[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
  THE DEBT COLLECTION IMPROVEMENT ACT OF 1996: HOW WELL IS IT WORKING?
=======================================================================

                                HEARING

                               before the

                 SUBCOMMITTEE ON GOVERNMENT EFFICIENCY,
                        FINANCIAL MANAGEMENT AND
                      INTERGOVERNMENTAL RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 5, 2001

                               __________

                           Serial No. 107-102

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform





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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

    Subcommittee on Government Efficiency, Financial Management and 
                      Intergovernmental Relations

                   STEPHEN HORN, California, Chairman
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
DAN MILLER, Florida                  MAJOR R. OWENS, New York
DOUG OSE, California                 PAUL E. KANJORSKI, Pennsylvania
ADAM H. PUTNAM, Florida              CAROLYN B. MALONEY, New York

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
          J. Russell George, Staff Director and Chief Counsel
                       Henry Wray, Senior Counsel
                          Mark Johnson, Clerk
           David McMillen, Minority Professional Staff Member






                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on December 5, 2001.................................     1
Statement of:
    Engel, Gary T., Director, Financial Management and Assurance, 
      U.S. General Accounting Office.............................    12
    Gregg, Richard L., Commissioner, Financial Management 
      Service, Department of the Treasury........................    29
    Moseley, James R., Deputy Secretary, Department of 
      Agriculture................................................     4
Letters, statements, etc., submitted for the record by:
    Engel, Gary T., Director, Financial Management and Assurance, 
      U.S. General Accounting Office, prepared statement of......    14
    Gregg, Richard L., Commissioner, Financial Management 
      Service, Department of the Treasury, prepared statement of.    31
    Horn, Hon. Stephen, a Representative in Congress from the 
      State of California, prepared statement of.................     3
    Moseley, James R., Deputy Secretary, Department of 
      Agriculture:
        Memo dated November 2, 2001..............................    41
        Prepared statement of....................................     8
    Schakowsky, Hon. Janice D., a Representative in Congress from 
      the State of Illinois, prepared statement of...............    36


  THE DEBT COLLECTION IMPROVEMENT ACT OF 1996: HOW WELL IS IT WORKING?

                              ----------                              


                      WEDNESDAY, DECEMBER 5, 2001

                  House of Representatives,
  Subcommittee on Government Efficiency, Financial 
        Management and Intergovernmental Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2247, Rayburn House Office Building, Hon. Stephen Horn 
(chairman of the subcommittee) presiding.
    Present: Representatives Horn, Ose, and Schakowsky.
    Staff present: Henry Wray, senior counsel; Bonnie Heald, 
deputy staff director and director of communications; Mark 
Johnson, clerk; Jim Holmes, intern; David McMillen, minority 
professional staff member; Jean Gosa, minority clerk; and Ellen 
Rayner, minority chief clerk.
    Mr. Horn. A quorum being present, the Subcommittee on 
Government Efficiency, Financial Management and 
Intergovernmental Relations will come to order.
    Today's hearing is a continuation of this subcommittee's 
October 10th hearing concerning implementation of the Debt 
Collection Improvement Act of 1996. On October 10th, the Deputy 
Secretaries of the Departments of Education, Health and Human 
Services and Veterans Affairs reported on their agencies' 
efforts to comply with the law and to collect more of the 
delinquent debts owed to American taxpayers. Deputy Secretary 
of Agriculture, James Moseley, was scheduled to testify at that 
hearing but was unable to attend. The primary purpose of 
today's hearing is to receive Mr. Moseley's testimony on the 
Agriculture Department's debt collection performance. The 
Agriculture Department's compliance with this law is especially 
important as it is the Federal Government's largest direct 
lending agency. The Department holds over one-third of all 
Federal non-tax debt.
    The subcommittee will also hear today from the General 
Accounting Office which has audited debt collection efforts at 
several of the Department's components and from the Treasury 
Department Financial Management Service which has government-
wide responsibilities under the Debt Collection Improvement 
Act. GAO's findings, as well as our subcommittee's oversight 
work, demonstrate that the Agriculture Department has been 
severely deficient in implementing the Debt Collection 
Improvement Act's key requirements and in taking advantage of 
the act's other tools.
    This subcommittee recently wrote to Deputy Secretary 
Moseley posing a series of questions about the Department's 
debt collection practices. In his response, Mr. Moseley assured 
us that the Department is moving forward with a number of 
actions to improve its compliance with the law. Today, we will 
examine the status of these efforts and we will also explore 
what barriers to improvement may exist at the Department and 
how they can be overcome.
    [The prepared statement of Hon. Stephen Horn follows:]
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    Mr. Horn. I welcome Mr. Moseley and the other witnesses 
today. I look forward to their testimony. Since this is an 
investigative committee, we will ask all the members at the 
table, including assistants, to rise and raise your right hands 
and take the oath.
    [Witnesses sworn.]
    Mr. Horn. We will start with the testimony of Mr. Moseley, 
Deputy Secretary, Department of Agriculture. The way it works, 
we have your written statement and we don't need you to read it 
but do summarize and give us whatever you like, whether it is 
in the testimony or not. It will be put into the record at this 
time. Why, then, don't we proceed.

STATEMENT OF JAMES R. MOSELEY, DEPUTY SECRETARY, DEPARTMENT OF 
                          AGRICULTURE

    Mr. Moseley. Thank you, Mr. Chairman.
    I want to thank you for the opportunity to discuss the 
progress the Department of Agriculture has made in implementing 
the Debt Collection Improvement Act of 1996. I want to 
apologize, Mr. Chairman, for not being able to attend the first 
hearing. As you know, we had a reason of homeland security that 
took priority immediately preceding that hearing and I was 
unable to attend. I do sincerely appreciate your indulgence.
    With me today are Chris Burgess and Caroline Cooksey and 
they will be helping as we answer some of the questions I know 
you are going to have.
    First, I want to give a brief summary of the current status 
of our Debt Collection Program and then I would like to focus 
on some positives I have uncovered in my research on this 
issue, and finally, some areas I see as deficiencies in our 
progress to meet the intent of the act.
    Every day the Department of Agriculture's programs serve 
those needing assistance using a diverse array of programs. 
Many of these programs include credit initiatives that finance 
water and waste management systems, housing, electric, 
telephone utilities, rural businesses, farm ownership and 
operation loans and emergency disaster assistance and relief. 
These are all programs that Congress has agreed are important 
for specific sectors of our economy.
    This extensive list of lending programs, however, makes the 
Department of Agriculture the Federal Government's single 
largest provider of direct credit. Our $103 billion in 
receivables as of September 10, 2001 represents, as you 
indicated, 36 percent of the non-taxed debt owed to the Federal 
Government. Clearly that is a large loan portfolio.
    The Department of Agriculture, in the past, has used many 
available tools to collect delinquent debt and we have had some 
success. The Department has reduced our delinquent receivables 
by about 29 percent to a current $6.2 billion from $8.7 billion 
in 1996. The good news is that this amount equates to a 
delinquency rate of about 6 percent compared to the government-
wide average of about 19 percent. It is really not too bad by 
business standards but any unpaid loan is a problem for both 
the creditor and the debtor.
    However, of the $6.2 billion, only 25 percent or $1.6 
billion, is eligible for collection through Debt Collection 
Improvement Act tools. The remainder, about $4.6 billion, I am 
told, is precluded from these tools due to statutory or 
administrative requirements such as bankruptcy, litigation or 
debt owed by foreign or sovereign entities. In fact, of the 
$4.6 billion, 74 percent or $3.4 billion is foreign debt which 
requires other methods of collection beyond the Department's 
current capabilities. That leaves us with the relatively small 
amount of our total debt that we can collect via the Debt 
Collection Act. However, $1.6 billion isn't a small amount of 
money and those that borrowed that money need, unless true 
hardship strikes them, to meet their obligation to pay it back.
    As a farmer, I watched with great interest and some reserve 
during the early 1990's when efforts were underway to collect 
some of the money loaned to farmers during the deep 1980's 
agricultural recession. I was somewhat dismayed when some 
individuals, a decade later, were not expected to pay it back 
despite the Federal Government's best efforts to collect. We 
paid our Farmers Home Administration loan in 1975 from when we 
started farming in 1970, not because we were well off and could 
but because it was a contract that we had agreed to. Later in 
1993, I bought the farm next door at a sheriff's auction 
primarily because the debtor farmer made no effort for 7 years 
to make a single payment and the Government finally cleared all 
the legal hurdles to liquidate and to collect. So I am 
understanding of the obligation of the debtor to pay and I 
respect the right of the creditor to collect. I also continue 
to be perplexed over the inability of government to sometimes 
collect debts. As a taxpayer, I expect performance on the 
obligation made at the time an individual signs a note pledging 
their commitment to pay.
    During fiscal 2001, the Department of Agriculture agencies 
collected $583 million using internal collection tools. This 
was primarily liquidation of remaining assets used to secure 
the loan. Another $287 million was collected using Treasury 
administrative offset programs and other debt collection 
improvement tools. I have been told annual Department of 
Agriculture collections of delinquent debt using Debt 
Collection Improvement Act tools have more than quadrupled 
since 1996.
    As you well know, the Treasury Offset Program is a 
centralized debt collection program offered through Treasury to 
offset delinquent debts against Federal payments to borrowers. 
The staff at USDA has told me that the Treasury Offset Program 
has become an excellent collection tool for the Department of 
Agriculture. Our referrals to that program for fiscal year 2001 
were 97 percent.
    In addition, the Department of Agriculture's National 
Finance Center worked with Treasury in the development of the 
government-wide, centralized salary offset process for 
collecting delinquent employee debt for Federal agencies. The 
National Finance Center is serving as the first payroll office 
in the Federal Government to interface with the Treasury Salary 
Offset Agency process applications. The first matching process 
was completed in September and resulted in an October 2001 
completion of the first salary offset.
    This brings us to the cross-servicing mechanism which is 
the primary process whereby Federal agencies refer delinquent 
debts to Treasury for a series of appropriate collection 
actions after all other collection tools have been exhausted. 
The Department of Agriculture began referring debts to the 
Treasury Cross Servicing Program in July 1999. We continue to 
implement this program and I personally pledge to make 
substantial progress and improvements to the program as various 
Department of Agriculture agency issues are resolved over the 
next year.
    Now, for some of the problems that I think still remain. 
Treasury determined that consumer food stamp debts collected by 
State agencies were exempt from mandatory cross-servicing based 
on Treasury's cross-servicing regulations. However, we do send 
all eligible retailer debts to cross-servicing. The Farm 
Service Agency refers the vast majority of eligible debts on an 
annual basis which corresponds with the loan cycle on farm 
operating loans, their current system capability and the 
Internal Revenue Service tax refund cycle. The Farm Service 
Agency has committed to me to improve its systems in order to 
move aggressively toward automatic quarterly referrals. I have 
also had discussions with them about once a loan is in default 
and all statutory grace periods expire, they will accelerate 
their referrals to a monthly cycle. That seems possible as we 
improve our information technology systems to better track 
these loans.
    The main issue is to get these nonperforming loans to 
Treasury as soon as possible. Also problematic, due to statute 
of limitation issues that had to be resolved between Treasury 
and the Farm Service Agency, were experiencing a backlog of 
cross-servicing referrals that occurred in fiscal year 2001. 
These issues have been resolved and the eligible backlog is 
scheduled for referral in the next two quarters. I will follow-
up with them to monitor this progress and will report that to 
you, Mr. Chairman and the committee.
    Unfortunately, another significant portion of debt that has 
not been referred to cross-servicing belongs to Rural 
Development. Rural Development's current referral rate is low, 
about 7 percent at the end of 2001 because the agency did not 
refer debt while a final determination was being made by 
Treasury on Rural Development's request for an exemption from 
mandatory cross-servicing so that Rural Development could 
perform in-house servicing. In May 2001, the request was 
denied. Subsequently, Rural Development developed a debt 
referral schedule which they now operate under.
    The history and the nature of this issue isn't what 
concerns me now. It is the past. The issue is what we do about 
it now and what performance we can now expect. My discussions 
with the agency are that they intend to have this fully 
functional in 2002. By the end of fiscal year 2002, close to 60 
percent of eligible debt should be referred to Treasury cross-
servicing. The referral timeline is based on Rural Development 
performing a detailed account review to ensure that all 
requirements for transferring accounts to Treasury are met, 
including the assurance that the debts are legally enforceable 
and not under workable servicing agreements.
    In summary, this statement reflects the progress the 
Department of Agriculture has made in collecting delinquencies. 
It also represents some difficulties and represents our pledge 
to you, Mr. Chairman, and to the subcommittee, that this issue 
commands the highest priority and attention of the Department 
of Agriculture. I can only pledge to you the commitment of 
myself as CEO and Ted McPherson who is our new CFO, to keep the 
issue of debt collection concern before the right people within 
the Department to assure that we do it well and we do it right.
    I just came from the other side as a private citizen and 
expect performance on any obligations to the Federal 
Government. The hearing you have called has certainly focused 
Mr. McPherson and myself to learn about the responsibilities 
that we now have and to learn about the perhaps too 
longstanding challenges we have acquired at USDA with this 
issue. We both pledge to commit to get it right.
    Thank you for the little bit of extra time you allowed me 
in presenting my statement. But it was an expression of 
commitment and also, again, your forbearance in rescheduling 
this hearing.
    Thank you.
    [The prepared statement of Mr. Moseley follows:]
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    Mr. Horn. I appreciate that. I grew up on a farm and we 
almost lost it in the 1930's and my mother, who made all the 
accounts, said never again will I ever have a mortgage; it will 
all be in cash. When I see on television a sheriff coming out 
to a South Dakota farm or something, tears come to my eyes. I 
am sure they came to yours with your neighbor. That is very 
tough but we have to be doing it right.
    We will now move to the Director of Financial Management 
and Assurance of the U.S. General Accounting Office, Gary T. 
Engel. We would appreciate your testimony. Then we will hear 
Mr. Gregg and go to questions.

STATEMENT OF GARY T. ENGEL, DIRECTOR, FINANCIAL MANAGEMENT AND 
           ASSURANCE, U.S. GENERAL ACCOUNTING OFFICE

    Mr. Engel. Thank you, Mr. Chairman and Congresswoman 
Schakowsky.
    Accompanying me today is Ken Rupar, the Assistant Director 
performing our debt collection work for us.
    I am pleased to be here today to discuss debt collection 
initiatives at two major components of the Department of 
Agriculture, the Rural Housing Service and the Farm Service 
Agency. While my testimony today is limited primarily to our 
work at these two entities, our audit results are based on a 
larger body of work on which I testified before the 
subcommittee in October. That work assessed the progress of 
selected agencies' implementation of key aspects of the Debt 
Collection Improvement Act of 1996, which was developed under 
the leadership of this subcommittee. It is essential that 
agencies be accountable for putting effective practices in 
place to maximize the collections of billions of dollars of 
non-tax delinquent debt owed the Federal Government.
    The DCIA provides agencies with important tools to achieve 
this objective. We have previously testified before this 
subcommittee on the Government's slow pace toward fully and 
effectively using these practices the act allows. Since its 
passage 5 years ago, our message has been clear and consistent. 
If DCIA's benefits are to be more fully realized, improvements 
are necessary in agency implementation efforts.
    While there has been important progress such as FMS 
implementation of its offset program, especially in the tax 
refund area, unfortunately our work over the past several 
months at selected agencies, including Agriculture, has not 
allayed our concerns about the lack of priority agencies have 
placed on implementing DCIA. Besides payment offsets, the DCIA 
makes available other means to collect delinquencies as well. 
These collection techniques include, for instance, FMS's 
centralized debt collection effort known as cross-servicing but 
for these efforts to be successful, agencies must fully and 
promptly identify and refer all delinquent debt. While DCIA 
requires such referrals, this is not always the case as 
significant amounts of eligible delinquent debts are still not 
being referred.
    As I will highlight today, the Rural Housing Service and 
the Farm Service Agency have not yet taken effective actions to 
ensure all eligible delinquent debt is promptly referred to FMS 
for collection action. For example, Rural Housing Service may 
have understated by about $348 million the amount of direct 
single family housing loans reported as eligible for referral 
to Treasury's Offset Program as of September 30, 2000. Also as 
of that date, this agency had not referred any direct single 
family housing loans for cross-servicing primarily because its 
system which was implemented after the DCIA was enacted does 
not contain significant data to differentiate between such 
loans that are eligible for cross-servicing and those that are 
not. The Farm Service Agency did not have a process or 
sufficient controls to adequately identify and report direct 
farm loans eligible for referral to FMS as of September 30, 
2000. In addition, as of that date, only $38 million of such 
loans were referred to FMS for cross-servicing. This is because 
this agency suspended its referrals in April 2000 pending the 
development and implementation of a new policy covering such 
loans. According to Agriculture, the first referral to FMS 
under this new policy was made in September 2001. Further, the 
Farm Service Agency has lost and continues to lose 
opportunities for maximizing collections because it does not 
refer co-debtors on direct farm loans to FMS for offset. 
Moreover, the Rural Housing Servicing and the Farm Service 
Agency both have missed opportunities to potentially collect 
millions of dollars related to losses on guaranteed loans 
because neither agency treated such losses as non-taxed Federal 
debts.
    To facilitate debt collection, DCIA also authorizes 
agencies to administratively garnish up to 15 percent of a 
delinquent, non-tax debtor's disposable pay until the debt is 
fully recovered. However, Agriculture and most other agencies 
still have not utilized this authority to collect delinquent 
debt. This is disappointing in light of the fact that experts 
have testified before this subcommittee that wage garnishment 
can be an extremely powerful debt collection tool as the mere 
threat of garnishing wages is often enough to motivate better 
repayment.
    Agriculture stated that it plans to implement 
administrative wage garnishment in fiscal year 2002 but as of 
the completion of our field work, it had not yet established a 
written implementation plan. Such a plan will be important to 
the effective implementation of this debt collection tool. 
Challenges lie ahead for Agriculture to successfully implement 
certain provisions of DCIA. As a result, until these provisions 
are fully implemented, Agriculture will continue to miss 
opportunities to collect millions of dollars of delinquent 
Federal non-taxed debt. We have noted that these agencies 
recognize the challenges they face and have several efforts 
underway to address them. To assist them in addressing these 
challenges, we plan to recommend corrective measures that can 
be taken by Agriculture.
    Mr. Chairman, this concludes my statement. We would be 
pleased to respond to any questions.
    [The prepared statement of Mr. Engel follows:]
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    Mr. Horn. Thank you very much for a very thorough analysis.
    Now we go to Commissioner Richard L. Gregg, Financial 
Management Service, Department of the Treasury. Mr. Gregg.

    STATEMENT OF RICHARD L. GREGG, COMMISSIONER, FINANCIAL 
         MANAGEMENT SERVICE, DEPARTMENT OF THE TREASURY

    Mr. Gregg. Thank you, Mr. Chairman, Congresswoman 
Schakowsky.
    I am pleased to join Agriculture Secretary Moseley and Mr. 
Engel from the General Accounting Office in a continued 
discussion of the implementation of the Debt Collection 
Improvement Act of 1996. In my October 10th statement before 
the subcommittee, I reported on fiscal year 2001 collections, 
described the significant new elements of FMS's Debt Collection 
Program and provided a status report on those that are near 
completion. This morning I will share the most recent data on 
collections and discuss the Department of Agriculture's 
participation in debt collection.
    As I stated at the October 10th hearing, $12 million in 
delinquent debt owed to the Federal Government has been 
collected since the enactment of DCIA, with a record amount of 
$3.2 billion collected in fiscal year 2001. I attribute this 
success to a strong and effective payment offset and cross-
servicing operation and expansion of the capabilities of 
collection systems, improved management by the agencies that 
have debt portfolios and a steady increase in the amount of 
delinquent debt referred to Treasury for collection by 
agencies. For purposes of this hearing, I will provide 
collection statistics for the first 2 months of fiscal year 
2002 that highlight continued growth in the offset and levy 
programs.
    During this time period during November, $16.2 million has 
been collected to the offset of Federal payments other than tax 
refunds. This compares to $25.3 million in collections for all 
of fiscal 2001. The full implementation of the Social Security 
Benefit Payment Offset Program in October accounts for the 
significant increase in offset collections. Also, in the first 
2 months of fiscal year 2002, $2.8 million has been collected 
in delinquent Federal tax debts through the continuous Tax Levy 
Program. For the same reporting period in fiscal year 2001, $1 
million was collected. I believe these statistics are a strong 
indication that the levy program will be even more successful 
in February at which time the Internal Revenue Service will 
begin levying Social Security benefit payments.
    Mr. Chairman, before proceeding with the remainder of my 
statement, I would like to give a brief update on Treasury's 
use of private collection agencies for debt collection. 
Treasury successfully implemented a new contract that went into 
effect October 1st. Since that time, nearly 45,000 debts for an 
associated dollar amount of nearly $831 million have been 
distributed to five agencies under contract.
    As you know, critical to the success of the Debt Collection 
Program is the referral of delinquent debt by agencies to 
Treasury for collection. Moreover, referring the debts in a 
timely manner is equally important and can make the difference 
between collecting and not collecting. With respect to 
referrals of debts to the Treasury Offset Program, USDA has 
generally complied with the DCA requirements that debts more 
than 180 days delinquent be referred for collection. 
Specifically, I would like to single out and commend USDA's 
Food and Nutrition Service with which Treasury has had a 
longstanding and close working relationship. The agency is 
exemplary in its referral of Food Assistance Program debts owed 
to the agency and serves as a model for other program agencies.
    On another front, as mentioned earlier, USDA is the first 
major payroll payment processing organization, of which there 
are five, to participate in the centralized Federal Salary 
Offset Program. As I stated at the October hearing, this debt 
collection program is a fully automated system designed to 
centralize the offset of Federal salary payments to collect 
non-tax debts and delinquent child support debts. Ultimately, 
the system will be used to levy Federal salary payments to 
collect tax debts. USDA's National Finance Center participated 
in the pilot program, was closely involved in the system 
planning and development and has established itself as a leader 
in program implementation.
    In contrast, USDA's participation in Treasury's Cross-
Servicing Program has lagged behind other agencies. Based on 
data supplied by USDA as of September 30th, 22 percent of 
Agriculture's delinquent that are eligible for collection have 
been referred to Treasury. The government-wide average for 
cross-servicing referrals is 73 percent. Participation by two 
USDA agencies in particular, the Farm Service Agency and the 
Rural Housing Service, is marginal at best. While the USDA has 
provided several reasons for this low rate of referral, I 
believe any barriers to participation can be overcome providing 
it is a USDA priority.
    Currently, FMS is in discussions with Agriculture to 
establish ambitious cross-servicing referral goals for fiscal 
year 2002 for both RHS and FSA. FMS will assist Agriculture in 
developing individual DCIA implementation plans and will 
closely monitor debt performance indicators devoting special 
attention to identify all debts eligible for referral.
    On the subject of administrative wage garnishment, USDA has 
stated its intentions to authorize use of this important tool 
as part of the cross-servicing program. I encourage the 
Department of Agriculture to work with Treasury on developing a 
plan to take full advantage of this collection process. It is 
important to note, however, that a significant percentage of 
USDA's delinquent portfolio, such as Food Stamp Program debts, 
is exempt from cross-servicing by Treasury and is therefore not 
eligible for collection through Treasury's Administrative Wage 
Garnishment Program.
    I will conclude my remarks by stating that Treasury stands 
ready to work with USDA to overcome the barriers to program 
participation. I believe that by working together we can 
greatly improve debt collection performance.
    I would be happy to answer any questions.
    [The prepared statement of Mr. Gregg follows:]
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    Mr. Horn. Thank you very much.
    Since you came out of South Dakota, I wondered, do you have 
a farm in your background?
    Mr. Gregg. Yes, more ranching than farming where I grew up 
but I certainly understand the situation with the loans and the 
repayments, and I have seen many farms sold.
    Mr. Horn. I am going to yield for 10 minutes to the ranking 
member, Ms. Schakowsky because she has another subcommittee 
going on and also she would like to read her statement into the 
record.
    Ms. Schakowsky. Thank you, Mr. Chairman.
    I apologize to these witnesses today. There is a 
subcommittee hearing of the same committee going on and another 
in another room that I have to be at as well. I would like to 
orally make my comments to the record.
    I want to thank all of you who took time out of your busy 
schedules to appear before our committee today.
    Today, we are focusing on debt collection in the Department 
of Agriculture. I would like to reiterate the cautions that I 
raised at the last hearing. The Debt Collection Improvement Act 
was passed in the middle of an expanding economy at a time when 
debt collection was somewhat easier. It is unfortunate that the 
agencies have not moved more quickly to implement the 
provisions of that act. Those provisions will be less effective 
in the coming months I fear. As the economy slumps, the effect 
ripples through the government. Tax revenue goes down because 
businesses and individuals are earning less; debt goes up as 
individuals struggle to make ends meet. Those of you who are 
testifying before the subcommittee, I am sure, realize that 
your job will become increasingly difficult as a result.
    When the President was promoting his $2 trillion tax cut, 
there were many of us who criticized that effort, saying the 
tax cuts would leave us without the resources necessary to 
respond to emergencies. Now we have had an emergency and the 
spending in response to that emergency coupled with the 
recession threatens to compromise funding for important 
domestic priorities like housing, healthcare, school 
modernization and prescription drug coverage for seniors. Our 
commitment to these domestic programs will be tested in the 
difficult budgetary times that lie ahead. There are calls for 
increased defense spending both in the United States and 
abroad; the President has created a new Cabinet level office 
for Homeland Security that must be funded; and the President is 
calling for new tax cuts which I believe do little to stimulate 
the economy.
    I fully support increased spending for domestic security. 
However, we can pay for those increases without sacrificing our 
critical national priorities. My bill, H.R. 2999, the First 
Things First Act, is a blueprint for doing just that. The work 
your agencies do in collecting the debt will make some of these 
tradeoffs unnecessary.
    In closing, I would make one comment on the priorities 
shown in the reports of the Department of Defense. Though it is 
not the focus of this hearing today, DOD has moved quickly to 
collect debt from the men and women who have retired from the 
Armed Forces or worked in a civilian capacity; 100 percent of 
the delinquent debt from those individuals has been referred 
for collection. I find it shameful that the Department has at 
the same time moved slowly to collect delinquent debt from 
contractors, referral contractor debt will not begin until the 
end of this month.
    Again, Mr. Chairman, I thank you for calling this hearing. 
I look forward to working with you on this issue and again, I 
apologize for having to bop in and out. I appreciate your 
testimony.
    Thank you.
    [The prepared statement of Ms. Schakowsky follows:]
    [GRAPHIC] [TIFF OMITTED] 81653.024
    
    Mr. Horn. Thank you.
    We will now go to the questioning. We will begin with 
Secretary Moseley.
    The General Accounting Office testified that the 
Agriculture Department had not really demonstrated a sense of 
urgency. I realize you are new to the administration and you 
said to us that basically, you want to turn that around. When 
it comes to implementing the Debt Collection Improvement Act, 
what are you doing to supply a sense of urgency to the 
Department and its component over the need to comply with the 
Act? Just summarize that.
    Mr. Moseley. Mr. Chairman, first of all, as you indicated, 
we just arrived on the scene and are just finding out about the 
responsibilities was enlightening to me. Within the Department, 
we have made a major commitment to improving management. I come 
to the Department with a business background. Our CFO, Ted 
McPherson, who is with me today, comes to the Department with a 
business background. We have a deep understanding of the need 
for the Department of Agriculture to operate as a business. 
That requires improved management practices which we are going 
to undertake.
    As a matter of principle, I am also on the President's 
Management Council at the deputy level and I can share with you 
conclusively that every meeting we have of that council, and I 
have one this afternoon, we talk about management across 
government and there is a strong commitment from this 
administration to improve that management.
    That takes us to some of the issues of management within 
the Department and they are diverse and broad. One of those 
that became apparent to me as a result of your questioning and 
preparation for the hearing was the Debt Collection Act and 
what we were doing in that regard. So practically everyone here 
with me today has sat in a room twice now and discussed this 
issue. Mr. McPherson and I have gotten together and both agreed 
to being committed to making sure that we do this and do it 
correctly.
    There are some recommendations that he is going to bring 
forward that I think are going to have a significant 
improvement. Quite frankly, my comment to him was I don't know 
what all those recommendations really mean but in my position, 
I just want it fixed. He said, we will get it fixed.
    Mr. Horn. Well, that is good but do you have a particular 
compliance date when you think most of these things will be 
done?
    Mr. Moseley. I believe we will be able to accomplish most 
of this in 2002. That comes from discussions with the people 
that are currently working in this area, sitting around the 
table and reviewing it. We have made substantial progress. I 
would make a note that the GAO report is as of September 2000; 
this is December 2001 and there has been significant progress 
made. Those actions that have been undertaken will be and are 
being implemented as we speak. We will see the benefit of that 
in 2002. I expect a significant improvement during next year.
    Mr. Horn. I have been impressed with the President's 
commitment to management. That hasn't been done in most 
departments over the last 30 years. He is serious. The Director 
of OMB goes to the Deputy Secretaries to make sure that 
happens. That is why those of you with backgrounds in 
management are in those positions. So you think, what, January 
2002 basically, the Department will know on these various 
components and their compliance with the Debt Collection 
Improvement Act?
    Mr. Moseley. If you are going to make me make a promise of 
a specific time, I am going to hedge just a little bit and move 
that back to say January 2002, that worries me, but during 
2002, we can get this done. It will be a process. This is not 
something that we will just walk in and say, as of today we 
have everything accomplished. It will be step by step but I can 
commit that we will follow this step by step so that at the end 
of 2002, you will see a much different situation than what you 
do today.
    Mr. Horn. You are talking about the fiscal year or the 
calendar year?
    Mr. Moseley. Calendar year.
    Mr. Horn. Calendar year. So you are saying that December 
31, 2002?
    Mr. Moseley. Yes.
    Mr. Horn. What specific Results Act performance goals and 
measures have the Rural Housing Service and the Farm Service 
Agency established to improve their debt collection 
performance? Has that occurred?
    Mr. Moseley. I have been told that there are goals that are 
registered in the agency's strategic plans and that those goals 
are an intent to comply with the Debt Collection Improvement 
Act. I also understand that the agency managers have 
performance goals in their performance evaluation. I believe 
those steps have been taken but in our discussions of this, and 
as we look ahead at some of the changes we are going to make, 
there will be very specific job descriptions related to 
overseeing this particular activity. At that point in time, 
then I know we will have those things well stated and that 
there will be numeric goals that will be established that will 
we will move on.
    Mr. Horn. I looked yesterday at some very interesting 
charts with OMB and I assume that from their standpoint it 
won't just be budget review, it will be management review. They 
assure me that there is a very real commitment to that 
particular approach and it will be a part of the President's 
budget as it goes in. That normally is done in late January-
February and obviously with the May renewal, that is another 
chance to get on top of this situation. The budget people will 
have to also get with management people because we are serious 
here and they are serious in the White House, thank heavens.
    According to the General Accounting Office, neither the 
Rural Housing Service, nor the Farm Service Agency, has 
automated systems with sufficient data to distinguish those 
debts that are eligible for referral to Treasury from those 
that are not. What are you doing to fix this basic problem and 
when will that be completely fixed?
    Mr. Moseley. I am going to turn to my two counterparts here 
to help me on this but my understanding is that FSA doesn't 
have that capability now and Rural Housing indicates they will 
have that capability in April as some new IT technology comes 
online.
    Mr. Horn. This is April 2002?
    Mr. Moseley. 2002.
    Ms. Burgess. The Rural Housing Service is currently working 
to enhance their dedicated loan origination system to be able 
to identify debts after they have completed all the required 
borrower servicing that can be referred to Treasury taking into 
account various State laws that do offer homeowners certain 
rights like redemption rights, being able to come back and get 
their home a year after foreclosure if they can share the debt.
    In addition, they need to automate their system so that the 
caller feature, we have automatic call dialing, that we will no 
longer be contacting those borrowers after they are referred to 
Treasury, so once again we can comply with the law. Those 
changes will be implemented in April 2002 and at that time, all 
debt qualifying for cross-servicing at that point on and 
forward will be automatically referred.
    Mr. Horn. So you feel confident then?
    Ms. Burgess. Yes.
    Mr. Horn. Most of the Department's delinquent data is 
excluded from referral to the Treasury under the Debt 
Collection Improvement Act and the exclusions amounted to $4.6 
billion out of a total of $6.2 billion for fiscal year 2001. 
However, the General Accounting Office has raised a number of 
questions about the accuracy of your exclusions. What are you 
doing to ensure that exclusion determinations are correct and 
up-to-date?
    Mr. Moseley. Let me take a crack at that and then I may 
need some help on this one. First of all, I would say the 
majority, which is $3.5 billion of the excluded debt, is 
foreign and it is my understanding that is off the table or it 
happens to be debt that is collected via statutorily required 
mechanisms. In other words, it is in some state of liquidation. 
If there is not proper documentation of that debt by the agency 
at the time of an audit, that is a problem that must be 
addressed. I would understand that is difficult, tracking this 
by the paper trail. However, I would think the newer, 
computerized tracking systems would allow that.
    Mr. Ose [assuming Chair]. Deputy Secretary Moseley, if I 
might follow-up on Chairman Horn's question, as I understand 
your letter to us, the Department does not plan to conduct a 
systematic, independent verification of its exclusions per the 
recommendation of the General Accounting Office. What is the 
rationale behind that decision?
    Mr. Moseley. We are looking at an independent verification. 
Obviously the agency cannot do that themselves and what we are 
doing is looking at OIG as a possible resource to do that. In 
fact, I have a letter here indicating OIG has been notified. 
One of the real problems I have as Deputy Secretary, and 
particularly in this time of homeland security issues, is that 
our OIG is absolutely overwhelmed in terms of the workload they 
have. So it is going to be very difficult, quite frankly, for 
them to get to these kinds of issues in a timely fashion. I 
talked with Mr. McPherson on this issue and we would certainly 
consider the option of going outside
to some kind of private sector entity that could provide that 
verification.
    Mr. Ose. Would you like to enter that letter into the 
record?
    Mr. Moseley. Yes.
    [The information referred to follows:]
    [GRAPHIC] [TIFF OMITTED] 81653.025
    
    Mr. Ose. The FSA has delinquent loans on which the 
documents list co-debtors and it seems to us that FSA loses the 
opportunity to collect on those loans because it does not refer 
the names of those co-debtors to Treasury. That is largely a 
reflection of the data systems having not been programmed to 
accept taxpayer ID number for more than one debtor on each 
loan. We have been aware of the problem since 1986 but it is 
not scheduled to be fixed until 2005. Is that correct?
    Mr. Moseley. I frankly had the same question in this 
regard. What I found out was, first of all, I think this was a 
mistake made at the beginning of the particular program where 
there wasn't a recognition by FSA that the co-signature on 
those particular loans had the level of liability for that loan 
they should have had, so there weren't provisions made. While 
they were co-signatures, they didn't have all the information 
or data available in order to really pursue the cosigner of the 
note. That was an error that has been recognized. My 
understanding, and I will ask for verification on this, is the 
target date is not any longer 2005 but December 2002.
    Mr. Ose. So a year from now?
    Mr. Moseley. Yes. I thought this has to be fairly simple 
and yet I found out that as we know, nothing in government is 
simple and all of a sudden we recognize as we upgrade our IT 
systems, we are making the necessary changes for us to be able 
to accomplish this. Clearly, I think it was an oversight early 
on. It is being fixed.
    Mr. Ose. I can tell you, having been a borrower with other 
partners on the line, the lender doesn't have any compunction 
about calling the subsequent names, so we shouldn't either.
    Mr. Moseley. I have been one of those cosigners myself and 
I do understand the circumstances. I have been called as well.
    Mr. Ose. The lesson in all that is to have 50 percent plus 
1.
    I think we are going to recess so we can vote. We have 8 
minutes and a vote, then we have two 5 minute votes. We will 
recess until that time at which point Chairman Horn will be 
back, if you will be patient with us.
    [Recess.]
    Mr. Horn. The recess is over.
    Commissioner Gregg, I am going to make sure you are out of 
here. You have another commitment. Let me ask you a few things.
    What specific suggestions can you offer the Department of 
Agriculture on how to make better use of the Debt Collection 
Improvement Act?
    Mr. Gregg. I think one thing I mentioned several times is 
to make sure the documentation for the debts is accurate and 
referred to us as quickly as possible, especially in the cross-
servicing area. Also, I think all of us have struggled with the 
systems issues. In some cases, I think they are short-term 
solutions, may not be the ideal solution but look at some 
things that could be done in the shorter period of time. I was 
really encouraged by the reference earlier to moving along 
quickly the idea of when you have two debtors being able to do 
something perhaps by the end of next year, things like that, 
taking a fresh look at issues and working out maybe short-term 
solutions even though you know it is not the ideal.
    Mr. Horn. Was Secretary O'Neil familiar with this 
particular law and is he going to have a letter for his 
colleagues?
    Mr. Gregg. He is very familiar with the law. I briefed him 
on it several months ago and we talked about the progress being 
made and also the challenges. If you think it was helpful, we 
could go back and suggest a letter going to other department 
heads to reemphasize the importance.
    Mr. Horn. I think Secretary Rubin did that, didn't he?
    Mr. Gregg. Yes, he did.
    Mr. Horn. I am sure the Secretary would be glad to do this. 
Do you see any conflicts between the agriculture program 
statutes and the Debt Collection Improvement Act requirements, 
and if so, what conflicts do you see that needs to be resolved?
    Mr. Gregg. One of the requirements in the DCIA is to refer 
debts that are delinquent within 180 days after they become 
delinquent. I think in some cases, as mentioned earlier, some 
of the servicing requirements for the loans may well take 
longer to go through that entire process. The only thing I 
would say, without trying to be an expert in the loan 
portfolios of Agriculture, is as quickly as possible, to go 
through those processes to get the debts referred to us.
    Mr. Horn. Thank you. I will move to Mr. Engel now on behalf 
of the General Accounting Office.
    You have identified major deficiencies in the Agriculture 
Department's compliance with the Debt Collection Improvement 
Act. In your judgment, what key steps should be taken by the 
Department to correct those deficiencies?
    Mr. Engel. I would say one of the key steps is to have top 
level management's commitment and to share that throughout the 
entity. I was encouraged by the remarks that we have heard 
today from Agriculture because it seems we have that type of 
commitment in place now. In addition, as we have talked about, 
some of these areas that need to be corrected do involve system 
enhancements which many times are more longer term type fixes. 
In the interim, we think there is going to need to be some 
corrective action taken which may actually involve manual 
procedures. Based upon some of the dates that we were hearing 
today, likely some of those manual procedures will have to take 
place while the system enhancements are being finalized.
    I think also from an accountability standpoint, we talked a 
bit earlier about performance measures. I think that is 
important in a situation like this to hold individuals at the 
senior management level accountable for meeting particular 
performance measures and goals, and enforcing that.
    The last thing I would probably say to reiterate Mr. 
Gregg's comment is that it is encouraging to hear that the 
Inspector General's Office, or if it ends up having to be a 
public accounting firm, will come in and look at the propriety 
of the exclusions. That is something we actually recommended 
and worked with FMS about 1\1/2\ years ago to try to have done 
at a lot of the large agencies because we do have the concern 
that there are significant amounts of debt being reported as 
excluded but there is no independent verification being done on 
those. So we are encouraged by the efforts of Agriculture to 
take that on and would be interested to see the results of 
those.
    Mr. Horn. I take it Mr. Secretary that you will be able to 
deal with the Rural Housing Service and the Farm Service Agency 
because apparently they haven't really seen and put it as their 
priority for debt collection. What is your feeling on that? How 
do you feel about Mr. Gregg's organization as well as the GAO?
    Mr. Moseley. I think there is a spirit of cooperation here 
and I guess that maybe is a significant point that needs to be 
made. It is obvious to me coming in that there have been some 
difficulties in the past. There have been some challenges, some 
disputes, disagreements which I think have been taken care of, 
have been resolved. We are really interested in moving from 
this point forward. We are making the commitment to look at 
these issues and try and resolve them. Quite frankly, I was 
fairly satisfied with the responses I got from the agencies in 
terms of the things they recognized as problems and the way in 
which they were addressing those problems and trying to bring 
them to the table and put some finality, so my expectation is 
with the help of Treasury and the continued commitment to 
communicate if there are difficulties as they arise, we will be 
able to accomplish what I know needs to be done.
    Mr. Horn. Do you have opportunities to talk to the 
Secretary? Has she been briefed about this act?
    Mr. Moseley. The Secretary is well aware of the fact that I 
had this hearing; she is aware of the responsibilities. The 
Secretary was also Deputy Secretary a few years ago, so she had 
some recognition of the debt collection difficulties of the 
Department because they go back a number of years even before 
the act was passed. So yes, the Secretary is aware of the 
responsibilities that we have here.
    Mr. Horn. Mr. Engel, you mentioned you reviewed the Deputy 
Secretary's October 31 letter to the subcommittee responding to 
our questions. Are you satisfied from his responses that the 
Department is on top of its debt collection problems? Could you 
provide for the record your analysis of his specific responses 
to the extent that they will relate to areas the General 
Accounting Office has reviewed?
    Mr. Engel. Yes, we did look at that letter. I would say in 
general most of the points made in the letter were consistent 
with our testimony. In some areas where it maybe was not as 
clear as far as the actions that were going to be taken to meet 
some of the dates, I think today we are hearing a little more 
about when some of these dates are that the corrective actions 
will be taking place.
    As related to a more detailed analysis, if you like, we 
could do that. I would point out that we are in the process of 
preparing reports on our work and there will be a separate 
report that will go to FSA and one to RHS, on which the agency 
will have an opportunity to comment. That may be one avenue for 
us to be able to get our views back and forth. That will be a 
public document that will be shared with you.
    Mr. Horn. We will leave an opening at this point in the 
hearing and have the letter of the Deputy Secretary and your 
answers to that.
    Are you going to say where it is not fully compliant and in 
other parts, is compliant just so we know what GAO thinks of 
it?
    Mr. Engel. OK.
    Mr. Horn. Most of the Agriculture Department's delinquent 
debt is not subject to referral to Treasury under the Debt 
Collection Improvement Act. What would the Department do to 
improve its own collection efforts for those debts that never 
reach the Treasury?
    Mr. Engel. Some of the debts that are excluded are for 
various reasons. I think we mentioned foreign debts. I think 
the things that should be focused on would be those type of 
debts that do not fit into an exclusion category under the DCIA 
and to establish as soon as possible what the validity of those 
debts are, and then look at past experiences as to collection 
tools which ones they have had the most success with, look for 
opportunities where things such as administrative wage 
garnishment which we believe is potentially a very powerful 
tool, as well as referring over debts if allowable to the 
offset program which has also been a very successful program.
    The act calls for eligible debts to be referred over after 
180 days. However, it does not exclude debts to be referred 
sooner than that. In some cases, I think agencies should take a 
look at their in-house operations and if they believe the 
referral at an earlier date would make the most sense, to go 
ahead and do that.
    Mr. Horn. Any response on your part, Mr. Gregg, on all of 
that?
    Mr. Gregg. We do have some agencies, Food and Nutrition 
from Agriculture actually refers debts to us sooner than that. 
I think the point on taking advantage of the offset program is 
a good one. Sometimes the perception is that only happens in 
March and April. As we showed this past year with the tax 
rebate payments, we had language included in that to do 
offsets. We collected $470 million in delinquent debt as a 
result of the tax rebate program. It is a year round viable 
program now and we certainly encourage agencies to take 
advantage of it and more of them are doing so.
    Mr. Horn. Is there a need to have some other bits of 
language on there to make it broader if we are leaving out 
various agencies?
    Mr. Gregg. I don't think so. I keep worrying about DCIA 
expanding. We have a lot of flexibility to do what we need to 
do under the current legislation. There are a few things that 
we may be proposing to expand, but they are fairly limited. I 
think one of the areas we feel we could maybe expand a bit 
would be expanding what debts might be eligible for collection 
for child support. We have collected a lot of money over the 
years in delinquent child support debt. There is a category or 
two we think it might make sense to expand the DCIA to include 
that but they are pretty limited and specific things. I think 
generally it is broad enough for us to cover what we need to 
cover.
    Mr. Horn. When we first had that signed by the President, 
the Commissioner of Revenue in Massachusetts called me the 
morning that happened and said, you have just made my day. This 
was in relationship to the individuals that had run from one 
State to the other not paying their alimony. Is there much 
usage of that?
    Mr. Gregg. In the last 2 years, we have collected $1.3 
billion each year in delinquent child support payments. 
Actually, it was greater than that this past year because of 
the tax rebate. I forget exactly how much that was, probably a 
couple hundred million additional from the tax rebate. Our 
working relationship with HHS is a very good one. I think the 
people who work in the debt area in FMS are committed to 
collecting all the debt but when you see them going back for 
that program, I think it is a special point of pride.
    With your permission, Mr. Chairman, I have to leave. I 
appreciate your willingness to allow me.
    Mr. Horn. Thank you for staying. Just remember I did say 
you were released a half hour ago. Thank you and thank your 
staff for the good work they do.
    I want to thank all of the witnesses here today. It appears 
the Department still has a long way to go to bring debt 
collection performance up to par but I have every hope that 
under the Deputy Secretary's leadership and the 
administration's commitment toward improving financial 
management practices in the executive branch, we will see in 
the next few months a great improvement and in the ensuing 
year.
    We thank you very much for coming. I would like to read 
into the record for both the majority and the minority the 
members that put together this particular hearing: J. Russell 
George, the staff director, chief counsel, who is out busy; 
Henry Wray on my left, senior counsel; Bonnie Heald, deputy 
staff director and director of communications against the wall 
there; Mark Johnson, clerk, who has a tough job because he has 
to make sure all transcripts are right and everything else--and 
we didn't put these microphones in but we are sort of in the 
early part of the 20th century with the system; Jim Holmes, 
intern; David McMillan, professional staff member for the 
Democrats and Jean Gosa, minority clerk and our court 
reporters, always a tough job to do with the microphones and 
all the rest. Arthur Emmerson, we thank you.
    We are now in adjournment.
    [Whereupon, at 11:41 a.m., the subcommittee was adjourned, 
to reconvene at the call of the Chair.]

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