions, and it would allow 
filing from any location, and not only the port at which the goods are 
entered. ACE also includes equipment enhancements to increase 
reliability and upgrade connectivity among Customs offices around the 
country and between Customs and the trade community. For example, ACE 
would be accessible to the trade through the Internet, while ACS is 
accessible only over dedicated lines.
    In our budget for fiscal year 2001, we are requesting $210 million 
for ACE development. We estimate the cost of ACE development over the 
next 4 years to be around $1.25 billion. This is a relatively costly 
initiative. The recently completed cost-benefit analysis for conversion 
from ACS to ACE shows that modernizing Customs' trade data processing 
system will provide significant benefits to both the federal government 
and the trade community. We continue to believe that the proposed fee 
appropriately captures some of the benefits private businesses will 
receive from Customs modernization, and therefore, we have proposed to 
offset the costs of ACE over the next several years by creating a user 
fee to be collected from all parties that use Customs' automated 
systems. The amount collected from each user would be based on its 
volume of use.
    We acknowledge that a similar user fee proposal last year was not 
well received. We have made some changes to our proposal this year that 
we believe go at least part of the way to meeting the objections of 
last year. For example, we are not asking, as we did last year, for the 
user fee to be collected a year in advance of appropriations for ACE.
    The Administration is prepared, indeed eager, to work with Congress 
and the trade community to enact this proposal and begin work on ACE as 
soon as possible.
    International Trade Data System.--An interagency group working 
under Treasury leadership has finished the system design of a new 
international trade data system (ITDS), called for by the Vice 
President's National Program Re-invention project. The ITDS will offer 
a single electronic window for collecting all data required in 
connection with importing and exporting. When implemented, the new 
system will substantially improve the effectiveness and efficiency of 
government administration of laws that must be applied at the border, 
and will greatly reduce red tape imposed on importers, exporters, and 
carriers. Our budget proposal for fiscal year 2001 continues this 
program at the current level of $5.4 million.
    G7 Data Harmonization.--Completing harmonization of G7 customs data 
requirements, as outlined by the Lyon, Denver, and Birmingham G7 summit 
communiques, will continue to be a priority in 2000. Current disparity 
in reporting requirements among G7 customs administrations imposes 
heavy reporting and record-keeping burdens on traders, and inhibits 
cooperation on law enforcement among governments.
    Child Labor Enforcement.--Treasury established a private sector 
advisory committee on child labor to help focus Customs' efforts to 
enforce laws prohibiting the importation of goods produced by forced 
labor. Customs' resources for enforcement efforts in the area of forced 
child labor have been increased. Customs had baseline resources of $3 
million and 4 full-time equivalent positions (FTE) in fiscal year 1999, 
$5 million and 6 FTE in fiscal year 2000.
    In fiscal year 2000, we are continuing to work aggressively to 
assure that goods produced by forced child labor are not allowed to 
enter the American market. Through the Child Labor Advisory Committee, 
Treasury and Customs are developing a program of business outreach 
aimed at fostering voluntary compliance with U.S. import restrictions 
on products of forced or indentured child labor through adoption of 
industry codes, best practices, and other methods. Customs will use 
additional budget resources provided by this Subcommittee to open a 
field office in South Asia dedicated to child labor enforcement, and 
will deploy additional investigative staff overseas as needed.
    Additionally, Customs investigators have conducted a number of 
fact-finding missions to countries in Asia and Latin America where 
child labor is believed to be prevalent in a number of industries. 
Several visits have been made to South Asia, including India, Pakistan, 
Nepal, Bangladesh, and Thailand. With the fiscal year 1999 
appropriation, additional agents were assigned to Bangkok, Hong Kong, 
and Montevideo. Additional agents will be assigned to the new South 
Asia field office that is being established in fiscal year 2000.
    The fiscal year 2001 President's Budget requests an additional $5 
million and 9 FTE, for a program total of $10 million and 15 FTE, to 
combat importation of goods made by forced child labor. The requested 
increase in fiscal year 2001 will enable us to attain even broader 
investigative coverage of overseas regions where child labor is 
believed to be endemic. These carefully placed investigative resources 
will enable Customs to acquire the detailed evidence that is required 
under U.S. law for Customs to detain merchandise manufactured with 
forced or indentured child labor.
    The use of forced child labor to produce goods imported into the 
United States is not merely a matter of unfair commercial competition. 
Use of forced child labor perpetuates poverty and contributes to 
instability abroad by denying children the opportunity to pursue 
educational opportunities that could enable them to improve their 
standards of living. In fiscal year 2001, we shall remain committed to 
working with other governments, other U.S. government agencies, and 
with knowledgeable private sector groups, to assure that the U.S. 
market does not inadvertently become a means for supporting forced 
child labor.
                           export enforcement
    As events have demonstrated over the last few years, the United 
States continues to be targeted by those who seek to acquire our most 
advanced weapons and technology, often for purposes that directly or 
indirectly threaten the security of the American people. For years, the 
Customs Service has been an integral part of our response to that 
threat, by monitoring exports of goods from the U.S. to identify goods 
that embody sensitive technology.
Current Activities and Priorities for Fiscal Year 2001
    Customs' ability to enforce effectively laws enacted by Congress to 
prevent the export of munitions and sensitive technology has been 
hampered by the difficulty of getting timely information about 
shipments leaving the country. Too often information is inadequate, 
inaccurate, or late. Two years ago the Treasury Department sponsored 
negotiations among the Customs Service, the Commerce Department, and 
representatives of exporters and carriers to work out the terms for use 
of a modern, electronic export reporting system. As a result of the 
agreement reached, use of the Automated Export System (AES) to file 
export declarations electronically increased from about 2 percent of 
export declarations filed in January of last year to around 25-30 
percent in January of this year. Because the AES, unlike its 
predecessor system, is accessible over the Internet, we expect use of 
electronic export filing to continue to grow. Electronic filing is, of 
course, convenient for exporters and carriers, but the government also 
benefits. Having timely export information in an electronic format 
greatly increases Customs' ability to monitor for export violations. In 
fiscal year 2001 we shall continue to promote use of the AES, and to 
look for other ways to improve the quality and timeliness of export 
data.
                    counter-terrorism and protection
Current Activities and Priorities for Fiscal Year 2001
    On May 22, 1998, the President signed Presidential Decision 
Directive 62. This Directive created a new and more systematic approach 
to fighting the terrorist threat and created criteria for identifying 
events of national significance that may be vulnerable to terrorist 
threats. At several events this year, including the World Energy 
Conference in Houston, Texas and the highly successful NATO Summit here 
in Washington, D.C., Treasury bureaus, including the Secret Service and 
ATF were involved in providing security, and the Customs Service 
provided air support. We estimate that approximately three or four 
events of this nature will occur each year.
    Additionally, Treasury leads an interagency working group in 
conjunction with the Customs Service to address issues of weapons of 
mass destruction (WMD). The focus of the group during 1999 and 2000 has 
been to find ways to enhance our security and prevent WMD from entering 
the United States. Recent incidents, such as the arrest of several 
suspects at the end of 1999 in Washington and Vermont relating to the 
attempt to smuggle explosives into the United States, highlight the 
importance of heightened vigilance in this area.
                                 arson
    National Church Arson Task Force.--Treasury and Justice, along with 
others, continue to coordinate a nationwide federal, state and local 
law enforcement effort to identify and prosecute those who burn or 
damage our houses of worship, to help rebuild those institutions, to 
prevent additional fires, and to help heal community tensions resulting 
from attacks on our houses of worship. Due in part to increased 
vigilance, well-publicized arrests, and ongoing prevention efforts 
under the President's three-pronged strategy, church arsons continued 
on a downward trend during the past year.
    In this statement I have been able to touch on only some of the 
important programs of Treasury's enforcement bureaus. Each bureau head 
will address our programs in greater detail. And, of course, I shall be 
pleased to respond in writing to any questions you want to direct to me 
about any of our programs.
    In conclusion, Mr. Chairman, I would like to thank you, Senator 
Dorgan, and the Members of this Subcommittee for your outstanding 
support of Treasury's law enforcement programs over many years. Our law 
enforcement bureaus have grown, they are better equipped, and they have 
become more professional as a result of your oversight and support. The 
benefits of this for the American public cannot be calculated. I would 
like also to thank the staff of this Subcommittee for its 
professionalism and patience over the last several years, as we 
wrestled with the problems that inevitably accompany growth and a 
rapidly-changing set of challenges. I do not want to miss this 
opportunity to express my appreciation and gratitude.

                          U.S. Customs Service

STATEMENT OF RAYMOND W. KELLY, COMMISSIONER

                           summary statement

    Senator Campbell. We will go ahead with Ray Kelly.
    Mr. Kelly. Chairman Campbell, Senator Dorgan, it is a 
privilege to appear before you today to discuss the Customs 
Service's fiscal year 2001 budget request. Before I begin, I, 
too, want to thank the members of the committee for supporting 
Customs over this past year. Our trade and enforcement 
successes would not have been possible without your counsel and 
assistance.
    Those successes included the arrest last December 14 of 
suspected terrorist Ahmed Ressam at Port Angeles in the State 
of Washington. Ressam attempted to enter the United States from 
Canada carrying explosive material and timing devices. It was 
sufficient to trigger bombs not unlike those at Oklahoma City 
and the World Trade Center in New York City. While all of the 
ramifications of Ressam's activities have yet to fully surface, 
it is apparent that the vigilance of the Customs inspectors in 
this case saved untold lives. America was able to celebrate the 
close of one millennium and the beginning of the next without 
incident. I cannot stress enough the commitment of our people 
in making our last holiday season a safer, more secure one for 
all Americans, and I do not doubt their readiness to answer the 
call again.
    But the truth is, there is a lot of ground to cover when 
such an event occurs. We cannot be every place at every time. 
The simple fact is, we need more manpower to carry out our 
mission. In the meantime, we are prepared to take additional 
measures to secure our borders.
    After Port Angeles, Customs developed a four-tiered alert 
plan for future security threats of that nature. We also 
instituted around-the-clock staffing at all northern border 
crossings formerly monitored by remote video cameras. The 
threat of terrorism on America's doorstep has added yet a 
further strain on resources already stretched thin by a 
stunning growth in global trade.
    To give you some examples, since 1990, trade entries or the 
number of individual shipments of goods have jumped 132 
percent, from 9.4 million to over 21 million entries per year. 
Likewise, the number of air and sea passengers we process has 
climbed 62 percent, from 52 million to 84 million people per 
year. On top of this, we process a steady stream of nearly 400 
million land passengers each year. Yet, the Customs Service has 
increased the number of full-time staffing over the last 10 
years by only 4.5 percent.
    Despite our limited resources, Customs seized close to 1.5 
million pounds of illegal narcotics in fiscal year 1999. That 
is a 17.5 percent increase over the previous fiscal year. But 
we are under no delusions. Declining wholesale prices of 
narcotics tell us we need to do more to stem the unceasing flow 
of illegal drugs into America. We also have a major new threat 
before us in the form of Ecstasy, the synthetic drug that 
Customs is now seizing in record numbers.
    This year's budget request includes funding for the hiring 
of 214 additional special agents. This increase will help us 
ratchet up the investigative pressure on the drug cartels. It 
will also help us counter higher attrition rates in our agent 
workforce. In fiscal year 1999, we experienced a net loss of 87 
agents and we are already down the same number of agents in 
just the first half of fiscal year 2000. Of course, the drug 
cartels are quick to adapt to any changes. When frustrated on 
the ground, they turn to the seas and skies.
    Customs' answer to this smuggling blitz is the Air and 
Marine Interdiction Division, which is our fleet of boats and 
planes deployed throughout the drug source, transit, and 
arrival zones. Last year, we combined our air and marine units 
under one command. Though greatly in need of upgrades, the Air 
and Marine Division is today a vital asset in the nation's 
counter-drug arsenal. In fact, the U.S. Customs Service 
provides in excess of 90 percent of all detection and 
monitoring flights in the source and transit zones for drugs.
    In Colombia, we provide the vast majority of airborne 
detection and monitoring and are the only agency carrying host 
country riders. Our P-3 early warning aircraft are responsible 
for the great majority of these flights. However, the radar 
systems they carry are in dire need of upgrades. Without these 
upgrades, we will soon find ourselves unable to service the 
systems in the event of breakdowns.
    New technology has more than proven its worth across the 
spectrum of Customs' other enforcement activities. Fixed and 
mobile truck x-ray systems and gamma imaging devices have 
enabled us to find drugs in place we never could have found 
them before. We also now have eight state-of-the-art body scan 
machines installed at major airports around the country. The 
body scan is offered as an alternative to physical inspections 
to any traveler detained by Customs. I should add that this 
technology has been complemented by a thorough revamping of our 
personal search policies. These changes will help Customs 
protect the rights of travelers while allowing us to accomplish 
our mission.
    Our automated system for processing freight is yet another 
vital component in our ability to facilitate and enforce. Last 
year, we processed a little over $1 trillion in trade. That 
volume is expected to nearly double in the next 5 years alone. 
To cope with this scenario, we have developed a comprehensive 
strategy of risk management. Risk management allows us to zero 
in on cargo and conveyances more likely to contain corrupted 
goods and allow speedy processing of the vast majority of 
shipments that comply with the law.
    Risk management, however, depends in large part on the 
construction of a new automated system, ACE, ``ae'' as we call 
it. Customs has made huge strides in developing ACE. We 
addressed all of the issues that have surfaced in GAO critiques 
about our ability to build and operate the system and we 
assembled a talented management team to carry out the job. The 
remaining issue now is funding. Until ACE funding is obtained, 
our first priority must be to seek resources to maintain our 
current outdated system, or ACS, as we call it.

                           prepared statement

    Mr. Chairman, the Customs Service is at an important 
crossroads. How we respond now to the challenges I just laid 
out will impact greatly on our mission for years to come. I 
appreciate the opportunity to appear before you today. Your 
support for our fiscal year 2001 budget request will further 
enhance our ability to safeguard our nation's borders. Thank 
you.
    Senator Campbell. Thank you.
    [The statement follows:]

                 Prepared Statement of Raymond W. Kelly

                              introduction
    Good morning, Mr. Chairman and Members of the Subcommittee. It is a 
privilege to appear before the Subcommittee today to present the 
Customs fiscal year 2001 budget request, and share with you some of our 
recent accomplishments and ongoing activities. Before I begin though, I 
would like to personally thank the Chairman, Ranking Member, and other 
Committee Members for the strong support you have continued to provide 
to the U.S. Customs Service.
    The Customs Service is an agency with a long and rich history, many 
proud traditions, and an extraordinary record of achievement. We 
recognize that our mission is not an easy one--standing as part of the 
front line of defense at the Nation's borders--but we continue to find 
ways to rise to the challenges that we face every day.
    As you know, the United States faces a continuing threat of 
domestic terrorism and increasingly sophisticated tactics by narcotics 
smugglers to move their contraband across our borders. At the same 
time, the increase in international trade and number of passengers 
transiting through major ports of entry already strain our 
capabilities. Our recent successes in intercepting terrorists on our 
northern border and major drug seizures on the Southern/Southwestern 
borders indicate how intelligence and technology, together with alert 
and well-trained inspectors and agents can have a major impact in 
deterring the threats we face. Our future success depends directly on 
the continued, skilled deployment of training and technology to meet 
the challenges we face.
    In order to meet its mission, Customs has emphasized the following 
core operational challenges:
                 automated commercial environment (ace)
    Customs must modernize its commercial processing system in order to 
meet the import demands of the new millennium. Effective and reliable 
automated systems are critical to performing both Customs trade and 
enforcement missions successfully.
    Development and implementation of the Automated Commercial 
Environment (ACE), a major component of our modernization program, will 
provide significant benefits to Customs field operations personnel, the 
importing community and, most importantly, the U.S. economy through:
  --Uniform and streamlined cargo entry processes and just-in-time 
        reporting capabilities;
  --More efficient and accurate revenue collection;
  -- Enhanced targeting and analytical capabilities aimed at combating 
        violations of U.S. import and export trade laws, drug 
        smuggling, money laundering, and terrorism.
    ACE will replace our current 16-year old system, the Automated 
Commercial System (ACS). However, we have not kept pace with changing 
technology and its is time to begin the process of modernizing our 
systems.
    While Customs has taken many preliminary steps towards 
modernization, a significant amount of additional effort and funding is 
needed to realize our main goals: to support business processes, 
maximize the use of information technology, and meet the challenges of 
an ever-changing global trade environment. Without a new automated 
system, Customs will be placed in the precarious position of continuing 
to rely on the outdated ACS beyond the year 2004 (when ACS will be 20 
years old), subjecting both Customs and the trade community to risks of 
degraded service, lost revenue collection, and possible disruptions.
                        training and development
    Customs mission demands a training regime that is strong, focused, 
and available to employees throughout their careers. Customs depends on 
training to develop and maintain high levels of proficiency in its 
mission-critical skills and to build professionalism and integrity in 
the workforce. Training must be delivered with consistency across the 
nation.
    Customs has lacked strong, centralized management of training 
programs in the past. To address this, Customs established a new Office 
of Training and Development (OTD) and appointed a new Assistant 
Commissioner of Training and Development to take the first steps to 
correct our deficiencies and begin to lay the groundwork needed to meet 
future challenges. OTD has taken a leadership role in setting training 
priorities and establishing management processes that are aligned with 
our mission.
    As an important first step, OTD is developing a National Training 
Plan (NTP) and tracking and reporting systems. Customs will have the 
ability to invest training funds wisely and monitor the use of these 
funds as well as gauge the return on investment. With the NTP, Customs 
will make a connection to its strategic objectives, target training 
areas of greatest need, and find the best and most cost-effective ways 
to get training to Customs employees. We will establish national 
priorities, develop training profiles for our mission-critical 
occupations, and install rigorous training and tracking procedures. 
Planning at the national level will allow us to explore partnerships 
with all offices within Customs and other agencies and teaching 
institutions, and will further serve to leverage scarce resources and 
eliminate redundancies in Customs training.
    Customs has also embarked on a path to strengthen the in-Service 
Firearms and Tactical Training Program for its 13,000-armed officers. 
This program is in need of constant improvement in quality and 
efficiency, particularly as those armed Customs officers deal with 
dangerous use of force events in the course of their jobs on a daily 
basis. Improved and enhanced firearms training will not only protect 
our officers, but also the travelling public we serve.
                  improved human resources management
    As we continue to build a Customs workforce worthy of the highest 
public trust, our focus remains on two critical areas: recruitment of 
the best personnel and our commitment to integrity.
    Under our new Quality Recruitment program, Customs is hiring the 
most capable professionals. We have hired 155 new Inspectors and Canine 
Enforcement Officers through this system over the last 6 months and 
more are in the pipeline. Early indicators are that these men and women 
are among our Nation's best and brightest. Quality Recruitment has been 
extended beyond those occupations to Pilots and Aviation personnel. In 
addition, testing and structured evaluation are also being developed 
for use in choosing Supervisory Agents and Senior Inspectors. This will 
strengthen our merit-based selection process and serve to ensure 
consistency of quality in our supervisory ranks.
    Given their sensitive law enforcement responsibilities, Customs 
employees must be held to the highest standards of ethical and 
professional conduct. ``Preserving Our Pride, A Guide to Good Conduct 
and the Discipline Process,'' a handbook that reinforces our commitment 
to integrity, has been distributed to every employee and provides the 
standards of conduct expected, as well as employees' rights and 
responsibilities.
    Along with clearly communicating our expectations, we have 
implemented systems to better capture allegations of misconduct, 
impartially investigate those claims, track their progress, and deal 
fairly and consistently with the investigative findings. We have also 
established a system of cross-functional boards, composed of senior 
managers trained in the review process, to adjudicate cases and 
recommend action based on the merits of the evidence. Cases involving 
serious allegations are handled swiftly and appropriately. Improvements 
to our automated human resource systems continue and based on these 
enhancements, we are now able to analyze and communicate important 
information about conduct trends to our workforce. Employees at all 
levels of the organization understand that they are accountable for 
their actions and are held to the same standards.
    While significant investments in Customs information technology and 
personnel need to be made to continue to improve on our ability to meet 
the challenging demands of the future, we are proud of the 
accomplishments we have made in this area.
                        core mission activities
    As Customs meets these new challenges, it must also remain vigilant 
against the ever present threats of narcotics smuggling; money 
laundering; unwarranted threats against American industry, such as 
quota, marking, and intellectual property rights violations; and 
threats against the health and safety of the American people.
    On a typical day, Customs officers process 1.3 million passengers 
and nearly 350,000 vehicles at ports and border crossings around the 
country. They seize nearly 4,000 pounds of narcotics and about a 
million dollars in ill-gotten proceeds.
    Last year, in fact, Customs set another record for drug seizures, 
17.5 percent over fiscal year 1998 seizures. That means nearly 1\1/2\ 
million pounds of illegal narcotics were kept off our Nation's streets. 
Yet drug smuggling organizations continually modify their means of 
smuggling in response to our interdiction efforts. We must constantly 
adapt to their changing methods.
    Customs enforcement actions also protect domestic industries from 
unfair competition. They keep tainted and spoiled products from making 
their way to consumers. They defend intellectual property rights and 
deter the corrosive effects of economic fraud.
Narcotics Smuggling
    Customs approach to fighting narcotics smuggling is multifaceted, 
from traditional searches by our Inspectors and Canine Enforcement 
teams, to partnerships with industry to prevent drugs from being 
imported in their merchandise or conveyances, to air and marine 
interdiction, to the work of our Special Agents in tracking the illegal 
proceeds generated by drug sales.
    The use of non-intrusive technology is also key to maintaining the 
success of our narcotics interdiction efforts. Customs has in place a 
5-year technology plan that calls for the deployment of NII technology 
to blanket the Southern Tier and other high-risk locations.
    Twenty-two systems have been deployed to date and more than 15 
additional systems will come online in fiscal year 2000. NII technology 
includes items such as Mobile Truck X-Rays, Rail Systems, Relocatable 
Gamma Rays, and Higher Energy Fixed Site Truck X-Rays. All of this 
equipment, as well as systems such as the Automated Targeting System 
aimed at commercial shipments, act as a force multiplier in the search 
for well-concealed contraband.
    Customs is also proud of its work with participants in our Industry 
Partnership Programs (IPP). In fiscal year 1999, these participants 
provided information to Customs that resulted in 42 domestic seizures 
totaling 8,428 pounds of narcotics. During the same period, Customs 
efforts overseas, and IPP participants, assisted in 190 foreign 
intercepts of 35,640 pounds of narcotics destined for the United States 
from abroad.
    Over the last 5 fiscal years (1995-1999) participants in these 
programs have provided information to Customs which has resulted in 
domestic seizures totaling over 64,000 pounds of narcotics. During the 
same period, program participants helped intercept over 151,000 pounds 
of narcotics destined for the United States from abroad.
    Customs is working with the business community in a Business Anti-
Smuggling Coalition (BASC) throughout the United States, as well as 
with local business communities throughout the Republic of Colombia. 
This led to the creation of a Colombian BASC Program, with individual 
BASC Chapters throughout the country. Other foreign countries where 
BASC Chapters have been established by the private sector include Peru, 
Costa Rica, Ecuador, and Venezuela.
    BASC has been promoted to the World Customs Organization and will 
be included into the ``WCO Business Partnership'' program, which 
provides a way in which Customs administrations could work together 
with trade associations to combat the international trade in illicit 
drugs.
    The mission of the Air and Marine Interdiction Division is to 
protect the Nation's borders and the American people from the smuggling 
of narcotics and other contraband with an integrated and coordinated 
air and marine interdiction force. With a fleet of 114 aircraft and 88 
vessels, this mission is carried out from our continental boundaries to 
the skies over the coca fields in Colombia and Peru.
    In cooperation with the U.S. Southern Command, Customs has a full-
time presence in the source country area of responsibility. Since 1991, 
Customs has used its P?3 detection and monitoring and Citation II 
interceptor/tracker aircraft to conduct air interdiction missions in 
source zone countries. Customs P-3 aircraft account for 90 percent of 
U.S. detection and monitoring assets in the source zone. As additional 
P-3 aircraft come on line, we are committed to providing more 
operational P-3 flight hours in support of these missions.
    Customs also provides Citation tracker aircraft in the transit and 
source zones. Two Citations are based in Mexico to support the 
Government of Mexico drug interdiction program. Significant seizures 
have resulted from that cooperative effort, particularly in Hermosillo, 
an area just south of Arizona.
    In the remainder of the transit zone, Customs aircraft, based at 
our 20 air and marine branches and units, operate from the Bahamas to 
the eastern Pacific. These efforts similarly make an invaluable 
contribution to our international drug control strategy.
    Another critical component of our drug interdiction effort is our 
marine program. Smugglers are increasingly using both airdrops and 
high-speed boats to move illegal drugs from South America through the 
Caribbean and on to the United States. In response, Customs has 
consolidated its marine assets with aviation operations to provide an 
integrated strategic and tactical response to this threat.
    Customs has a long tradition of interdicting airborne and marine 
drug smugglers along the borders of the United States. Customs uses 
similar airborne tactics to provide effective airspace security 
operations. Specifically, in accordance with Presidential Decision 
Directive 62, Customs has been instrumental in enhancing the Nation's 
defense against the potential for unconventional terrorist activity.
Personal Search
    Customs currently has 10 body scan x-rays in place at major 
airports. These low power x-rays, which provide an image of the surface 
of the body, offer a means to determine if a traveler has contraband 
concealed under their clothing without physical contact. Travelers are 
offered the option of a body scan in lieu of a ``patdown'' search.
    We are currently seeking a contractor to provide a mobile x-ray 
capability at nine major airports. This would allow Customs to x-ray 
travelers that we suspect of carrying contraband internally much more 
quickly. We currently have to transport these persons to a medical 
facility, a process that can take a substantial amount of time.
    The mobile x-ray units will be able to respond to our inspection 
facilities at the airport within 10 minutes of being called. The x-ray 
will be taken and read in 30 minutes; if the x-ray is negative the 
traveler will then be free to depart the Customs area. I expect this 
contract to be awarded before April 1.
    Customs will also continue to seek and evaluate other non-intrusive 
technologies that can assist us.
    As the Committee is aware, allegations have been made that Customs 
was targeting certain minorities for inspections, detention and 
personal searches at border crossings. Further concerns were raised 
that personal searches of individuals subject to searches under Customs 
procedures were being carried out by employees who were not of the same 
gender as the individuals being searched.
    I have stated repeatedly that Customs will not tolerate race-based 
and gender bias discriminatory treatment of the travelling public. I 
reinforced this position in May 1999, when I stated to the House of 
Representatives Committee on Ways and Means, Subcommittee on Oversight 
that ``the complaints we have received about racial prejudice in 
selecting passengers for searches are very disturbing. It is certainly 
not Customs Service policy, and it will not be tolerated as Customs 
Service practice--anywhere.''
    As a result of your Committee's concerns and travelers' allegations 
against Customs, the agency has taken a number of steps to address 
these issues.
    We appointed a Personal Search Review Commission (PSRC) in April 
1999 to review the policies and procedures used by Customs to process 
passengers at our major international airports including personal 
search procedures. The PSRC has completed field visits to our 
international airports. I expect its report in the next few weeks.
    Customs also established the Passenger Data Analysis Team (PDAT) to 
review and analyze personal search data. In addition, Customs has 
improved the personal search data collection process by making specific 
input of data mandatory. Additional data is now collected from 
travelers subjected to a personal search. This data is reviewed weekly 
by management to ensure its integrity.
    In November 1999, the new Personal Search Handbook was issued and 
training was provided to all Customs Inspectors. Over 8,000 Customs 
Officers, including upper level management, supervisors, Canine 
Enforcement Officers, and Inspectors have received this training. The 
Personal Search handbook has now been distributed to all appropriate 
personnel.
    Customs is committed to its pursuit of narcotics smugglers while at 
the same time protecting our employees and treating the traveling 
public in a courteous and professional manner. I believe these new 
policy changes will guard individual rights while ensuring Customs can 
still meet its mission to intercept contraband at our Nation's borders.
Counter-Terrorism
    Customs has established an in-house, multi-discipline Counter-
Terrorism Working Group to coordinate Counter-Terrorism issues, to 
include training; task force participation; technology R&D 
intelligence dissemination and other Counter-Terrorism related matters.
    We have provided training, in the areas of WMD and Antiterrorism/
Aviation Security, to Inspectors, Canine Enforcement Officers and 
Special Agents designated with Counter-Terrorism responsibilities. 
Additional training in Anti/Counter-Terrorism is being added to the 
Basic Inspector course in fiscal year 2000 and Counter-Terrorism 
training is being developed for Special Agents.
    Actionable intelligence collection and dissemination continues to 
be an important function of Customs Counter-Terrorism program. Special 
Agents actively participate in FBI Joint Terrorism Task Forces 
throughout the United States and provide expertise in the areas of 
strategic and financial investigations. Special Agents and Intelligence 
Research Specialists have been assigned to the FBI and the CIA to 
coordinate Counter-Terrorism investigative and intelligence activities 
that have a nexus to Customs violations.
Stolen Vehicles
    Customs also works jointly with the National Insurance Crime Bureau 
(NICB) and other law enforcement entities to detect stolen vehicles. 
There are five locations where NICB Agents are working on site with 
Customs Inspectors. Customs processes approximately 600,000 legally 
exported vehicles annually. NICB claims that over 200,000 stolen 
vehicles are exported from the United States each year as units or as 
parts.
    Customs uses an electronic system that conducts queries of Vehicle 
Identification Numbers to the National Crime Information Center (NCIC), 
NICB and other databases to detect stolen vehicles prior to 
exportation. In addition, the NICB Vehicle Export Program, a stand-
alone online system, is being used by Inspectors to access vehicle 
history and assist with Vehicle Identification Numbers at 10 ports.
    During fiscal year 1999 Customs seized 1,343 outbound stolen 
vehicles with an estimated value of more than $16.5 million.
Forced Child Labor
    The investigation of allegations of goods manufactured or produced 
with convict, forced or indentured labor, including forced or 
indentured child labor, is among the most difficult responsibilities of 
Customs. The investigations require special training, difficult 
negotiations with Foreign governments, and highly specialized 
intelligence. Special Agents who are part investigator and part 
diplomat, supported by highly specialized Intelligence Research 
Specialists. Special Agents must travel great distances and conduct 
investigations under trying physical, and political circumstances.
    Through Outreach Programs with foreign authorities, public advocacy 
groups, and other U.S. agencies and organizations, Customs has 
developed working relationships in an effort to identify products 
manufactured or produced with some form of proscribed labor that are 
imported into the United States. As an outcome of the greater scrutiny, 
Customs has issued five Detention Orders which, to date, have resulted 
in three detentions. Detention Orders delay the entry of goods into the 
United States, until the importer provides Customs with proof that the 
goods were not produced with forced labor. As the result of one of 
these Detention Orders, Customs discovered the organized smuggling of 
beedi cigarettes to avoid the Customs Duties and Federal Excise Tax on 
tobacco products.
Tobacco Smuggling
    International cigarette smuggling has grown to a multi-billion 
dollar a year illegal enterprise linked to transnational organized 
crime and international terrorism. Profits from cigarette smuggling 
rival those of narcotic trafficking. The United States plays an 
important role as a source and transshipment country. Additionally, 
large sums of money related to cigarette smuggling flow through U.S. 
financial institutions. Customs has taken steps to disrupt and 
dismantle some of the smuggling networks in cooperation with foreign 
law enforcement officials. Customs is studying the dramatic increase of 
cigarette imports into the United States in the last two quarters of 
1999. The increased scrutiny, directed at certain beedi cigarette 
imports from India, revealed the previously unknown smuggling of beedi 
cigarettes into the United States that has resulted in a loss of 
Customs duties and Federal Excise Tax.
Intellectual Property Rights
    The enforcement of our Intellectual Property Rights (IPR) continues 
to be Customs priority. We recognize that IPR crime is a problem that 
is global in proportion, adversely affecting domestic and international 
business. The explosion of IPR crime is, in part, the result of 
increased technological advances associated with computers and the 
Internet. Due to our border search authority, Customs has unique 
authority and qualifications in the fight against IPR crime. During the 
last 3 fiscal years, Customs enforcement efforts have resulted in 
record breaking IPR seizures and significant investigative activity.
    Customs continues its concerted effort to detect and seize 
infringing merchandise entering the United States and to investigate 
those individuals and organizations involved in those illicit schemes. 
This mission is accomplished through the cooperation of various 
disciplines within Customs and with other domestic and foreign law 
enforcement.
    Customs, in coordination with the Department of Justice, has 
developed and begun limited operation of the multi-agency National 
Intellectual Property Rights Coordination Center. The Center will 
coordinate U.S. Government law enforcement activities involving IPR 
issues. The Center will integrate information and intelligence obtained 
from both domestic and international law enforcement, as well as, 
private industry pertaining to IPR crime. This information will be 
disseminated for appropriate investigative and tactical use. The Center 
will assist in the enhancement and further development of 
investigative, intelligence and interdiction capabilities.
Textile Smuggling
    Customs has increased its efforts in combating the smuggling and 
illegal transshipment, to avoid quota restrictions, of textiles and 
wearing apparel. Worldwide, many violators continue to participate in 
the criminal transportation and importation of textiles and apparel 
goods into the United States. The textile production verification team 
is still the primary resource for Customs in identifying illegal 
textile transshipment.
    Many of Customs investigative field offices within the Office of 
Investigations concentrate on the smuggling of textiles via in-bond 
diversion. These offices have successfully infiltrated smuggling 
organizations with the use of undercover operations. These undercover 
operations have identified transnational criminal organizations that 
have smuggled hundreds of containers of textiles and other merchandise 
into the commerce of the United States. This activity has deprived the 
United States Government of customs duties and has violated the trade 
restrictions implemented through the quota and visa systems. Customs 
will continue to attack this problem through the use of undercover 
operations and other traditional investigative techniques.
Financial Investigations
    Customs is a leader in the Federal government's efforts to combat 
money laundering and it provides key support to the National Money 
Laundering Strategy. In order to target the money launderers and the 
systems they employ, Customs has been given a broad grant of authority 
in the conduct of international financial crime and money laundering 
investigations. This authority is primarily derived from the Bank 
Secrecy Act (BSA) and the Money Laundering Control Acts of 1986 and 
1988.
    Customs has implemented an aggressive strategy to combat money 
laundering, and now dedicates in excess of 400 agents worldwide to 
money laundering investigations. Our approach involves interdiction 
efforts by Customs Inspectors, criminal investigations by Customs 
Special Agents, and in partnership with Treasury, FinCEN and others, 
the design and implementation of innovative regulatory interventions, 
such as the Geographic Targeting Order.
    These efforts against money laundering are not limited to drug 
related money laundering, but to the proceeds of all crime laundered in 
a variety of ways. During fiscal years 1998 and 1999, money laundering 
investigations conducted by Customs resulted in the arrest of over 
2,100 violators and the seizure of more than $600 million.
    In achieving this success, Customs relies on a variety of 
enforcement tools to attack money launderers and the systems they use 
to launder their criminal proceeds.
            Asset Identification and Removal Groups
    In response to the threat and challenge of identifying criminal 
assets, Customs created Asset Identification and Removal Groups, or 
AIRGs, to target the assets of criminal organizations as early as 
possible. Currently, Customs has trained and equipped 21 AIRGs, 
composed of Special Agents, Auditors, and Forensic Accountants.
    Our AIRG team in South Florida traced the assets of a convicted 
marijuana smuggler who, for nearly 15 years, hid his assets through a 
myriad of nominee corporations, business dealings, and offshore bank 
accounts. Despite his best efforts, the AIRG was able to trace the 
profits of his drug trade. Last year, this convicted drug smuggler 
forfeited $50 million to Customs, the largest single Customs and 
Treasury Department monetary seizure. The Monroe County (Florida) 
Sheriff's Office provided substantial assistance to the investigation 
and based upon their contributions last year, Customs shared $25 
million of the seized money with that department.
    As part of Customs critical role within the Treasury led Black 
Market Peso Exchange (BMPE) Working Group, these groups will be 
augmented this year to focus on the BMPE. There will also be a 
Suspicious Activity Review Unit within each group that will work to 
disseminate intelligence gathered from Suspicious Activity Reports and 
distribute the information to our field agents.
            Money Laundering Coordination Center
    The Customs Money Laundering Coordination Center, or MLCC, is now 
operational and will soon provide 24-hour deconfliction support to all 
Customs undercover financial investigations. By doing so, the MLCC acts 
as a safety mechanism so that all Customs undercover actions are 
tracked and coordinated in real time, thus ensuring that our numerous 
money laundering investigations do not conflict with one another and 
that undercover agents are not unknowingly pursuing the same target. 
The MLCC also analyzes information provided by these operations in 
order to more fully develop targets and expand investigations. We have 
invited all Federal law enforcement agencies that are conducting 
relevant investigations to participate in the MLCC.
    As outlined in the National Money Laundering Strategy, the Money 
Laundering Coordination Center is also the repository for all U.S. 
Government information relating to Black Market Peso Exchange. 
Information is gathered on money brokers, bank accounts, trade data and 
other targets. The information is analyzed by Customs to identify any 
targets, systems, and patterns that are then sent to our field offices 
for further investigation.
            ``Non-Narcotic'' Money Laundering
    The money laundering investigations conducted by Customs are not 
limited to organizations that launder drug proceeds. Customs has 
primary international jurisdiction involving violations of Title 18 USC 
2314 which enables us to address money laundering outside of the 
context of drug trafficking.
    A number of initiatives are underway which are designed to target 
non-narcotic money laundering. For instance, our Numerically Integrated 
Profiling System (NIPS) has the ability to manipulate import/export and 
BSA data to determine anomalies, trends, patterns and suspicious 
activity.
    Customs participates in Project Colt, which is a joint Canadian-
U.S. law enforcement initiative that targets telemarketers in Canada 
who prey upon elderly U.S. citizens in a lottery and advance fee scam. 
Since last June, Project Colt has seized and returned over $9 million 
to U.S. and Canadian victims.
    Customs also targets Prime Bank Note schemes and other investment 
schemes. For example, Operation Risky Business, conducted by our 
Tallahassee office focuses on a worldwide advance fee scheme that 
targeted U.S. businessmen. The total loss to U.S. victims in this case 
is in excess of $60 million. In Phoenix, Customs Agents developed an 
initiative targeting Prime Bank Instrument frauds that utilized foreign 
banks to launder and conceal funds from investors. Our agents have 
seized over $24 million from violators in that case.
Bulk Cash Smuggling
    Customs continues to seize large amounts of bulk outbound cash at 
our airports, seaports, and land borders. Over the past 4 years, we 
have seized in excess of $233 million in cash that violators had 
attempted to smuggle out of the United States.
    International criminal organizations routinely collect sizeable 
amounts of cash derived from illegal activities and then attempt to 
smuggle the cash in large shipments out of the United States. Customs 
has discovered and seized bulk cash shipments in cars, boats, stereo 
equipment, and in hidden compartments. The amounts of money can be 
staggering. In Newark, New Jersey, Customs seized over $11 million in 
truck transmissions. In Miami, we seized $9 million hidden in stereo 
gear. Our agents, acting in conjunction with our undercover 
investigations, routinely find money stash houses that have hundreds of 
thousands of dollars bundled up and ready to be smuggled out of the 
country.
    Technology strengthens outbound inspection efforts, while 
facilitating normal border traffic flow. Non-intrusive technology and 
other equipment assist Customs Inspectors and Currency Canine 
Enforcement Officers in the search of cargo and conveyances at 
seaports, courier hubs, and on the Southern land border for undeclared 
currency. In fiscal year 2000, Customs was appropriated $2 million to 
purchase crucial additional equipment for our outbound interdiction 
efforts. This funding will provide seven mobile x-ray vans, three tool 
trucks, and three contraband detection kits. The equipment should in 
effect pay for itself within the first full year of operation.
Foreign Drug Intelligence Collection
    In August 1999, Customs signed a Memorandum of Understanding with 
the Drug Enforcement Administration (DEA) granting Customs the 
authority to collect counterdrug intelligence overseas in support of 
the counterdrug mission of Customs. The requirement for Customs to be 
given the authority to collect counterdrug intelligence overseas was 
recognized by ONDCP in the White House Task Force on the Coordination 
of Counterdrug Intelligence Centers and Activities. This interagency 
task force carried out an exhaustive review of the national counterdrug 
intelligence architecture in 1998.
    In October 1999, Customs detailed a Special Agent and an 
Intelligence Analyst to Mexico for 90 days. This initial phase was 
largely exploratory and consisted of establishing contacts with DEA and 
appropriate personnel within the Embassy in Mexico City to assess how 
the Foreign Intelligence Collection (FIC) team could best accomplish 
the mission of collecting tactical drug intelligence. The FIC team will 
return to Mexico in mid-March for 30 days to conduct visits to Northern 
Mexico DEA Offices in Juarez, Monterrey, Hermosillo, and Tijuana to 
assess the availability of tactical intelligence. Customs is planning 
to send another FIC team to Ecuador during the April timeframe.
Intelligence Collection and Analysis Teams/BCI
    Through the Border Coordination Initiative (BCI), we have continued 
our efforts to build a strong platform of cooperation with our 
counterpart agencies, the Immigration and Naturalization Service (INS) 
and the U.S. Border Patrol (USBP), along the Southwest Border.
    We now have full participation in the Intelligence Collection and 
Analysis Teams (ICATs) which were formed to create a seamless process 
of gathering tactical intelligence which can be used by all the 
participant agencies in their quest to interdict drugs, illegal aliens, 
and other contraband.
International Affairs
    Customs develops partnerships with other U.S. government agencies, 
foreign governments, and private organizations for the purpose of 
improving trade and enforcement practices worldwide.
    Partnerships help to provide the funding that is needed to deliver 
critical assistance to foreign governments trying to improve the 
effectiveness of their border management agencies. Our most significant 
projects are those funded by the Department of State and/or the Agency 
for International Development. Some partnership arrangements, such as 
the Americas Counter-Smuggling Initiative (ACSI), involve Customs 
working jointly with foreign governments and the private sector toward 
shared goals.
    Efforts to improve international trade continue with cooperation 
from other government agencies and international organizations--
specifically the Asia Pacific Economic Cooperation (APEC), World Trade 
Organization (WTO), World Customs Organization (WCO), and the Caribbean 
Customs Law Enforcement Council (CCLEC), to name a few. Customs works 
closely with these organizations to reduce procedural trade barriers 
and seek greater standardization, transparency, simplification and 
automation of trade practices.
    Additionally, the United States negotiates Customs Mutual 
Assistance Agreements with foreign customs administrations. These 
agreements provide a framework for mutual assistance to prevent and 
investigate any offense against the customs laws of either country.
    Customs also pursues its mission of protecting the borders of the 
Nation through international efforts. In cooperation with the 
Department of State and others, we attempt to strengthen the 
infrastructure of foreign customs administrations and police agencies 
so that there can be more effective barriers against narcotics and 
other dangerous contraband, which might otherwise reach the United 
States. More effective border control agencies in the nations with 
which we trade also lead to better enforcement of the rules of 
international trade; facilitation of that trade; and more stable and 
prosperous political and economic situations.
    During fiscal year 2000, Customs undertook an extensive program of 
integrity and anti-corruption awareness training in several regions of 
the world. This training is largely funded by the Department of State, 
Bureau for International Narcotics and Law Enforcement Affairs. The 
programs are being offered in Central America, Colombia, Haiti, South 
Asia, China, Nigeria, and Bulgaria. We seek to exchange ideas and 
information related to personnel practices, appropriate laws and 
regulations, codes of conduct, internal affairs operations, integrity 
awareness programs, etc., which will lead to more professional customs 
and police agencies.
    It is our hope that these cooperative engagements of foreign border 
control organizations will result in significant initiatives in the 
countries involved to increase the level of professionalism among 
officers required to interdict dangerous contraband, enforce the rules 
of trade, and increase the collections of customs revenue upon which 
many of these nations heavily depend.
    For almost a decade, Customs has provided technical assistance to 
other Customs and law enforcement agencies in Eastern Europe and the 
former Soviet Union to stem the flow of Weapons of Mass Destruction 
(WMD) and their components. Using home-grown expertise and technical 
expertise from the Department of Energy, Customs has developed and 
implemented several programs to familiarize and train foreign law 
enforcement officers on the knowledge, techniques and skills needed to 
interdict and investigate the smuggling of chemical, biological, and 
nuclear components and delivery systems.
    Over the past 3 years, Customs implemented, with the Department of 
Defense, Counterproliferation Training Program throughout Eastern 
Europe and the newly Independent States of the former Soviet Union. The 
program has three elements: training, equipment, and short-term 
technical advisors. Training is mostly done overseas in the host 
country, in their working environment. Most of the training is 
accompanied by equipment. The equipment can be categorized as either 
time tested low-tech items, such as hammers, drills and flashlights, or 
newer high-tech items, which would include handheld radiation detection 
systems, fiber optic scopes and density meters. One training course 
known as RADACAD, short for Radiation Academy, is taught by Customs and 
experts from the Department of Energy's Pacific Northwest National Lab 
on the Hanford Nuclear Reservation in Washington State. RADACAD is the 
only law enforcement training class that allows students to work with 
special nuclear materials. The third elements of the program are short-
term technical advisors. These advisors are most instrumental in 
implementing the training techniques and equipment delivered under the 
program. In addition, they try to work with foreign law enforcement 
agencies to develop better legal, managerial and physical border 
security infrastructures.
    We have already seen successes with this program. One example is a 
situation where former students of the program seized special nuclear 
materials. We believe that if we can familiarize foreign law 
enforcement officials with the threat and how to contain it, we will 
end up making the United States, and the world, a safer place to live.
                         recent accomplishments
Anti/Counter-Terrorism
    The prevention of terrorist threats at our borders is a cornerstone 
of Customs responsibilities. Our mission in combating international 
terrorism is twofold: protect the American public from Weapons of Mass 
Destruction (WMD) and other instruments of terror, and prevent 
international terrorists from obtaining WMD materials and technologies, 
arms, funds, and other material support from U.S. and foreign sources.
    The importance of this mission was illustrated during the period of 
``Heightened Alert'' over the 1999-2000 holiday season. In December 
1999, Customs apprehended a suspected terrorist, Ahmed Ressam, in Port 
Angeles, Washington. Ressam was transporting hazardous materials, 
including timing devices and other bomb making components.
    Customs subsequently articulated a new alert plan for any future 
threats of this nature. The plan outlines four alert levels, each of 
which carries a specific set of instructions for field managers to 
implement once that alert is activated. These actions are designed to 
ensure an appropriate response to the threat at hand while also 
facilitating the movement of normal border traffic flows.
Internal Conspiracies
    The drug smugglers that we combat continue to adapt to our counter 
smuggling methods. One of their increasingly common techniques is the 
use of ``internal conspiracies.'' Internal conspiracies rely on workers 
within a company, industry, or port to introduce drugs into otherwise 
legitimate cargo or conveyances. Customs ``Operation Overlord'' focused 
its investigations on just such an internal conspiracy at Miami 
International Airport in August 1999.
    In cooperation with other law enforcement agencies, Customs was 
able to uncover internal conspiracies at several major airlines and 
ground service companies. The investigation culminated with the arrest 
of more than 58 subjects, including three law enforcement officers. 
During the course of our investigation we seized 691 pounds of cocaine 
and 17 pounds of heroin. These seizures were in addition to the 
``sham'' drugs that conspirators moved on behalf of undercover agents 
during the course of the investigation.
    In addition to highlighting the relative ease with which smugglers 
can introduce drugs into the commercial aviation environment, 
``Operation Overlord'' also highlighted serious deficiencies in overall 
security at U.S. airports. Working with other law enforcement and 
regulatory agencies, Customs is trying to use the lessons learned from 
Operation Overlord to improve security at our airports.
Internet Activities
    Customs mission also extends to the borderless world of cyberspace. 
With the evolution of the Information Age and the growth of the 
Internet, traditional enforcement methods are being bypassed by the 
more sophisticated criminal elements. The cyberspace environment 
provides criminals with a means to both coordinate and to conduct 
criminal activity anonymously.
    In addition, consumers increasingly order goods ``online'' from 
foreign locations. Most of these items will arrive in the U.S. in small 
packages and be processed by at least one of the 14 Customs 
International Mail facilities or several courier hub locations. In 
fiscal year 1999, the 220 personnel assigned to International Mail 
locations alone cleared more than 1 billion flat parcels, a figure that 
is sure to increase. The ease and volume with which people can order 
Foreign items makes it easier to obtain goods prohibited from import 
into the United States.
    The most recent example of this is in the area of illegal 
importation of prohibited pharmaceuticals. In 1999 Customs realized a 
significant increase in pharmaceutical seizures: from 2,139 seizures in 
1998 to 9,725 seizures in 1999. Most of these seizures are attributed 
to the explosion of online pharmacies. An ever-increasing number of 
these pharmacies are located abroad, outside the jurisdiction of U.S. 
regulators and law enforcement officers. Many of these sites blatantly 
advertise the sale of prescription drugs without the need of a 
prescription. Among the most common drugs seized by Customs are valium, 
codeine, anabolic steroids, rohypnol (the so-called ``date rape'' drug) 
and fenfleuramine (fen-phen). Coping with this problem will require a 
coordinated effort involving interdiction, investigation by the Customs 
CyberSmuggling Center and cooperation with foreign governments.
    Although foreign online pharmacies can be found on every continent, 
Thailand has emerged as one of the most prolific source countries. In 
June 1999, the Customs Attache in Bangkok initiated a special operation 
with Thai law enforcement agencies to target suspect pharmaceutical 
shipments to the U.S. During this operation, Thai authorities assisted 
in the identification of over 4,500 shipments to the U.S. and developed 
sufficient evidence to take enforcement action against the Thai 
companies. Customs CyberSmuggling Center agents provided technical 
assistance to the Thais. Search warrants were executed on 7 online 
pharmacies. In all, 22 suspects were arrested and more than 2.5 million 
pharmaceutical dosage units were seized. Records from one company 
indicate that 80 percent of the orders were destined to the U.S. The 
immediate impact of these raids was that exports of unlicensed 
pharmaceuticals to the United States were non-existent a month 
following the Thai enforcement action.
Child Pornography
    Between November 1998 and September 1999, Customs child pornography 
cases resulted in 436 convictions nationwide.
    The amount of child pornography on the Internet, the numerous 
incidents of enticement of children by adults for sexual purposes and 
the alarming rise in child sex tourism has prompted Customs agents to 
step up efforts to combat this menace.
    The Customs CyberSmuggling Center works closely with the National 
Center for Missing and Exploited children to process hundreds of child 
pornography leads every week. Cooperation with foreign law enforcement 
is vitally important due to the borderless nature of the Internet. 
Internet investigations require investigators to move quickly to 
capture evidence from Internet service providers necessary for 
successful prosecution. The informal and timely exchange of information 
between law enforcement officers around the world is a necessity.
    This cooperation has led to many successes. For example, as a 
result of a joint investigation with the German Federal police, the 
CyberSmuggling Center has referred 24 cases to field offices since 
October 1, 1999. Customs is currently involved in a joint child 
pornography/money laundering investigation with several other countries 
involving the distribution of child pornography. In addition, Customs 
is working closely with foreign law enforcement in Europe, Central 
America and Southeast Asia on child sex tourism investigations.
    In the first quarter of fiscal year 2000, approximately 100 
Internet based investigations developed by Customs CyberSmuggling 
Center were referred to field offices along with hundreds of Internet 
leads to our foreign counterparts. We sent 101 leads to Canada alone.
    Customs strategic approach to combating cyber crimes also includes 
outreach and training initiatives. In the area of outreach, we have an 
aggressive public awareness program and spend a significant amount of 
time informing the public of potential dangers, especially to children, 
on the Internet. We are working to build a solid infrastructure to 
combat the shift to high tech crimes by purchasing and utilizing state 
of the art equipment and by bringing together the various expertise 
required for Internet-based investigations. We are developing a 
comprehensive training program for Customs agents and domestic law 
enforcement personnel as well as our foreign counterparts to improve 
these officers' skills in conducting Internet-based investigations.
                    fiscal year 2001 budget request
    For fiscal year 2001, Customs proposes a total program level of 
$2,368,207,000 and 17,544 Full Time Equivalents (FTE). Of this amount, 
$11 million will be reimbursed from the Treasury Forfeiture Fund.
    Excluding Treasury Forfeiture Fund proceeds in both fiscal year 
2000 and fiscal year 2001, the fiscal year 2001 budget represents an 
increase of 14.8 percent above the fiscal year 2000 enacted 
discretionary level. In addition, the Administration has requested $210 
million for ACE development to be offset by a proposed fee.
Drug Investigations Initiative--$25 million, 107 FTE
    Over the last several years, the wholesale price of imported 
illicit drugs, such as cocaine and heroin, have plummeted to record low 
levels. This is particularly alarming since research has shown that 
there is a direct correlation between consumption and price. Research 
has also shown that effective high-level enforcement (that is, 
enforcement above the ``street'' level) can raise prices, thereby 
reducing consumption. In an effort to address this disturbing trend, it 
is the intent of Customs to mount a comprehensive investigative effort 
to enhance high level enforcement by identifying and dismantling major 
drug smuggling organizations (DSOs).
    Successful dismantling of DSOs requires that Customs agents target 
the organization's operational cells (i.e., transportation, 
distribution and money laundering) and disrupt the interrelationship 
that exists between them. Customs does this by building an 
``investigative bridge'' between border smuggling activity and the 
organization's command and control hierarchy located at inland U.S. 
cities. Special agents employ a variety of techniques to build the 
investigative bridge, including controlled deliveries, undercover 
operations, electronic and physical surveillance, and the cultivation 
of sources of information. However, effective employment of these 
techniques is labor-intensive and requires many investigative hours.
    If funded, 214 additional agents would be hired and strategically 
placed at both the border and inland command and control cities to 
conduct long-term, complex cases that would focus on the most 
significant DSOs. These investigative efforts will increase the return 
in enforcement results to include increased asset seizures and higher 
level arrests. If sustained, it is anticipated that these results will 
eventually translate into an increase in the risk borne by drug 
traffickers and force them to find alternative methods, raise their 
prices or curtail their trafficking operations.
Narcotics Illicit Proceeds Strategy Initiative--$10 million, 49 FTE
    The majority of undeclared currency leaving the U.S. involves 
proceeds from narcotics trafficking activities. The ever-increasing 
volume of cross-border traffic means that Customs should conduct more 
examinations more effectively in order to keep up with the activities 
of the Drug Smuggling Organizations. Due to the already extensive 
demand placed on current personnel, outbound examinations are currently 
being conducted on a very limited basis. In fiscal year 1999, Customs 
seized more than $60.5 million in undeclared outbound currency, even 
with the limited number of human resources conducting outbound 
examinations. More than 71 percent of that currency was destined to 
drug trafficking countries. If funding is approved, Customs ability to 
seize illegal narcotics proceeds would increase substantially.
Forced Child Labor Initiative--$5 million, 9 FTE
    Customs is spearheading an initiative to prevent the importation of 
merchandise, manufactured or produced by Forced Child Labor, into the 
United States. In furtherance of this initiative, Customs investigates 
both historical and current allegations of Forced Child Labor through 
the deployment of investigative teams to suspect foreign manufacturing 
facilities, along with fostering better working relationships and 
cooperation with foreign law enforcement agencies. Additionally, 
Customs conducts intensive Outreach Programs and training for law 
enforcement agencies, manufacturers, producers and other government 
agencies in the countries that have been identified as having a 
significant number of allegations regarding Forced Child Labor.
    The funding will be used to: establish and staff two regional 
offices in countries from which a significant number of allegations of 
Forced Child Labor have originated; add an additional Special Agent 
position to the SCR/Hong Kong; add an additional Special Agent position 
at the Forced Child Labor Command Center and establish eight Special 
Agent positions in domestic cities where the importation of a high 
volume of goods, made by Forced Child Labor, has been identified.
    The establishment of the additional regional offices and Special 
Agent positions will result in an increase in pro-active investigations 
along with the exclusion of goods, identified as having been made with 
Forced Child Labor, from the United States.
PDD 62 (Major Events Security)--$12.8 million, 5 FTE
    There is consensus among the national intelligence community of an 
increasing airborne or maritime terrorist threat, capable of delivering 
a conventional or unconventional (nuclear, biological or chemical) 
attack on specific, high visibility, national events. The United States 
Secret Service (USSS), which is charged with planning, designing and 
implementing security at major national events, does not have the 
aviation or marine resources necessary to defend against threats in 
these environments.
    In order to carry out the direction set forth in Presidential 
Decision Directive (PDD) 62, the Customs Air and Marine Interdiction 
Division (AMID) will dedicate air resources in support of the USSS to 
enhance defenses against conventional and unconventional terrorist 
attacks at designated national special security events. The proposed 
concept is to provide dedicated Customs aviation resources in some of 
the following: enforcement of temporary flight restricted areas (air 
only), site and route surveys, surveillance, and tactical insertion/
extraction of USSS sniper/assault teams.
    Customs proposes to establish a dedicated air branch to support the 
USSS mission as outlined in PDD 62. The branch would consist of two AS-
350 helicopters, one King Air aircraft reassigned from a current AMID 
location; availability of 3 Black Hawk helicopters on 72 hour notice; 
funds for additional flight hours; facility lease costs; and additional 
staff for this branch.
Enforcement Infrastructure--$19.8 million, 0 FTE
    To operate safely and effectively, Customs air assets require 
special communication, surveillance, and automated data processing 
equipment to be installed on board or at ground support centers. Funds 
will support replacement of deteriorating and obsolete safety 
equipment, including infrared radar systems and surveillance equipment 
aboard current aircraft and original mission equipment at Customs Air 
and Marine Interdiction Coordination Center (AMICC). AMICC is the 
Nation's only radar command center, responsible for the tactical 
direction of Government law enforcement efforts aimed at intercepting 
drug smugglers entering the United States.
    Customs aircraft routinely and increasingly operate in airspace 
without benefit of control tower assistance. Often, this uncontrolled 
airspace overlies treacherous, mountainous terrain, requiring complex 
and demanding flight procedures. To dramatically increase the margin of 
safety for Customs aircraft and flight crews, funds will be provided to 
install traffic collision avoidance systems, with integrated ground 
proximity warning systems, into all Customs interdiction aircraft. The 
installation of these systems on board Customs aircraft will diminish 
Customs probability of suffering tragic accidents similar to those that 
occurred in the recent past to DOD and Department of Commerce 
personnel.
Automation Modernization--$338.4 million, 0 FTE
    Customs must modernize its infrastructure and its commercial 
processing system, the Automated Commercial System (ACS), if we are to 
keep pace with the rapidly changing global economy and its rapidly 
growing technological developments. These infrastructure upgrades will 
also provide the necessary backbone to further our efforts in anti/
counter-terrorism, Internet enforcement, child pornography, and 
narcotics interdiction activities, just to name a few. With a more 
modern, efficient information technology infrastructure, our systems 
will be more efficient and respond more quickly, thus enabling our 
employees to work more effectively in meeting our mission critical 
demands. Our modernization efforts will transform our technology 
infrastructure and systems, and the processes by which we develop and 
deliver technology to our customers.
    This $338 million request consists of:
  --$123 million for ACS life support--$67 million is in our base and 
        an additional $56 million is requested for hardware, software, 
        and data circuit upgrades required to minimize future ACS 
        system brownouts. ACS is 16 years old and runs on an 
        infrastructure just as old. Over the past year, ACS has 
        experienced numerous 19brown-outs' due to antiquated 
        infrastructure hardware and software. These 19brown-outs' 
        result in delayed trade processing and revenue collection.
  --$210 million for ACE--$139 million for ACE software development and 
        $71 million for infrastructure. To prepare for the transition 
        from ACS to ACE, Customs has:
  --LDeveloped a blueprint for ACE software development;
  --LDeveloped an enterprise architecture;
  --LEstablished process to move toward level 2 Capability Maturity 
            Model (CMM) software development;
  --LEnlisted the support of an independent contractor, MITRE, to 
            partner with us in this effort;
  --LEstablished the Customs Modernization Office and Governance 
            Process;
  --LDeveloped an investment management process;
  --LCompleted an acquisition strategy; and
  --LCompleted acquisition plan and source selection plan.
  --$5.4 million for ITDS--these funds continue the base operations of 
        the International Trade Data System (ITDS) which was 
        transferred to Customs from the Department.
                               user fees
Automation Modernization Fee
    The Administration proposes to establish a fee to fund the 
development of the new trade system, ACE. The appropriated request 
includes $123 million to support the existing transaction-based system, 
ACS. A legislative proposal has been transmitted that would allow the 
Secretary to establish this fee.
    The recently completed cost-benefit analysis for conversion from 
ACS to ACE shows that modernizing Customs trade data processing system 
will provide significant benefits to both the Federal Government and 
private industry. The Administration believes the proposed fee 
appropriately captures some of the benefits that will accrue to private 
business from modernization, including a streamlined cargo entry 
process, account-based transactions, and a paperless process. The 
Administration believes that it is imperative to secure funding for 
this critical program. The Administration looks forward to working with 
the Congress on the fee to ensure that funding for this critical 
project is made available in fiscal year 2001.
                               conclusion
    This concludes my statement for the record. I appreciate the 
opportunity to appear before you today. I particularly want to express 
my appreciation to this Subcommittee for its support of Customs in the 
past and your continued interest and consideration of our fiscal year 
2001 request. Your continuing support is essential to Customs ability 
to accomplish our mission to protect the Nation's borders and to reduce 
the flow of drugs into the United States.
    Again, thank you for your consideration of the U.S. Customs 
Service. I hope we can continue to count on your support during your 
deliberations of the fiscal year 2001 budget process.

                Bureau of Alcohol, Tobacco and Firearms

STATEMENT OF BRADLEY A. BUCKLES, DIRECTOR
    Senator Campbell.Mr. Buckles.
    Mr. Buckles. Mr. Chairman, Senator Dorgan, thank you for 
allowing me this opportunity to testify in support of ATF's 
fiscal year 2001 budget request. It is a tremendous honor for 
me to appear before the committee representing the outstanding 
men and women of ATF and the important work that they perform.
    With me today is the new Deputy Director of ATF, Patrick 
Hynes, who brings to the position 28 years of experience as a 
law enforcement investigator.
    Before I go too far, I would like to thank you and your 
staff for the opportunity we had earlier this week to 
participate in the technology exhibition. As you probably 
gathered, ATF is quite proud of what we have been doing with 
your support with innovative technologies that have expanded 
our capability and further enhanced our ability to assist our 
partners.

                    justification of budget request

    Thanks to the remarkable leadership of John Magaw, my 
predecessor, and the vital support and guidance from this 
committee, the ATF you see today is strong, focused, and ready 
to perform. Our fiscal year 2001 budget seeks $755 million and 
4,671 FTE. This is an ambitious budget. But when measured 
against the devastating cost of violent crime and almost $13 
billion in revenue we will collect, we believe it is a sound 
investment.
    The growth we seek in this budget is essential if ATF is to 
adequately carry out our responsibilities under existing law. 
The majority of our proposed growth is to expand two previously 
funded and proven initiatives, the Integrated Violence 
Reduction Strategy and the Youth Crime Gun Interdiction 
Initiative. Both of these initiatives rely on concentrated 
enforcement of existing Federal laws, the application of state-
of-the-art technology, and most importantly, teamwork with our 
State and local partners in working for safer communities.
    Operation Cease Fire in Boston and Project EXILE in 
Richmond are but two examples where ATF along with Federal, 
State, and local enforcement authorities have worked together 
and produced tangible results in reducing violent crime. The 
additional resources we seek will allow us to bring these 
projects to additional cities around the country and to 
strengthen projects that are currently ongoing. This work will 
also be bolstered by another initiative in our budget that 
seeks funding to upgrade and expand our ballistics technology 
network.
    Much of your focus today and in the coming months will no 
doubt be in our firearms initiatives, but I would urge that you 
continue your support for the other vital work we perform as 
well. For example, another important initiative requests 
additional personnel to collect and protect hundreds of 
millions of dollars in new revenue from a recently enacted new 
cigarette tax.
    In the past, this committee has insisted that ATF become 
fiscally sound before you would support growth. With your help 
and former Director Magaw's leadership, we have corrected our 
budget imbalances. We are now in a position to grow and achieve 
the goals we all share towards a sound and safer America.

                           prepared statement

    Thank you for this opportunity to address the committee and 
I stand ready to answer any questions that you may have.
    Senator Campbell. Thank you.
    [The statement follows:]

                Prepared Statement of Bradley A. Buckles

    Thank you Mr. Chairman, Senator Dorgan, and members of the 
Subcommittee. I welcome this opportunity to appear before the 
Subcommittee and present to you ATF's goals for fiscal year 2001 and to 
report on the results of your previous investments in ATF.
    I am pleased to introduce Mr. Patrick D. Hynes the newly appointed 
Deputy Director of ATF. Mr. Hynes brings with him 30 years of Federal 
law enforcement experience, 28 years as a law enforcement officer with 
ATF.
    Also with me today are my other executive staff members:
    Mr. William Earle, Assistant Director for Management and Chief 
Financial Officer; Mr. Andrew Vita, Assistant Director for Field 
Operations; and Mr. Jimmy Wooten, Assistant Director for Firearms, 
Explosives and Arson; Mr. Arthur Libertucci, Assistant Director for 
Alcohol and Tobacco; Mr. John Manfreda, Chief Counsel; Ms. Gale 
Rossides, Assistant Director for Training and Professional Development; 
Mr. Patrick Schambach, Assistant Director for Science and Technology 
and Chief Information Officer; Mr. David Benton, Assistant Director for 
Liaison and Public Information; Mr. Richard Hankinson, Assistant 
Director for Inspections; Mr. Lewis Raden, Executive Assistant for 
Legislative Affairs; Ms. Toby Bishop, Executive Assistant for Equal 
Opportunity; and Mr. Wayne Miller, Chief, Strategic Planning Office.
    While I have the privilege of recently being appointed ATF's fifth 
Director, I would like to express my appreciation to my predecessor, 
John Magaw, for working with this committee toward the common goal of 
strengthening ATF's infrastructure, which was essential for ATF to 
continue to function as a highly professional and effective law 
enforcement organization. In my 26 years of service to the Bureau, I 
have had the opportunity to witness our history, participate in the 
formulation of our strategic vision and assist in moving the Bureau 
forward into a new century.
    I thank the committee for their continued support for a new 
headquarters facility to safely house ATF's employees. The all too real 
threat to their safety was once again uncovered this past year when an 
individual chose to mail three explosive devices to two ATF facilities 
and the White House. Fortunately, one of the devices prematurely 
detonated inside a mail trailer and the remaining devices were safely 
disarmed upon discovery. The individual responsible for these acts was 
apprehended by ATF and local authorities, pled guilty, and has been 
sentenced to life plus 270 years incarceration.
    I would also like to thank the committee for the support provided 
to my predecessor over the last several fiscal years. The foresight of 
this committee and the strategic investments you have provided have 
allowed the Bureau to strengthen its infrastructure to adequately 
support all program activities. Through calculated investments in 
investigative equipment, training and information technology, this 
committee sought to revitalize and restore ATF to a balanced and stable 
position. I am pleased to report to you that your investments have been 
well and prudently spent. For the fifth consecutive year, the Office of 
the Inspector General's independent contractor (PricewaterhouseCoopers 
LLP) has issued ATF its highest audit opinion of ``unqualified,'' with 
no material weaknesses. A copy of our Accountability Report will be 
delivered to each of your offices in the next few weeks.
    Given the committee's long investments in ATF, there are 
accompanying expectations. Expectations that a well-equipped, well-
trained, and well-disciplined organization will be more effective. 
Expectations that a fundamentally sound organization with proven 
results is capable of more. Expectations that, having restored the 
``core'' of an organization, you have positioned that same organization 
to assume more and varied duties. This committee has a right to expect 
a return. As a result of your investments, ATF is positioned to 
deliver.
    As ATF's Director, I am pleased to present to you a requested level 
of resources that builds upon the foundation you have firmly 
established. This level of resources focuses on the personnel and 
technology needed to address the varied and critically important 
responsibilities that have increased over the past decade. In keeping 
with your guidance, we have made our house sound. An integral component 
of the growth will be recruitment of personnel to accommodate the 
program expansions you have entrusted to us. The recruitment of 
additional personnel in fiscal year 2000 and fiscal year 2001 will help 
ensure the achievement of our shared vision of working for a sound and 
safe America through innovation and partnership.
                    fiscal year 2001 budget request
    ATF's fiscal year 2001 Salary and Expense (S&E) request justifies 
$755,903,000 in direct budget authority and 4,671 full-time equivalent 
(FTE). Our request accommodates the realignment of the Violent Crime 
Reduction Trust Fund (VCRTF) programs into our S&E appropriation base 
and represents an increase of $151,330,000, or 25 percent over the 
total fiscal year 2000 enacted level of $604,573,000.
    The majority of this increase is for expansion of proven 
investigative and regulatory strategies designed to maximize effective 
enforcement of existing laws and regulations. An additional $25,834,000 
is required for mandatory payroll costs and other inflation.
    ATF has a unique combination of law enforcement and regulatory 
responsibilities. As Director, I will continue to focus on our core 
mission and vision of ``Working for a Sound and Safer America . . . 
Through Innovation and Partnership.'' ATF has developed sound 
programmatic initiatives, based on existing laws and regulations, to 
respond to crime and violent acts that threaten public safety and 
instill fear in all Americans. Our vision helps us chart the course to 
best serve the public and achieve new levels of effectiveness and 
teamwork. I would now like to highlight some of the programs that 
support our efforts on behalf of the American public.
Integrated Violence Reduction Strategy (IVRS)
    ATF is requesting $41,322,000 and 193 FTE for expansion of the 
Integrated Violence Reduction Strategy (IVRS) and will focus on several 
core components of firearms enforcement aimed at reducing the illegal 
possession and use of firearms.
    IVRS is a national enforcement strategy that integrates several 
core concepts which are adapted and applied in varying formulas to 
address the specific law enforcement needs of a community. For example, 
Project Exile in Richmond, Virginia, and Project Ceasefire in Boston, 
Massachusetts, are two different, yet equally successful examples of 
IVRS. The core elements of IVRS include reducing the illegal supply of 
firearms to criminals; specific enforcement projects directed at 
criminals who use and possess firearms; and the identification and 
prosecution of prohibited persons who attempt to acquire firearms. All 
components of IVRS use state-of-the-art information processing to 
assist ATF and our State, local and Federal law enforcement partners in 
identifying those engaged in the criminal misuse and illegal 
acquisition of firearms. ATF is committed to working with law 
enforcement agencies and prosecutors to ensure the continued success of 
IVRS. Our experience in the fight against armed violence has 
demonstrated that an integrated approach is the right approach. 
Prevention, intervention and prosecution cannot succeed as segregated 
strategies. They must be combined to meet the challenge of effectively 
in reducing the criminal use of firearms in America.
    Project EXILE and Project Ceasefire have been effective programs 
for addressing firearms violence in certain cities. However, the 
requirements and resources of each locality need to be evaluated 
individually. One of the purposes of the Integrated Violence Reduction 
Strategy is to allow U.S. Attorneys and ATF managers to collectively 
identify their unique crime problems and formulate appropriate actions 
to address them. Through the Violent Crime Coordinator, Armed Violent 
Criminal Apprehension (formerly Achilles) Programs, as well as through 
the Firearms Trafficking Program, ATF investigates and facilitates the 
prosecution of firearms violators. These programs are components of the 
Integrated Violence Reduction Strategy.
    In fiscal year 2000, the Federal Bureau of Investigation's (FBI) 
National Instant Criminal Background Check System (NICS) is projecting 
that over 86,000 firearms purchase denials will be forwarded for ATF to 
evaluate and act upon. With the fiscal year 2001 budget request, ATF 
will devote additional field resources to investigate prohibited 
persons who attempt to purchase firearms, as well as conduct more in-
depth reviews of licensee records to ensure that they are conforming to 
the requirements of the Brady Act. To date, ATF has made more than 
13,000 investigative referrals for field review on potential criminal 
violations involving domestic violence offenses or those who are 
subject to a restraining order. Additionally, more than 7,000 potential 
criminal violations involving violent felons or serious drug offenders 
have been referred to the field for investigation.
    ATF's objective is to maximize voluntary compliance in the firearms 
industry through education, partnerships, and a compliance inspection 
program that uses ATF's inspection resources to focus on licensees 
having multiple crime gun traces and/or other indicators of potential 
firearms trafficking. The National Licensing Center processes and 
issues all ATF firearm licenses. Under ATF's current application 
program, all original applications are sent to the field offices for 
investigation prior to issuance. Renewal applications are sent to the 
field offices upon request.
Youth Crime Gun Interdiction Initiative (YCGII)
    In fiscal year 2001, we are requesting $19,078,000 and 113 FTE for 
expansion of the YCGII Program. This very successful program 
complements IVRS by using a multi-faceted approach to break the chain 
of illegal gun supply to youths and juveniles and reduce youth 
violence. ATF will continue to assist comprehensive crime gun tracing 
in participating cities, provide rapid high volume crime gun tracing 
and crime gun market analysis through the National Tracing Center 
(NTC), and train ATF, State, and local law enforcement. ATF is 
proposing to expand this program to an additional 12 cities in fiscal 
year 2001, bringing the total of YCGII cities to 50. This reinforces 
the Administration's commitment to expand to 75 cities within 4 years.
Expanded Crime Gun Tracing
    ATF is requesting $9,990,000 and 10 FTE for Comprehensive Crime Gun 
Tracing that will provide nationwide comprehensive tracing capability 
as well as faster trace results. The National Tracing Center (NTC) 
provides State and local agencies with information on crime guns to 
support its law enforcement efforts. The NTC provides valuable 
investigative leads to assist in solving crimes committed with 
firearms, and identifies those persons responsible for supplying crime 
guns to criminals. The NTC maintains the record of all crime guns 
traced by ATF, firearms stolen from firearms dealers, and records of 
multiple sales of handguns. The Firearms Tracing System (FTS) provides 
data on firearms which is used by ATF investigators to identify illegal 
firearms trafficking. The funds requested in the fiscal year 2001 
budget will assist 250 State and local agencies in building tracing 
capability, and will allow ATF to complete traces and respond to 
requests more rapidly, making information available in real time for 
criminal investigations.
    The NTC is also the national repository for Out of Business Records 
maintained on approximately 400 million frames of microfilm. These 
records are retrievable by the Federal Firearms Dealer Identification 
Number. An effort has commenced to index the firearms by serial number 
to enhance the retrieval process. The NTC plans to digitally image the 
out of business records and use an automated process to index the 
serial numbers. Currently 10 percent of traces are successfully 
completed through out of business records and 25 percent of all traces 
utilize these records.
Ballistics Identification
    ATF is also requesting $23,361,000 and 10 FTE for Expanded 
Ballistics Identification. This national system will allow crimes 
committed with the same firearm to be connected through ballistics 
imaging. This information will be joined nationally through the 
Department of Justice's Criminal Justice Information System, Wide Area 
Network. On December 2, 1999, ATF and the FBI executed a memorandum of 
understanding (MOU) that will take maximum advantage of each agency's 
strengths and resources. The MOU established a single, jointly-
operated, ballistics identification program in which ATF will manage 
the field deployment of ballistics imaging equipment supported by the 
FBI's management of interagency networking operations. Under the MOU, 
FBI's DRUGFIRE units will be replaced with ATF's IBIS or next 
generation ``unified systems'' developed from the best features of both 
IBIS and DRUGFIRE.
Tobacco Compliance
    ATF is also seeking $5,521,000 and 44 FTE to implement the second 
phase of the Taxpayer Relief Act of 1997, (Tobacco Compliance law). 
Increased revenue will be derived from the additional taxes imposed on 
tobacco products at the higher tax rates. As enacted, this law requires 
two floor stocks tax increases; one that took effect January 1, 2000, 
and the second, which is effective January 1, 2002. The enacted 
legislation also requires a new permit system for importers of tobacco 
products. The funding requested in fiscal year 2001 would provide the 
necessary resources to implement the legislation as enacted.
National Laboratory
    ATF is also seeking $6,026,000 for above standard costs vital to 
the completion, move in, operation, and maintenance of our new National 
Laboratory facility. The new facility will include a replacement 
laboratory building for the existing National Laboratory. The new 
National Laboratory's Alcohol and Tobacco Laboratory will support ATF's 
industry regulation and product taxation functions. The Forensic 
Science Laboratory will provide evidentiary analysis for ATF criminal 
investigations as well as for other State, local and Federal law 
enforcement agencies. The new Fire Research Laboratory is the only fire 
research and forensic laboratory in the world dedicated to criminal 
investigations. The Fire Research Laboratory will dramatically expand 
ATF's ability to support fire investigators on specific cases as well 
as improve fire science knowledge as it relates to fire investigations.
    Clearly, a budget request that seeks to add 488 FTE and a 25 
percent increase in funding in a single year is ambitious, and perhaps 
to some, even presumptuous. It is however, I believe, the logical and 
expected outcome of this committee's investments in ATF, and this 
committee's efforts to position ATF to grow to meet the mandates put 
before us.
    Before I ask this committee to make this additional investment in 
ATF, it is my duty and responsibility to demonstrate to you that your 
prior investments have in fact yielded the expected outcomes.
                  fiscal year 1999 atf accomplishments
    Year after year, ATF works to make America a safer place for its 
citizens by fighting violent crime. ATF has been entrusted with the 
enforcement of the Federal firearms and explosives laws, as well as the 
regulation of legal commerce in the commodities produced by these 
industries. This dual duty places ATF at the forefront of efforts to 
reduce violent crime through both regulatory and enforcement 
initiatives.
    As a result of the activities listed below, ATF referred 5,131 
criminal cases recommending 6,804 defendants for prosecution in fiscal 
year 1999. This level of activity represents an increase of 1,041 
additional criminal cases having been referred for prosecution over 
fiscal year 1998 levels. Fiscal year 1999 is the second consecutive 
year that the number of cases ATF has referred for prosecution has 
increased. In fiscal year 1999, the increase was 25 percent over the 
preceding year. Over this same time period, ATF special agent staffing 
only increased by 6 percent.
                          firearms enforcement
    Over the past 5 years, ATF has expanded its illegal market 
disruption activity, particularly as it relates to guns being funneled 
to juveniles and youths, while remaining focused on serious violent 
offenders wherever State laws or policies are not as effective as the 
Federal alternative. By deterring and incarcerating recidivists and 
active shooters while also reducing the illegal supply of firearms, the 
Bureau can have the greatest impact on reducing violent crime.
Brady Law
    Between November 30, 1998, (the effective date of the National 
Instant Criminal Background Check System) and February 2, 2000, ATF has 
received over 104,000 reports of denied firearms purchase applications 
from the FBI's NICS unit regarding persons identified as prohibited 
from firearms possession. Nearly 25,000 of those denials have resulted 
in referrals to ATF field offices for further investigation. As a 
result of NICS referrals, ATF has made 100 arrests and submitted 437 
case reports charging 465 defendants with violations of the Federal 
firearms laws. Over 14,000 referrals are under evaluation for possible 
investigation.
    In an additional 4,976 instances, firearms were delivered to 
persons identified by the FBI after the 3-day waiting period as 
prohibited from possession. In each of these 4,976 cases, ATF conducted 
an immediate investigation to determine if, in fact, the individual 
receiving the firearm was legally prohibited from such receipt and 
possession. Where it has been determined that an individual is legally 
prohibited from possession, immediate actions have been undertaken to 
secure the firearm from the individual and initiate prosecution where 
warranted.
    ATF published regulations implementing the permanent provisions of 
the Brady Handgun Violence Prevention Act by requiring entities 
licensed as Federal firearms importers, manufacturers, and dealers, 
with some exceptions, to contact the NICS before transferring any 
firearm to an unlicensed individual.
    To date, ATF has made more than 13,000 investigative referrals to 
our field offices on potential violations of domestic violence offenses 
or of persons who are subject to a restraining order. Additionally, 
more than 7,000 potential criminal violations involving either violent 
felons or serious drug offenders have been referred to the field.
Regulation of the Commerce in Firearms
    ATF's objective is to maximize voluntary compliance in the firearms 
industry through education, partnerships, and a compliance inspection 
program that focuses on licensees with trace indicators of potential 
firearms trafficking. The National Licensing Center processes and 
issues all ATF firearm licenses. Under ATF's current application 
program, all original applications are sent to the field offices prior 
to issuance.
    As of February 1, 2000, there are 104,070 Federal firearms 
licensees in this Nation, a substantial reduction from the nearly 
288,000 licensees authorized to conduct commerce in firearms prior to 
the passage of the Brady Law. In an effort to ensure that firearms 
industry members fully understand the regulatory requirements of 
maintaining their license, we conducted 155 seminars for licensees in 
fiscal year 1999. ATF also inspected 11,053 licensees, resulting in the 
detection of 3,860 violations of regulations, and 2,426 referrals to 
ATF Special Agents and other Federal, State, and local law enforcement 
agencies for the investigation of possible criminal conduct.
    ATF's National Firearms Act Branch maintains the National Firearms 
Registration and Transfer Record (NFRTR), which is the central registry 
of NFA firearms, such as machineguns, short-barreled rifles, shotguns, 
silencers, and destructive devices. In fiscal year 1999, the NFA Branch 
processed 306,515 registrations of NFA firearms. ATF searches the NFRTR 
in support of criminal investigations and regulatory enforcement 
inspections. The NFA Branch is in the process of imaging and indexing 
all NFA records back to 1934 to afford ATF the highest possible 
accuracy of the NFRTR.
    Our Firearms and Explosives Imports Branch (FEIB) is responsible 
for processing all applications for permits to import firearms, 
ammunition, and other defense articles into the United States, and for 
maintaining the registry of commercial importers of such articles. In 
fiscal year 1999, FEIB received 12,776 import permit applications, and 
300 registration applications.
    With the licensee population over 100,000, it is not currently 
practical to perform a regular cycle of inspections of the entire 
licensee population. Fortunately, the majority of dealers rarely have 
their guns end up at a crime scene, and only a small percentage of the 
population is involved in criminal activity. It is therefore logical to 
select for inspection those dealers most likely to be a source of crime 
guns--intentionally or not.
    In October 1998, ATF implemented a ``focused'' inspection policy, 
which requires field division personnel to select Federal firearms 
licensees (FFLs) for inspection based on information developed by the 
Crime Gun Analysis Branch of the NTC. This valuable information 
provides indicators of potential firearms trafficking associated with 
particular FFLs. These include such things as the number of crime guns 
traced to an FFL in a 1-year timeframe, time to crime, number of 
firearms reported stolen, and number of unsuccessful traces associated 
with a particular FFL. ATF then selects FFLs for inspection who have a 
high rate of the indicators associated with their businesses. In order 
to achieve our goal of reducing violent crime by denying criminals 
access to firearms, ATF needs to focus its limited inspector resources 
toward inspecting these FFLs.
    ATF published a final rule in the Federal Register to amend 
regulations relating to the Federal excise tax imposed on manufacturers 
of firearms and ammunition to clarify which parts and accessories are 
to be included in the sale price when calculating the tax on firearms.
    ATF published in the Federal Register a notice proposing to amend 
the regulations to prescribe minimum height and depth requirements for 
identifying marks placed on firearms by licensed importers and licensed 
manufacturers. If adopted, the regulations will facilitate ATF's 
ability to trace the origins of firearms used in crime.
National Ballistics Identification
    In fiscal year 1999, nearly 168,000 projectiles and casings were 
entered into the IBIS data bases nationwide (an 81 percent increase 
over 1998) resulting in 1,150 matches of ballistic evidence between 
multiple crime scenes (a 56 percent increase over 1998.) This 
technology has cut the process of comparing and evaluating ballistic 
evidence from days to minutes and has provided criminal investigative 
leads which were previously unavailable to the law enforcement 
community. ATF and the FBI entered into an agreement in May 1997 that 
created the National Integrated Ballistics Information Network (NIBIN) 
Board. The Board's goal is to unify Federal efforts to deploy 
ballistics technology. The NIBIN Board determined that the best path to 
creating a unified national ballistics network would be to use a single 
ballistics imaging system. The NIBIN Board facilitated the execution of 
a memorandum of understanding (MOU) between ATF and the FBI regarding 
the NIBIN Program. Under the terms of the MOU, ATF will assume 
responsibility for crime gun operations. These include hardware and 
software development, installation, and maintenance; image database 
management; training; quality assurance; and user protocols. The FBI 
will assume responsibility for networking operations and the 
development and deployment of ancillary databases for firearms 
examiners.
    In an effort to merge the programs and allow for the seamless 
exchange of information, a decision was made to adopt the single IBIS 
technology; therefore, ATF and the FBI executed the MOU spelling out 
each agency's responsibilities under the NIBIN Program. This agreement 
ensures sharing of information and increases the potential to identify 
armed violent criminals.
Firearms Tracing
    This past year was significant in many ways to the National Tracing 
Center. The number of crime gun traces topped the 200,000 mark. 
Additional cities became partners in the YCGII, which has the use of 
crime gun information as its cornerstone. Some of these enhancements to 
further improve upon the quality of this unique ATF service included: 
improvements in response time through the new Firearms Tracing System 
(FTS) platform; development of the ``Web Query'' for access to the FTS 
by our agents and inspectors which provides our partners in law 
enforcement the tools to improve their capabilities through the 
Electronic Tracing Submission System (ETSS); working with the firearms 
industry to improve firearms tracing through Access 2000; and lastly, 
ATF's ``OnLine LEAD.'' This investigative tool uses all the information 
in the NTC databases to assist our special agents in discerning and 
investigating those who traffic illegally in firearms.
International Firearms Matters
    In addition, ATF and its technology have been called upon to once 
again support the United Nations' War Crimes Tribunals investigating 
alleged death squads in Bosnia-Herzegovina. In December 1999, ATF sent 
a team of experts to Bosnia to test-fire and recover ballistic evidence 
from over 1,500 firearms seized from the Bosnian-Serb Army. These 
weapons are suspected of being used in the 1995 atrocities in 
Srebrenica and other areas of eastern Bosnia. ATF laboratories are 
currently comparing the test fire evidence with over 3,000 pieces of 
ballistic evidence recovered from primary and secondary gravesites. At 
the request of the Tribunal, over 4,500 pieces of ballistic evidence 
recovered from Bosnia are currently being compared and evaluated at the 
ATF laboratories.
    Elsewhere, ATF participation is essential in a variety of 
international forums examining methods of combating illegal 
transnational firearms trafficking. ATF provides expert technical 
advice relating to the Federal firearms laws and the benefit of 
practical experience associated with our criminal enforcement 
responsibilities. U.S. foreign policy decision-makers rely on ATF's 
involvement and input in formulating sound decisions, which ensure that 
U.S. equities and concerns in this arena are protected.
                    arson and explosives enforcement
    I would like to point out to the Committee that while ATF has had 
very significant accomplishments in fighting firearms violence, ATF has 
also had equally significant successes in addressing violent crime in 
the areas of arson and explosives. For example, in fiscal year 1999, 
ATF certified fire investigators responded to an estimated 2,200 fires 
across the country. These highly trained special agents respond to 
incidents at all times of the day and night to make the initial 
determination of potential criminal acts warranting further 
investigation. ATF inspectors carried a considerable workload in 
helping to ensure the lawful use of explosives materials. They 
completed more than 7,294 inspections of the 10,662 explosives 
licensees. These inspections disclosed and resulted in correction of 
more than 2,831 violations, 1,431 of which presented unsafe conditions. 
There were also 182 criminal referrals made as a result of these 
inspections.
Arson at Houses of Worship
    In fiscal year 1999, ATF responded to all known fires and 
explosions at houses of worship nationwide, 322 responses in all. Of 
those incidents, 132 fires and 12 bombings were determined through 
investigation to be caused by deliberate criminal conduct. I am proud 
to report to the committee that ATF's efforts in the investigation of 
fires at houses of worship have resulted in 35 percent of these cases 
being solved, a solution rate more than double the national average for 
the crime of arson.
National Response Teams
    Our National Response Teams were activated a record 42 times in 
fiscal year 1999 to investigate major fire and explosives incidents. In 
55 percent of these activations, criminal conduct was determined to be 
the cause of the incident. Our National Response Teams cleared 46 
percent of these incidents within the fiscal year, a solution rate that 
is 2\1/2\ times higher than the national average for the crime of 
arson. Of the incidents that occurred in fiscal year 1999, 57 percent 
have been cleared by arrest to date and we expect this percentage to 
increase as investigations continue. Due to the complexity of arson 
investigations, it often takes several years to complete the 
investigation from the time of incident.
State and Local Support and Partnerships
    ATF and the U.S. Fire Administration (USFA) are teaming together to 
redesign and deploy a web-based system managed by the USFA, entitled 
``Fire and Explosion Investigation Management System,'' that will 
include information on fires and fire-related explosives incidents that 
occur nationwide for use by the fire/explosion investigation community.
    ATF partnered with the National Association of State Fire Marshals 
and developed a discussion website for use strictly by individuals at 
the Federal, State, and local levels who have the statutory authority 
to investigate and prosecute fire and arson incidents. This website 
facilitates communication between the investigators.
    ATF finalized the development of InterFIRE, a virtual reality, CD-
ROM-based training tool that is intended to establish ``best 
practices'' in fire investigation and bring fire investigators to a 
``base level'' of knowledge. Distribution has begun.
    Through its explosives and accelerant detection canine training 
program ATF provides an investigative tool for use in explosives, 
firearms, and fire investigations, National Response Team 
investigations, public security, and the investigative needs of outside 
agencies. ATF's canine training facility in Front Royal, Virginia, is 
now open, and the kennels are in the final stages of construction. 
Under a training arrangement with the U.S. Department of State, ATF 
also trains explosives detection canines for foreign countries to be 
used overseas in the war against terrorism, and to protect American 
travelers abroad against terrorism. Through fiscal year 1999, ATF has 
trained and certified 68 accelerant-detecting canines for State and 
local agencies, and has trained and certified 190 explosives detection 
canine teams for deployment in 10 countries worldwide. Additionally, 
since 1998, ATF has trained 10 explosives detection canine teams for 
other Federal, State, and local agencies including the FBI, the Central 
Intelligence Agency, and the Internal Revenue Service.
    In fiscal year 1999, ATF became aware of a need to develop an 
explosives destruction and disposal training program for State and 
local bomb technicians. This training program will be designed and 
implemented to cover areas not currently addressed by any other agency 
on a national scale. The first scheduled school is slated for March 
2000.
    In pursuit of the prevention of criminal misuse of explosives, ATF 
is strengthening its cadre of explosives technologists, who possess 
unique capabilities in explosives and bomb disposal. There are 18 
technologists currently on board.
    In fiscal year 1999, ATF produced a special video entitled ``A 
Mother's Tears'' in response to demand from State and local police 
departments and school systems for an explosives safety program for 
juveniles. This video was given the ``Videographer's Award of 
Distinction'' for instructional programming.
Counter Terrorism
    I would like to point out that ATF's resources are at the core of 
this country's response to terrorism. ATF's firearms, explosives, and 
arson expertise directly addresses the principal tools of the ``would 
be'' terrorist. ATF plays an important role in the Federal Government's 
fight against terrorism and contributes to this fight through our day-
to-day investigative work. ATF's employees hone their investigative 
skills in these areas on a daily basis and are uniquely qualified and 
equipped to immediately respond to arson and explosives crimes which 
may later be deemed acts of terrorism.
Explosives Study Group
    ``ATF's Explosives Study Group (ESG) is examining the tagging of 
explosive materials for purposes of detection and identification; the 
feasibility and practicability of rendering common chemicals used to 
manufacture explosive materials inert; the feasibility and 
practicability of imposing controls on certain precursor chemicals used 
to manufacture explosives; State licensing requirements for the 
purchase and use of commercial high explosives; and the possible use of 
prevention (explosives detection) technologies'', as stated in Section 
732 of the Antiterrorism and Effective Death Penalty Act of 1996, as 
amended by the Omnibus Consolidated Appropriations Act for Fiscal Year 
1997.
    The ESG issued its first report on the Study (1997 Progress Report) 
to Congress in March 1998. In November 1999, ATF's second Progress 
Report on the Study of Marking, Rendering Inert, and Licensing of 
Explosive Materials, was submitted to Congress.
    In February 1998, the ESG completed its research into, and analysis 
of, the Swiss identification tagging program, and reported in its 
second Progress Report that the program does not provide an adequate 
model for implementation in the U.S.
    In early 1999, the ESG completed its analysis of the results of the 
ATF-commissioned study entitled ``Study of Imposing Controls on, or 
Rendering Inert, Fertilizer Chemicals Used to Manufacture Explosive 
Materials,'' completed by the International Fertilizer Development 
Center (IFDC) in March 1997. The ESG concurs with the IFDC's 
conclusions concerning the current unfeasibility and potentially 
devastating economic and agronomic effects of rendering ammonium 
nitrate (AN) fertilizer inert.
    The ESG has continued to communicate and work with other Federal 
agencies such as the Federal Aviation Administration, the U.S. Customs 
Service, the Department of Justice, and the Department of Energy. These 
efforts are aimed at facilitating a coordinated effort to identify and 
direct resources toward the most promising technologies, for both the 
detection of additives and the detection of explosives and explosive 
materials themselves, which may be used in a broad range of 
environments.
                           revenue collection
    ATF continues to honor its obligation to fairly and efficiently 
collect over $12 billion in revenue in accordance with current laws. 
Our efforts have achieved an extraordinarily high level of voluntary 
compliance within the industries we regulate. In fiscal year 1999, ATF 
collected the following revenue: $11,900,000,000 in alcohol and tobacco 
excise taxes; $167 million in firearms excise taxes; and $105 million 
in special occupational taxes; and $6 million in licensing and transfer 
fees for a total exceeding $12,100 million.
Government Partnerships
    ATF works with Federal, State, local and Foreign Governments in an 
effort to effectively collect revenue and regulate the industries 
subject to the Bureau's authority.
    ATF redirected its approach to revenue collection through a program 
to identify taxpayers that pose high risk to the revenue due using a 
factoring system to rate taxpayers. In addition, a statistical sampling 
process was established to identify taxpayers in order to validate the 
criteria used. For these programs, new internal control documents were 
developed to pinpoint high-risk activities and weaknesses for 
inspection.
    These evaluations were developed for the distilled spirits, wine, 
malt beverage, tobacco products, and firearms manufacturing industries.
    In fiscal year 1999, ATF opened 106 alcohol and tobacco diversion 
investigations. Seizures of alcohol and tobacco monies and real 
property totaled over $1,400,000. ATF was also one of the lead agencies 
in a Federal investigation that resulted in a payment of $10 million to 
the Treasury Asset Forfeiture Fund from a company wholly-owned by a 
major U.S. cigarette manufacturer for its involvement in illegally 
diverting cigarettes to Canada. Diversion investigations in fiscal year 
1999 also resulted in 49 defendants being recommended for prosecution, 
and several members of organized crime groups successfully prosecuted 
for alcohol and tobacco related criminal activity.
    ATF implemented the provisions of the Balanced Budget Act of 1997, 
including issuing regulations restricting the importation of previously 
exported tobacco products and cigarette papers and tubes.
    ATF received nearly 68,000 alcohol beverage label applications in 
fiscal year 1999 of which 15 percent were denied approval due to non-
compliance. On average, the turnaround time for an application from 
time of receipt to completion of processing was 8 days.
Cooperative Efforts With Industry
    In fiscal year 1999 representatives from the Treasury Department 
and ATF met with industry members concerned about direct shipment 
issues. Discussion focused on the accessibility of youth alcohol 
purchases on the Internet, issues surrounding State law implications, 
small winery market access, and interstate beverage alcohol shipments.
    We also met with representatives from the alcohol beverage industry 
to initiate dialogues about regulatory practices for alcohol and youth. 
Other meetings were scheduled with State authorities, other Federal 
agencies, public advocacy groups, and public health agencies.
    ATF processed petitions and issued notices of proposed rulemaking 
resulting in the establishment of five new viticultural areas: 
Applegate Valley in Oregon, and Diamond Mountain, San Francisco Bay, 
Chiles Valley District, and Yountville, in California.
Information Technology
    As we enter the new millennium, ATF has worked diligently to keep 
pace with an extraordinary amount of technological change. In December 
1999, ATF broke ground for its new National Laboratory Center in 
Beltsville, Maryland. The new National Laboratory Center will give ATF 
the kind of facility it needs to support firearms, explosives, and fire 
investigations, as well as conduct testing that insures the integrity 
of regulated alcohol and tobacco products.
    Also at the new facility is a one-of-a-kind fire research center 
located along side the Forensic Science Laboratory and the Alcohol & 
Tobacco Laboratory. The Fire Research Laboratory is a new addition to 
ATF's technical expertise that will directly support fire 
investigations and complement ATF's on-going fire investigation 
initiatives such as the Interfire Fire Investigation Training CD-ROM, 
the Certified Fire Investigation Programs, and the Accelerant Detection 
Canine Programs. It is the first laboratory in the world solely 
dedicated to supporting fire investigations and the resolution of fire 
related crimes, and advancing the science of fire evidence analysis. 
For the first time, investigators will have a resource that can help 
them unravel the difficult problems associated with fire ignition and 
spread. ATF has established a memorandum of understanding with the 
National Institute of Standards and Technology (NIST) to join forces on 
research into the measurement and prediction of fire and its effects, 
to share training and technology, and to conduct joint research and 
technical assistance tasks on matters of fire science.
    ATF initiated a National Firearm Examiner Academy to help develop a 
national cadre of forensic examiners to conduct firearms examinations. 
Historically, this expertise has been developed through apprenticeship; 
often taking over 2 years to develop the skills needed to do the job. 
As a result, there is a significant shortage of skilled firearm 
examiners in most State and local forensic laboratories. The pilot 
course will be completed in April. The 13-week program fully trains the 
students in the skills needed to productively begin case examinations. 
The profession's Association of Firearms and Toolmark Examiners (AFTE) 
endorses the training program and the Nation's crime laboratory 
directors have expressed overwhelming support for the program.
    The National Field Office Case Information System (N-FOCIS), 
comprised of N-Force and N-Spect, developed specifically for the ATF 
special agents and inspectors, respectively, assists ATF employees in 
gathering, reporting, and accessing investigative and inspection data. 
One major goal of N-FOCIS is to reduce the time special agents and 
inspectors spend on administrative functions.
    A simple, intuitive user interface, N-FOCIS employs a familiar file 
structure to organize data into logical categories (e.g., events, 
property, persons), and the ability to share case information in a 
secure environment.
Training Activities
    ATF provides our employees with high quality and innovative 
training programs by assisting in their professional development, thus 
improving organization performance and supporting our Strategic Plan. 
In almost all technical training provided, there are either pre-tests 
for admission or academic requirements for graduation. In addition, 
``golden threads'' are now part of many programs. These are lessons on 
ethics and integrity, customer service, teamwork, and accountability to 
the American public. Training initiatives which enhance employee 
development and performance include our New Professional Training 
Program; Advanced Firearms Trafficking; Alcohol and Tobacco Diversion; 
Advanced Explosives for Inspectors and Certified Explosives 
Specialists; and other technical programs. Each of these training 
programs seek to expand the base of employee knowledge and 
understanding regarding ATF's roles, missions, and capabilities, and to 
capitalize on the ever-increasing collaboration between agents and 
inspectors in the field. ATF also provides training to thousands of 
other Federal, State, local, and foreign law enforcement officers. 
Training areas include arson investigation, explosive identification 
and regulation, firearms trafficking, and post blast investigations.
    On average, we conduct 12,728 training instances each year for ATF 
personnel. In addition, ATF provides training to an average of over 
42,000 State, local, and international law enforcement officers and 
industry personnel annually.
    In fiscal year 1999, ATF provided basic training to a record number 
of 168 agents and 72 inspectors through the New Professional Training 
program, which was updated to include comprehensive basic training to 
all new agents and inspectors.
    Last year ATF developed training protocols and organizational 
development plans for ATF's Critical Incident Command System. We have 
conducted field exercises and exposed all ATF field divisions to the 
theory and principle of a standardized Critical Incident Management 
System for ATF.
    In fiscal year 1999, ATF has focused on leadership development 
programs for all ATF supervisors and managers with an emphasis on core 
competencies, ethics, integrity, and teamwork.
Management and Administrative Efforts
    Over the past year, ATF implemented and administered a 
comprehensive ethics program to ensure compliance with the Standards of 
Conduct for Employees of the Executive Branch and supplemental 
regulations. This program was put into place to raise ATF employees' 
awareness of the Standards and to ensure consistency throughout the 
organization. The Ethics Program administers the Bureau-wide financial 
disclosure program, provides legal advice in various areas, and 
provides extensive training to all ATF employees. In providing ethics 
training, we are ensuring that all new employees are trained and that 
ethics presentations are provided at mid- and senior level conferences, 
and at various retirement seminars around the country. ATF has also 
taken the initiative in setting up an Ethics website and providing 
updated information weekly to ensure that the ATF workforce has current 
changes to the rules of conduct. With our approach, ATF employees 
recognize that ethics is a real and integral part of all that we do and 
critical to carrying out our mission successfully.
    In fiscal year 1999 ATF hired over 500 employees with a net 
staffing increase of over 400. This accomplishment demonstrates that 
while ATF's fiscal year 2001 Congressional request is ambitious, it is 
also realistic. The past several years have enabled ATF to strengthen 
its infrastructure to allow it to hire all of the personnel requested 
in this request.
                               conclusion
    As you can see, ATF continues to contribute to making America 
sounder and safer though its efforts in very diverse jurisdictions in 
Reducing Violent Crime, Collecting Revenue, and Protecting the Public. 
Along with the men and women at ATF, I am prepared to rise to the 
challenge of meeting all of our responsibilities under the laws that we 
enforce. I would be pleased to answer any questions you may have and I 
would like to express my sincere appreciation for the support that the 
Committee has provided us. I look forward to working with the Committee 
to further our mutual goals of safeguarding the public and reducing 
violent crime.

                          U.S. Secret Service

STATEMENT OF BRIAN L. STAFFORD, DIRECTOR
    Senator Campbell. We will finish with Director Stafford.
    Mr. Stafford. Mr. Chairman, Senator Dorgan, I am also 
pleased to be here today to be afforded the opportunity to 
testify on the Secret Service's fiscal year 2001 budget 
request. Seated behind me are the Deputy Director, Assistant 
Directors, and Chief Counsel of the Secret Service. Today, I 
will briefly outline our continuing commitment to Congress and 
the American people to maintain the highest level of physical 
protection possible for the President and others and our 
commitment to protect the integrity of the nation's financial 
infrastructure.

                workforce retention and workload balance

    The Secret Service's 2001 budget request continues to build 
upon the efforts this committee has supported to address a 
critical personnel shortage within the Secret Service in order 
to satisfy mandatory workload increases. As you know, during 
1999, the Department of the Treasury established the 
Interagency Group on Secret Service Workforce Retention and 
Workload Balancing. It recommended that, among other actions, 
the size of the special agent workforce be increased.

                           protective program

    Accomplishing our mandated dual protective and 
investigative missions is labor intensive and the workload 
continues to grow. In the area of national special security 
events, the Secret Service is currently involved as the lead 
agency in the planning, coordination, and implementation of 
security measures for significant major events--the 2002 Winter 
Olympics in Salt Lake City, OpSail 2000 in New York, and the 
Republican and Democratic National Conventions. The amount of 
work associated with preparing for these events cannot be 
overstated.
    The protective workload continues to expand this fiscal 
year for the Secret Service with 17 full-time protectees, an 
anticipated record number of visiting foreign heads of state, 
and the Presidential campaign. The variety and destructive 
magnitude of terrorist acts are on the rise and the nature of 
terrorist activity has become more technologically 
sophisticated.

                         investigative program

    In addition to our protective mission, the Secret Service 
is meeting the responsibilities of a very demanding criminal 
investigation program. This country's banking and financial 
infrastructure is under attack. Transnational criminal elements 
have dramatically increased use of technological schemes to 
counterfeit U.S. currency. If this activity goes unchecked, it 
will have a harmful effect on the confidence in United States 
currency, which is the currency of choice worldwide with more 
than $450 billion in circulation.
    Advancing technology has enabled an expanding criminal 
element to conduct a variety of financial crimes. These 
criminal schemes are challenging the Service's investigative 
resources as never before. In the not-too-distant past, e-
commerce, online banking and securities trading, ATMs, debit 
cards, and smart cards were considered ``future world'' 
concepts. Today, they are reality. By having electronic crime 
special agents trained in every field office, the Secret 
Service is taking a proactive position in identifying fraud as 
it occurs throughout the Internet.

                   national threat assessment center

    Mr. Chairman, we are all very well aware of the recent 
tragic events that have unfolded in our nation's schools and 
workplaces. I believe the appropriate response to these 
tragedies is working together and combining the resources of 
local, State, and Federal governments. The work of the Secret 
Service's National Threat Assessment Center, which has grown 
from our exceptional case study project, highlights our efforts 
at preventing assassinations, and now this same methodology can 
be useful to others in education and in local law enforcement. 
Through the National Threat Assessment Center, we will continue 
our partnership approach and share what we are learning. We 
believe the ideas and approaches contained in the study can be 
useful in investigating, assessing, and preventing cases of 
targeted violence, to include school violence.

                           prepared statement

    In conclusion, on behalf of the men and women of the Secret 
Service, I want to thank the committee for their long history 
of support and I am also ready to answer any questions you may 
have.
    Senator Campbell. Thank you.
    [The statement follows:]

                Prepared Statement of Brian L. Stafford

    Mr. Chairman and members of the Subcommittee, I am pleased to be 
here today, and to be afforded the opportunity to testify on the Secret 
Service's fiscal year 2001 Budget Request.
    With me today, Mr. Chairman, are Kevin T. Foley, Deputy Director; 
Dana A. Brown, Assistant Director for Administration; C. Danny Spriggs, 
Assistant Director for Protective Operations; Barbara S. Riggs, 
Assistant Director for Protective Research; James E. Bauer, Assistant 
Director for Investigations; Gordon S. Heddell, Assistant Director for 
Inspection; Larry L. Cockell, Assistant Director for Training; H. 
Terrence Samway, Assistant Director for Government Liaison and Public 
Affairs; and John J. Kelleher, Chief Counsel.
                 fiscal year 2001 appropriation request
    The Service's fiscal year 2001 funding request totals $830.5 
million and 5,543 FTE positions, and includes funding from three 
sources: the Salaries and Expenses appropriation; the Acquisition, 
Construction, Improvements and Related Expenses appropriation; and 
reimbursements from the Departmental Super Surplus Forfeiture Fund. The 
total budget request for fiscal year 2001 is $70.1 million above the 
level of funding that the Service is receiving this fiscal year.
    With this funding, the Service expects to further advance the 
attainment of its two mission goals: to maintain the highest level of 
physical protection possible through the most effective use of human 
resources, protective intelligence, risk assessment, and technology; 
and to protect the integrity of the nation's financial systems through 
aggressive criminal investigations and assessing trends and patterns to 
identify preventive measures to counter systemic weaknesses.
                      salaries and expenses (s&e)
    The Service's Salaries and Expenses appropriation request for 
fiscal year 2001 totals $821,596,000 and 5,543 full-time equivalents 
(FTE). This is an increase of $123,284,000 and 193 FTE over the fiscal 
year 2000 appropriated level of $698,312,000 and 5,350 FTE, which 
includes $21 million to be transferred from other accounts within the 
Department of the Treasury. This request includes: $28,610,000 in 
upward adjustments necessary to maintain current program performance 
levels, $30,750,000 and 256 FTE to annualize the funding for fiscal 
year 2000 program changes (including the $21 million transferred in 
fiscal year 2000), $55,158,000 and 154 FTE to cover the cost of 
mandatory workload increases, $36,266,000 in base funding that 
previously came from other funding sources, and $3,500,000 and 10 FTE 
for a program increase. These increases are offset by a reduction of 
$10 million in non-recurring costs.
Salaries & Expenses Program Changes
    The single program increase contained in the Service's fiscal year 
2001 Budget is $3.5 million and 10 FTE for development and 
implementation of an Air Security program. This program is mandated by 
Presidential Decision Directive 62 (PDD-62). PDD-62 mandates the Secret 
Service to create additional capabilities that ``achieve airspace 
security'' for designated ``National Special Security Events (NSSE).'' 
This air security program utilizes air interdiction teams to detect, 
identify, and assess any aircraft that violates, or attempts to 
violate, an established Temporary Flight Restricted Area (TFR) airspace 
above an NSSE.
    The fiscal year 2001 Budget Request also continues, and builds 
upon, the efforts already being made this fiscal year to address 
mandatory workload increases. The Service is requesting an additional 
$41.3 million and 125 FTE to further its Workforce Retention and 
Workload Balancing efforts.
    In 1999, the Department of the Treasury, Office of Enforcement, 
established the Interagency Working Group on U.S. Secret Service 
Workforce Retention and Workload Balancing. This working group, which 
included representatives from Treasury Management and the Office of 
Management and Budget, analyzed the underlying causes for the decreased 
ability of the Secret Service to retain younger special agents, and the 
degradation of quality-of-life brought about by increased mission 
demands placed on the special agent workforce. The working group found 
that the current workload is causing significant morale and retention 
problems, and recommended that, among other actions, the size of the 
special agent workforce be increased.
    Accomplishing the Service's mandated dual protective/investigative 
mission is a very labor-intensive effort, and the workload relative to 
this mission is growing. The Service's protective mission continues to 
expand and become exceedingly more difficult. The variety and 
destructive magnitude of possible terrorist acts continue to expand, 
and the nature of terrorist activity has become more technologically 
sophisticated. Likewise, this country's banking and financial 
infrastructure must be protected from a growing list of criminal 
attacks. Transnational criminal activity has dramatically increased 
utilization of sophisticated technological schemes to counterfeit U.S. 
currency. If this activity continues unchecked, it will have a 
deleterious effect on the worldwide confidence in U.S. currency.
    For the Secret Service to effectively continue to meet this 
increased workload, additional staffing will be required. With the 
supplemental funding provided in fiscal year 2000 the Service is 
already in the process of adding 227 FTE positions to its workforce. 
This represents about one-third of the additional staffing identified 
as required by the Interagency Working Group.
 acquisition, construction, improvements, and related expenses (acire)
    The Service's fiscal year 2001 request for its Acquisition, 
Construction, Improvements, and Related Expenses (ACIRE) account is 
$5,021,000; an increase of $98,000, which is needed to maintain current 
program performance levels. There are no program initiatives budgeted 
for this account. In addition, the Service's budget proposes that 
$3,920,000 required to effect security changes at the Vice President's 
official residence be reimbursed from the Departmental Super Surplus 
Forfeiture Fund.
                              results act
    Fiscal year 1999 was an extremely demanding, but highly productive 
year for the U.S. Secret Service.
    Our protective effort was unprecedented, with 5,723 protectee 
travel stops by our 16 permanent protective details, and over 400 
visiting foreign dignitaries. The total number of travel stops for all 
protectees was 16.8 percent higher than previously estimated. Permanent 
protectee travel was 13.9 percent higher, and travel for visiting 
foreign dignitaries was 24 percent higher than estimated.
    The level of recovered counterfeit money passed was held to $78 per 
million dollars of genuine currency. This was significantly below the 
$90 per million dollars of genuine currency in the performance plan, 
and meant substantial savings for the American public.
    The Service continues to focus its efforts to curb the 
counterfeiting of U.S. currency in foreign countries. Last fiscal year, 
a total of $1.4 million in recovered counterfeit currency was passed 
overseas. This was significantly below the total of $5.0 million in the 
performance plan.
                           protective program
    The Secret Service provides security for the President, the Vice 
President, and their families, as well as former Presidents, 
Presidential and Vice Presidential candidates, visiting heads of state 
and heads of government. This program also includes security for the 
White House Complex, the Vice President's residence, the Treasury 
Department, and 462 foreign missions within the Washington, D.C., area.
    The Secret Service continues to meet past and present challenges of 
identifying and neutralizing potential threats by individuals and 
groups in a highly individualistic, mobile, and gun-prevalent society.
    During fiscal year 1999, the President, Mrs. Clinton, and Vice 
President Gore continued their extensive travel schedules. The 
President made 33 foreign stops, the First Lady made 31 foreign stops, 
and the Vice President made 7 foreign stops.
    Also during fiscal year 1999, the Secret Service successfully 
designed, planned, and implemented overall security for the visit of 
Pope John Paul II, the 50th North Atlantic Treaty Organization Summit, 
and the 54th United Nations General Assembly. The 50th North Atlantic 
Treaty Organization Summit was designated as a National Special 
Security Event.
    In fiscal year 2000 the Secret Service will again face many 
protective challenges. The mission requirements include the design, 
planning, and implementation of overall security for three upcoming 
National Special Security Events; the Operation Sail 2000/International 
Naval Review to be held in July in New York City; the Democratic 
National Convention in Los Angeles; and the Republican National 
Convention in Philadelphia.
    In preparation for the 2000 presidential campaign the Service 
staffed and trained 8 candidate/nominee protective details during 
fiscal year 1999, as well as trained over 2,300 Treasury Special Agents 
in 27 cities to assist us during the campaign. These Treasury Special 
Agents will serve as an integral part of each candidate's/nominee's 
site security.
    The Service continues to provide the highest level of protection 
possible for all persons and facilities it is charged with protecting. 
This protection is accomplished by integrating highly trained personnel 
with state-of-the-art weapons and technology to react quickly and 
decisively to eliminate, or minimize, attacks. However, the primary 
goal of the Service is to prevent acts of violence. A key factor in 
preventing attacks is to have prior knowledge or ``intelligence'' of 
potential attackers, their motives, intentions, and capabilities.
    Protective intelligence serves a critical role in the Secret 
Service's protective mission. The Service's Intelligence Division 
develops threat assessments in support of protectee visits to domestic 
and foreign settings; provides warning indicators for specific and 
generalized threat environments; maintains liaison with the mental 
health, law enforcement, and intelligence communities; and conducts 
investigative and operational studies necessary to evaluate potentially 
dangerous groups or individuals that pose a threat to our protectees.
    The Secret Service is represented on 23 Joint Terrorism Task Forces 
throughout the United States. The Task Forces provide immediate access 
to intelligence gathering and information sharing on individuals or 
groups that may be planning or engaging in adverse activities directed 
toward our protectees or other public officials. Recently, the Service 
also initiated a Washington, D.C.-based Protective Detail Intelligence 
Network that concentrates on sharing intelligence information with 
other agencies with protective responsibilities.
    With support from the National Institute of Justice and the Federal 
Bureau of Prisons, the Secret Service recently completed a behavioral 
research study that has caused us to refine and improve our approach to 
threat assessment, protective intelligence, and the prevention of 
assassination. As the Secret Service has shared these ideas with 
members of the nation's criminal justice, law enforcement, mental 
health, and behavioral sciences communities, we have received numerous 
comments indicating that the findings of our study may be useful for 
identifying and assessing other kinds of targeted violence, such as 
that seen in recent school shootings, relationship violence 
(``stalking''), and workplace violence.
    As a product of our research, its acceptance, and the significant 
number of requests for assistance that we have received, we established 
the National Threat Assessment Center (NTAC) in the fall of 1998. 
NTAC's mission is to provide leadership and assistance to law 
enforcement in the area of threat assessment, and it will be the 
subject of a more in-depth briefing toward the conclusion of my 
statement.
    Our technical security program continues to work with others on 
measures to better ensure the safety of the President, and other 
protectees, against weapons of mass destruction. The Service is 
aggressively pursuing a comprehensive chemical/biological program in 
order to detect, protect, and mitigate the effects of chemical or 
biological toxins at fixed sites as well as at temporary locations 
visited by our protectees.
    Presently, the Secret Service is enhancing its chemical and 
biological detection capabilities at the White House, conducting 
awareness and training programs for field office personnel, and 
actively monitoring the research and development activities of a 
promising biological hazard detection system that is under development.
    Additionally, we have developed highly trained teams to travel with 
the President and Vice President in specially designed vehicles. Team 
members receive emergency medical training and are capable of 
administering medical assistance and performing decontamination while 
transporting the victim to a hospital. This level of protection is 
unique to the Secret Service, although several protective agencies 
throughout the world are now evaluating our program for their use. The 
Secret Service is staying abreast of this rapidly developing technology 
to ensure that its protectees are afforded the most advanced protection 
systems possible.
                         investigative program
    In addition to our protective mission, the Secret Service is 
meeting the responsibilities of a very demanding criminal investigation 
program. The Service is responsible for domestic and international 
investigations involving financial systems crimes to include bank 
fraud; access device crimes; telemarketing crimes; telecommunications 
crimes (cellular and hard wire); cyber crimes (attacks on critical 
infrastructures; desktop publishing and network intrusions); automated 
payment system and teller machine crimes; crimes involving government 
entitlements; crimes involving identity takeovers; crimes involving 
counterfeit and fictitious financial instruments, obligations and 
securities; crimes involving counterfeit currency; criminal activity in 
the area of money laundering as it relates to certain specified 
unlawful activities; and the seizure and subsequent forfeiture of 
assets used to facilitate certain criminal activities, as well as the 
proceeds of those criminal activities.
    As society rides the wave of advancing technology into the new 
millennium, the challenges facing the law enforcement community grow 
significantly. This advancing technology has enabled an expanding 
criminal element to conduct a variety of financial crimes, which are 
oftentimes extremely sophisticated in nature. These criminal schemes 
are challenging the Service's investigative resources as never before. 
Our organization is continually evolving to meet these challenges, with 
an investigative strategy that incorporates successful methodologies of 
the past with the new technologies of the present and future.
    The Secret Service has been the law enforcement agency called upon 
time and again to maintain the integrity of this country's financial 
infrastructure. During the past 135 years we have observed an evolution 
of financial instruments from paper currency and coins to today's 
instruments of choice: credit and debit cards, checks, bonds, and 
commercial securities and other financial obligations. As expected, we 
have also witnessed the technological evolution of counterfeit crimes 
from hand-drawn Federal Reserve Notes to today's common use of advanced 
reprographics to counterfeit these financial instruments. In response 
to these changes, the Secret Service has focused its expertise on 
investigations of counterfeit and fictitious financial instruments. As 
a result, we are internationally recognized as the foremost experts in 
this field.
    With each advance in technology, the Secret Service has been 
prepared to answer the challenge. At no time in our history have the 
challenges been greater than in the past 20 years. In the not too 
distant past, E-Commerce, on-line banking and securities trading, 
automated teller machines, debit cards, and smartcards were considered 
``future world'' concepts. Today, these advancements are a reality. 
These new customer friendly technologies facilitate commerce on an 
international scale and have merged our financial infrastructure into a 
seamless global financial system. The ability to conduct financial 
transactions internationally is as easy as dialing a telephone or 
connecting to the Internet. These technological advances, while 
providing great benefits to the public at large, are also prime 
economic targets for the criminal community.
    Traditionally, society has considered ``white collar crime'' as a 
non-violent, victimless crime. The reality is, white collar crime, 
financial crime, or economic crime, whichever term you choose to use, 
is perpetrated by the entire criminal element, from single individuals, 
to loosely knit groups, to highly sophisticated and transnational 
criminal enterprises. These financial crimes are oftentimes conducted 
in conjunction with, or for the purpose of funding, more inherently 
violent crimes such as drug trafficking, weapons trafficking, extortion 
or, in some cases, terrorism.
    Technological enhancements to wireless communications and the 
improvements in transportation systems have created an environment in 
which state and international borders become greater obstacles for law 
enforcement agencies than for criminals. This, in conjunction with the 
ease with which one can either counterfeit or fraudulently obtain false 
identification and travel documents, further magnifies the challenges 
posed to the entire law enforcement community.
    Another area the Secret Service is addressing involves money 
laundering through the use of advanced technology. As technology 
continues to evolve, organized groups are using more sophisticated 
means to hide the proceeds from their criminal activities. We have seen 
an increase in the use of transaction cards such as debit, credit, and 
more recently smartcards, to transfer illicit funds to disguise their 
source and origin. Money laundering through the use of smartcards is a 
concern to law enforcement. Smartcards provide the capability to make 
anonymous peer-to-peer or card-to-card transfers of monetary value. 
Further, the ability to move money across international borders via 
chips containing value will also create a challenge for law 
enforcement.
    With smart cards, an individual has the ability to move hundreds of 
thousands of dollars across borders with a device that is extremely 
concealable. It is conceivable to visualize a major money launderer 
taking advantage of such a payment system and carrying large sums of 
money in or out of the United States via a smartcard. Once the border 
is crossed with this smartcard, the money can be transferred to other 
cards; thus creating a money-laundering scenario that is virtually 
paperless.
    For electronic commerce, the Secret Service has taken a proactive 
approach with regard to the security of financial transactions. With 
the investigative expertise gained through our interaction with the 
financial industry, we have a clear understanding of the overall 
infrastructure of the financial system. The Internet and the 
telecommunications industry are among the fastest growing technologies 
in the world, and they provide the backbone for the emerging 
technologies in electronic commerce, financial transactions, and 
banking.
    The growth and evolution of the Internet has provided numerous 
commercial and financial opportunities, specifically in the area of 
electronic commerce. There is also growth occurring, on a global basis, 
in the area of high-technology crime. As a primary investigative agency 
of the Treasury Department tasked with the investigation of financial 
crimes, we take our role seriously as the lead agency for ensuring the 
safety of the banking and financial sector of the critical 
infrastructures. The Secret Service has taken a dynamic approach to 
training its agents and our counterparts from all levels of domestic 
and international law enforcement on how to prevent and respond to 
attacks against evolving electronic payment systems. Currently we are 
responding to the need for training in network intrusion and 
telecommunications compromise activity for Federal, State, and local 
law enforcement, as well as private industry. Through state-of-the-art 
computer-based training initiatives, high-technology investigative 
training is being prepared with the goal of keeping law enforcement 
current with effective investigative techniques that can be updated as 
quickly as technology advances.
     Title 18, United States Code, Section 1029, Fraud and related 
activity in connection with access devices, was amended twice in 1994 
and 1998 to include significant revisions related to compromises of the 
telecommunications system. The Secret Service has taken a proactive 
role in the investigation of telecommunications fraud and intrusion 
activity and the education of industry representatives as to their 
vulnerabilities. As such, the Secret Service is recognized as the 
leader in the investigation of this specific type of access device 
fraud, and it routinely provides training to law enforcement and 
private industry personnel at all levels. In many instances, 
telecommunications fraud is a part of other criminal enterprises such 
as financial crimes, counterfeiting, money laundering, and narcotics 
trafficking.
    Pursuant to Title 18, United States Code, Section 1030, the Secret 
Service is empowered to investigate fraud and related criminal 
activities involving computers. The Service is focusing its 
investigative efforts on the telecommunications and banking and 
financial sectors of computer fraud investigations. This focus has 
provided us with the ability to train and equip our field offices to 
address specific high-technology investigations.
    Financial crime investigations have become more dynamic and 
international in scope. In response, the Secret Service created a 
counterfeit financial documents database that is used to make forensic 
connections between known and questioned counterfeit documents. This 
database is used to determine common origins through link analysis 
conducted by research specialists. The Secret Service provides 
permanent representatives to INTERPOL in Lyon, France, and Washington, 
D.C., and has the lead role in terms of expanding this database on a 
global level using INTERPOL mainframe computers. Police agencies all 
over the world are now able to track the source and proliferation of 
counterfeit documents such as driver licenses, credit cards, and 
checks.
    As greater numbers of individuals use computers, and as the use of 
the Internet continues to grow over 100 percent per annum, it is 
anticipated that the criminal element will increasingly utilize these 
tools. For this reason the Secret Service is emphasizing the expansion 
of its Electronic Crimes Special Agent Program (ECSAP). This program is 
an essential component for meeting the mandates of both the 
investigative and protective missions of the Secret Service. The ECSAP 
program consists of highly trained Special Agents qualified as experts 
in the forensic examination of electronic evidence. These agents are 
assigned to nearly all Secret Service field offices. The program has 
expanded to include operational aspects such as technical guidance in 
search warrant preparation and execution, and educational presentations 
and technical advice to public and private sector organizations. 
Special Agents assigned to this program are also trained to examine the 
wide variety of electronic evidence seized in today's criminal 
investigations, including telecommunications devices, electronic 
organizers, scanners, and any other devices manufactured to intercept 
or duplicate telecommunications services.
    The Secret Service has set as its highest priority the 
identification and suppression of counterfeit currency production and 
distribution networks. Advances in reprographic technology mean large 
quantities of counterfeit currency or other obligations can be produced 
quickly and efficiently. Today's criminal needs relatively little 
knowledge or specialized training to print counterfeit currency or 
other obligations in a self-contained print shop. Utilizing equipment 
ranging from inexpensive color copiers, scanners, computers and inkjet 
printers, to small offset duplicators and/or large commercial presses, 
a counterfeiter or criminal organization can flood a region with 
counterfeit currency and be gone before law enforcement can react.
    Last fiscal year foreign arrests for counterfeiting increased 
significantly--from 421 in fiscal year 1998, to 593 in fiscal year 
1999. Foreign seizures of counterfeit currency rose from $66 million in 
fiscal year 1998, to $84 million in fiscal year 1999. Overseas 
counterfeit printing plant suppressions also increased--from 29 in 
fiscal year 1998, to 38 in fiscal year 1999.
    To overcome the problems created with the reduction of barriers 
between societies, the Secret Service continues to enhance its overseas 
presence and liaison with foreign law enforcement. We are establishing 
task forces and providing technical assistance to foreign counterparts 
in cases of strategic importance.
    Our investigative history has proven that the effective suppression 
of counterfeiting operations requires an immediate response by the law 
enforcement community in order to develop investigative leads generated 
when a new counterfeit note is detected, or an arrest is made. The 
Secret Service has long believed that the strategic placement of 
overseas personnel promotes more aggressive law enforcement operations, 
as agents are able to respond in a timely and consistent manner. The 
Secret Service currently maintains 15 offices around the world, staffed 
by 54 special agents and support staff. These strategically located 
offices allow the Secret Service to extend its investigative reach and 
present a coordinated response to transnational crime. If we are to 
keep foreign-based crime away from our shores, our first line of 
defense must be abroad. Given that reality, we must place our personnel 
overseas to target foreign-based criminals and their activities before 
they can reach the United States.
    Based on the success of our counterfeit model, the Secret Service 
has embarked on an ambitious overseas expansion to address our unique 
dual mission of investigation and protection. Our experience has shown 
that these two missions are not divergent--and are often complementary 
in nature. With the globalization of economics, and world events, our 
protectees are traveling abroad at unprecedented levels. The 
relationships we have developed with foreign law enforcement, fostered 
in the investigative arena, prove invaluable when soliciting their 
assistance in providing a secure environment for our protectees abroad.
    In geographical regions where Secret Service personnel are not 
permanently assigned, the Task Force philosophy is employed to address 
specific concerns. Personnel are temporarily assigned to immediately 
address the problem and provide sufficient information to help assess 
whether the problem is short or long term in nature; and if the 
permanent placement of personnel is needed.
    In 1999, the Secret Service undertook a project to publish 
information about known counterfeit U.S. currency on the World Wide 
Web. The Counterfeit Note Search Site that we established allows us to 
track the reporting of counterfeit U.S. currency as it happens. By 
collecting real-time data, we can make better-informed, timely 
decisions on the allocation of resources and manpower. The immediacy of 
the information provided allows our overseas offices to respond to 
leads from foreign financial and law enforcement entities within their 
districts in time to take advantage of investigative leads. It further 
allows them to identify problem areas with information necessary to 
assess more accurately the nature and scope of the problem.
    Establishment of this site has also allowed us to expand and 
develop our liaison activities with foreign financial and law 
enforcement entities where such activities had not previously existed.
    Also, in an effort to stay ahead of counterfeiters, the Secret 
Service, in concert with others, continues to work to decrease the 
vulnerability of the U.S. dollar to unauthorized reproduction. As a 
member of the Advanced Counterfeit Deterrence Committee (ACD) and the 
Currency Redesign Committee, we have had an active role in the 
research, design, and introduction of the new currency.
    In the search for technological solutions to the rise in computer-
generated counterfeiting and inkjet notes, the Secret Service has 
joined forces with the Department of the Treasury, the Federal Reserve 
System, and the Bureau of Engraving and Printing. Further, industries 
associated with inkjet and other color printers, color copiers, digital 
output cameras, imaging software, and Internet software are being asked 
to participate in this effort, as are members of the foreign law 
enforcement community.
    When counterfeit notes first appear, they must be classified. The 
Service has identified over 21,630 different counterfeit circulars, 
with over 20,000 variations. To develop these circulars now requires 
making manual comparisons to classify a new note. Through a contract 
with an innovative computer engineering company, the Secret Service has 
developed a system to classify and identify counterfeit notes using 
pixels that are present in the Treasury seal. The system has been 
tested, delivered, and is in the process of being implemented. This 
automated system will enhance the accuracy and timeliness of 
classification and circularization of counterfeit currency, which is 
essential to successful investigation, suppression, and prosecution.
    The Secret Service remains actively involved in developing 
technology to support many of its forensic, investigative, and counter-
terrorism efforts. We are staying on the leading edge of forensic 
technology with our robust research section that engages in exchanges 
of information with laboratories in the United States and in several 
foreign countries. Through close contacts with these other labs, our 
scientists are able to share research and data in pursuit of 
advancements in forensic technology. Current major efforts include 
exploring advanced methods for the visualization of latent fingerprints 
on difficult surfaces; creating covert tagging for identifying, 
locating, and tracking marked targets; developing technology for the 
standoff detection of explosives; and finding better methods for 
determining how long writing inks have been on written documents.
    The Service is also continuing to use its unique capabilities to 
assist with investigations outside its core jurisdictions. In this 
regard, we remain dedicated to investigations concerning missing and 
exploited children, by providing forensic technology to Federal, State, 
and local law enforcement. This past year, forensic assistance for the 
National Center for Missing and Exploited Children (NCMEC) included 
polygraph examinations, ink analysis, voiceprint comparisons, audio and 
video enhancements, and fingerprint research and identification.
                         information technology
    Like many federal agencies, the Secret Service has other 
information technology priorities such as hiring and retaining a 
skilled professional staff, protecting our critical cyber systems, and 
developing the proper governance to effectively manage our information 
technology systems. However, because of our protective and 
investigative missions, the Secret Service is a target for hackers, 
terrorists, and other disgruntled groups. Therefore, we are 
particularly concerned with the ability to protect our critical 
infrastructure and to maintain a secure information environment.
    The Secret Service has one of the most mobile workforces in the 
Federal Government. Our protective and investigative assignments 
mandate that our employees are accessible at any hour of the day, and 
available to travel worldwide. The Secret Service is in the process of 
providing its entire special agent population with a durable laptop 
platform to achieve this accessibility. We must provide our employees 
with the tools to securely access our databases in this mobile 
environment. Thus, information security is one of our top priorities.
                         workforce recruitment
    The Secret Service continues with its aggressive recruitment 
campaign to hire, in compliance with Presidential Decision Directive 63 
and the International Crime Control Strategy, a diversified workforce. 
These mandates require the Secret Service to vigorously recruit 
undergraduate and graduate students with relevant computer-related 
skills, qualified personnel for technical analysis, and to identify 
applicants and employees with various language capabilities to 
compliment our expanding role overseas.
    To fulfill our mission requirements in the 21st century, the Secret 
Service has raised its recruitment profile by advertising in major 
publications and periodicals directed towards graduates with technical 
and computer science experience. Recruitment posters have been 
specifically designed for and mailed to over 15,000 colleges, 
universities, and technical institutions. Advertisements for employment 
have been placed in newspapers throughout the United States to include 
USA Today, the Los Angeles Times, the Houston Chronicle, the Kansas 
City Star, the Chicago Tribune, and the New York Times. The same 
advertisements were placed in over 200 community and neighborhood 
newspapers and in the National Associations of Colleges and Employers 
publication. Recruitment inquiries also continue to increase by way of 
the Service's and other Federal Government web sites. We have also 
established a toll free telephone line to more efficiently recruit for 
all positions.
                                training
    The Secret Service's Office of Training continues to train at 
unprecedented levels. We plan to train over 600 Special Agent trainees, 
Uniformed Division recruits, and Special Officer trainees this fiscal 
year. In addition, with the reorganization of the James J. Rowley 
Training Center, the Secret Service plans to enhance its in-service 
training program in the areas of protection, investigation, leadership, 
and professionalism. This will be accomplished in concert with our 
academic partners at Johns Hopkins University and Lawrence Livermore 
National Laboratories.
    Our partnership with Johns Hopkins will provide academic oversight 
of our course contents and methodology. In addition, it will also 
enhance our teaching skills and ensure that all of our training 
instructors employ cutting-edge teaching methods.
    Lawrence Livermore National Laboratories continues to provide 
support and guidance to the Service's Security and Incident Modeling 
Lab (SIMLAB). This technology, originally developed for military 
commanders, allows the Secret Service to use an interactive computer 
program to model protective event sites, and with this model to train 
more efficiently, and analyze our protective procedures. We intend for 
the Secret Service to become a focal point for this technology and to 
offer its capabilities to other law enforcement agencies and 
departments.
    The Service recognizes that the appropriate utilization of 
technology is essential to the success of its mission, especially as it 
relates to technical security and information technology. In an effort 
to train and retain its skilled technical professionals, the Service 
has established technical training as a high priority. This commitment 
has resulted in a high rate of retention of our technical staff during 
the past year. However, the high cost of technical training that is 
provided by outside contractors and vendors is a challenge to our 
budget. The strong competition by the private sector requires federal 
agencies to continue to invest in the training of its employees as a 
means of retention.
    Construction work on the new administration and classroom buildings 
at the James J. Rowley Training Center has been completed. These state-
of-the-art buildings, which feature 14 classrooms, 2 computer 
laboratories, a library, and the Security and Incident Modeling 
Laboratory, will enhance the training experience for the Service, as 
well as for Federal, State, and local law enforcement.
    Also, our Offices of Training, Protective Operations, and 
Protective Research recently initiated a proposal to establish an 
institute at the James J. Rowley Training Center for the 
standardization of protective detail training among all Federal, State, 
and local agencies having protective responsibilities. This institute 
will also serve as a threat assessment center and clearinghouse for 
intelligence data being used by the national law enforcement community.
    The National Threat Assessment Center and Multipurpose Building 
continues to be the highest priority project for expansion of the James 
J. Rowley Training Center. Such a facility will enable us to realize 
our vision for the creation of a law enforcement university. The 
auditorium/lecture hall will provide a setting for the National Threat 
Assessment Center and allow us to host various federal, state and local 
law enforcement agencies for the dissemination of threat information. 
After years of exhaustive research on violence, the Secret Service is 
positioned to share the methodology of threat assessment principles 
with other law enforcement agencies and educators. This facility will 
allow us to expand our knowledge beyond internal use for the purpose of 
understanding domestic and school violence and increasing police 
officer safety. A planned cafeteria will afford on-site food service 
for a more efficient use of training time by the growing student, 
instructor and outside agency population. Also, this structure will 
offer additional capabilities and a relocation site that will comply 
with the requirements of the Presidential Decision Directives for 
Continuity of Operations.
    The National Threat Assessment Center and Multipurpose Building is 
also critical to the support of a student dormitory complex that will 
allow us to train more effectively and efficiently and at a greatly 
reduced cost. We will significantly reduce expenditures associated with 
commercial food and board, not only with students and instructors but 
also with employees on temporary assignment.
                   national threat assessment center
    Traditionally, law enforcement has been reactive to violent 
incidents. In the past, police were asked to respond after violence 
occurred, and to catch the perpetrator and gather evidence for the 
prosecutor. With the incidence of crimes involving targeted violence on 
the rise, police agencies are being asked to be more pro-active, i.e., 
to investigate and intervene before violence occurs.
    The Secret Service has been protecting our nation's leaders for 
more than 90 years. An essential ingredient to protection is the art of 
threat assessment, or protective intelligence. Threat assessment is the 
process of gathering and assessing information about persons who have 
the interest, motive, intention, and capability of mounting attacks 
against a person or group of people. Gauging the potential threat to, 
and vulnerability of, a targeted individual is a key to preventing 
violence. Currently, there is little information or guidance available 
for law enforcement about how to conduct these ``threat assessment'' 
investigations.
    In 1992, the Secret Service began the Exceptional Case Study 
Project. Since that time, we have examined the thinking and behavior of 
all 83 persons known to have attacked, or come close to attacking, a 
prominent public official or public figure in the U.S. in the last 50 
years. We have reviewed all available records about each person and 
have conducted interviews with more than 20 attackers and near-
attackers. The ECSP has been an operational study. We have tried to 
examine assassination from the perspective of the attacker and from the 
perspective of a law enforcement agency with protective 
responsibilities. We have submitted a series of reports to the National 
Institute of Justice and have written a guidebook about protective 
intelligence and threat assessment for federal, state, and local law 
enforcement officials with protective responsibilities.
    The ECSP is the only recent major operational law enforcement study 
of targeted violence (assassination and attempted assassination of 
public officials and figures). The ideas and approaches contained in 
the study have been noted as potentially useful in investigating and 
assessing cases of targeted violence, to include domestic stalking, 
workplace and school violence.
    The New York Times reported on April 22, 1999: ``Specialists are 
increasingly arguing that the developing field of threat assessment, 
used by the Secret Service to track potential assassins, can be applied 
to potentially violent students. As outlined in a Secret Service 
handbook, such assessments involve looking for common patterns of 
behavior and experience, including feelings of rejection.''
    The Secret Service believes, and other law enforcement agencies 
agree, that we should build on ECSP findings. Through NTAC, with 
dedicated resources and time, the Secret Service will develop the 
capacity to make a significant contribution to law enforcement's 
efforts to investigate and prevent certain cases of targeted violence.
               secret service headquarters consolidation
    Finally, I am very pleased to note that after many years of hard 
work, we relocated this past summer into our new headquarters 
building--the United States Secret Service Memorial Building. This 
Committee was very instrumental in this effort and we thank you.
    Mr. Chairman, this concludes my statement. I would be pleased to 
answer any questions that you or other members of the Subcommittee may 
have.

    Senator Campbell. We have several questions, and by the 
way, if there are some questions we ask that you may not 
believe is appropriate to answer in public for some security 
reason or other, feel free to take the Fifth if you have to.

                         Special event security

    Let me start with the question about some dedicated 
airplanes. Maybe Commissioner Kelly or Under Secretary Johnson 
can deal with this a little bit. But a total of $16.3 million 
has been requested for both the Secret Service and the Customs 
Service for a protective air security program. The bulk of that 
is for a separate air branch for the Customs Service. Could you 
explain that a little bit and tell me what that is going to 
entail, because it obviously is not going to buy many 
airplanes.
    Mr. Kelly. Mr. Chairman, this is based on a directive from 
the President, PDD-62, which gives the planning function to 
Treasury and the Secret Service. It directs Treasury to provide 
an air cap capability, if you will, which Customs is providing 
it to Secret Service personnel. There are estimated to be six 
to maybe eight major events a year that would require some sort 
of air cover. We provided that in the 1996 Olympics, working 
closely with the Secret Service. We provided it at the two 
recent State of the Union events. We also (provided that 
service), at the NATO conference that recently took place here.
    Essentially; what this initiative would do is to fund the 
location of a facility in the Washington, D.C. area so we can 
more easily provide that cooperative arrangement and service to 
the Secret Service to respond quickly to events where they are 
needed and also to provide what I would call an air cap or air 
cover.
    Senator Campbell. Well, it is going to be dedicated 
aircraft and crews, is that correct?
    Mr. Kelly. It will be dedicated for a period of time. When 
they are not doing this sort of work, they would be involved in 
anti-drug work.
    Senator Campbell. When there are no events, will their 
normal job be other anti-drug work?
    Mr. Kelly. Yes, sir.
    Senator Campbell. The events themselves, do you know where 
they are located very long ahead of time, a few months, 
perhaps?
    Mr. Kelly. No, we do not, but four out of the six major 
events that we have used this capability for were in the 
Washington, D.C. area.

                        Fiscal year 2001 budget

    Senator Campbell. I see. Since I have your attention, 
Commissioner Kelly, a February 2000 Washington Post article 
stated that, according to your office, a Customs official said 
the fiscal year 2001 budget pending before Congress boosts 
agency spending by 3.9 percent, enough to cover only the rising 
costs of agency operations, salaries, rents, and fuels. Yet the 
official justification for Customs that was sent to Congress 
contains a 22.4 percent increase if you include the $210 
million for the ACE program that you mentioned. That is roughly 
a 14.8 percent increase without it. How do you arrive at the 
3.9 percent as was publicized in the Post and not the 14.8?
    Mr. Kelly. I think there were questions of interpretation. 
There was an issue as to what was included in our base, whether 
or not forfeiture funds were included in the 2000 base, and 
that is where some of the difference came about. And then there 
was also an inclusion of the $210 million in the administration 
estimate and that is funded by user fees. I think the 
difference in those numbers really comes about as a result of 
the type of question asked by the reporter who wrote that 
article.
    Senator Campbell. I see.
    Mr. Kelly. I do not think there is a disagreement.
    Senator Campbell. The forfeiture fund, the total amount of 
money that is expected from the forfeiture fund, do you have a 
ballpark figure?
    Mr. Kelly. For this year?
    Senator Campbell. Yes.
    Mr. Kelly. I believe it is $64 million, but I do not have 
it in front of me.

             Gang resistance education and training program

    Senator Campbell. Mr. Buckles, the fiscal year 2000 wrap-up 
appropriations bill contained a provision which required all 
Federal agencies to take a 0.38 percent reduction in 
appropriated funds. Agencies were given pretty wide latitude to 
decide which programs to cut and the ATF decided to take almost 
$1.2 million from the grants to State and local law enforcement 
agencies provided under the Gang Resistance Education and 
Training program, called the GREAT program.
    I have to tell you, there is a very strong interest in that 
program and I know I have gotten feedback from our own cities. 
Denver is an example, where some money went to that city. They 
were very, very supportive of that program. Why did the ATF 
decide to reduce the available money to those grants?
    Mr. Buckles. Mr. Chairman, when we were faced with those 
cuts, we had to look through all of our programs to find where 
we could take some of that money without affecting our overall 
operations. We also suffered cuts in, for example, buying new 
vehicles. So we tried to sustain as much as we could within our 
own budget without affecting operations that were required by 
law.
    When we went to the GREAT program, as you know, that is a 
program we feel very strongly about, too, and have been very 
supportive. We looked at that program and saw that with some of 
the rescission, we would be able to get money from last year to 
cover that rescission. So the ultimate loss to the program was 
not that much. I believe we felt we had $600,000 or $700,000 
that could be brought forward that was not expended from the 
prior year.
    Also, I worked with the GREAT national policy board on this 
issue. We met in January and I explained to them what we were 
doing and why we were doing it. It was the consensus of that 
board that it should not have a major impact on any of the 
GREAT operations.
    Senator Campbell. Thanks for your answer. I just might tell 
you that as one member of this committee, I am very interested 
in that program because I think it has done a lot of good in 
the communities, so hopefully you will keep that in mind when 
you go through this year.

               Workforce retention and workload balancing

    Director Stafford, the fiscal year 2000 wrap-up 
appropriations bills provided an additional $10 million 
directly to the Secret Service and directly to the Department 
of the Treasury to transfer an additional $21 million to the 
Service for workforce retention and workload balancing, which 
translates into, as I understand it, about 500 new employees. 
That is a lot of people to hire in one year on top of the 
replacement of normal attrition. What is the status of that 
hiring initiative now?
    Mr. Stafford. Mr. Chairman, as you are aware, when I became 
Director, one of my first priorities was to address the quality 
of life issue that we had in the Secret Service and to put some 
balance back in our employees' lives. With your assistance, we 
are going to be successful with that.
    It is a pretty aggressive hiring program. We streamlined 
our process. We reduced the amount of time it takes for us to 
hire an employee by 40 percent.
    Senator Campbell. Do you have a recruitment team?
    Mr. Stafford. We do.
    Senator Campbell. Do young people out of college go 
directly into the Secret Service or something of that nature, 
or do most of these folks come with prior police training, such 
as from the police departments or something?
    Mr. Stafford. We do have geographic recruitment teams. We 
also are recruiting nationally. For the first time, we have put 
advertisements in USA Today, which was quite expensive but it 
got a lot of play, a lot more than we thought. We currently 
have about 1,000 applicants in the pipeline and we feel very 
confident that we will meet our hiring goals this year.
    Senator Campbell. Well, given the diversity in America and 
also the job of the Secret Service in traveling to a lot of 
foreign countries, do you give any emphasis to bilingual 
people, as an example?
    Mr. Stafford. We do.
    Senator Campbell. You do?
    Mr. Stafford. We do seek recent college graduates with 
extensive computer skills and with language capabilities which 
are extremely important to us.
    Senator Campbell. I thank you.
    Senator Dorgan, did you have some questions for the panel?

                        Northern border security

    Senator Dorgan. Mr. Chairman, thank you very much.
    Let me ask Commissioner Kelly, you indicated that following 
the attempt to come across the border in Washington by the 
alleged terrorist you boosted substantial resources at the 
northern border stations. We have 22 ports of entry in North 
Dakota. Fifteen of them are closed at night, and for those 15, 
as I indicated, here is what they put in the middle of the road 
at those stations. Now, you put additional resources for a 
period of time up at those border stations. What did you learn 
from that? What are your long-term thoughts about increased 
security and vigilance at those northern borders?
    Mr. Kelly. I think we need more people and more resources, 
both on the northern and southern borders. We have asked 
Pricewaterhouse to develop a resource allocation model for us. 
They have done that. I think it is a vehicle that will let 
Treasury, and Congress, and OMB know what Customs needs to 
adequately accomplish its mission. That model is now at 
Treasury and OMB being examined.
    But I think, clearly, we need additional resources on both 
of our borders. What we did in response to the arrest is that 
we redeployed people. 700 inspector equivalents were redeployed 
from other locations to the northern border. But you are right, 
it was on a temporary basis and we have now gone back to 
operations as they were before December 14, with the exception 
of remote video inspection ports. There are seven of them. We 
are now manning those remote video ports 24 hours a day. We are 
undergoing a study with INS on remote video to see if the 
program can be strengthened. We want people who participate in 
the program to be registered, and that is an issue that we are 
discussing with INS. But other than that, we are back to 
staffing the way we were prior to December 14.
    Senator Dorgan. Can you provide for the subcommittee a 
specific evaluation of the additional resources you think you 
need to respond to these issues, specifically the northern 
border issues?
    Mr. Kelly. As I stated, I think the resource allocation 
model will give us that information. It is port-specific, it 
addresses all 301 of our ports of entry, and it has an overlay 
attached to it. It is in essence driven by workload, workload 
generators. I think it is the vehicle that we need to use to 
move forward in this regard.

                    Enforcement of existing gun laws

    Senator Dorgan. Director Buckles, we have this raging 
debate, in fact, I was listening to it on the car radio this 
morning coming in, by the NRA and others about the need to 
enforce gun laws in this country. The point is, they say no 
additional laws are needed, we just need to enforce current 
laws. Can you give us a description of what has happened to 
funding in your agency in the last 20 years?
    Mr. Buckles. Well, if we go back 20 years, I do not know 
about the exact funding levels, but I know I joined ATF in 1974 
and the agency was roughly 4,000 employees at that time. At the 
present time, we are, excluding temporaries and part-time 
people, somewhere around 4,300. So over the course of those 25, 
26 years, there has not been any net growth, or very little net 
growth in the size of the Bureau.
    Senator Dorgan. If one in a range of areas, both the 
Federal and State and local governments, called for substantial 
increased enforcement of existing laws, for example, 
prosecution of those who are former convicted felons who 
attempted to purchase guns and so on, I assume the entire 
system needs substantial new resources.
    Mr. Buckles. We certainly do, and this budget reflects a 
step in that direction. I cannot travel around the country or 
meet with the United States Attorneys who the first thing out 
of their mouth will be, ``We need more ATF agents here in 
Denver'' or wherever it might be. Everywhere I go, that is the 
first thing I hear.
    Senator Dorgan. I make the point that this is kind of a 
test of will here. If, in fact, this is part of the debate, we 
need better enforcement of existing laws, then we are going to 
have to be willing to provide the resources to do that. I mean, 
we cannot say, let us better enforce laws but we will not 
provide the resources to allow that to happen.

                         Cooperation with cuba

    Commissioner Kelly, I was in Havana, Cuba, last August on 
an official trip and discussed with both our interest section 
in Cuba as well as the Cuban government, the issues of 
enforcement and cooperation with respect to the interdiction of 
drugs. Can you give me a description of what your agency is 
discovering vis-a-vis cooperation and communication with the 
Cubans on this issue?
    Mr. Kelly. There is some communication. Primarily that 
communication as far as drug interdiction is concerned comes 
through the Coast Guard, and the Coast Guard will relay 
information to us. So we are communicating, but not directly.

                      Hiring enforcement personnel

    Senator Dorgan. Mr. Johnson, can you give us kind of a 
broad description of the challenges you face in hiring law 
enforcement folks across the board here? I think Director 
Stafford has described a bit of that, but what is your 
impression? Are we in a circumstance where we have retention 
capability and recruitment capability to provide the resources 
we need?
    Mr. Johnson. This budget does provide for a significant 
increase in the number of law enforcement personnel for our 
bureaus. This poses great challenges for us. As all of us know, 
due to the surging economy, that the job market is tight. There 
is tremendous competition for very qualified people even within 
our own bureaus. We are in a position right now where our 
bureaus are hiring and there is potential competition which we 
hope would not redound to a net deficit for our bureaus.
    That said, we have worked to deal with the issues of 
bringing people on as quickly as possible. Obtaining schedule B 
authority has been crucial to that effort. The absence of 
Schedule B for the ATF and the Customs Service, I think, can 
make their hiring process much more cumbersome at a time when 
we need it to be as flexible and as efficient as possible. The 
absence of an ongoing effort within the ATF for hiring--there 
was a long period of time when they did not even have the 
ability to bring people on board--meant that their 
administrative function for bringing folks on board simply was 
not at the level of effectiveness that we need right now.
    So it is a challenge. We are trying to address that, one, 
through Schedule B. We are holding a conference within the next 
couple of weeks--it will be on April 6 and 7--to address the 
issues of recruiting generally, then more specifically, 
diversity within the recruiting process to make sure that we do 
bring the sorts of skills and backgrounds on board that the 
chairman referenced in his question to the Secret Service.

                          Personnel retention

    Retention is a problem and this budget attempts to address 
that. It is a problem in the Secret Service and Director 
Stafford's priorities have been to bring on more people so we 
can deal with the quality of life issues that can drive 
personnel from the Secret Service to sometimes elsewhere in the 
Treasury family, but also to outside of law enforcement.
    We have also worked within the Office of Enforcement, 
working particularly closely with ATF and also with management, 
to develop essentially a pilot program, a demonstration pay 
project, the authority for which came from this committee, so 
that we can do a better job at retaining the very high quality 
personnel, particularly in our laboratory areas, that we have 
developed over time and that we stand the risk of losing.
    So it is a problem. We are taking steps to address it and 
we appreciate the committee's continued support as we move 
forward in these areas.

                   Treasury law enforcement overtime

    Senator Dorgan. Let me just ask briefly your use of 
overtime in the agencies that are represented here. Overtime, 
of course, is expensive, but the use of overtime in some 
Federal agencies is very substantial. Can you give me a 
description of the use of overtime in these agencies, the level 
of overtime compensation?
    Mr. Johnson. I believe there is a fairly high range. I know 
within the Secret Service, as I recall, the number was around 
80 hours of overtime per month, which is quite extraordinary.
    Senator Dorgan. Eighty hours per month per agent?
    Senator Campbell. Overtime?
    Mr. Stafford. Overtime. In our protective divisions, it is 
higher. It is 84 to 85 hours a month, on average. In our field 
offices, it is a tad lower. It is about 78 hours. As you can 
see, that is huge. It is too much. We need to reduce it. Our 
goal was to reduce it to 1994 levels, which was in the mid-60s, 
at least we could deal with that. Increased staffing is a step 
in that direction, to try to reduce that.
    Mr. Johnson. But overtime is also a significant issue for 
the Customs Service, particularly when there was this 
heightened state of alert on the northern border in connection 
with the Y2K events. One of the ways that Commissioner Kelly 
had to address this problem was by increasing staffing at the 
locations and increasing the amount of overtime that people 
were required to work. I do not know, Commissioner, if you want 
to address that.

                                Overtime

    Mr. Kelly. We have a substantial overtime budget, no 
question about it. Our investigators get law enforcement 
availability pay, but our inspectors, of which there are 
approximately 8,000, probably average about $15,000 to $18,000 
a year in overtime. So it is a significant expenditure for the 
agency, but I think it is a reflection, also, of the fact that 
we are, in my judgment, understaffed.

                      Additional ftes vs overtime

    Senator Dorgan. Would it not be far less expensive to 
simply provide for the additional FTEs and pay a regular rate 
rather than overtime rates for, in your case in the Secret 
Service, the equivalent of 2 extra weeks' of work in a month, I 
assume at time-and-a-half, is that right?
    Mr. Stafford. That is correct.
    Senator Dorgan. Is that not an incredible waste of 
resources, as opposed to simply increasing the FTEs to pay 
regular salaries to folks working regular time?
    Mr. Stafford. No, I agree. It is not only not efficient but 
our people are tired and it is not safe.
    Senator Campbell. I would think in many cases, you do not 
have that option. When the President decides to go on a trip 
for ten days, it is pretty hard to work an 8-hour day. When you 
are on the plane with him, your hours are pretty much what he 
determines and I would think that that is overtime, there is 
just no option on a lot of it.
    Senator Dorgan. I understand that, but in more routine 
circumstances, my expectation is this overtime is not occurring 
just with respect to travel. In Customs, perhaps, if you do not 
have the resources and you are paying overtime instead to 
extend the hours worked, it seems to me that is a pretty 
inefficient way to cover the needs. I mean, I understand you 
are not in a situation right now where any of you can describe 
your increased FTE needs. That is given to you and you are 
going to have to make do with what you have. But I am just 
asking the question in terms of efficiency here, in terms of 
how we spend our money. It seems to me that we are probably 
looking at ways that could be much more effective.
    Mr. Johnson. Senator Dorgan, I believe if you went to the 
ATF as well, you would find similar circumstances. As the 
Director's testimony has pointed out, their budget has not gone 
up. Their staffing levels have not gone up tremendously in over 
25 years. Yet, if you looked at the number of new pieces of 
legislation and new responsibilities that have been added, you 
are looking at an organization that has a very valuable 
mission, a critical mission in dealing with the issues of 
violence in our society. You will, time and time again when you 
go out to the field, as I have, and speak to our personnel on 
the ground, find that they are running from pillar to post to 
cover it all. I think when we talk about lack of enforcement, I 
think given their responsibilities and given their resources, 
they are doing a very creditable job, but that comes at a cost, 
and Director, perhaps you would like to describe that cost.
    Mr. Buckles. In our case, we do not have the efficiency 
issue because, for the most part, our agents are not being paid 
additional scheduled overtime at time-and-a-half. As you know, 
they receive a 25 percent basically straight time for 
additional overtime that they are required to work.
    The situation that our agents face when we are understaffed 
is that they simply work as much as they have to work to get 
the job done, and we face very difficult situations in offices 
where agents are--where we fear burnout with agents because 
they do not stop because the clock stops when they have a job 
to do. So the additional personnel is not so much an efficiency 
in our case as it is a situation for saving our people from 
burnout.
    Senator Dorgan. Let me just ask, I understand Senator Kyl 
has a need to be at a hearing at 10:00 and I will not prolong 
the questioning, but let me ask if we could perhaps get from 
the Under Secretary a memorandum describing overtime in the 
agencies that you are involved with and the cost of that 
overtime and maybe some evaluation about what might be a 
smarter and more effective way of using our resources, if you 
feel that exists.
    Mr. Johnson. We would definitely undertake to deliver that 
to the committee. The only thing that I might add, just as we 
listened to Director Buckles' testimony, is that even when 
there are not monetary concerns there, I think we ought to be 
providing an assessment of the toll on our personnel as a 
result of the staffing issues, and we will endeavor to do that.
    Senator Dorgan. That is a fair point and an important one, 
and let me go back to this, especially ATF today. We keep 
talking about the need to enforce gun laws. Well, if we are 
going to do that, and I support that, let us provide the 
resources. Let us provide the agents and the resources to do 
this. I mean, let us do more than talk about it. Thank you all 
very much.
    Senator Campbell. In that assessment, you might also 
include if you have any employee's comments, the ones that like 
the overtime. You hear a lot about burnout, but I have talked 
to employees that enjoy the extra income for the family.
    Let me turn to Senator Kyl, who is on a short time frame. 
He has more problems, I think, in his State with illegal 
immigration and drug passage and so on than anybody in the 
Senate.
    Senator Kyl. Thank you, Mr. Chairman. Well, being on the 
southwest border, we obviously have our share. With respect to 
Customs, I would ask Director Kelly to convey to his personnel 
on the front lines how much we all appreciate the effort and 
the hard work that they do in a very difficult job. I am sure 
that they do appreciate a little bit of the overtime, but on 
the whole, they would probably rather have a pay raise, less 
overtime, and more time with their families, I am sure.
    I am going to get to a couple of questions relating to 
that, but I also wanted to thank Director Stafford for the 
Secret Service's willingness to detail people to the U.S. 
Senate. My office has had the benefit of wonderful employees 
from the Secret Service who have been a tremendous benefit to 
me and I thank you for that.

         Allocation of funds and personnel for southwest border

    My questions primarily go right to the point that the 
chairman alluded to and that is the lack of resources on the 
Southwest border. I am concerned about the refusal of the 
Treasury Department, Mr. Johnson, to disburse money that we 
obligated from Treasury's asset forfeiture fund--the Kyl 
amendment from last year, $25 million, the purpose of which was 
to alleviate this very personnel problem that we are talking 
about for new agents and inspectors and some equipment. It 
could have gone a long way toward beginning to ease some of the 
problems that we have on the Southwest border.
    My first question is, why was the money not disbursed? 
Secondly, when will it be disbursed? Then we will go from 
there.
    Mr. Johnson. Senator, I hope I have good news. Answering 
the second question first, last night, I was able to sign off 
on the authorization for the expenditure of the $25 million 
that had been allocated in the asset forfeiture fund.
    The reason for the length of time is that considerable care 
had to be taken in putting together the package that was 
consistent with the President's budget as well as consistent 
with certain priorities that had been identified in the Customs 
budget, particularly with respect to the counter-narcotics 
initiative that is set forth in that budget. There are 
substantial numbers of personnel that have been added in that 
counter-narcotics proposal and I believe that Commissioner 
Kelly can describe that in greater detail. So we tried to 
maintain that program, but we also wanted to address the very 
critical need that you identified in your allocation. So we 
believe that has been taken care of.

         Allocation of funds association with the kyl amendment

    Senator Kyl. Well, it has been taken care of to the extent 
that, I guess in the fourth quarter of this year, you will 
finally begin to expend money that was intended to be expended 
totally in this year. Was there any doubt in the way that we 
put this amendment together about what our intentions were?
    Mr. Johnson. No, sir. The language of the amendment was 
clear, as were a number of other allocations for the asset 
forfeiture fund. One of the challenges that we faced in putting 
together the allocation and finally releasing the funds was 
that there had been an allocation of some $178 million for a 
fund that had $142 million in funds to meet that overall 
allocation. There was far more will than wallet, sir, and what 
we tried to do is to match those critical needs, and there are 
certain things that still have not been funded. There has been 
a request for automobiles for our agents which is important to 
all of our bureaus and we have still had to defer those 
expenditures. Hopefully, we will be able to meet those, as 
well.
    Senator Kyl. How much of the money, of the $25 million, 
will be spent in fiscal year 2000, do you know?
    Mr. Johnson. The expenditures are split over fiscal year 
2000 and 2001, and I can give you the precise figures in just a 
second.
    Senator Kyl. Is it roughly $13.7 million this year and 
$11.3 million next year?
    Mr. Johnson. That is correct, sir.
    Senator Kyl. Thanks. It is my understanding that the 
recommendation was not from Customs but from you, and you just 
indicated there were two reasons, to be consistent with the 
President's budget, which, of course, reflects his priorities, 
and secondly, some needs for counter-narcotics. But the 
recommendation that the money be deferred over a 2-year period 
was your recommendation, was it not?
    Mr. Johnson. Sir, this was a process that involved a fair 
amount of discussion between Treasury and Customs and a 
discussion ultimately of a variety of proposals, some of which 
came forward from Customs, and at the end of the day, I was the 
one that chopped on the proposal that goes forward. So at the 
end of the day, I was the decision maker, yes, but it was a 
process that we were engaged in with the Customs Service.
    Senator Kyl. I understand, but just so the record is clear, 
did Customs recommend or did you recommend that the money be 
spent over a 2-year period?
    Mr. Johnson. I would say, sir, that I decided that the 
money would be spent over 2 years. There were a number of 
proposals that were entertained during this process, and at the 
end of the day, I was the decision maker on that.

                       Resource allocation model

    Senator Kyl. The resource allocation study, Commissioner 
Kelly, is that the study that Pricewaterhouse--was it 
Pricewaterhouse that did the basic work on that?
    Mr. Kelly. Yes, sir.
    Senator Kyl. Is that study complete now, ready to go?
    Mr. Kelly. Yes, it is.
    Senator Kyl. So we can all see what kind of needs are 
illustrated in there?
    Mr. Kelly. We have sent it forward to Treasury and OMB is 
also examining it.
    Senator Kyl. And I presume the committee can get a copy of 
that?
    Mr. Kelly. Yes, sir.
    Senator Kyl. I would just ask this question. Would that 
study, in your opinion, provide us with the template of needs 
for Customs in terms of both personnel and facilities and 
equipment over the next few years?
    Mr. Kelly. Well, it focused on personnel for the most part. 
There is, under the auspices of this committee, an 
infrastructure study that is going forward that looks at the 
infrastructure needs on both of our borders and that should be 
finalized in June. But we have some preliminary findings in 
that regard which we are certainly able to share.
    Senator Kyl. So if the committee were to understand exactly 
what you think you need, that study would provide, at least 
with respect to personnel, a very good guide as to what we 
should try to fund, if we agree with the study, obviously, to 
reflect the needs of Customs, is that right?
    Mr. Kelly. Yes, sir.
    Senator Kyl. I just recommend, Mr. Chairman, that we 
immediately obtain the study. Senator Dorgan referred to it. He 
made some excellent points with respect to overtime and so on, 
the need for more personnel. I understand the study does call 
for more personnel. We are going to have to understand what 
additional expenditures that may require us to ask for as a 
subcommittee and that is not going to be easy to obtain, but 
better to know now, right at the beginning of our process this 
year, and make as large a request as we can to comply with the 
resource study. I am certain we are not going to get everything 
we ask for, but at least we can put in motion a process so that 
over time we can begin to satisfy the needs of the Customs 
Service.
    And then, secondly, a question relating to the recurring 
costs that relate to the hiring of new people. Maybe, Mr. 
Johnson, this is for you. What will be the request for handling 
the recurring costs next year and the year after?
    Mr. Johnson. In connection with?
    Senator Kyl. With the new hires.
    Mr. Johnson. As a result of the study, sir?
    Senator Kyl. No, as a result of the $25 million over the 
2000-2001.
    Mr. Johnson. I do not have those precise figures. We can 
provide that.
    Senator Kyl. You will need to get those to us because we 
will need to fold those into our figures for the future----
    Mr. Johnson. Absolutely.
    Senator Kyl [continuing]. So that we know more than just 
one year out what we are going to have to budget for.
    Mr. Johnson. We will do that.
    Senator Kyl. There will be recurring costs in the year 2001 
for the expenditures we make in 2000, right?
    Mr. Johnson. Right, but we believe that the way we have 
laid out the expenditures, that should cover the----
    Senator Kyl. In 2001?
    Mr. Johnson [continuing]. The costs in 2001.

                     customs' Infrastructure study

    Senator Kyl. All right. In any event, Mr. Chairman, I think 
looking at that resource allocation study should provide us a 
real road map of where we need to go. I also understand that 
with respect to the Southwest border specifically, you have 
another study coming out in June that will be more precise as 
to that, or is that the----
    Mr. Kelly. That is the infrastructure study that I referred 
to, yes, sir.
    Senator Kyl. Suffice to say, we have--in fact, I was 
kidding my friend, Spencer Abraham, who tears out his hair 
whenever there gets to be a 2-minute delay in crossing the 
border from Canada into Michigan. You know, they are busy up 
there and 2-minutes is a long time to wait. And I have told him 
that if we could get our delay on the southwest border down to 
20 minutes, we would be doing dances, and I am sure your folks 
would consider it a great success.
    We have a huge amount of trade coming up from Mexico, and 
the bottom line is, if you do not get in queue by about 2:00 in 
the afternoon, you are going to spend the night at the big 
truck facility on the south side of the border waiting to get 
in, and we are supposed to be for free trade and facilitating 
trade and supporting agriculture, Senator Dorgan. We need to 
understand that one of the choke points is the inspection, the 
border crossing stations that we have, simply because we do not 
have enough lanes and enough personnel to handle all of that 
traffic. We have got to do better. Thank you very much.
    Senator Campbell. I have been in your State a number of 
times and I noted with interest there are a lot of places where 
there is no wait. They just come across.
    Senator Kyl. That is the other issue.
    Senator Campbell. That is the other issue, right.
    With that, I have no further questions. I appreciate you 
being here and thank you for attending.
    Our next panel also has the Under Secretary on it. Did you 
have anything further to say on that panel, Mr. Under 
Secretary?
    Mr. Johnson. No, sir.
    Senator Campbell. We will go on with Mr. Ralph Basham, the 
Director of FLETC, and Mr. William Baity, the Deputy Director 
of the FinCEN.
    If we could have our seats, gentlemen, we will start in 
that order, the Under Secretary does not have a statement.
    Mr. Johnson. That is correct, sir.

                Federal Law Enforcement Training Center

STATEMENT OF W. RALPH BASHAM, DIRECTOR
    Senator Campbell. We will just go ahead and start with 
Ralph Basham and go to Mr. Baity right after that.
    Mr. Basham. Mr. Chairman and members of the subcommittee, I 
am pleased to be here today to report on the current operations 
and performance of the Federal Law Enforcement Training Center 
and to support our appropriations request for 2001.
    Under the leadership of the Secretary of the Treasury, 
Lawrence H. Summers, Under Secretary for Enforcement James E. 
Johnson and his staff, the FLETC has received strong support 
and active assistance for carrying out its responsibilities. We 
are indeed fortunate to have these two individuals playing a 
leadership role as the FLETC enters into the 21st century.
    I also want to thank this committee for the support it has 
provided the Center. The committee has been extremely 
supportive and most generous in its funding of consolidated 
training.
    The Center provides two essential levels of training for 
Federal law enforcement organizations from all three branches 
of government. Entry-level training to the Federal service is 
conducted for police officers and criminal investigators and a 
full range of advanced training programs are conducted for 
journey-level personnel in areas such as marine, law 
enforcement, anti-terrorism, financial and computer crimes, and 
weapons of mass destruction.
    Additionally, the Center provides facilities and services 
to participating organizations to permit them to conduct 
agency-specific basic training and advanced training programs. 
Over the years, the Center has also been called upon to conduct 
training for State, local, and international law enforcement 
officers. Today, more than 200 separate programs are available 
at our sites at Glynco, Georgia, and Artesia, New Mexico, as 
well as a temporary training site in Charleston, South 
Carolina.
    Our fiscal year 2001 request contains three important 
initiatives. With regard to our salaries and expense account, 
we are seeking an increase of approximately $7 million and 26 
FTE in our mandatory workload. This funding will be used to 
address entry-level training for additional agents and 
inspectors for the Bureau of Alcohol, Tobacco and Firearms and 
additional agents for the United States Secret Service.
    Our other two principal initiatives relate to our 
construction account request. One initiative is for major 
renovation of existing structures at Glynco. The Center 
acquired the Glynco site in 1975 and many of the structures 
were built in the 1950s and 1960s and reflect serious 
infrastructure problems that cannot be sustained further 
through regular cyclical maintenance only. These renovations 
involve asbestos abatement, leaking roofs, safety code 
measures, and major mechanical systems work. We believe this 
funding request for renovations proposed over the next several 
years must be undertaken in order to protect the government's 
investment of nearly a quarter of a billion dollars in the 
Glynco physical plant.
    The second construction account initiative of immediate 
importance is the new facility construction. The approximately 
$11 million requested in the Treasury Asset Forfeiture funding 
will permit the Center to construct a new dormitory in Glynco 
and a firearms range and office structure in Artesia. This 
proposal is part of our 5-year plan to expand capacity at both 
sites to accommodate the U.S. Border Patrol training now 
conducted in part at Charleston and other participating agency 
training requirements. This request is for the second year of 
the plan, and if approved, will keep the Center on track for 
closing the temporary site in Charleston by 2004.
    In that connection, I would like to mention that the Center 
is exploring all options available within our resource 
capabilities in Artesia, as well as Glynco, to determine how 
projected Border Patrol and other agency training can best be 
undertaken in a manner consistent with the purposes for which 
this Congress created the consolidated training concept. We 
will keep this committee apprised of the results of our review.

                           prepared statement

    In closing, Mr. Chairman and members of the committee, I 
want to thank you for your support of the Federal Law 
Enforcement Training Center's important mission. Thank you very 
much.
    Senator Campbell. Thank you.
    [The statement follows:]

                 Prepared Statement of W. Ralph Basham

    Mr. Chairman, Senator Dorgan, and Members of the Subcommittee, I am 
pleased to be here today to report on the current operations and 
performance of the Federal Law Enforcement Training Center (FLETC) and 
to support our appropriations request for fiscal year 2001. Before 
starting with my testimony, I would like to take this opportunity to 
introduce the members of my staff who have accompanied me today.
    The Center has experienced tremendous growth since its 
establishment in 1970, when a handful of agencies partnered together 
and established the Consolidated Federal Law Enforcement Training 
Center. With the addition of the CIA's OIG this year there are now 73 
participating agencies training at the Center. We expect further growth 
as more agencies recognize the many benefits of consolidated training.
    The Department of the Treasury has been the lead agency for the 
United States Government in providing the administrative oversight and 
day-to-day direction for the FLETC since its creation. Under the 
leadership of Secretary of the Treasury, Lawrence H. Summers, and Under 
Secretary for Enforcement, James E. Johnson, the FLETC has received 
strong support and active assistance for carrying out its 
responsibilities. We are indeed fortunate to have these two individuals 
serving in key leadership roles as the FLETC enters into the 21st 
century. I also want to thank this Committee for the support it has 
provided to the FLETC. Throughout the Center's 30 years of service to 
Federal law enforcement, this Committee has been extremely supportive 
and most generous in its funding of consolidated training. We extend 
our appreciation and look forward to working with you in the coming 
years.
    The Administration and Congress can be proud of the quality of 
training being provided at the FLETC and the savings realized through 
consolidation. The consolidated concept for law enforcement training at 
the FLETC is 30 years old and continues to be the most efficient and 
economical means for delivering this essential service to the law 
enforcement community and the nation.
    Today, I am prepared to discuss several initiatives in the 
President's fiscal year 2001 budget. The Center's fiscal year 2001 
request is for a Salaries & Expenses (S&E) appropriation of $93,483,000 
and 607 FTE, an increase of $9,456,000 and 35 FTE above the fiscal year 
2000 level. Our request for the Acquisition, Construction, Improvements 
& Related Expense (ACI&RE) appropriation is for $17,331,000, a decrease 
of $3,844,000 below the fiscal year 2000 appropriation. Further, the 
FLETC is requesting that $14,267,000 be provided from the Treasury's 
Asset Forfeiture Fund to support the expansion of facilities at the 
Glynco, Georgia and Artesia, New Mexico centers. The funding and FTE 
requested will support three important initiatives, New Training 
Building Support ($1,606,000 and 2 FTE); New construction ($11,767,000 
from the Treasury's Asset Forfeiture Fund to construct a dormitory at 
Glynco and an outdoor firearms range with steel targeting system and a 
firearms office building at Artesia); and Major facility renovations 
($4,436,000--includes $2,500,000 from the Asset Forfeiture Fund and 
$1,936,000 from the FLETC's ACI&RE account).
    Together, the total S&E and ACI&RE requests, including monies from 
the Treasury's Asset Forfeiture Fund, represent an increase of 
$19,879,000 over fiscal year 2000's enacted appropriation. Coupled with 
an estimated $35,890,000 in funds to be reimbursed to the Center for 
training related services by our participating agencies, the total 
budget for fiscal year 2001 is $160,971,000.
    Before providing this Committee with an overview of Center 
operations and discussing each of the initiatives in more detail, I 
would like to take a moment to address progress being made in complying 
with the requirements of the Government Performance and Results Act 
(GPRA). As you know, the GPRA requires agencies to publish annual 
performance plans that are tied to their strategic plans. Performance 
plans are to include measurable goals which agencies are required to 
report on after the year is completed. These performance plans are now 
an integral part of the budget documents sent to you each year.
    There are a total of six performance measures to report on in our 
budget request for this year. The performance measures used for the Law 
Enforcement Training activity in fiscal year 1999 included: (1) results 
of the student quality of training survey, (2) student-weeks trained: 
Federal Basic, (3) variable unit cost per basic student-week of 
training funded, and (4) number of personnel input forums conducted. 
The performance measures for the Plant Operations activity included: 
(1) student quality of services survey and (2) initiation of a 
comprehensive development plan.
    The student quality of services survey and student quality of 
training survey performance measures are outcome measures. The student 
quality of training survey and the student quality of services survey 
are based on a percentage of students who answer satisfactory or better 
to the questions presented in the survey. Both were computed using 
evaluations completed by students attending Center programs. The 
student-weeks trained outcome is based on whether the Center conducts 
100 percent of the basic training requested by its participating 
agencies. The variable unit cost per basic student-week of training 
funded is also an efficiency measure and is based on training dollars 
divided by funded student-weeks of training. Finally, the plan called 
for the FLETC to conduct four personnel input forums per year.
    I am pleased to report that the Center's overall performance 
against established target goals was very good. The most critical 
performance measure in our plan, the student quality of training survey 
measure, was 99 percent. This exceeded the Center's performance plan 
target goal of 80 percent. The Center conducted 100 percent of the 
student-weeks of basic training requested. The FLETC's training costs 
were above the cost figure established for the variable unit cost per 
basic student-week of training. This was due to a failure of projected 
training levels to materialize, primarily with the Border Patrol. The 
plan projected a per week cost of $146 and the actual was $165, an 
additional cost of $19 per week or 13 percent increase. The cost per 
student-week of training measure should come back in line in fiscal 
year 2000. In the Plant Operations activity, performance measures were 
either met or exceeded.
    As stated in the Center's testimony last year, the FLETC is 
currently revising its strategic plan and performance measures in an 
effort to more accurately reflect our performance indicators and to 
better align them with the Center's mission. The draft will be provided 
to this Committee and our other stakeholders for review and comment 
when it is completed.
                         overview of operations
    Now Mr. Chairman, if I may, I would like to provide the Committee 
with a brief overview of the operations of the Federal Law Enforcement 
Training Center.
    The Center has experienced tremendous growth over the last 30 
years. With few exceptions, the FLETC conducts basic and advanced 
training for the vast majority of the Federal government's law 
enforcement personnel. We also provide training for state, local and 
international law enforcement personnel in specialized areas and 
support the training provided by our participating agencies that is 
specific to their needs. Currently, 73 Federal agencies participate in 
more than 200 different training programs at the Center.
    There are entry level programs in basic law enforcement for police 
officers and criminal investigators along with advanced training 
programs in areas such as marine law enforcement, anti-terrorism, 
financial and computer fraud, and white-collar crime. Training is 
conducted at the headquarters training center in Glynco, Georgia, our 
satellite training center in Artesia, New Mexico, or a temporary 
training facility in Charleston, South Carolina.
    The temporary training site in Charleston was established in fiscal 
year 1996 to accommodate an unprecedented increase in the demand for 
basic training by our participating agencies, particularly, Immigration 
and Naturalization Service (INS) and United States Border Patrol 
(USBP). The workload increase is the direct result of Administration 
and Congressional initiatives to control illegal immigration along the 
United States borders.
     In addition to the training conducted on-site at one of the 
FLETC's residential facilities, some advanced training, particularly 
that for state, local and international law enforcement, is exported to 
regional sites to make it more convenient and/or affordable for our 
customers. At a time when the FLETC residential sites have been 
stretched to capacity limits to meet increased Federal training 
requirements, the use of export sites for other types of training has 
proved highly successful.
    Over the years, the FLETC has acquired a reputation as an 
organization with a ``can do'' attitude that provides high quality, 
cost efficient training and state-of-the-art programs and facilities. I 
have come to realize and have seen first-hand the many advantages of 
consolidated training for Federal law enforcement personnel, not the 
least of which is an enormous cost savings to the Government. 
Consolidated training avoids the duplication of overhead costs that 
would be incurred by the operation of multiple agencies training sites. 
Consolidation also ensures consistent high quality training and fosters 
interagency cooperation and camaraderie in Federal law enforcement.
    Quality, standardized, cost-effective training in state-of-the-art 
facilities, interagency cooperation, and networking are indisputable 
positive results of consolidation. However, the concept of consolidated 
training is fragile and must be constantly nourished and supported, if 
it is to remain viable.
                                workload
    In fiscal year 1998, the FLETC workload reached a new historical 
high. In fiscal year 1999, the workload decreased over the previous 
year due in large part to the INS and Border Patrol's training 
projections falling below original estimates. With new pay incentives 
and hiring procedures now being employed by Border Patrol, they 
anticipate their projections will be more accurate in the near future. 
Overall, the FLETC expects the participating agencies to continue to 
have high training workload requirements both at the entry and advanced 
training level.
    During fiscal year 1999, the Center graduated 25,168 students, 
representing 97,855 student-weeks of training. This total included 
16,297 students who were trained at Glynco, GA; 3,776 students trained 
at Artesia, NM; 611 students trained at the temporary training site in 
Charleston, SC; and 4,484 students trained in export programs. There 
were 9,005 basic students; 11,708 advanced students; 3,860 state and 
local students, and 595 international students trained providing for an 
average resident student population (ARSP) of 1,882.
    The April 1999 participating agency workload projections, upon 
which our fiscal year 2001 budget requests are based, indicate that 
during fiscal year 2000, the Center will train 34,168 students 
representing 168,847 student-weeks of training. This total includes 
23,095 students to be trained at Glynco; 3,662 students at Artesia; 
1,870 students at the temporary site in Charleston; and 5,541 students 
in export programs. A total of 14,473 basic students; 13,739 advanced 
students; 4,130 state and local students; and 1,826 international 
students are projected for a total ARSP of 3,247. Again due to 
reductions in projected Border Patrol and INS training, the likelihood 
exists that anticipated training levels will not be entirely reached in 
fiscal year 2000.
    The agency projections indicate that during fiscal year 2001 the 
FLETC will train a total of 35,444 students representing 180,871 
student-weeks of training. This total includes 24,524 students at 
Glynco; 3,896 students at Artesia; 1,200 students at Charleston; and 
5,824 students in export programs. A total of 17,082 basic students; 
12,111 advanced students; 4,419 state and local students; and 1,832 
international students are projected for a total ARSP of 3,478. The 
fiscal year 2001 request will provide funding for 79 percent of the 
projected basic training workload requirements. We believe this will be 
sufficient to pay for the training that will actually materialize.
    The Center has experienced sustained growth in the training 
demanded by its participating agencies over the past 30 years. We have 
been able to accommodate many of these increased training demands by 
being innovative and undertaking extraordinary measures.
    To accommodate training during fiscal year 1985 and again in fiscal 
year 1989, the Center had to temporarily expand its capacity for 
housing, dining, classroom, office space, storage, and special training 
facilities by using temporary buildings and contracted or licensed 
temporary facilities. Further, the Center has not always had sufficient 
dormitories to accommodate all of our students in on-Center housing and 
has used contractual arrangements with local motels. While necessary, 
many of the temporary measures taken to meet these training demands 
were costly, and they were disruptive to the Center's operations and 
efficiencies.
    Beginning in 1996, the Center again had to resort to using a 
temporary accommodation to meet the extraordinary training needs of one 
of our participating agencies, the Border Patrol. As I mentioned 
earlier, a temporary training site was established in Charleston, South 
Carolina during 1996 because our existing FLETC facilities did not have 
sufficient sustained capacity to accommodate all of the training being 
requested. This site is an FLETC-Border Patrol collaborative effort, 
but facility operations are being funded through the Border Patrol's 
appropriations. Plans now call for Charleston to be closed by the 
fiscal year 2004 time frame, once the training requirements for the new 
Border Patrol hires are completed and/or new facilities become 
available to accommodate the training at FLETC's permanent locations.
    This is the third time since fiscal year 1985 that FLETC has taken 
extraordinary measures to positively respond to the projected training 
demands of the participating agencies. More importantly, it is the 
second time in the last decade that a temporary training facility has 
been established for a lengthy period of time.
    Opening temporary training sites is a time-consuming and expensive 
process. Capital improvements often must be made to bring a site up to 
minimum specifications for law enforcement training purposes and, 
unlike capital improvements made at Glynco or Artesia, there is no 
permanent return to the government on that investment. Temporary site 
utilization affects cost efficiencies in the training provided and 
creates quality of life and overall training experience issues for 
trainees.
    The FLETC currently is exploring all of its resource options to 
determine how all Border Patrol training, as well as other 
participating organizations training, can be conducted in an efficient 
manner consistent with the purpose for which Congress created the 
consolidated training concept. We will keep this Committee apprised of 
our activities.
    In addition to relying on a temporary training site to accommodate 
increased workload, the fiscal year 1999 projections made it necessary 
to implement a dual-shift experimental schedule at Glynco. Two 
overlapping shifts were established. One that ran from 7:00 a.m. to 
4:00 p.m. and the other ran from 9:00 a.m. to 6:00 p.m. The overlap in 
the dual-shift schedule provided some additional facility capacity 
because the extended workday allowed for expanded use of the special 
training facilities, such as firearms and drivers training.
    Implementation of the dual-shift schedule required numerous 
adjustments in the FLETC's food, janitorial, transportation services, 
and role player contracts resulting in unprogrammed increases in 
operating expenses. Since January 2000, the dual shift schedule has 
been suspended due to workload reductions, primarily in Border Patrol 
training. However, the experience gained in this scheduling experiment 
established that the FLETC could undertake shift scheduling if 
warranted within certain cost parameters.
                  facilities master plan/construction
    Now, Mr. Chairman, I would like to brief you and the Committee 
members on progress being made in expanding the FLETC's facilities. The 
Master Plan, presented to Congress in June 1989, provided a basis for 
the efficient and orderly development of the Center's land and 
facilities resources to meet projected needs through year 1998. It was 
a comprehensive blueprint and orderly guide for expansion of the 
Center's capacities to meet the projected training workload.
    Over the years, the original Master Plan was updated to refine 
earlier estimates and incorporate changes necessary to meet the 
evolving training needs of our customers.
    In fiscal year 1999, due to the Border Patrol and INS extended 
buildup plan, the Master Plan was changed to a 5 year plan that would 
increase capacity sufficiently at the permanent FLETC facilities to 
allow for the closure of the Charleston site. As priorities change, the 
FLETC continuously reviews and updates this plan. This fiscal year is 
the second year for funding requested under the 5 year plan. Other 
adjustments may be made as circumstances warrant in future reviews.
    Since 1989, Congress has appropriated $126,585,000 for new 
construction. Of this amount $86,579,000 was for Glynco projects; 
$39,456,000 was for Artesia projects; and $550,000 for satellite 
locations previously in the FLETC physical plant inventory. In 
addition, funds also have been allocated from other sources such as the 
Treasury Asset Forfeiture Fund, for new construction activities. I am 
pleased to report that we have obligated approximately $116 million 
through September 30, 1999. By the end of this fiscal year we expect 
nearly all remaining funds to be fully obligated. Since the beginning 
of fiscal year 1999 we have been partnering with the General Services 
Administration (GSA) on the assignment of construction projects and 
that is proving to work exceedingly well thus far.
    At Artesia, major projects that have been completed include: a 73 
bed dormitory; rehabilitation of the cafeteria/student center complex 
and main classroom building; construction of a physical training 
complex; interim driver/firearms ranges; a road and sidewalk network; 
permanent firearms ranges; and a driver/firearms administrative 
support/classroom building. At Glynco, completed projects include: two 
dormitories; an administrative office building; a redesigned main 
entrance that includes a security and registration facility for 
students and visitors; an expansion of the indoor firearms range 
complex; consolidation/expansion of the physical techniques facility; 
an expansion of the cafeteria; construction of two 25 point outdoor 
firearms ranges; an addition to the Steed classroom building (two 
state-of-the-art classroom wings); and an expansion of our driver 
training complex (the addition of a control tower, defensive driving 
and highway response ranges).
    In addition to those projects already completed, construction is 
underway on a new dormitory, a classroom building, and additional 
firearms ranges at Glynco and a new dormitory and a physical training 
expansion at Artesia. These projects are expected to be completed in 
2000 and 2001. Construction funding for two permanent firearms ranges 
in Artesia for which we received funding in fiscal year 2000 already 
have been designed and competitively awarded. A chilled water system 
expansion at Glynco provided for in the fiscal year 2000 appropriation 
should be awarded early this spring.
    The Center's fiscal year 2001 ACI&RE request is in the amount of 
$17,331,000, a $3,844,000 decrease from the fiscal year 2000 enacted 
level. Primarily this decrease reflect the different in construction 
between fiscal year 2000 and 2001. Additionally, the Center request 
$14,267,000 be provided from the Treasury's Asset Forfeiture Fund. This 
includes $11,767,000 for new construction and $2,500,000 for 
renovations of existing facilities. Projects that would be funded 
include: $7,590,000 for a new dormitory at Glynco and $1,784,000 for a 
outdoor firearms range with a steel targeting system and $2,393,000 for 
a firearm office building in Artesia.
    The construction initiatives outlined support goal two in FLETC's 
strategic plan that is to develop, operate, and maintain state-of-the-
art facilities and systems responsive to interagency training needs. 
Funding is required if the Center is to meet the training needs of our 
customers and to protect the government's investment in facilities. 
Failure to fund these initiatives will result in the continued reliance 
on the more costly method of establishing and maintaining temporary 
training facilities to meet on-going training requirements. Also, an 
inadequate capacity in FLETC's sites endangers the concept of 
consolidated training and can lead agencies-particularly larger 
organizations-to consider alternative locations to meeting their 
training requirements.
    The Center continues to coordinate closely with its participating 
agencies so that the design features of each training construction 
project will meet current and future needs. This close consultation 
sometimes prolongs the period it takes to design and construct 
facilities; however, the time and effort are well spent because this 
ensures that the funds are more efficiently and wisely used.
    Mr. Chairman, I want to thank you and members of the Subcommittee 
particularly for the solid support given the Center in its facility 
expansion plans. We are pleased and grateful that Congress has seen fit 
to appropriate the funds necessary to expand our facilities to better 
equip the Center to perform its mission responsibilities.
    Now, if I may Mr. Chairman, I would like to take this opportunity 
to briefly discuss our funding request for the mandatory basic training 
workload increase and the remaining initiatives in the FLETC's fiscal 
year 2001 budget request that I referred to earlier in my testimony.
               mandatory basic training workload increase
    In our fiscal year 2001 request the Center is seeking an increase 
of $6,969,000 and 26 FTE to support the direct costs of basic training. 
This funding will provide mandatory training to support new initiatives 
for additional agents and inspectors for the Bureau of Alcohol, Tobacco 
and Firearms (ATF) and additional agents for the U.S. Secret Service 
(USSS). Together with funding already included in our base and what is 
expected to be available in the Congressionally authorized 3-year carry 
over fund, the FLETC expects to meet all of the requirements for basic 
training in fiscal year 2001.
    This budget request is in accordance with the OMB/Treasury/FLETC 
policy established in fiscal year 1987 that requires funding of the 
direct costs of new Federal hire training other than room, board and 
travel. The participating agencies do not request funding for these 
costs in their budget submissions and solely rely upon the FLETC to 
provide this funding in our appropriation.
                     new training building support
    As I mentioned earlier in my testimony, the Center is requesting 
$1,606,000 and 2 FTE for new training building support. The requested 
funding and FTE are necessary to support the operation and maintenance 
of new facilities that will be online or will be coming online at both 
Glynco and Artesia by fiscal year 2001. At Glynco, these include a 
classroom building, a chilled water system expansion and firearms 
ranges. In Artesia this includes a dormitory, a laundry expansion, a 
security building, and expansion of the physical training building. The 
FLETC's request provides the necessary resources and personnel to 
support operation of the new facilities including utilities, service 
contracts (janitorial/grounds maintenance), and minor construction and 
maintenance. This funding is essential to protect the Government's 
investment in these facilities and this initiative supports both Goals 
1 and 2 in the FLETC's strategic plan.
                              renovations
    Finally, I note that we are requesting funds this year for the 
first time for major renovation work at the Glynco center. As you may 
recall, the FLETC acquired the Glynco site in 1975 from the Navy. Many 
of the structures built by the Navy in the 1950s and 1960s were adapted 
for use in law enforcement training. Additionally, we built several 
facilities in the late 1970s. Buildings that are now 30 plus years old 
are beginning to reflect serious infrastructure problems that cannot be 
upgraded in the normal maintenance cycle for which Congress annually 
has provided appropriations. The problems that must be addressed 
include asbestos abatement, flat, leaking roofs that must be completely 
replaced, upgrading of safety code measures and the over hauling of 
mechanical and air handling features in buildings exposed to long 
periods of tropical like weather conditions. The renovations will 
correct deficiencies, provide for energy efficiencies and return these 
structures to an acceptable standard of use.
    The Glynco Center now has over 250 structures to maintain and a 
nearly quarter billion dollar physical plant. We believe these 
renovations and future out-year renovation work should be undertaken to 
protect the government's substantial investment at Glynco. Toward that 
end our request in fiscal year 2001 is for $4,436,000 ($1,936,000 from 
direct appropriations and $2,500,000 from Treasury's Asset Forfeiture.
                                closing
    Mr. Chairman, I am committed to the mission of the Center to 
provide high quality law enforcement training at the lowest possible 
cost. Substantial savings are being realized through the operation of 
the Center as a consolidated training facility. I look forward to your 
continued support as the FLETC strives to remain a partnership 
committed to excellence.
    I am available to answer any questions you may have concerning this 
appropriation request.

                  Financial Crimes Enforcement Network

STATEMENT OF WILLIAM F. BAITY, DEPUTY DIRECTOR
    Senator Campbell. Mr. Baity.
    Mr. Baity. Good morning, Mr. Chairman, Senator Dorgan. 
Thank you for the opportunity to discuss FinCEN's 2001 budget 
request. I have a brief statement and, of course, would ask 
that the written remarks of Director Sloan be included in the 
record.
    Senator Campbell. It will be included.
    Mr. Baity. As mentioned, I am testifying in place of our 
Director, Jim Sloan, who is unable to be here today due to a 
family emergency. Mr. Sloan asked that I convey his regrets to 
the committee, but also convey from our Director as well as all 
the men and women of FinCEN how grateful we are for the support 
and counsel we have received from this committee during the 
first 10 years of our development.
    Today, there is an even greater focus on money laundering 
than there was when we were created in 1990. Just 2 weeks ago, 
the Treasury and Justice Departments released the Second 
National Money Laundering Strategy. This heightened focus is 
why our request of approximately $34.6 million is necessary to 
enable FinCEN to meet the expectations of law enforcement, 
regulators, the financial community, and the American public in 
our fight against financial crimes.
    To carry out our mission, FinCEN uses various methods of 
analysis and delivery of information to law enforcement. Our 
main objective is to add value to the information we receive 
from financial institutions and deliver it in the most 
effective way possible to Federal, State, and local law 
enforcement. Currently, we support about 150 Federal agencies 
as well as State and local law enforcement in all 50 States.

                      stabilize existing programs

    To continue this support, we must maintain programs such as 
Gateway, our Secure Outreach, data mining, and our study of the 
magnitude of money laundering. Indeed, these programs have 
become key to FinCEN's goal of leveraging resources to more 
efficiently and effectively analyze and deliver information to 
our customers. Therefore, our budget asks that these programs 
be incorporated into our base.

                         maintain core programs

    FinCEN must also continue to strengthen its core missions 
and activities. Direct case support is at the very heart of the 
FinCEN mission. Through the use of advanced technology and 
numerous data sources, FinCEN links information to assist law 
enforcement in forming a more complete picture of a financial 
investigation. The analysis of such information has become much 
more complex and more time consuming over the last few years. 
In light of these challenges, we are asking that the analyst 
positions approved in our fiscal year 2000 budget be annualized 
in fiscal year 2001 in order to improve both the quality and 
timeliness of FinCEN's case support.
    In addition, the ability to identify trends and patterns 
associated with money laundering adds an important strategic 
dimension. The positions for strategic analysis initially 
funded in the 2000 budget allow FinCEN to provide proactive 
analytical support to many multi-agency task forces.
    But before we can deliver meaningful data and analysis to 
law enforcement, we have to collect useful information from the 
financial institutions. Currently, more than 220,000 financial 
service providers from the largest money center banks to 
currency exchange businesses scattered throughout this nation 
are subject to some particular aspects of the rules of the Bank 
Secrecy Act. The information reported by these businesses 
preserve a financial trail for investigators to follow as they 
track criminals and their assets. It, too, is a foundation in 
FinCEN's work.

                       money services businesses

    This year, FinCEN embarks on a new regulatory agenda, 
registration of financial service providers known as money 
service businesses, or MSBs, as we call them. We are working to 
implement an extensive public awareness campaign and develop 
the necessary forms and data systems. Treasury's Public 
Education Office, along with the IRS Detroit Computing Center 
and its Examination Division are working in conjunction with us 
to carry out this process.
    The outreach associated with the MSB registration will 
ultimately provide the framework for these industries to report 
suspicious activity. In moving toward this goal, FinCEN in 
conjunction with the Department recently announced the final 
rule requiring MSBs to begin reporting suspicious activity in 
January of 2002. The funding we are requesting for 2001 will 
allow us to continue the implementation of this critical aspect 
of our regulatory program.
    FinCEN is also working to extend suspicious activity 
reporting beyond banks and MSBs to other financial institutions 
vulnerable to money laundering, such as casinos and the 
securities industry.
    Another important role of FinCEN and its regulatory process 
is to ensure that financial institutions adhere to the 
reporting requirements that provide this critical information. 
This work is carried out with the assistance of the Federal 
financial regulators and the IRS Examination Division. To 
accomplish this goal, again, we seek to annualize staffing 
initially approved in fiscal year 2000.
    All of these areas I discussed have an even greater 
importance given the recent release of the Second National 
Money Laundering Strategy. The $2.9 million requested in the 
Department's budget request will give FinCEN the resources it 
needs to carry out its responsibilities under the strategy, 
requirements which dovetail with our ongoing activities.
    To meet these increased obligations, FinCEN under Director 
Sloan's leadership has undergone a restructuring designed to 
better integrate our law enforcement and our regulatory support 
programs. It has been a well-timed effort. FinCEN's management 
structure and the integration of the activities that I have 
described today are, in fact, coming together at a time when 
our nation's anti-money laundering efforts have coalesced into 
a comprehensive money laundering strategy.

                           prepared statement

    In closing, I would point out it is clear in this strategy 
and in the increasing demands of our law enforcement partners 
that FinCEN is being looked to as one of the nation's key 
centers of money laundering expertise. Again, thank you for 
your support, and we would be happy to answer any questions.
    Senator Campbell. Thank you.
    [The statement follows:]

             Prepared Statement of James F. Sloan, Director

    Mr. Chairman, Senator Dorgan, and members of the Subcommittee, I 
welcome this opportunity to discuss with you the fiscal year 2001 
appropriation request of $34.694 million for the Financial Crimes 
Enforcement Network--FinCEN.
    I have been Director of FinCEN for almost a year now, and while my 
many years with the Secret Service gave me a great deal of knowledge 
and insight into financial analysis and investigation, this past year 
has given me an even greater appreciation for the complexity of the 
issues surrounding financial crime. Most important, I am very proud to 
be the Director of this organization--a small cadre of less than 200 
men and women--whose diverse range of talents and skills support 
hundreds of law enforcement and regulatory agencies. I have learned 
just how broadly these talents and skills must stretch to support 
FinCEN's many customers.
    As you know, the primary functions of FinCEN are to provide support 
to law enforcement efforts that counter money laundering and other 
financial crimes, and to maintain an effective regulatory program for 
that purpose. Our request includes funding to continue our efforts to 
provide investigative analysis to our law enforcement customers, as 
well as the continuation of our regulatory and international functions. 
This request also includes $2.275 million for the implementation of a 
regulatory program never undertaken before--the registration of 
financial service providers called Money Services Businesses or MSBs. 
The outreach associated with the registration process will ultimately 
lead to implementation of a requirement for this industry to report 
suspicious activity. I'll address this new initiative in more detail 
later.
    Since its inception 10 years ago, FinCEN has been comprised of 
several components that have served many varied constituencies very 
well. The management challenge for FinCEN is to blend all of our 
resources into a unified system for effectively collecting and 
delivering information to law enforcement. Today, I will describe how 
we are positioning FinCEN to meet these increasing demands to collect 
and deliver information to our partners--even as our country's anti-
money laundering efforts expand.
           efficient delivery of ``value added'' information
    FinCEN uses various methods for analyzing and delivering 
information to law enforcement. Our main objective is to add value to 
the information we collect from financial institutions under the Bank 
Secrecy Act (BSA) and deliver it in the most effective way possible to 
investigators. The systems we use involve sophisticated technology, and 
all are tailored to meet the needs of our customers. We service about 
150 federal agencies and state and local law enforcement investigators 
in all 50 states.
Stabilize Existing Programs
    In order to maintain these systems which have become central to our 
law enforcement customers, we are reiterating our request from last 
year to stabilize programs by transferring them from the Violent Crime 
Reduction Trust Fund to our salaries and expenses appropriation. Each 
program that is described below is critical to ensuring that the 
information--with value added--reaches its users in the most efficient 
way. This transfer involves $1.75 million and FTE. The programs are 
outlined below:
    Data Mining Program.--As the Committee is aware, one of the 
principal ways in which FinCEN is able to add value to law 
enforcement's investigative efforts is through the application of 
advanced analytical tools. Data mining is quickly proving to be perhaps 
the most useful of these tools. By applying highly sophisticated, 
customized software, FinCEN will eventually be able to ``mine'' 
literally billions of data segments on subjects, property, bank 
accounts, and financial transactions to uncover potential criminal 
relationships that would otherwise be virtually impossible to detect 
with standard link analysis. Once these suspect relationships have been 
established, FinCEN's analysts can then help unravel the complex 
labyrinth a criminal group has constructed to disguise their illegal 
activities.
    To further our efforts in this area, FinCEN has been working with 
data mining experts to design software that is tailored to meet the 
specialized needs of law enforcement. Data mining is not a static, off-
the-shelf technique but instead requires the testing of complex sets of 
algorithms to determine which will most creatively search and combine 
random pieces of data to reveal hidden links to criminals and their 
money laundering schemes.
    FinCEN's efforts, to date, have focused on the evaluation of 
several data mining techniques by applying them to a specific database, 
such as the one that holds Suspicious Activity Reports, in a given 
regional area. These pilot endeavors have already provided law 
enforcement with valuable investigative information.
    The next step will require the development of a BSA data warehouse. 
A data warehouse is a construct of information systems that provides 
users with historical and current information that is hard to access or 
present in traditional operational data stores. Data warehousing is 
critical to our organization's ability to perform effective information 
processing such as data mining. The data warehouse FinCEN will be 
building this year will store various kinds of BSA information--in a 
specially formatted manner to enable the application of large scale, 
more complex data mining to occur while ensuring that privacy concerns 
about appropriate use of the data receive maximum consideration. 
Funding is critical to ensuring that this cutting edge integration of 
the various data sets can be developed and that our data mining program 
can progress towards the promising potential it has already 
demonstrated.
    Gateway Program.--In addition to developing new state-of-the-art 
techniques such as data mining, FinCEN has continued to build upon its 
important mission to efficiently deliver information through programs 
such as the Gateway System. Through this system, state and local law 
enforcement agencies, working with designated state coordinators who 
are trained on FinCEN-designed software, have direct electronic access 
to over 100 million reports filed under the BSA. Delivered through a 
secure and carefully monitored system, this information provides 
invaluable assistance for investigators since it is not readily 
available from any other source. The system is audited by FinCEN's 
managers, both with record reviews and on-site visits, to ensure that 
all inquiries are connected to actual or potential criminal violations. 
(A record is kept every time access is made to the BSA data through 
Gateway. The record identifies who queried a particular record and when 
it occurred. This record is the part of the audit trail that enables 
FinCEN to trace every query back to written justification for use of 
the system.) In fiscal year 1999, Gateway processed 84,727 queries, 
from our state and local law enforcement partners around the country. 
This is an increase of 18 percent over the past year.
    The Gateway System has a unique feature--an ``alert'' mechanism 
that automatically signals FinCEN that two agencies have an interest in 
the same subject. In this way, FinCEN can not only assist state and 
local law enforcement in coordinating their investigations among 
themselves, but also with federal agencies. The number of ``alerts'' 
issued in fiscal year 1999 rose to 1,580, a 10 percent increase over 
fiscal year 1998.
    Secure Outreach Program.--While ensuring our state and local law 
enforcement partners are provided with effective tools to assist in 
their work, FinCEN also has been working, over the past 2 years, to 
develop a secure communications system, which reduces the time it takes 
to package and deliver its analytical products to Treasury law 
enforcement bureaus. Through the application of sophisticated 
encryption and the Internet, the Secure Outreach Web System has the 
potential to provide real time means of sharing information quickly and 
securely. At present, all Treasury bureaus have the capability of 
communicating securely among themselves through a secure e-mail system 
and, in the very near future, the system will provide them with the 
capability of exchanging sensitive case information.
    In addition, the Secure Outreach System provides the capability to 
access the Money Laundering Coordination Center (MLCC), a FinCEN-
designed database developed for the U.S. Customs Service. The funding 
requested in fiscal year 2001 will provide FinCEN with the ability to 
expand the Secure Outreach System to include: direct access to the 
databases at the Internal Revenue Services' Detroit Computing Center 
(DCC) which houses the BSA data (currently this information is 
downloaded from DCC); direct access to the Gateway system; and expanded 
access to other FinCEN databases.
    Magnitude of Money Laundering.--The programs that I have just 
described are key to FinCEN's goal of leveraging its resources to more 
efficiently and effectively deliver information to its customers. But, 
as we have stressed in our previous budgets and strategic plans, it is 
difficult to truly gauge the effectiveness of our nation's battle 
against financial crime until we find a way to estimate the magnitude 
of money laundering. This effort, over the past 2 years, has not been 
an easy one. FinCEN began looking at the problem on both a national and 
international level. We are moving forward with our own national study.
    The funding FinCEN received in fiscal year 2000 is supporting the 
exploration and development of the methodology. We are working with law 
enforcement, regulatory and financial professionals and intend to draw 
upon the expertise of national research organizations and academic 
institutions. The fiscal year 2001 request will provide FinCEN with the 
resources to continue funding the primary research contract to be 
awarded by June of this year.
Maintain Core Programs
    In order to meet the growing demand by law enforcement for the 
value-added information that FinCEN provides, we also see a need to 
increase funding in core delivery programs. These programs are outlined 
below:
    Traditional Case Support.--FinCEN provides the law enforcement 
community with direct case support, formulating reports based on the 
data collected under the Bank Secrecy Act (BSA), along with law 
enforcement and public record information. The reports link together 
associates, bank accounts, property records and other information to 
assist law enforcement in forming a more complete financial 
investigation. FinCEN has provided this analysis since its creation 10 
years ago and is at the very core of our support to law enforcement.
    The analysis of the information--FinCEN's ability to add value--has 
grown more complex and time consuming over the last few years. The 
structure of criminal organizations is more intricate and their 
financial transactions more difficult to follow. In light of these 
challenges, we are asking that the analysts positions approved in 
fiscal year 2000 be annualized into fiscal year 2001 in order to 
improve the timeliness of FinCEN's case support. In addition, the 
resources will improve responsiveness to grand jury investigations, 
provide a full-time emergency response team, and increase the number of 
personnel available to provide in-depth analysis on more complex cases.
    Enhance SARS and other BSA Database Analysis.--While providing 
value-added case support to law enforcement lies at the heart of our 
efforts, FinCEN also provides strategic information in support of law 
enforcement initiatives. Our focus in this regard is to identify 
trends, patterns, and issues associated with money laundering and other 
financial crimes. This requires the framing of macro level money 
laundering issues while serving as a catalyst for research, analysis, 
and dissemination of information on money laundering trends and 
systems. Examples of the products generated through our strategic 
analysis include in-depth assessments of particular areas or issues 
based on indicators extracted from BSA data and other sources. Segments 
analyzed could include: (1) geographic; (2) threat vulnerability; (3) 
industry analysis such as electronic funds transfer systems; and (4) 
analysis of particular money laundering methods.
    The positions funded for this area in the fiscal year 2000 budget 
are allowing FinCEN to meet the expanding requirements for strategic 
analysis to support multi-agency task forces, providing feedback to the 
regulatory and banking communities, and expanding proactive research.
                  effective collection of information
    I began my testimony by discussing how FinCEN delivers information 
because I wanted to focus on our primary goal--supporting law 
enforcement's investigative efforts. But obviously before we can 
deliver the best information possible, we have to collect the most 
useful data we can from the financial institutions--that is at the 
heart of FinCEN's regulatory mission. And unifying the collection and 
delivery of information, as I said before, is critical to our success.
    As the subcommittee is aware, FinCEN administers the BSA, which 
requires financial institutions to keep records and file reports on 
certain transactions. Under the BSA, financial institutions must report 
to the Treasury all currency transactions above $10,000. In addition, 
depository institutions are required to report suspicious transactions 
on a Suspicious Activity Report (SAR).
    More than 220,000 financial service providers--from the largest 
money center banks to the scattered currency exchange businesses along 
the Southwest border, with hundreds of variations in between--are 
subject to the BSA rules. This information collection preserves a 
financial trail for investigators to follow as they track criminals and 
their assets. The BSA reports are the foundation of FinCEN's analysis 
and information delivery systems.
Expanding the Collection of BSA Information
    Suspicious activity reporting, mentioned above, is central to anti-
money laundering policy, both in the United States and abroad. 
Officials at financial institutions are in the best position to 
determine what transactions appear to lack commercial justification or 
otherwise cannot be explained as falling within the usual methods of 
legitimate commerce. Under those circumstances, only relying on 
currency transaction reporting, although very valuable, is neither 
adequate nor cost effective for either the institutions involved or the 
government.
    For these reasons, much of FinCEN's regulatory effort has been 
focused on this issue in recent years. Depository institutions have 
reported suspicious activity to FinCEN since 1996 with more than 
375,000 reports filed since the inception of the system. Specifically, 
these institutions must report financial activity which they know, 
suspect or have reason to suspect involve funds derived from serious 
criminal activity or for which there is no apparent lawful purpose. 
This information has proven to be vital to money laundering 
investigations and other financial crimes.
    While banks have been the first group of financial institutions 
subject to SAR reporting, FinCEN is in the process of extending similar 
regulatory requirements to other institutions vulnerable to money 
laundering, including money services businesses; casinos; and brokers 
and dealers of securities.
    As stated in the National Money Laundering Strategy issued last 
year, money launderers will move their operations to institutions where 
they believe they will more easily be able to successfully evade 
enforcement and regulatory efforts. For example, casinos are vulnerable 
to manipulation by money launderers and tax evaders due to the fast-
paced and cash intensive nature of the games and because casinos 
provide their customers with a wide array of financial services.
    In fact, financial services available at casinos are similar and, 
in some cases, identical to those generally provided by banks and other 
depository institutions. These services can include customer deposit or 
credit accounts, facilities for transmitting and receiving funds 
transfers directly from other institutions, and check cashing and 
currency exchange services. And if banks are mandated certain 
requirements under the BSA, then it can only make sense to impose 
similar requirements on other industries which offer the same kinds of 
services--not only ``leveling the playing field'' within the financial 
services arena, but most important, making it equally as difficult for 
launderers to hide their money using these industries.
    This program will result in a mandatory workload increase requiring 
additional resources ($.226 million and 1 FTE). This expansion of SAR 
filings will require FinCEN to coordinate outreach efforts with these 
industries on a national level, provide guidance to them, and 
coordinate with the regulatory oversight agencies.
Increase in Existing Requirements
    An important part of FinCEN's information collection mission is to 
ensure that financial institutions are adhering to the reporting 
requirements that provide the information that is critical to law 
enforcement investigations. With the assistance of the federal 
financial regulators and the IRS Examination Division, FinCEN 
investigates violations of the recordkeeping and reporting requirements 
of the BSA. These agencies refer to FinCEN specific cases involving 
potential violations of the BSA by financial institutions subject to 
their supervision. FinCEN determines if the violations warrant monetary 
penalties after a very complex review process.
    In order to meet these expanding requirements, increased staffing 
was approved in fiscal year 2000, and we are asking that it be 
annualized in fiscal year 2001. These positions will not only allow 
FinCEN to maintain case processing time at reasonable and manageable 
levels but also provide greater guidance and training to regulators on 
BSA requirements.
A New Requirement--MSB Registration
    In addition to ensuring that we continue to meet the existing BSA 
requirements, FinCEN also began a new process under the BSA, in August 
1999: the requirement to register Money Services Businesses which 
includes money transmitters, issuers, redeemers and sellers of money 
orders and traveler's checks, check cashers and currency retail 
exchanges.
    The requirement to register MSBs was part of the Money Laundering 
Suppression Act of 1994. In setting the requirement, Congress found 
that such businesses are largely unregulated at the federal level. 
Also, evidence gathered from several enforcement actions revealed that 
some of these businesses are susceptible to money laundering on a very 
large scale.
    Extensive discussions were held with the MSB industry, as well as 
with the law enforcement community to craft a final rule that strikes 
an appropriate balance between law enforcement needs for accurate 
information about the owners and locations of MSBs, and the concern 
that small businesses be spared unnecessary and intrusive regulation.
    The final rule provides a significant period for implementation of 
registration to permit government outreach through an on-going working 
relationship with the industry. During the spring of 1999, Treasury 
established the MSB working group to review the resource requirements 
necessary to implement the national MSB registration program. Using 
funding provided in fiscal year 1999 and carried forward into fiscal 
year 2000 from the Treasury Forfeiture Super Surplus Fund, FinCEN will 
implement an extensive public awareness campaign, develop necessary 
forms, other public information documentation, and develop data system 
requirements. These activities will be accomplished in conjunction with 
Treasury's Public Education Office, and IRS's Detroit Computer Center 
and Examination Division, among others.
    The fiscal year 2001 request of $2.275 million will provide funding 
to contract with the IRS or other regulatory partners to ensure that 
sufficient and continuing resources are available to conduct regulatory 
oversight associated with this program, including activities such as 
forms distribution, customer interface to respond to public inquiries, 
compliance examination and reviews, and data processing support. This 
request also allows our service provider to hire approximately 81 
additional personnel, which equates to 10 FTE in fiscal year 2001 since 
these positions will be hired late in the fourth quarter. As part of 
this process, we also will begin the outreach and education 
requirements associated with suspicious activity reporting for this 
industry. These regulatory oversight activities are essential to 
ensuring compliance with national registration and other BSA 
requirements.
Information Collection From FIUs
    Not only is FinCEN viewed as an invaluable resource on money 
laundering in this country, but we have also been an active player in 
encouraging other governments around the world to develop and implement 
effective anti-money laundering controls. The promotion of 
international cooperation remains an essential part of our networking 
efforts.
    Foremost among these efforts is the continued development of an 
international network of Financial Intelligence Units (FIUs). FinCEN is 
working to derive increasing benefit in support of domestic law 
enforcement investigations from the growth of FIUs. These now number 
48--an impressive increase from the handful which existed just 6 years 
ago.
    FinCEN is relying on its counterparts in the broader global network 
of FIUs to provide information in support of federal investigations. 
This is information that might only be obtained with difficulty, or not 
at all, through other channels. FinCEN reciprocally provides its 
counterparts with anti-money laundering information they need to 
conduct their own national investigations.
    FinCEN also works on an interagency basis to help implement 
national money laundering initiatives and policies. These include: 
participating in multilateral organizations such as the Financial 
Action Task Force (FATF) and its regional spin-offs in the Caribbean 
and Asia; working with Interpol, the United Nations and the various 
international financial institutions to reinforce the need for 
international cooperation; providing training and technical assistance 
to countries our government has determined can best benefit from such 
assistance.
                 the national money laundering strategy
    As you know, the Treasury and Justice Departments released the 
first National Money Laundering Strategy in September 1999. This 
strategy, mandated by the Money Laundering and Financial Crimes 
Strategy Act of 1998, sets forth an ambitious agenda of actions 
designed to advance four broad goals: strengthening domestic law 
enforcement; enhancing steps taken by financial institutions to prevent 
and detect money laundering; partnering with state and local 
authorities; and bolstering this country's efforts to have strong money 
laundering standards adopted, and adhered to worldwide. Thus, FinCEN's 
responsibilities will significantly increase over the next year in 
order to achieve these goals outlined.
    The $2.9 million requested in the Department of the Treasury's 
appropriation will afford FinCEN with the resources needed to begin to 
provide the level of effort for strategic analysis for targeted high 
risk areas; specialized investigative support to the High Intensity 
Financial Crime Areas (HIFCAs) and to numerous multi-agency 
investigative efforts; a comprehensive regulatory effort for non-bank 
financial institutions such MSBs; and an accelerated technological 
effort to enhance our analytical capabilities and, at the same time, 
expand our ability to efficiently and effectively deliver information 
to law enforcement.
    This strategy reflects a national commitment to a coordinated, 
effective fight against money laundering. FinCEN's role is a critical 
component in the implementation of the strategy's multiple goals.
                          restructuring fincen
    When I opened this discussion, I mentioned that for many years 
FinCEN has been comprised of several components that have served many 
varied constituencies very well. However, when I came to FinCEN last 
year, it was evident to me that the existing structure was not 
adequately coordinating the efforts of each element of FinCEN into the 
integrated collection and delivery system I've been discussing today.
    FinCEN needed to be better focused on how each program area 
contributed to those missions in conjunction with the entire 
organization. Not only was this necessary in order to achieve a more 
harmonized goal, it was also obvious that the allocation of very 
limited resources could not sustain an organization that was often 
going in several important, but sometimes different directions.
    After consulting with Treasury, law enforcement organizations, 
regulators, the regulated industries, and our employees, I undertook a 
restructuring of FinCEN, which I believe, will better coordinate, 
integrate, and deliver our products to the law enforcement community, 
while at the same time enabling us to be more responsive to the 
regulated community. We began the initial phase of that effort last 
fall with the implementation of a new senior management structure 
intended to integrate all FinCEN activities and have just completed 
additional steps last month. We are already seeing the benefits of 
these changes in improved analysis and support to our customers.
                               conclusion
    In closing, the new management structure and the integration 
process of FinCEN's activities which I have been describing today, are 
coming together at a time when our nation's anti-money laundering 
efforts have coalesced into the comprehensive money laundering strategy 
mentioned earlier in this testimony. It is clear in the Strategy and in 
the increasing demands of our law enforcement customers that FinCEN is 
being looked to as one of our nation's key centers of money laundering 
expertise.
    I am confident that the FinCEN organization has reached a level of 
sophistication that will enable it to meet the expectations of law 
enforcement, the financial community and the Congress in fulfilling the 
responsibilities assigned to us. The programs outlined in our budget 
request are designed to achieve this objective by using the unique 
strengths of our programs in cost effective and innovative ways. We 
look forward to the continued support of this subcommittee, which has 
been one of our most valued partners since our inception.

    Senator Campbell. Do you have some questions you would like 
to start out with?

                            Money laundering

    Senator Dorgan. I apologize. I had to take a phone call, so 
I am sorry I missed part of your presentation, but let me ask 
on the issue of money laundering, it was interesting the other 
day at the demonstration here in this building to see some of 
the very sophisticated counterfeiting approaches that are being 
used. I guess counterfeiting is a different issue, but money 
laundering on the one side, counterfeiting on the other, are we 
seeing increased problems in these areas and are the increases 
substantial increases?
    Mr. Baity. If I could speak to the money laundering 
problem, first of all, I think we need to keep in mind that the 
classic definition of money laundering is the movement of 
illegally gotten proceeds, and while we recognize the dilemma 
and the expansiveness of narcotics and the money associated 
with that, we have to keep in mind that illegal gains are 
generated from all sorts of criminal activity.
    What we attempt to focus on in terms of the anti-money 
laundering programs that we seek to put in place is to address 
all of those concerns, whether they be money laundering derived 
from fraud, bribery or from corruption. We are seeking to have 
the financial institutions put in place the kind of mechanisms 
that make it difficult to place these illegal gains into the 
financial system.
    Senator Dorgan. Let me just talk about counterfeiting just 
for a moment. I was looking at the bills the other day and I 
was quite struck by them.
    Mr. Johnson. I am happy to address that. In the 
counterfeiting area, one of the things that we have seen in the 
last couple of years is an increase in the amount of 
counterfeiting that is actually being done by computer, by 
inkjet. Technology is a wonderful thing, but it is often value-
neutral and many criminals are using the greater technology 
that is available and increasingly sophisticated reprographic 
technology to generate what we refer to as P-notes, inkjet 
notes. There has been an increase in that area.
    But because of the protections that have been embedded into 
the new notes, the new 100s, 50s, 20s, and we are going to be 
rolling out the 5s and the 10s soon, we are able to identify 
without too much difficulty the counterfeit currency that is 
produced.

                   Fletc's interactive video training

    Senator Dorgan. Mr. Johnson, I think you were in the room 
the other day when I stopped by and looked at the interactive 
video training device that FLETC has, were you not?
    Mr. Johnson. That is right.
    Senator Dorgan. It is really remarkable what you are doing 
in integrating new technology in training and I commend you for 
that. It was an interesting demonstration.
    Mr. Basham. Thank you.

                        Export training programs

    Senator Dorgan. I note that the number of students trained 
in export programs is increasing. Can you describe what 
accounts for the need to have so many students trained away 
from the existing facilities that you have?
    Mr. Basham. Yes, sir. Part of the problem is we have a 
great demand to provide and deliver training to State and local 
agencies. We do not have the capacity at neither our Glynco nor 
Artesia sites to bring those individuals to training at those 
sites. We found it to be much more efficient if we can deliver 
the training in the local areas, which keeps them from having 
to travel outside the area and take them away from operational 
needs.
    But you may be aware of the STAR program, the rural 
training program that we conduct every year for State and local 
training, but we just do not have the capacity at our current 
sites to be able to bring officers to those sites. What we have 
found, again, to be successful is train-the-trainer programs, 
where we actually go out to the local community, train 
individuals, and then they go beyond that and train their 
personnel. It is a much more effective way of delivering 
training.

                               Regularity

    Senator Dorgan. Just one additional question. We have a 
legal framework within which especially financial institutions 
must report and work with FinCEN. Let me ask, outside of that 
legal framework, do you find that the financial institutions in 
this country are generally cooperative, easy to work with, 
interested in helping you complete your task?
    Mr. Baity. I think the short answer, Senator, is that they 
have been very helpful. In fact, in terms of our regulatory 
agenda, as we go forward, they have been active partners. Of 
course, our goal is to have the reporting and recordkeeping 
provide the most useful information to law enforcement while 
balancing that against the burden on the financial 
institutions. The institutions have historically been and 
continue to be very helpful.
    As we go forward with the MSBs, many of these types of 
institutions traditionally have not been regulated by the 
Federal Government, and in many cases by any governmental 
institution. It is critical that their input be part of the 
regulatory dialogue as we go forward, and we have attempted to 
do that in our rulemaking process. And they have come forward 
and participated in this dialogue, from casinos to the money 
services businesses to others such as broker-dealers.

                        Charleston site closure

    Senator Campbell. Let me ask a couple questions. Mr. 
Basham, let me ask you a couple of things about FLETC. The site 
in South Carolina was supposed to be a temporary site. With the 
FLETC 5-year master plan well into the development stage, do 
you think that the temporary site is going to be closed in 
2002-2004.
    Mr. Basham. Mr. Chairman, I am fairly confident with the 
support that this committee has provided to FLETC that we are 
going to be closing that site no later than fiscal year 2004 
and we are well on track to putting the facilities in place, 
both in Artesia and in Glynco, to accommodate Border Patrol 
training at FLETC.
    Senator Campbell. Was that site a former military base?
    Mr. Basham. The Glynco base was a former----
    Senator Campbell. No, Charleston.
    Mr. Basham. Charleston, yes, it was a naval base.

                U.S. border patrol training projections

    Senator Campbell. Each year, FLETC struggles to determine 
Border Patrol's anticipated number of trainees. Would you tell 
the subcommittee what the actual number of Border Patrol 
trainees you expect and what you are doing to get a more 
accurate handle on the numbers?
    Mr. Basham. The Border Patrol has very aggressively 
attempted to meet Congress's requirements to staff up. 
Unfortunately, they are facing the same problems other agencies 
are facing in that they are competing for the same resources 
out there and they are very aggressively this year trying to 
raise their numbers. Unfortunately, they have not been able to 
meet the projections that they had originally given us. They 
will fall far short----

                 Impact of failure to meet projections

    Senator Campbell. When they make a projection, then you 
have to obviously increase your manpower, your instructors and 
so on if you expect a larger number of people. What impact does 
it have, when they do not reach their projection? What impact 
does it have on FLETC?
    Mr. Basham. Well, first of all, the cost per student 
trained goes up because the costs are spread across less 
students. But the more severe impact is that unless we are 
given enough notice, leadway time, then those training slots go 
unused. We are working very closely with INS and the Border 
Patrol to come up with a better formula of filling those slots 
on the schedule so that we do not lose training opportunities. 
So those two are the two issues that we deal with when the 
projections are not fulfilled.

                        Training site scheduling

    Senator Campbell. How do you divide the training between 
Glynco, Georgia, and Charleston?
    Mr. Basham. We have agreed on approximately a 60/40 split, 
meaning Charleston would get 60 percent, 40 percent going to 
Glynco, in order to maintain the efficiencies of both of those 
sites. However, at this point, it is very difficult to 
determine just what the Border Patrol is going to require 
through the remainder of this year and next year in terms of 
training starts. However, they are split about 60/40, depending 
on the number of classes the Border Patrol is requesting.
    Senator Campbell. Thank you. I was also very impressed 
yesterday with that display of counterfeit money, as Senator 
Dorgan was. I will tell you, that stuff looked so realistic, I 
am not an expert on it, but I defy any 18-year-old working in a 
7-Eleven to tell the real thing from one of those $100 bills. I 
know you mentioned the difficulty with the new computer age of 
being able to duplicate money. It is my understanding, though, 
that the paper is supplied by only one supplier in the United 
States and that is controlled, monitored, and so on, is that 
correct, or do you know that?
    Mr. Johnson. I will try that one.
    Senator Campbell. All right, Mr. Johnson?
    Mr. Johnson. I believe there is one manufacturer that 
supplies the paper that is used to manufacture----
    Senator Campbell. Even feeling the real ones and the phony 
ones, I cannot tell the difference. If we are controlling the 
paper and we cannot very well control the printing process 
because of all these computers, would it not seem logical to 
address more of our attention towards the materials being used, 
like the ink and the paper, rather than the increased 
articulateness of the engravers that are making the counterfeit 
plates?
    Mr. Johnson. The strategy in making the currency more 
difficult to counterfeit involved putting in security devices 
within the paper itself as well as within the ink, and the 
Treasury Department embarked on a campaign last year and, 
actually the year before, to educate everyone about their 
currency, and from time to time you will see people holding up 
new $20 bills. What you will see if you hold it up is that to 
the right of the central portrait is a watermark that is 
embedded into the paper.
    Senator Campbell. Does that come when the paper comes or is 
that put in by Treasury after they get the paper?
    Mr. Johnson. I am not exactly sure when it goes into the 
process. Some of the numerals on the ink actually have color-
shifting ink, which is very difficult to reproduce with an 
inkjet printer that you would produce a P-note on. And there 
are other security devices, including security threads that are 
actually embedded in the notes and the different colored 
threads that are also in the notes.

                             Casino gaming

    Senator Campbell. One last question, perhaps Mr. Johnson or 
Mr. Baity can answer it, I was just thinking about the money 
services business, the MSBs, how they are proceeding. In 1988, 
we passed IGRA, the Indian Gaming Regulatory Act, as you 
remember. Now Indian casinos are really expanding, as you might 
know. Is there an impact or is there some connection or overlap 
or some process by which you work with Indian casinos, too, in 
the money laundering issue?
    Mr. Baity. Actually, when we addressed the issue of casino 
gaming, a large part of our outreach and consultation has been 
with the Native American Indian Gaming Association and its 
particular members. They were active participants in the 
regulatory process. We held five public hearings on our 
proposed regulation for suspicious reporting for casinos. They 
attended three of the five public hearings and submitted 
substantial and very helpful comments on our proposed rule. We 
have met with them both at their conferences and at numerous 
site locations to actually understand the impact of Native 
American gaming.
    What we have tried to do is level the playing field for 
casinos across the board, and they have been very active in our 
consultation process.
    Senator Campbell. Thank you. Well, as you know, they have a 
board, a regulatory board, too, and Senator Dorgan and I both 
serve on the Indian Affairs Committee. They are sorely 
underfunded, as you probably know, the number of people they 
have to inspect a number of casinos. The workload is terrific 
and we are trying to address that in a different committee.

                     Additional committee questions

    I have several other questions, as other members do on the 
committee that were not here today, that we will be submitting 
in writing, so if you could get those answers back to us, I 
would appreciate it. We will keep the record open for a 14-day 
period to get those comments back, if we can.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

  Questions Submitted to the Under Secretary of Treasury (Enforcement)

         Questions Submitted by Senator Ben Nighthorse Campbell

                           ballistics imaging
    Question. I understand that the Treasury and Justice Departments 
finally came to an agreement with regard to their competing ballistics 
imaging systems. As a result, ATF will be responsible for replacing the 
existing DOJ DRUGFIRE equipment with their IBIS system.
    What criteria has been established to determine whether scarce 
resources will be used to replace existing DRUGFIRE systems or to 
provide IBIS equipment to new locations?
    Answer. The NIBIN Team has developed the following plan for 
establishing a truly National Integrated Ballistics Information 
Network.
                       nibin field restructuring
    Development of Architectural Design and Deployment Schedule.
Phase I
    Obtain the following information regarding current DRUGFIRE LANs 
from the FBI: Up-to-date hit/usage statistics; Age and maintenance 
history of LAN systems; Other agency/community considerations.
Phase II
    The NIBIN Team will analyze the following data to identify the 
first 10 IBIS/''Unified System'' LAN deployments to replace DRUGFIRE 
Systems: FBI DRUGFIRE data; Area firearms-related crime rate; Proximity 
to existing IBIS LANs; Agencies commitment histories; Community impact; 
External factors.
    The NIBIN Team will conclude this process by developing a list of 
the first 10 IBIS/''Unified System'' LAN (by area, not specific site) 
deployments in priority order.
  --This first schedule of deployments will be provided to the NIBIN 
        Board for notification of partner agencies.
Phase III
    Beginning with the first area of priority, the NIBIN Team will 
invite partner agencies and any other entities deemed appropriate to 
offer input in the development of the new structure/configuration of 
the LAN.
    The NIBIN Team will advise effected partner agencies of LAN 
configuration, execute standard MOUs, and schedule actual system 
deployment and training.
Phase IV
    6 months after deployment and training have been completed, the 
NIBIN Team, Crime Gun Operations Section, will schedule a meeting with 
representatives of the field division and partner agencies for the 
purpose of ensuring that:
  --All systems are completely operational.
    --Systems are being used efficiently.
  --Personnel have received adequate training.
  --Goods/services contracted for were received.
  --Any other related issues are addressed.
    The proposed process for developing a new field architecture and 
schedule of deployment is dependent upon several assumptions:
  --Actual deployments are contingent upon availability of funds.
  --Deployments would be made by LAN priority. Piecemeal deployments 
        should be last case scenario.
  --Emphasis placed on the doing the job right the first time.
    Question. What is the timing of each of the four phases of the 
restructuring plan?
    Answer. Phase 1 is complete, Phase 2 is presently being completed; 
Phase 3 will begin once the NIBIN Board announces the first area for 
deployment; and Phase 4 will begin 6 months after the systems are 
installed.
    Question. How many requests does ATF have on file from law 
enforcement agencies who would like to participate in the program?
    Answer. At this time, ATF has 20 requests on file from law 
enforcement agencies who would like to participate in this program. 
During the roll out for this program, those agencies meeting our 
criteria will be included.
                                firearms
    Question. There is an Administration gun bill pending before the 
Judiciary Committee which I assume would mean more responsibility and 
more staff for ATF. The President's fiscal year 2001 budget requested 
increased funding for gun-related activities at ATF.
    What is the ATF staffing requirement for the pending gun 
legislation?
    Answer. ATF is in the process of formulating resource requirements 
for the pending gun legislation in the Senate, as well as evaluating 
proposed gun legislation before the House.
    Question. Are any of those resource requirements addressed by the 
ATF fiscal year 2001 budget request?
    Answer. No, the President's fiscal year 2001 budget request is 
based solely on current law. Resources required for pending gun 
legislation would be in addition to the President's fiscal year 2001 
budget request.
    A total of $16,300,000 has been requested for both the Secret 
Service and the Customs Service for a protective air security program. 
The bulk of that is for a separate air branch for the Customs Service.
    Question. How is air security currently provided? How long does it 
take the Customs Service to get the necessary aircraft to the location?
    Answer. Currently, the Customs Service utilizes assigned aircraft 
and personnel to conduct airspace security operations.
    Customs airborne interdiction tactics have been modified to perform 
airspace security jointly with the Secret Service.
    The approximate transit time for aircraft to be in position and 
operational is 3 to 4 days. However, this varies depending upon where 
the event is located and where the support aircraft are stationed.
    Question. How many annual events require air security? Where are 
these events located? How much lead-time is the Customs Service 
normally given for these events?
    Answer. Since PDD 62 has been issued (May 1998), the average number 
of annual events requiring air security has been 3 to 5 events per 
year.
    Three of the four events have been located in Washington, D.C. One 
event was located in Seattle, Washington. However, a designated event 
could occur anywhere in the United States. Historically, the majority 
of the events have taken placed in the Washington, D.C., area.
    To date, Customs has been given several months of advanced notice 
for each event. However, determining who will pay for Customs costs to 
conduct these missions traditionally is made at the last minute since 
neither Customs nor the U.S. Secret Service has been provided any new 
funding for these purposes.
     u.s. customs service, office of investigations/air and marine 
        interdiction division president's decision directive 62.
    Question. Why is a separate and dedicated staff necessary? Why 
should that site be in the D.C. area given the fact that events can be 
anywhere? Why should they be segregated from other Customs Service 
resources?
    Answer. PDD 62 places an additional mandate on the Customs Service. 
This mandate requires Customs to support National Special Security 
Events with airspace security personnel and resources.
    Providing this airspace security capability requires a large 
commitment on the part of the Service. For example, the Service 
utilized assets and personnel from 4 Southwest border branches to 
support the World Trade Organization meeting hosted by Seattle, 
Washington, in December 1999. As a result, Customs suffered an 
estimated 12 percent degradation in its counter-drug capability during 
the event.
    To minimize this type of impact, the President's budget requests 
additional personnel and equipment for Customs to support these events. 
When not conducting PDD 62 training and operations, the personnel and 
assets will be conducting Customs law enforcement missions.
    The site for the Customs air facility has not been determined. The 
D.C. area is being surveyed because the majority (3 out of 4) of the 
PDD 62 events has occurred in this area. In addition, the close 
proximity of the Secret Service's training academy in Beltsville, 
Maryland, with the proposed Customs air facility would facilitate the 
joint training requirements.
    Although the D.C. area is being surveyed for the above reasons, the 
most critical element of the budget request is additional personnel and 
resources to accomplish this new mission.
    Question. What will these dedicated aircraft and crews be doing 
when there are no events?
    Answer. The Branch proposed for the D.C. area will be a Customs Air 
Branch. The branch will be established primarily to support the 
training and operational requirements of the Secret Service under the 
PDD 62.
    In addition to the PDD 62 operations and training, the branch will 
provide aviation support to Customs and other Federal agencies in the 
Washington, D.C., and Baltimore areas.
    Question. What was the initial Customs request for additional 
inspectors for the ports of entry around the country? Why did Treasury 
reduce that request to just 98 additional inspectors total?
    Answer. The initial request for Customs inspectors was for 287 FTE. 
During each budget cycle tough funding decisions must be made. The 
decision on the level of Customs staffing was made with Customs, 
Treasury, and OMB at the table. After all of the competing initiatives 
were considered, it was agreed that the level of funding would be as 
proposed.
    Question. Mr. Johnson, 3 years ago this subcommittee asked GAO to 
conduct an audit of vehicle management by the Department and its 
bureaus. The following year we provided $1 million to fund an automated 
system for vehicle management because the cost and rate by which 
vehicles needed to be replaced is a burden of over $30 million a year.
    What is the status of the implementation of the program?
    Answer. A baseline study to assess bureau systems and capabilities, 
evaluate commercial and Government fleet management software products 
in use, and provide recommendations on what a Departmental system 
should contain has been completed. Four options were presented by the 
contractor on how to develop the system. These were:
  --Acquire and modify a commercial fleet management product;
  --Acquire and modify a Government system already in use;
  --Develop our own system in-house; and
  --Develop a data warehouse to mine existing bureau systems.
    The contractor's recommendation was the ``data warehouse'' approach 
and we concur with their recommendation. This approach yields results 
sooner, is modular in design and implementation and is the least 
disruptive to current bureau operations, as the other three approaches 
would all require replacing existing bureau systems.
    Question. You have had 2 years to institute this program. What's 
the delay?
    Answer. To have a Departmental system that would provide the 
desired information, it was necessary to conduct the baseline study and 
determine the capabilities and limitations of the disparate bureau 
systems. A contractor will program the file transfer routines necessary 
to extract data from the various bureau systems. Customs Service will 
provide the data dictionary and be the first bureau to have its data 
brought into the Departmental system. After Customs is successfully 
brought on board, we will proceed a bureau at a time.
    Question. When can we expect to have this program in place? How 
soon will it begin to yield some savings?
    Answer. In fiscal year 1999 and fiscal year 2000, bureaus were 
required to certify that vehicles being requested for procurement are 
within the limit specified by their appropriations language and are 
replacing vehicles meeting established replacement criteria. For fiscal 
year 2001, we will refine the requirements for data format. This will 
serve as an interim measure until we can use the vehicle management 
system to review and analyze bureau budget requests for motor vehicle 
procurements, beginning with the fiscal year 2002 cycle.
    Question. With the FLETC 5-year master plan well into the 
development stage, do you think that the temporary site for Immigration 
and Naturalization Service (INS) and the United States Border Patrol 
(USBP) training at Charleston, South Carolina, can be closed in fiscal 
year 2004?
    Answer. Recently, the Director of the Federal Law Enforcement 
Training Center (FLETC) transmitted to the Congress a study that 
addressed the issue of the closure of the Charleston, South Carolina as 
a temporary facility for the United States Border Patrol (USBP) 
training by fiscal year 2004. The results of the FLETC study support 
the consolidation of all USBP training--Basic and Advanced--into 
FLETC's Artesia, New Mexico training center by fiscal year 2004. The 
study also calls for the realignment of certain INS training and Bureau 
of Prisons training from the Artesia center to FLETC's Glynco, Georgia 
site. These moves are estimated to save the government as much as $45 
million in cost avoidance in currently planned new construction. There 
also would be a cost avoidance saving of up to $8 million annually in 
services and travel realized by this realignment. FLETC's Director has 
briefed the Department of Justice and the USBP and he is working 
closely with them to resolve any issues that may arise from the 
implementation of the study. The Department of the Treasury endorses 
FLETC's proposal as a cost effective and viable plan to meet the 
Congress' direction in closing the Charleston site.
    Question. FinCEN is rapidly approaching their 10th anniversary. As 
the financial transaction data bank for law enforcement, has there been 
an analysis done to see if FinCEN is efficient and whether or not law 
enforcement agencies are utilizing the services?
    Answer. Over the last few years, there have been a number of audits 
completed--both external and internal--involving FinCEN's customer 
satisfaction. The GAO and Treasury Inspector General have undertaken 
surveys of law enforcement agencies regarding their satisfaction with 
FinCEN's product and efficiency. In addition, FinCEN constantly queries 
the law enforcement representatives assigned to FinCEN, soliciting 
their views and suggestions on how to improve our work product. Every 
case support product that FinCEN sends to the field (approximately 
7,000 in 1999 for over 150 agencies/departments) also has a formal 
FinCEN feedback form. Customer satisfaction with FinCEN's case support 
has been positive.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                  law enforcement hiring and attrition
    Question.The President's budget request seeks to hire a significant 
number of personnel for the various law enforcement bureaus under your 
jurisdiction. This is also a priority for Secretary Summers.
    What difficulties is the Department facing in hiring and retaining 
qualified law enforcement personnel across the Department?
    Answer. Due to the difficult budget climate, as with other Federal 
agencies, Treasury does find itself having troubles hiring the best-
qualified personnel, including law enforcement personnel. In addition, 
the general competitive service guidelines for recruitment, selection, 
and hiring of criminal investigators do not provide enough flexibility 
to satisfy both diversity and unique skill requirements. The 
competitive service systems requires open competition and can involve 
total processing times of up to 62 weeks. Barriers also exist within 
the selection process under the competitive service that impede 
obtaining candidates with the most desirable profile for a position's 
unique requirements.
    Question. Are you finding that agencies are competing for the same 
``pool'' of perspective employees?
    Answer. Treasury law enforcement bureaus hire new criminal 
investigators using a mix of competitive and excepted (Schedule A or B) 
hiring authority. In the competitive process there is a general 
``pool'' of perspective employees that the bureaus may, in some cases, 
compete for. When the Schedule A or B hiring authority is used, this 
allows a more discreet group of employees, with specific needs for a 
specific bureau, to be identified and recruited.
    Question. Are there specific incentives or other means (such as 
signing bonuses) at your disposal that you have--or need--to enhance 
your recruitment of qualified personnel?
    Answer. Currently there are various recruitment and retention 
incentives available for use by Treasury. However, the Department 
weighs the use of these tools in the environment of budgetary 
availability.
                       money laundering strategy
    Question. The National Money Laundering Strategy for 2000 is very 
ambitious. On top of the base anti-money laundering budgets for the 
various agencies, you have asked for a new, centralized account of $15 
million to focus on the strategy's priority action items. Can you 
effectively and responsibly do everything you need to do to combat this 
critical problem with $15 million?
    Answer. The Treasury bureaus have been pursuing efforts to combat 
money laundering for years--since the United States first criminalized 
money laundering. As those first statutes have been expanded and as our 
understanding of the threat posed by this crime has grown, additional 
resources have been devoted to these efforts. Even in the absence of a 
national strategy, Treasury bureaus would have continued to fulfill 
their responsibilities in this regard. What we are seeking in our 2001 
budget request of $15 million is funding to support key Strategy 
initiatives including the provision of grants to state and local 
enforcement agencies. We are attempting to address the threat of money 
laundering through a comprehensive, integrated and systematic approach. 
This modest amount is needed to give this new approach a chance of 
success so that we can confront money laundering, here and abroad, 
through law enforcement as well as banking supervision and with 
government policies and public-private partnerships.
    Question. Instead of creating a centralized account, would it not 
make more sense to apportion the funds directly to the implementing 
agencies such as FinCEN and the other bureaus?
    Answer. Our national strategy is a bold, new step in addressing the 
threat of money laundering. It envisions a comprehensive response that 
involves efforts by an array of public and private stakeholders in our 
financial system. We believe that the appropriate level to coordinate, 
facilitate and direct this ambitious undertaking lies with Treasury 
Departmental Offices. That is why the Treasury representative on the 
Strategy Steering Committee is the Deputy Secretary. By making this a 
centralized account, we feel we are ensuring the appropriate level of 
control along with the necessary flexibility that attends this 
departmental perspective.
                            customs staffing
    Question. What was the Customs Service's original request to 
Treasury for additional inspectors for inclusion in the fiscal year 
2001 budget?
    Answer. The initial request for Customs inspectors was for 287 FTE.
    Question. Why was the request reduced to only 98 additional 
inspectors? Can you tell us who made that decision?
    Answer. During each budget cycle tough funding decisions must be 
made. The decision on the level of Customs staffing was made with 
Customs, Treasury, and OMB at the table. After all of the competing 
initiatives were considered, it was agreed that the level of funding 
would be as proposed.
                      customs resource allocation
    Question. I understand that the Treasury Department is reviewing 
the Customs Service's Resource Allocation Model. When can we in the 
Congress expect to receive this document?
    Answer. The Department will complete its review of the model in the 
near future at which point the model will be presented to the Congress.
             gs-11 journeyman levels (customs, ins parity)
    Question. Why did the Treasury Department reduce the Customs 
Service request for upgrading journeyman GS-9 inspectors to GS-11? The 
Immigration and Naturalization Service made a similar request for OMB 
which was ultimately granted.
    Answer. The detailed package that would provide justification for 
requesting the upgrade was not completed in time for this budget cycle. 
However, we continue to work with Customs to ensure that a quality 
package will be provided to OMB as we deem necessary to ensure 
comparable pay for comparable work.
    Question. The functional knowledge and training required for both 
Customs and INS inspectors is essentially the same, is it not?
    Answer. Customs and INS inspectors are trained at separate 
academies at the Federal Law Enforcement Training Center. During the 
INS training a 2-hour block is set aside for a Customs instructor to 
share the functions of a Customs inspector with the INS students. A 
similar amount of time is allowed for an INS instructor to share their 
functions with the Customs students.
                                 ______
                                 

            Questions Submitted to the U.S. Customs Service

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. I have to say that we work hard to make sure that your 
base functions are funded. It makes our job very difficult when your 
budget is augmented with ``emergency'' funding because even though we 
don't have to pay for it up front there are always out-year costs. 
Because you are not getting the out-year base funding to accommodate 
these costs, our already tough job is tougher. For example, Congress 
provided $269 million in counter-drug emergency funding in fiscal year 
1999. The out-year costs for these funds are coming due in fiscal year 
2001 for a total of $23.331 million.
    Mr. Kelly, is this the total annualization of all costs associated 
with the fiscal year 1999 emergency appropriation?
    Answer. The President's budget includes sufficient funding to 
annualize operations in fiscal year 2001. However, once these 
initiatives are fully operational, there may be additional 
annualization costs in fiscal year 2002.
    Question. Did you seek additional funds in your budget at that time 
to cover these costs without having to sacrifice your base funding 
needs?
    Answer. If the base is fully funded in fiscal year 2001, Customs 
will be able to maintain current activities.
    Question. Were all the costs for the supplemental covered, or did 
you have to cut items in your base funding to pay for them. If so, what 
did you cut?
    Answer. If the base is fully funded in fiscal year 2001, Customs 
will be able to maintain current activities.
    Question. Mr. Kelly, can you tell this subcommittee what your top 
five priorities are, in the order of importance?
    Answer. These are my funding priorities in order of importance:
  --Full funding for all of Customs base needs including adjustments;
  --Maintenance of Automated Commercial System/Development of Automated 
        Commercial Environment;
  --Drug Investigation Initiative/Narcotics Illicit Proceeds;
  --Operations and Maintenance Enforcement Infrastructure Initiative;
  --PDD-62; and
  --Forced Child Labor Initiative.
    Question. Mr. Kelly, funding for ACE is the $210 million question 
for this subcommittee, one which we do not take lightly.
    What is the Customs Service doing to help get the ACE user fee 
proposal enacted?
    Answer. Customs has focused on developing a solid strategic 
approach and plan to initiate and manage the modernization program. 
Customs developed a sound cost estimate that incorporated appropriate 
risk analysis in the development of a Cost Benefit Analysis (CBA) that 
has been independently validated by the MITRE Corporation and KPMG. It 
is imperative to secure funding for this critical program in fiscal 
year 2001. The Administration believes the proposed fee appropriately 
captures some of the benefits that will accrue to private sector from 
modernization, including a streamlined cargo entry process, account-
based transactions, and a paperless process.
    Question. As Commissioner of Customs, what are you going to do 
about this fee, knowing that this subcommittee doesn't have these kinds 
of resources?
    Answer. If the legislative authority to set such a fee is enacted 
and the Secretary of the Treasury establishes the fee, Customs will 
collect the fee in order to offset the requested appropriation of funds 
for Customs modernization.
    Question. What is your strategy to get this issue resolved?
    Answer. The Administration believes that it is imperative to secure 
funding for this critical program and looks forward to working with the 
Congress to ensure that funding is made available in fiscal year 2001.
    Question. What is the Customs Service doing within its own budget 
to show its commitment to the ACE project?
    Answer. We have identified $3 million to maintain and operate the 
National Customs Automation Prototype through fiscal year 2000 and we 
continue to work with the Department to identify funding to cover the 
remaining fiscal year 2000 shortfalls. Customs has identified $7 
million for continued MITRE support and has potentially identified up 
to $5 million for ACS Life Support. However, there still remains a 
shortfall of $5 million for the modernization program office and $12 
million for ACS Life Support. Customs is working with the Department on 
a near term proposal to fund these shortfalls. Reprogramming of funds 
for modernization is not without consequences to Customs current 
operations; Customs first priority is to maintain and identify funding 
for the critical life support of our current commercial system, the 
Automated Commercial System (ACS).
    Question. Two years ago, the funding level for the current system, 
ACS, was $32 million. Last year we boosted the funding to a total of 
$67 million. This year you're requesting $123 million. Yet, in June of 
last year, it was my understanding that there was a $17 million 
shortfall in the ACS program.
    What are you doing to address this shortfall?
    Answer. As I stated above, Customs is actively working with 
Treasury to identify a funding source for the $17 million requirement 
needed in fiscal year 2000 to sustain the critical life support of our 
current system, the Automated Commercial System (ACS). Customs has 
potentially identified $5 million from prior year balances for ACS Life 
Support, and we are working with the Department to identify the 
remaining $12 million.
    Question. Is the $17 million the total amount needed for the ACS 
shortfall?
    Answer. Yes, $17 million is the requirement in fiscal year 2000 for 
ACS Life Support. Customs has potentially identified $5 million from 
prior year balances for ACS Life Support, and we are working with the 
Department to identify the remaining $12 million.
    Question. Counterfeit Native arts and crafts continue to dilute the 
domestic U.S. market for legitimate arts and crafts. In 1999, the 
Customs Service testified that a June 1997 ``cargo selectivity criteria 
operation'' against importers identified as dealing in imitation Native 
American jewelry had failed to identify any significant violations.
    Can you provide information on the geographical areas, ports of 
entry, and related information on this operation?
    Answer. For this operation, which ran for 2 months, we targeted 
jewelry from Taiwan, which had been identified as a source country by 
the Indian Arts and Crafts Association (IACA). The IACA also provided 
us with the names of some importers who were alleged to be bringing in 
Native American style items which lacked country of origin marking. We 
compared their list with our official importer files, determined the 
types of goods they were importing and ascertained the names of their 
foreign suppliers. Another source provided names of a few foreign 
firms, which had been dealing in imitation Native American items in the 
past. We checked these exporters in our system to ascertain their 
domestic customers. This information was used to target the specific 
importers, their suppliers, and the types of goods in which they dealt. 
A total of 118 unique manufacturer/product and importer/product 
combinations were targeted. All targeting was done on a ``national'' 
basis--every port of entry was placed on alert. Importations of goods 
subject to the alert came through 12 different ports of entry across 
the country. A total of 265 shipments ``hit'' against our criteria 
during the operation, but only 8 of these violated our marking laws in 
any way. Thus, even with a narrowly focused operation that targeted 
highly suspected parties, their country of origin marking compliance 
rate was nearly 97 percent.
    Question. Does the U.S. have any way of detecting these goods when 
they are exported from their country of origin?
    Answer. One of the problems facing Customs in this area is that 
there are no specific tariff breakouts for Native American style items, 
so we must look at all items of a particular type (such as jewelry, 
earthenware, blankets, etc.). We must thus narrow the field in some 
other way in order to attempt to be effective without unduly impeding 
legitimate trade. That is why we focused our efforts against Taiwan and 
against firms alleged to be violating these provisions of law.
    Question. To show you the audacity and creativity of foreign 
producers of counterfeit goods, a town in the Philippines has 
reportedly changed its legal name to ``Zuni,'' and makers of 
counterfeit goods proceed to label their ``Native goods'' with the 
label ``Made in Zuni,'' leading the purchaser to believe that the goods 
are made by artisans of the Zuni Pueblo of Indians in New Mexico.
    Does the Customs Service have solid information even on countries 
of origin for these goods?
    Answer. This story has all the earmarks of a similar tale that has 
been told in Customs for nearly 50 years. It was alleged in the early 
1950s, when Japanese merchandise was cheap and of poor quality, that a 
Japanese town had changed its name to ``Usa,'' and that goods 
originating in this town were being marked in all capital letters 
``MADE IN USA.'' We have not previously heard of any goods being marked 
``Made in Zuni,'' but any such goods would not pass muster with Customs 
for country of origin marking purposes. We would require any such goods 
to be marked ``Made in the Philippines'', as ``Zuni'' is not the 
recognized name of any foreign country.
    An Internet search of Philippine maps failed to yield any location 
named ``Zuni.''
    Question. The Customs employees union, the National Treasury 
Employees Union, has been visiting the Congressional budget and 
appropriations committees to request increased money for inspectional 
staffing on the Northern and Southern borders.
    Has the Customs Service been doing the same?
    Answer. Customs has been working with Treasury and OMB to develop a 
budget submission addressing needs for staffing on the Northern border.
    The resource allocation model that you rely upon to determine where 
staff should be placed will not provide any additional funding for that 
staffing. Most likely the resource allocation model will demonstrate 
that Customs lacks inspectors in many areas of the country.
    Question. What are your plans to get the money for those additional 
positions?
    Answer. The Resource Allocation Model is one tool available to 
determine and, if required, to justify resource requests. The primary 
drivers of the model are workload, desired results, activity time, and 
increased enforcement threat. The results of the model have been sent 
to the Department of the Treasury and to the Office of Management and 
Budget for review. Pending results of these reviews, no final 
determination for gaining additional funding has been made.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                       northern border resources
    Question. As a result of the attempted terrorist incursions from 
Canada late last year, you enhanced the Customs presence all along the 
Northern Border for a period of time--even in remote areas. What 
lessons did Customs learn about the need for additional resources on 
the Northern Border?
    Answer. In December 1999, 26 Inspectors were temporarily deployed 
to remote and sparsely staffed Northern Border locations in support of 
the initial heightened alert operation. As this operation progressed 
into January, this initiative was intensified. Between December 17, 
1999, and February 18, 2000, a total of 213 Inspectors from non-border 
locations were temporarily reassigned (TDY) to northern border 
locations to further support this heightened alert initiative. During 
this period, Customs also bolstered regular daily staffing levels at 
both northern and southern border locations by assigning over 700 
additional Inspectors to duty on overtime each day.
    Customs has approximately 150 special agents that support northern 
border investigations and port response. During the December state of 
heightened alert approximately 60 special agents were detailed to 
support northern border ports of entry. Increased work hours were 
implemented for 24X7 coverage and annual leave was cancelled.
    This operation was logistically difficult to implement because many 
of the locations staffed by Customs are remote, one-man locations where 
housing facilities and infrastructure are not easily secured. 
Furthermore, in order to maintain effective 2 officer coverage at all 
northern border locations, 24 hours per day, 7 days per week, Customs 
expended a significant amount of overtime. Assigned officers were 
placed on 7 day per week work schedules and were required to work 
mandatory overtime. Some remote locations instituted 12-hour 
alternating shifts. This was physically and mentally exhausting for 
officers who were temporarily reassigned to the northern border. This 
effort had a similar impact on the ports of entry that provided TDY 
personnel to bolster northern border locations (San Francisco, Los 
Angeles, Miami, Houston, and Boston).
    During the aforementioned operation, the Air and Marine 
Interdiction Division (AMID) provided support to numerous Customs 
offices located along the northern border. Based on the escalating need 
for Northern Border operations, AMID has begun a preliminary assessment 
of the benefit of establishing permanent units along the Northern 
Border.
    In an effort to better coordinate and respond to these types of 
threats in the future, Customs has instituted a standard and formalized 
communication system, and a 4-level alert system has been defined to 
assist managers in responding in a uniform manner to these types of 
heightened alert situations. Additionally, Customs realizes that these 
long-term, sustained heightened alert efforts are very taxing on 
personnel assigned along the Northern Border. Customs, Treasury and OMB 
are working to identify the resources needed by Customs, as well as 
other Treasury bureaus and Justice law enforcement agencies, to fight 
the terrorist threat.
    Question. What are Customs existing needs for the Northern Border 
and counter terrorism operations?
    Answer. The U.S. Customs Service is currently working with the 
Department of Treasury and OMB to develop a budget submission 
addressing this issue.
    Question. Customs has been conducting a Northern Border 
Infrastructure study. When can we expect to have that report delivered 
to Congress? Will this study also discuss the need for additional 
inspectors as well as improved ports of entry?
    Answer. The Northern Border Infrastructure study will be completed 
and sent to Congress after Customs has completed consultations with the 
Treasury Department and within the executive branch.
    Question. How could we improve the collection, analysis and 
dissemination of intelligence information along the Northern Border?
    Answer. There are currently 26 Joint Terrorism Task Forces located 
in major cities throughout the United States with the mission to deter, 
defeat and vigorously respond to terrorist acts in the U.S. The Customs 
Service has 13 Special Agents assigned to the task forces to provide 
investigative expertise in the areas of illegal exports, Customs border 
enforcement, the smuggling of weapons of mass destruction, arms and 
money laundering. Customs participation in the JTTFs also provides a 
mechanism by which actionable terrorist related intelligence affecting 
our nations borders can be disseminated in real-time to appropriate 
Customs port and border personnel for enforcement action. Additional 
Customs Special Agent positions to staff the remaining and anticipated 
JTTF's would greatly enhance Customs ability to disseminate terrorist 
related intelligence.
    Additionally, Customs has improved the collection, analysis and 
dissemination of intelligence pertaining to violations of laws enforced 
by Customs through the creation of Intelligence Collection and Analysis 
Teams (ICATs). The ICATs' sole mission is to collect, exploit and 
disseminate actionable intelligence within the port area for both 
interdictive and investigative action. The ICAT concept, which brings 
to bear the expertise of agents, inspectors, analysts and other law 
enforcement personnel, has resulted in increased actionable 
intelligence production and sharing. ICAT teams exist along the 
northern border in Chicago, Illinois; Rouses Point, New York; Buffalo, 
New York; and Detroit, Michigan. Enhancements to these existing ICATs 
and the creation of an ICAT in Blaine, Washington, would further 
improve the collection, analysis and dissemination of intelligence 
along the northern border.
    Question. How can we improve officer safety along the Northern 
Border?
    Answer. The Northern Border Infrastructure study will address this 
question. When the study is completed, it will be forwarded to the 
Congress.
    Question. What is the Remote Video Inspection Program? How many 
ports use it? Is it still a good idea?
    Answer. The Remote Video Inspection System (RVIS) is a program that 
uses audio/video technology to allow travelers to enter the U.S. at 
small, remote ports of entry outside the ports' normal hours of 
operation. Frequent crossers in these remote locations have the 
opportunity to apply and be approved by both Customs and Immigration. 
The system, as originally implemented, would accommodate non-enrolled 
travelers. Upon arrival at the port, they are processed by an inspector 
at a 24-hour location and either admitted to the U.S. or directed to 
report to a staffed location for further inspection.
    The system is currently in place at seven (7) locations. 
Conceptually, this is a good program. It provides expanded service to 
communities where the workload does not warrant the commitment of 
additional resources. Security at these locations has improved as there 
are now multiple cameras in place that allow monitoring of activity at 
the port after normal working hours, a capability that did not 
previously exist. We now believe that, until security at the ports can 
be further improved, all travelers should be required to deal with an 
inspector in person. We have, therefore, assigned inspectors to each of 
the RVIS ports on a 24-hour basis to process arrivals.
    Question. Is the U.S. placing increased restrictions on border 
crossings from Canada?
    Answer. No, there are no new or increased restrictions on travel 
from Canada to the U.S. During the heightened alert, the number and 
intensity of inspections of vehicles arriving from Canada were 
increased. At RVIS locations we have stationed inspectors to process 
travelers who arrive outside normal business hours so there has been no 
interruption of service to those communities.
                         columbian supplemental
    Question. Shortly, the full Appropriations Committee is likely to 
approve the Administration's Supplemental request for $68 million to 
upgrade the radar on 4 existing P-3 AEW aircraft. Did Customs request 
of the Administration other items for the Colombia Supplemental that 
ultimately were not included in the Administration's submission to 
Congress?
    If so, what items that you sought were directly related to drug 
interdiction mission in Colombia and the region?
    Answer. Although the Customs Service did request additional items 
as part of its submission to OMB, Customs strongly supports the final 
Colombia Supplemental request. Funding of the items sought by Customs, 
along with other items sought in the Supplemental, is sufficient to 
provide a credible and effective assistance package for Colombia. In 
additional to the $68M for the P-3 AEW radar upgrades, Customs original 
submission to OMB included the following items directly related to the 
drug interdiction mission in Colombia and the region.
    P-3 hangar facility ($21M).--Due to space constraints, Corpus 
Christi is incapable of accommodating more than 10 Customs P-3 
aircraft. Additional funding is needed to begin construction on the new 
P-3 hangar facility at NAS Jacksonville, Florida. This facility will be 
utilized to accommodate the recently appropriated P-3 aircraft that 
will provide the majority of detection and monitoring support for 
Colombia.
    Source zone tracker support ($3M).--Because of national priorities 
and funding constraints, DOD has not provided the number of aircraft 
needed to satisfy the requirement for tracker aircraft in northern 
Colombia. Customs has satisfied this requirement. Funding appropriated 
in the 1999 Emergency Supplemental will only be able to sustain the 
program through the end of fiscal year 2000.
    APG-66 radar upgrades ($7M).--The Customs Citation aircraft based 
out of Aruba in support of Colombia use the APG-66 radar from the 
USAF's F-16/Fighting Falcon Program. In fiscal year 2000, the USAF will 
have completed its upgrade of the APG-66 to the APG-66V 2 variant. 
Consequently, they will no longer support the APG-66. Further, selected 
parts will soon become unavailable making repairs on the existing APG-
66 radars very difficult.
    Customs currently provides about 90 percent of our P-3 operational 
hours to supporting source and transit zone operations and maintains an 
alert fleet of C-550 Citation aircraft to respond to air targets 
departing from and returning to Colombia. The U.S. Customs Service is 
the primary agency carrying Host Nation Controllers in Colombia. 
Customs continues to provide special interceptor training to Colombia 
which has greatly improved the overall effectiveness of Colombian 
interdiction assets.The Department of Defense has the lead role for 
detection and monitoring for all counternarcotics operations in the 
transit and source zones. U. S. Southern Command has designated Joint 
Interagency Task Force-East (JIATF-E), as the controlling facility for 
U.S. agencies involved in air and marine interdiction in its area of 
responsibility. Joint Interagency Task Force-East determines which 
assets are best suited to meet program objectives. They also coordinate 
on the integration and execution of tasking of those assets on 
interdiction missions.
    Over the past 2 years, Customs has provided approximately 90 
percent of its P-3 operational flight hours to JIATF-East tasked 
missions. JIATF-East allocated 33 percent of those hours to source zone 
missions in 1998 and 35 percent in 1999. In fact, in fiscal year 1999, 
Customs aircraft provided 100 percent of U.S. Government detection and 
monitoring support to the source zone. As additional P-3 aircraft come 
on line, we are committed to providing more operational P-3 flight 
hours in support of JIATF-East missions.
    Another critical area not previously addressed to the 
Administration is the issue of pilot recruitment and retention. To 
remedy the pilot shortage situation, we must recruit and retain highly 
skilled professional pilots to fly the aircraft in support of Colombia 
and the National Drug Control Strategy. The issue of compensation is 
the primary competitive issue, which draws pilots from Customs to the 
airlines. While recognizing that we will never compete dollar-for-
dollar, with the high end of the airline pay scale, we must take steps 
to reduce this disparity.
                        air security initiative
    Question. Why not use an existing air branch rather than creating a 
new one? Would it be more cost-effective to fly in personnel ``as 
needed'' rather than establish a new branch?
    Answer. The Customs PDD 62 airspace security training and 
operational requirements are too much for one branch to manage without 
sacrificing our core mission (drug interdiction). For example, the 
recent World Trade Organization in Seattle required Customs aviation 
resources and personnel from four air branches.
    Therefore, in order to carry out the direction set forth in PDD 62 
with minimal disruption to interdiction missions and operations, 
Customs proposes to establish an Aviation Branch in the Washington, 
D.C. metro area.
    This area has been identified as a practical location because three 
of the four PDD 62 events have occurred in Washington, D.C. This trend 
is forecasted to continue for future events.
    In addition, the Secret Service training facility is located in 
Beltsville, Maryland. Its proximity to the proposed Customs Air Branch 
would facilitate the joint (Secret Service and Customs) PDD 62 training 
requirements.
    The most cost-effective solution is to establish a Customs air 
support branch in the Washington D.C. area.
    The PDD 62 Customs current cost considerations include the 
following: airspace security training, expense of moving aviation 
resources and personnel to event sites, and the loss of available 
aviation resources to the Customs core mission (interdiction along the 
borders of the United States).
    Question. It has been suggested that PDD 62 ``requires'' that the 
new branch be located within a specific radius of Washington, D.C. Is 
this true, and if so, why? If the PDD does not specify the branch's 
location, who will make the decision where to locate the new air 
branch?
    Answer. There has been no decision on the location of this 
facility. A decision on a basing location will be made after Customs 
completes site surveys of potential airfields. A location near the 
Washington, D.C. area makes sense for a number of reasons:
    It would lessen the amount of flight time by Customs aircraft and 
reduce travel costs for support personnel.
    Three of the four PDD 62 events supported by Customs air assets 
occurred in the Washington, D.C. area. This trend is forecasted to be 
similar for future events.
    The mission requires strict standardized operating procedures 
(SOP's) and extensive training. By locating the Customs air support 
personnel and assets near the D.C. area, it would be closer to the 
Secret Service's training facility in Beltsville, Maryland. The close 
proximity of these two facilities and personnel would enhance joint 
training, procedural development and mission familiarity between 
operators.
    Question. How closely are your two agencies working to ensure that 
duties and responsibilities are being appropriately shared and that 
there will be a seamless operation of the program?
    Answer. The Customs Service and Secret Service are currently 
developing an MOU that defines agency roles and responsibilities.
    Both agencies have identified headquarters level personnel as 
agency representatives for PDD 62 airspace security responsibilities. 
These representatives communicate with each other on a routine basis.
    The Customs Service, in consultation with Secret Service, has 
developed a joint training course specifically designed for airspace 
security operations. This 5-day course is scheduled for 6 times a year.
    To date, the Customs Service and the Secret Service, jointly, have 
conducted four PDD 62 airspace security missions. Prior to the issuance 
of PDD 62, Customs worked closely with Secret Service in conducting 
airspace security operations over the 1996 Summer Olympics in Atlanta, 
Georgia, and the 1997 Summit of Eight event in Denver, Colorado.
    Question. What will personnel be doing once the events ends? Will 
they support the Customs mission or will there be follow-on training 
and support to Secret Service? Once an event ends, who retains control 
over personnel?
    Answer. The branch proposed for the Washington, D.C. area would be 
a Customs Air Branch. The branch will be established primarily to 
support the training and operational requirements of USSS under the PDD 
62. In addition to the PDD 62 events and training, the branch will 
provide counter-drug aviation support to Customs and other Federal 
agencies in the Washington, D.C. and Baltimore areas.
    The U.S. Customs Service will retain control over its aircraft and 
personnel.
                regional offices for forced child labor
    Question. Funds started to be added in fiscal year 1999 to increase 
personnel at embassies around the world to investigate and combat 
forced child labor. This year the budget request includes $5 million/9 
FTE for the child labor initiative.
    Customs has received funds in the past few years to establish 
regional offices for forced child labor. What is the status of the 
establishment of these offices and how have the funds been used?
    Answer. The $3 million received in fiscal year 1999 to increase 
foreign staffing was used to add two Special Agent positions in 
Bangkok, Thailand, and one in Montevideo, Uruguay. The funding also 
allowed Customs to reestablish a Special Agent position in the Hong 
Kong office. Additionally in fiscal year 1999, the Forced Child Labor 
Command Center was established. Currently there are two Special Agents 
and one Intelligence Research Specialist assigned to the Center. The 
selection of the second Intelligence Research Specialist is pending.
    The $2 million received in fiscal year 2000, will be used to 
establish a regional office in New Delhi, India, and increase staffing 
in the Panama office. We are working with the Department of State to 
obtain final approval for that office. Selection of personnel for that 
office is in progress. The Special Agent in Panama is expected to 
report in March or April.
    Question. How would the $5 million and 9 FTE in this year's budget 
request be used to further combat forced child labor?
    Answer. Customs investigates both historical and current 
allegations of Forced Child Labor through the deployment of 
investigative teams to suspect foreign manufacturing facilities, and by 
fostering better working relationships and cooperation with foreign law 
enforcement agencies. Additionally, Customs conducts intensive Outreach 
Programs and training for law enforcement agencies, manufacturers, 
producers and other government agencies in the countries that have been 
identified as having a significant number of allegations regarding 
Forced Child Labor.
    The $5 million in fiscal year 2001 will be used to: (1) establish 
and staff two regional offices in countries from which a significant 
number of allegations of Forced Child Labor have originated; (2) add an 
additional Special Agent position to the Senior Customs Representative 
in Hong Kong; (3) add an additional Special Agent position at the 
Forced Child Labor Command Center and; (4) establish eight Special 
Agent positions in domestic cities were the importation of a high 
volume of goods made by Forced Child Labor has been identified.
    The establishment of the additional regional offices and Special 
Agent positions will result in an increase in pro-active 
investigations, along with the exclusion of goods identified as having 
been made with Forced Child Labor from the United States.
                                 ______
                                 

            Questions Submitted by Senator Susan M. Collins

    Question. Commissioner Kelly, I understand that you face enormous 
challenges in carrying out the various missions of the U.S. Customs 
Service. I would like to focus today on your agency's maritime 
surveillance and enforcement support missions.
    Could you elaborate further on those missions and describe what 
types of aircraft you are currently using to carry them out.
    Answer. Customs operates 6 C-12 Beechcraft aircraft, obtained from 
DOD surplus stock, as Maritime Patrol aircraft in the transit and 
arrival zones. Equipped with 360-degree surface search radar, these 
aircraft are capable of intercepting and surveilling smuggling vessels 
in the transit and arrival zones. Slow airspeeds and extensive fuel 
endurance enable these aircraft to remain overhead and coordinate 
intercepts by USCS and USCG vessels.
    Customs operates a fleet of 12 Enforcement Support Aircraft 
consisting of 5 B-200 and 7 C-12 aircraft as long-range, multipurpose 
platforms to transport personnel and equipment in support of 
interdiction and enforcement operations. Missions include the 
relocation or evacuation of tactical personnel, assets, prisoners, and 
evidence. This aircraft has been used to train host nation pilots in 
interdiction tactics, in support of the counterdrug interdiction 
efforts of our partner nations.
    Question. Are maritime surveillance and enforcement support 
important missions of the U.S. Customs service?
    Answer. The maritime interdiction mission is extremely important 
because the most recent Interagency Assessment of cocaine movement 
indicates that more than 85 percent of the cocaine movement is by 
vessel.
    The enforcement support mission is also important because it 
augments interdiction and enforcement operations. Missions include the 
relocation or evacuation of tactical personnel, assets, prisoners, and 
evidence. These aircraft have also been used to train host nation 
pilots in interdiction tactics in support of the counterdrug 
interdiction efforts of our partner nations.
    Question. It's my understanding that the maritime surveillance and 
enforcement support capabilities of the U.S. Customs Service needs 
substantial upgrading. More specifically, I understand that the C-12 
aircraft that are currently part of the Customs fleet need to be 
replaced.
    Is that in fact the case and, if so, why has the Administration 
failed to ask for funds to replace the C-12 in its fiscal year 2001 
budget?
    Answer. In October 1999, the Air and Marine Interdiction Programs 
consolidated into the Air and Marine Interdiction Division to improve 
the coordination of interdiction resources. The integration process 
included modernization of air and marine resources.
    Customs released a request for information (RFI) in December 1998 
to evaluate viable replacement aircraft. Replacement should begin in 
fiscal year 2001 to ensure operational effectiveness.
    The Administration has not yet made a determination on the 
appropriate replacement cycle.
    Question. What is the average age of the aircraft that Customs is 
using to meet maritime surveillance and enforcement support missions 
and what is their expected service life?
    Answer. The average age of the Customs C-12 fleet is 25 years with 
approximately 12,000 flight hours per airframe. The C-12 manufacturer 
(Beechcraft) recommends the inspection and possible replacement of 
several major components at approximately 15,000 flight hours. Customs 
estimates that the first airframe will require this inspection in 2004. 
Extending their service life beyond this time will result in increased 
maintenance time and expense. This will adversely impact operational 
readiness.
    Question. Can you briefly describe the supportability costs 
associated with the aircraft currently in the Customs inventory?
    Answer. The supportability costs per flight hour are $2,562.00 for 
the maritime C-12M and $2,430.00 for the enforcement support C-12C. As 
the Customs C-12 fleet ages, maintenance costs will increase. The C-12 
manufacturer (Beechcraft) recommends the inspection and possible 
replacement of several major components at approximately 15,000 flight 
hours. Customs estimates that the first airframe will require this 
inspection in 2004.
    Question. How much funding is needed over the next 4 years to 
adequately meet the maritime surveillance and enforcement support 
missions?
    Answer. This information will be forwarded to the Committee once 
the Modernization Plan is reviewed and approved within the 
Administration.
    Question. I understand that U.S. Customs needs a high-wing, fully-
operable, rear-ramp aircraft that would provide the capability to make 
quick changes to meet multiple missions at low operational and 
acquisition costs.
    If Congress should make funds available, could the Customs Service 
issue a request for proposal (RFP) in a timely manner?
    Answer. Customs released a request for information (RFI) in 
December 1998 to evaluate viable replacement aircraft. Once the 
Modernization Plan is reviewed and approved within the Administration, 
an appropriate RFP could be completed expeditiously.
    Question. What role do the tethered aerostats play in the Customs 
air interdiction program?
    Answer. The Tethered Aerostat System (TARS) is vital to the success 
of the Customs air interdiction program. Customs considers the TARS to 
be the last line of defense against aviation smugglers. It provides 
low-level coverage with altitude, speed, heading, identifier Friend and 
Foe capability, and marine tracking capability in and near the arrival 
zone of our nation's air borders. Based on that information, Customs 
aircraft respond to suspect aircraft attempting to cross U.S. borders. 
The effectiveness of this approach is reflected by the landing short 
activity detected by the TARS system. The numerous seizures from the 
U.S./Mexico Hermosillo operation are also an indication of the TARS 
effectiveness and value in the overall interdiction effort.
    Question. Under Customs Service management of the Tethered Aerostat 
Radar Systems (TARS) what was the average availability? What is the 
average availability of the TARS under Air Force management for the 
last 5 years?
    Answer. Under U.S. Customs Service management of the TARS, system 
availability averaged 63.5 percent, from 1988-1991. Over the past 5 
years, under Air Force management, the TARS has had 52.3 percent 
availability.
    Question. Was Customs consulted prior to the Bahamas aerostat sites 
being closed? If so, what was Customs position on the closure?
    Answer. Customs was not consulted prior to the decommissioning of 
the Bahamian aerostats.
    Question. Does Customs have evidence of renewed drug trafficking 
activity in areas previously covered by the Bahamas aerostats? If so, 
in what quantities and when did the activity begin?
    Answer. Since the deactivation of the Bahamian aerostats and the 
other ground-based Detection and Monitoring platforms, there has been a 
marked increase in air smuggling activity in Cuba, Puerto Rico, Haiti, 
and the Bahamas. There has been a resurgence of the smuggling methods 
employed during the 1970's and 1980's by general aviation aircraft and 
private maritime vessels in Cuba, the Bahamas, Puerto Rico, Haiti and 
South Florida.
    Question. Was Customs consulted on Air Force plans to close the 
three Gulf Aerostat sites? If so, what was Customs position on the 
planned closure?
    Answer. Customs was not involved in the initial decision to 
decommission the Gulf aerostats but instead was included only after the 
decision process was well along. Customs did not agree with the 
proposed decommissioning of the Gulf Aerostats. The Tethered Aerostat 
Radar System (TARS) is the last line of defense against aviation 
smugglers. Without TARS, radar coverage along the southern border of 
the United States and Puerto Rico would be severely diminished. 
Therefore, Customs supports the continued deployment and maintenance of 
all TARS assets.
    Question. When Customs managed the TARS program, was radar data 
provided to NORAD and other federal agencies?
    Answer. Yes. The USCS shared TARS data with the Southwest and 
Southeast Air Defense Sectors. At a later date, the Caribbean Radar 
Operations Center (CARIBROC) was opened and the data was shared with 
them. The rationale was to provide the radar data to NORAD facilities 
in support of their air sovereignty mission in addition to DOD's 
overall responsibilities as lead agency for counternarcotic detection 
and monitoring.
    Question. What is the impact of protracted radar voids due to 
systems out of commission on Customs interdiction efforts? What back-up 
capability exists and at what costs?
    Answer. Prolonged radar outages effectively eliminate coverage in 
the extended southern border region. Valuable intelligence on suspect 
aircraft short landings and interdiction support to foreign operations 
would be lost in the extended region previously covered by the TARS. 
The legal requirement to establish probable cause and NEXUS for 
aircraft entering U.S. airspace from foreign would be extremely 
difficult to ascertain. Conventional ground-based radar would not begin 
to detect low-level tracks in a close enough proximity to the border 
making it difficult to confirm the exact origin of flight.
    U.S. Customs has already increased P3 AEW and Citation flights to 
compensate for the loss of aerostat coverage. We know that our missions 
in the source and transit zones are vital to the National Drug Control 
Strategy; however, if the TARS continues to deteriorate we may be 
forced to redeploy P-3 assets to ensure coverage of our southern 
border.
                                 ______
                                 

   Questions submitted to the Bureau of Alcohol, Tobacco and Firearms

         Questions Submitted by Senator Ben Nighthorse Campbell

                       customer service standards
    Question. ATF developed customer service goals, which includes 22 
specific standards. However, the agency has historically failed to meet 
most of these standards 90 percent or more of the time. So, rather than 
concentrate upon meeting the goals, I am told that ATF has reduced the 
standards from 22 to 5.
    What are the 22 standards?
    Answer. See below.
National Laboratory Center, Nonbeverage Products Section Nonbeverage 
        Drawback Formula Approvals
    1. We will approve, disapprove or identify deficiencies of 
submissions within ten (10) working days. Unusually complex products 
may require additional time, but these account for less than 10 percent 
of submissions.
    2. We will respond to your telephone requests for information and 
assistance by the end of the following business day.
    3. We will hold in the strictest confidence all information you 
provide us about your product formulas and manufacturing processes.
    4. We will apply the same criteria to the evaluation of formula 
submissions from all our customers.
National Laboratory Center, Nonbeverage Products Section Specially 
        Denatured Alcohol Formula Approvals
    5. We will approve, disapprove or identify deficiencies of 
submissions within 10 working days.
    6. We will hold in the strictest confidence all information you 
provide us about your product formulas and manufacturing processes.
    7. We will apply the same criteria to the evaluation of formula 
submissions from all our customers.
National Tracing Center Firearms Traces
    8. ``Urgent'' traces will be completed within 24 hours.
    9. If your urgent trace cannot be completed within the established 
time frame, the NTC will contact you daily until it is completed.
    10. ``Routine'' traces will be completed within 3 weeks.
Product Compliance Branch Label Approvals
    11. We will be courteous. All our employees will treat you with 
respect.
    12. We will be professional.
    13. We will be confidential. Your proprietary information will be 
protected at all times.
    14. You can expect us to approve or reject your formal label 
application within 9 calendar days of receipt.
    15. You can expect us to comment on proposed (informal) labels 
within 15 calendar days.
    16. You can expect us to respond to your correspondence within 21 
calendar days.
Firearms and Explosives Imports Branch Firearms Import Approvals
    17. You have the right to expect professional, prompt, and 
courteous service when you need our assistance in helping you complete 
your importation forms.
    18. A correct ATF Form 6 will be processed in 4 to 6 weeks from 
date of receipt.
    19. If we are unable to process your application because of 
incomplete or inaccurate information, we will return your application 
for correction within 10 working days.
    20. Questions concerning the status of your importation application 
can be answered by calling us directly. If the Specialist or Examiner 
assigned to your application is not available at the time of your call, 
we will respond to you by close of business the next working day.
    21. We will respond to your written correspondence within 21 
calendar days of receipt.
    22. Should we need additional time to research your question(s) 
[beyond 21 days], we will notify you by phone or in writing and provide 
you with an approximate response date.
    Question. Of those 22, which eight standards were met?
    Answer. To the extent these standards relate to our employees 
acting in a professional, courteous, confidential and prompt manner, we 
are meeting our customer service goals. In fiscal year 1999, seven of 
the quantitative standards were met at an acceptable level:
    1. Our Laboratory held in the strictest confidence all information 
customers provided us about formulas and manufacturing processes 100 
percent of the time.
    2. Laboratory standards for applying uniform criteria in evaluating 
all product formula submissions were met 100 percent of the time.
    3. National Tracing Center standards for routine firearms trace 
requests were met 90 percent of the time.
    4. Product Compliance Branch standards for approving beverage 
alcohol labels were met 74 percent of the time.
    5. Our Product Compliance Branch has kept proprietary information 
protected 100 percent of the time.
    6. Firearms Imports Branch standards for approving import permit 
applications were met 88 percent of the time.
    7. Firearms Imports Branch standards for responding to written 
requests for assistance were met 90 percent of the time.
    Question. Which standards are going to be eliminated or 
consolidated? What will be the remaining five standards?
    Answer. No published standard will be eliminated. Those published 
standards that are actually standard ATF business practices will no 
longer be included in the annual report on customer service 
accomplishments because the expectation is that they will be met 100 
percent of the time. They apply to all offices in ATF.
    Those standards for which no tracking mechanism exists or for which 
no data has been collected will be re-examined to determine whether 
they are valid standards addressing the needs and concerns of the 
customers being served.
    The published standards relating to product sample approval or 
application approval will continue to be reported on while the 
remainder are being reviewed. They are:
    1. Laboratory standard for approving, disapproving, or identifying 
deficiencies of non-beverage drawback formula submissions within 10 
working days.
    2. Laboratory standard for approving, disapproving, or identifying 
deficiencies of specially denatured alcohol formula submissions within 
10 working days.
    3. National Tracing Center completion of ``routine'' traces within 
3 weeks.
    4. Product Compliance Branch approving or disapproving of label 
applications within 9 calendar days of receipt.
    5. Firearms and Explosives Imports Branch processing of a correct 
ATF Form 6 within 4 weeks of receipt.
    Question. What input, if any, have you had with regulated industry 
on the development of these standards?
    Answer. These 22 initial standards were developed with the input of 
``customers'' of the respective ATF offices via surveys and 
consultations. Any review and refinement of these standards or 
development of new customer service standards for other offices in ATF 
will likewise include customer input. We are developing a standard 
process which will require customer input as a key element of standards 
development.
                             import permit
    Question. I have been informed that it can take 6 weeks to process 
an import permit. This is surprising, considering the lightning pace of 
commerce in the global marketplace.
    Does this put our importers and businesses at a distinct 
disadvantage?
    Answer. ATF acts as expeditiously as possible on all applications 
to import, and has set processing standards to improve service to the 
taxpayer, our customer. Generally, Form 6 applications currently are 
processed in 45 to 60 days, a realistic standard given current staffing 
and technological constraints. Delays in meeting these standards do 
occur on occasion and they are dealt with on a case by case basis. 
Often the delay is attributable to incomplete or missing information on 
the application, and every best effort is made to quickly resolve any 
complaint about this level of service. Customer service is stressed as 
a high priority, as is the importance of delivering high quality 
service, which is emphasized by managers to employees.
    We are indeed concerned that the current time frames will place 
importers and businessmen in the United States at a competitive 
disadvantage compared with those from other countries in the world 
marketplace. However, we must closely examine each import permit 
application to ensure that no proscribed firearms or implements of war 
enter the United States; these determinations are often difficult. When 
we are informed that a permit application must be processed quickly in 
order to facilitate an overseas purchase, we do expedite the processing 
to the maximum extent consistent with our quality review procedures. We 
are also undertaking several technological and personnel-related 
enhancements to improve our processing time.
    Question. What plans do you have to improve technology and increase 
staffing in order to reduce the processing time to, say, 1 week? Would 
electronic filing be feasible?
    Answer. ATF is studying several options to improve our use of 
technology in this area. These options include the use of high quality 
scanners to reduce data entry time, the use of imaging technology to 
improve our filing and reporting capabilities, modifying our Imports 
database to increase its effectiveness in tracking and monitoring 
workload, and implementing an electronic filing system. In fact, ATF 
and the Department of the Treasury's Financial Management Service (FMS) 
are now developing a Memorandum of Understanding concerning electronic 
filing. FMS has agreed to build and fund an electronic government 
system, and ATF has been selected as the first agency to pilot this 
system. FMS will first build a financial transaction system, and, after 
testing, will then build on applications in other operational areas 
such as Import permit applications.
    ATF is also increasing the staffing of the Firearms and Explosives 
Imports Branch to further reduce import application processing times. 
Additional examiners are now being hired to reduce the time taken in 
the initial review of the Form 6 Import Permit application, and a new 
Customer Service representative will be available to respond to any 
problems experienced by our customers. We also plan to hire data entry 
clerks before the end of this fiscal year to speed up the process of 
getting the application information into our Imports database; this 
will further reduce the burden on the application examiners.
    Question. How much money is being expended to improve service to 
the public and the industry in general by improving technology, 
increasing staffing, and improving staff training?
    Answer. Direct salary costs for the new employees will total in 
excess of $160,000 per year. We estimate that purchasing and 
implementing scanning technology for initial data entry will cost 
$550,000, a system to image and index records will cost approximately 
$250,000, and modifying our Imports database will result in an 
expenditure of an additional $550,000. We do not expect to incur any 
significant costs to implement electronic forms processing under our 
Memorandum of Understanding with FMS. On the job and classroom training 
for the new employees as well as refresher training for experienced 
employees will be coordinated with our Office of Training and 
Professional Development; since this type of specialized training is 
more appropriately done within the agency, we do not expect to incur 
substantial expense.
                            licensing center
    Question. The licensing center at ATF experienced a series of 
problems earlier this year that were possibly related to Y2K.
    Have those technical difficulties been resolved?
    Answer. Yes.
    Question. Is the technology and staffing at the licensing center 
adequate to process licensing requests and renewals in a timely 
fashion?
    Answer. Yes. Both the technology and staffing at the National 
Licensing Center (NLC) are adequate to process firearms and explosives 
licensing requests in a timely fashion. Notably, the NLC has 
implemented a new Windows based oracle application and a state-of-the-
art Xerox DocuPrint printing system that is easier to use and maintain.
                               explosives
    Question. Explosives manufacturers have requested that ATF 
voluntarily disseminate information on regulation variances granted to 
various manufacturers, but that ATF has denied that request.
    What types of variances does ATF grant to explosives manufacturers?
    Answer. Under 27 CFR 55.22, ATF may issue variances to the 
regulations at 27 CFR Part 55 when: (1) Good cause is shown for the use 
of the alternate method or procedure; (2) the alternate method or 
procedure is substantially equivalent to the specifically prescribed 
method or procedure; and (3) the alternate method or procedure will not 
be contrary to any provision of law and will not result in an increase 
in cost to the Government or hinder the effective administration of 
this part.
    ATF considers any proposal for a variance under this standard. For 
example, ATF has issued variances relating to alternate construction of 
magazines, recordkeeping procedures, temporary storage and proper 
locking of magazines.
    Question. Would information on these variances be helpful to the 
entire industry?
    Answer. It is impossible for us to determine whether all industry 
members would benefit from receiving information on variances issued by 
ATF. However, since each variance is evaluated on a case-by-case basis 
considering the specific circumstances at a particular location, it is 
questionable whether this information would provide any real benefit.
    Question. Why was this request denied?
    Answer. While some types of variances are granted fairly regularly, 
all variance requests must be evaluated on a case-by-case basis. 
Variances are considered to be exceptions rather than generally 
accepted procedures. Publication of approved variances may convey the 
impression that alternate methods are automatically approved and 
universally accepted. This could lead to companies utilizing what 
appears to be an acceptable method in circumstances that may cause a 
public safety hazard, and in which ATF would not approve the variance. 
Moreover, publication of all variances would demand significant 
additional funding and labor.
                            field operations
    Question. In 1998 ATF field operations were restructured to merge 
law enforcement and compliance operations. I am told that this has 
resulted in law enforcement agents in the field being supervised by 
non-law enforcement of compliance personnel.
    What impact has this restructure had on law enforcement operations?
    Answer. ATF's Field Division Director position is reserved for 
special agents. No law enforcement operation is directly supervised by 
non-law enforcement personnel. The restructuring was designed to unify 
field personnel and to enable ATF to effectively plan and use ATF's 
limited resources to conduct enforcement operations. The restructuring 
also enhanced the flow of information between law enforcement and 
regulatory enforcement personnel. The restructuring created clearer 
lines of command and accountability under common leadership.
    The field restructuring has been very successful. Given ATF's 
diverse responsibilities, the need for a more flexible and integrated 
work force that interacts and communicates effectively within itself as 
well as with its regulated industries is imperative. ATF's field 
restructuring has helped achieve this result.
    Question. Are any other Federal law enforcement agencies organized 
this way?
    Answer. We cannot account for the complete management structure for 
the other Federal agencies. However, prior to our restructuring, ATF 
managers met with officials from other agencies that have similar 
criminal enforcement and regulatory missions. Based on our multi-
faceted mission and the unique abilities of ATF personnel, the 
restructuring of our field organization enhances our ability to 
administer the laws for which the Congress has made us responsible.
                youth crime gun interdiction initiative
    Question. There are currently 38 Youth Crime Gun Interdiction 
Initiative of YCGII cities and 211 employees have been dedicated to 
that effort. That's about 5\1/2\ employees for each city. You are 
asking for an additional 113 employees and 12 new cities which would 
result in 9\1/2\ employees for each city.
    How many ATF employees would be assigned to each of the 50 cities? 
Will any of the funding requested in fiscal year 2001 be used to staff 
existing cities? If so, how much?
    Answer. Overall support per city would be 6 special agent 
positions, 2 inspector and 2 support positions. All of the current 38 
cities have the required number of special agent positions. The 
$19,078,000 request is comprised of 108 positions (36 special agent, 12 
inspector and 6 support personnel FTE) for the 12 new cities at an 
estimated requirement of $12,139,000. The balance of the request of 
$7,047,000 supports the inspector and support personnel required for 
the current 38 cities. The number of positions averaged per city also 
takes into consideration the workload created by trafficking 
investigations on the originating end of such schemes, which many times 
can be interstate in nature; the agent and other support required for 
the field division the YCGII city is located in; and the support 
required to continue viable analysis of crime gun information for those 
localities. Each area is unique.
    Question. When and how would those 12 additional cities be 
selected?
    Answer. Final selection will be made after Congress has taken 
action on the President's Budget. Potential YCGII cities are identified 
from those cities with a significant population base, from medium size 
cities up to major metropolitan areas. ATF then looks at relevant crime 
rates, employing The U.S. Department of Justice, Federal Bureau of 
Investigation's publication Crime in the United States Uniform Crimes 
Report as a source document for data on reported crimes involving youth 
and juveniles. Of the crimes reported, murder, robbery, assault and 
weapons violations are used in a statistical table ranking the cities 
by crime rate.
    Final selection of candidate cities is determined by reviewing and 
ranking these violent crime statistics, but also taking into 
consideration significant commitments by the local communities to work 
with Federal law enforcement to reduce youth violence, and the 
existence of ATF field offices nearby for proper support.
                    comprehensive crime gun tracing
    Question. Funding has been requested for 10 more full-time 
employees under the Comprehensive Crime Gun Tracing initiative to 
address the increased workload at the National Tracing Center in West 
Virginia.
    Exactly what would these 10 new employees be doing?
    Answer. The 10 FTE's are required to support the additional 
workload resulting from Electronic Trace Submission System (ETSS) 
expansion in YCGII cities and comprehensive tracing to 250 cities. The 
FTE will also provide computer and training support to State and local 
law enforcement for comprehensive tracing capability in the 250 cities.
                           tobacco compliance
    Question. Congress provided funding last year for the ATF tobacco 
compliance initiative which would continue as part of base operations. 
Additional funding is being requested in fiscal year 2001.
    What are the components of the tobacco compliance initiative?
    Answer. There are two integrated components to ATF's tobacco 
compliance initiative, which was developed in response to the tobacco 
compliance requirements of the Balanced Budget Act of 1997.
    The first component consists of qualification and compliance 
activities, and was launched in fiscal year 2000. This component 
involves background investigations relating to applications for permits 
by importers of tobacco products and by manufacturers of roll-your-own 
tobacco. This component also involves the collection of floor stocks 
taxes.
    The second component of this initiative consists of investigations 
of unlawful diversion of tobacco products and trafficking in contraband 
cigarettes. This component involves the expansion of our efforts in 
these areas in fiscal year 2001 from the points of domestic manufacture 
or importation through distribution channels to wholesalers and 
eventually retailers. This initiative includes investigations of 
operations at foreign trade zones, customs bonded warehouses, and 
tobacco export warehouses.
    Question. How are the resources being split among those components?
    Answer. In fiscal year 2001, we anticipate a shift in the 
distribution of resources to support the initiative's diversion 
component. It is anticipated that approximately 75 percent of the 
resources in the fiscal year 2001 Tobacco Compliance initiative will be 
devoted to the diversion component. This is expected to result from 
referrals of information obtained from investigations of applicants 
under the qualification and compliance component. The remaining 25 
percent will be required to sustain the qualification and compliance 
programs.
    Question. What is the status of the cigarette gray market? Is it 
expanding?
    Answer. Based upon information provided by the U.S. Customs Service 
for importations of foreign-produced cigarettes and ATF's data on 
cigarettes manufactured in the U.S., we estimate that three (3) percent 
of all cigarettes sold in the U.S. are gray market cigarettes. We are 
continuing to see gray market cigarettes in the domestic market. The 
majority of these cigarettes were imported before January 1, 2000; 
however, in light of the restrictions on relanding cigarettes under the 
Balanced Budget Act of 1997, this market is now slowly being displaced 
with gray market cigarettes produced overseas by affiliates of our 
major manufacturers.
    We think it is too early to tell yet whether the gray market is 
expanding. The reason for this is that gray market importers were 
allowed to stockpile cigarettes before January 1, 2000 and these 
cigarettes have not worked their way completely through the system.
    The fiscal year 2000 Senate report contained a provision directing 
ATF to report by September 30 of this year detailing the number of 
employees dedicated to handling the new tobacco compliance law, the 
number of complaints received, the number of investigations initiated, 
and the number of cases referred for prosecution.
    Question. I know the report isn't due for 5 months, but do you have 
any preliminary information about these enforcement statistics?
    Answer. The Senate report accompanying the fiscal year 2000 
appropriations contained a provision directing ATF to report to 
Congress by September 30 of the year 2000 the number of employees 
dedicated to handling the new tobacco compliance law, the number of 
complaints received, the number of investigations initiated, and the 
number of cases referred for prosecution. The numbers are as follows:

Number of Employees Utilized......................................   9.3
Number of Complaints Received.....................................    85
Number of Investigations Initiated (includes floor stocks, 
    applications and gray market investigations)..................   326
Number of cases referred for prosecution..........................     7
                       federal firearms licensees
    Question. The fiscal year 2000 Senate report contained language 
instructing ATF to make identifying and addressing security 
recommendations for Federal firearms licensees a priority at the next 
firearms industry discussion group that convenes.
    What is the status of this directive? Has ATF been working with 
industry on safety and security issues?
    Answer. ATF is currently working on two training videos with the 
International Association of Chiefs of Police (IACP) and the Bureau of 
Justice Assistance (BJA) to develop videos for Federal firearms 
licensees (FFLs) and law enforcement agencies. The first video deals 
mainly with conducting firearms trafficking investigations and tracing 
crime guns. The second video deals with FFL security issues such as: 
keeping firearms out of the hands of criminals, improving business 
security, improving employee safety and reducing liability, and 
shipping problems and reporting thefts and losses of firearms.
    In addition, ATF holds regular meetings with the National Shooting 
Sports Foundation (NSSF) to discuss industry trends and potential 
problems. The meetings often involve discussions on best business 
practices that licensees may use to reduce the potential theft of their 
firearms. The NSSF and ATF are also currently developing a seminar that 
will include anti-theft information for the industry.
    Finally, ATF has published and distributes to FFLs, local law 
enforcement, and other interested parties ATF P 3317.2, Safety and 
Security Information for Federal Firearms Licensees (03/98).
            school bomb detection/threat awareness training
    Question. The fiscal year 2000 Senate report also contained a 
provision directing ATF to work with the Department of Education and 
Justice to make explosives detection training available to school 
districts. As you will recall, this was in the wake of Columbine High 
School bombings.
    What is the status of your discussions with Education and Justice?
    Answer. ATF has been involved in high level meetings with 
representatives of both Justice and Education to establish a framework 
for this program. In these meetings, it has been agreed that ATF will 
develop training programs and products and Justice and Education will 
assist with the delivery of the products.
    Question. Has ATF begun any training classes?
    Answer. ATF has historically provided similar training to school 
districts in prior years and has continued to do so this year. We have 
used training materials and products developed in previous years for 
other applications, but have begun this fiscal year to develop a 
training program to meet the specific needs of school districts and 
school security personnel. In the first quarter of fiscal year 2000, 
ATF provided training to 422 school personnel on bomb threat management 
techniques.
                      alcoholic beverage labeling
    Question. Last year ATF issued regulation on health-related 
labeling of alcoholic beverages. This created quite a firestorm of 
opposition because of the negative consequences of alcohol misuse. 
Recently ATF announced its decision to hold five public hearings across 
the country on this subject. Concern has been expressed that this is a 
waste of taxpayer money when ATF could simply revise or withdraw the 
regulations altogether.
    Why did ATF decide to hold these hearings?
    Answer. ATF has issued a Noticed of Proposed Rulemaking relating to 
health-related statements appearing on alcohol beverages. The issue of 
health-related statements on containers of alcohol beverages is a 
matter of interest to a broad spectrum of the American public. Prior to 
developing the notice of proposed rulemaking, ATF was contacted by 
various public advocacy groups, Federal health officials, and members 
of Congress regarding our policy on health claims and health-related 
statements. Additionally, various segments of the alcohol industry have 
expressed their belief that this topic deserves a full public hearing. 
In view of the significance of this issue and the diversity of opinions 
on it, we believe it is appropriate to take every necessary measure to 
assure that we hear and understand the views of all interested parties, 
including those who are not represented by industry associations. We 
believe that the upcoming hearings will assist us in making an informed 
and balanced decision on a policy for health-related statements on 
alcohol beverage labels.
    Question. What steps are being taken to ensure a fair and balanced 
hearing in each location?
    Answer. On February 28, 2000, ATF published in the Federal Register 
a notice announcing the dates and locations of public hearings that we 
are holding concerning health claims and other health-related 
statements in the labeling and advertising of alcohol beverages. While 
five hearings were originally scheduled, the number of hearings has 
been reduced to two, due to the small number of persons requesting to 
testify. The first hearing occurred on April 25, 2000 in Washington, 
D.C. The hearings are intended to ensure that all interested persons 
are provided an opportunity to be heard and will also provide ATF with 
the opportunity to ask questions of the witnesses where necessary to 
ensure a complete and accurate record. The February 28, 2000 notice of 
hearings advised that persons desiring to make oral comments at the 
hearings were to submit a letter, on or before April 7, 2000, notifying 
ATF of their intent to comment. A press release was issued 
simultaneously with the notice notifying all interested parties of the 
forthcoming hearings. A follow-up press release on the same topic was 
issued on March 31, 2000. To date, those who have expressed an interest 
in presenting oral comments at the hearings include a member of 
Congress, physicians, psychologists, a scientist, a researcher, 
advocacy groups, consumer groups, industry trade organizations, and 
individual members of the industry.
    Question. The last hearing is scheduled in mid-August in Texas. How 
soon after the conclusion of that hearing do you expect to publish your 
findings?
    Answer. In view of the reduced number of hearings, as explained in 
the answer to the previous question, the last hearing is now scheduled 
for late May in San Francisco. The last day for submission of written 
comments in this rulemaking proceeding is June 30, 2000. We anticipate 
publication of a final rule in the Federal Register in mid-to-late 
January 2001.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

            school bomb detection/threat awareness training
    Question. The fiscal year 2000 Senate report carried language 
directing ATF to coordinate with Education and Justice to make 
explosive detection training available on request for school districts 
nationwide through existing safe schools programs.
    What is the status of your coordination with the Departments of 
Education and Justice on school bomb detection/threat awareness 
training?
    Answer. ATF has had several high-level meetings with 
representatives of both the Department of Education (DOE) and the 
Department of Justice (DOJ) on this issue. A basic operating framework 
has been developed for implementing a school bomb detection/threat 
awareness training program. Under this framework, ATF will have primary 
responsibility for the development of a training program and materials. 
Once the programs are developed, DOE and DOJ will provide assistance as 
necessary with the distribution and delivery of the training product.
    Question. Have any school districts yet availed themselves of ATF's 
expertise in this area?
    Answer. There have been a number of schools and school districts 
that have requested ATF's assistance in developing bomb threat 
management plans and procedures. A number of school districts have also 
made requests for ATF to train employees charged with implementing 
those plans. These requests are not limited to this fiscal year; ATF 
has received similar requests in prior years as well. While we have not 
previously tracked the number of these requests, we have begun to do so 
this FY. Through the first quarter of fiscal year 2000, ATF, using 
existing bomb threat management training materials, has provided 
training assistance to 422 school personnel in 21 different school 
districts.
    Question. How are you publicizing this training, if at all?
    Answer. ATF participated with the Department of Education in a 
seminar held for public safety and physical security personnel from 
several of the larger school districts around the country. At this 
seminar, ATF previewed several of the training products we are 
currently developing for delivery as part of this program. DOE has also 
provided assistance in advising school districts of the availability of 
these training products.
           national instant criminal background checks (nics)
    Question. How many gun purchase denials have been made after NICS 
checks were performed and how many have been referred for investigation 
which meet ATF's follow-up criteria?
    Answer. The FBI's NICS system began operation in November of 1998. 
As of April 5, 2000 ATF has received 119,754 denials from the FBI and 
of those, 31,798 have met the follow-up criteria and have been referred 
for investigation.
    Question. Have the problems regarding NICS referrals been worked 
out with the FBI?
    Answer. Problems with the referral process have not been of any 
long-standing nature, and the FBI has been very willing to help 
throughout. For example, protocols for the format for electronic files 
have been worked out. At this time, the FBI is transferring the denials 
they refer to ATF via download to a tape that is then sent to ATF and 
uploaded into a NICS Referral database. On or about April 25, the FBI 
is scheduled to start submitting the referrals via electronic transfer 
through an interface to the ATF database.
            youth crime gun interdiction initiative (tcgii)
    Question. Does ATF know what the next 12 cities will be? If not, 
what specific criteria does ATF use to select cities for YCGII 
designation?
    Answer. No, pending Congressional action, final selection of cities 
has not been made. Potential YCGII cities are identified from those 
cities with a significant population base, from medium size cities up 
to major metropolitan areas. ATF then reviews relevant crime rates, 
employing the U.S. Department of Justice, Federal Bureau of 
Investigation's publication Crime in the United States Uniform Crimes 
Report as a source document for data on reported crimes involving youth 
and juveniles. Of the crimes reported, murder, robbery, assault, and 
weapons violations are used in a statistical table ranking the cities 
by crime rate.
    Final selection of candidate cities is determined by reviewing and 
ranking these violent crime statistics, but also taking into 
consideration significant commitments by the local communities to work 
with Federal law enforcement to reduce youth violence, and the 
existence of ATF field offices nearby for proper support. Prior to any 
final selection, ATF field management meets with potential candidates 
in their respective areas to assess the feasibility of the local 
department's involvement.
    Question. How many FTE are currently devoted to YCGII?
    Answer. Congressional action has provided 198 special agent, 5 
inspector and 8 support personnel FTEs devoted to the YCGII program.
    Question. How much of your budget is devoted for existing YCGII's 
versus the new cities?
    Answer. The resources requested in the fiscal year 2001 President's 
Budget include 72 special agent positions (36 FTE), 24 inspector 
positions (12 FTE), and 12 support positions (6 FTE) to support the 12 
new cities. The 74 inspector positions (37 FTE) and 44 support 
positions (22 FTE) are to staff the current 38 YCGII cities.
    Question. If you were not to receive your full budget request for 
the new YCGII cities, would you cut the number of new cities or reduce 
across the board the amount each city would receive?
    Answer. Comprehensive tracing would be provided to all 
participating cities, however law enforcement personnel would only be 
provided to support select cities.
                                 ______
                                 

             Questions Submitted to the U.S. Secret Service

         Questions Submitted by Senator Ben Nighthorse Campbell

               workforce retention and workload balancing
    Question. The fiscal year 2000 wrap-up appropriations bill provided 
a total of $31 million to the Service for workforce retention and 
workload balancing. The fiscal year 2001 budget requests $41 million on 
top of that for an additional 250 employees.
    Assuming that we have sufficient resources to fund that request, do 
you believe you would be able to fill those additional positions within 
the fiscal year?
    Answer. Yes, assuming the funding is made available, we are very 
confident that we will be able to fill all of the additional positions 
requested in the fiscal year 2001 Budget.
    The Service has taken many actions to ensure that it can achieve 
its hiring goals. First, by streamlining applicant processing to have 
some steps run concurrently instead of consecutively, and by reducing 
the allotted time for specific process phases, we have reduced the 
average hiring process completion time for special agents by over 40 
percent. Second, to facilitate the expeditious processing of applicants 
we established a Recruitment and Hiring Coordinating Center, and 
staffed it with seven full-time employees. Third, we implemented a 
campaign to enlist the assistance and commitment of all our employees 
for recruiting, and distributed an Employee Recruiter Handbook to 
assist them. Finally, we began a national-level advertising campaign, 
to include advertising in high-profile publications such as USA Today, 
and established a toll-free number 1-888-813-USSS (8777) to assist 
potential employees in starting the application process.
    Question. Would these additional resources fully address the 
overtime and workload issues facing the Service? In other words, do you 
envision requesting even more staff in fiscal year 2002?
    Answer. The additional staffing provided with both the fiscal year 
2000 and fiscal year 2001 budgets will meet approximately 70 percent of 
what we, and the inter-agency working group studying this situation, 
believe is required to adequately address the Service's workforce 
retention and workload balancing issues. It is therefore envisioned 
that additional staffing will be a part of the fiscal year 2002 budget.
    Question. When do you expect to see a reduction in the amount of 
overtime as a result of this hiring initiative?
    Answer. The impact on overtime of newly hired agents will not be 
realized until these new agents have completed training and returned to 
their field assignments. We do not expect a substantial change in 
average overtime until next fiscal year when all the agents hired in 
fiscal year 2000 have completed their training.
    Question. Will all of these new special agents be allocated to the 
field rather than headquarters?
    Answer. Most of the 484 additional positions budgeted for fiscal 
year 2000 and fiscal year 2001 will be assigned to the Service's field 
offices.
    Question. Will any of the protective details be enhanced as a 
result of this staffing increase?
    Answer. Given the level of overtime presently being worked by 
individuals on protective details, some of the additional positions 
will be allocated there as well.
            workforce retention and workload balancing study
    Question. It is my understanding that the Service initiated a 
workforce retention and workload balancing study.
    What were some of the main recommendations of this study to 
increase the quality of life for special agents?
    Answer. During 1999, the Department of the Treasury, Office of 
Enforcement, established the Interagency Working Group on U. S. Secret 
Service Workforce Retention and Workload Balancing. This working group, 
which also included representatives from Treasury Management and the 
Office of Management and Budget, analyzed the underlying causes for the 
decreased ability of the Secret Service to retain younger special 
agents, and the degradation of quality of life brought about by 
increased mission demands placed on the special agent workforce. The 
study group made several recommendations relative to workforce 
retention and workload balancing, with the recommendation for increased 
staffing having the greatest potential for improving the quality of 
life for special agents. It recommended that the Service increase the 
size of its workforce by 682 special agents.
    The study group concluded that increasing staffing by this amount 
would address a number of key issues relative to quality of life for 
the Service's special agents. First, it would reduce the rotational 
protective assignments (ROTA) for field agents to 25 percent. This 
significantly decreases the amount of time, under usual circumstances, 
during the year that field agents can expect to be subject to receiving 
protective assignments. These protective assignments involve a 
significant amount of time away from home and family. Second, it is 
expected to reduce the level of overtime per month to 62 hours, rather 
than the current 78 hours. Finally, it will redress the imbalance 
between protective and investigative activities that has developed over 
the past several years.
                                max out
    Question. The fiscal year 2000 bill contained a 1-year provision 
which exempts the Secret Service from certain provisions of overtime 
regulations. In particular, overtime would be measured on annual salary 
rather than pay-period salary.
    What is the status of implementation of this provision?
    Answer. On January 21, 2000, the Department of the Treasury sent a 
request to the Department of Agriculture, National Finance Center 
(NFC), to make the necessary programming changes to the payroll system. 
On April 4, 2000, NFC advised the Department of the Treasury that there 
are significant obstacles to overcome in making these changes. The 
Secret Service is currently working with the Department of the Treasury 
and the NFC to find a way to overcome these obstacles and implement the 
provision.
    Question. What is the Secret Service position on continuation of 
this provision?
    Answer. Because of the way the protective mission must be 
accomplished, there will continue to be situations where individuals 
will be required to work levels of overtime that will indicate the need 
for payment of compensation beyond the bi-weekly cap. The Department of 
the Treasury supports the goals of the section 118 provision as was 
incorporated in the fiscal year 2000 Appropriations Bill, and the 
broader proposals incorporated in proposed OMB legislation (H.R. 1770).
                    national special security events
    Question. Under the provisions of Presidential directive PDD 62, 
the Secret Service is the lead agency for security at large events such 
as the United Nations meetings and the State of the Union speech.
    Please explain the Secret Service's responsibilities under PDD 62.
    Answer. The Secret Service is the lead federal agency responsible 
for security design, planning and implementation at designated National 
Special Security Events.
    Question. What other types of large events would fall under PDD 62?
    Answer. PPD 62 only applies to those events designated by the 
Secretary of the Treasury and the Attorney General as National Special 
Security Events. Examples of such events include Presidential 
Nominating Conventions, Presidential Inaugurations, Presidential 
Summits, State of the Union Addresses and the Olympics.
    Question. At the hearing you mentioned OpSail 2000 in New York City 
this summer. What exactly is OpSail 2000? Do you anticipate that it 
will be designated as a National Special Security Event under PDD 62? 
How many foreign heads-of-state/government to you expect to attend this 
event?
    Answer. OpSail is an international naval review, which is scheduled 
for July 3-9, 2000, in New York Harbor. This event has been declared a 
National Special Security Event.
    Approximately 30-40 thousand vessels are expected to gather in New 
York Harbor, to include both modern and ancient warships. The 
President, foreign heads-of-state/government and other prominent 
individuals are expected to attend. The President has invited 23 
foreign heads-of-state/government to attend this event; however, to 
date the Service does not have any information regarding how many will 
attend.
    Question. There were no additional funds requested in the fiscal 
year 2001 budget for any PDD 62 events. Will the Service have to absorb 
the costs associated with these events, or request supplemental 
funding? How have these events been funded in the past?
    Answer. It is very difficult to budget for events based solely on 
their potential for designation. For example, in fiscal year 2001 the 
only known event that is likely to be designated is the Presidential 
Inauguration. Funding for this has been requested as part of the 
Service's fiscal year 2001 budget for providing protection for the 
campaign. At the time our fiscal year 2001 budget was being formulated, 
and continuing today, the appropriate means for funding the Service's 
new responsibilities under Presidential Decision Directive (PDD) 62 
were and remain under discussion.
    Because of the extreme uncertainty as to how many events will be 
designated as National Special Security Events, and as to when that 
designation will be made, the usual annual budget process may not 
easily accommodate the necessary financial planning for these events. 
It has been suggested that a source of funding, not tied directly to 
the annual appropriation, is the most effective means for meeting the 
resource requirements for security design, planning and implementation 
for major events designated as National Special Security Events in 
accordance with PDD 62.
    In the past, the Secret Service has received additional funds from 
a Department of the Treasury Counter-terrorism Fund. In the absence of 
a separate funding mechanism, the Secret Service is not in a financial 
position to absorb such expenses.
                  2002 salt lake city winter olympics
    Question. As a follow-on to that question, there are fiscal year 
2001 costs associated with the Salt Lake City Olympics in 2002. I am 
told that other Federal agencies, such as the FBI and FEMA, requested 
funding in the fiscal year 2001 budget. I didn't see anything in the 
Secret Service request, which is surprising given the fact that you 
will be the lead agency for security.
    What are the anticipated fiscal year 2001 costs for the Salt Lake 
City Olympics?
    Answer. The Service currently estimates that it will require $9.0 
million to meet its responsibilities relative to security design, 
planning and implementation for the 2002 Winter Olympic Games.
    Question. Why wasn't additional funding requested in fiscal year 
2001 for preparation for that event?
    Answer. At the time our fiscal year 2001 budget was being 
formulated, and continuing today, the appropriate means for funding the 
Service's new responsibilities under Presidential Decision Directive 
(PDD) 62 were and remain under discussion. Estimates as to the amount 
of additional funding the Service will need in fiscal year 2001 for 
preparing for the 2002 Winter Olympics were developed; however, 
decisions as to how to budget for this funding were not.
    Establishing the mechanism for financing events designated as 
National Special Security Events in accordance with PDD 62, the 2002 
Winter Olympics being one such event, is currently under discussion. 
This is why no funding request to cover the fiscal year 2001 costs 
relative to preparing for the 2002 Winter Olympics was placed in the 
fiscal year 2001 budget.
    Because of the extreme uncertainty as to how many events will be 
designated as National Special Security Events, and as to when that 
designation will be made, the usual annual budget process may not 
easily accommodate the necessary financial planning for these events. 
It has been suggested that a source of funding, not tied directly to 
the annual appropriation, is the most effective means for meeting the 
resource requirements for security design, planning and implementation 
for major events designated as National Special Security Events in 
accordance with PDD 62.
    In the fiscal year 2001 budget, the Department of the Treasury has 
a request for $25.0 million for a Counter-terrorism Fund. It is 
currently anticipated that this fund will be used to cover the 
Service's resource needs under PDD 62 in fiscal year 2001 for the 2002 
Winter Olympics.
           national center for missing and exploited children
    Question. The fiscal year 2000 wrap-up appropriations bill 
contained a provision that required all Federal agencies to take a .38 
percent reduction in appropriated funds. The Secret Service decided to 
reduce the amounts provided for operations of the Rowley Training 
Center and for assistance to the National Center for Missing and 
Exploited Children.
    Why did the Service decide to reduce assistance to NCMEC?
    Answer. Given the critical need for the Service to immediately 
address its workforce retention and workload balancing issues, and 
considering that $21.0 million in supplemental funding was provided in 
the same bill to do this, it seemed appropriate to shield the Service's 
Salaries and Expenses appropriation from any reductions mandated by the 
.38 percent rescission. Instead, the Service chose to take the 
rescission from funds appropriated to its Acquisition, Construction, 
Improvements, and Related Expenses account, and appropriated funds 
being transferred from the Violent Crime Reduction Trust Fund (VCRTF). 
Of the $4.2 million to be transferred from the VCRTF, $2.0 million is 
budgeted for 20 FTE and support costs to provide forensic assistance to 
other Federal, State and local law enforcement investigating cases 
involving missing and exploited children. The remaining $2.2 million is 
budgeted for grants to the National Center for Missing and Exploited 
Children. The rescission applied to this funding, amounting to 
$630,000, was taken from the $2.0 million budgeted for the Service. The 
NCMEC will receive all of the $2.2 million in grant funding originally 
appropriated.
    Question. What impact will this have on grants to State and local 
law enforcement?
    Answer. None of the funding the Service receives for its missing 
and exploited children program is available for making grants to State 
and local law enforcement.
    Question. What impact will it have on forensic assistance that the 
Service provides?
    Answer. No significant impact is expected relative to the level of 
forensic assistance that the Service will be able to provide to 
Federal, State and local law enforcement investigating cases involving 
missing and exploited children.
                 biological detector technology report
    Question. The fiscal year 2000 wrap-up appropriations bill also 
contained a provision directing the Secret Service to report on the 
possible benefits of biological detector technology. Chemical and/or 
biological threats are a continuing concern for this Subcommittee.
    What is the status of that report?
    Answer. The report is complete and has been delivered to the 
Department of the Treasury, Office of the Under Secretary for 
Enforcement.
    Question. Will it include a review of the technologies being 
developed by private as well as government scientists?
    Answer. The report includes a discussion of technologies being 
developed by both private and federal government entities.
                         uniformed division pay
    Question. I understand that the DC Metropolitan Police Department 
has raised its pay rates. I am told that this has resulted in a 
discrepancy between the rate of pay for Metropolitan Police officers 
and the Secret Service Uniformed Division officers.
    Has the Secret Service submitted a request to the Treasury 
Department and to OMB for a comparable pay raise for Uniformed Division 
officers?
    Answer. Yes. The Secret Service has submitted a new pay proposal to 
the Department of the Treasury, and is working with the department to 
address this discrepancy.
                              cyber-crime
    Question. This subcommittee is well aware that criminal activity 
involving telecommunications and computer-related schemes continues to 
increase each year at an alarming rate. Cyber-crime is rapidly becoming 
part of our vocabulary.
    What is the Secret Service's current involvement in cyber-crime 
investigations?
    Answer. In 1986, subsequent to a revision of Title 18, USC, the 
Secret Service was provided authorization to investigate fraud and 
related criminal activities involving computers. Title 18 USC, Section 
1030 continues to evolve, as computer networks become more complex. The 
Secret Service strives to provide investigative focus on the 
telecommunications, banking and finance sectors in computer fraud 
investigations. That focus has proved to be an asset in the 
effectiveness of Secret Service investigations and the ability to train 
and equip field offices to address specific high-tech investigations.
    Along with the investigative expertise gained through interaction 
with the financial industry, the Secret Service has a clear 
understanding of the overall infrastructure of the financial system. 
The Internet and the telecommunications industry, with the fastest 
growing technologies in the world, provide the backbone for the 
emerging technologies in electronic commerce, financial transactions, 
and banking.
    The Secret Service has taken proactive positions in identifying 
fraud as it occurs throughout the Internet and the telecommunications 
industry. The growth and evolution of the Internet has provided 
numerous commercial and financial opportunities, particularly in the 
areas of electronic commerce. With the exponential growth of the 
national information infrastructure, the same type of growth can be 
expected and is occurring in the area of global high-tech crime. For 
the past 10 years, the Secret Service has taken on these types of cases 
by targeting international organized hacking activity, new schemes 
designed to compromise electronic systems, and organized groups whose 
criminal activity is aimed at particular segments of the financial 
industry.
    The Secret Service has established itself as the primary point of 
contact for network intrusion activity that threatens any bureau within 
the Treasury Department, and any of the computer systems utilized on 
the White House complex. All members of the Service's Electronic Crimes 
Special Agent Program (ECSAP) have received extensive training 
regarding the system architecture for these networks and are prepared 
to respond to any intrusion activity. The Service will continue to take 
on this responsibility to address threats to these networks as they 
arise.
    As the market penetration for computer equipment in the hands of 
the general public increases every day, and as the Internet continues 
to grow at more than 100 percent per year, it has to be anticipated 
that the criminal element will utilize it. The Secret Service has 
placed an emphasis on the dynamic growth of the ECSAP as an essential 
component of its investigative and protective missions. ECSAP agents, 
highly trained special agents qualified as experts in the forensic 
examination of electronic evidence, are assigned to nearly all Secret 
Service field offices. The program has expanded to include operational 
aspects such as technical guidance in search warrant preparation and 
execution, educational presentations, and technical advice to public 
and private sector organizations. Agents assigned to this program are 
also trained to examine the variety of electronic evidence seized in 
today's criminal investigations, to include: telecommunications 
devices, electronic organizers, scanners, and any other device 
manufactured to intercept or duplicate telecommunications services.
    Question. Did the Service make any funding requests for cyber-crime 
investigations for fiscal year 2001?
    Answer. The Service requested an additional 39 positions and $4.5 
million for cyber-crime investigations in its fiscal year 2001 Budget 
Submission to the Department of the Treasury.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                         exceptional case study
    Question. ``60 Minutes II'' recently aired a program on the Secret 
Service's exceptional case study in which agents and psychologists 
interview assassins and potential assassins to determine if there are 
similar traits and habits which can aid agents in attempting to predict 
and thwart future attacks. This study has been a success and is being 
expanded--at Director Stafford's behest--to interviewing students who 
have attacked fellow students in similar manners at schools across the 
country (i.e. Columbine).
    What do you hope to learn from broadening your exceptional case 
study to interviewing students and other young people?
    Answer. In the School Safety Study, the Secret Service's National 
Threat Assessment Center (NTAC) is using the approach developed in the 
Exceptional Case Study Project--the examination of pre-attack behaviors 
of assassins and near-assassins. The Secret Service developed 
operational information about the motives, planning, behaviors, and 
communications of attackers and near-attackers, and incorporated it 
into its protective and investigative programs.
    NTAC's work to examine the thinking and behavior of school shooters 
parallels the Exceptional Case Study Project in its protective and 
preventative focus. In the School Safety Study, over 25 files were 
reviewed and eight individual perpetrators have been interviewed. The 
Service is developing information that will aid law enforcement and 
other professionals with protective and preventative responsibilities 
for school-based violence. The goal of the Service is to gather and 
analyze accurate information about the motives, thinking, planning, 
pre-attack behaviors, and communications of school shooters. Plans are 
being made to develop a threat assessment guide, and teaching and 
training materials (including videos) that can be used by school 
officials, law enforcement professionals, and others to identify, 
assess, and manage young persons possibly posing a risk of targeted 
school violence.
    Question. Do you believe there are lessons which can be learned 
from this program which can be shared with your sister law enforcement 
agencies? For instance, have you shared your study with ATF so that 
they could perhaps incorporate your lessons in ATF's Integrated 
Violence Reduction Strategy (IVRS)?
    Answer. There is great interest within the law enforcement 
community about the prevention of targeted school shootings; however, 
the law enforcement community lacks the knowledge and experience to 
develop and implement effective threat assessment protocols and 
programs.
    The Secret Service's goal in the School Safety initiative is to 
gather, analyze, and disseminate accurate and operationally useful 
information, which can help law enforcement and other professionals 
prevent school shootings. The Secret Service plans to follow the model 
used with the Exceptional Case Study Project to develop and distribute 
a range of information. As a result of this study, the Secret Service 
developed a threat assessment guide for law enforcement professionals, 
a video teaching the threat assessment process, and several 
professional publications that were distributed to federal, state, and 
local law enforcement organizations and other interested professionals. 
In addition, the Secret Service provided several training presentations 
and seminars concerning the Exceptional Case Study Project and the 
threat assessment process.
    The Secret Service has shared the dynamics of the School Safety 
initiative and its overall goals with the Bureau of Alcohol, Tobacco 
and Firearms (ATF). The National Threat Assessment Center is planning 
to develop similar products for the School Safety initiative. These 
products include a threat assessment guide, a training video, and other 
publications designed for law enforcement and other professionals with 
school shooting prevention responsibilities.
    Question. What resources have you directed towards expanding this 
study? Do you envision a need for additional resources?
    Answer. The Secret Service is attempting to pursue several goals in 
support of the School Safety initiative in fiscal year 2000 with 
current resources. These fiscal year 2000 goals include interviewing 
school shooters; gathering and coding investigative case records; 
providing threat assessment seminars and study group meetings; 
developing training videos; and publishing school safety guides.
    In fiscal year 2001, the Secret Service plans to continue the 
support of the School Safety initiative by providing additional 
training seminars and presentations to local and state law enforcement 
and other professionals; gathering additional data analysis; and 
continuing to develop professional publications.
    The Secret Service will continue to pursue the expansion of the 
School Safety initiative to fully develop the National Threat 
Assessment Center's potential, but additional funding will be needed to 
do this.
                national special security events (nsses)
    Question. Who determines when an event becomes an NSSE?
    Answer. The Counter-terrorism and Security Group (CSG), part of the 
National Security Council, votes on events brought before the group for 
consideration. If an event is recommended for designation by the CSG, 
the request is forwarded to the Secretary of the Treasury and the 
Attorney General requesting designation. Mutual concurrence by the 
Secretary of the Treasury and the Attorney General is required for an 
event to be designated.
    Question. Is the Secret Service anticipating any NSSEs during this 
year? If so, how many and where will they be located?
    Answer. For fiscal year 2000, the following events have been 
designated, or the Service anticipates that they will be designated, as 
National Special Security Events.
  --Operation Sail (OpSail)--(designated) New York City
  --Democratic Convention--Los Angeles, California
  --Republican Convention--Philadelphia, Pennsylvania
  --State of the Union--(designated) Washington, DC
  --United Nations General Assembly--New York City
    Question. I've heard some talk of OpSail 2000 in New York City this 
summer. What can you tell me about this event? Do you anticipate it 
will be designated a NSSE? How many foreign leaders are anticipated to 
attend?
    Answer. OpSail is an international naval review, which is scheduled 
for July 3-9, 2000, in New York Harbor. This event has been designated 
as a National Special Security Event.
    Approximately 30-40 thousand vessels are expected to gather in New 
York Harbor, to include both modern and ancient warships. The 
President, foreign heads-of-state/government and other prominent 
individuals are expected to attend. The President has invited 23 
foreign heads-of-state/government to attend this event; however, to 
date the Service does not have any information regarding how many will 
attend.
    Question. Has the 2002 Winter Olympics in Salt Lake City been 
designated a NSSE? If so, why has the Secret Service not requested 
funds for this event in the budget?
    Answer. The 2002 Winter Olympics has been designated a National 
Special Security Event.
    At the time our fiscal year 2001 budget was being formulated, and 
continuing today, the appropriate means for funding the Service's new 
responsibilities under Presidential Decision Directive (PDD) 62 were 
and remain under discussion. Estimates as to the amount of additional 
funding the Service will need in fiscal year 2001 for preparing for the 
2002 Winter Olympics were developed; however, decisions as to how to 
budget for this funding were not.
    Establishing the mechanism for financing events designated as 
National Special Security Events in accordance with PDD 62--the 2002 
Winter Olympics being one such event--is currently under discussion. 
This is why no funding request to cover the fiscal year 2001 costs 
relative to preparing for the 2002 Winter Olympics was placed in the 
fiscal year 2001 budget.
    Because of the extreme uncertainty as to how many events will be 
designated as National Special Security Events, and as to when that 
designation will be made, the usual annual budget process may not 
easily accommodate the necessary financial planning for these events. 
It has been suggested that a source of funding, not tied directly to 
the annual appropriation, is the most effective means for meeting the 
resource requirements for security design, planning and implementation 
for major events designated as National Special Security Events in 
accordance with PDD 62. In the fiscal year 2001 budget the Department 
of the Treasury has requested $25.0 million for a Counter-terrorism 
Fund. It is currently anticipated that this fund will be used to cover 
the Service's resource needs under PDD 62 in fiscal year 2001 for the 
2002 Winter Olympics.
                        air security initiative
    Question. Why not use an existing air branch rather than creating a 
new one? Would it be more cost-effective to fly in personnel ``as 
needed'' rather than establish a new branch?
    Answer. To use resources dedicated to another mission presents a 
problem. The Service needs constant availability and control over the 
deployment of resources when they are necessary. Secret Service 
personnel assigned to the air security mission will be used to 
supplement the Service's core protective mission in Washington, D.C., 
when they are not operational or in training.
    Question. It has been suggested that Presidential Decision 
Directive (PDD) 62 ``requires'' that the new branch be located within a 
specific radius of Washington, D.C. Is this true and if so, why? If the 
PDD does not specify the branch's location, who will make the decision 
where to locate the new air branch?
    Answer. PDD 62 does not require that the new branch for air 
security be located within the Washington, D.C. metropolitan area. The 
Secretary of Treasury, in conjunction with the Attorney General, will 
make the decision as to the location of the new air branch.
    Question. How closely are your two agencies working to ensure that 
duties and responsibilities are being appropriately shared and that 
there will be a seamless operation of the program?
    Answer. The Secret Service and the Customs Service have had in the 
past, and continue to have, a good working relationship. Regular and 
rigorous joint training promotes teamwork and operational efficiency, 
while resolving issues related to tactics, and command and control. A 
continuous dialog occurs regarding operational support, training and 
cost-sharing.
    Question. What will personnel be doing once the event ends? Will 
they support the Customs mission or will there be follow-on training 
and support to Secret Service? Once an event ends, who retains control 
over personnel?
    Answer. When not being used to support an event, each agency will 
retain control over its own personnel. Secret Service personnel 
assigned to the air security mission, when not operational or in 
training, will be used to supplement the Service's core protective 
mission in Washington, D.C.
                                 ______
                                 

   Questions Submitted to the Federal Law Enforcement Training Center

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. Does the Border Patrol request an increase in the 
training of new hires in their fiscal year 2001 budget?
    Answer. The Border Patrol is projecting training 2,300 basic 
students in fiscal year 2001, of which 435 have been requested in the 
President's request for fiscal year 2001.
    Question. You stated that the fiscal year 2001 request will provide 
funding for 79 percent of the projected basic training workload 
requirements. What are your plans if each of the agencies staff up to 
full capacity?
    Answer. With all three current sites Glynco, Artesia, and 
Charleston, SC FLETC has sufficient capacity to provide the workload 
being projected, but if all the participating agencies execute 100 
percent of their projected workload FLETC will have a shortfall in the 
funding to cover the direct cost of the training. FLETC would then be 
required to bill back to the agencies the direct cost for the 
additional 21 percent of basic training, defer or cancel training until 
next fiscal year, seek a supplemental appropriation, or reprogram funds 
to the extent they may be available. A problem that FLETC also may face 
is a shortfall in the number of instructors needed to provide 100 
percent of the training. The only recourse FLETC has is to ask the 
agencies to provide additional detailed instructors to conduct the 
training or cancel the training due to lack of required instructor 
staffing.
    Question. Provide the subcommittee with the cost associated with 
training at Glynco in comparison with the cost for training at the 
Charleston facility, including housing cost.
    Answer. The Charleston operation is supported by FLETC, but the 
funding for overhead, housing, and meal costs are paid from the INS 
appropriation. The FLETC does not have access to those costs. However, 
FLETC reimburses INS for the tuition cost of $1,707.58 per student for 
each student trained at Charleston. This is consistent with FLETC's 
responsibility to absorb the direct cost of all basic training in our 
appropriation regardless of the location of the training. FLETC's 
Glynco costs for a Border Patrol student are as follows:

------------------------------------------------------------------------
                                              Per day          Total
------------------------------------------------------------------------
Tuition.................................  ..............       $1,707.58
Lodging.................................          $10.61        1,411.13
Meals...................................           10.53        1,400.49
Misc. (Overhead)........................           14.05        1,868.65
                                         -------------------------------
      Total Per Student.................  ..............        6,387.85
------------------------------------------------------------------------

    The Border Patrol Basic program is 133 days in length.
    Question. ATF and Secret Service are predicting a tremendous 
increase in their 2001 budget request of the number of agents needing 
training at the FLETC. Without having the 5 year plan completed, will 
FLETC be able to handle this increased workload?
    Answer. Based on the current capacity at both Glynco and Artesia 
and by using the Charleston facility for Border Patrol, at least 
through fiscal year 2001, the FLETC expects to be able to provide the 
increased training for these two agencies, as well as the projected 
basic and most advanced training of the other participating agencies.
    Question. Is all new construction for Glynco and Artesia on target?
    Answer. Funds have been obligated and contracts awarded for 
construction of a new dormitory, firearms ranges, a chilled water 
system expansion, and a classroom building at Glynco and a new 
dormitory and two firearms ranges at Artesia as part of the 5-year plan 
previously funded by Congress. Completion of the new dormitory at 
Glynco may be delayed a few months because the original contractor was 
unable to meet the construction schedule and a new contractor has taken 
over the project.
    Question. Explain how the new firearms ranges being constructed at 
Glynco and Artesia will be used? Will they be used for basic training, 
advanced training or both? Will this meet current and future needs?
    Answer. The first priority is to use the new firearms ranges to 
support basic training and then, when available, they will be used to 
support advanced training needs. These ranges, combined with proposed 
future construction of another firearms range and a firearms office 
building in Artesia and a firearms multi-purpose building, non-lethal 
shoot houses and a combat skeet range in Glynco, will meet the current 
and future requirements now identified to us by our agencies.
    Question. When will these ranges be completed?
    Answer. The completion dates on the firearms ranges now under 
design and construction are as follows:
    Four 24 person ranges at Glynco will be completed by April, 2000.
    Two additional 24 person ranges at Glynco are expected to be 
completed by December, 2000.
    Two 24 person ranges at Artesia are planned to be completed by 
October, 2001.
    Question. I understand that the Glynco facility needs to undergo 
some major renovations with an estimated cost of $47 million within a 
10-year timeframe. You have requested $4,400,000 for renovations in 
2001. Do you have a prioritized list of these projects?
    Answer. The follow is a prioritized list of the facilities and the 
projected renovation costs:

----------------------------------------------------------------------------------------------------------------
                                                                     Building                       Estimated
                          Facility name                               number      Year built     renovation cost
----------------------------------------------------------------------------------------------------------------
DC Residence Hall................................................           95            1974        $5,000,000
New Mexico Residence Hall........................................           96            1974         5,000,000
Administration Building..........................................           94            1974         3,500,000
Van Buren Office Building........................................           68            1958         2,700,000
Maryland Residence Hall..........................................           63            1967         3,600,000
Monroe Office Building...........................................           66            1955         3,600,000
Steed Classroom Building.........................................         262B            1978         6,000,000
Classroom Building...............................................           65            1955         3,600,000
Jackson Office Building..........................................           67            1958         3,600,000
Jefferson Office Building........................................           64            1955         3,600,000
Harrison Office Building.........................................           69            1969         3,600,000
Tyler Office Building............................................           70            1969         3,600,000
                                                                  ----------------------------------------------
      Total......................................................  ...........  ..............        47,400,000
----------------------------------------------------------------------------------------------------------------

                                 ______
                                 

    Questions Submitted to the Financial Crimes Enforcement Network

         Questions Submitted by Senator Ben Nighthorse Campbell

                    money services businesses (msbs)
    Question. What are the steps used to register the Money Services 
Businesses?
    Answer. In August, 1999, FinCEN announced the registration of Money 
Services Businesses which includes money transmitters, issuers, 
redeemers and sellers of money orders and traveler's checks, check 
cashers and currency retail exchanges. This final rule provides a 
significant period of implementation of registration to permit 
government outreach through an on-going working relationship with the 
industry. These activities will be accomplished in conjunction with 
Treasury's Public Education Office, and IRS's Detroit Computing Center 
and Examination Division, among others. Also, FinCEN staff has met with 
the largest MSB service providers over the last s6months, and has met 
recently with a number of smaller, regional service providers.
    In addition, a guidance document is currently being finalized. The 
forms to be used for both registration and SAR reporting are in draft 
form and will be finalized in the near future. The Detroit Computing 
Center is working with FinCEN on a statement of work for the design of 
the database that will house the registration information, and work 
will follow on an MSB-SAR database.
    Lastly, plans are underway for setting up the MSB program office 
within FinCEN's Office of Compliance and Regulatory Enforcement.
    Question. You have requested $2.3 million to contract with the 
Internal Revenue Service (IRS) or other regulatory partners to conduct 
regulatory oversight associated with the MSB national registration. 
Explain how this partnering process will work in registering the MSBs. 
What are the projections for the fiscal year 2002 requirements for this 
new venture?
    Answer. The successful implementation of the MSB rules--both 
registration and suspicious activity reporting--is dependent on the 
continued support from the Internal Revenue Service. As you know, the 
IRS has a long standing and vital role in the fight against money 
laundering through various components--Criminal Investigation Division; 
the Examination Division; and the Detroit Computing Center. The MSB 
requirements make the importance of these already critical functions 
even greater. Without the funding, the registration program would be 
severely compromised. If the request were approved, FinCEN, in 
partnership with the IRS, would use the $2.275 million to coordinate 
forms distribution; customer interface to respond to public inquiries; 
compliance examination and review; and data processing support. This 
request also would allow for the hiring of 81 positions to carryout the 
examination and customer service requirements.
    In addition, as part of this implementation process and with the 
support and assistance of IRS, we will begin the outreach and education 
associated with suspicious activity reporting.
    Question. Funding was available in fiscal year 1999 and 2000 for 
FinCEN to implement an extensive public awareness campaign for the 
registration of the MSBs. Has this been accomplished?
    Answer. Working through the Department's Office of Public 
Education, a solicitation for this massive contract has been published 
and is currently open. We expect to have final offers from potential 
contractors by the end of April. The next step will be to evaluate 
these offers and chose a contractor. The schedule for this evaluation 
and selection process has been established, and we expect to have a 
contractor on board in early summer. The contractor will then 
immediately begin working on the first task order, which was issued 
along with the solicitation. That work order asks for a blue print from 
the contractor for the entire project to identify and educate MSBs 
about both the registration rule and the new SAR rule.
     We also have held meetings with each of the major MSB service 
providers (Thomas Cook, Western Union, Traveler's Express, Money Gram, 
American Express, Citicorp, Dollar Financial Group, ACE Check Cashing) 
as part of its ongoing outreach efforts. These outreach meetings have 
concentrated on getting assistance from the industry in identifying 
suspicious activity. Within the next few months, we expect to publish 
the first guidance document that can be utilized by the industry to 
help them meet the requirements of suspicious activity reporting.
    Question. With the registration of MSBs proceeding, what impact 
will that have on anti-money laundering efforts associated with the 
casino and securities industries?
    Answer. In order to close off all avenues to money launderers, 
FinCEN has been looking beyond banks to other financial service 
providers that are vulnerable to money laundering. Over the next few 
years, FinCEN will simultaneously devise and implement regulatory 
programs for money services businesses, casinos, and the securities 
industry. The program currently underway for the MSBs will require a 
great deal of outreach and education that will take place over the next 
2 years in order to have MSBs register and then report suspicious 
activity.
    In addition, the final casino rule on suspicious activity reporting 
will be announced this summer with the proposed rule for the securities 
industry to come later in the year. All of these regulatory efforts are 
necessary in closing off each and every avenue used by money 
launderers.
                   national money laundering strategy
    Question. What role will FinCEN play in the implementation of the 
National Money Laundering Strategy?
    Answer. FinCEN's workload will expand over the next year in order 
to achieve the goals outlined in the National Strategy. In fact, the 
Strategy's goals actually reflect many of the core responsibilities 
that FinCEN is already undertaking. The $2.9 million requested in the 
Department's appropriation will afford FinCEN with the resources needed 
to strengthen and enhance these efforts. Specifically, the funding will 
enable FinCEN to begin to provide analytical support to the High 
Intensity Financial Crime Areas (HIFCAs) and other multi-agency 
investigative efforts; continue to identify and target major money 
laundering schemes; expand its regulatory effort for non-bank financial 
institutions; and accelerate technological efforts to enhance our 
analytical capabilities.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                       scope of money laundering
    Question. Obviously drug trafficking generates proceeds which have 
to be laundered through the financial system. I understand you have 
undertaken a study of the magnitude of money laundering. What is the 
magnitude of the money laundering problem we face today? What other 
areas of criminal activity will you be examining to determine the 
extent of the laundering problem?
    Answer. FinCEN has been working to produce an analytically sound 
model that can be used to estimate the extent of the money laundering 
problem. We know that money laundering stems from certain categories of 
criminal activity that generate substantial proceeds that need to be 
laundered. While drug trafficking is the principal source of illicit 
proceeds, other troublesome areas include: fraud (against consumers, 
financial institutions, the Government, and others); bribery and 
corruption; sale of stolen goods; smuggling; illegal gambling; 
prostitution and pornography; and illegal trafficking in arms. Other 
important predicate crimes to money laundering are: illegal trafficking 
in persons; funds to support acts of terrorism; murder for hire and 
kidnapping; criminal infringement of intellectual property rights; and 
counterfeiting of monetary instruments.
    Estimating the magnitude of money laundering is a complex 
undertaking, principally due to the clandestine type of activity and 
the technological complexity of financial crimes. FinCEN is in the 
middle of a procurement process which seeks innovative methodologies 
for approaching this difficult problem. Because we have not yet 
received proposals from the consulting firms that will be competing for 
this contract, it is premature at this point to outline for you the 
most efficacious approach to be followed.
    However, we expect to award the Magnitude of Money Laundering 
contract in June 2000. At that time, we would be pleased to thoroughly 
and promptly brief your staff on the analytical plan of action which we 
choose and to provide periodic updates on progress as the study 
unfolds.
               suspicious activity reporting (sar) funds
    Question. How important to your agency is the $2,275 million you 
have requested to contract with the IRS and educate the public about 
the requirements associated with Suspicious Activity Reporting?
    Answer. This funding is essential for the successful implementation 
of the MSB rules--both registration and suspicious activity reporting. 
If approved, the request of $2,275 will provide funding to contract 
with the IRS to ensure that sufficient and continuing resources are 
available to conduct regulatory oversight associated with the MSB 
program, including activities such as forms distribution, customer 
interface to respond to public inquiries, compliance examination and 
reviews, and data processing support. This request also provides the 
funding to contract with IRS to hire approximately 81 additional 
personnel, which equates to 10 FTE in fiscal year 2001 (hiring will 
begin late in the fourth quarter). In addition, FinCEN will also begin 
the outreach and education requirements associated with suspicious 
activity reporting for this industry. These regulatory oversight 
activities are essential to ensuring compliance with national 
registration and other BSA requirements.

                          subcommittee recess

    Senator Campbell. With that, if there is no further 
testimony, this subcommittee is recessed. Thank you.
    [Whereupon, at 10:31 a.m., Tuesday, March 30, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2001

                              ----------                              


                         TUESDAY, APRIL 4, 2000

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:33 p.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell and Dorgan.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. LAWRENCE H. SUMMERS, SECRETARY
ACCOMPANIED BY LISA G. ROSS, ACTING ASSISTANT SECRETARY FOR MANAGEMENT 
            AND CHIEF FINANCIAL OFFICER

          OPENING STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell. Good afternoon. The committee will be in 
order. Senator Dorgan is on the way, but Mr. Summers, we can go 
ahead and start.
    This is the third hearing of the Treasury and General 
Government Subcommittee on fiscal year 2001 budget request. I 
am pleased to welcome the Secretary of the Treasury, Larry 
Summers, here today. This will be Mr. Summers' first appearance 
before this subcommittee as Secretary. The last time he 
testified he was Deputy Secretary and we were talking about the 
appropriate access and inappropriate access to taxpayers' 
personal files with the Internal Revenue Service. I understand 
a good deal of that has been corrected and I am sure that all 
taxpayers would appreciate that.
    The President's fiscal year 2001 budget request for the 
Treasury Department is very ambitious. There are major 
increases envisioned for many parts of the Department. For 
example, an additional 18 percent is being requested for 
Departmental offices. I am sure the Secretary will want to talk 
about those requests.
    The Bureau of Alcohol, Tobacco and Firearms is expecting a 
25 percent increase. The Customs Service wants an additional 
14.8, and if we include the $210 million for the development of 
the Automated Commercial Environment computer system, or ACE, 
as it is called, it will be 22.4 percent. The Internal Revenue 
Service is looking for a 9 percent increase, including $119 
million more for their information technology investment 
account, and the Secret Service is hoping for a 20 percent 
increase.
    In addition, funding for three new Treasury accounts has 
been requested, which includes $15 million to implement the 
money laundering strategy, $30 million to expand access to 
financial services, and $25 million for a counterterrorism 
fund.
    This subcommittee will not be able, given the present 
allocation, to fund all of the requests. This morning, we hope 
to hear what the Secretary considers to be his highest 
priorities for fiscal year 2001. Although we have already heard 
from the IRS Commissioner, Mr. Rossotti, and the Treasury law 
enforcement agencies, I expect we will touch on some of those 
requests, too.
    I have some questions that we will get to after the 
Secretary testifies, but I will make it easy on you and will 
not ask you any questions at all concerning Nasdaq's 
performance today.
    With that, Mr. Secretary, go ahead and proceed.

                    Statement of Lawrence H. Summers

    Mr. Summers. Thank you very much, Mr. Chairman. It is good 
to appear once again before this committee. I might just say 
that given that we in the government and sometimes in the 
Congress are sometimes criticized for being behind the curve, I 
look back to the hearing that you had on the issue of browsing 
and snooping at the IRS, and in light of the headlines that we 
are seeing all over the place today, that hearing looks to have 
been rather prescient and I think we can all take satisfaction 
from the steps that have been put in place to deter any kind of 
inappropriate access to individual tax records or any kind of 
inappropriate snooping or browsing by IRS employees.
    Mr. Chairman, I am glad to have this opportunity to discuss 
with you and members of the committee the Treasury's fiscal 
year 2001 budget request and to seek to continue the 
cooperative spirit that we have achieved together.
    Our budget totals $14.25 billion. In my statement, I want 
to focus on five important areas of priority. First, continuing 
to modernize the IRS. The IRS and Commissioner Rossotti in his 
new mission statement have pledged to work towards providing 
America's taxpayers top quality service by helping them 
understand and meet their tax responsibilities and by applying 
the tax law with integrity and fairness to all.
    Commissioner Rossotti, with his background in management 
and information technology, has brought a management focus and 
a new technology focus to the IRS. This year's budget seeks to 
build on the progress of the last several years, and in 
particular to make it possible to effectively implement the 
RRA, the IRS Reform Act legislation of 1998, by providing an 
adequate base for continued revenue operations.
    Under this budget, for the first time in a number of years, 
the trend downwards in IRS staffing would be reversed, 
something that in my judgment is crucial if we are to maintain 
the integrity of our tax system based on voluntary compliance. 
The budget also provides support for a far-reaching change, an 
organizational modernization following what has become common 
practice in the private sector by moving to an organization 
based not on geographic lines but on functional lines, as well 
as providing for continued funding of information technology 
modernization, which is an investment in lower budgets and 
greater tax compliance in the future.
    The second priority embodied in our budget is increased 
capacity to fight drugs, violence, and other crimes. We include 
here a number of initiatives. First, we are requesting 
increased support to reduce the trafficking and smuggling of 
illicit drugs. This includes a request for aircraft and updated 
interdiction and surveillance, increased use of non-intrusive 
inspection equipment, and additional personnel to support 
Customs' counter-drug initiative.
    Second, we are seeking increased support to combat 
financial crime. This has been a particular priority for me as 
Secretary because I believe that tackling money laundering 
provides the most effective way of going after the underlying 
crimes. Our approach is laid out fully in the Year 2000 
National Money Laundering Strategy unveiled in the last several 
weeks. We seek a modest increase in appropriation to support 
enforcement in zones designated as high-risk financial crime 
areas.
    Third, protecting our nation's leaders becomes ever more 
important with the dramatic rise in global terrorism and a 
significant increase in the number of protectees. We are 
requesting some 250 new positions at the Secret Service. Mr. 
Chairman, I might say that I see in my own travels how 
important this is with the average overtime of Secret Service 
agents in the field now in some cases exceeding 80 hours a 
month and giving rise to real attrition problems, which in turn 
create the need for more overtime. To break that cycle, I think 
it is crucial that we provide for new positions.
    Fourth, reducing firearms violence. Mr. Chairman, we have 
all been very much affected by recent incidents pointing up the 
level of armed crime in our country. There is room for, and I 
certainly do not propose to join it today, much debate about 
what the right policies in response are. But I believe that 
there is a widespread consensus on the importance of successful 
enforcement of the laws that we have on the books now, and that 
is why the President's budget provides funding for 300 new 
agents, 200 new inspectors, and 150 new support staff at the 
Bureau of Alcohol, Tobacco and Firearms.
    A third area of priority is the modernization of our trade 
systems. Since the Customs Modernization Act was passed in 
1993, imports into our country have grown by more than half. 
Frankly, the existing technology cannot cope with this rise in 
volume. Our request has two main elements. First, to maintain 
the existing technology system, the ACS, and minimize outages 
or brownouts that can pose continuing problems to the work of 
Customs.
    And second, and in my judgment absolutely necessary and 
imperative is work on the development of the Automated 
Commercial Environment, ACE, system that will eventually 
replace ACS. We have learned from our experience with the IRS 
about the overriding need for private sector discipline, of 
clear establishment of blueprints, of appropriate contracting 
procedures in order to assure that public information 
technology money is well spent, and we are applying what we 
have learned. We do believe that the proposed fee contained in 
this year's budget appropriately captures a portion of the 
benefits that will accrue to private sector businesses from 
modernization.
    Fourth, enhancing financial management within the 
Department. Here, we have made important progress over the last 
year with the successful introduction of the new development of 
the new $5 and $10 bills and the introduction of the $1 coin. 
We have seen the Bureau of Public Debt carry out a new mission 
of buying back public debt as well as issuing public debt. And 
the FMS, the Financial Management Service, continues to provide 
core services. It is important to secure continued funding for 
these programs.
    Let me also mention one other initiative contained in this 
budget and that is the President's first account proposal that 
aims to bank the unbanked. It is important that, working 
through the financial sector, we seek to remedy a situation 
where more than 10 percent of Americans do not have a bank 
account and often pay more than $15,000 over their lives for 
the most basic check cashing and bill paying services.
    The fifth and final priority reflected in this budget, Mr. 
Chairman, is continued support for the Department's offices. 
These include necessary resources for domestic finance, 
overseeing implementation of last year's historic Financial 
Modernization Act, maintaining core infrastructure technology, 
and restoring the main Treasury Building and annex.
    Let me if I could, Mr. Chairman, mention one problem that I 
think over time we will have to address, and that is the 
problem of comparable salaries. I look, if I might, at my own 
field of economics. The Federal Reserve now pays approximately 
60 percent more to a new Ph.D. economist coming out of school. 
Academic salaries are roughly comparable to those of the 
Federal Reserve, and salaries in the private sector are very 
substantially greater. While Treasury offers enormously 
rewarding opportunities and we have very, very good people, 
over time, that 60 percent pay gap has to take a toll, and I 
use the field of economics as an example because I am most 
familiar with it, but this is an issue that is a more general 
issue in the Department's offices.

                           Prepared statement

    Let me conclude on a personal note. Since becoming Treasury 
Secretary last year and in the 7 years before that I worked at 
the Treasury Department, I have been deeply impressed by the 
intelligence, professionalism, and dedication of my colleagues. 
I am sure this committee shares that confidence and I ask you 
to seriously consider and approve a budget request that will 
enable us to carry forward our vital missions with ever 
increasing effectiveness. Thank you, Mr. Chairman.
    [The statement follows:]

               Prepared Statement of Lawrence H. Summers

    Mr. Chairman, Mr. Dorgan, Members of this Committee, I appreciate 
this opportunity to discuss Treasury's fiscal year 2001 budget request 
and to seek to continue to work in the cooperative spirit that we and 
Members of the Committee have achieved. I would like to take this 
opportunity to thank this Committee for its impressive and productive 
work over the years.
     As you know, Treasury plays a crucial role in the core functions 
of government, including tax administration, revenue collection, law 
enforcement, financial management, tax policy, banking policy and 
international and domestic economic policy.
    We propose a budget that will enable Treasury to continue to 
provide the American public with the customer service and program 
reliability it expects and deserves.
     Our budget request totals $14.245 billion for all operations. 
After taking into account two offsets--a $210 million fee on Customs' 
automated commercial system for the Automated Commercial Environment 
(ACE) and $42.5 million from the use of the estimated potential balance 
from the Treasury Forfeiture Fund--our appropriation level would be 
$13.992 billion.
    We have provided the Committee with a detailed breakdown of 
Treasury's fiscal year 2001 budget request. Let me today highlight five 
important areas of focus.
  --First, supporting continued IRS modernization.
  --Second, strengthening our ability to fight drugs, violence and 
        crime.
  --Third, modernizing our trade systems.
  --Fourth, enhancing our financial management.
  --And fifth, supporting management operations.
                    continuing to modernize the irs
    In its new mission statement, the IRS has pledged to focus on two 
core priorities: ``Provide America's taxpayers top quality service by 
helping them understand and meet their tax responsibilities, and apply 
the tax law with integrity and fairness to all.''
    As the modernization and reorganization at the IRS has proceeded, 
some have framed debates on IRS priorities around a trade-off between 
enforcement and customer service. This argument is no different from 
believing that businesses face a trade-off between quality and cost.
    We have heard similar false choices posed through the years. To 
have effective tax administration, there must be both compliance and 
high-quality customer service. A trade off is neither necessary nor 
desirable.
    Under the leadership of Commissioner Rossotti, the IRS has already 
made impressive progress towards meeting both these goals. But there is 
more to accomplish.
    In particular, we need resources to focus on three areas:
Continued support for organizational modernization
    Until recently, IRS was organized along geographic lines. At the 
direction of Commissioner Rossotti, the IRS is reorganizing along 
customer lines. This enables the IRS to provide better service to 
groups of taxpayers with similar needs. This reorganization also 
enables the agency to become more effective and focused. For example, 
it will improve the agency's ability to clamp down on abuse of the tax 
code, including combating the growth of abusive corporate tax shelters.
    The reorganization also involves building a modern management 
structure to enable the IRS to serve its customers better. This will 
involve significant re-training of staff because many are being asked 
to take on redefined roles. Fiscal year 2001 provides the second year 
of major funding for the IRS reorganization. We strongly believe this 
restructuring effort is putting the agency on the right track. It is 
imperative that we support the employees and leadership at the IRS so 
they can complete this monumental task of reorganizing the IRS for the 
first time in almost 50 years.
Continued support for computer modernization
    The IRS is embarking on a plan to replace its antiquated computer 
system to bring it into the new century. The IRS core data systems are 
fundamentally deficient. The Master File system, on which all taxpayer 
accounts reside, is based on outdated 1960s technology. Modernizing the 
agency's technology will enable it to deliver on its pledge to provide 
better customer service for all and is absolutely necessary for the 
agency to make the improvements that the public needs.
    In our fiscal year 2001 budget, we are asking for another deposit 
into the Information Technology Investment account (ITIA) to keep this 
program on track. The Committee has shown its support for this program 
in past years by making the needed deposits, and we ask that you 
continue to support this critical program.
Stabilizing the IRS
    The IRS is on the road toward modernizing its organizational 
structure and computer systems. For several reasons, we feel the time 
is now right to reverse the decline in staff that has occurred at the 
agency over the last 5 years. First, no one anticipated the resources 
required to implement the very important provisions of the 
Restructuring and Reform Act. Second, recent articles have highlighted 
the decline in enforcement activity over the last few years--a trend 
Commissioner Rossotti and I are particularly concerned about.
    We feel the time is right to permit a modest expansion in IRS 
resources to ensure the integrity of the tax system, which depends 
heavily on maintaining voluntary compliance, and to provide the service 
the American taxpayers deserve. Our request provides 2,800 new 
positions, an increase of 2.9 percent over the next 2 fiscal years.
  strengthening our ability to fight drugs, violence, and other crimes
    Our second focus today is on improving our capacity to fight drugs, 
violence and other crimes.
    As this Committee knows, Treasury oversees six law enforcement 
bureaus: Customs, the Secret Service, the Bureau of Alcohol, Tobacco 
and Firearms, the IRS, FinCEN, and the Federal Law Enforcement Training 
Center. Each of these has critical and extensive responsibilities.
    Our fiscal year 2001 budget request enables Treasury agencies to 
continue to play a full role in the crucial anti-crime initiatives in 
which this Administration is engaged.
    Mr. Chairman, last year you and others expressed concerns about the 
disparity of treatment between Treasury law enforcement and our Justice 
counterparts. This year's budget provides Treasury law enforcement with 
an 18 percent increase over the fiscal year 2000 budget. It recognizes 
the special law enforcement role that Treasury plays in the 
Administration's anti-crime strategy.
    The proposals would result in the largest increase in Treasury law 
enforcement funding in more than a decade. Let me focus briefly on four 
key areas of this request.
Reducing Trafficking, Smuggling and Use of Illicit Drugs
    Our request supports the Administration's counter-narcotics 
strategy by providing Treasury with resources critical to reducing the 
trafficking, smuggling, and use of illicit drugs across our borders.
    The budget request supports Custom's responsibility to facilitate 
legitimate trade, while interdicting contraband through the use of 
enhanced technology and equipment. Customs remains committed to 
improving the efficiency and effectiveness of its drug interdiction.
    Specifically, the budget request supports:
  --Aircraft with upgraded interdiction and surveillance equipment.
  --Non-intrusive inspection equipment for expanding interdiction 
        efforts along the southwest border;
  --And additional personnel and investigative equipment to support 
        Customs Counter-drug Initiative. This will include new 
        positions to implement the Foreign Narcotics Kingpin 
        Designation Act and improve information-gathering capabilities 
        on terrorist funding and narcotics trafficking. Our fiscal year 
        2001 request builds upon last year's supplemental request.
Combating financial crimes and money laundering
    Our budget request also supports Treasury's central role in the 
implementation of the Administration's National Money Laundering 
Strategy. Deputy Secretary Eizenstat and Deputy Attorney General Holder 
unveiled the 2000 Strategy this week. The Strategy is aimed at 
combating dirty money and, in doing so, giving us additional weapons to 
fight the underlying crimes.
    Money laundering has a number of intolerable effects on the U.S. 
economy and on American society. It enables the criminal to invest the 
proceeds in the perpetuation of the underlying crime, many of which are 
violent and spread drug addiction in our communities. It taints the 
U.S. financial system and damages the reputation of those involved. And 
it undermines U.S. government programs to support democracy and 
economic development around the world.
    Our request will enable us to support initiatives in zones 
designated as high-risk financial crime areas (HIFCA). The budget also 
supports Customs, IRS, and the Financial Crimes Enforcement Network 
(FinCEN) by providing them with resources to strengthen the fight 
against money laundering. It will also enable these agencies to respond 
to additional information gathered from the expanded reporting 
requirements for non-bank financial institutions.
Protecting Our Nation's Leaders
    Few agencies are required to work under such pressure or meet such 
rapidly expanding demands as the Secret Service. The dramatic rise in 
global terrorism and a significant increase in the number of protectees 
have intensified the Secret Service's critical responsibility of 
protecting our nation's leaders.
    We must address the increased workload of the Secret Service and 
the resultant decline in working conditions in order to retain members 
of this highly trained workforce and ensure their safety and the safety 
of their protectees. We are requesting 250 new positions in addition to 
the new positions in the fiscal year 2000 appropriation.
    The increased hiring by the Secret Service and ATF will result in a 
significant increase in the workload at the Federal Law Enforcement 
Training Center (FLETC). This budget provides funding to address this 
increase and continues implementation of FLETC's 5-year Master Plan.
Reducing firearms violence
    Mr. Chairman, we have all been deeply affected by a number of 
recent incidents that have focused attention on the level of armed 
crime in this country. There is a great deal of debate about the 
correct level of policy response. But, it is fair to say that there is 
now widespread agreement about the need to enforce existing laws to the 
fullest extent possible.
    Our request will help us to build on existing efforts that fall 
within our firearms enforcement strategy, including the Integrated 
Violence Reduction Strategy (IVRS), the Youth Crime Gun Interdiction 
Initiative (YCGII), nationwide crime gun tracing, and the National 
Integrated Ballistics Information Network (NIBIN).
    These and other efforts, strongly supported by President Clinton, 
Vice-President Gore and this Committee, have contributed to the sharp 
reduction in firearms violence in the last few years. With strong 
inter-agency support from the Department of Justice, our initiatives 
have also resulted in a clear rise in the number of firearm 
prosecutions, an increase of more than 12 percent between 1992 and 
1999. But we can address more violations of firearms law. And we must 
reduce firearms violence further.
    Our request strengthens our ability to achieve this national 
priority in four ways:
  --First, providing funding for 300 new agents, 200 new inspectors and 
        151 new support staff at the Bureau of Alcohol, Tobacco and 
        Firearms so that the agency can continue its crucial work of 
        collaborating with state and local law enforcement agencies to 
        reduce illegal acquisition, possession, misuse, and trafficking 
        of firearms.
  --Second, increasing the number of cities under the Youth Crime Gun 
        Interdiction Initiative enforcement program by 12, bringing the 
        total to 50.
  --Third, strengthening the crime gun tracing system for law 
        enforcement agencies nationwide, including equipment and 
        training support for 250 state and local law enforcement 
        agencies.
  --And fourth, bolstering the Treasury and Justice Department's 
        unified effort to provide automated ballistics imaging 
        technology to Federal, State, and local law enforcement 
        agencies.
    In addition, Treasury has asked for funding to meet several other 
critical challenges. These include enforcement of laws against forced 
child labor, support for Secret Service and Customs efforts on counter-
terrorism, and airspace security in support of special national events. 
The budget provides funding for these important responsibilities.
                     modernizing our trade systems
    Our third focus is on modernizing our trade systems. Like the IRS, 
Customs has experienced a significant increase in demand on its trade 
system, and the system is not able keep pace. Since the Customs 
Modernization Act was passed in 1993, the number of merchandise lines 
on customs formal entries has more than doubled. The Customs Service is 
required to cope with this sharp rise in trade with substantially the 
same outdated technology it had when the Act was passed. Given the 
critical role of Customs in handling enormous volumes of goods and in 
combating drug and other types of trafficking, it is important that be 
equipped with the best tools to fulfill these goals.
    As I have indicated, Customs is not alone in having to work with 
antiquated technology. We have learned a great deal from the experience 
of the IRS and are applying these lessons to Customs. These lessons 
include forging a clear and well-defined partnership with the private 
sector; adopting a systems life cycle discipline; and using an 
enterprise-wide blueprint and architecture to guide the integration of 
systems as they are developed.
    Our request has two main elements:
  --Additional resources to maintain the existing trade system, the 
        Automated Commercial System, (ACS). The system is prone to 
        outages or ``brownouts,'' and it is important that we do what 
        is necessary to minimize such disruptions.
  --Begin work on a new system, the Automated Commercial Environment 
        (ACE), which will eventually replace the ACS. This replacement 
        is critical and will require a multi-million dollar investment 
        over several years. We propose to establish a fee to fund the 
        development of ACE, and that the fee would appropriately 
        capture some of the benefits that will accrue to private 
        business from modernization. These include a streamlined cargo 
        entry process, account-based transactions, and a paperless 
        process. It is imperative to secure funding for this critical 
        program. The Administration looks forward to working with 
        Congress on the fee to ensure that funding is available in 
        fiscal year 2001, and through the life of the program.
                     enhancing financial management
    My fourth focus is on financial management. We have made important 
progress this year with respect to the nation's money. We have overseen 
the development of the new $5 and $10 bills that will start circulating 
in May. And we have seen what has so far been a very successful 
introduction of the new dollar coin.
    At Treasury we believe it is essential to achieve the highest 
standards of financial management. The two bureaus of the Fiscal 
Service--the Financial Management Service (FMS) and the Bureau of the 
Public Debt (BPD)--provide core services in the areas of government 
payments, collections, government-wide accounting and reporting, 
collection of delinquent debt, and Federal Government financing.
    These are vital functions that enable Congress and the American 
public to have confidence in the ability of the U.S. government to keep 
a detailed and accurate account of public finances and to manage its 
finances professionally. This year, the Bureau of Public Debt carried 
out a new mission of buying back debt as a complement to its more 
traditional mission of issuing debt.
    Owing to the excellent stewardship of the fiscal bureaus--including 
redirection of base resources and reinvestment of productivity savings 
for investment in state-of-the-art electronic commerce technologies--
the budget proposals for the FMS and BPD are comparable to last year's 
requests.
    Let me briefly in this context mention the budget request for the 
President's ``First Accounts'' initiative that aims to ``Bank the 
Unbanked.'' To help fulfill the goals of this initiative, we will use 
Treasury's financial expertise to encourage low-income families who do 
not receive Federal benefits to open bank accounts.
    Between 10 and 20 percent of our population lacks access to bank 
accounts and can pay up to $15,000 over a lifetime for routine 
transactions such as cashing a check or paying a bill. This is 
something that we have started to address through the EFT and ETA 
programs for those who receive Federal benefit payments. We believe it 
is important to work with the private sector to extend this opportunity 
to those who do not benefit from Federal payments.
                   maintaining management operations
    Our final area of priority is maintaining support for management 
operations. Departmental Offices provides the programmatic oversight 
and technical support essential to the Secretary's leadership role in 
law enforcement, revenue collection, international and domestic 
economic and tax policy, and financial management. The budget supports 
these functions with:
  --Increases for core infrastructure operations, including technology 
        upgrades that support Treasury's leadership role on economic 
        issues.
  --Essential resources required in Domestic Finance to oversee 
        implementation of the recently enacted Financial Modernization 
        Act, the most sweeping change in the regulation and management 
        of financial institutions since the 1930s.
  --Continued funding for the multi-year program to repair and restore 
        the historic Main Treasury Building and Annex begun in December 
        1998.
    In addition, our request supports four major projects: the Human 
Resources Information System; Integrated Treasury Network, Critical 
Infrastructure Protection, including the banking and finance sector; 
and the Public Key Infrastructure pilots.
    The budget also strengthens the audit and investigative efforts of 
the Office of Inspector General and enhances the capacity of the 
Treasury Inspector General for Tax Administration to conduct mandated 
and discretionary reviews of IRS operations.
              community adjustment and investment program
    I would also like to report on the progress of the Community 
Adjustment and Investment Program or the CAIP, which is the domestic 
window of the North American Development Bank, but receives its own 
appropriation entirely independent from NAD Bank funding. The CAIP has 
been particularly effective in helping to create and sustain jobs in 
communities experiencing temporary job dislocation attributable to 
changing trade patterns related to NAFTA. To date, CAIP financing has 
helped to create and sustain over 7,000 jobs by facilitating more than 
$225 million in loans, loan guarantees and grants to businesses, 
workers, and communities. I urge you to support this year's funding 
request for the CAIP.
                               conclusion
    Mr. Chairman, let me conclude on a personal note. Since becoming 
Treasury Secretary last year, and in the 7 years that I have worked in 
this department, I have been deeply impressed by the intelligence, 
professionalism and dedication of the people with whom I have worked. I 
am sure this Committee shares my confidence in the uses that are being 
made of taxpayer funds. In that spirit, I ask that you approve our 
fiscal year 2001 budget request to support the work of the Treasury 
Department in fulfilling its wide range of responsibilities in serving 
the American people. Thank you very much.

    Senator Campbell. Thank you. Before I ask questions, I 
would like to yield to Senator Dorgan, do you have an opening 
statement.

                  statement of senator Byron L. Dorgan

    Senator Dorgan. Mr. Chairman, just briefly. Secretary 
Summers, thank you very much for joining us.
    This budget request asks for some significant new resources 
for the functions that you are involved in and I know that you 
are talking about the continued reform of the Internal Revenue 
Service, strengthening the ability to fight drugs and crime, 
enhancing financial reporting and resource accountability, and 
also investing in community development and economic growth. 
These are all important areas.
    I had mentioned at a previous hearing that this is going to 
be an interesting year. We have so many people here on Capitol 
Hill who are focused on the gun issue; such as a circumstance 
where a young child brings a gun to school and kills another 
young child in first grade. People's initial reaction will be, 
well, we must enforce gun laws. Well, enforcing gun laws 
requires the resources to do that and this budget requests 
resources to enforce gun laws. I think it is a perfectly 
appropriate thing to do and an appropriate request and I hope 
Congress will respond to it in an appropriate way.
    Regarding the Customs computer trade modernization issue, 
frankly, I think it is unlikely for the Congress to agree to 
the Administration's proposed user fees, but no matter how we 
come out on that issue, we have to upgrade that system. The 
Customs Service system is really melting down on us and we need 
to provide the resources to find a way to address that. I know 
my colleague from Colorado has been working with many, 
including myself, to find a way to resolve those issues.
    I have a number of questions I want to ask you, but let me 
just ask that my full statement be put in the record.
    Let me also say, Secretary Summers, we have had the 
opportunity in past years to have your predecessor visit with 
us and I think that Congress owes you a debt of gratitude for 
your public service. I am pleased that you have decided to 
continue that service as Secretary of the Treasury. As you 
described in your opening statement, we have a great many 
challenges ahead of us, but if we work together, we can respond 
to them in an appropriate way.
    Of all the many functions you are involved with, almost 
half of the law enforcement activities of the Federal 
Government fall under your jurisdiction. Most of these 
activities are very, very important and we must do right by 
them in terms of providing the appropriate resources.
    I would like to mention one final point. Before coming to 
Congress, I was an estate tax administrator. I have always felt 
it is important to put the word ``service'' back in the 
Internal Revenue Service and extend a helping hand to the 
American taxpayers to comply with tax laws. One of the 
proposals this year is for Internal Revenue Service systems 
modernization while strengthening customer service and 
compliance. I think that is very important.

                           Prepared statement

    So I am going to ask you later about abusive tax shelters 
that I think are very troublesome and whether we have the 
resources to address those. I am going to ask you a number of 
things, but first, let me thank the chairman. I was delayed 
with a couple of meetings in the Capitol, but I am pleased to 
be here and will ask my questions following Senator Campbell's 
questions.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Thank you, Mr. Chairman. I am pleased that Secretary Summers is 
able to join us today. In the months since he assumed the helm of the 
Treasury Department, he has maintained the steady hand of his 
predecessor, former Secretary Rubin.
    Mr. Secretary, you are here today to explain the final budget 
request for the Clinton Administration. In many respects, this is an 
aggressive and robust request. You seek a net appropriation of $13.9 
billion--an increase of more than $1.5 billion over the current year's 
appropriated level.
    As iterated in the Department's budget documents, some of your key 
priorities are supporting continued reform of the IRS, strengthening 
our ability to fight drugs and crime, enhancing financial reporting and 
resource accountability and investing in community development and 
economic growth. These are all goals which I strongly support.
    Specifically, you request nearly $120 million for continued 
investment in the IRS' systems modernization and $144 million to hire 
over 1600 FTE (Full Time Equivalents) to strengthen customer service 
and compliance. These are needs which must be met.
    Your budget proposes an additional $106 million to add over 700 new 
positions to the Bureau of Alcohol, Tobacco and Firearms to enhance 
compliance with existing firearms laws, expand the Youth Crime Gun 
Interdiction Initiative, and improve ballistics imaging and gun tracing 
efforts. If we are to effectively enforce existing gun laws, these 
funds are the minimum needed to meet that challenge.
    Your budget proposes to spend $123 million to maintain the Customs 
Service's existing commercial trade computer tracking system while also 
seeking an additional $210 million in new users fees for a 
significantly upgraded commercial computer system. While I have my 
doubts about the efficacy of yet another user fee, this upgraded 
Automated Commercial Environment (or ACE) is desperately needed as our 
trade with other nations continues to grow.
    The budget also seeks $15 million for a new money laundering 
initiative, $25 million for a Counter-terrorism Contingency Fund, $16.3 
million for a new, joint Secret Service-Customs Service Air Security 
Initiative, and $5 million to enforce child labor laws--in general, a 
host of innovative new initiatives. Each of these programs, 
individually and jointly, are worthwhile and a strong case can be made 
for them all.
    But, I must be honest with you Mr. Secretary, I doubt that we will 
have sufficient resources to meet all of these requests--as well as 
those for other agencies also funded by this subcommittee. While we may 
be moving away from increasingly irrelevant budget caps and entering an 
era of alleged budget ``surpluses,'' there are a number of our 
colleagues who would direct these surpluses to steep and--in my view--
unwise and unsound tax cuts.
    Today we are debating a budget resolution that would effectively 
tie this subcommittee's hands and prevent us from even maintaining 
current level of funding for these critical law enforcement and other 
initiatives. The levels in the pending budget resolution will do great 
harm to much that all of us today want and need to accomplish. But as 
we focus today on the rather more mundane aspects of funding the many 
necessary programs within the purview of this subcommittee and your 
Department, I would urge you to work with us on this subcommittee as we 
develop a bill in the coming months. Share with us your priorities and 
assist us so that we can craft a bill which meets the needs of the 
Department and, more importantly, the American people.
    I look forward to working with you to meet that goal and I look 
forward to your testimony today.
    Thank you, Mr. Chairman.

    Senator Campbell. Thank you for appearing, Mr. Secretary. 
You mentioned the five important areas. Did you mention them in 
the order of your funding priorities, with the first one being 
the top or do you have a priority order of those?
    Mr. Summers. I think they are all absolutely critical 
orders. I mentioned the IRS first because it is the largest 
component of the Treasury budget, but these are each very 
separate programs that meet critical needs and I would not want 
to be in the position of trying to say whether our country had 
a greater stake in an effective tax administration system or an 
effective law enforcement with respect to drugs. Both seem to 
be absolutely imperative.
    Senator Campbell. Well, I understand, but the reason I ask 
is because we have not passed a budget resolution yet, and as 
you know, the President's request was very good for this 
committee, about a 20 percent increase. I have my doubts that 
we are going to have that much money to spend when the budget 
resolution is passed. I think in the past, this committee has 
done our very best to supply the funds we could to your 
Department, but we do not know how much money we are going to 
spend yet--you probably know that--and will not maybe until 
next week sometime.
    I want to also thank you, although you were not here, the 
different law enforcement agencies under Treasury did a very, 
very nice display here in the Dirksen about a week ago and a 
number of our colleagues came over and looked at it. We saw a 
lot of the weapons that you deal with, some of the high-tech 
paraphernalia that has been developed to fight in the drug war. 
I was particularly impressed with almost $1 million of 
counterfeit money that was stacked up on one table. I mean, 
only an expert would know the difference. In fact, I was so 
impressed, I got to thinking, I wonder if we could borrow some 
of that for this committee to bail us out, but somebody along 
the line would probably spot it that is better at seeing 
counterfeit money than me.
    You also mentioned the difficulty of retaining people, and 
I know that is a concern of every Federal agency now, including 
the Army, as you know. With a vibrant economy, things are going 
good out in what I call the real world. It is harder to get 
people to serve. I know that. If it was in the power of this 
committee's jurisdiction to raise that pay, I would, but that 
is, of course, something the authorizing committee has to deal 
with, but I certainly commiserate with you.

                        Wireless communications

    Let me ask you two or three other questions. This 
subcommittee has funded the wireless communications effort for 
the Department of the Treasury for several years. This year, 
you are requesting $55 million for this program. How much 
longer do you plan to request those funds and what are we going 
to see for the investment of that $55 million?
    Mr. Summers. Perhaps I could ask my colleague, Lisa Ross, 
who is the President's nominee to be our Assistant Secretary of 
Management and who has been very closely involved in our 
information technology efforts to answer your question.
    Senator Campbell. That is fine. Ms. Ross, would you like to 
comment on that?
    Ms. Ross. Yes. The $55 million requested this year is the 
first major request for a multi-year effort. As you know, the 
spectrum will shut down on December 31, 2004 and we are 
basically looking at a 3- to 4-year program to convert from 
analog to the new spectrum. This $55 million will start the 
program to affect this change over the coming 4 years. It also 
includes some capital investments to start to replace some of 
the equipment that will be compatible in the long term with the 
spectrum change that we need to make. So I would consider this 
the first major year of what will be the 3- to 4-year effort.
    Senator Campbell. Do you expect to ask for that amount for 
the next 4 years?
    Ms. Ross. Yes, we will be requesting resources over several 
years, as we roll out this legislated mandate, and 
specifically, will be requesting additional amounts in fiscal 
year 2002. We are in the process of reviewing those estimates 
now.

                       Public key infrastructure

    Senator Campbell. Okay. Mr. Secretary, you are requesting 
$7 million for public key infrastructure. What is the need for 
that program and what do you expect to achieve with that 
funding request?
    Mr. Summers. As we have communications both within the 
Department, with other agencies, and with increasingly 
internationally with respect to sensitive financial issues, it 
is increasingly important that those communications be secure. 
What public key infrastructure does is provide for the 
necessary kinds of encryption for secure financial 
communication. Of the $7 million, $5 million would promote 
public key infrastructure for certain bank and financial 
institution regulation pilot projects and $2 million would fund 
Treasury's share of the cost of the Federal bridge 
certification authority, which would govern the use of 
certification authorities, a holder of the key with respect to 
public infrastructure and ensure that we had technical 
interoperability, the ability to communicate between different 
government agencies.
    I might just say that I think that given concerns about 
privacy, given the kinds of issues we discussed earlier in 
connection with the IRS, that I think having a satisfactory set 
of encryption technologies for communications and other kinds 
of records that need to be kept secure is of great importance.

                            Counterterrorism

    Senator Campbell. I thank you. The President's budget also 
requests $25 million for a counterterrorism fund within the 
Treasury Department. There is already an account similar to 
this for the Justice Department. I am sure you are aware of 
that. The difference, as I understand it, is the Treasury fund 
can be used only after an official emergency designation has 
been made, and I assume that is an emergency designation made 
by the President.
    Tell us a little bit about that fund, the purpose of it, 
and if you ever had that type of fund before, how much money 
was appropriated before, how long did that funding last, and 
who is responsible for determining whether the money is 
disbursed from the fund?
    Ms. Ross. You are right in that the fund is being set up to 
cover national security events, and in the past, Treasury did 
have, a counterterrorism fund, but in the fiscal year 2000 
budget, they did not have one. We used that fund in the past to 
fund those national security events and cover the additional 
costs that Secret Service, Customs, or ATF would incur as a 
direct result of those events.
    The $25 million is to provide reimbursement for those costs 
of projects specially designated as emergency.
    Senator Campbell. Yes, if you would get back to us and 
elaborate on what qualifies as a national security event. Does 
that mean like world trade seminars, for instance, or----
    Ms. Ross. Yes. World trade last year, NATO was covered, 
mostly through supplemental funds, so we are trying to avoid 
having to do that again with the contingency planning that this 
fund provides.
    Senator Campbell. The riots we had at the WTO, things of 
that nature, it would cover?
    Ms. Ross. Exactly.
    Senator Campbell. Would that also cover things like the 
Olympic games, security for them, because I know in the past, 
we have had some requests for----
    Ms. Ross. Yes. In the 2001 budget, we actually do not have 
any funds in there for the Olympics. If we were not to get any 
additional funds, we would probably look to the 
counterterrorism fund to fund some of those needs.
    Senator Campbell. And who is responsible for dispersing the 
money or determining how it should be dispersed?
    Ms. Ross. Again, I believe those have to be events that are 
specifically designated by the President.
    To answer your question about past funding it was $15 
million in the split over 2 years, so this is somewhat of an 
increase but represents the pace at which we have been seeing 
these events being designated as national security events.

                   National money laundering strategy

    Senator Campbell. Thank you. Mr. Secretary, why is the 
money laundering initiative funded in the Department office's 
account rather than the financial crimes enforcement account?
    Mr. Summers. Because the objective of the initiative is to 
provide for greater coherence of the efforts within the 
different bureaus towards pursuing a set of specific objectives 
that were laid out in the National Money Laundering Strategy. 
For the first time, rather than have a set of dispersed law 
enforcement strategies following a Congressional mandate, 
Attorney General Reno and I have put out a National Money 
Laundering Strategy that identifies a set of priorities and 
have looked, for example, for FinCEN and Customs to be working 
more closely together.
    Of the initiatives in the National Money Laundering 
Strategy and in that $15 million fund, six of the full-time 
equivalents would be in the Department offices to facilitate 
the coordination and the additional ones would be allocated to 
the bureaus to carry out their new roles in association with 
the Money Laundering Strategy.
    Senator Campbell. I see. Speaking of money laundering, what 
was the criteria used in designating the first high-risk money 
laundering and related financial crimes areas referred to as 
HIFCA?
    Mr. Summers. They were areas--the methodology there bore 
some resemblance to the approach that--let me see if I am going 
to be able to answer that without reading the sheet of paper 
that has just been handed to me, and then we can see whether I 
got it right or not----
    Senator Campbell. That is all right. I have to refer to 
notes, too.
    Mr. Summers. The basic approach was similar to that which 
has been used with respect to areas that are particularly 
serious in terms of the need for drug enforcement, and an 
interagency group was set up to evaluate which are the areas in 
which the problems are most serious and target those areas as 
the areas where they are most serious. That working group made 
the recommendations to a steering committee and then the 
Attorney General and I made the formal designations. We would 
expect that, over time, other geographic areas will be 
considered for designation as HIFCAs.
    Senator Campbell. This Money Laundering Strategy request 
includes 42 new FTEs, as I understand, are going to cover 
issues from three different offices, the Office of Enforcement, 
Domestic Finance, and Tax Policy, is that right? If the program 
covers all three offices, why is the Office of Enforcement the 
only division getting the FTEs?

                   National money laundering strategy

    Mr. Summers. The 42 refers to the six in our Office of 
Enforcement and the 36 in our bureaus that I referenced. The 
Office of Enforcement has major responsibilities for the 
oversight of what is going on in the Customs, what is going on 
in FinCEN, what is going on at the Secret Service, and what is 
going on at the IRS, all of which have important financial 
crime responsibilities. So for coordinating law enforcement 
responsibilities, that is something that is taking place within 
the Office of Enforcement.
    It is our judgment that the incremental responsibilities 
within our tax area, for example, around tax havens and around 
the regulatory issues that are covered within our domestic 
finance area were things that, given the need to constrain a 
budget, that we felt very strongly could be handled with 
existing personnel. I am sure the relevant under and assistant 
secretaries would be very pleased to have additional staffing 
to take on those responsibilities if there was a desire to 
launch an initiative in that area, but our feeling was that 
that part of the work could be done in those areas.
    Senator Campbell. Thank you. Let me yield to Senator Dorgan 
so we can trade off on the questions a little bit here.

        Air Security/Initiative/National special security events

    Senator Dorgan. Mr. Chairman, thank you very much.
    Mr. Secretary, this is an easy question. Have you read the 
``Style'' section of the Post this morning?
    Mr. Summers. I confess not.
    Senator Dorgan. There is an interesting story in the 
``Style'' section of the Post entitled ``Anarchy, Anyone?'' and 
it talks about the protests looming this month with respect to 
the meeting of the IMF. I asked the question, it is an 
interesting story, but I asked the question because in the 
budget submission, there is an initiative, the Air Security 
Initiative, with which you are familiar, and I am curious what 
will determine when an event becomes a national special 
security event. For example, would the meetings later this 
month of the IMF, do you think, trigger such a designation?
    Mr. Summers. I would not anticipate at this point that the 
IMF World Bank meetings, for which I assure you that the 
relevant agencies are making appropriate preparations, would be 
something that would trigger that special status where the Air 
Security Initiative would become involved. This is a National 
Security Council initiative to support events involving really 
very major and non-repeatable kinds of security threats. The 
NATO exercise in Washington, the WTO meeting, the Olympics in 
2002 would be examples of the types of events that are 
contemplated as requiring air support.
    Senator Dorgan. Seattle in December?
    Mr. Summers. Seattle in December, yes, probably.
    Senator Dorgan. Mr. Secretary, I do not mean to make light 
of this at all. I asked the question because I think this 
obviously is going to become an issue and I wanted to know 
whether it related to the specific request here.

                              Tax shelters

    Let me ask a couple of questions about tax shelters, 
especially the abusive tax shelters. My understanding is that 
while we have had a robust and growing economy with record-
breaking sustained economic growth, large corporate income tax 
receipts last year were down, which would seem to me to be at 
odds with what one would expect in a booming economy. One would 
expect corporate profits to be up, and therefore corporate tax 
receipts from the largest corporations to be up.
    I assume at least part of the answer to that is the ever-
increasing and more abusive tax shelters. You have spoken on it 
some. It relates, I think to why you need more resources at the 
IRS, something which I think is important and which I support 
strongly. Can you describe to us these more sophisticated, not 
in great detail, but the more sophisticated threat that comes 
from abusive tax shelters, and do you think that part of the 
reduction in corporate income taxes has come from that kind of 
enterprise?
    Mr. Summers. Senator Dorgan, I do suspect that corporate 
shelters have contributed to the erosion of the tax base. There 
are many factors in corporate revenue trends--accelerated 
depreciation with high investment, stock options, many 
factors--so I think it is difficult to quantify on that basis. 
But I think it is suggestive that those tax shelters which have 
come to our attention more or less by coincidence that we have 
closed down would have cost approximately $80 billion in 
revenues over the next 10 years and we have every reason to 
believe that what we see and are able to catch is the tip of an 
iceberg. So this is a quantitatively large problem.
    The essence of a corporate tax shelter is not a business 
tax incentive about which people can reasonably differ. It is a 
transaction, and to use one of the lawyers' terms, is devoid of 
economic substance, that involves no real change in ownership 
or employment arrangements but involves a contrivance, such as 
in one famous example, the sale and then the lease back of a 
Swiss city hall for a period of a few hours that produced 
several hundred million dollars in tax savings for those who 
were involved, or the recharacterization of financial flows on 
an artificial basis.
    Our judgment after quite extensive contacts with 
practitioners is that these kinds of transactions are being 
more aggressively marketed than in the past, often with 
confidentiality agreements, often with those who market them 
paid on a contingency fee basis, and often with legal contracts 
that say that in the event it is audited, the whole thing 
dissolves and goes back to the normal situation.

                              Tax shelters

    I think the approach that is most effective, and it is one 
we are seeking to work with the tax writing committees on, is 
an approach that is based first on better service to taxpayers 
by assuring, as Commissioner Rossotti's reforms will, that 
taxpayers have someone involved with them who knows about their 
industry and knows about their business and can tell what is 
real and what is not, and then, second, involves an approach 
based on disclosure, because as we have seen in so many 
contexts, some light is the best disinfectant, and that asks 
for those who are pursuing transactions that have many of the 
elements of a tax shelter to disclose those transactions so it 
is clear that they have been pursued and that a judgment can be 
made as to whether they are legal or whether they are not 
legal.
    I think we also need to look in the penalty and ethical 
code areas, particularly with those who are involved in the 
marketing of these shelters. Certainly, the capacity of the IRS 
to vigorously enforce in this area, which is an area where over 
time tens of billions of dollars are at stake, depends upon the 
adequacy of its resources and that is why a budget request that 
reverses what has become a medium-term trend towards declining 
staffing seems to us to be so very important.

           Transfer pricing, Return-free filing, and overtime

    Senator Dorgan. Mr. Secretary, thank you for that. Let me 
also mention, I will not ask you a question about it, but I 
will mention my continued interest in the transfer pricing 
issue and what I think is substantial abuse in the area of 
transfer pricing to avoid payment of taxes in this country by 
the largest corporations. Messrs. Pak and Zdanowicz, two 
professors from Florida, have done a lot of, I think, very 
interesting work in this area. I think they are more accurate 
than the Internal Revenue Service in the estimate of loss. I 
think the loss is in the tens of billions of dollars a year, 
and I will continue in my mettlesome ways to try to write 
little things in pieces of legislation that urges and 
stimulates and encourages and pushes the agency to continue 
working in this area.
    I know you and I disagree about Federal legislation on 
transfer pricing, but I do want to tell you that my interest in 
that has not abated, nor do I think I am wrong. You are welcome 
to respond to that.
    Let me also just mention that an area that I am really 
interested in working with you on, that we have discussed, is 
the issue of finding ways to save money and save taxpayers time 
and headaches with respect to return-free filing. More than 30 
countries actually allow people to comply with their income tax 
responsibility without filing an income tax form. They do that 
through a rough justice form of having withholding become the 
actual tax liability.
    I am about to introduce legislation that will do that in 
this country and that I think will allow up to 70 million 
people to comply with their income tax responsibility without 
having to file an annual tax return, which I think would be 
good for the IRS, less paper, good for the Treasury Department, 
less processing costs, certainly good for the taxpayers in this 
country. So I am anxious to continue to work with the agency 
and the Internal Revenue Service as you review all of these 
issues and hope that we can perhaps make some progress on that.
    And then, finally, let me ask the question about overtime 
that Senator Campbell alluded to. I think it is very important 
for us to try to evaluate whether this is a good use of the 
taxpayers' money. I know you do not authorize and use overtime 
because you want to, you do it because you have to. I 
understand that. And yet, I think Congress ought to understand 
that overtime compensation is the most expensive compensation 
that we use and we probably ought to, when we look at the 
overtime usage in some of these agencies, which can be up to 2 
weeks of overtime in 1 month. That is very substantial. We 
maybe ought to take a look at increasing the full-time 
equivalent positions as a more honest approach to meet the 
workload.
    It is an area that I am kind of interested in, and I know 
that the chairman asked a question about it. What is it costing 
us and what are we getting for it? How could we better address 
that and make a more effective use of the taxpayers' money?
    So I have given you a kind of a load there, Mr. Secretary. 
Feel free to respond to any of it.
    Mr. Summers. Senator Dorgan, I will try to respond quickly. 
On overtime, I share your sentiments. This is an issue in many 
places. The place where I feel it most pressingly within the 
Treasury Department is, frankly, with the Secret Service, where 
the mission is one where fatigue is a particularly precarious 
thing and that is why we are seeking extra full-time 
equivalents. There is the additional dynamic that excessive 
overtime tends to lead to attrition, which leads to more 
overtime, and we have got to find a way to break out of that 
cycle.
    With respect to return-free filing, I have enjoyed our 
discussions on this in the past and it is something we are 
certainly prepared to look at and work with you. My impression 
is that one of the committees will be having a hearing on this 
issue sometime in the next little while.
    With respect to transfer pricing, Senator Dorgan, I do not 
think we do have precisely the same view on the near-term 
revenue potential of the issue, but I do think there is common 
ground and the recognition that as we all talk about the 
process of managing global integration and having it work for 
people, which is one of the themes that the President has 
stressed over the last year, that one part of that has to be 
making sure that global integration does not benefit mobile 
large entities at the expense of those who have less mobility.
    One of the important areas that has to be examined in that 
regard is the whole area of tax rules on cross-border 
transactions, and certainly that calls for making sure that we 
have transfer pricing rules that do not allow what are real 
profits to entirely escape taxation. I think over time, as we 
think about a new global economy and a 21st century approach, 
that will be a set of issues that will have to be examined with 
increasing care.
    Senator Dorgan. Mr. Secretary, thank you very much, and let 
me again say that I am heartened by your stewardship at 
Treasury. These are interesting times, and in many ways we are 
blessed with an economy that is so strong and has so many 
boundaries. But at the same time, there are a lot of 
interesting challenges. I have not asked about derivatives and 
hedge funds and other things, but I am glad you are there and I 
think that your stewardship at Treasury can give Congress some 
confidence on a number of these challenges.
    Mr. Summers. Thank you very much.

                         Secret Service hiring

    Senator Campbell. Mr. Secretary, speaking of overtime and 
retention, we were told by several of the agencies that the 
jobs are getting tougher on the quality of life for all of 
them. When the Secret Service testified the other day, they 
talked about the difficulty they were having and, in fact, are 
trying to hire a total of 359 agents in the next 2 years.
    As a result, last year, we provided $10 million by direct 
appropriation to the Service and the Department was directed to 
transfer an additional $21 million, which was done. Since those 
funds have been transferred, do you think the Service will be 
able to obligate all of it before September 30? This is the 
Secret Service I am talking about.
    Mr. Summers. I will give you a better answer if I turn 
around.
    Senator Campbell. Turn around.
    Mr. Summers. Yes, I am assured. There seems to be a 
unanimous view behind me.
    Senator Campbell. I think I got the same answer the other 
day from the gentleman that just gave you that answer.
    Mr. Summers. I will check that that is the case, and if for 
any reason there is any sense in which that is not the case, I 
will be sure to come back to you, Mr. Chairman.
    Senator Campbell. I wish you well. I know, as Senator 
Dorgan knows, it is difficult to get people to serve when they 
have to put in so much time and the quality of their own family 
deteriorates because of it.

                             GREAT program

    There is a program I am particularly interested in, and I 
asked the ATF about it the other day. It pertains to a program 
called the GREAT program. Are you familiar with that?
    Mr. Summers. Yes.
    Senator Campbell. I happen to think it has a real 
relationship to teen behavior and I noted with some regret that 
the funding for the program was reduced as the ATF contribution 
to the 38 percent rescission that we required here in Congress. 
We provided $13 million for grants to State and local law 
enforcement to participate in that program, $3 million more 
than was even requested by the administration. That was reduced 
by a little over $1 million, about $1,120,000. Do you know why 
that account was particularly picked for reduction?
    Mr. Summers. Let me say, Mr. Chairman, we are very much 
committed to the GREAT program and I share your view that this 
kind of prevention effort is one of the most important things 
the ATF can do with respect to firearms violence. What I was 
told was that you had a situation where there were some 
available carryover funds from previous years. You had a 
certain sized implementation capacity, and in light of the 
implementation capacity, it was possible to make this reduction 
in new funding without sacrificing what would have been the 
effectiveness of the program and that it did not reflect any 
kind of priority judgment about the GREAT program. It simply 
reflected the administrative feasibilities of the situation, 
and on that basis, we made the decision and, frankly, it was 
made with a little bit of regret because we did not want to do 
anything that even symbolically would suggest that the GREAT 
program was other than something that was very important to us.
    Senator Campbell. Well, as you go through this year, if you 
have to make some rescissions, I think I can speak for most of 
the committee members that the GREAT program is an important 
program for young people.
    Mr. Summers. Message received.

                    Customs Service funding request

    Senator Campbell. The administration has also proposed a 
Colombia drug supplemental. There have been a wide variety of 
numbers floating around, and I have two different numbers. The 
administration proposed $68 million for radar upgrades for 
Customs airplanes, but I have heard Customs is seeking $395 
million for the same thing. Can you give the committee some 
insight on what the real request is?
    Mr. Summers. The real request is that that is contained in 
the President's supplemental request.
    Senator Campbell. 68?
    Mr. Summers. $68 million.
    Senator Campbell. Okay. What offsets is the Department 
willing to provide in order to increase it, or are you going to 
stick with that $68 million, do you think?
    Mr. Summers. The $68 million is the administration's 
request.
    Senator Campbell. There was a recent Washington Post 
article that said that the President's budget requested a 3.9 
percent increase for the Customs Service over fiscal year 2000. 
There was a second article that added that the increase was 4.6 
percent. Yet judging from the Department's justification 
information we are receiving from the Department, Customs is 
really looking at a 22.4 percent increase if all the requested 
funding is included. Could you clarify that?
    Mr. Summers. As always with budget figures, there are a 
range of ways of calculating them. The 22 percent figure that 
you cited, Mr. Chairman, includes, as for many purposes would 
be appropriate, all of the initiatives, including the fee-
funded budget authority for the ACE system. Without the ACE 
system, the budget request would be 11.5 percent. The much 
lower 3.8 and 4.6 percent figures that you cited refer to the 
budget allotment to the base operations of Customs, excluding 
any new initiatives at all.

                       Taxpayers' advocate office

    Senator Campbell. Let me just ask maybe a last question or 
two. You talked about the poor old taxpayer a little bit. How 
is the Taxpayers' Advocate Office integrated into the 
Department? Has making it an independent reporting entity 
assisted the IRS?
    Mr. Summers. I think Taxpayer Advocate has made a--with the 
annual reports and reflecting the appropriate degree of 
independence that Congress prescribed, I think has made a 
useful contribution, yes.
    Senator Campbell. Has it focused more on the taxpayer or on 
the internal workings of the IRS?
    Mr. Summers. I think it has focused most on the aspects of 
the workings of the IRS and the tax law that impact directly on 
taxpayers and that create burdens and complexities and 
difficulties for taxpayers, issues such as the alternative 
minimum tax, and I think their report, along with many other 
factors, was one of the things that led to the decision that 
the alternative minimum tax issue is something that would be 
included in the President's budget.
    Senator Campbell. I think Mr. Rossotti is doing a fine job. 
He was in the other day, and I am continually pleasantly 
surprised at the productivity of his office.
    Senator Dorgan, I had no further questions. Did you? I may 
have one or two I want to submit to you in writing.
    Mr. Summers. Sure.

                             Customs study

    Senator Dorgan. Mr. Chairman, just one or two additional 
questions.
    The Commissioner of Customs has described to us a study 
they have done that I believe Treasury now has relating to 
their resource needs. Will Congress have access to that at some 
point when Treasury has been able to review it? The reason I 
ask the question is I think both from the perspective of the 
southern border and also those of us from the northern border, 
the issues of resources are very important issues with respect 
to Customs.
    Mr. Summers. There are a number of issues that, as I 
understand it, need to be reviewed both within Treasury and 
OMB, but certainly when the study has been fully reviewed, we 
would anticipate that it would be available to Congress.
    Senator Dorgan. Senator Campbell just asked whether we 
needed to increase the number of orange cones that we put in 
the middle of the road that separates the U.S. from Canada. 
When we are dealing with terrorists, searching all the cars in 
these busy ports, there are these little orange cones that are 
put up at 10 o'clock in the evening on these roads that come 
into North Dakota and Montana and so on. The folks that want to 
come in just remove the cone, and then if they are really 
polite, they will drive through and put the cone back and then 
keep going. If they are thoughtless, they will just leave the 
cone off to the side of the road. But we raise those questions 
because, this is a national issue. Terrorism is an important 
and growing issue and we need to certainly have the resources 
available to respond to it.
    The Mint, as I understand it, is self-funded. I am curious 
however, of your impression of the success of the Sacajawea 
dollar, the gold dollar. That went out with a lot of fanfare. I 
assume you were involved in planning some of that. What is your 
impression of that?
    Mr. Summers. I would say that, and I can give you a more 
detailed answer in writing, but my impression is that the 
demand so far has rather exceeded our projections of demand and 
I think that a lot has happened since the last time the nation 
tried to introduce a dollar coin in the late 1970s. As a 
consequence, I think there is some receptivity to a dollar 
coin, which is, as I say, finding more circulation than was 
expected. I think the combination of the different color that 
is associated with this coin and the different tactile feel 
that makes it easy to distinguish in your pocket from a quarter 
has also helped raise demand for the coin.
    While I know there have been some concerns around the 
distribution, I think those are issues that are being 
addressed. I think that the people at the Mint can feel some 
satisfaction that it is the lack of supply in the face of 
demand that has caused the concern this time around, rather 
than the accumulation of large inventories.
    I will just, for the benefit of my friends with cameras, 
take the opportunity of your question to hold up one of these 
new coins.
    Senator Dorgan. Mr. Summers, you have a great staff.
    Senator Campbell. I might tell my colleague that I was 
invited to the first striking of those coins out in Denver. We 
were out there about a month ago now. You also participated in 
something in North Dakota, too. I had a chance to talk to 
somebody from the Numismatic Association and they thought this 
was just going to be a marvelous coin for the collectors. I do 
not know how many they are going to mint. I guess that will be 
determined by the Federal Reserve Board. But it was a very 
interesting experience for me. They used an old machine that 
had been in use for 160 years or something of that nature in 
Denver to strike that coin.
    Senator Dorgan. So the Secretary's initial impression is 
that this is gaining some acceptance?

                              Dollar coin

    Mr. Summers. Yes, I think that is right. I am able to 
report that the Mint estimates that they will produce and ship 
approximately $1 billion golden in fiscal year 2000, and the 
advertising campaign has had some real efficacy and I think it 
is expected that--it obviously depends on how much TV people 
watch, but it is apparently expected that the vast majority of 
the target audience will see more than 15 advertisements 
addressing this. The Mint has had a number of partners, perhaps 
most notably at Wal-Mart. That has helped to introduce this 
coin into circulation. So I would say we are very pleased with 
the results of our----
    Senator Campbell. Say that again about Wal-Mart? I was 
writing some notes. What was your comment about Wal-Mart 
distributing coins?
    Mr. Summers. The Mint, as part of the distribution 
mechanism for the new coin, the Mint entered into a partnership 
with Wal-Mart for the distribution of some 94 million coins 
during the month of February. Wal-Mart obviously paid for all 
the coins and provided a kind of advertising through talking 
about the fact that it was using the coins and that then has 
driven, as these have come into circulation, increased demand, 
and in particular increased demand from the banking industry, 
to the point where the concerns, and they have been real 
concerns and we have tried to address them, have not been of 
nobody wanting the coins but of people wanting the coins and 
having difficulty getting them. I think that portends--I do not 
mean to minimize those problems, but that portends a favorable 
introduction for the dollar coin.
    Senator Dorgan. I do not want to go further on this, but as 
you know, there was some criticism by small banks and also 
small merchants asking why a large merchant was given some 
preference here. We should not be savoring a large merchant 
over small businesses in endeavors such as this. While the 
damage has been done in this case, we must ensure that it does 
not happen again. When we visited with the Mint about that, 
they indicated that they had a schedule to move coins 
immediately into the banking system.
    But I must say that I have not seen a gold coin out there 
yet, and part of it is because I do not shop much and when I 
shop, I never get change. But I, frankly--have you gotten a 
gold coin while you are out shopping?
    Senator Campbell. No. No, I have not.
    Senator Dorgan. I want this to succeed, obviously, for a 
lot of reasons, and I hope they are moving out expeditiously 
all across the country.
    Senator Campbell. The only thing I can figure out is I shop 
at Wal-Mart, too, and they have a wonderful refund policy. 
Maybe when the people that get these coins find out they are 
plated and not real gold, they will be taking them back.

                     Additional committee questions

    I have no further questions. Did you?
    Senator Dorgan. I have none. Thank you, Mr. Secretary.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. Treasury has taken on the task of trying to help low-
income American families find affordable ways to bank.
    What steps have you taken to secure affordable services to the non-
bank population?
    Answer. In implementing the Debt Collection Improvement Act of 
1996, Treasury began the Electronic Funds Transfer 1999 (EFT'99) effort 
to increase access to low-cost banking services for federal benefits 
recipients who may not have banking relationships. Under EFT 1999, 
Treasury, after broad public round tables with consumers and financial 
institutions, designed the Electronic Transfer Account (ETA) for people 
who receive federal benefits and do not have a bank account. The ETA, 
introduced in July 1999, is entirely voluntary for banks to offer and 
federal check recipients to enroll. It is an affordable transaction 
account for lower-income federal benefits recipients, at a price that 
is economically viable for financial institutions to offer. To date, 
over 400 financial institutions with over 2,500 locations have 
committed to offer the ETA thus far, with most institutions rolling out 
the ETA during 2000.
    In order to enroll in an ETA, however, you must be a federal 
benefits recipient. The First Accounts initiative is designed to reach 
low-income people without bank accounts, but who are not eligible for 
ETAs because they do not receive federal benefits.
    A related EFT'99 initiative, a pilot project run jointly by 
Treasury and the US Postal Service, has placed ATMs in post offices in 
low-income communities in Baltimore, Maryland and Tallahassee, Florida. 
These ATMs allow residents of these neighborhoods to access their bank 
accounts inexpensively in safe, secure and convenient locations. A 
component of the First Accounts initiative would build on the 
experiences of this pilot by helping financial institutions to increase 
the availability of electronic banking points in communities such as 
these that lack access to banking services.
    Treasury also recently announced its involvement in National 
Partners for Financial Empowerment (NPFE). NPFE is a new forum for 
private sector organizations and companies to come together with 
federal participation to encourage Americans to save for their future 
and to take control of their personal finances. As a member of this 
forum, Treasury will work with other NPFE organizations to encourage 
families--especially those with low incomes--to make informed choices 
for common financial transactions, including home mortgages, retirement 
savings options, consumer credit and basic banking services.
    Question. How will you convince the low-income population that they 
can afford to use this service if you are able to secure it?
    Answer. Convincing the unbanked population to take advantage of 
low-cost banking services involves educating these consumers about such 
services, and designing those services in a way that is useful for the 
target population. As explained in the question and answer below, 
Treasury will work to educate low-income families--especially those 
without a banking relationship--about the benefits of participating in 
the financial services mainstream.
    In designing First Accounts, Treasury will conduct new research on 
the financial services needs and preferences of the unbanked 
population. As part of EFT'99, Treasury commissioned research to 
analytically test the demand for different proposed features of the 
ETA. Treasury also completed new research on alternative financial 
services providers, such as check cashers and money transmitters, that 
reveals much about the demand for financial services among the unbanked 
population in the cities studied.
     Treasury also plans to ``pre-pilot'' new products to gauge demand 
for different First Accounts product designs. This fall, Treasury's 
CDFI Fund will include an incentive for banks to provide innovative 
services to the unbanked by clarifying how its Bank Enterprise Award 
Program can be used to support the provision of new low-cost accounts. 
The demand for these accounts, among both consumers and financial 
institutions, will help Treasury to expand the availability of products 
that make sense for the unbanked and are economically viable for banks 
to offer.
    Question. Do you have a plan on how to get this information out to 
low-income families and to make them aware that there is an alternative 
to the expensive way they are presently banking?
    Answer. As part of the First Accounts initiative, Treasury would 
educate lower-income Americans about the benefits of having a bank 
account, managing household finances, and building assets. This 
educational effort would build on Treasury's experiences as a member of 
National Partners for Financial Empowerment, and its public education 
and outreach effort for EFT'99.
    To explain the benefits of EFT and ETAs, Treasury launched a 
nationwide public education campaign that attempts to reach the 
millions of people that do not use direct deposit, and in particular 
those without bank accounts. That effort includes a wide variety of 
some 10 million printed materials, a guide to providing basic financial 
education in a range of local settings, a community outreach initiative 
involving national and local partnerships with organizations across the 
country, public relations activities and a public service advertising 
campaign that has included outdoor billboards, print, transit, and 
radio and television spots. As of the end of 1999, Treasury estimates 
that it has reached 1.1 million people face to face through the EFT'99 
community outreach program alone. Treasury would seek to develop a 
similar education and outreach effort to implement the First Accounts 
initiative.
    Question. I have to say that I am pleased by the Treasury 
Department's commitment to address the ACE funding issues that have 
been in the paper recently. Did the Customs Service seek emergency 
funding to run the ACE program during the Department's consideration of 
unmet funding needs?
    Answer. There was no formal proposal from the Customs Service for 
ACE emergency funding within the context of unmet funding needs.
    Commissioner Rossotti has been working toward his vision of a 
modernized IRS, one which (1) has the computer capabilities to actually 
function and (2) is structured to provide individualized assistance to 
specific groups of taxpayers.
    Question. Do you support Commissioner Rossotti's vision?
    Answer. The Department's original consideration of Charles Rossotti 
for Commissioner of IRS was precisely because of his management vision 
and his vast experience improving the performance of large, complex 
organizations. The Department supports this vision by working very 
closely with the Commissioner as he has implemented the new 
organization and begun the process of modernizing information systems. 
Along with his openness with key stakeholders (including the Department 
and the Administration) he has also used this organizational and 
systems modernization effort to empower the IRS employees, who also 
have participated in every aspect of the process.
    Question. What do you think is the most important aspect of that 
vision?
    Answer. The foundation for this lies in the new organizational 
structure which focuses on specific groups of taxpayers. This aspect 
makes it a powerful way for IRS to manage its resources and measure its 
progress. In the past, the IRS was structured and managed according to 
function with no one taxpayer being served by a single IRS office.
    In the new organization, division managers will have full 
responsibility for all the function areas that serve their taxpayer 
groups. Each manager can decide how to allocate the resources based on 
a better understanding of the needs of that specific taxpayer group. 
Managers will use a balanced performance management system and market 
analysis to determine the best resource mix. For instance, a division 
manager may find that increased education and information up front will 
decrease the need for collection or enforcement action after the taxes 
are filed. Another division manager may find that mistakes in 
processing filed returns are causing delays and processing needs to be 
improved. Another division may discover an easier way to handle 
collections so that accounts do not age to the point of requiring 
drastic action.
    This structure is consistent with most private sector financial 
industry organizations. Many of these organizations have proven to give 
outstanding and timely customer service. They were forced to make these 
customer-focused organizational changes in response to market forces. 
Those same market forces are affecting the IRS and the time is right to 
make this organizational change, which paves the way for future 
technological modernization.
    IRS is about midway through the organizational restructuring. It is 
critical that we see this program through to completion, sometime in 
fiscal year 2002.
    Question. What do you think is the most difficult component to 
achieve?
    Answer. Given the magnitude of change at the IRS, there are many 
difficult challenges ahead. Immediate challenges for the IRS are the 
Business Systems Modernization effort, which has been compared to 
overhauling a 747 in mid-flight and the effort to improve post-filing 
(examination, collection, enforcement) efforts. While these changes are 
being made, IRS must maintain high levels of service to taxpayers.
    Business Systems Modernization involves the design and 
implementation of a number of different systems at the same time. 
Proper sequencing and attention to system interdependencies will be 
needed if this modernization is to be useful to the organization.
    The implementation of the Reform and Restructuring Act (RRA) and 
the recent decline in audit coverage has exposed the difficulties IRS 
has with maintaining post-filing activities. Only by focusing on the 
specific challenges each taxpayer group represents can improve current 
post-filing activities to decrease taxpayer burden and avoid the aging 
of uncollected accounts. This effort will take some time as each 
division manager begins to assess his or her organization and analyze 
the taxpayers served by it. IRS has already begun the effort, due to 
not only the guidance of the RRA, but from the thoughtful contributions 
of the Citizen Advocacy Panels and suggestions generated from Problem 
Solving Days.
    These challenges highlight the enormity of change occurring at the 
IRS. As stated earlier, the Department is confident that the IRS has 
pulled together a top-notch management team to face these challenges 
and we are working closely with them to monitor their progress.
    The IRS Management Board was created to help the IRS make 
appropriate decisions about its computer modernization program. From 
all accounts, that Board has been successful. Now the IRS Oversight 
Board is moving forward.
    Question. Will there be any overlap between the two Boards?
    Answer. The IRS Oversight Board has responsibilities that create 
the potential for some administrative overlap with the IRS Management 
Board, as well as the potential for duplicative reporting requirements 
for the IRS. Treasury created the IRS Management Board in 1995, later 
permanently established by an Executive Order, to provide on-going 
oversight of the IRS modernization program. As the modernization 
program began to stabilize, and in keeping with a broader mission set 
forth in the Executive Order, the board evolved into a more general 
management forum, reviewing both major operations and modernization 
programs, including filing season readiness. The board is chaired by 
the Deputy Secretary and includes representatives from Treasury, IRS, 
OMB and the National Partnership for Reinventing Government. 
Commissioner Rossotti's leadership at the IRS over the past 2\1/2\ 
years has contributed enormous stability and support to this process. 
His leadership, partnered with the board's guidance and support, has 
positioned the IRS to move ahead on plans to modernize all aspects of 
the agency.
     Question. If so, what steps will you take to coordinate efforts?
    Answer. As the IRS Oversight Board becomes operational and develops 
an active agenda, I anticipate a changing role for the IRS Management 
Board. The IRS Oversight Board will likely focus on many of the issues 
currently addressed by the IRS Management Board. I do see a continuing 
role in the near term for a group like the IRS Management Board, within 
the context of the Department's general oversight responsibilities. he 
IRS has benefited greatly from regular interactions with senior 
administration officials at IRS Management Board meetings. We will 
likely continue those meetings in a smaller, less formal forum. In any 
case, we will work closely with the Oversight Board to avoid 
duplication and overlap wherever possible. Our goal is to ensure that 
we have done everything possible from the Department's perspective to 
enable the IRS Oversight Board to carry out its responsibilities.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

                dakota certified development corporation
    Question. Last November, the Dakota Certified Development 
Corporation--a small business lender in North Dakota--met with several 
members of your staff here in Washington about a proposal that would 
enable local and regional banks to meet Community Reinvestment Act 
(CRA) requirement by investing in a fund to provide affordable housing 
in rural communities with less than 15,000 people.
    I understand that the DCDC has responded to requests for 
information from the Office of the Comptroller of the Currency 
(Community and Consumer Policy Division) and submitted all available 
housing and income statistics.
    Would you please look into this matter and find out when the Dakota 
Certified Development Corporation can expect a decision from the 
Department of the Treasury?
    Answer. On November 4, 1999, the Office of the Comptroller of the 
Currency (OCC) and the other federal bank regulatory agencies, which 
interpret CRA on a joint basis, met with representatives of the Dakota 
Certified Development Corporation (DCDC) to discuss the DCDC's inquiry 
as to whether financial institutions that invest in the Dakota 
Community Development Fund, LLC will receive positive CRA consideration 
when their regulators evaluate the institution's Community Reinvestment 
Act (CRA) performance. A number of interagency meetings and conference 
calls were held subsequent to that meeting to discuss the issues raised 
by the DCDC's inquiry. Those discussions culminated in a letter from 
the OCC that was sent to the President of the DCDC on April 26, 2000. 
The OCC apologizes for the delay in responding to the DCDC's request. 
See attached letter.

                       Comptroller of the Currency,
                           Administrator of National Banks,
                                    Washington, DC, April 26, 2000.
John A. Kramer,
President, Dakota Certified Development Corporation,
Fargo, North Dakota.
    Dear Mr. Kramer: This is in response to your inquiry about whether 
financial institutions that invest in the Dakota Community Development 
Fund, LLC (DCDF) will receive positive consideration when their 
regulators evaluate the institution's Community Reinvestment Act (CRA) 
performance. The purpose of this letter is to provide consistent 
guidance to our examiners, financial institutions, and the public; not 
to endorse any specific project or product.
    In order to provide broadly applicable guidance as described above, 
this letter will focus on how an examiner will determine whether an 
investment in the DCDF or similar program would receive favorable 
consideration under the CRA regulation.
Background
    The State of North Dakota has recognized the lack of rural housing 
across the state as a crucial issue. The main obstacle to construction 
of single family housing in rural areas of North Dakota, based on the 
information you provided, is the difference between the appraised value 
of housing and its actual construction cost. As a result of this 
``gap'', financing of single-family housing is often unavailable to all 
but the most affluent families. Lack of financing has often stopped the 
construction and purchase of new housing in rural areas.
    Your research into why multifamily housing is not being built in 
North Dakota has identified three concerns of developers, which have 
prevented them from developing and constructing multifamily housing in 
communities of 8,000 or less:
  --The amount of equity required for these projects, which in 
        metropolitan areas normally varies from 10 to 20 percent, is 
        somewhere in the 40 to 60 percent range in rural North Dakota.
  --The appraised value of these projects does not equal the 
        construction cost.
  --The market rents in communities of 8,000 do not provide the cash 
        flow to service the cost of the new facility.
    The information you provided states that in response to the rural 
housing shortage in economically viable communities in North Dakota, 
the DCDF will be formed and will be capitalized by investments from 
local and regional financial institutions. The mission or purpose of 
the DCDF is: To promote development within the state of North Dakota; 
to provide programs that are designed to facilitate the flow of lending 
and investment capital into distressed communities, and to individuals 
who have been unable to take fall advantage of the financial services 
industry; to provide access to credit and investment capital as an 
essential ingredient for creating and retaining jobs, developing 
affordable housing, revitalizing neighborhoods and unleashing the 
economic potential of small business.
    The DCDF will be used as an economic development tool that will 
focus initially on multifamily housing and then move into single family 
development. The focus will be on affordable housing, but not 
specifically housing for low- to moderate-income families, as there are 
several programs offered in the state to fill this need. There may be 
some blending of incomes in these developments, but no specific income 
requirements will be set.
    The program will be operated on the same concept as the SBA 504-
loan program. The lead lender will participate in 50 percent of the 
project and receive the first mortgage. These first mortgage loans will 
be done at market rates. The DCDF will in turn provide 40 percent of 
the financing in a second mortgage position at treasury rates and the 
development/owner will be required to provide 10 percent of the project 
capital.
    The DCDF will primarily be used in communities that have developed 
redevelopment zones (renaissance zones). An application may be 
submitted to the State of North Dakota to designate a portion of a city 
as a renaissance zone if:
  --The geographic area proposed for the renaissance zone is located 
        wholly within the boundaries of the city submitting the 
        application;
  --The application includes a development plan;
  --The proposed renaissance zone is not more than twenty square 
        blocks;
  --The proposed renaissance zone has a contiguous boundary and all 
        blocks are contiguous;
  --The proposed land usage includes both commercial and residential 
        property; and
  --The application includes the proposed duration of renaissance zone 
        status, not to exceed 15 years.
    Cities with designated renaissance zones are able to give property 
and state tax exemptions for projects located in those zones.
Discussion
    The CRA regulations establish the framework and criteria by which 
the regulatory agencies assess an institution's record of helping to 
meet the credit needs of its community. The regulations identify a 
number of different evaluation methods for examiners to use, depending 
on the business strategy and size of the institution under examination. 
Regardless of the evaluation method used to evaluate a regulated 
financial institution, an institution may receive positive 
consideration for making ``qualified investments'' that help meet the 
credit needs of the institution's assessment area(s) or a broader 
statewide or regional area(s).
    The regulations define a ``qualified investment'' as a ``lawful 
investment, deposit, membership share or grant that has as its primary 
purpose community development.'' ``Community development'' means 
affordable housing (including multifamily rental housing) for low- or 
moderate-income individuals; community services targeted to low- or 
moderate-income individuals; activities that promote economic 
development by financing businesses or farms that meet the size 
eligibility standards of the Small Business Administration's 
Development Company or Small Business Investment Company programs; or 
activities that revitalize or stabilize low- or moderate-income 
geographies.'' ``Low-income'' means ``an individual income that is less 
than 50 percent of the area median income, or a median family income 
that is less than 50 percent, in the case of a geography.'' ``Moderate-
income'' means ``an individual income that is at least 50 percent and 
less than 80 percent of the area median income or median family income 
that is at least 50 and less than 80 percent, in the case of a 
geography.''
    In determining whether investments in the DCDF are qualified 
investments, examiners will look to see whether the DCDF or the 
activity of the DCDF in which the bank's funds have been invested has 
as its primary purpose community development. In making this 
determination examiners will use one of two approaches. First, if a 
majority of the dollars or beneficiaries of the activity are 
identifiable to one or more of the enumerated community development 
purposes, then the activity will be considered to possess the requisite 
primary purpose. Alternatively, where the measurable portion of any 
benefit bestowed or dollars applied to the community development 
purpose is less than a majority of the entire activity's benefits or 
dollar value, then the activity may still be considered to possess the 
requisite primary purpose if (1) the express, bona fide intent of the 
activity, as stated, for example in a prospectus, loan proposal, or 
community action plan, is primarily one or more of the enumerated 
community development purposes; (2) the activity is specifically 
structured (given any relevant market or legal constraints or 
performance context factors) to achieve the expressed community 
development purpose; and (3) the activity accomplishes, or is 
reasonably certain to accomplish, the community development purpose 
involved. The fact that an activity provides indirect or short-term 
benefits to low- or moderate-income persons does not make the activity 
community development, nor does the mere presence of such indirect or 
short-term benefits constitute a primary purpose of community 
development. Financial institutions that want examiners to consider 
certain activities under either approach should be prepared to 
demonstrate the activities' qualifications.
    Examiners will also look to see whether the activities of the DCDF 
are part of a governmental plan to revitalize or stabilize a low- or 
moderate-income area, or for other evidence of governmental support in 
projects to revitalize or stabilize low- or moderate-income 
geographies. Activities that directly revitalize or stabilize low- or 
moderate-income geographies would receive favorable CRA consideration. 
Investments in middle- or upper-income housing programs in distressed 
areas may also be considered as qualified investments if these 
investments are part of a governmental plan, or there is other evidence 
of governmental support for revitalization or stabilization efforts, 
and the activity would not significantly disadvantage or primarily have 
the effect of displacing low- or moderate-income individuals and 
communities.
    Community development activities outside low- or moderate-income 
areas that stabilize or revitalize particular low- or moderate-income 
areas may also receive favorable CRA consideration if, for example, 
these activities are part of a plan to revitalize or stabilize the low- 
or moderate-income area.
    The CRA regulation also allows examiners to account for conditions 
in high cost areas. For example, examiners could take into 
consideration the fact that activities address a credit shortage among 
middle-income people or areas caused by the disproportionately high 
cost of building, maintaining or acquiring a house when determining 
whether an institution's loan to or investment in an organization that 
funds affordable housing for middle-income people or areas, as well as 
low- or moderate-income or areas, has as its primary purpose community 
development. The flexibility of the regulation in this regard may be 
particularly relevant in those areas of rural North Dakota where the 
current cost of construction exceeds the appraised value of the home. 
However, it is expected that once comparably priced housing is 
constructed, the ``gap'' between the appraised value and the cost of 
new construction will no longer exist. DCDF ``gap'' financing will then 
no longer be necessary because conventional financing will be available 
from financial institutions.
    I trust this letter is responsive to your request. If you have 
additional questions, please feel free to contact Malloy T. Harris, Jr. 
on my staff at (202) 874-4851.
          Sincerely,
                                           Ralph E. Sharpe,
                 Deputy Comptroller, Community and Consumer Policy.
    air security initiative/national special security events (nsses)
    Question. Who determines when an event becomes a National Special 
Security Event? Do you or does the President upon your recommendation?
    Answer. The National Special Security Event (NSSE) designation 
process is initiated by the interagency Counter-Terrorism and Security 
Group (CSG). The CSG notifies the Secretary of the Treasury and the 
Attorney General of events it believes should be designated a NSSE. 
When the Secretary of the Treasury and the Attorney General agree, an 
event is given the NSSE designation.
    Question. Is it necessary to create a new air branch to meet the 
needs of the air security initiative? Wouldn't it be more cost 
effective to fly in personnel and helicopters ``as needed'' rather than 
establish a new branch?
    Answer. The Customs PDD 62 airspace security training and 
operational requirements are too much for one branch to manage without 
sacrificing our core mission (drug interdiction). For example, the 
recent World Trade Organization in Seattle required Customs aviation 
resources and personnel from four air branches.
    Therefore, in order to carry out the direction set forth in PDD 62 
with minimal disruption to interdiction missions and operations, the 
President's budget proposes to establish an Aviation Branch in the 
Washington, D.C., metro area.
    This area has been identified as a practical location because three 
of the four PDD 62 events have occurred in Washington, D.C. Over the 
long term, it is anticipated that this trend is likely to continue for 
future events.
    In addition, the Secret Service training facility is located in 
Beltsville, Maryland. Its proximity to the proposed Customs Air Branch 
would facilitate the joint (Secret Service and Customs) PDD 62 training 
requirements.
    The most cost-effective solution is to establish a Customs air 
support branch in the Washington, D.C., area.
    The PDD 62 Customs current cost considerations include the 
following: airspace security training, expense of moving aviation 
resources and personnel to event sites, and the loss of available 
aviation resources to the Customs core mission (interdiction along the 
borders of the United States).
    Question. Does Presidential Decision Directive 62 require that the 
air branch be located within a specific radius of Washington D.C.? If 
PDD 62 does not specify the branch's location, who will make the 
decision where to locate the new air branch?
    Answer. PDD 62 does not specify the location of the air branch.
    There has been no decision on the location of this facility. A 
decision on a basing location will be made after Customs completes site 
surveys of potential airfields. A location near the Washington, D.C., 
area makes sense for a number of reasons:
  --It would lessen the amount of flight time by Customs aircraft and 
        reduce travel costs for support personnel.
  --Three of the four PDD 62 events supported by Customs air assets 
        occurred in the Washington, D.C., area. This trend is 
        forecasted to be similar for future events.
  --By locating the Customs air support personnel and assets near the 
        D.C. area, it would be closer to the Secret Service's training 
        facility in Beltsville, Maryland. The close proximity of these 
        two facilities and personnel would enhance joint training, 
        procedural development and mission familiarity between 
        operators.
                        tax shelter regulations
    Question. I have read with some interest recent reports concerning 
your effort to close down some of the tax shelters which are used by 
corporations to avoid paying billions of dollars a year in taxes. You 
were quoted in the Washington Post as saying that is the ``most serious 
compliance issue facing the American tax system today.'' Also, you 
indicated in our earlier meeting your concerns about these shelters 
further undermining the voluntary compliance with the tax system by 
customers. I realize that many of the regulations you propose are still 
being formulated, however, other pieces of the package are well on 
their way to being enacted.
    Can you generally describe the issue you are attempting to confront 
and discuss what impact these shelters have on the revenues collected 
by the Treasury?
    Answer. The issue we are trying to confront with respect to 
corporate tax shelters is one in which aggressive corporations have 
entered into transactions that lack economic substance other than tax 
avoidance. These abusive transactions often are marketed to multiple 
corporate taxpayers as ``off-the-shelf'' products and can be contrasted 
with normal tax planning by which taxpayers properly structure 
legitimate business transactions to minimize their tax liability.
    It is difficult to ascertain exactly how much revenue 
is lost to these transactions. Indeed, part of the strategy of 
implementing these transactions is to structure them to minimize the 
likelihood of their discovery by the IRS. [Some have suggested that 
these transactions may result in revenue losses of $10 billion 
annually.] Moreover, we have concerns beyond the effect on Federal 
revenues. Corporate tax shelters breed disrespect for the tax system--
both by the people who participate in the tax shelter market and by 
others who perceive unfairness. A view that well-advised corporations 
can and do avoid their legal tax liabilities by engaging in these tax-
engineered transactions may cause a ``race to the bottom.'' If 
unabated, this will have long-term consequences far more important than 
the revenue losses we are experiencing. Finally, significant 
resources--both in the private sector and the Government--are currently 
being wasted on this uneconomic activity. Private sector resources used 
to create, implement and defend complex sheltering transactions are 
better used in productive activities. Similarly, the Congress 
(particularly the tax-writing committees and their staffs), the 
Treasury, and the IRS must expend significant resources to address and 
combat these transactions.
    Question. What, if any, resources in your budget request are 
directly focused on addressing these concerns about corporate tax 
shelters?
    Answer. No additional funds have been requested in the fiscal year 
2001 budget specifically for the tax shelter program. However, the IRS 
will make efforts to internally redirect resources to this area. In 
addition to applying existing staffing resources, we will work 
internally to increase our travel and enforcement expenses budget in 
the shelter area. The increased enforcement expense efforts would 
include hiring outside experts in such areas as asset valuation and 
actuarial projections.
                    treasury agency financial audits
    Question. It is my understanding that in the recent financial 
audits of Treasury by the Inspector General your department received an 
``qualified'' opinion.
    Can you describe for us the basis for this assessment and what 
actions you are taking in order to clear any discrepancies?
    Answer. The Department received a qualified opinion on its fiscal 
year 1999 financial statements due to the inability of the Internal 
Revenue Service's administrative systems to produce timely, auditable 
data to support the information reported in the financial statements. 
Please be assured that corrective actions are underway to address these 
problems so that we can report more favorable results in future years.
    The Department is actively involved with the IRS on both short-term 
efforts to improve financial reporting on its administrative accounts 
for fiscal year 2000 and longer-term efforts to reconfigure and/or 
replace outdated core financial and management systems over the next 2-
3 years. Based on the General Accounting Office (GAO) acknowledged 
progress in 7 areas of IRS financial reporting for fiscal year 1999, 
our intent is to ensure that these results are sustained and improved. 
We have already turned our attention to the preparation of the fiscal 
year 2000 financial statements.
    Extensive meetings with the GAO audit team during the fiscal year 
1999 process have brought into focus the key administrative areas with 
financial reporting deficiencies. The Department continues to work with 
the IRS team in the CFO's office to address these deficiencies, albeit 
through improving labor intensive processes until permanent systems 
solutions can be installed. Examples of such processes which were 
successfully used for fiscal year 1999 and will be sustained going 
forward include: reconciling fund balances with Treasury; shoring up 
and promptly clearing suspense account entries; and, establishing an 
acceptable property valuation figure. Until the systems solutions have 
been installed, we believe perfecting the aforementioned processes can 
overcome the financial reporting deficiencies in the administrative 
accounts for the short-term. IRS has successfully done this on the tax 
revenue side for the past 3 years, including another clean opinion on 
the $1.9 trillion that IRS collected for fiscal year 1999.
    Question. Are these discrepancies likely to arise in future audits?
    Answer. The Department's major impediment to receiving an 
unqualified opinion is the well-publicized situation at the IRS. IRS' 
financial systems problems will take a long-term effort to correct; 
accordingly, we do not think it is reasonable at this time to project 
receiving an unqualified opinion before fiscal year 2002.
    Departmental management fully recognizes the leadership role 
Treasury must play in sound financial reporting and will continue to 
support the IRS efforts to sustain the progress made during fiscal year 
1999, strengthen the CFO structure and management team within the IRS, 
and build the financial systems needed to improve both financial 
reporting and, more importantly, management of IRS resources. To that 
end, the Department is actively engaged with the IRS on the longer-term 
systems solution that will have the precision and automated 
capabilities to sustain the financial reporting gains of fiscal year 
1999 and the next few years.
            bureau of engraving and printing/added authority
    Question. The Administration has proposed legislation to enable the 
Bureau of Engraving and Printing (BEP) to produce currency, postage, 
and other types of security documents on behalf of foreign governments 
and States on a reimbursable basis. This legislation has yet to pass 
the Congress.
    What are the compelling arguments for Congress to enact this 
legislation?
    Answer. The Bureau of Engraving and Printing (BEP) has submitted a 
proposed bill to the Congress that would authorize the production of 
security products on behalf of foreign governments and the States on a 
reimbursable basis. This legislation was recently introduced in the 
House of Representatives as H.R. 4096, the ``Bureau of Engraving and 
Printing Security Printing Amendments Act of 2000.'' This measure is 
currently pending before the Committee on Banking and Financial 
Services.
    The BEP initiated this legislation because entities other than 
Federal agencies often request our expertise in designing and producing 
postage stamps, currency, and other kinds of security documents. For 
instance, in February the government of Kuwait solicited our help in 
printing ``revenue certificates.'' Unfortunately we were not able to 
assist Kuwait due to current statutory limitations.
    Enactment of the proposed legislation would serve four primary 
purposes.
    1. Allow the United States to assist foreign nations with the 
design and production of security products and the development of 
stable monetary systems to facilitate international commerce.
    2. Expand and hone the skills of the BEP workforce through a 
greater variety of specialty printing and engraving projects.
    3. Allow the BEP to test--without cost to U.S. taxpayers--new 
technologies and techniques and apply such experience in the 
development and production of the next generation of U.S. currency.
    4. Enable the BEP to create efficiencies by establishing more 
consistent production schedules, which would marginally reduce the cost 
of products provided to other federal agencies.
    Question. How much extra business and revenue can the Bureau of 
Engraving and Printing expect to earn if it were to take on these 
additional duties?
    Answer. The Bureau of Engraving and Printing does not expect to 
achieve a significant increase in revenue, at least in the short term, 
from the new printing authority that would result if this legislation 
becomes law. The opportunity to leverage this expanded authority for 
the benefit of its current customers has the greatest potential for 
long-term value. Any expansion of BEP's product base will decrease 
costs to all its customers through more effective use of available 
equipment capacity and by spreading fixed cost over greater units of 
output. Beyond the cost considerations, this expanded printing 
authority would open the door to new technologies and skills that could 
eventually be utilized in the manufacture of U.S. currency and stamps. 
The knowledge and skill enrichment potential is expected to be of 
greater long-term value than any additional revenue that may be 
realized.

                          Subcommittee recess

    Senator Campbell. Mr. Secretary, thank you very much for 
appearing today.
    Mr. Summers. Thank you very much.
    Senator Campbell. The subcommittee is recessed.
    [Whereupon, at 3:30 p.m., Tuesday, April 4, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2001

                              ----------                              


                        THURSDAY, APRIL 6, 2000

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:33 a.m., in room SD-124, Dirksen 
Senate Office Building, Hon. Ben Nighthorse Campbell (chairman) 
presiding.
    Present: Senators Campbell and Dorgan.

                   EXECUTIVE OFFICE OF THE PRESIDENT

                 Office of National Drug Control Policy

STATEMENT OF BARRY R. McCAFFREY, DIRECTOR
    Senator Campbell. Good morning. The committee will be in 
order. I would like to begin this morning by welcoming Barry 
McCaffrey, the Director of the Office of National Drug Control 
Policy, before the committee. Senator Dorgan, the ranking 
member, notified us that he is in another hearing right nowbut 
he will be along shortly.
    We are here today to go over the fiscal year 2001 budget 
request for the ONDCP. Although the ONDCP is responsible for 
coordinating the anti-drug effort for the entire Federal 
Government, we are here today to discuss their own fiscal year 
2001 initiatives. Specifically, I have an interest in receiving 
an update on the current trends in drug use and availability 
and how the ONDCP's 2001 budget request addresses those issues.
    I know that members of the committee are also interested in 
discussing the media campaign which to date has received $565 
million, over half a billion dollars, a large amount. What I 
would like to ensure is that we are seeing over a half a 
billion dollars in return for that investment.
    Last year, the General told this committee--3 years ago, 
not last year--that within 2 years, we would begin to see 
behavioral changes in our youth attitudes toward drugs because 
of this media campaign. Yet the 2000 drug strategy shows no 
real change, as I can see, in the youth drug problem in the 
country. I am very concerned by this, but we will get into this 
as we move along in my question time.
    My underlying concern with all these efforts is we 
continually send money towards the problem without expecting a 
strict short-term accountability. When we fund initiatives like 
the media campaign, it is not as if we have plenty of resources 
available to fund everything that is requested. We have to see 
a clear return on that investment. The budget initiative is so 
tight that we have to make conscious choices that make it even 
more difficult and require even greater trade-offs. The 
decision not to fund a program or to reduce its funding to 
accommodate something like the media campaign are choices that 
we have to make.
    I would tell you that for this bill alone, the 
administration request of 20 percent increase for fiscal year 
2001 is considerable, yet that figure is somewhat realistic in 
light of the budget resolution. The problem with this level is 
that all of the agencies and their constituencies develop very 
high expectations that we may not be able to fund. That is not 
to say the requests are not warranted or are not needed, but we 
have to operate within whatever budget level we are given and 
we have not finished that budget resolution on the floor, as 
the Director knows.
    With that, go ahead, General McCaffrey, with your testimony 
and I will ask some questions later. I am sure Senator Dorgan 
will be here by then, too.
    I might tell you that they have notified us that there are 
votes starting at 10:30, so your complete testimony will be 
included in the record. If you would like to abbreviate, that 
is fine.

                    statement of barry r. mc caffrey

    Mr. McCaffrey. Mr. Chairman, thank you for calling the 
hearing. I know the time is limited and I will, with your 
permission, try and get a lot of information on the table 
quickly and then respond to your, Senator Dorgan's and others' 
questions as they may appear.
    We did put a lot of effort into the written statement, 
along with the charts. I would ask them to be placed in the 
record.
    Senator Campbell. Without objection, they will be. We have 
a copy of them here.
    Mr. McCaffrey. I would also like to note with enormous 
pride and gratitude the presence in the room of the people who 
have shaped the National Drug Control Strategy, and indeed who 
do the work.
    Art Dean is here from the Community Anti-Drug Coalitions of 
America, Dr. Linda Wolf Jones from Therapeutic Communities of 
America, Kathleen Sheehan from the National Association of 
State Alcohol and Drug Abuse Directors. A very important person 
to our effort, from the Ad Council, Donna Feiner is here, Harry 
Frasier from Fleishman Hillard, and David McConnaughey from 
Ogilvy Mather, and as you know, those are the two principal 
contractors who do all the work on our media campaign.
    DARE is represented by Jim McGivny. Sarah Casen is here 
from the National Council on Alcoholism and Drug Abuse, 
Katherine Wingfield from the National Drug Prevention League. 
Our right arm in this effort, the Partnership for a Drug-Free 
America, Shawn Clarken and Gloria Steedman are both here, as 
well as Judge Jeff Tauber from the National Association of Drug 
Court Professionals, and Tom McDaniels, the Legal Action 
Center.
    I mention them because at the end of the day, it is 
astonishing, the number of people who are actually involved in 
this issue. When you start looking at two million people behind 
bars and five million chronic addicts in America, and you look 
at the support communities who actually do something with this 
issue, these people behind us represent literally hundreds of 
thousands of professionals.
    I am going to run through some charts, Mr. Chairman. They 
are available for you, but let me just note there are some key 
documents that you and your staff have available to you. These 
are the bulk of what you asked me to do. That is the 2000 
Annual Report. This is the first year we have done one. It 
absorbed enormous amounts of effort. Each year, I am supposed 
to come down to you and other appropriation chairmen and 
explain what we achieved in the preceding year, and I might 
add, the Strategy which we began writing in 1996 essentially 
now remains operative for 5 years unless changed by new 
environmental circumstances.
    You have also required me by law to do a 5-year budget 
summary each year and to roll it forward. This is an enormously 
important document. It is not yet good enough, but I would 
suggest that in the years to come, this ought to be the center 
of debate, not the coming budget execution year, but the out 
years so that we can get a longer-term perspective on what we 
are trying to achieve.
    You have also required me by law to establish a system of 
Performance Measures of Effectiveness. There are 12 target 
outcomes. There are 86 intervening variables. This is moving in 
the right direction, and I think, over time, will allow the 
Congress to demand to see concrete data which tells you whether 
or not our programs are working.
    Finally, we do have a Counter-Drug Research and Development 
Blueprint we put out each year now where we try and ensure that 
we understand where we are spending our CTAC money and to what 
impact. We also have a pretty good evaluation plan on that CTAC 
program.
    Another document you need to be aware of is the General 
Counter-Drug Intelligence Plan, which again, by law, required 
me to go determine, how do we pull together law enforcement and 
foreign intelligence to better support this drug mission.
    These charts that I am going to run through, I will just 
use them sort of as brief talking summaries and not talk to 
each point. I do need to start, of course, in each case with 
the National Drug Control Strategy goals and to say that 
everything we do, including the $496 million that you are 
considering, which I might add, Mr. Chairman, is an eight 
percent increase over last year, has to relate to those five 
goals and 31 objectives, and then, presumably, must be measured 
by one of the 86 variables of the Performance Measures of 
Effectiveness.
    Next chart. This is a matrix summary of what ONDCP's Fiscal 
Year 2001 Budget Request are asking you to consider, the fiscal 
year 2000 enacted level was $461 million, and now we are asking 
for $496 million in fiscal year 2001. The Special Forfeiture 
Fund, it is too bad we use that as a collective title for some 
enormously important programs: the Drug-Free Communities Act, 
which I am going to talk about in detail, the National Youth 
Anti-Drug Media Campaign, General Counter-Drug Intelligence 
Plan, $25 million criminal justice treatment demonstration, and 
the National Drug Court Institute.
    If I may make two points that I would welcome your own 
questions on, one is salaries and expenses. Our whole budget 
that we are looking at here is 2.6 percent of the national drug 
effort, which is in nine different appropriations bills, which 
over time has had this enormous, 52 percent increase in 
prevention education funding, which has had a 32 percent 
increase in drug treatment funding, and a one-third increase in 
the research budget. We are at 2.6 percent of that effort. Our 
salaries and expenses are a fraction of one percent, 0.01 
percent of the whole effort.
    I would ask you for full funding for salaries. We are now 
almost manned up to full level and we have some really severe 
demands on us and I would like to make sure that the next 
administration gets a full-up operation.
    I would also draw your attention to two other items. When 
it comes to the media campaign, and I will talk to this at 
greater length, I would respectfully request full funding at 
$195 million of this program. We have had some significant and 
dynamic changes. It is starting to pay off. I will talk to 
those numbers. But the $10 million to get it up to $195 million 
are crucial for the media buy. We had a 40 percent increase, as 
an example, in the cost of Network TV advertising. I will talk 
to the issue, but that $10 million is important.
    Finally, the Drug-Free Communities Act, which is now really 
hitting its stride--we have a splendid new person running it--
will be up to about 400 community coalitions by the end of this 
coming year. There is a cap in there on administrative expenses 
of three percent and I would ask you to consider raising that 
cap to seven percent, without which I fear we are not going to 
do our job in intelligently having that program move forward.

                national youth anti-drug media campaign

    The next chart. There are some subordinate charts, which 
again I will just show you and then move on. The media campaign 
is in many ways a crown jewel of what we are trying to achieve. 
It is now one of the most sophisticated and intelligently 
structured public health campaigns in American history. It is 
out there. We are in year three. It is starting to definitely 
affect youth attitudes. We are seeing adolescent drug use rates 
in America go down after years of steady increase. There was a 
13 percent reduction in last year alone in 12- to 17-year-old 
drug exposure. We are seeing youth attitudes starting to 
change.
    We are getting increasingly good at our minority-ethnic 
outreach efforts. We understand we have to talk to America 
wherever they are. There are 102 different market strategies 
around the country. We are in 11 languages other than English. 
We are on six web pages, four of which are in languages other 
than English--Spanish, Chinese, et cetera. We are now starting 
to begin to get to the Native American population, the American 
Eskimo population. I think this is really starting to bite in. 
We are very proud of what we are doing.
    We are also seeing, thankfully, some very civic response by 
the media. The numbers are there to underscore the 108 percent 
matching effort against the appropriated dollars and also a 
significant $72 million chunk of in-kind response from American 
media and business.
    The next chart. This summarizes where we have gone on what 
essentially is a two-for-one return on Federal investment 
dollars, and that goes from January 1998 to June 2000 
estimated. The chart speaks for itself, but the bottom line is, 
we delivered more than $700 million of messages that were 
science-based, that were vetted through a behavioral change 
expert panel, and showed them to a target audience in the right 
programming at the right time and in multiple languages.
    Those are just some of the examples. The PDFA has got 10 
years' worth of pretty good data. This is an example of what we 
are talking about. We are starting to see--and by the way, all 
these studies cluster together. They tend to be supportive of 
the same observations. Young people are now saying things like, 
kids who are really cool do not use drugs, and in my school, 
marijuana users are not popular. We are seeing youth attitudes 
shift. We think the program is clearly doing what it was 
intended to achieve.
    Next chart. I want to show you three videos. I also showed 
the House Appropriations Committee some videos out of the Ad 
Council. They have done some splendid work on trying to do a 
media outreach campaign to create more community coalitions, 
and at some point, your staffers may want to see that work. We 
also have the Ogilvy Mather branding campaign, which I would 
love to talk about when you have time. It is an incredibly good 
concept to get more bang for our dollars.
    Let me just show you an example of three of the new ads 
that are going out in what we are calling a flighting concept, 
so this is wrap-around advertising of a strategic platform 
message. Go ahead and show the three videos.
    Pretty powerful stuff, and again, what we are doing is we 
have a message platform aimed at either young people or adults. 
There are four message platforms for each group. And all this 
material, again, is science-based and then vetted through the 
behavioral change expert panel.

                 high intensity drug trafficking areas

    The next topic I would just mention is the HIDTA program, 
High-Intensity Drug Trafficking Areas, and we do have both 
Johnny Hughes and Tom Carr here from the Washington-Baltimore 
HIDTA. The program has gained incredibly in popularity. This 
one has surprised me. Cops and prosecutors across the country 
were forming task forces anyway. They understood they had to 
bring this kind of material together. But this is somewhat of a 
modest investment in law enforcement that has had, in my view, 
order of magnitude payoffs.
    I hear from law enforcement professionals around the 
country that this is the best thing they have seen in 25 years 
of law enforcement. It pays for the ability to integrate 
intelligence, blue-on-blue deconfliction, to bring together 
disparate communications systems. There is a huge payoff, and 
for that reason, you notice at the bottom we have eight 
requests to expand existing HIDTAs and six applications pending 
for new HIDTAs.
    I have a problem. I do need some flexibility to be allowed 
to take the money you give me, analyze the results, and fund 
programs in some sort of a management decision. An awful lot of 
these funding amounts now are being specified in the 
appropriations bill.

           national criminal justice treatment demonstration

    The next chart. The National Criminal Justice Treatment 
Demonstration Project, $25 million. There is a complementary 
program in the Department of Justice for $75 million. We had a 
National Conference on Prisons and Drugs. We brought in 800 
people from around the country, the Attorney General, Secretary 
Donna Shalala, and I. We said, one of the major problems in 
America is we have 2 million people behind bars. Eighty-five 
percent of them probably have a chronic drug or alcohol 
problem. So until we organize this community with the front end 
of the system, the drugs courts--there are now more than 700 
online or coming online--until we get prison-based drug 
treatment and a reasonably drug-free prison environment, and 
then, most crucially, until we have a follow-on program of 
community supervision, drug testing, and drug treatment, we 
will never break our way out of this.
    So this money, this $25 million is for 15 community 
demonstration projects to try and bring together the health 
care professionals and the criminal justice community, and then 
the Department of Justice would have $75 million, which will be 
primarily focused on the criminal justice system.

                         drug-free communities

    The next chart. The Drug-Free Communities Program is now 
really starting to bite in. As you know, we are now out in 213 
coalitions. We will be up to 408 communities by the end of the 
year. We are in almost every State in the union. Senator 
Dorgan, we are going to work with your State as we had only one 
application. We will get out there and try to educate them on 
how to package their thinking to take advantage of this 
tremendous program.
    It is paying off and please note that 15 are, for example, 
in Native American communities. We have tried to make sure that 
the money did not just go to big, established community 
coalitions. I think it is going to have a huge impact over 
time. I might add, more than a third of them went to rural 
communities and small towns.

               counter drug technology assessment center

    The next chart. The Counter-Drug Technology Assessment 
Center, we did not get all we wanted out of OMB, but the total 
request stands at $20.4 million. The piece of it that deals 
with the technology transfer has been enormously popular across 
America with more than 1,000 items of equipment delivered in 2 
years. Most police departments that ask get their top request; 
we have greater than 96 percent satisfaction rate. This is 
enormously popular. More money clearly could be used wisely in 
this program, but the request stands at $3.7 million for that 
technology transfer.

                 general counter drug intelligence plan

    The next chart. The General Counter-Drug Intelligence Plan, 
which I talked to, we have stood up already about a 30-person 
secretariat. You have to bring together several communities, 
many of which are internally well organized, CNC at the CIA for 
example, but you have to end up not violating a thicket of 
laws, all of which make sense, to protect American citizens 
from U.S. foreign intelligence operations and to ensure that 
the foreign intelligence operations are not blown in U.S. 
courts. We are going to establish priorities. We are going to 
improve the situation enormously for America's sheriffs, police 
chiefs, Border Patrol sector commanders, and Customs SACs, to 
make sure that the intelligence we have which is extremely 
good, gets to the law enforcement professionals who need it to 
carry out their operations, and I would ask you, sir, to 
consider $3 million to help us get that thing up and running 
this year. Thank you.

                            doping in sport

    The next chart. Doping in sport, as a former Olympian 
yourself, you know the importance of trying to protect not just 
the Olympian athletes who are going to Sydney and Salt Lake 
City but literally the millions of young people in America 
today who have access to steroids and other performance-
enhancing drugs through the Internet. It is not just 16-year-
old athletes. We are talking to their trainers, their coaches, 
and their team physicians.
    The U.S. Olympic Committee has really done a superb job. 
They are standing up their own independent drug testing agency, 
and, of course, immediately it will impact on U.S. Olympic 
athletes, but to some extent NCAA athletes and to those 
professional athletes who want to stay eligible to compete in 
the Olympic movement.
    That money--we actually requested $3 million, we have on 
the table $700,000--will go a long way to ensuring that we 
create a drug-free environment for American athletic 
competitors around the country.
    The next chart. Colombia I know we are going to primarily 
focus on the $496 million that your subcommittee has 
responsibility for, but I would underscore, Mr. Chairman, we do 
have in Congress a request for $1.6 billion for the so-called 
Andean Ridge drug aid package, of which a significant amount--
about 85 percent of it goes to Colombia, the remainder to 
Bolivia and Peru, which as you know have had these astonishing 
successes in reducing drug production.
    Poor Colombia is in an emergency. They have 40 million 
people who largely have nothing to do with the drug trade. They 
have an operative democracy. They grow coffee and flowers and 
have intellectual property development. They are wonderful 
people. They have a million internal refugees. A half-million 
have fled the country. They have lost control of 40 percent of 
the land area of their nation. They are now the dominant 
producer of the cocaine and heroin that come into the United 
States. Ninety percent of the cocaine in America originated in 
or transited through Colombia, and some 70 percent of the 
heroin seizures in the United States last year, by some 
brilliant work principally by DEA and Customs, came out of 
Colombia.
    We have put together a package that is based on Colombian 
strategic thinking. We believe that in the coming 2 to 5 years, 
we can make an enormous impact to support U.S. national 
interests. Illegal drugs kill 52,000 Americans a year, and we 
think we owe it to our police chiefs and sheriffs to stand with 
the Colombian democratic partner with what we think is a pretty 
coherent broad range request.
    On that note, Mr. Chairman, again, I thank you for the 
opportunity to appear before your subcommittee and I look 
froward to responding to your own interests.
    Senator Campbell. Thank you, General.
    [The statement follows:]

                Prepared Statement of Barry R. McCaffrey

                              introduction
    All of us in the Office of National Drug Control Policy thank the 
Committee for the opportunity to testify today about the Office of 
National Drug Control Policy's (ONDCP) fiscal year 2001 budget. 
Chairman Campbell, Ranking Member Dorgan, distinguished members of the 
subcommittee, your interest in all aspects of drug control policy and 
your commitment to bipartisan support of a comprehensive response to 
the nation's drug abuse problem are much appreciated. We welcome this 
opportunity to review the fiscal year 2001 budget request for ONDCP. To 
provide a framework for understanding this budget, this testimony will 
provide an overview of the National Drug Control Strategy and an 
analysis of current drug trends as reported in ONDCP's 2000 Annual 
Report.
    Though comprising only a small percentage of the $19.2 billion 
federal drug control budget, the critical importance of ONDCP's $496.8 
million budget request cannot be over emphasized. These funds enable 
ONDCP to carry out successfully its unique dual mission of providing 
drug policy guidance to the Executive Branch and managing its own 
programmatic responsibilities. ONDCP achieves its policy mission by 
advising the President on national and international drug control 
policies and ensuring the effective coordination of drug programs 
within Federal departments and agencies. In addition, ONDCP 
accomplishes its programmatic mission by implementing, managing, and 
evaluating four key programs to reduce drug use and its consequences in 
America: the National Youth Anti-Drug Media Campaign, the Drug-Free 
Communities Program, the High Intensity Drug Trafficking Area Program 
(HIDTA), and the Counterdrug Technology Assessment Center (CTAC). This 
budget will provide ONDCP with the resources necessary to ensure the 
successful implementation of the National Drug Control Strategy, which 
will have broad reaching, positive impacts on this nation and its 
citizens.
    ONDCP is proud of the growing partnership between the Executive and 
Legislative branches on drug control issues. Mr. Chairman, over the 
past year, all of us at ONDCP have been tremendously pleased with the 
steady support your subcommittee has given our efforts to reduce drug 
abuse and its consequences in America. The hearing you held on ONDCP's 
National Youth Anti-Drug Media Campaign was an important occasion to 
highlight our programs and accomplishments.
             overview of the national drug control strategy
    The Office of National Drug Control Policy Reauthorization Act of 
1998 (Public Law 105-277) required the President to submit to Congress 
a comprehensive, long-term strategy for reducing drug abuse and the 
consequences of drug abuse in the United States by limiting the 
availability of and reducing the demand for illegal drugs. The 
operative five year strategy was submitted in February 1999. The five 
goals and thirty-one supporting objectives first established in the 
1996 National Drug Control Strategy that serve as the basis for a 
coherent, long-term national effort remain the heart of the Strategy 
and will guide federal drug control agencies over the five-year period.
    The Strategy takes a long-term, holistic view of the nation's drug 
problem and recognizes the devastating effect drug abuse has on the 
nation's public health and safety. The Strategy maintains that no 
single solution can suffice to deal with this multifaceted challenge. 
The Strategy focuses on prevention, treatment, research, law 
enforcement, protection of our borders, drug supply reduction, and 
international cooperation. Through a balanced array of demand-reduction 
and supply-reduction actions, the nation's goal is to achieve a 50 
percent decrease in drug use and availability and at least a 25 percent 
decrease in the consequences of drug abuse by 2007. If this goal is 
achieved, just 3 percent of the household population aged twelve and 
over would use illegal drugs. This level would be the lowest documented 
drug-use rate in American history.
    The Strategy's five goals are:
  --Educate and enable America's youth to reject illegal drugs as well 
        as alcohol and tobacco.
  --Increase the safety of America's citizens by substantially reducing 
        drug-related crime and violence.
  --Reduce health and social costs to the public of illegal drug use.
  --Shield America's air, land, and sea frontiers from the drug threat.
  --Break foreign and domestic drug sources of supply.
    The five goals organize thirty-one objectives that are narrowly 
focused and stipulate the specific ways in which the goals will be 
attained. Under the prevention goal (Goal 1), for example, nine 
supporting objectives articulate the specific ways that illegal drug 
use and underage consumption of alcohol and tobacco products will be 
reduced. Programmatic initiatives are tied directly to one or more of 
these objectives. The National Youth Anti-Drug Media Campaign, for 
example, supports Goal 1, Objective 2--pursue a vigorous advertising 
and public communications program. It also supports Goal 1, Objective 
7--create partnerships with the media, entertainment industry, and 
professional sports organizations.
    Progress towards the Strategy's goals and objectives is gauged 
through the supporting Performance Measurement of Effectiveness (PME) 
system. The PME system fulfills congressional guidelines that the 
Strategy contain measurable objectives and specific targets to 
accomplish long-term quantifiable goals. The nucleus of the PME system 
consists of twelve ``impact targets'' that define measurable results to 
be achieved by the Strategy's five goals. There are five impact targets 
for demand reduction, five for supply reduction, and two for reducing 
the adverse health and criminal consequences associated with drug use 
and trafficking. Eighty-seven additional targets further delineate mid- 
(2002) and long-term (2007) targets for the Strategy's thirty-one 
objectives. A number of these are stretch targets in that they require 
progress above that attained in previous years. This system is in 
accordance with recommendations from the National Academy of Public 
Administration, the General Accounting Office, and other organizations 
advocating good government practices. The overall performance system is 
described in detail within a companion volume to this Strategy--
Performance Measures of Effectiveness: 2000 Report.
                highlights of ondcp's 2000 annual report
    Public Law 105-277 also requires the President to submit to 
Congress an Annual Report on the progress in implementing the Strategy. 
General reporting requirements for the Annual Report include:
  --Assessment of federal success in achieving the National Drug 
        Control Strategy goals and objectives (using the Strategy's 
        Performance Measures of Effectiveness system). This analysis 
        includes an assessment of drug use and availability in the 
        United States as well as prevention, treatment, law 
        enforcement, interdiction, and international programs.
  --Modifications during the preceding year of the National Drug 
        Control Strategy or national drug control performance 
        measurement system.
  --An explanation of how the Administration's budget proposal is 
        intended to implement the National Drug Control Strategy and 
        how proposed funding levels will help do so.
  --Measurable data from the annual performance measures.
  --An assessment of private-sector initiatives and cooperative efforts 
        dealing with drug control among federal, state, and local 
        governments.
    ONDCP has prepared the following documents in compliance with these 
requirements:
  --The National Drug Control Strategy Annual Report
  --Drug Control Budget: Fiscal Year 2001
  --Performance Measures of Effectiveness: Implementation and Findings
  --Counterdrug Research and Development Blueprint Update
    National Drug Use Rates are Steady at Half Peak Rate of 1979.--
Overall drug use rates remained steady in the 1990s. An estimated 13.6 
million Americans (6.2 percent) twelve years of age and older were 
current users of any illegal drug in 1998. This number is slightly less 
than the 13.9 million estimate for 1997. Drug use reached peak levels 
in 1979 when 14.1 percent of the population age twelve and over were 
current users. Since 1996 the number of current users remained steady, 
with statistically insignificant changes occurring each year.
    1991-1995 Trend of Increasing Drug Use by Adolescents Has Been 
Halted.--In 1998, 9.9 percent of youth age twelve to seventeen reported 
current use of an illegal drug--a 13 percent decrease from 11.4 percent 
in 1997. This decline was the first statistically significant drop in 
four years. Teen attitudes toward drugs are improving--the percentage 
of teens who strongly agreed with the statement, ``kids who are really 
cool don't use drugs,'' increased from 35 percent in 1998 to 40 percent 
in 1999.

[GRAPHIC] [TIFF OMITTED] T13AP06.001


    The Consequences of Drug Abuse are Devastating.--Using a 
methodology that incorporates deaths from other drug-related causes, 
ONDCP estimates that in 1995 there were 52,624 drug-related deaths. 
This figure includes 14,218 drug-induced deaths for that year, plus 
mortalities from drug-related causes. In 1998, there were an estimated 
542,544 drug-related emergency department episodes and 982,856 
emergency department drug mentions in the coterminous United States. 
These figures have remained relatively stable from 1997. Illegal drugs 
accounted for an estimated $110 billion in expenses and lost revenue.
    The Tragic Cycle of Drugs and Crime must be Broken.--While national 
crime rates have declined dramatically, more than 1.6 million Americans 
were arrested for drug-law violations in 1998--a decrease of one 
percent from 1997. More than two-thirds of adult male arrestees and 
half of juvenile male arrestees tested positive for at least one drug 
in fifteen of thirty-five sites in 1998. 22 percent of inmates in state 
prisons are incarcerated for drug-law violations; 60 percent of inmates 
in federal prison are incarcerated for drug-law violations.
    Illegal Drugs Impair Workplace Productivity.--Almost 75 percent of 
current drug users aged 18-49 are employed full or part-time--more than 
8 million workers. As national unemployment rates decreased, rates of 
drug use among the unemployed have risen. In 1998, 18.2 percent of 
unemployed adults aged eighteen or older were current illicit drug 
users, compared to 13.8 percent in 1997. Drug use is estimated to cost 
$14 billion a year in decreased productivity. In 1997, those who 
reported current illegal drug use were more likely than those who 
reported no drug use to have worked for three or more employers in the 
past year (9.3 percent versus 4.3 percent), to have skipped one or more 
days of work in the past month (12.9 percent versus 5 percent), or to 
have voluntarily left an employer in the past year (24.8 percent versus 
15.4 percent).
      the supporting fiscal year 2001 federal drug control budget
    In total, drug control funding recommended for fiscal year 2001 is 
$19.2 billion, an increase of $760 million (+4.1 percent) over the 
fiscal year 2000 level of $18.5 billion, which includes proposed 
supplemental funding of $954 million to support Plan Colombia and drug 
control activities in the Andean region. Also, the President's fiscal 
year 2001 proposal includes an additional $318 million to support Plan 
Colombia. Spending that supports drug education, prevention, and 
treatment programs increases by $330.8 million (+5.6 percent) in fiscal 
year 2001 over the fiscal year 2000 level. This budget represents an 
increase in treatment dollars of 32 percent from fiscal year 1996 and 
an increase in prevention dollars of 52 percent from fiscal year 1996. 
Spending that supports drug law enforcement efforts increases by $773.7 
million (+8.6 percent) in fiscal year 2001 over the fiscal year 2000 
level. A summary of drug-control spending for fiscal year 1998 through 
fiscal year 2001 is presented below.

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    Increases in fiscal year 2001.--The following major increases in 
drug-control funding are included in the President's fiscal year 2001 
budget request:
Youth Prevention
    National Youth Anti-Drug Media Campaign: +$10 million.--These 
additional resources bring ONDCP's Media Campaign to $195 million in 
federal funds in fiscal year 2001, matched by private sector 
contributions. ONDCP, in conjunction with other federal, state, local, 
and private experts, is implementing a $2 billion public-private 
partnership, multi-year national media campaign, including paid 
advertisements. The campaign targets youth, their parents and other 
influential adults on the consequences of illicit drug use. The anti-
drug media campaign is fully integrated nationwide, including 
utilization of television, the Internet, radio, newspapers, and other 
media outlets.
    Safe and Drug-Free Schools Program: +$50 million.--These additional 
resources include $40 million to expand the interagency Safe Schools/
Health Students initiative, which supports community-wide prevention 
activities in conjunction with HHS and the Department of Justice. Also, 
the budget includes $50 million to continue the School Coordinator 
Initiative, started in fiscal year 1999. In fiscal year 2001, this 
effort will support drug and violence prevention coordinators in over 
1,300 middle schools across the country to ensure that local programs 
are effective and link school-based prevention programs to community-
based efforts.
Criminal Justice Programs
    Stop Drugs--Stop Crime: +$112 million.--In order to break the cycle 
of drug use and its consequences, drug-abusing inmates in local, state 
and federal correctional systems need access to drug treatment and 
supervision. The President's fiscal year 2001 budget includes several 
enhancements in support of this effort:
  --OJP & ONDCP Support: +$100 million.--New funding is requested to 
        help states and localities implement new systems of drug 
        testing, treatment, and graduated sanctions for persons under 
        supervision of the criminal justice system, including 
        prisoners, parolees and probationers. This funding consists of 
        $75 million provided through the Office of Justice Programs 
        (OJP) and $25 million from ONDCP's Special Forfeiture Fund. 
        Also, OJP's support includes $25 million targeted to offenders 
        who are re-entering society.
  --Drug Courts: +$10 million.--These additional resources will bring 
        total funding for the Drug Courts program to $50 million in 
        fiscal year 2001. This initiative provides alternatives to 
        incarceration through using the coercive power of the court to 
        force abstinence and alter behavior with a combination of 
        escalating sanctions, mandatory drug testing, treatment, and 
        strong aftercare programs.
  --Residential Substance Abuse Treatment (RSAT) Program: +$2 
        million.--This funding will continue expansion of the RSAT 
        program. RSAT is a formula grant program that provides funds to 
        states for state and local correctional agencies to provide 
        intensive drug treatment to hardcore drug users before and 
        after they are released from prison.
    Prison Construction: +$420 million (drug-related).--This 
enhancement is a multi-year project that includes program increases for 
partial site and planning of two penitentiaries and three medium 
security facilities in fiscal year 2001. Funding is also requested in 
fiscal year 2001 to complete the construction of ongoing projects, 
including one penitentiary and five medium security facilities. The 
Bureau of Prisons (BOP) is experiencing dramatic increases in the 
number of inmates due to higher number of prosecutions, particularly 
drug cases. This, as well as the recent sharp increase in immigration 
cases, is the primary cause of current BOP inmate population growth.
Treatment
    Targeted Capacity Expansion (TCE) Program: +$53.8 million.--This 
additional funding will help the Substance Abuse and Mental Health 
Services Administration (SAMHSA) expand the availability of drug 
treatment in areas of existing or emerging treatment need. Further, 
these new resources will enable SAMHSA to provide additional states 
with State Incentive Grants. These grants aid in the coordination of 
substance abuse prevention funding streams within a state.
    Substance Abuse Block Grant Program: +$31.0 million ($22 million 
drug-related).--This increase for SAMHSA's Substance Abuse Block Grant 
will provide funding to states for treatment and prevention services. 
This program is the backbone of federal efforts to reduce the gap 
between those who are actively seeking substance abuse treatment and 
the capacity of the public treatment system.
    Treatment and Prevention Research: +$37.2 million.--The fiscal year 
2001 budget includes new funding for research conducted by the National 
Institutes of Health. Research is the lynchpin of efforts to educate 
and enable America's youth to reject drugs and to decrease the health 
and social cost of drugs to the American public. Funding supports 
activities of the National Institute on Drug Abuse (NIDA). NIDA 
programs include the National Drug Abuse Treatment Clinical Trials 
Network, prevention research, medications and behavioral therapies, and 
understanding and preventing relapse.
    Community Anti-Drug Coalitions: +$5 million.--With this 
enhancement, total funding for this ONDCP grant program will be $35 
million in fiscal year 2001. This initiative provides resources to 
groups to build and sustain effective community coalitions that help 
prevent drug use by youth. Sustained and comprehensive prevention 
efforts at the community level are required to deliver a constant anti-
drug message. These activities include the involvement of local leaders 
in the areas of drug prevention, treatment, education, law enforcement, 
government, faith, and business.
Law Enforcement and International Programs
    Customs Enforcement Infrastructure Enhancements: +$112.5 million 
(drug-related).--This funding will continue Customs efforts to shield 
America's land, air, and sea frontiers from the drug threat and provide 
new funding to enhance and modernize the Customs Air Program. Funds 
will be used to purchase additional flight safety systems, as well as 
upgrades to radar systems and computer capabilities.
    Forward Operating Locations (FOLs)--DOD: +$77.9 million.--The drug 
control budget for the Department of Defense includes these resources 
in fiscal year 2001 for restructuring SOUTHCOM's theater counterdrug 
architecture, which includes Military Construction funding for FOLs in 
Ecuador, Aruba and Curacao. This will reinstate some of the counterdrug 
support capabilities that had been resident in U.S. military bases in 
Panama.
    DEA Law Enforcement Support & Financial Management: +$65 million.--
This funding will expand several DEA activities, including 
infrastructure support for the FIREBIRD system, Southwest Border and 
money laundering operations, intelligence capabilities, and financial 
management oversight functions. The principal component of this 
initiative ($56 million) is for FIREBIRD. FIREBIRD is DEA's primary 
office automation infrastructure, which provides essential computer 
tools for agents and support staff.
    Coast Guard's Campaign Steel Web Enhancements: +$43.8 million 
(drug-related).--These additional resources will support the United 
States Coast Guard's drug-interdiction efforts, primarily in the 
transit zone region of the Caribbean and Eastern Pacific. In 
particular, funding will be used to expand the implementation of the 
Coast Guard's non-lethal use-of-force initiative that has proven 
effective at disabling non-commercial maritime craft used to transport 
illicit narcotics.
    Southwest Border--INS: +$28.3 million (drug-related).--For the INS, 
a $24.5 million ($163.3 million drug and non-drug) enhancement is 
requested for the Border Patrol. This enhancement includes funding for 
an additional 430 Border Patrol agent positions, $3.0 million (drug-
related) to continue deployment of the Border Patrol's Integrated 
Surveillance Intelligence System (ISIS) program, and $7.5 million 
(drug-related) for Border Patrol construction projects. In addition, 
the INS request includes $3.8 million (drug-related) for additional 
Immigration Inspector positions to staff three new ports along the 
southern border.
Assistance to Colombia
    The President's budget proposes $1.6 billion in fiscal year 2000 
and fiscal year 2001 funding for counternarcotics efforts in the Andean 
Region, primarily in Colombia. This builds on current funding for 
Colombia of over $330 million and includes $1.3 billion in new funding. 
An estimated 90 percent of the cocaine that enters the United States 
originates in or passes through Colombia. Up to six metric tons of 
heroin is produced annually in Colombia, and much of this total is 
shipped to the United States. Colombian heroin comprises 65 percent of 
the heroin seized today in the United States. Cultivation of coca, the 
raw material for cocaine, has nearly tripled in Colombia since 1992. In 
addition, Colombian traffickers and coca farmers have recently adopted 
new cultivation and processing techniques, increasing the amount of 
drugs processed from each acre of crop. Colombia now cultivates more 
than half of the coca leaf grown in the world. If unchecked, the rapid 
expansion of coca crops and cocaine production in Colombia threatens to 
increase significantly the global supply of cocaine over the next 
several years.
    Efforts by the government of Colombia to attack the drug trade are 
hampered by the fact that guerrillas and paramilitary groups control 
Colombia's major drug-producing regions. In addition to these armed 
groups, organized drug mafias continue to run international aspects of 
Colombia's drug trade. The money produced by the drug trade enriches 
these outlaw groups, which generate violence and corruption while 
threatening Colombia's democratic institutions. These problems 
contribute to the country's insecurity, which is compounded by the 
worst economic recession Colombia has experienced in almost seventy 
years.
    The democratically elected government of Colombian President Andres 
Pastrana devised a comprehensive, integrated strategy, called Plan 
Colombia, to address Colombia's drug and interrelated social and 
economic troubles. The Administration proposes $1.6 billion for 
assistance, including an increase of $1.3 billion in support of Plan 
Colombia--consisting of a fiscal year 2000 supplemental appropriation 
of $954 million and new fiscal year 2001 funding of $318 million.
    No single solution can cure all of Colombia's difficulties. 
Consequently, the program is an integrated combination of funds for 
Colombian counterdrug efforts and for other programs to help President 
Pastrana strengthen democracy and promote prosperity. The proposal 
would enhance alternative development; strengthen the justice system 
and other democratic institutions; and provide counterdrug equipment, 
training, and technical assistance to Colombian police and military 
forces. The U.S. government is encouraging our allies, along with 
various international institutions, to assist Colombia in implementing 
President Pastrana's plan. The budget proposal provides additional 
funding for counterdrug regional interdiction and alternative 
development to shore up significant gains against drug production in 
Peru and Bolivia and prevents traffickers from simply moving their 
operations to avoid law enforcement.

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                       ondcp's coordinating role
    The Office of National Drug Control Policy's statutory 
responsibilities are established in the following laws and executive 
orders:
    The Anti-Drug Abuse Act of 1988.--Requires ONDCP to set priorities, 
implement a national strategy, and certify federal drug control 
budgets.
    The Violent Crime Control and Law Enforcement Act of 1994.--Extends 
ONDCP's mission to assessing budgets and resources related to the 
National Drug Control Strategy.
    Executive Order No. 12880 (1993) and Executive Orders Nos. 12992 
and 13023 (1996).--Assign ONDCP responsibility within the executive 
branch of government for leading drug control policy and developing an 
outcome-measurement system.
    The Office of National Drug Control Policy Reauthorization Act of 
1998.--Expands ONDCP's mandate and authority and sets forth additional 
reporting requirements and expectations, including:
  --Development of a long-term national drug strategy
  --Implementation of a robust performance-measurement system
  --Commitment to a five-year national drug control program budget
  --Permanent authority granted to the High Intensity Drug Trafficking 
        Areas (HIDTA) program along with improvements in HIDTA 
        management
  --Greater demand-reduction responsibilities given to the Counter-Drug 
        Technology Assessment Center (CTAC)
  --Statutory authority for the President's Council on Counter-
        Narcotics
  --Increased reporting to Congress on drug control activities
  --Reorganization of ONDCP to allow more effective national leadership
  --Improved coordination among national drug control program agencies
  --Establishment of a Parents Advisory Council on Drug Abuse.
                ondcp's fiscal year 2001 budget request
    ONDCP's fiscal year 2001 requested budget authority of $496.8 
million represents an increase of $35.358 million (+7.7 percent) over 
the fiscal year 2000 enacted budget. While this budget is critical to 
the success of the National Drug Control Strategy, it represents only 
2.6 percent of the total federal counterdrug funding. The budget 
request reflects four program accounts: the Salaries and Expenses 
program; the Counterdrug Technology Assessment Center; the Special 
Forfeiture Fund; and the High Intensity Drug Trafficking Areas (HIDTA) 
program. Your investment in this small agency of 154 dedicated 
professionals is paying dividends to the American people as it fulfills 
its mission of reducing drug use and its consequences.
    Salaries and Expenses: $25.4 million.--ONDCP's budget provides 
$25.4 million for salaries and expenses to support ONDCP's requested 
155 Full Time Equivalents (FTEs)--125 full time employees and 30 
detailees--an increase of $2.577 million over the fiscal year 2000 
enacted budget. The funding for this programatic component is the key 
item for all the other programs funded through the ONDCP budget. 
Without a fully staffed and funded ONDCP, none of these other 
initiatives can be carried out. Major expenses include:
  --$12.267 million for compensation of 125 FTEs. This represents an 
        increase of $839,000 over the fiscal year 2000 enacted total of 
        $11.428 million, to support pay raises, within grade increases, 
        and 1 additional FTE within ONDCP.
  --$2.294 million for rental payments to GSA.
  --$6.041 million for guard services, professional services contracts, 
        maintenance services, and related costs. Included in this 
        amount is funding to support conferences and to fund the Drug 
        Policy Information Clearinghouse.
  --$1.1 million for research to develop and asses drug policy; 
        identify and detail changing trends in the supply of and demand 
        for illegal drugs; monitor trends in drug use and identify 
        emerging drug problems; assess program effectiveness; and 
        improve data sources.
  --$1.0 million for the National Alliance for Model State Drug Laws to 
        encourage states to adopt and implement laws, policies, and 
        regulations to reduce drug use and its adverse consequences.
  --$786,000 for travel and transportation costs.
  --$672,000 for communications, utilities, and miscellaneous costs. 
        This amount will fund telephone and telecommunications costs, 
        postage, and ADP equipment.
  --$386,000 for equipment. This amount will provide a basic level for 
        the purchase of required office equipment (including 
        replacement equipment), such as Personal Computer Systems, ADP 
        equipment and secure communications equipment.
    Special Forfeiture Fund: $259 million.--ONDCP's budget for the 
Special Forfeiture Fund is $43.703 million more than the fiscal year 
2000 enacted budget. This request funds the National Youth Anti-Drug 
Media Campaign, the Drug-Free Communities Program, the National Drug 
Court Institute, Counter-drug Intelligence Architecture, and a 
Treatment Demonstration Project.
The National Youth Anti-Drug Media Campaign
    In fiscal year 2001, ONDCP is requesting $195 million for the 
National Youth Anti-Drug Media Campaign to support Goal 1 of the 1999 
National Drug Control Strategy, which is to ``educate and enable 
America's youth to reject illegal drugs as well as alcohol and 
tobacco.'' ONDCP will continue the five-year initiative begun in fiscal 
year 1998, and expanded in fiscal year 1999, that uses paid media 
messages to change youth attitudes about drug use and its consequences. 
Strategically targeted, high impact, paid media ads--at both the 
national and local levels--are the most cost effective, quickest means 
of changing drug use behavior through changes in adolescent perceptions 
of the danger and social disapproval of drugs. Although public service 
messages (PSAs) are part of this campaign, it is impossible to reach 
the specific audiences at the times and with the frequencies that are 
required to move drug use attitudes with PSAs alone.
    The non-advertising component of the anti-drug campaign delivers 
our messages through radio and television, print media, the Internet, 
faith communities, health professionals, community coalitions, schools, 
parents, coaches, and organized sports. The drug prevention campaign 
also includes an entertainment industry component to ensure that drug 
use is depicted accurately on television and in film and music.
    Through strategic partnerships, the Campaign is increasing the 
number of organizations and businesses through which accurate drug 
messages reach their target audiences. These alliances are extending 
Campaign messages to reach youth and parents in the communities where 
they live and in places where they spend most of their time--including 
schools, on line, at work and at play--helping build long-term 
substance abuse prevention activities. Media and advertising 
partnerships bring expertise to every aspect of the Campaign. All major 
television networks donated airtime, special programming and production 
of celebrity PSAs. Significant national partners playing critical roles 
in the Campaign include the Partnership for a Drug Free America, The Ad 
Council and the American Advertising Federation. Other Campaign 
partners include organizations that have focused historically on young 
people, parents and substance abuse issues, education, and other fields 
with broad reach into target audiences. These include the Campaign's 
newest entertainment industry partner, the Hollywood Reporter, Youth 
Development partners such as YMCA of the United States of America and 
National FFA Organization (formerly the Future Farmers of America), and 
the Girl Scouts USA. Education partners helping to communicate anti-
drug messages include the National Middle School Association and the 
National Association of Student Assistance Professionals, as well 
partnerships with major news organizations such as the Annie E. Casey 
School of Journalism for Children and Families, Chicago Tribune, USA 
Today and New York Times.
    The campaign developed Internet sites with industry leaders such as 
America Online (AOL). Content is being developed for campaign-related 
web sites. Freevibe.com helps youngsters make positive, well-informed, 
life-style decisions. The Parents' Drug Resource Center--on AOL at 
Keyword ``Drug Help?''--teaches parents about underage drug use, 
connects them to drug-help resources, and offers expert advice on 
child-rearing. Other Internet initiatives combine online banner ads 
with educational mini-sites, online sponsorships, promotions and 
interactive events. These activities, combined with a rich multimedia 
advertising program, have created an unprecedented social marketing 
effort on the Web. Highlights include:
  --More than 10 million page views on the Media Campaign websites.
  --Attained more than 168 million pro-bono Internet match impressions.
  --Campaign's kid-oriented web site Freevibe.com received nearly 5 
        million ``hits'' and parent-oriented Parents' Drug Resource 
        Center located on America Online garnered more than 196,000 
        user entries in the first three months of operation.
    During the past year, the campaign reached 90 percent of America's 
youth at least four times a week through advertising; and communicated 
advertising messages in eleven languages to youth and adults of various 
ethnic groups. The Campaign represents the largest multicultural 
advertising and communications effort ever undertaken by the Federal 
government, with messages and delivery tailored to ethnic audiences. It 
combines culturally competent and relevant messages designed by African 
American, Hispanic, and Asian-owned companies, to ensure the 
credibility of the messages and to enhance their impact.
    The campaign's pervasive presence has also been manifested in 
increased demand for anti-drug information. Since the national launch 
of the campaign in July of 1998, inquiries received by the National 
Clearinghouse for Alcohol and Drug Information (NCADI) have increased 
dramatically. The number of inquiries received between July 1998 and 
June 1999 increased by 159 percent over the corresponding 1997-1998 
period. NCADI also responded to 102 percent more requests for 
information and distributed more than sixteen million items between 
July 1998 and June 1999. On peak days--which corresponded with specific 
anti-drug campaign events (e.g. an article in Parade magazine, media 
coverage of national launch, and media ``roadblocks'')--requests surged 
by 367 percent over pre-Campaign levels. Per month Internet requests 
for substance abuse information have increased tenfold since July 1998.
The Drug-Free Communities Program
    In fiscal year 2001, ONDCP is requesting $35,000,000 to continue 
and expand the Drug Free Communities Program (an increase of $5 million 
over the fiscal year 2000 enacted budget). As part of the $35 million 
budget, more than $32.5 million will be granted directly to 408 
coalitions throughout the United States. As described in the 
authorizing legislation--the Drug-Free Communities Act of 1997--all 
funded coalitions must match their federal grant funds with other non-
federal sources of support, including both cash and in-kind 
contributions. Grantees may receive a maximum amount of $100,000 for 
years one and two, up to $75,000 for year three, and no more than 
$50,000 for years four and five.
    The Drug-Free Communities Program provides funds, knowledge, and 
other resources to help local leaders prevent youthful drug problems, 
including the underage use of alcohol, tobacco, and inhalants. This 
program now supports 213 communities located in forty-five states, 
Puerto Rico, and the U.S. Virgin Islands. Applicant communities must 
match their grant awards with funding from non-federal sources. 
Communities may re-apply for federal funds over an additional four 
years, but after year two become eligible for decreasing levels of 
federal support. This funding policy adheres to the Congressional 
intent of supporting programs that are able to support themselves in 
the future solely through local resources.
    The Drug-Free Communities Program is complemented by a number of 
private sector organizations and other public agencies, including the 
National Association of State Alcohol and Drug Abuse Directors 
(NASADAD), National Prevention Network, National Guard, Mothers Against 
Drunk Driving (M.A.D.D.), AmeriCorps and National Inhalant Prevention 
Coalition, that provide useful tools, occasional funding and frequent 
communications among the communities and other useful resources. The 
program is ably guided by the Advisory Commission on Drug-Free 
Communities, an eleven member, presidentially-appointed expert group 
representing many sectors and organizations across the United States. 
The Community Anti-Drug Coalitions of America (CADCA) is a coalition 
membership organization that provides a wide array of technical 
support, program ideas, and advocacy to community coalitions around the 
U.S.
National Drug Court Institute
    In fiscal year 2001, ONDCP is requesting $1.0 million for the 
National Drug Court Institute. These funds will continue the expansion 
of the Institute's drug court training program for practitioners; 
convene special advisory groups to develop curricula in new 
disciplines; develop a national community probation initiative; and 
expand and update the Institute's video instruction library.
    Drug courts divert drug offenders out of jails or prisons and refer 
them to community treatment. Drug courts seek to reduce drug use and 
associated criminal behavior by retaining drug-involved offenders in 
treatment. Defendants who complete the program either have their 
charges dismissed (in a diversion or pre-sentence model) or probation 
sentences reduced (in a post-sentence model). Title V of the Violent 
Crime Control and Law Enforcement Act of 1994 (Public Law 103-322) 
authorizes the Attorney General to make grants to state and local 
governments to establish drug courts. In October 1999, 416 drug courts 
were operating nationwide, including eighty-one juvenile, eleven 
tribal, ten family, and seven combined drug courts. Two hundred and 
seventy-nine were in planning stages, up from a dozen in 1994.
    Drug courts have been an important step forward in diverting non-
violent offenders with drug problems into treatment and other community 
resources, leaving the criminal justice system to address violent acts. 
One hundred and seventy-five thousand people have entered drug courts 
since their inception, and 122,000 graduated or remained active 
participants. A review of thirty evaluations involving twenty-four drug 
courts found that these facilities keep felony offenders in treatment 
or other structured services at roughly double the retention rate of 
community drug programs. Drug courts provide closer supervision than 
other treatment programs and substantially reduce drug use and criminal 
behavior among participants.
Counter Drug Intelligence Architecture
    In fiscal year 2001, ONDCP is requesting $3 million for the 
Counterdrug Intelligence Executive Secretariat. The Fiscal Year 1998 
Treasury and Government Appropriations Act requires ONDCP to improve 
counterdrug intelligence coordination and eliminate unnecessary 
duplication. An interagency Task Force was formed in the fall of 1997 
to review the United States Counterdrug Intelligence Centers and 
Activities. The Task Force focused on ensuring drug intelligence 
mission statements for the core components were clear, that appropriate 
relationships and oversight were in place, and that information sharing 
and dissemination mechanisms worked.
    The Task Force concluded there was no all encompassing, national 
counterdrug intelligence architecture. Instead, there were two loosely 
associated systems, one for law enforcement and one for the foreign 
counterdrug intelligence system; neither operates closely or 
efficiently with the other. The Task Force proposed 89 specific 
recommendations in the following areas: National Counterdrug 
Intelligence Coordination; National Level Intelligence Centers; 
Regional, State and Local issues; Information Systems Architecture; 
Personnel and Training; and Foreign Counterdrug Intelligence 
Coordination. Since the development of the Task Force report, the 
interagency has worked to create an action plan, the General 
Counterdrug Intelligence Plan (GCIP). This unclassified plan was 
approved by the President, signed by eight Cabinet level officials, and 
released publicly in February 2000. The cornerstone action initiative 
of the GCIP establishes a senior interagency working group (The 
Counterdrug Intelligence Coordinating Group) and its permanent support 
staff (The Counterdrug Intelligence Executive Secretariat--CDX) which 
will promote continuous improvement of the national drug intelligence 
system. The $3.0M for fiscal year 2001 will allow initial stand up of 
the CDX to include office space and equipment, limited travel, and 
initiation or continuation of work to implement the 73 action items in 
the GCIP, as well as new action items identified outside the GCIP.
National Criminal Justice Treatment Demonstration Project
    In fiscal year 2001, ONDCP is requesting $25 million for the 
National Criminal Justice Treatment Demonstration Project. Many states 
and localities have replicated national evaluations of drug testing and 
treatment for criminal offenders. What they request--and have 
demonstrated they will use--is specific guidance on how to best 
implement the most effective practices established by research and 
experience. The Project will identify effective treatment elements from 
nationally recognized program models and implement these in 
demonstrations at the community level. Such demonstrations will involve 
community collaboration and pooling of public safety and public health 
resources.
    The results of these state and local demonstrations will be used to 
improve the dissemination of best practices, including the provision of 
step-by-step implementation manuals. Evaluation results will be 
disseminated regarding: collaborative mental health and substance abuse 
approaches for juveniles and adults with co-occurring disorders; the 
impact of family involvement, and the family as the unit of treatment; 
rehabilitation programs that include comprehensive skills building, job 
training directly linked to employment, and viable education programs; 
and cognitive behavioral approaches for juveniles. The conduct of 
national, regional, and state conferences and workshops will also be 
considered as means to provide follow up assistance.
    High Intensity Drug Trafficking Areas (HIDTA): $192 million.--In 
fiscal year 2001, ONDCP is requesting $192 million for necessary 
expenses of the HIDTA program, $729,000 more than the enacted fiscal 
year 2000 budget. HIDTAs are designated regions with critical drug-
trafficking problems that harm other areas of the United States. The 
ONDCP Director--in consultation with the Attorney General, Secretary of 
Treasury, heads of drug-control agencies, and appropriate governors--
designates these locations. In addition to coordinating drug-control 
efforts, HIDTAs assess regional drug threats, develop strategies to 
address the threats, integrate initiatives, and provide federal 
resources to implement initiatives. HIDTAs strengthen America's drug-
control efforts by forging partnerships among local, state, and federal 
law-enforcement agencies; they facilitate cooperative investigations, 
intelligence sharing, and joint operations against drug-trafficking 
organizations. The Department of Defense gives priority support to 
HIDTAs in the form of National Guard assistance, intelligence analysts, 
and technical training.
    Since January 1990, counties in the following 31 areas have been 
designated as HIDTAs: Houston, Los Angeles, South Florida, New York, 
and the Southwest Border, which includes South Texas, West Texas, New 
Mexico, Arizona and Southern California (in 1990); Baltimore/
Washington, DC and Puerto Rico/U.S. Virgin Islands (in 1994); Atlanta, 
Chicago, Philadelphia/Camden (in 1995); Gulf Coast (Alabama, Louisiana, 
and Mississippi), Lake County (Indiana), the Midwest (Iowa, Kansas, 
Missouri, Nebraska, North Dakota, and South Dakota), Northwest 
(Washington), Rocky Mountains (Colorado, Utah, and Wyoming) (in 1996); 
Northern California (San Francisco Bay Area) and Southeastern Michigan 
(in 1997); Appalachia (Kentucky, Tennessee, and West Virginia), Central 
Florida, Milwaukee, and North Texas (in 1998); and Central Valley 
California, Hawaii, New England (Connecticut, Maine, Massachusetts, New 
Hampshire, Rhode Island, and Vermont), Ohio, and Oregon (in 1999).
    The HIDTA program advances the National Drug Control Strategy by 
providing a coordination ``umbrella'' for agencies to combine anti-drug 
efforts through an outcome-focused approach. The resulting synergy 
eliminates unnecessary duplication of effort, maximizes resources, and 
improves information sharing within and between regions. Intelligence 
is coordinated at HIDTA Investigative Support Centers, which offer 
technical, analytical, and strategic support to participating agencies 
with access to agency databases and supplemental personnel. Currently, 
949 local, 172 state, and 35 federal law-enforcement agencies and 86 
other organizations participate in 462 HIDTA-funded initiatives.
    Counterdrug Technology Assessment Center (CTAC): $20.4 million.--
The fiscal year 2001 budget request for the Counterdrug Technology 
Assessment Center is $20.4 million, a decrease of $11,652,000 from the 
fiscal year 2000 enacted budget. This request consists of three parts: 
Research and Development (Technology) ($16 million), Technology 
Transfer Program ($3.7 million), and United States Olympic Committee 
Anti-Doping Program ($700,000). Today, scientists and engineers from 
many disciplines are assisting the Office of National Drug Control 
Policy in exploiting advances in science and technology to stem 
substance abuse and stop the illicit drug trade. The Counterdrug 
Technology Assessment Center (CTAC) technology development programs 
support the goals and objectives of the National Drug Control Strategy. 
The Blueprint Update released with the Annual Report provides a report 
on progress achieved this year.
    Research and Development.--The applied technology efforts that 
comprise the CTAC R&D program address technology for demand reduction 
in areas such as brain imaging technology, therapeutic medications 
assessment and addiction treatment, and for supply reduction in areas 
such as drug detection, communications, and surveillance. Technologies 
are being developed to advance the capabilities of the medical, 
academic, scientific and criminal justice communities as they cooperate 
to solve the drug abuse problem.
    Technology Transfer Program.--In 1998, Congress authorized a 
Technology Transfer Program (TTP) for CTAC to provide successfully 
developed technologies to State and local law enforcement agencies. 
Congress continued the TTP program in 1999 and 2000. CTAC organizes its 
technology program according to five categories or areas of work:
  --Non-intrusive inspection,
  --Tactical technology for federal agencies,
  --Demand reduction,
  --Technical assessments and operational test and evaluation of 
        emerging technology, and
  --Transfer of federally developed technology directly to state and 
        local law enforcement organizations.
    Support for Anti-Doping Programs.--This initiative expands current 
support for National Commission on Sports and Substance Abuse to 
identify problematic substances, masking agents, and gaps in current 
testing procedures. This funding will be used to (1) support the United 
States Olympic Committee's creation of an independent anti-doping 
agency for the United States; (2) support anti-doping programs for the 
Salt Lake Olympic games; and (3) support research on innovative 
approaches for screening for doping and other performance enhancing 
substances currently not detectable by urine tests will be 
investigated. Systems, methods and protocols will be investigated that 
will assist understanding and detecting the use of performance-
enhancing drugs such as anabolic and androgenic steroids by athletes 
competing locally, nationally, and internationally. This funding will 
advance the goals of the Strategy for counterdrug use in sports.
                               conclusion
    The National Drug-Control Strategy responds to long-standing 
congressional concerns over the adequacy of the federal response to the 
drug problem. It provides detailed long-term plans for addressing 
domestic and international trends in drug use, production, and 
trafficking. This Strategy is national in scope and purpose. The 
federal government cannot accomplish the ambitious objective of 
reducing illegal drug use by 50 percent without the support of all 
states and territories, the thousands of city, county, and local 
governments threatened by illegal drugs and foreign governments, the 
private sector, and society at large. This Strategy also recognizes 
that it is only the federal government that can undertake international 
drug-control efforts, consequently, it also promotes vigorous 
international cooperation.
    We look forward to working with all the members of this 
subcommittee and, indeed, the entire Congress to ensure that the 
federal response to the nation's drug problem is comprehensive, 
appropriately resourced, and completely supportive of states, cities, 
counties, communities, families, and all citizens who share our 
commitment to confronting the cancer of drug abuse.

                          audience recognition

    Senator Campbell. Before I ask you any questions, I have 
several and I am sure Senator Dorgan does, too, I noticed in 
the audience today a lot of young people. Would the people that 
are in the audience under 20 years old stand up for me? I saw a 
lot of them come in. Very good.
    I want to tell you, I, as the chairman of this 
subcommittee, am very glad you are here. I hope you are 
listening to some of these numbers that the General has been 
talking about because a lot of the efforts that he has 
participated in and that this committee is trying to fund 
really is going to be directed at your age group, as you 
probably know. That is what we are really trying to make a big 
impact on, is the reduction of the use of drugs by our young 
people because we know that if we can convince young people who 
are using them that they do not need them and they do not have 
to have them, we do not have to worry so much about supply. If 
we can stop the demand for them in the United States, the 
supply will simply dry up.
    So I just want to tell you that I am very happy you are 
here and I hope that you can stay as long as you can for the 
hearing today as we ask some questions. Thank you.
    Before I ask some questions, Senator Dorgan did come in. 
Did you have an opening statement, Senator, before I start?
    Senator Dorgan. Mr. Chairman, why don't you proceed. I will 
put my opening statement in the record and then I will ask the 
General some questions.
    Senator Campbell. That is fine.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Thank you, Mr. Chairman. General McCaffery, I am pleased that you 
are able to join us today and I welcome you to this subcommittee 
hearing. I appreciate the opportunity to speak with you about the very 
important issue of drug abuse in our society and I look forward to 
hearing your testimony about the progress that has been made by your 
office since your appearance before this committee last year.
    Your fiscal year 2001 budget request calls for $496,800,000 in 
funding. This request is an increase of $35,358,000 over the fiscal 
year 2000 enacted budget. As you know, the competition for existing 
dollars is tight and this committee needs to be vigilant in ensuring 
that these dollars are being spent wisely.
    As you are well aware, in excess of $182 billion has been expended 
in efforts at combating illegal drug use in the past nine years. This 
certainly demonstrates our commitment to stemming the flow of illegal 
drugs and reducing drug use. In that light, I hope that you will focus 
your testimony on showing this committee evidence that the sizable 
investment made by the Federal Government in combating illegal drugs is 
paying dividends and that the overall drug reduction strategy overseen 
by your office is working.
    I would like for you to discuss the individual programs that make 
up our national drug control strategy.
    Despite our efforts in combating the problem of drug abuse, the use 
of certain individual drugs continues to rise. The increase in the use 
of so called ``hard drugs'', such as heroin and cocaine, is 
particularly disturbing. I want to explore with you how we can reverse 
this trend
    As part of your fiscal year 2001 budget, a request was made for 
$195,000,000 for the third year of the planned five-year national media 
campaign. Your efforts in developing this program to educate our 
children as part of your overall strategy are to be applauded. I 
realize that you have developed a five-year media program, however I 
would like for you to discuss what success this program has achieved to 
date, and how you measure success.
    I also look forward to hearing your testimony about our efforts on 
the international front, particularly our current relationships with 
Colombia and Mexico. As I mentioned in last year's hearing, I still 
have doubts about the certification of Mexico as a cooperating partner 
in the efforts to stem the flow of illegal drugs coming across our 
southwest border. I wonder whether there has been any significant 
change in Mexico's cooperation with us on this front.
    Finally, I would like for you to discuss the issue of drug 
treatment and rehabilitation and how they fit into the overall national 
strategy. As you are aware, a tremendous problem exists with repeat 
drug offenders and the cycle of abuse and its associated crime. These 
offenders are arrested, sent to jail, released and fall back into a 
pattern of drug abuse. This cycle is repeated over and over again. In 
many areas of the country, treatment is almost nonexistent and in other 
areas, including Washington, D.C., the waiting list to receive 
treatment is far too long.
    I commend you on all of your efforts to address this extremely 
difficult problem, and look forward to your testimony.
    Thank you, Mr. Chairman.

                            doping in sport

    Senator Campbell. I am going to just bounce around a little 
bit here based on some of your testimony. As you know, you 
mentioned I was a former Olympian and am still very active with 
the Olympic Committee and have regular meetings with them, and 
some concerning the use of drugs. I recognize the important 
involvement you have had with the Olympic team. The last time I 
met with Bill Hibble, who is the chairman of the USOC, he told 
me they are going to have a big problem coming up that you 
probably will not be involved in, but you ought to be aware of, 
and that is what we call drugs in some countries they call 
food, as you probably know.
    Some of the Oriental countries, for instance, concentrated 
substances from natural plants, they still determine to be food 
and not drugs, whereas in this country, depending on how it is 
processed, how it is used, and so on, we sometimes categorize 
it as drugs. I do not know how that is going to play out in 
future Olympic games, but I am sure that you are aware of it.

                          youth drug use rates

    Let me also ask you a couple of questions about the media 
campaign, about a number of things. I was looking over your 
charts and listening to your testimony and trying at the same 
time to read a little bit in the National Drug Control Strategy 
booklet. You will have to explain this to me, because something 
does not jive very well.
    I think that your comment, that the attitudes of young 
people are changing may very well be true, but I am not too 
sure about the youths based on the charts. On page 14 of this 
particular booklet, look at the average age of the first 
marijuana use, in fact, since we have started this national 
media campaign, it was level for a couple of years and now it 
seems to be going back up. In 1997, the last year it shows 
here, the average age at which somebody started using it was 
17.1. It went up slightly there. It stayed level a couple of 
years before that. The current use in the past month of 
marijuana looks to be steady in the last three years, pretty 
much steady.
    On the next page, page 16 and 17 under the use of cocaine, 
current cocaine use, pretty much steady. It was up a little in 
1996, dropped a little in 1997, went back up in 1998. The next 
chart down, it has gone up in 1995, 1996, and 1997. That is 
first-time users of cocaine. And the bottom chart, the average 
age for the first cocaine use, it dropped for the first couple 
of years, 1996, 1997, and it has gone back up a little bit.
    Am I seeing some disparity between what is in the book and 
what you are telling us on the charts? I mean, I can understand 
you saying that attitudes are changing, but I am not sure the 
attitudes are translating into less use.
    Mr. McCaffrey. Trying to make sense out of this is tough. 
To some extent, there are six major annual federally funded 
studies, so you have to know which study you are talking about. 
Is it the Household Survey or Monitoring the Future? They 
survey different populations. Let me tell you where I come out 
on it.
    What is unmistakable is we have a dynamic drug abuse 
situation for America's youngsters, and that is the heart and 
soul of it. If we can get kids from age 10 to 19 reasonably 
drug-free, statistically they will never become 30 year old 
HIV-positive chronic addicts.
    When you take the youth population, there are new drugs 
they are facing. This is no longer your daddy's drug 
environment. They are looking at methamphetamines, MDMA, and 
high-purity heroin. The use of inhalants has gone up. It is a 
different drug environment.
    The age of initiation is dropping, you are quite correct, 
and that is scary. It is not college sophomores. We are talking 
eighth graders.
    Finally, I think the good news is what is unmistakable, 
what is statistically significant for the first time in 5 years 
is that drug use rates among 12- to 17-year-olds went down last 
year by 13 percent, and it is even greater by----
    Senator Campbell. Say that again, please.
    Mr. McCaffrey. Last year, Donna Shalala and I released the 
statistics. Adolescent drug use in America went down by 13 
percent. Now, it is too early to get very optimistic.
    Senator Campbell. That is all age groups, or youth age 
groups?
    Mr. McCaffrey. Age 12 to 17.
    Senator Campbell. 12 to 17?
    Mr. McCaffrey. That is the youth age group. We are looking 
forward to next year's data. But now PDFA, PRIDE, I have four 
studies that cluster around the same notion. After several 
years of going up, it has leveled off. It is definitely moving 
in the other direction. The challenge to you and I is, can we 
say that for 5 years in a row?
    Senator Campbell. Well, I know things do not happen 
overnight, and I understand that, and I think that is why 
Senator Dorgan and I have really been so supportive of the 
media campaign where we have had to take money out of other 
accounts. I recognize they are not going to change attitudes 
overnight among young people when the draw is so strong and the 
peer pressure is so strong.
    Mr. McCaffrey. Mr. Chairman, there are other measures that 
indicate whether that media campaign is being heard, believed 
credible, and causing people to act. Some of them are almost 
unarguable. You put an article in ``Parade'' magazine, you put 
down a 1-800 number, and the calls will peak and go off the 
chart. You start doing it in Spanish--there are 16 million of 
us who speak Spanish at home at night--and people call into the 
National Drug Clearinghouse and ask for a pamphlet, ``How to 
Talk to Your Kids About Marijuana,'' in Spanish, and the mail-
outs have gone up dramatically.
    Concerning coalition building, the Ad Council is here, 
represented by Donna Feiner. We are seeing people attracted 
into their community coalition by these ads.
    Senator Campbell. Well, the underlying thesis of all 
advertising, whether you are selling toothpaste or cars, is 
that you can change behavior based on image and suggestion and 
so on, so I certainly hope it is working.

                             hidta and ctac

    Let me move on a little bit. I was happy to hear what I 
view as somewhat, your increasing support of the HIDTAs. A few 
years ago when they were started, I know there was a matter of 
discussion whether they were going to be effective or not. I 
know the one we have in Denver has been hugely effective in 
that all the different agencies are involved in it. They swear 
by it. They are also becoming community involved. As you 
probably know, I think that the HIDTAs are good, where they are 
working with anti-gang groups and things of that nature. So I 
am glad to see that you are supportive of that.
    Let me ask you about CTAC, which I am also a big supporter. 
I have been to several of their demonstrations out in the field 
where we have all kinds of different agencies come in, from 
large agencies, small ones, and so on, where they learn how 
they can avail themselves to some of this very sophisticated 
equipment that they would never have the money to develop on 
their own in the departments.
    According to the information provided at last week's law 
enforcement technology demonstration, CTAC, displayed a very 
extensive technology display and many of our colleagues came 
over to see that and I was gratified that they did come and see 
it. But it appears that the program has experienced significant 
growth since being initiated by Congress. Based on your numbers 
during the 24-month period of fiscal year 1998 and 1999, there 
were 662 requests. During the first six months of fiscal year 
2000, there were 641 requests. So the requests are going up, no 
question about it.
    And yet you have a rather large reduction in your request 
for funding, and I see it as about a 72 percent cut. If we cut 
that account, how long are those funds going to last at these 
increased requests?
    Mr. McCaffrey. Senator, I think there is some budget 
analyst gamesmanship going on here. There are two numbers I 
look at to try and understand this. The $3.7 million, if you 
look back over the last 4 years, each year, we actually request 
more money than the last, but it is grossly below what Congress 
enacts, which also goes up each year. I asked OMB for more than 
the amount of money I have got on the table. I did not get it 
and, of course, this is what they have to do by law, try to 
balance the budget.
    I think we obviously would stand intellectually behind a 
much richer resourcing of this program. Law enforcement in 
America is benefitting from this in very fundamental ways.
    Senator Campbell. There is no question about it, the 
display that was here the other day that I attended and Senator 
Dorgan attended, I have to tell you, some of that stuff was 
really kind of like Buck Rogers. I mean, I had no idea that 
some of it was so sophisticated, and a lot of it is not related 
to your office, but the amount of counterfeiting, things of 
that nature that are going up is just phenomenal.
    Let me talk about the recisison a little bit. You have the 
flexibility to choose where some cuts are going to be, and in 
the fiscal year 2000 budget, there was a reduction in your 
budget. It allowed you the flexibility to determine where you 
were going to cut. As I understand it, you chose to cut the 
model State drug laws program and a technology program and a 
HIDTA program, and yet from what I hear you saying, you are 
very supportive of all three of those. Do you want to comment 
on that?

                              drug courts

    Mr. McCaffrey. It is one of these least palatable of all 
decisions kind of operations, and also a factor of where do I 
have money. Even some programs--model State Drug Laws, at $1 
million, it is a tiny amount of money but it is a very 
significant payoff over time to make sure that States get 
access. That Model State Drug Law is a pilot document that is 
about 4 feet high, so even that one is very important to us.
    Senator, we just did an analysis on how we could minimize 
damage to the drug Strategy, and that is the outcome. But I 
clearly stand behind all those programs.
    Senator Campbell. I appreciate that, because I think that 
the majority of the committee members do, too.
    One more, on the National Drug Court Institute, I attended 
a drug court with you in Denver and was very gratified at the 
effect that the drug courts are having, as you remember. There 
was $2 million provided in the fiscal year 1999 appropriations 
for the National Drug Court Institute. In fiscal year 2000, you 
requested and Congress funded an additional $1 million. The 
language included with the funding was modified at your request 
to make it easier for ONDCP to transfer the funds. The funds 
have not yet been given to the Drug Court Institute. Is there a 
reason for that?
    Mr. McCaffrey. Besides the normal mindless bureaucracy, I 
do not know why. They are doing a splendid piece. Money will be 
transferred via OJP. Let me go look into it.
    Senator Campbell. All right. If you would look into that 
and perhaps report back to the committee, I would appreciate 
it.
    Mr. McCaffrey. I will do that, because we cannot keep the 
National Drug Court Institute going unless there is 
documentation, training, and structure Judge Tauber has done a 
brilliant job with a small staff of pulling this together, so 
that money is a huge payoff.
    Senator Campbell. I bet it is. Okay, thanks. I do not want 
to monopolize the time. We are going to have a vote at about 
10:30 or so. We have the choice of either recessing and 
reconvening and making you stick around for a long time or 
trying to finish up our questions before then, so I would like 
to ask Senator Dorgan for his questions.

                national youth anti-drug media companies

    Senator Dorgan. Mr. Chairman, thank you very much.
    General, I was delayed for a couple of minutes because of 
another committee, so I will just put my statement in the 
record. In the statement, I essentially agree with Chairman 
Campbell. I think much of what we are doing here cannot be 
measured in a week or a month or a year, especially with 
respect to the media program that all of us are involved in. We 
have committed a substantial amount of money to that at your 
and the administration's request. I support that. I am glad we 
have done it and I recognize fully that that is not something 
that can be measured in the short term. You can try very hard 
and should try to understand what are you getting for what you 
are spending, but I think only after a rather lengthier term 
will we be able to understand what we have accomplished with 
this.
    The reason I supported it going in is that I think it is 
clear that those who understand how people react to television 
advertising and the power of advertising on television and 
radio and in newspapers, the power of it affects the way people 
think and the way they make purchases and the way they respond 
and behave and act. So I still remain hopeful that the early 
signs are encouraging and I remain hopeful that this will have 
a much more significant impact than even now we can hope to 
expect. I guess we will know more about that in the next couple 
of years, but I hope we can continue that program without break 
and without interruption.

                    chronic drug use rates/treatment

    I would like to talk to you just briefly about the issue of 
addiction in the country. We are talking, first with television 
programs, about trying to talk to kids in this country. Do not 
do drugs, do not start drugs, here are the dangers and so on.
    Let me talk to you just a bit about the people who already 
are addicts in America. I want to lead to questions about the 
Break the Cycle program and other related programs. Can you 
tell me roughly how many addicts in this country are addicted 
to hard drugs?
    Mr. McCaffrey. Well, again, I have to show you which study 
I am using----
    Senator Dorgan. I understand, but----
    Mr. McCaffrey. The quick answer is there are 5 million 
Americans who are chronically addicted to illegal drugs. Most 
of those are poly-drug abusers, so they would include alcohol, 
5 million people.
    Senator Dorgan. And exclude alcohol, if you will, for the 
moment. Even the chairman and I on the floor of the Senate, in 
an amendment last year had to distinguish between what we are 
doing with respect to drugs and alcohol.
    Mr. McCaffrey. Right.
    Senator Dorgan. Nobody is more insistent on dealing with 
the alcohol issue than I am. I have lost a couple of family 
members----
    Mr. McCaffrey. The answer is five million. There are 
another 10 to 16 million----
    Senator Dorgan. But that includes alcohol.
    Mr. McCaffrey. Many of them are also using alcohol. There 
is almost no heroin addict that does not use alcohol, too.
    Senator Dorgan. So there are 5 million drug addicts in this 
country?
    Mr. McCaffrey. Chronic drug addicts.
    Senator Dorgan. Chronic drug addicts.
    Mr. McCaffrey. They consume two-thirds of all the drugs in 
America and they are at the heart and soul of the misery that 
is engendered by this problem.
    Senator Dorgan. All right. Five million drug addicts 
consume two-thirds of the drugs.
    Mr. McCaffrey. Right.
    Senator Dorgan. Do we have any data about the percentage of 
those 5 million drug addicts who would like to shed their 
addiction, who search year to year, month to month for ways to 
shed this addiction?
    Mr. McCaffrey. There is the key question, because you get 
into the treatment coefficient, how many are amenable to 
treatment and what forms of treatment are appropriate, and we 
have some real experts in the room, Dr. Linda Wolf Jones, among 
others. I just spent an afternoon with Dr. Mitch Rosenfeld of 
the Phoenix House, who runs one of the biggest programs in the 
country.
    I do not know what the answer is. I do know some things for 
sure. If I am in misery as an addict, and I am, and you arrest 
me, or if I have a serious traffic accident and I end up in a 
hospital emergency room, or I finally get humiliated because I 
lost my children to the welfare system, at that point, I will 
be receptive to effective drug treatment. If it is available 
then, it is likely to do some good for the community and for 
me. If it is not available then, you tell me to come back in 92 
days, you can forget about it. That is the problem. It is both 
timing and availability.
    Senator Dorgan. Where I am going with my train of thought 
here, and the question, is the importance of treatment 
availability when it is needed, at the moment it is needed----
    Mr. McCaffrey. Yes, sir.
    Senator Dorgan [continuing]. Especially as it relates to 
mandatory treatment in incarceration.
    Mr. McCaffrey. Absolutely.
    Senator Dorgan. One of my concerns is that we worry a lot 
about the entire spectrum. We are talking about Colombia, 
production and interdiction and all of these issues, and over 
on this side of the spectrum we have got the issue of 
treatment, and you have 5 million people addicted. I have seen 
data about how many would like to shed their addiction but 
cannot find treatment facilities because we are woefully short 
of treatment facilities.
    I wonder if I could just get on the record here, on the 
treatment side of this issue, what kind of capability do we 
have to provide treatment--and I am not talking about those who 
are incarcerated, because I am going to ask you about those in 
just a moment--what kind of capability do we have to fund 
treatment centers? Are sufficient treatment centers available? 
I am expecting the answer to that is no. How can we make them 
available? What kind of resources would be necessary to make 
sufficient treatment centers available to those that would like 
to shed their addiction?
    Mr. McCaffrey. They are pretty complex questions and I 
would actually like to provide you a response in writing. It 
seems to me we have 5 million chronic addicts. We think we have 
a capability of a little over 2 million treatment spaces. It is 
clearly not adequate. It is not adequate in Baltimore. It is 
not adequate in rural communities.
    You can go down to subsets of the problem. Heroin addicts 
in America, there are probably 900,000-plus. Next week, I go to 
the American Methadone Treatment Association meeting in San 
Francisco and will underscore the fact there are 179,000 who 
have access to methadone. This is the most widely studied and 
effective therapeutic tool we have for chronic drug abuse, and 
we have eight States that will not allow methadone. We have 
structural inconsistencies. We have inadequate infrastructure. 
We have inadequate regulation.
    We are moving in the right direction. The Federal support, 
for the first time in history, this year, Donna Shalala has on 
the table $3,150,000,000 in drug treatment. It is up 32 percent 
in the last 5 budget years. We are rewriting the regulations, 
Dr. Wesley Clark and CSAT, to try and more effectively govern 
buprenorphine and methadone and LAMM.
    All these programs are moving ahead, the criminal justice 
link to drug treatment. We are trying to, without question, 
move on parity in health care insurance for mental health and 
drug treatment insurance. We have to do that. Right now, if my 
16-year-old boy is chronically addicted and I have Blue Cross-
Blue Shield, you, the taxpayer, are likely to pay for his drug 
treatment after you arrest him. We have got a nonsensical 
system here. There has to be a no wrong door access to the 
medical system.
    These are hard sells because drug addicts' behavior is so 
disgusting, reprehensible, and frightening that the medical 
community and many of us do not want to rationally face up to 
as a public policy measure what to do about it.
    Senator Dorgan. Let me just say that I hope you would work 
with the experts and give me some quantitative analysis of the 
amount of resources devoted to treatment capability and 
opportunity relative to the need. If we had more resources 
available, what kind of need would we fill that is now unfilled 
with respect to treatment? If you would do that, I would 
appreciate that, because I think it is very important as we 
deal with this continuum that we be pushing very hard on 
allowing those who are addicted--who desperately want to shed 
this addiction--to understand that this country will provide 
treatment opportunities for them.

             drug treatment and the criminal justice system

    Now, let me just quickly wrapup, because we do have time 
constraints and I agree with the chairman, once we run over to 
the floor and get involved in votes, we would keep you forever 
here and I do not want to do that. My feeling is that we ought 
not let people out of prison who have been incarcerated with a 
drug problem and then leave the same incarceration facilities 
with the same drug problem.
    I visited Oak Hill detention center some while ago here in 
the District of Columbia and met with these young kids, some of 
them the toughest criminals you would ever want to meet. Those 
with drug problems have been put through a program out there 
that is very impressive. I mean, I came away from that just 
thinking, what a terrific thing to do for these kids, to take 
them and give them a chance to shed their addiction to drugs 
and understand what it did to them and what it did to put them 
there.
    But I know that in many prisons around the country, many 
facilities of incarceration, people get thrown in and they are 
back on the streets and no one has done a damn thing about 
their drug problem. That itself is almost criminal, because we 
know what is going to happen when that person hits the street. 
Another crime victim is waiting there for that person to commit 
a crime.
    So where are we with all of this and what do you recommend 
to us so that we could find a way to force this to happen all 
across the country? To ensure that people coming out of 
incarceration who have had drug problems would be expected to 
have had treatment for those problems in the incarceration 
facilities?
    Mr. McCaffrey. We have a lot of people who now understand 
what you just said. That is the good news, to include here in 
Congress. We had the national assembly, Attorney General Reno, 
Secretary Shalala, and I brought in the 800 people from around 
America who run the corrections and the treatment systems. We 
brought in State legislators. The central part of the solution 
is in State government. There are 900,000-plus prisoners at the 
State prison level, 600,000 at county-city lockup, and 120,000 
in the Federal system. The Federal Bureau of Prisons is doing 
just fine. They are not completed, but all 42 Federal lockups 
now have some form of drug treatment program.
    Senator Dorgan. Mandatory for those who are addicted?
    Mr. McCaffrey. I do not want to overstate the case. We say 
drug treatment is in all the Federal prison systems. I do not 
think we are there adequately, but that is the best of the lot. 
The problem comes, what do you do about the half-million people 
a year who are released from incarceration, most of whom have a 
drug and alcohol problem? Is there a system there to track them 
back into their community with drug testing, halfway houses, et 
cetera, and the answer is no.
    We are going to try to take the notion of reentry courts. 
We have the drug court system on the front end, the non-
violent, probably non-felony offender, we mandate treatment and 
have some coercive capability out of the judge. We see the back 
end of it being done the same way, that you are released out of 
max security, super max in California. Right now, you come out, 
there is no legal constraint on your behavior at all. Then you 
have gone back to your community and there is no drug treatment 
program.
    I do think we have made the intellectual arguments that are 
required. We have a white paper out that I would be glad to 
share with you. We have to work at this, though. This is a 10-
year challenge, I would argue, to build the kinds of 
infrastructures to do what you are talking about.

                               conclusion

    Senator Dorgan. Thank you very much, and I will not ask 
further questions. I have a couple others I will send to you. 
But let me also ask if you would send to me information about 
the Federal system vis-a-vis the release of convicted felons 
with drug problems and what you would recommend to make our 
efforts here more ubiquitous and to have some feeling that at 
least in the Federal system for which we are responsible, when 
we are releasing someone who is incarcerated with a drug 
problem, to ensure that person who is being released has gone 
through a treatment program? What resources do we have to 
devote to that? What kinds of approaches do we have to use to 
accomplish that?
    And let me finally say that I appreciate your work. I think 
you are working in a very difficult area. I think you have 
brought significant leadership to it. You have been involved in 
some controversies and will be in the future, but that is 
because you are working in a very controversial area, but 
nonetheless a very important one for this country and I 
appreciate your public service.
    Senator Campbell. I second that, too, General. I think you 
have found that this committee has done everything we can for 
the ONDCP and will continue to do so.
    I have no further questions, but I did want you, I and 
Senator Dorgan maybe to learn something together here. We still 
have some young people in the audience, a few of them left, I 
notice, but we still have some there in their late teens. I 
want to ask those people here in front of the General 
something, since you are kind of the experts on what teenagers 
do. If there is anybody back there among our young visitors who 
read the editorial page of U.S. News and World Report, Parade 
magazine, USA Weekend, or magazines, you may pick up the 
magazines and read them, but do you read the editorial page? 
Okay, no.
    I mention that, General, because we have had some 
discussion about credits and matches with television 
commercials in lieu of buying ad space, and I noticed with 
interest the one article by Daniel Forbes, and this was, I 
guess it was on the Internet, but in any event, it talks about 
the ONDCP. The office allowed six magazines, U.S. News and 
World Report, some of them that I had mentioned, to submit 
their editorial content to qualify as a substitute for 
advertising pages owed to the Government under the single-year 
advertising contracts. We have talked about this in other 
media, with the television----
    Mr. McCaffrey. Senator, the problem with Dan Forbes' work, 
is that it is factually inaccurate.
    Senator Campbell. Is it?
    Mr. McCaffrey. Let me provide you a written response.
    Senator Campbell. Okay.
    Mr. McCaffrey. He is wrong on his facts. Dan Forbes is 
writing for the Media Awareness Project, which is actually a 
pro-drug legalization group under a pseudonym. I do not think 
this fellow's journalism is balanced. In that case, it is 
factually just not what the situation is.
    Senator Campbell. So what you are saying is that the ONDCP 
did not let them substitute editorial content.
    Mr. McCaffrey. No. Editorials are out of the question. 
Whether it is newspapers or magazines, it does not count for 
pro bono match.
    Senator Campbell. Well, I hope not, because I just have a 
hunch that young people do not read those editorials.
    Mr. McCaffrey. Right.
    Senator Campbell. In fact, I do not read most of them.
    [The information follows:]

    With respect to factual inaccuracies in Mr. Forbes' articles, 
attached is the agency's reply from ONDCP's Assistant Director of 
Strategic Planning, Robert Housman, to Salon.com detailing the errors 
in Mr. Forbes' characterizations of the matching component of the 
Campaign as applied to magazines.
    The errors in Mr. Forbes' reporting have already been recognized by 
other widely respected media outlets. For example, the New York Times, 
which relied on Mr. Forbes' earlier reporting that the Campaign was 
somehow secret, has subsequently corrected the record at ONDCP's 
request, and stated that the Campaign was not secret.
    With respect to the question about the use of ``editorial content'' 
in magazines for matching credit, ONDCP does not allow ``editorials'' 
to qualify for match credit. Nor do we allow ``hard news'' stories to 
qualify for match credit. However, magazines may submit already 
published stories (content as opposed to editorials) that are ``on 
message'' for Campaign match credit.

                 Executive Office of the President,
                    Office of National Drug Control Policy,
                                  Washington, D.C., April 10, 2000.
Mr. David Talbotm,
Editor in Chief, 22 4th Street, 16th Floor,
San Francisco, CA.
    Dear Mr. Talbot: The purpose of this letter is two-fold. First, I 
write to once again ask Salon.com (``Salon'') to set the record 
straight with respect to the errors in Salon's earlier reporting, which 
were set out in my last letter to Mr. Gary Kamiya of Salon. Second, I 
write to raise factual errors with respect to the latest article in 
Salon, ``The Drug War Gravy Train.''
      salon has an obligation to correct the record about openness
    In my prior letter ONDCP provided you with extensive documentation 
that proves that, contrary to the reporting of Mr. Forbes and Salon, 
the Youth Campaign was in no way secret. In fact, well before Salon's 
focus on the Youth Campaign, as we documented for you, the use of 
content within the match element of the Youth Campaign had appeared on 
the front page of the Los Angeles Times and on the pages of USA Today. 
It was also the subject of opinion editorials by Director McCaffrey in 
papers across the nation. We had also testified extensively about this 
element of the Youth Campaign before the Congress. And, it was the 
Congress that actively voted to require the match requirement of the 
Youth Campaign and to allow for the use content.
    As my earlier letter underscored, based on these facts the New York 
Times Sunday Magazine, which relied on Salon's reporting in calling the 
Youth Campaign secret, has had to subsequently correct the record. 
Moreover, the New York Times' inaccurate comments about the Youth 
Campaign were far more restrained than those that appeared in Salon.
    We must, once again, formally call upon Salon to retract its 
reporting that the Campaign was secret. As Salon seeks to establish a 
niche as legitimate journalism on the Internet, it is imperative that 
your readers have full confidence in the factual basis of your 
reporting. Allowing such a clear error as this to go unanswered is not 
only wrong, it will undermine Salon's long-term credibility. Certainly, 
if the New York Times, one of the nation's most respected newspapers, 
felt the obligation to correct the record, Salon, which actually 
started this false allegation, should do so as well.
    Salon has a particular obligation to correct errors of fact in 
Salon's prior reporting because in his recent column Mr. Forbes writes 
that ONDCP's relationship with television networks ``was revealed in 
Salon earlier this year.'' This repeated error of fact, after we have 
made this error clear to Salon, is completely unacceptable. As we 
stated in our last letter Salon ``no more broke this story or uncovered 
some trumped up secret than did any reader of the August 20, 1998 Los 
Angeles Times or the November 2, 1998 USA Today.''
              salon's continuing pattern of factual errors
    In addition to the errors in Salon's prior reporting, your latest 
article about the Youth Campaign continues to completely ignore the 
facts. Each of the following factual errors are so clear that they too 
require Salon to correct the record.
  --In your latest article, Mr. Forbes writes that the Office of 
        National Drug Control Policy requested the Sporting News to 
        assign a specific reporter to write stories about drugs. This 
        is completely false. Through hearsay, Mr. Forbes attributes 
        this statement to the editor of the Sporting News, Mr. John 
        Rawlings. However, Mr. Forbes never spoke with Mr. Rawlings to 
        confirm this allegation. Had he taken this most basic reporting 
        step he would have found out that ONDCP did no such thing. I 
        have attached an email from Mr. Rawlings that provides for the 
        record that Mr. Forbes' reporting is false.
  --Mr. Forbes directly quotes Mr. Rich Vietri, an employee of an ONDCP 
        contractor, in his article. His article gives the false 
        impression that Mr. Forbes interviewed Mr. Vietri in preparing 
        the article (e.g.: ``Vietri noted''; ``according to Vietri''; 
        ``Vietri stated last year''; ``Vietri confirms''). In fact, Mr. 
        Vietri has never knowingly spoken with Mr. Forbes or any other 
        reporter about the program. Unless Mr. Forbes interviewed Mr. 
        Vietri under false pretenses, his technique is a deliberate 
        effort to mislead Salon's readers in order to give his 
        reporting credibility.
  --Mr. Forbes' further argues ``that the U.S. government is using 
        taxpayer money to, in effect, reward publications whose 
        editorial content matches the government's views on drugs.'' 
        This is also false. A particular magazine's editorial bent on 
        any given issue has no role in the Campaign's decision as to 
        whether to advertise in that magazine. Such decisions are based 
        upon the ability of any given magazine to effectively reach our 
        target audiences (youth and adult youth mentors). The specific 
        criteria for the purchase of ad space are guided by the 
        professional standards and practices of the advertising 
        business. Additionally, such advertising decisions are not made 
        by the government. They are made by advertising agencies that 
        are experts in the field, without government interference.
  --Mr. Forbes refers to ONDCP as a ``law enforcement agency.'' This is 
        inaccurate. As a matter of fact, ONDCP is a policy coordinating 
        office. ONDCP has no operational law enforcement statutory 
        authority.
  --Mr. Forbes reports that the magazine Seventeen has been credited 
        $70,000 by the Youth Campaign for published content. Here 
        again, Mr. Forbes is wrong. Seventeen has submitted content for 
        credit. However, as of this date, no decision has been made on 
        these submissions.
  --Salon reports that ``. . . Family Circle snared the drug control 
        office's second-highest magazine buy: $1,425,000 last year.'' 
        In fact, between June 1998 and July 1999, the Campaign has 
        bought only $526,138 in advertising from Family Circle. Salon's 
        reporting is off by roughly three-fold or approximately $1 
        million.
  --Mr. Forbes' description of USA Weekend's efforts confuses a paid 
        insert or advertorial (which will clearly indicate ONDCP's 
        sponsorship) with editorial content submitted for match 
        purposes.
  --In what he describes as ``an unusual example,'' Mr. Forbes writes 
        that USA Weekend ``submitted paragraphs culled from four 
        different articles in an attempt to cobble together enough 
        government-endorsed column inches to physically add up to one 
        full page.'' This is false. In fact, USA Weekend has only 
        submitted two full stories for possible match credit: 
        ``Tackling Tough Topics with Kids,'' December 3, 1999, and 
        ``Mackenzie Phillips: One Day at a Time,'' August 13, 1999.
  --Mr. Forbes also writes that: ``When Congress appropriated nearly $1 
        billion for the anti-drug program in late 1997, it added the 
        stipulation that the drug-control office get all of its 
        advertising at a 50 percent discount.'' Again, he is wrong. The 
        statutory requirement is not a 50 percent discount on ads. The 
        requirement is that for every public dollar spent, we must get 
        an equal dollar's value of public service, which may or may not 
        be ads. In fact, we often buy ads at full market price and 
        receive other forms of public service, such as content, as the 
        public service match. Further, the use of content and other 
        outreach tools by the Campaign was specifically authorized by 
        the Congress. Moreover, the statutory ``match'' requirement was 
        established in 1998 as part of ONDCP's reauthorization not the 
        Campaign's 1997 appropriation.
    That Salon would twice publish error-laced articles by Mr. Forbes 
calls into question Salon's journalistic standards. In this latest 
article Mr. Forbes' describes arrangements with six magazines; his 
description of each contains substantial factual errors.
    While no one is above imperfection, it is troubling that so many 
important factual errors slipped unnoticed through Salon's editorial 
process. Let me underscore, I have not raised for you judgement calls, 
but only obvious errors-calling something reported on the front page of 
the LA Times secret, misrepresenting public laws, attributing a 
statement to a person without ever checking with the purported source, 
and the like. Since these clear errors have now made it into your 
publication, we must ask that you now without delay correct each of 
these errors for your readership.
    Thank you for your review of this situation. I look forward to your 
reply.
            Sincerely,
                                            Robert Housman,
                            Assistant Director, Strategic Planning.

                          submitted questions

    Senator Campbell. We have additional questions that will be 
submitted in writing to be answered for inclusion in the 
record.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

         Questions Submitted by Senator Ben Nighthorse Campbell

                        ctac technology transfer
    Question. Mr. McCaffrey, according to the information provided at 
last week's law enforcement technology demonstration, at which CTAC 
displayed technology used in the tech transfer program, it appears that 
this program has experienced significant growth since being initiatied 
by Congress. Based on your numbers, during the 24 month period in 
fiscal year 1998 and fiscal year 1999, there were 662 requests. During 
the first six months of fiscal year 2000 alone, however, there were 641 
requests. By my calculations, the requests are running approximately 
four times higher than previous years.
    If this program is so effective and so popular, why did you propose 
a 72 percent cut?
    Answer. The President's budget request includes various trade-offs 
that are necessary to accomplish the mission within the budget 
ceilings. The ONDCP budget request for fiscal year 2001 submitted to 
the Office of Management and Budget (OMB) included $20 million to 
support the Technology Transfer Program. OMB set the ONDCP fiscal year 
2001 Technology Transfer Program budget request at $3.7 million. This 
amount is contained in the President's budget request.
    Question. At this pace, how long will the fiscal year 2000 funds 
last?
    Answer. All fiscal year 2000 funds have been obligated and 
allocated to equipment purchases, training, and program administration 
costs. The pie chart shows the distribution of the $13,052,000: 84 
percent of the funding has been allocated to purchase of equipment, 6.4 
percent for training and support, 5 percent for program administration, 
2.6 percent for promotion and outreach (workshops and leadership 
meetings), and 2 percent for program evaluation (includes monitoring 
60/180/270 day evaluations by recipients).
    Between October 1, 1999 and March 13, 2000 the Technology Transfer 
Program received 1,954 requests from 670 agencies, which has resulted 
in deliveries of 593 items to 500 agencies.
    Question. How much would it take to cover all of the fiscal year 
2000 requests?
    Answer. Approximately four regional one-day workshops are held each 
year to acquaint state and local law enforcement agencies with those 
technologies available through the Technology Transfer Program. To 
ensure a continued timely response to the law enforcement organizations 
seeking support, the planned number of one-day regional workshops for 
fiscal year 2000 has been reduced. If workshops had continued at prior 
year rates, requests would exceed 3-4 times those received in prior 
years. This amount of requests would correspond to deliveries totaling 
an estimated $26,000,000 during a single year.
    Demand for Technologies.--Local police and sheriffs departments 
comprise 89 percent (13,578 police and 3,088 sheriffs) of the over 
18,000 state and local law enforcement agencies in the United States. 
The smaller departments have limited budgets and competing priorities 
making them the prime targets to receive technologies offered by the 
program.
    The figures below show percentage of deliveries achieved by 
population size and agency type for fiscal year 1998--fiscal year 2000. 
The program has delivered 80 percent of the total deliveries to 
population centers less than 500,000.

Deliveries by Population

                         [Fiscal year 1998-2000]                 Percent
More than 1,000,000...............................................    12
500,000 to 1,000,000..............................................     6
100,000 to 499,999................................................    21
50,000 to 99,000..................................................    15
Less than 50,000..................................................    46

Deliveries by Agency Type

                         [Fiscal year 1998-2000]                 Percent
Police............................................................    53
Sheriff...........................................................    26
Task Force........................................................    10
High Patrol/State Police..........................................     3
Public Safety.....................................................     4
Other.............................................................     4
                                staffing
    Question. Mr. McCaffrey, as part of last year's conference report, 
ONDCP was required to realign your staff from the Office of Legislative 
Affairs, Office of Public Affairs or the Office of the Director. In 
your November 1, 1999 response you only address two of the positions 
realigned.
    Can you provide an update on how you have complied with the 
congressional directive?
    Answer. In November 1997, ONDCP created the Financial Management 
Office (FMO) to oversee all financial matters pertaining to the HIDTA, 
CTAC, the Special Forfeiture Fund (now housing funds for the National 
Youth Anti-Drug Media Campaign, the Drug-Free Communities Program, and 
several smaller programs), the Salaries and Expenses Budget, and the 
Gift Fund. Establishing the FMO clearly has benefited ONDCP in terms of 
increasing the efficiency in which it manages the increasing funds 
appropriated to ONDCP for the programs Congress has entrusted to it as 
well as internal operations.
    ONDCP's fiscal year 2000 request to the Congress for 2 additional 
FTE for the FMO was a direct result of both the increased amount of 
funds appropriated to ONDCP for its programs and the tremendously 
positive impact the FMO had to date on ONDCP's financial management 
processes.
    Likewise, ONDCP's fiscal year 2000 request to the Congress for 2 
additional FTE for the HIDTA Program Office was a direct result of the 
increased amount of funds appropriated to HIDTA, the increased number 
of designated HIDTAs, and the need to continue quality program 
oversight.
    Just prior to receipt of Conference Report 106-319, ONDCP 
transferred one FTE from the Office of the Chief of Staff to the Office 
of Demand Reduction (a second staff person for the Drug-Free 
Communities Program) ; one FTE from the Office of the Director to the 
Office of Supply Reduction; and one FTE from the Office of Legislative 
Affairs to the Office of Demand Reduction (a staff person for the 
National Youth Anti-Drug Media Campaign).
    Subsequent to these FTE transfers to fill critical needs, ONDCP 
still perceived a need to increase the number of personnel assigned to 
the FMO and HIDTA program Office.
    ONDCP did in fact increase the Offices of Financial Management and 
HIDTA by two FTEs each. The four slots were achieved as follows:
  --Legislative Affairs was reduced by one FTE (in addition to the FTE 
        referenced above);
  --Public Affairs was reduced by one FTE;
  --2 additional FTEs were realigned within the Bureau of State and 
        Local Affairs to increase HIDTA slots by two FTE. One position 
        was realigned from the Regions Office and the other, an 
        unfilled vacancy, was realigned from the Justice and Law 
        Enforcement Office to an upgraded HIDTA FTE.
    ONDCP was able to enact an internal realignment within the Bureau 
of State and Local Affairs, to focus more staff and attention on HIDTA, 
where it is most needed. The ONDCP Director's immediate office consists 
of only six staff members and it was not in the agency's overall 
interests to reduce their numbers.
    Question. Have all four of the FTE positions been realigned and 
filled?
    Answer. All four of the FTE positions have been realigned. Of the 
two positions realigned to Financial Management, one FTE is filled and 
a selection has been made for the other FTE. We anticipate the 
candidate will report for duty mid-May. Both positions realigned to 
HIDTA are filled.
    Question. Were all four FTEs moved from the Office of Legislative 
Affairs, the Office of Public Affairs, or the Office of the Director to 
the HIDTA program (2 FTE) and the Office of Financial Management (2 
FTE) as mandated by Congress?
    Answer. In November 1997, ONDCP created the Financial Management 
Office (FMO) to oversee all financial matters pertaining to the HIDTA, 
CTAC, the Special Forfeiture Fund (now housing funds for the National 
Youth Anti-Drug Media Campaign, the Drug-Free Communities Program, and 
several smaller programs), the Salaries and Expenses Budget, and the 
Gift Fund. Establishing the FMO clearly has benefited ONDCP in terms of 
increasing the efficiency in which it manages the increasing funds 
appropriated to ONDCP for the programs Congress has entrusted to it as 
well as internal operations.
    ONDCP's fiscal year 2000 request to the Congress for 2 additional 
FTE for the FMO was a direct result of both the increased amount of 
funds appropriated to ONDCP for its programs and the tremendously 
positive impact the FMO had to date on ONDCP's financial management 
processes.
    Likewise, ONDCP's fiscal year 2000 request to the Congress for 2 
additional FTE for the HIDTA Program Office was a direct result of the 
increased amount of funds appropriated to HIDTA, the increased number 
of designated HIDTAs, and the need to continue quality program 
oversight.
    Just prior to receipt of Conference Report 106-319, ONDCP 
transferred one FTE from the Office of the Chief of Staff to the Office 
of Demand Reduction (a second staff person for the Drug-Free 
Communities Program); one FTE from the Office of the Director to the 
Office of Supply Reduction; and one FTE from the Office of Legislative 
Affairs to the Office of Demand Reduction (a staff person for the 
National Youth Anti-Drug Media Campaign).
    Subsequent to these FTE transfers to fill critical needs, ONDCP 
still perceived a need to increase the number of personnel assigned to 
the FMO and HIDTA program Office. ONDCP did in fact increase the 
Offices of Financial Management and HIDTA by two FTEs each. The four 
slots were achieved as follows:
  --Legislative Affairs was reduced by one FTE (in addition to the FTE 
        referenced above);
  --Public Affairs was reduced by one FTE;
  --2 additional FTEs were realigned within the Bureau of State and 
        Local Affairs to increase HIDTA slots by two FTE. One position 
        was realigned from the Regions Office and the other, an 
        unfilled vacancy, was realigned from the Justice and Law 
        Enforcement Office to an upgraded HIDTA FTE.
    ONDCP was able to enact an internal realignment within the Bureau 
of State and Local Affairs, to focus more staff and attention on HIDTA, 
where it is most needed. The ONDCP Director's immediate office consists 
of only six staff members and it was not in the agency's overall 
interests to reduce their numbers.
    Question. What was the total number of FTEs for the Office of 
Legislative Affairs prior to the shift and what is the total number of 
FTEs now?
    Answer. There were eight FTEs in the Office of Legislative Affairs 
prior to the shift and now there are six.
    Question. What was the total number of FTEs for the Office of 
Public Affairs prior to the shift and what is the total number of FTEs 
now?
    Answer. There were six FTEs in the Office of Public Affairs prior 
to the shift and now there are five.
    Question. What was the number of FTEs for the Office of the 
Director prior to the shift and what is the total number of FTEs now?
    Answer. There were seven FTEs in the Office of the Director prior 
to the shift and now there are six.
    Question. What was the number of FTEs for the HIDTA prior to the 
shift and what is the total number of FTEs now?
    Answer. There were 4 FTEs in the HIDTA prior to the shift and now 
there are six.
    Question. What was the number of FTEs for the Office of Financial 
Management prior to the shift and what is the total number of FTEs now?
    Answer. There were five FTEs in the Office of Financial Management 
prior to the shift and now there are seven.
                          evaluation of hidtas
    Question. Mr. McCaffrey: Last year's conference report provided 
funds for additional staff at ONDCP and the direction by the conference 
to develop standards and evaluate the performance of the HIDTAS that 
are currently in existance.
    What is the status of this evaluation?
    Answer. Last year, Congress directed that we take required 
additional staff from existing ONDCP staff ceilings. Accordingly, ONDCP 
hired two additional HIDTA staffers. Unfortunately, one of the new 
hires has moved on, but active recruitment continues to fill that 
position.
    In fiscal year 2000, each HIDTA Executive Committee comprised of 
federal, state and local law enforcement agencies, submitted a regional 
drug threat assessment, a proposed strategy, initiatives and a budget 
to ONDCP for approval. ONDCP reviewed each of those documents and 
either approved them or requested modifications. The ONDCP review 
ensures policy guidelines are followed by the HIDTAs and approves 
funding for initiatives that support each HIDTA's unique strategy and 
drug threat assessment. This process allows the local decision-makers 
at each HIDTA flexibility to determine the initiatives needed to 
address unique and changing drug threats.
    In addition, each Executive Committee submitted an annual report 
for ONDCP's consideration. ONDCP has in place three performance 
measures, found in ONDCP's Performance Measures of Effectiveness Report 
as well as three performance measures in ONDCP's fiscal year 2001 
Annual Performance Plan required by the Government Performance and 
Results Act of 1993 (GPRA). Last year, each HIDTA reported data for 
those performance areas. ONDCP reported the performance of the HIDTAs 
in the Performance Measures of Effectiveness Report and ONDCP's fiscal 
year 1999 Performance Report. The first performance measure involves 
the HIDTA Developmental Standards to gauge the level of each HIDTA's 
achievement in 56 areas in order to increase the effectiveness and 
efficiency of law enforcement efforts.
    ONDCP utilizes the first performance measure, using the HIDTA 
Developmental Standards and data reported by each HIDTA, to gauge and 
improve the efficiency and effectiveness of law enforcement efforts at 
each HIDTA. In fiscal year 1999, HIDTAs achieved the performance levels 
set by ONDCP. This calendar year, the HIDTA Developmental Standards are 
being adjusted to include the requirements of the President's General 
Counterdrug Intelligence Plan. New milestones are being added to the 
HIDTA standards to improve intelligence and information sharing that 
will lead to an increase in the effectiveness and efficiency of law 
enforcement efforts. ONDCP verifies results during on-site evaluations.
    The HIDTA Program Office has developed a protocol for an internal 
review program. We have implemented a robust audit/programmatic review 
schedule of on-site evaluations. These evaluations will help ONDCP 
verify HIDTA performance reports and assess performance in law 
enforcement support functions such as intelligence and information 
sharing.
    Finally, the HIDTA Program Office coordinates budgetary and policy 
decisions through the HIDTA Coordinating Committee, comprised of 
officials from the Departments of Justice, Treasury and Health and 
Human Services.
    In managing the HIDTA Program, ONDCP adheres to the concerns and 
guidance of Congress. ONDCP also utilizes a significant amount of 
advise from local, state and federal law enforcement organizations at 
the regional level as well as the headquarters offices of federal 
departments. In doing this, ONDCP integrates several processes to 
manage the HIDTA Program. The regional HIDTA offices monitor and 
respond to unique and changing drug threats with customized initiatives 
that focus on outcomes and the concerns of citizens. ONDCP coordinates 
budget and policy decisions with federal partners through the HIDTA 
Coordinating Committee.
    Question. Will this evaluation be statistically based?
    Answer. ONDCP requires HIDTA regional offices to provide annual 
reports and performance data to ONDCP. ONDCP published that performance 
data in the Performance Measures of Effectiveness Report and the fiscal 
year 1999 GPRA Performance Report. ONDCP will continue to require 
HIDTAs to provide statistical data in annual reports. ONDCP will report 
results annually in ONDCP's Performance Measures of Effectiveness 
Report and GPRA Performance Report.
    Question. For that evaluation, how will you take into account the 
unique nature of each specific HIDTA and the different programs they 
use?
    Answer. The effectiveness of each HIDTA can only be evaluated in 
light of its own unique drug situation as documented in the regional 
threat assessment, proposed strategy and desired goals. HIDTA Executive 
Committees and ONDCP evaluate each proposed initiative using past 
performance and future potential to effectively accomplish its 
objectives. The funding requirements for each initiative are viewed in 
relation to the initiative's past effectiveness and future objectives, 
to assess the relative benefits of the financial resources to the 
mission. In the past, those reviews have then been compared to 
Congressionally mandated ``earmarks'' and directions for ``level 
funding.''
    Although no two HIDTAs have identical threats, strategies or 
initiatives, they must adhere to the Goals and objectives of the 
National Drug Control Strategy and ONDCP's programmatic and fiscal 
policies/guidelines. ONDCP places emphasis on flexibility at the local 
level, coordinated efforts, sharing resources and information, and 
requires HIDTA Executive Committees to focus on outcomes and monitor 
results.
                                 ______
                                 

                 Questions Submitted by Senator Jon Kyl

                           ondcp drug budget
    Question. The President's fiscal year 2001 budget request for High 
Intensity Drug Trafficking Areas (HIDTAs), is $192 million, which is 
less than the ONDCP's requested $213.7 million. In a time when youth 
drug usage is at an all-time high, and your office is beginning to make 
progress in leveling-off youth usage, why did the administration cut 
your drug budget request by over $21 million?
    Answer. The President's budget request includes various trade-offs 
that are necessary to accomplish the mission within the budget 
ceilings. The ONDCP budget request for fiscal year 2001 submitted to 
the Office of Management and Budget (OMB) included $213.7 million to 
support the HIDTA program. OMB set the ONDCP fiscal year 2001 HIDTA 
budget request at $192 million. This amount is contained in the 
President's budget request.
    Although drug use among youth remains unacceptably high, ONDCP is 
proud to report that according to the Department of Health and Human 
Services' Substance Abuse and Mental Health Services Administration 
(SAMSHA) 1998 National Household Survey on Drug Abuse (NHSDA), 9.9 
percent of youth aged twelve to seventeen reported current use of an 
illegal drug in 1998--13 percent decrease from 11.4 percent in 1997. 
This decline was the first statistically significant drop in four 
years.
                           meth lab cleanups
    Question. METH is a huge problem in my State of Arizona. Arizona 
law enforcement is seizing a record number of METH labs--about one lab 
per day. As you know, METH labs leave toxic waste behind that can cost 
an average of $4,000 to clean-up.
    Attorney General Reno recently sent a request to the Office of 
Management and Budget (OMB) asking for $10 million in DOJ's budget to 
``re-program'' so that DEA can continue to clean-up METH labs for the 
rest of fiscal year 2000.
    Are you supportive of this?
    Answer. The Office of National Drug Control Policy is supportive of 
re-programming $10 million from an appropriate Department of Justice 
program so that the DEA can continue to clean up METH labs.
    Through the first half of fiscal year 2000, DEA has continued to 
provide state and local clandestine lab cleanup services on a first 
come first served basis. These services have been provided through DEA 
base funding and the use of residual COPS program funding which DEA has 
carried over from previous years' appropriations. At this time, DEA has 
completely exhausted its carryover COPS cleanup funding and is no 
longer able to provide its cleanup services to state and local law 
enforcement. This represents a funding shortfall of $10 million, which 
can be replenished through a re-programming.
                              hidta/mistic
    Question. I am very concerned about the problem of drugs in my 
State. The drug trade has devastated Arizona, particulary its children. 
Drug use among Arizona teenagers is among the highest in the United 
States--one-third higher than the national average.
    High intensity drug trafficking areas (HIDTAs) are a key to 
stopping the spread of drugs. You have recognized the importance of 
HIDTAs and I would like to thank you for your continued support of 
Arizona's HIDTA.
    As you are aware, members of Arizona's law enforcement community in 
the central region of Arizona have submitted a proposal for the Metro 
Intelligence Support and Technical Investigative Center (MISTIC), which 
would house various HIDTA task forces. The co-location of task forces 
in one intelligence support center will help with information sharing 
and eliminate the duplication of investigative efforts.
    Funding for MISTIC is important to giving law enforcement the 
resources they need to fight drugs. Can I count on your continued 
support for funding HIDTA activities, such as the proposed intelligence 
support center in Central Arizona?
    Answer. The HIDTA Program provides assistance to Federal, State and 
local law enforcement entities operating in areas of the United States 
that are most adversely affected by drug trafficking. Arizona is 
especially impacted by intense drug trafficking activities across the 
Southwest border. Nationally, the HIDTA Program has helped improve the 
effectiveness and efficiency of drug control efforts by facilitating 
cooperation between drug control organizations through resource and 
information sharing, collocating and pooling resources, coordinating 
and focusing efforts, and implementing joint initiatives.
    ONDCP enthusiastically supports the HIDTA Program and successful 
initiatives such as Arizona HIDTA's Metro Intelligence Support and 
Technical Investigative Center (MISTIC) initiative. MISTIC provides 
Maricopa County law enforcement agencies the ability to conduct long 
term, complex investigations to target regional, national, and 
international drug trafficking organizations that impact areas 
throughout the United States.
    The MISTIC center is currently occupied by 125 representatives from 
the Phoenix Police Department, Drug Enforcement Administration, and 
Joint Counter-Narcotics Task Force. The Arizona HIDTA Director informs 
ONDCP that the current facility is overcrowded and the law enforcement 
organizations propose to add to the MISTIC center an additional 225 to 
275 people from the Federal Bureau of Investigation, Phoenix Financial 
Task Force, Homicide Task Force, and a National Guard Intelligence 
Unit. The expanded center would allow HIDTA task force units to focus 
on the most significant regional and local drug trafficking, money 
laundering and violent organizations.
    ONDCP has increased HIDTA funds to the Southwest border and in 
particular, Arizona. In fiscal year 1999, ONDCP received $24.47 million 
in supplemental funds of which $3.5 million was earmarked for the 
following: $1.5 million for Milwaukee; $0.75 million for Arizona; $0.75 
million for New Mexico; and $0.5 million for Washington/Baltimore. Of 
the remaining $20.97 million provided in discretionary funds: $5 
million was used to support the Southwest Border Interdiction Strategy; 
$5.92 million increased funds for minimally funded HIDTAs; $5.55 
million was used to support the unmet needs of existing HIDTAs; $0.5 
million was used for a National Methamphetamine Coordination Initiative 
for the Southwest Border California Partnership; $3.8 million was used 
to designate five new HIDTAs; and $0.2 million was used to add 
additional counties to Arizona, Houston and North Texas HIDTAs.
    HIDTA Executive Committees make funding decisions. MISTIC is one of 
21 Southwest Border-Arizona HIDTA initiatives competing for limited 
funds. The initiative was HIDTA funded over the past six years and is 
looking for more money for a new building. For the past two years, the 
Executive Committee provided baseline funding of $271,603. In fiscal 
year 2000, the Executive Committee provided $650,000 additional (one 
time) HIDTA funding for the initiative. The HIDTA Executive Committee 
will make fiscal year 2001 funding decisions at its next monthly 
meeting.
                                 ______
                                 

             Questions Submitted by Senator Byron L. Dorgan

            federal prison drug addiction treatment programs
    Question. Since last year's discussion on this issue, are you aware 
of any additional programs which are being utilized at either the 
Federal or State level which increase the likelihood that addicted drug 
offenders are getting the treatment necessary to ensure that they leave 
prison drug free?
    I am also interested in two additional programs which fall under 
your organization, drug courts and the ``Break the Cycle'' program. The 
``Break the Cycle'' program is a program of testing, assessment, 
referral, treatment and rehabilitation of prison inmates. To date, 
approximately 72,447 drug tests have been performed with over 6,652 
treatment referrals having been made.
    Answer. Bureau of Prisons has in place a program to treat all 
eligible offenders before they are released. Its fully documented 
curriculum is under revision based on recent research related to female 
offenders, dually diagnosed offenders, and offenders with head trauma. 
These revisions will foster entry into treatment and retention in 
treatment for these populations.
    The number of drug courts increased from 12 in 1994 to over 700 at 
the present time. Drug courts actively monitor the defendant's access 
to and participation in treatment. The interest in drug courts 
continues to grow steadily--the number of applications received by the 
Drug Courts Program Office has increased significantly since 1995.
    The Break the Cycle (BTC) program sites increased to four (4) in 
1999, with a new site in Tacoma, WA (three are adult sites and one for 
juveniles). This program provides assessment and testing along with 
treatment for the addicted criminal justice system (CJS) population. 
BTC programs are based on sanctions for non-compliance and reward for 
compliance with the treatment and judicial plan.
    Question. Do you have any statistics which indicate the success of 
this program?
    Answer. Break the Cycle (BTC) in Birmingham Tested nearly 3,000 
drug involved defendants on pretrial release, and has administering 
more than 23,000 tests.
  --Referred over 2,500 drug involved defendants to drug treatment.
  --Over 90 percent remained in treatment for at least 90 days.
  --Over 400 defendants entered an outpatient drug treatment program. 
        Over 60 percent remained in treatment for at least 90 days.
  --About 120 defendants entered residential treatment, most within a 
        week of the placement decision. Over 60 percent of those who 
        entered remained in treatment at least 90 days.
  --BTC increased the supervision of drug-using defendants released to 
        the community, but more supervision is needed. Nearly 90 
        percent of defendants who violated the BTC requirements 
        received a sanction, but sanctions were not certain, swift or 
        severe.
  --Developed a new bond condition requiring a screening by the 
        ``Treatment Alternatives for Safe Communities'' (TASC) of 
        felony defendants and expansion of pretrial services to assist 
        in release, supervision, and treatment of drug-involved 
        defendants.
  --Developed review hearings for probationers and BTC clients awaiting 
        grand jury review.
  --Used BTC to assist in reducing jail overcrowding through providing 
        the option of drug assessment and treatment plus pretrial 
        community supervision for jail inmates eligible for release.
  --BTC was successful primarily in increasing the number of defendants 
        on pretrial release subjected to drug testing and referred to 
        treatment.
  --Birmingham, BTC reduced the time needed for identifying drug users 
        from 6 months to 2 days on average. It also lengthened the time 
        in supervision and treatment for most drug users.
    Question. What is the impact on this program on the Bureau of 
Prisons?
    The drug courts set up exclusively to handle drug cases with the 
emphasis on getting treatment and rehabilitation for first time 
offenders. Last year we had about 500 drug courts in operation. You 
stated that your goal was to have 1,000 in operation by the end of your 
tenure.
    Answer. Break the Cycle program has no impact on the Bureau of 
Prison (BOP) programs. BOP provides treatment to every inmate needing 
the treatment before they are released from the Federal prison. BOP 
after care services are similar to Break the Cycle programs.
    Question. The drug courts are set up exclusively to handle drug 
cases with the emphasis on getting treatment and rehabilitation for 
first time offenders. Last year we had about 500 drug courts in 
operation. You stated that your goal was to have 1,000 in operation by 
the end of your tenure.
    How close are we to attaining that goal?
    Answer. We anticipate arriving at the goal of 1,000 drug courts by 
the end of the year. Currently there are 749 drug courts (adult, 
juvenile, family, and tribal) operating or in the planning stage in 
over 400 jurisdictions in the United States today, up from the dozen 
that existed in 1994. The interest in drug courts continues to grow 
steadily--the number of applications received by the Drug Courts 
Program Office has increased significantly since 1995.
    Question. How does a drug court differ from the Standard Federal 
District Court?
    Answer. Drug Courts participants appear before the drug court judge 
on a much more frequent basis than in trial courts. Drug Court 
participants are required to appear for status hearing before the judge 
on a weekly or bi-weekly basis. Participants may appear before the 
judge more than 20 times during their participation in the drug court 
program; however, these appearance are for approximately 10 minutes per 
status hearing. Trial court defendants may only appear before the judge 
three times--for initial plea, trial, and disposition.
    Drug court status hearing are much more informal, and generally 
much shorter than general trial court hearing. In drug court, a judge 
will often converse directly with participants. In trial court, the 
judge generally communicates with defendants through the defendant's 
attorney, and generally only for the purposes of advising the defendant 
of his/her rights.
    Drug courts use short-term sanctions and incentives to respond to 
participant progress or non-compliance. Non-drug court dockets use 
probation revocation or imposition of suspended sentence to respond to 
defendant non-compliance. For example, a drug court judge may sentence 
a participant to 2-3 day jail stay for failure to appear or as a result 
of positive drug test.
    Drug court judges often motivate and encourage participants as they 
progress through the program. Judges in traditional criminal court 
proceedings generally do not praise defendants for staying clean, or 
complying with other court orders.
    Drug courts actively monitor the defendant's access and 
participation in treatment. Drug court judges are able to respond 
quickly to participant non-compliance because dedicated treatment 
providers are available to respond to judicial orders. In traditional 
trial courts, judges often rely on agencies such as probation to 
coordinate referral to treatment services, resulting in long delays 
before defendants receive any services or non-participation in service.
    Question. With the rapid growth of drug courts around the country, 
from approximately 12 three years ago, to approximately 500 today, has 
the availability of long term treatment programs grown proportionally?
    Answer. No. Drug courts often rely on special funding sources to 
provide treatment services to program participants. A few drug courts 
have been successful in accessing mainstream funding for substance 
abuse treatment (e.g., through medicaid, HMO's, private insurance, 
state/local assistance, and the CSAT (Substance Abuse Treatment Block 
Grant Program). Almost all drug courts fund treatment services through 
non-traditional sources, including criminal justice funding such as the 
Bureau of Justice Assistance Byrne Grant Program, the Office of Justice 
Programs Drug Court Grant Program, county commissions, state 
legislatures, etc. If these non-traditional funding sources for 
treatment were not available, drug courts would not be able to provide 
adequate substance abuse treatment for program participants. Further, 
if drug courts expand to handle all of the substance-abusing 
population, the non-traditional funding sources would not be able to 
meet the demand.
    Question. Do you have any statistics which indicate the success of 
this program?
    Answer. The statistics listed below are provided by the Department 
of Justice Drug Courts Program Office and the National Association of 
Drug Court Professionals.
Adult Drug Courts
    Drug courts are able to engage and retain felony offenders in 
programmatic and treatment services. Only 21 percent of drug court 
participants had been in prior substance abuse treatment, while 75 
percent had been sentenced to jail or prison for drug-related offenses. 
Drug courts are engaging and retaining felony offender in treatment 
services for substantially longer periods (12-15 months compared with 
much shorter and less intensive programs) and at higher rates (over 70 
percent compared with 25 percent or lower) than other criminal justice-
ordered treatment programs.
    Drug courts generate cost savings from reduced jail and prison use, 
reduced criminality, and lower criminal justice system costs. 
Outpatient drug treatment can cost approximately $2,000 to $4,000 per 
year compared with approximately $25,000 to $31,000 to incarcerate a 
person for one year. Drug courts free up other resources to focus on 
offenders who present greater public safety risks.
    Drug courts have substantially reduced recidivism rates for 
participants (less than 10 percent compared with over 50 percent for 
non drug-drug court defendants), with less than one percent of the 
reported recidivism involving violent offenses.
    All sectors of the justice system have noted ``cost avoidance'' 
results from reduced recidivism and additionally there are significant 
social welfare benefits:
  --Over 75 percent of participants become and remained employed.
  --4,500 parents became current in child support payments.
  --750+ drug-free babies were born.
  --3,500 children were returned to the custody of their parents.
    In Portland, Oregon, the STOP (Sanction-Treatment-Opportunity-
Progress) Drug Diversion Program was implemented in 1991. A recent 
evaluation conducted in 1998 demonstrated:
  --Clients who participated in the drug court had 61 percent fewer 
        subsequent arrests over a two-year period compared to those not 
        participating in a drug court.
  --The evaluation estimated over $10 million in criminal justice 
        savings to taxpayers (victimization costs, public assistance, 
        and theft costs).
    In addition to drug courts now in operation, reentry drug courts 
for persons released from jail is a relatively new idea developing in 
many jurisdictions. The potential to expand drug courts through reentry 
courts is unlimited. Each year nearly 500,000 inmates are released from 
state prison and returned to the community. Reentry courts present a 
transition mechanism to monitor, supervise and rehabilitate offenders 
from the onset of incarceration as they enter a community-based program 
and are subsequently reintegrated back into society.
Juvenile Drug Courts
    Findings indicate that retention for is about the same as for 
adults (nearly 70 percent) and recidivism to drug use and crime are 
markedly lower, especially among program graduates.
    Participants from a juvenile drug court in Santa Clara County were 
asked to identify what had the greatest impact on their ability to stay 
drug-free. Their answers underscore the potent combination presented by 
the criminal justice and treatment systems acting in concert. They 
identified: constant monitoring and support by their probation officer; 
having to face the judge and explain their behavior; urine testing; 
positive reinforcement from the drug treatment team; expectations from 
the court; not wanting to let staff down; and a sense of humor by the 
drug treatment team.
    Juvenile drug courts are still relatively young in their 
development yet much remains to be learned. There is a positive impact 
since the emergence of juvenile drug courts over the past several 
years:
  --Over 4,000 juvenile offenders have been enrolled in juvenile drug 
        court programs.
  --75 percent of juvenile drug court participants have returned to 
        school full-time.
  --94 percent of juvenile drug court participants have an improved 
        relationship with their family.
  --75 percent of juvenile drug court participants have remained a 
        volunteer in the community after their participation in the 
        drug court program.
  --75 percent of juvenile drug court participants have improved 
        academic performance.
  --60 drug-free babies have been born to juvenile drug court 
        participants.
             high intensity drug trafficking areas (hidtas)
    Question. Under current law, HIDTA funds are approriated for one 
year. I note in your budget submission that you are requesting that the 
obligational authority be extended for appropriated funds in this 
program to a multi-year authority.
    Describe for us what advantage a multi-year authority would give 
you in the disbursement of HIDTA grants?
    Answer. Currently, the HIDTA Appropriation has one-year (annual) 
obligation authority. The timing of the enactment of the 
Appropriations, coupled with the HIDTA Program review process of the 31 
HIDTA proposals and budgets (a four-month process with over 1,300 
initiatives/budgets in fiscal year 2000) results in the funds not being 
available to be transferred to the recipient agencies until the 
beginning of January. The funds transferred to federal agencies, for 
use by their field offices in support of the HIDTA Program, are further 
delayed by their accounting and disbursement policies. The HIDTA 
appropriation language directs ONDCP to transfer at least 51 percent of 
the available funds to state and local agencies. Currently, ONDCP 
transfers approximately 80 percent of the HIDTA Appropriation to state 
and local agencies and the remaining 20 percent to federal agencies. 
This distribution ratio is primarily due to the fact the federal 
agencies have only nine months (at best) to effectively use their 
available funds. The request to revise the HIDTA Appropriations 
language to authorize multi-year obligating authority would allow the 
federal agencies more effective and efficient use of their HIDTA funds.
    Most Federal agencies participate in ongoing HIDTA initiatives that 
continue from year to year. With the current Appropriation schedule and 
delays necessitated by the HIDTA review process, most federal agencies 
do not receive their HIDTA funding until the beginning of the second 
quarter. This delay in the funding distribution often hampers and can 
curtail Federal Agency participation in HIDTA initiatives, which can 
severely inhibit major investigations, particularly labor and resource 
intensive Title III court-ordered investigations (wire taps). Multi-
year funding authority would prevent disruption in investigative 
activity due to funding limitations.
    Question. Since 1990, counties in 31 areas have been designated as 
HIDTAs. Your budget request for fiscal year 2001 provides support for 
existing HIDTAs but does not include an increase that might entertain 
new HIDTA designations.
    How many requests for new HIDTA designations are waiting funding?
    Answer. Currently, the HIDTA Program is considering six new areas 
for HIDTA designation. If designated, each area will require a minimum 
of $2.5 million to reach the funding level needed for a start-up HIDTA. 
Initial approval of all of these candidates would require $15 million 
of additional HIDTA funds.
    Also, there are eleven existing HIDTAs that have requested 
consideration for expansion based on an increased drug-related threat; 
if approved, 69 additional counties would be added to designated 
HIDTAs. Should all of the 69 counties proposed warrant designation, the 
ONDCP estimates an additional $7 million would be needed, upon 
approval.
    Question. With nearly ten years of HIDTA funding behind us what 
lessons are we learning in combating drug trafficking?
    Answer. The HIDTA experience over the past ten years has taught us 
that effective ``leveraging'' with the ONDCP-HIDTA dollars leads to the 
development of effective and efficient regional and multi-
jurisdictional (Federal, State, and local) collocated and commingled 
law enforcement efforts. Nationally, the HIDTA Program has helped 
improve the effectiveness and efficiency of drug control efforts by 
facilitating cooperation between drug control organizations through 
resource and information sharing, collocating and pooling resources, 
coordinating and focusing efforts, and implementing joint initiatives.
Cooperation
    With nearly ten years of HIDTA funding behind us, the level of 
cooperation and sharing information and resources among federal, state 
and local law enforcement agencies has greatly improved, though we 
still have a lot more to do in these areas.
    The HIDTAs help fund collocated, commingled, multi-jurisdictional 
law enforcement ``task force'' efforts that are specifically designed 
and focused on major regional and national drug trafficking 
organizations. HIDTA task forces cooperate and share both resources and 
``real time'' intelligence information. HIDTAs' joint initiatives take 
advantage of specialized technical equipment, training of personnel, 
and provide case ``hand off'' procedures.
    The HIDTA Program has significantly increased the collaborative and 
collegial sharing of information between federal, state and local law 
enforcement. It has accomplished this through development of multi-
agency and collocated/commingled task forces where none previously 
existed. This has directly led to a more effective and efficient 
utilization of law enforcement resources at the federal, state and 
local levels.
    HIDTA initiatives have also resulted in closer coordination of the 
prosecutions of drug traffickers between United States Attorney Offices 
and state and local prosecutors. Drug traffickers who previously evaded 
prosecution because of threshold guidelines and/or lack of 
prosecutorial resources are now being held accountable.
Planning
    Effective law enforcement requires an overarching intelligence-
driven strategy. The HIDTA Program provides an intelligence-driven 
strategy supported by customized initiatives that are monitored by 
federal, state and local officials.
    The HIDTAs provide meaningful reporting systems, which include the 
development of a viable Baseline, Mid Year, and Year End threat 
assessment process by each HIDTA. These are designed to provide a 
complete and comprehensive dynamic overview of task force enforcement 
and interdiction efforts.
    A meaningful and capable HIDTA strategy follows the regional threat 
assessment. The regional HIDTA strategies are designed to identify the 
regional law enforcement ``plan'' which has been designed to adequately 
address the unique regional threat. Each HIDTA strategy also includes 
measurable objectives for the HIDTA.
    The Annual Report follows at the end of the year and effectively 
measures each HIDTA's impact against the identified drug threat. The 
Annual Report also validates the HIDTA's overall strategy with 
accomplishments that effectively impact drug trafficking in and 
throughout the region.
    Regional planning is enhanced through the HIDTA Executive 
Committees, which are comprised of federal, state and local law 
enforcement executive-level leaders. These committees have improved 
relationships between law enforcement organizations and led to 
solutions for law enforcement problems outside of the HIDTA Program.
Innovation
    The HIDTA Program has funded initiatives that address national and 
regional drug trafficking problems in innovative ways. An example is 
the creation of Law Enforcement Coordination Centers (LECC) in 
California, Arizona and New Mexico to plan and carry out sustained 
intelligence driven interdiction operations along the US/Mexican border 
such as ``Operation COBIJA.
    Additionally, the HIDTA Program has provided additional funding for 
the development of the National Clandestine Laboratory database at El 
Paso Intelligence Center (EPIC). This is significant in that for the 
first time there will be a central repository for clandestine 
laboratory information, which can be directly accessed by state and 
local law enforcement agencies.
Flexibility
    Drug traffickers are able to react to law enforcement much faster 
than law enforcement reacts to the traffickers. Law enforcement 
continually shifts resources from one mode to the next and from one 
locale to the next. The traffickers (and money launderers) rarely 
abandon a particular strategy or locale, once it has been successful. 
As long as law enforcement continues to uproot defenses and attempts to 
follow the traffickers, the traffickers will always have a comfortable 
void to revisit.
    Drug trafficking varies from town to town, city to city, county to 
county and state to state. Therefore, a good strategy must be tailored 
to the particular locale and should not be a generic approach. No 
single approach is the answer. The drug epidemic will only be ended 
through long term, sustained attacks on all fronts. Demand reduction 
and supply reduction are both essential elements of the long term 
solution.
    The National HIDTA Program can best be described as a true ``work 
in progress.'' Continual program assessments and adjustments have been 
made through the years in order for it to remain literally on the 
``cutting edge'' in terms of overall effectiveness and impact. 
Flexibility in policy guidance to allow decision making at the local 
level is the best approach. Additional flexibility in funding would 
likely enhance the effectiveness of the HIDTAs and the HIDTA Program.
Intelligence
    The HIDTAs have Regional Intelligence/Investigative Support Centers 
which provide ``real time'' operational and tactical intelligence 
support by tracking, around-the-clock, all federal, state and local law 
enforcement undercover regional operations. Additionally, on-site 
analysts are available to immediately research numerous regional and 
national law enforcement databases, thus enabling officers to conduct 
enhanced investigations.
    Viable intelligence systems with regional and national connectivity 
greatly enhance success. The HIDTAs establish meaningful regional 
intelligence support systems for law enforcement in the form of target 
profiling, case support and post-seizure, Title III/PIN/Toll/and cross 
case analysis. HIDTA intelligence efforts help ensure that limited law 
enforcement resources are focused and utilized in the most efficient 
and effective manner possible.
    HIDTA-funded Regional Intelligence/Investigative Support Centers 
bring together a myriad of databases from federal, state and local 
agencies. This has not only significantly promoted the sharing of 
intelligence information, but has likewise led to the enhancement of 
officer safety through the establishment of event and case 
deconfliction systems.
    Law enforcement officers often operate in a very dangerous and 
volatile environment. HIDTA deconfliction capabilities help ensure 
officer/citizen safety. The Intelligence/Investigative Support Centers 
enhance officer and citizen safety by tracking all ``critical events'' 
within a region and notifying various law enforcement undercover 
operations when they are about to conflict with each other. Until the 
advent of HIDTA, event deconfliction was non-existent in most areas of 
the country.
    Law enforcement at all levels needs to be information/intelligence 
driven as opposed to informant driven. In general, law enforcement does 
not maximize intelligence in the best possible ways. In HIDTA we are 
doing a better job to make this happen, but we have a long way to go.
Technology
    Law enforcement organizations frequently lack up-to-date technology 
or do not understand how to use available technology to its fullest. 
HIDTA is helping to rectify this situation by providing technology, 
offering training, and developing information technology applications 
specifically designed for law enforcement use.
Training
    Law enforcement, at the state and local levels, does not receive 
sufficient training in intelligence functions and drug investigations. 
HIDTA is filling this void.
    HIDTA funding provided to the National Methamphetamine Chemicals 
Initiative has resulted in the training of prosecutors as well as 
criminal and diversion investigators at the national level. This has 
significantly enhanced the ability of prosecutors and investigators to 
develop and prosecute cases against precursor chemical violators. 
Additionally, this initiative has afforded an excellent national 
information-sharing forum as well as promoted the Drug Endangered 
Children Program.
    HIDTA funding has resulted in the development of a national law 
enforcement training program focused on law enforcement needs. The 
HIDTA Assistance Center provides a cadre of instructors and training 
classes to federal, state and local law enforcement officers. A 
majority of this training is given in specific regions where the 
officers are assigned and is provided at no cost to the various 
departments.
Accountability
    Law enforcement at all levels has difficulty in developing and 
focusing on performance measures that hold them accountable for 
achieving certain goals and objectives. The HIDTA Program has 
implemented elements of the Government Performance Results Act (GPRA) 
and ONDCP's Performance Measures of Effectiveness system. Each HIDTA is 
required to document and report on an annual basis its successes and 
failures in achieving specific performance measurements listed as goals 
and objectives for the previous year. This has led to an extensive 
self-evaluation on the overall effectiveness of HIDTA funded 
initiatives by HIDTA Executive Committees and National HIDTA Program 
managers.
    Question. Can you briefly describe for us the mechanisms in place 
to determine the effectiveness of each individual HIDTA? How often are 
they evaluated?
    Answer. In fiscal year 2000, Congress authorized funds for a 
comprehensive audit of the HIDTA Program. This audit function will 
include both a programmatic and fiscal review of each HIDTA. A review 
team, led by the National HIDTA Program Director, is about to complete 
a management review of the Southwest Border HIDTAs. Recommendations 
from this review, on improving the coordination between the Southwest 
Border HIDTAs, will be forthcoming in the near future. ONDCP plans to 
review all 31 HIDTAs within the next 18 months. Additionally, it is our 
policy that all HIDTAs will be reviewed once every 18 to 24 months. 
These reviews are designed to identify potential management strengths 
and weaknesses as well as favorable management techniques that can be 
shared with other HIDTAs. These reviews additionally will enhance the 
ability of the Director, ONDCP to assess the effectiveness and 
efficiency of the individual HIDTAs in achieving their targeted goals 
under the Government Performance Results Act (GPRA) and ONDCP's 
Performance Measures of Effectiveness (PME) system.
    In addition to the on-site HIDTA reviews, each year the National 
HIDTA Program Office thoroughly reviews each HIDTA's Annual Report, 
Threat Assessment, Strategy, Initiative and budget for compliance with 
both programmatic and fiscal guidelines. The proposals must respond to 
the required PME and GPRA targets and HIDTA funds must clearly benefit 
the HIDTA Program. The HIDTA's Threat Assessment is reviewed in 
relation to drug-related threats nationwide to assure that the threat 
in the area warrants the level of proposed HIDTA involvement and 
funding. The Strategy is evaluated for its potential to effectively and 
efficiently address the drug-related concerns defined by the Threat 
Assessment. Each proposed Initiative is evaluated in terms of its past 
performance and future potential to effectively accomplish its 
respective drug mission. The funding requirements for each Initiative 
are viewed in relation to the Initiative's past effectiveness and 
future objectives, to assess the relative benefits of the financial 
resources to the mission. The on-site review process will verify 
accomplishments/successes, as well as, investigate potential weaknesses 
identified through these staff reviews.
    Additionally, HIDTA Program Guidance emphasizes the requirement of 
the individual HIDTA Executive Committees to establish an internal 
self-review of programmatic and financial issues. As the participating 
agencies are responsible for HIDTA funds and they themselves need to 
evaluate an initiatives' impact and to ensure that the strategy is 
addressing the threat, each HIDTA is provided with an internal system 
of evaluation. Information/issues identified through these internal 
reviews will also be emphasized during the on-site staff reviews.
    Question. If the committee were to provide you with discretionary 
funds for HIDTAs above your request, how would you allocate these 
funds?
    Answer. With a significant amount of discretionary funding, ONDCP 
could exercise more flexibility in funding existing HIDTAs. Existing 
HIDTAs could be reevaluated and the funding prioritized according to 
drug threats, performance and operational requirements. ONDCP would 
consider the following funding priorities:
  --Provide additional funding to the newly designated HIDTAs. The 
        current funding level of new HIDTAs is well below the minimum 
        requirement ($2.5 million) for a start-up HIDTA. (The HIDTA 
        Program would require an additional $5.473 million to bring 
        each of the new fiscal year 1999 HIDTAs up to $2.5 million). As 
        new HIDTAs mature, they will require additional funding based 
        on the threat and the law enforcement operations they implement 
        to counter the threat. Mature existing HIDTAs receive, on 
        average, $7 million per year.
  --Consider designating new HIDTA areas. (Currently, the HIDTA Program 
        has received formal requests from six areas seeking HIDTA 
        designation. Should all these areas warrant designation, an 
        additional $15.0 million would be required ($2.5 million per 
        HIDTA).
  --Consider the expansion of existing HIDTAs. (Eleven HIDTAs have 
        requested expansion based on an increased drug-related threat; 
        if approved, 69 additional counties would be added to 
        designated HIDTAs. Should all of the 69 counties proposed 
        warrant designation, the ONDCP estimates an additional $7 
        million would be needed.)
  --Provide additional funding to those existing HIDTAs with various 
        unmet needs due to shifting/increasing drug threats and 
        inflationary/cost of living induced budget erosion caused by 
        many years of level funding.
  --Implementation of the recommendations of the General Counterdrug 
        Intelligence Plan within the HIDTA Program.
  --Additional innovative/successful initiatives that are achieving 
        significant results towards goals and performance targets.
    Additionally, ONDCP would hope that future HIDTA appropriations 
allow the Director, ONDCP, through the National HIDTA Program Office, 
to fund existing HIDTAs based on need and past accomplishments; rather 
than mandating level funding.
    Question. At this stage in the life of the HIDTA program (ten 
years), would having some level of discretionary funding be advantagous 
to responding to the changing drug threat confronting local, State, and 
Federal law enforcement?
    Answer. Yes, discretionary funding would allow the HIDTA Program to 
react to changing drug patterns; provide funding to HIDTAs with 
unexpected and/or unmet needs due to shifting/increasing drug threats 
and inflationary/cost of living induced budget erosion caused by many 
years of level funding; provide some performance based funding; and 
when warranted, designate new HIDTA areas or expand existing HIDTAs.
               counter-drug technology assessment center
    Question. Your budget request for the technology transfer portion 
of CTAC indicates that you are recommending a significant drop in the 
funding of this program. After reading your description of the 
overwhelming success of the tech transfer program, I am a little 
puzzled. You stated that 631 State and local agencies have benefitted 
from this effort. Further, you indicate that the ``technologies have 
contributed to improved counter-drug operations''. Additionally, you 
state that the ``results have been an increase in drug related arrests 
with improvements in officer safety''.
    Why are you recommending a reduction in what appears to be a 
successful and popular program?
    Answer. The President's budget request includes various trade-offs 
that are necessary to accomplish the mission within budget ceilings. 
The ONDCP budget request for fiscal year 2001 submitted to the Office 
of Management and Budget included $20 million to support the Technology 
Transfer Program. OMB set the ONDCP fiscal year 2001 Technology 
Transfer Program budget request at $3.7 million. This amount is 
contained in the President's budget request.
    Question. How many requests for technology transfers are presently 
awaiting fulfillment?
    Answer. Between October 1, 1999 and March 13, 2000 the Technology 
Transfer Program received 1,954 requests from 670 agencies. The 
$13,052,000 appropriated in fiscal year 2000 can support deliveries of 
593 items to 500 agencies. 170 agencies must wait until the next budget 
cycle to have one of their top three requests fulfilled.
    Approximately four regional one-day workshops are held each year to 
acquaint state and local law enforcement agencies with those 
technologies available through the Technology Transfer Program. To 
ensure a continued timely response to the law enforcement organizations 
seeking support, the planned number of one-day regional workshops for 
fiscal year 2000 has been reduced. If workshops had continued at prior 
year rates, requests would exceed 3-4 times those received in prior 
years.
    Question. How many requests were you able to fulfill last year? And 
how many do you anticipate completing this year?
    Answer. In fiscal year 1999, 667 deliveries were made to 352 
agencies. The $13.052 million appropriated in fiscal year 2000 will 
support 593 deliveries to 500 agencies.
    Question. How important is the tech transfer program to advancing 
the goals of the national drug control strategy?
    Answer. The Technology Transfer Program supports Goal 2 of the 
National Drug Control Strategy: increase the safety of America's 
citizens by substantially reducing drug-related crime and violence. The 
Technology Transfer Program seeks to improve capabilities of federal, 
state and local law enforcement to achieve the outcome of reduced drug-
related crime. By transferring mature technologies from federally 
sponsored research and development programs to state and local law 
enforcement organizations, agencies from smaller jurisdictions that 
otherwise would not be able to participate due to limited funds or lack 
of technical expertise are able to benefit from these developments.
    Local police and sheriffs departments comprise 89 percent (13,578 
police and 3,088 sheriffs) of the over 18,000 state and local law 
enforcement agencies in the United States. The smaller departments have 
limited budgets and competing priorities making them the prime target 
to receive technologies offered by the Technology Transfer Program. The 
figures below show percentage of deliveries achieved by population size 
and agency type for fiscal year 1998--fiscal year 2000. The program has 
delivered 80 percent of the total deliveries to population centers of 
less than 500,000.

Deliveries by Population

                         [Fiscal year 1998-2000]                 Percent
More than 1,000,000...............................................    12
500,000 to 1,000,000..............................................     6
100,000 to 499,999................................................    21
50,000 to 99,000..................................................    15
Less than 50,000..................................................    46

Deliveries by Agency Type

                         [Fiscal year 1998-2000]                 Percent
Police............................................................    53
Sheriff...........................................................    26
Task Force........................................................    10
High Patrol/State Police..........................................     3
Public Safety.....................................................     4
Other.............................................................     4
                     drug-free communities program
    Question. The Drug-Free Communities Act of 1997 authorizes funding 
for the program through fiscal year 2002. Fiscal year 2001 funding is 
authorized at $40 million, yet your request in this budget is only $35 
million.
    With your request of $35 million, can we expect that additional 
communities will be eligible for the program?
    Answer. Yes, we estimate that approximately 106 new community 
coalitions would be funded if the amount of $35 million is appropriated 
and $2.5 million is used for program administration, evaluation, and 
training and technical assistance. This would bring the total number of 
funded communities to approximately 408, assuming that all previously 
funded projects reapply and that all new applications are funded at the 
maximum allowable level of $100,000. The exact amounts will vary 
slightly.
    This estimated number of new community coalitions is based on a 
funding formula stipulating that communities shall receive grant funds 
in declining amounts in years three, four, and five of their awards.
    Question. Do you have any statistics that show the success of this 
initiative in the communities that have received grants under this 
program?
    Answer. The DFC Program has awarded grants to two groups of 
communities so far. The first group of grantees began work on their 
projects in October of 1998 and the second group in October of 1999. 
The evaluation team is Caliber Associates, which works under contract 
to the Office of Juvenile Justice and Delinquency Prevention. All 
grantees make periodic progress reports and a core sample of fifteen 
projects is studied intensively by the evaluation team.
    Caliber Associates has completed Profile Reports on both the fiscal 
year 1998 and fiscal year 1999 grantees. Measures on the 1998 grantees 
indicate the following:
Objective: Increasing recruitment and involvement of key community 
        leaders and groups
    Nearly three-quarters (74 percent) of the coalitions reported 
increased membership.
    Nearly two-thirds (65 percent) of the coalitions reported increased 
youth membership.
Objective: Promoting the use of community indicator data to identify 
        local drug problems
    All coalitions have conducted needs assessment studies to better 
identify and quantify local drug problems and needs.
Objective: Assisting community groups and agencies to enhance their 
        prevention capabilities
    96 percent of the coalitions have engaged in collaborative, data-
driven planning with other agencies.
    94 percent have engaged in community mobilization activities and 
formed new partnerships with other agencies.
Objective: Promoting dissemination of information about best practices 
        in drug abuse prevention
    97 percent of the coalitions have provided training about research-
based prevention approaches.
    64 percent have supported media campaigns and events to raise 
awareness about risk factors and prevention.
Objective: Promoting adoption of ``promising'' and ``proven'' 
        prevention programs
    96 percent have provided counseling, education, and mentoring 
services to youth and parents.
    62 percent have adapted ``promising'' prevention curricula for 
local use in educational settings.
Objective: Promoting brokering of resources to support prevention 
        programming
    All coalitions received matching funds equal to or greater than 
their DFC grant from other non-federal sources.
    75 percent received matching funds from two or more other sources.
    These are but a few of the early indicators supporting our goal of 
reducing the use of illicit drugs, alcohol, and tobacco among youth. Of 
special note is the increasing ability of communities to measure and 
evaluate data relating to the many forms of drug use. As those measures 
improve, the communities are also increasingly able to identify and 
implement better evidence-based programs, interventions, and other 
strategies that have greater potential to be successful in reducing one 
of America's greatest public health challenges.
    Question. What safeguards are in place to ensure that the 
individual communities are in compliance with the program requirements 
and that the money is being spent according to the provisions of the 
Drug-Free Communities Act of 1997?
    Answer. ONDCP has entered an Inter-Agency Agreement (IAA) with the 
Office of Juvenile Justice and Delinquency Prevention (OJJDP) to 
administer the day-to-day operations of the Drug-Free Communities 
Program. The overall program administrator is at ONDCP, however, and he 
has daily contact with the Special Emphasis Division of OJJDP as it 
manages operations with the current group of 213 grantee communities. 
There are five program managers within OJJDP and each is assigned one-
fifth of the grantees to monitor. The Office of the Comptroller staff, 
who oversees the budgets of each individual grantee, supports them, in 
turn.
    The five program managers make 80-90 site visits to Drug-Free 
Community projects during the year, review each 6-month progress 
report, review each quarterly financial report, and engage in telephone 
and e-mail monitoring activities. Whenever there are signs of trouble 
at any site, program managers contact their supervisor for further 
consultation. Frequently, a site visit is scheduled if the supervisor 
believes it to be warranted on either programmatic or fiscal grounds. 
The ONDCP administrator is notified whenever OJJDP supervisors think 
there is reason to be concerned about a project. In the rare event of a 
legal issue, the Dept. of Justice Office of Legal Counsel is brought 
into the situation, which, in turn, contacts the ONDCP legal staff.
    More typically, the OJJDP program managers make arrangements for 
specific technical support, training, or other assistance when project 
leaders run into difficult stumbling blocks. ONDCP and OJJDP have 
agreed on a guiding operating principal to intervene quickly and 
appropriately whenever there are signs of problems. Whenever a problem 
is sufficiently severe that termination of a project is a potential 
outcome, the matter is brought to the administrator of OJJDP and the 
director of ONDCP for final decision.
youth anti-drug media campaign--effectiveness of network programming in 
            achieving campaign goals--performance/evaluation
    Each phase of the media campaign has been evaluated to ensure that 
the proper performance goals are met. However, the use of programming 
content versus a ``hard match'' was not a part of the first phase. 
There is a concern of evaluating the influence of straight advertising 
when it is possibly assisted by programming content.
    Question. Can you describe for the Subcommittee the outreach role 
of ONDCP, and how this translates into appropriate messages that 
achieve the aims of the Anti-Drug Media Campaign?
    Answer. Long before Congress created the National Youth Anti-Drug 
Media Campaign, ONDCP conducted outreach and responded to the news 
media, entertainment industry, and youth and professional sports 
organizations in an effort to generate accurate depiction and 
presentation of information about youth drug use issues. Researchers, 
writers, and producers have traditionally contacted ONDCP seeking 
research or data, background information on issues or drug policies, 
expert referral, and other kinds of technical assistance. The Federal 
government spends more than $730 million dollars annually on illicit 
drug prevention and treatment research per year.
    While ONDCP has always provided expertise and technical assistance 
whenever television writers and producers have needed it, those efforts 
have been expanded to enable the Media Campaign to be more proactive.
  --In appropriating funds for the Campaign, Congress recognized that 
        two key reasons for increased drug use among youth are: a 
        reduced perception of risk about using drugs, and a belief that 
        drug use was normal and acceptable behavior. To influence these 
        attitudes Congress directed that the National Youth Anti-Drug 
        Media Campaign deliver messages through the full-range of media 
        that influence young people including music, television, 
        movies, the Internet, as well as use of other techniques that 
        affect messages and images youth receive. Thus, the Campaign is 
        a comprehensive public health communication effort that 
        leverages the full range of communication vehicles and 
        strategies to reach young audiences. The National Institute on 
        Drug Abuse oversees the long-term evaluation of the Campaign, 
        through a contractual agreement with Westat and the Annenberg 
        School of Communications. This evaluation includes questions 
        for both youth and parents regarding their source of drug 
        information (such as television programming, Internet, music, 
        and other Media Campaign components).
  --The Media Campaign's entertainment outreach goals are to:
    --Encourage accurate depictions of drug use issues--including the 
            consequences of drug abuse--in programming, film and music 
            and the Internet that reaches teens and parents.
    --Dispel myths and misconceptions about youth drug abuse, and where 
            appropriate incorporate strategic drug prevention concepts 
            into popular culture.
    --De-normalize the image of drug use on TV, and in popular music 
            and film.
    --Promote research-based strategies to reduce youth drug use, such 
            as parental communication and involvement with their 
            children, peer refusal skills, negative consequences, etc. 
            Entertainment media can provide accurate drug information 
            and modeling to youth, parents, caregivers, faith community 
            leaders, coaches, teachers, policymakers, and other 
            influencers of youth.
    All of these efforts are completely voluntary. The ONDCP does not 
coerce, request script review, or proselytize the entertainment media. 
Doing so would undermine entertainment outreach. We believe that 
informing and educating the entertainment industry's creative community 
will result in more-informed and accurate portrayal about youth drug 
use and drug issues. This approach has proved effective in a number of 
other highly successful public health campaigns (seat belt use, 
designated drivers, etc.).
Providing Technical Expertise
    A key ONDCP strategy is to affect the creative process through a 
series of briefings, roundtables, and workshops. These events provide a 
cost-effective way to educate and inspire television writers, film 
screenwriters, and executives to portray realistic substance abuse 
consequences and to spur ideas for future storylines or scenes. 
Sessions conducted last year included briefings in Hollywood for 
network executives at ABC and Fox Television, and a roundtable for 
executives who create children's programming. On April 11, 2000, ONDCP 
hosted a roundtable in Los Angeles in partnership with the National 
Campaign to Prevent Teen Pregnancy, highlighting the link between 
substance abuse and teen pregnancy. Attendees included representatives 
from MTV, VH1, NBC, ABC, HBO, Nickelodeon, and writers from several 
prime time television shows.
    Several more roundtables are scheduled for this year, including 
separate sessions focusing on Children of Substance Abusers and Drug 
Treatment, which ONDCP will be hosting in partnership with The 
Hollywood Reporter, an entertainment trade publication that is widely 
read in the entertainment community.
    Our roundtables are complemented by other briefings and one on one 
meetings that Director McCaffrey and other federal officials have had 
with the creative community. ONDCP has met with a broad array of 
entertainment industry organizations and their leaders including the 
Writers Guild, Caucus of Producers, Writers and Directors, Screen 
Actors Guild, Directors Guild, Producers Guild, Academy of Television 
Arts and Sciences, and other organizations. Meetings were also held 
with industry leaders in Hollywood including Barry Diller, Frank 
Biondi, Richard Dreyfuss, Rob Reiner, Chuck Norris, and senior 
executives of all the major networks. We have participated in 
entertainment industry events and briefed executives from Hollywood 
talent agencies, and publicity and management firms. And we've provided 
information and subject matter experts to writers and producers of 
individual shows, including Cosby, Chicago Hope, ER, and Beverly Hills 
90210.
    To support its outreach strategy, ONDCP identifies and provides 
experts (from a wide range of Federal agencies: NIDA, SAMHSA, DOE) and 
resources to writers who have contacted ONDCP with questions concerning 
substance abuse. Such expertise is specifically tailored to meet the 
needs of the television industry, particularly the time constraints 
under which writers work. We also provide specialized materials; 
mailings; handouts; and have begun to develop a web site designed for 
this unique audience.
    While ONDCP works directly with many entertainment industry 
organizations, we have also retained expert support in Los Angeles to 
work with the Campaign to assist in developing our core strategies, and 
provide resources and expertise to creative executives in their own 
community. Rogers & Associates and Mediascope, working with ONDCP, can 
refer writers to experts in the field who can answer a specific 
question or address a particular issues or provide specific 
information.
Other Entertainment Outreach Activities Include:
    Engaging celebrities who are positive role models in extending the 
reach of campaign messages through participation in such activities as 
personal appearances and on-line chats. Advertisers and marketers have 
long used celebrities to make their messages more appealing. The 
technique is particularly effective with young people, who frequently 
try to emulate the looks, behavior, and attitude of their favorite 
stars. An impressive range of celebrities has spoken publicly about 
campaign themes and goals, including TV stars Eriq La Salle of NBC's 
ER, Jenna Elfman of ABC's Dharma & Greg, and Lisa Nicole Carter of 
Fox's Ally McBeal; musicians Lauryn Hill, and The Dixie Chicks; the 
U.S. Women's World Cup champion soccer team; and Olympic Gold Medallist 
Tara Lipinski. All have generously donated their services to the 
American taxpayer--no fees have been or will be paid to celebrities to 
take part in Media Campaign activities.
    Developing public service messages in collaboration with major 
media outlets. Seven networks have produced public service 
announcements using celebrities from their most popular shows. These 
messages have been reviewed by ONDCP to ensure they are supportive of 
the Campaign's communication strategy.
    Conducting content analysis and other research to determine how 
entertainment media depict substance abuse issues. ONDCP has 
commissioned two content analyses to date-one examining the depiction 
of substance use in movies and music, the other looking at prime time 
television. This research revealed widely varying levels of accuracy in 
the portrayal of youth drug use issues. The findings help shape the 
priorities of ONDCP's outreach.
    Question. Last year you stated that approximately 84 percent of the 
total invested by the Government was a ``hard match'' and that 16 
percent was attributable to a ``soft match'', most of which was in 
programming content. Is this a proper balance or should we be more or 
less focused on programming content?
    Answer. ONDCP does not influence or determine the balance, other 
than limiting programming and other in-kind public service activity to 
no more than 49 percent of the total public service match requirement 
of each media outlet. ONDCP, through a process led by the Ad Council, 
sets broad guidelines which give media vendors associated with the 
Campaign broad flexibility to meet the mandated match as they see fit. 
The only requirement is that more than half (51 percent) of the public 
service match must be in the form of time or space (PSAs). The media 
vendor decides the makeup of the remaining 49 percent, which can 
include either additional public service time or space, or other PSA 
in-kind contributions, including programming. This process achieves 
several things:
  --Increases actual PSA activity and ensures the Campaign does not 
        undermine existing PSA time.
  --Generates greater private sector involvement with the Campaign and 
        provides a mix and range of PSA and communication activity.
  --Benefits the Campaign by providing additional needed resources, 
        activities or products--e.g., website development, teaching 
        materials, posters, community events, etc.
  --Allows ONDCP to include important youth and ethnic targeted media 
        outlets in the Campaign, which otherwise might be excluded. 
        Some media vendors, such as certain cable or ethnic media or 
        Channel One, have formats or limited inventory which preclude 
        them from meeting the match with all PSAs.
    While there is no predetermined balance, both programming and 
advertising play an integral part in meeting the Campaign's goals and 
objectives. Programming delivers messages within a certain context, 
using compelling plots by accepted characters making it an effective 
tool to help the Media Campaign reach its objectives. ONDCP believes 
accurate on-strategy programming can be even more effective than ads in 
shaping behavior, building understanding about an issues and in 
particular in establishing norms. Importantly, advertising is also 
necessary to build awareness.
    Question. Are you aware of any studies which might indicate which 
method is better to achieve the goals we are attempting to reach? In 
other words, is an ad which is repeated on several occasions the best 
method? Or, would our goals be better served by spending more effort in 
the network programming arena?
    Answer. We are not aware of research that breaks out or identifies 
the specific contribution or values of various media approaches to a 
media campaign. There are a number of studies which support the value 
of programming in the kind of comprehensive public health communication 
campaigns that ONDCP is implementing. Advertising is the foundation of 
the Campaign effort, however the Campaign is an integrated program that 
includes a number of other vital elements that work together to achieve 
the goals of the Campaign. ONDCP remains convinced that for the 
National Youth Anti-Drug Media Campaign to be most effective, 
scientifically accurate drug-prevention messages must be conveyed 
through programming, as well as through advertising and other media 
vehicles and strategies.
    In the 1980s, public-health advocates began to harness television 
programming to promote public-health issues. Since then, numerous 
campaigns have sought to communicate prevention messages within 
programming. There is widespread belief that TV viewers, particularly 
children and teenagers, are strongly influenced by the attitudes and 
behaviors they see on TV. An analysis conducted for the Kaiser Family 
Foundation reports that numerous empirical studies have established a 
relationship between media content and youths' knowledge, beliefs, and 
attitudes.
    Today, there are a number of national organizations working within 
the existing structures of the entertainment industry, attempting to 
shape TV programming. They include the Henry J. Kaiser Family 
Foundation, the National Campaign to Prevent Teen Pregnancy, Mothers 
Against Drunk Driving, the Population Communications Institute, the 
American Lung Association, and the Media Campaign's own partner, 
Mediascope. Their efforts are complemented by those of federal agencies 
like ONDCP, NASA, Center for Substance Abuse Prevention, the National 
Institutes of Health, the Centers for Disease Control and Prevention, 
as well as all of the branches of our armed forces, who work to ensure 
that entertainment portrays issues and situations realistically and 
accurately. Both research and anecdotal evidence support this notion. 
Examples include:
  --Following an ER episode concerning end-of-life issues, Last Acts, a 
        coalition of health-oriented groups aimed at informing the 
        public about end-of-life issues, received more than 4,000 calls 
        for information.
  --Martha Williamson, producer of Touched By An Angel, says she is 
        regularly contacted by viewers who say the show helped them 
        make a major life decision, such as quitting smoking. (The 
        American Prospect, 7//1/99)
  --Research conducted at UCLA's Health and Media Research Center 
        suggests that up to 70 percent of people admit to relying on TV 
        for health information. News programs, talk shows, daytime soap 
        operas, sitcoms and prime time dramas are among the TV sources 
        cited. (LA Times, 12/13/99)
  --A Kaiser Family Foundation study indicates 23 percent of teens say 
        they rely on television and movies for information about 
        pregnancy and birth control. (ibid). This study also revealed 
        that, awareness of morning-after contraception increased 17 
        percent (from 50 percent to 67 percent) among ER viewers in the 
        week after the show aired an episode focusing on it.
  --The National Designated Driver Campaign. One of the best-documented 
        examples of a Media Campaign incorporating entertainment 
        programming is the National Designated Driver Campaign that was 
        launched in 1988. Dr. Jay A. Winsten, Ph.D., Associate Dean and 
        Director of Harvard School of Public Health's Center for Health 
        Communication, notes that the Campaign broke new ground when 
        television writers agreed to insert drunk driving prevention 
        messages in scripts of top-rated shows. Dr. Winsten describes 
        this campaign as ``the first successful effort to mobilize the 
        Hollywood creative community on such a scale, using dialogue in 
        prime time entertainment as a health promotion technology.'' 
        This integrated public-health communications campaign had a 
        marked effect on alcohol-related traffic fatalities. Whereas in 
        the three years before the launch of the designated driver 
        campaign there had been 0 percent change in such fatalities, by 
        1992 (four years after the Campaign's launch), annual 
        fatalities had declined by 24 percent.\1\ Further evidence as 
        to the success of this program was note in a July 1999 article 
        in The American Prospect, as follows:
---------------------------------------------------------------------------
    \1\ Winsten JA. Promoting Designated Drivers: The Harvard Alcohol 
Project. American Journal of Preventive Medicine. 1994 May-Jun; 10(3 
Suppl):11-14.
---------------------------------------------------------------------------
    --67 percent of U.S. adults noted the appearance of designated 
            drivers on network TV just one year after the start of the 
            Campaign.
    --Between 1989 and 1991, 8 percent more U.S. adults (29 percent vs. 
            37 percent) claimed to have served as a designated driver 
            at least once.
    --In 1991, over one-half (52 percent) of young adults (under the 
            age of 30) reported that they had been a designated driver 
            at least once.
    --1999 Healthstyles Survey. Centers for Disease Control and 
            Prevention analysis of this report reveals that almost half 
            (48 percent) of the people who report they watch soap 
            operas at least twice a week learned something about 
            diseases and how to prevent them from the daytime drama 
            story lines. More than one-third (34 percent) took some 
            action as a result. One in four (25 percent) told someone 
            about it, 13 percent suggested someone do something about 
            it, 7 percent visited a clinic or doctor, and 6 percent did 
            something to prevent the problem.\2\
---------------------------------------------------------------------------
    \2\ The Healthstyles Survey is a proprietary database product 
developed by Porter Novelli. Its sampling is based on seven U.S. Census 
Bureau characteristics. The survey is used by organizations such as CDC 
to shape public-health outreach efforts.
---------------------------------------------------------------------------
    The Media Campaign's Communication Strategy Statement also 
highlights programming's potential for communicating public-health 
messages. Excerpts of the document follow:
  --``Research has repeatedly shown that media programs work best in 
        conjunction with other community- and school-based anti-drug 
        programs, when consistent messages are conveyed through a 
        variety of channels and in several different contexts.'' (Flay 
        & Sobel, 1983; Macoby, 1990; Schilling & McAllister, 1990; 
        Sloboda & David, 1997)--P. 6.
  --``Health information, including information about drug use issues, 
        is provided through all forms of media including news, 
        entertainment programming, and advertising. This information is 
        so pervasive that most people report the media as their primary 
        source of information about health issues.'' (Freimuth, Stein, 
        and Kean, 1989)--P. 7.
  --The Media Campaign must ``harness a diverse media mix including 
        television, video, radio, print, and Internet and other forms 
        of new media to deliver both general and tailored messages. 
        Within the media mix, messages will be delivered through the 
        full range of media content, including paid and public service 
        advertising, news, public affairs, programming, and 
        entertainment programming.''--P. 9.
  --``Effective message tailoring involves . . . working with 
        communications professionals who specialize in creating content 
        for particular audiences.''--P. 9.
    Evaluations of ONDCP's Media Campaign confirm this research
  --ONDCP September 1998 report to Congress--(Testing the Anti-Drug 
        Message in 12 American Cities: National Youth Anti-Drug Media 
        Campaign Phase I (Report No. 1)--found:
    --Youth asserted that ``TV programming promotes drug use and 
            violence.''--P. ES-4.
    --``Parents' perceptions of the cultural relevance and credibility 
            of anti-drug ads, much like youth's perceptions, focused 
            more on program content and presentation . . .''--P. ES-7.
    --``The Internet, television shows, and song lyrics heard on radio 
            frequently condone the use of drugs. Youth are bombarded 
            with these messages on a daily basis. Mothers and fathers 
            frequently work long hours outside the home, leaving their 
            children free during the after-school hours to watch 
            television and be exposed to messages that glamorize drug 
            use. Youth, particularly high school students, are 
            subjected to ever-increasing sources of stress in their 
            daily lives. Future decisions about the design and 
            implementation of the Media Campaign should be made within 
            the context of these issues.''--P. ES-13.
  --ONDCP June 1999 report to Congress--(Investing in our Nation's 
        Youth: National Youth Anti-Drug Media Campaign Phase II Final 
        Report)--found that:
    --``There was a significant increase in the percentages of both 
            youth and teens who perceived that TV shows, news, and 
            movies were important sources of anti-drug information.''--
            P. 5-2.
    --The use of TV shows, news, and movies; outside billboards; and 
            posters on buses, bus stops and subways are effective ways 
            of reaching youth and teens with anti-drug messages.''--P. 
            5-3.
    Question. Have the goals of the five-year Media Campaign strategy 
changed?
    Answer. The goals remain unchanged.
    Question. Can you tell the committee what measure of success has 
been achieved to date, as a result of the media campaign?
    Answer.
Evaluation of Phases I and II Indicate Success of National Youth Anti-
        Drug Media Campaign in Reaching America's Youth.
    In January 1998, the Office of National Drug Control Policy (ONDCP) 
undertook an historic initiative--the National Youth Anti-Drug Media 
Campaign, which was then introduced in 12 American cities. In July 
1999, the campaign was expanded to the national level. The overarching 
goal driving this campaign is to educate and enable America's youth to 
reject illegal drugs. ONDCP achieved its initial objectives in Phases I 
and II: to increase awareness of anti-drug messages among youth and 
adults--the critical first key step in changing attitudes and 
ultimately behavior. This campaign is instrumental in ensuring that we 
as a Nation achieve the stated goal of reducing youth use of illegal 
drugs.
    One of the unique aspects of this federally funded campaign is that 
media outlets accepting the campaign ads must match ONDCP's purchases 
with an equal value of public service time in the form of PSAs, story 
lines, or other programs or activities related to youth drug use 
prevention. To date, ONDCP has exceeded its pro bono match 
requirements. More and more media outlets are coming on board.
    In Phase I, not only were significant increases found for specific 
ads among all target audiences-youth, teens, parents and other adult 
influencers---but we also found that public service announcements were 
not supplanted by the paid campaign. Media monitoring data gathered on 
ads and PSAs airing in the target and comparison sites indicate that 
the purchase of anti-drug ads did not affect the frequency with which 
anti-drug or other social issue public service announcements aired.
    The Phase II results confirm the success of the campaign in 
reaching the target audiences. In Phase II, ONDCP aimed to reach 90 
percent of the target audiences (youth, teens, and parents) with 4 to 7 
anti-drug messages a week through paid ads. Phase II was evaluated 
through national school-based surveys of more than 45,000 youth in 
fourth through twelfth grades and a national telephone survey of about 
8,500 parents. Phase II achieved its initial objective: to increase 
awareness of anti-drug messages among youth and adults at the national 
level. The paid ads resulted in significant increases in awareness 
between baseline and follow-up, the first step in changing attitudes 
and behavior. Increases in awareness of specific anti-drug ads were 
statistically significant with differences of up to 14 percentage 
points between baseline and follow-up. The evaluation indicates the ads 
are influencing youth: There was a 12-percent increase in the 
percentage of youth who agreed that the ads make them stay away from 
drugs (an increase from 61 to 69 percent). Also, the percentage of 
youth reporting they learned a lot about the dangers of drugs from 
television commercials increased from 44 to 52 percent. In addition, 
while not expected in Phase II, some attitudinal shifts occurred in the 
intended direction, e.g., between baseline and follow-up, there were 
statistically significant increases in the percentage of teens who said 
they were scared of taking drugs as well as in the in the percentage of 
teens who reported understanding the negative effects of marijuana use.
    The National Youth Anti-Drug Media Campaign is the largest and most 
comprehensive anti-drug media campaign ever undertaken by the Federal 
Government. Phases I and II have been successful--the campaign is 
meeting its goals. The campaign, which has entered Phase III, comprises 
more than 80 different anti-drug messages in a variety of media, from 
Internet banner ads to television ads to radio ads and book covers. Ads 
are being developed in 11 languages other than English as part of our 
strategy to reach the range of racial and ethnic groups in the United 
States. In Phase III, ONDCP and its partners, such as the Partnership 
for a Drug-Free America, will continue to work to sustain long-term 
anti-drug attitudes. Collectively, we will ensure that drug use among 
young people is reduced.
    Question. While we have witnessed a confirmed increase in the use 
of most illegal drugs in the past few years, what specific criteria are 
being used to measure the success of this program?
    Answer. The task of the evaluation is to determine whether observed 
changes in drug use or drug attitudes can be attributed to the Media 
Campaign specifically. A decrease in drug use rates would not be enough 
by itself to conclude the Media Campaign was effective as it would not 
identify the forces behind the change. In order to be able to make 
reasonable claims that the Media Campaign was responsible for change, 
the evaluation is designed to go well beyond analysis of trends from 
existing data systems. The evaluation will combine analysis of trends 
with analysis of exposure of youth and parents to the media campaign 
and the association between exposure and outcomes. The evaluation is 
designed to obtain sensitive measures of exposure to anti-drug 
advertising. The measures are designed to assess changes in knowledge, 
beliefs, attitudes, and behaviors brought about by the messages in the 
Media Campaign ads. These measures are quite detailed so the questions 
in the survey try to capture that specificity.
    If evidence of favorable trends in existing time series can be 
combined with evidence that large number of youth and parents recall 
seeing the advertisements (and thus were exposed to the Media Campaign) 
and that the youth and parents with higher levels of exposure had more 
favorable beliefs, attitudes, and behaviors than those with lower 
levels of exposure, then it will be possible to build a convincing case 
that the Media Campaign has had an effect. To strengthen any evidence 
of an effect, the evaluation includes a longitudinal component in which 
the same youth and parents will be interviewed once per year over the 
4-year period. These repeated interviews will allow measurement of some 
aspects of adolescent development and will thereby allow a much better 
sorting through of the causal processes than is possible with a cross-
sectional survey.
   youth anti-drug media campaign--nuts and bolts of the programming 
                               ``match''
    Question. Could you briefly describe for the Subcommittee how the 
concept evolved to include the use of programming conent as a 
``match?''
    Answer. The concept of the match was first developed by ONDCP and 
contractors in the spring of 1998, as a means of helping ONDCP address 
two of seven Congressionally stipulated concerns in the fiscal year 
1998 appropriation. These concerns included: (1) ensuring the Campaign 
does not undermine existing anti-drug public service efforts, and (2) 
ensuring private sector participation in the Campaign.
    The pro bono match concept was initially used as a negotiating 
strategy by Bates/Zenith, the Campaign's advertising and media buying 
contractors. Bates/Zenith successfully implemented this program by 
exceeding a dollar for dollar match. The match also allowed media 
outlets, to use a variety of activities to fulfill match requirements 
that would be helpful in achieving Media Campaign objectives, including 
programming that conveyed scientifically-based messages about drug use 
and its consequences. This flexibility also allowed ONDCP to use 
important target audience media outlets (such as certain ethnic media, 
cable networks, and Channel One) that would otherwise have been 
precluded from participating in the media buy because their format or 
limitations posed by the availability and inventory of PSAs.
    Congress reviewed and judged the voluntary match program as a 
success in fiscal year 1999 and subsequently mandated the match for 
Phase III in appropriations language.
    Question. Other than network programming what are some other 
examples of ``soft matches?''
    Answer. Below are some examples of non-PSA soft match efforts:
  --Videos tagged with an anti-drug PSA, which are available for rental 
        and home sales;
  --Activities that provide visibility for local coalitions such as 
        community affairs programming. An example is a local hero 
        program that recognizes individuals or organizations making 
        systemic changes in their communities regarding drug or alcohol 
        prevention;
  --posting and maintaining banners on websites;
  --development and maintenance of web sites;
  --in-school programs;
  --use of celebrities for message delivery in PSA's;
  --teacher guides, posters and other in school materials;
  --the CBS ``Cosby'' home video which is targeted to parents;
  --Basketball clinics; community visits in tagged vans conducted by 
        professional sports teams;
  --promotional events in malls.
    Question. What factors are considered in making the determination 
that a specific program meets the qualifications for a match? Is this 
determination normally made after the program airs?
    Answer. After TV programs have been broadcast, networks can elect 
to submit them for consideration for the pro bono match credit to 
satisfy part of their public service obligation under the Campaign. For 
a program to qualify for the pro bono match, messages must support one 
or more of the following concepts or program types which are integral 
to the Campaign's strategic communications strategy. These concepts 
were identified with the assistance of the Ad Council. They also serve 
as the subject areas under which ONDCP allocates the pro bono match PSA 
time slots it receives to non profit organizations with drug-related 
messages.
  --educate and support the development of good parenting practices;
  --encourage greater parental and caregiver involvement in a child's 
        upbringing and effective drug-prevention strategies;
  --provide early childhood development programs that strengthen the 
        parent-child relationship;
  --provide opportunities for youth through programs and services in 
        school and after school, such as mentoring;
  --foster high expectations and self esteem for youth;
  --prevent drug abuse, including underage alcohol use;
  --emphasize the nexus between drugs and crime and violence;
  --emphasize the connection between substance use and AIDS;
  --support other drug-related messages and campaigns as determined by 
        ONDCP.
    The media vendor voluntarily submits the programming after it has 
aired to the advertising contractor pro-bono match specialist. The 
contractor match specialist would forward programs to the Strategic 
Message Specialist (SMS). The SMS reviews the submission and advises 
the contractor if it is on-strategy or off-strategy.
    The determination is made after the program airs.

                          subcommittee recess

    Senator Campbell. I appreciate you appearing here. There is 
one last thing I would like to do. The tape that you showed us, 
I could see it and Senator Dorgan could see it. Those young 
people could not. It might interest them.
    Mr. McCaffrey. Yes, sure.
    Senator Campbell. As soon as we recess, would you replay 
that so that the young people could see that?
    Mr. McCaffrey. I certainly will.
    Senator Campbell. I thought that was a very graphic 
illustration, using a real life and death of a young man who 
was fooling around with those drugs. Could you do that?
    Mr. McCaffrey. Yes, sir, I will.
    Senator Campbell. I would appreciate that very much.
    With that, this hearing is recessed.
    Mr. McCaffrey. Thank you, Mr. Chairman.
    Senator Campbell. Thank you.
    [Whereupon, at 10:29 a.m., Thursday, April 6, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


         MATERIAL SUBMITTED SUBSEQUENT TO CONCLUSION OF HEARING

    [Clerk's note.--The following agencies did not appear 
before the subcommittee this year. Chairman Campbell requested 
these agencies to submit testimony in support of their fiscal 
year 2000 budget request.]

                     MERIT SYSTEMS PROTECTION BOARD

            Prepared Statement of Ben L. Erdreich, Chairman

    Chairman Campbell, Ranking Member Dorgan, and Members of the 
Subcommittee: Thank you for the opportunity to submit this statement 
for the record and--as the Subcommittee begins its consideration of the 
fiscal year 2001 appropriations for the Merit Systems Protection Board 
and other components of the Federal Government's civil service system--
to discuss our funding request.
                        overview of the request
    Our request is for $31,446,000 in appropriated funds and a 
limitation of $2,430,000 on reimbursements from the Civil Service 
Retirement and Disability Trust Fund. This represents an increase of 
$3,860,000 over our appropriation for fiscal year 2000, with no change 
in the Trust Fund limitation.
    In making this request, we are exercising our budget bypass 
authority under 5 U.S.C. Sec. 1204(k) to ask that you provide 
$2,589,000 more in appropriated funds than the amount requested in the 
President's budget. We do so only because we believe that the requested 
funding level is essential if MSPB is to continue to fulfill its 
statutory obligations now and, at the same time, devote the necessary 
resources to technology investments that will allow us to fulfill those 
obligations in the future.
    In the past seven years, the Board has responded to the increasing 
pressures on our budget by reducing our staff, changing the way we 
perform many of our functions, and turning more and more to technology 
to achieve efficiencies and cost savings in our operations. What we 
have done to date we have achieved despite the fact that our 
appropriation has been below the amount of our request to OMB almost 
every year, with rescissions cutting our funding even further in four 
of those seven years. There is simply no more we can do. We are at the 
point where we must maintain our currently authorized staffing level 
and also complete the implementation of our integrated electronic case 
filing and document management system. Not only do our reduced 
financial and human resources demand this, but we also face a statutory 
deadline of October 2003 for offering our customers the option of doing 
business with us electronically, as mandated by the Government 
Paperwork Elimination Act.
               what we need to do--and what it will cost
    Having recognized several years ago that our hope lay in using 
information technology to achieve significant efficiencies in the 
adjudicatory process, we began our planning for an integrated 
electronic case filing and document management system. When completed, 
the system will support electronic filing of appeals and other case-
related documents, electronic case files that can be accessed 
immediately by Board employees, electronic legal research, automatic 
generation of certain standard wording and documents used in decisions, 
electronic distribution of decisions to the parties and others, 
electronic storage of closed case records, and integration between the 
document management system--used to create case documents--and the case 
management system--used to record essential data about cases and to 
produce statistical reports.
    To understand what a revolution this system promises for the 
Board's adjudicatory process, you must understand how the present 
system works. An individual files an appeal, either on the MSPB Appeal 
Form or in another written form, such as a letter. One of our employees 
creates a paper case file in which she places the appeal and any 
attachments. She then enters data from the appeal--name, address, 
agency, action being appealed, date filed, etc.--into the case 
management system. A written acknowledgment order is prepared and 
mailed. As the case proceeds and documents are filed by the parties or 
generated by the judge to whom the case is assigned, more paper is 
added to the case file. Each transaction requires another manual data 
entry in the case management system. When the judge completes the 
adjudication of the case, she writes a decision, which is copied and 
mailed to the parties. Data regarding the decision then is entered 
manually into the case management system.
    If a party petitions the 3-member Board to review the judge's 
decision, the paper file is sent to headquarters, more data entries are 
made in the case management system, and the whole labor- and paper-
intensive process continues at headquarters. When a case is closed, 
either at the regional or headquarters level, it is then sent to a 
records storage center, where we pay for its storage until it can be 
disposed of in accordance with the NARA records schedule. If other 
cases develop from the original case, such as a request for attorney 
fees or a petition to enforce the Board's final order, the original 
case file has to be retrieved from storage and returned to the 
adjudicating office.
    Imagine the process now under the integrated electronic case filing 
and document management system. An appellant answers questions on-line 
and transmits the appeal electronically to the appropriate MSPB office. 
The electronic appeal starts a case file that will be made up of 
electronic documents, and data needed for case-tracking and statistical 
purposes flows to the case management system. An electronic 
acknowledgment order appropriate to that case is generated, using data 
recorded in the case management system, and is transmitted 
electronically to the parties.
    The judge to whom the case is assigned can access the electronic 
case file anytime, anywhere--at work, at home, or on the road--and can 
research issues presented in the case using the electronic legal 
research system. When the judge is ready to issue her decision, she 
creates an electronic document with the help of the document assembly 
system and using data recorded in the case management system. The 
decision is then transmitted electronically to the parties and others, 
and data on the closing action flows to the case management system, 
where it can be used to generate reports.
    The electronic case file is stored in digital form and can be 
retrieved at any time should it be needed again. If a petition for 
review of the judge's decision is filed with the Board, headquarters 
staff can immediately access the electronic case file and the data 
recorded in the case management system, and the electronic processing 
of the case continues at headquarters.
    Of course, there will continue to be appellants--at least for the 
foreseeable future--who cannot file electronically. For this reason, 
scanning technology is a critical component of the integrated system. 
Appeals and other case-related documents that are received on paper can 
be scanned into an electronic file. From that point on, they can be 
processed in the same way as cases that are filed electronically.
    Under this system, costs for postage, paper, duplicating, and 
records storage are reduced dramatically. More importantly, far less 
employee time is expended on data entry, accessing case files, and 
moving those files from one point to another.
    The most important thing to remember about the system is that it is 
an integrated system. It requires all of its components to work as 
intended. To leave the system incomplete would be like assembling a car 
with the chassis, engine, gears, brakes, and almost all the other 
essential parts--but stopping before you put on the tires. You have an 
impressive-looking machine, but it doesn't go anywhere.
    The Board has followed a carefully thought out, step-by-step 
process in implementing the integrated electronic case filing and 
document management system. We studied electronic processing systems in 
various legal environments, selected contractors with the necessary 
expertise to help us develop and implement the system, examined various 
off-the-shelf software for the components of the system, involved our 
employees at every step of the project, and established pilot projects 
to test the system components.
    With most of last year devoted to testing the document management, 
document assembly, and legal research systems, we are ready to 
implement those systems this year. We will also begin testing and 
implementation of the new case management system this year. Our plan 
for 2001 calls for implementing the next phases of the system, 
electronic filing, scanning of paper files into electronic form, and 
electronic publishing and distribution. In order to do this, we need 
the full $2,173,000 included in our fiscal year 2001 request to OMB. 
Because the OMB passback--as reflected in the President's budget 
request--allows only $673,000 of that amount, we must use our statutory 
bypass authority to ask that you provide the other $1,500,000.
    That amount accounts for more than half of our total bypass 
request. As detailed in our budget justification, the remainder will 
allow us to fund the other items denied by OMB--full funding of our 
authorized 250 FTE ($389,000), rent increases and relocation expenses 
($600,000), and inflationary increases in the costs of such basic items 
as legal services, necessary travel, postage, and express mail services 
($100,000).
    We have intentionally operated with fewer than our authorized 
number of FTE last year and this year. Rather than filling vacancies, 
we have used contractors where special expertise was needed and 
temporary services to meet short-term needs. While a portion of our 
saved FTE funds went to pay for these services, the remainder was 
redirected to the integrated electronic case filing and document 
management system, which has been only partially funded. The fact that 
we have operated with fewer than 250 employees, however, does not mean 
that we no longer have work for 250 employees. We continue to need 
funding for the full authorization of 250 FTE so that we can continue 
to use contractors and temporaries where needed to supplement our full-
time permanent staff.
    We are relocating our headquarters in downtown D.C. this year. Our 
current headquarters space is no longer adequate for our needs, 
particularly with our planned information technology improvements, and 
necessary renovations to the building would force us to move to 
temporary space even if we stayed there. We would face a rent increase 
if we stayed, and the rent we have negotiated at the new location is 
extremely competitive, especially when compared both to what GSA was 
paying for it previously and what other agencies are paying in the same 
area. We also will be paying increased rent under the renewed lease for 
our Boston Field Office, reflecting the high rental costs in that area. 
The lease for our Washington Regional Office is expiring, and we face 
increased rent there whether we renew the lease or relocate the office. 
Because current GSA policy requires moving agencies to bear their 
relocation costs, we have no choice but to request the funding needed 
to cover these costs.
    As to the final item comprising our bypass request, inflationary 
increases in the costs of goods and services used in our operations are 
a fact of life. We cannot avoid them, and we cannot redirect funds to 
cover them without damage to our other needs. Therefore, we ask you to 
provide the modest amount included in our request to cover them.
                        what we have done so far
    To put our needs for fiscal year 2001 in perspective, let me review 
briefly what we have done so far to maintain our ability to fulfill the 
Board's statutory mission despite reduced resources.
    In compliance with the Administration's Reinventing Government 
initiatives and workforce reductions mandated by Congress, MSPB has 
reduced its staff by 23 percent since I came to the Board in July 1993. 
We have made judicious use of buyouts and, when no more reductions 
could be achieved by voluntary action, we conducted a RIF affecting 
administrative positions at the Board's headquarters.
    In 1998, we entered into a contract with USDA's Animal and Plant 
Health Inspection Service for the provision of human resources 
management (HRM) services, enabling us to reduce our HRM staff from 14 
to 1. We continue to contract with USDA's National Finance Center for 
accounting and payroll services. In certain areas where we need special 
expertise, such as information technology and audits, we are using 
contractors on a temporary basis rather than hiring full-time permanent 
employees.
    We have cut costs by closing one regional office and converting 
five others to field offices, allowing us to redirect resources from 
the administration of those offices to their adjudicatory functions. At 
headquarters, we have reduced the number of offices, eliminating Senior 
Executive Service and middle management positions.
    We have relied increasingly on information technology in our 
administrative and communications operations. Such administrative 
processes as purchasing and recording time and attendance have been 
automated, reducing considerably the employee time and paperwork 
expended on those processes. We have launched a World Wide Web site 
where Board decisions, a form for filing appeals, reports of the 
Board's merit systems studies, annual reports and other publications, 
and other useful information are immediately accessible 24 hours a day, 
7 days a week. We have also established a 24-hour toll free telephone 
number for our customers.
    The Board's application of information technology has not been 
limited to its administrative and communications operations. We also 
have applied it to the adjudicatory process by conducting hearings in 
an increasing number of cases by videoconference. This initiative not 
only saves money for MSPB, but for the parties to the case as well. 
Productivity is improved for all concerned because travel time to a 
hearing location is eliminated.
    Also in the adjudicatory area, we have expanded our efforts to 
promote alternative dispute resolution (ADR). Successful ADR programs 
can save money both for the Board and for the parties, as settled cases 
take less time to complete, often avoid the expenses associated with a 
hearing, and only infrequently result in further litigation.
    We have continued the Board's successful ADR program at the initial 
adjudicatory level, with the regional offices settling about half of 
all appeals not dismissed. We initiated a program at Board headquarters 
to attempt settlement at the second level of the adjudicatory process, 
where a party files a petition for review (PFR) of the regional-level 
decision with the 3-member Board. That program has now been made 
permanent, with 27 percent of the PFRs selected for the program settled 
in our most recent fiscal year.
    We are increasingly focused on promoting ADR in personnel disputes 
while they are still at the agency level--before an appeal is filed 
with MSPB. Last year, we amended our procedural regulations to provide 
an automatic 30-day extension of the time limit for filing an appeal 
where the parties mutually agree in writing to submit to an ADR process 
to try to resolve their dispute. We have also launched a training 
program for agency personnel aimed at developing a cadre of 
knowledgeable and skilled specialists who can intercept and resolve 
personnel disputes before an appeal is filed with the Board.
    Through these initiatives--and the extraordinary efforts of MSPB 
employees--we have been able to maintain our record of timely and fair 
adjudication of Federal employee appeals and other civil service 
matters despite the loss of almost one-quarter of our staff. In fiscal 
year 1999, the Board processed cases, on average, through two levels of 
adjudication in just under 11 months.
    We have reached the limit, however, of what we can do with our 
current staff and systems. We have concentrated our staff cuts so far 
in the area of administrative support services. If we are forced by 
inadequate funding to make further cuts, there is nowhere else to go 
but to the staff performing direct mission-related functions. Our 
current information technology systems--put in place more than a decade 
ago--are capable of only minimal improvements to our adjudicatory 
process. Our best hope at this point is to extend the use of 
information technology much further into the statutory program that 
consumes most of our human and financial resources--adjudication.
            mspb's role and factors influencing our workload
    Congress has determined that certain serious personnel disputes in 
the Federal workplace warrant resolution through adjudicatory 
proceedings before the Board. The Board's adjudicatory workload, 
therefore, is the result of appeal rights granted by Congress, actions 
taken by agencies that implicate those rights, and the choices made by 
Federal employees and other appellants to exercise those rights before 
the Board. The Board has no control over any of these factors.
    Unlike many components of the Federal Government, MSPB will never 
come in direct contact with most American citizens. Our adjudication 
function, however, is critical to the effective operation of Federal 
agencies. Personnel disputes arise in every organization, public and 
private, and systems must be put in place to resolve them so the 
organization can get on with its business. Otherwise, productivity 
suffers and the organization's cost of doing business goes up.
    Although we cannot predict in any given year precisely what our 
workload will be, we know from our historical trend data that our 
caseload has remained steady--at about 10,000 cases per year--for the 
past decade. The caseload has remained at this level despite a 
significant reduction in the number of Federal employees. In fact, 
downsizing itself can contribute to an increase in the Board's work, as 
was the case with the Postal Service restructuring in the early 1990s--
which led to a peak workload of more than 13,000 cases in fiscal year 
1995.
    Congress has extended the Board's jurisdiction several times in the 
21 years of our existence. While our first decade was marked primarily 
by legislation that extended an existing right to appeal certain 
personnel actions to additional groups of employees--such as excepted 
service employees and Postal Service supervisors and managers--the 
years since 1989 have been marked by laws that provide wholly new bases 
for bringing a case to the Board. The Whistleblower Protection Act 
(1989), the Uniformed Services Employment and Reemployment Rights Act 
(1994), the Presidential and Executive Office Accountability Act 
(1996), and the Veterans Employment Opportunities Act (1998) all extend 
the Board's jurisdiction to new kinds of actions.
    MSPB cases are increasingly complex. Many appellants are raising 
not just an allegation of wrongful removal or suspension, but also 
claims of disability, sex, race, and/or age discrimination, Family and 
Medical Leave Act issues, claims of reprisal for whistleblowing, and 
claims of violations of USERRA and other veterans' rights. More issues 
raised means more time spent in the administrative process before the 
Board--longer hearings are necessary, decisions must address multiple 
claims, and review is more complicated.
    In short, the Board has virtually no control over the intake side 
of the workload equation. Our efforts, therefore, must be focused on 
finding means to handle the incoming work more efficiently and at lower 
cost. The alternative is an increasing backlog of cases--an alternative 
that has negative repercussions throughout the Government as final 
resolution of personnel disputes is deferred and productivity suffers.
                               conclusion
    My 7-year term as Chairman of MSPB is coming to an end, and I will 
be leaving the Board on March 2, 2000. In parting, I want to say that I 
appreciate the courtesies you and your staff have extended to me and my 
staff during my tenure and the support you have provided for our 
essential statutory programs. I urge you to continue that support so 
that MSPB can continue to perform its critical functions.
    I recognize fully the budget pressures on the Subcommittee and the 
competing needs that you must reconcile. But I firmly believe that in 
my time at the Board, we have done the planning that will lead to a 
21st century agency that not only maintains but improves upon its 
enviable 20th century record of performance. With your support, MSPB 
can use new technology to offer better service while costing the 
taxpayers less.
    Thank you for the opportunity to submit this statement for the 
record. My successor and MSPB staff will be happy to provide you with 
whatever additional information you require as you proceed with your 
consideration of the fiscal year 2001 appropriations.
                                 ______
                                 

                     OFFICE OF PERSONNEL MANAGEMENT

        Prepared Statement of Hon. Janice R. LaChance, Director

    Mr. Chairman and Members of the Subcommittee: I am pleased to have 
this opportunity to submit for the record a statement discussing the 
appropriations request for the Office of Personnel Management for 
fiscal year 2001.
    Before reviewing the President's request for appropriations for 
OPM, I would like to provide some context for that request by outlining 
briefly the challenges we see facing us in the near term and the 
priorities we have established to meet those challenges.
    Clearly, at OPM, because of the government-wide nature of our Human 
Resources Management (HRM) work, the challenges we confront have 
implications beyond our agency. While maintaining our consistent 
emphasis on the protection of merit system principles and Veterans 
preference in Federal employment, we must position agencies to succeed 
in the rapidly changing, highly competitive, and increasingly global 
labor marketplace. We plan to work closely with agencies to help them 
strategically align their human resources to support agency goals.
    Winning the ``war for talent'' will require not only aggressively 
competing for highly skilled new employees, but also retaining and 
developing our current workforce. We intend to meet these challenges by 
refining our existing policies, systems, and services, as well as 
introducing a series of creative new initiatives.
    We recognize that, despite some commonalities, agencies have 
differing objectives, concerns, and needs, particularly in areas such 
as staffing and compensation. Our goal is to ensure agencies' effective 
use of existing options, while developing additional flexibilities to 
address both government-wide and particular situations.
    In addition, we will focus attention on the significance of 
strategic human resources management. Our vision for agencies is simply 
that they be able to get the right people with the right skills in the 
right jobs at the right time. We will lead agencies as they analyze 
their needs through workforce projections and skills gap assessments, 
and practicing succession planning, and by being attentive to all 
facets of effective workforce management, including the use of 
effective labor-management strategies to empower workers and managers.
    We also will emphasize that the responsibility for strategic human 
resources management is not the exclusive province of HRM 
professionals, but is most appropriately shared throughout the 
organization by agency heads, executives, line managers, supervisors, 
and employees. We will seek to assist agencies in developing their HRM 
staff members, who then will be able to provide strategic assistance to 
others throughout the agencies.
    Of course, as we strive to provide HRM leadership government-wide 
and support other agencies, we will be addressing our own internal 
management challenges such as improving our financial management 
systems and developing the infrastructure needed to participate in 
critical government-wide information technology initiatives.
    We have eight priorities for fiscal year 2001.
    First, we will complete the development of a workforce planning 
model and accompanying automated system. By providing agencies with the 
tools to analyze their workforce needs, we will enable them to address 
those needs through the creation of a succession planning strategy. Not 
only will agencies be able to view data from various systems to 
determine inconsistencies in diversity or assess occupational needs and 
skill demands, they will also have the capacity to anticipate changes 
in attrition, and make workforce projections.
    Second, we will continue our work to make the Federal hiring 
process simpler and more effective. As we complete work on our new 
qualifications standards development process, we will move from a rigid 
system which emphasized quantitative requirements, to a competency-
based model which focuses on the ``whole person.'' Beginning this 
fiscal year and moving into fiscal year 2001, we will be integrating 
the model into tools enabling managers to more effectively support 
targeted recruitment, streamlined application procedures, and valid 
assessments of employees for all occupations.
    Third, to parallel the personnel flexibilities delegated to 
agencies or established as part of an agency's statutory 
reorganization, we will be expanding our oversight activity. Our 
increased visibility in monitoring the use of these flexibilities and 
our work in helping agencies to develop internal accountability systems 
will encourage adherence to merit system principles and compliance with 
veterans preference. Our vision includes not only getting the right 
people in the right job at the right time, but also doing it in the 
right way.
    Fourth, critical to our effort to work more efficiently, both 
within OPM and government-wide, is our more effective use of 
information technology. We are modernizing our systems and processes, 
not only to support the programs we administer, but also to better 
serve needs of external users such as the Office of Management and 
Budget, the General Accounting Office, and the Congress. Coupled with 
the broader vision of a federal human resources data network, this 
effort has the potential to significantly reduce the Government's human 
resources operations costs by using modern technology to minimize our 
dependence on hard-copy documents.
    There are several significant components of this priority. For 
example, we will continue to enhance the electronic transfer of data 
from agencies to our redesigned central personnel data file, while 
improving the accessibility of data, without sacrificing privacy 
protections, for users via the internet.
    In addition, our retirement systems modernization effort is central 
to our pursuit of our long-term retirement-related customer service, 
financial management, and business goals. By reengineering our business 
processes, in consultation with our strategic delivery partners, we 
will be able to reduce processing times for the Federal Employees' 
Retirement System as we have for the Civil Service Retirement System.
    Our most far-reaching technology-related initiative is our work on 
the Federal cyber service program, which is designed to ensure an 
adequate supply of highly skilled federal information systems security 
specialists. We are contributing to this significant administration 
effort by developing a plan for recruiting, developing, and retaining 
staff for the Federal cyber service, to protect national computer data 
and data exchanges, and to staff related hard-to-fill occupations.
    Funding will be critical to ensuring that we are able to complete 
our study of information technology occupations which is essential to 
the work of the multi-agency effort to address the increasing threats 
to the nation of cyberterrorism.
    Fifth, our continuing support for agencies in their effort to 
recruit, manage, and retain a diverse and highly-qualified workforce 
will be evident in our work on a strategic compensation policy. In 
working toward our long-term objective of developing a performance-
based pay and benefits system appropriate for the diverse missions, 
structures, workforce, and technologies represented in the Federal 
Government, we will continue our research and outreach to stakeholders 
that we began in fiscal year 1999.
    An important step in that effort will be changing the Government's 
position classification system to provide flexibility in support of 
recruitment, hiring, and management concerns that could not have been 
foreseen 50 years ago when that system was established.
    Another critical aspect of our compensation policy agenda is 
maintaining our leadership position in the design and delivery of 
employee benefit programs. In the Federal employees health benefits 
program, we have not only implemented the patients' bill of rights, but 
have also initiated efforts to reduce medical errors and enhance 
patient safety. In addition, we have begun working to implement, no 
later than the beginning of fiscal year 2001, a premium conversion 
plan, enabling Federal employees to pay health benefits premiums with 
pre-tax dollars.
    Legislatively, we will develop a proposal to leverage the 
Government's purchasing power by contracting directly for dental 
benefits. Of course, we will continue to pursue vigorously the 
enactment of a group long-term care insurance program.
    Sixth, we will continue our efforts to support agencies in creating 
model workplaces for their employees. Adopting a variety of family 
friendly policies will help employees to strike an appropriate balance 
between their personal and professional lives. By addressing such 
topics as telecommuting, alternative work schedules, job sharing, and 
elder and child care, we will foster higher morale and greater 
productivity.
    In addition, we will provide leadership to agencies in maximizing 
the use of learning technologies to develop workers able to meet the 
challenges of the 21st century. We will promote the integration of 
training and technology by agencies and the use of innovations such as 
the individual learning account to involve employees directly. These 
efforts are critical to our vision of strategic human resources 
management.
    Of course, in our view, there can be no model workplace without an 
array of collaborative labor-management programs. We will continue to 
urge the development and growth of labor-management partnerships in the 
Federal Government, and we will be researching what makes the best 
partnerships work so well. As we identify specific strategies and 
tactics that lead to good working relationships and bottom line 
improvements, we will share them throughout the Federal community.
    Seventh, we also recognize that without exceptional leaders with 
the ability to design and implement strategies to maximize employee 
potential and foster high ethical standards, the Government will be 
unable to serve the American people effectively. We will seek to select 
and develop executives and managers who can lead and motivate people, 
who are results-driven, and who have a keen business sense about using 
their resources, particularly their valuable human resources, to get 
results for the taxpayers. This will be especially crucial in fiscal 
year 2001, as we facilitate government-wide transition efforts 
following the Presidential election.
    Finally, we remain committed to continuing the improvement in all 
of our financial management operations. Working cooperatively with the 
office of the inspector general and the independent public accountant, 
we have made significant progress in correcting previously identified 
management control weaknesses. As a particularly important example, in 
the past year, we achieved, for the first time, an unqualified audit 
opinion for all three of our multi-billion dollar trust fund financial 
statements. The additional resources we are seeking for this purpose 
will enable us to build on that progress and to update or replace our 
aged financial systems.
    We are absolutely committed to removing any obstacles to obtaining 
unqualified audit opinions on our revolving fund and salaries and 
expense accounts and to resolving any remaining difficulties in the 
five financial statement audits. The funding we seek in this budget is 
crucial to our success.
    Turning to our request for resources to support these priorities, 
it is important to note that the total OPM budget request of $14.6 
billion includes appropriations which are 99 percent mandatory and only 
1 percent discretionary. The increase over fiscal year 2000 is $0.6 
billion. The request for our three mandatory payment accounts is an 
estimated $14.4 billion, while we are seeking a total of $213.7 million 
for our two discretionary appropriation accounts containing general 
funds and trust funds. Our administrative accounts will support 2,984 
full-time equivalent (FTE) employees. That is the same level as fiscal 
year 2000.
    The request for basic operating expenses from general funds totals 
$100.6 million, an increase of $10.3 million over fiscal year 2000. 
That request will support 769 FTE's. It includes $7 million for the 
Federal cyber service program. That represents an increase of $6.2 
million over fiscal year 2000. As discussed earlier, the money will be 
used to address the shortage of skilled information security 
professionals in the Federal Government. OPM will continue to work with 
agencies to recruit, develop, and retain an expert cadre of information 
technology and computer security specialists, both by using existing 
authorities and by coming up with new approaches to appeal to the dot 
com generation.
    A supplemental request for an additional $1 million to permit OPM 
to expand and accelerate cyber service activities in fiscal year 2000 
was transmitted in the President's budget. Thus far, the House 
Committee on Appropriations has denied the request, without prejudice, 
stating the belief that the request is more appropriately considered in 
the fiscal year 2001 process.
    Our basic request also includes an increase of $1.9 million to 
support our work to improve our administrative financial systems in an 
effort to eliminate material weaknesses and earn unqualified audit 
opinions on all OPM accounts.
    In addition, we are seeking an increase of $1 million for 
agencywide information technology support. That increase is largely 
offset by a decrease of $0.8 million in funding for modernization of 
the central personnel data file.
    Our final significant increase under our general fund request is 
for $1.6 million for human resources initiatives. The five components 
of that increase include $0.5 million for an expansion of OPM oversight 
activities to ensure adherence to merit system principles, $0.4 million 
to simplify hiring and assessment by developing a new qualifications 
standards process, $0.3 million each for a workforce planning model and 
improvements in the compensation rate-setting process, and $0.1 million 
to implement strategic compensation system planning design and 
improvements.
    With regard to the administration of our retirement and insurance 
programs, OPM is requesting transfers from the trust funds totaling 
$102 million and supporting 1,328 full-time equivalents. Included in 
that request is $10.5 million for the retirement systems modernization 
project, to remain available until expended. That represents an 
increase of $6.5 million for that project.
    It is important to note here that a significant portion of the 
funding for the Office of the Inspector General in OPM is derived from 
trust fund transfers too. That office will outline its request in 
greater detail, but I can say that the overall request totals $11.1 
million and 112 FTE's. Of that total, $1.4 million would come from 
general funds and $9.7 would represent transfers from trust funds.
    Of course, OPM also provides a variety of services financed by 
other agencies through our revolving fund. In addition to our 
management of the investigations program and the professional 
development and continuous learning for federal executives and 
managers, OPM conducts testing of potential military inductees for the 
Department of Defense. We also provide a range of services for agencies 
including examining for vacancies, assessment services, automation of 
staffing systems, and the selection and development of Presidential 
management interns.
    For fiscal year 2001, the budget includes an estimated $267.1 
million in obligations and 677 FTE's for these ongoing programs.
    The OPM budget request includes, as always, mandatory 
appropriations to fund the Government's contributions to the Federal 
employee life insurance and health benefits programs for annuitants. 
This is because OPM serves as ``employing agency'' for these 
individuals relative to these benefit programs.
    Given the mandatory nature of these payments, we are requesting a 
``such sums as may be necessary'' appropriation for each of these 
accounts. We estimate that, for the 280,000 annuitants electing post-
retirement life insurance coverage and for whom we are responsible, 
$35.0 million will be needed, while an appropriation of about $5.4 
billion will be required to pay the Government's contribution toward 
the cost of health benefits coverage for the 1.9 million annuitants who 
participate in that program.
    In addition, as mandated by the financing system established in 
1969 by Public Law 91-93, liabilities resulting from changes since that 
year which affect benefits, principally pay raises, must be amortized 
over a 30-year period. We are requesting a ``such sums as may be 
necessary'' payment for the civil service retirement and disability 
fund for that purpose. We estimate the amount needed to be $8.9 
billion.
    Finally, the President's budget for fiscal year 2001 proposes a pay 
increase for white-collar Federal employees of 3.7 percent, to be 
distributed between an across-the-board raise and locality pay as 
determined following discussion with employee organizations and other 
interested parties. We have, once again, included in the general 
provisions in the budget the appropriate legislative language to ensure 
that blue-collar Federal employees remain parallel to their white-
collar colleagues in terms of the pay adjustments they receive.
    Along with a pay raise that exceeds the recent wage growth in the 
private sector, the administration has proposed to put more money in 
the pockets of Federal employees in other ways. As mentioned earlier, 
the President's budget provides a premium conversion plan that will 
save money for Federal employees by allowing them to pay their share of 
health benefits premiums with pre-tax dollars. In addition, the budget 
contemplates a repeal of the higher retirement contributions required 
of Federal employees by the Balanced Budget Act of 1997, as well as a 
reversal of the action taken last year to delay into fiscal year 2001 
the last paycheck of fiscal year 2000.
    When the previously noted efforts to maintain an affordable health 
benefits program and to establish a new long-term care insurance 
program are factored in, this budget offers significant and well-
deserved rewards for Federal employees.
    Thank you for the opportunity to discuss our request. I would be 
pleased to provide the Subcommittee with any additional information you 
require.


                       NONDEPARTMENTAL WITNESSES

    [Clerk's note.--The following testimonies were received by 
the Subcommittee on the Treasury and General Government for 
inclusion in the record.
    The subcommittee requested that public witnesses provide 
written testimony because, given the Senate schedule and the 
number of subcommittee hearings with Department witnesses, 
there was not enough time to schedule separate hearings for 
nondepartmental witnesses.]

                 Prepared Statement of Bernard H. Berne

    I am a resident of Arlington, Virginia. I serve the Food and Drug 
Administration (FDA) as a Medical Officer and as a reviewer of medical 
device approval applications. I am submitting this statement as a 
private individual.
    I ask you to reject a proposal in President Clinton's fiscal year 
2001 Budget that would make a total of $544,640,000 available to the 
General Services Administration's (GSA's) Federal Buildings Fund 
through four appropriations in the Treasury and General Government 
Appropriations Act, 2001. GSA would use funds from the appropriations 
to award contracts to design and construct an FDA consolidation at the 
former White Oak Naval Surface Warfare Center in Montgomery County, 
Maryland.
    The President's Budget proposes that, of the above total, 
$101,239,000 would be made available to GSA in fiscal year 2001. The 
remainder would become available to GSA in fiscal years 2002, 2003, and 
2004. The President's Budget does not provide the total cost of this 
costly and unjustified project.
    White Oak is a very poor site for this massive ``consolidated'' 
federal administrative and laboratory facility. Metrorail is three 
miles away. Nearby highways and roads are congested.
    An FDA facility at White Oak would increase the Washington 
Metropolitan Area's traffic congestion, air pollution and urban sprawl. 
Further, the new construction would require Congress to appropriate 
additional funds to ``improve'' the highways and roads that serve the 
White Oak area.
    No legislation authorizes the requested appropriations. Because of 
this, no Senate authorizing Committee is monitoring the need, cost and 
location for this project.
    The FDA Revitalization Act (Public Law 101-635; 21 U.S.C. 379(b)), 
which amended Chapter VII of Federal Food, Drug, and Cosmetic Act by 
adding a new Section 710 (21 U.S.C. 379(b)), only authorizes 
appropriations that the Secretary of Health and Human Services (HHS) 
can use to enter into contracts to design, construct, and operate a 
consolidated FDA laboratory and administrative facility. Public Law 
101-635 does not authorize any appropriations that GSA can use to enter 
into any contracts of any kind. Public Law 101-635 clearly and 
specifically restricts the role of GSA in the FDA consolidation to 
``consultation'' with the Secretary of HHS.
    Specifically, Section 101(d) of Public Law 101-635 authorizes 
appropriations only to ``carry out this section''. ``This section'' 
(Section 710 of the Federal Food, Drug, and Cosmetic Act) states ``(a) 
Authority.--The Secretary, in consultation with the Administrator of 
the General Services Administration, shall enter into contracts for the 
design, construction, and operation of a consolidated Food and Drug 
Administration administrative and laboratory facility.'' ``This 
section'' does not authorize GSA to take any actions. Congress cannot 
appropriate any funds to GSA under the authorization in Public Law 101-
635.
    Further, the FDA Revitalization Act authorizes appropriations for 
only one FDA consolidated facility. Despite this, GSA has used funds 
appropriated for an ``FDA Consolidation'' to design and construct three 
separate FDA administrative and laboratory facilities in Beltsville, 
College Park, and White Oak, Maryland.
    GSA's actions have contradicted the intent and language of the FDA 
Revitalization Act. GSA will not use the proposed appropriation to 
consolidate all FDA headquarters facilities in a single location. 
Therefore, the FDA Revitalization Act is irrelevant to the proposed 
appropriation.
    GSA often claims that the FDA Revitalization Act authorizes 
appropriations to both the Secretary of HHS and to the Administrator of 
GSA to design and construct the FDA consolidation. This self-serving 
claim is incorrect.
    According to Section 7 of the Public Buildings Act of 1959, as 
amended, Congress can only legally appropriate funds to GSA to 
construct any public building whose cost exceeds $1.5 million if the 
GSA Administrator transmits a prospectus to Congress and if the Senate 
Committee on Environment and Public Works (GSA's Senate authorizing 
committee) passes a resolution that approves this prospectus. GSA has 
never transmitted a prospectus to Congress that describes any part of 
the FDA consolidation.
    GSA has illegally used $55,000,000 appropriated in the Treasury, 
Postal Services, and General Government Appropriations Act, 1996 
(Public Law 104-52, 109 Stat. 482), to award contracts to construct a 
so-called FDA ``consolidation'' in College Park, Prince George's 
County, Maryland. GSA is further now illegally using $35,000,000 
appropriated in the Treasury and General Government Appropriations Act, 
2000 (Public Law 106-58, 113 Stat. 450) to award contracts to design 
and construct another so-called ``FDA consolidation'' at White Oak in 
Montgomery County, Maryland.
    Provisions in both appropriations acts (Public Law 104-52 and 
Public Law 106-58) specifically prohibited GSA from expending any funds 
appropriated therein for the design and construction of any project for 
which a prospectus, if required by the Public Buildings Act, had not 
been approved. The Public Buildings Act requires a prospectus because, 
(1) the FDA ``consolidations'' will cost more than $1.5 million, and, 
(2) the FDA Revitalization Act does not authorize any appropriations 
that GSA can use to award design or construction contracts.
    GSA is therefore clearly misusing appropriated funds. Congress has 
never enacted any legislation that has authorized GSA to construct the 
College Park and White Oak FDA facilities.
    Paragraph 7 of Senate Rule XVI requires that Committee reports on 
general appropriations bills identify each provision ``which proposes 
an item of appropriation which is not made to carry out the provisions 
of an existing law, a treaty stipulation, or an act or resolution 
previously passed by the Senate during that session.'' On June 24, 
1999, your Committee issued Senate Report 106-87, which proposed an 
appropriation of $35 million to GSA for the FDA consolidation.
    Senate Report 106-87 did not comply with Senate Rule XVI. Your 
Committee Report failed to identify the appropriation to GSA for the 
FDA consolidation as one that was not being made to carry out the 
provisions of a law or a Senate resolution. Your Report failed to state 
that the appropriation lacked authorization.
    Your Committee should not repeat the error that you made last year. 
If you propose to appropriate any funds to GSA for the FDA 
consolidation in the Treasury and General Government Appropriations 
Act, 2001, your accompanying Committee Report must identify the 
appropriation as one that lacks authorization.
    Executive Order 12072, which President Clinton reaffirmed in 
Executive Order 13006, requires all federal facilities and federal use 
of space in urban areas to ``serve to strengthen the Nation's cities 
and to make them attractive places to live and work'', and to 
``encourage the development and redevelopment of cities''. When he 
issued this Order, President Carter stated that the Order was intended 
``to strengthen the backbone of our major cities and to build up jobs 
and further investments there.'' (Public Papers of the Presidents: 
Jimmy Carter, 1978, p. 1429).
    White Oak is not in or adjacent to any city. An FDA consolidation 
at White Oak would draw jobs and investments out of Washington, D.C. 
The requested appropriation serves to further weaken this economically 
troubled major city.
    Section 12(c) of the Public Buildings Act states: ``The (GSA) 
Administrator in carrying out his duties under this Act shall provide 
for the construction and acquisition of public buildings equitably 
throughout the United States with due regard to the comparative urgency 
of the need for each particular building.''
    Despite this requirement, GSA is requesting an appropriation to 
construct a major federal facility in affluent Montgomery County, 
Maryland. Unlike Maryland in general and Montgomery County in 
particular, the District of Columbia is economically depressed. The 
District has a far greater ``comparative urgency of need'' for the FDA 
consolidation than does Montgomery County, Maryland.
    Thus, GSA is violating Executive Orders 12072 and 13006, as well as 
Section 12(c) of the Public Buildings Act, by proposing this 
appropriation. Your Committee should not endorse these violations by 
appropriating further funds for this project.
    It is important for your Committee to recognize that no law directs 
or requires GSA to consolidate FDA in Montgomery County. In 1992, 
Congress appropriated funds to begin constructing an FDA consolidation 
in Montgomery County, Maryland. However, in 1995, Public Law 104-19 
rescinded all of these construction funds. Public Law 104-19 removed 
any requirement for FDA to consolidate in Maryland.
    The Treasury and General Government Appropriations Act, 2000 
(Public Law 106-58) appropriated $35 million for an FDA consolidation 
in Montgomery County. However, as noted above, Public Law 106-58 
contains a provision that states (113 Stat. 451): ``Provided further, 
That funds available to the General Services Administration shall not 
be available for expenses in connection with any construction, repair, 
alteration, or acquisition project for which a prospectus, if required 
by the Public Buildings Act of 1959, as amended, has not been approved, 
except that necessary funds may be expended for each project for 
required expenses in connection with the development of a proposed 
prospectus.''
    No prospectus has ever been approved for this project. Since the 
Public Buildings Act requires prospectus approval for all GSA 
construction projects costing more than $1.5 million, GSA cannot 
legally use the $35 million to construct anything at White Oak. 
Therefore, the FDA consolidation can still occur in the District of 
Columbia rather than in Montgomery County, Maryland.
    In a letter dated January 5, 1999, Mr. William Hoffman, NEPA/404 
Program Manager, U.S. Environmental Protection Agency (EPA), Region 
III, informed GSA that GSA's Environmental Impact Statement (EIS) for 
the White Oak project did not comply with EPA regulations. The letter 
stated that GSA had not adequately compared an FDA consolidation at 
White Oak with a consolidation at alternative locations on public and 
private lands.
    The federally-owned Southeast Federal Center and St. Elizabeth 
Hospital sites in D.C. can accommodate the FDA consolidation. Congress 
should not appropriate any funds for the FDA consolidation until GSA 
evaluates these alternatives and until the Senate Committee on 
Environment and Public Works approves a prospectus for the project and 
certifies the project's need.
    FDA does not need to consolidate at White Oak. The budget request 
violates laws, executive orders, and EPA regulations.
                                 ______
                                 

      Prepared Statement of the National Treasury Employees Union

    Chairman Campbell, Ranking Member Dorgan, and distinguished Members 
of the Subcommittee, my name is Colleen Kelley, and I am the National 
President of the National Treasury Employees Union. The NTEU represents 
more than 155,000 federal employees, including employees at the 
Department of Treasury and several other federal agencies. I appreciate 
this opportunity to present testimony to you today on behalf of these 
dedicated men and women. The actions of this subcommittee directly 
affect their lives and the livelihoods of every American.
    Many Americans take for granted the outstanding work done by 
Treasury Department employees and they fail to realize how this work 
helps the world's premier democracy continue to flourish. I am hopeful 
that Treasury Department employees can count on this subcommittee to 
provide the staffing and resources necessary to help them carry out 
their mission.
    I would like to highlight some of NTEU's priorities and concerns 
contained in the President's fiscal year 2001 budget request for the 
Department of Treasury. Below is just a sampling of some of the most 
important issues facing the Treasury Department workforce. I would 
welcome the opportunity to provide additional views at a later date.
                        internal revenue service
    Since 1993, staffing levels at the IRS have been reduced by 17,000 
FTEs. Yet, during this period, IRS toll free phone services and web-
based services for taxpayers have improved, taxpayers can visit IRS 
officials at more convenient locations during longer hours of 
operation, and taxpayers have more options for filing their returns. 
Meanwhile, it is projected that the IRS will collect $1.767 trillion in 
revenues for fiscal year 2000, will receive 213.1 million returns, and 
will issue over 93 million individual refunds.
    I am pleased to report to you that IRS employees are taking very 
seriously the new mandates imposed by Congress in the IRS Restructuring 
and Reform Act. Our employees have made great strides in improving 
customer service at the IRS while continuing to perform the necessary 
functions of ensuring that the taxes that are due to the Treasury are 
paid. Yet the 71 new taxpayer rights established in RRA 98 have created 
new procedures in handling cases, which has led to some confusion among 
IRS employees and has increased the time it takes to close current 
cases. Additionally, Congress has made hundreds of changes to the tax 
code in the past three years: in fact the Taxpayer Relief Act of 1997 
alone made 801 tax law changes. Next, continued record economic growth 
in this country has led to an increased number of tax returns and more 
complexities in taxpayer and business filings. For example, IRS 
Commissioner Charles Rossotti pointed out in testimony presented to the 
Congress this year that since 1993, the number of individual tax 
returns with over $100,000 in reported income, which are generally more 
complex returns, has increased by 63 percent. These and other demands 
being put on IRS employees have contributed to a significantly 
increased workload at the IRS. Plain and simple the IRS workforce is 
being asked to do considerably more work with fewer resources. And 
while I applaud advances in the use of technology at the IRS, and I 
commend this subcommittee's commitment to these improvements, 
technology alone cannot possibly manage the increasing workload at the 
IRS.
    For this reason, I wish to express NTEU's strong support for 
increased funding for staff training and for the new IRS initiative, 
``Staffing Tax Administration for Balance and Equity'' (STABLE). With 
regard to training, we at NTEU very much want the taxpayers to be 
guaranteed the rights they are entitled to. We want the RRA 98 
provisions to work for the taxpayers and for the IRS. And we want the 
taxpayers to be able to take full advantage of the recent changes in 
the tax code. Our employees are up to these challenges, but if 
taxpayers and the IRS are to benefit from these changes, then we need 
to dedicate more resources to training our employees about these 
complex changes.
    The STABLE initiative will support the hiring of approximately 
2,800 new employees at the IRS. Specifically, the budget requests an 
increase in funding for fiscal year 2001, which would allow for the 
hiring of 2,534 new employees at the IRS beginning October 1, 2000. The 
President has also requested a supplemental appropriation of $39.8 
million to allow the IRS to hire 301 new staff in the current fiscal 
year, so that they will be trained and ready for fiscal year 2001.
    The number of revenue agents has declined by roughly seventeen 
percent since 1995, and will decrease an additional four percent during 
the current fiscal year. And as a result of RRA 98, many IRS 
examination staff, revenue agents, compliance officers, auditors and 
others have been detailed to help improve customer service, answer 
taxpayers' questions, and provide walk-in assistance to the taxpayers. 
I strongly believe that the IRS should continue to expand the hours of 
service and convenience of the walk-in service, which in turn will lead 
to reduced waiting times and improved quality of service for the 
taxpayers. However, increased emphasis on customer service should not 
come at the expense of collecting unpaid taxes and ensuring that 
taxpayers are complying with our tax laws when it comes to reporting 
the correct amount of income received.
    In order to continue to make improvements in the level of customer 
service while simultaneously processing a growing number of tax returns 
and stabilizing collections and examinations of cases, we need to 
reverse the severe cuts in IRS staffing levels, and approve the STABLE 
request. The President's request for additional staffing is a modest 
increase over current levels and if fully implemented would still mean 
fewer IRS employees than the agency employed in 1997.
    One final issue which this subcommittee should be aware of is that 
IRS employees continue to work in fear of section 1203 of the RRA, 
which lists ten infractions, known as the ten deadly sins, for which 
IRS employees face mandatory dismissal. These infractions, which range 
from IRS employees not paying their taxes on time, to harassing 
taxpayers, to violating the civil rights of taxpayers, have always 
subjected employees to discipline, including dismissal, and rightly so. 
However, RRA's requirement for mandatory dismissal of employees who 
violate these infractions, is having a chilling effect on collections 
and morale at the IRS. I am hopeful that in the interests of allowing 
the IRS to carry out its mission, this subcommittee will work with 
NTEU, the IRS, and the authorizing committees to address this issue.
    Since 1992, the IRS workforce has declined by more that 16 percent. 
In the meantime, demands on IRS employees have increased significantly. 
Without more resources for staff training and additional staffing at 
the IRS, our entire tax system will be threatened.
                          u.s. customs service
    The President's budget requests a funding level of $1.86 billion 
for salaries and expenses and 17,544 FTEs for fiscal year 2001 for the 
United States Customs Service. This represents an additional $160 
million and 273 additional FTEs from last year's appropriations. NTEU 
feels that this budget is woefully inadequate to meet the needs of this 
country's oldest law enforcement agency.
    The workload of the Customs Service employees has dramatically 
increased every year including more commercial entries that must be 
processed, more trucks that must be cleared and more passengers that 
must be inspected at the 301 ports of entry. In 1999, Customs Service 
employees seized 1.5 million pounds of illegal narcotics--200,000 
pounds more than in 1998. Last year, Customs employees processed $1 
trillion worth of trade. This number continues to grow annually, and 
statistics show that over the last decade trade has increased by 132 
percent. Yet in the last ten years, there have not been adequate 
increases in staffing levels for inspectional personnel and import 
specialists--the employees who process the legitimate trade and thwart 
illegal imports.
    In the immediate wake of the December arrest of suspected bomb 
smuggler Ahmed Ressam in Port Angeles, WA, the Customs Service operated 
in a status of heightened alert. More than 700 Customs inspectors were 
transferred to the Northern Border from all over the country. 
Obviously, this action was necessary to secure our border and to ensure 
a safe holiday season for American citizens. But, now that the alert 
status has ended, we are once again vulnerable to suspected bomb 
carriers, drug smugglers and money launderers.
    It is the view of NTEU that the Customs Service needs at least an 
additional 900 Customs Service inspectors and canine enforcement 
officers and an additional 75 import specialists to adequately perform 
its mission. The President's budget calls for an increase of 98 
inspectors and no additional import specialists.
    Funding for the additional inspectors should be earmarked for that 
purpose only. NTEU recommends deploying the new hires to our nation's 
ports of entry along the busy Southwest land border where wait times 
hinder trade facilitation and drug smuggling is at its peak, and in the 
busy area ports on the Northern Border where ports are unmanned, while 
the trafficking of ``B.C. Bud'' marijuana and the threat of 
international terrorism has changed the landscape. In addition to the 
busy land borders, NTEU recommends focusing attention on the bustling 
seaports. The understaffed and overworked inspectors at the U.S. 
seaports currently contend with corruption, theft and safety issues 
that are a direct result of the lack of staffing. As one Southwest 
Border Senator aptly phrased it: ``U.S. seaports are under siege by 
smugglers, drug traffickers and other criminals, yet law enforcement 
agencies that regulate them are understaffed and outgunned.''
    It has become increasingly more difficult to recruit the best and 
the brightest into the ranks of Customs Service employees including 
inspectional personnel and import specialists. Import specialists have 
yet to be recognized for their increased responsibility for determining 
the classification, appraisal value and admissibility of products 
coming into the United States. In response to the recent explosive 
growth in trade, and the enactment of the Customs Modernization Act in 
1994, the responsibilities and necessary technical abilities of 
Customs' import specialists have increased tremendously, yet their 
salary structure and position description have not reflected the GS-12 
graded workload they must perform regularly. Customs conducted an a 
pilot audit of import specialists' work that showed the higher graded 
work that they perform, yet Customs has not provided the resources to 
effect these upgrades. NTEU will continue to pressure legislators and 
the agency to comply with the classification standards and provide GS-
12 journeyman levels for the Customs Service's import specialists.
    President Clinton's budget proposes pay reform and position 
upgrades for Border Patrol agents and INS inspectors. This funding 
request of almost $70 million is aimed at recruiting and retaining 
these employees by upgrading their salaries. I strongly request that 
appropriators consider funding these upgrades for Customs inspectors as 
well. There are many Customs officers who deserve recognition for the 
increased workload, additional time away from their families and 
exposure to physical dangers and emotional stress. Considering that 
these men and women do not receive the benefit of law enforcement 
officer retirement, they deserve to be treated as their fellow officers 
of the INS and upgraded commensurate with their jobs and 
responsibilities.
    Last year, Congress acknowledged the shortage of staffing and 
resources in its appropriations by earmarking $25 million for staffing 
and other resources for the ports on the Southwest Border. Although the 
funds have yet to be used for that purpose, the Agency recently decided 
to spend the money over a two year cycle. We hope that this Congress 
will again earmark funds for additional inspectors and equipment in 
those areas around the country that are experiencing the most severe 
shortages.
    The Customs Service employees assigned to the Customhouse at the 
Los Angeles Seaport (Terminal Island, CA) have endured years of 
environmentally unsafe working conditions, including exposure to 
particulate matter from the nearby petroleum coke facility, asbestos, 
noxious fumes and other air pollutants. The current health and safety 
conditions are absolutely intolerable, and I urge the appropriators to 
ensure that the General Services Administration (GSA) permanently move 
these employees as quickly and efficiently as possible. NTEU has worked 
with Customs and Members of Congress on this permanent solution, but 
immediate interim steps are also needed. Customs Service should be 
provided the resources to move the remaining 242 employees to temporary 
work sites pending the final permanent move.
    NTEU believes that is it also important for Congress to focus its 
attention on the failing computer system currently operated by the 
Customs Service--the Automated Commercial System (ACS). The ACS is a 17 
year old, outdated system that is subject to brown outs and freezes 
that wreak havoc on trade facilitation and employees' ability to do 
their jobs. Although a system upgrade is necessary for Customs to meet 
its modernization efforts, NTEU would oppose funding a new system by 
shifting funds away from the front line employees who currently 
facilitate the volumes of trade growth and enforce our laws at the 
borders.
                          federal employee pay
    In this era of budget surpluses and record economic growth, now is 
the time to once and for all close the pay gap between public and 
private sector salaries. The pay gap between federal and private 
sectors, as measured by the Bureau of Labor Statistics, is 
approximately 30 percent. Although the Federal Employees Pay 
Comparability Act was enacted to close the pay gap for federal 
employees, no federal pay raise since FEPCA's enactment in 1990 has 
provided the full amount called for under its formula.
    President Clinton has requested a 3.7 percent pay increase for 
civilian and military federal employees in fiscal year 2001. NTEU 
believes that this falls far short of what our employees deserve, and 
we hope that this subcommittee will take bolder steps to close the gap 
between public and private sector workers. Federal employees are facing 
rising health care costs, housing costs, child care expenses, and other 
living expenses. Like those who work in the private sector, federal 
employees should have an opportunity to enjoy the fruits of our 
nation's economic prosperity.
                               child care
    NTEU applauds this subcommittee's efforts last year to include in 
the fiscal year 2000 Treasury Appropriations bill a provision that for 
the first time permits federal agencies to subsidize child care 
expenses for lower-graded employees. This is an important family-
friendly measure for federal employees. I would urge you to continue to 
support this program and to carry over this provision in the fiscal 
year 2001 bill.
    I would like to thank the Subcommittee again for the opportunity 
for our Union to present its views on the Treasury Department budget 
for fiscal year 2001. As you continue your subcommittee's 
deliberations, I hope you will give special consideration to the hard 
work and dedicated service the men and women at the Treasury Department 
provide our nation.
                                 ______
                                 

                 Prepared Statement of the Sierra Club

    I am writing to present the comments of the New Columbia Chapter of 
the Sierra Club regarding the consolidation of FDA laboratories and 
administrative offices in Montgomery County as proposed in the General 
Services Administration (GSA) 2001 budget appropriation. The New 
Columbia Chapter of the Sierra Club opposes approval of this proposed 
appropriation on the grounds that it makes bad economic and 
environmental sense for the taxpayers of the Washington Region and 
indeed for the nation as a whole. Furthermore, it is our understanding 
that the GSA has not complied with existing statutes, regulations, or 
executive orders in choosing a location for the consolidated facility. 
The GSA continues to present misinformed or misleading information in 
this regard to the congressional committees in which this project has 
been considered.
                               bad policy
    The Washington Region has the second worse traffic congestion in 
the nation. In order to alleviate this problem and replace aging 
infrastructure, the Congress has been asked to appropriate almost 
unprecedented sums for highway construction and improvements in the 
region. At the same time, the federal government is being asked to 
contribute greatly to the revitalization of the nation's capital. 
Therefore, does it make any sense for the federal government to place 
over 6000 jobs beyond the already overburdened Beltway and over three 
miles away from the nearest Metrorail station? Such a move would not 
only destabilize the District's job base further, removing over 800 
current jobs, but also increases the pressure on interstate and 
suburban roads, increasing congestion and air pollution. There will 
also be considerable environmental impact on the site itself, 32 acres 
of the proposed site are forestland, and there are two streams and 8 
tributaries on the property. The proposed project will also do nothing 
to maximize the benefits from our nation's investment in Metro, nor 
will it help the region come into clean air compliance.
    Thus, the nation's taxpayers are being asked to not only subsidize 
the growth of Montgomery County, one of the nation's richest suburbs, 
but they are then being asked to pay for the roads and other costs that 
this sort of growth necessitates such as the proposed Wilson Bridge and 
Beltway expansion. Federal sprawl truly does cost us all. This project 
alone will cost us more than $500,000,000 in development costs alone.
    But what is galling about the proposed FDA consolidation in White 
Oak, MD is that there is currently no approved prospectus for the 
project and the GSA did not properly review alternative sites and 
localities as required by the National Environmental Protection Act of 
1969, as amended and the Public Buildings Act of 1959, as amended.
                             no prospectus
    Despite GSA's claims to the contrary, the FDA Revitalization Act of 
November 28, 1990 does not authorize GSA to appropriate funds for the 
FDA consolidation. In adding Section 710 to Chapter 7 of the Federal 
Food, Drug and Cosmetics Act, this act clearly states (paragraph a) the 
``Secretary, in consultation with the Administrator of the General 
Services Administration, shall enter into contracts for the design, 
construction and operation of a consolidated Food and Drug 
administration administrative and laboratory facility'' (italics 
added). In other words the FDA revitalization act authorizes the 
Secretary of Health and Human Services to appropriate the necessary 
funds, not the Administrator of GSA.
    The Administrator of GSA is bound by the Public Buildings Act of 
1959, as amended. Section 7 of this act requires the GSA to transmit a 
prospectus to Congress for all proposed public buildings whose costs 
exceed $1,500,000. Section 7 also provides that no appropriation shall 
be made until the Committee on Public Works and the Environment of the 
Senate and the Committee on Transportation and Infrastructure of the 
House of Representatives have approved the buildings prospectus. 
Indeed, the proposed language in last year's budget expressly made the 
appropriation conditional on the approval of a prospectus. GSA has 
never transmitted such a prospectus for this project to Congress.
    gsa was not directed to locate the fda in montgomery county, md
    The GSA has repeatedly claimed that it was directed by Congress to 
consolidate the FDA in Montgomery County. This appears to be patently 
false. First, the reference to Montgomery County that does appear is 
non-binding and appears in the Conference Report for the 1992 
appropriation for FDA consolidation. Second, the appropriation itself 
was rescinded in 1995.
               alternative sites were improperly excluded
    Since, GSA was not directed to locate the FDA in Montgomery County, 
MD their failure to consider sites throughout the National Capital 
Region is in violation of the National Environmental Policy Act of 1969 
(NEPA), as amended. In fact, EPA Region III sent a letter to GSA in 
1999 informing the Administration that it had failed to adequately 
compare alternative public and private lands in the region. According 
to a report to the District of Columbia Council that accompanied 
District of Columbia City Council Resolution 12-834, the ``Location of 
Federal Facilities in the District of Columbia Sense of the Council 
Resolution of 1998,'' city officials were never consulted about the 
project or asked to suggest suitable sites within the District in 
further violation of the act.
             inequitable distribution of federal facilities
    The Public Buildings Act of 1959, as amended, also states in 
Section 12 that the GSA Administrator ``shall provide for the equitable 
distribution of public buildings throughout the United States with due 
regard for the comparative urgency of need for each particular 
building.'' Clearly, the District's need outweighs that of Montgomery 
County, MD Maryland. From 1969 to 1997, the Districts share of federal 
employment fell from 83 percent to 55 percent. The National Capital 
Planning Commission estimates that between 1993 and 1997, the District 
of Columbia lost 27,000 federal jobs. Over 70 percent of the jobs lost 
in the District economy in this decade were federal jobs. At the same 
time over 60 percent of the District's land is Federal land, untaxed 
and largely undevelopable without federal participation. Furthermore in 
not considering sites in the District, the GSA further went against the 
policies set forth in Executive Orders 12072 and 13006, which direct 
federal facilities to serve and to strengthen our nation's cities.
                               conclusion
    To recapitulate, the GSA has failed to follow proper procedure in 
appropriating funds for consolidating the FDA in White Oak, MD. It has 
failed to provide a prospectus and no prospectus for the project has 
been approved. It has misrepresented or deliberately misled Congress 
and the public about its being directed to locate the consolidated FDA 
in Montgomery County, MD. No such direction exists. The GSA has failed 
to comply NEPA, by restricting its search to Montgomery County and not 
considering sites throughout the National Capital Region. Finally, the 
Administrator of the GSA has failed in our estimation to ensure the 
equitable distribution of federal facilities in the region and has not 
considered need contradicting both its own mission and various 
executive orders. Even today the GSA resists meeting the necessary 
requirements and has not officially consulted with District officials 
on the project. The extreme costs for the region and the United States 
taxpayer, necessitate that this project proceed in a manner that is 
correct and equitable. This is not the case today and the proposed 
appropriation for this project should not go forward.


       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page
Baity, William F., Deputy Director, Financial Crimes Enforcement 
  Network, Department of the Treasury............................   155
Basham, W. Ralph, Director, Federal Law Enforcement Training 
  Center, Department of the Treasury.............................   148
    Prepared statement...........................................   149
Berne, Bernard H., prepared statement............................   295
Buckles, Bradley A., Director, Bureau of Alcohol, Tobacco and 
  Firearms, Department of the Treasury...........................   115
    Prepared statement...........................................   116

Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado, 
  questions submitted by.....26, 167, 171, 180, 188, 194, 196, 221, 261
Collins, Hon. Susan M., U.S. Senator from Maine, questions 
  submitted by...................................................   178

Dorgan, Hon. Byron L., U.S. Senator from North Dakota:
    Prepared statements.................................3, 87, 208, 249
    Questions submitted by........74, 170, 174, 186, 192, 197, 221, 266

Erdreich, Ben L., Chairman, Merit Systems Protection Board, 
  prepared statement.............................................   285

Johnson, James E., Under Secretary of Treasury (Enforcement), 
  Department of the Treasury.....................................    85
    Prepared statement...........................................    90

Kelly, Raymond W., Commissioner, U.S. Customs Service, Department 
  of the Treasury................................................   100
    Prepared statement...........................................   102
Kyl, Hon. Jon, U.S. Senator from Arizona, questions submitted by.   265

LaChance, Hon. Janice R., Director, Office of Personnel 
  Management, prepared statement.................................   289

McCaffrey, Barry R., Director, Office of National Drug Control 
  Policy, Executive Office of the President......................   231
    Prepared statement...........................................   238

National Treasury Employees Union, prepared statement............   297

Ross, Lisa G., Acting Assistant Secretary for Management and 
  Chief Financial Officer, Office of the Secretary, Department of 
  the Treasury...................................................   199
Rossotti, Charles O., Commissioner, Internal Revenue Service, 
  Department of the Treasury.....................................     1
    Prepared statement...........................................     6

Sierra Club, prepared statement..................................   300
Sloan, James F., Director, Financial Crimes Enforcement Network, 
  Department of the Treasury, prepared statement.................   157
Stafford, Brian L., Director, U.S. Secret Service, Department of 
  the Treas- 
  ury............................................................   126
    Prepared statement...........................................   127
Stevens, Hon. Ted, U.S. Senator from Alaska, statement of........    15

Summers, Hon. Lawrence H., Secretary, Office of the Secretary, 
  Department of the Treasury.....................................   199
    Prepared statement...........................................   202


                             SUBJECT INDEX

                              ----------                              

                       DEPARTMENT OF THE TREASURY

                                                                   Page
Arson............................................................    99
Ballistics imaging...............................................   167
Counter-narcotics................................................    95
Counter-terrorism and protection.................................    99
Customs:
    Resource allocation..........................................   171
    Staffing.....................................................   171
Departmental oversight...........................................    90
Export enforcement...............................................    98
Firearms.........................................................   167
    Violence.....................................................    93
GS-11 journeyman levels (Customs, INS parity)....................   171
Law enforcement hiring and attrition.............................   170
Money laundering:
    And financial crimes.........................................    92
    Strategy.....................................................   170
NIBIN Field Restructuring........................................   167
Questions submitted to...........................................   167
Trade enforcement and facilitation...............................    96
U.S. Customs Service, Office of Investigations/Air and Marine 
  Interdiction Division President's Decision Directive 62........   168

                Bureau of Alcohol, Tobacco and Firearms

Alcoholic beverage labeling......................................   186
Arson and explosives enforcement.................................   121
Budget request, justification of.................................   115
Comprehensive crime gun tracing..................................   184
Customer service standards.......................................   180
Explosives.......................................................   183
Federal firearms licensees.......................................   185
Field operations.................................................   183
Firearms enforcement.............................................   119
Fiscal year:
    1999 ATF accomplishments.....................................   119
    2001 budget request..........................................   117
Import permit....................................................   181
Licensing center.................................................   182
National instant criminal background checks (NICS)...............   187
Questions Submitted to...........................................   180
Revenue collection...............................................   123
School bomb detection/threat awareness training................185, 186
Tobacco compliance...............................................   184
Youth crime gun interdiction initiative (TCGII)................183, 187

                Federal Law Enforcement Training Center

Basic training workload increase, mandatory......................   154
Facilities master plan/construction..............................   152
Operations, overview of..........................................   150
Questions submitted to...........................................   194
Renovations......................................................   154
Training building support, new...................................   154
Workload.........................................................   151

                  Financial Crimes Enforcement Network

Casino gaming....................................................   166
Charleston site closure..........................................   164
Core programs, maintaining.......................................   155
Export training programs.........................................   163
FLETC's interactive video training...............................   163
Information, effective collection of.............................   159
Money:
    Laundering...................................................   162
        Scope of.................................................   197
    Services businesses (MSBS).................................156, 196
Projections, impact of failure to meet...........................   165
Questions submitted to...........................................   196
Regularity.......................................................   164
Restructuring FinCEN.............................................   162
Stabilize existing programs......................................   155
Suspicious activity reporting (SAR) funds........................   198
The National Money Laundering Strategy.........................161, 197
Training site scheduling.........................................   165
U.S. border patrol training projections..........................   164
``Value added'' information, efficient delivery of...............   157

                        Internal Revenue Service

Assisting taxpayers..............................................    18
Balanced performance measures....................................    10
Electronic tax administration....................................    79
Fiscal year:
    1999 financial statement audit by GAO, results of the........    77
    2001 budget request..........................................    10
Information technology investment account (ITIA).................    82
IRS:
    Computer Systems.............................................     6
    Performance..................................................    18
    Workload, trends in..........................................     5
Maintaining current operations...................................    11
Modernization....................................................    12
Money laundering strategy........................................    78
New information technology.......................................     9
New organization and management..................................     9
One-stop tax shop................................................    82
Paperless tax filing.............................................20, 21
Questions submitted to...........................................    26
Restructuring and Reform Act, implementation of the..............    17
Revised business practices and strategies........................     8
RRA 98's mandates, how to deliver most efficiently and 
  economically on................................................     7
Strategic direction: ``standing up'' the new IRS.................     8
Tax:
    Exempt organizations.........................................    83
    Return information on the internet...........................    23
    Shelter regulations..........................................    77
    Shelters.....................................................    21
Taxmobile........................................................    81
Taxpayer rights..................................................    19
Technology investments.......................................23, 24, 25
Telephone assistance.............................................    19
Training.........................................................    80

                        Office of the Secretary

Air security initiative/national special security events (NSSEs213, 226
Bureau of Engraving and Printing/added authority.................   228
Community adjustment and investment program......................   207
Counterterrorism.................................................   211
Customs Service funding request..................................   217
Customs study....................................................   218
Dakota Certified Development Corporation.........................   223
Dollar coin......................................................   220
Fight drugs, violence, and other crimes, strengthening our 
  ability to.....................................................   204
Financial management, enhancing..................................   206
GREAT program....................................................   217
IRS, continuing to modernize the.................................   203
Management operations, maintaining...............................   206
National money laundering strategy.............................211, 212
Public key infrastructure........................................   210
Questions submitted to...........................................   221
Secret Service hiring............................................   216
Tax shelters...................................................213, 214
    Regulations..................................................   227
Taxpayers' advocate office.......................................   218
Trade systems, modernizing our...................................   205
Transfer pricing, return-free filing, and overtime...............   214
Treasury agency financial audits.................................   227
Wireless communications..........................................   210

                          U.S. Customs Service

Air security initiative..........................................   176
Automated commercial environment (ACE)...........................   102
Columbian supplemental...........................................   175
Core mission activities..........................................   104
Fiscal year 2001 budget request..................................   112
Human resources management, improved.............................   103
Northern border resources........................................   174
Questions submitted to...........................................   171
Recent accomplishments...........................................   110
Forced child labor, regional offices for.........................   177
Training and development.........................................   103
User fees........................................................   114

                          U.S. Secret Service

Acquisition, construction, improvements, and related expenses 
  (ACIRE)........................................................   128
FTEs vs overtime, additional.....................................   142
Air security initiative..........................................   194
Biological detector technology report............................   191
Cuba, cooperation with...........................................   140
Customs' infrastructure study....................................   146
Cyber-crime......................................................   191
Exceptional case study...........................................   192
Existing gun laws, enforcement of................................   139
Fiscal year 2001:
    Appropriation request........................................   127
    Budget.......................................................   136
Gang resistance education and training program...................   137
Hiring enforcement personnel.....................................   140
Information technology...........................................   133
Investigative program..........................................126, 130
Kyl amendment, allocation of funds association with the..........   144
Max out..........................................................   189
National Center for Missing and Exploited Children...............   190
National special security events (NSSES).......................189, 193
National Threat Assessment Center..............................127, 135
Northern border security.........................................   138
Overtime.........................................................   141
Personnel retention..............................................   141
Protective program.............................................126, 129
Questions submitted to...........................................   188
Resource allocation model........................................   145
Results Act......................................................   129
Salaries and expenses (S&E)......................................   128
Secret Service headquarters consolidation........................   135
Southwest border, allocation of funds and personnel for..........   143
Special event security...........................................   136
Training.........................................................   134
Treasury law enforcement overtime................................   141
2002 Salt Lake City Winter Olympics..............................   190
Uniformed division pay...........................................   191
Workforce:
    Recruitment..................................................   134
    Retention and workload balance........................126, 138, 188
        Study....................................................   188

                   EXECUTIVE OFFICE OF THE PRESIDENT

                 Office of National Drug Control Policy

Audience recognition.............................................   249
Chronic drug use rates/treatment.................................   254
Counter-drug technology assessment center......................236, 273
CTAC technology transfer.........................................   261
Doping in sport................................................237, 250
Drug courts......................................................   253
Drug trafficking areas (HIDTAs), high intensity................235, 269
Drug treatment and the criminal justice system...................   257
Drug-free communities............................................   236
    Program......................................................   274
Federal prison drug addiction treatment programs.................   266
Fiscal year 2001 Federal drug control budget, the supporting.....   240
General counter drug intelligence plan...........................   237
HIDTA:
    And CTAC.....................................................   252
    Evaluation of................................................   264
    MISTIC.......................................................   265
METH lab cleanups................................................   265
National criminal justice treatment demonstration................   236
National drug control strategy, overview of the..................   238
National youth anti-drug media campaign........................234, 254
ONDCP:
    Coordinating role............................................   244
    Drug budget..................................................   265
    Fiscal year 2001 budget request..............................   244
    2000 annual report, highlights of............................   239
Salon:
    Continuing pattern of factual errors.........................   260
    Has an obligation to correct the record about openness.......   259
Staffing.........................................................   262
Youth Anti-Drug Media Campaign:
    Effectiveness of Network Programming in Achieving Campaign 
      Goals--Performance/Evaluation..............................   276
    Nuts and Bolts of the Programming ``Match''..................   281
Youth drug use rates.............................................   250

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