[Senate Hearing 107-682]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 107-682
 
  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003
=======================================================================

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                                   on

                           H.R. 5120/S. 2740

 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, 
                      2003, AND FOR OTHER PURPOSES

                               __________

                       Department of the Treasury
                   Executive Office of the President

                               __________

         Printed for the use of the Committee on Appropriations










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

                                 ______








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                      COMMITTEE ON APPROPRIATIONS

                ROBERT C. BYRD, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             TED STEVENS, Alaska
ERNEST F. HOLLINGS, South Carolina   THAD COCHRAN, Mississippi
PATRICK J. LEAHY, Vermont            ARLEN SPECTER, Pennsylvania
TOM HARKIN, Iowa                     PETE V. DOMENICI, New Mexico
BARBARA A. MIKULSKI, Maryland        CHRISTOPHER S. BOND, Missouri
HARRY REID, Nevada                   MITCH McCONNELL, Kentucky
HERB KOHL, Wisconsin                 CONRAD BURNS, Montana
PATTY MURRAY, Washington             RICHARD C. SHELBY, Alabama
BYRON L. DORGAN, North Dakota        JUDD GREGG, New Hampshire
DIANNE FEINSTEIN, California         ROBERT F. BENNETT, Utah
RICHARD J. DURBIN, Illinois          BEN NIGHTHORSE CAMPBELL, Colorado
TIM JOHNSON, South Dakota            LARRY CRAIG, Idaho
MARY L. LANDRIEU, Louisiana          KAY BAILEY HUTCHISON, Texas
JACK REED, Rhode Island              MIKE DeWINE, Ohio
                  Terrence E. Sauvain, Staff Director
                 Charles Kieffer, Deputy Staff Director
               Steven J. Cortese, Minority Staff Director
            Lisa Sutherland, Minority Deputy Staff Director
                                 ------                                

            Subcommittee on Treasury and General Government

                BYRON L. DORGAN, North Dakota, Chairman
BARBARA A. MIKULSKI, Maryland        BEN NIGHTHORSE CAMPBELL, Colorado
MARY L. LANDRIEU, Louisiana          RICHARD C. SHELBY, Alabama
JACK REED, Rhode Island              MIKE DeWINE, Ohio
ROBERT C. BYRD, West Virginia        TED STEVENS, Alaska
  (ex officio)                         (ex officio)

                           Professional Staff

                              Chip Walgren
                             Nicole Rutberg
                         Pat Raymond (Minority)
                        Lula Edwards (Minority)















                            C O N T E N T S

                              ----------                              

                        Thursday, March 14, 2002

                                                                   Page

Department of the Treasury: Office of the Secretary..............     1

                       Wednesday, March 20, 2002

Executive Office of the President: Office of Management and 
  Budget.........................................................    53

                       Wednesday, April 17, 2002

Department of the Treasury: Office of Enforcement................    95
    U.S. Secret Service..........................................   112
    Bureau of Alcohol, Tobacco and Firearms......................   126
    Financial Crimes Enforcement Network.........................   143
    Federal Law Enforcement Training Center......................   152

                        Thursday, April 18, 2002

Department of the Treasury: U.S. Customs Service.................   193

                       Wednesday, April 24, 2002

Executive Office of the President: Office of National Drug 
  Control Policy.................................................   237

                        Wednesday, May 15, 2002

Department of the Treasury: Internal Revenue Service.............   293













  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003

                              ----------                              


                        THURSDAY, MARCH 14, 2002

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:21 p.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan and Reed.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. PAUL H. O'NEILL, SECRETARY
ACCOMPANIED BY EDWARD KINGMAN, ASSISTANT SECRETARY FOR MANAGEMENT AND 
            CHIEF FINANCIAL OFFICER


                            opening remarks


    Senator Dorgan. The hearing will come to order. First, let 
me apologize to the Secretary. We had a vote that is still 
underway and we were delayed. Some of my colleagues will be 
here shortly, but I want to begin the hearing knowing that your 
time requirements are tight. We thank you, Mr. Secretary, for 
joining us today. This is the hearing of the Subcommittee on 
Treasury and General Government Appropriations subcommittee to 
talk about funding for those functions that exist in your 
agency.
    Let me make just a couple of brief comments. I will put my 
entire statement in the record and then we will hear from you, 
Mr. Secretary, and have some questions. This hearing kickoff 
the subcommittee's series of hearings on President Bush's 
Fiscal Year 2003 budget request for the Treasury Department and 
other agencies under our jurisdiction.
    To no one's surprise, this is going to be a very difficult 
budget year. The anticipated budget surpluses have vanished and 
our resources are stretched thin. We have had an economic 
slowdown, a recession of sorts. We are not sure how deep and 
whether we are completely out of that recession, but we also 
face a war against terrorism, both at home and abroad. So 
things have changed dramatically since the last time we met.
    The Treasury Department is a key player in all of these 
activities. At a hearing 2 years ago I held up an orange rubber 
cone and talked about northern border security and the fact 
that at many ports of entry on the northern border that rubber 
cone represented America's security after 10:00 at night. I 
proposed early last year a northern border initiative and 
included $25 million in the budget to deal with that.
    September 11, of course, intervened and we not only 
provided that $25 million but also additional funding. That was 
made available for the Customs Service, the Border Patrol, and 
the INS. So we have had a lot to do with respect to the issue 
of border security. Mr. Secretary, you and I have had some 
meetings about the issue of the Customs Service and border 
security and the level of staffing that is required. I think 
that we on this subcommittee want to work with you to reach the 
right result in all of those areas.
    One of the things that concerns me about this budget 
request, and we will want to talk about at some length today, 
is the Customs Service budget which relies in part, on a $250 
million fee. That fee to deal with the issue of ACE and other 
related issues, in many ways, is a substitute for a tax 
increase. Congress has rejected similar fees on previous 
occasions and will again this year likely reject it. So the 
question is, if that funding mechanism is not approved, what 
will be the method by which we fund these issues?
    I am going to talk a little today, Mr. Secretary, in my 
questions about the issue of tax shelter abuses and the amount 
of resources you believe we ought to provide to combat that 
because I fear that what we have is a proliferation of tax 
shelter abuses. Having chaired some of the Enron hearings and 
knowing that hundreds of their subsidiaries have been run out 
of one post office box in the Cayman Islands, I am very 
concerned about what has been happening with respect to these 
tax shelter abuses. There have been some announcements by the 
Treasury Department that have concerned me so I want to talk 
about that.
    I think accounting firms, lawyers, and others have become 
very aggressive in trying to find ways for their clients to 
avoid taxes. In fact overly aggressive in my opinion that 
requires us to provide the resources necessary to try to thwart 
this kind of activity so that those big institutions can begin 
to pay their fair share of the cost of Government for America 
as well. So I want to talk a little about that today.
    I want to congratulate you, Mr. Secretary, on another 
matter, for your willingness to take a good look at the issue 
of debt relief and development in the Third World. Yesterday, 
Mr. Bono of U2 came by. He has met with many people in this 
town. He has a great passion, of course, for these issues, and 
he spoke very highly of your focus and the discussions 
apparently you have had. He is a very articulate and 
interesting person.
    I understand that you are going to be in Africa in May 
taking a look at some of these issues dealing with the plague 
of AIDS in Africa, which is also something this country has to 
be greatly concerned about.


                           prepared statement


    So with that as a brief introduction, let me ask Senator 
Reed if he has some introductory comments and then we will hear 
from the Secretary.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Welcome Mr. Secretary. We are pleased that you are here today to 
kick-off this Subcommittee's series of hearings on President Bush's 
fiscal year 2003 budget request for the Treasury Department and other 
agencies under our jurisdiction.
    To no one's surprise this will be a difficult budget year. The 
anticipated budget surpluses have vanished and our resources are 
stretched thin by the war against terrorism both at home and abroad.
    The Treasury Department is a key player in this war.
    At a subcommittee hearing 2 years ago, I held up an orange rubber 
traffic cone and stated that the cone was our nighttime guardian at far 
too many ports of entry along our northern border. I used the orange 
cone to illustrate a chronic lack of attention to security resources on 
that 4,000 mile long border. The attempted incursion by Ressam--the so-
called Millenium bomber--at a border crossing in Washington State 2 
years ago served as a wake-up call. The tragic events of September 11 
brought the needs of our northern border into clear focus.
    I am pleased that the Administration has listened to the concerns 
of northern border Members and others regarding the need for additional 
resources along this vast frontier. Indeed, page 21 of the President's 
budget document has a color photo of a northern border point of entry 
patrolled by orange cones.
    I think we can jointly state today that the era of the orange 
traffic cone is over.
    It took us awhile to get to this point, however.
    You and I had a difference of opinion about the need for the 
Customs Service to have additional people and resources post September 
11. I understand your belief that a business case must be made before 
dumping more money on a given program. But I suggest that law 
enforcement requirements should be justified differently than those for 
office supplies or computer systems. I do not think you can make a 
sound ``business'' case for placing two law enforcement officers at 
non-24 hour ports-of-entry which have fewer than 50 cars entering the 
country on a given day. But you certainly can make a strong ``national 
security'' case for the enhanced presence of those law enforcement 
personnel.
    That said, I think we can agree that the resources the Congress 
provided to the Customs Service in December appear to be well targeted. 
And I agree that it probably makes sense for us to pause this year and 
allow Customs to hire the new personnel and get the new technology in 
place before we attempt to add additional resources.
    But it seems to me that the message still may not be getting 
through. Your budget request to fund a significant portion of the 
Customs Service budget relies on a $250 million tax increase. Yes--it 
is couched as a ``user fee''--but that is merely a tax increase under a 
different name. When the last Administration tried to fund part of 
Customs operations using this increase, Congress did not go along. I 
doubt that we will this time. But times have changed since then. We 
face a war against terrorism at home. Customs and Treasury are key 
players in this war. The Defense Department and Justice Department are 
budgeted for significant, ``hard dollar'' increases. Yet we appear to 
be playing budgetary games with the Customs Service. To me, this 
demonstrates a lack of seriousness on the part of the Treasury 
Department when it comes to the war on terrorism which I will want to 
further explore with you when we get to the questions.
    Mr. Secretary, I will also want to focus my questions on the 
Administration's apparent lack of zeal when it comes to pursing tax 
shelter abuses. If you need additional resources to combat the war on 
terrorism, I suggest you and your staff review this policy. The last 
Administration aggressively started this process, yet you and your team 
have changed course. For instance, I have read that Enron was able to 
operate more than 600 firms through one post office box in the Cayman 
Islands. Cracking down on this tax avoidance is one way to find the 
funds to fight the war while at the same time ensuring a level of tax 
fairness for the American taxpayer.
    Finally, on the issue of appropriate staffing and policy direction 
when operating within limited budgets, I want to get into the targeting 
of your Department's limited resources. Specifically, I want to address 
the aggressive pursuit of U.S. citizens traveling to Cuba by the Office 
of Foreign Assets Control instead of the aggressive pursuit of foreign 
terrorists' assets.
    We welcome you here this afternoon and look forward to your 
testimony. But first, let me turn to my Ranking Member, Senator 
Campbell, for any remarks he wishes to make.

                     STATEMENT OF SENATOR JACK REED

    Senator Reed. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary. Welcome. We appreciate your appearance this 
afternoon. We all understand the challenges this year in the 
budget because of many factors, not the least of which is the 
September 11 attack and its aftermath.

                           PREPARED STATEMENT

    Indeed, that attack has underscored the many law 
enforcement responsibilities that the Department of Treasury 
has. I know that there has been some increases particularly in 
those areas, but I would suspect that we still have significant 
challenges facing IRS and Customs modernization, also bringing 
online and increasing the Financial Crimes Enforcement Network. 
There is a host of other issues that I would like to deal with 
in my questions, but thank you very much, Mr. Secretary, for 
joining us this afternoon.
    [The statement follows:]

                Prepared Statement of Senator Jack Reed

    Thank you Mr. Chairman. I appreciate the appearance of Secretary 
O'Neill before the Subcommittee this afternoon, so that we may get a 
better picture of what the Administration believes are its priorities 
for the coming year at the Treasury Department.
    I recognize the tightness of budgets this year, and I appreciate 
that the Department does have an overall increase, particularly in 
homeland defense areas. It is critical that we increase our efforts at 
protecting our borders through Customs, as well as aggressively go 
after financial terrorist infrastructures through the Financial Crimes 
Enforcement Network (FinCen), and just as important, prevent terrorists 
from gaining access to firearms.
    However, I believe that we probably still have many areas where 
there are a lack of increases, which are critical to other domestic 
needs. This includes continued IRS and Customs modernization projects. 
In addition, I do have several other issues that I would like to pursue 
with the Secretary.

    Senator Dorgan. Mr. Secretary, you may proceed. We will 
include your entire statement as a part of the record. You may 
summarize. And if you would introduce your colleague as well we 
would appreciate it.

                  STATEMENT OF SECRETARY PAUL O'NEILL

    Secretary O'Neill. With me today is Assistant Secretary 
Kingman. I am happy for him to be here. I am happy for him to 
be on board. He is a very talented individual. He has had years 
of progressively responsible experience in the private sector. 
I think he is on his way to making a great contribution in the 
public sector as well.
    Mr. Chairman, and Senator Reed, thank you very much for 
inviting us here today to testify on the budget. I would like 
to insert my full statement, as you suggest, in the record and 
then I will make an abbreviated statement just for openers.
    In the year since I spoke to this subcommittee the world 
has changed. The change is very evident at the U.S. Treasury 
where we are center stage for some of the toughest challenges 
facing our country. Treasury's top three priorities are 
familiar to every American. First, we are responsible for 
implementing the President's domestic and international 
economic security agenda, creating jobs at home and boosting 
economic growth abroad.
    Second, Treasury is securing our homeland through the work 
of the U.S. Customs Service, the Secret Service, the Bureau of 
Alcohol, Tobacco, and Firearms, and the Federal Law Enforcement 
Training Center.
    Third, the Treasury is leading the financial war on 
terrorism. We have already blocked more than $34 million in 
terrorist assets and our allies around the world have blocked 
more than $70 million.
    I know that this committee appreciates the importance of 
these tasks and in a moment I will highlight six critical 
budget items that we need most to achieve our objectives for 
the year. But I would first like to comment on our efforts to 
make Treasury a world-class organization because my top 
priority as Secretary of the Treasury is to lead this 
organization to excellence.
    A world-class organization treats all of its people with 
dignity and respect, gives them the tools to do meaningful 
work, and recognizes them for their accomplishments. It sets 
goals at the limits of possibility and then stretches to meet 
them, measuring results, not just efforts. At Treasury, we are 
a long way from achieving true excellence. Computer systems do 
not lead excellence. Dollars do not lead excellence. People 
lead excellence.
    We need to develop a team of people who know what world-
class looks like. This is never easy, but it is especially 
difficult for a Government enterprise which has so many 
constraints on its options.
    The first thing I did when I got this job was to ask every 
one of our bureaus and offices to review what they do and why 
they do it. The review is not finished but we are already 
making progress. For example, early in the review process I 
discovered that every year it takes 5 months to close the books 
of the department. That just did not make any sense to me. How 
can we say to people that their work is important when they are 
required to rework the numbers for 5 months every year?
    I know from experience that companies as large as the 
Treasury Department close their books in a matter of days. So I 
asked our people to figure out how to close the books faster. 
We examined the process, we streamlined it, and now we are 
closing the books in an average of 3 days.
    I will give another example. When we looked at the IRS 
large case audits we found that 40 percent of the resources 
were spent on compliance issues for just two regulations: the 
research and experimentation tax credit and the capitalization 
guidance. We resolved the confusion in these regulations and 
now we can devote those audit resources to more pressing, 
important issues.
    Of course, this is just plucking hairs off the tax code 
beast. Ideally we would revamp the whole thing to make it 
easier, to make it possible in fact to administer the tax code 
at a reasonable cost for taxpayers and the Government alike.
    These examples show a few early efforts to find and fix 
institutional problems at the Treasury. But many of our 
problems and their solutions are buried beneath decades of 
business as usual bad habits. For example, over the years there 
have been at least 29 audit findings showing material 
weaknesses in Treasury operations, some dating back to the 
1980s. Few have been corrected, and we find this unacceptable.
    The Treasury management team is dedicated to diagnosing our 
problems and implementing step by step solutions that produce 
real measurable value for the American taxpayers, our 
shareholders. We do not have all the answers yet. In fact I do 
not think we even have all the questions yet, but we intend to 
keep you, the Congress, our Board of Directors, fully informed 
of our progress.
    Let me comment further on some of the most important 
requests in our budget for the coming year. First in the area 
of information technology, this year's budget includes 
significant increases for two information technology projects 
in the Treasury Department: the IRS business systems 
modernization and the Customs Service automated commercial 
environment. We are continuing these projects but we are also 
relooking at them.
    We are asking fundamental questions such as, is IT platform 
design part of the core Treasury mission or central competency? 
If not, why are we designing and building these systems in-
house? Why are we buying computer hardware that is likely to be 
obsolete by the time it is in full use? Can we streamline 
deployment so that we see a return on investment sooner and so 
that we avoid the risk of ugly surprises when we flip the 
switch at the end?
    We do need to invest in these technology upgrades to begin 
raising department productivity to 21 century levels, just as 
the private sector has raised productivity through technology 
investment over the past decade. Higher productivity means 
taxpayers get more service for less money. But we are not 
stamping approval on projects because they are already 
underway.
    Second on the subject of resource levels for the Treasury 
Department law enforcement activities. As I said, much of 
homeland security takes place at Treasury. I believe that our 
budget represents the funding levels necessary to accomplish 
the current missions of the Treasury law enforcement activity. 
As the committee knows, outside of our proposed business 
strategy adjustment, our fiscal year 2003 request maintains the 
current program levels of Treasury law enforcement.
    As I testified last year, if there is a solid business case 
to increase the funding level for a Treasury program I will be 
the first to request that increase. But I do not believe in 
spending tax dollars when we have no way of measuring whether 
we are successful. Every dollar spent on Treasury law 
enforcement we believe should produce a more secure homeland.
    Third, with regard to improving the performance of the IRS, 
under the leadership of Commissioner Rossotti, the IRS has made 
progress toward improving customer satisfaction and improving 
compliance rates. While the Commissioner and I have no 
intention of returning the IRS to peak employment levels, we do 
feel that the IRS needs to increase its staffing in order to 
provide America's taxpayers with top quality service. This 
year's funding will enable us to better promote electronic 
filing, stabilize audit rates, and increase IRS efforts to 
combat money laundering.
    In the area of information technology modernization, this 
year's budget includes significant increases for the two 
information technology projects that I have already mentioned. 
We are just now beginning to see the benefits of these efforts, 
and we must maintain the momentum with full funding in order to 
achieve IRS and Customs core missions.
    The Treasury Departmental Offices develop the Executive 
Branch's domestic and international fiscal policy, oversee 
nearly 40 percent of Federal law enforcement, and manage the 
Government's finances, all on about 1 percent of the overall 
Treasury budget. In fiscal year 2002, the Departmental Offices 
hit a 5 percent shortfall in mandatory costs and as a result we 
put into place tighter management processes for all staffing 
and expenses. We have instituted a hiring chill, cut travel, 
and streamlined procurement. The funding level we are 
requesting is the minimum to maintain the effectiveness of the 
Department Offices.
    On the issue of, Mr. Chairman, a Customs user fee, as you 
said this budget does propose a $250 million increase in the 
user fee to fund an equivalent amount of Customs Service 
operations for enhanced homeland security. These user fees have 
not increased since 1985, and based on inflation and our 
increased scrutiny of incoming air and sea passengers since 
September 11 I believe this increase is a reasonable fee to be 
charged. We need to enact it by July 1, 2002 to ensure 
uninterrupted Customs functioning.
    Finally, with regard to the business strategy adjustment 
that I know the committee will have some interest in, 
throughout my career in both business and Government I have 
challenged my organization to reduce cost through increased 
efficiency. I started this cost-cutting process last year at 
the Departmental Offices. This year I have asked each Treasury 
bureau to follow suit and examine the way they do business in 
order to identify and eliminate low value activities. 
Specifically, I have asked everyone to identify savings equal 
to 25 percent of the Administration's projected non-pay 
inflationary increases.

                           PREPARED STATEMENT

    I thank you for your consideration today. With your support 
we can and we will make the United States Treasury Department a 
world-class organization that will be a model for Government 
and deserving of support from America's taxpayers. Finally, Mr. 
Chairman and Mr. Reed, I would say to you, we will know we have 
arrived when the private sector comes to see how to do things 
better.
    [The statement follows:]

            Prepared Statement of Secretary Paul H. O'Neill

    Mr. Chairman, Senator Campbell, and members of the Committee, I 
appreciate this opportunity to discuss Treasury's fiscal year 2003 
budget request.
    As you know, Treasury plays a crucial role in the core functions of 
government, and serves as tax administrator, revenue collector, law 
enforcer, financial manager, as well as leading policymaker for tax 
policy, banking policy and international and domestic economic policy.
    For fiscal year 2003, we are proposing a performance budget that 
will enable Treasury to continue to provide the American public with 
both the service and program reliability it expects and deserves. I 
have challenged each of my bureaus to carefully examine their 
operations to achieve improved effectiveness in business practices. I 
expect that Treasury can realize reasonable savings from this type of 
review through reviewing programmatic efforts on a continual basis and 
reducing or removing those producing little or no value.
    Our budget request totals $16.654 billion for all operations. 
Taking into account the offset from the proposed $250 million dedicated 
toward Customs commercial operations, our program level totals $16.903 
billion, compared to $16.5 billion appropriated in fiscal year 2002, 
and $14.8 billion in fiscal year 2001.
    Mr. Chairman, the budget request includes the impact of proposed 
legislation for retirement and health costs for Federal employees and I 
will speak to that proposal later in my statement. However, I do want 
to note that the budget presents for the Committee the comparative 
information on this proposal for prior fiscal years, in order to not 
materially affect the real changes being proposed and reviewed by the 
Committee for fiscal year 2003.
    We have provided the Committee with a detailed breakdown and 
justification for Treasury's fiscal year 2003 budget request. I would 
like to take the opportunity today to highlight four important areas of 
focus for fiscal year 2003.
    Treasury's fiscal year 2003 budget recognizes the importance of, 
and provides adequate and appropriate funding for, the following:
  --Protecting our Nation from Terrorists and Terrorist Activity;
  --Stewarding Change through Technological Improvement;
  --Improving Customer Service & Compliance at the Internal Revenue 
        Service;
  --Achieving the President's Management Agenda.
    FIRST.--In light of the recent events concerning terrorism in the 
U.S., I would like to discuss Treasury's role in protecting our Nation 
from terrorists and terrorist activity.
    The tragic events of September 11, 2001 sparked a Nation-wide 
effort to prevent and combat terrorism. Treasury has been at the 
forefront of these efforts with all of its law enforcement bureaus 
participating in counter-terrorism functions, including internal bureau 
and agency security and ensuring the continuity of operations. We bear 
the responsibility of protecting the Nation on three fronts:
  --At its borders;
  --In the banks; and
  --At home.
    In fiscal year 2002, Treasury received $683 million in additional 
counter-terrorism funding through the Emergency Supplemental. In the 
proposed fiscal year 2003 budget, the follow-on costs associated with 
the funding provided in fiscal year 2002 have been estimated in the 
amount of $518 million.
    Our nation's first line of defense against terrorists and terrorist 
activity is the security of our borders.
    Following the attacks of September 11, the border threat level was 
raised from Alert Level 4 (normal operations) to the highest level, 
Alert Level 1 (Code Red). The Customs Service, our Nation's first line 
of defense at 301 ports of entry into the Nation, has made the fight 
against terrorism its number one priority. In response to this 
heightened state of alert, Customs has hired additional personnel to 
staff our borders and seaports, and has engaged members of the National 
Guard to increase security around our Nation's borders.
    Customs received almost $400 million in new fiscal year 2002 
appropriations for addressing homeland security matters (in addition to 
$65 million provided through separate presidential releases). Of this 
amount, $235 million is being used for a combination of personnel and 
new equipment in ports of entry on the northern border and at critical 
seaports, along with selected investments on the southern land border.
    Customs has set out an expenditure plan for this funding for 
Congressional review that responds to both short and long-term security 
concerns. The recurring cost of labor-intensive efforts will be coupled 
with technology investments that will increase efficiencies and enhance 
the level and degree of scrutiny for various ports of entry.
    The fiscal year 2003 proposal for the U.S. Customs Service includes 
$365 million to fund counter-terrorism efforts in the second year, 
continuing to focus principally on Northern Border and Marine Port 
security efforts, but also addressing other areas of vulnerability, 
such as: international money laundering, security infrastructure, 
southwest border staffing, and funding for the backup of commercial 
data facilities. Ports of Entry (POE) have been identified as main 
entry points for terrorists as well as the most likely avenue for them 
to introduce implements of terror into the country. The danger this 
presents has become a focus for the fiscal year 2003 request.
    In fiscal year 2003, Customs will add 626 new positions, in 
addition to the 1,075 positions allocated in fiscal year 2002, to 
vulnerable locations on the northern and southern land borders, and in 
seaports with the highest volume of containerized cargo. They will 
counter the terrorist threat while facilitating legitimate trade and 
travel.
    The fiscal year 2003 request also includes a large complement of 
inspection and targeting technology (including a modest research 
component), a further expansion of the Advance Passenger Information 
System (APIS) to real-time processing capability, and technology to 
expedite the passage of goods imported by highly trusted entities.
    Finally, low volume Ports of Entry would be protected through 
``hardening'' measures including physical barriers, sensors and 
monitoring devices to prevent and detect unauthorized crossings. 
Customs serves as the lead agency for Operations Green Quest and Shield 
America. These multi-agency task forces are dedicated to: (1) 
identifying, disrupting, and dismantling terrorist financing sources 
and systems, and (2) ensuring that munitions and sensitive U.S. 
technologies are not unlawfully exported into the hands of terrorists. 
The fiscal year 2003 budget supports and maintains these critical task 
forces.
    Equally important with protecting our Nation's borders is deterring 
the terrorists from being able to finance their operations.
    Treasury's Financial Crimes Enforcement Network (FinCEN), along 
with the Office of Foreign Assets Control (OFAC), lead the Nation's war 
against global terrorism financing.
    In his November 7 address at Treasury, President Bush proclaimed 
that ``the first strike in the war against terror targeted the 
terrorists' financial support.'' Following the attacks, FinCEN and OFAC 
were able to identify and stymie numerous supporters of the Al Qaida 
and other terrorist organizations by freezing $34 million in terrorist 
assets and working with allies overseas to freeze over $45 million. 
Funding levels proposed for fiscal year 2003 will better enable FinCEN 
to sustain and maintain these activities.
    While leading protection efforts on the borders and in the banks, 
Treasury has also placed an increased emphasis on security within the 
Nation in the protection of our Nation's leaders, foreign dignitaries 
and, ultimately, our Nation's freedom. The United States Secret 
Service, Bureau of Alcohol, Tobacco and Firearms, and Federal Law 
Enforcement Training Center are at the forefront of these efforts.
    The United States Secret Service is the only Federal Government 
entity charged with the challenging mission of protecting the President 
and foreign dignitaries. In response to increasing homeland security 
threats, the Secret Service has been assigned new protectees and has 
seen significant workload increases in its protective functions. The 
fiscal year 2003 budget provides funding to enable the Secret Service 
to meet its protective requirements, including funding for travel, 
overtime, and follow-on costs associated with Special Agents and 
Uniformed Division Officers hired in fiscal year 2002.
    Around the world, firearms and explosives are the most frequent 
tools of terrorist attacks. The Bureau of Alcohol, Tobacco and Firearms 
is charged with enforcing Federal laws relating to commerce in, and the 
criminal misuse of, firearms and explosives, and ATF's authority and 
technical expertise is an integral component in fighting the Nation's 
war against terrorism. Through the awareness that terrorists need funds 
to operate, ATF has found that illegal commerce in alcohol and tobacco 
products serve as attractive and lucrative sources for generating funds 
for illegal activities.
    As new law enforcement officials are being recruited and hired to 
fulfill the various positions critical to the Nation's war on 
terrorism, training for these individuals to perform their duties in a 
safe and highly proficient manner has become an immediate necessity. 
The Federal Law Enforcement Training Center (FLETC) serves as the 
Federal Government's leading provider of law enforcement training. 
FLETC currently provides training for 74 Federal Partner Organizations, 
and also for State, local and international law enforcement 
organizations on a reimbursable basis. Training is provided in the most 
cost-effective manner by taking advantage of economies of scale 
available only from a consolidated law enforcement training 
organization. The fiscal year 2003 request provides funding to maintain 
current levels prior to the September 11 terrorist attacks, while also 
providing additional funding to support the training of new agents 
hired as a result of the attacks.
    SECOND.--The fiscal year 2003 budget is Treasury's continuing 
commitment to stewarding change through technological improvement. This 
effort entails modernizing two of Treasury's mission-critical 
technological systems.
    The budget continues critical support for the IRS computer 
modernization. The Internal Revenue Service is committed to providing 
excellent customer service and takes pride in the integrity of their 
systems. As a result, they are continually making improvements in 
operations efficiency and performance by adopting best business 
practices and state-of-the-art technology.
    The IRS is replacing its antiquated computer system with an 
information technology capacity that is appropriate for the new 
century. Modernizing the agency's technology will enable it to deliver 
on its pledge to provide better customer service for all.
    The Business Systems Modernization effort was begun not just to 
keep up with modern systems, but also because it was a necessity due to 
the fundamentally deficient nature of the IRS core data systems. The 
Master File system, on which all taxpayer accounts reside, is based on 
outdated 1960s technology.
    It is important, if the agency is to provide quick and reliable 
service to its customers, to continue the ongoing shift to modern 
standards of technology by adopting a new architecture. As this is the 
project's fourth year, much has been achieved, but the process is still 
incomplete.
    This multi-year endeavor is providing IRS with the technological 
tools and revamped business processes needed to deliver first class 
customer service to American taxpayers and to ensure that compliance 
programs are administered efficiently and fairly.
    Fiscal year 2002 and fiscal year 2003 are key transition years for 
IRS Modernization efforts, as the foundation of our Nation's tax system 
is being replaced, building a bridge to providing interactive and 
improved customer service.
    The Department's fiscal year 2003 budget provides $450 million for 
the continuation of effort in re-engineering business processes and 
developing new business systems to replace their antiquated and 
obsolete system. This amount is $58 million above the fiscal year 2002 
enacted level of $392 million, and $378 million above the fiscal year 
2001 enacted level of $72 million.
    The budget also continues important investments initiated for the 
Customs modernization effort. Illegitimate trade and contraband 
trafficking have been of the utmost concern to the Department, the 
Administration, the Congress and the American public. This concern was 
heightened due to the tragic events of September 11, and increased 
pressure has been placed on the Customs Service to inspect all cargo 
entering and exiting the United States.
    The strains on our Customs Service are growing increasingly severe 
every day. Since the Customs Modernization Act was passed in 1993, the 
value of exports has grown by 36 percent while the value of imports has 
risen by 51 percent. The agency is required to cope with this sharp 
rise in input and export volumes with the same outdated technology it 
had when the Act was passed.
    Customs is not alone in having to work with antiquated technology. 
We believe we are on the right track in our efforts to modernize IRS 
technology and we have learned a great deal from this experience. 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 
they are equipped with the best tools available to fulfill these goals.
    In fiscal year 2003, the Customs Service expects to process 27 
million formal trade entries. Customs is dedicated to replacing the 
outdated and unreliable Automated Commercial System (ACS), which has 
been subject to an increasing number of system outages, with the 
Automated Commercial Environment (ACE). The replacement system will 
enable Customs to adopt a paperless, account-based process for 
importers. Fiscal year 2003 marks the third year of funding for this 
modernization effort.
    Besides trade facilitation and compliance, ACE will play an 
integral role, in conjunction with other targeting and inspection 
tools, in assisting Customs with the evaluation of high-risk cargo for 
possible contraband as it passes the Nation's borders.
    The Department's fiscal year 2003 proposal provides for: (1) 
additional investments in the automation modernization program to 
further develop and migrate to the Automated Commercial Environment 
($307.5 million), as well as continued funding for a government-wide 
trade data interface through the International Trade Data System ($5.4 
million); and (3) sufficient funding to maintain the existing Automated 
Commercial System while modernization efforts are underway.
    THIRD.--Our fiscal year 2003 budget request addresses the 
improvement of customer service and compliance at the Internal Revenue 
Service. This has been of significant concern to the Committee and the 
Department, and the Internal Revenue Service has been making great 
strides for improvement in this area.
    To achieve its mission of ``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,'' the IRS has realized that organizational 
improvements and increased employee satisfaction lead to improved 
customer satisfaction. As a result, strategic objectives focus not only 
on the taxpayer, but also on the improvement of the bureau as a whole.
    Under the leadership of Commissioner Rossotti, the IRS has already 
made impressive progress towards providing a more responsive and 
effective service to its customers. But there is still more to 
accomplish. An inefficient tax system imposes costs on all. The longer 
it takes to implement improvements, the greater the cost to the 
consumer and the economy.
    The IRS is well down the road towards modernizing its 
organizational structure and computer systems. Although the IRS has no 
intention of returning to its peak employment, recognizing that real 
productivity has made the agency more effective and efficient, modest 
staffing increases, along with improvements from systems modernization 
are needed to provide the best service in both compliance and customer 
service areas.
    This is the ideal moment to re-engineer the agency to serve all 
Americans by providing the most effective, up-to-date service possible. 
We must not allow this opportunity to pass us by.
    During its strategic planning and budget process, the IRS 
identified $260 million in requirements to improve processing, customer 
service and compliance across its organization as part of its tax 
administration responsibilities. Using a combination of strategic 
redeployment of staff and identification of labor savings programs, the 
IRS has been able to internally redirect $158 million from existing 
resources to focus on customer service, compliance and workload 
requirements.
    The fiscal year 2003 request seeks additional funding for the 
remaining requirement of $102 million needed to meet this mission-
critical goal. The request supports efforts that are already underway 
to improve customer service and compliance operations. Re-engineering 
and Quality Improvement projects and programs are focusing on 
redesigning internal processes, policies and procedures. These 
additional resources, in addition to the redirected resources discussed 
earlier, will be realized by the American taxpayer through the 
following improvements:
  --Providing additional assistance and forms, schedules and new return 
        types to its e-file website in order to meet the Congressional 
        goal of having 80 percent of all returns filed electronically;
  --Through effective implementation of the e-file and e-services 
        programs, the IRS will save more than 500 FTE to be redirected 
        to assist in achieving other parts of this initiative.
  --Hiring of lower-cost employees to handle the submission processing 
        growth anticipated increase from new tax returns filed, 
        reducing the number of high cost employees needed for 
        compliance during filing season;
  --Increasing the level of telephone service to taxpayers with respect 
        to tax law inquiries;
  --Providing almost instant access to return at Customer service 
        sites, assisting staff in providing top-quality customer 
        service to business taxpayers.
    FOURTH.--And overriding area of focus for this year's request, 
addresses Treasury's role in becoming a results-driven organization, 
consistent with the President's Management Reform Agenda. Although it 
may referred to as the President's Management Agenda, the concept of 
the agenda is very similar to the types of results this Committee is 
concerned with.
    The Agenda's five areas of emphasis are:
  --Strategic Management of Human Capital;
  --Expanded Electronic Government;
  --Improved Financial Performance;
  --Budget and Performance Integration; and
  --Competitive Sourcing.
    Only through the delicate balance of all five Presidential 
Management Initiatives can an organization achieve true world class 
performance.
    In working to achieve world-class status, the Department emphasizes 
the importance of leadership, accountability, excellence, people, trust 
and integrity, and improving the work environment. In addition, as the 
principal custodian of the revenue collected and debt issued on behalf 
of the Federal Government, the Department strives to demonstrate fiscal 
stewardship of each congressionally authorized dollar by linking 
investments with specific, measurable results.
Presidential Management Initiative 1: Strategic Management of Human 
        Capital
    Treasury's most valuable and strategic asset is its employees, who 
are responsible for carrying out the Department's vast array of duties 
which affect the lives of every American citizen. Without employees, 
the Department would be unable to meet the obligations placed on it by 
the American public. I have reemphasized the importance of my employees 
and have made every effort to ensure that each employee is (1) used to 
their full potential, (2) working in a safe and positive environment, 
and (3) providing value-added work to the organization.
    I have emphasized that organizations known for excellence are built 
on a foundation of dignity and respect for its employees. The 
Department is focused on evaluating its work and processes so that each 
and every employee feels that their work is meaningful and contributes 
to the mission and objectives of the organization. In addition, because 
job satisfaction is a number one priority for many employees, I am 
dedicated to creating a work culture of performance, challenge, 
meaning, and dignity, while providing employees with flexibility to 
balance their work and personal lives. Examples of this flexibility 
include tele-work and flexiplace programs, alternative work schedules, 
and offering family-sensitive benefits.
    In order to implement this Presidential Management Initiative, the 
Department is continually reassessing its human resource strategies and 
support systems to strengthen the quality of both its workforce and its 
management.
    In the aftermath of September 11, 2001, an increasing number of 
Americans have become eager to consider service opportunities in 
government. It is imperative that the Department exploits this 
opportunity and is able to recruit the best and brightest. As a result, 
innovative approaches to recruit high-caliber candidates into mission-
critical positions are underway.
    A broad variety of private industries have experienced a direct 
correlation between employee satisfaction and customer satisfaction. 
Similarly, I believe that high levels of employee satisfaction within 
the portfolio of Treasury employees will lead to enhanced service 
provided to its citizens, thus yielding higher customer satisfaction 
from both stakeholders and service users.
Presidential Management Initiative 2: Expanded Electronic Government
    In addition to the strategic management of human capital, the use 
and improvement of information technology will assist the Department in 
providing solutions to common challenges facing all areas of the 
Department. The benefits of these improvements will not only improve 
the effectiveness of Treasury operations, but they will also produce 
tangible benefits for the American public.
    Treasury is currently in the process of reviewing its IT portfolio 
for adherence to common standards, and updating and maintaining cost-
benefit analyses for new and ongoing systems. This will yield an 
integrated comprehensive enterprise architecture at the Department 
level that saves money and reduces the cycle time of major products.
    For example, the Internal Revenue Service continues to work towards 
the Congressional goal of having 80 percent of all tax and information 
returns filed electronically by 2007. As this method of tax filing 
becomes more popular, the IRS has reduced processing costs 
significantly per document, with less input errors and reduced handling 
time and storage costs as well.
    Working with the Internal Revenue Service, the Bureau of Alcohol, 
Tobacco and Firearms continues to operate systems that electronically 
capture revenue and allow forms to be electronically submitted for 
tobacco taxation collection.
    In efforts to streamline human resources applications, HR Connect, 
which is currently operational in six Treasury bureaus, serves as a 
single, integrated automated environment for human resource operations 
across all Treasury bureaus. When fully operational, HR Connect will 
replace the 90+ legacy stand-alone human resources systems that 
currently exist. HR Connect will provide standardized information and 
will facilitate results-driven decision-making.
    As a highly visible agency, Treasury maintains websites that are 
among the most frequently accessed, and are therefore tailored to the 
specific needs of its customer base--citizens, businesses and other 
government agencies. The following are examples of Treasury bureau 
websites that were created with the customer in mind, while improving 
the cost effectiveness of Treasury:
    The U.S. Mint offers a large portion of their services, resources 
and products through the Internet. Recognized as one of the top 30 ``e-
tailers'' in the Nation in fiscal year 2000, the Mint's Web sales 
exceeded $109 million and their return on investment has reached 20 
percent.
    Working closely with the Financial Management Service, Mellon Bank, 
MasterCard and IBM, the Bureau of Public Debt now sells U.S. Savings 
Bonds to the public on a 24/7 basis over the Internet. Within the first 
10 months of its operation, the Savings Bond Connection generated $63 
million in bond sales, resulting in a 180 percent return on investment.
Presidential Management Initiative 3: Improved Financial Management
    Treasury has the responsibility of principal custodian of the 
revenue collected and debt issued on behalf of the Federal Government. 
To improve financial performance and expand electronic government, it 
is imperative that the Department implement modern financial management 
systems that are capable of providing timely, accurate and reliable 
information.
    In recognizing that real-time information is much more valuable 
than information that is 5 months old, I have challenged each of the 
bureaus to improve their reporting capabilities by moving to a 3-day, 
monthly closing of their books by no later than July 3, 2002.
    Once all bureaus are implementing a 3-day, monthly close, they will 
be able to submit better financial data for consolidated reporting to 
bureau and Department. This will enable bureau and Department 
management to make results driven decisions, instead of spending the 
majority of time aggregating the data. This will also contribute to 
increased employee job satisfaction by showing employees that the work 
they do contributes to the overall decision-making process.
    Bureaus are also in the process of conducting internal risk 
assessments focusing on payment controls, determining and investigating 
those areas that contain the most potential risk for improper payments. 
These assessments will result in improved operational performance, 
which will contribute to improved customer service.
Presidential Management Initiative 4: Budget and Performance 
        Integration
    Integrating performance information into the budget decision-making 
process allows agencies to more directly focus their resource decisions 
on strategies and programs that produce desired results. This effort 
has been evolving and ongoing for the past 6 years. The following are 
examples of Departmental improvements in this area:
  --Bureaus have submitted performance information along with their 
        budget requests to the Department for several years. The 
        Department is moving to target better use of this information, 
        lining up resources, performance data and metrics to become a 
        more effective decision-making tool for the bureau, the 
        Department, OMB and Congress, as senior officials are better 
        able to make resource decisions based on the performance of 
        programs and initiatives.
  --Work continues on presenting bureau measures, which address key 
        activities using balanced, results-oriented performance 
        measures, and on improving the quality of this data.
Presidential Management Initiative 5: Competitive Sourcing
    Treasury continues its efforts in competitive sourcing, utilizing 
contractors whenever necessary to meet its goals. Expanded steps are 
underway with each bureau, to enhance competitive sourcing knowledge 
sharing, and knowledge management Department-wide so that necessary 
sourcing competitions can begin as soon as possible. The Department is 
committed to evaluating the merits of its internal efforts, by 
understanding competitive sourcing options--migrating to those 
outsourced options when it makes sense for the American people based on 
cost and value, while retaining those specific mission areas that are 
inherently governmental. A number of the Department's bureaus rely 
heavily on the private sector.
  --The Bureau of Alcohol, Tobacco and Firearms employs a broad array 
        of contractors to support its mission, and integrates in-house 
        solutions with outsourced vendors. This allows ATF's leadership 
        team to focus on their core deliverables and mission-oriented 
        goals.
  --At the Financial Management Service, contractors are involved in 41 
        percent of the total management support functions.
  --The U.S. Mint contracted out 26 percent of its operating expenses 
        in fiscal year 2000. These contractors performed not only 
        administrative tasks, but were also responsible for other 
        functions at the Mint such as advertising, public relations, 
        printing, numismatic order processing, telemarketing services, 
        and custodial and facilities management operations. During late 
        fiscal year 2001 and early fiscal year 2002, the U.S. Mint 
        built a strategic plan that ensures its employee focus on those 
        critical areas of performance. They have leveraged the actual 
        business execution of their operations using contractors, while 
        their core employee base provides leadership, direction and 
        critical business efforts.
  --IRS and the Department will study the possibilities of outsourcing 
        some aspects of the collection process.
          legislative proposal on retirement and health costs
    Mr. Chairman, our budget includes the impact of proposed 
legislation for the full funding of certain Federal employee retirement 
and health costs. Because Treasury has the third largest agency 
financial impact with the implementation of this proposal, I'd like to 
provide the some additional background for the Committee.
    The President's fiscal year 2003 Budget corrects a long-standing 
understatement of the true cost of thousands of government programs.
    For some time, the accruing charge of costs associated with the 
Federal Employee Retirement System (FERS) and Military Retirement 
System (MRS), and a portion of the old Civil Service Retirement System 
(CSRS), have been allocated to the affected salary and expense 
accounts, and the remainder (a portion of CSRS, other small retirement 
systems, and all civilian and military retiree health benefits) has 
been charged to central accounts.
    The President's Budget presents the amounts associated with 
shifting this cost from central accounts to affected program accounts, 
starting in fiscal year 2003, predicated on the enactment of 
authorization legislation. By shifting this cost to the affected salary 
and expense accounts, budget choices for program managers and budget 
decision-makers will not distorted by inaccurate cost information. The 
proposal does not increase or lower total budget outlays or alter the 
surplus/deficit, since the higher payments will be offset by receipts 
in the pension and health funds. This change in treatment of costs is 
the first in a series of steps that will be taken to ensure that the 
full annual cost of resources used--including support services, capital 
assets and hazardous waste--is charged properly in the budget 
presentation.
                               conclusion
    Mr. Chairman, let me conclude on a personal note. Since becoming 
Treasury Secretary last year, I have been deeply impressed by the 
intelligence, professionalism and dedication of the people with whom I 
have worked, and together, we are working to making this Department a 
model for management and service to the American people. I hope the 
Committee shares my confidence in the uses that are being made of 
taxpayer's funds. In that spirit, I ask that you approve our fiscal 
year 2003 budget request to support the work of the Treasury Department 
in fulfilling its wide range of responsibilities in serving the 
American people. I look forward to working with you, Mr. Chairman, as 
well as members of the Committee and your staff, to come up with a 
budget that maximizes Treasury's resources in the best interest of the 
American people and our country. Thank you again for giving me the 
opportunity to meet with you and personally present the Department's 
budget. I am willing to answer any questions the Committee may have 
concerning the Department's fiscal year 2003 budget.

      REACTION TO IMMIGRATION AND NATURALIZATION SERVICE PUBLICITY

    Senator Dorgan. Mr. Secretary, thank you very much. Let me 
ask a series of questions about a range of issues and then I 
will call on Senator Reed.
    Let me ask you a question that has nothing to do with your 
agency. Yesterday when I was eating Grape Nuts in the morning I 
read the Washington Post and the front page story about the INS 
sending out a couple of approved visas to Mohamed Atta and one 
of the other terrorists. That is not your agency but I assume 
you saw that as all of us did and said, what on earth could 
allow this to happen, because all of us have systems in our 
agencies that deal with massive numbers of names and 
information. Give me your reaction to having read that. You are 
a businessman. What do we do about things like that?
    Secretary O'Neill. I tell you, my first instinct was to 
say, it is unimaginable that this could happen with the two 
individuals who have become so well known through the media 
coverage of September 11. I must tell you my second reaction 
was to feel sorry for the employees of the INS. This comes, I 
suppose, from having been a Federal Government lifer for 15 
years and knowing what it is like to wear the shame of this 
kind of an event when it clearly was not done intentionally. 
Systems fail.
    We tend to make an awful lot of these kind of symbolic 
things when they happen in Washington. I understand why we do 
that but I have got to tell you, my heart goes out to the 
people who work in that agency, who would like to take pride in 
what they do. From the reaction to yesterday's revelation I 
think, now you have got thousands of people who feel that they 
are on the defensive, whose intelligence is under question. So 
that was my quick reaction.
    And third, a sense--it is partly what I had in mind when I 
said to you, we will know we have really succeeded in being an 
excellent organization at the Treasury Department when the 
private sector comes to see how to do it. It is a reflection of 
how I felt when I was here before.
    When I came here in 1961 and received 18 months of training 
in designing computer systems, I had a high degree of 
confidence that I was working for the leading edge organization 
in the application of computer technology. Because when I went 
out to find out what was going on in Pittsburgh, to see what 
U.S. Steel was doing, I came back reassured that they would 
never catch up with us because we were so good at taking this 
new, marvelous computer technology and applying it to the mass 
problems that we had to deal with in those days with Social 
Security and veterans benefits programs, both insurance and 
dependent benefits. We were so good at what we did and so proud 
of what we were doing.
    I think for a variety of reasons we have lost that edge. 
But I am convinced that we can have that edge again. It is 
mostly not about huge increases in funding. It is about 
leadership. It is about continuity. It is about understanding 
what excellence really is. And it is about the deployment of 
good ideas and equipment in a sensible way.
    So my hope is that the INS people will pick themselves up 
and they will demonstrate to the world that American citizens 
should be proud of the people who work for their Government.
    Senator Dorgan. The reason I ask that question, and I 
appreciate your response, is in putting Customs officers at our 
borders we are trying to control our borders. We do not want to 
keep people out of this country but we certainly do not want to 
let terrorists in, or those who associate with terrorists. In 
order to do that we have to have some confidence in the systems 
that we have established by which we grant visas and grant 
entry to our country.

                              CUBAN TRAVEL

    Let me ask a series of questions. One, you know I would ask 
about OFAC and Cuba. If you were a retired, little old lady 
from Illinois, a schoolteacher who is now interested in 
bicycling and joined a Canadian bicycle tour of Cuba and then a 
year and-a-half later got a fine from the Treasury Department 
of $9,500 you would be apoplectic about it.
    I guess I understand that the law is the law. But I am 
wondering whether you think it is a particularly wise use of 
resources to ratchet up more energy towards enforcing the law 
like this at a time when in OFAC we are trying to chase 
terrorists. I wonder whether it is not a lower priority or 
should not be a lower priority with you to use those numbers of 
people in OFAC to track terrorist activities and leave the 
little old ladies that are riding bicycles alone for a while?
    Secretary O'Neill. Senator, let me agree with you and with 
the implication of your question and then I think I have to at 
the same time disagree. If I were responsible for doing this 
function in the private sector, and I had the discretion to 
decide where to deploy my resources, I would agree with you 
completely. I would follow the 80/20 rule. I would concentrate 
on those areas that were going to produce the most value. So 
sentimentally I want to agree with you.
    But I do not know how to bring the notion of discretion to 
a law that I feel tells us that we do not have discretion. Now 
if we could agree that we could amend the law so that in fact 
we did have discretion, then I think we would be on much better 
ground.
    In fact, as a general proposition, I think we would be so 
much better off if we did a thorough review of the laws that 
tell us what we should do and must do, and provide a sensible 
discretion of the sort that you are suggesting. We would get 
much more value for the American people. We would give much 
more freedom to the people who are supposed to be making 
decisions on the operating activities of the Government. So I 
am very much inclined to want to be where you are and it would 
be very helpful if we could work together to figure out a way 
that we can not put ourselves in violation of the law because 
we exercised what seemed like common sense discretion and in 
fact then get hauled up for failing to uniformly enforce the 
law.
    Senator Dorgan. Our job in Congress is to repeal the travel 
restriction with respect to Cuba. But to the extent it exists, 
I simply observe that all law enforcement has discretion. If 
there is jaywalking occurring at the same time that a bank 
robbery is occurring, law enforcement officers will move to 
deal with the bank robbery. So that discretion exists all over. 
I guess my hope would be that OFAC would understand that there 
is a greater good these days to deal with the terrorist threat 
than the threat of a retired teacher bicycling in Cuba.

                   DISCLOSURE OF ENFORCEMENT ACTIONS

    Having said that a quick question. The Washington Post had 
a story on March 6 about OFAC secretly settling more than 100 
enforcement actions in 1998 to 2000 against corporations, 
banks, and other entities, for violating the trade embargoes 
against Cuba and other countries. That is before you came to 
the Treasury Department.
    The information was disclosed only because of a suit filed 
by public interest groups. I am wondering, because OFAC is 
being forced by a lawsuit to disclose the settlement of these 
cases, will future settlements be made public as a matter of 
course?
    Secretary O'Neill. It is an issue I think we should look 
at. As I have looked at some of the individual cases that are 
involved here, it is not clear to me from looking at the law 
that it was the intent of Congress to hold people up to public 
humiliation for agreeing to settle some of the allegations that 
are made. These are not of a class where people have--basically 
they have stipulated to an allegation or to a settlement. So I 
think we need to look at that and see.
    One of the things I find interesting in the way the 
language was used, in this particular story the term secret was 
used, although to me secret conveys a sense of a willful intent 
to hide. I do not think that that is an appropriate 
characterization of what took place in this particular case. I 
do not think there was a willful intent to restrict access to 
things.
    Senator Dorgan. Except there was not willful disclosure, 
and those who wanted it had to actually file actions in order 
to get it. I understand the Commerce Department, State 
Department, and others that take enforcement actions routinely 
disclose the results of those settlements. I would encourage 
you to take a hard look at that. I do not believe it ought to 
have to be pried out of the agency.
    Again, this story is about a time when you were not there, 
but I would encourage you to take a look at it because I think 
this information ought to be public.
    Secretary O'Neill. Senator, we will do that. We will do 
that and we will work with the committee and see if we cannot 
find a road that seems sensible.

                          JOINT BORDER AGENCY

    Senator Dorgan. Mr. Secretary, it is my understanding that 
Governor Ridge is moving closer to a proposal that would 
combine the Customs Service in some sort of joint border agency 
with other agencies such as the Immigration Service under the 
Department of Justice perhaps.
    I am wondering how you feel about that and how would the 
revenue-generating responsibilities of the Customs Service, for 
example, fit in with such a plan? Especially given the news 
this week with respect to the INS, I am wondering if there are 
some concerns about that, and what kind of discussions are now 
underway. I have only heard them rumored, but they have 
obviously been in print with those rumors. What is your 
impression of what is happening there, and how do you feel 
about it?
    Secretary O'Neill. I will not just tell you my impression, 
I will tell you what the facts are. Since the terrorist events 
of September 11 and the President's appointment of Governor 
Ridge as our Director of Homeland Security, we have been asking 
ourselves a wide-ranging set of questions about how do we 
imagine and envision what homeland security should mean and 
what we should be striving for going forward.
    For most of us, I guess I would say for all of us, this is 
a whole new area of inquiry, because we have never really had 
to think, I think, in the past about what is now a current 
reality of being attacked on American soil. It is a very 
different proposition. I think all of us believe that we need 
to rethink the mission.
    The example you cited with the two orange cones in the 
middle of the road as though that was somehow keeping people 
out of the United States is an absurdity on the face of it. And 
probably the absurdity was not so awful so long as it was 
believable that we were not subject to terrorist attack. That 
is clearly not the case anymore.
    So indeed, we have had wide-ranging, ongoing conversations 
about this question of how to organize so that we can give 
assurance to the American people that we have thought about the 
right questions, and we have distributed resources in the way 
most likely to avoid more American casualties.
    I think we are getting close to a Presidential decision. In 
fact, I told you I would tell you what is going on. At 5:00 
this afternoon we have another meeting on this subject. There 
have been lots of papers written, I am sure, because you are a 
student of Government and you know these things. The subject of 
changing the organization of border-related activities is one 
that has been studied in the public administration community I 
think for 40 years or so. There are all kinds of papers 
available on the Internet on the subject. We have looked at all 
of that.
    I would say to you at the outset, I do not know of any 
institutions, public or private, who rush to change. So as you 
might imagine, the immediate response to any idea that anything 
is not perfect is, for every individual organization, to put on 
the brakes and say, we are perfect; how could we be any better? 
So if there is going to be consolidation it ought to be under 
our flag. Those are all natural, human reactions.
    I think the process of deliberation we are having is a 
thorough going over. It involves, for my money, from an 
executive branch point of view, all of the correct people that 
need to be involved in these considerations. I suspect in the 
not-too-distant future the President will decide what he thinks 
of all of this analysis work that has been done and then we 
will see what we should do.
    Let me tell you from my point of view, I have had an 
opportunity to visit some Customs locations and to get to know 
some of the Customs people and other bureau and departmental 
people in the Treasury. These are great people. I was down in 
Jacksonville a few weeks ago and I had an opportunity to go out 
and look at our aircraft that is doing surveillance work in, if 
I can call it, the Latin cone. I talked to the people there. 
Their sense of dedication and determination and purpose is 
something really to be highly admired I think.
    I went out on the wharf and looked at the new electronic 
surveillance equipment that the Congress has funded and 
provided to see how we are now able to electronically scan 
containers that are coming into the country. I think one of the 
great things about the Customs Service is what I said about the 
people in the INS, these people believe in what they do. They 
believe in the Customs Service. They believe in the tradition. 
It is a thing to be highly prized and valued.
    So as long as we are organized the way we are, I am proud 
to carry the flag. If the President with his perspective, and 
after listening to all the arguments decides there is a better 
way to give the right assurance to the American people, I will 
be the advocate for that.
    Senator Dorgan. Mr. Secretary, thank you very much. I want 
to ask just a couple additional questions if Senator Reed is 
not time constrained, and then I will recognize Senator Reed 
and then come back and ask a couple of additional questions. 
Just one follow-up point. Do you have any notion of when we 
might expect a recommendation or a decision by the President on 
this?
    Secretary O'Neill. I will know better after 5:00 today. I 
do not know. Frankly, I came directly here from the President's 
speech announcing a new $5 billion initiative to get results in 
the area of economic development and I just arrived back 15 
minutes before I got in the car with him from New York so I do 
not really know.
    Senator Dorgan. But is it days or weeks or months?
    Secretary O'Neill. I would say certainly less than months. 
The President, I expect, will make a decision--I guess I would 
say weeks if those are my choices; no more than weeks.

                         ABUSIVE TAX PRACTICES

    Senator Dorgan. Let me ask just a couple of questions about 
tax shelters. I have a couple of charts that describe some of 
what has happened with respect to reporting. I expect most of 
it is accurate but you correct it if it is not. These are 
mostly Wall Street Journal stories. There was a report in March 
that suggested there is going to be an easing with respect to 
the curbs on tax shelters.
    The previous Administration under Secretary Summers said, 
look, we have got a huge problem here. The tax advisors, 
accountants, and attorneys are really trying to find the edge 
with their clients. They are becoming very aggressive--very 
aggressive in trying to find ways to avoid taxes and we really 
need to clamp down on this. As I indicated to you, I have been 
chairing some Enron hearings and Enron alone has something over 
800 subsidiaries in the Cayman Islands and other tax haven 
countries to avoid paying taxes, I assume. I assume people do 
not establish a post office box and a company in the Cayman 
Islands because that is where their customers are. That is just 
symbolic of how aggressive all of this has become.
    I have become very concerned about it because there are 
estimates by some that we are losing, some say $10 billion, 
some say up to $30 billion a year through these aggressive tax 
shelters that really require us to clamp down. Some of the 
headlines suggest--I will not go through all of this but I want 
to give you a chance to respond to some of it. If I might show 
the rest of the charts.
    One, says that the Bush Administration appears to ease 
curbs on tax shelters. The next one, this is March 1, 2002, the 
Washington Post, tax shelter disclosure falls short and 
agencies seek to halt corporate abuses. This deals with a 
specific effort that they expected would have a lot of 
companies providing information about the advice they give to 
clients; very few of them in fact are.
    If I might show the last one. U.S. corporations are using 
Bermuda to slash tax bills. That is February 2002. The point 
is--I think you understand my meandering question. The point 
is, about a year and-a-half, 2 years ago it looked like we were 
going to start to squeeze this lemon called tax shelters in an 
aggressive and an appropriate way in my judgment.
    News reporting has suggested that this Administration 
thinks they want to move in the other direction. I would be 
very concerned about that--am very concerned about that. So can 
you tell me what is behind the headlines here? What are you 
doing and how do you feel about these tax shelters?
    Secretary O'Neill. Yes, I am delighted to have an 
opportunity to respond to this set of questions. Let me begin 
by saying, I think tax shelters is a really bad phrase because 
it is a value-laden phrase that I do not think we should use. 
As a matter of fact when I work with my public relations 
people-they will tell you--and I see those words, I write in 
what I think the real intention is, which is abusive tax 
practices.
    Now when I went to school, and it was a long time ago, I 
was taught these things about taxes. That they are due and 
payable, and that those who do not meet their responsibility 
are either guilty of evasion, which is illegal-that is to say, 
they did not do what they were supposed to do, or of finding a 
way under the law to avoid paying the taxes that someone 
thought they should pay. There is a distinction between what is 
illegal, which is evasion, and what for one reason or another 
is not illegal because it has not been specifically banned, 
which is avoidance.
    It leads me to a conclusion I am happy to say all over the 
country, and I do on every opportunity. Our tax code, Senators, 
is an abomination. We would not have either evasion or 
avoidance if we did not have 10,000 pages of code and 
legislation that takes a genius to understand. I would be 
willing to bet you that most of the corporate CEOs could not 
find their way through the tax code. They have legions of the 
smartest people in the country trying to figure out how to 
avoid--not to evade, for the most part, but to avoid-taxes, 
which is a legal, lawful activity in our society.
    Now, I believe deeply that Americans and American 
institutions should pay their tax bills. So what we have 
underway right now are several different efforts at the same 
time. One, a series of white papers in the individual income 
tax area and in the corporate tax area, that goes to the heart 
of the issue of simplification. Because I think the more we can 
simplify, the more likely we will have an enforceable tax code 
that does not take tens of millions of people to administer.
    Two an effort to tighten up this area of tax avoidance by 
forcing, through a series of penalties, corporations to self-
report where they are walking the edge between avoidance and 
evasion. I think most often to give the filers the benefit of 
the doubt, where people have found a crease in the law that was 
written by the Congress and they are using that crease as a way 
to decrease their tax liability.
    Senator Dorgan. Mr. Secretary, I apologize for interrupting 
you, but often those creases are created by the taxpayers 
themselves coming to Congress and saying, create this crease 
for us.
    Secretary O'Neill. I agree with you.
    Senator Dorgan. Congress does it. Having been a tax 
administrator for many years, I know that most of those 10,000 
pages are there because someone came to lawmakers to say, by 
the way, here is a little thing you ought to do to change it or 
tweak it for us because it gives us an advantage. So page after 
page after page is complexity that is induced by those who want 
advantage in the system. Those little creases you talk about, 
most of those are put there by people coming here wanting 
advantage.
    Secretary O'Neill. I certainly agree with you. I think 
there are no words in the tax code that are the result of 
immaculate conception.
    Senator Dorgan. Do not be so sure about that. If you have 
ever witnessed a conference committee from the inside you will 
see----
    Secretary O'Neill. I take your point, Senator.
    Senator Dorgan. I want to be more specific about tax 
shelters. Let me just ask one final question. Your predecessor, 
Secretary Summers called, let me use your term, abusive tax 
practices, the most serious compliance issue facing the 
American tax system today. Do you feel that?
    Secretary O'Neill. No, I think this is a terrible problem, 
but I think the complexity of our tax code is the most crucial 
problem facing our society, in this way, Senator. I am very 
concerned--this is from working around the world in lots of 
different countries and seeing where complexity becomes the 
enemy of civil society and a sense of civil duty. You get to a 
point where people say, the Government will not know whether I 
did the right thing or not because even they cannot figure it 
out. I will not name names, but there are countries that are 
today going down the drain because only 40 percent of the 
people pay the taxes that are theoretically due and owing.
    I worry a lot about this issue of so complicating the code, 
maybe with the best of intentions, that it turns us into--maybe 
this is not too pejorative--a banana republic in terms of how 
we run our fiscal system. It is a dangerous thing.
    Senator Dorgan. I will come back to this issue.
    Senator Reed, thanks for being indulgent.

        NATIONAL INSTANT CRIMINAL BACKGROUND CHECK SYSTEM (NICS)

    Senator Reed. Thank you, Mr. Chairman. Again, thank you, 
Secretary O'Neill. As my initial comment suggested, September 
11 highlighted the law enforcement aspects of the Department of 
Treasury; some aspects that most people do not associate with 
the Department of Treasury, and several agencies. One is the 
Bureau of Alcohol, Tobacco and Firearms.
    I met several weeks after September 11 with officials of 
the ATF and they indicated to me that FBI officials compared 
the audit log of approved gun sales under the NICS system to 
the Government's terrorist watch list based on their request. 
We later read about this in the New York Times. It was made 
public. So it was clear that at that moment of incredible 
danger and vulnerability, many seasoned law enforcement people 
felt that this system, this NICS system, had very valuable 
information to preempt another attack.
    But since that time the Department of Justice and the 
Attorney General have suggested that Federal law prohibits any 
type of comparison of the NICS records with terrorist records. 
I wonder, since the request emanated from your department, Mr. 
Secretary, what are your thoughts on the Justice Department's 
position and would you support legislation that would make 
these records available in antiterrorism investigations?
    Secretary O'Neill. I must say I have not looked at this 
issue in detail but let me give you a general answer to your 
question that flows directly from what I have heard the 
President say over and over again. I think we should use all of 
the sources and resources that are available to us to track 
down, interdict and stop terrorist activity-all of the sources 
that we have. So I would not agree that we should in any way 
limit our ability to go after people with evil intent.
    Senator Reed. Thank you, Mr. Secretary. I followed up my 
meeting with a letter and asked the Attorney General what were 
the results of this matching process, and you might not have 
specific information, but if you could for the record later 
provide it. He responded to me, ``Following the September 11 
attack the FBI requested that the Bureau of Alcohol, Tobacco, 
and Firearms compare ATF databases related to multiple sales, 
stolen firearms, and trace crime guns with the watch list 
arising out of the investigation. The FBI was advised there 
were six matches from this comparison.''
    I wonder if you have any information on what those matches 
might be in terms of the types of weapons or anything else.
    Secretary O'Neill. No, I am sorry, we do not, but we will 
provide that for the record, Senator.
    [The information follows:]

               Use of ATF Databases for Firearms Tracing

    The names of 8 individuals from the terrorist watch list matched 
the names of individuals found in records of 47 previously traced 
firearms or 2 multiple sales reports. These records included traces of 
32 pistols, 10 rifles, 5 shotguns and 2 revolvers.

                               GUN SHOWS

    Senator Reed. Thanks very much, Mr. Secretary.
    Mr. Secretary, there is another area that has been a 
persistent focus of attention, and particularly my attention, 
and that is the area of gun shows. In January 1999, a report by 
the Department of Treasury entitled, Gun Shows, Brady Checks, 
and Gun Crime Traces, concluded that, ``a review of ATF's 
recent investigations indicates that gun shows provide a forum 
for illegal firearms sales and trafficking.''
    My question would be if that is the still the position of 
the Department? And regardless, would you support closing the 
gun show loophole, the provision in the law that allows private 
sellers to continue and operate without background checks at 
gun shows?
    Secretary O'Neill. I know this is the eggshell area and I 
have not, frankly, personally looked at it close enough to give 
you an off-the-top-of-the-head answer. So rather than lurch 
into an area without consideration, I would rather give you an 
answer for the record.
    [The information follows:]

    The Administration supports in principle amending the Brady Act to 
require background checks for all firearms transactions at gun shows. 
We must ensure that terrorists and other criminals are prevented from 
purchasing weapons at gun shows through an instant criminal background 
check that does not unduly burden the law-abiding gun buyers at these 
events.

    Secretary O'Neill. But I want to go back just for one 
second to your earlier question, if I may, and offer this to 
you. If you see things that do not make any sense to you in 
this area of terrorism, I wish you would feel free to call me 
or have one of your staff people call me on the phone so that 
we can take immediate action. We should not wait until we have 
a formal hearing. If you have knowledge or suspicion that we 
are not using all the resources appropriately in our society 
working on these terrorist things, believe me, the President 
has made it clear to me I do not have a higher priority than 
this. I will take your call immediately if you have any 
concerns.

           EXCLUSION OF SPORTING GUN FIREARMS FOR IMPORTATION

    Senator Reed. Thank you, Mr. Secretary. I certainly 
appreciate the fact that you want to present an informed answer 
so it is entirely fair that you do so on the record 
subsequently. I also appreciate your offer of contacting. You 
have been very responsive in our previous relationship and I 
appreciate that very much.
    This other question might go in that same category of I'll 
get back to you. Under Title XVIII, the bureau has the right to 
exclude from importation firearms that ``are not generally 
recognized as particularly suitable for or readily available to 
sporting purposes.'' I wonder if you might comment on this now 
or later, particularly since there has been some, at least in 
the media, discussion of weapons like .50 caliber sniper rifles 
and others which do not seem to be of a sporting purpose.
    Secretary O'Neill. We will be happy to give you something 
for the record.
    [The information follows:]

                   Policy for Importation of Firearms

    The Bureau of Alcohol, Tobacco and Firearms has determined that a 
.50 caliber rifle is importable as a sporting firearm because it is 
particularly suitable for, or readily adaptable to sporting purposes. 
Specifically, ATF's longstanding interpretation of ``sporting 
purposes'' includes competitive shooting events. In the United States, 
there exist numerous organizations that sponsor competition in 
silhouette and target shooting events for .50 caliber rifles.

                         ADEQUACY OF ATF BUDGET

    Senator Reed. Thank you very much, Mr. Secretary.
    Mr. Secretary, let me just ask one other question which I 
think you might be able to respond to now. That is your 
estimate of the adequacy of the ATF's budget this year to meet 
all the issues we talked about, and issues emerging each day 
with respect to terrorism. Do you think it is adequate?
    Secretary O'Neill. I think we are fine, and if it looks 
like we are not going to be able to fully discharge our 
responsibility in a professional way we will come back to you.

                  PROGRESS OF ACE MODERNIZATION SYSTEM

    Senator Reed. Thank you, Mr. Secretary. One final question 
and that is with respect to the Customs Service. They are in an 
effort to replace their automated commercial system with the 
new automated commercial environment. Are you pleased with the 
progress to date? Do you see there are any problems that 
Customs might be facing? Generally what is your assessment?
    Secretary O'Neill. In my oral comments at the beginning I 
indicated, and let me maybe even sharpen a little bit what I 
intended with my comments, both about the so-called ACE system 
and the IRS modernization. Over the last 25 years or so that I 
was in the private sector, I was involved both as a board 
member and as a CEO working on adoption of very large computer 
systems, and I have some scar tissue that I would show you to 
prove it.
    This whole business of using and deploying complex systems, 
and hardware and software technology is one where it is more 
frequently the case than not that when you get to that switch-
flipping stage at the end where you hope and pray everything 
works, it does not work quite the way you thought.
    When I came and began getting briefed on these systems, I 
must tell you I was concerned about the development period, for 
this reason. In my experience, if you have a very long 
development system for computer-based systems, by the time you 
get to the end of a very long period, say 10 years, the world 
is so changed that you never arrive at the intersection. The 
intersection never comes.
    As a consequence of that, since Assistant Secretary Kingman 
has been on board the last few months, I have asked him and his 
staff to give a really concentrated look at these things 
because I know that there have been troubles in the past with 
IRS modernization, and there has been some skepticism and 
concern about the ACE system.
    I want to be able to make a personal representation to you, 
off the work the Assistant Secretary and his people are doing, 
that we buy where we are, and we have confidence in what we are 
doing. It would probably take us another 3 or 4 months to be at 
a stage where we are willing to say, this is it and we own it.
    Because I think we have that obligation to you all, that 
even though this was not begun on our watch, that we owe it to 
you and the American people to say, we own this. Because it 
would really be unfortunate to deploy a whole lot more money, 
and then have us or some subsequent administration official 
say, we are sorry, for 10 different reasons it did not work.
    So we are hard at work trying to get to a point that we can 
make a representation to you that we can stand behind with some 
confidence.
    Senator Reed. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.

                         ABUSIVE TAX PRACTICES

    Senator Dorgan. Mr. Secretary, let me go back to the tax 
issue. When I showed you the Wall Street Journal articles and 
the Washington Post article you did not respond with vigor so I 
do not--let me try to understand how you feel about this and 
what you are doing as Secretary.
    In recent months Treasury and IRS have announced an amnesty 
program of sorts for corporations who have used tax shelters to 
come in and abate part of the penalty, have chosen not to 
appeal a Federal court ruling against the IRS and a decision 
that appears to open the door to some companies to double 
deduct certain losses from subsidiaries, signalled they would 
issue more generous standards for deducting some business 
investments, largely along the lines favored by some people 
that have lobbied very hard.
    The implication of these stories that would be, for 
somebody taking a look at it, that it looks like we're stepping 
back here from an aggressive enforcement regime with respect to 
abusive tax practices. Is that what is happening?
    Secretary O'Neill. Let me respond in a real sharp way: 
absolutely not. If anything, I think we are more dedicated to 
operating the Government with excellence than maybe anybody who 
has ever been here before. We have had some capable people come 
to work in this Administration. People who have proven they can 
do it. It is not a theory.
    Let me tell you why I did not react to these things. I will 
pay for this, but I am going to tell you anyway what I think 
about this. There is so much stuff in the newspapers parading 
as reports that is really editorial--that is to say, someone 
having an opinion--that I have just gotten immune to paying any 
attention to most of it. There is so much of it that is not 
worth reading or knowing because it is misleading and 
misrepresenting what is truly going on. Somebody has an axe to 
grind.
    I do not have enough time in my life to care about people 
who are out there, doing whatever they are doing in the 
newspapers. I am going to make the world better to the degree I 
can, using the great people that we have assembled. The people 
who get paid for writing this stuff for a living can go on 
doing whatever the hell they want.
    Senator Dorgan. That was sharp enough.
    Secretary O'Neill. Not to be strong about it.
    Senator Dorgan. That was sharper. Tell me then, as somebody 
who really believes that what is happening is very abusive out 
there, we are losing anywhere from $10 billion to $30 billion I 
think, and probably with transfer pricing even more. Tell me 
what is happening inside Treasury that demonstrates that this 
Treasury Department is really aggressive in going after these 
companies and those who are advocating tax shelters that are 
abusive.
    Secretary O'Neill. The Assistant Secretary for Tax Policy 
and his people are very close to having a set of proposals, 
some of which actually are not proposals, they are 
administrative actions we are going to take, and some that will 
require legislative action, to tighten the noose around people 
who would create abuses of the tax system, and to highlight 
what we would say are abusive practices.
    Now as we agreed before, in most of these areas it is going 
to turn out that, by intent, the tax Code provided for people 
to do some of the things that are now being called abusive. We 
are going to have to work with the Congress one by one to 
change the language, if we can get the majority of members of 
both houses of Congress to agree to cut off this source of 
funds that people are taking advantage of. But we are going 
after this on a daily, tough-minded way and you will see 
something very soon.
    Senator Dorgan. So if someone said, look, this is just a 
pro-business administration and when they see companies prying 
open the curtain and slipping through, there are folks in this 
Administration who say, we will just let them do that. They are 
our friends.
    Secretary O'Neill. You are not going to see any of that in 
this Administration. If anything, I think you are going to see 
people responding the way they responded to the ideas about 
CEOs being responsible for their behavior that the President 
put forward as a result of the task force that I led that said 
we should have a new standard, and CEOs should certify that 
they have told their shareholders and their employees every 
quarter everything they know that is material.
    The screams and outcries from the community out there were 
quite loud. But, I think it demonstrates the intent of this 
President and this Administration to work for the highest 
standards, and the expectations of people obeying the law, and 
beyond obeying the law, following what I would characterize as 
the American value system of being able to trust each other.

                          OECD AND TAX HAVENS

    Senator Dorgan. Mr. Secretary, when I tell you that the 
Enron Corporation had apparently over 800 subsidiaries in the 
Cayman Islands and other tax haven countries, that is a 
startling number to me for the Enron Corporation. But the more 
I have looked at that corporation, the more I have understood 
that it was a company run by people searching for the edge so 
they could get near it and probably over it, if possible.
    But this describes to me again why it is important for us 
to work through the OECD and with other countries in the OECD 
to take a good whack at these issues together. We are not in 
this alone. Every country has a similar interest in taking a 
look at these international enterprises that want to find a way 
to do business everywhere, make profits everywhere if possible, 
and pay taxes nowhere.
    Are you interested in the work that is going on in the OECD 
with respect to mutual cooperation in tax abusive practices?
    Secretary O'Neill. Yes, indeed. I think you probably know 
this. At a hearing, I think it was last June with Senator 
Levin, we talked about the subject of the OECD project and the 
so-called tax haven work.
    I said to him, I know it is probably unusual for witnesses 
to make a commitment off the top of their head, but I will 
commit to you that before a year passes, the United States will 
enter agreements, treaties with the so-called tax haven 
countries covering more than 50 percent of all the accounts 
that are known about in the so-called tax haven countries, that 
will permit us to interact and exchange information as never 
before. He told me on that occasion that he had been working on 
the problem since 1986 and no one had ever made such a 
commitment, no one had ever delivered that kind of a treaty 
response.
    We are now over 50 percent, I think. Now my staff is going 
to die. We may be able to get to 75 percent before we get to 
the anniversary, because we have gone out there and we have 
created treaty agreements to exchange information with four new 
jurisdictions. We will be announcing some more fairly soon.
    Again, Senator, I am really interested in producing 
results, not just rhetoric. Going back to Senator Levin's 
point, we are not just looking at the data since 1986 and 
lamenting the fact that we do not have any tax treaties. In 6 
months, we have created more tax treaties covering more 
accounts than have been done, I think, in history, and we are 
going to keep at it.
    Senator Dorgan. Mr. Secretary, I wonder if you would have 
your people working on the tax shelter issue just provide for 
the committee just a very short report describing what the 
goals are and what activities you are undertaking, what kind of 
legislation might be necessary to close some of these loopholes 
and shelters? That would be very helpful to us.

               ADDITIONAL FUNDING REQUIREMENTS FOR FLETC

    Let me talk just for a moment or ask you about FLETC, the 
Federal Law Enforcement Training Center. With the ramping up of 
resources in a number of areas in the Federal Government, 
especially including INS, Border Patrol, Customs, and also the 
Department of Transportation airport security, you have 
provided sufficient money I believe for current workloads, but 
it appears to me that beyond current workloads in training in 
the FLETC facilities we likely would have the opportunity and 
would want to train substantially more people, especially those 
coming on board through the Department of Transportation. Have 
you thought about that, and if so, how would we fund that, the 
increases necessary for FLETC to be able to handle that?
    Secretary O'Neill. I think two things about this. First of 
all, I think this is a really first-rate organization. I had an 
opportunity to go down with George Bush, Sr. to dedicate the 
FLETC center. I was really impressed with what we have there. 
Sometimes I think you can be a little discouraged if you go 
look at things that are a little decrepit and have a sense of 
being a little shopworn. That is not the feeling about the 
FLETC training center. It is a fabulous place with great 
facilities and great trainers, I think with a capacity, if I 
remember right, of 2,200 students a day in that one facility. 
It is really quite impressive.
    After we started talking about air marshals, I said to the 
President and my colleagues, this is the time when we should 
focus those resources on getting air marshals up fast, and then 
had some follow-on conversation with Pete Domenici about the 
New Mexico facility and what we could do there. Believe me, I 
think where we have great activity--I think this is great 
activity--we should use it to the fullest. I think we have the 
ability to be reimbursed from departments and agencies.
    The concern that I had that my people taught me last year 
about this whole activity is that because of the delay in the 
appropriations process, departments and agencies hold back on 
making commitments to fill the slots in these wonderful 
training facilities, so we have been getting a very uneven 
utilization of the facilities, which does not make any sense to 
me at all. So I suggested that we needed kind of a working 
capital fund, if you will, in Treasury so that we could say to 
departments and agencies, we know you are going to eventually 
get your money. In effect, we will float you a loan so that we 
can keep the facilities open.
    I continue to believe we ought to use that kind of 
innovation to make sure that we get full utilization that for 
silly budget reasons we do not have peaks and valleys in the 
utilization of facilities. So we will work with you to make 
sure that we have that result.

                     HEALTH OF THE AMERICAN ECONOMY

    Senator Dorgan. All right. Let me ask you a question about 
the economy, if I might. The answer to the question of how we 
fund all of these things and what kind of a revenue stream we 
get in the Federal Government has a lot to do with the health 
of the American economy. We have had a recession, apparently a 
reasonably shallow recession of short duration. You have 
listened obviously to Mr. Greenspan's assessment of where we 
are. Can you give me your analysis of his assessment and then 
tell me where you think we are in this economy and what you 
expect for the coming year?
    Secretary O'Neill. I am happy to do that. In order to do it 
with a little sense of continuity let me go back, if I can, to 
September 10. I think the data show pretty clearly now that 
until September 10 we were in fact moving out of the shallowest 
period of the slowdown. That is to say, I think the lowest 
period was really experienced sometime back maybe in March or 
April of last year and when we got to September we were already 
visibly moving out of the slow period into rates of growth that 
were not great, but they were not questionably positive; they 
were clearly positive.
    The shock of September 11 turned our economy off for more 
than a week for airlines. I think because of what it did to us 
as a people in terms of people just sitting in shock and 
looking at their televisions and trying to take on board the 
implications of what terrorism was going to mean to our lives, 
it was not a surprise that the third quarter had a negative 
growth rate.
    The day the numbers came out, I did a television interview 
and the people said, now we are going to have a recession for 
sure, and I said, I do not think so. At least I think there is 
still a possibility that the fourth quarter will be positive 
GDP, because as I talked to people that I know out in the 
country about what was going on, while most of them were 
wringing their hands, they were also taking action. They were 
taking action in eliminating inventories.
    In December, there were no inventories in the automotive 
supply chain. When I went out to Cleveland in December and had 
breakfast meetings with suppliers to the assembly companies, to 
General Motors and Ford and Daimler-Chrysler, all of those 
people who supplied wiring harnesses and tires and the like had 
no inventory and no expectation of orders, so that they had 
really clamped down. So the reason we had a 5.2 percent 
productivity growth rate in the fourth quarter--which is 
unexperienced in our economy, to have a slow economic period 
and have productivity growth of over 5 percent. It is because 
out there millions of American business people took timely 
action.
    It turned out, I am happy to say, I was right, the fourth 
quarter real GDP number was 1.4 percent. Now it is not heaven 
but it is certainly not zero and it is certainly not two 
quarters in a row of negative growth.
    Where I think we are now is this, I think we are continuing 
to move away from the slow period. I think when the data that 
is available--this is dangerous; this is forecasting a little 
bit. But I think when the data is available for the first 
quarter it will show that the low period in this cycle, if you 
can call it a cycle, for company earnings, will turn out to be 
the fourth quarter of last year.
    Part of the reason for that is it was still low, but it was 
also because there was an awful lot of housecleaning done in 
the fourth quarter of the year. Lots of companies said, this 
year, because of what happened in the third quarter, it was 
just a mess, and for all those things that we see we are going 
to have to write off; we are going to do it now. So there was a 
lot of clean-up in the fourth quarter, which means earnings are 
at a very low reported rate.
    I think the first quarter is almost certain to be better 
than that, and the second quarter I think will be a 
continuation of growth. I am expecting by the fourth quarter 
that we are going to be operating at what one would like to see 
on a continuous basis of 3 percent to 3.5 percent real growth.
    The important question here is what happens in the June, 
July, August period in terms of business decisions to invest. 
Again, from talking to business people, I am confident there 
are lots of projects that have been delayed that have economic 
return rates of 30 percent or more. Those projects will be 
funded when the optimism improves out there in the leadership 
of the business community. That is critical to keeping this 
going.

                             TRADE DEFICIT

    Senator Dorgan. You must be concerned about the trade 
deficit, are you not? Maybe you are not. I think I asked you 
that before.
    Secretary O'Neill. No, I am not.
    Senator Dorgan. Bad question, for you at least. The trade 
deficit, in my judgment, certainly represents some storm clouds 
in the future, and also the fiscal policy budget deficit that 
we are facing is difficult.

                            CLOSING REMARKS

    I just wanted to get your perspective of where we are. We 
have a series of other questions I would like to submit. I 
think that what I would like to do is ask if my staff can 
continue meeting with your key people.
    Let me just say something that you alluded to. I too have 
visited facilities. I think the people who are working in 
Customs, and FLETC, and OFAC, and a whole series of areas in 
Treasury have been working very hard. I know I have gone to the 
border and I have seen people working 12 hours a day, 6 days a 
week. These are dedicated men and women and they do an 
excellent job and we want to commend them.

         PREPARED STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell had hoped to be back by the end of this 
hearing but he obviously has not been able to do that. He asked 
that I submit his statement for the record and ask for your 
indulgence. He had other business.
    [The statement follows:]

         Prepared Statement of Senator Ben Nighthorse Campbell

    Thank you, Chairman Dorgan. I, too, would like to welcome Secretary 
O'Neill. Thank you for appearing before the Subcommittee to discuss the 
fiscal year 2003 budget request for the Department of the Treasury. I 
would also like to congratulate Mr. Edward Kingman on his new position 
as the Assistant Secretary for Management and Chief Financial Officer 
in the Department of the Treasury--welcome.
    The tragic events of September 11 put this nation into a tail spin, 
and we are all still trying to recover. The fight against terrorism has 
become the number one priority and the Department of the Treasury has 
stepped up to the plate and taken on some very challenging duties.
  --The Financial Crimes Enforcement Network and the Office of Foreign 
        Assets Control moved quickly to identify and freeze funds used 
        for terrorist activities.
  --The Bureau of Alcohol, Tobacco and Firearms worked along with 
        others to sift through the rubble of terrorist attack sites to 
        help recover remains and personal belongings, using techniques 
        developed from years of investigating bombing and arson cases.
  --The Customs Service has worked long and hard to make sure that our 
        borders are secure.
  --The Secret Service was given the task of making sure that events 
        like the Superbowl and the 2002 Winter Olympic Games were safe 
        for both athletes and spectators.
  --And, the Federal Law Enforcement Training Center has geared up to 
        train all the needed new Federal law enforcement officers, 
        including air marshals.
    The Department of the Treasury is one of the most diversified 
departments within the Federal Government and I look forward to 
learning more about the fiscal year 2003 resources needed to carry out 
the Department's key priorities:
  --Protecting our nation from terrorists and terrorist activities,
  --Necessary technological improvements,
  --Improving customer service and compliance at the Internal Revenue 
        Service, and
  --Achieving the President's management agenda.
    We are also interested in learning how the resources received to 
date by the bureaus have been used to help fight the war on terrorism.
    Finally, Mr. Secretary, I think the lessons learned through the 
GREAT program, managed by the Bureau of Alcohol, Tobacco and Firearms, 
are very important resources for at-risk youth of our country. I 
appreciate your continued support.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Dorgan. So what I would like to do is say that the 
record will remain open until the close of business tomorrow 
for anyone to submit additional questions or statements for the 
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 Byron L. Dorgan

                        cobra user fee proposal
    Question. The Administration is claiming that the Customs Service 
fiscal year 2003 budget will receive an increase from fiscal year 2002. 
This is largely based on the Administration's proposal for a tax 
increase to cover $250 million of homeland security efforts. It is my 
understanding that this user fee must be authorized by July 1, 2002 to 
begin accruing the total $250 million. Are you working with the 
authorizing committees to pass this proposal and what plans do you have 
to cover the $250 million shortfall if the legislation is not enacted?
    Answer. The Administration will soon send a legislative proposal 
for a COBRA fee increase to the House Committee on Ways and Means and 
the Senate Committee on Finance. The Administration strongly urges the 
enactment of the fee increase because it is essential to the successful 
accomplishment of Customs' overall mission. The allocation of the fee 
increase would not be restricted to any aspect of that mission. 
Consequently, the Administration has not contemplated an operating 
approach for Customs based on resources that are $250 million less than 
the total availability assumed in the budget request.
                      business strategy adjustment
    Question. You have mandated a business strategy adjustment for most 
of the agencies under the Department during fiscal year 2003. This is 
essentially forcing agencies in a very tight budget year with no 
programmatic increases, to find a total of $84.7 million in savings. 
Only one agency, Treasury Inspector General for Tax Administration has 
addressed this with a proposal that would result in the elimination of 
48 FTE. In addition, the Bureau of Alcohol, Tobacco, and Firearms could 
also be forced to decrease personnel as a result of absorbing these 
costs. How do you rationalize this policy if law enforcement agencies 
are forced to downsize personnel in a time when homeland security is 
most needed?
    Answer. This type of business review is a common practice among 
America's most successful corporations and must occur continuously over 
the course of a fiscal year. Highly successful managers in these 
organizations seek better uses of limited resources to achieve improved 
outcomes at the same or lower cost.
    Because this budget is proposed 8 months in advance of fiscal year 
2003, this business review exercise is a work in progress. Bureau heads 
and financial plan managers are expected to work creatively on mid-
course adjustments until the final quarter of fiscal year 2003, thereby 
achieving the most efficient use of all available resources and being 
able to more accurately predict fiscal year 2003 requirements.
    The actual percentage decrease from fiscal year 2002 in the 
Treasury budget request as a result of the Business Strategy Adjustment 
is--0.5 percent or $84.7 million, of which approximately half or $38.5 
million would be absorbed by the Internal Revenue Service. In the past 
decade, worker productivity has grown enormously, leading to growth in 
the economy. It is not too much to expect that, by fiscal year 2003, 
productivity will once again exceed 1 percent given continued process 
re-engineering and technology improvements. Therefore, it is safe to 
assume that Treasury can accommodate an adjustment downward of 0.5 
percent.
                          joint border agency
    Question. It is my understanding that Governor Ridge is moving 
closer to a proposal combining the Customs Service in a joint border 
agency with other agencies such as the Immigration and Naturalization 
Service (INS) under the Department of Justice. Given the INS's poor 
record and this week's most recent blunder of sending approval letters 
for student visas of two of the terrorists from September 11, is it the 
most appropriate thing to combine these agencies at this time?
    Answer. The President recognized the need to make fundamental 
changes in the organizational structure of the INS and proposed a 
restructuring of that agency last year. I am certain the President will 
take all issues into account when considering the recommendation from 
the Office of Homeland Security to consolidate border security 
agencies.
    Question. Do you support Governor Ridge in his efforts to create a 
joint border agency and how would the revenue generating 
responsibilities of the Customs Service fit in with such a plan?
    Answer. I am working with Governor Ridge and the Office of Homeland 
Security to ensure that the best advice and a full range of options are 
available to the President. It is premature to comment on specific 
border agency configurations, which may or may not be officially 
proposed to Congress. I am proud to have the U.S. Customs Service 
within the Department of the Treasury. The President is listening to 
all the arguments and considering various options. Whatever he decides, 
I will be an advocate for the President's proposal.
    Question. What is the President's timeline for making a decision on 
this proposal?
    Answer. The Office of Homeland Security has submitted a border 
security proposal to the President for his consideration. The White 
House has indicated the President will make his decision after a full 
review.
    Question. What resulted from your 5pm meeting on March 14th, and 
any subsequent meetings, on this issue?
    Answer. The Principals Committee, on which I serve, met and 
deliberated the border security proposal presented by Governor Ridge. 
Subsequently, Governor Ridge submitted a proposal to the President for 
review.
                         counterterrorism fund
    Question. The Treasury Counterterrorism Fund (CT Fund) was first 
appropriated in fiscal year 1997 as a central fund to reimburse any 
Treasury organization for the costs of providing support to counter, 
investigate, or prosecute terrorism, including payment of rewards in 
connection with these activities.
    The President's fiscal year 2003 Budget attempts to transform the 
Counterterrorism Fund under the Department of Treasury into a 
reimbursable account for any agency in the Federal Government for it's 
role in a National Special Security Event (NSSE). Congress has 
cautioned the Administration on the use of this fund to pay for events 
such as the Olympics and other NSSE's. Is it your intention that this 
fund be used to reimburse any agency for its participation in these 
events?
    Answer. The Counterterrorism Fund is available to provide funding 
for costs associated with support to counter, investigate, or prosecute 
unexpected threats or acts of terrorism. The Fund can also be used to 
re-establish the operational capability of an office, facility, or 
other property damaged or destroyed as a consequence of any unexpected 
domestic or international terrorism act. This authority includes, but 
is not limited to, National Special Security Events (NSSEs). NSSEs are 
often unpredictable and expensive, and the Counterterrorism Fund has 
been an available source of funding that enables us to provide the 
level of security necessary for such events.
    The U.S. Secret Service, in its responsibilities for designing, 
planning, and implementing security for events designated as NSSEs, is 
authorized to call on other Federal agencies to provide security 
support for NSSEs as may be necessary. The proposed language would 
enable those agencies to be reimbursed for costs associated with that 
support. The language with respect to authorization for reimbursement 
to any Federal agency for costs of providing security at NSSEs is also 
framed within limiting parameters: agencies may be reimbursed for costs 
of responding to the United States Secret Service's request to provide 
such security.
    Question. Aren't you concerned that this fund will be depleted by 
planned activities that should be budgeted for in all affected 
agencies, rather than unforeseen events that will require the 
involvement of agencies within the Department of Treasury?
    Answer. The language itself sets out the parameters for use of the 
Fund, and is very clear in that the Fund is to be used to reimburse the 
costs of providing support to counter, investigate, or prosecute 
unexpected threats or acts of terrorism.
    Due to the limiting nature of the term ``unexpected'' which 
precludes the use of the Fund for activities or operations that are 
planned, as well as the level of Departmental oversight of the Fund's 
administration, we are not concerned that this fund will be depleted by 
planned activities.
                 law enforcement resource requirements
    Question. In the past, we have not seen eye to eye on the need for 
additional resources for the Customs Service. Even after the events of 
September 11 and the clear evidence of shortfalls along our nation's 
borders, the Department did not seek additional staffing resources 
necessary for the Customs Service. That is why I was very pleased to 
see the annualization of these resources in the fiscal year 2003 budget 
(with the exception of the proposed tax increase of $250 million to 
cover much of these additional costs). In a time when homeland security 
is vital and the strengthening of our nation's borders is a frontline 
defense requirement, what is your commitment to providing the U.S. 
Customs Service and all Treasury law enforcement agencies with the 
necessary resources and support they require from the Department?
    Answer. The President and I are in agreement that the resource 
requirements for any given Federal agency must be evaluated in the 
context of government-wide coordination among agencies with related 
missions. To succeed in protecting our borders, we must be willing to 
reposition our human and financial resources to meet the shifting 
avenues for terrorist assault. We will beat terrorism only if we are 
more ingenious than the terrorists. Government is sometimes needlessly 
expensive and unproductive because there is not the drive to make 
effective resource allocation choices for the common good of the 
Nation. Each subsequent budget will give us the opportunity to rethink 
how best to direct taxpayer dollars to the critical issue.
    Question. I understand your belief that a business case must be 
made before dumping more money on a given program. But I suggest that 
law enforcement requirements should be justified differently than those 
for office supplies or computer systems. I do not think you can make a 
sound ``business'' case for placing two law enforcement officers at 
now--24hr ports-of-entry which have fewer than 50 cars entering the 
country on a given day. But you certainly can make a strong ``national 
security'' case for the enhanced presence of those law enforcement 
personnel. In keeping with the need to secure our nation's borders, 
will you also consider national security needs when determining 
resources?
    Answer. I do not see a conflict between a sound business case for 
resource allocation and concerns for national security. The President 
has made homeland security a top priority in his budget and I intend to 
carry out that commitment by ensuring that the Federal resources we 
devote to homeland security are spent wisely, and in fact add to our 
Nation's security.
                        ntia narrowband mandate
    Question. All land mobile radios, principally used by law 
enforcement, must be replaced to meet NTIA's narrowband mandate by 
January 1, 2005. The Department has been working on this effort since 
fiscal year 2001 and estimates a cost of $362 million. With the amount 
included under the Administration's fiscal year 2003 budget, we are 
looking at an estimated $80 million shortfall that will require a 
request of $191 million in fiscal year 2004. How does the Department 
plan on completing this vital technology conversion for law enforcement 
by the deadline within the current budget proposal? What will it mean 
for law enforcement if the conversion does not occur by January 1, 
2005?
    Answer. Based on the fiscal year 2003 President's budget request, 
significant infrastructure requirements and implementation have been 
shifted into fiscal year 2004 and the first part of fiscal year 2005 in 
order to address the NTIA mandate. Budget policy for fiscal year 2004 
and fiscal year 2005 will need to reconcile with the requirements of 
the Integrated Treasury Network (ITN) business case.
    In fiscal year 2001, the program budget request was $52.9 million 
and the appropriation was $29.8 million, resulting in a $23.1 million 
shortfall. Due to the fiscal year 2001 shortfall, the revised budget 
requirement for fiscal year 2002 became $101.6 million and included the 
original fiscal year 2002 requirement of $86.8 million plus the 
carryover from fiscal year 2001 of $14.8 million. The proposed fiscal 
year 2002 President's budget included $25.0 million \1\ for the ITN--
resulting in a revised program shortfall of $76.6 million that was 
redistributed evenly between fiscal year 2003 and fiscal year 2004. 
This shortfall, combined with a re-evaluation of program requirements 
(which reduced the fiscal year 2003 budget request), led to an overall 
fiscal year 2003 budget request of $121.3 million. Based on the fiscal 
year 2003 President's budget of $31.9 million, infrastructure and 
implementation requirements have shifted primarily into fiscal year 
2004.
---------------------------------------------------------------------------
    \1\ The actual fiscal year 2002 appropriation was $25.9 million, 
however, the fiscal year 2003 budget was formulated based on the 
President's proposed budget of $25.0 million and associated $76.6 
million shortfall. The additional .9 million in fiscal year 2002 
funding was utilized to offset program requirements in fiscal year 
2004.
---------------------------------------------------------------------------
    Treasury, in consultation with OMB, is prepared to take the 
necessary budget actions, including those in the current year budget, 
to achieve the maximum benefits offered by the ITN and will make 
necessary adjustments to meet the NTIA mandate. For example, we may 
consider:
  --Directing the bureaus to use supplemental wireless communications 
        funds they may receive from Homeland Security and counter-
        terrorism funding to augment ITN implementations, rather than 
        purchasing equipment in support of their own independent 
        systems.
  --Pursuing a mechanism that would redirect bureau baseline funds that 
        support their own legacy radio systems into the ITN planning 
        and implementation effort.
  --Establishing a mechanism to recover bureau operations and 
        maintenance (O&M) costs from their decommissioned legacy radio 
        systems and redirect toward ITN investment and O&M.
    It is important to note that the Department realizes that the 
budget process is not independent from other critical aspects of 
successful organizational management. In addition to alternative 
funding sources, Treasury will also continue to pursue the following 
program objectives:
  --As requirements dictate, partner and share portions of radio 
        infrastructure with other Federal agencies. Our MOU with the 
        Department of Justice researching common architectures and 
        infrastructures is the start of a process that could lead to 
        the sharing of public safety infrastructures, and potentially 
        decrease some ITN life cycle costs.
  --Opportunities to partner, leverage, and share infrastructures with 
        other Federal agencies will continue to be pursued.
    The consequences of failing to meet the January 1, 2005 NTIA 
narrowband mandate are significant:
  --Treasury agents and officers will probably become secondary users 
        on their current frequencies.
  --Agents and officers may find themselves with no communications in 
        an emergency situation.
  --The lives of Department law enforcement and protective personnel 
        may be endangered.
  --Critical Departmental missions affecting national security may be 
        compromised.
  --Horizontal (Department-wide and Federal) and vertical (State and 
        local first responders) communications interoperability will be 
        further delayed
  --Operations of other Federal agencies dependent on a coordinated 
        transition to narrowband may be jeopardized.
                            cobra user fees
    Question. COBRA user fees fund all Customs inspectional overtime as 
well as over 1,000 positions. The President's budget DOES NOT assume 
the reauthorization of COBRA, which is set to expire in September 2003. 
What are the President's legislative recommendations to deal with the 
loss of this funding?
    Answer. The fiscal year 2003 budget does not reflect a specific 
Administration position on the extension of the COBRA fee, in either 
its existing or proposed form, beyond fiscal year 2003. The extension 
issue will be addressed during the fiscal year 2004 budget cycle.
                   secret service workload balancing
    Question. We have been concerned for sometime that the overtime 
requirements for Secret Service agents were resulting in significantly 
high rates of attrition. For this reason, we initiated a ``workload 
balancing'' plan and provided funds for the Service to hire additional 
agents and bring their overtime levels to acceptable ranges. Last fall, 
this subcommittee provided funding for what we anticipated was the 
third and final year for this initiative. However, the spike in the 
number of protectees requiring Secret Service attention as a result of 
the events of September 11 may undermine the workload initiative. It 
could once again return the overtime levels to unacceptable levels and 
restart the cycle of attrition.
    Are you concerned about attrition in the Secret Service and have 
you discussed this situation with the Director?
    Answer. Yes, I have discussed these issues with the Director. The 
agent hiring initiative has empowered the Secret Service so that it is 
well underway in achieving its goal to reduce the attrition rate for 
non-retirees, the early resignation or other type of separation from 
the Secret Service of young or mid-career agents. However, the Secret 
Service has not yet achieved its fiscal year 1994 benchmark attrition 
rate of .48 percent. This is largely due to the lag time attributed to 
bringing an agent trainee from training to an operational status in the 
field.
    Question. If this cycle starts again will you be willing to work 
with the Secret Service to find the resources to address this critical 
problem?
    Answer. Yes, I would be willing to work with the Secret Service to 
find the resources to address this critical problem in the event that 
this cycle starts again.
          federal law enforcement training center requirements
    Question. The Federal Law Enforcement Training Center is charged 
with providing training for a significant portion of the Federal law 
enforcement workforce. In budget briefings with our staff, it appears 
that the fiscal year 2003 budget request is sufficient to meet FLETC's 
currently planned needs for the coming fiscal year. As you are aware, 
the Transportation Security Administration (TSA) is in the midst of a 
large ramp-up for various aspects of their new responsibilities. A key 
part of those responsibilities are going to be law enforcement 
activities, including Federal Air Marshals and other law enforcement 
agents for the airports. We understand the number of new hires may be 
in the thousands, all of whom will need training.
    What role will Treasury's Federal Law Enforcement Training Center 
have in this undertaking?
    Answer. FLETC continues to coordinate with the Transportation 
Security Administration (TSA) in determining what their training 
requirements will be in the future. FLETC is supporting the TSA through 
a three-tiered approach--screeners training assistance, Federal Air 
Marshal training, and training for the proposed formation of a new law 
enforcement agent group.
Screener Training Assistance
    At the request of the TSA, a proposed FAA-developed curriculum was 
reviewed and expanded by FLETC subject matter experts for law 
enforcement and security content. In February 2002, FLETC hosted a 
mini-conference of TSA, FAA, USSS, and loaned executives from the 
private sector to the TSA. A pilot program was conducted utilizing a 
combination of FAA personnel and FLETC-identified retired law 
enforcement officers, who could serve as a potential train-the-trainer 
cadre. This was conducted in Glynco, GA.
    Starting in March 2002, a second session of course development and 
a basic screeners pilot program was conducted at Glynco. It is our 
understanding that TSA will conduct the training on a regional and 
local basis across the country. FLETC's role will be limited to 
providing training validation and assistance on an as-requested basis.
Federal Air Marshal Training
    FLETC began training for increased numbers of Federal Air Marshals 
in October 2001 at the request of FAA. Program agreement has been 
reached between FAA and FLETC on the training format to be used. 
Adjustments will continue to be made, as more information becomes 
available concerning the long-term mission goals of the TSA, and 
FLETC's role in assisting to achieve those goals. FLETC is now 
conducting intensive training through its Artesia, NM site on a 6-day 
workweek for new Federal Air Marshals. A reimbursement agreement has 
also been signed between the two agencies that will cover costs for 
tuition, staffing, and equipment needs for this training.
Training for the proposed formation of a new law enforcement agent 
        group
    FLETC and TSA are working on an agreement of training program 
content and resources needed for training a new law enforcement agent 
workforce under TSA's auspices. TSA expects to begin sending trainees 
to Glynco in the summer of 2002. In anticipation of this, the two 
agencies are looking at space and training capacity options for 
conducting all training at the Glynco facility. Final decisions on 
facilities and workload projections have not yet been determined.
    Question. Do you plan to provide additional funding and staffing 
resources to FLETC, whose fiscal year 2003 request already indicates 
their capabilities are stretched to the limits with training 
requirements following the September 11 attacks?
    Answer. FLETC's fiscal year 2003 budget included sufficient funding 
for the requirements that were known at the time of its submission. At 
the time the fiscal year 2003 budget was submitted, the TSA 
requirements were not known, in fact those requirements are still being 
developed. Currently, the cost of the additional training being 
provided to TSA by FLETC is being reimbursed by TSA. This arrangement 
will have to continue at least through fiscal year 2003 or additional 
resources will have to be provided to FLETC for both funding and 
staffing.
    Question. I would like to follow up with you on our discussion 
about the possible creation of a ``working capital fund'' within 
Treasury to allow for a more regularized flow of students through 
FLETC's training facilities. I am encouraged that you are aware of the 
spikes and lulls in the throught-put of students and have given some 
thought to this problem. Exactly how do you envision this problem being 
addressed? How can we assist you in this endeavor?
    Answer. The practicality of a working capital fund that conducts 
continuing cycles of business-like activity, in which the fund charges 
for the provision of training or training-related services and uses the 
proceeds to finance its spending without the uncertainties endemic to 
the annual appropriations process, is appealing. Sometimes inherent 
delays in the appropriations process cause departments and agencies to 
hold back on making commitments to fill FLETC training slots; and as a 
result, FLETC periodically experiences an uneven utilization of its 
staff, facilities, and resources. On the other hand, we must not 
jeopardize the availability of mandatory and qualitative law 
enforcement training. Although the concept is appealing from an 
enterprise perspective, it also raises challenges when participating 
agencies have insufficient funding. As we continue to evaluate such a 
funding mechanism we will let the Committee know how it can assist us 
in this regard.
                    visiting customs ports of entry
    Question. As a former CEO, you recognize the importance of visiting 
your facilities, meeting with the workers and seeing the conditions in 
which they must work. In that vein, and recognizing how busy your 
schedule is, have you been to any northern border ports-of-entry since 
you became Secretary? Have you visited any in the winter? For that 
matter, have you been to the southwest border in the summer?
    Answer. On February 25, 2002, I visited the Port of Jacksonville, 
Florida, as well as the Customs Air Marine Interdiction Division branch 
in Jacksonville. I also visited the Customs facility at JFK Airport, 
shortly after the September 11, 2001 terrorist attacks. I am especially 
looking forward to my site visit to the Detroit port of entry on April 
16, 2002. I had two additional visits scheduled to the Northern and 
Southwest Borders, but unfortunately both visits were cancelled due to 
scheduling conflicts. I look forward to visiting these sites in the 
future.
          use of technology at the borders and ports of entry
    Question. You are aware of the dynamic tension facing the Customs 
Service as it pursues its dual role of facilitating the flow of 
legitimate trade while at the same time preventing illegal substances 
from entering the country. Recently, Customs Commissioner Bonner spoke 
about his interest in using technology overseas at some of the largest 
seaports--Hong Kong, Rotterdam--to verify the contents of cargo 
containers before they are loaded on ships and sent to the U.S. Then 
these containers would be tracked as they made their way to their 
ultimate destination to ensure that they are not tampered with en-
route. This system would be used to assist the exporters and importers 
who participated in the program by significantly reducing any 
processing time once the cargo reaches the U.S. border. At the same 
time, on his recent trip to Mexico, Governor Ridge noted that 
technology on the border is woefully outdated. Do you agree with these 
assessments? How can we jointly better use technology to protect both 
the border as well as legitimate trade?
    Answer. Customs is in the process of expanding its layered 
enforcement approach at our nation's borders. Inspectors have recently 
been deployed to Canada in the port cities of Vancouver, Montreal and 
Halifax, and Canadian inspectors have been deployed to the U.S. port 
cities of Newark and Seattle/Tacoma. A state-of-the-art targeting tool, 
the Automated Targeting System (ATS), has been provided to these 
targeting teams to pre-screen sea containers arriving in Canada that 
are destined for the U.S. and vice versa. In addition, Canada has begun 
procuring advanced inspection equipment such as the Vehicle and Cargo 
Inspection System (VACIS) to assist in the inspection process. The U.S. 
ports mentioned above currently have this equipment and are utilizing 
it to inspect both United States-and Canadian-bound sea containers.
    Customs has deployed over 80 non-intrusive inspection (NII) systems 
around the country to protect our nation's borders and facilitate 
legitimate trade. These X-ray and gamma ray based systems are state-of-
the-art and are capable of screening sea containers, trucks, rail cars 
and cargo in a matter of minutes. It would take hours to search each of 
these inspections by hand. In addition to the NII systems, Customs is 
testing and deploying a number of other new technologies aimed 
specifically at radiation detection. Pager-sized, hand-held devices or 
portals capable of scanning a truck or container are either on the job 
or being tested. In addition, the Customs Handheld Acoustic Inspection 
System (CHAIS) is being developed to identify suspicious liquid and 
gaseous compounds without having to open the item.
    Customs currently uses technology throughout its layered 
enforcement approach to target, screen and conduct intensive 
inspections. Technology that we use has been shared with Mexico and 
Canada. In addition to the Canadian NII system, Mexico has deployed a 
number of NII systems, both X-ray and gamma ray based, to screen and 
inspect commercial trucks and railcars. Customs continues to work 
closely with Mexican authorities on plans for the deployment and 
utilization of this type of equipment.
    Currently, the majority of land border shipments arriving from 
Mexico by truck are cleared by Customs using the cargo selectivity 
system or the Border Release Advanced Selectivity and Screening (BRASS) 
system. Both of these systems are paper-based for the most part on the 
land border and could benefit from new technologies available.
    There is, for instance, no automated truck manifest system 
available yet in Customs Automated Commercial System. A system of pre-
filed information from the carrier about the conveyance, driver and 
carrier's knowledge of the shipments would serve as a valuable 
targeting tool. This is planned as one of the first deliveries of the 
Automated Commercial Environment, with an expected delivery by the end 
of 2003. The National Customs Automation Program prototype release 
program available now only in the port of Laredo does offer some 
manifest information on conveyance and driver, but it is limited to 
restricted importers and merchandise.
    The targeting capabilities of the major release systems, cargo 
selectivity and BRASS, are not as wide ranging and flexible as those of 
the Automated Targeting System, but many of the selectivity entries can 
be piped into ATS provided the data is received in advance of truck 
arrival. Future changes to ATS or any new targeting provided in ACE 
will provide these capabilities in all release systems.
    Additionally, inspectors working in areas away from the office, in 
railroad marshalling yards and at bonded facilities in the port could 
be supplied with computers capable of remote access. This would provide 
them the capability of querying the available targeting, enforcement 
and reference databases, while performing their work away from the port 
office.
                    earned income tax credit program
    Question. Late last month, the Treasury Department and the IRS 
announced the formation of a new task force to examine the Earned 
Income Tax Credit (EITC) program. This popular program which benefits 
low-income workers has been the target of what I believe to be unfair 
criticism in some small, but vocal, quarters. While there have been 
some difficulties with the program, an IRS report found that the $716 
million we have appropriated for the program resulted in the collection 
of $5 billion in EITC funds over 5 years. Do you support the EITC 
program? What steps can we take together to ensure that the goals of 
the program are being met?
    Answer. The Administration supports the goals of the EITC as set 
out by the Congress. In addition, EITC receives a separate 
appropriation from Congress, and therefore, the Department is directed 
to apply increased attention to this program. The EITC is intended to 
reward work and help families out of poverty. But an error rate of 27 
to 32 percent is unacceptably high, and as a result, the EITC has been 
consistently listed among the Federal programs most vulnerable to waste 
and error. Fortunately, we are already taking steps to control the 
error rate.
    The Economic Growth and Tax Relief Reconciliation Act of 2001 
simplified the income and child definitions used to determine EITC 
eligibility. These rules will take effect on tax year 2002 returns 
filed next year. The Department is in the process of developing a 
proposal for a uniform definition of ``qualifying child''. The proposal 
would reduce confusion and the potential for duplicate and erroneous 
claims by standardizing the definition of child used for the EITC and 
for four other tax benefits (the dependent exemption, child tax credit, 
child and dependent care tax credit and head of household filing 
status).
    Finally, as you know, Treasury and IRS are working now to further 
improve the integrity of the program while maintaining its key 
benefits. The Treasury/IRS task force will be making recommendations to 
me this summer. In the meantime, I ask that you continue to support the 
IRS compliance activities that have collected $5 billion between 1998 
and 2002. I would also add that we need to be looking at compliance in 
the tax code as a whole, and not just in the EITC. IRS is moving in 
that direction through the new National Research Program. I encourage 
the Congress to continue to support this new research.
                      information systems security
    Question. According to a recent review by the Inspector General, 82 
percent of the Department's information systems are not accredited for 
security. Proper safeguards and secure operations have been a mandate 
since the Computer Security Act of 1987, and this is a failing grade 
for the Department of Treasury. Not only is information security even 
more important now, but given the information under the jurisdiction of 
the department, it should have been a top priority all along. What are 
you plans to correct this situation, especially in relation to the 
major modernization projects at agencies like the IRS and the Customs 
Service?
    Answer. Treasury's Office of Information Systems Security (OISS) 
has initiated a very aggressive Department-wide strategy to address 
security accreditation. This strategy includes comprehensive site 
visits Department-wide, thereby providing OISS senior staff an 
opportunity to ensure that Treasury policy and guidance are followed 
regarding all facets of IT Security.
    As part of an ongoing partnership with the National Institute of 
Standards and Technology (NIST), Treasury has actively assisted NIST in 
drafting Federal Certification and Accreditation Guidelines. It should 
be noted that prior to the recent review by the Inspector General, OISS 
established a Department-wide performance measure to address the 
certification and accreditation of Information Technology systems with 
a goal of having 100 percent of the Department's systems certified and 
accredited for operation by fiscal year 2004. OISS has created a 
compliance program to monitor bureau progress in achieving this 
performance objective.
    As a result, there is a renewed emphasis Department-wide on this 
vital component of IT security. Earlier this fiscal year, the Customs 
Service awarded a contract to accelerate the certification and 
accreditation process for their systems. The goal is to reach 100 
percent certification and accreditation of all Customs Service systems 
by the end of fiscal year 2003. The Internal Revenue Service has also 
awarded multiple contracts relating to certification and accreditation 
of their systems, and has purchased an automated tool to assist with 
part of the certification and accreditation process. The goal is to 
reach 100 percent certification and accreditation of all Internal 
Revenue Service systems by the end of fiscal year 2004.
           tax-exempt bonds financing of recycling facilities
    Question. Last year, you were before this committee and indicated 
that you had undertaken a review of the Department's policy in this 
area and that you would be getting back to us after meeting with 
industry groups. It is my understanding the National Association of 
Bond Lawyers has submitted comments and a detailed proposal for 
changing regulations to clarify the issue of when something is waste 
and thus qualifies for tax-exempt financing and when it does not. 
Please provide an update about your discussions with the affected 
parties and give us the status of your review.
    Answer. Existing law permits tax-exempt financing for solid waste 
disposal facilities, including certain recycling property, even if the 
property is owned and operated by a private business. The Treasury 
Department has received a number of comments requesting clarification 
of the existing regulatory definition of ``solid waste disposal 
facilities,'' particularly as it applies to recycling facilities. 
Treasury personnel considered these comments, and met with industry 
groups, and have concluded that additional clarification on this issue 
is necessary. Accordingly, the Treasury Department's Office of Tax 
Policy intends to undertake, as part of its Priority Guidance Plan for 
the period July 1, 2002 through June 30, 2003, a guidance project to 
address the definition of solid waste disposal facilities. As part of 
this process, the Treasury Department will solicit additional comments 
from interested parties.
                              tax shelters
    Question. Mr. Secretary, in addition to the report that you said 
during the hearing you would provide to me on what the Department is 
doing regarding tax shelters, I would appreciate responses to the 
following questions.
    Answer. The Department will soon be releasing Enforcement Proposals 
for Abusive Tax Avoidance Transactions, which will be sent to the 
Committee as soon as it is available. In addition to detailing a 
comprehensive set of administrative and legislative proposals to 
address the problem of abusive tax practices, these Enforcement 
Proposals will also describe the Treasury Department and IRS' recent 
experience with the current enforcement regime, the current actions 
being taken to combat abusive tax avoidance transactions at all levels, 
and the reasons why the Treasury Department believes that its proposals 
will materially improve the Treasury Department and IRS' ability to 
combat these types of transactions. The Department is already working 
with the IRS and Congress to move these proposals forward.
    Question. What kinds of tax shelters are you aware of that are 
currently being used by taxpayers to avoid their tax responsibility? 
What tax shelters is the Treasury Department most concerned about at 
this time?
    Answer. The Treasury Department is concerned with all tax avoidance 
transactions that are structured to obtain unintended tax benefits, as 
well as with tax scams typically targeted at individuals and small 
businesses. The sophistication of these transactions and scams varies 
considerably, ranging from very complex transactions designed to 
satisfy technical rules while yielding unintended tax benefits, to 
patently fraudulent arguments and positions that tax is not due. Many 
of these transactions and scams will be discussed in the Treasury 
Department's Enforcement Proposals.
    The Treasury Department, however, is most concerned about the 
transactions and schemes that we do not know about. The current 
enforcement regime requiring disclosure, registration, and customer-
lists for questionable transactions must be made clearer and broader so 
that questionable transactions can be identified and scrutinized. 
Unfortunately, too many taxpayers and promoters are reading the 
requirements narrowly and construing the exceptions broadly to avoid 
maintaining customer lists and disclosing and registering transactions.
    Therefore, we will be proposing a comprehensive set of 
administrative and legislative proposals that will significantly 
simplify and broaden the existing enforcement regime and add new and 
increased penalties for the failure to comply with these rules. We 
believe that early and vigorous scrutiny will allow the Department and 
the IRS to address questionable transactions quickly through published 
guidance or by proposing legislation, and to develop the best cases for 
litigation when appropriate.
    Question. Would you please tell us what major legislation, if any, 
the current Administration has proposed in its fiscal year 2003 budget 
submission to deal with the tax shelter problem?
    Answer. The Administration's proposed fiscal year 2003 budget 
contains two proposals targeted at abusive tax practices. The first 
would increase the frivolous return penalty and extend the penalty to 
cover other frivolous submissions made to the IRS. The second proposal 
would give the IRS the authority to treat false claims for refundable 
credits as nullities not subject to existing deficiency procedures.
    Question. Do you anticipate that the Administration will be 
recommending any legislation in the future?
    Answer. As noted above, the Treasury Department will soon be 
releasing a comprehensive set of administrative and legislative 
proposals for combating the problem of abusive tax avoidance 
transactions. The legislative proposals will include new penalties on 
taxpayers for the failure to disclose questionable transactions, 
increased penalties on promoters who fail to register questionable 
transactions and maintain customer lists, SEC reporting of penalties 
relating to identified tax avoidance transactions, expanded injunction 
authority for promoters who repeatedly disregard the registration and 
customer-list requirements, and two substantive law changes to stop 
specific types of abusive transactions that have been identified.
    Question. Are there regulation projects underway at the Treasury 
Department or IRS notices to curb the use of tax shelters?
    Answer. The Treasury Department and the IRS are closely working 
together to identify new transactions to be identified in notices as 
tax avoidance transactions that are required to be disclosed on a 
return, including new transactions that have been identified in 
response to the IRS' recent disclosure initiative (Announcement 2002-
2).
    The Department and IRS are also working to implement the regulatory 
actions which will be outlined in the Treasury Department's Enforcement 
Proposals, including significant revisions to the regulations for the 
disclosure, registration, and customer-list requirements. These changes 
will increase transparency and allow the Department and the IRS to 
evaluate questionable transactions early in the process and determine 
whether regulatory or legislative responses are required.
    Question. Is the IRS effectively imposing monetary or other 
penalties in the tax shelter cases they uncover? Do you know the number 
of times the IRS has imposed additional penalties in tax shelter cases 
and actually how much in tax shelter-related penalties the IRS has 
sustained in dollar terms?
    Answer. The Department and IRS must work continually to ensure that 
all penalties are fairly, impartially, and consistently applied. 
Ensuring the consistent and judicious application of penalties often 
requires clear guidance coupled with experienced oversight. For 
example, the IRS' Large and Mid-Size Business Division (LMSB) recently 
issued guidelines for the application of the accuracy-related penalty 
on potentially abusive tax avoidance transactions. This policy includes 
instructions to examiners regarding the development and imposition of 
the penalty as well as executive oversight by the Directors of Field 
Operations (DFOs), who have the final decision-making authority 
regarding the imposition or non-imposition of penalties. These 
guidelines are also a clear signal to taxpayers that penalties will be 
developed and considered in appropriate cases.
    With respect to specific data regarding the assertion of penalties, 
I have asked the Department and IRS to review the existing data, and I 
will forward any information responsive to your specific question when 
it becomes available.
    Question. What is the Administration doing to allow our tax 
officials to get the information they need for examinations from these 
tax-haven countries?
    Answer. In July 2001, I made a public commitment to significantly 
expand our network of tax information exchange agreements, with a 
particular focus on achieving such agreements with significant offshore 
financial centers that have not been interested in cooperating with us 
on tax matters in the past. We are very pleased to have signed new tax 
information exchange agreements with the Cayman Islands, Antigua and 
Barbuda, the Bahamas, and the British Virgin Islands.
    These new tax information exchange agreements contain the elements 
that are critical to the effective exchange of information. They cover 
both civil and criminal tax matters, and ensure that bank secrecy and 
other rules will not stand as a bar to access needed information. They 
also provide for essential protections with respect to the privacy and 
confidentiality of the information to be exchanged.
    We believe these new relationships will prove to be very valuable 
in our efforts to ensure full and fair enforcement of our tax laws. We 
also believe that these new agreements will help us to encourage other 
jurisdictions to establish information exchange relationships with us. 
I remain committed to broadly expanding the U.S. network of tax 
information exchange agreements, and expect to be able to announce 
additional agreements in the coming weeks.
    Question. Does the Administration support the OECD's current 
initiative to force tax havens to cooperate with international tax 
enforcement efforts and what are you doing specifically to support the 
OECD's effort?
    Answer. After a careful review of the OECD harmful tax practices 
project early last year, I concluded that the United States must 
attempt to refocus the OECD project on its core element--the need for 
countries to be able to obtain specific information from other 
countries upon request in order to prevent noncompliance with their tax 
laws.
    I was concerned that unrelated elements of the OECD project, which 
had the potential to encroach on the sovereign rights of all countries 
to determine their own internal tax and economic policies, were 
distracting from and interfering with progress in the important area of 
effective tax information exchange.
    Working together with other OECD member countries, we have made 
substantial progress in focusing the OECD initiative on encouraging tax 
haven jurisdictions to improve their transparency and information 
exchange practices. We are very pleased with the progress that has been 
achieved because of this refocusing, which has allowed the project to 
proceed with considerably less resistance than it was encountering 12 
months ago. Indeed, more than 20 jurisdictions have committed to 
achieve transparency and effective information exchange since the 
project was refocused. We look forward to continuing to work together 
to achieve real advances in this critically important area.
                                 ______
                                 

                Questions Submitted by Senator Jack Reed

                               gun shows
    Question. In a January 1999 report, ``Gun Shows: Brady Checks and 
Crime Gun Traces,'' the Department of the Treasury concluded that ``a 
review of ATF's recent investigations indicates that gun shows provide 
a forum for illegal firearms sales and trafficking.''
    Do you support legislation to close the ``gun show loophole'' that 
exempts private sales at gun shows from the Brady background check 
requirement that applies to sales by licensed dealers?
    Answer. The Administration supports, in principle, amending the 
Brady Act to require background checks for all firearms transactions at 
gun shows. We must ensure that terrorists and other criminals are 
prevented from purchasing weapons at gun shows through an instant 
criminal background check that does not unduly burden the law-abiding 
gun buyers at these events.
    Question. I met with staff from the Treasury Department's Bureau of 
Alcohol, Tobacco and Firearms and the Department of Justice last 
November and was told that in the immediate aftermath of the September 
11 attacks, FBI officials compared the audit log of approved gun sales 
under the NICS to the government's terrorist watch lists based on a 
request from ATF. We later read about inspection of the audit log in 
the New York Times. So it was clear that these NICS records contained 
important information for investigators. But since then, the Department 
of Justice has suggested that Federal law prohibits NICS records from 
being used in terrorism investigations. Since the request came from 
your Department, what are your thoughts on DOJ's decision, and do you 
support legislative efforts to make audit log records available for 
anti-terrorist investigations?
    Answer. As a point of clarification, ATF made the request to the 
FBI to compare the audit log of approved gun sales under the NICS to 
the government's terrorist watch list in response to a request for 
information from the Joint Terrorism Task Force (JTTF). It is our 
understanding that the Department of Justice interprets its current 
regulations to prohibit the use of the NICS audit log for this purpose. 
To the extent that legislation would be necessary to make audit log 
records available for anti-terrorist investigations, the Department 
would review such legislation in consultation with others in the 
Administration.
               use of atf databases for firearms tracing
    Question. In a written response to my inquiry about cooperation 
between the Department of Justice and ATF on anti-terrorist issues, the 
Attorney General stated that ``Following the September 11 attack, the 
FBI requested that the Bureau of Alcohol, Tobacco and Firearms (ATF) 
compare ATF databases relating to multiple sales, stolen firearms and 
traced crime guns with the [terrorist] watch list arising out of the 
investigation. The FBI was advised there were 6 matches from this 
comparison.''
    How many and what types of weapons were involved, i.e. were they 
assault weapons, handguns, etc.?
    Answer. The names of 8 individuals from the terrorist watch list 
matched the names of individuals found in records of 47 previously 
traced firearms or 2 multiple sales reports. These records included 
traces of 32 pistols, 10 rifles, 5 shotguns and 2 revolvers.
                   policy for importation of firearms
    Question. The Bureau of Alcohol, Tobacco and Firearms has the 
authority under 18 USC Sec. 925 (d) to exclude from import firearms 
that are not ``generally recognized as particularly suitable for or 
readily adaptable to sporting purposes. . . ''
    What is the policy of the Department, and specifically the Bureau 
of Alcohol, Tobacco and Firearms with respect to the importation of 
weapons that have significant potential for terrorist use? 
Specifically, what is ATF's policy with respect to the importation of 
.50 caliber sniper rifles? These weapons have been identified by the 
RAND Corporation as posing a significant and real threat to the 
security of air force bases because they have the capability to disable 
aircraft. Moreover, the Violence Policy Center has documented that 25 
of these long-range, high-caliber weapons were transferred to Osama bin 
Laden. Would it be the policy of the Department to exclude the 
importation of such weapons on the grounds that they would fail the 
``sporting purposes'' test since they pose a threat to national 
security?
    Answer. The Bureau of Alcohol, Tobacco and Firearms has determined 
that a .50 caliber rifle is importable as a sporting firearm because it 
is particularly suitable for, or readily adaptable to, sporting 
purposes. Specifically, ATF's longstanding interpretation of ``sporting 
purposes'' includes competitive shooting events. In the United States, 
there are numerous organizations that sponsor competition in silhouette 
and target shooting events for .50 caliber rifles.
                   elimination of corrupt gun dealers
    Question. In a June 2000 study, ``Following the Gun: Enforcing 
Federal Laws Against Firearms Traffickers,'' the Department identified 
federally licensed firearms dealers (FFLs) as the single largest source 
of illegally trafficked firearms.
    What steps have been taken, or are planned, to identify and 
eliminate corrupt gun dealers?
    Answer. The Bureau of Alcohol, Tobacco and Firearms (ATF) focuses 
its inspection resources on dealers who have potential firearms 
trafficking indicators associated with their businesses. ATF's 
comprehensive focused inspection program targets certain dealers based 
on firearms tracing data and information about their compliance 
history. During these inspections, ATF examines the dealers' 
recordkeeping procedures, their compliance with the Brady law, and any 
inventory discrepancies.
    When warranted, ATF opens criminal investigations of licensees. 
During fiscal year 2000 and 2001, the Bureau initiated criminal 
investigations of 39 licensees for various violations, including the 
sale of illegal weapons and transactions with prohibited individuals. 
In addition to criminal prosecutions, when willful violations by 
Federal firearms licensees are discovered, ATF moves to revokes those 
licenses. In fiscal year 2000 and fiscal year 2001, nearly 70 dealers 
had their licenses revoked for willful violations of the Gun Control 
Act.
    Question. Is the balance of resources sufficient to perform the 
required increase in explosives investigations and inspection due to 
the events of 9/11 without shifting resources away from firearms 
enforcement, the GREAT grant program, and all other mandates of the 
BATF?
    Answer. Shortly after September 11, 2001, ATF directed that all 
field divisions conduct inspections of the vast majority of explosive 
licensees and permittees. These inspections were recently completed. 
During these inspections, ATF re-emphasized the importance of promptly 
reporting the theft or loss of explosive materials, as well as the 
importance of reporting any suspicious activity, attempted break-ins, 
and suspicious purchase attempts. ATF believes it is important to fully 
investigate every incident of the theft or loss of explosive materials 
and to conduct compliance inspections on all explosives licensees and 
permittees. With the level of inspector resources as they currently 
exist, we plan to inspect 50 percent of this total population on an 
annual basis. Our policy will be to first follow-up on problems we 
found during our post September 11 explosives field program. To 
continue our explosives inspection program at post September 11 levels 
would require additional resources or a reallocation of existing 
resources.
                    automated commercial environment
    Question. As you have mentioned in your testimony, the Customs 
Service is in the third year of funding for its modernization effort, 
specifically replacing the outdated Automated Commercial System (ACS) 
with the Automated Commercial Environment (ACE).
    Is the Department pleased with the progress of this modernization 
effort? In light of the dramatic increase in imports to our nation's 
ports, and the increased chance of illegal products coming into the 
country for possible terrorist actions, does the Department feel that 
there should be a further increase for Customs to assist in their 
monitoring of our ports of entry? Should the ACE modernization project 
be sped up?
    Answer. Customs Modernization has gained great momentum since the 
systems integration contractor began work on the Automated Commercial 
Environment (ACE) in August 2001. The Department is satisfied with the 
progress of ACE and recognizes its critical role in the foundation of 
Customs-wide modernization. Additionally, the Department monitors the 
progress of ACE through its oversight role on the Joint Capital 
Investment Review Board (J-CIRB). As the project progresses, 
capabilities will be improved and expanded to all modes of 
transportation and trade partners, creating national accounts for 
brokers, carriers, sureties, exporters, and government agencies. The 
infrastructure built for ACE will also serve as the foundation for 
modernization projects in Customs enforcement and administration areas.
    The benefits of ACE have become even clearer in light of the recent 
terrorist attacks. In addition to reforming the way Customs conducts 
business with the trade, ACE will provide the tools, information, and 
foresight needed to both expedite trade, and through quicker more 
effective targeting, prevent cargo from becoming an instrument of 
terrorism. ACE is an important project for our country, Customs, the 
business community, and for the future of global trade.
    Consideration of any acceleration of ACE funding beyond the 
requested $312.9 million level (including funding for the International 
Trade Data System) will be part of the Administration's Fiscal Year 
2004 budget development, and will take into consideration the pace of 
spending approvals and procurements as the project progresses. Treasury 
will also continue to derive guidance from GAO and from communications 
issued by the Appropriations Committees in their review and approval of 
requests for release of already appropriated funding. The most recent 
such communication from the House Appropriations Committee continues to 
counsel caution, and that care be taken to assess the risks and their 
acceptable mitigation in any acceleration of development of such a 
complex project as ACE.
              modernization and improvement of irs systems
    Question. You have outlined in your testimony the continued efforts 
of the Department and the IRS to modernize the Service's systems as 
well as to improve its taxpayer service and compliance, and I laud your 
efforts in this area.
    What other areas do you see that need increased efforts at 
improvement? What are the levels of complaints lodged against the 
Service by taxpayers over the course of the modernization effort? I was 
wondering too if you could expand a bit more about the IRS' plans to 
encourage electronic filings, and particularly how this might conflict 
with private sector efforts in this area?
    Answer. The IRS Oversight Board has stated that ``service to 
taxpayers is inadequate.'' In spite of the short-term gains the IRS 
achieved, they are still not consistently providing service to 
taxpayers at a level they expect and deserve.
    The IRS received 108 million telephone calls, covering a very wide 
range of subject matter. The quality of that telephone service, while 
continually improving, is still not on a level with the services 
received in the private sector.
    Not only must the IRS continue to improve taxpayer access to toll-
free lines, but they must also improve the accuracy of the responses 
given to tax law and account questions. Unfortunately, this problem is 
not confined to telephone assistance. The IRS also has a steep learning 
curve at taxpayer assistance centers. The GAO testified in April 2001 
that ``walk-in sites are continuing to provide poor tax law 
assistance.''
    The IRS is not providing adequate service in other areas. For 
example, employers, particularly first-time employers, are often 
discouraged by the delays and difficulties in obtaining an Employer 
Identification Number (EIN).
    The IRS is currently administering 71 taxpayer rights provisions 
resulting from the Restructuring and Reform Act of 1998 (RRA 98). Many 
of the provisions, such as innocent spouse protection, due process in 
collections and offers in compromise, would individually be considered 
major projects. Collectively, they represent a challenge of learning 
new ways of doing business for nearly every one of IRS' 100,000 
employees. During this process, the IRS encountered a number of 
problems and demands that are still being addressed.
    The Administration proposes in its budget submission ``an easy, no-
cost option for taxpayers to file their tax returns online.'' 
Unfortunately, there has been some confusion regarding this proposal. 
The Administration's proposal to give taxpayers the option to file 
their tax returns on-line without charge is based on two principles: 
(1) that no one should be forced to pay extra just to file his or her 
tax return; and (2) the IRS should not get into the software business. 
The IRS is working with private industry representatives who have 
proven expertise and experience to develop these options.
    As I stated on January 30, 2002, ``I don't intend for the IRS to 
get into the software business, but rather to open a constructive 
dialogue with those who already have established expertise in this 
field. In the end, this effort should come up with a better way to save 
time and money for both taxpayers and the government.''
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

                      business strategy adjustment
    Question. Just about every account within Treasury has been asked 
to examine their operations to achieve improved effectiveness in 
business practices. As you can imagine, this idea has raised some 
concerns and I would like to explore the proposal just a bit:
    What is the nature of the Business Strategy Adjustment?
    Answer. The business strategy adjustment reflects Treasury's 
expectation of reasonable savings from better business practices. Each 
bureau is expected to review all programmatic efforts on a continual 
basis and reduce or remove those producing little or no programmatic 
value.
    Question. How were the amounts determined?
    Answer. The adjustment for each Bureau was 25 percent of the total 
mandatory costs of the proposed pay raise and non-pay inflation factor, 
developed historically using OMB economic assumptions. However, when 
the Administration revised the non-pay inflation factor downward from 
2.1 percent to 1.8 percent, Bureaus were allowed to keep the 0.3 
percent savings from this downward revision. Consequently, each 
Bureau's adjustment is now slightly less than 25 percent of their total 
mandatory inflationary costs.
    Question. Why wasn't the Departmental Offices account asked to come 
up with these savings?
    Answer. It was determined that given the funding denied for the 
Departmental Offices (DO) for fiscal year 2002, they could not manage 
another absorption in fiscal year 2003. DO was denied most of the 
requested funding to make the base whole in fiscal year 2002, as well 
as an initiative to provide secure LAN services, totaling $9.743 
million in absorbed costs. These absorbed costs included: (1) $3.8 
million for unavoidable inflationary increases to IT contracts and DTS 
communications costs; (2) $0.7 million in non-pay inflation, which was 
only a 50 percent restoration of non-pay inflation compared to other 
bureaus, and means the absorption of inflationary costs of GSA rent, 
equipment contracts, and facility related contracts, etc.; (3) $3.0 
million for Treasury Secure Data Network (TSDN), which must be 
installed to meet security requirements; and (4) as a result of 
receiving only a partial amount of the $5.6 million for the Labor Cost 
Infrastructure project, DO had to reduce its authorized FTE ceiling by 
65. Over the past few years DO has carried a higher FTE count than it 
could sustain. It was hoped that the labor cost increase would help to 
better manage the FTE authorization level. The net effect of all these 
absorptions is a very tight management of costs and staffing changes, 
all of which are under very close review before moving forward.
    Question. Can you give us some examples of what bureaus can do to 
achieve these savings?
    Answer. I believe that every organization's financial planning must 
include expectations of continuous productivity improvement. This 
adjustment is not about cutting back programs and services due to a 
lack of resources. This adjustment is about re-engineering processes 
and the judicious use of new technology to maintain or increase 
performance at lower cost. Every bureau will approach this challenge 
differently, but they all should be: (1) reviewing business processes 
throughout their organizations to remove roadblocks that are costly and 
hinder performance; and (2) continually reviewing programmatic efforts 
to reduce or remove those producing little or no programmatic value. 
For one bureau that might be an unwieldy procurement process. For 
another bureau it might be a program that does not support its core 
mission and is not producing results that justify continued 
expenditures. I have empowered each of my bureau heads the freedom to 
make these determinations in the best interest of their bureau and am 
more than happy to work with them in achieving this improvement.
                    office of foreign assets control
    Question. Lately there have been numerous news reports about Cuba 
sanctions and travel to Cuba. For example, there was a Washington Post 
article on March 6, 2002 about the Office of Foreign Assets Control 
(OFAC) secretly settling more than 100 enforcement actions from 1998 to 
2000 against corporations, banks and other entities for violating trade 
embargoes with rogue nations and there was some concern expressed that 
this was not disclosed to the public.
    Are there specific guidelines OFAC uses in deciding whether to 
disclose these cases?
    Answer. In the past, OFAC did not typically release the names of, 
or information concerning, companies or individuals who settled cases 
of alleged sanctions violations through the payment of a negotiated 
settlement amount, unless it served the purpose of enhancing 
enforcement of the embargo.
    These settlements typically occur after OFAC informs the respondent 
through the issuance of a pre-penalty notice of the alleged violation 
and OFAC's intent to assess a fine. The respondent is then afforded 30 
days to refute the allegation, plead mitigating circumstances and/or 
enter into settlement negotiations. These negotiations often result in 
an offer by the respondent to pay an agreed upon amount to the U.S. 
Government in settlement of the allegation. In these instances there is 
no admission or formal agency finding of guilt, so OFAC traditionally 
has not released the names of the alleged violators.
    OFAC is carefully reviewing this disclosure policy and will soon 
issue a Federal Register Notice soliciting public comment on proposals 
to release certain settlement information.
    Question. Why were the cases referred to in the Washington Post 
article not disclosed earlier?
    Answer. As noted above, it was not OFAC's policy to disclose such 
information. The cases referred to in the Washington Post were released 
pursuant to the Freedom of Information Act.
    Question. Who is responsible for determining which cases are 
disclosed and when the cases are disclosed?
    Answer. The Director of OFAC has made these determinations in the 
past, after consultation with other relevant U.S. Government officials, 
in accordance with the policy described above.
    Even though OFAC is an entity of the Departmental Offices, we have 
a hard time getting specific information about funds allocated to that 
office for fiscal years 2000, 2001 and 2002.
    Question. What is the total number of full time employees at OFAC?
    Answer. The numbers of full-time employees (FTEs) for OFAC in 
fiscal year 2000, fiscal year 2001 and fiscal year 2002 are as follows:
  --Fiscal year 2000--68 (actual usage)
  --Fiscal year 2001--75 (actual usage)
  --Fiscal year 2002--129 (authorized ceiling)
    In addition, provided as Attachment 1 is a chart from the 
Departmental Offices Congressional Justification on Enforcement funds 
for fiscal year 2000 through fiscal year 2003.

                              DEPARTMENT OF THE TREASURY--DEPARTMENT OFFICIES--DISPLAY OF ENFORCEMENT POLICIES AND PROGRAMS
                                                                 [Dollars in thousands]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                             Fiscal year
                                           -------------------------------------------------------------------------------------------------------------
                                                2000 actuals          2001 actuals          2002 enacted          2002 fin plan         2003 proposed
                                           -------------------------------------------------------------------------------------------------------------
                                             Dollars      FTE      Dollars      FTE      Dollars      FTE      Dollars      FTE      Dollars      FTE
--------------------------------------------------------------------------------------------------------------------------------------------------------
Office of Enforcement: \1\
    11.0 Personnel Compensation...........     $3,681         51     $4,038         46     $4,278         48     $4,417         48     $4,556         48
    12.0 Personnel Benefits...............        718  .........        763  .........        958  .........        609  .........        639  .........
    21.0 Travel...........................        238  .........        259  .........        295  .........        259  .........        259  .........
    22.0 Transportation of Things.........          0  .........          0  .........          0  .........          0  .........          0  .........
    23.0 Communications, Utilities & Misc.         23  .........         23  .........         25  .........         24  .........         24  .........
    25.0 Other Services...................        164  .........      3,018  .........      3,051  .........      2,929  .........      2,991  .........
    26.0 Supplies.........................          6  .........         17  .........         23  .........         22  .........         22  .........
    31.0 Equipment........................          3  .........         27  .........          9  .........          9  .........          9  .........
    91.0 Confidential Expenditures........          5  .........          7  .........          0  .........          0  .........          0  .........
                                           -------------------------------------------------------------------------------------------------------------
      Subtotal, Office of Enforcement.....      4,837         51      8,152         46      8,639         48      8,269         48      8,500         48
Legislative Proposal on Full Costing of     .........  .........        402  .........  .........  .........        435  .........        451  .........
 Benefits.................................
Executive/Administrative Support \2\......      2,681         12      4,684         21      5,111         21      5,211         21      5,306         21
                                           -------------------------------------------------------------------------------------------------------------
      Total, Office of Enforcement........      7,518         63     13,238         67     13,750         69     13,915         69     14,257         69
                                           =============================================================================================================
Office of Foreign Assets Control: \1\
    11.0 Personnel Compensation...........      4,401         68      5,605         75      9,928        129      7,853        129      8,799        141
    12.0 Personnel Benefits...............      1,048  .........      1,208  .........      2,774  .........      1,725  .........      2,000  .........
    21.0 Travel...........................        238  .........        313  .........        663  .........        663  .........        717  .........
    22.0 Transportation of Things.........          0  .........         24  .........        914  .........        119  .........        122  .........
    23.0 Communications, Utilities & Misc.         16  .........         17  .........        205  .........        129  .........        168  .........
    25.0 Other Services...................        336  .........      2,928  .........      3,940  .........      4,959  .........      6,672  .........
    26.0 Supplies.........................         25  .........         70  .........        517  .........        547  .........        563  .........
    31.0 Equipment........................         48  .........      1,010  .........        791  .........      2,171  .........      2,611  .........
    91.0 Confidential Expenditures........          0  .........          0  .........          0  .........          0  .........          0  .........
                                           -------------------------------------------------------------------------------------------------------------
      Subtotal, Office of Foreign Assets        6,112         68     11,175         75     19,732        129     18,166        129     21,652        141
       Control............................
Legislative Proposal on Full Costing of     .........  .........        656      1,170      1,286  .........
 Benefits.................................
Executive/Administrative Support \2\......      3,574         16      7,605         35     13,735         56     14,004         58     15,146         61
                                           -------------------------------------------------------------------------------------------------------------
      Total, Office of Foreign Assets           9,686         84     19,436        110     33,467        185     33,340        187     38,084        202
       Control............................
                                           =============================================================================================================
Total, Enforcement Policies and Programs:
    11.0 Personnel Compensation...........      8,082        118      9,643        121     14,206        177     12,270        177     13,355        189
    12.0 Personnel Benefits...............      1,767  .........      1,971  .........      3,732  .........      2,334  .........      2,639  .........
    21.0 Travel...........................        475  .........        572  .........        958  .........        922  .........        976  .........
    22.0 Transportation of Things.........          0  .........         24  .........        914  .........        119  .........        122  .........
    23.0 Communications, Utilities & Misc.         39  .........         40  .........        230  .........        153  .........        192  .........
    25.0 Other Services...................        500  .........      5,946  .........      6,991  .........      7,888  .........      9,663  .........
    26.0 Supplies.........................         30  .........         87  .........        540  .........        569  .........        585  .........
    31.0 Equipment........................         51  .........      1,037  .........        800  .........      2,180  .........      2,620  .........
    91.0 Confidential Expenditures........          5  .........          7  .........          0  .........          0  .........          0  .........
                                           -------------------------------------------------------------------------------------------------------------
      Subtotal, Enforcement Policies and       10,949        118     19,327        121     28,371        177     26,435        177     30,152        189
       Programs...........................
Legislative Proposal on Full Costing of             0  .........      1,058  .........  .........      1,605  .........      1,737  .........
 Benefits.................................
Executive/Administrative Support..........      6,255         28     12,289         56     18,846         77     19,215         79     20,452         82
                                           -------------------------------------------------------------------------------------------------------------
      Total, Enforcement Policies and          17,204        146     32,674        177     47,217        254     47,255        256     52,341        271
       Programs...........................
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ If sufficient funds become available the Office of Enforcement may staff up to 58 full time equivalent positions and OFAC up to 138 full equivalent
  positions.
\2\ Administrative Support distribution only and the methodology used to distribute these costs is based on thepervious activity structure.

    Question. How much money was spent by OFAC and how were those funds 
used?
    Answer. OFAC's expenditures for the fiscal years 2000, 2001, and 
2002 are as follows:
  --2000: $6.1 million
  --2001: $11.2 million
  --2002: $25.7 million (includes No-Year funds for Plan Colombia and 
        fiscal year 2001 Emergency Supplemental)
    OFAC currently administers 24 economic sanctions programs, most 
commonly imposed by the President under authority of the International 
Emergency Economic Powers Act, the Trading with the Enemy Act, the 
United Nations Participation Act or mandated by Congress under specific 
statutes, such as the Foreign Narcotics Kingpin Designation Act. OFAC 
currently has offices in Washington, Miami and Bogota. OFAC's expenses 
consist primarily of personnel, travel-related costs, and other 
services and equipment as shown in the table below.

                                                                      [In dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                Fiscal year 2002 financial plan
                                                                            Fiscal year  Fiscal year ---------------------------------------------------
                                                                                2000         2001                      Drug      Emergency
                                                                              actuals      actuals         SE        kingpin       suppl.       Total
--------------------------------------------------------------------------------------------------------------------------------------------------------
Office of Foreign Assets Control:
    11.0 Personnel compensation...........................................        4,402        5,605        7,852        1,045          750        9,637
    12.0 Personnel benefits...............................................        1,048        1,208        1,726          386          174        2,286
                                                                           =============================================================================
    21.0 Travel...........................................................          236          313          663           22           48          733
    22.0 Transporation of things..........................................            0           24          119            0            0          119
    23.0 Communications, utilities & misc.................................           16           17          179            0          610          789
    25.0 Other services...................................................          336        2,928        5,494            0        3,631        9,125
    26.0 Supplies.........................................................           25           70          547            0           14          561
    31.0 Equipment........................................................           71        1,010        2,121            0          324        2,445
                                                                           -----------------------------------------------------------------------------
      Subtotal, Non-Pay...................................................          684        4,362        9,123           22        4,627       13,772
                                                                           =============================================================================
      Total, Office of Foreign Assets Control.............................        6,134       11,175       18,701        1,453        5,541       25,695
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Question. What happens to the fine money paid by those who have 
violated the embargo?
    Answer. Both agreed upon settlements and assessed fines are paid 
into the General Fund.
                       irs resource requirements
    Question. It sometimes appears to us that the needs of the Internal 
Revenue Service (IRS) are never ending. For example:
    In fiscal years 2001 and 2002 Congress provided for additional 
full-time employees to restore customer service and enforcement levels. 
So, why does IRS need additional staffing for compliance workload in 
fiscal year 2003?
    Answer. Despite fiscal year 2001 hiring of nearly 1,500 new 
employees in these field compliance programs, losses from attrition and 
internal migration totaled 2,500 employees. The recent hiring 
represents the first substantial recruitment of compliance staff in 
over 5 years. By way of example, in fiscal year 1995, the IRS employed 
over 8,000 field revenue officers, compared to fewer than 5,800 at the 
beginning of this year. Prior to this initiative, the Staffing Tax 
Administration for Balance and Equity (STABLE) initiative funded the 
hiring of front-line personnel, which allowed us to keep other 
employees in their compliance positions.
    By using STABLE funds to hire staff to perform service and 
educational functions, we avoided the need to use more expensive 
compliance personnel on details during the filing season. STABLE 
allowed us to accomplish two objectives efficiently: increase our level 
of taxpayer education and taxpayer service; and increase the number of 
staff years applied to exam and collection work. STABLE did not fund 
new compliance positions. The staffing losses we have suffered over the 
past several years, in addition to similar losses among revenue agents 
and tax compliance officers, have substantially reduced collection case 
closures and audit coverage rates.
    The IRS budget request for fiscal year 2003 is $482 million higher 
than the fiscal year 2002 appropriation of $9.936 billion. The largest 
programmatic component of this increase is $102 million for the 
Customer Service, Compliance and Workload Initiative. This initiative 
actually costs $260 million, but IRS has achieved internal efficiencies 
through a redeployment of resources within its base budget to cover 
$158 million of this initiative. During this review, the IRS found 
2,287 FTE that could be re-deployed to high priority areas in customer 
service and compliance. We have requested an additional $102 million 
for fiscal year 2003 to supplement the savings found by the IRS for 
this initiative.
        irs customer service, compliance and workload initiative
    Question. I understand that the IRS wants to redirect the employees 
who currently handle customer service back to their regular jobs, and 
then fill those positions with lower-paid employees. I thought the 
purpose of the existing organization was to have experts available to 
answer questions.
    What is the purpose of the redirection of IRS resources for part of 
the Customer Service, Compliance and Workload Initiative and how will 
IRS be able to manage this redirection?
    Answer. As recently as fiscal year 2000, we detailed substantial 
numbers of compliance staff to support filing season customer service 
programs (i.e., toll-free telephones, walk-in assistance and taxpayer 
education). In that year alone, we pulled over 2,500 revenue agents, 
tax auditors and revenue officers off-line to assist taxpayers--
representing over 1,000 FTE. In fiscal year 2002, we will use just over 
300 FTE from these field compliance programs. Field office staffing now 
includes new Tax Specialists and Tax Resolution Representatives--new 
higher-graded positions designed to offer ``one-stop-service'' on a 
broad range of issues that include technical tax law questions and 
account-specific payment problems.
    Question. What effect will this redirection have on IRS operations 
and programs?
    Answer. For Examination, we estimate we will forego approximately 
22,000 return closures and $117 million in recommended tax in fiscal 
year 2002. For Collection, we estimate the opportunity costs to be 
approximately $219 million for fiscal year 2002.
    The following table depicts the revenue agents, tax compliance 
officers, and revenue officers FTE performing customer service duties 
from fiscal year 1996 through fiscal year 2001 as well as plans for 
fiscal year 2002.

----------------------------------------------------------------------------------------------------------------
                                                                            Fiscal year
                                                  --------------------------------------------------------------
                                                     1996     1997     1998     1999     2000     2001     2002
----------------------------------------------------------------------------------------------------------------
Revenue Agents...................................      148      148      293      451      549      268      160
Tax Compliance Officers..........................       34      121      158      151      209      129       59
Revenue Officers.................................       28       31       73      146      201       93       95
----------------------------------------------------------------------------------------------------------------

            youth crime gun interdiction initiative program
    Question. Mr. Secretary, the President's budget overview states 
that $11 million will be provided to the Bureau of Alcohol, Tobacco and 
Firearms in order to expand the Youth Crime Gun Interdiction Initiative 
to 10 additional sites. Currently there are 50 cities in 32 States and 
the District of Columbia.
    What new cities will be designated YCGII sites? How were these 
locations determined?
    Answer. The requirements developed to qualify as a YCGII city are 
(1) a minimum population of 250,000; (2) youth and juvenile crime 
rates; (3) known trafficking source or market area; (4) history of 
firearms tracing; and (5) the mix of city size and demographics. YCGII 
is established in 50 high-density population locations nationwide. Over 
the period that YCGII has existed, cities with populations of under 
250,000 have indicated an interest in participating in YCGII. The 2000 
Census indicates approximately 24 cities with a population currently 
qualifying for YCGII. Some of these cities are located in proximity to 
current YCGII cities. Therefore, if ATF is to continue partnerships to 
combat youth violence, we must be flexible in considering the 
population qualification.
    ATF must also consider the Administration's Project Safe 
Neighborhood (PSN) initiative. Since the YCGII and the PSN are part of 
our overall Integrated Violence Reduction Strategy, we hope to 
associate our efforts (where possible) with the Department of Justice 
expansion of PSN. The level of funding and personnel resources 
requested will allow the expansion of the initiative to 10 cities. If 
the city selection criteria are revised to incorporate smaller 
populations, then we would propose a more flexible approach to assign 
personnel. Currently, a list of potential city partners has been 
developed and once ATF has concurrence from the cities, they will be 
announced.
          gang resistance education and training (g.r.e.a.t.)
    Question. As you know, I have consistently supported the Gang 
Resistance Education and Training program, called GREAT. In fact, a few 
years ago we invited several graduates of that program from all over 
the country to testify about their experiences. The budget requests a 
change in the ATF statutory language to drop the specific authority to 
make grants to State and local law enforcement for this effort.
    Does this mean that ATF will no longer participate in this program? 
If so, what happens to the money Congress previously appropriated 
specifically for this purpose?
    Answer. The G.R.E.A.T. program has had a positive impact on 
millions of children across the country who have been through the 
curriculum. Given this success, the Administration proposes to continue 
the program in fiscal year 2003. Language has been drafted to continue 
the grant/cooperative agreement authority for the G.R.E.A.T. program in 
fiscal year 2003. This language is part of the Administration's budget 
amendment package, transmitted to Congress on March 14, 2002.
                    automated commercial environment
    Question. Mr. Secretary, the Customs Commissioner has expressed 
support for accelerated development of the Automated Commercial 
Environment--ACE--project. Some concern has been expressed that 
compressing the current 5-year schedule down to 4 years could be 
significantly more risky--both financially and operationally. We all 
want to see ACE finished but it is also important that it be an 
integrated, functioning system and that takes both time and expertise.
    How involved will your office be in the final decision about the 
ACE schedule?
    Answer. I am committed to ensuring that the ACE project, including 
the accelerated development effort, be fully successful. The incredibly 
rich set of improvement opportunities further underscores my commitment 
towards this project. The ACE project has an effective management 
structure based upon key partnerships between Customs and oversight 
organizations. Project managers have developed extensive plans and 
rigorous processes to ensure that cost, performance, and schedule 
targets are met. ACE project managers have also collaborated with 
operations and field personnel, other government agencies, and the 
trade community to develop requirements and plans. Additionally, my 
involvement, in concert with the Customs Commissioner, Customs Chief 
Information Officer, and the Treasury Deputy Assistant Secretary for 
Information Systems and Chief Information Officer will continue to be 
proactive in reaching critical decisions concerning the ACE project, 
including compression of the development schedule.
    Additionally, the Treasury Assistant Secretary for Management and 
Chief Financial Officer and the Treasury Deputy Assistant Secretary for 
Information Systems and Chief Information Officer are my 
representatives on the Joint Capital Investment Review Board (J-CIRB). 
The Customs Modernization Office updates the J-CIRB periodically on the 
status of the project. All released funds must be approved by the J-
CIRB and the Under Secretary for Enforcement prior to spending by the 
U.S. Customs Service. Through our participation in the J-CIRB, we can 
monitor the progress of ACE.
                     customs service spending plan
    Question. Mr. Secretary, the Committee provided additional funding 
to the Customs Service as part of the fiscal year 2002 emergency 
supplemental. Before those funds could be obligated, Customs was 
required to develop and deliver to you a specific spending plan for 
those monies. We did receive your written comments.
    Do you have any further observations or comments on the Customs 
spending plan you would like to share with us today?
    Answer. To achieve the most cost-effective allocation of resources, 
Customs needs to continually assess its use of all resources to achieve 
desired results. That is why I have asked Customs, on an ongoing basis, 
to evaluate the relative effectiveness of people and technology in 
different settings. This extends to looking for cost-effective results 
based on whether people or technology are used first at each inspection 
setting, and to reviewing the marginal return in results for each added 
piece of technology or inspector compared with the previously added 
one. Our goal is to seek hoped-for returns on these investments that 
directly affect security and trade facilitation, and I will be looking 
for Customs to seek expression of these results in measurable terms, as 
part of the process of balancing these two missions. A key element of 
total success of our collective objectives will be the assurance that 
Customs, and other agencies recognize their relative expertise in 
particular settings that calls for improved coordination to attain the 
greatest overall effectiveness.
    This concept is at the heart of the President's Management Agenda, 
which seeks to link Congressionally authorized dollars with specific 
results. The Committee and the Department can play a particularly 
strong role in enhancing the Customs Service's overall performance by 
making these inquiries part of the ongoing assessment of such 
investments--investments which are at the heart of meeting our security 
objectives. Your efforts will complement the efforts already underway 
at Treasury.
    The Commissioner's proposal for major investments in effective 
inspection, targeting, and infrastructure technology bodes well for 
long term, qualitative improvement in Customs' interdiction goals. 
Every successful business in the 21 century will continually look to 
technology investments to increase productivity and enable valuable and 
costly labor resources to be reallocated for maximum program impact. 
This is no less true of government.
    In conjunction with a wise and selective use of technology, I have 
also charged every Treasury organization, including Customs, to search 
relentlessly for ways to work more effectively. This includes removing 
obsolete rules, barriers and constraints, increasing our level of 
support for programs that are yielding benefits, and decommissioning 
efforts that are consuming resources with little or no programmative 
value. In my experience, organizations that are quick to respond to 
changing conditions and that continually make results-oriented spending 
choices are key to the unparalleled success of America's economy. This 
same responsiveness, and the leadership to make sometimes difficult 
resource choices, must characterize successful government programs. I 
am challenging the Customs Service to not view these added Homeland 
Security resources in isolation, but to strive continually to achieve 
improved outcomes at a lower cost throughout the organization, and to 
be accountable for the results we seek.
                    use of the counterterrorism fund
    Question.First of all, Mr. Secretary, congratulations to you and 
the entire Treasury Department for the efforts to make sure that the 
2002 Winter Olympic Games were safe and secure. The Secret Service put 
together a comprehensive security plan, and the Treasury law 
enforcement agencies contributed most of the needed manpower to be able 
to implement that plan.
    There were several hundred non-Treasury Federal law enforcement 
personnel helping out at the Winter Games in response to the Secret 
Service request for their particular expertise--from the Forest 
Service, the National Park Service, the Bureau of Land Management, the 
Fish and Wildlife Service and the Department of Defense. That is 
exactly what Presidential Decision Directive 62 envisioned and directs.
    That brings me to my question. You have requested an appropriation 
of $40 million for the Counterterrorism Fund, which would be expanded 
to allow for reimbursements to ``any Federal agency'' which assists the 
Secret Service at a national special security event.
    How do you intend to use this fund? Would you reimburse non-
Treasury agencies for the help of their personnel?
    Answer. The Fund was established to enable the Department of the 
Treasury to undertake activities and operations to counter, investigate 
or prosecute unexpected threats or acts of terrorism. This fund has 
been the means for covering the costs associated with providing 
security for unanticipated National Special Security Events (NSSEs), 
and other large protective events.
    The U.S. Secret Service is responsible for the design, planning, 
and implementation of security and security support for events 
designated as National Special Security Events. As such, the Secret 
Service is authorized to call on other Federal agencies to provide 
security support for NSSEs as may be necessary. Given the unanticipated 
nature of NSSEs, it is likely that non-Treasury agencies would not have 
available resources to cover the costs associated with such support. 
Under these circumstances, these agencies would be reimbursed for those 
costs.
    Question. If so, why? After all, if the President of the United 
States instructs agencies to assist the Secret Service in the 
implementation of their overall security plan, would an agency refuse 
to respond?
    Answer. If an agency is instructed to support a National Special 
Security Event by the President of the United States, the agency would 
certainly do so. However, there are major costs associated with these 
events and there needs to be a mechanism available to pay these 
extraordinary costs.
                    cobra user fee increase proposal
    Question. I am told that a Customs COBRA fee advisory committee was 
established in 1999 to advise the Customs Commissioner on issues 
related to the performance of the inspectional services of the Customs 
Service. The membership is to include representatives from airline, 
cruise ship, and other transportation industries who may be subject to 
COBRA fees. The meetings were intended to be a forum for discussions 
about the proper number and deployment of inspectors, the level of 
fees, and the appropriateness of any proposed fees.
    Mr. Secretary, the fiscal year 2003 budget request again includes a 
proposal to increase the COBRA fees for airline passengers and cruise 
vessel passengers. What was the reaction of the members of the COBRA 
Fee Advisory Committee to this suggestion?
    Answer. It is my understanding that this committee has not yet met.

                          SUBCOMMITTEE RECESS

    Senator Dorgan. The subcommittee will next convene on 
Wednesday, March 20, at 1:30 p.m. in Dirksen 192 where we will 
hear from the Director of the Office of Management and Budget, 
Mitch Daniels.
    Mr. Secretary, thank you for being with us. This hearing is 
recessed.
    [Whereupon, at 3:31 p.m., Thursday, March 14, the 
subcommittee was recessed, to reconvene at 1:35 p.m. Wednesday, 
March 20.]









  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003

                              ----------                              


                       WEDNESDAY, MARCH 20, 2002

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 1:35 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan, Reed, Campbell, and Stevens.

                   EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Management and Budget

STATEMENT OF MITCHELL E. DANIELS, JR., DIRECTOR

                            OPENING REMARKS

    Senator Dorgan. The subcommittee will come to order.
    Mr. Director, good afternoon. We are pleased with your 
appearance here today. We welcome you to discuss the 
President's fiscal year 2003 budget request for the Office of 
Management and Budget. You are probably getting tired of 
testifying before North Dakotans, having spent some time before 
the Budget Committee, but that is life in the United States 
Senate, I guess.
    This subcommittee, as you know, is responsible for funding 
the operations of the Department of Treasury and all of its 
agencies, such as the IRS, Customs Service, and other agencies. 
We are also responsible for funding the operation of your 
agency, the Office of Management and Budget, as well as the 
other component agencies which make up the executive branch of 
the Presidency. It is also in this subcommittee's bill that we 
carry provisions affecting the operations of all Federal 
agencies. We will focus on some of those proposals today.
    It has been a while since the Budget Director last appeared 
before this committee and we appreciate very much your being 
here. Your task of assembling and producing the budget for the 
Federal Government is not an easy one. We recognize that. The 
Government is an enormous entity. In order to watch over it, 
one can see how some smaller tasks might fall through the 
cracks from time to time, and when it happens, it gives us 
pause, but nonetheless, it is a very large undertaking to run a 
bureaucracy of this size and we appreciate your service.
    The budget this year for the Federal Government and also 
the budget for the Office of Management and Budget is something 
we will discuss at some length today. Some of our colleagues 
will be joining us shortly. This budget proposes to make a 
sweeping change in how the government funds a significant 
portion of the Federal retirement system, but it assumes 
Congressional approval of that proposal in the budget numbers 
submitted for each agency.
    Ordinarily, this type of change would be submitted to the 
appropriate authorizing committees for their consideration and 
action and then be taken up by the appropriators. That is not 
the case this year when it comes to the proposal for the 
treatment of retirement accruals and we will visit a bit about 
that. Nor is it the case for how you want the administration of 
the Federal workers' compensation account treated. The 
authorizers have the experience on these matters and the 
expertise on these matters. These proposals really should be 
submitted to them for their consideration and action, not to us 
first.
    Your office, I think, has not gotten the word out to all of 
the agencies. We have met with some 30 agencies for which we 
appropriate money. During the staff briefings with each of 
them, the more than 30 agencies funded in this bill, we learned 
that not all of the agencies were aware of the proposed new 
treatment of either the retirement accruals or the workers' 
compensation or both. Some of them did not get the word about 
the proposed pay raise. Most were aware that pay disparity was 
proposed in the budget, but instead of planning on a 2.6 
percent pay raise, some budgeted for a 3.9 percent pay increase 
or some other number in between. Their numbers did not add up, 
but yet they were submitted on February 4 when the budget was 
delivered.
    Now, these might seem to be smaller problems, but to many 
of the smaller agencies we fund, in some cases they can make a 
very big difference, and that is why I think that when we take 
a look at the fact sheets that your office produced and 
delivered when the budget was released, we have to take a look 
behind the numbers.
    For example, Mr. Daniels, you suggested that there would be 
an overall 5.4 percent increase in funding for the Customs 
Service from 2002 to 2003, with an 18.4 percent increase for 
salaries and expense accounts alone, but when you back out the 
policy changes with respect to retirement accounts, the real 
dollars are about 9.1 percent below 2002 levels. I hope perhaps 
you would respond to that, and there is a longer list than 
that.

                           PREPARED STATEMENT

    What we want to do today is talk about your specific 
budget, the Office of Management and Budget budget. I would 
like to talk about a number of other policy issues and your 
role in them.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Good Afternoon, Mr. Director. We welcome your appearance today to 
discuss the President's fiscal year 2003 budget request for the Office 
of Management and Budget. You may be getting tired of testifying before 
North Dakotans, but we appreciate your coming.
    This subcommittee is responsible for funding the operations of the 
Department of the Treasury and all of its agencies--such as the IRS and 
the Customs Service. This subcommittee is also responsible for funding 
the operation of your agency--the Office of Management and Budget--as 
well as all the other component agencies which make up the Executive 
Office of the President. It is also in this subcommittee's bill that we 
carry provisions affecting the operations of all Federal agencies. We 
will focus on some of those proposals today.
    It has been a few years since a Budget Director last appeared 
before this subcommittee. That is why we appreciate your willingness to 
appear today.
    Your task of assembling and producing the budget for the Federal 
government is not a task I envy or one to which I aspire. The 
government is an enormous entity to watch over and one can see how some 
smaller tasks might fall through the cracks. But when this happens, it 
gives one pause.
    For instance, this budget not only proposes to make a sweeping 
change in how the government funds a significant portion of the Federal 
retirement system, but it assumes Congressional approval of the 
proposal in the budget numbers submitted for each agency. Ordinarily, 
this type of change should be submitted to the appropriate authorizing 
committees for their consideration and action--then be taken up by the 
appropriators. But that is not the case this year when it comes to your 
proposal for treatment of retirement accruals. Nor is it the case for 
how you want the administration of the Federal worker's compensation 
account treated. The authorizers have the expertise on these matters. 
These proposals should have been submitted to them for their 
consideration and action, not to us. This troubles me.
    And your office appears to have had some difficulty getting the 
word out to all the agencies about these new proposals. During staff 
briefings with each of the more than 30 agencies funded in this bill, 
we learned that not every agency was aware of the new treatment of 
either the retirement accruals or the worker's compensation proposal or 
both. Some of them also did not get the word from your office about the 
proposed pay raise. Most were aware that pay disparity was proposed in 
the budget, but instead of planning on a 2.6 percent pay raise, some 
budgeted for a 3.9 percent pay increase or some other number in 
between. Their numbers did not add up, but were submitted as fact on 
February 4 when the budget was delivered.
    These might appear to be little problems, but to many of the 
smaller agencies we fund here, they make a big difference. That is why 
I was even more disturbed by some of the ``fact'' sheets your office 
produced and delivered to the media when the budget was released.
    In essence, your numbers did not add up. Your office claimed that 
the Treasury agencies were receiving big increases compared to last 
year when in fact most budgets dropped when actual dollars are 
compared. For instance, the document your people delivered trumpeted an 
overall 5.4 percent increase in funding for the Customs Service between 
fiscal year 2002 and fiscal year 2003 with an 18.4 percent increase for 
the salaries and expenses account alone. But when real dollars are 
compared, Customs funding for fiscal year 2003 is 9.1 percent below 
fiscal year 2002 levels. The same is true for the Federal Law 
Enforcement Training Center--which you claimed was receiving a 4.9 
percent increase, when in fact it faces a 14.6 percent decrease.
    The list goes on. Perhaps many of these agencies do not need huge 
budget increases. Perhaps cuts are justified. Perhaps Customs should 
have a year to pause and hire and deploy the people it needs at the 
borders before we require additional hiring.
    But the fact remains that all of these indicators give me reason 
for concern.
  --Asking appropriators to carry sweeping authorizing language is 
        putting the cart before the horse.
  --Not getting specific budget direction to every Federal agency is 
        more than careless.
  --And playing semantic games with the numbers casts a larger shadow 
        on the veracity of the budget requests.
  --Individually, they can be explained perhaps. But taken together 
        they are very troubling. This makes it even harder to support 
        requests which would further reduce the amount of information 
        already being provided to the Congress.
    But we will dig into these issues during the questioning rounds. We 
welcome you here this afternoon, but first let me turn to my Ranking 
Member, Senator Campbell, for any statement he would like to make.

    Senator Dorgan. Before I ask you to present your statement, 
Mr. Daniels, I will ask Senator Campbell, the ranking member, 
to make his statement.

              STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell. Thank you, Mr. Chairman, and welcome, 
Director Daniels. I appreciate your willingness to appear 
today. I notice with interest there are four people with big 
thick briefcases and paperwork on the front row. Are they all 
resource people for you or are you here on your own?
    Mr. Daniels. They are here of their own free will. I do not 
expect to call on them.
    Senator Campbell. I see. I will not take much time this 
afternoon. We have a lot of ground to cover.
    The chairman has already mentioned a couple of things that 
I am particularly interested in. The retirement accrual 
proposal is one, I would like to learn the status of your 
efforts to secure the necessary statutory language. I would 
like to ask you a couple questions when we get going about 
that. I am also interested in learning more about the Office of 
Homeland Security and how you define the homeland security 
items that you are going to be requesting in the budget, too.
    With that, I will submit the rest of my statement for the 
record, Mr. Chairman.
    Senator Dorgan. Senator Campbell, thank you very much.
    [The statement follows:]

         Prepared Statement of Senator Ben Nighthorse Campbell

    Thank you, Mr. Chairman. And, welcome Director Daniels. I 
appreciate your willingness to appear before us today to talk about the 
budget request for the Office of Management and Budget. I full expect 
that we will also talk about other areas of the President's budget 
request as well.
    I won't take much time this afternoon; I know we have a lot of 
grown to cover. But I would like to mention a couple of things. I am 
interested in talking about the accrual proposal contained in the 
budget, and learn the status of your efforts to secure the necessary 
statutory language. I am also interested in learning more about the 
Office of Homeland Security and how you define homeland security items 
in the budget request.

    Senator Dorgan. Mr. Daniels, why do you not proceed. We 
will include your full statement as a part of the record and 
you may summarize.

               OPENING STATEMENT MITCHELL E. DANIELS, JR.

    Mr. Daniels. Mr. Chairman, Senator Campbell, thanks very 
much. Let me just make two preliminary comments excerpted from 
the testimony that we will submit for the record.
    First, I would say with regard to our budget, and I would 
assert that this is so for the entirety of the budget the 
President has submitted, we believe and the President believes 
this is not a ``business as usual'' approach, and even though 
through the valor and leadership of our armed forces and those 
working on homeland security, the world looks very different 
than it did 6 months ago. The President is always quick to 
remind everybody this will be a very long struggle and we hope 
that Congress, as it looks at this budget, will continue to 
bring a mindset to their deliberations that is constantly 
mindful of the differences and of the need to avoid business as 
usual.
    When we put OMB's budget together, we delivered to you a 
dollar figure that is flat with last year. In part, this is 
because we do believe we can operate more productively and do 
more work with the same amount of money. In part, it is to 
reflect solidarity with the policy I just talked about.
    The only other comment I would make is to thank you, each 
of you, for bringing up what is to some a small or obscure 
item. This is the matter of full cost accounting in the Federal 
budget and it is reflected in at least two ways in the budget 
submissions. For example, we are proposing that the full cost 
of retiree benefits be reflected in those programs for which it 
is inexplicably not reflected now. For most of our retirement 
programs, the FERS and the military, for instance, the full 
cost is shown in the accounts where the costs are created. But 
for historical reasons, not so for all accounts, and we would 
like to see that done.
    I appreciate your looking at this issue and mentioning it 
this morning. If there was ever a year in which events have 
reminded us of the value and importance of transparency in 
accounting and of not having hidden costs around an enterprise, 
this has been that year and we would like to get this cleaned 
up.
    I am a little disturbed that as I understand the resolution 
being debated at this very hour by the Senate Budget Committee, 
they would not accept that reform, would continue to leave the 
costs hidden, and would, worse yet, take the $9 billion from 
the mandatory to the discretionary side and spend it on other 
purposes. So we will resist that idea and try to talk them out 
of it, but we appreciate your looking at it and we hope you 
will look at it sympathetically when we are done.
    Senator Dorgan. Mr. Daniels, thank you very much.
    [The statement follows:]

             Prepared Statement of Mitchell E. Daniels, Jr.

    Mr. Chairman, Senator Campbell, Members of the Subcommittee, I am 
pleased to be here this morning to discuss the President's fiscal year 
2003 Budget request for the Office of Management and Budget (OMB).
                              introduction
    Let me start by noting that my colleagues at OMB and throughout the 
Executive Branch have worked hard to present this Congress and our 
fellow citizens with a very different budget for fiscal year 2003. I 
would like to bring to the Committee's attention some new features 
which I hope will now become part of your annual expectations and 
deliberations.
    This budget takes seriously the assessment of government 
performance, and its relationship to future spending. Activities where 
effectiveness can be proven are maintained and often reinforced; those 
that demonstrably fail, or can make no showing of effectiveness, in 
many cases are looked to as sources of funding. The days when programs 
float along year after year, spending taxpayer dollars with never a 
showing of reasonable results or return, must give way to an era of 
accountable government. This and all future budgets must no longer be 
permitted to answer only ``How much?'' They must also answer the 
question ``How well?''
    This innovation responds to decades of calls by good government 
advocates. While long overdue, it is essential at a time when the 
physical safety of Americans requires that the Federal Government take 
on many additional, expensive tasks. It would be unconscionable to fund 
poorly performing programs given the realities of our economy and 
homeland security needs.
                    two-front war against terrorism
    Mr. Chairman, we presented a budget for a two-front war. It 
proposes substantial increases, those the President believes necessary 
to deliver on the paramount duty of the Federal Government, to secure 
the safety of the American people.
    Last year's budget began the reconstruction of a neglected national 
defense base, and that project continues now with new urgency. Funding 
for the category of activities we now term ``Homeland Security'' will 
double under the President's plan: airline security, first responders, 
bioterrorism, border security and preventive law enforcement, are all 
scheduled for major increases as recommended to the President by 
Governor Tom Ridge.
    We have worked closely with the Office of Homeland Security to 
define and budget for these activities. We will guard against and 
oppose efforts to divert funds from Homeland Security requirements or 
to misclassify unrelated funding under Homeland Security's priority 
status.
    Winning our two-front war is not optional, and will be expensive. 
As in other times of national conflict, tradeoffs will be required. We 
propose a very reasonable level that allows spending not related to the 
war or homeland defense to grow by around 2 percent. Within this ``Rest 
of Government'' category the President proposes $355 billion in 
spending. It must be noted that the activities it encompasses have 
enjoyed rapid funding increases during recent years, growing by an 
average annual rate of more than 8 percent since 1998.
    Within this enormous sum, it is both possible and desirable to 
increase high priority programs of proven effectiveness. Dozens of 
programs across the government are scheduled for growth based on 
demonstrated results.
              measuring performance and delivering results
    For decades, good government advocates have called for systematic 
measurement of government's performance, and its reflection in the 
allocation of resources. In 1993, Congress passed the Government 
Performance and Results Act (GPRA), which was intended to implement 
this reform, but the potential of GPRA has been only partially 
realized. The President's budget for 2003 responds to Congress' 
instruction, differentiating where the facts are available between 
programs that work and those that do not. Many programs of proven 
effectiveness are strengthened by shifting funds from those which can 
make no proof of performance.
    A serious attitude toward performance is long overdue. It takes on 
special urgency at a time when the demands of national security assert 
a heavy claim on our resources. We hope the findings of this budget 
will trigger interest in performance assessment, and bring forth much 
new information about that large majority of programs for which we have 
no useful data at all.
                 full funding for federal retiree costs
    In the interest of both accuracy and sound management, the 
President's fiscal year 2003 Budget takes a major step toward full cost 
accounting of programs and departments by recording the costs of health 
and retirement benefits at the time and in the accounts where the costs 
are borne. At long last, the true cost of these programs will be 
visible, and managers will have full incentive to control the costs of 
additional personnel.
    This budget corrects a long-standing understatement of the true 
cost of literally thousands of government programs. For some time, the 
accruing costs of the Federal Employee Retirement System (FERS) and the 
Military Retirement System (MRS) have been charged to the affected 
salary and expense accounts, but agencies have only paid a portion of 
the costs for Civil Service Retirement System (CSRS) employees and a 
few other small retirement systems. A large portion of the liability 
has been unfunded and the remainder hidden in OPM's mandatory accounts. 
The full cost of accruing benefits should be charged to the affected 
salary and expense accounts, so that choices for program managers and 
budget decision-makers are not distorted by inaccurate cost 
information.
    To state the obvious, if Congress chooses to reject this reform, 
the Administration will strongly oppose the $9 billion in requested 
discretionary appropriations from being seized and spent on other 
programs. These resources need to be available for Federal employee 
retirements one way or another, but obviously we do not intend for them 
to be spent twice.
                               omb budget
    For fiscal year 2003, the Office of Management and Budget requests 
budget authority of $73.5 million. This request is the same as the 
fiscal year 2002 enacted level, adjusted for the Administration's 
proposal to fully fund accruing Federal retiree costs. The OMB budget 
request will provide 510 full-time equivalent (FTE) positions, 17 below 
the fiscal year 2002 FTE level of 527.
    The Office of Management and Budget assists the President in the 
development and implementation of government-wide budget, fiscal, and 
management policies. As the chief management and budget office of the 
Executive Branch, we have a special obligation to adhere to budgetary 
discipline and maximize productivity. As you can see from our budget 
request for fiscal year 2003, OMB is committed to maintaining budgetary 
restraint while funding new initiatives including emphasis on 
government-wide information technology and E-Government.
    As it has for agencies across government, OMB has compared its 
management capabilities and organization against the standards for 
success of the President's Management Agenda. The baseline evaluation 
as of September 30, 2001 indicated that there is work to be done at OMB 
in each of the five areas targeted by the President for government-wide 
improvement. Our particular focus will be to better manage OMB's human 
capital and effectively harness information technology.
      consolidated executive office of the president appropriation
    As you know, the Executive Office of the President (EOP), despite 
the name, has never been budgeted for as a single entity and is not 
currently covered under a single appropriation. As part of the fiscal 
year 2003 Budget, the Administration is again requesting a 
consolidation and financial realignment for the EOP. The initiative 
would consolidate 15 EOP components and fund them with a single 
appropriation for a total of $336.2 million.
    This will give the President maximum flexibility in allocating 
resources and staff in support of his office and is intended to: permit 
a more rapid response to changing needs and priorities; allow the 
President to address emergent national needs; produce greater economies 
of scale and other efficiencies in procuring goods and services; and, 
enhance accountability for performance. This initiative will allow the 
President to align EOP resources to meet changing national priorities--
something he cannot do now under the current account structure.
                     electronic government (e-gov)
    I'd like to spend a little time discussing an item that is 
important to the President and is under the purview of this 
subcommittee--``The E-Gov Fund.'' Let me start by highlighting the 
recent Council for Excellence in Government Survey that found 70 
percent of Americans favor investing in E-Government to make government 
simpler and more accessible. The President is committed to addressing 
this and has proposed to accelerate efforts to implement electronic 
government through his Management Agenda and E-Government Strategy.
    The Vice President recently launched the newly designed FirstGov 
web site and the Administration released its E-Government strategy. 
There are four target audiences for this endeavor, each providing 
opportunities to transform delivery of services: individuals, 
businesses, other governments, and Federal employees.
    This strategy is primarily being implemented through 24 multi-
agency E-Government initiatives that will lead to significant 
improvements in productivity. These initiatives will transform 
government operations by making citizen's needs paramount. Each of 
these initiatives will result in the elimination of duplicative agency 
IT programs and savings could reach several billion dollars. For 
example, FEMA is leading an initiative to create a one-stop portal with 
information applicable to public and private organizations involved in 
disaster preparedness and response. Accurate and timely data from this 
project may result in saved lives and reduction of property damage; it 
may also save millions of dollars by eliminating redundant programs and 
agency costs.
    The fiscal year 2003 Budget seeks $45 million for the second 
installment of this fund, totaling $100 million over the next 3 years. 
OMB would manage allocations from the fund housed in an account in the 
General Services Administration. Projects will be selected that create 
savings by replacing redundant efforts, and that have viable business 
cases and implementation plans.
    We appreciated this subcommittee's support of this initiative last 
year and hope it will continue to place a high priority on funding 
innovative interagency projects that would deliver services directly to 
the public, or create the infrastructure to support such delivery. We 
look forward to continuing to work with you and your staff in this 
important initiative.
                               conclusion
    The OMB budget request for fiscal year 2003 reflects the 
President's commitment to hold down spending levels in light of our 
Nation's new priorities in the war against terrorism at home and 
abroad.
    I want to thank you for the opportunity to meet with you today to 
discuss the OMB budget request. I look forward to working with the 
Committee. I would be happy to address any questions the Committee may 
have on the OMB budget or other budgetary issues.

    Senator Dorgan. Let me call on Mr. Reed if you have an 
opening statement.
    Senator Reed. I do not.

                           HOMELAND SECURITY

    Senator Dorgan. Once again, let us thank you for appearing. 
I have a series of questions.
    Let me begin by asking about the Office of Homeland 
Security. My colleague, Senator Campbell, indicated an interest 
in that, as well. I note that the Office of Homeland Security 
has asked for a substantial amount of additional money, I 
believe $38 billion, in funding for this coming fiscal year.
    There is also a proposal floating around, I understand from 
some reports that it is now being considered by the President, 
to consolidate agencies, such as the Customs and the 
Immigration Services. Can you give us some information about 
what is happening inside the administration in consideration of 
consolidation and how that consolidation might work?
    Mr. Daniels. The President has made no decision. Governor 
Ridge has been, I think, very open in indicating he is 
examining this issue and has studied it carefully with other 
administration officials to see if there are better ways of 
arranging the Federal structure to make our borders more 
secure. I will not go into the deliberations except to say that 
they are proceeding and I think the President is considering 
some recommendations and you may hear more about it soon.
    Senator Dorgan. Let me just say, I oppose the consolidation 
of Customs and INS. I think that we ought not visit on Customs 
the problems of the INS at this point. Last week's granting of 
a visa to Mohamed Atta, or at least the mailing of the visa 
received in Minneapolis for Mohamed Atta, suggests very 
significant problems. We have known for some long while that, 
for example, the INS, when someone flies into this country and 
overstays their visa, they by and large do not have the 
foggiest idea that someone is here illegally at that point, and 
so we have got big problems in the INS that we have to resolve. 
I do not think that it makes any sense to combine the Customs 
Service with the INS at this point and I think the President 
would find significant resistance in the Congress to a 
suggestion of that type. I hope that you might take that back.
    Also, I should say that the Customs function is very 
different than the Immigration Service in many ways. Customs 
raises revenue for the Federal Government, it is the second-
largest revenue raiser next to the Internal Revenue Service, 
facilitates the flow of trade, and prevents illegal goods from 
coming in. But I think that proposal, if recommended by the 
administration, will meet with some very stiff resistance, and 
justifiably so. I will be one of those that will be involved in 
resisting it.
    Let me ask about the full cost accounting, as you indicated 
that you recommended, and you suggested that perhaps the Budget 
Committee will not accept that and use the money in other ways. 
But is it not the case, Mr. Daniels, that the manner in which 
it was portrayed in the budget really gave us a false sense of 
how you were funding agencies? Do you agree with my statement 
when I started that the trumpeting of an increase in the 
Customs Service is really not an increase at all when you 
eliminate the change that you suggest with respect to the full 
cost accounting?
    Mr. Daniels. I do not think I do, but I will have to go 
back and have a look. Based on the recommendations of Governor 
Ridge, we provided substantial increases in the Customs Service 
and I do believe they result in a true, real increase, even 
absent the adjustment we are talking about, but I will go back 
and have a look.
    Senator Dorgan. Would it surprise you to find out that when 
you take the cost accounting adjustments out, that Customs 
actually will end up with less money? I mean, you indicated 
that times have changed. This is not budgeting as usual, and 
clearly, when you talk about homeland security, one would 
expect a boost in real funding for the Customs Service, as an 
example.
    Mr. Daniels. I will go back and have a look. My 
recollection is that the 2003 proposal recommends substantially 
more agents in the Customs Service as well as new technology, 
too, so I do not have the same understanding's.

                      ADMINISTRATION'S PAY POLICY

    Senator Dorgan. Let me ask about the issue of pay parity. 
Can you review with us the recommendations on pay increases for 
the military and also for the rest of the Federal Government?
    Mr. Daniels. Yes, sir. We looked very carefully at this, 
again, recognizing that this is wartime and that everything had 
to be examined in that light and determined to recommend a pay 
increase of 2.6 percent for civilian employees. I would note 
that this is substantially more than many Americans in the 
private sector will be receiving this year. If we are coming 
out of recession, that will probably still be the case. So we 
thought 2.6 percent was adequate and something that, at a time 
of war, civilians in Federal service would find very fair.
    Then the second question became whether there should be any 
premium or additional compensation for men and women in uniform 
who run unusual risks for our country, and the President 
decided, yes, it would be appropriate to do something 
additional for our servicemen and women and that led to a 4.1 
percent recommendation for them.
    We think both are fair. We think 2.6 percent for civilian 
employees as a general rule is fair and that some premium in 
recognition of special dangers and special burdens that the 
uniform personnel carry is warranted.
    Senator Dorgan. Are there any problems with the retention 
of Federal workers with the 2.6 percent? Are there general 
retention issues in any of our Federal agencies, and if so, 
what are they and do you see this recommendation exacerbating 
that?
    Mr. Daniels. There are some retention issues. I do not 
think they center around pay at all. I think sometimes they 
center around the quality of work, they center around the 
severe handicaps we place on managers in Federal service who 
are not permitted to manage in many of the ways that their 
skills and professional aspirations would allow them to 
elsewhere. So I do not see these as the same issue at all.
    We have retirement issues to address in the Federal 
service, large numbers of people who we are not having trouble 
retaining, but they are due to retire soon, and so that may be 
a larger issue.

                      OFFICE OF HOMELAND SECURITY

    Senator Dorgan. Does Governor Ridge have operational 
responsibility in the executive branch of Government, and if 
so, what would that be?
    Mr. Daniels. He does not. He is an advisor to the 
President, certainly a coordinator in much the same way that 
the National Security Advisor, for example, is a coordinator of 
policy on the international side.
    Senator Dorgan. So in the area of recommending funding for 
homeland security, the $38 billion that Governor Ridge has been 
moving around the country talking about, meeting with various 
folks, speaking to the mayors, speaking to the governors and so 
on, saying that the administration has developed a budget of 
$38 billion, what role would Governor Ridge have had in that 
recommendation?
    Mr. Daniels. He would have looked at the suggestions of 
individual agencies, coordinated among them on responsibilities 
that they share, and where duties overlap, as, for example, 
they do at the border, where we have multiple agencies all 
conducting inspections, sometimes side by side, it is his job 
under the Executive Order to pass judgment, to advise the 
President that he can certify that the resources proposed are 
adequate to the job. I think that is his prime responsibility 
and that he sees that as his primary responsibility.
    Senator Dorgan. So on the issue of the plan for homeland 
security, because Governor Ridge is not available to testify 
before the Congress, we do not have access to him to evaluate 
what is the broader plan envisioned by the Governor. I assume 
the President put him in charge in order to have someone in 
charge, and you say it is not an operational role yet if we are 
to evaluate the ``plan'' for national security, homeland 
security in this case, we shall try to derive from those 50 
different sources and 50 different people who will come and 
testify what their piece of the plan is and aggregate that to 
the $38 billion because we are not able to get the head of 
homeland security to come talk about the broader plan. Do you 
think that is reasonable and do you support that approach?
    Mr. Daniels. It would not be if that was your only 
recourse, but I think you will want to do both. Governor Ridge 
has had scores of meetings with Members of Congress. He is 
going to be available. I know he is very sensitive to this 
question and wants to be available in a variety of formats. 
Lately, as I understand it, the larger issue visible to our 
people is they have been holding briefings and very few members 
have availed themselves, I am told only about 18 or 20 attended 
the last session that they put on.
    This only resolves to a question of sworn testimony, as I 
understand it, and I will refer you to the White House 
Counsel's Office for the legal particulars, but it is a 
longstanding policy that advisors, such as the National 
Security Advisor to the President, who are not Senate 
confirmed, do not come for sworn testimony. Clearly, the 
Congress is entitled to understand Governor Ridge's thinking 
and his views about the adequacy of these resources and I know 
he is willing to make that claim to you in your office or in 
groups or at the White House or elsewhere.
    Senator Dorgan. Mr. Daniels, late last year we invited 
Governor Ridge to come and testify before this subcommittee and 
he indicated that he was not free to do so, so we actually do 
not have the opportunity to have a public discussion with Mr. 
Ridge about the ``plan'' of what homeland security is about, 
how much it will require this year, how much it will require 
next year, how we work with the administration to coordinate 
that and to fund it. So, I think we are at somewhat of a 
disadvantage.
    I guess I do not feel that the creation of this new 
position is equivalent to the National Security Advisor. It is 
quite clear that Mr. Ridge is playing a very different role 
with respect to homeland security than Condoleeza Rice is 
playing with respect to the National Security Council.
    But at any rate, I guess you have answered the question. I 
do not expect you to come up here and say that you disagree 
with the President and Governor Ridge. You are not wanting to 
say that at this moment, are you?
    Mr. Daniels. It was not my intention, no, sir.
    Senator Dorgan. I have some other questions, but let me 
call on Senator Campbell.
    Senator Campbell. Thank you, Mr. Chairman. I would defer--
if Senator Stevens has a tight schedule here, I would be glad 
to defer to him first. I do not know how your schedule is.
    Senator Stevens. Thank you very much. I just had one 
question for our friend, if I may, and then I think we can 
defer the others, if I may. May I proceed?
    Senator Dorgan. Yes. Senator Stevens?
    Senator Stevens. Good afternoon. It is nice to see you.
    Mr. Daniels. Hi, Senator.

              FOREST SERVICE EMERGENCY FIREFIGHTING FUNDS

    Senator Stevens. Last year, we provided $280 million for 
the Forest Service for emergency money. Of that, $200 million 
was to repay accounts from which you had to borrow to finance 
the 2001 fire season, which was a bad one, and I am told that 
you released those funds, OMB did, and for that we are all very 
grateful.
    The remaining $80 million was for fire prevention, not fire 
fighting, and it was specifically addressed to reducing the 
fuel loads in the national forests. I am advised that you have 
indicated those will not be released until July 1, which is the 
height of the fire season, particularly in my State. Included 
in that $80 million was an estimated $6 million to work on the 
forests of South Central Alaska and that is why I have come to 
address this question to you today.
    This is an area that is probably the largest of all the 
forests. It is not all within the Forest Service, per se, but 
it is primarily on Federal land. It is ravaged by the spruce 
bark beetle. That beetle literally sucks the juice right out of 
a tree. It kills it and it leaves the tree standing but dead, 
just completely dead.
    In the area from Homer, which is the tip of our Kenai 
peninsula, to Wasila, which is right up near Mount McKinley, 
there are four Federal conservation systems, the Kenai Fjords 
National Park, the Kenai National Wildlife Refuge, the Alaska 
Maritime National Wildlife Refuge, and the Chugach Forest, 
which is the second largest national forest in the country. 
This is an area of 2.5 million acres of Federal forest and it 
also, however, contains half of Alaska's population. The cities 
are interspersed through this magnificent forest country. The 
area is four times the size of Rhode Island. It is really 
larger than many States.
    It literally now, because of information we have received 
from the Weather Bureau, a ticking bomb. Conditions there are 
very bad. We are told that the nation itself will have a near 
record drought this summer and Alaska is going to be the worst 
hit. The East Coast, I am told, will have the worst drought 
since the depression days, but we are predicted to have an 
extremely severe drought, is what it is called.
    This money was not to fight fires but to prevent them. 
Because the prevailing northerly winds there, if the fire 
starts anywhere on the peninsula, it can come north very 
rapidly. Some time ago, we had what we called the Miller's 
Reach fire. I flew over it with the head of FEMA at that time 
and you could tell from the helicopter that the fire was 
literally following a path, the serpentine path of the dead 
timber killed by the beetle.
    We have an estimate that even a small fire of around 3,000 
acres right now would cause $350 million damage in the 
Anchorage area alone. We believe that this fire, if it starts, 
can only be prevented by stepping in now and removing some of 
that timber and to really cut paths so that it cannot jump the 
way it has in the past.
    There was 30,000 acres burned last summer. As a matter of 
fact, I was there and went over and watched it, but thank God 
we had a rain and that fire stopped. If we have a drought this 
year, I fear that the half of our State's population that is in 
the path of this fire is in jeopardy. I have come to ask if you 
would consider looking at this again to see if it would be 
possible to release some of the funds for fire prevention 
rather than fire fighting. I am told the date that was selected 
by your people was, in fact, the prediction of when the fire 
fighting would start, and we do not dispute that. If a fire 
starts, it will be sometime in early July, but we could act 
before then and prevent a substantial amount of damage if we 
got after that spruce beetle kill now.
    Would you take a look at that and see if it is possible to 
release some funds to fight fires? It is not a lot of money, 
really, $6 to $8 million out of the $80 million. It would take 
care of the initial steps that are necessary to reduce the fuel 
load there. It is all Federal land. Now, this is Federal land 
that we are asking that we work on. I would hope that we would 
find a way to do that. That is why I would like to ask you to 
take a good look at it.
    Mr. Daniels. I think we will do more than that, Senator. I 
think we will get this addressed quickly. I became aware of 
this issue through your advocacy and also some Western 
Governors recently. We did look and the news reports are 
accurate, that the President will be designating the entire 
amount of $346 million, including the two amounts you talked 
about as ``emergency funding,'' as the statute requested. We 
will move quickly on the $200 million, or immediately, I would 
say, and on the $80 million or at least those parts of it that 
meet the description of fire suppression like the piece you 
just talked about. So I think we will have this solved for you 
in short order.
    Senator Stevens. I have another question that concerns the 
Corps of Engineers and a specific project. I will just submit 
it for the record, if I can, and ask for your reply.
    Mr. Daniels. Thank you.
    Senator Stevens. Thank you very much.
    Thank you, Mr. Chairman.
    Senator Dorgan. Thank you. Senator Campbell?
    Senator Campbell. First, I would like to associate myself 
with the last few comments of Senator Stevens. Out West where 
we come from, believe me, it is low snow pack and some real 
dangers, and if that money for prevention is not released, I, 
frankly, think we are going to see millions of acres go up in 
flames. I know the administration does not want that and 
certainly we from the West do not want that, either.

                           EOP CONSOLIDATION

    I want to ask you a few questions, but while Senator 
Stevens was speaking, I was just reading through your written 
presentation here. On page three, the administration is again 
requesting a consolidation of the President's appropriations. 
That did not meet with a lot of support the last time around. 
You probably know that, but I thought I would mention that to 
you.

                          U.S. POSTAL SERVICE

    Let me ask you just a couple of questions here. We provided 
$500 million to the Postal Service in last year's emergency 
supplemental for their biohazard and remediation project. Those 
funds were not available for obligation until the Postal 
Service provided a comprehensive plan, which they have done on 
March 7, as I understand it, but I understand that you need an 
additional $87 million. Is that $87 million being requested of 
this committee or going to be requested as part of the spring 
supplemental?
    Mr. Daniels. Senator, it is going to be part of the 
supplemental. I spoke to the Postmaster General and then he 
spoke also to Governor Ridge, to whom we look, again, for 
guidance in these matters. Among us, we have agreed that that 
is appropriate. This will allow the completion of the cleanup, 
as I understand it, and the safeguarding of the mail that 
became necessary after the bioterrorism events.
    I think, by the way, there is a good news story here that 
you probably already noticed, but hats off to the Postal 
Service who took an open stance toward technology, identified, 
as I understand it, a detection technology that is apparently 
going to be very effective, that will allow the mail to move 
more quickly without some of the problems that a total 
irradiation strategy would have created, and, incidentally, 
that is much less expensive. So I think they are to be 
commended for that, and as I understand it from the Postmaster 
General, this amount will allow us to move down that path.

                       HOMELAND SECURITY FUNDING

    Senator Campbell. I hope so. Since you mentioned homeland 
security and Governor Ridge, what was the process used to 
determine funding, what funding is associated with homeland 
security and what funding is to allow the agency to continue 
what they were doing before September 11?
    Mr. Daniels. This goes, I guess, in part to the question of 
definitions. It is a very, very important question, and in our 
budget we do list those things that Governor Ridge's office has 
to this point defined as part of homeland security strategy. 
That may evolve over time. There may be new measures or new 
areas that we all agree ought to be considered part of that, 
but----
    Senator Campbell. How did you come up with the number of 
$37.8 billion in the President's budget?
    Mr. Daniels. We took what for OMB is a little different 
approach, which was to say we did not start with a number and 
work backwards. We did not say, make it all fit within a 
certain size. The President was very clear that if either front 
of this war--either defeating terror abroad or defending 
Americans in their homeland--was involved, we were going to do 
what it took and we were to include those things that were 
reasonably related and necessary to those tasks. This just 
happened to add to $38 billion, about a 111 percent increase 
over even the enhanced levels of last year. Congress, of 
course, strengthened homeland security during last year, pre- 
and post-9/11.
    So, it just came to that amount of money and Governor Ridge 
and his office reviewed all of the proposals, and there were 
many that were not finally included, but the Office of Homeland 
Security certified that these were appropriate and sufficient 
for the moment.
    Senator Campbell. I see. Okay. Thank you.

           FEDERAL EMPLOYEES COMPENSATION ACT (FECA) PROPOSAL

    One last question, Mr. Chairman. Mr. Daniels, I would like 
to know a little bit more about the proposal to require 
agencies to reimburse the Department of Labor for the FECA 
costs. As I understand it, this requires some legislative 
change, but you want it on this bill, an appropriation bill?
    Mr. Daniels. We think this is the available vehicle. What 
we said earlier about seeking these changes through the 
authorizing process is quite appropriate and correct. And, we 
have, with regard to the other full cost accounting measures, 
sought support from the authorizing committees to do that. This 
proposal is very much akin to the one related to full cost 
accounting for Federal retiree benefits.
    We think the costs ought not be hidden, that they ought to 
be visible for two reasons, one, so that we can examine them 
and weigh them fairly in the open, and secondly, so that 
managers have the right incentives. If you are going to add 
another employee, you ought to know exactly what that employee 
costs. In the case of the retiree situation, we hide about 10 
percent of the cost of a GS-15. It looks like a $133,000 cost 
to the manager the way we do it now--this is somebody who is 
not in the FERS system. The real cost is about $148,000. In the 
FECA situation, the numbers are smaller, but it is the same 
principle.
    Senator Campbell. Thank you, Mr. Chairman. I have no 
further questions.
    Senator Dorgan. Senator Reed?

           LOW-INCOME HOME ENERGY ASSISTANCE PROGRAM (LIHEAP)

    Senator Reed. Thank you. Welcome, Mr. Daniels. OMB 
continues to withhold $300 million in LIHEAP funding, 
contingency LIHEAP funding. Last September, 23 Senators wrote 
to you and asked you to release this money. The majority of 
Governors have contacted your office, including Governor Bush 
of Florida, Governor Shaheen of New Hampshire, and many others.
    We have seen at the local level an increase in 
applications, and as we understand, the LIHEAP demand is a 
function not just of the weather but also of the economic 
circumstances of people. We are coming through a recession. The 
numbers in the GNP might be turning around, but unemployment 
grows, particularly affecting low-income and minority workers 
who are the typical recipients of LIHEAP support, along with 
seniors.
    I wonder if OMB is ready and willing and able to quickly 
release those funds.
    Mr. Daniels. No, sir, we are not. The emergency LIHEAP 
money is intended for unusual and extraordinary energy costs. 
The combination of low energy prices and a mild winter has led 
to an extraordinarily low energy burden this year, ranging from 
the West to the East, as I recall, from 28 to 41 percent lower 
energy costs per household. It is very interesting to me. 
Translated to an average income or an average family, this is 
about a $400 savings, for which we should all be grateful.
    You are right that economic circumstances, of course, play 
a role, but LIHEAP funds have never been released for that 
purpose. Our view is that that would not be a useful precedent 
to set. Most of all, I would say that we are very mindful that 
there is a summer ahead. Energy bills can be a real problem in 
a hot summer. We may have that. We would like to have that 
money in reserve so we could move immediately if energy prices 
spike or if energy costs go up.
    Senator Reed. Well, again----
    Mr. Daniels. I am sorry, Senator. Let me add one other 
thing----
    Senator Reed. Go right ahead, Director.
    Mr. Daniels [continuing]. Because we are very alert and we 
have read carefully the reports that you have brought to our 
attention and to the attention of others. We have been able to 
work with a number of States to allow them to use, for example, 
unspent TANF or welfare funds which are available in large 
amounts in, many States. And we have worked with many States to 
provide the flexibility or to encourage them to use those funds 
to address individual energy problems where there are pockets 
of need.
    Senator Reed. Mr. Director, again, I think with the growing 
number of people qualifying--the applications do not depend on 
the price of gasoline at the pump or heating oil going into 
your home. They depend upon your economic circumstances and 
whether, relatively, you are falling behind in your fuel bills, 
and that seems to be a growing phenomenon, not one which is 
going away. So I would ask you--you have been pretty clear, but 
I would ask you to think again, if you would.
    Mr. Daniels. We will do so. We are watching it all the 
time.
    Senator Reed. Thank you, Mr. Director.

                        HOUSE BUDGET RESOLUTION

    Let me raise another issue. I understand that House 
Republicans in doing some of their budgeting are considering a 
5-year budget window for their tax cuts and a 10-year budget 
window for Medicare. Regardless of the substantive arguments 
about increasing or cutting taxes or increasing or cutting 
Medicare, does it not make sense to have a consistent measure 
to conduct this analysis?
    Mr. Daniels. I think it probably does. I think that, as our 
budget reflects, we believe 5 years is probably the more 
appropriate window. Just because we have proven now, especially 
in the last few years, that nobody can predict very accurately 
even to 5 years, let alone beyond, and so we proposed a budget 
at 5 years, which was the practice until about the mid-1990s. 
In fact, until 1971, I think it was, we only tried to forecast 
3 years in advance. But the idea of using the traditional time 
frame, I think has a lot to recommend it.
    Senator Reed. Thank you, Mr. Director.

                            ERGONOMICS RULE

    A final question. It has been a year since the ergonomics 
rule was legislatively repealed. The Secretary of Labor has 
indicated that she has been working very hard on preparing a 
rule that was announced almost immediately after the 
legislative repeal was enacted. It has been many months now. 
Can you give us an insight as to what the status of this 
ergonomics rule is?
    Mr. Daniels. I cannot tell you much more than you have just 
recounted, Senator. It is certainly true that the Secretary has 
worked hard on it. She has discussed its progress with others 
in the administration over the last month or two. But we have 
not received one for review at OMB and I do not know when to 
expect it.
    Senator Reed. One of the things that is difficult in terms 
of estimating the progress of the rule is that the Secretary 
has not as yet come up to testify before the committee. I 
understand that the rule is not before OMB. You are not in a 
position to testify. It seems to fall into the void.
    I would hope that you might communicate to the Secretary 
that it would be helpful to us if she or someone appropriately 
could come formally before either this committee or the 
Committee on Health, Education, Labor, and Pensions to discuss 
the status of the rule. Again, I heard almost immediately from 
many of the people who opposed the rule and voted for its 
repeal that this rule would be forthcoming.
    Mr. Daniels. I will take that back.
    Senator Reed. Thank you, Mr. Director.
    Mr. Daniels. Yes, sir.

                           EOP CONSOLIDATION

    Senator Dorgan. Mr. Daniels, let me ask you about a couple 
of additional items. One is the item raised by my colleague, 
Senator Campbell, of consolidation. As you know, that proposal 
was not met with favor last year. I was one of those who 
opposed it.
    You proposed consolidating 15 different components of the 
Executive Office of the President and fund them with a single 
appropriation of something over a third-of-a-billion dollars. 
Tell us why you think that is necessary, with the backdrop of 
understanding that we believe it would provide less oversight 
from the standpoint of the Congress.
    Mr. Daniels. Well, I think it is a little silly the way we 
do it today. I mean, the Government will not come to a halt and 
the sky will not fall if we continue to micromanage the Office 
of the President, but to us, it is a small example of the lack 
of freedom to manage that afflicts the entire government. There 
are many larger examples that probably have more negative 
impact.
    I am sorry the committee did not support the proposal last 
year. We had a lot of support, in fact, but when it came to 
you, Mr. Chairman, and you have the power of life or death over 
such an idea, we were unable to persuade you and I wish we 
could have.
    We have under secretaries and assistant secretaries all 
over the Government who have greater flexibility over more 
dollars than the President of the United States does, and the 
idea that he does not have the ability, as circumstances 
change, to pick up a head count or a few dollars from the 
Council on Environmental Quality, let us say, and move it to 
the Council on Economic Advisors or vice-versa, I think is a 
little senseless. To us, it is just a common sense reform that 
we wish you would permit, but we can muddle through if it does 
not happen.
    Senator Dorgan. Would it surprise you to know, when you use 
the term ``micromanage,'' that there are a fair number of 
agencies that suggest that is the case with OMB, micromanaging, 
but I suppose that is all in the eye of the beholder.

                          U.S. CUSTOMS SERVICE

    Let me ask about Customs user fees. You are proposing $250 
million in Customs user fees and submit the budget as if the 
Congress has approved them. As you know, the Congress has 
traditionally rejected those fee increases. I guess the 
question I would ask is, what will be the result of Congress 
again rejecting it? Where will we find the money? You are 
submitting the budget and anticipating that it is a done deal. 
In fact, I think Congress will reject the suggestion.
    Mr. Daniels. Well, that is the way we submit all our 
budgets. We do assume the passage of their components and if 
something is turned down, then we look to make an adjustment 
elsewhere.
    I guess I would say we do believe the Customs Service needs 
the resources that have been suggested, the new resources to 
strengthen it and help it pursue its mission.
    On the user fee front, there are some legitimate questions. 
These fees have not been changed in 16 years, so to go from $5 
to $11, that simply tracks the inflationary difference in the 
meantime. Viewed the other way, the $5 fee that Congress 
thought was fair in 1986 is worth $2 today. So it was really 
just looked at, I think, as a modernization of that fee, or 
those fees, after a long time.
    I know that, for instance, some of the airlines would say 
that what was not troublesome 16 years ago looks a little 
different today because Congress has put an awful lot of other 
fees into the price of an airline ticket, and that is an 
interesting point. But I suppose one way to ask this question 
is, if bringing this fee current with inflation is a bad idea, 
maybe you should not be there at all. But that would be the 
explanation, at least. It was simply a way to try to modernize 
something that has not been touched in a long time.

                          COMPETITIVE SOURCING

    Senator Dorgan. Let me ask you a question on the issue of 
contracting out. Can you describe the administration's views on 
contracting out? You are suggesting that you need flexibility 
to do more of that. Are there, in fact, savings? How do you 
describe the savings and where do you achieve the savings?
    Mr. Daniels. Governments all over the world at all levels 
have now achieved very well documented savings from the 
selective introduction of competition into areas in which the 
private sector does offer the same service that we seek to buy 
for taxpayers and these savings typically run from 20 to 40 
percent, depending on the service in question. So good 
government advocates on a bipartisan or nonpartisan basis, I 
think, have been working in this direction at all levels and in 
all countries for a long time.
    It needs to be done carefully. It needs to be done on the 
basis of competition. Outsourcing is not the goal. Competition 
and a better deal for taxpayers is the goal. We have all sorts 
of places and possibilities in which the Federal Government 
could get a better deal for taxpayers, either because a private 
vendor wins or because the incumbent government employees find 
a more efficient way to meet the competition. We really do not 
care who provides the service as long as the service is 
provided more efficiently.
    But we are doing our own laundry, we are cutting our own 
grass, we are still doing an awful lot of things in the Federal 
Government that somebody out there is making a specialty of 
doing all day, every day, and in the right places. We ought to 
be taking advantage of that for the benefit of taxpayers.
    Senator Dorgan. Let me submit some additional questions to 
you on the issue of outsourcing Federal jobs. I do not disagree 
that in some circumstances, it can be appropriate and has been 
appropriate. In other circumstances, it simply reflects a 
desire by some to get rid of Federal employees because they do 
not much like the Federal Government and believe everything can 
be done better in the private sector, which----
    Mr. Daniels. Let me just say on behalf of the President, 
and I think we are very scrupulous to always make it plain, 
that is not the motivation here and we would agree with you 
that it ought not be.
    Senator Dorgan. Mr. Daniels, let me ask you one final 
question. Do you have additional questions, Senator Campbell?
    Senator Campbell. Just one.

                        U.S. CORPS OF ENGINEERS

    Senator Dorgan. Let me ask you one final question. This is 
not about your budget, but the infamous letter last week. I 
have no idea how it became public, but it was all over 
Congress, the letter that you wrote to the White House, the 
memo that you wrote to Mr. Card and then the political folks on 
the Mike Parker issue. I would like to ask you a question about 
that.
    I want to ask you specifically a question about General 
Flowers in the second paragraph. You indicate in your letter to 
the White House, ``General Flowers' statements about stopping 
projects and lost jobs is totally bogus. In fact, spending the 
money on the existing backlog of projects would speed them up. 
I can supply detail if necessary.''
    Would you be willing to supply that detail to this 
subcommittee?
    Mr. Daniels. We would, because I think that the important 
issues here really are around the merits of how we ought to be 
approaching the Corps of Engineers, and we think that the 
proposal that the President's budget contains is very important 
on two scores. One is that we strongly believe and recommend 
that the Corps ought to confine and concentrate its activities 
on its historical core mission, flood control and dredging and 
locks and dams and the like, and there has been a tendency over 
recent years to begin to wander off around the fringes into 
marinas and waterfronts and things that really are not, we 
think, what the Corps is there to do.
    Maybe the larger issue is that there has been a dominant 
tendency over recent years to keep adding and adding and adding 
new projects, new project starts, and that has the effect of 
delaying the completion of the ones already on the books. We 
have a $21 billion backlog of projects that are already 
started. It is going to take ten or 12 years--if we did not 
start another one from this day on to finish those. We would 
like to finish them, get some of the best of them onstream now 
so taxpayers could start receiving the benefits that were 
forecast for them.
    Those are the two principal issues and we would be glad to 
supply you some more of our thinking on this issue.
    Senator Dorgan. On that subject, let me just say that, 
obviously, the administration has every right to fire Mike 
Parker or have him resign or whatever happened with Mr. Parker, 
but on the subject of the statements about the projects, lost 
jobs, increasing costs, General Flowers is a very distinguished 
three-star general, someone I have worked with a great deal. I 
have great respect for him. And the implication of your 
memorandum here suggests that General Flowers was, as you say, 
providing statements to Congress that were just bogus. I do not 
agree with that.
    I think General Flowers described the circumstances with 
the projects the Corps is involved with in an accurate way and 
I regret very much you have decided to do this, but I hope that 
if you believe his statements were bogus, I hope you will 
supply the detail to us that you suggested you would supply to 
the White House.
    Mr. Daniels. Okay.
    Senator Dorgan. Senator Campbell?

                           EOP CONSOLIDATION

    Senator Campbell. One last thing, Mr. Chairman, and it 
deals again with this consolidated account for the executive 
office. It always sounds good, I think, when you talk about 
streamlining and flexibility, as you have in your testimony, 
but my own view, I think shared by Senator Dorgan, is that 
sometimes some departments get shortchanged if they have an 
important mission, perhaps a smaller voice in the 
administration, and there are also certainly some 
constitutional types around here that believe that it really 
erodes the authority of Congress to oversee the expenditure of 
funds.
    I just wanted to ask one thing, though. You used the number 
$336.2 million under a combined consolidated executive office. 
How does that compare with the amount we appropriate for the 
full 15 separate entities?
    Mr. Daniels. You mean how does it compare with last year's 
number? I can tell you OMB, of course, but my recollection is 
that the total is about a 1-percent increase, excluding 
additional homeland security requirements.
    Senator Campbell. Increased by consolidating?
    Mr. Daniels. Well, not by virtue of the consolidation, but 
if you were to roll them all together and compare them to the 
individuals from last year, I think it came to about a 1-
percent increase not including homeland security. OMB's was 
zero, but some of the others were several percent. Nearly all 
of the other increases were due to additional homeland security 
requirements.
    We did not suggest, as I recall, that you would effect a 
savings by virtue of rolling them all together. That might 
happen over time, but that was not really the intent. It was 
simply to have a little more flexibility to shift people and 
resources as good management seemed to dictate.
    Senator Campbell. I understand. Thank you, Mr. Chairman.
    Senator Dorgan. Mr. Daniels, it is not new for us to hear 
from someone who hears a government agency the message, ``Give 
me the money and get out of the way.'' That is not a new 
message. But you know our interest. Our interest is in trying 
to have accountability and make sure that we have oversight 
responsibility that we can achieve.
    My view of the consolidation has not changed at all. I 
think you will admit that this subcommittee has been very 
helpful to the administration on individual requests throughout 
the years. As the administration needs the flexibility, we 
provide flexibility. But I have not changed my view on the 
question of consolidation.
    Mr. Daniels. Let me say to you, Senator, that so be it. I 
mean, we have made the best case we can. As I say, the earth 
will not tremble if we do not get this changed. I would hope 
that you would, however, or this committee would look hard at 
some of the bigger questions. It would be very, very helpful--
forget the White House--across the Government if we had even a 
little more ability to reprogram money within accounts, even at 
the margins in order to meet the shifting circumstances that 
happen in a fiscal year.
    Senator Dorgan. But we do that all the time. We are always 
receiving requests here and have been enormously helpful. I 
mean----
    Mr. Daniels. Some subcommittees are and some are not. I am 
just saying that--and there are other examples I could give, 
but in general, I think we do face an issue in terms of 
delivering to the Congress what it rightly expects, more 
efficiency and a better managed government, and also an issue 
in recruiting talented people to come into Federal service 
that, in many ways, the ability of managers to manage is 
constrained, and this is the bigger question we would like to 
work with you on as time goes forward.
    Senator Campbell. If I might interject, Mr. Chairman, since 
we have worked together on this committee, I do not ever 
remember a time that we have refused reprogramming money when 
it has been asked for, do you?
    Senator Dorgan. Well, we have delayed a time or two, but we 
have ultimately never refused.
    Senator Campbell. Yes.
    Senator Dorgan. The point is that we have been enormously 
helpful to agencies, forcing them to make the case if they can, 
and they have been able to make the case that here is why they 
need to move some money and we have been very helpful to allow 
them to do that, but I still feel very strongly about oversight 
responsibility.
    And again, if you will come back to us with the details 
regarding General Flowers.
    Let me again urge you, especially with people like General 
Flowers, who I think is a very distinguished person, the 
implication of this letter is to throw him into a political 
basket someplace in terms of the convivial attitude you 
suggest. I hope you will not do that. That is----
    Mr. Daniels. Let me just say, first of all, I meant no 
personal disrespect to the general, whom I have not had the 
chance to meet. Secondly, that note fired off in the course of 
a day got out accidentally. It was never intended to embarrass 
him in any way. We cannot find justification in the facts as 
they were reported. All we had is what he was reported to have 
said. We will show you why we have a different view, but----
    Senator Dorgan. Well, you had a transcript, though.
    Mr. Daniels [continuing]. We certainly meant no disrespect 
to him.
    Senator Dorgan. But you had a transcript. I mean, it is not 
as if you were relying on third-hand reports. You fired a memo 
off as a result of a transcript.
    Mr. Daniels. That is right. We know what he said and we do 
not find validity in it, but that is a different question than 
whether we have a high regard for him.
    Senator Dorgan. All right. Again, I take a different view. 
I think what he said was absolutely correct with respect to the 
job loss and the inability to fund the projects that the 
Congress has approved. I mean, after all, Congress makes 
judgments about these projects, approves them, and then 
attempts to fund them, and the underfunding of these projects 
in the President's budget was what was being discussed.

                     ADDITIONAL COMMITTEE QUESTIONS

    Having said all that, Mr. Daniels, we appreciate your 
willingness to come today. We do want to work with you on a 
range of issues. We have common responsibilities and we look 
forward to working with you this year.
    Mr. Daniels. Thanks.
    [The following questions were not asked at the hearing, but 
were submitted to the Office for response subsequent to the 
hearing:]

             Questions Submitted by Senator Byron L. Dorgan

                            customs user fee
    Question. Part of the Homeland Security budget the Administration 
has been touting B the part that funds the Customs Service B is 
comprised of a $250 million tax increase referred to as a ``user fee.'' 
Similar tax increases were requested by a Democratic President and 
rejected by Republican Congresses.
  --If Customs role in Homeland Security is so vital and I believe it 
        is why should it be funded by a tax increase instead of hard 
        dollars?
  --To be able to generate sufficient revenues, the tax increase must 
        be authorized by July 1. What efforts have you undertaken with 
        the Finance and Ways and Means Committees to get this tax 
        increase authorized?
  --COBRA user fees fund all Customs inspection overtime as well as 
        over 1,000 positions. The President's budget DOES NOT assume 
        the reauthorization of COBRA which is set to expire in 
        September 2003. What are the President's legislative 
        recommendations to deal with the loss of this funding?
    Answer. These fees are collected from international travelers and 
are used to pay overtime and other inspection costs incurred by the 
Customs Service. These same travelers will pay the updated fee, and the 
receipts from that fee will enhance Customs services. We view the 
proposal as a well-justified update to an existing fee.
    The updated fee would need to go into effect in the first quarter 
of fiscal year 2003 to generate the funding assumed in the proposal. 
The budget proposal assumes that the fee will be in place for a full 
year, but that, consistent with the current fee collection procedures 
(fees deposited with Customs one month after close of previous fiscal 
quarter), only three-quarters of the year's collections will be 
available for expenditure. The Administration has submitted 
Appropriations language to enact the fee, and authorizing language is 
currently being crafted to submit to the Ways and Means Committee. We 
will work with the authorizers to enact the fee language.
    The fiscal year 2003 budget does not reflect a specific 
Administration position on extension of the COBRA fee, in either its 
existing or proposed form beyond fiscal year 2003. Although no 
decisions have been made on the issue of extension of these fees, we 
expect to address this subject in the fiscal year 2004 budget, if not 
sooner.
    Question. OMB is proposing major changes in funding significant 
portions of the Federal retirement system and the administrative costs 
associated with the Federal Employees' Compensation Act (FECA) program. 
Aside from the fact that not all agencies were informed of these 
additional costs and will therefore have to absorb them, you are asking 
the Appropriations Committee to perform the task of the authorizing 
committee without even attempting that route to begin with.
    Why did you choose this route? What is the status of moving these 
proposals through the appropriate authorizing committees? What agency 
is responsible for moving this legislation through the committees?
    Answer. The Administration chose to advance its FECA surcharge 
proposal through the appropriations process because it dovetails with 
the Budget. Although the proposal amends FECA, it changes the program's 
administrative funding mechanism, not the program itself. It does not 
affect the Act's benefits, coverage, or claims provisions. The 
surcharge is a change to the assignment of program administrative 
costs, which will affect the budget of virtually every Federal agency 
that has Federal workers' compensation costs. Where the Administration 
is proposing substantive program changes, it will pursue them through 
the appropriate authorizing committees. The Department of Labor, which 
administers FECA, is the lead agency on the surcharge and other FECA-
related proposals.
    Our fiscal year 2003 Budget policy was to include the surcharge 
amount in each agency's funding level. We regret if some agencies--
particularly those with budgetary bypass--were not appropriately 
informed of the surcharge. This proposal is not intended to generate 
short-term Government-wide discretionary cost savings. It is, however, 
expected to produce long-term mandatory savings, as it strengthens 
agencies' incentives to prevent injuries and cooperate in efforts to 
help beneficiaries return to work when appropriate.
    Any confusion experienced this year would be eliminated once the 
proposal is enacted. Under current law, agencies are billed by the 
Department of Labor for FECA benefits that have been paid to their 
employees, include those amounts in their subsequent budget requests, 
and pay them once they have received their appropriation. If enacted, 
the surcharge would be handled through this well-established process.
    Question. It is my understanding that these proposals are in an 
effort to show agencies the true costs of employees for the sake of 
``good government.'' To that extent, the shifting of administrative 
costs for FECA is supposed to encourage an agency to make the necessary 
changes in its work environment resulting in a decrease of FECA cases. 
If this is the true motivation behind this proposal, why has the 
Administration yet again delayed the announcement of its ergonomic 
policy?
    Answer. On April 5 Secretary Chao announced the Administration's 
comprehensive plan to reduce ergonomic injuries through a combination 
of industry-targeted guidelines, tough enforcement measures, outreach, 
research, and dedicated efforts to protect Hispanic and other immigrant 
workers. This approach was developed based on input provided at the 
Secretary's three ergonomics forums last year; relevant information 
from a number of sources, including the information from the ergonomics 
rulemaking record; and injury and illness data from the Bureau of Labor 
Statistics. I want to assure you that no part of the Administration had 
been stalling this initiative. In developing this plan, we sought to 
carefully consider all options, rather than rushing to an ill-conceived 
solution. The announcement last week is the product of this careful 
consideration and we expect it to result in greater protection for 
workers.
    Question. This is not the first time this Administration has 
proposed shifting the administrative costs associated with the Federal 
Employees' Compensation Act (FECA) program into each individual agency. 
You proposed this change in your fiscal year 2002 budget request, only 
you removed the funding from the Department of Labor and did not fund 
it amongst the affected agencies. Given your past performance and the 
fact that many smaller agencies were unaware of this proposal during 
the fiscal year 2003 budget, what assurances do we have that you will 
continue to provide the necessary resources for these agencies without 
forcing them to absorb these costs out of programmatic adjustments?
    Answer. Our fiscal year 2003 Budget policy was to include the 
surcharge amount in each agency's funding level. We regret if some 
agencies--particularly those with budgetary bypass--were not 
appropriately informed of the surcharge. This proposal is not intended 
to generate short-term Government-wide discretionary cost savings. It 
is, however, expected to produce long-term mandatory savings, as it 
strengthens agencies' incentives to prevent injuries and cooperate in 
efforts to help beneficiaries return to work when appropriate.
    Any confusion experienced this year would be eliminated once the 
proposal is enacted. Under current law, agencies are billed by the 
Department of Labor for FECA benefits that have been paid to their 
employees, include those amounts in their subsequent budget requests, 
and pay them once they have received their appropriation. If enacted, 
the surcharge would be handled through this well-established process.
                         border security agency
    Question. Yesterday we learned that Governor Ridge and the 
President's Homeland Security Council formally recommended to President 
Bush that the Customs Service be combined with the INS and Border 
Patrol under the jurisdiction of the Department of Justice.
    Setting aside the wisdom of this proposal, and the lack of 
consultation with the Congress prior to the recommendation being made, 
what role did you and your office play in this discussion and 
recommendation? Do you anticipate any out-year budgetary savings if 
such a proposal ultimately was agreed to by Congress and created?
    Answer. The Administration has not submitted a Border Security 
proposal at this time. It is inappropriate for me to comment on such a 
proposal before it is submitted or to speculate about the out-year 
savings without reviewing a specific proposal.
                      office of homeland security
    Question. Governor Ridge's operations are funded by this 
Subcommittee as part of the budget of the Executive Office of the 
President through the White House Office. The budget request for the 
OHS operations is approximately $24.8 million.
    Given the extraordinary function of the Governor and this office, 
are these funds sufficient?
    Answer. Yes. The requested funds are sufficient.
    Question. Approximately $38 billion of the government-wide fiscal 
year 2003 budget request is attributable to Homeland Security. Of that 
total, $10.6 billion is directed to the goal of ``securing America's 
borders.'' Other goals and initiatives are targeted at ``supporting 
first responders,'' or ``defending against biological terrorism.''
  --How was the level of $38 billion reached? Did you set the amount as 
        a target and then develop the various budgets to fit that 
        number? Or was the number reached as the various agency budgets 
        were submitted?
    Answer. As the fiscal year 2003 Budget states, the homeland 
security budget was calculated by capturing those activities that are 
focused on combating terrorism and occur within the United States and 
its territories. Such activities include efforts to detect, deter, 
protect against and, if needed, respond to terrorist attacks. As a 
starting point, funding estimates for these activities are based on 
data that has been reported since 1998 in the Office of Management and 
Budget's Annual Report to Congress on Combating Terrorism, and include 
combating terrorism and weapons of mass destruction (WMD), critical 
infrastructure protection (CIP), and continuity of operations (COOP). 
Since homeland security focuses on activities within the United States, 
estimates do not include costs associated with fighting terrorism 
overseas. In addition, homeland security estimates include all funding 
associated with border security and aviation security. The $38 billion 
reflects the Federal Government-wide total for requested for these 
activities.
    Question. Is this the right mix of dollars to goals and targets?
    Answer. The Office of Homeland Security (OHS) and OMB worked in 
conjunction with individual bureaus, Agency Heads, and other White 
House Offices, to ensure that the President's fiscal year 2003 Budget 
supports the most immediate, high-priority needs to protect our Nation 
from terrorists threats. Moving forward, in the National Strategy and 
the fiscal year 2004 Budget cycle, OHS will continue to work with all 
stakeholders--Federal agencies, Congress, state and local governments, 
and the private sector--to articulate a longer-term, comprehensive 
framework to make our homeland stronger, better, and more secure 
against terrorism. OMB will lend its expertise to ensure that your 
concern is addressed: that we have the right mix of dollars to goals 
and targets.
    Question. One aspect of Homeland Security, and a component of the 
goal of ``defending against biological terrorism,'' is protection of 
the mail. Four (Five?) people were killed in this country last year 
because letters laced with anthrax were sent through the Postal System. 
The Administration provided $175 million to initially address this 
threat, and the Congress added $500 million. In a report just delivered 
to us, the Postal Service has identified an additional $87 million for 
this current fiscal year, and nearly $800 million in requirements to 
address the biological terror threat and ensure the safety of the mail. 
Yet the budget before us today has no additional funding for the Postal 
Service.
  --Does this mean that the safety of the mail is not a component of 
        homeland security or that it is a lesser priority when compared 
        with other threats?
    Answer. The safety of the mail is an important homeland security 
concern. In fact, the President included $87 million for the U.S. 
Postal Service as part of his fiscal year 2002 Emergency Supplemental 
Appropriations request (submitted on March 21, 2002). This $87 million 
was identified by the Postal Service in its Emergency Preparedness Plan 
for near-term needs.
    The USPS Emergency Preparedness Plan covers 5 years and was 
submitted well after the President's fiscal year 2003 Budget was sent 
to Congress. The Plan, including the longer-term needs assessment, is 
under review by my staff, the Homeland Security Council, and others in 
the Administration.
                               pay parity
    Question. Once again the President's budget seeks to preserve the 
concept of pay disparity by establishing a pay tiering system. This is 
sort of a ``some Federal employees are more important than others'' 
kind of approach to governing. It is a slap in the face to hard-working 
Federal civilian employees who often work side-by-side with the 
military. It says to the armed female Customs Service inspector manning 
a one-person port of entry along the Northern Border that her work 
product is valued less than that of a female paratrooper protecting her 
country overseas. And it is a significant disincentive to recruiting 
talented people who are thinking about a career in government.
  --How can you support and justify this inequality in pay?
    Answer. We strongly believe that both our military members and 
civilian employees make significant contributions to the welfare of 
this country every day. At the same time, we feel that the 
Administration's fiscal year 2003 pay raise policy is responsible and 
sensible. The proposed civilian pay raise is justified because Federal 
civilian pay raises for 2002 and 2003 greatly exceeded projected 
inflation and, for the past 3 years (2000-2002), also have exceeded the 
Employment Cost Index (ECI). In addition, most Federal employees also 
receive within-grade (or step) increases every one to 3 years. 
Furthermore, civilian employees have benefited from a number of recent 
enhancements to their compensation package, such as paying the Federal 
Employees Health Benefits Program premiums out of pre-tax income and an 
increase in the amount of tax-deferred contribution to Thrift Savings 
Plan (TSP).
    We are committed to setting pay at levels that will enable the 
Federal Government to recruit and retain a skilled and dedicated 
workforce. We are also committed to meeting this objective in a manner 
consistent with prudent use of taxpayers' dollars. This Administration 
will continue to review Federal pay policy annually, and evaluate 
military and civilian pay raise policies on the basis of the particular 
circumstances applicable to each.
               office of financial assets control (ofac)
    Question. I have been a strong opponent of the travel ban to Cuba. 
I believe that it is a poor use of scarce resources for OFAC to be 
tracking down and fining retired social workers who travel to Cuba for 
a bike trip, instead of tracking down the assets of possible 
terrorists. Secretary O'Neill came before this committee last week and 
agreed with me on this point.
  --Don't you agree that given the fiscal reality that we are now 
        facing and the fact that the Administration submitted a budget 
        with deficit spending for the first time in years, that we must 
        use these scarce resources for homeland security and anti-
        terrorist activities? Would you support an effort to limit 
        OFAC's mission and prevent that office from using personnel and 
        money to enforce an outdated travel ban?
    Answer. The President has stated that ``The Administration will 
oppose any effort to loosen sanctions against the Cuban regime until it 
frees political prisoners, holds free and democratic elections, and 
allows for free speech.'' I fully support this policy, and have 
confidence that enforcement of sanctions by Treasury's Office of 
Foreign Assets Control (OFAC) is fair and fully consistent with legal 
requirements.
                          great grant program
    Question. The Administration initially proposed a fiscal year 2003 
budget for the Bureau of Alcohol, Tobacco, and Firearms (BATF) that did 
not include funding for the GREAT grant program. According to the OMB 
passback to the Department of Treasury, ``This level does not fund 
grants for the Gang Resistance Education and Training Program. Given 
the elements of September 11 and the need to reorder priorities, we 
assume these functions will be provided through state and local 
entities or through other Federal agencies with core missions in 
education and youths.''
  --The Administration recently submitted a budget amendment that 
        amended the request to include the GREAT grant program; 
        however, no additional funds were included. How can the BATF 
        absorb the additional $13 million and still meet the challenges 
        they face for homeland security and the ongoing mandates and 
        responsibilities required under statute?
    Answer. The President's Budget, initially submitted on February 4, 
2002, provided $13 million for ATF's GREAT grants and $3 million for 
administrative costs. The budget appendix incorrectly displayed the 
language related to the GREAT program, but an amendment transmitted on 
March 14, 2002 corrected the appropriation language to ensure that ATF 
has the authority to implement and distribute GREAT grants.
    The President's fiscal year 2003 Budget proposes $913.114 million 
for ATF, $61 million or 7 percent above fiscal year 2002 enacted 
(including fiscal year 2002 comparables for accruals and excluding 
funding from the Emergency Response Fund). This increase includes $13 
million for second-year costs related enhancements in homeland security 
such as agents to participate in Joint Terrorism Task Forces and 
additional canine handlers and expansion of ATF's canine training 
facility in Front Royal, Virginia.
                    treasury counter terrorism fund
    Question. The Treasury Counterterrorism Fund (CT Fund) was first 
appropriated in fiscal year 1997 as a central fund to reimburse any 
Treasury organization for the costs of providing support to counter, 
investigate, or prosecute terrorism, including payment of rewards in 
connection with these activities.
  --The President's fiscal year 2003 Budget attempts to transform the 
        Counterterrorism Fund under the Department of Treasury into a 
        reimbursable account for any agency in the Federal Government 
        for its role in a National Special Security Event (NSSE). 
        Congress has cautioned the Administration on the use of this 
        fund to pay for events such as the Olympics and other NSSE's. 
        Is it your intention that this fund be used to reimburse any 
        agency for its participation in these events?
  --Aren't you concerned that this fund will be depleted by planned 
        activities that should be budgeted for in all affected 
        agencies, rather than unforeseen events that will require the 
        involvement of agencies within the Department of Treasury?
    Answer. The Budget proposes language that would enable Treasury to 
reimburse any Federal agency that provides security at National Special 
Security Events (NSSEs) (at the request and direction of the U.S. 
Secret Service). The language is specific and is intended to improve 
the U.S. Secret Service's ability to carry out its responsibilities 
related to operational and perimeter security at NSSEs outlined in 
Presidential Decision Directive 62. Each NSSE is different, and the 
Secret Service requires the flexibility to call on various Federal 
partners, as necessary, to assist with security operations. Given the 
variation in NSSEs the Federal partners participating may change from 
event to event. Providing Treasury the opportunity to reimburse other 
agencies as needed will ensure uninterrupted planning and protection at 
NSSEs and allow proper tailoring of security responses. This funding 
mechanism mirrors the one in place for FEMA in consequence management.
    Forecasting the unforeseeable is difficult and while the U.S. 
Secret Service makes every attempt to plan for NSSEs, recent events 
have led to a proliferation of events that are now designated NSSEs, 
such as the NFL Superbowl and the United Nations General Assembly. 
Currently, the Counter-Terrorism Fund is carrying balances of $64.6 
million. The President's Budget provides an additional $40 million in 
fiscal year 2003 for potential resources of up to $104.6 million. The 
Administration, working with Treasury and the U.S. Secret Service, 
believes the proposed funding levels for the CT Fund will adequately 
provide for unforeseen events such as NSSEs.
                       omb representation account
    Question. Last year your office requested B and the Congress 
provided B the creation of a ``representation account'' at OMB so that 
you can entertain your counterparts at official functions in your 
office. We authorized the use of up to $3,000 for these purposes.
  --Now that nearly half of the fiscal year is over, how much of that 
        fund has been used to date?
    Answer. To date, no expenditures have been made from the 
representation account.
                    scoring of small business loans
    Question. The Small Business Administration provides loan 
guarantees for small businesses through the 504 program. Unfortunately, 
the Office of Management and Budget uses an artificially high rate of 
default, higher than the actual rate of default. Because of the way 
that this program is scored, fewer loans can be made. So the result of 
this arcane way of scoring the program is that fewer businesses can 
benefit. My understanding is that the default rate has been 
extrapolated from a very small time frame and does not take into 
account the full history of the program.
  --Could you explain why OMB is unwilling or unable to use a more 
        accurate default for this program?
    Answer. The Small Business Administration (SBA) provides loan 
guarantees through a number of programs, including the Section 504 
Community Development Company program. We disagree with the contention 
that the Administration is unwilling or unable to use an accurate 
default rate. OMB treats the 504 program as prescribed by the Budget 
Enforcement Act of 1990. The Federal Credit Reform Act of 1990, as 
amended requires that SBA estimate the subsidy cost of its loan 
programs as the net present value of the expected cashflows to and from 
the Government over the life of the loan(s) being guaranteed. SBA must 
estimate these cash flows for each year of the loan's maturity, based 
upon historical program experience (or, in the case of new program, a 
suitable proxy) and incorporating performance over a variety of 
economic conditions. OMB guidelines require at least a maturity's worth 
of data on which to estimate the subsidy cost, although few agencies 
other than SBA have sufficient, usable data to meet that requirement at 
this point.
    We also disagree with the contention that fewer businesses benefit 
from the program because of the way the default rates are developed. 
The 504 program has always met loan demand and the available loan 
volume frequently exceeds demand. For instance, the President's fiscal 
year 2003 budget supports a 504-program loan volume of $4.5 billion, 
which is more than $2 billion above the fiscal year 2002 expected loan 
demand.
    With respect to the amount of data used to estimate the default 
rate, we note that SBA uses all 16 years of available historical 
performance data to predict future defaults and recoveries (the program 
started in 1986). Using historical data to estimate default rates is 
commonly used by SBA and other credit agencies and reflects actual 
program performance during a variety of economic conditions. However, 
some of the larger Federal credit programs are moving towards use of an 
econometric model, which can incorporate the effects of programmatic 
changes as well as economic variables in developing default estimates. 
In fact, SBA expects to use an econometric model for its 7(a) General 
Small Business Loan program in the fiscal year 2004 Budget. SBA will 
then build from that effort to develop a new 504 model in future 
budgets.
                          regulatory oversight
    Question. OMB provides oversight of Federal rule-making. Recently 
at a hearing in the House, the Administrator of the Office of 
Information and Regulatory Affairs (OIRA) testified that since July, 
OIRA has returned more than 20 proposed rules to agencies because of 
``poor quality analysis.'' That is nearly one per week.
  --It sounds like this Administration has a flawed process. Do you 
        think that the small staff at OIRA has more expertise in these 
        areas than the agencies who deal with these issues all the 
        time? Why doesn't OIRA work with the agencies on the front end 
        of the process, to ensure that significant amounts of time and 
        energy are not wasted redoing work that the agencies have done? 
        Shouldn't there be more of a partnership between OMB and the 
        agencies on developing regulations? Hasn't the repeated 
        rejection by OIRA of rules that have been worked on for months 
        by agencies substantially slowed the regulatory process?
    Answer. The issuance of Presidential regulatory principles, and the 
centralized review of draft regulations, has been an accepted part of 
regulatory development for 30 years in one form or another. This began 
with President Nixon's ``Quality of Life'' review program, and 
continued in the 1970s with President Ford's requirement in Executive 
Order Nos. 11821 and 11949 for agencies to prepare inflation/economic 
impact statements and with President Carter's Executive Order No. 12044 
on ``Improving Government Regulations.''
    The OMB review process became more formalized with President 
Reagan's Executive Order No. 12291, which was in effect from 1981 to 
September 1993 (the Reagan and Bush Administrations and the first nine 
months of the Clinton Administration). In September 1993, President 
Clinton issued Executive Order No. 12866, which retained the OMB review 
process in essentially the same form. The Executive Order No. 12866 
review process remains in effect today.
    This review process ensures that agencies, to the extent permitted 
by law, comply with the regulatory principles stated in Executive Order 
No. 12866, and that the President's policies are reflected in agency 
rules. It also serves to ensure adequate interagency review of draft 
rules, so that agencies coordinate their rules with other agencies to 
avoid inconsistent, incompatible, or duplicative policies.
    During the course of OMB's review of a draft regulation, the 
Administrator of the Office of Information and Regulatory Affairs 
(OIRA) may decide to send a letter to the agency that returns the rule 
for reconsideration. Such a return may occur if the quality of the 
agency's analysis is inadequate, if the regulatory standard adopted is 
not justified by the analysis, if the rule is not consistent with the 
regulatory principles stated in the Order or with the President's 
policies and priorities, or if the rule is not compatible with other 
Executive orders or statutes.
    Early in this Administration, I stressed to agencies the importance 
of improving regulatory impact analyses. In a memorandum to agency 
heads, I stated:

    ``The Bush Administration is committed to improving the quality of 
the Regulatory Impact Analyses (RIAs) that departments and agencies 
prepare under Executive Order 12866. Improved analysis will lead to 
more effective and efficient regulation by providing the public and 
policy officials with better information on the effects of these 
important rules. If OMB determines that more substantial work is 
needed, OMB will return the draft rule to the agency for improved 
analysis.'' (Memorandum to the Heads of Executive Departments and 
Agencies, ``Improving Regulatory Impact Analyses'' (OMB Memorandum M-
01-23, June 19, 2001).)

    Since that memorandum was issued, OIRA has returned 21 agency draft 
rules. As the OIRA Administrator, Dr. John D. Graham has testified, two 
of his priorities have been to establish more openness and transparency 
in how OIRA does its work, and to stimulate more analytic rigor in the 
process of regulatory analysis throughout the Federal government. These 
return letters are publicly available, and posted on OIRA's web-site, 
at ``http://www.whitehouse.gov/omb/inforeg/return__letter.html''. 
Through the public posting of these letters, Dr. Graham provides any 
interested party the opportunity to comment on the content of the 
letters, thus allowing detailed challenge to the expertise therein 
displayed.
    In your question, you raise the issue of OIRA expertise. OIRA staff 
are highly trained and experienced in analysis, particularly benefit-
cost analysis, and the types of review that are required by Executive 
Order No. 12866. We believe OIRA can supplement and improve its already 
outstanding expertise. Consequently, Dr. Graham is in the process of 
hiring several new staff with backgrounds in science, including 
epidemiology, risk assessment, and engineering to complement existing 
expertise in policy analysis, economics, statistics, and information 
technology.
    You also suggest that OIRA should work, in partnership, with 
agencies earlier in the regulatory development process and express your 
concern about the possible delay entailed by Executive regulatory 
review. We agree that OIRA should work in a cooperative manner with 
agencies more at the front end of the regulatory development process, 
and have been working with agencies to do this whenever possible. 
Knowing that OIRA cares about the quality of agency regulatory impact 
analysis appears to be encouraging agencies to invite OIRA into the 
early stages of regulatory deliberations, where OIRA's analytic 
approach can have a greater impact.
    The return letters relate to 12 proposed draft rules, one interim 
final draft rule, 6 final draft rules, and two notices. Thus, 14 of the 
21 return letters raised OIRA's analytic concerns at the early stages 
of agency rulemaking. Moreover, 6 of the 21 have already been 
resubmitted and OIRA has concluded review. It is a measure of the 
effectiveness of OIRA's return letters that agencies are able to 
respond quickly and OIRA is able to conclude its subsequent review 
expeditiously.
    We can also assure you that the OIRA Administrator is concerned 
about timeliness of OIRA's regulatory reviews. This is demonstrated by 
comparing the time period for the returns (07/20/01 to 02/12/02) with 
the same period for the previous year, a time period in which OIRA did 
not send any return letters. During the time that OIRA returned 21 
rules for reconsideration, OIRA conducted a total of 347 regulatory 
reviews with an average review time of 53.7 days. This compares to 489 
reviews with an average review time of 66.4 days for the previous 
year--close to a 20 percent decrease in review time.
                   federal accounting standards board
    Question. For more than 10 years, the Federal Accounting Standards 
Board has been tasked with working with agencies to ensure that they 
all use uniform accounting standards. This is an important role because 
it allows agencies to provide financial statements as required by the 
Federal Chief Financial Officers Act. Because FASAB creates standards 
for Federal agencies, it has had predominantly Federal officials on it, 
including OMB, Treasury, GAO and CBO.
    Recently, OMB and Treasury announced that the make-up of FASAB 
would be drastically changed. Of the 9-member board, representation 
from Federal agencies will be slashed in half: from 6 to 3. 
Representation from the private sector will increase from 3 to 6. This 
seems illogical given the mission of FASAB. While there may be value in 
having private sector input, the previous make-up of one-third from the 
private sector seems to me to be sufficient. Clearly, Federal agencies 
have unique circumstances compared to the private sector and a Board 
with Federal perspective is more helpful than one that is heavily 
weighted toward the private sector.
  --What is the rationale for having this board which governs Federal 
        agencies so heavily weighted with private sector 
        representatives? Don't you agree that Federal agencies have a 
        unique contribution to make to the process that the private 
        sector cannot add?
    Answer. At the August and October 2001 Joint Financial Management 
Improvement Program (JFMIP) Principals' meetings, the three Principals 
addressed concerns about the independence of the Federal Accounting 
Standards Advisory Board (FASAB), which was raised in 1999 by the 
American Institute of Certified Public Accountants (AICPA) when it 
recognized FASAB as the body designated to establish generally accepted 
accounting principles (GAAP) for Federal Government entities. The AICPA 
said it would review its position in 5 years, and expressed a concern 
that the Board, which at that time consisted of six Federal and three 
non-Federal members, did not possess sufficient independence because of 
the predominance of Federal members. The Principals agreed that 
revising board membership to consist of three Federal and six non-
Federal members would address the AICPA's concern. In addition, they 
agreed to lengthen the terms of the non-Federal members to ensure 
continuity on the Board. The Principals believed that these changes 
would improve the FASAB's consideration and development of accounting 
standards as well as enhance the Board's independence. The FASAB 
Memorandum of Understanding (MOU) was revised accordingly, and signed 
on January 11, 2002, to implement the Principals' decisions.
    Certainly Federal agencies have made and can continue to make 
unique contributions to the FASAB process. Nothing in the new structure 
will prevent Federal entities from presenting views and suggestions to 
FASAB either through its Principals (OMB, Treasury, and GAO) or through 
FASAB's formal, structured due process for vetting all of its 
proposals. It is important to note that, under the revised MOU, each of 
the Principals would still retain his or her right to veto any FASAB 
proposal. Also, non-Federal appointments would still be vetted through 
an appointments panel which includes representatives of the JFMIP 
Principals as well as non-Federal members. All FASAB appointments must 
be approved unanimously by the JFMIP Principals. We believe that the 
new FASAB structure addresses the AICPA's concerns and continues to 
provide ample opportunity for all Federal entities to contribute to the 
deliberative process.
    Question. Also, under the previous make-up of the FASAB, the 6 
Federal representatives included 2 from the legislative branch. With 
the elimination of CBO as a representative, the legislative branch's 
input has been drastically cut. In addition, I understand that CBO was 
never consulted about this change and in fact, that Director Dan 
Crippen resigned in protest.
  --Why was there no consultation of the other Federal members of the 
        FASAB before they were removed from the board? Also, please 
        explain why you have chosen to marginalize the legislative 
        branch by cutting its representation in half.
    Answer. The issue of FASAB independence has been discussed publicly 
since AICPA raised concerns about the Board's independence in 1999 when 
it recognized FASAB as the body designated to establish GAAP for 
Federal government entities. The JFMIP Principals debated the issue and 
chose to move quickly to address AICPA's concerns and thus remove a 
potential distraction from their efforts to improve Federal financial 
performance.
    The decision to reconstitute FASAB by increasing the non-Federal 
memberships and reducing the Federal membership was made to address the 
AICPA's concern that the Board, which at that time consisted of six 
Federal and three non-Federal members, did not possess sufficient 
independence because of the predominance of Federal members. The AICPA 
said that this issue would be considered when it reviewed its position 
in 5 years. This action will not marginalize the Legislative Branch of 
the government. The Comptroller General of the United States, an 
official of the Legislative Branch of the government and the current 
chair of the JFMIP, strongly supported the reconstitution of the FASAB 
to three government members. Moreover, the Legislative Branch retains 
the same proportional representation relative to the Executive Branch 
as the original FASAB make-up.
    Representatives from the CBO and the other two Executive Branch 
agencies have made important contributions to the Board's deliberations 
since 1990, and still have the opportunity to do so through the 
Principals or the formal due process for vetting all FASAB proposals. 
The Department of Defense (DOD), which has provided the member from the 
defense/international agencies since FASAB was established in 1990, 
accepted the Principals' offer to remain involved in FASAB proceedings 
as an observer. The Principals would be pleased to welcome a CBO 
representative under an informal ``observer status'' which would allow 
CBO to participate with DOD, but without voting privileges.
                   the president's management agenda
    Question. The President's Management Agenda proposes to use the 
budget process to discipline agencies who do not ``get to green'' on 
the five scorecard items related to the President's management goals. 
Tell us what that means.
  --Please explain how the Administration's authority to do so relates 
        to, and does not conflict with, the role of Congress in 
        authorizing and appropriating funds to achieve statutory 
        missions of Federal agencies?
    Answer. The President's Management Agenda (PMA) has the shared 
Congressional goal of improving the performance of Federal programs 
across government. Changes in the management of programs that require 
modifications to existing law or to agency budgets will be proposed as 
a part of the President's Budget or as legislative changes.
    In fact, the GPRA (Government Performance and Results Act of 1993) 
specifically calls for a more focused and serious approach to measure 
the effectiveness of Federal programs and most importantly to use 
performance based budgeting to accomplish this objective. The PMA is a 
focused initiative to address the most glaring government-wide problems 
and fix them. The role of Congress and the Executive in this initiative 
is one of mutual cooperation and a shared goal-the efficient use of 
taxpayer dollars. The PMA will over time help Congress in identifying 
the most effective programs and the worst performing programs to best 
allocate tax dollars.
                   government's human capital crisis
    Question. How and where does the President's budget identify and 
request the funds necessary to pay for the expenses that agencies must 
face to in response to the Federal ``human capital crisis''?
    Just to name a few of the cost considerations that are not visible 
in the budget but which are critical to the functioning of the Federal 
government:
  --retirements which are expected to include approximately one-third 
        of the regular Federal workforce, and about half of the SES by 
        2004.
  --buy outs and early outs
  --massive recruiting
  --the need for competitive salaries and positions among technical and 
        scientific specialists and experts
  --retention strategies including pay increases, promotions Y
  --training for the next generation of entry level employees and 
        training for the new wave of managers
  --systems to provide agencies with better knowledge management of 
        their own people, competency needs, skills, and accountability.
    Answer. OMB Circular A-11 provided guidance to agencies on 
preparing their fiscal year 2003 budget requests and annual performance 
plans. Agencies were instructed to prepare a five-year workforce 
restructuring plan, which identified the specific organizational 
changes the agency is proposing to make the government more citizen-
centered. The plan also was to include the human resources tools and 
flexibilities needed to implement the plan. Decisions on these plans 
were made on an agency-by-agency basis and are included in each 
agency's budget request. Integrating human capital strategies into 
agency strategic and budget processes is essential to building, 
sustaining, and effectively deploying a high-performing workforce to 
meet the needs of the nation. OMB will continue to evaluate future 
agency budget requests to ensure that they are linked to the achieving 
the President's vision to make Government more citizen-centered, 
results-oriented, and market-based.
                        outsourcing federal jobs
    Question. The Administration and OPM are advocating using the 
President's support of increased outsourcing to include Federal jobs. 
This has been the subject of heated discussion in the Senate 
Governmental Affairs Committee, as recently as a hearing on March 6, 
2002.
  --What are the budgetary implications and estimates for such an 
        effort?
    Answer. We were pleased to help update the Senate Government Reform 
Committee on March 6 on the Administration's progress in implementing 
our competitive sourcing program. Almost every Cabinet agency and 
several smaller agencies have submitted competitive sourcing plans to 
us. Some agencies are obviously further along than others. In addition, 
OMB is providing staff assistance to every agency that requests the 
help, especially important since most civilian agencies have never 
conducted a public/private competition before.
    Additionally, through the management scorecard and progress 
reports, we're holding each agency accountable for implementing the 
President's competitive sourcing initiative. These competitions are 
often lengthy and that's why we're hoping to streamline them and will 
oppose efforts to add hurdles. We're focusing on having agencies build 
the infrastructure for public/private competitions.
    Regarding the budget implications, DOD has achieved and continues 
to estimate future savings. Without service or logistical support 
reductions, these funds will be available for redirection into other 
DOD priorities.
    Question. What cost estimates do you have to support that it will 
be more cost effective or as accountable as necessary once these 
positions are outsourced?
    Answer. One of the key benefits to competitive sourcing is the 
savings to the taxpayer. Savings have been documented by every group 
that has ever seriously studied this issue. Organizations such as the 
GAO, the Center for Naval Analysis, and RAND have all documented 
significant savings. On March 6, 2002, GAO testified to the significant 
cost savings from A-76 competitions. On average, the statistics show a 
20-30 percent savings, regardless of whether the public or private 
sector wins the competition. Some studies, such as the 1998 Center for 
Naval Analysis (CNA) analysis of 44 competitions indicate a 42 percent 
cost savings. These savings have been achieved without service 
reductions, terminations or arbitrary FTE ceiling reductions.
    Question. What happens when the company providing the outsourcing 
decides that the government's business isn't as profitable a market as 
it would like?
    Answer. Only the firm itself can decide if it is interested in 
renewing its contract with a client, whether that client be government 
or private. If the firm no longer sees it as profitable, it is under no 
obligation to participate in a re-competition.
                         government downsizing
    Question. Government downsizing in the 1990s led to significant 
skill and structural imbalances, as well as agencies not positioned to 
fulfill their mission. Nonetheless, the Administration is pursuing 
continued downsizing and several agencies appear to be ready to offer 
early outs and buy outs to agencies.
  --What is the Administration doing to ensure that the downsizing 
        going on now won't repeat those problems? Are the early outs 
        and buy outs allowing the government to distinguish between the 
        talent they need to keep and others who may lack the skills, 
        knowledge, and experience to assist the agency now and into the 
        future?
    Answer. The Administration recognizes the numerous challenges 
facing the government now and in the future, such as the growing 
percentage of the workforce that is eligible to retire over the next 10 
years; competing for talent with the private sector; and closing skill 
gaps created by past downsizing. In response, the President has placed 
Strategic Management of Human Capital on his list of government-wide 
management initiatives. The U.S. Office of Personnel Management (OPM), 
together with OMB, will work very closely with Federal agencies to 
implement human capital strategies to attract and retain the right 
people, in the right places, at the right time; make high performance a 
way of life in the Federal service; and deliver high quality services 
the American public deserves. The President's approach is not driven by 
arbitrary numerical goals and is intentionally flexible and aligned 
with other initiatives to ensure that numbers do not drive good 
management strategy.
    In addition, I will work with others within and outside of the 
Administration to help advance the Managerial Flexibility Act, which is 
an important step toward achieving the President's vision to make 
Government more citizen-centered, results-oriented, and market-based. 
This proposal would give every Federal manager increased discretion and 
flexibility in attracting, managing, and retaining a high quality 
workforce. Furthermore, it would empower Federal agencies to determine 
when, if, and how they might offer new employee incentives, and it 
enhances the agencies' authority to use recruitment, retention, and 
relocation bonuses to compete better with the private sector. It would 
also enable managers to offer early outs and buyouts for downsizing 
and/or restructuring, which would allow agencies to target buyouts 
based on a number of factors, including skills, knowledge and 
abilities, geographic location, organizational unit, and occupation to 
assist in agency workforce planning efforts.
                 shared responsibilities with congress
    Question. In the Budget, the President notes that ``getting to 
green'' is a shared responsibility of the Congress and the Executive 
Branch. If true, transparency will be essential to make that 
meaningful. What information about agency evaluations, plans, progress, 
and strategies to address their management deficiencies will be made 
available to Congress and, if requested, to the General Accounting 
Office?
    Answer. Status reports on agency progress toward ``getting to 
green'' on the management scorecard will be regularly made available in 
the President's budget and the Mid-Session Review.
                    ridge testifying on capitol hill
    Question. In the March 20 Washington Post, columnist David Broder 
suggests that--just as you have significant jurisdiction over agency 
budgets and are required to testify before Congress--Homeland Security 
Director Ridge also should testify on the Hill because of the 
substantial sway he holds over the development and targeting of agency 
budgets.
    Do you think that it would help improve the dialogue between the 
White House and the Congress if Gov. Ridge did testify in a mutually-
agreed upon setting?
    Answer. As I mentioned in my March 14th testimony, while this is 
not my area of responsibility, I know that Governor Ridge wants to 
communicate as openly and effectively as he can with this Congress.
                             risk analysis
    Question. In the March 20 Washington Post, there is an article that 
discusses efforts at OIRA to make risk analysis more scientific. Part 
of this effort will be to analyze risks and benefits on the basis of 
``life years'' instead of ``lives'' saved. I am troubled by this type 
of analysis because it seems to put a lower value on the elderly.
  --Under this formulation, isn't it true that a regulation that would 
        save lives of the people in their 60s would be considered less 
        beneficial than one that saved lives of teenagers? Doesn't this 
        type of ``scientific'' analysis create all sorts of moral 
        hazards? More importantly, doesn't this proposal underscore the 
        problem of trying to quantify risks and benefits when lives are 
        at stake?
    Answer. The March 20 Washington Post article refers to the release 
of OMB's 2002 draft report to Congress on the Costs and Benefits of 
Federal Regulations. The draft report states that OIRA has initiated a 
process to refine its formal analytic guidance documents. As a part of 
that initiative, the draft report requested public comment on several 
specific issues, including: ``The methods employed to evaluate the risk 
of premature death, particularly the relative advantages and 
disadvantages of differing statistical approaches including the 
quality-adjusted-life year (QALY) approach.'' We decided to address the 
difficult issues involved in valuing premature death by the ``life 
year'' approach instead of the ``lives saved'' approach in response to 
several comments on OMB's draft cost-benefit report to Congress 
published in the Federal Register on May 2, 2001, received from several 
government agencies and interest groups (e.g., the Children's 
Environmental Health Network). We recognize that there are a variety of 
important factors that must be considered in the evaluation of risk 
reducing measures and that no single approach may be sufficient. The 
QALY approach is widely used in the medical literature and has recently 
been recommended for use in analysis by an expert panel assembled by 
the U.S. Department of Health and Human Services. We believe that this 
approach deserves careful review and we look forward to the public 
comments on the role this approach (and similar approaches) might have 
in regulatory analysis.
    Question. The article also indicates that OMB plans to hire more 
scientists at OIRA. It was my understanding that OIRA is already 
stretched very thinly, given the increased interest in information 
policy.
  --What areas of staffing are you planning to cut in order to make 
        room for the scientists at OIRA? What role is it that they will 
        fill? Conversely, do you plan to seek additional funds to 
        adequately pay for these new hires without cutting on-going 
        programs?
    Answer. In developing a vision of how to make OMB more effective, I 
have made OMB's ability to analyze regulations a management priority. I 
am therefore implementing a staffing plan that will reverse a twenty-
year decline in OIRA staffing while enhancing our analytic capabilities 
in a number of scientific disciplines, such as engineering, toxicology, 
public health, risk assessment, and health economics. These new staff 
resources will help OIRA adapt to the changing focus of Federal 
regulatory policy, occasioned by economic deregulation and an expansion 
of social regulation in science-related fields.
    Historically, OIRA's staff has possessed significant expertise in 
economics, policy analysis, statistics, and information technology. 
OIRA's new staff specialists will have scientific backgrounds that will 
complement OIRA's institutional strengths by enhancing its ability to 
analyze regulations concerning public health, safety, and the 
environment. Specifically, the new staff will be involved in the review 
of agency regulatory analyses that raise complex technical issues 
(e.g., human health risk assessments based on toxicology and public 
health science). This, in turn, should stimulate a greater focus on 
science in the regulatory agencies.
    In deciding to devote some of OMB's existing vacancies to new 
specialist positions that will strengthen OMB's ability to review 
regulations, I consulted extensively with OIRA and OMB's other 
divisions. OMB will thus not be seeking additional funds or FTE. For 
details on OMB's proposed fiscal year 2003 budget, please see the 
President's February budget submission to Congress.
                            general flowers
    Question. As you offered to do during the questions today, please 
provide the subcommittee with the specific details referred to in your 
memo of why statements made by General Flowers ``about stopping 
projects and lost jobs'' are ``bogus.''
    Answer. General Flowers stated that the Budget would result in a 
job loss that could be ``in the neighborhood'' of 45,000 jobs. I 
understand that the Army Corps of Engineers has requested that the 
Senate Budget Committee change the hearing transcript to indicate that 
the General now estimates an impact of 4,500 jobs, an order of 
magnitude less than the figure used at the hearing. This correction 
confirms OMB's assessment that the job loss claims as stated in the 
original transcript were inaccurate.
    At the time I sent the memo to which you refer, my staff had ample 
reason to believe that the agency's estimates were greatly overstated. 
Later, OMB staff reviewed material that the Army Corps of Engineers 
provided after I sent the memo. That review, and the Corps's own re-
examination, both confirmed OMB's initial assessment.
    The Corps' modification of its testimony speaks for itself. 
However, even with this revision, the revised Corps' estimate of job 
losses at projects funded in the budget is based on several 
questionable assumptions.
    First, the Corps estimate fails to account for job increases that 
would result at projects where the Budget proposes increases in 
funding, such as the Olmsted Lock and Dam in Illinois and Kentucky, 
which would receive a $37 million (90 percent) increase in funding over 
the fiscal year 2002 enacted level. The Corps estimate is not a net 
figure.
    Second, the Corps estimate assumes that there will be no effort to 
reduce potential job losses by managing current and future contract 
schedules. It assumes, for example, that the Corps would award new 
contracts in August 2002 even in the face of knowing there would be 
inadequate funds to support such new contracts in the next fiscal year.
    Third, the Corps estimates assume that all fiscal year 2002 
construction contracts will be awarded on schedule and that all work 
under these contracts will proceed throughout fiscal year 2002 and 2003 
on schedule. Historically, many projects do not stay on schedule. The 
Corps often encounters construction delays that are unrelated to the 
availability of funds. Schedule delays lower the likelihood of contract 
termination and job loss.
    Fourth, the Corps assumes that no one else will step into the 
breach. Local project sponsors can advance funds to continue contracts 
(and receive credit against their future cost``)share, where 
applicable); the contractor could continue to work and qualify for 
reimbursement plus interest, subject to the future availability of 
funds; or the Corps could cover the shortfall by reprogramming funds 
from other projects.
    Regardless, we recognize that there would be some termination costs 
under the Budget proposal. This is true especially for projects that 
are outside the Corps' three principal missions and other objectionable 
projects that the Budget does not fund. However, terminating these 
objectionable projects would yield substantial savings to taxpayers. As 
noted in the Budget, it would require about $5 billion to complete all 
the projects added by the Congress that are inconsistent with Corps 
policies--that's $5 billion diverted from nationally important 
priorities, including commercial navigation, flood damage reduction, 
and environmental restoration projects that are already underway.
    The alternative proposed in the Budget is to focus the Corps on 
reducing the backlog of ongoing construction projects that fall within 
its primary missions. This approach would ensure that these projects 
are completed and their expected benefits realized sooner than would be 
possible under current spending tends.
                                veterans
    Question. Clinics in North Dakota are turning away patients because 
they are so full and the Department of Veterans Affairs has decided 
that they will not open a new clinic in Dickinson, North Dakota due to 
lack of funds. Veterans in my home state can wait up to 10 months and 
have to drive up to 12 hours one-way to receive a routine medical 
visit. I believe that taking care of our veterans is part of the cost 
of our national defense. Yet, the even though the budget included a $48 
Billion increase for Defense, it did not include sufficient funds to 
serve all veterans.
  --What is your explanation for this oversight? Don't you agree that 
        we must keep our promises to our veterans if we want to recruit 
        and maintain a strong military? What should I tell veterans in 
        North Dakota who have been turned away from community based 
        outpatient clinics because the Administration has not requested 
        sufficient funds?
    Answer. The Department of Veterans Affairs is committed to ensuring 
that all veterans seeking medical care at VA this year have access to 
the system. New VA patients in areas of high demand may have to travel 
to VA hospitals (instead of using the community outpatient clinics). 
This ensures that the local clinics in these areas can continue to 
handle current patient load as well as all emergencies.
    The influx of new patients, particularly PL 7 veterans, into the VA 
system has resulted in higher than expected demand--varying 
significantly throughout the country. Prior to 1996, only 2 percent of 
patients were PL 7 veterans. Today, that number is 21 percent and it is 
projected to be 42 percent by 2010.
    In January 2002, Dr. Robert Petzel, Director of VA Upper Midwest 
Health Care Network (covering North Dakota, South Dakota, Minnesota, 
and small parts of Iowa and Wisconsin) issued a letter to County 
Veterans Service Officers and Congressional Offices stating its new 
policy: ``Veterans seeking care at community clinics where workload is 
projected to exceed the capped level [September 30, 2001 levels], will 
be referred to our [five] VA medical Centers.'' In response to 
questions, Dr. Petzel released a clarifying letter stressing his 
commitment to community clinics for veterans and his plans for the 
current fiscal year. He supported the goal of bringing quality care 
close to where veterans live, but does not want to compromise the 
quality and timeliness of care.
    Since many of the clinics in this Network have exceeded their 
planned capacities, new patients can only be added to the clinics as 
space becomes available. In the meantime, new patients will be offered 
appointments at the VA medical centers. Veterans who have emergency 
needs are being seen or scheduled for an appointment immediately.
    Question. I understand that the supplemental that you intend to 
send up to Congress will include an additional $12 Billion for the 
Department of Defense and an additional $142 million for veterans. I am 
told that the VA funds, if provided, would prevent further reductions 
in service from being implemented but would do nothing to improve the 
level of service or allow additional enrollees. I am surprised that the 
Administration has put such a low priority on our veterans during this 
period of increased military activity.
  --Why isn't the Administration doing more to ensure that the veterans 
        who are eligible for health are able to access it? When the 
        Administration had the opportunity to address this problem in 
        the supplemental, why did veterans get only one percent of the 
        requested funds that DOD received?
    Answer. The fiscal year 2002 Supplemental request that was 
transmitted to the Congress on March 21, 2002, includes an additional 
$142 million to provide sufficient funding for the VA to take care of 
all veterans who wish to enroll for VA health care benefits in fiscal 
year 2002. VA estimates that this amount of funding will ensure that 
all requesting care will be treated.
                           corps of engineers
    Question. The Corps of Engineers was dramatically underfunded in 
the President's budget request. Just in my state, there were several 
projects that were funded below capability by tens of millions of 
dollars. The Grand Forks Flood Control project, for example, was funded 
at less than half of the level necessary to keep the project on 
schedule. If this project is not substantially completed by December 
2004, the city has been told that FEMA will spend money to remap the 
100 year floodplain, which would include over 90 percent of Grand Forks 
and East Grand Forks and thousands of new properties, forcing residents 
to pay between $10-$15 million annually in additional flood insurance. 
This mapping will need to be redone a year or two later when the flood 
control project is complete. Mapping this area twice in the course of a 
couple of years seems like a huge waste of Federal dollars and would be 
totally unnecessary if the Corps of Engineers' budget wasn't so 
severely underfunded.
    Grand Forks is just one example of the additional costs involved in 
underfunding projects currently underway at the Army Corps of 
Engineers. All across the country, this underfunding causes overall 
costs to rise because the projects are drawn out and not built on the 
most efficient schedule. In addition, it leaves tens of thousands of 
people vulnerable to flooding for years beyond the original deadline 
goal.
  --Why wouldn't the Administration pursue a policy of finishing 
        projects on the most efficient time frame?
    Answer. The Budget does give priority to completing ongoing 
construction projects that are within the Corps' primary missions--
commercial navigation, flood and storm damage reduction, and 
environmental restoration. The Grand Forks/East Grand Forks project is 
an ongoing construction project to provide flood damage reduction for 
these two cities. The project reflects an innovative solution that 
combines traditional levee work with non-structural activities, 
including removing a substantial number of structures from the most 
flood-prone areas of this project. The fiscal year 2003 funding of $30 
million that the Administration proposes would enable the Corps to 
build the project more quickly, so that this area does not experience a 
repeat of the devastating floods of 1997.
    Question. Earlier this month, the press reported on a memo from you 
to Andrew Card, Josh Bolton and Karl Rove about Mike Parker's colloquy 
with Senator Conrad and General Flowers. In this memo, you describe 
General Flowers' statements about stopping Corps projects and losing 
jobs as a result of underfunding of Corps projects as ``totally 
bogus.''
    I have a few Corps projects in my state, like the Grand Forks Flood 
Control project, that were dramatically underfunded in your budget and 
the result of your budget will very clearly be work stoppage and 
subsequent layoffs. I sympathize with General Flowers' concerns and 
really regret the Administration's decision to fire Mike Parker based 
on his testimony to the Senate Budget Committee. In my estimation, I 
think he was just giving a straightforward assessment of the result of 
your budget. As you know, a number of my colleagues from both sides of 
the aisle agree with me.
  --My question is whether you still believe that the testimony given 
        by the Corps about the dangers of underfunding of Corps 
        projects is ``totally bogus?''
    Answer. I understand that the Army Corps of Engineers has requested 
that the Senate Budget Committee modify the hearing transcript to 
indicate that the General said that the funding impact was 4,500 jobs 
rather than ``in the neighborhood of 45,000 jobs.'' I believe this 
confirms OMB's assessment that the job loss claims as stated in the 
original transcript were inaccurate by an order of magnitude. Even with 
this revision, the Corps estimate of job losses is overstated for 
reasons explained in my answer to your previous question.
                         transportation funding
    Question. The President's budget included a cut in highway funding 
of more than $8 Billion. For North Dakota alone, this would mean a 
reduction in highway construction funds of $45 million and the loss of 
nearly 2,000 high paying jobs. It seems ironic that at a time when the 
Administration was pushing hard for an economic recovery package, OMB 
was proposing a budget that would eliminate thousands and thousands of 
jobs and would drastically reduce important stimulative construction 
projects.
  --The Senate Budget Committee has wisely added back over $4 Billion 
        in highway construction funding. Will the Administration 
        publicly support this increase?
  --How can you reconcile the seemingly inconsistent policy of asking 
        for an economic recovery package while making huge reductions 
        in highway spending?
  --Why would the Administration blindly follow an arbitrary formula 
        which prevents funds already collected from being used [the 
        TEA-21 formula] instead of providing some discretionary funds, 
        given the economic situation?
    Answer. The Administration is committed to working with Congress to 
ensure a process exists that adequately funds highway programs
    One of the guiding principles behind Transportation Equity Act for 
the 21st Century (TEA-21) was ensuring that highway funding levels 
track actual and anticipated revenue into the Highway Trust Fund, and a 
mechanism (RABA) was included in that legislation to set guaranteed 
funding levels accordingly. In fiscal year 2000-2002 this 
Administration and the last adhered to this principle when revenue into 
the Highway Trust Fund was higher than what was anticipated in TEA-21 
and provided States with an additional $9 billion to support the 
Nation's highway infrastructure. In fiscal year 2003 actual and 
anticipated revenue into the Highway Trust Fund are lower than what was 
anticipated in TEA-21. Our fiscal year 2003 budget request reflects 
this decline in receipts.
    On the eve of the reauthorization of TEA-21 it is important that we 
not abandon the principle of linking highway funding levels to revenue 
coming into the Highway Trust Fund. We will however work with Congress 
to address the wild swings in funding created by the RABA mechanism in 
a manner consistent with TEA-21 principles and fiscal restraint.
                     agriculture and payment limits
    Question. One of OMB's responsibilities is to coordinate and issue 
Statements of Administration Policy (SAP) and to approve letters from 
agencies that state Administration policy. During the debate on the 
Farm bill there have been some confusing messages included in the 
Administration's SAPs, and some troubling omissions as well. 
Specifically, the Administration has never taken a position on the 
payment limitation amendment that Senator Grassley and I successfully 
offered to the Farm Bill.
    The amendment appears to me to address the very concerns that the 
Administration has raised. You yourself have said that there were 
objections to legislation that would direct ``all the money to rich 
farmers and leave large sectors of the farm economy unattended.'' The 
Department of Agriculture has raised similar concerns. It seems that 
the Administration would embrace our efforts to limit payments and 
close the loopholes so that payments are more targeted to family 
farmers. And yet, OMB has declined to comment on the amendment or to 
publicly endorse the Dorgan-Grassley amendment; and a recent letter 
from Secretary Veneman which was presumably cleared through OMB is 
oddly silent on the issue.
  --Can you explain this inconsistency?
    Answer. The Administration shares your concern raised here and in 
your February 14, 2002 letter to the President about providing too much 
Federal assistance to those producers least in need. We believe that 
the policies articulated in Secretary Veneman's March 13th letter to 
Chairman Combest will best address this issue by broadening the types 
of farm support and more effectively targeting limited funds. Key 
points in the Secretary's letter include:
  --Adhere to the Congressional Budget Resolution funding limits and 
        avoid frontloading funding in the first 5 years, thereby 
        placing farm programs in jeopardy in the second 5 years;
  --Support farmers without encouraging overproduction and further 
        depressing farm prices through overly high loan rates;
  --Maintain compliance with our international trade obligations 
        through ``circuit breaker'' language and use of ``green box'' 
        payments such as the House bill's fixed decoupled payments;
  --Provide new risk management tools to help non-program crop 
        producers and others through use of farm savings accounts.
  --Support a strong conservation title that also bolsters farm and 
        ranch income.
    We appreciate your concerns and look forward to working with you to 
develop programs that will better target agriculture assistance to 
those who need it.
                                defense
    Question. Last year in the DOD Authorization bill, the Congress 
included language that permitted the Administration to implement so-
called ``concurrent receipt.'' This allows disabled veterans to receive 
both disability compensation and military retirement pay without being 
penalized with an offset. Unfortunately, the Administration did not 
take the steps necessary to implement concurrent receipt. Even though 
there was a $48 Billion increase in the defense budget, the 
Administration was unable to identify funds that would finally allow 
this problem to be corrected.
  --Why did the Administration choose not to make this change?
  --Why do you think military retirees should be penalized with an 
        offset when other retirees are not?
    Answer. Many veterans have served this country long and faithfully 
and subsequently suffered from illness or injury. The Administration 
deeply appreciates their service and sacrifice. The principle behind 
the statutory prohibition of concurrent receipt of military retirement 
and VA disability compensation benefits is the idea that no one should 
be able to receive concurrent retirement benefits and disability 
benefits based upon the same service. This is because all Federal 
employee-benefit systems aim for an equitable percentage of income 
replacement in the case of either work-related injury or retirement. 
Compensating for both simultaneously over-compensates the individual 
and the Administration opposes repeal of the current prohibition on 
concurrent receipt.
    A retired civil servant, for example, may not receive civil service 
disability benefits or workers' compensation benefits in addition to 
civil service retirement benefits. A similar ban exists against 
concurrent payment of retirement and disability benefits by the Social 
Security Administration. Within the military retirement system, 
retirees can receive up to 75 percent of basic pay based on years of 
service or percentage disability rating, whichever gives them the 
greatest benefit, but not both. With regard to veteran survivor 
benefits, survivors cannot receive annuities under VA's Dependency and 
Indemnity Compensation (DIC) and military retirement survivor benefits 
without offset either. If we reverse our approach on veterans, the 
principle would have to be reconsidered for civil servants as well.
    If a VA disability compensation recipient (based on military 
service) qualifies for Federal civilian retirement (based on civil 
service), there is no offset because civilian retirement is a benefit 
for civil service. Similarly, an individual receiving Federal workers' 
compensation benefits (based on work-related injuries in a Federal 
civilian job) incurs no offset from military retired pay, since the 
retirement benefits were earned for military service.
    Recently, VA and DOD evaluated the impact of lifting the 
restrictions on veterans receiving both retirement pay and disability 
compensation. Over a ten-year period the costs would be nearly $58 
billion. Moreover, this expansion would stress the Department of 
Veterans Affairs' ability to meet its current responsibilities to 
veterans, requiring the Department to process over 800,000 new or 
reopened claims over the next 5 years.
    Section 641 of the National Defense Authorization Act for Fiscal 
Year 2002 requires that the $58 billion cost of this proposal be 
offset. As we wage the war against terrorism, our highest priority must 
be to provide the resources the Department of Defense needs. We must 
take a hard look at every issue. Undoing the principle underlying the 
law creates a $58 billion impact on the budget, and potentially impacts 
the Department of Veterans Affairs' ability to serve our veterans.
                               renewables
    Question. The Renewable Energy and Energy Efficiency office at the 
Department of Energy conducted a strategic review of its programs last 
year, and this review is being held up and has not been released to 
Congress.
  --What is the status of this review?
  --Has completed the OMB process, which agency currently has the 
        document and at what stage of review, and why it has not yet 
        been released?
  --If this review is used for the RE/EE Office to develop its budget 
        proposal, how are we supposed to evaluate that proposal and the 
        rationale for some of the budget cuts we are seeing, without 
        the benefit of having seen this review document, in its 
        original form? When can we expect to see this important 
        document?
    Answer. DOE's Office of Energy Efficiency and Renewable Energy 
(EERE) conducted the Strategic Program Review (SPR) review throughout 
the summer of 2001. DOE submitted the draft SPR for OMB review in 
December 2001. OMB carefully reviewed the draft document and worked 
closely with EERE to ensure that all comments (which largely dealt with 
internal inconsistencies) were addressed. On March 25, OMB approved the 
SPR. DOE has posted the SPR on its web-site (www.eren.doe.gov/ee.html) 
and expects hard copies to be available by mid-May.
    The President's budget reflects some--but not all--of the SPR 
recommendations due to the timing of the review of the draft SPR. It is 
important to note that many of the SPR recommendations are not budget-
related and will not be accomplished overnight (e.g., implementation 
across programs of ``best program practices'' that the SPR identified).
                                 ______
                                 

            Questions Submitted by Senator Mary L. Landrieu

                        army corps of engineers
    Question. The President's budget reduces the Army Corps of 
Engineers Civil Works projects from $4.486 billion in fiscal year >2002 
to $4.026 billion for fiscal year >2003, a reduction of 10 percent. I 
am particularly concerned with how these cuts will affect the Corps' 
work in Louisiana. The Army Corps of Engineers is currently building 
flood control systems on the Comite River and hurricane protection 
systems around Lake Ponchartrain, as well as improving the Inner Harbor 
Navigation Canal Lock where the Inter-Coastal Waterway meets the 
Mississippi River. Flood control and hurricane protection are life and 
death issues in Louisiana. That lock on the Inter-Coastal Waterway and 
the Mississippi means jobs and economic development in the region.
    I also noticed in the budget that the Corps was rated ``Moderately 
Effective'' or ``Effective'' in 7 out of 9 of its program areas, 
including ``Effective'' ratings for: 1) Flood Control and Storm Damage 
Reduction and 2) Emergency Response, as well as a ``Moderately 
Effective'' rating for its work on Inland Waterways.
    What is the justification for cutting the Corps given the essential 
and important nature of the work it does and its record of 
effectiveness?
    Answer. The President's proposal must be viewed in the context of 
the need to target resources to winning the war against terrorism, and 
improving the Nation's homeland and economic security. For this reason, 
funds are redirected in the President's Budget. The Budget for the 
Corps is $4.175 billion, excluding the government-wide retirement 
funding proposal. This represents a reduction of seven percent from the 
fiscal year 2002 level of $4.486 billion. Most of this reduction is due 
to excluding projects added by Congress in fiscal year 2002 that are 
outside the Corps' primary missions (commercial navigation, flood 
damage reduction, and environmental restoration), are not economically 
justified, or are inconsistent with long-standing Corps policies. In 
light of the existing $21 billion backlog of ongoing construction 
projects, and the aforementioned national security needs, the Budget 
proposes to use available funds to accelerate the completion of 
priority, ongoing construction projects. This acceleration will allow 
the Nation to realize sooner the benefits of these projects.
    In addition to completing construction of ongoing projects, the 
budget focuses on increasing overall effectiveness of Corps programs. 
While it is true that the Corps was rated ``moderately effective'' or 
``effective'' in seven out of nine out of its program areas, it was 
only rated effective in two of these areas. Whether the funding level 
for a program needs to change to improve performance will depend on the 
specific circumstances of that program.
    For example, the budget rates the Corps' Inland Waterways program 
as ``moderately effective,'' primarily because some segments of the 
inland waterway system operated by the Corps provide few commercial 
benefits to the Nation. To improve the performance of this program, the 
Budget targets funds to those waterways that provide the greatest 
economic return, and substantially reduces funding for those that 
provide minor commercial benefits to the Nation. For other Corps 
programs, additional funding was requested to improve performance. For 
example, the Budget proposes to increase funding of the Hydropower 
program, which is also rated ``moderately effective'' by allowing the 
Power Marketing Administrations to directly finance from power revenues 
the Corps' costs to operate and maintain its hydropower facilities. 
This change would enable the Corps to reduce facility downtime and 
increase power production.
                      office of homeland security
    Question. The Administration request for the White House Office is 
$84.6 million, an increase of nearly $30 million, or 55 percent over 
last year. The bulk of this increase, according to the budget, is for 
the Office of Homeland Security and 40 full time equivalent employees. 
That is a significant investment for what I consider to be an area of 
national concern. Given the importance of this office, I encourage 
Governor Ridge to appear before Congress to report on his vision for 
the Office of Homeland Security.
    How many employees does the Office of Homeland Security currently 
have? How many of those employees are working in that office on detail 
from other agencies?
    Of the 40 FTE you are planning to hire for the Office, what roles 
will those employees play? How many will be experts in law enforcement 
and/or counter terrorism? How many of these employees will be support 
personnel? How many will be involved in public affairs, press 
relations, and outreach efforts? Will these positions be filled from 
outside of the Federal Government or from within the Federal 
Government?
    Will the Office of Homeland Security be entering any contracts for 
consulting or other services as part of its work? Are there any 
contracts in place at this time? Can you provide the Subcommittee with 
an accounting of any contracts, their cost, and the type of consulting 
work being performed as part of those contracts.
    Answer. It is our understanding that the Office of Homeland 
Security currently employs 91 personnel, of whom 62 are detailees.
    The Office of Homeland Security does plan to hire 40 FTE who will 
work in the areas that you describe. We do not have an exact breakdown 
of their fields of expertise at this time.
    It is our understanding that OHS expects that the contracts it 
executes will fulfill the following needs:
  --Review and assess the adequacy of the Federal emergency response 
        plans.
  --Develop criteria for reviewing security measures for critical 
        infrastructure, e.g., energy production, telecommunications, 
        utilities.
  --Ensure coordination of public health preparedness.
  --Design and review programs to facilitate incident response and 
        exchange of information by and among Federal, State and local 
        agencies as well as private entities.
    None of these contracts has been executed to date.
                        child care and adoption
    Question. As the largest employer in the United States, the Federal 
Government has a unique responsibility to serve as a leader in 
developing policies that address certain quality of life that are not 
only important to their employees but also society as a whole. In 
particular, the provision of affordable, accessible high quality child 
care and equity in workplace benefits for employees who adopt. In 
fiscal year 1999, I proposed that language be inserted into the 
Treasury Postal Appropriations bill that allowed for Executive agency 
funds to provide child care services for their employees. I fought very 
hard to ensure that the child care that was provided with these funds 
was high quality, affordable care that was accessible to the families 
in need. While this was a success, lack of child care remains a 
critical issue for hundreds of thousands of Federal employees. Members 
of my own staff have tried unsuccessfully to get access to these 
services and have found there are very long waiting lists. What is OMB 
doing to address this issue?
    Answer. The fiscal year 2000 Treasury General Government 
appropriations bill authorized the use of certain appropriated funds to 
provide child care services for Federal civilian employees. This 
authority was made permanent on November 12, 2001. The Office of 
Personnel Management (OPM) issued the ``Guide for Implementing Child 
Care Legislation,'' which provides information to Federal agencies, 
Federal employees, child care providers, and child care governing 
boards on how to develop and implement child care programs for lower 
income employees. The guide contains various tuition assistance models 
to help agencies choose a model that suits their needs.
    Furthermore, GSA supports the national commitment to provide 
quality child care as an essential component of a quality work 
environment. GSA has over 110 Child Care Centers across 32 states and 
the District of Columbia. Federal agencies have the authority to 
establish child care centers for Federal families with the requirement 
that at least 50 percent of the children enrolled in a child care 
center must be children of Federal employees.
    OMB's role in this process is to evaluate agency budget requests in 
the context of their overall program priorities and human capital 
strategy. We will look to agencies to demonstrate, as a part of their 
annual performance plans and performance reports, how their human 
capital strategies, including work/life programs, are linked to the 
accomplishment of agency mission requirements.
    Question. In the past, Senator Bond and I have worked to pass a 
piece of legislation entitled, the Federal Adoption Assistance Act to 
provide $2,000 in reimbursement for adoption expenses. We are again 
working to pass this legislation, what if anything, is the OMB doing to 
ensure that there is equity in the benefits offered (paid leave, 
reimbursements, etc.) to employees who adopt versus those who give 
birth to a child?
    Answer. The Administration has proposed substantial assistance for 
all taxpayers seeking to adopt children. In the past, families who 
adopt children were provided a nonrefundable tax credit of 100 percent 
of the first $5,000 per adoption. Building on a proposal in the 
President's fiscal year 2002 budget, Congress included a provision in 
the Economic Growth and Tax Relief Reconciliation Act of 2001 to 
increase this credit to $10,000.
    In addition, the Federal Government already has an impressive and 
flexible array of family-friendly leave options that support Federal 
employees' family responsibilities and enhance the productivity of its 
workforce. The two most notable laws for adoptive parents are the Sick 
Leave for Adoption Act and the Family and Medical Leave Act (FMLA). The 
Sick Leave for Adoption allows Federal employees to use sick leave for 
absences relating to adopting a child. The FMLA ensures that family and 
medical leave is available on a gender-neutral basis to both male and 
female employees and mandates job security for employees who take 
leave. In addition, it entitles an eligible Federal employee to 12 
workweeks of unpaid leave during any 12-month period for certain family 
and medical needs. Furthermore, Federal employees may cover a legally 
adopted child or a foster child under their Federal Employees Health 
Benefits family enrollment upon showing proof of the child's 
eligibility as a family member.
                  improving the current federal budget
    Question. In several speeches on the budget, you have clearly 
outlined the goals of your agency and the Bush Administration for 
improving the current Federal budget.
    Among these goals you include the following principles:
  --Eliminating ``pork projects'' or ``earmarks'' so as to preserve our 
        limited national resources for national programs and 
        priorities.
  --A move away from Federal programs and toward a greater use of 
        performance based block grants with broad goals and greater 
        state and local flexibility.
  --An effort to rate the performance of programs funded and to fund 
        only those found to be ``effective.''
    While I appreciate these goals and in a theoretical sense would 
support them, I am curious as to how in reality these goals would be 
applied and what effect they would have on certain important ongoing 
national priorities such as education and health care. As you may know, 
in almost every case, when programs are shifted away from a line item 
and into a block grant, it almost always results in a gradual decline 
in funding. What's more, outcomes for programs such as child abuse 
prevention, prenatal health care, and education reforms may be hard to 
quantify and a poorly constructed rating system may not reflect the 
real success of a more subjective program.
    Could you better explain how you see these goals being incorporated 
into this and future budgets?
    Answer. For years, serious advocates of public policy have sought 
to better link information on program performance with budget decision 
making. The major reason for doing so is precisely to better address 
important national priorities such as education and health care. For 
too long, regular spending increases for programs has been the measure 
of success in how well the public is served. Less attention has been 
paid to how well these programs have been achieving their objectives. 
We propose to transform this equation by better linking information on 
program performance to the decisions that are made on the budget.
    Evaluations of the effectiveness of programs are only one of many 
factors that go into decisions on spending. Policy makers must also 
consider priorities, the proper role of the Federal government, and 
many other factors. But surely there is no argument with a proposition 
to better inform budget decision making with the best possible 
information on program performance. This information will be used to 
highlight areas that require management attention, and also to inform 
budget decision making to reward good performers, and reform, curtail, 
or terminate activities that are not producing good results.
    As a way to expand the use of information during the coming year, 
we will increase the use of the effectiveness ratings that were used in 
last year's budget, and report on selected crosscutting common 
performance measures in some program areas. Agencies will be expected 
to provide information on the effectiveness of their programs as a part 
of their September budget request to OMB. Where that is lacking, the 
OMB staff will review the information that agencies prepare as a part 
of reporting on the Government Performance and Results Act. OMB will 
also be working with the agencies to develop other specific information 
on program effectiveness, and in selected areas to compare measures of 
performance across programs. To supplement information provided by 
agencies, the OMB staff will be reviewing evaluative information 
provided by the General Accounting Office, the Congressional Research 
Service, and other analyses of program effectiveness produced by 
entities in and out of government. To the extent practicable, OMB staff 
will spend time in the field learning at first hand the operation of 
agency programs. All of this information will be used to support OMB 
budget decisions based on program performance.
    As we expand the use of performance related information in the 
budget, we will continue to hold a dialogue with the Congress--we are 
very interested to hear congressional views.
                                 ______
                                 

                Questions Submitted by Senator Jack Reed

                                 liheap
    Question. Your Office continues to withhold $300 million in LIHEAP 
contingency funds appropriated last year to help low-income families 
and senior citizens pay their energy bills. In September, 23 Senators 
sent a letter to you requesting release of the funding due to last 
winter's high energy prices and the significant increase in utility 
disconnections. In addition, a majority of our nation's Governors, 
including Governor Bush of Florida and Governor Shaheen of New 
Hampshire, requested release of these funds. The only response we 
received from the Administration is that the contingency funding 
remains available in case of an emergency. The statute defines an 
emergency to include a significant increase in home energy 
disconnections, a significant increase in participation in a public 
benefit program or a significant increase in unemployment, layoffs, or 
the number of households with an individual applying for unemployment 
benefits. Please explain why the Administration does not believe that 
working low-income families and senior citizens going without adequate 
heat or food or medicine because they cannot pay their energy bills 
does not constitute an emergency? And why the current recession which 
is causing an increase in individuals applying for unemployment 
benefits and other public benefit programs does not constitute an 
emergency as defined by the statute?
    Answer. LIHEAP emergency funds have traditionally been used to 
assist states experiencing unusually sever weather or high home energy 
prices. By any measure, the current situation does not meet previously-
used standards for emergency assistance. We were very fortunate this 
past winter to have record high temperatures and lower fuel prices. In 
fact, the Northeast and Midwest experienced their warmest winter since 
the government began keeping records in 1895.
    The combination of warmer weather and low fuel prices means that 
heating costs will be invariably lower than last year. The Department 
of Energy recently updated its estimate of household heating bills for 
selected fuels. DOE's calculations show the following expectations for 
the six-month period ending March 31 compared to the 2000-2001 heating 
season: a 42 percent reduction in average natural gas heating bills per 
gas-heated household in the Midwest, a 36 percent falloff in oil-heated 
household heating costs in the Northeast, and a 37 percent decline in 
comparable expenditures for households using propane for heating in the 
Midwest.
    These conditions can change quickly, which makes it all the more 
important to ensure resources are available when a crisis emerges. We 
plan to continue to carefully monitor energy needs in the weeks and 
months ahead with this in mind.
                               ergonomics
    Question. Over a year ago, after repealing the ergonomics 
regulation, the President promised to ``pursue a comprehensive approach 
to ergonomics.'' Unfortunately, there has been no substantive action 
over the past year by the Administration to protect America's workers 
from the leading cause of workplace injury. In fact, the Department of 
Labor has not yet even put forward an action plan on the issue despite 
repeated deadlines for doing so. Apparently, the release of the 
Administration's plan is now held up at the Office of Management and 
Budget. Why is this process taking so long and why is this Department 
of Labor initiative stalled at OMB? What kind of regulation to protect 
workers from ergonomic injury would OMB support?
    Answer. On April 5 Secretary Chao announced the Administration's 
comprehensive plan to reduce ergonomic injuries through a combination 
of industry-targeted guidelines, tough enforcement measures, outreach, 
research, and dedicated efforts to protect Hispanic and other immigrant 
workers. This approach was developed based on input provided at the 
Secretary's three ergonomics forums last year; relevant information 
from a number of sources, including the information from the ergonomics 
rulemaking record; and injury and illness data from the Bureau of Labor 
Statistics. I want to assure you that no part of the Administration had 
been stalling this initiative. In developing this plan, we sought to 
carefully consider all options, rather than rushing to an ill-conceived 
solution. The announcement last week is the product of this careful 
consideration and we expect it to result in greater protection for 
workers.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. Presidential Decision Directive 62 provides authority for 
Federal agencies to make sure that National Special Security Events are 
safe and secure. The Secret Service is responsible for putting together 
a comprehensive security plan and enlisting the assistance of other 
Federal agencies for law enforcement personnel to carry out that plan. 
Although budgets have been tight, the majority of Federal law 
enforcement agencies have provided the necessary support B because 
that's what the PDD-62 envisioned.
    The President's fiscal year 2003 budget includes a request for $40 
million for the Treasury Counterterrorism Fund, and specifically 
requests statutory language which would allow payments from this fund 
to ``any Federal agency'' which provides assistance to the Secret 
Service at these events.
  --Are we rewarding inappropriate behavior by providing reimbursement 
        to Federal agencies which have a track record of refusing to 
        cooperate with a Presidential directive without additional 
        funding? What message does this send to those agencies which 
        have consistently responded to the call?
  --If such a fund is the appropriate way to go, should it rest within 
        the Treasury Department? Wouldn't it make more sense to have 
        the funding reside with the entity which is responsible for 
        making the initial NSSE designations?
  --I assume that under the current review process, consideration is 
        given to the need for this high level of security. What 
        consideration, if any, is given to the cost of such a 
        designation? I would appreciate it if you could outline for me 
        exactly what process is followed in making these 
        determinations.
    Answer. Due to the events of September 11, the frequency of NSSE 
designations has increased. After September 11, the annual United 
Nations General Assembly meeting and the Superbowl were designated 
NSSEs for the first time. Security measures at the Winter Olympics (an 
NSSE) were also increased. The expected increase in NSSE designations 
as well as the unpredictability of the NSSE designation process (i.e. 
which agencies will be asked to help at which event) make planning and 
implementation of a Secret Service security plan at future NSSEs much 
more difficult. A Counterterrorism Fund with wider eligibility covering 
both Treasury and non-Treasury entities will provide the flexibility 
necessary for the Secret Service to complete its mission under 
Presidential Decision Directive (PDD-62).
    PDD-62 gave the Secret Service the responsibility of planning and 
designing operational and perimeter security at NSSEs, the FBI the 
responsibility for crisis management, and FEMA the responsibility of 
consequence management. Funding for the Secret Service to carry out its 
responsibilities as described in PDD-62, which may include enlisting 
assistance of Treasury and non-Treasury entities, appropriately rests 
within the Treasury Department just as funding for FBI and FEMA, Secret 
Service's partners in carrying out PDD-62, lies in their respective 
agencies.
    The Office of Homeland Security currently considers requests for 
NSSE designation, in consultation with the Secret Service, FBI, and 
FEMA. Consistent with section 3(e)(iv) of Executive Order 13228, the 
Assistant to the President for Homeland Security is responsible for 
recommending to the Attorney General and the Secretary of the Treasury 
whether events should be designated as NSSEs. The primary factors taken 
into account when making an NSSE designation are the scope of the 
event, jurisdictional and local public safety agency concerns, and 
threat considerations.
                                 ______
                                 

               Question Submitted by Senator Ted Stevens

    Question. I have been informed that OMB budget examiners are 
beginning to examine Corps of Engineer infrastructure projects using an 
internal OMB cost-benefit analysis. This is after the Corps has 
completed a Chief's Reports with well grounded cost-benefit analysis, 
Congress has authorized the project and Congress has funded the 
projects.
    This is happening in the case of Seward and Wrangell Harbors. Both 
were authorized and funded after the Corps of Engineers found a 
positive cost-benefit ratio associated with the projects. Why is OMB 
second guessing the work performed by expert engineers who actually 
visit the sites and meet with local leaders thousand of miles from 
D.C.? This threatens to create an even larger backlog of Corps 
projects.
    Answer. OMB examiners do review the Assistant Secretary of the 
Army's recommendations for the disposition of Chief's reports that he 
is sending to Congress. Executive Order 12322 directs OMB to review all 
agency water projects for consistency with the polices and programs of 
the President and with Federal guidelines for water resources projects, 
which are supposed to be followed by the Chief in preparing his 
reports. This executive order was issued by President Reagan in 1981. 
The OMB review does not add to the backlog. Rather, this review ensures 
that only the best projects are eligible for construction.
                                 ______
                                 

           Question Submitted by Senator Christopher S. Bond

    Question. Please supply the Subcommittee with the number of program 
examiners at OMB who work on budget, management, and other issues 
related to programs administered by each of the following agencies: the 
U.S. Army Corps of Engineers, the Department of Commerce, the 
Department of the Interior, the Department of State, the Environmental 
Protection Agency, the Federal Emergency Management Agency, and the 
National Science Foundation.
    Answer. OMB currently has: 4 full-time and 1 part-time staff with 
primary responsibility for oversight of the Corps of Engineers civil 
works programs; 4 examiners working on Department of Commerce issues; 9 
examiners with primary oversight for the Department of the Interior and 
its bureaus and programs (8 are in the Interior Branch and 1 is in the 
Water and Power Branch); 8 program examiners for State Department 
programs; 8 program examiners who work on budget, management, and other 
issues related to programs administered by the Environmental Protection 
Agency; 2 full-time examiners with responsibility for FEMA programs; 
and, 1 full-time staff person with primary responsibility for oversight 
of the National Science Foundation programs.
                                 ______
                                 

                          SUBCOMMITTEE RECESS

    Senator Dorgan. This hearing is recessed.
    [Whereupon, at 2:30 p.m., Wednesday, March 20, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]









  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003

                              ----------                              


                       WEDNESDAY, APRIL 17, 2002

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 1:30 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan, Reed, and Campbell.

                       DEPARTMENT OF THE TREASURY

                         Office of Enforcement

STATEMENT OF JAMES GURULE, UNDER SECRETARY FOR 
            ENFORCEMENT

                            OPENING REMARKS

    Senator Dorgan. We will call the hearing to order today. 
This is the Subcommittee on Treasury and General Government of 
the Senate Appropriations Committee. We welcome our witnesses 
and also the guests.
    I would like to mention I am joined by the ranking member, 
Senator Campbell. After we had scheduled this hearing, 
Secretary Rumsfeld has now scheduled a top secret briefing 
beginning at 2:30 in the Capitol building, and so because of 
that--that will deal with the war in Afghanistan, and because 
of that, I want to try to expedite this hearing so that we 
might be able to access the information that Secretary Rumsfeld 
is going to provide to the Senate this afternoon.
    We will ask witnesses to put their entire statement in the 
record by consent and ask that they limit their oral statements 
to 5 minutes each.
    I also want to note that each of the law enforcement 
agencies here will be represented at the annual Law Enforcement 
Technology Show April 30 in SD-106, right around the corner. 
That is something that my colleague, Senator Campbell, started 
some while ago and I was pleased to participate with him. We 
are continuing that tradition and we appreciate the cooperation 
of the agencies to do that.
    Let me make a very brief statement and then call on my 
colleague, Senator Campbell. This afternoon, we continue our 
series of hearings on President Bush's fiscal year 2003 budget 
request for agencies under the jurisdiction of this 
subcommittee. Today, we will receive testimony from the Under 
Secretary for Enforcement as well as the Director of the Secret 
Service, the Director of the Bureau of Alcohol, Tobacco and 
Firearms, the Director of the Financial Crimes Enforcement 
Network, and the Acting Director of the Federal Law Enforcement 
Training Center.
    Because of the size of its budget and the specific homeland 
security issues it faces, we will have a second Treasury law 
enforcement hearing tomorrow afternoon with the U.S. Customs 
Service. There are other issues that relate to the Customs 
Service with respect to reorganization and so on and we will 
have a second hearing tomorrow.
    The events of September 11 have focused the attention of 
this Nation on its ability to protect itself as never before. 
We witnessed the heroism of our first responders, the fire 
fighters, police, and EMS workers as they rushed to rescue 
innocent Americans at the World Trade Center and the Pentagon 
and also in Pennsylvania. We cheered the rescuers and we 
grieved with the families of those who made the ultimate 
sacrifice in the line of duty.
    Our Nation has begun to learn the extent to which the men 
and women who serve our country in various Treasury law 
enforcement bureaus represent us and contribute to our homeland 
defense. Although we repeat it every year, few people realize 
that the Treasury Department agencies comprise about 40 percent 
of all Federal law enforcement.
    With respect to all of the agencies that are here today, I 
want to say on behalf of my colleagues in the Senate that the 
men and women who work in your agencies, who serve our country 
in times of great difficulty, have the admiration and deep 
respect of the American people for their service and we hope 
that the manner in which we work with you and the manner in 
which you work with the men and women who serve under you would 
allow that understanding to exist among all those who serve our 
country in these times.
    I am going to put my entire statement in the record. It is 
probably clear to all of us that we face significant budget 
problems this year. The President has requested a $49 billion 
increase for national security at the Pentagon for funding 
requests for armed forces. About a $35 billion request is made 
for homeland security. Some of that affects your agencies. I 
believe that Congress will react favorably to most of those 
requests.

                           PREPARED STATEMENT

    It is clear to every American that we face very serious 
challenges in all of these areas. Your agencies, in many 
respects, are at the front line of the search for terrorists, 
the search for homeland defense that will be impenetrable to 
would-be terrorists, and it is very important to us that you 
have the resources and the men and women who work for you and 
with you have the resources to do their job that our country 
needs doing at this point.
    So with that, I will put my entire statement in the record.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    This afternoon we continue our series of hearings on President 
Bush's fiscal year 2003 budget requests for agencies under the 
jurisdiction of this Subcommittee.
    Today we will receive testimony from: Under Secretary for 
Enforcement, Jimmy Gurule; Director of the Secret Service, Brian 
Stafford; Director of the Bureau of Alcohol, Tobacco and Firearms, 
Bradley Buckles; Director of the Financial Crimes Enforcement Network, 
James Sloan; and Acting Director of the Federal Law Enforcement 
Training Center, Paul Hackenberry.
    Because of the size of its budget and the specific homeland 
security issues it faces, we will have a second Treasury law 
enforcement hearing tomorrow afternoon with the United States Customs 
Service.
    The events of September 11 have focused the attention of this 
Nation on its ability to protect itself as never before. We witnessed 
the heroism of our first responders--the firefighters and police and 
EMS workers--as they rushed to rescue innocent Americans at the World 
Trade Center and the Pentagon. We cheered the rescues and we grieved 
with the families of those who made the ultimate sacrifice in the line 
of duty.
    Similarly, the Nation has begun to learn of the extent to which the 
men and women who serve the country in the various Treasury law 
enforcement bureaus represented here today are part of our homeland 
defense. Although we repeat it every year, few people realize that the 
Treasury Department agencies comprise approximately 40 percent of all 
Federal law enforcement.
  --The Secret Service has taken the lead in designing and implementing 
        protective plans for major public events such as the Winter 
        Olympics in Salt Lake City and the Super Bowl in New Orleans.
  --The ATF has been charged with preventing terrorists from obtaining 
        the firearms and explosives with which they can carry out acts 
        of terrorism.
  --FinCEN is a major player in the efforts to unravel the 
        international web of terrorist financing for groups such as al 
        Quaeda.
  --And FLETC is agency whose sole responsibility it is to train almost 
        all Federal law enforcement employees--not just those of the 
        Treasury Department.
    Together, these agencies provide a strong foundation for the 
protection of the Nation.
    Unfortunately, while claiming increases in funding over the current 
fiscal year for these agencies, the President's budget shortchanges the 
vital activities of nearly all Treasury law enforcement agencies.
    The President's budget claims to increase funds for these agencies 
because the budget chose not to include the Supplemental appropriations 
for homeland security added for most agencies' activities post-
September 11. The OMB director was quoted as recently as Monday stating 
that much of the homeland security funding was a one-time expense. That 
may be true for the National Institutes of Health or the Department of 
Agriculture, but that is not the case at Treasury. Much of those costs 
were associated with hiring additional agents and other law enforcement 
personnel to protect the homeland. They are not hired for one-year and 
then let go. They become important, and hopefully, long-term Federal 
employees. Thus a true, apples-to-apples comparison in funding between 
Fiscal year 2002 and the request for fiscal year 2003 reveals that:
  --FLETC faces a 4.6 percent cut in its salaries and expenses account 
        at a time when it is being tasked to train one of the largest 
        group of law enforcement hiring classes in the history of its 
        operation and
  --The Secret Service faces a 4.4 percent funding reduction at a time 
        when the number of people it protects has more than doubled and 
        when it is being stretched thin in protecting the integrity of 
        our currency.
    To be fair, FinCEN and ATF would receive modest increases under the 
President's budgets, but not without making difficult cuts to meet what 
appears to be an arbitrary bottom-line.
    We will explore these requests, and the additional needs of each of 
these agencies, during the hearing. This will be a difficult year to 
find additional and much needed funding for our law enforcement 
agencies. We are waging a war overseas and face a weak economy at home. 
This subcommittee fully supports each of the agencies testifying today 
and commends the hard work that the women and men perform for the 
Nation each and every day.
    We look forward to your testimony and will make your complete 
statements part of the record. Before we hear from our witnesses, 
however, I call upon the Ranking Member, Senator Campbell, for his 
remarks.

    Senator Dorgan. Let me call on our ranking member, Senator 
Campbell.

              STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell. Thank you, Mr. Chairman. With your 
permission, I will also put my written statement in the record. 
I know we will be short of time and I believe every one of the 
people that are on this panel have been in to speak to me, as 
they have you, about their needs this year, so we are pretty 
well aware of what you want us to do.
    I would like to associate my comments with yours, too. This 
is a new kind of war, and certainly the gentlemen that 
represent their agencies here today are on the front line of 
that new kind of war. As I saw the reaction, not only from 
September 11 by your agency and the ongoing things, such as the 
terrific job that you did at the world Olympic Games in Salt 
Lake City, I am well aware that even though we do not have a 
surplus anymore--that sort of disappeared after September 11--
that the priorities that you need are going to be important to 
all of us in the Nation.
    I cannot imagine anything worse than not funding this 
agency at the highest level we can, and then having something 
terrible happen, as we were told just recently by former Prime 
Minister Netanyahu when he gave us a briefing about the Middle 
East crisis, he said it is only a matter of time. ``It is only 
a matter of time before you are facing the same thing we are,'' 
i.e., Israel with terrorist attacks of suicide bombers and so 
on. I cannot imagine anything worse than us not taking action 
and funding these agencies as well as we can and then having 
that happen.

                           PREPARED STATEMENT

    So, I just want to tell the men that are here at this 
table, that I am certainly going to do everything I can within 
the limits of what we have to spend to make sure that you are 
well taken care of in our appropriations bill.
    Thank you, Mr. Chairman.
    Senator Dorgan. Senator Campbell, thank you.
    [The statement follows:]

         Prepared Statement of Senator Ben Nighthorse Campbell

    Thank you, Mr. Chairman. And, thank you for scheduling this hearing 
on Treasury Law Enforcement. We should have an interesting afternoon.
    The events of September 11 will forever remain in the psyche of all 
americans, but even more so for law enforcement officers whose jobs 
have taken on even more urgency.
    The responsibilities of Treasury agencies touch just about every 
aspect of Federal law enforcement--tracking terrorist financing, 
blocking access to assets, training, keeping firearms out of the hands 
of criminals, border security, and protection of our Nation's leaders.
    But, Mr. Chairman, you know as well as I do that there is more to 
our Treasury Law Enforcement agencies than that.
    We all tend to think of the individual protection responsibility 
when someone mentions the Secret Service but that is only a part of 
their duties. They also investigate things such as computer and other 
electronic crimes, identity theft which has become a huge problem in 
our country, and counterfeiting which requires a global presence to 
name a few.
    Most people instinctively think of guns when talking about the 
bureau of alcohol, tobacco and firearms but there is so much more to 
that agency. They protect the American public by making sure that 
alcohol products are safe for legal consumption, that explosives are 
properly stored. They also collect close to $15 billion in revenue from 
the alcohol, tobacco, firearms, and explosives industries.
    The Financial Crimes Enforcement Center or FinCEN has been working 
at top speed since Septemer 11 doing what they do best--tracking the 
money. While they are currently mainly focused on terrorist assets, 
they are still providing support to investigations into money 
laundering and other financial crimes.
    And, border security is only part of what the customs service does. 
We will talk more about them tomorrow afternoon.
    However, one of the most important agencies is one which works 
behind the scenes to provide comprehensive and consistent basic 
training to about 85 percent of all Federal law enforcement officers--
the Federal Law Enforcement Training Center. FLETC was the quiet 
workhorse of treasury law enforcement prior to September 11 and they 
have been called upon to do even more since that time.
    Mr. Chairman, I am looking forward to talking with the 
representatives of these agencies this morning to learn what they are 
doing during fiscal year 2002 and what resources they need in fiscal 
year 2003. Thank you.

    Senator Dorgan. Senator Reed?
    Senator Reed. Mr. Chairman, I just want to commend the law 
enforcement professionals that are here and your colleagues who 
protect us so well. I associate myself with the comments of the 
chairman and ranking member and yield back my time.
    Senator Dorgan. Senator Reed, thank you.
    The Secret Service this year took the lead in designing and 
implementing the protective plans for the major public events, 
the Winter Olympics and the Super Bowl, among other things. ATF 
has been charged with preventing terrorists from obtaining 
firearms and explosives with which they can carry out acts of 
terrorism. FinCEN is a major player in the efforts to unravel 
the international web of terrorist financing for groups such as 
al Qaeda. And FLETC, of course, is the agency whose sole 
responsibility it is to train almost all Federal law 
enforcement employees, not just those of the Treasury 
Department. So this is a very important hearing and the budget 
issues here are paramount these days in terms of their 
importance with what we are doing in Congress, dealing with 
terrorism.
    Let me call on Jimmy Gurule, who is the Under Secretary for 
Enforcement at the Treasury Department. Mr. Gurule, why don't 
you proceed.

           OPENING REMARKS FROM UNDER SECRETARY JIMMY GURULE

    Mr. Gurule. Thank you. Chairman Dorgan, Ranking Member 
Campbell, and Senator Reed, I am privileged to be here today to 
introduce the President's 2003 budget request for the 
Department of the Treasury's Office of Enforcement. Each of the 
bureau directors is certainly prepared to answer any questions 
that you have with respect to their programs and initiatives, 
but I would like to take the limited time that I have and just 
highlight a couple of key areas, beginning first with the 
budget overview.

                    FISCAL YEAR 2003 BUDGET REQUEST

    The President's fiscal year 2003 budget request seeks a 
program level of $5.497 billion and 31,847 FTEs for Treasury 
Enforcement. This level is significantly higher than the 
President's initial fiscal year 2002 request. It is due in 
large part to the response to the horrific events of September 
11. The request is 20 percent above the President's initial 
fiscal year 2002 budget request for Treasury Enforcement and it 
provides an increase of 2,403 FTEs for Treasury Enforcement.
    The resources that are requested in this budget are 
essential to ensure that Treasury Enforcement is able to 
continue the efforts that it has undertaken since September 11 
to combat terrorism and specifically terrorist financing. As I 
am sure you are well aware, since September 11, under Secretary 
Paul O'Neill's leadership, the Treasury Department's 
enforcement bureaus have launched a number of new initiatives 
to identify, disrupt, and dismantle the financial networks of 
the terrorist organizations that are responsible for the 
attacks on the World Trade Center and the Pentagon.
    I am pleased to report to the subcommittee today that 
Treasury has named 192 individuals and entities as financiers 
of terror and has blocked over $34 million in assets 
domestically. Our coalition partners have blocked an additional 
$70 million, for a total of approximately $104 million.
    The resources that are set forth in this budget will enable 
the Treasury Enforcement offices to continue in a very 
aggressive way to go after the funds, to block the funds, and 
bring the perpetrators of acts of terror and the would-be 
perpetrators (the conspirators) to justice. This effort has 
truly been a cooperative intra-agency and interagency effort. 
OFAC has been at the forefront of this effort with respect to 
investigating and providing the financial profiles for the 
organizations and entities that we have blocked.

                         OPERATION GREEN QUEST

    In October of last year, Treasury Enforcement established a 
new multi-agency task force, Operation Green Quest. It brings 
together, in a very coordinated way, the best of Treasury 
Enforcement, the extensive expertise that exists in the 
Treasury Department with respect to investigating complex 
financial crimes, including, of course, IRS-CI, Customs agents, 
FinCEN, OFAC, as well as our interagency partners in the FBI 
and the Department of Justice. The Secret Service has also been 
an important player in Green Quest, as has been ATF with 
respect to some investigations that they have conducted.
    Additionally, this strategy is an international strategy. 
It requires international cooperation. At the forefront of the 
international cooperative strategy has been the Financial 
Action Task Force. We have tasked FATF to move its multilateral 
organization that is focused on money laundering to kind of 
refocus and target on terrorist financing. As a result of an 
extraordinary plenary session that was held in Washington, 
D.C., in October, FATF announced for the first time eight 
international standards on terrorist financing. So this work is 
important. The resources that we are requesting are essential 
to continue this work and to upgrade our efforts.

                          2002 WINTER OLYMPICS

    As you stated, Senator Campbell, we have also been involved 
with respect to preventing terrorism, and one specific case, of 
course, is the Winter Olympics. I think that is a model example 
of how Federal law enforcement agencies, as well as State and 
local agencies, can work together in a cooperative way, and 
when we do, you see the results.
    This was a model for the world of what law enforcement can 
do to prevent, protect, and deter terrorist attacks, and to 
that end, clearly, my hat is off to Director Stafford. The work 
of the U.S. Secret Service was exemplary. Customs was an 
essential player in this, as was BATF (the Bureau of Alcohol, 
Tobacco and Firearms).

                            BORDER SECURITY

    And finally, and I will close on this point, border 
security. I know that we will have an opportunity to get into 
this in greater detail tomorrow, but that is one other top 
priority for the Treasury enforcement office. Of course, there 
are important terrorism implications with respect to enhancing 
security at our border. We have undertaken efforts to do that 
with respect to multiple, diverse components, including 
increasing inspectors at the border, increasing the 
distribution of technology at the border, working very closely 
with our law enforcement counterparts in Mexico and Canada, 
sharing of information, and now a new program, the Customs 
Trade Partnership Against Terrorism program that was announced 
at the Ambassador Bridge yesterday, which involves the trade 
community. So we are doing a lot to ensure that our borders are 
safe.

                           PREPARED STATEMENT

    Thank you for the opportunity to provide an overview of the 
President's fiscal year 2003 budget request and to highlight 
some of the efforts of the Office of Enforcement. I look 
forward to answering any questions that you may have.
    Senator Dorgan. Mr. Gurule, thank you very much.
    [The statement follows:]

                   Prepared Statement of Jimmy Gurule

    Chairman Dorgan, Ranking Member Campbell, and Members of the 
Subcommittee, I am privileged to be here today to introduce the 
President's fiscal year 2003 budget request for the Department of the 
Treasury's law enforcement bureaus and offices. It is indeed an honor 
to appear before you this week to represent the more than 31,000 
dedicated men and women who quietly and selflessly serve their country 
every day--often at great personal peril and sacrifice.
    Testifying with me this afternoon are Bradley A. Buckles, Director 
of the Bureau of Alcohol, Tobacco and Firearms (ATF), James F. Sloan, 
Director of the Financial Crimes Enforcement Network (FinCEN), Brian L. 
Stafford, Director of the United States Secret Service (USSS), and Paul 
Hackenberry, Acting Director of the Federal Law Enforcement Training 
Center (FLETC). Tomorrow, I will be joined by Robert C. Bonner, 
Commissioner of the United States Customs Service (Customs).
    I am pleased to note that this week's hearings are the first time 
this Subcommittee will hear from five, rather than four, Treasury 
Enforcement bureaus, since FinCEN recently was authorized as a bureau 
within Treasury Enforcement with enactment of the USA PATRIOT Act. I 
take this opportunity to thank the members of this Subcommittee for 
your support of this provision and the many new tools which the USA 
PATRIOT Act provided to the Treasury Department to fight terrorism and 
dismantle and disrupt terrorist financing.
    The President's fiscal year 2003 budget seeks a program level of 
$5.497 billion and 31,847 FTEs for Treasury Enforcement. This level is 
significantly higher than the President's initial fiscal year 2002 
request largely due to additional resource needs associated with the 
horrific events of September 11 and the overall support of this 
Subcommittee. The request is 20 percent ($879 million) above the 
President's initial fiscal year 2002 budget request for Treasury 
Enforcement, and it provides for an increase of 2,403 FTEs for Treasury 
Enforcement. The 2,403 FTE increase includes 1,779 FTE for Customs; 381 
FTE for the Secret Service; 124 FTE for ATF; 94 FTE for FLETC; and 25 
FTE for FinCEN. Furthermore, the fiscal year 2003 budget request 
indicates a staffing level of 48 FTE for the Office of Enforcement, 
with the provision of staffing up to 58 FTE within the Office's 
appropriated level--the same level for the third consecutive year.
    In response to the terrorist attacks of September 11, Congress 
provided essential fiscal year 2002 emergency appropriations of $674.1 
million to the Treasury Enforcement bureaus: approximately $428.6 
million to Customs; $141.5 million to the Secret Service; $31.4 million 
to ATF; $31.5 million to FLETC; and $1.7 million to FinCEN. Much of 
this emergency funding was for one-time, non-recurring costs. I am 
pleased to inform the Subcommittee that the recurring costs from the 
Terrorism Supplemental have been annualized and incorporated in the 
President's budget request.
    When the President submitted his budget request on February 4, 
2002, he indicated it ``recognized the new realities confronting our 
Nation, and funds the war against terrorism and the defense of our 
homeland.'' To implement this objective, the President's fiscal year 
2003 request contains $159 million in new funding for Homeland Security 
program initiatives for Customs ($158 million) and FinCEN ($1 million). 
The fiscal year 2003 budget request includes $29.2 million for other 
program initiatives--$21.7 million for ATF and an additional $7.5 
million for the Customs Automation Modernization programs. The budget 
request also includes $8 million in additional resources for Secret 
Service protection services to begin preparation for the 2004 
Presidential campaign.
    The fiscal year 2003 Budget includes inflation type increases and 
Homeland Security annualizations of $259.2 million. Although the 
immediate Office of Enforcement ($8.5 million) fiscal year 2003 budget 
request is $231,000 more than the fiscal year 2002 Financial Plan, it 
is $139,000 less than the ($8.6 million) fiscal year 2002 Enacted. As I 
mentioned, the staffing level remains the same.
    Over the next 2 days, the Subcommittee will hear from the Treasury 
Enforcement Bureau Directors regarding their respective bureaus' new 
initiatives and programs. Therefore, I would like to take this 
opportunity to provide the Subcommittee with an overview of the newest 
challenges facing the men and women in Treasury law enforcement and the 
exemplary manner in which they have responded. That they have been able 
to do so effectively is due, in large part, to the support that this 
Subcommittee and the Congress have provided us both before and in the 
aftermath of September 11.
    We have all been deeply affected by the horrific acts of that day. 
We at Treasury lost a respected member of our law enforcement family, 
Secret Service Master Special Officer Craig Miller, who perished in the 
World Trade Center. And of course, the New York offices of Customs, 
Secret Service, and ATF were destroyed.
    Combating terrorism has become the Nation's primary agenda. As you 
are aware, on September 24, 2001, President Bush stated, ``We will 
direct every resource at our command to win the war against terrorists, 
every means of diplomacy, every tool of intelligence, every instrument 
of law enforcement, every financial influence. We will starve the 
terrorists of funding.'' Under Secretary Paul O'Neill's leadership, we 
in Treasury Enforcement have devoted extensive resources and expertise 
to fulfill this mandate.
    We have worked, and continue to work, in close coordination with 
the Justice Department, the Federal Bureau of Investigation (FBI), 
State Department, the intelligence community and the Defense 
Department. Specific examples of our close cooperation include joint 
activities in the September 11 investigations and on the Financial 
Review Group (FRG). In these investigations, Treasury has added its 
investigative expertise and access to unique databases to support the 
U.S. Government's efforts.
    Our war against terrorist financing extends to financial 
intermediaries and facilitators who infuse terrorist organizations with 
money, materiel, and support. We have come to clearly appreciate and 
understand that terrorism has been nourished by ample funding channeled 
from a plethora of sources, including banks, charities, hawalas,\1\ 
narcotics traffickers, and money launderers.
---------------------------------------------------------------------------
    \1\ Hawala is a type of alternative remittance system that is 
common in many parts of the world, including the Middle East and Far 
East.
---------------------------------------------------------------------------
             disrupting and dismantling terrorist financing
    Since September 11, Treasury Enforcement, including its component 
bureaus, has launched a number of new initiatives to identify, disrupt, 
and dismantle terrorist financial networks both domestically and 
abroad. I am pleased to report to the Subcommittee this morning that 
Treasury has named 192 individuals and entities as financiers of 
terrorism, and has blocked over $34 million in assets. Our Coalition 
partners have blocked another $70 million. A portion of that amount has 
since been unblocked for the new Afghan Interim Authority to assist in 
its critical period of rebuilding. This is truly a global effort--196 
Nations have expressed support to disrupt terrorist financing and 149 
Nations can block terrorist assets.
    We are grateful that you and your colleagues made significant 
improvements in the laws that allow us to tackle the issue of terrorist 
financing in a more unified, aggressive manner. Of particular 
importance to our counter-terrorism efforts is the USA PATRIOT Act that 
clarifies the law enforcement and intelligence communities' authority 
to share financial information regarding terrorist investigations. 
These provisions are already being utilized and are bearing fruit in 
disrupting financing networks.
Office of Foreign Assets Control
    The Office of Foreign Assets Control (OFAC), an office within 
Treasury Enforcement, plays a key role on the inter-agency working 
group, chaired by Treasury, that has been targeting and listing 
individuals and entities pursuant to Executive Order 13224 which 
President Bush signed on September 23, 2001. In this process, we have 
identified, among other entities, front companies, charities, banks, 
and a hawala conglomerate that served as the financial support networks 
for al-Qaeda and other global terrorist groups. We have shut down the 
operations of these entities in the United States and abroad. Foreign 
countries have been remarkably cooperative in this process.
    OFAC has widely disseminated the names of new designated terrorists 
to the business and financial communities through websites, Fedwire 
Alerts, CHIPS system notices, communications to Federal and State 
regulators, and electronic broadcasts to 175 key industry groups. 
Information on terrorist designations is also distributed to the public 
by way of Customs, the Government Printing Office, and other agency 
networks.
    As you will recall, the Foreign Terrorist Asset Tracking Center 
(FTAT) was in the process of being organized and staffed when the 
terrorist attacks of September 11 occurred. In fact, the Financial 
Crimes Enforcement Network (FinCEN) had already been staffed for the 
purpose of providing analytical support to the interagency FTAT and was 
supplying the product of that staffing to the Office of Foreign Assets 
Control (OFAC). Immediately following the attacks, the Treasury 
Department helped to accelerate the development of the interagency FTAT 
by establishing a temporary operational presence within the secure 
environment of FinCEN. The unit quickly began to serve as an analytical 
center for combating the problem of terrorist financing.
    Section 906 of the USA PATRIOT Act requires that the Director of 
the CIA, the Attorney General and the Secretary of the Treasury jointly 
file a report on the ``feasibility and desirability'' of reconfiguring 
FTAT. This matter was reviewed by senior Government officials, 
including the Principals Committee of the National Security Council. 
Based on that review, a decision was made to move and reconfigure FTAT 
to ensure it was fully integrated into the ongoing terrorist financing 
activities of other agencies. Treasury will continue its support of 
FTAT and its broader efforts to disrupt and dismantle terrorist 
financing.
Blocking Assets
    One of the higher profile results of OFAC analysis was the 
identification of Al-Barakaat as a major financial operation that 
supported terrorist organizations. The Al-Barakaat case is a good 
example of model coordination between the Treasury Department, the FBI, 
and other enforcement agencies both domestically and abroad.
    Al-Barakaat is a Somali-based hawaladar \2\ operation, with 
locations in the United States and in 40 countries, that was used to 
finance and support terrorists around the world.\3\ The investigative 
work of the FBI, Customs, and IRS-Criminal Investigation, along with 
analysis by OFAC, FinCEN, and the intelligence community, identified 
Al-Barakaat as a major financial operation that was providing material, 
financial, and logistical support to Usama bin Laden and other 
terrorist groups.
---------------------------------------------------------------------------
    \2\ A hawaladar is an entity that engages in hawala transactions.
    \3\ Some individuals may have used Al-Barakaat as a legitimate 
means to transfer value between individuals in different countries 
without passing through the formal international banking system.
---------------------------------------------------------------------------
    Treasury, along with the Department of Justice, coordinated efforts 
to block assets and to take law enforcement actions against Al-
Barakaat. On November 7, 2001, Federal agents executed search warrants 
in three cities across the country--Boston, Columbus, and Alexandria--
and shut down eight Al-Barakaat offices across the U.S., including 
locations in the following cities: Boston, Massachusetts; Columbus, 
Ohio; Alexandria, Virginia; Seattle, Washington; and Minneapolis, 
Minnesota.
    As part of that action, OFAC was able to freeze approximately 
$1,100,000 domestically in Al-Barakaat-related funds. Treasury also 
worked closely with the United Arab Emirates (UAE) to enable the UAE to 
block Al-Barakaat's assets at its financial center of operations in 
Dubai. Disruptions to Al-Barakaat's cash flows, resulting from OFAC's 
designation actions and international cooperation, are estimated to be 
in excess of $65 million from the United States alone. In addition, the 
combined work of OFAC, Operation Green Quest, and law enforcement had 
led to additional leads in the Al-Barakaat investigation.
    This is an example of what our combined efforts can accomplish when 
we join our resources and our expertise to fight the common scourge of 
terrorist financing.
Joint Designations
    On March 11, on the 6 month anniversary of the September 11 
attacks, the Treasury Department, joined by the Saudi government, took 
a new step in the war on terrorist financing by making its first joint 
designation of a financial supporter of terrorism. Prior to that date, 
Treasury received significant cooperation from other countries in 
blocking accounts of those named by the United States, and our European 
allies have made designations of their own. The joint blocking action 
on March 11 is especially significant for it is a sign of the growing 
strength of the anti-terror coalition and marks a new level of 
international coordination and cooperation.
    Treasury and the Saudi government blocked the accounts of the 
Somalia and Bosnia-Herzegovina branches of the Saudi Arabia-based Al-
Haramain Islamic Foundation. While the Saudi headquarters for this 
private charitable entity is dedicated to promoting Islamic teachings, 
Treasury and our Saudi Arabian allies determined that those specific 
branches of Al-Haramain have been engaged in supporting terrorist 
activities and terrorist organizations such as al-Qaeda, AIAI (al-
Itihaad al-Islamiya), and others.
    Last month, Treasury Secretary O'Neill visited the Persian Gulf 
region, where he had the opportunity to meet with King Fahd and Crown 
Prince Abdullah, others in the Saudi government, and the leadership in 
Bahrain, Kuwait and the UAE. Throughout the region, the Secretary 
encountered a clear understanding that the September 11 attacks were 
not only an attack on the United States, but were an attack on the 
civilized world. These Governments' leaders assured Secretary O'Neill 
that they, like others in the world, are doing what they can to cut off 
terrorists' access to funds, wherever those funds are found.
    This action also highlights the special need to safeguard 
charities, so that well-intentioned donors can be assured that their 
donations will be used only for their intended good purposes, and not 
for acts of terrorism. During his trip to the Gulf, Secretary O'Neill 
underscored that misusing charity funds to support terrorism harms the 
people who gave the donation, harms the people who should have received 
it and is dangerous to us all. The Treasury Department is committed to 
finding those organizations that use charities to fund terrorists or 
terrorist acts, exposing them, and shutting them down.
Operation Green Quest
    On October 25, 2001, Treasury created Operation Green Quest 
(``Green Quest''), a new multi-agency financial enforcement initiative 
designed ``to augment existing counter-terrorist efforts by bringing 
the full scope of the Government's financial expertise to bear against 
systems, individuals, and organizations that serve as sources of 
terrorist funding.'' This task force is led by the Customs Service and 
includes the Internal Revenue Service, the Secret Service, ATF, OFAC, 
FinCEN, the Postal Inspection Service, the FBI, the Department of 
Justice, and the Naval Criminal Investigative Service. Operation Green 
Quest also receives support from Interpol's National Central Bureau, 
based in Washington, D.C. Green Quest brings together the extensive 
financial expertise of the Treasury Enforcement bureaus along with the 
exceptional experience of our partner agencies and departments to focus 
on terrorist financing.
    Green Quest has complemented the work of OFAC in identifying 
terrorist networks at home and abroad, and it has served as an 
investigative arm to aid in blocking actions. Green Quest's work has 
led to 12 arrests, 4 indictments, the seizure of nearly $4 million, and 
bulk cash seizures--cash smuggling--of over $11 million. Green Quest 
agents, along with those from the FBI and other Government agencies, 
have traveled abroad to follow leads, exploit documents recovered, and 
to provide assistance to foreign governments. In this effort, Green 
Quest has made full use of its overseas Customs Attaches to investigate 
suspect networks and to gather information for its own use and the use 
of OFAC. The work of these financial experts is just starting as they 
have opened well over 200 terrorist financing investigations and are 
following leads on a daily basis. Green Quest's work, in combination 
with the work of OFAC, serves as a seminal part of our enforcement 
efforts.
International Cooperation
    Our efforts will not have the greatest success if prosecuted 
unilaterally, and may ultimately fail if we cannot obtain the 
cooperation of other ations. To date, all but a handful of countries 
have expressed their support for the international fight against 
terrorist financing. Currently, 149 countries and jurisdictions around 
the world can block terrorist assets. The Office of Enforcement, in 
concert with other Federal agencies, is providing technical assistance 
to a number of countries to strengthen their capacity to freeze 
terrorist funds. Daily, we are in contact with foreign financial 
officials and are engaged in bilateral and multilateral discussions 
regarding international cooperation and action against terrorist 
activities and financing.
    The Office of Enforcement has also helped coordinate the deployment 
of financial ``jump teams'' consisting of experienced accountants, bank 
examiners, and other financial experts from OFAC, the Customs Service, 
IRS, FinCEN, the FBI, and other agencies. These experts review business 
records and possible links to money associated with bin Laden's al-
Qaeda network.
    Treasury has engaged in numerous international fora, including the 
G-7, G-8, G-20, the Financial Action Task Force (FATF), the Egmont 
Group--the global network of Financial Intelligence Units (FIUs) of 
which FinCEN is a key member--and the international financial 
institutions to combat terrorist financing in a global, systematic way.
    The Treasury Department, in conjunction with the Departments of 
Justice and State, hosted an Extraordinary Plenary session of the 
Financial Action Task Force in Washington, D.C., at the end of October 
2001 to address terrorist financing. This meeting was immediately 
followed by a meeting of the Egmont Group to discuss information 
sharing and terrorism. At the plenary session, FATF established eight 
Special Recommendations regarding terrorist financing which represent 
an important step to establishing a global regime to cut terrorists off 
from the international financial system.
    These new Recommendations were endorsed by countries throughout the 
world at a special FATF Forum on Terrorist Financing held in February 
and attended by over 55 jurisdictions. Moving forward, FATF, with the 
strong support of the U.S., is now leading a global effort to bring all 
countries in compliance with these new standards. The U.S. has recently 
completed a self-assessment questionnaire against these standards, 
which is posted on the Treasury web site. In June, FATF will begin to 
consider a process with respect to countries that are not cooperating 
in the international effort against terrorist financing.
    While countering terrorist financing is a Treasury Enforcement 
priority, we are also committed to preventing terrorist acts on U.S. 
soil and against U.S. interests abroad, and to reducing violent crime 
here at home.
            preventing terrorism and reducing violent crime
    Not only is the mission of Treasury law enforcement uniquely suited 
to combating terrorist financing, but we play a leading role in 
homeland security efforts--from protecting the Nation's borders to 
protecting its leaders, to ensuring the integrity of our financial 
institutions and critical infrastructures. The President's budget 
request will ensure that Treasury bureaus can continue to effectively 
fulfill missions that are integral to protecting the homeland.
U.S. Secret Service
    The U.S. Secret Service protects the Nation's top leaders, combats 
financial fraud, protects the integrity of the financial systems 
against cyberattacks, and leads the effort to ensure the safety of 
thousands of citizens participating in designated National Special 
Security Events (NSSEs). We have seen the stellar work of the Secret 
Service in providing security for two recent NSSEs--the Super Bowl and 
the Winter Olympic Games in Salt Lake City. The complexity of these 
security events highlighted the special expertise and professionalism 
of the Secret Service. The dedicated men and women of the Secret 
Service are to be commended for their outstanding work at protecting 
thousands of spectators, employees, and athletes at these events. The 
President's budget request will allow the Secret Service to strengthen 
its efforts in an increasingly complex and threatening environment.
U.S. Customs Service
    The U.S. Customs Service also played a key role in security for the 
Salt Lake City Olympic Games. The Customs Service role included 
providing air surveillance in restricted air space, ground support to 
the United States Secret Service, increased presence at the Northern 
Border, and screening general aviation aircraft and their passengers 
and pilots. A total of 500 Customs officers were committed to day-to-
day oversight of the Games.
    The Customs Service is the vanguard agency in protecting the 
country against weapons of mass destruction as it monitors travelers 
and cargo crossing the northern and southern borders and through the 
Nation's seaports and airports. Last November, Secretary O'Neill, 
Commissioner Bonner, and I met with our Canadian counterparts in 
Ottawa, Canada, to discuss cooperative efforts between the U.S. and 
Canada along our shared border. We have since been engaged in a number 
of new collaborative initiatives to strengthen security along our 
shared border, while working on ways to expedite the flow of trade. 
Commissioner Bonner and I also are working with the Office of Homeland 
Security to help implement the 30-point Action Plan announced in 
December by Governor Ridge and Deputy Prime Minister John Manley. The 
``Action Plan for Creating a Secure and Smart Border'' has four 
pillars: (1) The secure flow of people; (2) The secure flow of goods; 
(3) Secure infrastructure; and (4) Coordination and information 
sharing. I can assure this Subcommittee today that the coordination and 
cooperation among Federal border agencies and their Canadian 
counterparts has never been stronger.
    A similar Smart Border Accord is now in place for the U.S.-Mexico 
border. On March 22, 2002, President Bush and President Fox announced 
in Monterrey, Mexico, a 22-point agreement to build a smart border for 
the 21st century between our two countries. In their joint 
announcement, President Bush stated, ``President Fox and I are 
determined to make our shared border modern, efficient, and secure. The 
Smart Border Declaration our countries have just signed will move us 
toward this important goal. Our common border must be closed to drugs 
and terrorists, and open to trade and legitimate travel.'' The U.S. 
Customs Service and the Treasury Department will play a key role in 
implementing this important Smart Border Accord.
Bureau of Alcohol, Tobacco and Firearms
    The President's budget request will ensure that the Bureau of 
Alcohol Tobacco and Firearms will be able to expand its training 
capacity at the Canine Training Facility in Front Royal, VA, increase 
ATF Canine Handler teams, and expand ATF's participation in critical 
Joint Terrorism Task Force activities. ATF has developed the most 
respected program in the world for detection of explosives and 
accelerants. This expertise is vital in our war on terrorism, in which 
explosives is the terrorists' weapon of choice.
    ATF also played a significant role in the security of the Winter 
Olympics. For several years, ATF worked with its law enforcement and 
public safety partners on a comprehensive and integrated Olympic 
security plan. ATF committed over 330 special agents and support 
personnel to support security for the Olympic Games. ATF Special Agent 
Certified Explosive Specialists, Explosive Enforcement Officers, 
Explosive Detection Canines/Handlers, and National Response Team 
members were assigned to the Olympic Bomb Management Center. These 
experts were available to respond to any critical incident, explosive 
or suspected device at any of the venues. At these Olympic Games, 
unlike at the Atlanta Olympics, ATF had a new mobile crime laboratory 
with state of the art detection and analysis equipment on-site. The 
crime lab could identify explosives and other evidence within minutes, 
which would provide immediate leads to investigators on the ground.
Federal Law Enforcement Training Center
    The Federal Law Enforcement Training Center, known as FLETC, 
conducts the training for the vast majority of the Federal Government's 
law enforcement personnel. FLETC is projecting the greatest increase in 
training requirements in its history as it responds in full measure to 
the September 11 attacks.
    In the days following September 11, representatives of the U.S. 
Department of Transportation's Federal Air Marshal Division reached out 
to FLETC regarding increased training needs for the Federal Air Marshal 
Program (FAMs). These requests have resulted in an increase of over 
20,000 student weeks of training. In October, the FLETC and the FAA 
developed a 5-week integrated basic training program and a 3-week 
agency specific basic follow-on training program.
    In January, Transportation Security Administration (TSA) 
representatives met with FLETC staff to identify resources needed to 
develop a training curriculum for the TSA Security Screeners. FLETC 
subject matter experts then met with TSA and FAA representatives to 
develop that training curriculum. The result was a pilot TSA Basic 
Screeners training program conducted at FLETC in February. The TSA 
Management Team continues to meet with FLETC personnel to determine the 
extent to which the FLETC will be asked to further assist the TSA in 
training Federal Law Enforcement Officers/Agents within a very short 
time frame. The quality of training developed and delivered by FLETC 
will set the standard for our level of protection in the air for years 
to come.
FinCEN
    The increased funding in the President's request for the Financial 
Crimes Enforcement Network will strengthen FinCEN's law enforcement 
investigative support efforts to enforce the Bank Secrecy Act, combat 
money laundering and other financial crimes, and implement its new 
responsibilities under the USA PATRIOT Act of 2001.
    Immediately after the tragedy of September 11, FinCEN redirected 
approximately 30 percent of its resources to the initial investigation 
of the terrorist attacks. Those efforts included: establishing a 24-
hour operation center to enhance liaison with the FBI Counter-terrorism 
Center; establishing a telephone hotline for financial institutions to 
report suspicious activity; facilitating a multi-agency effort using 
their specialized tools and secure facility; and developing valuable 
investigation referrals and financial lead information by redirecting 
100 percent of its intelligence liaison office to that effort.
    On November 7, 2001, President Bush, Treasury Secretary O'Neill, 
Secretary of State Powell and Attorney General Ashcroft visited the 
FinCEN offices where the President thanked all of the FinCEN employees 
for their work on the front lines in the war against terrorist 
financing. At that time, the President stated: ``We put the world's 
financial institutions on notice: if you do business with terrorists, 
if you support them or sponsor them, you will not do business with the 
United States of America.'' FinCEN plays a critical role in this effort 
and will continue to provide this invaluable service to our Nation.
IRS Criminal Investigation
    While the Office of the Under Secretary for Enforcement does not 
have direct oversight authority over IRS-Criminal Investigation, we do 
provide policy guidance for IRS-CI criminal investigators. These 
investigators offer a unique blend of accounting and enforcement 
expertise that is invaluable in perfecting complex financial 
investigations, including cases involving leaders and members of 
extremist groups who have committed tax, money laundering, or currency 
violations and individuals engaged in fundraising activities to support 
terrorism, especially if tax exempt organizations are being used. In 
the aftermath of September 11, IRS criminal investigators have played 
critical roles in the Strategic Information Operations Center; the 
Joint Terrorism Task Force; Operation Green Quest; the Office of 
Foreign Assets Control; the Anti-Terrorism Task Forces throughout the 
country; the High Intensity Money Laundering and Related Financial 
Crime Area Task Forces, and the Air Marshal Program.
                       combating money laundering
    The Office of Enforcement is currently developing the 2002 National 
Money Laundering Strategy, as well as overseeing the implementation of 
the 2001 Strategy. The main focus of the Strategy is on enforcement and 
investigation of money laundering enterprises and sophisticated 
networks. This work has been significantly impacted by the passage of 
the USA PATRIOT Act. We have been working with the Treasury General 
Counsel to draft timely implementing regulations for the various 
provisions of the USA PATRIOT Act, such as the provision that 
terminated the relationship between U.S. financial institutions and 
shell banks.
    The Office of Enforcement is overseeing the progress and 
development of the six High Intensity Money Laundering and Related 
Financial Crime Area (HIFCA) Task Forces. The six HIFCAs are now 
focused on operational activities, in addition to gathering 
intelligence which is useful in money laundering investigations. I am 
confident the HIFCAs will play a significant role in our anti-money 
laundering efforts.
    At this point, I take the opportunity to highlight for the 
Subcommittee the recent success of Operation Wire Cutter, a 2\1/2\-year 
joint DEA/Customs undercover operation targeting the largest Colombian 
Black Market Peso Exchange (BMPE) money brokers. These brokers are 
professional money launderers who sell their services to the Colombian 
drug cartels.
    On January 15, 2002, U.S. and Colombian officials arrested 37 
people in the U.S. and Colombia and seized over $8 million in cash, 
over 800 pounds of cocaine, and a total of over 1,000 pounds of 
narcotics. One suspect tried to evade arrest in New York City by 
throwing a suitcase with $400,000 in cash out of his apartment window. 
The El Dorado Task Force, operating out of the office of the U.S. 
Customs Service Special-Agent-in-Charge in New York, played an 
important role in this law enforcement operation.
    The Multinational Black Market Peso Exchange (BMPE) Experts Working 
Group (Colombia, Aruba, Panama, Venezuela, and the United States), led 
by the Office of Enforcement, has produced a report that recommends 
BMPE initiatives to participating Governments to improve international 
cooperation in efforts to combat and dismantle the BMPE. Last month a 
joint statement was issued embodying the conclusions and 
recommendations of this Working Group. We are also working closely with 
senior executives of major trade associations and corporations 
operating in the United States whose products are vulnerable to being 
involved in BMPE transactions.
    Treasury Enforcement also works closely with the Department of 
Justice's Bureau of Justice Assistance to oversee the Financial Crime-
Free Communities Support Program (C-FIC) which awards anti-money 
laundering grants to State and local law enforcement agencies and 
prosecutors' offices through a competitive grant award program. 
Treasury has awarded approximately $4.2 million in grants to 17 
recipients in the first 2 years of this program.
                       reducing firearms violence
    One of the top priorities of the Bush Administration is to make a 
lasting reduction in the gun crime rate in America. Last May the 
President announced Project Safe Neighborhoods, a comprehensive 
approach that targets violent offenders and crime guns.
    Project Safe Neighborhoods has been implemented by U.S. Attorneys 
across the country, working in partnership with communities and State 
and local law enforcement. The strategy has five components: (1) 
Partnership/Coordination; (2) Strategic Planning; (3) Training; (4) 
Community Outreach and Public Awareness; and (5) Accountability. 
Stronger relationships among Federal prosecutors and agents with their 
State and local counterparts has strengthened their ability to 
identify, investigate and prosecute gun violence.
    The Treasury Department, through its Bureau of Alcohol, Tobacco and 
Firearms, plays an integral role in implementing Project Safe 
Neighborhoods through its Integrated Violence Reduction Strategy 
(IVRS). The strategy provided additional resources to ATF to add new 
agents, inspectors and support staff to enhance its enforcement and 
investigation of firearms violations and efforts to reduce violent 
crime. Under IVRS/Project Safe Neighborhoods, ATF has a broader impact 
in target cities by educating police departments about the 
effectiveness of crime gun tracing and firearms trafficking. ATF 
supports Project Safe Neighborhoods through the excellent work of its 
National Tracing Center, which performs traces of crime guns, and its 
Youth Crime Gun Interdiction Initiative.
                          countering narcotics
    One of Treasury Enforcement's highest priorities is reducing the 
supply of dangerous drugs entering the United States. It is also one of 
our most difficult challenges. 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.
    The Office of Enforcement and its bureaus are decisively engaged as 
part of the Federal Government's effort in support of Plan Colombia, 
which is a comprehensive and balanced response to that nation's 
multiple challenges. In addition to targeting the critical drug 
trafficking problem, the integrated strategy addresses human rights, 
democratization, judicial reform, social development, the economy, and 
the peace process. Colombia's lawlessness, corruption, and long 
internal conflict are exacerbated by the immense profits generated by 
the drug trade. Ninety percent of the cocaine supplied to the United 
States originates in or passes through Colombia, as does two-thirds of 
the heroin seized in this country. As a result, Colombia is the central 
focus of the United States' Western Hemisphere efforts to reduce the 
supply of illicit drugs.
    Treasury's support of Plan Colombia is an integral part of the U.S. 
Government's programs aimed at strengthening the justice sector and 
financial infrastructure throughout Colombia. The Emergency 
Supplemental provided funding to the State Department under the 
provisions of the Foreign Assistance Act, by which State transfers 
authority to Treasury and its components for programs via specifically 
negotiated letters of agreement (``632 agreements''). However, 
sustainment of most Treasury Plan Colombia programs beyond amounts 
appropriated by the Terrorism Supplemental will rely on assistance 
provided by the State Department in 2002 and 2003.
    We appreciate the Subcommittee's support for Treasury's role in 
Plan Colombia. The Plan Colombia package passed by Congress included 
programs with $71.5 million in specific line item allocations for 
Treasury. These are:
  --$68 million for Customs detection and monitoring aircraft radar 
        upgrades;
  --$2 million for the Office of Foreign Assets Control;
  --$1 million for banking supervision assistance (Office of the 
        Assistant Secretary for International Affairs/Office of 
        Technical Assistance);
  --$500,000 for tax revenue enhancement (OASIA/OTA).
    In addition to these specific allocations for Treasury components, 
we have received $14.67 million for law enforcement programs from 
Justice accounts in the legislation, for a total of $86.17 million. We 
anticipate all Treasury programs should be completed by June 2003, 
approximately 24 months from the transfer of Plan Colombia spending 
authority from State to Treasury and its components in June of 2001.
                    enforcing tariff and trade laws
    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 from 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 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 ensure 
that the movement of trade across our borders is as expeditious 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.
    Treasury Enforcement's Office of Regulatory, Tariff, and Trade 
Enforcement performs a variety of important functions, including review 
of all regulations relating to enforcement of trade laws, participation 
in negotiations of international trade agreements, and management of 
the private sector Advisory Committee on the Commercial Operations of 
the Customs Service (COAC).
    The COAC is a legislatively constituted advisory committee of 20 
private sector members, which meets with Enforcement and Customs 
officials quarterly. Until September 11, their advice focused on trade 
facilitation. After September 11, I requested COAC's input on border 
security and the role the private sector can play in increasing cargo 
security. Utilization of the group's expertise provides a unique 
opportunity to examine synergies between enhanced cargo security and 
the private sector concern that the smooth flow of trade not be impeded 
unnecessarily due to increased security concerns.
    The COAC produced an excellent report in January with 60 
recommendations. Many of these have already been implemented, and 
others are under close examination by Customs and Treasury officials. 
Three COAC members also have entered into agreements with Customs under 
the new Customs-Trade Partnership Against Terrorism program.
                     president's management agenda
    The Treasury Department's fiscal year 2003 budget recognizes the 
importance of achieving the President's Management Agenda. The Office 
of Enforcement is working with the law enforcement bureaus to support 
Secretary O'Neill's goal of Treasury becoming a results-driven world 
class organization, consistent with the President's five Presidential 
Management Initiatives:
  --Strategic Management of Human Capital;
  --Expanded Electronic Government;
  --Improved Financial Performance;
  --Budget and Performance Integration; and
  --Competitive Sourcing.
    Only through a balance of implementing all five Presidential 
Management Initiatives will the Treasury Department and its enforcement 
offices and bureaus be able to achieve world class status and become an 
organization that is performance-driven with specific, measurable 
results linked to investment of resources. In working towards this 
goal, the Department emphasizes the importance of leadership, 
accountability, integrity, improving the work environment, and giving 
employees the tools they need to do their jobs with excellence.
                        enforcement organization
    The Office of the Under Secretary for Enforcement has oversight 
responsibility for more than a third of all Federal criminal 
investigators, including roughly 32,000 personnel and a $5 billion 
operating budget. Moreover, Treasury Enforcement collects about $35 
billion in revenues. When I assumed the duties of the Under Secretary, 
one of my first imperatives was to ensure that the Office had an 
efficient organization to be informed adequately about the day-to-day 
functions and operations of the bureaus and offices it supervises. This 
became even more critical in the post September 11 environment. In 
coordination with the Treasury Department's leadership, we have 
implemented a reorganization of the Office of Enforcement, within 
existing FTE ceilings, that I am convinced will enable the Office to 
achieve its mission more effectively and efficiently.
    The reorganization strengthens Enforcement's ability to address 
critical budgetary, resource, and training needs for the immediate 
Office of the Under Secretary as well as the Enforcement Bureaus. 
Additionally, the new organization also provides needed emphasis in the 
major areas of Terrorism and Violent Crime and Money Laundering and 
Financial Crimes.
                strategic goals and performance measures
    Each year, the world becomes a more complex place. The events of 
September 11 only emphasize this point. As a result, Treasury's law 
enforcement mission grows in complexity, scope, and impact. The 
Enforcement Bureaus must continue to meet these challenges as they 
perform their critical roles in advancing America's law enforcement 
priorities. To provide a long range focus, the Office of Enforcement 
identified six strategic goals for fiscal year 2000-fiscal year 2005:
  --Combat money laundering and other financial crimes;
  --Protect our Nation's borders and major international transportation 
        terminals from traffickers and smugglers of illicit drugs and 
        weapons of mass destruction;
  --Reduce violent crime and the threat of terrorism;
  --Protect our Nation's leaders and visiting dignitaries;
  --Provide high quality training for law enforcement personnel; and
  --Collect revenue due to the Federal Government.
    In the aftermath of September 11, we plan to add an additional 
strategic goal and supporting objectives in the next revision of the 
Treasury Strategic Plan. This new goal will focus on ``Targeting, 
disrupting and dismantling terrorist financing and terrorist financing 
organizations.''
    In addition, Treasury's law enforcement bureaus support two other 
Treasury strategic goals through the following strategic objectives:
  --Protect the public and prevent consumer deception in specific 
        regulated commodities; and
  --Facilitate legitimate trade, enhance access to foreign markets, and 
        enforce trade agreements.
    To ensure excellence in achieving these goals, and in keeping with 
the spirit of the Government Performance and Results Act, Treasury 
continues to engage in a strategic management process to enhance and 
improve the results we deliver to the American people. To that end, the 
Office of Enforcement is committed to setting long-term strategic and 
annual performance goals, managing our resources and investments to 
achieve those goals, instituting measures, and reporting annually on 
the results of our performance.
    Overall, Treasury law enforcement bureaus' achievement against 
established performance targets continues to improve. For example, in 
fiscal year 1999, the law enforcement bureaus achieved 64 percent of 
the established performance targets. In fiscal year 2000, 77 percent of 
the established targets were achieved, and in fiscal year 2001, 79 
percent of all performance targets were achieved. While not every goal 
was met, the results were significant.
    For fiscal year 2003, the Office of Enforcement and the Treasury 
law enforcement bureaus will continue to work hard to accomplish our 
defined strategic goals and objectives. We will also strive to achieve 
an even higher percentage of our established performance targets. Doing 
so will help to ensure excellence in protecting our borders and our 
Nation's leaders, disrupting and dismantling terrorist financing, 
fighting terrorism and violent crime, combating money laundering and 
financial crimes, and training our law enforcement personnel for the 
challenges they will face in the future.
    Thank you for the opportunity to provide an overview of the 
President's fiscal year 2003 budget request and to highlight the 
efforts of the Office of Enforcement in support of the mission of 
Treasury's enforcement bureaus. I look forward to answering any 
questions you may have.

                          U.S. Secret Service

STATEMENT OF BRIAN STAFFORD, DIRECTOR
    Senator Dorgan. Next, let us hear from Mr. Stafford, the 
Director of the United States Secret Service. Mr. Stafford?
    Mr. Stafford. Chairman Dorgan, Senator Campbell, Senator 
Reed, it is a pleasure for me to be here today and represent 
the dedicated men and women of the Secret Service. With me 
today are the recently appointed Deputy Director Danny Spriggs 
and Assistant Directors Steve Colo and Paul Irving. With your 
permission, I will highlight my statement and submit the 
remainder.

                     SECRET SERVICE MISSION FUNDING

    The fiscal year 2003 funding request recognizes the Secret 
Service's commitment to enhance and strengthen the security of 
our Nation. Specifically, this budget will enable the Secret 
Service to satisfy our mandate of safeguarding the Nation's 
leaders and visiting heads of state. This budget also provides 
the resources for our historic investigative mission of 
protecting the Nation's currency and financial infrastructure.
    Since September 11, the Secret Service has experienced 
unprecedented growth in our protective and our investigative 
missions. We have assumed additional duties with new protective 
assignments and we continue to adjust the depth of coverage to 
enhance the Presidential, Vice Presidential, and former 
Presidential details. These enhancements, coupled with the 
designations of Super Bowl XXXVI and the Winter Olympics as 
National Special Security Events, have had a substantial impact 
on our staffing.

                    NATIONAL SPECIAL SECURITY EVENTS

    After a thorough review of security operations at the 
Olympics, I am pleased to report that the planning effort 
involving unprecedented interagency cooperation among over 60 
Federal, State, and local law enforcement and public safety 
agencies and the military, was a complete security success; in 
no small part because of the support of this subcommittee. The 
Winter Olympics included 15 venues, 900 square miles, 3,500 
athletes, and more than 2 million visitors during the 4-week 
period. It was the largest coordinated security effort in our 
Nation's history.

                         INVESTIGATIVE MISSION

    Despite the demands of our protective mission, the Secret 
Service continues to provide this Nation with a very 
significant investigative program. The thrust of our 
investigative efforts is to safeguard our currency, our 
financial payment systems, and our critical infrastructure; all 
are fundamental components of our homeland security.

                              CYBER-CRIME

    Even though the Secret Service is our country's oldest 
investigative Federal enforcement agency, the enhanced 
investigative authority provided in the recently-enacted USA 
PATRIOT Act has made this a landmark year. The USA PATRIOT Act 
authorized the Secret Service to establish a national network 
of electronic crime task forces, made permanent our statutory 
authority to investigate financial institution fraud, and 
expanded our existing authority with regard to computer-based 
crimes.
    We have entered an age where most types of financial fraud 
and counterfeiting involve electronic crime committed through 
the Internet. Recognizing this transformation, the Secret 
Service continues to invest in the nucleus of our cyber-crime 
effort, the Electronic Crime Special Agent Program. These 
agents are highly trained, mobile, and qualified experts in the 
preservation and analysis of electronic evidence and in the 
investigation of network intrusions and database theft. In the 
course of investigating cyber-crime and developing strategies 
in search of the best formula, we have found prevention, 
information sharing, training, and speed, to be essential 
factors.

                          FORWARD EDGE PROGRAM

    The Secret Service, in partnership with the International 
Association of Chiefs of Police, has recently released our 
Forward Edge program. Forward Edge represents what we believe 
is a cutting-edge training program providing state-of-the-art 
computer training on proper ways to secure electronic crime 
scenes. It is geared for law enforcement of all levels of 
jurisdiction. We have distributed more than 20,000 copies of 
Forward Edge nationwide.
    Mr. Chairman, the common denominator in our approach to 
protection and investigations is prevention. In financial 
crimes, the cost of consequence can be too high. In protection, 
the cost of consequence is unacceptable.

                   COUNTERFEIT UNITED STATES CURRENCY

    The Secret Service also works with foreign law enforcement 
officials to investigate financial crimes and counterfeit U.S. 
currency. In fiscal year 2001, nearly 50 percent of all 
counterfeit U.S. currency passed in the United States 
originated overseas, predominately in Colombia. Approximately 
85 percent of all counterfeit currency seized in fiscal year 
2001 was produced outside the United States. That trend is 
likely to continue as other countries move to adopt the dollar 
as their official unit of currency. We will continue to explore 
establishing foreign offices in regions that make strategic 
sense and offer the potential for a favorable return on the 
investment.

                     MISSING AND EXPLOITED CHILDREN

    I also want to mention our continued commitment in working 
with the National Center for Missing and Exploited Children and 
to thank you for the subcommittee's strong support of this 
partnership. Protecting our children is a noble cause and we 
derive enormous professional and personal satisfaction from the 
analytical, forensic, and investigative support we provide to 
the National Center.

               WORKLOAD RETENTION AND WORKLOAD BALANCING

    Finally, I want to thank you for your actions in 
recognizing and providing the resources to hire and train 
additional personnel for the Secret Service. This initiative, 
as you know, was designed to address the excessive overtime and 
quality of life issues facing our personnel. We are now in the 
final phase of this initiative and I want to express my sincere 
appreciation for the investment you have made in our most 
valuable resource, our people.

                           PREPARED STATEMENT

    Mr. Chairman, this concludes my statement and I am happy to 
answer questions.
    Senator Dorgan. Mr. Stafford, thank you very much.
    [The statement follows:]

                Prepared Statement of Brian L. Stafford

    Chairman Dorgan, Senator Nighthorse Campbell, and distinguished 
Members, it is indeed a privilege to be here today before the 
Subcommittee, and to be afforded the opportunity to represent the 5,800 
dedicated men and women of the Secret Service, to testify on the fiscal 
year 2003 budget.
    With me today Mr. Chairman is C. Danny Spriggs, who was recently 
appointed as Deputy Director.
                 fiscal year 2003 appropriation request
    The Secret Service's fiscal year 2003 funding request totals $1,048 
million and 6,111 FTE, and includes funding from two sources: the 
Salaries and Expenses appropriation, and the Acquisition, Construction, 
Improvements and Related Expenses appropriation.
    The fiscal year 2003 funding request recognizes the Secret 
Service's commitment to enhance the security of our homeland by 
accomplishing the goals and objectives set forth in our 5-year 
Strategic Plan. Specifically, this budget will enable the Secret 
Service to pursue its primary goal of protecting our Nation's leaders, 
visiting heads of state, other protectees, and providing security for 
events designated as National Special Security Events (NSSEs). With 
regard to our investigative mission, this budget helps advance our 
ability to safeguard the Nation's currency and financial infrastructure 
against those who would aspire to exploit computer-based advances to 
attack our critical banking, telecommunications and other financial 
systems. Finally, this budget allows the Secret Service to provide a 
responsive support infrastructure to meet the needs of our protective 
and investigative missions.
                      salaries and expenses (s&e)
    The Secret Service's Salaries and Expenses appropriation request 
for fiscal year 2003 totals $1,044,070,000 and 6,111 full-time 
equivalents (FTE). This is an increase of $89,820,000 from the level 
appropriated, excluding Supplemental appropriations, to the Service for 
this fiscal year. It is an increase of 120 FTE over this fiscal year's 
staffing level. This budget includes: $3,527,000 in funding for the 
Administration's legislative proposal on full costing of benefits; 
$30,206,000 needed to maintain current program performance levels, and 
cover base pay and benefits annualization costs; $8,090,000 for the 
start-up costs of the protective effort relative to the 2004 
presidential campaign; $19,180,000 to annualize the cost of staffing 
provided in the fiscal year 2002 Budget Supplemental; and a permanent 
transfer of $358,000 from the Department of Labor for administrative 
costs involved with processing Federal Employees Compensation Act 
claims. These increases are offset by $102,673,000 in non-recurring 
costs, and $6,824,000 resulting from business strategy adjustments.
 acquisition, construction, improvements, and related expenses (acire)
    The Secret Service's fiscal year 2003 request for its Acquisition, 
Construction, Improvements, and Related Expenses (ACIRE) account totals 
$3,519,000, an increase of $62,000 from the fiscal year 2002 
appropriated level of $3,457,000. This increase is to maintain current 
program performance levels. There are no programmatic changes or 
initiatives proposed for this account.
    The past 7 months have been unlike any other period in the Secret 
Service's 137-year history. The September 11 attacks left our New York 
Field Office within the ruins of what used to be the World Trade 
Center. Beneath the rubble was Master Special Officer Craig Miller, who 
we believe was assisting in the rescue effort when the World Trade 
Center towers collapsed. These attacks on our own soil have increased 
both the complexity and the scope of our protective and investigative 
missions.
                           protective program
    Consistent with our Strategic Plan, the Secret Service's goal is to 
protect our Nation's leaders, visiting world leaders and other 
protectees, provide the safest environment to those participating in 
National Special Security Events (NSSEs), and to reduce threats posed 
by global terrorists and other adversaries. We perform this mission by 
providing continuous protective operations that offer comprehensive 
protection, as mandated by law and executive order, for our protectees 
and the facilities where they work and live; and, by coordinating, 
planning and implementing security plans at important events and 
functions designated as National Special Security Events. Secret 
Service protectees include: the President, the Vice President, their 
families, former Presidents, visiting foreign heads of state and 
government, as well as major Presidential and Vice Presidential 
candidates and their spouses. We also provide security for the White 
House complex, the Vice President's residence, and 463 foreign missions 
within the Washington, D.C., area.
    Last year began with an extended election cycle. This anomaly had a 
direct impact on our protective workload. As we proceed in the current 
fiscal year, the Secret Service continues, as a matter of practice, to 
assess the threat and evaluate the application of our protective 
methodologies. We have assumed new responsibilities in the form of 
additional details, and we continue to adjust the depth of coverage to 
enhance the Presidential, Vice-Presidential, and former presidential 
details. At the beginning of this fiscal year, the Secret Service had 
17 full time protectees; as a result of the September 11 attacks we now 
have 39 full time protectees. Also, additional fixed posts and mobile 
assignments at the White House Complex, Vice President's Residence and 
other facilities have been incorporated. The necessary changes have 
impacted staffing.
    To provide more effective security for 39 full time protectees, 
NSSEs, and facilities in a changing environment, the Secret Service has 
recently incorporated the ``Counter-Surveillance'' program into our 
protective methodology. The ``Counter-Surveillance'' program is 
essential to all protective operations. This approach employs state-of-
the-art technology in a cost-effective manner to enhance the threat 
assessment and countermeasure aspects of all protective operations. 
Utilizing assessment matrices, digital photography and other tools, the 
``Counter-Surveillance Team'' assesses areas of vulnerability at all 
venues and motorcade routes from an ``outside-in'' perspective by 
observing events in physical locations from which threats or attacks 
are likely to occur. After conducting the analysis, the ``Counter-
Surveillance Team'' then recommends ways (countermeasures) to diminish 
those vulnerabilities or threats. To improve efficiency while not 
sacrificing effectiveness, in-progress studies are being conducted to 
determine the viability of using hand held computing devices and two-
way paging devices to provide the ``real time'' flow of intelligence or 
other information obtained by ``Counter-Surveillance Teams'' to command 
centers, protective details or ``Counter-Surveillance'' teams 
concurrently operating at different venues associated with the same 
event or protective visit.
    We consider the protective mission as an evolutionary process, 
essential to the security of our homeland. We apply that thought 
process when planning and executing security; and, we analyze the 
actual and potential threats during increasingly complex protective 
operations. Adapting to changing situations in a changing environment, 
sound planning on all planes, and employing technology or other 
applications to our advantage is fundamental to our strategy.
    To further illustrate our adaptability to changing conditions, the 
Secret Service in collaboration with Computer Emergency Response Team 
(CERT) of Carnegie Mellon University in Pennsylvania, has recently 
embarked on an 18-month project entitled, ``The Critical Systems 
Protection Initiative,'' also known as the CSPI. The goal of the CSPI 
is to strengthen the planning phase of the Secret Service's protective 
mission by analyzing how critical information networks are related to 
physical protection activities. This study is designed to:
  --Find ways to identify, assess, and enhance the critical systems 
        upon which Secret Service protective operations rely; and
  --Find ways to identify, assess and manage individuals who may have 
        the potential to compromise those systems. These individuals 
        could include past or present employees.
    By virtue of this relationship between the CERT and our core of 
agents specializing in computer crimes through the Electronic Crimes 
Special Agent Program (ECSAP) or Electronic Crimes Task Forces, we look 
to prevent network intrusions in the systems that are controlled by 
computers, capable of disrupting a protective visit or NSSE in the 
event of a computer attack. Those systems include: water, gas, and 
electric utilities controlling venue power or plumbing; air 
conditioning, heating and ventilation systems that control the intake 
and quality of air; internal building operations such as elevators, 
back-up generators, or fire alarm control panels; or something 
seemingly inconsequential such as a scoreboard.
    The Secret Service relies on the utilization of related networks 
that are now essential considerations when developing and implementing 
security plans. At the conclusion of the study, we plan to release the 
findings in a report, and provide operational guidance on methods of 
preventing network intrusions that could impact physical security. When 
completed, these findings and other publications will be made available 
to law enforcement and industry.
    The analysis of critical systems and other forms of cyber security 
were integral components in the planning and execution of the security 
plans for both Super Bowl XXXVI, in New Orleans, and the 2002 Winter 
Olympics in Salt Lake City, Utah.
National Special Security Events
    Presidential Directive 62 (PDD-62) issued in 1998, and codified in 
our authorizing statute, Title 18 United States Code 3056, names the 
Secret Service as the lead Federal agency for the planning, designing 
and implementation of security plans at events designated as National 
Special Security Events (NSSEs). Since January 2002 the Secret Service 
has implemented security for the following events designated as NSSEs: 
the 2002 Winter Olympics and Super Bowl XXXVI. The actual planning and 
coordinating however, is a much longer effort, sometimes months or 
years. The other events last year declared NSSEs were: the 2001 
Presidential Inauguration; the 56 United Nations General Assembly; and 
the planned International Monetary Fund/World Bank Meetings scheduled 
to be held in Washington D.C. this past fall. Within the last 90 days 
the Secret Service has also been on the forefront of the security 
effort for the World Economic Forum in New York, even though these 
meetings were not designated as NSSEs. With the completion of the 
Winter Olympics, the Secret Service coordinated and implemented 
security plans for each of the thirteen events declared NSSEs, starting 
with the World Energy Congress held in Houston, Texas in 1998.
    I would like to acknowledge the support of the Chairman, Senator 
Nighthorse Campbell and Members of the Subcommittee in recognizing, 
early in the process, the amount of human and other resources required 
to develop and execute a sound physical security plan for each of the 
NSSEs, especially the Winter Olympics. The 2002 Winter Olympics 
involved an unprecedented interagency collaboration of Federal, State, 
and local law enforcement, and the military working with the Salt Lake 
Organizing Committee, the Utah Olympic Public Safety Command, the 
International Olympic Committee, the State of Utah, and other entities. 
Security for the competition and ceremonies was provided for an 
estimated 65,000 daily spectators, and 2,500 athletes in 15 protected 
venues, in an area covering 900 square miles for about a 4-week period.
                         investigative program
    As you know Mr. Chairman, the Secret Service's investigative roots 
began with our creation in 1865 to suppress counterfeiting. In addition 
to the demands of our protective mission, the Secret Service continues 
to provide the Nation with a very productive and efficient 
investigative program. The thrust of our investigative efforts and 
authority is to protect our currency, and financial and banking systems 
from criminal acts or from attacks used as tools of terrorism. The 
financial infrastructure and confidence in that infrastructure is a 
critical component of our homeland security. The Secret Service's 
investigative methodology is directed at maximizing the effect of our 
core areas of expertise, leveraging technology, efficiently partnering 
with other Federal, local and State law enforcement, sharing 
information, and avoiding redundancy caused by overlapping 
jurisdiction. Our approach and investigations of counterfeiting and 
computer crimes involving attacks on our financial systems are 
consistent with the goals and objectives set forth in the Secret 
Service's 5-year Strategic Plan. As in protection, the focus of our 
energy in investigations is prevention.
    Because of the new and enhanced investigative authority provided in 
the recently enacted Uniting and Strengthening America by Providing 
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 
2001, also known as the USA Patriot Act, the current fiscal year can be 
described as a landmark year. The USA Patriot Act provisions applicable 
to the investigative activities of the Secret Service include:
  --Expansion of National Electronic Crime Task Force Initiative. This 
        section directs the Secret Service to develop a national 
        network of electronic crimes task forces, based on the model of 
        our operational and successful New York Electronic Crimes Task 
        Force. The purpose of the task forces authorized in this 
        section is to prevent, detect, and investigate various forms of 
        electronic crimes, including potential terrorist attacks 
        against critical infrastructure and financial payment systems.
  --Permanent Jurisdiction for Financial Institution Fraud. The USA 
        Patriot Act re-authorized and made permanent our statutory 
        authority to investigate financial institution fraud and 
        identity theft. The amendments contained in this section 
        recognized the evolution of technology and the impact 
        technology has on traditional methods of crimes against 
        financial institutions. This section also expanded our 
        jurisdiction in computer crime under Title 18 U.S.C 1030.
  --Counterfeiting Domestic Currency and Obligations. Enhancements to 
        the existing counterfeit statutes were made to reflect the 
        impact that digital and analog computer technology has had on 
        counterfeiting U.S. and foreign currency.
  --Extraterritorial Jurisdiction. The changes in this section amend 
        the Access Device statute to expand jurisdiction, under certain 
        conditions, to persons outside the jurisdiction of the United 
        States.
Computer Crime
    Since 1984, and with the re-authorization contained in the USA 
Patriot Act, the Secret Service has been authorized to investigate 
crimes committed with the use of a computer. We have entered the age 
where most types of financial institution fraud, counterfeiting and 
other attacks against our financial infrastructure are increasingly 
supported by electronic crime occurring on-line through the Internet on 
various platforms including computers, telecommunications devices, 
printers, scanners and other electronic equipment. Financial crimes and 
counterfeiting are inextricably linked to what is now referred to as 
cyber-crime.
    In realizing this transformation, the Secret Service continues to 
invest in the nucleus of our cyber-crime effort--the Electronic Crimes 
Special Agent Program, or ECSAP program. The ECSAP program consists of 
159 agents, of which 111 are stationed throughout the country in our 
field offices. These personnel are highly trained, highly mobile, 
qualified experts in the preservation and analysis of electronic 
evidence. They are proficient in the investigation of network 
intrusions and database theft. The ECSAP agents are also trained to 
examine the variety of devices utilized in furtherance of today's 
criminal activity. Some of these devices include credit card 
generators, electronic organizers, telecommunications equipment, 
scanners, computer hard drives, and most devices manufactured or 
altered to intercept or duplicate telecommunications services.
    In fiscal year 2001, ECSAP agents completed over 1,168 forensic 
examinations on computer and telecommunications related equipment. 
ECSAP agents are known for their excellence in accuracy and efficiency; 
their investigative skills are continually sought after on a referral 
basis by industry and law enforcement at all levels of jurisdiction.
    The development of hardware and software tools produced for the 
benefit of the average consumer, small business, or large corporation 
is frequently utilized, in illicit ways, with impressive quality. The 
use of relatively inexpensive computers and printer equipment, often 
referred to as ``desktop publishing equipment,'' has enhanced the ease 
and manufacturing standard of counterfeit currency, checks, bonds, 
securities, false identification and other financial instruments or 
obligations.
    The Secret Service works closely with stakeholders in the financial 
services industry, electronics manufacturing sector, and information 
services, to provide feedback regarding the misapplication of advances 
in computer related products. This approach returns dividends because 
industry representatives also provide valuable training to ECSAP agents 
in the form of current information and material relating to 
capabilities and methods that could be used for the wrong purposes.
    The growth in computer-related crimes witnessed by the Secret 
Service only mirrors similar trends experienced in the jurisdictional 
areas of our sister law enforcement agencies within the Treasury 
Department. The increasing complexity of computer crime has posed a 
challenge to those responsible for investigating, collecting, analyzing 
and preserving electronic evidence. The Secret Service, through the 
sharing of resources and collaboration with our sister Treasury 
Enforcement Bureaus has been able to optimize our ability to 
investigate and solve cyber-crime. The cooperation of the Treasury 
agencies, in this Departmentally coordinated effort known as the 
Computer Investigative Specialist (CIS) program has resulted in an 
organized program of training, equipping and facilitating 
communications among special agents tasked with the analysis of 
electronic evidence. The CIS program has created efficiencies and added 
value to the investigative effectiveness of the Secret Service.
    In the field, we have experienced that the first line of defense in 
combating cyber-crime is often an agent or officer who is well trained 
in methods of preserving and securing evidence at electronic crime 
scenes. In recognition of the time sensitivities associated with 
computer crime, the importance of properly seizing computer-related 
evidence, and the increasing complexity of cyber-related crime, we 
continue to see the value in promoting partnerships and training. In 
the course of investigating electronic crime and developing strategies 
in search of the best formula, we have found prevention, collaboration, 
information sharing and timely response to be essential factors in the 
equation. We have worked to advance these characteristics as a solution 
to investigate computer crime.
    To underscore our philosophy in this area, the Secret Service, in 
cooperation with the International Association of Chiefs of Police, 
recently introduced the ``Forward Edge'' training package. ``Forward 
Edge'' represents what we consider to be a cutting edge training 
program, utilizing state-of-the-art computer training for all law 
enforcement: local, State, and Federal, with regard to securing 
electronic crime scenes and safely seizing computer-related evidence. 
The ``Forward Edge'' training package includes an 8-hour CD-ROM, 
utilizing a three-dimensional, ``virtual reality'' interactive training 
format, to provide the officer or agent with different scenarios 
involving identity theft, financial crimes, network intrusion, credit 
card fraud, counterfeiting, data theft and other computer-related 
crimes. The ``Forward Edge'' CD also furnishes a field guide that 
contains practical information such as local laws concerning computer 
crimes for every State jurisdiction, along with sample search warrants 
pertaining to the seizure and safe handling of computer-related 
evidence, drugs and weapons. Each scenario guides the user through 
crime scenes and enables him/her to interact with objects, individuals 
and situations they may encounter in real life. In late fiscal year 
2001, the Secret Service, through our network of field offices and 
headquarters began a nationwide distribution of 20,000 copies of the 
CD-ROM to local, State and Federal law enforcement agencies.
    For fiscal year 2003 and beyond, we intend to follow through with 
the development and implementation of additional specialized training, 
and pursue recently enacted legislative authority by forming electronic 
crimes task forces based on the New York Electronic Crimes Task Force 
model.
Electronic Crimes Task Forces
    The New York Electronic Crimes Task Force (NYECTF) continues to 
grow in membership and achievements. This task force represents a 
strategic alliance of more than 250 regional members or groups 
including: prosecutors; local, State and Federal law enforcement; 
academia; and companies in private industry with interests in banking, 
financial services, brokerage, and telecommunications. The common 
denominator in the NYECTF is that each member, be it law enforcement or 
industry, is a stakeholder with a business or investigative interest in 
preventing electronic crime. Each member adds value through specialized 
knowledge or expertise in contributing to the common goal. Since its 
inception in 1995, through the third quarter of fiscal year 2001, the 
NYECTF has made 826 State and locally prosecuted arrests investigating 
an estimated $500 million in actual and potential loss due to fraud. As 
a testament to the resolve and adaptability of the agents and members, 
the NYECTF resumed operations within 48 hours of the loss of its base 
of operations in the New York Field Office. The NYECTF defines the 
Secret Service's priority on partnerships, and demonstrates the 
economies of scale inherent in the task force approach.
    Based on the mission and organization of the NYECTF, the Secret 
Service, beginning in fiscal year 2003, plans to establish other 
electronic crimes task forces throughout the country, in locations with 
significant or specialized interests in the critical financial, banking 
or information infrastructures.
Counterfeiting
    Technology continues to be used in illicit ways to manufacture 
counterfeit U.S. and foreign currency, securities, bonds, checks and 
other obligations. Despite the inclusion of enhanced security features 
on the new series of Federal Reserve Notes, counterfeiting is 
accomplished with varying degrees of quality on desktop printers, color 
copiers, scanners, computers, software and other ``off the shelf'' 
desktop publishing equipment. The amount of counterfeit activity 
attributed to computing devices and other electronics, as a percentage 
of all counterfeit currency and obligations passed or seized, continues 
to rise. For fiscal year 2001, we estimated that 40 percent of all 
counterfeit currency and obligations seized was computer generated. To 
prevent such attacks on our financial infrastructure, the Secret 
Service sponsors awareness and education events through our field 
offices and headquarters at home and abroad. We also publish and issue 
brochures describing security features to educate business owners and 
the public. Advances in the methods of counterfeiting have accompanied 
the advances in technology, and the USA Patriot Act revisions to the 
counterfeit statutes were necessary and reflected the impact of 
technology on what was predominantly and historically accomplished 
through an offset printing press.
    We estimate that nearly 50 percent of all counterfeit U.S. currency 
passed in the United States originates overseas. Recent counterfeit 
plant suppressions and seizures indicate that Colombia is the leading 
producer of counterfeit U.S. currency. The Secret Service maintains a 
permanent office in Bogota, Colombia, our only continued permanent 
presence in Latin America. While lacking jurisdiction overseas, we work 
closely in an investigative assistance capacity with law enforcement 
and government officials in Colombia, and the region, to provide 
training and investigative support aimed at deterrence, education and 
early detection.
    One of the ongoing enforcement initiatives to combat counterfeit 
currency at the source is the Congressionally funded ``Plan Colombia.'' 
In May 2001, the Department facilitated $1.5 million in funding to the 
Secret Service for the purpose of working with the Colombian government 
to establish specialized anti-counterfeiting units. With the funding, 
the Secret Service conducted polygraph examinations to clear and 
sanction candidates selected from law enforcement agencies for 
participation in these task forces. We also purchased and delivered 
police equipment to the units and increased our staffing in Bogota. 
Less than one year in operation, ``Plan Colombia'' has disrupted crime 
directed at our currency, and has yielded early successes through 
several arrests, the execution of dozens of search warrants, and most 
recently, resulted in the seizure of approximately $40 million in 
counterfeit U.S. currency, the largest seizure of counterfeit U.S. 
currency in Latin America. The Secret Service has learned through 
investigation that this counterfeit currency was destined for Ecuador, 
a country that has recently converted to the U.S. dollar.
    With the decision of certain countries in Latin America to adopt 
the U.S. dollar as their base unit of currency, the Secret Service 
believes that counterfeiting activity in newly ``dollarized'' economies 
will increase because of the lack of familiarity with the dollar. 
Within the Latin American countries that have recently converted to the 
dollar, Ecuador, El Salvador and Guatemala, the smuggling and 
distribution of counterfeit U.S. currency has already been documented. 
Ecuador, which shares a border with Colombia, ``dollarized'' in 2000. 
During that year $3.5 million in counterfeit U.S. currency was seized 
in Ecuador, compared with only $50,000 seized in 1994. Just prior to 
``dollarization,'' local media estimated that 92 percent of the 
population had never seen a U.S. dollar. In preparation for Ecuador's 
conversion, the Secret Service provided twenty-eight training seminars 
attended by over 2,600 police, Government officials, bankers, business 
owners and others. We continue to receive similar requests for currency 
recognition training, instruction on methods of investigation, and 
liaison from other Latin American countries, Europe and elsewhere.
Financial Crime is Global
    The Secret Service believes that our professional and effective 
relationships with the Colombian government and elsewhere do not happen 
by accident. The success there and our other eighteen foreign field 
offices and resident agencies, including Interpol, can be attributed 
to, in large measure, our long-term commitment in working with the host 
Nation. Long-term relationships build trust and offer the benefits of 
consistent and reinforced liaison, timely assistance, face-to-face 
communication, and result in the sharing of information and expertise.
    Where permanent assignments are not available, the Secret Service 
relies on temporary overseas assignments to satisfy the requests for 
participation in overseas financial crimes and counterfeit task forces. 
Within the last two years alone, the impact of our work through 
temporary assignments in Lagos, Bucharest and Frankfurt has resulted in 
the opening of permanent offices. The temporary duty concept allows us 
to conduct a survey in a specific area to determine if the cost of 
opening a field office in that country is warranted.
    In addition to the protection of our currency, the Secret Service's 
efforts overseas, in Canada and in Mexico are directed at protecting 
the integrity of our critical financial infrastructure through 
responsiveness and timely assistance at the point of attack. The ease 
of using of computers, the expanded use of electronic payments, and 
speed of transactions has ``globalized'' our economy, but can make the 
systems upon which the infrastructure relies just as vulnerable 
overseas as at home. The Secret Service will establish additional 
foreign offices in areas where there is a demand for our expertise, 
continued requests for partnerships, and in regions that make sense 
strategically and offer a high probability of a favorable return on the 
investment.
Identity Theft
    It remains an investigative priority of the Secret Service to work 
with law enforcement at all levels in communicating and educating the 
public about identity theft. The first line of defense against identity 
theft is for private citizens to be equipped with the awareness and 
knowledge of what identity theft is, and how they can effectively 
safeguard their private information. In its purest form, the goal of 
stealing one's identity is to provide criminals with the tools and 
information necessary to establish good credit and obtain things of 
value through illicit means. Using personal information belonging to 
someone else, criminals usually establish bank accounts, obtain credit 
or debit cards, or use the information to gain unauthorized access to 
financial accounts or other sources of capital. It is a fact that most 
financial crimes including bank fraud and credit card fraud involve 
identity theft.
    The basic pieces of information required to achieve the theft of 
another's identity are name, date of birth and social security number. 
Additional information of value includes bank account numbers, credit 
card numbers, and maiden names. There are several effective first line 
precautions individuals can take to safeguard their personal 
information from being compromised. Some of these include:
  --Protecting social security numbers at all times.
  --Not providing social security numbers to requestors if at all 
        possible during business or non-business transactions. 
        Admittedly, this is not always practical when applying for 
        loans, leases, mortgages or similar transactions.
  --Not placing social security numbers on personal checks.
  --Destroying documents no longer needed that contain personal 
        information.
  --Being judicious in providing personal information over the 
        Internet.
  --Reviewing bank and credit card statements carefully for indications 
        of fraudulent activity.
    The Secret Service provides identity theft presentations on a 
community level to businesses, civic groups, community organizations 
and other law enforcement bureaus concentrating on best practices 
methods in order to raise the level of awareness regarding the impact 
of identity theft. We also work closely with the financial industry to 
share information on the misapplication of technology and feasible 
means of deterrence.
National Center for Missing and Exploited Children
    The Secret Service derives enormous professional and personal 
satisfaction from our relationship with the National Center for Missing 
and Exploited Children (NCMEC). Through the Forensic Services Division 
(FSD), the Service will continue to provide the valuable analytical, 
forensic and laboratory support, and other assistance that the Center 
has benefited from in recent years.
    Since the passage of the Violent Crime Control and Law Enforcement 
Act of 1994, the Secret Service has provided forensic and technical 
support to NCMEC. The types of support include: the use of the 
Automated Fingerprint Identification System (AFIS); the Forensic 
Information System for Handwriting (FISH); ink analysis and comparison; 
traditional handwriting and fingerprint comparison; polygraph 
examinations and consultation; visual information services such as 
image enhancement, suspect drawings and video and audio enhancement; 
graphic and photographic support; and age regression/progression 
drawings.
    In fiscal year 2001, the Secret Service conducted 35 polygraph 
examinations in direct support of NCMEC's mission. The examinations for 
these cases involved missing, abused and murdered children.
    We actively support the Center's Operation Safe Kids initiative. 
Operation Safe Kids is a national, community based awareness effort. 
FSD personnel utilize a computer-enhanced application known as the 
Children's Identification System (KIDS), to photograph, fingerprint and 
store biographical data at public events throughout the country. To 
date, we have entered more than 25,000 children into the KIDS program.
    Through outreach, the Secret Service has communicated with and 
provided law enforcement groups with information about our services. 
Recipients of such presentations include the International Association 
of Chiefs of Police, the INTERPOL Standing Working Party on Offenses 
against Minors, and the Federal Law Enforcement Training Center. 
Various publications and brochures have also aided in promoting FSD's 
ability to provide critical forensic support in these cases. FSD has 
provided the Center with an icon and a web page of information, which 
has been included on the desktops of more than 1,500 computers 
belonging to State and local law enforcement agencies nationwide.
    The FSD staff is currently developing a Forensic Investigative 
Response and Support Team (FIRST). FIRST will be composed of forensic 
experts, who would be able to respond on short notice to requests for 
assistance from State, local, or other Federal law enforcement 
agencies. The goal would be to provide time sensitive forensic support 
(handwriting analysis, ink and paper analysis, fingerprint evaluations, 
polygraph examinations and other services) to requesting agencies in 
cases involving missing or exploited children. In essence, when the 
NCMEC is notified by a local law enforcement department of an 
abduction, the Secret Service at the NCMEC's request, will launch a 
FIRST to respond within the first 8 hours of abduction, to provide 
computer, forensic and ``real-time'' investigative support to the 
department that may lack the resources to respond in an effective 
manner during that critical period.
                     office of protective research
Intelligence Division
    The protective research and intelligence programs continue to serve 
a critical role in support of the protective and investigative mission 
of the Secret Service. Within the Office of Protective Research, the 
Intelligence Division oversees the identification, assessment, and 
management of threatening communications and incidents directed toward 
Secret Service protectees and events of national significance. The 
division develops threat assessments in support of domestic and foreign 
protectee visits; conducts evaluations of risk potential associated 
with specific and generalized threats; prepares analyses of protectee-
specific threats; maintains liaison with other law enforcement, mental 
health, and intelligence agencies; plans and reviews the case 
management for high risk subjects; and, through our National Threat 
Assessment Center, collaborates in the design and implementation of 
program evaluation studies and other risk assessment research designed 
to improve our understanding of violence directed toward public 
officials.
    Other Intelligence Division activities during fiscal year 2001 and 
fiscal year 2002 included support provided for the development and 
implementation of the security plans for the Winter Olympics, Super 
Bowl XXXVI, the United Nations General Assembly, the World Economic 
Forum, the 2001 Presidential Inauguration, and the planned 
International Monetary Fund meetings.
    Prior to the September 11 attacks, the Secret Service actively 
participated in Department of Justice led Joint Terrorism Task Forces 
(JTTFs). We remain committed to continued representation and have 
increased that representation since September 11. In addition to 
collaborating in a combined and coordinated effort, the Secret Service 
provides and derives the benefits of sharing information on 
investigative matters that may be related to our protective mission. 
The Intelligence Division coordinates our participation in the JTTFs
    In addition to directing and performing such operational 
activities, the Intelligence Division continues to provide leadership 
for the Protective Detail Intelligence Network (PDIN), a consortium of 
Washington, D.C., area law enforcement, security, and public safety 
agencies with protective and security related functions. Initiated in 
1999 by the Secret Service, the PDIN has emerged as an important forum 
for sharing intelligence information that affects security planning 
issues across agencies in the metropolitan area. Hosted on a regular 
basis by the Intelligence Division, PDIN meetings include briefings and 
training concerning significant and designated major security events 
coordinated by the Secret Service, and they facilitate cooperative 
partnerships among agencies who share protective and security 
responsibilities. Through the PDIN, the Secret Service has offered 
assistance in the preparation of security assessments for incoming 
Cabinet members and senior officials of the administration.
National Threat Assessment Center
    As part of the Secret Service's protective intelligence mission, 
our National Threat Assessment Center (NTAC) continues to gain national 
attention through its training, outreach, consultation, and research 
efforts in the specialized field of targeted violence. Its principal 
goal since its inception encompasses the spectrum of threat assessment 
and targeted violence as it relates to our protective mission. As a 
natural extension of our protective intelligence methodology, we have 
shared our knowledge and depth of experiences by expanding the concept 
and findings through outreach and training in the area of school and 
workplace violence. The outreach effort has had a national impact.
    Following the attack at Columbine High School in 1999, NTAC entered 
into a partnership with the Department of Education and the National 
Institute of Justice to apply the methodology used in our traditional 
analysis of targeted violence, in the form of a study designed to 
examine if similar behavior was involved in school shootings. This 
study, known as the Safe School Initiative, reviewed 37 school 
shootings occurring in the United States in the preceding 25 years. The 
Safe School Initiative was completed in 2000.
    With the support of this Subcommittee, the NTAC staff has been able 
to communicate what we have learned in assessing threats on public 
officials and discuss our findings in the Safe School initiative and 
other assessments of school violence to those with an interest in 
preventing school and workplace violence. This is accomplished in a 
practical and tangible way. NTAC offers weeklong and abbreviated threat 
assessment seminars attended by law enforcement, other public safety 
officials, educators, and school administrators nationwide. In fiscal 
year 2001 alone, NTAC conducted more than 100 seminars and forums, 
attended by approximately 30,000 State and local educators, school 
administrators and law enforcement personnel. We continue to provide 
and participate in these events sponsored by local communities, 
administration officials, Members of Congress, and former Presidents.
    Following through on the success of this initiative, NTAC, in 
collaboration with the Department of Education, is currently writing a 
guide to suggest methods for school administrators, educators, law 
enforcement personnel, and mental health professionals to conduct 
threat assessments in their schools. This guide will be published and 
released in the spring, 2002.
Technical Security Division
    The Technical Security Division (TSD) is responsible for all 
chemical/biological/hazardous materials countermeasures programs of the 
Secret Service that safeguard our protectees, protect the workforce and 
facilities, and mitigate the threats of terrorism.
    As part of its ongoing support mission, TSD identifies and 
implements ways to improve its detection capabilities in and around the 
White House Complex, Naval Observatory and other protected locations. 
Outside of Washington, chemical/biological/hazardous material support 
is integral to any protective security plan during motorcade movements 
or at fixed locations, including the recently completed Super Bowl 
XXXVI and the 2002 Winter Olympics.
    In addition to chemical/biological/hazardous material efforts, TSD 
engineers serve on several committees within a Treasury led, multi-
agency consortium known as the Technical Security Working Group (TSWG). 
The TSWG is charged, in part, with researching and developing ways to 
enhance the Secret Service's protective and investigative mission 
capability, by recommending methods, materials or technology that could 
improve efficiency yet maintain the integrity of mission and safety of 
the workforce. Some of the projects in progress include: enhancing the 
capability of our armored limousine fleet; developing lighter yet 
stronger ballistic glass; researching advanced generation body armor; 
studying blast mitigation; and, biometrics testing in the form of 
facial recognition technology and fingerprint scanning.
Information Resources Management Division
    The Information Resources Management Division (IRMD) is committed 
to the continuation of its objective to provide an information and 
communications infrastructure to support the protective and 
investigative missions of the Secret Service. To that end, IRMD will 
continue to make progress to achieve its goals of upgrading and 
improving efficiencies in radio, telephone and wireless communications 
system-wide. In fiscal year 2001, digital narrowband system radio 
upgrades were installed in ten field offices, with upgrades projected 
for ten more offices by the end of fiscal year 2002. Radio 
interoperability efforts are also in progress to continue to improve 
communications within Secret Service entities and with other Federal, 
State and local law enforcement agencies. During fiscal year 2001, IRMD 
completed the issuance of wireless pagers nationwide, moving from a 
regional paging system with more than 40 contracts to a single 
contract. The uniform contract and service provider now enables Secret 
Service users to provide alphanumeric messages through a web-based 
Intranet application.
    IRMD is also pursuing operational efficiencies through its 
involvement with the Treasury SmartCard/Public Key Infrastructure (PKI) 
Proof of Concept. In February 2002, the Treasury Chief Information 
Officer Council appointed the Secret Service as the Executive Agent for 
the SmartCard/PKI project. This initiative is managed and operated by a 
committee consisting of representatives from the Bureau of Alcohol, 
Tobacco and Firearms, the Internal Revenue Service, the Bureau of 
Engraving and Printing, Treasury Departmental Offices, in addition to 
the Secret Service. The Committee has developed a set of standards and 
specifications governing a uniform Treasury SmartCard, which will be 
designed for physical access to facilities, authorized access to 
computers, property and inventory control. The SmartCards will also be 
used to hold and manage PKI Certificates, which will enable Treasury 
Department employees to send and receive digitally signed and encrypted 
e-mail. The Proof of Concept will set the benchmark for how other 
business processes can be improved within the Department.
Emergency Preparedness Program
    Established in 1999, the Emergency Preparedness Program (EPP) is 
responsible for coordinating the emergency preparedness programs of the 
Secret Service. The EPP concentrates its efforts on program areas, 
which ensure our commitment to emergency preparedness, operations 
security, the continuity of Government, and critical infrastructure 
protection. The EPP staff actively engages in liaison and coordination 
with the White House Military Office, the Federal Emergency Management 
Administration, and the CIA regarding matters involving the Continuity 
of Government and emergency preparedness. Internally, EPP staff 
coordinates emergency preparedness exercises and provides frequent 
educational material and training to staff in all areas of emergency 
preparedness, especially Operational Security (OPSEC).
                      human resources and training
Workforce Retention/Workload Balancing Initiative
    This Subcommittee has recognized and supported my priority to 
confront the declining quality of life of the workforce caused by 
excessive overtime and out-of-district travel, by making the resources 
available to recruit, train and hire 678 additional agents and support 
personnel for field assignments. In fiscal year 2002, the Secret 
Service plans to hire the final 280 men and women called for under 
Phase III of the Workforce Retention/Workload Balancing initiative. The 
safety, morale and job satisfaction of the entire workforce are of 
paramount importance.
Diversity
    It is the policy of the Secret Service to attract, develop, retain 
and maximize the potential of a diverse workforce in a changing and 
competitive environment. We are committed to this policy. As a means of 
fully achieving and emphasizing an organizational culture that 
recognizes the value added by a diverse workforce, the Service has 
formalized its Diversity Management Program to fall under the direction 
of a Deputy Assistant Director for Recruitment, Employment and 
Diversity Programs (REDP). Through a coordinated process, the REDP 
develops and implements recruitment policies with the Service's 
Recruitment and Hiring Coordination Center and the Chief of the 
Personnel Division. Some of ongoing and recent efforts include:
  --Job Fairs and Recruiting Seminars: In fiscal year 2001 the Service 
        sponsored thirteen recruiting seminars attended by nearly 2,500 
        potential applicants for Uniformed Division and Special Agent 
        positions. The Recruitment and Hiring Coordination Center has 
        continued to maintain liaison with colleges and universities 
        throughout the country, including Historically Black Colleges 
        and Universities and Hispanic Servicing Institutions. In fiscal 
        year 2001 the Service participated in and/or sponsored over 100 
        nationwide job fairs.
  --Media: The Service utilizes nationwide print, radio and electronic 
        media to attract qualified candidates with diverse skills and 
        backgrounds for all positions.
  --Internet: Presently, a diversity web site is under development. 
        Once completed, this Internet tool will be used to inform all 
        employees of the diversity initiatives, conferences and 
        objectives. For potential applicants, the Service has conducted 
        outreach by advertising on public and campus career websites 
        targeting college students. We will continue to explore and 
        utilize the Internet as a valuable recruiting aid.
    The Secret Service supports and encourages employee participation 
in conferences dedicated to minority interests. In fiscal year 2001, 
approximately 120 employees attended the following conferences: the 
Women in Federal Law Enforcement Conference; the Hispanic American 
Police Command Officers Association Training Conference; the National 
Organization of Black Law Enforcement Executives Training Conference; 
the Blacks in Government Training Conference; and the National Native 
American Law enforcement Association Training Conference.
    The Secret Service is committed to diversity within the 
organizational and management ranks. As of January 1, 2002 twenty seven 
percent of the Secret Service's GS-14 and GS-15 positions were occupied 
by women and minorities. Twenty eight percent of the Senior Executive 
Service positions in the Secret Service as of January 1, 2002 were held 
by women or minorities.
    In the past year, the Service has developed a core training course 
curriculum for our Equal Opportunity Program to lay a foundation for 
highly skilled and trained personnel to work in special emphasis 
programs and provide EEO counseling services. Additionally, we have 
established collateral duty special emphasis program manager positions 
for Hispanic, African-American, Asian-Pacific Islander, Native 
American, Persons with Disabilities/Disabled Veterans and Federal 
Women's Program constituency groups.
Personnel Division
    One of the major initiatives of the Personnel Division is H.R. 
Connect, an integrated human resources information system being 
developed by the Department of the Treasury. The goal of this system is 
to enhance efficiency by providing access to managers and employees to 
review and update human resources information, including on-line 
processing of personnel actions and training requests.
James J. Rowley Training Center (JJRTC)
    The staff, curriculum and facilities at the James J. Rowley 
Training Center (JJRTC) continue to provide state of the art, real 
world, performance based training. The emphasis for future operations 
at JJRTC will be to add value to both the content of the training and 
the facility as a continued center of excellence by ensuring efficient 
operations and improving the management of existing resources. To 
improve operations and administration at the Center, the JJRTC staff is 
developing a scheduling database that will enable the efficient 
scheduling and usage of all facilities within the complex.
    Improvements in the area of course content and course evaluation 
remain a top priority. Recently, the JJRTC staff completed a special 
agent curriculum review and revision, and included a ``real-world,'' 6-
day performance based field office practical exercise involving 
interactive, team oriented exercises in the areas of investigative case 
work management and arrest procedures for financial crimes, 
counterfeiting, and protective intelligence investigations. Further 
curriculum review addressing the duplication of effort at JJRTC and the 
Federal Law Enforcement Training Center (FLETC), in Glynco, GA has 
resulted in an estimated savings of $24,000 per special agent class. 
JJRTC is currently applying the same curriculum review and methodology 
to the Uniformed Division Officer Basic Training Course.
    JJRTC in collaboration with the Office of Protective Operations has 
completed the development and implementation of an improved protective 
methodology initiative. This course is entitled ``Counter Surveillance 
Unit Training,'' incorporates greater emphasis on the identification 
and utilization of surveillance skills for use during protective and 
investigative assignments. The methodology is aimed at improving 
performance efficiency and effectiveness in protective and 
investigative operations.
    Given our emerging function as the lead Federal law enforcement 
bureau involved in the planning, coordination and implementation of 
security plans at NSSEs, JJRTC has integrated improved training through 
hands-on practical exercises, tabletop exercises and computer 
simulations with local, State, other Federal law enforcement bureaus 
and hosting entities.
    The pursuit of academic excellence is in the best interest of the 
agency and essential to the success of the training program at JJRTC. A 
foundation to achieve this goal is seen in our continued partnership 
and commitment with Johns Hopkins University. This relationship 
incorporates management programs, validation and revision to special 
agent basic training testing, policy, test automation and statistical 
efficacy. Additional efforts are underway to develop advanced degree 
management courses of study.
    Consistent with Departmental guidance, the Secret Service, through 
the innovative use of resources, continues to develop effective methods 
and improve ways to train the workforce. One way this is being 
accomplished is through the Distance Learning Initiative. This 
initiative makes available to all employees, regardless of location, 
learning tools formatted on CD-ROM, video teleconferencing, and the 
Secret Service Intranet. Topics include diversity training, CPR and 
first aid kit review, conflict resolution, computer applications, legal 
information and other developmental courses. For the immediate future, 
the Secret Service is engaged in the evaluation and design of improved 
multi-media technology based applications for training to be used for 
improved and expanded distance learning courses to save on the expense 
of traveling to Washington, D.C. for training.
    During fiscal year 2001, the JJRTC facilities were used to train 
ten Special Agent Training Courses (240 students), nine Uniformed 
Division Officer Training Courses (192 students), and approximately 
32,000 in-service and re-qualification training visits for the 
workforce. The following construction improvements were also made 
during fiscal year 2001: completion of the Beltsville Field Office; 
infrastructure improvements on the support generator station and sewage 
lift station; security enhancements on the perimeter and inside 
facilities; and repairs to JJRTC and ``off site'' firing ranges. To 
ensure the continuity of operations (COOP), the Secret Service 
continues to examine the viability of using JJRTC as a designated 
relocation site in the event of catastrophe.
                               conclusion
    Mr. Chairman, the Secret Service remains committed to the security 
of our homeland through the daily performance of our dual mission of 
protecting our Nation's leaders and safeguarding the critical financial 
infrastructure and payment systems. We will continue to utilize 
technology to our advantage to create efficiencies and enhance the 
effectiveness of our investigative and protective operations. Through 
developing partnerships and information sharing, especially in the 
areas of cyber crime, we see value being achieved.
    On behalf of the men and women of the Secret Service, I would like 
to thank you Mr. Chairman, Senator Nighthorse Campbell and the Members 
of the Subcommittee, for your leadership, vision and guidance. The 
Secret Service would not be where it is today without your support.
    This concludes my statement. I would be pleased to answer any 
questions that you or other members of the Subcommittee may have.

                Bureau of Alcohol, Tobacco and Firearms

STATEMENT OF BRADLEY BUCKLES, DIRECTOR
    Senator Dorgan. Next, we will hear from the Director of the 
Bureau of Alcohol, Tobacco and Firearms, Mr. Bradley Buckles. 
Mr. Buckles, you may proceed.
    Mr. Buckles. Thank you, Mr. Chairman, Senator Campbell, 
Senator Reed. I am proud to be here today representing the 
outstanding men and women of ATF. On behalf of all ATF 
employees, I would like to take this opportunity to thank you 
and your staff for your continuing support for our mission.
    The budget request for ATF today is for $913,114,000 in 
direct budget authority and 5,106 FTEs. With my full statement 
submitted for the record, I will keep these remarks brief.

                    TERRORISM AND HOMELAND SECURITY

    When I was here last year, the focus of ATF's budget 
request was on violent crime. However, ATF, along with law 
enforcement agencies throughout the United States, has reformed 
its priorities to meet the new challenge of terrorism and 
homeland security. Explosives and firearms remain the 
terrorists' tools of choice and we cannot afford to 
underestimate the dangers they present. As the agency charged 
with enforcing Federal firearms and explosives statutes, ATF 
will continue to play a critical role in the war on terrorism.
    Terrorists need money to buy explosives and firearms and 
otherwise fund their activities, and terrorists have found that 
there is untapped illegal money in alcohol and tobacco 
diversion schemes. ATF is investigating these crimes as well.
    Traditional firearms and explosives work, and the 
collection of $14 billion in revenue will continue to dominate 
the bulk of our efforts. However, ATF's responsibilities 
towards homeland security will be our top priority.
    In Joint Terrorism Task Forces, National Special Security 
Events, and other multi-agency endeavors, ATF is engaging in 
preventing and investigating terrorist activity. For example, 
through our explosives detection canine program, we have 
partnered with over 450 State, local, Federal, and foreign law 
enforcement agencies to help them prepare for and prevent 
potential terrorist acts.
    Having America safe from foreign terrorists is essential, 
but it is not enough. A mother afraid to let her children play 
outside because of the sound of gunshots feels terrorized, as 
well. And though gun homicides are down from their peak in the 
early to mid-1990s, the numbers are still chilling, at 10,000 a 
year. Moreover, recent statistics report that over half-a-
million crime victims faced an assailant with a gun in calendar 
year 2000. Our collective goal must be to make the criminal 
with the gun the one who feels unsafe in America.

                    FISCAL YEAR 2003 BUDGET REQUEST

    Our fiscal year 2003 request addresses the challenges of 
fighting terrorism and violent crime that I have mentioned. 
With respect to these items, directly related to terrorism, we 
are seeking to annualize FTE funding from the 2002 terrorism 
supplemental provided for canine teams and for agents to be 
assigned to Joint Terrorism Task Forces.
    With respect to violent crime, our request builds on a 
foundation of existing initiatives to be deployed to the 
President's Project Safe Neighborhoods initiative. This request 
includes $11 million and 41 FTE for these continuing efforts.
    Finally, we are requesting $10.7 million to support 
construction of our new headquarters building. While this is a 
GSA building project, these funds are needed in the ATF budget 
for agency costs associated with security, technology, and 
technical support for the construction.

                           PREPARED STATEMENT

    In closing, I would again like to thank the committee and 
your staff for your continued commitment to ATF and its mission 
and I would be pleased to answer any questions you might have.
    Senator Dorgan. Mr. Buckles, thank you very much for your 
testimony.
    [The statement follows:]

                Prepared Statement of Bradley A. Buckles

    Thank you Mr. Chairman, Senator Campbell, and members of the 
Subcommittee. I welcome this opportunity to appear before the 
subcommittee to report on the pivotal year just ended as well as to 
present ATF's goals for fiscal year 2003.
    As with all law enforcement agencies in the United States today, 
ATF faces an unprecedented challenge. Our world in 2002 is very 
different than it was a year ago. The magnitude and effect of the 
attacks on September 11 cannot be measured, but we are committed and 
united in ensuring the safety of all Americans from future attacks and 
from the continuing tragedy of violent crime in our society.
    In response, ATF has aligned its priorities to the current 
priorities of the President and the Nation--to the fight against 
terrorism and to make our communities safe from violence. ATF special 
agents, inspectors, and professional support personnel are making daily 
and significant contributions in the Nation's battle against terrorism. 
In furtherance of the objectives of Presidential Decision Directives 39 
and 62, ATF is charged with the responsibility of preventing terrorists 
from acquiring firearms and explosives, the principal instruments by 
which they carry out their terrorist acts. ATF's statutory mandates and 
unparalleled investigative expertise places us on the forefront of the 
battle against terrorism. We expect this to continue for some time, yet 
we recognize that we must strike a balance between the war against 
terrorism and the continuing battle of reducing armed violence in 
America.
    Our new national vigilance carries additional responsibilities, and 
I assure you ATF is up to the task. Whether the work being done 
involves investigation of a bombing or gun trafficking; participation 
in the Joint Terrorism Task Forces (JTTFs) with the FBI and other law 
enforcement agencies; or examination of explosives and firearms 
licenses and permit applications, possible terrorist connections must 
be examined and identified.
    ATF has always played a lead role in the investigation of violent 
crimes involving explosives, arson, or firearms, whether committed by 
terrorists or other criminals, and we are more determined and committed 
to our partnerships with other Federal, State, and local agencies in a 
broad range of prevention efforts and direct investigative efforts.
    Since the horrific events of September 11, the ATF is facing 
increased demands on its resources. The battle against violent crime, 
whether in the form of terrorism or otherwise, is a part of ATF's core 
mission responsibility. However, the dramatic increase in the threat of 
terrorism and the consequent shift in national priorities has required 
ATF to direct resources to JTTFs, National Security Special Events, 
inspections of explosives permittees and licensees, and other areas 
essential to homeland security, while still attempting to hold the line 
against violent criminals whose activities are not politically 
motivated.
    With the tremendous support of this committee during the past 
several years, we have hired entry-level agents and inspectors to 
reinvigorate our workforce. Because our mission is complex, and the 
laws and regulations we enforce intricate; it will take our new 
personnel 2 to 3 years of training to become proficient. The majority 
of our current investigative and terrorism-specific work will require 
our experienced agents, intelligence specialists, and explosives 
technicians to focus a majority of their time actively pursuing 
investigations with multi-agency peer partners. Therefore, even with 
these new personnel resources, we must still achieve a balance between 
protecting the public against further terrorist acts and ensuring that 
violent career criminals are also taken off the street.
    In an immediate response to the September 11 terrorist attacks, ATF 
provided 500 special agents and other investigative personnel to JTTF 
operations, dramatically increasing our on-going support to the 
Nation's anti-terrorism efforts. Participation in the JTTFs is one of 
ATF's top priorities for fiscal year 2002, and ATF continues to assign 
its most experienced criminal investigators to the JTTFs. With the 
support received from this Committee through supplemental funds, an 
additional 28 special agents will be assigned to JTTFs in fiscal year 
2002, including a full-time ATF program manager for the FBI's Counter-
Terrorism Center.
    With the fiscal year 2002 supplemental funding received for our 
Canine Explosives Detection Program, ATF plans to train 30 additional 
special agent explosives detection handler/canine teams to provide 
canine support to the National Security Special Events, JTTFs, and 
other counter-terrorism efforts, but still remain involved in non-
terrorism-related investigations and activities. The additional canine 
teams will be strategically located throughout the U.S. These teams 
will be able to meet critical needs in the field that directly 
contribute to the Bureau's goals of reducing violent crime and 
protecting the public. The canine teams will augment the efforts of 
ATF's field divisions, National Response Team (NRT) callouts, and 
special agent and explosive enforcement officer activities. The canine 
teams will establish partnerships with State and local agencies that 
lack canine resources, and they will be available to assist with 
counter-terrorism measures, such as searches and security sweeps at 
special events. The expanded program will allow ATF to perform 
diagnostic field evaluations of ATF-certified teams belonging to 
Federal, State, and local agencies.
    ATF is providing personnel to support Treasury's ``Operation Green 
Quest,'' a task force program created to combat terrorist financing and 
money laundering. ATF's expertise in alcohol and tobacco diversion and 
smuggling schemes will greatly serve this task force. Illegal proceeds 
from global and domestic tobacco and alcohol diversion and smuggling 
are often used to further criminal and terrorist activities. We will 
enhance the ``Operation Green Quest'' effort by having the ability to 
identify individuals who may have ties to terrorist organizations, and 
who utilize legitimate business fronts to conceal proceeds that finance 
terrorist activity. In response to the national investigation, ATF 
analyzed information of potential terrorists and their associates, and 
focused on possible alcohol and tobacco product diversion in support of 
their criminal activities.
    ATF detailed 45 special agents to the FAA's Federal Air Marshal 
Program for 6 to 18-month assignments.
    ATF provided, and continues to provide, analytical intelligence in 
support of joint Federal anti-terrorism efforts. There is important 
intelligence data available from ATF's internal investigative and 
regulatory databases, including the Arson and Explosives Incidents 
System (AEXIS), firearms tracing, permit holders, revenue collection 
and licensing. We have modified the AEXIS reporting system to interface 
with the Department of Justice, allowing the FBI to use ATF reports to 
identify possible terrorist connections. Additionally, numerous Bomb 
Data Centers throughout the world actively contribute to ATF's Arson 
and Explosives National Repository.
    Following the September 11 terrorist attacks, ATF sent a letter 
urging all explosives licensees and permittees to take immediate 
measures to ensure the security of their explosives inventories. 
Between October and December 2001, ATF field personnel conducted 7,459 
inspections of explosives licensees/permittees (out of a total of 
9,400). ATF personnel encouraged the proprietors to emphasize 
explosives security and accountability following the terrorist attacks, 
and to report thefts, losses, or suspicious activity to ATF and the 
appropriate local authorities. ATF carried out these inspections in 
order to gauge internal security controls and report any unusual 
purchase attempts; break-ins; or any other anomalies that would 
indicate a breach to security.
    In connection with the 7,459 inspections, ATF uncovered over 200 
instances of possible criminal violations. We also found 1,763 
instances of violations in record keeping, storage and conduct of 
business. Many follow-up inspections will be required to ensure that 
corrective actions were taken. In one instance we issued a notice of 
revocation and seized approximately four million pounds of explosives 
materials that were stored in violation of Federal explosives law.
    Since 1993, ATF has assigned a senior special agent as a 
representative to the Central Intelligence Agency's Counter-Terrorism 
Center. This ATF representative facilitated an exchange of operational 
intelligence that proved critical during the investigation of the first 
attack against the World Trade Center in 1993. Operational intelligence 
will be an essential component in resolving the latest terrorist events 
and preventing future events. On an ongoing basis, our ATF CIA 
representative is involved with tracking the international movement of 
U.S. manufactured firearms, explosives, and other contraband used in 
terrorist operations or the financing of terrorist operations.
    In addition, ATF's representatives to the FBI and CIA Counter-
Terrorism Centers coordinate their activities with ATF representatives 
to the Financial Crimes Enforcement Network (FinCEN), the El Paso 
Intelligence Center, and the INTERPOL National Central Bureau. In so 
doing, they are able to share intelligence related to suspicious 
financial transactions and other activities within ATF's purview. Most 
important is the sharing of threat assessments, which focus enforcement 
action.
    ATF has expanded its electronic link to the intelligence community 
and has initiated protocols for transmitting classified terrorism-
related intelligence from ATF Headquarters to field investigative 
elements. This link includes access to State Department and Defense 
Department classified data processing systems. The National Security 
Agency (NSA) has established a permanent detail position within the ATF 
Intelligence Division to provide ATF with real-time access to 
classified intelligence, international cable traffic, and national 
security information relevant to ATF's counter-terrorism efforts.
    ATF special agents and intelligence research specialists have 
supported security operations in numerous National Security Special 
Events, including the NATO 50 celebration, the Republican and 
Democratic National Conventions, the IMF/World Bank Conference, the 
United Nations General Assembly Millennium Meeting, and the 
Presidential Inaugural Ceremony. ATF had approximately 300 personnel 
participating in the security operation for the 2002 Winter Olympics in 
Salt Lake City and provided personnel and equipment throughout the 
event. ATF was well represented in the joint intelligence center, as 
well as the joint operational component.
    ATF is also a key player in the intelligence community-based Law 
Enforcement Working Group sponsored by the National Reconnaissance 
Office, under the direction of the Director of Central Intelligence. 
The Law Enforcement Working Group brings together representatives from 
Federal law enforcement and intelligence community organizations to 
focus on the appropriate and legal uses of technologies and data 
collected in support of law enforcement operations.
    ATF is appropriately situated and prepared to respond to the needs 
of our Nation, whether in our traditional role of investigating the 
criminal misuse of explosives and firearms, arson investigation, 
alcohol and tobacco diversion schemes, or contributing to our Nation's 
call to prevent and investigate terrorist acts. I would like to take 
this opportunity to briefly describe significant investigations that 
highlight ATF's integration and contribution to these efforts.
                      atf terrorism case examples
    ATF West Palm Beach Field Office.--This investigation was initiated 
as a firearms trafficking case. Foreign nationals, as well as U.S. 
citizens, were involved in the illegal purchase of explosives and 
firearms, including stinger missiles, on behalf of persons associated 
with the Taliban in Pakistan and Afghanistan. The suspects negotiated 
with an undercover ATF agent for the purchase of 200 stinger missiles, 
as well as a large quantity of assault rifles, T.O.W. missiles, and 
L.A.W.S. rockets. The weapons were to be transferred to members of the 
Taliban for use in Afghanistan. All suspects were arrested and 
indicted. ATF seized assets of individuals who had been hired to assist 
in money transfers and to launder diverted foreign funds into U.S. 
dollars. The funds for the purchase of the weapons came from Taliban 
and/or Al Qaeda sources in the Middle East. ATF partnered with the 
United States Customs Service, the FBI, the West Palm Beach Police 
Department, and the Palm Beach County Sheriff's Office in successfully 
investigating this case.
    ATF Ft. Lauderdale Field Office.--Firearms Trafficking 
Investigation: This case involved active members of the Provisional 
Irish Republican Army (IRA) who illegally purchased firearms and 
smuggled them into the Republic of Ireland for distribution in Northern 
Ireland. The suspects purchased the firearms at various Federal 
firearms licensees (FFLs) and through newspaper advertisements and gun 
shows in Ft. Lauderdale and Hollywood, Florida. The firearms were 
disassembled and packed into children's toys for shipment to Ireland. 
Once in Ireland, they were recovered by members of the Provisional IRA. 
All suspects in the U.S. were arrested, indicted and convicted of all 
firearms charges and are currently awaiting sentencing. Funds for the 
purchase of the firearms came from the Provisional IRA.
    Our fiscal year 2003 budget request will allow ATF to continue its 
efforts to reducing violent crime, contributing to homeland security, 
collecting all revenue due and protecting the public. The men and women 
of ATF are very appreciative of the Committee's trust and continued 
support, and as you will see, your investments have paid dividends. I 
now wish to highlight our accomplishments and detail our fiscal year 
2003 budget request, which will enable us to build on your investment.
                    fiscal year 2003 budget request
    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,'' through our three principal 
strategic goals: (1) to reduce violent crime; (2) to collect all 
revenue due to the United States; and (3) to protect the public. ATF's 
unparalleled expertise in firearms, explosives, and arson makes it an 
essential component of the Nation's homeland security efforts. ATF will 
continue to target its resources towards preventing and responding to 
crime and violent acts that threaten public safety and seek to instill 
fear in Americans.
    ATF's fiscal year 2003 Salary and Expense (S&E) request is 
$913,114,000 in direct budget authority and 5,106 full-time equivalents 
(FTE). Our request represents an increase of $30,836,000, or 3.5 
percent over the total fiscal year 2002 enacted level of $882,278,000.
    A share of this increase will assist in maintaining current 
services program levels for mandatory payroll costs and inflation. The 
remainder is required for the new ATF headquarters facility and to 
enhance ATF's Integrated Violence Reduction Strategy (IVRS) efforts, of 
which the Youth Crime Gun Interdiction Initiative (YCGII) is an 
integral part.
    A new ATF national headquarters building and relocation remain a 
top priority of the Department and the Bureau to ensure the safety and 
security of ATF's workforce. An increase of $10,700,000 is requested to 
support the construction project. These funds are needed for one-time 
agency costs associated with security-related aspects of the building, 
as well as contracts for technology and agency technical support and 
management.
    The $11,000,000 and 41 full-time equivalents requested for IVRS 
will allow ATF to apply lessons learned from the YCGII program and 
institute these successful practices in smaller communities, thereby 
having more of an impact on the youth crime gun problem. It will also 
allow ATF to expand YCGII to 10 additional cities. This request will 
enable ATF to further implement our critical role in the 
Administration's Project Safe Neighborhoods initiative, which is 
designed to reduce firearms violence through Federal and State and 
local law enforcement partnerships throughout the Nation.
    To carry out our duty to be sound stewards of the taxpayers' 
resources, we will continue to focus on improving our business 
practices, seeking better results at the lower cost. We will continue 
to refine the integration of budget and performance and use 
performance-based budgeting to determine the best way to use available 
resources.
    Because of your unwavering support, ATF is healthy and able to 
achieve its mission goals in a more effective and productive manner. I 
believe the Committee will be pleased with its investment in ATF, which 
is best demonstrated through our accomplishments.
                  fiscal year 2001 atf accomplishments
Reduce Violent Crime
    ATF initiated 15,852 YCGII, National Instant Criminal Background 
Check System (NICS), and other firearms investigations in fiscal year 
2001, resulting in 3,663 indictments and 4,179 convictions, which are 
16 and 36 percent higher, respectively, than in fiscal year 2000. 
Specifically, YCGII investigations rose 277 percent over fiscal year 
2000 levels to 2,306 investigations, producing a 62 percent rise in 
indictments and a 115 percent rise in convictions.
    ATF initiated 881 explosive investigations in fiscal year 2001, 
resulting in 271 cases being referred for prosecution, and 295 
convictions. This represents an increase over fiscal year 2000 of 22 
percent in investigations, 36 percent in cases referred for 
prosecution, and 235 percent in convictions. Additionally, ATF 
initiated 1,546 arson investigations in fiscal year 2001 and referred 
222 cases for prosecution, producing 136 indictments. This represents a 
23 percent increase in cases referred for prosecution and a 25 percent 
increase in indictments over fiscal year 2000.
    Some cases initiated in fiscal year 2001 are still ongoing and will 
ultimately result in additional cases referred for prosecution and, 
consequently, in additional indictments, defendants, and convictions.
    I would now like to present the primary programs in our efforts to 
combat violent crime and terrorism.
      integrated violence reduction strategy (ivrs)/project safe 
                             neighborhoods
    IVRS focuses on investigating violent career criminals and others 
prohibited from possessing firearms, as well as firearms traffickers 
who are responsible for diverting firearms to criminals. While IVRS is 
a national enforcement strategy, ATF recognizes that different 
communities have different law enforcement concerns. Therefore, IVRS 
integrates several core concepts that are adapted and applied in 
varying formulas to address the specific law enforcement needs of a 
community. Included in these efforts are the investigation of violators 
under the Youth Crime Gun Interdiction Initiative; the comprehensive 
tracing of crime guns by Federal, State, and local law enforcement 
agencies; and the effective regulation of the firearms industry. ATF 
also promotes community outreach through G.R.E.A.T., the Gang 
Resistance Education and Training curriculum that is delivered to 
middle-school students nationwide.
    Fiscal year 2002 enacted appropriations provided $3 million over 
the President's budget to increase the number of ATF agents to enforce 
existing firearms laws in support of the Administration's Project Safe 
Neighborhoods initiative. IVRS is an integral part of the President's 
Project Safe Neighborhoods initiative. It is a multi-agency initiative 
designed to tailor approaches to reducing gun violence to the unique 
needs of communities across the country.
    The following provides additional detail about several of the 
programs that make up IVRS:
Armed Violent Criminal Apprehension Program
    This program seeks to identify, investigate, and recommend 
prosecution of a wide range of firearms offenders: career criminals who 
use firearms, individuals who are actively involved in armed violent 
criminal activities or armed drug trafficking, and other categories of 
prohibited persons in possession of firearms (e.g., convicted felons, 
fugitives from justice, illegal aliens, and individuals convicted of 
certain domestic violence misdemeanors or subject to certain domestic 
violence restraining orders).
National Instant Criminal Background Check System (NICS) Referrals
    Since the implementation of the permanent provisions of the Brady 
Law in November 1998, 276,603 referrals of firearms purchase denials 
have been forwarded to ATF's Brady Operations Branch by the FBI 
National Instant Criminal Background Check System (NICS). The Brady 
Operations Branch, has reviewed and forwarded 70,899 of both delayed 
and standard (firearms not transferred) denials referrals to ATF Field 
Offices throughout the country for further investigation. Of this 
number, 12,657 were ``delayed denials,'' instances where a transfer of 
a firearm may have occurred.
    To date, a total of 2,737 NICS cases have been forwarded to U.S. 
Attorneys' Offices for prosecution, resulting in convictions of 340 
defendants. From November 1998 to the present, ATF has recovered or 
accounted for 7,058 firearms reported by the FBI to have been sold to 
prohibited persons.
    During the past fiscal year, the Brady Operations Branch initiated 
a system of screening the referrals received from the FBI in order to 
maximize the efficiency of limited personnel resources. These efforts 
on the part of the Bureau to maximize the efficiency of the NICS 
referral process greatly reduced the strain on existing resources thus 
allowing more focus on anti-terrorism efforts and other law enforcement 
efforts.
National Integrated Ballistics Identification Network (NIBIN)
    In addition to the firearms tracing process, which helps law 
enforcement officials identify the perpetrators of violent crime, ATF 
provides investigative support through its leadership role in the 
National Integrated Ballistic Identification Network (NIBIN), a 
contributing program of the IVRS initiative. NIBIN provides for the 
nationwide installation and networking of automated ballistic imaging 
equipment in partnership with State and local law enforcement agencies. 
This technology uses automation to compare more ballistics evidence 
than would be possible using only manual comparisons. Links between 
otherwise seemingly unrelated crimes are discovered, and investigative 
leads are generated for police follow-up. In addition, the system makes 
it possible to share intelligence across jurisdictional boundaries, 
enabling State and local law enforcement agencies to work together to 
stop violent criminals.
    In fiscal year 2001, NIBIN equipment assisted law enforcement 
agencies in finding 956 links, or ``hits.'' In each of these instances, 
evidence from two or more crime scenes was identified as being 
potentially connected. The evidence was then referred to a certified 
firearms examiner for physical comparison and confirmation of the 
links. Currently, 125 law enforcement agencies are making use of this 
valuable technology, and it will be available to more than 200 agencies 
by the end of fiscal year 2002. As additional agencies participate in 
the program, ATF expects that greater numbers of hits will be generated 
that will ultimately lead to the resolution of more violent crimes 
nationwide.space
Illegal Firearms Trafficking Enforcement Program
    The goal of ATF's illegal firearms trafficking enforcement is to 
reduce violent crime by identifying, investigating, and arresting 
individuals who illegally supply firearms to others prohibited from 
possessing them and to deter the diversion of firearms from lawful 
commerce into the illegal market.
Youth Crime Gun Interdiction Initiative (YCGII)
    YCGII, a component of IVRS (as well as the Illegal Firearms 
Trafficking Enforcement Program) focuses agent and inspector resources 
on contributing to a reduction in youth violence, using the unique 
assets of crime gun tracing. The goals of the YCGII are to identify and 
interrupt the illegal supply of firearms to youths through enforcement 
and research efforts. The initiative, which consists of partnerships 
with State and local law enforcement agencies in 50 metropolitan areas, 
involves the tracing of every crime gun recovered in those localities. 
Through the National Tracing Center (NTC), the Bureau is able to obtain 
investigative leads to develop cases against illicit firearms 
traffickers who supply firearms to youths.
    During the 1990's, ATF developed new information systems to 
reinforce our firearms enforcement efforts. We can now use the crime 
gun itself as a vital investigative and evidentiary tool by tracing it 
back to its criminal user or its illegal supplier. In doing so, we are 
able to identify, arrest, and refer for prosecution both armed violent 
felons and those who are illegally supplying criminals and juveniles 
with guns. The YCGII has been the platform for systematically 
developing and managing crime gun tracing information.
    During fiscal year 2001, ATF provided focused YCGII training to 
7,976 ATF, Federal, State, and local law enforcement officers. ATF also 
conducted two seminars for ATF YCGII coordinators and their State and 
local counterparts. These seminars reached 150 law enforcement 
personnel and increased the awareness of and participation in 
comprehensive crime gun tracing by the attending agencies.
    ATF recently submitted its first YCGII quarterly report to the 
Committee, outlining the results and substantial progress made in 
implementing the recommendations made by the Treasury Inspector 
General.
Comprehensive Crime Gun Tracing
    The Comprehensive Crime Gun Tracing Initiative that began in fiscal 
year 2001 provides nationwide comprehensive tracing capability and will 
provide faster trace results as technological upgrades are implemented. 
Consequently, there has been an increase of approximately 11 percent of 
trace requests over the year 2000, a percentage that is expected to 
rise. The National Tracing Center (NTC) provides State and local 
agencies with information on crime guns to support their law 
enforcement efforts by conducting over 230,000 traces in fiscal year 
2001 along with additional analysis. The NTC expects to receive in 
excess of 240,000 firearms trace requests in fiscal year 2002. 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 
multiple sales of handguns. The Firearms Tracing System (FTS) provides 
data on firearms that is used by ATF special agents and inspectors to 
identify illegal firearms trafficking. The NTC has established direct 
electronic connectivity to transmit trace requests with over 159 law 
enforcement agencies to include Mexico and Colombia to further improve 
the accuracy and efficiency of firearms tracing and analysis. In fiscal 
year 2001, 50 percent of the trace requests received by the NTC were 
transmitted electronically using this technology. ATF is also 
developing a web-based trace submission, response and analysis system 
to reach a greater customer base at a substantially reduced cost with 
further improvements the accuracy and efficiency of trace request 
submissions.
Gang Resistance Education and Training (G.R.E.A.T.)
    Another component of IVRS is ATF's Gang Resistance Education and 
Training (G.R.E.A.T) program. G.R.E.A.T. is a life skills competency 
program designed to provide middle-school children the ability to avoid 
gangs, resist conflict, make responsible decisions and develop a 
positive relationship with the law enforcement community. G.R.E.A.T. is 
designed to make attitudinal changes in children that will lead to a 
change in behavior. In fiscal year 2001, ATF provided funding to 200 
different agencies to support their participation in the G.R.E.A.T. 
Program, and 3,685 officers were certified to instruct in the 
G.R.E.A.T. program. Over 1,662 agencies have over 4,875 officers 
certified to teach the program. During fiscal year 2001, G.R.E.A.T. 
officers around the country taught approximately 389,787 school-aged 
children. Since the program began in 1992, nearly 3 million children 
have been taught. In addition, the program underwent a five-year 
longitudinal study by the National Institute of Justice. This study 
showed that the students who received the G.R.E.A.T. curriculum 
displayed less risk-seeking behaviors, showed lower rates of 
victimization, more negative attitudes towards gangs, and more positive 
attitudes towards police. This evaluation shows the effectiveness of 
the program and ATF's commitment to reducing youth violence nationwide.
    In fiscal year 2001, we continued our work with the Bureau of 
Indian Affairs (BIA) in an initiative to provide tribal police agencies 
training in the G.R.E.A.T. program. ATF provided two on-site training 
courses to BIA officers on tribal lands. These officers in turn then 
began to teach the G.R.E.A.T. curriculum to Native American children in 
their localities. We have scheduled an additional on-site training 
activity in fiscal year 2002 and will continue to work in a 
collaborative effort with BIA through their national conference and 
other conferences to promote the G.R.E.A.T. program to Native American 
officers and the community at large.
Arson and Explosives Enforcement
    ATF has been resourceful in addressing violent arson and 
explosives-related crimes through enforcement and training. ATF's arson 
and explosives programs function interactively to provide a 
comprehensive proactive and reactive force in the fight to protect the 
American public from the criminal use of fire and explosives. Through 
these programs, ATF personnel work to thwart criminal and terrorist 
activity involving explosives at nearly every level of the 
implementation process. ATF's focus on arson and explosives crimes 
continues to be a major Bureau priority.
    Our National Response Teams (NRTs) are comprised of highly trained 
and well-equipped professionals that can be deployed within 24 hours to 
major bombing and fire scenes anywhere in the United States. The NRTs 
were activated 26 times in fiscal year 2001 to investigate major fire 
and explosives incidents. Of these 26 activations, 24 were to fire 
scenes in the United States. Eleven fires were determined to be arson, 
seven were determined to be accidental fires, and the causes of six 
fires were undetermined. One response was to the September 11, 2001 
attack on the Pentagon, and one was to an incident that was determined 
to be an accidental explosion. These 26 activations involved 93 deaths, 
25 injuries, and nearly $700 million in estimated property damages. 
After-action customer survey results rate our NRT services at 90 
percent or higher in the law enforcement community. Since its inception 
in 1978, there have been 511 NRT activations.
    In addition to investigating fire and explosives incidents, the 
NRTs provide assistance to other Federal, State, and local law 
enforcement agencies during special events. In fiscal year 2001, the 
NRT provided support at the Special Olympics in Anchorage, the Asian 
Bank Conference in Honolulu, the Presidential Inauguration, and most 
recently, to the Winter Olympics in Salt Lake City.
    ATF's International Response Team (IRT) participates with the 
Diplomatic Security Service of the Department of State to provide 
investigative assistance at international explosives and fire 
incidents. There have been 21 IRT activations since its inception in 
1991. The team has responded to vehicle bombings in Peru and Macedonia, 
explosions in Argentina targeting the Israeli Embassy, and other 
incidents in El Salvador, Ecuador, Surinam, Pakistan, Grenada, and 
Korea. The IRT was activated three times in 2001, to assist foreign 
governments in explosives investigations and fire scene examinations. 
The IRT activations were as follows:
  --Peru in March of 2001 following a fire in the National Bank of Peru 
        that occurred during civil disturbances following the 
        Presidential elections;
  --The Federated States of Micronesia in March to examine a fire scene 
        in a government facility; and
  --In April of 2001 to assist the Guatemalan National Police in 
        examining improvised explosive devices.
    Also present at many of these events were ATF's explosives 
enforcement officers (EEOs), or bomb technicians. In fiscal year 2001, 
ATF EEOs traveled with the Department of State's Antiterrorism 
Assistance Team to assess the capabilities of 10 foreign countries to 
respond to terrorist or explosives incidents. In addition, the EEOs 
participated in each National and International Response Team callout, 
testified in criminal proceedings 24 times, rendered 237 technical 
assists, wrote 389 technical statements, and performed many other tasks 
in support of ATF's explosives mission.
    ATF conducted 1,546 arson investigations across the country in 
fiscal year 2001. ATF's highly trained special agent certified fire 
investigators respond to incidents at all times of the day and night to 
make an initial fire cause determination when there is evidence of 
potential criminal acts warranting further investigation. Our 85 
certified fire investigators are the only Federally trained fire 
investigators in the government.
    ATF opened investigations on 58 explosives thefts in fiscal year 
2001, and ATF's Arson and Explosives National Repository Branch (AENRB) 
recorded the thefts of nearly 50,000 pounds of explosives and the 
recovery of over 12,000 pounds.
    In 1996, Congress, recognizing ATF's expertise in the investigation 
of fire/arson and explosives-related incidents, passed legislation 
authorizing the Secretary of the Treasury to establish a National 
Repository of information regarding arson incidents and the actual and 
suspected criminal misuse of explosives throughout the United States. 
Treasury's authority over this system was included in an amendment to 
Title 18, United States Code, Section 846. Subsection (b) was added, as 
follows:
    ``The Secretary is authorized to establish a national repository of 
information on incidents involving arson and the suspected criminal 
misuse of explosives. All Federal agencies having information 
concerning such incidents shall report the information to the Secretary 
following such regulations as deemed necessary to carry out the 
provisions of this subsection. The repository shall also contain 
information on incidents voluntarily reported to the Secretary by State 
and local authorities.'' The Secretary of the Treasury tasked ATF with 
establishing this National Repository.
    The AENRB maintains a state-of-the-art database that now contains 
detailed information on over 112,000 arson and explosives incidents. 
This database, the Arson and Explosives Incidents System (AEXIS), is 
used to trace stolen and recovered explosive material and military 
ordnance. In addition to providing vital investigative services to law 
enforcement personnel worldwide, the AENRB uses information from AEXIS 
to provide threat assessment support to Federal agencies and major 
event security task forces.
    For example, in 2001, the AENRB played a significant role in the 
investigation and subsequent conviction of a former Chicago police 
laboratory evidence technician/chemist. The technician was responsible 
for six bombings in Freemont, California. Targets included the chief of 
police, a city councilman, a water tower, and a wealthy Taiwanese 
national. The AENRB used AEXIS to compare the devices' design and 
components with other device data already in the system. Based on the 
comparison, AENRB personnel deemed the devices the most sophisticated 
they had ever seen. After a 3-month State trial, the technician was 
sentenced to 37 years to life in state prison.
    In the spring of 2001, the AENRB embarked on a measured and focused 
program to connect the Nation's fire and explosion investigators to the 
latest in information communications and management technology. The 
project, known as the Bomb Arson Tracking System (BATS), is designed to 
facilitate and promote the collection and dissemination of fire, arson, 
and explosives information among participating agencies. As presently 
envisioned, participating law enforcement agencies and members with 
established National Crime Information Center (NCIC) access will be 
able to access BATS via personal computer and Internet. Once connected 
to the ATF-secured and maintained extranet server, participants will be 
able to enter information, query information (both locally and across 
agencies), and produce relevant reports.
    The AENRB coordinates explosives intelligence internationally with 
12 Bomb Data Centers throughout the world and is involved in planning 
and coordinating the establishment of Explosive Repository Centers in 
Mexico and Colombia (Plan Colombia). In fiscal year 2001, AENRB 
personnel provided presentations on the Repository's capabilities to 
2,158 representatives of Federal, State, local, and foreign law 
enforcement or explosives industry representatives.
    ATF continues to vigorously enforce the Federal explosives laws 
(which include the crime of arson) by providing state-of-the-art 
training and expertise to Federal, State, local, and international law 
enforcement partners. This training will be instrumental in preparing 
our law enforcement partners for the fight against terrorists using 
their conventional ``tool,'' explosives. AEXIS is a vital investigative 
threat assessment tool used to reduce the incidences of bombings and 
arsons. The value of ATF's investigative skills is demonstrated by the 
fact that arsons at houses of worship have been solved at approximately 
twice the commercial arson solution rate.
Explosive Detection Canines
    ATF-certified arson and explosives detection handler/canine teams 
support ATF's fire and explosives investigations. In fiscal year 2001, 
ATF's six special agent/canine teams searched 10,356 vehicles, 
buildings, or items during the execution of Federal, State, or local 
search warrants or in conjunction with searches or sweeps during ATF or 
Federal security details. Our canines supported preventive security 
efforts at such diverse events as the response to the September 11 
attack on the Pentagon, the Special Olympics, the execution of Timothy 
McVeigh, the 2001 Superbowl, and many others.
    The ATF Canine Training Center, located in Front Royal, Virginia, 
is now open and the kennels have been completed. In a training 
arrangement with the U.S. Department of State, ATF trains explosives 
detection canines for foreign countries to be used overseas in the war 
against terrorism, and to protect American travelers abroad. Since the 
start of the program in 1998, ATF has trained and certified 94 
accelerant-detection canines for State and local agencies. ATF has also 
trained and certified 310 explosives-detection canine teams for 
deployment in 13 countries around the world. Additionally, ATF has 
trained 47 explosives detection canine teams for other Federal, State, 
and local agencies, including the Federal Bureau of Investigation, the 
Central Intelligence Agency, and the Internal Revenue Service. With the 
funding provided in the fiscal year 2002 Anti-Terrorism Supplemental we 
will be expanding the canine training center in order to meet the 
increasing demand for these resources.
Explosives Study Group
    ATF's Explosives Study Group (ESG) is examining the tagging of 
explosive materials for purposes of detection and identification; 
possibilities for rendering of common chemicals used to manufacture 
explosive materials inert; 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 new prevention (explosives detection) technologies, as 
directed by section 732 of the Antiterrorism and Effective Death 
Penalty Act of 1996, as amended by the Omnibus Consolidated 
Appropriations Act for fiscal year 1997. A report on these findings is 
in the final stages of review.
    The ESG has also compiled a comprehensive list of State Licensing 
Requirements for the purchase and use of commercial high explosives, 
and is currently consulting with State regulators and industry members 
to develop recommendations for consideration by Congress that would 
advance public safety.
    The ESG has worked with The Fertilizer Institute (TFI) to expand 
the ``Be Aware for America'' program to address areas of vulnerability 
for distributors of ammonium nitrate fertilizer and agricultural 
chemicals. This expansion, the ``Be Secure for America'' program (an 
enhancement of the ``Be Aware for America'' program), is aimed at 
ensuring the security of the transportation, storage, and manufacturing 
of the agricultural chemicals produced and distributed.
    Additionally, the ATF is funding promising research at the Oak 
Ridge National Laboratory, including prototype development, 
engineering, and training on advanced sensing technologies for 
explosives detection. The ultimate objective is the development of a 
portable explosives detector that will function with a short, real-time 
response rate for trace amounts of explosives.
    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. The 
goal is to achieve 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.
Partnerships
    ATF continues its tradition of partnering with other Federal, 
State, and local agencies on developing protocols and partnerships that 
will enable us to efficiently utilize our resources in the fight 
against terrorism and violent crime. Some of the agencies we have 
partnered with include the Central Intelligence Agency, the United 
States Department of State, the Customs Service, the Secret Service, 
the National Transportation Safety Board, the Department of Justice, 
Federal Bureau of Investigation, the United States Department of 
Agriculture, and the United States Chemical Safety and Hazard 
Investigation Board and the new Transportation Security Administration.
    Additionally, ATF has worked to establish a rapport with industry 
organizations such as the International Society of Explosives 
Engineers, the Institute of Makers of Explosives, the American 
Pyrotechnic Association, and the National Shooting Sports Foundation.
    ATF's criminal investigative analysts (Profilers), assigned to the 
FBI's National Center for the Analysis of Violent Crime (NCAVC), spent 
2 years conducting research and interviewing 38 imprisoned bombing 
offenders. In June, they published the findings of their joint study 
with the NCAVC. The study, ``Behavior and Characteristics of Bomb 
Related Offenders,'' will serve as a catalyst for further research into 
understanding the motivations and characteristics of subjects who use 
explosives for criminal intent.
    Our profilers are also assisting in our Nation's war on terrorism. 
They are developing in-depth assessments of the 19 hijackers and the 
individual(s) responsible for utilizing mail services to deliver 
Anthrax spores, and they are working with their FBI counterparts to 
conduct ongoing threat assessments.
    ATF continues to serve on the United States Delegation to the 
Framework Convention on Tobacco Control at the World Health 
Organization and takes a lead in the negotiations on the protocol aimed 
at preventing smuggling and illicit trade in tobacco products that 
deprive the Government of revenues from these products. As such, ATF is 
considering hosting a conference for countries to begin informal 
negotiations on illicit tobacco trade later this summer.
    In March 2001, ATF entered into an agreement with United States 
Customs Service, the Royal Canadian Mounted Police, and the Canadian 
Customs and Revenue Agency to establish a working partnership on 
Contraband Cigarette Trafficking. As a first step, a Tobacco Threat 
Assessment is being developed to determine the nature and scope of the 
tobacco black market in the United States and Canada to gauge the 
threat posed by large scale cross-border and international cigarette 
trafficking.
                        collect the revenue due
    For fiscal year 2001, ATF continued to honor its obligation to 
fairly and efficiently collect approximately $14.1 billion in revenue 
in accordance with current laws. In fiscal year 2001, ATF collected the 
following revenue: $13.8 billion in alcohol and tobacco excise taxes; 
$176 million in firearms and ammunition excise taxes; $103.6 million in 
special occupational taxes; and $6 million in licensing and transfer 
fees, for a total of $14.1 billion.
    In fiscal year 2001, ATF collected an additional $4.2 million due 
to excise tax examinations and accepted approximately $1.6 million in 
penalties, interest, and offers to compromise taxes due for unpaid or 
underpaid taxes, and offers-in-compromise for other violations, such as 
record keeping violations.
    Additionally, in fiscal year 2001, ATF opened 77 alcohol and 
tobacco diversion investigations. Seizures of alcohol and tobacco 
monies and real property involved in criminal violations totaled over 
$1.8 million. Alcohol diversion investigations in fiscal year 2001 
resulted in 10 cases with 16 defendants being recommended for 
prosecution. Tobacco cases referred for prosecution were 20 with 37 
defendants being recommended for prosecution. There were 39 convictions 
recorded as a result of these criminal prosecutions. Several members of 
organized crime groups were successfully prosecuted for alcohol and 
tobacco related criminal activity.
    During 2001 and 2002, ATF mailed informational notices and floor 
stock tax returns to over 307,000 sellers of cigarettes for floor stock 
taxes that are due in April 2002. To date, we have collected over 
$980,000 in floor stocks taxes.
    In August of 2001, ATF's Strategic Leadership Team approved a 
proposal to establish a new ``Tax Audit Division'' within the Office of 
Alcohol and Tobacco. This new division will, when fully implemented, 
assume responsibility for field audits of excise taxpayers with annual 
tax liability over $250,000. This organizational change is intended to 
address concerns over decline in field audit activity in recent years 
and to ensure adherence to audit standards in the work performed. Much 
of the decline in audit activity is the result of redirecting inspector 
resources to firearms and explosives programs. ATF believes that an 
effective and efficient audit program is in the best interest of both 
the Government and the industry.
    In addition, in fiscal year 2001, ATF instituted a pilot program 
under Pay.gov. For fiscal year 2001, $1.9 billion, or 13 percent of all 
revenue collected by ATF, was through Pay.gov. Based on the collection 
figures, we estimate a modest increase of our tax collections will be 
received through the Pay.gov program in fiscal year 2002. ATF is 
committed to expanding availability of Pay.gov to all excise taxpayers. 
This E-gov initiative supports both the Government Paperwork 
Elimination Act and the President's Management Reform Agenda.
                           protect the public
Firearms Regulation
    As of January 2002, there were 103,358 Federal firearms licensees 
in the U.S. authorized to conduct commerce in firearms. In an effort to 
ensure firearms industry members fully understand the regulatory 
requirements of maintaining their license, we conducted 52 seminars for 
licensees in fiscal year 2001.
    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, short-
barreled shotguns, silencers, and destructive devices. At the end of 
calendar year 2001, the NFRTR had 1,419,220 items in the registry. 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, which will make it easier to 
verify the accuracy of the data in the computerized registration 
system.
    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 
calendar year 2001, FEIB received and processed 16,423 import permit 
applications, and 300 registration applications.
    In fiscal year 2001, ATF inspected approximately 4,000 licensees, 
resulting in the detection of 6A,675 violations and 1,011 referrals to 
law enforcement. ATF also inspected approximately 5,500 Federal 
Firearms License (FFL) applicants, resulting in the detection of 182 
violations and 184 referrals to law enforcement.
    To supplement the general inspections, ATF continues the 
implemented ``focused'' inspection policy begun in October 1998, that 
directs field 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 
possible illegal firearms trafficking.
Explosives Regulation
    In addition to the inspections of explosives industry members after 
the September 11 attacks, ATF inspectors carried a considerable 
workload throughout the year in helping to ensure the lawful storage of 
explosives materials. In fiscal year 2001, inspectors completed 5,364 
full inspections, which encompassed both explosives applications 
inspections and part of the 9,400 explosives licensees and permittees. 
They identified and corrected 1,813 violations. In fiscal year 2002 we 
will direct additional resources to conduct explosives inspections with 
the goal of achieving a 100 percent inspection rate.
Alcohol Regulation
    In fiscal year 2001, ATF processed over 81,000 applications for 
beverage alcohol label approval. This represents a 10 percent increase 
over the previous year. Twenty percent of these applications were 
denied approval due to non-compliance with regulatory and statutory 
requirements. Eighty percent of these applications were processed in 13 
days.
    ATF also initiated a project to develop and implement electronic 
submission of applications for label approval via the Internet. This 
will enhance processing time and efficiency and should increase 
customer satisfaction. We are holding a series of meetings with 
industry representatives to explain the system, answer their questions, 
and listen to their recommendations.
    ATF settled 12 cases involving alcohol beverage mislabeling in 
fiscal year 2001. Most resulted in monetary settlements while one 
particularly egregious case produced a 45 day suspension of winery 
operations.
    ATF continues to participate in various trade delegations headed up 
by the United States Trade Representatives' office that relate to 
global trade in the commodities that we regulate. Through this effort, 
we assist in improving the conditions for international trade that 
increases consumer protection and choices with respect to these 
commodities. Additionally, these improvements in global trade enhance 
the United States economy and the economies of our trading partners.
    We have initiated a number of projects to revise forms and 
regulations in the plain language style. These changes help to make 
requirements easier to understand and improve compliance by more 
effectively communicating legal obligations for industry members.
                        bureau-wide initiatives
Training for Foreign, Federal, State, and Local Authorities
    ATF continues to assist other Federal, State, and local agencies in 
their fight against terrorism and violent crime by providing training 
based on our unique expertise. For example, ATF is the leader in 
Federal law enforcement when it comes to providing training to 
thousands of Federal, State, local, and international law enforcement 
officers in the areas of arson investigation, explosive identification 
and regulation, firearms trafficking, and post-blast investigations. 
Sharing ATF expertise, technology and lessons learned helps to prepare 
America's first responders for preventing, mitigating, and 
investigating potential terrorist incidents, thus helping in the global 
fight against terrorism.
    I would now like to take a moment to highlight some of the 
outstanding training we provide.
Explosives Training
    For the past several years, to protect the Nation's largest 
airports, the Federal Aviation Administration (FAA) and ATF have teamed 
together to conduct national Seminars on Terrorism and Explosives 
(SEMTEX) and field training exercises that better prepare and train 
aviation, security, and law enforcement personnel in explosive 
countermeasure techniques. In fiscal year 2001, ATF trained 312 
personnel. ATF and FAA are currently updating this curriculum in light 
of September 11. In fiscal year 2002, 300 additional personnel are 
expected to be trained.
    During fiscal year 2001, we delivered the Advanced Explosives 
Destruction Techniques (AEDT) course 8 times to approximately 200 
students. This has been one of our most successful State and local 
training programs and is in great demand. The audience for this 
training is State and local bomb technicians. ATF explosives experts 
developed this course because more bomb technicians are injured while 
trying to dispose of recovered explosive materials than performing any 
other activity, including render safe operations on unknown improvised 
devices discovered in the field. It is the only training of its kind in 
the country. To meet the large demand we again have increased the 
number of courses to be offered this fiscal year to twelve.
    During fiscal year 2002, ATF in conjunction with the U.S. 
Department of Education, will develop a CD-ROM training platform titled 
Bomb Threat Management and Response. This training CD-ROM will provide 
a standardized bomb threat management and response template that can be 
used by school administrators to develop a customized response program 
for their individual school. This CD-ROM will be completed in April 
2002 and distributed to all school districts, local law enforcement 
offices and ATF offices. It is anticipated that ATF field personnel 
will be called upon by the school districts to help establish and 
implement these management and response plans.
International Training
    Through a continuing partnership with the Department of State, ATF 
conducted 5 training sessions at various International Law Enforcement 
Academies (ILEAs). We provided training to 1,031 law enforcement 
officers from more than 30 countries, including courses on basic and 
advanced firearms and explosives identification, firearms trafficking, 
postblast investigation, serial number restoration, and alcohol and 
tobacco licensing, taxation, and diversion.
Firearms Training
    In support of the President's Project Safe Neighborhoods (PSN) 
initiative, ATF has developed a training program that will provide 
necessary tools and information to all participants. The target 
audience for this training includes Federal, State, and local line 
prosecutors, Federal, State, and local investigators, and uniformed 
police officers and local police department managers. Last month 
(January), ATF provided an intensive three-day training program in 
Reno, Nevada to the U.S. Attorney's Office, the Reno Police Department, 
and other State and County law enforcement and prosecutorial personnel 
from the area. This training event provided nearly 300 law enforcement 
officials with training that will enable them to implement the PSN 
strategy in the Reno, Nevada area and make their community a safer 
place for all.
    Through the National Firearms Examiner Academy (NFEA), ATF 
developed a unique and innovative training program that has received 
much acclaim and recognition. This successful program represents a firm 
partnership between ATF, State and local police departments, and the 
firearms and ammunition industry. Designed to provide comprehensive 
training to entry level firearms examiners from State and local crime 
labs, the NFEA has developed a yearlong training curriculum that has 
become an all-inclusive benchmark for education in this field. The 
selection process is highly competitive and the course work demanding; 
to date, ATF has graduated 18 examiners. Examiners completing this 
training are skilled in the ATF NIBIN technology, which greatly 
enhances the efficiency and effectiveness of ballistics evidence 
analysis and gun crimes solved.
Arson Training
    ATF and the U.S. Fire Administration (USFA) are redesigning and 
deploying a web-based system managed by the USFA, entitled ``Fire and 
Explosion Investigation Management System.'' This system will include 
information on fires and fire-related explosives incidents that occur 
nationwide for use by the fire and explosion investigation community. 
In partnership with the insurance industry, we have finalized the 
development and begun the distribution 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. To date, we have contracted to create and 
distribute approximately 30,000 CD-ROMs.
    To strengthen cooperation between investigators and prosecutors, 
and to encourage prosecution of cases, ATF provided four Advanced Arson 
for Prosecutors classes in fiscal year 2001, training 119 prosecutors 
from across the country.
    During fiscal year 2001, two classes were delivered in Advanced 
Cause and Origin/Courtroom Techniques at the Federal Law Enforcement 
Training Center. This highly advanced and technical program provided 
training to 60 students from across the country. These individuals are 
full-time public safety employees whose workloads are focused primarily 
upon the investigation of arson-related crimes.
Human Resource Strategies and Accomplishments
    fiscal year 2000 annualization of expanded programs and 
supplemented by fiscal year 2001, action by the Committee created an 
intensive hiring effort by ATF this past year. Expansions were made to 
the IVRS and its component program, YCGII, crime gun tracing and NIBIN. 
In an effort to backfill positions lost through normal attrition and 
simultaneously hire hundreds of new personnel, ATF processed 367 gains 
to the agent rolls, 184 gains to the inspector rolls, and 310 support 
positions, totaling 861 personnel actions. These efforts supported a 
489 net gain to the Bureau's rolls with 291 agents, 153 inspectors, and 
45 support personnel. ATF started the year with 4,597 on duty and ended 
with 5,086. Over 200 new special agents and 148 new inspectors were 
provided basic training classes at the Federal Law Enforcement Training 
Center.
    ATF completed the second year of a pilot Treasury Demonstration 
Project for Designated Critical Positions that addresses major 
recruitment and retention issues. The pilot program, authorized by 
Congress in 1998, allowed ATF to test new management practices designed 
to improve our capacity to recruit, develop and retain a workforce of 
the highest caliber. The project includes a broad banding and pay-for-
performance compensation system. Also included are other flexible 
recruitment and retention options, such as expanded recruitment and 
relocation bonuses, retention allowances, certification and licensure 
bonuses, and education supplements. Unlike other demonstration 
projects, ATF employees were given the option of participating. 
Approximately 90 percent of the eligible employees (primarily in our 
scientific and technical occupations) elected to participate in the 
project.
    We are continuing to enhance our pilot flexi-place program for 
field inspectors that we established last year. Data collected during 
the implementation of the flexi-place pilot for field inspectors 
indicates significant interest in continuing the program. Therefore, 
ATF is preparing to expand the flexi-place pilot project to include 
bargaining unit employees at ATF Headquarters within the next few 
months.
Internal Training Activities
    Excellence in performance and programs requires continuous training 
and development, and the Bureau is committed to fully developing the 
individual and collective skills of its employees. ATF provides high 
quality, innovative training programs, thus improving individual and 
organization performance in support of ATF's Strategic Plan.
    In fiscal year 2001, ATF provided nearly 9,000 training sessions 
for ATF personnel. ATF provided basic training to 212 agents and 148 
inspectors through the New Professional Training program (NPT). The New 
Professional Training Program is designed to provide a uniform approach 
to the training and development of new ATF employees. Training 
initiatives enhance employee development and performance in a variety 
of technical training programs, which seek to expand the base of 
employee knowledge and improve skills regarding ATF's roles, missions, 
and capabilities. In much of the technical training provided, there are 
either pre-tests for admission or academic requirements for graduation. 
In addition, lessons on ethics and integrity, customer service, 
teamwork, and accountability to the American public are woven into many 
of the training programs.
Physical Security and Safety Program Focus
    Although we have always treated the safety and security of our 
employees and assets as high priority concerns, the events of September 
11 and subsequent events increased both our sensitivity to the risks 
that confront us and our efforts to enhance protection and 
responsiveness. Our multi-faceted response to terrorist threats 
included and continues to include a range of activities. We have re-
evaluated our physical security program throughout the Bureau and have 
already begun addressing areas in which we see room for improvement. 
Working both as an individual bureau and as part of a Treasury-wide 
effort, we have enhanced our emergency management efforts by updating 
our Continuity of Operations plans, establishing an Emergency 
Management Operation Center, improving employee understanding of 
evacuation and relocation plans, and upgrading the functionality of our 
relocation sites.
    To prevent job-related injuries and illnesses, we acquired 
respiratory protection equipment for all special agents and other 
employees who may be exposed to hazardous materials. We made 
substantial progress on an ATF hazardous material protection directive 
that addresses a wide range of issues including use of respiratory 
equipment, training, physical requirements, and medical monitoring of 
individuals who have had exposures. The various components of our 
hazardous materials protection program are of vital importance to ATF 
because of our responsibilities in investigating arsons and because of 
the risk of chemical and biological exposures during investigations of 
terrorist activities. That directive will be issued in the first half 
of fiscal year 2002. Through information dissemination and training, we 
have educated our employees so they may identify and properly handle 
any potential threat that may be present in the large volume of 
packages and documents we receive. In addition, we have implemented 
special mail handling and routing procedures to minimize the 
possibility of exposure to biological and chemical threats.
                    critical infrastructure projects
New Headquarters Facility
    Today, a new site for the permanent home of the Bureau of Alcohol, 
Tobacco and Firearms is a reality. With the unwavering support of this 
body, ATF and GSA made significant progress in fiscal year 2001 towards 
relocation of ATF to a safer and more secure headquarters for its 
workforce and mission. Our new headquarters is being heralded as having 
one of the most significant design concepts for a Federal office 
building located in a major urban center. Building construction for the 
new ATF headquarters will begin in January 2003. Accordingly, in our 
fiscal year 2003 budget, we are requesting $10.7 million to fund our 
project involvement with GSA, which includes reimbursable agency 
construction items, and a state-of-the-art technology and security 
infrastructure and construction process. ATF will remain a full partner 
to GSA for daily management and coordination activities throughout the 
construction project. Strategies to provide the best opportunity for 
cost controls and savings are being incorporated at each juncture. ATF 
plans to occupy this landmark facility in the second quarter of fiscal 
year 2005.
New National Laboratory Center
    The ATF National Laboratories provide service for the domestic war 
on terrorism through our expertise in investigating and analyzing 
evidence related to firearms, explosives and arson crimes. ATF is 
grateful our scientific operations and national forensic investigation 
programs will soon be carried out in a new ATF National Laboratory 
Center facility. During 2001, enormous strides were made on this 
project. By the end of the fiscal year, we were 60 percent complete 
with site and construction, major mechanical systems on site to be 
installed. Today, the interior systems are being prepared and 
technology infrastructure and wiring are about to begin. ATF will move 
from its outdated Rockville laboratory to the new facility by December 
of this year. We are excited to have the opportunity to advance our 
mission and provide even greater capabilities in identifying criminals 
and collecting revenue. Important breakthroughs in facilities 
engineering during the design of the Fire Research Center of the new 
National Laboratory will allow ATF to test and gather scientific data 
from reconstructed fire scenes as large as a two-story town house. The 
fire science and arson investigation communities will greatly benefit 
from the work of the Fire Research Center. As members of the Committee 
are aware, costs for the project went beyond what was anticipated. ATF 
is grateful for the support received through fiscal year 2001 
reprogramming and Treasury commitments, and we are confident these 
investments are in the very best interest of the law enforcement, the 
science community, and the citizens we protect.
Expansion and Renovation of Martinsburg Facility
    Renovation of the Martinsburg facility is a 10-month construction 
effort projected to begin on June 1, 2002. We believe that we will be 
able to begin relocation of the Tracing Center prior to final 
completion of the construction as individual areas in the building are 
completed. If there are no delays in the construction, it should be 
completed by March 31, 2003. Complete relocation of ATF'S National 
Tracing Center will follow immediately. The Committee's support of this 
facility is greatly appreciated.
                     president's management agenda
Information Technology
    We continue to place the best available technology into the hands 
of each ATF employee, enabling us to work more efficiently and to 
achieve our strategic goals. In August 2001, we began our first seat 
management equipment refresh cycle, which will replace about 6,500 ATF 
desktop and laptop computers under our Seat Management contract. We 
will complete the nation-wide replacement by mid-March 2002. We 
continue to lead the Federal Government in outsourcing our end-user-
computing support to Unisys Corporation, and in providing the best 
possible support to the personnel responsible for carrying out the 
Bureau's missions.
    One significant effort we started in May 2001 was the 
implementation of a disaster recovery system. This system will provide 
ATF with the ability to run either any mission critical application 
from a primary or an alternate location. This effort took on a greater 
significance after the events of September 11. This project is almost 
complete; we have successfully tested the recovery of all Headquarters 
mission critical applications at our alternate site in West Virginia.
Security Measures
    Another significant information technology effort for the Bureau is 
improving the security posture of all systems. All ATF systems undergo 
a rigorous certification and accreditation process to ensure risks are 
assessed and either addressed or mitigated. Internet vulnerabilities 
are assessed and addressed on a continuing basis. The Bureau has 
implemented rigorous configuration management and systems development 
life-cycle processes. These processes ensure that systems in 
development are designed to be as secure as possible, and that changes 
to operational systems do not introduce security vulnerabilities. ATF 
has a documented computer security incident response plan that provides 
early indication of potential problems and a proactive response to 
actual problems. Finally, a system auditing capability is being 
implemented to track detailed user actions in all systems and identify 
additional potential security issues. We have made remarkable progress 
in securing our information technology systems over the past year.
E-Government
    In May 2001, ATF's Strategic Leadership Team approved the formation 
of an office under the CIO to manage ATF's electronic filing projects 
and strategies. Using current Internet based technologies; ATF's goal 
is to provide the necessary tools to permit the 630,000 members of the 
alcohol, tobacco, firearms and explosives industries to file required 
forms and reports using secure Internet transactions.
    ATF developed a Business Case for fiscal year 2002 and fiscal year 
2003 for its E-Government Investment. The fiscal year 2002 Business 
Case was presented to and endorsed by Treasury's Capital Investment 
Review Board.
    Although the completion of full electronic transactions with 
external customers relies on integration projects, ATF is developing 
the following interim solutions:
  --E-COLA.--Responding to the alcohol beverage industry's request to 
        file Certificates of Label Approval electronically, ATF funded 
        the development of the electronic Certificate of Label Approval 
        system. The system is scheduled to be completed by the end of 
        fiscal year 2002.
  --Firearms Services Technological and Management Enhancements.--In 
        fiscal year 2001, appropriated funds were earmarked to provide 
        technological and management enhancements to the National 
        Licensing Center, the National Firearms Act Branch, and the 
        Firearms and Explosives Imports Branch. The 2 million earmark 
        was utilized for three significant developments: 
        standardization of all the data elements between the various 
        Services databases, so that all the databases will be 
        consistent and will be able to ``speak'' to each other; 
        development of retrievable management analytical reports 
        through creation of a metadata layer; and development of a 
        prototype which, after development and testing, will enable 
        electronic submission (e-filing) of the Imports permit 
        application.
  --Firearms Tracing.--In fiscal year 2001, web-based tracing 
        capabilities for the Electronic Trace Submission System (ETSS) 
        began a pilot project. Since ETSS saves at least 4 days in the 
        processing time for firearms trace requests, the current phase 
        of the FIT project is developing solutions to expand the system 
        for use by other police agencies.
  --Pay.gov.--In fiscal year 2000, ATF entered into a partnership with 
        Treasury's Financial Management Service (FMS) to pilot a 
        Government-wide system, called Pay.gov, for conducting 
        financial transactions between agencies and their external 
        customers. Beginning in fiscal year 2001, a limited number of 
        excise taxpayers have participated in filing their excise tax 
        returns and payments through Pay.gov. As of October 1, 2001, 
        $1.9 billion in tax payments have been processed through this 
        system. In fiscal year 2002, FMS will extend the capabilities 
        of Pay.gov to include a pilot with ATF for filing monthly 
        operating reports submitted by the companies included in the 
        tax return pilot.
  --FFL-EZ Check.--Responding to a need for firearms licensees to check 
        the license status of purchasers who identify themselves as 
        Federal firearms licensees, ATF developed the FFL-EZ Check 
        system in fiscal year 2000. Currently, the FFL-EZ check system 
        has been accessed over 100,000 times for FFL verification.
                               conclusion
    Since the tragic events of September 11, our National priorities 
and the priorities of our Government institutions appropriately 
changed. Although it has always been the responsibility of Government 
to ensure the safety and well being of those we serve, ATF's 
contribution to these efforts are even more critical. I assure you that 
ATF is ready to meet the new challenges that lie ahead.
    ATF will continue our National effort in combating terrorism and 
violent crime through effective use of investigative techniques, 
cutting-edge technology and collaborative sharing of Federal resources 
with our Federal, State and local law enforcement counterparts. Through 
judicious management and use of the resources you provide the Bureau 
will continue to make America sounder and safer by reducing violent 
crime, collecting revenue, and protecting the public. 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 providing the best service to the American people.

                  Financial Crimes Enforcement Network

STATEMENT OF JAMES SLOAN, DIRECTOR
    Senator Dorgan. Next, we will hear from the Director of the 
Financial Crimes Enforcement Network, Mr. James Sloan. Mr. 
Sloan, you may proceed.
    Mr. Sloan. Thank you, Mr. Chairman, Senator Campbell, 
Senator Reed. Thanks to all of you for this opportunity to 
appear today to discuss the Financial Crimes Enforcement 
Network's fiscal year 2003 budget. We greatly appreciate your 
ongoing consideration of our needs.
    Last year was an important and pivotal year for FinCEN. The 
tragedy of September 11 brought about a greater demand for our 
unique network and analytical expertise in the areas of 
financial crime and terrorist financing. Mr. Chairman, I would 
like to say how very proud I am of the men and women of FinCEN 
who, like many of my colleagues you have heard from today 
throughout Government, are making significant contributions in 
our Nation's war against terrorism.
    My remarks today will briefly summarize our priorities as 
we move forward to meet our obligations, and thank you for 
including my entire statement in the record.

                    COUNTERTERRORISM INVESTIGATIONS

    Today, FinCEN's top priority is supporting counterterrorism 
investigations. On September 13, because of our unique mission 
capabilities and our existing infrastructure, we were able to 
immediately implement several new initiatives and enhance core 
programs to assist in the investigation of the attacks on the 
United States.
    We directed over 30 percent of our resources to the initial 
investigation and those efforts included, for instance, the 
establishment of a 24-hour operations center to coordinate 
investigative requests and responses, which included enhanced 
on-site liaison with the FBI's Counterterrorism Center and 
eventually U.S. Customs' Operation Green Quest. We established 
a 24-hour, toll-free hotline for financial institutions to 
report the essence of suspicious transactions that might relate 
to terrorist activity. We began facilitating multi-agency 
efforts by temporarily housing the Foreign Terrorist Asset 
Tracking Center at FinCEN in our secure facility, alongside our 
own existing interagency task force operations, and by 
enhancing international cooperative efforts with other Nations' 
financial intelligence units. In fact, in October of 2001, 
following the FATF meeting that was earlier discussed, FinCEN 
hosted a special meeting of the Egmont Group of FIUs on 
terrorist financing to support the law enforcement 
investigation in the wake of September 11.

                            USA PATRIOT ACT

    In addition to FinCEN's immediate responses to September 
11, Title III of the USA PATRIOT Act has provided us with new 
authorities and opportunities to augment our primary mission to 
support law enforcement. In fact, FinCEN is responsible for 
implementing over half of the 44 provisions contained in Title 
III and has a key role in many of the working groups 
established by the Department of the Treasury to address the 
other provisions; all of which have various due dates over the 
next 9 months.
    Though we are making good strides in implementing the 
numerous provisions of the USA PATRIOT Act, I would be remiss 
if I did not add that the resource implications of the Act 
cannot be fully estimated at this time, and could be 
substantial in the years to come. So I would like to thank you 
and the members of the subcommittee for the timely support you 
have already provided to FinCEN through the Homeland Security 
Emergency Supplemental. Your responsiveness is enabling us to 
meet our immediate increased obligations.

                     USE OF INFORMATION TECHNOLOGY

    As Director, I can assure you that FinCEN will continue to 
explore creative ways to effectively leverage resources. In 
fact, two of our most successful programs for providing 
Federal, State, and local law enforcement with Bank Secrecy Act 
data rely heavily on leveraging our resources with cutting-edge 
information technology. That would include our popular Gateway 
program. In fact, in fiscal year 2001, we supported a 10 
percent increase in investigative requests through that 
program.
    More than 300 Gateway customers now participate in our 
Secure Outreach Direct Net, which allows them to obtain Bank 
Secrecy Act data over the Internet in a secure mode. In fact, 
one of the most useful features of the Gateway program alerts 
FinCEN that two or more agencies have an interest in the same 
subject. Last year alone, there were over 1,500 opportunities 
for FinCEN to connect law enforcement agencies at the State, 
local, or Federal level with one another because they were 
inquiring on the same individual.
    Besides providing case support to law enforcement, FinCEN 
continues to provide a unique capability to identify trends, 
patterns, and national level security issues, disseminate 
information on money laundering methodologies, and prepare 
geographic threat assessments associated with money laundering 
and other financial crimes. We have established a Geographic 
Financial Crimes Assessment Branch to enhance FinCEN's capacity 
to produce strategic analysis, threat assessments, and 
financial lead information.

                      FINCEN'S REQULATORY MISSION

    FinCEN's regulatory mission that serves as the foundation 
of our ability to carry out our primary function of providing 
support to law enforcement investigations was heavily impacted 
by the USA PATRIOT Act. Although FinCEN was in the process of 
expanding certain provisions of the Bank Secrecy Act to 
financial sectors beyond depository institutions, the USA 
PATRIOT Act has accelerated that effort.
    We are working closely, for instance, with the securities 
industry to issue the broker-dealer suspicious activity report 
rule and recently proposed a casino suspicious activity report 
rule to ensure that we have fully explained to that industry 
how the standard for reporting suspicious activity will be 
applied.
    Moreover, as the subcommittee is aware, FinCEN's regulatory 
program to register and require money services businesses to 
report suspicious activity has been, and continues to be, a 
significant undertaking. Today, I am pleased to report that the 
response of money services businesses has been outstanding. In 
fact, within 2 weeks of the requirement, over 80 percent of the 
almost 11,000 money service business principals in the United 
States that were required to register had, in fact, registered. 
The efforts are continuing to pay off as FinCEN continues to 
work with its public relations contractor to continue an 
outreach effort with the industry through the remainder of the 
year.
    In addition, we are working closely with the Internal 
Revenue Service's Office of Examination to reinforce and build 
on this effort to alert all money services businesses to their 
registration and reporting obligations. And our new MSB 
website, www.msb.gov, provides guidance, forms, and other 
information to assist the industry in complying with the rules.
    In the international arena, FinCEN's steady, persistent 
efforts to promote global cooperation are another of our 
success stories. The financial intelligence unit network, which 
FinCEN has been in the forefront of helping to promote, has 
grown from a handful in 1995 to the current membership of 
almost 60 Nations.

                           PREPARED STATEMENT

    I once again want to thank the subcommittee for its 
continued support of FinCEN over the years. Without your 
support, FinCEN could not have progressed so far or been nearly 
as effective. We respectfully request your continued support as 
we work with other Federal agencies to fight terrorism, conduct 
our core business activities, and implement the USA PATRIOT 
Act. Thank you.
    Senator Dorgan. Thank you, Mr. Sloan.
    [The statement follows:]

                  Prepared Statement of James F. Sloan

    Mr. Chairman, Senator Campbell, and members of the Subcommittee, 
thank you for this opportunity to appear before you today to discuss 
the Financial Crimes Enforcement Network's (FinCEN) fiscal year 2003 
budget request. We greatly appreciate your ongoing consideration of our 
needs.
    As everyone knows, the horrific events of September 11 changed our 
Nation forever. That tragic day also changed FinCEN forever and the 
demand for FinCEN's services rose exponentially. Mr. Chairman, I would 
like to say how very proud I am of the men and women of FinCEN, who, 
like their colleagues throughout the Government, have risen to the 
challenge and are making significant contributions in our Nation's war 
against terrorism.
    Last year was a pivotal year for FinCEN--the tragedy of September 
11 brought about a greater recognition of, and appreciation for, our 
unique network and analytical expertise in the areas of financial crime 
and terrorist financing. Moreover, the USA Patriot Act of 2001 codified 
FinCEN as a bureau and added numerous responsibilities and accelerated 
deadlines in the regulatory area. In addition, we continued our Money 
Services Businesses (MSBs) outreach program and implemented the 
registration and suspicious activity reporting requirements, effective 
at the end of last year.
    My statement today will elaborate on these and other ways in which 
FinCEN is supporting the September 11 investigation and carrying out 
the agency's most immediate obligations under the USA Patriot Act. I 
will then focus on our fiscal year 2003 budget request and the 
accomplishments we have achieved in fiscal year 2001.
   fincen's top priority--supporting counter-terrorism investigations
    Prior to the terrorist attacks of September 11, FinCEN's 
Intelligence Liaison Office had been analyzing Bank Secrecy Act (BSA) 
information in support of law enforcement investigations into terrorist 
financing. On September 13, FinCEN's expertise in money laundering and 
financial crime was recognized and we were requested by law enforcement 
to provide immediate assistance to the investigation. The agency was 
well positioned to act quickly to this request. FinCEN's mission and 
its programs already had been designed to provide exactly the type of 
comprehensive, interagency information sharing and support that is now 
needed in this Nation's war against terrorism.
    Because of our existing infrastructure, FinCEN was able to 
immediately implement several new initiatives and enhance core programs 
to assist in this investigation. With our workforce of less than 300 
FinCEN employees, contractors, and detailees, these additional demands 
placed a significant strain on our ability to perform day-to-day 
mission-related activities. We directed approximately 30 percent of our 
resources to the initial investigation and these efforts included:
    Establishing a 24-Hour Operation Center.--To coordinate 
investigative requests and responses which included enhanced on-site 
liaison with the FBI Counter-terrorism Center and the U.S. Customs 
Service's Operation Green Quest;
    Establishing a Toll-Free, 24-Hour Hotline.--For financial 
institutions to report suspicious transactions that might relate to 
terrorist activity, thus making the information available to law 
enforcement in real time;
    Facilitating a Multi-Agency Effort.--Using our specialized tools 
and secure facility. FinCEN was called upon to make its secure facility 
available to the Foreign Terrorist Asset Tracking Center (FTAT) as a 
temporary measure. Aside from logistical assistance provided to the 
FTAT, FinCEN's importance to FTAT lies in our ability to network 
agencies having common investigative interests, the information 
contained in our BSA databases, and in the human and technological 
expertise used in manipulating financial data to identify relationships 
between people, places, organizations, and financial transactions; and,
    Enhancing International Cooperation Efforts.--With other Nations' 
Financial Intelligence Units (FIUs) to share information and work 
together on joint analytical projects. These specialized agencies, 
created by Governments to fight money laundering, first met in 1995 at 
the Egmont-Arenberg Palace in Belgium. Now known as the Egmont Group, 
FIUs meet annually to find ways to cooperate, especially in the areas 
of information exchange, training, and the sharing of expertise. In 
October 2001, FinCEN hosted a special meeting of the Egmont Group on 
terrorist financing to support the unprecedented law enforcement 
investigation in the wake of the events of September 11.
    Before I proceed with my statement, I would like to thank you and 
members of this Subcommittee for the support that was provided to 
FinCEN in the Homeland Security Emergency Supplemental. The $1.7 
million and 9 FTE gave FinCEN the funding necessary to cover our 
expanded responsibilities in the wake of the terrorist attacks of 
September 11.
                        usa patriot act of 2001
    Congress recognized the need to expeditiously make additional tools 
available to law enforcement to fight money laundering and terrorist 
financing by passing the USA Patriot Act (the Act). On October 26, the 
President signed this landmark bill into law. Title III of the Act 
provides FinCEN with new authorities and opportunities to augment our 
primary mission to support law enforcement investigative efforts and 
foster interagency cooperation against domestic and international 
financial crime.
    In fact, FinCEN is responsible for implementing 23 of the 44 
provisions contained in Title III and also has a key role in many of 
the working groups established by Treasury to address the other 
provisions. Fortunately, many of the 23 provisions reaffirmed, and in 
some cases, codified many programs and initiatives that were already in 
place or under discussion at FinCEN. Briefly, I would like to provide 
the Subcommittee with a short summary of the progress FinCEN has made 
to date on implementing some of these provisions.
             cooperative efforts to deter money laundering
    Section 314 of the Act requires that the Treasury Department 
promulgate regulations, within 120 days, to encourage further 
cooperation among financial institutions, their regulatory authorities, 
and law enforcement to share information with financial institutions on 
individuals, entities, etc., that are reasonably suspected to be 
engaged in terrorism or money laundering.
    On February 25, the Secretary approved an interim final rule 
immediately implementing information sharing procedures between 
financial institutions that are designed to enhance the institutions' 
ability to identify and report to the Federal Government instances of 
terrorism or money laundering. The interim final rule requires 
financial institutions that wish to share information with one another 
to provide a yearly certification to FinCEN, which can be accomplished 
through our web site. The certification requires participants to 
protect the confidentiality and security of shared information and use 
the information solely for identifying and reporting suspected 
terrorism or money laundering.
    At the same time, the Secretary approved the issuance of a notice 
of proposed rulemaking of a regulation designed to establish a link 
between Federal law enforcement and financial institutions so that 
vital information about terrorism and money laundering can be quickly 
and efficiently exchanged between them. The proposed rule uses the 
communications resources and networking ability of FinCEN to quickly 
locate the accounts of persons and entities engaged in such illegal 
activity. Federal law enforcement will provide the identities of 
suspected terrorists and money launderers to FinCEN, which will 
distribute the information to financial institutions to check for 
accounts and transactions. Any matches found will be immediately 
transmitted to law enforcement for appropriate follow up. The rule is 
intended to formalize and streamline the information sharing and 
reporting process the Federal Government undertook following the 
attacks of September 11, 2001, by permitting FinCEN to serve as a 
conduit for information sharing between Federal law enforcement 
agencies and financial institutions.
Bureau Status for FinCEN
    Section 361 of the Act establishes FinCEN as a bureau within the 
U.S. Department of the Treasury. Codification of bureau status also 
reflects the Congress' recognition that FinCEN is a small but highly 
effective Government agency that should be put on equal footing with 
the other Treasury bureaus. FinCEN has now been given full 
administrative authorities associated with such status. For example, 
bureau status allows for the acceleration and streamlining of the 
hiring and procurement process.
Electronic Filing of BSA Reports
    Section 362 of the Act requires FinCEN to develop a highly secure 
network to allow financial institutions to file BSA reports and to 
supply financial institutions with alerts and other information 
regarding suspicious activities that warrant immediate and enhanced 
scrutiny. FinCEN has been working to implement this requirement and has 
awarded a contract for the prototype and pilot. We expect the pilot 
program to be completed in late summer.
Law Enforcement Access to Currency Reports by Non-Financial Businesses 
        (Form 8300)
    Section 365 of the Act requires that the Treasury Department 
prescribe new regulations for filing currency reports by non-financial 
businesses with FinCEN. (Before the Patriot Act became law, the 
Internal Revenue Service (IRS) was required to collect Form 8300 
information under Section 6050I of the Internal Revenue Code. This 
information was considered tax return information and was not readily 
available to law enforcement.) FinCEN has worked diligently with 
Treasury to issue these new regulations and on December 20, 2001, an 
interim rule and a companion notice of proposed rulemaking were issued. 
As of February 20, FinCEN began receiving the 8300 data from IRS.
    Our fiscal year 2003 budget request will allow FinCEN to continue 
its efforts to support law enforcement investigations to prevent and 
detect money laundering, terrorist financing, and other financial 
crimes. We are very appreciative of the Subcommittee's continued 
support, which has enabled us to construct a cost-effective 
technological infrastructure. I would like to now discuss in detail our 
fiscal year 2003 budget request and highlight our accomplishments in 
fiscal year 2001.
                    fiscal year 2003 budget request
    FinCEN has a unique combination of law enforcement and regulatory 
responsibilities. As Director, I can assure you that FinCEN will 
continue to explore creative ways to effectively leverage its 
resources. Given the uncertain resource implications of the USA Patriot 
Act, this approach will be essential to our success.
    In fiscal year 2003, FinCEN is requesting $52,289,000 and 254 full-
time equivalents (FTE). This request includes $1 million and 8 FTE to 
begin to meet the challenges of the USA Patriot Act. Also included in 
this request is $2.1 million to allow FinCEN to continue operations at 
the current level, and $400,000 and 8 FTE to provide us with the 
funding necessary to continue the 17 new positions approved in the 
Homeland Security Emergency Supplemental. Now I would like to highlight 
the accomplishments FinCEN has achieved in fiscal year 2001. These 
milestones would not have been possible without the valuable counsel 
and funding the Subcommittee has provided to FinCEN over the years.
                    fiscal year 2001 accomplishments
           supporting the financial aspects of investigations
    In fiscal year 2001, Federal, State and local law enforcement 
officials accessed BSA data directly through FinCEN's popular Gateway 
and Platform programs to support more than 9,000 investigations. FinCEN 
analysts used BSA data to support over 4,000 investigations--an 
increase of 10 percent over fiscal year 2000. I would now like to 
briefly highlight some of these key programs that serve our principle 
partners--the law enforcement, regulatory and international 
communities.
Gateway Program
    One of our flagship programs, the Gateway program, continues to 
demonstrate its effectiveness in saving investigators time and money 
because participating agencies can conduct their own research and not 
rely on the resources of an intermediary agency to obtain financial 
records. Using the Gateway process, State, local, and, more recently, 
Federal law enforcement agencies can search records such as Currency 
Transactions Reports (CTRs), Suspicious Activity Reports (SARs), and 
Reports of International Transportation of Currency or Monetary 
Instruments (CMIRs) to aid them in their investigations. Form 8300 is 
now available to law enforcement through Gateway access.
    We are constantly making technological upgrades to Gateway to 
include enhanced security and monitoring processes. FinCEN audits the 
Gateway process through both record reviews and on-site visits to 
ensure that all inquiries are connected to actual or potential criminal 
violations.
    One of the most outstanding and useful features of this system is 
its ``alert'' mechanism that automatically alerts FinCEN that two or 
more agencies have an interest in the same subject. In this way, FinCEN 
is able to assist Federal, State and local law enforcement agencies in 
coordinating their investigations among themselves. Last year, there 
were over 1,500 opportunities for networking investigations that 
originated from the Gateway inquiries.
    Last month, we hosted the Gateway Coordinators Conference to 
provide an overview of FinCEN and the variety of services available to 
State and local law enforcement. The conference was attended by 65 
coordinators from the U.S. and Puerto Rico, and several gave 
informative presentations on how Gateway has assisted them in their 
investigations.
Platform Program
    FinCEN's Platform Program, one of our most valuable law enforcement 
services, enables Federal agencies to send their representatives to 
FinCEN to use its databases and receive technical assistance. These 
individuals know the needs of their organization and can support that 
need directly through database access. FinCEN pioneered the Platform 
program in 1994, and it has grown steadily. In fiscal year 1997, 
Platform had 49 participants. By fiscal year 2001, participation had 
grown to nearly 80 participants from approximately 40 agencies.
Analytical System for Investigative Support (ASIS)
    Last year we introduced you to ASIS, a case management software 
system developed by FinCEN that gives Federal, State and local law 
enforcement officials the ability to make sense of the information they 
gather through their investigations. FinCEN continues to use ASIS 
successfully to support major investigations. Immediately after 
September 11, we used ASIS to check activities surrounding the 
hijackers, and presented the analytic charts at meetings with the FBI. 
The ASIS data was a helpful beginning. We have continued to use ASIS to 
assist the FBI in analyzing the large volumes of data from the National 
Drug Intelligence Center's Real-Time Analytical Intelligence Database 
(RAID). Additionally, ASIS has enabled our analysts to link FinCEN's 
other databases to RAID data. The linkages reveal connections to other 
information from financial records such as suspicious activity reports.
            identifying financial crime trends and patterns
    FinCEN provides a unique capability to identify trends, patterns 
and national-level security issues, disseminate information on money 
laundering methodologies, and prepare geographic threat assessments 
associated with money laundering and other financial crimes.
    In fiscal year 2001, FinCEN, in conjunction with the financial, 
regulatory and law enforcement communities, began publishing a semi-
annual report on the use and utility of suspicious activity reporting 
by financial institutions that includes current money laundering trends 
and patterns. [The USA Patriot Act, Section 314, mandates FinCEN to 
report semi-annually on suspicious activity reporting.] FinCEN also 
disseminated 53 strategic analytical products covering money laundering 
methodologies, trends and patterns, statistical reports, and geographic 
threat assessments, including the issuance in June 2001 of the 
Suspicious Activity Report Bulletin on activity related to phone card 
businesses. In addition, a Geographic Financial Crimes Threat 
Assessment Branch was established last year to enhance FinCEN's 
capability to produce strategic analyses, threat assessments, and 
financial lead information.
                   administering the bank secrecy act
    FinCEN's regulatory mission--administering the BSA--serves as the 
foundation for FinCEN's ability to carry out our primary function of 
providing support to law enforcement investigations. As such, the 
strengthening and effectiveness of our regulatory program directly 
affects the quality and efficiency of FinCEN's efforts to serve its 
diverse and growing universe of customers. The effective administration 
of the BSA has been challenging on many fronts--from the development of 
streamlined internal processes and industry-specific expertise, to the 
formation of an ever-widening circle of industry, regulatory, and law 
enforcement partnerships in order to obtain data of immeasurable value 
to law enforcement. We further challenge ourselves by achieving these 
goals within the context of two unequivocal standards that influence 
all that we do at FinCEN--maintaining appropriate privacy safeguards 
and minimizing burdens on the industry.
    Although FinCEN was in the process of expanding certain provisions 
of the BSA to financial sectors beyond depository institutions, the 
urgency of this effort has been accelerated by the USA PATRIOT Act, and 
FinCEN has risen to the challenge. For example, we are working closely 
with the Securities industry to issue a broker/dealer SAR rule while 
simultaneously focusing on the MSB program with its extensive outreach 
component.
    In fiscal year 2001, FinCEN continued to work towards expanding its 
regulatory outreach efforts, responding to over 1,563 telephone 
inquiries, 129 publication requests, 115 written inquiries, and 91 e-
mail inquiries. FinCEN also worked to draft regulations requiring the 
securities industry to establish programs to detect and report 
suspicious activity. These draft regulations were issued on December 
20, 2001. In addition, FinCEN made tremendous progress in implementing 
the money services businesses (MSBs) regulations. A short synopsis 
follows on this progress.
Money Services Businesses (MSBs)
    The term MSBs is used to denote the sub-group of non-bank financial 
institutions comprised of money transmitters, issuers of traveler's 
checks or money orders, sellers or redeemers of traveler's checks or 
money orders, check cashers and currency dealers or exchangers.
    As the Subcommittee is aware, FinCEN's regulatory program to 
register and require MSBs to report SARs has been and continues to be a 
significant undertaking. The support and funding provided by this 
Subcommittee has been crucial to the development and implementation of 
this mandated initiative.
    FinCEN, in general, has proceeded very deliberately with its MSB 
regulatory program. We have taken this approach for a number of 
reasons: (1) MSBs have not been regulated at the Federal level and 
therefore it will take time to identify and understand the various MSB 
sectors and how they operate; (2) many MSBs are small and serve diverse 
communities making the task of shaping appropriate regulatory programs 
even more complex; and, finally (3) because of the absence of a Federal 
regulatory infrastructure, developing a positive working relationship 
like the one which currently exists between regulators and the 
depository institutions will take time.
    Because the education process is so important, FinCEN had been 
considering moving the effective dates of the regulations back several 
months allowing more time to reach out to this community which could 
number upwards of 200,000 entities versus the smaller universe of 
approximately 21,000 depository institutions with which we have 
traditionally worked. Following the attacks of September 11, however, 
we felt it was imperative that the effective dates remain unchanged. 
The potential value of the information that MSBs could provide to law 
enforcement was too significant to delay the implementation of the 
regulations. As a result, the first regulation requiring the principals 
of all MSBs to register by December 31, 2001, and the second, requiring 
money transmitters, issuers and sellers of traveler's checks and money 
orders and the U.S. Postal Service to report suspicious activity 
transactions effective January 1, 2002 went into effect on these dates 
as scheduled.
    Fortunately, to ensure that MSBs are familiar with these new 
requirements and to develop better demographics about who and where 
many of the smaller, independent MSBs are located, we had already 
conducted an extensive education program. This effort resulted in an 
excellent registration response. More than 80 percent of the total 
known universe of 10,745 MSB principals, required to register, had 
responded within the first 2 weeks of January and initial SAR filings 
indicate our efforts are paying off. FinCEN, in conjunction with Burson 
Marstellar, will continue this outreach effort throughout the coming 
year.
    Finally and importantly, we are working closely with the IRS' 
Office of Examination to reinforce and build on this effort to alert 
all MSBs to their registration and reporting obligations. In addition, 
FinCEN has developed a new dedicated MSB website (www.msb.gov) to 
provide guidance, forms and other information to assist industry in 
complying with the rules.
                  fostering international cooperation
    FinCEN's steady, persistent efforts to promote global cooperation 
are one of this agency's greatest success stories. The financial 
intelligence unit (FIU) network, which FinCEN has been at the forefront 
in helping to promote, has grown from a handful in 1995 to the current 
membership of 58 countries.
    In fiscal year 2001, FinCEN coordinated 435 investigative 
information exchanges with 67 foreign jurisdictions, including support 
for 114 domestic law enforcement cases. We provided technical 
assistance to 22 countries to include extensive training courses and 
review of draft anti-money laundering legislation and hosted visits by 
law enforcement agencies or diplomatic representatives from over 53 
countries. In addition, FinCEN drafted the chapters on the state of 
anti-money laundering programs in all of the 95 countries included in 
the State Department's Annual International Narcotics Control Strategy 
Report. Lastly, FinCEN issued numerous Advisories in conjunction with 
the Financial Action Task Force (FATF) and the G-7.
                    strengthening management support
Information Technology
    As the Subcommittee is aware, FinCEN's effectiveness is based upon 
our emphasis on networking. This ``networking'' capability is crucial 
to the fulfillment of our information gathering and sharing mission. 
The creative use of technology is an essential component to the 
successful execution of our mission. For example, tools such as the 
Secure Outreach Network and advances in data mining applications allow 
FinCEN to strengthen its network capability and produce sophisticated 
analytical products.
    In fiscal year 2001, FinCEN, taking advantage of emerging 
technologies, significantly expanded the Secure Outreach Network's 
access capability to BSA data via the Internet. More than 300 Federal, 
State, and local Gateway customers are now participating in the system 
that is known as the Secure Outreach Direct-Net. To ensure the widest 
use of the Secure Outreach Network, FinCEN also has a dial-up 
capability for those entities without access to the Internet. Over the 
next year, FinCEN envisions an even greater increase in user 
participation in this system as we continue to explore and make use of 
the most efficient technological options.
    In our ongoing efforts to explore various data mining techniques, 
FinCEN recently completed a 90-day pilot program on new, state-of-the-
art software for link analysis. We have been extremely encouraged by 
the results of this pilot and by the end of fiscal year 2003, we plan 
to incorporate all BSA data into the system.
President's Management Agenda
    FinCEN supports the President's Leadership Initiatives and 
participates on a number of working groups. As you know, the Treasury 
Department has outlined strategies to meet the President's goals for 
human capital, e-government, competitive sourcing, financial 
management, and budget/performance integration. FinCEN will perform a 
self-assessment over the next few months to further refine areas that 
need improvement. As we move forward to implement the newly acquired 
administrative authorities granted by bureau status, the strategies 
mentioned above provide a basis for examining our administrative 
processes to develop the best mix between in-house services and 
competitive sourcing with other Federal agencies.
Lease Renewal
    Lastly, as I discussed with this Subcommittee last year, FinCEN is 
facing a lease renewal. Our current 10-year lease will end in April 
2003 on the space we occupy in Vienna, Virginia. FinCEN has been 
working over the past year with the General Services Administration 
(GSA) and they advise us that a competitive solicitation will be issued 
this spring for a lease renewal, with an award expected in late summer 
or early fall of this year. In addition to issuing the solicitation, 
GSA recently completed a security threat assessment of our facility. 
FinCEN is working with GSA to implement a series of recommendations.
                               conclusion
    On November 7, 2001, FinCEN was greatly honored with a visit by 
President George W. Bush, Secretary of Treasury Paul O'Neill, Secretary 
of State Colin Powell, and Attorney General John Ashcroft. The fact 
that the leaders of our country took time out of their demanding 
schedules to personally thank the men and women of FinCEN for their 
contribution to our Nation's war on terrorism was a great tribute to 
all the hard work of our dedicated employees. In turn, I would like to 
thank this Subcommittee for its unfailing support of FinCEN over the 
years. Without such support, FinCEN could not have progressed so far 
nor been nearly as effective. We respectfully request your continued 
support as we work with other Federal agencies to fight terrorism, 
conduct our core business activities, and implement the USA Patriot 
Act.
    Thank you again for this opportunity to appear before this 
Subcommittee. I would be happy to answer any questions you may have at 
this time.

                 Federal Law Enforcment Training Center

STATEMENT OF PAUL HACKENBERRY, ACTING DIRECTOR
    Senator Dorgan. Next, we will hear from Mr. Paul 
Hackenberry, the Acting Director of the Federal Law Enforcement 
Training Center. Mr. Hackenberry, you may proceed.
    Mr. Hackenberry. Thank you, Mr. Chairman, Senator Campbell, 
Senator Reed, members of the subcommittee. I am pleased to be 
here today to support our appropriations request for fiscal 
year 2003 and I will keep my remarks brief and submit a longer 
written statement for the record.
    The FLETC has experienced remarkable growth, development, 
and achievement since it was established in 1970. Over the last 
30 years, more than 400,000 law enforcement agents and officers 
across all branches of Government have now graduated from 
training conducted at FLETC. I would like to especially thank 
this committee for their most generous support in funding the 
consolidated training.

                           WORKLOAD INCREASE

    The horrific events surrounding the terrorist attacks of 
last September 11 have brought about the greatest challenge yet 
for FLETC. During fiscal year 2002, the FLETC is projected to 
train nearly 50,000 students, resulting in over 200,000 student 
weeks of training. Those numbers are about double what FLETC 
had been asked to do previously in any single fiscal year.
    The consolidated concept for law enforcement training at 
FLETC continues to be the most efficient and economical means 
for delivering this essential service to the law enforcement 
community and to the Nation. Because of the excellent 
cooperation with its many partners, we believe FLETC is fully 
achieving the vision of its founders in this critical 
undertaking.

                        FISCAL YEAR 2003 REQUEST

    The Center's fiscal year 2003 request is for a total of 
$149,357,000, and with this funding, we anticipate the training 
objectives of our partner agencies as thus far projected would 
be met.

                  WASHINGTON, D.C. AREA SITE PROGRESS

    With regard to the Washington, D.C. site progress, with the 
funding provided by this committee, excellent progress is being 
made in the design and development work at the Cheltenham, 
Maryland, site. A director and core staff to manage the site's 
conversions have been hired, and in keeping with the direction 
of Congress, we have placed the highest priority on completion 
of an in-service academy operation for the U.S. Capitol Police. 
In February of this year, the Capitol Police began using an 
interim facility at Cheltenham and the permanent facility for 
them is slated for occupancy by September of 2002. We 
anticipate that the design work will be finished by this summer 
for all the facilities and construction completed in late 2003.

                            WORKLOAD GROWTH

    As a result of September 11, our partner agencies' workload 
projections have increased significantly, and as previously 
stated, FLETC is projecting the greatest increase in training 
requirements in its history. Over the years, the FLETC has 
experienced a number of periods of sustained growth in the 
training requests by its partner agencies and we have been able 
to accommodate most of these increases by being innovative and 
undertaking extraordinary measures. That is certainly going to 
be the case in fiscal year 2002 and probably for the 
foreseeable future.
    Even though the training requirements currently scheduled 
have drastically increased, they may not represent the entire 
training needs of our partner agencies. Due to facility 
capacity and agency hiring constraints and issues, the impact 
of the increased workload will likely be spread over the next 
several years.
    In the emergency supplemental, sufficient funding was 
provided to allow us to schedule all the projected workload 
needs identified thus far for fiscal year 2002. The fiscal year 
2003 request includes sufficient funding to maintain the same 
level of training as provided in fiscal year 2002.

                    TRANSPORTATION SECURITY TRAINING

    With regard to transportation security training, in October 
of 2001, the Federal Aviation Administration requested that 
FLETC undertake training for the newly-expanded Federal Air 
Marshal program authorized by the administration and Congress. 
In concert with the FAA, training programs were adapted to 
provide training for both new hire personnel with previous law 
enforcement experience and those with no previous law 
enforcement experience. This training began quickly at the 
Artesia Center and is expected to continue well into the next 
fiscal year.
    Also, for the last several weeks, FLETC has been engaged in 
discussions with the Transportation Security Administration 
officials about other specific training needs. FLETC is helping 
to design training for airport screeners and train-the-trainer 
programs for those who will be responsible for delivering this 
training. FLETC sites would not be the focus of this training 
because of the heavy requirements for law enforcement training 
already identified. However, we will continue to consult with 
TSA and help validate the training given to the screeners.
    Finally, with respect to TSA, we are now working closely 
with them on possible options for training a cadre of law 
enforcement agents that TSA has under consideration for 
deployment to the Nation's airports. As this situation becomes 
clearer and decisions are made, we will keep the committee 
informed of our role in this development.

                      FACILITIES MASTER PLAN STUDY

    Mr. Chairman, I would like to comment on the status of the 
progress that has been made in expanding the FLETC facilities. 
The funding that this committee has provided over the years in 
support of our construction plan has positioned FLETC to better 
meet the surge in training workload requirements experienced 
after September 11. Prior to the events of that date, the 
FLETC's plan for construction focused on maximum utilization of 
the facilities at both Glynco, Georgia, and Artesia, New 
Mexico.
    In the aftermath of the terrorist attacks, the training 
capacity of FLETC has been pushed to the limit. The development 
of an updated comprehensive facilities master plan to address 
the post-September 11 demands is crucial and has been 
initiated. A contract has been awarded to a private firm 
experienced in planning activities to complete such a 
comprehensive study within a year. This study would also 
include the new site in Cheltenham, Maryland.

                            CLOSING REMARKS

    Mr. Chairman, FLETC is committed to providing the highest 
quality law enforcement training at the lowest possible cost. 
Substantial savings are being realized through the operation of 
consolidated training sites and we know that the challenge 
ahead of us may be the most important of all. I look forward to 
your continued support as FLETC strives to remain a partnership 
committed to excellence, and I am available to answer any of 
your questions. Thank you.

                           PREPARED STATEMENT

    Senator Dorgan. Mr. Hackenberry, thank you very much.
    [The statement follows:]

               Prepared Statement of Paul A. Hackenberry

    Mr. Chairman, Senator Campbell, 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 2003.
                            opening remarks
    The Federal Law Enforcement Training Center (FLETC) has experienced 
remarkable growth, development and achievement since its establishment 
in 1970, when a handful of agencies partnered together and created a 
concept of consolidated training for Federal agencies. Over the years, 
more than 400,000 law enforcement agents and officers across all 
branches of Government have now graduated from training conducted at 
FLETC.
    However, the horrific events surrounding the terrorist attacks of 
last September 11 have brought about the greatest challenge yet for 
FLETC in its brief 32-year history. During fiscal year 2002, the FLETC 
is projected to train nearly 50,000 students resulting in over 200,000 
student weeks of training. Those numbers are about double what FLETC 
previously has been asked to do in any single fiscal year.
    Mr. Chairman, FLETC will do whatever is required to meet this 
daunting challenge because we recognize that high quality training is 
the essential element necessary in preparing law enforcement personnel 
to assume their enormous responsibilities in these difficult times.
    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 the Secretary of the Treasury and the Under Secretary of 
the Treasury for Enforcement, the FLETC has received strong support and 
active assistance in carrying out its responsibilities. I want to 
especially thank this Committee for the trust it has continued to place 
in the FLETC. Throughout our history of service to Federal law 
enforcement, this Committee has been especially 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 continues to be the most efficient and economical means for 
delivering this essential service to the law enforcement community and 
the Nation. Because of the excellent cooperation of its many partners, 
we believe the FLETC is fully achieving the vision of its founders in 
this critical undertaking.
    Before I comment on our fiscal year 2003 budget request, I want to 
acknowledge the leadership of our former Director, W. Ralph Basham. At 
the end of January 2002, Director Basham left the FLETC to assume a 
senior position in the newly formed Transportation Security 
Administration. During Mr. Basham's 4 years at the helm of FLETC, much 
was achieved. He is a pragmatic and inspiring leader and he gained the 
respect of all whom came in contact with him. We wish him well in his 
new endeavors, and believe we will continue to have occasion to work 
with him on training matters of mutual interest.
                        fiscal year 2003 request
    Today, I am prepared to discuss the President's fiscal year 2003 
budget request. The FLETC's fiscal year 2003 request is for a Salaries 
& Expenses (S&E) appropriation of $126,028,000 and 748 FTE, a decrease 
of $2,652,000 below the fiscal year 2002 level. Our request for the 
Acquisition, Construction, Improvements, & Related Expense (ACI&RE) 
appropriation is for $23,329,000, a decrease of $18,605,000 below the 
fiscal year 2002 appropriation. Most of the decrease in the S&E 
appropriation is related to one-time, non-recurring, costs such as 
permanent change of station (PCS) costs for hiring new staff, equipment 
and furniture costs, and one-time minor construction items funded in 
the Emergency Supplemental resulting from the September 11 attacks. The 
decrease in the ACI&RE appropriation is related to construction costs, 
which do not recur in fiscal year 2003. FLETC supports the President's 
fiscal year 2003 request, and we anticipate that the training 
objectives of our partner agencies, as thus far projected, will be met.
    Together, the S&E and ACI&RE request totals $149,357,000 for fiscal 
year 2003. Coupled with an estimated $35,000,000 in funds to be 
reimbursed to the FLETC for training related services by our partner 
agencies, the total budget for fiscal year 2003 is $184,357,000.
             government performance and results act (gpra)
    Before providing this Committee with an overview of our operations 
in more detail, I want to address the 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 after a fiscal year is completed. These performance plans are 
now an integral part of the budget documents sent to the Congress 
annually.
    As noted in the FLETC's testimony last fiscal year, we have revised 
our performance measures in an effort to more accurately reflect 
performance indicators and to better align them with the organization's 
mission. The new measures were base-lined in fiscal year 2001 and have 
now been submitted in this request as our final measures for fiscal 
year 2002.
    There are a total of six proposed performance measures in our 
budget request for fiscal year 2003. The performance measures proposed 
for the Law Enforcement Training activity include: (1) results of the 
student quality of training survey, (2) results of the Partner 
Organization survey, (3) cost of a student-week of training, and (4) 
results of the employee satisfaction survey. The performance measures 
proposed for the Plant Operations activity include: (1) results of the 
student quality of services survey and (2) the percentage of training 
classes held within 15 days of the requested start date by the 74 
Partner Organizations.
    The student quality of services survey and student quality of 
training survey performance measures are outcome measures. The ratings 
for student quality of training and student quality of services 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 FLETC programs.
    I am pleased to report that the Center's overall performance 
against established target goals for fiscal year 2001 was very good. 
The most critical performance measure in our plan, the student quality 
of training survey measure, was 99.9 percent. This exceeded the 
Center's performance plan target goal of 90 percent. The FLETC's 
training costs were below the cost figure established for the variable 
unit cost per basic student-week of training. The plan projected a per 
week cost of $149 and the actual cost was $133. The volume of training 
conducted and the efficient management of facilities scheduling allowed 
us to realize significant reduction in costs. In the Plant Operations 
activity, all performance measures were either met or exceeded.
                     fiscal year 2002 achievements
    Finally, before I discuss operational areas, I want to report on 
some of the FLETC's other specific achievements resulting from the 
appropriations provided by this Committee.
    In fiscal year 2002, the FLETC had its second complete audit of its 
financial records and systems and received another ``unqualified 
opinion'' for its operations in fiscal year 2001. We believe this to be 
significant because FLETC has to interact with so many different 
agencies on the Federal, State and local and international levels.
    At the request of the Department of the Treasury, FLETC has assumed 
the lead for the establishment of a United States International Law 
Enforcement Academy (ILEA) operation in Gaborone, Botswana, the first 
of its kind on the African continent. The academy under the joint 
direction of the Departments of State, Justice and Treasury, is 
providing training to law enforcement officers from Nations throughout 
that region. The in-country program director is a senior FLETC manager, 
who is overseeing the program management and facility construction, 
jointly funded by the Government of Botswana and the U.S. State 
Department.
    I want to mention that the FLETC has completed, or will soon 
complete, the following construction projects in fiscal year 2002. In 
Artesia, NM, two dormitory buildings, two additional environmentally 
safe firearms ranges and a classroom building have been completed. An 
administration building is under construction and will be completed 
during fiscal year 2003. In Glynco, GA, we will complete renovation of 
an office building and the auditorium as well as renovation of various 
smaller facilities, and complete construction of a new anti-terrorism 
training facility and a new gas training range. This fall, FLETC will 
open a 600-bed dormitory complex in Glynco that is notable because it 
is our first build-lease venture with a private corporation in a 
facility near, but not on, Government property. These new facilities 
are especially welcome at this time because of the projected huge ramp-
up in training requirements for all of our customer agencies.
    Finally, I want to note the progress that is being made in the area 
of accreditation and standardization of Federal law enforcement 
training. Through seed funding provided by the Department of the 
Treasury's Asset Forfeiture Fund in fiscal year 2001 and this 
Committee's appropriation for $650,000 in fiscal year 2002, a project 
is fully underway that will improve the training provided all Federal 
agents and officers. FLETC is working in collaboration with Federal 
agencies, including the Federal Bureau of Investigation, the Drug 
Enforcement Administration, the U. S. Postal Inspection Service, 
private organizations, professional associations, and others, to 
develop a format to accredit training facilities, instructors and 
programs and courses provided by every Federal law enforcement 
organization. When implemented over the next several years, this 
project may have the most far-reaching impact on the way law 
enforcement training is conducted at the Federal level since the 
establishment of consolidated training itself.
                         overview of operations
    Now Mr. Chairman, I would like to provide the Committee with a 
brief overview of the operations of the Federal Law Enforcement 
Training Center.
    With few exceptions, the FLETC conducts basic and advanced training 
for the vast majority of the Federal Government's law enforcement 
officers. We also provide training for State, local and international 
law enforcement officers in specialized areas and support the training 
provided by our partner agencies that is specific to their individual 
mission needs. In all, there are now more than 200 separate training 
programs offered through the FLETC and its partners. Twenty-three 
agencies now maintain training academy operations at Glynco and three 
are housed at Artesia. These academies provide mission specific 
training to their agency trainees.
    The FLETC provides entry level training 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, computer forensics, health care fraud, and 
international banking and money laundering. Training is conducted at 
the Glynco, Georgia center, the Artesia, New Mexico center, and at a 
temporary training site in Charleston, South Carolina.
    The temporary training site in Charleston was established in fiscal 
year 1996 to accommodate a large increase in the demand for basic 
training, particularly, the U.S. Border Patrol (USBP). The training 
workload increase for the U.S. Border Patrol and other INS training 
categories is the direct result of prior Administration and 
Congressional initiatives to control illegal immigration along the 
United States' borders. That training is expected to reach even higher 
levels over the next several years.
    In addition to the training conducted on-site at 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. In utilizing export sites, most of which are local police 
academies, the FLETC does not incur any capital expenditure 
obligations.
                   washington, dc area site progress
    Construction activity authorized by Public Law 106-346, enacted by 
Congress in fiscal year 2001, provided $30,000,000 for the development 
of a training site within the Washington, DC area, primarily for short-
term requalification training and as a site for in-service U.S. Capitol 
Police training. Public Law 107-117, enacted by Congress in fiscal year 
2002, provided an additional $8,500,000 toward site development and to 
accelerate facility construction for the U.S. Capitol Police. The site 
ultimately selected, following an extensive review of available, 
surplused Federal sites, was the former naval communications base in 
Cheltenham, Maryland. Transfer of the 247-acre site by the General 
Services Administration and the Navy was completed in May 2001 to the 
FLETC inventory
    Since assuming ownership of the Cheltenham property, excellent 
progress is being made in design and development work. A site Director 
and core staff to manage the site conversion work for a law enforcement 
training center have been hired, an environmental assessment completed, 
other required studies undertaken and design is now well underway for 
new and upgraded facilities. Plans call for a completely enclosed and 
environmentally safe firearms complex, a vehicle training complex for 
non-emergency, obstacle and pursuit driving and related support 
facilities. In keeping with the direction of Congress, FLETC has placed 
the highest priority on completion of an in-service academy operation 
for the U.S. Capitol Police. In February 2002, the Capitol Police began 
using an interim facility at Cheltenham that FLETC renovated for them, 
while a more permanent facility, slated for occupancy by September 
2002, is completed. The interim building contains classrooms, offices 
and support capabilities to train 50-100 officers at any one time. We 
would like to acknowledge the commitment and assistance the retiring 
Chief of Police, James Varey, and the Capitol Police Board have 
rendered in getting this endeavor underway.
    We anticipate that design work will be finished by this summer for 
all facilities and construction completed by late 2003. The District of 
Columbia Metropolitan Police Department (MPDC) has indicated its 
intention to transfer funds to FLETC to help defray the cost of the 
firearms range complex. MPDC is one of the principal agencies 
specifically incorporated into the legislation as a partner 
organization at Cheltenham. In total, the FLETC projects more than 50 
agencies in the Washington, DC area will receive requalification 
training at Cheltenham when it is opened.
    The Cheltenham project came about as a result of a serious 
shortfall for over a decade in adequate firearms and driver skills 
training capabilities in this region, which has one of the highest 
concentrations of Federal law enforcement officers in the United 
States. These officers are mandated to receive short-term 
requalification training on a periodic basis to refresh perishable 
skills that, left unaddressed, can lead to liability issues.
                                workload
    During fiscal year 2001, 25,689 students graduated from the Center, 
representing 106,407 student-weeks of training. This total included 
19,435 students who were trained at Glynco, GA; 2,543 students trained 
at Artesia, NM; 829 students trained at the temporary training site in 
Charleston, SC; and 2,882 students trained in export programs. There 
were 10,735 basic students; 11,525 advanced students; 3,151 State and 
local students, and 278 international students trained providing for an 
average resident student population (ARSP) of 2,046.
    As a result of the September 11th attacks, our partner agencies' 
workload projections increased significantly. As previously stated, 
FLETC is projecting the greatest increase in training requirements in 
its history. In fiscal year 2002, the FLETC will train 49,773 students 
representing 202,842 student-weeks of training. This total includes 
32,377 students to be trained at Glynco; 9,147 students at Artesia; 
2,269 students at the temporary site in Charleston; and 5,980 students 
in export programs. A total of 23,511 basic students; 18,259 advanced 
students; 6,073 State and local students; and 1,487 international 
students are projected for a total ARSP of 3,900. Simply stated, this 
growth is unprecedented.
    Over the years, the FLETC has experienced a number of periods of 
sustained growth in the training requests by its partner agencies and 
we have been able to accommodate most of these increases by being 
innovative and undertaking extraordinary measures. That is certainly 
going to be the case in fiscal year 2002 and probably for the 
foreseeable future. To meet the training influx, the FLETC has gone to 
a 6-day workweek at both the Glynco and Artesia centers which provides 
nearly 36 more training days this fiscal year. By implementing this 
format, FLETC will be able to accelerate training to get students 
graduated more quickly and ``on the streets.'' The FLETC realizes that 
the implementation of the 6-day training week will take a toll on the 
FLETC and partner agency staff and resources and we will closely 
monitor and do everything possible to minimize adverse impacts. Even 
though the training requirements currently scheduled have drastically 
increased, they may not represent the entire training needs of our 
partner agencies. Due to facility capacity and agency hiring 
constraints and issues, the impact of the increased workload will 
likely be spread over 2 years. In the Emergency Supplemental, Congress 
has provided sufficient funding to allow the FLETC to schedule all of 
the projected workload needs identified thus far for fiscal year 2002. 
The fiscal year 2003 request includes sufficient funding to maintain 
the same level of training as provided for in fiscal year 2002.
                    transportation security training
    In October 2001, the Federal Aviation Administration (FAA) 
requested that FLETC undertake training for the newly expanded Federal 
Air Marshal (FAM) program authorized by the Administration and 
Congress. In concert with FAA, training programs were adapted to 
provide training for both new hire personnel with previous law 
enforcement experience and those with no previous law enforcement 
experience. This training started quickly at the Artesia center and is 
expected to continue into next fiscal year. Over 500 FAMs already are 
in training, or have graduated from these programs. To supplement 
FLETC's staff resources, a number of reemployed annuitants are on board 
to support this training. FAA also has contracted with a private firm 
to assist in the FAM specialized mission training. Recently, three 727 
aircraft were obtained for use in more realistic training scenarios for 
the FAMs. FAA has agreed to reimburse FLETC for the costs of training 
tuition, staffing needs, overtime, and special effects equipment.
    Also, for the last few weeks FLETC has been engaged in discussions 
with Transportation Security Administration (TSA) officials about other 
specific training needs. FLETC is helping to design training for 
airport screeners and train-the-trainer programs for those who will be 
responsible for delivering this training. FLETC sites will not be the 
focus of this training because of the heavy requirements for law 
enforcement training already identified. However, FLETC will continue 
to consult with the TSA and to help validate the training given to 
screeners.
    Finally, with respect to TSA, we are now working closely with them 
on possible options for training a cadre of law enforcement agents that 
TSA has under consideration for deployment to the Nation's airports. As 
the situation becomes clearer and decisions are made, we will keep the 
Committee informed of our role in this development.
           facilities master plan/five year construction plan
    Now, Mr. Chairman, I would like to brief you and the Committee on 
the status of the progress that has been made in expanding the FLETC's 
facilities. A Master Plan, first presented to Congress in June 1989, 
was intended to provide for efficient and orderly development of the 
FLETC's land and facility resources to meet anticipated workload needs 
through fiscal year 1998. It was a comprehensive blueprint and a guide 
for expansion of capacities to meet all of the requirements identified 
at the time to accomplish multi-agency law enforcement training.
    Over the years, the original Master Plan was updated to reflect 
refined cost estimates and to incorporate changes necessary to meet the 
evolving training needs of our customers.
    In fiscal year 1999, due to the U.S. Border Patrol and Immigration 
and Naturalization Service (INS) projected multi-year hiring and 
advanced training buildup, the FLETC Master Plan was changed to a 5-
year plan to focus exclusively on addressing the FLETC facility 
capacity constraints. Under this modified plan, $83,000,000 in new 
construction at Glynco and Artesia was proposed. Through fiscal year 
2002, Congress has appropriated nearly $53,000,000 for this purpose.
    The funding that this Committee has provided over the years in 
support of our construction plan has positioned the FLETC to better 
meet the surge in training workload requirements experienced after the 
September 11 attacks. Prior to the events of that date, the FLETC's 
plan for construction focused on maximum utilization of facilities at 
both the Glynco, GA and Artesia, NM sites.
    In the aftermath of the terrorist attacks, training capacity at 
FLETC has been pushed to the limit. The development of an updated, 
comprehensive, Facilities Master Plan, to address the post-September 11 
training demands, is crucial and has been initiated. A contract is 
being awarded to a private firm, experienced in planning activities, to 
complete a comprehensive study within about 1 year. This study will 
also include the new site at Cheltenham, MD.
                   maintenance and renovation request
    The FLETC's fiscal year 2003 ACI&RE request of $23,329,000 will 
provide funding for all of the cyclical maintenance and up-keep of our 
permanent sites. The FLETC is not seeking any additional funding for 
new construction projects this fiscal year, but the funding requested 
will permit us to continue the renovation of several older facilities 
in Glynco which need to be brought up to current code and design 
regulations
                                closing
    Mr. Chairman, FLETC is committed to providing the highest quality 
law enforcement training at the lowest possible cost. Substantial 
savings are being realized through the operation of consolidated 
training sites and we know that the challenge ahead of us may be the 
most important of all. I thank you for 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.

    Senator Dorgan. Senator Campbell?
    Senator Campbell. Mr. Chairman, I have got another 
committee I have got to drop by before we have that briefing at 
2:30, so with your permission, I am going to submit questions 
to several of the gentlemen here at the table and ask for them 
in writing.
    I am particularly interested, Director Buckles, about the 
expansion of the GREAT program, particularly on Indian 
reservations, and how you are coordinating with the Bureau. For 
Director Hackenberry, I am interested in knowing how you are 
handling that new workload of 5,000 new air marshals that you 
have to train. But those things, I will submit in writing, and 
I thank you.
    Senator Dorgan. Thank you, Senator Campbell.
    Senator Reed?
    Senator Reed. Thank you very much, Mr. Chairman. Again, let 
me commend all of you for not only your testimony, but for your 
service to the Nation and also convey that to the men and women 
who serve with you.

                           EXPLOSIVES PERMITS

    Mr. Buckles, given the aftermath of September 11 and the 
images emanating from the Middle East, we have to be concerned 
about the use of explosives by terrorists, and your Bureau is 
on the front lines of this effort to protect Americans from 
these types of explosive incidents. In your estimate, how easy 
would it be today for an individual with violent intentions to 
obtain commercial or improvised explosives in this country? 
What kinds of permits are required? Is it difficult?
    Mr. Buckles. Senator, under current Federal law, it is 
fairly simple to acquire explosive materials. It requires less 
of a background check, for example, than is currently required 
for firearms. Under Federal law, if you have a driver's 
license, can establish that you have residency in a State, and 
you complete a form that says you are not a felon and that you 
are not otherwise disqualified from purchasing explosives, a 
licensed dealer, at that point, is free to sell you any kind of 
explosives. Some States have their own laws that require 
blasters' permits before these can be purchased, but that is 
not uniform around the country.
    Senator Reed. I understand that Senators Kohl and Hatch 
have introduced legislation, the Safe Explosives Act. Are you 
supportive of that Act and might you elaborate on why you are?
    Mr. Buckles. Yes, Senator, and we have been working closely 
with the Administration and the committees to finalize some 
language on that. Principally, what that statute would do is 
require that all persons purchasing explosives would have to 
have a permit. Currently, only purchasers who buy explosives in 
interstate commerce are required to have a permit. This would 
require all purchasers to have a permit. To get the permit, 
there would have to be a background investigation, fingerprints 
would be submitted, et cetera. Some of the details on how it 
would work with some limited users and those issues are 
continuing to be worked out, but we believe that this is 
important legislation.
    Senator Reed. Do you have the resources now to actively 
monitor and implement existing law and the additional law if 
this Kohl bill is passed?
    Mr. Buckles. We do not have the resources to enforce the 
new law, were it to pass, and we have developed some budget 
projections on that already for people in the Department.
    As for today, we currently have about 500 inspectors in the 
field in ATF, and those inspectors are responsible for the 
collection of $14 billion in revenue, monitoring about 100,000 
firearms licensees, as well as the current number of Federal 
explosives licensees and permitees, which is about 9,000. We 
are very strapped under the current situation to really 
adequately follow everything we need to be doing in this area.
    Senator Reed. Thank you, Mr. Buckles.

                  BACKGROUND CHECKS FOR GUN SHOW SALES

    Let me turn to another issue, and that is, again, in the 
wake of September 11 and recent press reports, there have been 
indications that individuals, some at least allegedly 
associated with terrorist groups like al Qaeda, like Taliban, 
like the IRA, have attempted to use gun shows to acquire 
weapons. In this concept, would you consider a law requiring 
background checks on all firearms sales at gun shows to be 
helpful to you in enforcing the laws?
    Mr. Buckles. Yes, Senator. A couple of years ago, ATF 
prepared a report on gun shows, in terms of how they operate as 
part of a larger firearms market in the United States, and we 
made some recommendations, at that time, that applying, for 
example, the background checks that are required of Federal 
firearms dealers today and requiring those in gun show 
environments is something that should be done.
    Senator Reed. Thank you, Mr. Buckles.

               NATIONAL INSTANT CRIMINAL BACKGROUND CHECK

    Let me just ask about one other aspect of this issue. As 
you indicate, federally licensed firearms dealers must go ahead 
and institute a background check before a sale is processed. I 
understand that in your formal testimony, you indicated that 
the Bureau referred to its field offices over 12,000 ``delayed 
denials'' under the National Instant Criminal Background Check 
system. As I understand it, these delayed denials are 
situations in which an individual, at least a question comes 
about their fitness for acquiring the weapon, is that correct?
    Mr. Buckles. Correct. Under the Brady Law, a decision must 
be made within 3 days as to whether or not the person is 
disqualified. If the FBI National Instant Check System does not 
have final data in 3 days, they continue to search for any 
information that they come up with. After those 3 days, they 
will report it to the dealer, and that is what is sometimes 
called a ``delayed denial''.
    Senator Reed. Now, as I understand it, again, from the 
information I have, of those 12,000 delayed denials, the Bureau 
has recovered or accounted for about 7,000 firearms. I also 
understand another 3,000 were found to be ultimately not 
transferred or the purchase was not prohibited. So this leaves 
about 2,000 potentially illegal firearms transfers under 
investigation by the Bureau at this point, is that correct?
    Mr. Buckles. I believe those are the correct numbers, yes.
    Senator Reed. And how long do you investigate these delayed 
denials? I mean, are you working through them or they will be 
forever in limbo?
    Mr. Buckles. No, Senator. We give these delayed denials a 
high priority and continue to work them. As you can see just 
from the numbers, there are an awful lot of them. The reason 
they are delayed in finalizing on those is because there are 
complicated issues about whether or not the person is, in fact, 
actually convicted and whether or not the firearms have been 
properly disposed of. But we continue following up on those.
    Senator Reed. Thank you.
    Mr. Chairman, you have been most gracious. Let me turn back 
my time to you and additional questions, I will direct to the 
witnesses in writing. But thank you, Mr. Chairman, and thank 
you, Mr. Buckles, and all of you gentlemen for your efforts. 
Thank you.
    Senator Dorgan. Senator Reed, thank you very much.
    Let me begin with you, Mr. Stafford. There has been, I 
understand, a substantial increase in the number of people in 
the Federal Government who are provided protection. I know that 
you will not want to describe the details for me, but can you 
tell me about the increased workload of the Secret Service for 
providing protection for those in the executive branch and 
legislative branch, for that matter?

                     INCREASE IN PROTECTIVE DETAILS

    Mr. Stafford. Yes, I can, Mr. Chairman. Prior to 9/11, we 
had 17 full-time protectees in addition to a number of foreign 
heads of state that visit our country.
    Senator Dorgan. That 17 is 24 hours a day, 7 days a week 
protection?
    Mr. Stafford. That is correct, including the foreign heads 
of state who visit the country, but these visits are sporadic 
and normally not for long-term periods of time.
    We have gone up to 38 full-time protectees as a result of 
what happened to us on 9/11. Additionally, as was mentioned 
earlier, the National Special Security Events have been a drain 
on our manpower. In January, we had the World Economic Forum in 
New York with over 40 heads of state visiting our country. It 
was our responsibility to safeguard their visit. In February, 
we had the Super Bowl, which was designated a National Special 
Security Event, and, of course, the Olympics. As I mentioned 
earlier, the Olympics was enormous with the 900 square miles, 
15 venues, and required our presence for over a month. It was 
very manpower-intensive.

               WORKFORCE RETENTION AND WORKLOAD BALANCING

    Senator Dorgan. For the last couple of years, we have 
provided funding--last year was the third year--in the 
workforce retention, workload balancing effort that we have 
had, a 3-year phase-in. We had been seeing a massive quantity 
of overtime in your agency and so we were trying to phase in 
something that would remedy that. Does the 2003 budget request 
provide sufficient funds to fully annualize the new hires that 
you have received under our initiative?
    Mr. Stafford. We are in the third phase of that hiring and 
have been very grateful for the support of this committee. The 
quality of life issues for the men and women in the Secret 
Service were very serious 3 years ago. Our people were working, 
on average, over 80 hours of overtime a month, which was too 
much.

                                OVERTIME

    This is the third phase. Prior to 9/11, we saw an 
improvement in that. We were down to 72 hours. Of course, after 
9/11, with the enhancements, we have seen overtime revert to 
the 80-hour mark. But with the continued hiring, we think we 
will see that be reduced again. We are going to hire almost 500 
people this year, with attrition, and that is a very positive 
thing for us. The annualization for those people in 2001 and 
2002 is not in the 2003 budget, and that is approximately $27 
million.
    Senator Dorgan. Mr. Gurule, can you tell me why that is not 
in the budget? I think the administration has supported this. 
The Congress obviously feels strongly about it and has 
initiated the approach, but why has the administration chosen 
not to annualize the funding for that?
    Mr. Gurule. I believe that the funds included in the budget 
are sufficient to go ahead and cover that particular item. It 
is something that I would like to talk to Director Stafford 
about and see if there is something there that can be done to 
address that. But it was my understanding that the budget that 
was submitted was sufficient in that regard, so----
    Senator Dorgan. Okay. Well, I will need to understand that 
at some later date. Either the budget provides sufficient funds 
to annualize it or it does not.
    Mr. Gurule. I understand.
    Senator Dorgan. That is something we can work on, if our 
staff can work with your budget folks to understand it. The 
reason I raise that point is this program was designed for a 
very specific purpose. We were having trouble with retention, 
working people to the bone, massive quantities of overtime, and 
working with Treasury and with Secret Service, we decided to 
try to do something about it. We put in place a three-phased 
approach, and if that is going to work, then the cost of that 
has to be annualized so that we say, yes, now we have phased it 
in and it is here and here is the funding for it, and the 
funding is either there or it is not there, and I am not quite 
sure I understand the answer, but we will work with you to get 
that answer.

                    NEW YORK FIELD OFFICE RELOCATION

    Mr. Stafford, tell us about the relocation of the New York 
field office at this point. How is that going?
    Mr. Stafford. It is going slowly. I just came back from New 
York this morning. I was there all day yesterday visiting with 
our supervisors in New York and we have moved from Ground Zero. 
Obviously, we lost our entire office, most of our fleet, and 
unfortunately, we lost one employee, as you are well aware, and 
we had a number of injuries.
    Some operations moved to Brooklyn. We are finding the 
commute is becoming a bit cumbersome as well as other 
difficulties relative to our responsibilities in Manhattan. We 
are in three different locations now; two temporary locations 
in Manhattan, the post office in Manhattan, and also at John 
Jay College. Within the next 3 to 4 months, employees at those 
two locations will all co-locate at our new office facility in 
Brooklyn. At that time, I think we will be in much better 
shape.
    Senator Dorgan. Thank you.

             GANG RESISTANCE EDUCATION AND TRAINING PROGRAM

    Mr. Buckles, is the GREAT program funded in this budget?
    Mr. Buckles. Yes, Senator, it is. There was some question 
earlier about whether the appropriate language was included in 
the budget to indicate that. That is the grant authority that 
would allow us to put out $13 million in grants. It is my 
understanding that that issue has been resolved and that the 
appropriate language is being provided to the committee to 
ensure that that funding is available.

                      BUSINESS STRATEGY ADJUSTMENT

    Senator Dorgan. Mr. Buckles, was the business strategy 
adjustment your idea?
    Mr. Buckles. No, Mr. Chairman, it was not.
    Senator Dorgan. So what savings do you propose from your 
budget to cover the $7.6 million business strategy adjustment?
    Mr. Buckles. Mr. Chairman, we are going to be looking at an 
entire range of possibilities in terms of ways to achieve those 
savings. We do not have the precise plans on what we will do, 
and one way or another, they will eat into some of our base 
resources that we are facing. But we are hoping that we can 
achieve savings in the way in which we are going to go about 
renting space by trying some innovative ways of housing people. 
We have a lot of new space issues coming up with the growth we 
have had over the years, so we are going to try to minimize the 
cost in that area. We are also looking at other ways in which 
we can cut down on the expenses without really cutting into the 
muscle of the agency, but we do not have precise plans on how 
we are going to meet that entire $7 million.

                      OFFICE OF HOMELAND SECURITY

    Senator Dorgan. Have you placed any reimbursable or non-
reimbursable employees within the Office of Homeland Security 
at this point?
    Mr. Buckles. No, Chairman, we have not.
    Senator Dorgan. Mr. Stafford, have you placed any employees 
within the Office of Homeland Security?
    Mr. Stafford. Yes, we have.
    Senator Dorgan. Can you tell me how many?
    Mr. Stafford. Right now, we have two detailees.
    Senator Dorgan. Mr. Sloan, have you?
    Mr. Sloan. Mr. Chairman, no, we have not.
    Senator Dorgan. Mr. Hackenberry?
    Mr. Hackenberry. No, sir.
    Senator Dorgan. All right. The reason I asked the question 
is I believe the budget request from the White House for the 
Office of Homeland Security describes 95 detailees and I am 
going to try to get a list of where they are coming from, but 
it sounds like, with the exception of the Secret Service having 
two, it sounds like they are not coming from this group.
    Mr. Stafford. Let me correct that. I think we have three.
    Senator Dorgan. Three, I am sorry.
    So, Mr. Gurule, this business strategy adjustment, is that 
yours?

                      BUSINESS STRATEGY ADJUSTMENT

    Mr. Gurule. No, it is not my idea, but I think it is a good 
idea, nonetheless, and I think it is based on a very sound 
principle that attempts to enhance the effective utilization of 
limited resources. I think that any agency, if it is going to 
call itself a world class agency, should continue to examine 
how it does business and pursue ways to enhance the 
effectiveness of operations and identify programs that are not 
being effective and are not adding value, and either eliminate 
those programs or reduce those.
    So I think the idea is a sound idea, one that the Bureaus 
have, I believe, ample time to take; to examine their 
operations and identify ways, whether through renting space, or 
whether through looking at travel. I know the Secret Service is 
looking at ways in which they could reduce travel expenses by 
making sure that agents are leaving out of airports in the D.C. 
area that provide the least cost and housing them together in 
ways that will reduce cost. So I think we can do it.
    Senator Dorgan. Would you recommend that we have the same 
kind of business strategy adjustment for the Office of 
Management and Budget?
    Mr. Gurule. Well, I am not going to speak for OMB. I think 
it is a sound principle and----
    Senator Dorgan. Would it be helpful to them?
    Mr. Gurule. I think that every agency has an obligation to 
continue to look for ways in which to conduct their operations 
in a more effective, the most, maximum effective way.
    Senator Dorgan. That is a fair point and I accept it. My 
only point was that while we do not fund--well, we do fund the 
Office of Management and Budget and the White House, I noticed 
that there was no business strategy adjustment for the White 
House or the Office of Management and Budget. If you make the 
point that it is an awfully good thing to require everyone to 
look at how well they are doing and making adjustments, then 
would you recommend it for the White House and the Office of 
Management and Budget?
    Mr. Gurule. I am not going to tell them what to do. The 
only thing that I would suggest is that with respect to our 
boss, and I am referring to Secretary O'Neill, he has been a 
very successful businessman and I think that the principles 
that have caused him to realize the kind of success that he has 
realized in the private sector, he is bringing to the Treasury 
and we welcome those.
    Senator Dorgan. That is a fair point. You answered it well. 
I just would say that if we suggest this for the White House 
and OMB, I will tell them that you indicated that it was a good 
thing for them.
    Mr. Gurule. I was afraid you were going to take my words 
and----
    Senator Dorgan. Let me amend that. I will not say that you 
said it was a good thing for them, but if we do it to them, I 
will say that you said it was a good thing.
    Senator Dorgan. That, I think, is technically accurate.
    Mr. Gurule. Why do we not state it this way, that for any 
organization to achieve world class status as a world class 
organization, I think this principle should be adopted and 
incorporated.
    Senator Dorgan. Mr. Gurule, thank you.
    Let me ask Mr. Hackenberry a couple of questions, and then, 
Mr. Sloan, I have a question or two for you.

                      FEDERAL AIR MARSHAL TRAINING

    Mr. Hackenberry, let me ask, where are you going to train 
air marshals and how many do you envision will be trained over 
the next 2 years, or what do you know about the training of air 
marshals at this point?
    Mr. Hackenberry. Actually, several things. The first is 
that the air marshal training that is being conducted, for the 
most part, is being conducted at our facility in Artesia, New 
Mexico. Post 9/11, very shortly after 9/11, we met with 
officials from the FAA, prior to the creation of TSA, and 
developed a training program specifically for air marshals. 
Prior to that, there were very few air marshals that were 
trained on a yearly basis and they went through the regular 
criminal investigative training program at FLETC-Glynco.
    In meeting with the FAA and subsequently with TSA 
representatives, a specific training program for the air 
marshals was developed and it is being delivered in Artesia, 
New Mexico. By July, the end of July this year, we will have 
trained, or we will have in training, the number of students 
for the air marshal training program that was mentioned earlier 
by yourself and by Senator Campbell.
    The training is in two phases. One is training for people 
who come in with former law enforcement experience. That 
training is brief. It is actually only 1 week long, and that 
has now been moved to, and is being conducted in, Atlantic City 
in an FAA facility. For the non-law enforcement new hires, who 
receive a 5-week basic training program and then a 1-week 
follow on----

                   TRAINING CAPACITY FOR AIR MARSHALS

    Senator Dorgan. And what is your capacity to train at this 
point? How many can you handle, especially in the second case, 
without law enforcement training?
    Mr. Hackenberry. We are about at capacity now. We are 
handling an overlap of, say, 700 per week at Artesia, New 
Mexico.

                    TRANSPORTATION SCREENER TRAINING

    Senator Dorgan. Let me ask you about baggage screeners. Who 
will be making the decision, in your judgment, about who will 
undertake that kind of training?
    Mr. Hackenberry. As far as baggage screeners, in that they 
are not law enforcement, our involvement on that was simply to 
meet with the FAA. We brought in experts from the Secret 
Service, from FLETC training and from the FAA and looked at a 
program that the FAA had developed to train the screeners. We 
had what we call a ``curriculum review conference'' and 
reviewed the curriculum content and helped FAA develop the 
curriculum to train-the-trainers for the screeners.
    Then we piloted a program in Glynco, and now we have 
actually piloted a second program in Glynco to train-the-
trainers that the Transportation Security Administration has 
hired. It is my understanding TSA plans to deploy those 
trainers to do training across the country, in locations such 
as Oklahoma City and other places, where facilities are 
available. This training will be conducted by trainers that 
have been trained at the initial pilot programs in Glynco and 
then additional trainers will be trained elsewhere, and that is 
how they plan to accomplish their goal for screener training.
    Senator Dorgan. All right. Mr. Sloan, does your 2003 budget 
request cover the requirements that you have as a result of the 
USA PATRIOT Act?

                FISCAL YEAR 2003 AND THE USA PATRIOT ACT

    Mr. Sloan. Mr. Chairman, the quick answer is yes. As I sit 
here today on April 17, I am comfortable that, for lack of a 
better term, we are keeping our head above water. But as I said 
in my opening statement, I am not going to be shy about coming 
forward, either, to the committee, to your staff, and to 
Treasury if we start to see that balance change in a negative 
way. But based on what we have proposed and based on what I see 
in my resource allocations, I am comfortable that we can 
maintain momentum in those requirements.
    Senator Dorgan. Can you describe your relationship with the 
Office of Homeland Security?

                COOPERATION WITH OTHER FEDERAL AGENCIES

    Mr. Sloan. We do not have----
    Senator Dorgan. Have you had a relationship with them?
    Mr. Sloan. Our relationship with the Office of Homeland 
Security would typically be through the Office of Enforcement 
at Treasury. Although I think we have had one person go to a 
meeting. Other than that, it would be through Enforcement.
    Senator Dorgan. Let me ask Mr. Gurule, then. There was a 
Los Angeles Times article that I noted, who knows the accuracy 
of these things, but here is what it said. It said the 
financial war on terrorism has been hamstrung by turf battles 
between Federal agencies. Allegedly, Treasury and Justice have 
opened hundreds of independent investigations, independent of 
each other, and so on.
    First of all, respond to that, because that went out in a 
press story, and then, second, what kind of cooperation exists 
at this point between, for example, your agency and the FBI?
    Mr. Gurule. I am very familiar with that L.A. Times story, 
and in my opinion, it is riddled with a number of inaccuracies. 
I am very suspicious of articles where the sources are 
anonymous and even the agencies that they are working for are 
not disclosed in the article.
    But the short answer is that we are cooperating. In fact, 
the FBI and Treasury Enforcement are cooperating. In fact, when 
Operation Green Quest was announced publicly, there was a press 
conference that was held in October at the Customs Service and 
Assistant Attorney General Michael Chertoff actually 
participated in that press conference and voiced his support of 
Operation Green Quest.
    Since then, FBI agents have been assigned to work at Green 
Quest. Most recently, there have been two that were pulled back 
and now some additional agents are going to be reassigned, so 
there was a gap period there where, quite candidly, we did not 
have FBI agents assigned.
    But let me add that I had an opportunity on Thursday of 
last week to meet with FBI Director Mueller and it was in 
direct response to the L.A. Times article. Commissioner Vaughn 
was also present at that meeting. Obviously, Director Mueller 
was very concerned, as was I, because both of us believe 
strongly that with respect to the challenge at hand, and that 
is to combat and defeat global terrorism, we cannot have a 
situation where agencies are not working closely and sharing 
information, and if that is the case, I am determined to take 
whatever appropriate action is necessary with respect to the 
individuals who are not cooperating.
    However, at that meeting, I committed, as I have in the 
past, to Director Mueller that any information, any 
investigative information that we have developed, they have 
access to, unfettered access to, and he committed the same to 
me.
    We have also put in place--this has been in operation for 
some time--a system and method to resolve conflicts. It is 
certainly possible that there could be some operational 
conflicts with an investigation that the FBI is involved in, 
and so we have that in place to resolve conflicts and ensure 
that cooperation is what it should be.
    Senator Dorgan. Mr. Gurule, one last question about the 
business strategy adjustment, if I might. What percent was 
applied to the BSA, business strategy adjustment?

                      BUSINESS STRATEGY ADJUSTMENT

    Mr. Gurule. What percentage is----
    Senator Dorgan. What percent of the----
    Mr. Gurule. It is a very small percent. I do not recall the 
exact number, but I think it is in the maybe 3 percent, 4 
percent range, but I do not have that number right in front of 
me, but it is a very small percent of the overall figure.
    Senator Dorgan. Does anybody in your budget office know 
that?
    Mr. Gurule. Excuse me, one-half of 1 percent.
    Senator Dorgan. One-half-of-one percent?
    Mr. Gurule. Yes.
    Senator Dorgan. Okay. We are doing a lot of things in the 
area of defense, Defense Department, national security, 
homeland security. All of it relates to the same meat and 
muscle that is necessary to protect this country. In my 
judgment, we are going to take a look at these budgets. I want 
to make sure that we have annualized what we have tried to do 
to give the Secret Service what it needs to retain its people. 
I want to make sure that we have the muscle in these agencies 
dealing with counterterrorism, with homeland security.
    I do not know whether the business strategy adjustment is 
good or not. It is arbitrary, and it seems to me that every 
agency ought to take a look at where it is spending money it 
ought not spend, and if they cannot find it, we will look for 
it, we will find it, and we ought to dump that out of the 
budget, number one.
    Number two, we ought to fully fund those things that we 
know we need to do in these agencies, especially in these days 
when we talk about homeland security. If we are going to put 
$49 million more in the Department of Defense, and it is likely 
Congress will do that, without a business strategy adjustment, 
then those agencies that are involved in homeland defense need 
to have the same muscle and the same investment that we do with 
respect to the Defense Department.
    So we are going to take a hard look at all of these things 
and evaluate what needs to be done to annualize the things that 
we have tried to do to strengthen all of these agencies. We are 
not interested in wasting money. We are very interested in 
investing in this country's strength.
    I worry, as I believe does Governor Ridge, the President, 
and others, that, God forbid, there could be another terrorist 
act committed in this country. Terrorists would love to commit 
a terrorist act in this country again and kill additional 
Americans. Your agencies are part of the critical agencies that 
need to work together to make sure that does not happen. We 
have, knock on wood, been successful since September 11. It is 
not as if they have not tried, but a number of terrorist 
threats have been thwarted through the good work of a lot of 
dedicated Federal agents and law enforcement personnel and 
others, both Federal, State, and local.
    But my point is, this issue of homeland defense is 
critically important because this was is not just waged on 
foreign soil. This war exists here, as well, and it is a 
defensive war, and your agencies, the success of your agencies 
will depend a lot on whether we see future terrorist acts 
foiled or whether they actually occur in this country, and so I 
want the investment to be made to make sure that your agencies 
can tell me that you have got what you need to do the job and 
the men and women who work for you in the middle of the day and 
the middle of the night have what they need to do the job, as 
well, to defend this country.

                     ADDITIONAL COMMITTEE QUESTIONS

    So having said all that, I appreciate your testimony. This 
subcommittee will meet tomorrow at 2:30 in this same room to 
discuss the 2003 budget request for the United States Customs 
Service. Mr. Gurule, you will be back tomorrow. I will have 
some additional questions for you then, as well.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]

                  Questions Submitted to James Gurule

             Questions Submitted by Senator Byron L. Dorgan

                       financial war on terrorism
    Question. An April 7th LA Times article stated that the financial 
war on terrorism has been ``hamstrung'' by turf battles between Federal 
agencies. In fact, recently we learned that the FBI pulled out of 
Operation Green Quest. Allegedly Treasury and Justice have opened 
hundreds of investigations independent of each other. Undersecretary 
Gurule was quoted as saying that the groups perform important but 
separate functions. Mr. Gurule states that Treasury pursues broader 
financial investigations while the FBI pursues September 11 activity.
    What is the current status of the disparate financial 
investigations?
    Answer. The Departments of Justice and Treasury continue to work 
closely to investigate terrorist financing networks. Since its 
inception in October 2001, Operation Green Quest has initiated 
approximately 300 investigations targeting the finances of terrorist 
organizations and their infrastructure. Many of these investigations 
have been developed independently by Green Quest or referred by various 
sources; however, those cases that appear to crossover with FBI 
investigations are coordinated at either the headquarters or field 
level. We have established a mechanism at the departmental level to 
resolve any disputes and coordinate overarching policies and 
activities. These investigations often complement one another, and 
there is a need for all agencies with relevant expertise to bring their 
assets to bear on this campaign against terrorist financing. In 
addition, the activities of the law enforcement agencies dealing with 
terrorist financing are coordinated as part of the larger U.S. strategy 
in the inter-agency context.
    Question. Are they truly separate, and if so is there any 
coordination?
    Answer. There are separate task forces that utilize expertise from 
various parts of the Government devoted to the task of fighting 
terrorist financing. As mentioned above, Operation Green Quest has 
generated and is pursuing a number of investigations that target 
terrorist financing. These cases, as well as those that crossover with 
current FBI investigations are coordinated at the headquarters and 
field level to ensure case coordination. The FBI-led Financial Review 
Group (FRG) originally began as an arm of the September 11 
investigation but has since expanded its mission to include 
investigation of terrorist financing cases generally. Treasury Bureaus, 
including Customs, IRS-CI, ATF, FinCEN, and OFAC have been committed to 
the FRG since its inception and have provided invaluable resources and 
expertise to the FRG's efforts. There are currently representatives 
from all the relevant bureaus at the FRG. In addition, Treasury 
participates fully in the inter-agency Joint Terrorism Task Forces as 
well as the various High Intensity Money Laundering and Related 
Financial Crimes Areas (HIFCAs). The FBI also participates in Operation 
Green Quest, and the DOJ has committed attorneys to Green Quest's 
efforts. In general, there is good coordination and cooperation, but we 
are always striving to improve our overall U.S. Government efforts in 
this area.
    Question. Is Treasury denying the FBI access to Treasury's 
financial information and is the FBI doing the same to Treasury?
    Answer. The question appears to stem from a false and uninformed 
allegation in a recent LA Times article. The Treasury does not deny FBI 
access to any information it obtains. In fact, information sharing in 
this unprecedented law enforcement and intelligence endeavor, thanks in 
large part to provisions of the USA PATRIOT Act, has been very good. 
Operation Green Quest and the FBI are working together on several major 
investigations. Information, to include financial data, is routinely 
exchanged in the pursuit of these cases, and information is constantly 
being shared among the intelligence and law enforcement communities.
    The allegation in the article stems from a misunderstanding of how 
``blocked'' documents, those that have been blocked but not seized 
because of a designation made by the Office of Foreign Assets Control, 
can be reviewed by the U.S. Government. In cases where documents have 
been blocked, a search warrant, subpoena, or consent of the owner must 
be obtained to actually read the contents of the documents. Thus, the 
alleged ``denial'' of information set forth in the article was simply a 
reflection that no agency had access to the documents for purposes of 
reading or searching them.
                     treasury counterterrorism fund
    Question. The CT Fund was first appropriated in fiscal year 1997 as 
a central fund to reimburse any Treasury organization for the costs of 
providing support to counter, investigate, or prosecute terrorism, 
including payment of rewards in connection with these activities.
    The President's fiscal year 2003 Budget proposes to transform the 
Counterterrorism Fund under the Department of Treasury into a 
reimbursable account for any agency in the Federal Government for its 
role in a National Special Security Event (NSSE). Congress has 
cautioned the Administration on the use of this fund to pay for events 
such as the Olympics and other NSSEs. Is it your intention that these 
Treasury funds be used to reimburse any agency for its participation in 
these events?
    Answer. The Counterterrorism Fund is available to provide funding 
for unanticipated costs associated with support to counter, 
investigate, or prosecute domestic or international terrorism. Also, 
the Fund can be used to re-establish the operational capability of an 
office, facility, or other property damaged or destroyed as a 
consequence of any unexpected domestic or international terrorism act. 
NSSEs are expensive and unpredictable, and the Counterterrorism Fund 
has been a ready source of funding that enables us to carry out our 
mission even in the instances when we need to reimburse other agencies.
    Question. Aren't you concerned that this fund will be depleted by 
planned activities that should be budgeted for by the affected 
agencies, rather than unforeseen events that will require the 
involvement of agencies within the Department of Treasury?
    Answer. We are not particularly concerned that this fund will be 
depleted by planned activities largely due to senior Departmental 
oversight in the fund's administration.
                      business strategy adjustment
    Question. The Secretary of the Treasury mandated that all of its 
subordinate agencies plan for a ``business strategy adjustment.'' This 
represents an attempt to force the agencies to realize savings through 
economies of purchases and contracts, etc. The effect, however, is a 
cut in Agency budgets in real dollars. For example, U.S. Customs faces 
an approximate $18 million dollar adjustment. Similarly, U.S. Secret 
Service faces a $6.8 million cut.
    How does the Secretary reconcile the very real needs of his law 
enforcement bureaus with a business model more appropriate to ALCOA 
than to an agency protecting the American public?
    Answer. The Secretary would not view a distinction between a highly 
productive corporate business model and a Treasury enforcement bureau 
striving for greater success. While it is true that Treasury has 
historically been a labor-intensive group of bureaus, the experience of 
some of them, including IRS and the Bureau of the Public Debt, 
demonstrates that continued productivity improvements are both possible 
and necessary.
    Treasury's enforcement mission, given even greater urgency within 
the homeland security context, will need to draw on every facet of 
American ingenuity and creativity to meet that challenge. This requires 
constant improvement in labor force productivity, using a combination 
of technology and better management. An example of this is the Customs 
Service Container Security Initiative (CSI). The CSI would secure an 
indispensable, but vulnerable, link in the chain of global trade: the 
oceangoing sea container. Ensuring the security of the maritime trade 
system is essential, given that approximately 90 percent of the world's 
cargo moves by container. This initiative consists of four core 
elements: (1) establishing criteria to identify high-risk containers; 
(2) pre-screening those containers identified as high-risk before they 
leave the port of origin; (3) using technology to quickly pre-screen 
high-risk containers; and (4) developing and using smart and secure 
containers. Customs has already rolled this initiative out at three 
Canadian seaports and they are actively engaging other large overseas 
seaports, and working with the foreign governments within which those 
large international ports are located, to cooperatively develop a 
program to implement the four key elements of the CSI.
    Thus, the recurring cost of labor-intensive efforts will be coupled 
with technology investments and smarter management to increase 
efficiencies and enhance the level and degree of scrutiny for various 
ports of entry. Rather than just accepting the conventional wisdom 
that, without a vast influx of new human resources, there is an 
unavoidable trade-off between efficiency and security, this new 
endeavor is an improvement in both. When we are at our best--both in 
Government and in the private sector--we can accomplish anything we set 
our mind to. Dramatic increases in labor productivity are responsible 
for an American economy that is the envy of the world. So also, that 
same quest for productivity improvement will be critical for Treasury 
enforcement bureaus to achieve the best outcome at the lowest cost to 
the American taxpayer.
                      office of homeland security
    Question. We have been briefed that there was no Treasury 
Departmental Offices interface with Governor Ridge's staff at the 
Office of Homeland Security during the fiscal year 2003 budget process. 
In fact OMB was the liaison on behalf of the Department for resources. 
Partly as a consequence, Treasury only received a $518 million pass-
back for CT efforts although $1 Billion was required and requested. On 
the other hand, the Administration proposes funding DOJ significantly 
more than that, and in real dollars, (NOT through a proposed user fee/
tax). This is has been an annual sore point between the Treasury law 
enforcement agencies and those at Justice.
    Now that Governor Ridge is coordinating between those Departments 
and agencies involved in Homeland Defense, what efforts are being made 
to properly advocate Treasury's needs in funding for Homeland Defense?
    Answer. I have always considered, and will continue to consider, 
our Nation's security needs, as a high priority, when determining the 
allocation of bureau resources for Homeland Defense. I will also 
continue to serve as an advocate for the bureaus and continue to work 
closely with the Office of Homeland Security. Furthermore, I will 
continue to work closely with each of the law enforcement bureaus to 
achieve and maintain a World Class organization, to ensure the 
connection between Homeland Defense resources and results.
    Question. Are your needs being met by the Administration?
    Answer. Yes. The Office of Enforcement will continue to work with 
the Office of Homeland Security during the fiscal year 2004 budget 
process, to ensure that limited Federal resources are spent wisely, to 
obtain the best results for the investments made. However, any 
additional tools that the Treasury Department determines may be needed 
will be fully considered in coordination with OMB.
                          joint border agency
    Question. There has been considerable discussion within the 
administration, on Capitol Hill, and in the press about creating some 
sort of joint border agency. This could involve combining Customs with 
some elements of INS, and possibly other agencies (FEMA/Coast Guard).
    Do you support such a plan?
    Answer. Homeland security is a top priority for the President and 
the entire Cabinet. The Administration is engaged in a full review of 
options to ensure that all homeland security resources are deployed in 
the most effective way possible. The Treasury Department works with the 
Office of Homeland Security to ensure that the best advice and a full 
range of options are available to the President. I will encourage the 
implementation of any plan that best supports strong border enforcement 
and an efficient flow of cross border commerce.
    Question. If this were to happen, under which Department do you see 
this new agency being placed or should it become a new, stand-alone 
Department?
    Answer. As noted in the above question, the Administration is 
engaged in a full review of options to ensure that all homeland 
security resources are deployed in the most effective way possible. The 
Office of Homeland Security has submitted a border security proposal to 
the President for his consideration. The White House has indicated the 
President will make his decision after a full review.
    Question. How would the revenue generating responsibilities of 
Customs fit in with such a plan?
    Answer. A specific border agency configuration has not yet been 
determined. The issue you raise is under review by the Office of 
Homeland Security.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. Almost immediately following September 11, the Financial 
Crimes Enforcement Network--FinCEN--went into action to begin to trace 
the funds utilized by the terrorists who attacked our Nation. Then, the 
Office of Foreign Assets Control took steps to freeze those assets.
    I know that you have a particular interest in this function. I 
would be interested in learning how that effort is going.
    Answer. In keeping with its mission to support law enforcement, 
FinCEN applies leading edge technologies to analyze Bank Secrecy Act 
and law enforcement data as well as information from other sources to 
assist law enforcement in following and identifying the financial 
aspects of an investigation. Law enforcement agencies use the 
information that FinCEN provides according to their respective 
missions. In the case of the Office of Foreign Assets Control (OFAC), 
the information is used to help OFAC identify and build its asset 
freezing cases. Post 9/11, FinCEN has been responding on an expedited 
basis as required to related case requests from OFAC.
    The April 7 edition of the Los Angeles Times carried a very 
disturbing article which began with the following sentence, and I 
quote: ``The U.S. Government's much-touted financial war on terrorism 
has been hamstrung by bitter turf battles among Federal agencies, 
questionable evidence against targeted Middle Eastern groups and a lack 
of cooperation by foreign allies, senior government officials said.'' 
The article goes on to say that the Departments of the Treasury and 
Justice have established parallel and oftentimes conflicting programs 
which has led to confusion among law enforcement and intelligence 
agencies both here and abroad.
    Question. I would be interested in knowing your view of this 
article and, if the allegation of infighting is even a little bit 
accurate, what actions you have taken to make sure that components of 
this one Government work together for a common goal.
    Answer. The article, named ``Crackdown on Terror Funding is 
Questioned,'' contained several inaccuracies about the Administration's 
efforts to disrupt terrorist financing worldwide. First, no agency can 
unilaterally designate an individual or organization as a terrorist 
financier without the unanimous approval of every participant in the 
inter-agency task force made up of the Treasury Department, the State 
Department, the Justice Department, the FBI and the CIA. Treasury and 
Justice Department lawyers assess the sufficiency of the evidence 
before we move forward on any name.
    Second, the article claims that the U.S. Customs Service with the 
Treasury Department has removed its two agents who were detailed to the 
FBI's Financial Review Group. This is untrue-one agent was recently 
promoted and another is working off-site as per his duties within the 
Financial Review Group. Similarly, Operation Green Quest has enjoyed 
the support of the Justice Department from day one, when Assistant 
Attorney General Michael Chertoff joined Treasury at a news conference 
in welcoming its creation.
    Finally, the story makes assertions about information sharing that 
are simply ignorant of the law. The Treasury Department cannot turn 
over ``blocked'' documents to any law enforcement agency, including the 
FBI, unless the law enforcement agency obtains either consent, a search 
warrant, or a subpoena to review the contents of the blocked documents. 
The article failed to recognize the distinction between ``blocked'' 
documents and seized documents. Clearly, it is crucial that all our 
efforts remain well within the law to respect the parameters of the law 
and to protect the integrity of investigations.
    The Department of Treasury and the Department of Justice have 
worked closely together, with the State Department, the intelligence 
community and others, to track and block terrorist funding. 
Specifically, all the entities I've mentioned participate on a weekly 
if not daily basis in the fight against Terrorist Financing. The 
financial front on the war on terrorism, while quite different from the 
military or humanitarian fronts, requires continued cooperation to 
ensure success. To date, we have received such cooperation and look 
forward to continued success.
    In mid-November of last year the Treasury Inspector General issued 
a report which outlined the results of their audit of the performance 
measures for the Treasury law enforcement program. Unfortunately, due 
to the fact that most of our mail has been significantly delayed due to 
the bio-terrorism attack on the Hill, we just received that report. I 
am pleased to note that your Office of Enforcement generally concurred 
with the findings, and that you planned to take corrective action.
    Question. Agencies are to include copies of their performance plans 
with the budget request every year. Were you able to include any of 
your planned corrective actions in the plans we received in February of 
this year?
    Answer. While the IG's report did identify areas for improvement, I 
believe more importantly it indicated that there are ``difficulties 
inherent in designing a clear and complete set of outcome-related 
performance measures for Federal law enforcement.'' The IG agreed that 
it will take quite some time to develop a good set of performance 
measures. Still, we are taking action to implement the recommendations 
included in the report. However, due to the timing of its release (when 
our bureaus were finalizing their fiscal year 2002 performance plans), 
along with the inherent challenges involved in developing effective 
performance measures, the planned corrective actions that we submitted 
to the IG will be implemented in fiscal year 2003 and fiscal year 2004 
performance plans.
    Specifically, we are working hard to develop good outcome measures 
as recommended by the IG. As an example, the Attorney General 
instructed the Drug Enforcement Administration (DEA) to develop drug 
flow models for the four major drugs (heroin, cocaine, marijuana, and 
methamphetamine) by the end of the year. Treasury representatives, 
along with other Federal law enforcement organizations, recently 
attended a meeting hosted by DEA to discuss a process to develop drug 
flow models for the four major drugs.
    Also, as recommended by the IG's report, the Office of Enforcement 
will continue to work closely with the Department of Justice, DEA, the 
Office of National Drug Control Policy, and the Federal law enforcement 
community to develop drug flow models and to improve drug interdiction 
and drug investigation performance measures. An example of this 
partnership is the fact that Treasury and Justice are in the process of 
developing an outcome measure for the Organized Crime Drug Enforcement 
Task Forces that would measure disruption and dismantling of drug 
trafficking organizations.
                                 ______
                                 

                Questions Submitted to Brian L. Stafford

             Questions Submitted by Senator Byron L. Dorgan

            workforce retention--annualization of new hires
    Question. In fiscal year 2002, we provided funding for the 3rd year 
of a workforce retention/workload balancing initiative. The events of 
September 11, however, have further strained your already overworked 
agents.
    Does the fiscal year 2003 budget request provide sufficient funds 
to fully annualize the new hires?
    Answer. Although the funding to fully cover the annualized cost of 
this new hiring is not included as an increase in the Secret Service's 
fiscal year 2003 budget request, the Service is reviewing its options 
for covering this cost within it base budget.
    Question. Are you concerned that the Service may again start 
falling into an overtime-retention cycle?
    Answer. There should be an improvement in overtime levels when the 
full complement of agents hired under the re-balancing initiative for 
fiscal year 2002 (204 agents) are hired, trained and assigned to the 
field. At the present time the Service is not concerned that we will 
again fall into an overtime-retention cycle.
                      business strategy adjustment
    Question. Secretary O'Neill is requiring that all agencies incur a 
Business Strategy Adjustment. He feels that every agency can find 
savings, but all those we asked were absent any ideas that wouldn't 
affect mission-related activities. He proposed something similar in 
fiscal year 2002, but this Subcommittee restored the funds for law 
enforcement agencies. In fiscal year 2003, the BSA for Secret Service 
totals $6.824 million.
    How do you plan to meet these targets? Hasn't the Secret Service 
already proved itself to be fairly efficient in achieving savings in 
areas such as the purchase of airline tickets?
    Answer. The Service is developing action plans and strategies to 
set a course for improved management, and to monitor the progress made 
in improving performance. These efforts extend to improved uses of 
human capital, better financial management, expanded use of technology, 
and competitive sourcing of appropriate business lines.
    The improvement of current business processes has been made a 
priority in the Secret Service, as evidenced by the creation of the 
Logistics Resource Center (LRC). The LRC is just one example of the 
Service's recent efforts and commitment to promoting fiscal 
responsibility, and complying with the spirit of implementing new 
business strategies.
    The Secret Service spends millions every year on Government travel-
related expenses. The LRC was created last year to review our travel 
procedures and implement cost effective measures, while enhancing our 
ability to meet operational needs. The goal of the LRC is to 
institutionalize a formal structure within the Service that provides 
for a more efficient operation in the utilization of human resources, 
scheduling, and travel logistics. The LRC complements the existing 
joint structure of the Investigations/Protective Operations Manpower 
section by: implementing a systematic process to produce more informed 
decision-making; providing a central point to address travel related 
issues and policy; and most importantly, promoting overall fiscal 
responsibility and sound financial management practices within the 
Secret Service, while balancing cost considerations with operational 
needs.
    Ultimately, our success in achieving the savings to offset the 
$6.8M business strategy adjustment will depend on our ability to manage 
current resources efficiently.
                      electronic crimes task force
    Question. The Secret Service has been involved for some time in the 
area of investigating computer-related crimes. The USA Patriot Act 
authorized the establishment of additional task forces.
    Are funds included in the President's budget for this purpose? If 
not, how much additional funding is required to meet the authorized 
targets?
    Answer. The Secret Service plans to spend $21.8 million in fiscal 
year 2003 to fully implement what is authorized in the USA Patriot Act. 
Of this total, $17.2 million will be used to develop a national network 
of electronic crimes task forces.
    Question. Also, why is this important to the Secret Service and 
Homeland Security?
    Answer. Since the Secret Service was given primary jurisdiction for 
investigating the counterfeiting of identification documents, and 
access device fraud, and concurrent jurisdiction for investigating 
computer fraud, the nature of these financial crimes has expanded to 
new areas, both geographic and technological. This has resulted from 
the effects of globalization combined with the information technology 
revolution. Computers and the Internet are an integral part of an ever-
increasing amount of the criminal activity investigated by the Secret 
Service, either as targets of the criminal activity, tools used in the 
commission of the crime, or a repository of evidence.
                    protection of the u.s. currency
    Question. The Secret Service was initially established by President 
Abraham Lincoln to protect the Federal currency. When we met last week 
you discussed your concerns about the use of the dollar as the currency 
of choice by many other countries.
    Please describe your concerns about this and how the creation of 
overseas Secret Service offices can help protect the dollar.
    Answer. When Guatemala's Congress voted on legislation that would 
pave the way for the dollarization of their economy, that decision made 
it the third South or Latin American country to do so in less than a 
year.
    When El Salvador announced that it would fix the colon--the local 
currency--to the U.S. dollar, initial contact by agents in the Miami 
Field Office with banking and law enforcement officials in El Salvador 
indicated that most people in El Salvador would not be able to 
distinguish between a genuine and counterfeit Federal Reserve Note. The 
Miami Field Office has continued to receive urgent requests from 
banking and law enforcement contacts to provide assistance with the 
training of cash handling personnel and forensic specialists.
    Ecuador's recent conversion to the U.S. dollar as its base unit of 
currency has made it vulnerable to the exportation of criminal activity 
from Colombian organized crime. The Secret Service has seen a sharp 
increase in the importation, distribution and passing of Colombian-
generated counterfeit U.S. dollars since Ecuador formally converted to 
the U.S. dollar. Ongoing investigations in Colombia reveal that 
organized criminal groups are operating multiple schemes within their 
criminal enterprises, and are using the same courier network for both 
counterfeit and narcotics trafficking.
    Currently, there are fifteen (15) \1\ other countries and/or 
territories that have formally adopted the U.S. dollar as their 
official ``coin of the realm.'' Many other countries have tied the rate 
of exchange for their internal currencies with the U.S. dollar and are 
``de facto'' dollarized economies, e.g. Argentina. Economists have 
speculated that all of South and Central America will be dollarized 
within the next 10 years, with the possible exception of Brazil. It is 
anticipated that this process will be further expedited by the 
development and implementation of cash disbursement/payment systems, 
e.g. ATMs. On the other hand, it is also important to note that the 
rapid increase of ATMs and electronic transfers may ameliorate this 
labor-intensive effort.
---------------------------------------------------------------------------
    \1\ El Salvador, Ecuador, Panama, Guam, Marshall Islands, 
Micronesia, Northern Mariana Islands, Palau, Pitcairn Island, Turks and 
Caicos Islands, British Virgin Islands, East Timor, Puerto Rico, U.S. 
Virgin Islands, and American Samoa.
---------------------------------------------------------------------------
                    national special security events
    Question. Your agency has already accomplished the design of and 
conducted two National Security Special Events (NSSEs) this year--the 
Winter Olympics in Salt Lake City and the Super Bowl in New Orleans. 
These events place an additional strain on your personnel.
    Has any thought been given to reducing the number of NSSEs each 
year or to limiting the amount of Secret Service resources going into 
these events?
    Answer. The Secret Service does not designate events as National 
Special Security Events. The designation process is coordinated by the 
Office of Homeland Security, with the final determination regarding 
designation being made by the Secretary of the Treasury and the 
Attorney General. For an event to be designated as an NSSE, there must 
be unanimous agreement from the director of Homeland Security, and from 
the Attorney General and Treasury Secretary.
    Since 1998, fourteen events have received designation as National 
Special Security Events. The number of NSSE's by year is as follows: 
1998-1; 1999-2; 2000-4; 2001-4; 2002-3. It is important to note that 
one event that did receive designation as an NSSE--the IMF/World Bank 
Fall Meetings scheduled to be held in late September 2001--was canceled 
as a result of the September 11, 2001 attacks on America.
    Each NSSE is unique. The specific resource requirements for events 
vary due to a number of factors, such as the size and significance of 
the event, number of attendees, location of the event, and 
vulnerabilities. After preparing for 14 NSSE's, the Secret Service has 
developed a cost efficient and effective approach to managing security 
for major events. However, the events of September 11, 2001 have caused 
the Service to plan for new and emerging threats. As a result, the 
resource requirements for NSSE's will continue to be significant for 
the foreseeable future.
                    new york field office relocation
    Question. The September 11 terrorist attacks destroyed the Secret 
Service's New York Field Office--including the loss of vehicles and, 
tragically, one of your men.
    How are the efforts progressing to establish a new office and 
relocate the personnel?
    Answer. The General Services Administration (GSA) has acquired 
office space for the New York Field Office at 335 Adams Street, 
Brooklyn, N.Y. Currently, personnel occupy one of the three floors. 
This floor requires minimal renovation. The remaining personnel are 
currently utilizing two temporary office locations in Manhattan.
    The GSA is working on finalizing an agreement for obtaining the 
services of an architect who will begin designing the space relative to 
the remaining two floors, after which renovation of the space will 
commence. We anticipate all personnel will be in our new Brooklyn 
office by the end of December 2002.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. I noted that in fiscal year 2003 the Secret Service will 
begin gearing up for the 2004 Presidential campaign. You have requested 
$1.16 million to lease 120 vehicles late in the fiscal year so that you 
have enough time to install the necessary communications and emergency 
equipment. Then, after the election, you will need to remove the 
equipment and return the vehicles to the rental company.
    Why don't you simply purchase the vehicles as part of your normal 
vehicle-purchase cycle, permanently install the equipment, and continue 
to use them as part of the Service's fleet after the election?
    Answer. Historically, the Service has leased vehicles to increase 
the size of the fleet due to the spike in workload during campaign 
years. Once the campaign is over these vehicles are returned to the 
rental company reducing the fleet back to its normal size.
    However, following the 2000 campaign the Service purchased 55 of 
the leased all-terrain vehicles that had been used during the campaign, 
because they were fully equipped and the Service needed to replace 
older all-terrain vehicles within its fleet. Had this been done up-
front the Service would have realized a savings. As a result, the 
service has reconsidered the lease vs. purchase issue in regard to 
campaign vehicles.
    Some of your employees have been enticed to join former Secret 
Service Director John Magaw at the Transportation Security 
Administration. From what I understand, this is particularly true of 
the Uniformed Division. When you combine these departures with the 
number of agents and officers who will be eligible to retire this year 
and next year, you're looking at a huge number of potential vacancies.
    Question. What steps are you taking now to try to retain your 
workforce, and recruit new agents and Uniformed Division Officers? How 
does the Secret Service go about recruiting agents? How does the 
Service recruit for the Uniformed Division?
    Answer. The Secret Service recognizes that retention concerns are 
closely associated with quality of life issues. Through aggressive 
recruitment, and the subsequent hiring of additional agents and 
officers, the Secret Service is achieving increased staffing levels. By 
increasing the number of agents assigned to Secret Service field 
offices, the amount of time spent on protection assignments away from 
home, will ultimately be reduced for each agent. Additionally, the 
amount of required overtime for agents and officers will be reduced, as 
the number of assignments is dispersed among a larger work force.
    The Secret Service is also deeply concerned that our employees are 
being lured away by other agencies that offer both better salaries, and 
other compensations. This situation is particularly acute in our 
Uniformed Division (UD).
    We are currently exploring options within the Department (e.g., 
``pay banding,'' recruitment bonuses, and other financial incentives).
    The President's budget request for the Secret Service contains new 
language which would allow training of other Federal law enforcement 
officers at the James J. Rowley Training Center in Beltsville, 
Maryland, as well as training of State and local law enforcement and 
even private sector security officials but on a space-available basis.
    Question. What is the purpose of this language? Is the Training 
Center currently under-utilized? Have you had requests from other 
Federal or State or local law enforcement entities for training at your 
facility?
    Answer. The purpose of the proposed language is to allow the 
Director the discretion to request, not require, reimbursement from 
other Federal, State and local law enforcement, and from private or 
foreign entities, for training provided by the Secret Service at the 
James J. Rowley Training Center. The Secret Service receives numerous 
requests each year from outside sources for protective and 
investigative training. These requests are not to be confused with the 
invitational training sponsored and hosted by the Secret Service during 
our Dignitary Protection Seminars.
    The JJRTC is currently operating at or near full capacity to 
provide core mission training for our Uniformed Officer and Special 
Agent basic training classes, and for in-service training provided for 
current employees. This is the highest priority and primary mission of 
the JJRTC. The Secret Service rarely has the opportunity to entertain 
or satisfy any training requests originating from other agencies. Any 
opportunity to train or actual training for other agencies would never 
be done at the expense of our core mission requirements.
                                 ______
                                 

                 Questions Submitted to Bradley Buckles

             Questions Submitted by Senator Byron L. Dorgan

                        shortfalls to the budget
    Question. ATF began their budget process with a $3.6 million 
shortfall to their MCL's (Maintain Current Levels). OMB provided 
direction that the $13 million GREAT Grant Program would no longer be 
funded out of their base because they deemed it the responsibility of 
State and local Governments. Therefore, ATF felt they had the necessary 
flexibility in their budget to cover the $3.6 million shortfall and the 
proposed Business Strategy Adjustment (see #2). When asked about GREAT 
at our ATF budget briefing on their fiscal year 2003 budget, they 
informed us of the Administration's position on the Program. Knowing 
that the Senate would reinstate the program, OMB came back and said 
``no, we never said that and of course the $13 million is in their 
base''. Now ATF is left with a $3.6 million shortfall to start off the 
budget process, which will only be aggravated by the BSA and pay 
parity.
    What savings do you recommend to cover the proposed $7.6 million 
business strategy adjustment?
    Answer. ATF is committed to the Administration's goal of improving 
business practices and seeking programmatic efficiencies. ATF is 
currently reviewing how to achieve the savings required by the $7.6 
million business strategy adjustment. ATF will be considering a broad 
range of possible ways to achieve the required savings, including the 
re-evaluation of on-going programs to determine whether there may be 
more efficient and cost effective ways of doing business.
    For example, ATF invests a significant amount of resources in the 
area of space rental. The Bureau is considering some innovative ways of 
saving or avoiding costs in this area so we can decrease the amount of 
space required, while still supplying employees with the physical space 
they need to accomplish their jobs.
    Current practice dictates a dedicated office workstation for each 
employee. As new personnel are added, the standard process calls for 
either expanding the amount of office space and parking or relocating 
the entire office to accommodate the increased personnel. It is 
estimated that increased space and parking requirements resulting from 
recent increases in Bureau staffing will cost the Bureau approximately 
$9 million per year. We are considering an alternative approach 
utilizing one or more of the following processes:
    Hoteling.--An individual would not be assigned a specific 
workstation, but rather would be expected to work the majority of their 
duty hours (80 percent or more) outside the office. On the occasions 
where a need exists to come into the office (approximately 20 percent), 
the individual would call into the office and reserve one of the shared 
workstations. Upon arrival, the person would move their personal files 
to the assigned station and work for the required period of time. On 
their departure the desk would be emptied, files returned to their 
storage place and the workstation ready to be reassigned the next day. 
It is anticipated that four workstations could accommodate 10-12 
personnel.
    Flexi-place.--The normal duty station of an individual would be 
located in their personal residence. The individual would not normally 
be expected to appear in the office except in infrequent instances for 
required meetings or individual conversations with management (or other 
such activities). There would be no dedicated workstation for this 
individual at the office site. There is no theoretical maximum to the 
number of persons who could be assigned to a flexi-place arrangement.
    Alternative Worksites.--In this scenario, an individual would not 
have an assigned, ATF-controlled office space. If there were a need to 
occupy a workspace, the person would report to one of the satellite 
office locations maintained by the General Services Administration 
(GSA). The individual would report to ATF-controlled office sites only 
in such instances when their physical presence was required, but would 
not occupy office space during the visit. It should be noted that there 
are some limits to the availability of satellite office locations.
    Question. What would the affect be on your agency if forced to 
absorb the business strategy adjustment and a 1.5 percent pay raise?
    Answer. The estimated cost to fund a 1.5 percent pay raise 
increment would be $5.323 million. This would equate to roughly 53 
full-time equivalent employees (FTE) if one estimates using a $100,000 
average annual salary. It should be noted that this pay raise estimate 
has been coordinated with the Department and refined since original 
draft estimates were provided to the Subcommittee staff.
    ATF is committed to the Administration's goal of improving business 
practices and seeking programmatic efficiencies. However, ATF does not 
yet have specific plans for how to achieve the savings that would be 
required by the $7.6 million business strategy adjustment and an 
additional $5.3 million increment in the pay raise. The Bureau will be 
considering a broad range of possible ways to achieve the required 
savings, including the re-evaluation of on-going programs to determine 
whether there may be more efficient and cost effective ways of doing 
business. ATF would be reluctant to impact staffing levels.
    As stated in the response above, ATF invests a significant amount 
of resources in the area of space rental. We are considering some 
innovative ways of saving or avoiding costs in this area so we can 
decrease the amount of space required, while still supplying employees 
with the physical space they need to accomplish their jobs. We are 
considering an alternative approach utilizing the concepts of 
``hoteling,'' ``flexi-place,'' and alternative worksites.
                          supplemental funding
    Question. It is my understanding that your agency has proposed a 
number of explosives related initiatives to further our efforts in 
homeland security. I also understand that these proposals were met with 
resistance by the Administration and were never requested through the 
fiscal year 2003 budget submission or the recent fiscal year 2002 
supplemental request.
    Please describe any initiatives that ATF has proposed, the costs 
associated with these projects, how they will further our efforts in 
homeland security, and where they stand in the Administration.
    Answer. The canine and Joint Terrorism Task Force initiatives were 
funded through the fiscal year 2002 supplemental request and annualized 
in the fiscal year 2003 President's Budget request.
                        g.r.e.a.t. grant program
    Question. Please describe the status of the grant program in 
relation to expanding into Native American communities and any 
involvement in North Dakota.
    Answer. There have been 177 Bureau of Indian Affairs (BIA) Officers 
trained to teach G.R.E.A.T. to the 27,893 Native American students in 
the program.
    In fiscal year 2002 the inter-agency agreement with BIA in support 
of Native American law enforcement for G.R.E.A.T. is $200,000. In 
addition to the inter-agency agreement with BIA, ATF funded Lummi 
Nation Law & Order in Bellingham, Washington ($6,900), and Menominee 
Tribal Police Department in Keshena, Wisconsin ($25,000), and provided 
$25,000 to Grand Forks Police Department, North Dakota. We were able to 
satisfy all funding requests from law enforcement agencies that applied 
in fiscal year 2002.
    In October of 2001, ATF was a co-sponsor of the National Native 
American Law Enforcement Association's annual conference that was held 
in Albuquerque, New Mexico. ATF presented three workshops, which 
covered information on the new G.R.E.A.T. Curriculum Firearms Tracing 
and Identification, and Less Than Lethal Use of Force.
    In mid April, ATF provided an 80-hour G.R.E.A.T. Officer Training 
specifically for BIA in Rapid City, South Dakota to train 28 students. 
This session included four students from New Town, North Dakota and two 
students from Belcourt, North Dakota.
    ATF is working through a collaborative effort with BIA and the Boys 
and Girls Clubs of America to develop pilot sites for G.R.E.A.T. 
Officers to teach the G.R.E.A.T. Curriculum in Boys and Girls Clubs in 
Native American communities.
    There is a G.R.E.A.T. National Conference is in Keystone, Colorado, 
from August 28-August 30, 2002. One thousand people are expected to 
attend.
                    national special security events
    Question. More and more communities are requesting NSSE designation 
for certain events. The Administration proposes in the fiscal year 2003 
budget that the Treasury Counterterrorism Fund be used to reimburse ANY 
Federal agency for expenditures from NSSE's.
    What resources did ATF use during the Olympics and the Superbowl, 
how did it affect your overall mission responsibilities, and how were 
your expenses covered?
    Answer. ATF received Olympics funding through the Department of the 
Treasury from the Supplemental Appropriations Act, 2001, Public Law 
107-20. Costs incurred by ATF in support of the 2002 Winter Olympic 
Games in Salt Lake City are being reimbursed by the Treasury Department 
pursuant to an interagency agreement on Olympics funding. Expenses 
related to preparation and planning for the Winter Olympics, which 
occurred prior to October 1, 2001, were covered under ATF's salaries 
and expenses and through utilization of the Treasury Counter Terrorism 
Fund.
    ATF provided 300 personnel to assist in the overall security 
mission during the 2002 Winter Olympics. These personnel included 75 
Special Agent Certified Explosive Specialists, 20 Explosive Enforcement 
Officers, 27 National Response Team members, 10 explosive detection 
canine teams, 100 special agents for standing post, 17 intelligence 
officers and research specialists, and additional agents, supervisors 
and support staff to work in the various command posts and assist the 
Joint Terrorism Task Force in Salt Lake City, UT. ATF also supported 
the mission with two state-of-the-art fire and explosive response 
vehicles, a mobile laboratory and bomb technician vehicles and 
equipment.
    Prior to the games ATF sent a cadre of experienced inspectors into 
Utah to inspect the Federal explosive and firearms licensees to ensure 
compliance with proper storage and distance regulations and to provide 
security awareness. ATF's costs associated with protection activities 
at the Super Bowl in New Orleans were minimal, and were absorbed within 
the Bureau's salaries and expense accounts.
    ATF supported the security efforts at the Super Bowl with two 
Explosive Enforcement Officers, one explosive detection canine team, 
and local agents from the New Orleans Field Division. ATF worked 
closely with the other Federal, State and local law enforcement 
agencies in planning and determining the appropriate level of resources 
for these events.
                   office of homeland security (ohs)
    Question. Have you placed any reimbursable or non-reimbursable 
employees within OHS?
    Answer. No.
    Question. Please describe your agency's relationship with OHS?
    Answer. ATF Intelligence Division personnel established an initial 
relationship with the OHS during the fall of 2001 to provide background 
on the core mission responsibilities of ATF and our strong fundamental 
working relationships with State and local law enforcement agencies.
    The Bureau's involvement with the Law Enforcement Working Group 
(LEWG) was briefed as a process by which the Intelligence Community and 
law enforcement could work more closely together.
    ATF currently participates in the Law Enforcement/Investigations 
Policy and Coordination Group and the Detection, Surveillance and 
Intelligence Policy and Coordination Group of OHS.
    Question. Has your agency been intimately involved in any homeland 
security decisions made by OHS that are directly related to your 
mission?
    Answer. No
                                staffing
    Question. The fiscal year 2002 Treasury Appropriations Bill and the 
fiscal year 2002 Supplemental provided an additional 73 positions.
    Please detail your progress on hiring these positions.
    Answer. The following table shows current projected hiring for 
canine handlers, canine trainers and JTTF positions.

------------------------------------------------------------------------
               Fiscal year                    Quarter        Positions
------------------------------------------------------------------------
2002....................................             2nd               9
2002....................................             3rd              22
2002....................................             4th              38
                                         -------------------------------
      Subtotal..........................  ..............              69
                                         ===============================
2003....................................             1st               4
                                         -------------------------------
      Total.............................  ..............              73
------------------------------------------------------------------------

                                 ______
                                 

                Questions Submitted by Senator Jack Reed

    Question. The General Accounting Office recently released a 
preliminary report that found that the Justice Department's proposal to 
destroy NICS audit log records of approved gun sales within 24 hours 
would allow hundreds of disqualified buyers, including felons and 
domestic abusers, to purchase guns each year. The GAO review found that 
between July and October of last year, there were 100 cases in which 
authorities used data that is currently kept for 90 days to go back to 
try to retrieve guns from people who were not authorized to buy them.
    As the head of the agency that is responsible for illegal firearm 
retrievals, were you consulted in connection with this investigation?
    Answer. ATF responded to questions from GAO regarding ATF's 
activities and processes involving NICS referrals from the FBI.
    Question. What is your view of the Justice Department's proposal to 
destroy records of NICS approvals within 24 hours? Were you consulted 
during development of the proposal, and were your recommendations 
included in the proposed rule?
    Answer. ATF was consulted during the development of DOJ's proposal 
and ATF provided input on how we would change our existing procedures 
to deal with the proposed change. The Department of the Treasury did 
not formally comment to DOJ's Notice of Proposed Rulemaking.
    Question. My understanding is that the Justice Department let the 
90-day rule for retaining NICS records go into effect while the new 
rule is pending. Has ATF been able to use the information in the audit 
log in connection with dealer inspections? If so, how has the 
information been used?
    Answer. ATF inspectors provide information obtained from the 
records of Federal firearms licensees (FFLs) to the FBI to be compared 
against the NICS audit log as a deterrent against misuse. The FBI notes 
any discrepancies and refers this information back to ATF for further 
investigation as needed. To date, the use of this information has not 
produced significant results beyond the deterrent value.
    Question. In defense of its proposed rule, the Justice Department 
maintains that it can perform ``real-time'' audits? What role would ATF 
play in this real-time audits? And can you explain how these audits 
would work?
    Answer. ATF would play no role in the FBI's ``real-time'' audits.
    Question. In the aftermath of the September 11 attacks, your Bureau 
asked the FBI to check the names of 186 individuals against the NICS 
audit log. How do audit log records help you to streamline your 
investigations with the limited resources you have available? (For 
example, in the absence of a NICS audit log record, if you receive 
information--perhaps an anonymous tip--that indicates a potential 
terrorist may have inappropriately obtained a gun, how would you go 
about identifying the dealer, the point of sale, and the firearm? How 
would the process differ if you had access to a NICS audit log record?)
    Answer. As a point of clarification, ATF made the request mentioned 
above to the FBI in response to a request for information from the 
Joint Terrorism Task Force (JTTF). ATF only uses NICS audit log 
``proceed'' information during compliance inspections of FFLs. It is 
the Attorney General's opinion that NICS audit log ``proceed'' 
information may not be used a general law enforcement tool. The 
Treasury Department defers to the Attorney General and his Office of 
Legal Counsel as the interpreter of Federal statutes.
    Question. Could you explain step-by-step the mechanics of a firearm 
retrieval operation?
    Answer. Initially the FBI refers information to ATF's Brady 
Operations Branch in Martinsburg, West Virginia regarding alleged 
prohibited individuals who purchased (or received) a firearm and all 
persons who were denied after a NICS background check. All referrals 
involving possible receipt of a firearm by a prohibited person are sent 
to the appropriate ATF field office for further investigation.
    Question. Would you please provide a break-down of the prohibited 
categories into which the individuals fall from whom firearms have been 
retrieved?
    Answer. Breakdown of prohibited categories include:
  --Possession of firearm by previously convicted felon;
  --Possession of firearm by fugitive from justice;
  --Possession of firearm by illegal narcotic user;
  --Possession of firearm by illegal alien;
  --Possession of firearm by person dishonorably discharged from armed 
        forces;
  --Possession of firearm while under restraining order;
  --Possession of firearm by person having misdemeanor conviction of 
        crime of domestic violence;
  --Persons who have renounced citizenship; and
  --Persons adjudicated mental defectives.
    Question. What types of firearms are typically retrieved?
    Answer. Handguns are the type of firearm typically retrieved from 
Brady/NICS referrals.
    Question. In the last 10 years, how many firearms that fall within 
the definition of ``semi-automatic assault weapon'' pursuant to 18 USC 
Sec. 921(a)(30) have been retrieved''?
    Answer. 315 semi-automatic assault weapons have been retrieved from 
individuals in the various categories of prohibited persons since 1993.
    (It is noted that statistical information in the National Field 
Office Case Information System (NFOCIS) contains data since 1993, which 
was migrated into automated investigative case reporting system (N-
FORCE) sometime in 1998. It is further noted that the responses to next 
three questions are also from data compiled since 1993.)
    Question. For the same period of time, how many retrieved firearms 
are handguns?
    Answer. 8,386 handguns
    Question. How many are sporting rifle or shotguns?
    Answer. 7,587 shotguns/rifles
    Question. Were any of the firearms machine guns?
    Answer. Two machineguns.
    Question. How many firearms are retrieved in the typical retrieval 
operation? Is it ever the case that agents find more than one firearm 
in the possession of the individual from whom firearms are being 
retrieved?
    Answer. One firearm is usually retrieved in a typical case although 
there are instances where more than one firearm is retrieved from 
violators.
    Question. If the answer to the previous question is yes, have 
trafficking or other criminal charges been initiated following the 
execution of a retrieval?
    Answer. Yes, the United States Attorney, depending on prohibited 
category of suspect and prosecutorial guidelines of that office, files 
criminal charges.
    I note from your testimony that out of about 276,000 FBI referrals 
of denied firearms purchases since 1998, only 2,737 have been forwarded 
to U.S. Attorney's offices for prosecution. That's about 1 percent. I'm 
sure you're aware that the previous Administration received an enormous 
amount of criticism for not prosecuting more of these illegal purchase 
attempts under the Brady Law.
    Question. Why haven't more of the FBI's referrals of NICS 
violations been sent to U.S. Attorneys?
    Answer. We believe there are several contributing factors:
  --Standard Denial cases reviewed/filtered by Brady Operations Branch 
        personnel that do not meet United States Attorneys' 
        prosecutorial guidelines are not referred.
  --It may be revealed after cases (Standard & Delayed Denial) are 
        referred to the field for follow-up investigation that the 
        suspect was not prohibited and no violation occurred.
  --ATF and United States Attorneys' Offices around the country have a 
        coordinated approach to NICS referrals and have established 
        criteria for these cases. Not all referrals are presented for 
        prosecution as a result of mutual agreement between ATF and the 
        local United States Attorney.
  --Standard Denial cases are usually prioritized for those involving 
        the most violent offenders who meet prosecutive guidelines of 
        the respective United States Attorney's Office.
  --All Delayed Denial cases are referred to the field for immediate 
        follow-up investigation and are reported on with a disposition.
    [Clerk's Note.--A Statement received from the Institute of Makers 
of Explosives, is going to be inserted in the record.]
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. As you know, I have long been a supporter of the 
``G.R.E.A.T.'' program so I was pleased to see the budget amendment 
which clarifies the Administration's intention to continue that program 
at the current level of funding.
     I do have a question about the use of the ``G.R.E.A.T.'' program 
curriculum on Indian reservations. I recognize that ATF must coordinate 
those efforts with the Bureau of Indian Affairs. I'd appreciate it if 
you could describe for me exactly how that is working out.
    Answer. In addition to the inter-agency agreement with the Bureau 
of Indian Affairs (BIA), ATF funded Lummi Nation Law and Order in 
Bellingham, Washington ($6,900); and Menominee Tribal Police Department 
in Keshena, Wisconsin ($25,000).
    In October of 2001, ATF was a co-sponsor of the National Native 
American Law Enforcement Association's annual conference that was held 
in Albuquerque, New Mexico. Through the inter-agency agreement with 
BIA, law enforcement officers from BIA and Tribal law enforcement 
agencies attend this conference. ATF presented three workshops, which 
covered information on the new G.R.E.A.T. Curriculum, Firearms Tracing 
and Identification, and Less Lethal Use of Force.
    In mid-April, ATF provided an 80-hour G.R.E.A.T. training session 
for 28 Native American law enforcement officers in Rapid City, South 
Dakota.
    ATF is presently working through a collaborative effort with BIA 
and the Boys and Girls Clubs of America to develop pilot sites for 
G.R.E.A.T. Officers to teach the G.R.E.A.T. Curriculum in Boys and 
Girls Clubs in Native American communities.
    In the wake of September 11, there was an emphasis on making sure 
that firearms are not brought into this country by non-citizens. I 
understand that on February 5, ATF issued a temporary rule regarding 
import permits required for non-immigrant aliens who wish to bring 
firearms and ammunition into the country for perfectly legitimate 
things like shooting competitions or hunting trips. While I applaud you 
for taking action to further protect our citizens, I also noted that 
this temporary rule went into effect very quickly--before the permit 
application could even be printed or distributed.
    Question. I am interested in knowing how this transition worked 
out. Were there any incidences where foreign visitors were not aware of 
this change in policy? If so, what happened when they reached our 
shores?
    Answer. On February 19, 2002, a temporary rule affecting 
nonimmigrant aliens entering the United States for legitimate hunting 
or lawful sporting purposes took effect. Prior to February 19, 
nonimmigrant aliens did not need to file an Application for the 
Importation of Firearms, Ammunition and Implements of War, an ATF Form 
6, to enable them to bring firearms and ammunition into the Untied 
Sates. ATF coordinated this transition with our colleagues at the U.S. 
Customs Service, the Department of State and the Immigration and 
Naturalization Service. Months prior to enactment of the temporary 
rule, meetings and teleconferences were held with these agencies to 
elicit cooperation and understanding for the express purpose of 
facilitating nonimmigrant aliens coming to the United States to 
participate in competitive shooting events or engage in hunting 
activities.
    ATF proactively sought to inform the international hunting and 
shooting community. ATF sent letters to the Fish and Game commissioners 
for each of the 50 States, asking them to inform nonimmigrant aliens 
seeking to obtain a hunting license of the new ATF F6 requirement. We 
contacted the international travel agency association and asked them to 
make their oversees members aware of the new requirement. Further, we 
contacted the international airline association, seeking their 
assistance in informing their potential passengers of the need to 
submit this form. Press releases went out over the wire services both 
domestically and internationally. In addition, several months before 
enactment, through ATF's attach in Ottawa, we established a solid 
working relationship with our Canadian counterparts and enlisted their 
support and aid in widely publicizing this new requirement to 
Canadians. The ATF website prominently displayed the new requirements, 
and provided a thorough Q&A section, in addition to links to the form 
itself and other information. The ATF F6 was available immediately on 
the effective date. The form could be downloaded from our website, 
Imports Branch employees were faxing the form upon request, and also 
accepting completed faxed forms.
    Let me give you one example of what happened when some travelers 
did arrive at a port of entry without the ATF F6 properly completed. A 
large group of competitive shooters arrived at a port of entry to 
participate in a competitive shooting event in a southern State. They 
were not in possession of the required ATF F6. Because of the extensive 
communication between Customs and us, the Customs Inspectors were well 
aware of the new requirements. The inspectors called our Imports Branch 
personnel, and through the mutual dedication of these employees, the 
nonimmigrant aliens filled out the forms at the port of entry, forms 
were faxed to ATF, they were reviewed for completeness, accuracy and to 
ensure the firearms were not prohibited and the travelers were not from 
a prohibited country. The approved forms were then returned to Customs 
officials at the port of entry. The nonimmigrant aliens experienced 
some minor delays, but arrived at their competitive shoot in more than 
enough time to participate, and were extremely appreciative of the 
assistance they received.
    Up until late 1999, two Federal agencies were providing competing 
ballistics imaging technology to State and local law enforcement 
agencies. ATF had the ``CEASEFIRE'' technology and the FBI had the 
``DRUGFIRE'' system, and each had its own supporters. Unfortunately, 
one system couldn't share information with the other. In December of 
1999, the FBI and ATF agreed that ATF would provide the hardware--the 
``CEASEFIRE'' system--and that the FBI would provide the communications 
network to tie the machines together. ATF has been hard at work to 
replace the ``DRUGFIRE'' systems with funding provided by this 
Subcommittee. Now, I understand that the FBI has reneged on their part 
of that written agreement.
    Question. What does this mean for ATF? Do you have sufficient funds 
to take over this responsibility as well? What about the one area where 
the FBI Communications Network is already in place?
    Answer. ATF has accepted sole agency responsibility for management 
and administration of the NIBIN network, and is confident that single 
agency management will maximize the efficient operation of the program.
    In order to create and maintain the communications network for 
NIBIN, ATF will incur some costs. These include the following:
  --One-time charges for network encryption equipment purchase and 
        installation of encryptor and router;
  --Recurring costs for ongoing network circuit and maintenance charges 
        for network equipment;
  --Special labor costs for project engineering and onsite technician 
        labor;
  --Recurring telecommunications costs; and
  --ATF contractor support costs for site installation and travel and 
        network design support.
    As the question notes, one of the sixteen regions (Florida) is 
currently operating on a communications network operated by the FBI. 
This region will be transferred to the ATF-owned frame relay network, 
enabling nationwide connectivity.
    Funds for these requirements are included in the fiscal year 2002 
appropriation level and in the fiscal year 2003 President's Budget 
request.
                                 ______
                                 

                   Questions Submitted to James Sloan

             Questions Submitted by Senator Byron L. Dorgan

                           terrorist funding
    Question. Prior to September 11, FinCEN's Intelligence Liaison 
Office had been analyzing Bank Secrecy Act (BSA) information in support 
of law enforcement investigations into terrorist financing. Immediately 
after the terrorist attacks, FinCEN was able to immediately implement 
several new initiatives and enhance core programs to assist in this 
investigation. In addition, the USA Patriot ACT expeditiously made 
additional tools available to law enforcement to fight money laundering 
and terrorist financing. FinCEN is responsible for implementing 23 of 
the 44 provisions contained in Title III of that Act and also has a key 
role in many of the working groups established by Treasury to address 
the other provisions.
    Do we anticipate any criminal cases resulting from the millions in 
terrorist assets frozen through FinCEN investigations?
    Answer. Most criminal cases in the terrorist area utilizing FinCEN 
investigations are brought by Operation Green Quest at the Customs 
Service or the Financial Review Group at the FBI. FinCEN analysis is 
also used in research and actions conducted by the Office of Foreign 
Assets Control (OFAC). For example, the Office of Foreign Assets 
Control used information derived from FinCEN investigations in partial 
support of its blocking of Al Barakaat, the Somali money remitter. In 
general, we anticipate that FinCEN resources will prove important to 
all the U.S. Government's efforts to combat terrorist financing.
    Question. Does your fiscal year 2003 budget request cover your 
requirements as a result of the USA Patriot Act?
    Answer. FinCEN and Treasury are analyzing what additional resources 
may be needed for hiring both personnel and contractual support in 
order to fully implement all of the mandates of the USA PATRIOT Act. 
Until the regulations or programs are finalized, and we review funding 
options with OMB, it would be premature to accurately predict the 
overall resource implications that will be needed to implement these 
mandates.
    Question. Are you working on the necessary funding adjustments in 
fiscal year 2004 to make these pilot projects permanent as a result of 
the Patriot Act? How much would that cost?
    Answer. FinCEN is beginning the fiscal year 2004 planning process 
in preparation for the next President's Budget submission. During this 
process, FinCEN will work with the Department and OMB to consider ways 
to make the pilot projects permanent to meet the new mandates in the 
Patriot Act. It would be premature to accurately predict the level of 
resources needed to fully meet the requirements of the Patriot Act.
    Question. How have your increased activities under the Patriot Act 
affected your initial mission?
    Answer. FinCEN is responsible for implementing 23 of the 44 
provisions contained in Title III and also has a key role in many of 
the working groups established by Treasury to address the other 
provisions all of which have due dates over the next 9 months. The 
Patriot Act also accelerated the implementation of many of the goals 
articulated in the 2002 National Money Laundering Strategy. Currently, 
FinCEN is making good strides in implementing the numerous provisions 
of the Act, however, the workload increase is significant. For example, 
in the regulatory area, the accelerated deadlines for expanding certain 
Bank Secrecy Act (BSA) requirements to additional financial services 
providers have placed a substantial burden on resources in terms of 
consulting with industry, drafting and issuing regulations, and 
managing the resulting comment periods. These mandated requirements are 
occurring at a time when a major new regulatory program, money service 
businesses (MSBs), was already being implemented. Additionally, 
management of technology-driven projects such as the Patriot Act 
Communications System (PACS) under the tightened deadlines is also 
requiring human and monetary resources.
                        fiscal year 2003 budget
    Question. Secretary O'Neill is requiring that all agencies incur a 
Business Strategy Adjustment. He feels that every agency can find 
savings, but all those we asked were absent any ideas that wouldn't 
affect mission-related activities. He proposed something similar in 
fiscal year 2002, but this Subcommittee restored the funds for law 
enforcement agencies. In fiscal year 2003, the BSA for FinCEN totals 
$481,000.
    What savings do you recommend to cover the proposed $481,000 
business strategy adjustment?
    Answer. FinCEN continually reviews its business processes and 
technologies to ensure that best business practices are in place and 
that new technologies are explored that will enhance services or 
provide efficiencies. For fiscal year 2003, we are reviewing ongoing 
programs with the goal of identifying any cost savings from current 
business practices. While some programs are being enhanced through the 
use of technology, the results will be qualitative, in terms of 
enhanced analysis and services. Examples of the type of efforts 
previously identified include the Gateway and the Platform programs 
which allow customers to do their own research using our technology 
tools and other resources.
    Question. What would the affect be on your agency if forced to 
absorb the business strategy adjustment and a 1.5 percent pay raise?
    Answer. At this time, FinCEN would review on-going programs and 
staffing levels to absorb the 1.5 percent pay raise and extend out 
several of the information technology or law enforcement support 
initiatives to meet the business strategy adjustment. We would look for 
program efficiencies to reduce the impact of the reduction in future 
years.
                   office of homeland security (ohs)
    Question. Have you placed any reimbursable or non-reimbursable 
employees within OHS?
    Answer. No, FinCEN has not been requested to place any employees 
within OHS.
    Question. Please describe your agency's relationship with OHS?
    Answer. FinCEN does not have a direct relationship with OHS. These 
issues are addressed through Treasury's Office of Enforcement.
    Question. Has your agency been intimately involved in any homeland 
security decisions made by OHS that are directly related to your 
mission?
    Answer. No. As mentioned in the previous response, any involvement 
with OHS is coordinated through Treasury's Office of Enforcement.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. I understand that the lease on your current location will 
expire in April of next year, and that you are searching for new space.
    What is wrong with the existing location? Are you being forced to 
leave? Is FinCEN the only Federal tenant in that building? How much 
would it cost to move to a different location?
    Answer. The current location is included in the geographic area 
selected as part of the competitive solicitation. The lease renewal 
follows standard acquisition process including a competitive 
solicitation. Therefore, the ultimate selection of the lease location 
could be other than the current lease. At this time, it is premature to 
comment on a forced move from the current location or the costs 
associated with a different facility.
    Currently, FinCEN is the only Federal tenant in the building. 
However, it is our understanding that another Federal agency is in 
negotiations with the building concerning a possible lease.
    Question. The USA Patriot Act of 2001 established the Financial 
Crimes Enforcement Network as a separate Treasury bureau, much like ATF 
or Customs or the Secret Service. Other than the prestige of this 
change, what has been the effect of becoming a separate bureau?
    Answer. In many respects, FinCEN has been treated as a bureau--
having its own appropriation, participating with other bureau heads at 
Treasury meetings, and producing many of the same products required by 
larger bureaus. However, the bureau status does provide a number of 
basic administrative authorities to perform numerous activities and 
functions. Examples of these administrative functions include debt 
collection, records management, mail distribution, personnel security, 
physical security, procurement, personnel, travel cards, and other 
areas or programs.
    FinCEN has been examining its administrative processes to develop 
the best mix between in-house services and competitive sourcing with 
other agencies. In many instances, FinCEN has an adequate structure in 
place so the impact may just be a new or enhanced reporting 
responsibility. For example, FinCEN now has its own Records Group 
Number from National Archives and Records Administration. Also, FinCEN 
has begun to streamline its personnel processes to include taking 
responsibility for final classification of positions and partial 
recruitment activities while continuing to use a service provider for 
systems related processing. These streamlined activities have realized 
a combined savings of 90-180 days in the time needed to fill vacant 
positions.
    Immediately following September 11, FinCEN moved into high speed to 
trace the funding of terrorist groups. This was followed by various 
news reports which only touched on the efforts of your agency.
    Question. I would appreciate it if you could explain, in layman's 
terms, how FinCEN goes about tracing the money. How do you receive the 
raw data used to follow the financial trail?
    Answer. Since its inception, part of FinCEN's anti-money laundering 
mission has been to identify illegal financial activity, regardless of 
the specified unlawful activity. Over the years, advances in 
technology, analytical training, and liaisons with other agencies have 
enhanced FinCEN's financial tracking techniques.
    A requisite to tracing funds is the requirement of some ``tidbit'' 
of terrorist-related information--a starting point. It may be 
information related to an account, an address, a business, or 
individual, etc. that serves as the basis for tracing funds. The 
process may start: with a ``tip'' from our newly established Hotline; 
or be discovered through proactive efforts; or result from some type of 
information from law enforcement; or may be derived from sensitive 
information. Regardless of its origin, once the information is 
determined to be reliable, the tracing process begins.
    As an example, using just an account number, the first step would 
be to identify whether the account is in any way connected to Bank 
Secrecy Act (BSA) reports, such as (Currency Transaction Reports 
[CTRs], Currency Transaction Reports by Casinos [CTRCs], Suspicious 
Activity Reports [SARs], Currency or Monetary Instrument Reports 
[CMIRs], Foreign Bank and Financial Accounts Reports [FBARs]. If the 
account is found as part of a BSA report, it provides additional 
information that can be used to broaden the field used for tracing, 
i.e., an address, additional persons associated with the account, 
biographic data relative to account owner or party. From that point, 
consideration is given to transaction amounts, number and frequency of 
transactions, whether monetary instruments or money transfers are 
prevalent. If a SAR has been filed, the narrative can enhance the 
tracing process even more by providing additional data such as 
associates, bank accounts, financial institutions, beneficiary names, 
and locations.
    Through thorough research, FinCEN analysts exploit every bit of 
information that surfaces during the research phase, and then develop 
what FinCEN refers to as ``multi-generation link analysis.'' Analytical 
techniques used by FinCEN analysts incorporate link analysis and 
timelines that aid in the tracking and overall flow of funds. Such 
analysis considerably expands the overall scope of a financial 
investigation. In tracking terrorist funds, FinCEN has realized 
particular value through proactive initiatives. In the absence of a 
``tip,'' FinCEN analysts routinely conduct proactive queries of SARs to 
identify possible indicators of terrorist financing. Proactive cases 
normally originate from SARs, and are then augmented by law 
enforcement, commercial, and additional financial information. When 
proactive cases are fully developed, they are referred to law 
enforcement as lead information.
    FinCEN's counter-terrorism efforts are far reaching and utilize 
diverse sources of information to include designated foreign terrorist 
organizations and nationals, the Department of Commerce's Denied 
Persons List, and information from the law enforcement and intelligence 
communities.
                                 ______
                                 

                Questions Submitted to Paul Hackenberry

             Questions Submitted by Senator Byron L. Dorgan

                  facilities construction master plan
    Question. In your statement, you discuss the need to update the 5-
year FLETC facilities construction master plan to respond to the 
increased demand for training. This makes a great deal of sense. 
However, you only plan to review the facility needs at Glynco, GA, 
Artesia, NM and Cheltenham, MD.
    You already have a significant and potentially growing presence in 
Charleston, SC. Given the increased demand for training, as well as 
some potential expansion limitations at the other FLETC facilities, why 
not take another look at Charleston?
    Answer. Unlike the Glynco, Artesia and Cheltenham sites, which are 
owned and operated by FLETC for multiple agencies, Charleston is leased 
by the Department of Justice and is used exclusively for entry level 
U.S. Border Patrol training. FLETC helped the INS/U.S. Border Patrol to 
set up operations in the mid-1990's and we have supported their 
training with instructional, contract and technical assistance. FLETC 
has developed a business case study that advocates the consolidation of 
all Border Patrol training in Artesia at a significant cost savings to 
the government. Discussions are underway with Justice and INS on the 
issue. The facilities master plan now under development by an 
experienced site planning firm, Clark Nexon, Inc. of Norfolk, VA, will 
include consideration of U.S. Border Patrol training needs, but the 
indications are that they still can be accommodated by FLETC without 
recourse to yet another permanent training site.
    Question. Also, how does the new Customs Service facility being 
constructed in Harpers Ferry, WV fit into your plan?
    Answer. Congress provided funding directly to the U.S. Customs 
Service in fiscal year 2000 for the development of a requalification 
firearms training site at Harpers Ferry, WV. The appropriation language 
in the bill stated this site was for a specific, limited purpose and 
was not to duplicate training conducted at FLETC sites. FLETC, U.S. 
Customs Service and the Office of Enforcement in the Department of 
Treasury signed a Memorandum of Understanding for operations of the 
Harpers Ferry location consistent with Congressional intent. U.S. 
Customs Service continues to be a major partner in FLETC training, and 
all FLETC sites, including the newest location in Cheltenham, MD, are 
available to the U.S. Customs.
                     transportation security agency
    Question. In your statement, you note that the FAA requested that 
you undertake training for the newly expanded Federal Air Marshall 
program. There also appears to be discussion about who will train the 
new Federal baggage screeners. The uncertainty about who will be 
providing the training in the long run makes it difficult to budget 
effectively.
    Where are you training the air marshals? How many do you envision 
will be trained in over the next 2 years?
    Answer. In agreement with the Department of Transportation, FLETC 
began training of Federal Air Marshals (FAA) at our Artesia, NM center 
in October 2001. A number of steps have been taken to ensure that air 
marshals are accorded the training needed for their important 
assignments, including the use of three 727 aircraft fuselages for 
practical training at the site. Artesia will continue as a major source 
of air marshal training for the foreseeable future, but FAA's Atlantic 
City site is also being used for certain types of training conducted by 
FAA. The precise number of air marshals to be trained is still being 
determined by the Transportation Security Administration.
    Question. As for the baggage screeners, who will be making the 
decision about who will undertake this training? If it is decided that 
FLETC will conduct the training, where do you envision this training 
will occur? Would a new site be required? Also, are funds for this new 
mission included in your fiscal year 2003 budget request? If not, how 
much would be required and when?
    Answer. FLETC's involvement in the training of baggage screeners at 
U.S. airports has been limited. FLETC's chief responsibility is to 
conduct and support training for Federal law enforcement personnel. 
Baggage screeners will not have law enforcement powers. Thus, FLETC's 
involvement has been as a consultant on curriculum development and on 
formulation of a train-the-trainer program for would-be trainers of 
baggage screeners. FLETC conducted two pilot programs in February and 
March 2002 to prepare trainers, but no further training of this nature 
is expected at FLETC. It is our understanding the Transportation 
Security Administration intends to offer this training through a 
contractor and at locations across the country. FLETC may continue to 
provide training validation assistance for these programs.
                      border agency consolidation
    Question. There is a recommendation pending to fold the Customs 
Service into the Justice Department via the INS. There is also 
discussion and legislation to create a new border agency or department 
comprising a number of agencies.
    Should any of these recommendations occur, how will they require 
you to modify your current training regime? Would you also consolidate 
training at a given location or make some other arrangement or maintain 
current practices--at least for the time being?
    Answer. Both the U.S. Customs Service and the Immigration 
Naturalization Service are member agencies in FLETC; thus we have had 
significant experience with the type of training they receive and the 
facility requirements for conducting that training. Should any 
consolidation of these two agencies or others occur under a 
Congressional mandate, FLETC is prepared to help redesign curricula and 
realign training to meet new objectives, including cross designation 
training. If a new border security agency is formed in the future, 
FLETC will work with the affected agencies to determine the duration, 
special requirements and location to best conduct this training.
                          cheltenham facility
    Question. You are in the process of modifying the Cheltenham, MD 
facility for use by Washington, DC-area law enforcement personnel.
    Who will be trained at this facility? Do you envision it being used 
by other Federal law enforcement personnel who need to qualify as 
weapons carriers?
    Answer. The Cheltenham facility will serve two major needs: an in-
service academy operation for the U.S. Capitol Police and an 
interagency requalification site for firearms and law enforcement 
vehicle skills training. The U.S. Capitol Police already have begun 
training in interim quarters at Cheltenham, and their permanent 
facility is expected to be ready in September 2002. The firearms and 
vehicle facilities are under design and expect to be opened to use by 
late fiscal year 2003 and early fiscal year 2004. The legislation 
establishing the Cheltenham site in fiscal year 2000 specifically 
identified the Treasury law enforcement bureaus, U.S. Capitol Police 
and the Washington, DC Metropolitan Police Department. The legislation 
also makes this site available to all Federal agencies with law 
enforcement personnel assigned to the Washington, DC area who need 
requalification training of a short duration. FLETC calculates that 
over fifty Federal agencies will participate at Cheltenham, but the 
precise number of personnel is still being determined. Training 
provided at this location will be conducted on a reimbursable basis 
similar to the way advanced training is done in Glynco and Artesia for 
partner agencies.
                     rural law enforcement project
    Question. For the past few years, this Subcommittee has added a 
limited amount of funds to your budget to assist in the development of 
a rural law enforcement training curricula. That work has been 
performed primarily by the Rural Law Enforcement Education Project at 
Minot State University in Minot, ND. I understand that FLETC finds the 
work product delivered by MSU to be valuable and that there is interest 
in expanding the program.
    Please describe your impression of the current program and the 
interest level in expanding the program. Also, if additional funds are 
needed to accomplish this expansion, how much additional funding would 
be required and for what purposes?
    Answer. Minot State University (MSU) has provided a number of 
excellent work products in connection with the Rural Law Enforcement 
Education Project, which was first initiated in 2000 under the National 
Center for State and Local Law Enforcement. ``The Training Needs 
Assessment for the Northern Plains States'' research surveyed rural 
agencies as to the types of crimes impacting rural law enforcement 
agencies. Minot State University has contracted with the National 
Center to provide longitudinal studies on the effectiveness of the law 
enforcement training offered to agencies as determined in the Northern 
Plains States. Longitudinal studies are continuing for ongoing 
training. MSU has created a clearinghouse as specified in the contract, 
and they are serving as a resource center for rural law enforcement 
agencies seeking training, research, and grant availability and writing 
assistance. MSU is sending two representatives to the National Center 
for an 8-week period to work with these projects. MSU has conducted 
post training surveys on the National Center's train-the-trainer 
programs to validate and strengthen much needed specialized training 
for rural law Enforcement agencies. As a result of their research, they 
have recommended that a Rural Policing Institute (RPI) be created to 
link the work of MSU and the National Center, which will strengthen the 
programs provided by the National Centers' Small Town And Rural (STAR) 
Project and reach additional rural agencies. The mission of the RPI 
would be to develop and deliver specialized and advanced training, 
based upon sound research, for small town and rural law enforcement 
officers, supervisors, and managers. The training would be held at the 
FLETC facilities, MSU, and throughout the U.S. We are studying their 
proposal and can make recommendations once this assessment is complete.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

    Question. The biggest question on all of our minds with regard to 
the Federal Law Enforcement Training Center concerns the training needs 
of the new Transportation Security Administration. We know that 5,000 
new Federal Air Marshals need to be trained this year, and that there 
will be at least 4,000 more next year--not to mention the continuing 
need to train replacements.
    I'd appreciate it if you would give us an update on the role of 
FLETC in this regard. And, secondly, does FLETC have sufficient 
resources for this effort?
    Answer. FLETC began training for increased numbers of Federal Air 
Marshals in October 2001 at the request of the Federal Aviation 
Administration (FAA). Program agreement has been reached between the 
FAA and the FLETC on the training format to be used. Adjustments will 
continue to be made as more information becomes available as to the 
long-term mission goals of the TSA. FLETC is now conducting intensive 
training at its Artesia, New Mexico site on a 6-day workweek for new 
Federal Air Marshals. The increased training requirements of the FAA 
were not fully known when the fiscal year 2003 President's budget was 
submitted; however, the FAA has provided a reimbursable agreement to 
pay for the cost of providing this training for fiscal year 2002.
    Funding was provided by this Committee in late 2000 to develop a 
D.C. metropolitan area law enforcement training center at Cheltenham, 
Maryland. This site was primarily envisioned as a location for firearms 
and vehicle operation requalifications, as well as providing training 
space for the Capitol Hill Police.
    Question. Please give us an update on what progress has been made, 
and when this facility is expected to be open for business.
    Answer. The Cheltenham, MD site was transferred to FLETC's 
inventory in May 2001 from the U.S. Navy. Significant progress has been 
achieved thus far, and the timelines for design and construction are on 
track. An environmental study was completed, with a finding of no 
significant impact issue. Other studies such as noise levels and 
traffic patterns also have been concluded, and local meetings within 
the private communities near Cheltenham have been successfully 
undertaken. An interim building for U.S. Capitol Police training was 
opened in February 2002. Their permanent academy site is expected to be 
ready by September 2002. Design is complete, or nearly so, on several 
projects, including the firearms range complex and vehicle training 
range. Construction will begin in May and throughout the summer of 2002 
on these buildings and related facilities, such as office space, 
security and registration, a haz-mat storage facility and other 
permanent structures. Much of the $33.5 million appropriated for 
Cheltenham will be obligated in fiscal year 2002. The anticipated 
opening for most facilities at Cheltenham is early fiscal year 2004. 
More than 50 Federal agencies and the District of Columbia Metropolitan 
Police Department are projected to train in excess of 8,000 law 
officers in the first year or two of operation.
                                 ______
                                 

      Prepared Statement of the Institute of Makers of Explosives

    On behalf of the Institute of Makers of Explosives (IME), I am 
submitting a statement for inclusion in the Subcommittee's hearing 
record regarding the proposed fiscal year 2003 budget for the Bureau of 
Alcohol, Tobacco & Firearms (BATF).
                          interest of the ime
    The IME is the safety association of the commercial explosives 
industry. Our mission is to promote safety and the protection of 
employees, users, the public and the environment; and to encourage the 
adoption of uniform rules and regulations in the manufacture, 
transportation, storage, handling, use and disposal of explosive 
materials used in blasting and other essential operations.
    Commercial explosives are key to our way of life. Without them, 
materials used in nearly every item in our society would be practically 
impossible to remove from the earth. Effective recovery of energy 
resources, such as coal and oil, cannot be accomplished without 
explosives. Our transportation system, which underpins our economy, is 
built on minerals and aggregates mined with explosives. Specialty 
applications for fire and avalanche control or demolition and 
construction rely on commercial explosives. Last year, 2.7 million 
metric tons of explosives were consumed in the United States of which 
IME member companies produced over 95 percent. These products are used 
in every state in the Union and are distributed worldwide.
    The production, distribution, storage and use of explosives are 
highly regulated. BATF is one of the agencies that plays a primary role 
in assuring that explosives are identified, tracked, and stored only to 
and by authorized persons. The ability to manufacture, distribute and 
use these products safely and securely is critical to this industry. 
With this perspective, we have carefully reviewed the Administration's 
fiscal year 2003 budget request and have the following comments.
          budget resources are inadequate for responsibilities
    Our industry relies on BATF to efficiently and effectively perform 
a number of functions to ensure that the legitimate commerce of 
explosives can go forward safely and unimpeded. Additionally, when 
explosives are stolen, lost, or used for illegal purposes, we rely on 
the BATF to recover products and investigate incidents as necessary. In 
this regard, we support all necessary resources for these essential 
services. However, the BATF budget request does not adequately support 
these essential services.
    BATF claims in its budget justification ``to provide a 
comprehensive proactive and reactive force in the fight to protect the 
American public against the criminal use of explosives [and] to have 
the potential to thwart terrorist activity at every level of the 
execution process, i.e., from the theft or purchase of explosives to 
the deployment of those explosives for terrorist purposes at public 
events.'' \1\ The commercial explosives industry and the public are 
served best by the prevention portion of this mandate. However, the 
budget clearly points to gaps in BATF's ability to perform assigned 
functions.
---------------------------------------------------------------------------
    \1\ Fiscal year 2003 BAFT Budget Justification, Volume 1, pages 2-
3.
---------------------------------------------------------------------------
    BATF has admitted in the past that its explosives program is not 
adequately covered. While BATF has stated that it is making efforts to 
better balance its responsibilities, this budget request would suggest 
otherwise. In the wake of the events of September 11, BATF set out to 
inspect all licensees/permittees, currently a class of about 9,400, of 
which IME represents about 3.4 percent. These were not all full 
inspections. The task would be too daunting. Despite BATF's efforts, 
the Bureau came 2,000 licensees/permittees short of its inspection 
goal. As a result of the inspections it did perform, BATF found about 
2,000 violations, about 10 percent being referred for enforcement.\2\ 
Although less than 2.7 percent of licensees/permittees were the source 
of these violations, BATF still must follow-up to ensure that 
corrective actions have been taken. At the time the Bureau's budget 
document was prepared, BATF estimated that its corrective action 
workload would be about 850 in fiscal year 2003.\3\ The violations data 
from the post-September 11 inspection drive as well as that from fiscal 
year 2001, indicate that 850 corrective actions is less than half the 
current workload.\4\ In the meantime, no matter how serious the number 
of violations discovered may seem to be, it appears that BATF has 
issued only one notice of license revocation.\5\ Yet, BATF's fiscal 
year 2003 budget request asks for no additional FTE under the budget 
function that includes these and other inspection activities of the 
Bureau's regulated commodities, holding at 529 FTE.\6\ With this 
resource commitment, BATF states that it will only be able to inspect 
50 percent of the explosives industry and that it will ``strive'' to 
investigate 100 percent of reported explosives thefts and losses.\7\
---------------------------------------------------------------------------
    \2\ Statement of Bradley A. Buckles, Director, BATF, Subcommittee 
on Treasury, Postal Service and General Government, House 
Appropriations Committee, February 28, 2002, page 3.
    \3\ Fiscal year 2003 BATF Budget Justification, Volume 2, page 20.
    \4\ Op. Cit., Statement of Bradley A. Buckles, February 28 2002, 
page 17. Fiscal year 2001--1,813 violations; 1st quarter fiscal year 
2002--1,763 violations.)
    \5\ Ibid.
    \6\ Fiscal year 2003 BATF Budget Justification, Volume 1, page 13.
    \7\ Fiscal year 2003 BATF Budget Justification, Volume 2, page 20. 
(The Budget Justification does not disclose data to evaluate whether or 
not the Bureau has met its goal to investigate 100 percent of reported 
explosives thefts and losses.)
---------------------------------------------------------------------------
    The Subcommittee should also be aware that, in the aftermath of 
September 11, legislation has been introduced with Administration and 
industry support to close loopholes in Federal explosives permitting 
law.\8\ Currently, all manufacturers, importers, and distributors of 
commercial explosives are required to obtain Federal licenses. However, 
only interstate, but not intrastate, users of explosives, with one 
minor exception, are required to obtain Federal permits to purchase 
commercial explosives. This legislation would close the intrastate 
loophole. It would also significantly broaden the base of those 
employees of licensees/permittees that are required to obtain 
background checks and broaden the scope of the background check before 
such employees can ``possess'' or otherwise ``direct'' the management 
or policies of businesses engaged in the manufacture, importation, 
distribution, purchase, receipt or use of explosives. While IME is 
extremely supportive of these legislative efforts, we are concerned 
that BATF have in place the systems and resources necessary to 
implement these additional requirements in a timely manner. 
Regrettably, BATF lacks the data to estimate what the additional 
workload will be.\9\
---------------------------------------------------------------------------
    \8\ S. 1956. We also understand that similar legislation is being 
developed by the House Judiciary Committee.
    \9\ BATF did estimate that the number of additional background 
checks for those that ``direct'' would be in the neighborhood of 80,000 
checks per year. This figure does not capture the number required for 
those that ``possess'' explosives, nor the workload to process the 
intrastate purchase permits.
---------------------------------------------------------------------------
    There is a price to safety and security. Industry and the public 
trust that BATF has the resources to fulfill its regulatory 
responsibilities. It is up to Congress and, in particular, this 
Subcommittee, to ensure that BATF has the resources it needs.
                            strategic goals
    A key to rebalancing the Bureau's statutory responsibilities is the 
identification of performance standards that can measure BATF's 
progress or areas needing attention. In fact, such performance measures 
are demanded by the Government Results and Performance Act. Currently, 
BATF has identified six customer service standards to measure its 
delivery of services to its regulated community.\10\ None of these 
standards address the needs or concerns of the explosives industry. 
Nearly 2 years ago, we approached BATF with suggestions of measures 
appropriate for our industry.\11\ While the Bureau has discussed our 
suggestions, no final decisions have been made as to whether our 
suggestions are appropriate, could be modified, or if other standards 
would better measure service to the explosives industry. In the 
meantime, measurable indices remain unavailable to assess Bureau's 
service to the explosives industry.
---------------------------------------------------------------------------
    \10\ Fiscal year 2003 BATF Budget Justification, Volume 2, page 24.
    \11\ Letter to Wayne Miller, BATF, from Cynthia Hilton, IME, July 
19, 2000.
---------------------------------------------------------------------------
        rulemaking concerns--closing the import marking loophole
    Currently, BATF regulations require domestic manufacturers to mark 
all explosive materials they manufacture for sale or distribution.\12\ 
These marks consist of the manufacturer identity and the location, 
date, and shift of manufacture, commonly referred to in the industry as 
the ``date-plant-shift code.'' These marks are necessary for reasons of 
security and safety. The BATF has emphasized that the failure to apply 
these markings inhibits law enforcement from tracking explosives to the 
source, and proving criminal activity. The date-plant-shift code 
enhances safety because some explosives deteriorate over time and the 
code allows users to keep inventory fresh. Additionally, the date-
plant-shift code is one of industry's ``QA/QC'' tool, allowing the 
manufacturer the ability to trace product quality problems back to the 
point of manufacture and distribution.
---------------------------------------------------------------------------
    \12\ 27 CFR 55.109(a).
---------------------------------------------------------------------------
    These marking rules, however, do not apply to foreign 
manufacturers. During the last 3 years, we became aware of heretofore 
unprecedented large imports of unmarked explosives being shipped to the 
United States from China.\13\ This development prompted IME to petition 
BATF for a rulemaking to close this loophole as it applies to high 
explosives and blasting agents. Our petition would make it unlawful for 
any licensee to import such explosive materials without legibly 
identifying by marking all explosives materials in the same manner 
prescribed by the BATF for domestic manufacturers.
---------------------------------------------------------------------------
    \13\ Regrettably, not all countries that manufacture explosives 
maintain the same high standards for stewardship and security 
that.underpin the BATF's marking requirements for domestic 
manufacturers. This disparate regulation gives rise to concerns about 
trade practices. In terms of high explosives, the United States has 
already lost its ability to domestically manufacture TNT, and only one 
company still makes dynamite. We do not think it is in the national 
interest to lose more of our high explosive domestic manufacturing 
capability to unfair trade requirements.
---------------------------------------------------------------------------
    While stating general agreement with our concern, BATF expressed 
doubt that they could go forward with our proposal without more 
information about the economic consequences to the explosives industry 
irrespective of whether or not the product was a ``high'' or ``low'' 
explosive. Nevertheless, to the Bureau's credit, an advanced notice of 
proposed rulemaking (ANPRM) was issued.\14\ Although all comments to 
the ANPRM supported the need to close this loophole, the Bureau remains 
reluctant to go forward with a rulemaking because it did not receive a 
greater number of comments. It is unclear to us what additional ``me 
to'' comments would substantively add to the Bureau's understanding of 
this issue as it relates to the problem at hand, namely unmarked 
imports of high explosives and blasting agents. In the meantime, we 
have seen at least one State unilaterally act to preclude the 
introduction in commerce of unmarked imported explosives in that State 
in the face of BATF delay.\15\ While we understand and applaud this 
State's initiative, we are concerned that over time other states will 
feel compelled to act independently and possibly inconsistently to 
address this issue. The lack of urgency given this rulemaking, 
especially in light of the priority given to strengthening homeland 
security, is without justification. We ask that you join with us in 
asking the Bureau to close this security and safety loophole.
---------------------------------------------------------------------------
    \14\ 65 FR 67669 (November 13, 2000).
    \15\ CO 9-6-105, (2001).
---------------------------------------------------------------------------
                                research
    As manufacturers of explosive materials, we have a special interest 
in doing everything possible to prevent the misuse of our products. We 
are interested in the development of new technologies to safeguard the 
public, and support efforts to develop detection and prevention 
technologies that will enhance our national security. Nevertheless, 
from time to time efforts are made to mandate technologies that are 
unproven or unsupported by sound science and cost-benefit analyses. 
Efforts to mandate identification taggants in explosives are a case in 
point. In 1996, Congress refused to bend to such demands and enacted, 
with IME support, anti-terrorism legislation that instead directed BATF 
to study the feasibility of placing identification taggants in 
explosives.\16\
---------------------------------------------------------------------------
    \16\ Public Law 104-132, Section 732.
---------------------------------------------------------------------------
    BATF initially planned to submit the report to Congress by the end 
of fiscal year 2001. IME had worked with BATF to ensure that they have 
the industry data that they require. Throughout the process BATF made 
efforts to keep us informed of the work on the study and preliminary 
findings. As late as August 2001, we were lead to believe that BATF's 
research had concluded, as did contemporary assessments by the National 
Academy of Sciences, that identification taggants cannot be supported 
with current technology. However, following the events of September 11, 
BATF informed us that the report had been pulled back and its 
conclusions are being reassessed. As tragic and sobering as the events 
of September 11 are, it does not alter the fact that current technology 
does not support identification taggants. In the Subcommittee's 
oversight capacity, BATF should be asked about the release date of the 
1996-mandated report and, after 5 years of study, what if any of the 
reports recommendations have been changed due to the events of 
September 11.
                  need for federal agency coordination
    Events in the last 12 months have prompted concerns about BATF 
intrusion into the jurisdiction of another Federal agency. A critical 
shipment of explosives to a mine is northern Alaska was frustrated, for 
a number of weeks last summer, in large part because a BATF agent sent 
to a local Chief of Police a letter the agent wrote to the area Captain 
of the Port questioning the U.S. Department of Transportation's (DOT) 
authority to regulate the shipment and disputing its advisability 
because of the devastating consequences that would occur if the 
shipment detonated.\17\ Throughout the incident, DOT vigorously 
defended its jurisdiction over and the safety of this movement. Before 
the resolution of this matter, Senator Stevens was prompted to include 
a provision in law to ensure that a port would always be available to 
the shipment of this critical supply.\18\ More recently, BATF has 
described the scope of its proposals to broaden the applicability of 
Bureau background check requirements to include truck ``drivers'' and 
presumably other employees who may ``possess'' explosives in the course 
of transportation. We are concerned about these statements inasmuch as 
current Federal explosives law does not apply to any aspect of the 
transportation of explosives regulated by DOT.\19\ Regulatory overlap 
leads to confusion and non-compliance. To reduce such overlaps 
particularly with DOT where the interface should be seamless, BATE 
should work with DOT to establish a general protocol to minimize 
regulatory overlaps. We believe Congress should insist that these 
agencies show progress in clarifying and respecting each other's 
jurisdictional authority.
---------------------------------------------------------------------------
    \17\ Letter to Captain James Spitzer, USCG, from Gary Bangs, BATE, 
copy to Chief Lane Wintermute, Astoria, OR, May 10, 2001.
    \18\ Public Law 107-107, Section 1046.
    \19\ 18 U.S.C. 845(a)(1).
---------------------------------------------------------------------------
                               conclusion
    The manufacture and distribution of explosives is accomplished with 
a remarkable degree of safety. We recognize the important role played 
by BATF in helping our industry achieve and maintain safe and secure 
workplaces. We, therefore, strongly recommend full funding for BATF.
    Thank you for your attention to these issues.

                          SUBCOMMITTEE RECESS

    Senator Dorgan. This concludes today's hearing. Thank you 
for being here.
    [Whereupon, at 2:40 p.m., Wednesday, April 17, the 
subcommittee was recessed, to reconvene at Thursday, April 18.]









  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003

                              ----------                              


                        THURSDAY, APRIL 18, 2002

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:33 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan, Reed, and Campbell.

                       DEPARTMENT OF THE TREASURY

                          U.S. Customs Service

STATEMENTS OF:
        JAMES GURULE, UNDER SECRETARY FOR ENFORCEMENT
        ROBERT BONNER, COMMISSIONER, U.S. CUSTOMS SERVICE

                            OPENING REMARKS

    Senator Dorgan. I will call the subcommittee to order.
    This is a hearing of the Subcommittee on Treasury and 
General Government, a hearing on the United States Customs 
Service fiscal year 2003 budget.
    Yesterday we had a hearing on the budget for a number of 
law enforcement agencies within the Department of the Treasury 
that was exclusive of the Customs Service. Today we will 
receive testimony from the largest and the oldest law 
enforcement agency within the Treasury Department, the U.S. 
Customs Service.
    Aside from the IRS, which dwarfs all Treasury agencies in 
the size of its budget, Customs is the largest agency within 
Treasury, both in terms of the size of its budget as well as 
the number of people it employs. Its budget passed the $3 
billion mark this current year with an FTE level of 18,595 
employees. While the budget decreases in real terms next year, 
the number of FTEs would be increased by 1,024.
    The events of September 11 serve to reinforce the critical 
role of the Customs Service and the role it plays, particularly 
in protecting our country. To the long list of prohibited items 
your agents and inspectors attempt to apprehend before they 
cross into this country from cocaine to ecstasy to Iranian 
pistachios and counterfeit Chinese copies of Hollywood movies 
and Silicon Valley computer software, we must now add weapons 
of mass destruction, as well as persons attempting to enter 
this country by enclosing themselves in shipping containers.
    It started a few years back when an alert Customs inspector 
in Washington State, at Port Angeles, not an orange rubber cone 
but actually a live human inspector at a small port of entry, 
apprehended Ahmad Ressam, the so-called Millennium Bomber. Now 
Customs officials are at a Level 1 alert and every port of 
entry into this country is staffed 24/7 by at least two Federal 
officials. This is what we must expect to be the normal 
operating environment for the near future as we fight a war on 
terrorism.
    Mr. Commissioner, I am pleased that the effort begun by 
this subcommittee a couple of years go to refocus attention on 
the northern border and its chronic lack of resources and 
personnel has been embraced by the Customs Service under your 
leadership. Customs is creatively attempting to address this 
new environment by looking at how resources, both people and 
technology, can be effectively used to provide homeland 
security.
    I also applaud your container security initiative, 
Commissioner. This was a topic of considerable debate during 
the last week's full committee hearings and I look forward to 
discussing this concept today with you.
    It is no secret that the discussion of modifying Customs 
operations, folding Customs into the INS, for example, at the 
Justice Department or creating a new border security agency is 
a prospect that troubles me greatly. In my judgment, the 
Customs Service works. The Customs Service is unique. Not only 
does Customs protect our borders, it also keeps our economy 
moving by facilitating legitimate trade. Also, it is the second 
largest revenue raiser for the Federal Government, after the 
Internal Revenue Service.
    During your brief tenure, Mr. Bonner, the Customs Service 
has moved out aggressively to address the needs at our land 
borders and at our seaports. I do not want to see all of this 
good effort and momentum lost as the boxes on organizational 
charts are moved. I do not happen to think you solve 
organizational issues by creating larger organizations or 
greater bureaucracy. The Customs Service should not be visited 
by the problems of the Immigration Service, in my judgment.
    Mr. Commissioner you, of course, are restricted and 
restrained to support whatever the Administration says it 
intends to do, and I understand that. But I want you to 
understand, and those in the Administration who are discussing 
this, that there are those of us in Congress who believe the 
Customs Service does a fine job, has a unique role, and we 
would not look favorably upon visiting upon the Customs Service 
some problems that other agencies have.
    Let me call on the ranking member, Senator Campbell.
    Senator Campbell. Thank, Mr. Chairman, just a brief 
comment.
    I also believe the Customs Service is doing a fine job. 
Certainly the additional role that they have taken on since the 
9/11 tragedy cannot be overstated. Certainly, there is more to 
the Customs Service than just the vital security of the 
physical borders.
    The Customs Service works with the trade industry to make 
sure that the legitimate goods can come into our country on a 
timely basis, and that counterfeit goods cannot. Both have a 
major impact on the economic well-being of our Nation.
    Customs is also involved in reducing the flow of illegal 
drugs into our country. I noted with interest the part of 
Commissioner Bonner's prepared remarks which showed that the 
Level 1 security at the border has had the added benefit of 
much higher than normal drug seizures. Customs is also involved 
in disrupting money laundering efforts by implementing parts of 
the National Money Laundering Strategy, and that too protects 
our economy while at the same time combating terrorism.
    So I look forward to the testimony, Mr. Chairman. Thank 
you.
    Senator Dorgan. Let me call on my colleague, Senator Reed.
    Senator Reed. Mr. Chairman, I have no formal statement. I 
just want to welcome the witnesses and proceed to the 
questioning. Thank you, Mr. Chairman.
    Senator Dorgan. Commissioner Bonner, I know you are 
accompanied by Under Secretary Gurule today. He was with us 
yesterday. Let me ask you to proceed any way that you choose to 
proceed. Did you want to proceed first, Mr. Secretary?

          OPENING REMARKS FROM UNDER SECRETARY OF JIMMY GURULE

    Mr. Gurule. Yes, Mr. Chairman. Let me just begin with a 
very brief opening statement.
    Chairman Dorgan, Ranking Member Campbell, and Senator Reed, 
I am privileged to return to be with you here today to support 
the President's 2003 budget request for the Department of the 
Treasury's Office of Enforcement and the U.S. Customs Service 
in particular.
    In the interest of time, I refer the subcommittee to my 
statement in yesterday's record for an overview of the 
President's fiscal year 2003 budget request for the Treasury 
Department's Office of Enforcement and its law enforcement 
bureaus.
    Today I am pleased to join Robert C. Bonner, the 
Commissioner of the United States Customs Service, who will 
testify regarding that bureau's programs and initiatives. I 
have had the privilege to work with Commissioner Bonner in 
various capacities over many years, and it is indeed a pleasure 
to work with him again in this capacity. He brings a wealth of 
experience and leadership ability to his position and already 
has launched a number of new Customs initiatives to make our 
nation more secure.
    Yesterday, during my testimony, I discussed three priority 
areas of the Office of Enforcement and the law enforcement 
bureaus: terrorist financing, security for the Winter Olympics, 
and border security. The Office of Enforcement and the Customs 
Service have worked closely in each of these areas, and I would 
like to highlight briefly for the Subcommittee some of those 
initiatives.
    With respect to terrorist financing, last October Treasury 
created Operation Green Quest, which is a multi-agency 
financial enforcement investigative initiative designed to 
augment existing counterterrorist efforts by bringing the full 
scope of the Government's financial expertise to bear against 
systems, individuals, and organizations that serve as sources 
of terrorist financing. The work of this task force that is 
headed by the U.S. Customs Service already has led to 12 
arrests, six indictments, and the seizure of nearly $4 million 
and bulk cash seizures, cash smuggling of over $11 million.
    Green Quest agents, along with those from the FBI and other 
Government agencies, including the IRS-CI, have traveled abroad 
to follow leads, exploit documents recovered, and provide 
assistance to foreign governments. The work of these financial 
experts is just starting, as they have opened well over 300 
terrorist financial investigations.
    International cooperation is an important part of our 
strategy in the war against terrorist financing. Today, all but 
a handful of countries have expressed their support for the 
international fight against terrorism. The Office of 
Enforcement, in conjunction with the Customs Service and other 
Federal agencies is providing technical assistance to countries 
to strengthen their capacity to freeze terrorist funds and are 
working with foreign financial officials on new cooperative 
actions against terrorist activities and financing.
    The Office of Enforcement has helped coordinate the 
deployment of financial jump teams consisting of experienced 
accountants, bank examiners, and other financial experts from 
the Customs Service, OFAC, IRS-CI, FinCEN, the FBI, and other 
agencies. These experts review bank records and possible links 
to money associated with bin Laden's al Qaeda network.
    With respect to Olympic security, yesterday I testified 
before this subcommittee about the excellent coordination among 
Treasury law enforcement bureaus in providing security support 
for the 2002 Winter Olympic games in Salt Lake City. With 
Commissioner Bonner here today, I take this opportunity to 
commend him and the dedicated men and women of the United 
States Customs Service for the key security role they played 
for these Olympic games. I personally visited a number of the 
Olympic venues and met with many of the men and women of the 
Treasury enforcement bureaus who were involved in providing 
security for the Olympic games.
    I personally toured the U.S. Customs Service command and 
coordination center in which Customs was monitoring the general 
aviation of flights that were flying into Salt Lake City, into 
the restricted fly zone during the Winter Olympics. The Customs 
Service provided critical air surveillance in restricted air 
space, ground support to the Secret Service, increased presence 
at the northern border, and screening of general aviation 
aircraft and their passengers and crew. At least 500 Customs 
officers were committed to the day-to-day oversight of the 
Winter Olympic games.
    The total success of this coordinated enforcement effort in 
a heightened security environment is a tribute to the dedicated 
men and women who serve in the Customs Service and in the other 
Treasury enforcement bureaus.
    Last, border security. One key component of defending our 
homeland is protecting our Nation's borders while facilitating 
the flow of travelers and cargo. Last November, Secretary 
O'Neill, Commissioner Bonner and I met with our Canadian 
counterparts during the G-20 meeting in Ottawa to discuss 
cooperative efforts to strengthen security along our shared 
border while expediting the flow of trade.
    Commissioner Bonner and I are also working with the Office 
of Homeland Security to help implement the 30-point action plan 
announced in December by Governor Ridge and then Foreign 
Minister, now Deputy Prime Minister, John Manley. A similar 
smart border accord is now in place for the United States-
Mexico border. On March 22 of this year, President Bush and 
President Fox announced in Monterrey, Mexico a 22-point 
agreement to build a Smart Border for the 21st century between 
our two countries.
    I can assure the subcommittee today that the coordination 
and cooperation not only among Federal border agencies, but 
also with their Canadian and Mexican counterparts, has never 
been stronger.
    Finally, on Tuesday of this week, Secretary O'Neill, 
Commissioner Bonner, Governor Ridge, and Governor Engler 
visited the port of entry at the Ambassador Bridge, in Detroit, 
to announce C-TPAT. Under this program, major companies work 
with the Customs Service to implement security procedures 
throughout the supply chain. In exchange, the Customs Service 
expedites the processing of these companies' products when 
entering the country.
    Commissioner Bonner will discuss this initiative in greater 
detail, but this stands as a model for ways in which the 
Government and the private sector can work together to ensure 
enhanced security at our Nation's borders.
    In conclusion, I want to thank you for the opportunity to 
testify today in support of the President's fiscal year 2003 
budget, and I want to thank you sincerely for the support that 
you have provided to the Treasury Department, to Treasury 
enforcement, and specifically to the Customs Service. I look 
forward to answering any questions that you may have.
    Senator Dorgan. Secretary Gurule, thank you very much.
    Next we will hear from Commissioner Bonner, the 
Commissioner of the Customs Service. Mr. Commissioner, I 
understand you have a short video presentation, but we will be 
happy to include your entire statement as a part of the record, 
and you may summarize and proceed as you will.

       OPENING REMARKS FROM CUSTOMS COMMISSIONER ROBERT C. BONNER

    Mr. Bonner. I appreciate that, Mr. Chairman. I want to make 
a few remarks before I show the video.
    I want to thank you, Senator Campbell, and Senator Reed. I 
am very pleased to be able to appear before the subcommittee 
this afternoon with Under Secretary Gurule in connection with 
the fiscal year 2003 budget request for the U.S. Customs 
Service.
    I know, from conversations I have had with the Chairman, 
that everybody recognizes that the mission of the U.S. Customs 
Service, actually in the history of our country, has always 
been very important. But since September 11, that mission has 
never been more important. From that day forward, since 
September 11, the number one priority of the U.S. Customs 
Service has been protecting and defending our country against a 
real and a continuing terrorist threat.
    The fiscal year 2003 budget request reflects this priority. 
It reflects it, number one, at our borders, where U.S. Customs 
inspectors and canine enforcement officers defend our country 
day in and day out, at our land port of entries, at our 
airports, and our seaports. Customs role certainly is, in 
addition to all of the other things that the chairman indicated 
at the outset of the hearing, in addition to interdicting drugs 
and other contraband, it is a mission to detect and prevent 
terrorists and terrorist weapons from entering our country. We 
need the resources to strengthen border security. But at the 
same time, we also need these resources so we can do so without 
choking off the flow of trade that is so important to our 
country's economy.
    But we are not just playing defense. We also, as Under 
Secretary Gurule has indicated, have gone on the offense with 
our Customs agents who are, and have been, investigating and 
disrupting terrorist financing through Operation Green Quest 
which is, as Mr. Gurule indicated, a multi-agency task force 
led by the U.S. Customs Service.
    And our Customs Agents, through Project Shield America, are 
also protecting against international terrorist organizations 
and rogue nations that support the acquiring of strategic 
weapons, components, technology and equipment by illegally 
exporting those kinds of materials.
    This priority, in fact all of the counterterrorism 
initiatives of the Customs Service, have been supported by 
Congress in the fiscal year 2002 supplemental and they are 
supported by the Administration in its 2003 budget request in 
the form of program increases and annualizations.
    I want to thank you particularly, Mr. Chairman, and members 
of this subcommittee for the support that you have given to the 
U.S. Customs Service in the 2002 appropriation and the 2002 
supplemental, and for your continuing support of the U.S. 
Customs Service and its mission.
    Regarding border security, I believe that we can 
dramatically improve security of our country against the 
terrorist threat and keep commerce flowing if Customs has the 
right strategy, if it has the right tools and technology, and 
if it has sufficient staffing. That strategy is, and should be 
in my view, two fold. First, it involves applying risk 
management principles to sort out the high risk from the low 
risk cargo, vehicles and people, so that we can concentrate our 
efforts and our inspections on those goods and those cargo 
containers and those vehicles and people that pose a potential 
risk. And secondly, I believe we need to push our security out. 
And that is, working with industry and working with other 
nations, we need to do far more to increase security along the 
entire supply chain and we need to start pre-screening cargo 
containers before they arrive in the United States.
    As part of our efforts to push the security of our country 
outward, Customs has established--in fact, Customs has been 
working very hard with industry, with U.S. importers and 
others, to establish a partnership to dramatically increase 
security along the entire supply chain of goods into the United 
States. This is the Customs Trade Partnership Against 
Terrorism.
    Last Tuesday, Secretary O'Neill, Governor Ridge, and I 
announced the Customs Trade Partnership Against Terrorism at 
the Ambassador Bridge in Detroit. I proposed this partnership 
to the trade last November at the Customs trade symposium that 
was held here in Washington in November. I am pleased to report 
that, as a result of, let me say, a lot of dialogue with the 
trade, a lot of listening on the part of the Customs Service, 
and a whole lot of hard work on the part of Customs Service 
working with the trade, we have developed a program, a 
partnership to prevent legitimate commercial cargo from being 
used by terrorists. That is to say, we have developed a program 
to increase the supply chain security literally from the 
foreign loading docks to our land borders and our seaports.
    The companies that have joined with Customs in the 
Partnership Against Terrorism include General Motors, Ford, 
Daimler-Chrysler, Motorola, Sara Lee, Target Stores, and BP-
Amoco. Those were the charter partners in the Partnership 
Against Terrorism. Since that time, we have added 74 companies 
who have committed, who have signed an agreement with Customs, 
to implement tighter security guidelines to significantly 
increase supply chain security, and also to use their leverage 
as importers with their foreign suppliers to increase security.
    Customs has also developed the Container Security 
Initiative which, if implemented, will extend our zone of 
security to foreign seaports and also protect an indispensable 
means of global trade, which is containerized shipping. Under 
the Container Security Strategy, in cooperation and in 
partnership with other nations, we will target and pre-screen 
high risk containers before they depart foreign ports headed 
for the United States.
    I want to tell this committee that the Container Security 
Initiative is not just some theoretical program. It is not an 
academic pilot project. We have already implemented the 
Container Security Strategy with Canada. Last month, we 
stationed U.S. Customs Officers in the ports of Vancouver, 
Halifax, and Montreal to target high-risk containers off-loaded 
at those Canadian ports that are in transit to the United 
States.
    And by the way, there are about 500,000 sea containers that 
arrive at those three ports in Canada annually, which are the 
major Canadian ports, that are not going to Canada. They are 
coming to the United States, either by truck or rail. So we are 
targeting and pre-screening those containers there.
    We are also participating with the Canadian Customs Service 
to screen these high risk containers before they are shipped to 
the United States. The strategy is to expand the Container 
Security Initiative to the major ports in Europe and Asia, 
starting with the largest 20 container ports.
    Mr. Chairman, there are about 5.7 million sea containers 
that arrive in the United States annually, let us say almost 6 
million, at our various seaports around the country. Of those, 
nearly two-thirds either originate from or transit through 20 
foreign container ports. So you can see that these are choke 
points. If we could have a screening and security system at 
just these 20 ports, you would cover something along the lines 
of two-thirds of all of the sea containers that are being 
shipped and imported into the U.S.
    We are actively discussing the expansion of the Container 
Security Initiative with several nations in both Europe and 
Asia. The prospects look good for rapid expansion of this 
important security initiative because these nations understand 
that world trade would be severely disrupted if international 
terrorist organizations used a container to conceal or detonate 
a weapon of mass destruction.
    With your permission, Mr. Chairman, I would like to 
conclude my remarks by showing what is about a three minute 
video tape of several of our northern border ports of entry and 
the men and women of the Customs Service who staff them. If I 
could roll that now.
    Senator Dorgan. Please proceed.
    Mr. Bonner. Thank you.
    As that is indicating up there, Mr. Chairman, I think it is 
very important to note that there are 659 new positions in the 
U.S. Customs Service that were given to the Customs Service 
under the 2002 appropriation and the 2002 supplemental 
combined. 659 positions that are for the northern border. 591 
of those are Customs officers, Customs inspectors, and canine 
enforcement officers; and 69 are Customs agents.
    Most importantly, not only are many of these personnel 
already hired by the Customs Service, but I can report to this 
committee that we will have hired all 659 before the end of 
this fiscal year, by September 30 of this year.
    Secondly, let me just also say that if you looked at the 
total number of new positions for the U.S. Customs Service 
under the 2002 appropriation and the 2002 supplemental, the 
total number of new positions for the Customs Service is 1,300. 
That is about 919 inspector positions and 381 agent positions. 
This is including the northern border positions. All of those 
positions, Mr. Chairman, will be hired and on board before the 
end of fiscal year 2002.

                           PREPARED STATEMENT

    Because of attrition, when you add the attrition and the 
new hires, we will actually hire, train and bring on board to 
the U.S. Customs Service this year, 2002, 1,975 new inspectors 
and new agents to the Customs Service. We have already hired 
1,037 of those, which is over half. And we will have all of 
them hired and on board by the end of this fiscal year.
    I would be happy to answer any questions that you or other 
members of the committee might have.
    [The statement follows:]

                 Prepared Statement of Robert C. Bonner

                       introduction and overview
    Chairman Dorgan, Senator Campbell, and members of the Subcommittee, 
it is a privilege to appear before you today to discuss U.S. Customs 
2003 budget request. As you know, this is my first appearance before 
the Subcommittee and I welcome this unique and very important 
opportunity to discuss U.S. Customs' priorities at this challenging 
time for our agency and for our Nation.
    I want to begin by expressing my thanks to the Subcommittee for its 
continuing support of U.S. Customs and its mission. You have played an 
invaluable role in assisting Customs with the guidance and the 
resources it needs to defend America's borders and to protect and 
promote America's economy.
    The Customs Service has stood as a pillar of American stability and 
strength for over 200 years, by defending our country's borders and by 
facilitating international trade and travel. That is why it is such an 
honor for me to serve as Customs Commissioner, and to have been chosen 
by President Bush to lead an organization whose origins stretch back 
the very founding of our Republic.
    At the direction of the President, the battle against international 
terrorism is now the number one priority of the United States Customs 
Service. Over the past several months, I have visited Customs employees 
in locations throughout the U.S., and I can assure you that they are 
working extremely hard to protect our Nation. Their dedication and 
commitment are truly inspiring.
    Their efforts have been supported greatly by the Congress and the 
Administration in Public Law 107-117, the 2002 Terrorism Supplemental, 
which provided approximately $465 million in additional counter-
terrorism funding for our agency, and in the additional $365 million in 
program increases and annualizations provided in our fiscal year 2003 
budget request.
    The funding provided in the 2002 supplemental and in our 2003 
budget will enable Customs to meet the full range of its mission-
critical responsibilities. First among these, as I mentioned, is the 
battle against terrorism. As Commissioner, I will also devote needed 
resources to strengthen Customs' drug fighting capabilities, improve 
the management and overall operations of the agency, enhance Customs' 
relationship and partnership with the trade community, and build a new 
system of trade automation to strengthen our national security and 
improve the flow of commerce across our borders.
    Mr. Chairman, I want to touch briefly on each of these priority 
areas in my statement, and outline the actions the Customs Service has 
taken or is planning to take in each. And I want to begin with our 
overarching concern, which is the critical role of Customs in our 
Nation's homeland security.
             u.s. customs' top priority: counter-terrorism
The Immediate Response
    Immediately following the terrorist attacks on September 11, at 
10:05 a.m. on September 11, Customs went to a Level 1 alert across the 
country at all official border entry points--land border ports of entry 
(POEs), seaports, and international airports. Level 1 requires 
sustained, enhanced scrutiny and questioning of those entering the 
U.S., and includes increased inspections of travelers and goods at 
every port of entry. Because of the continued terrorist threat, we 
remain at the Level 1 alert today.
    As part of our response, we also implemented round-the-clock 
coverage by at least two officers at every authorized, public land 
border crossing, even at low volume crossings along our northern 
border. To do this on a 24 by 7 basis, and to keep trade moving at our 
high volume ports--in Detroit, Buffalo, and elsewhere--we temporarily 
detailed about 100 Customs inspectors to the Northern Border. To this 
day, Customs inspectors are, in many places, working 12 to 16 hours a 
day, 6 and 7 days a week. At some ports, the National Guard has been 
augmenting our officers, providing some much-needed relief.
    Despite the demands of extended shifts and a vastly increased 
workload, these employees have carried out their duties with quiet 
determination. Many even volunteered to go to remote border locations 
to serve and protect their country.
    As U.S. Customs shifted into its highest security posture after 
September 11, we experienced extraordinarily lengthy delays at the 
northern border, especially at Detroit, Port Huron and Buffalo. The 
wait times at these ports of entry quickly swelled to 10 to 12 hours. I 
am pleased to report that, in response, Customs and the trade community 
immediately worked together to reduce those delays to pre-September 11 
levels, without compromising our Level One security.
    These initiatives included assigning additional Customs inspectors 
to these entry points and opening more lanes for longer hours, and with 
the assistance of Governor Engler of Michigan, detailing national 
guardsmen to assist Customs in prescreening passengers and cargo and 
conducting secondary inspections. We also posted--for the first time--
wait times at the border on our Customs website, to assist importers 
and carriers with logistics. And we still do, for ports of entry on the 
Canadian and Mexican borders.
    In the days immediately following September 11, Customs was also 
quick to join the investigative front in the war on terrorism. We 
assigned many of our special agents to Joint Terrorism Task Forces 
across the country, and at the SIOC at FBI Headquarters. At one point, 
almost a third of our investigative workforce, over 1000 agents, were 
engaged in investigations related to the terrorist attacks. That 
proportion has gradually declined since last October. Customs has also 
contributed approximately 110 agents to the Federal sky marshal 
program. In addition, we have assumed a leading role in the Treasury 
Department's efforts to disrupt and dismantle terrorist financing 
networks, through our longstanding expertise in anti-money laundering 
operations.
The Response in New York City
    Mr. Chairman, as you also know, the Customs Service was struck 
directly by the attacks of September 11. Our building at 6 World Trade 
Center, which served as Customs' Headquarters for much of our most 
important northeast operations, was completely destroyed by falling 
debris from the twin towers.
    I toured that area during my first visit to the field as Customs 
Commissioner, the day after I was sworn in. I will never forget that 
trip, nor the images of destruction I witnessed. During that time, I 
also met with Customs employees from our World Trade Center site, all 
eight hundred of whom escaped unharmed. Ultimately, the loss of our 
building was nothing in comparison to the thousands of innocent people 
murdered on that day.
    Nonetheless, the sudden disruption to such a large and important 
area of Customs' operations threatened to compromise the immediate 
security of area ports and the integrity of ongoing Customs 
investigations and trade and enforcement activities. But Customs' New 
York employees responded heroically to the challenge, setting up a 
temporary operations center within hours at nearby JFK airport. And 
within just 3 weeks of the attacks, they succeeded in permanently 
relocating our New York Customs Office into new office space in 
Manhattan. I believe that is a remarkable achievement by any standard.
    In fact, we recently concluded a highly successful drug money 
laundering investigation in New York known as Operation Wire Cutter. 
Much of the evidence and case history for Wire Cutter was buried along 
with other files in the 6 World Trade Center rubble. After the attacks, 
our agents had to go back into the piles of debris, hoisted up in 
cranes, to salvage evidence for the case. Undeterred, they recovered 
crucial files that allowed them to continue their investigation and, 
just last month, bring down a notorious ring of Colombian money brokers 
involved in laundering illicit proceeds for the drug cartels.
Support of the Congress
    The support of the Congress in providing immediate assistance to 
Customs was critical, and we are very grateful for that help. The 
approximately $36 million in up-front reconstruction funding enabled 
Customs to reestablish operations in New York and begin replacing badly 
needed equipment in a very short period of time.
    I also want to acknowledge the immediate Congressional support for 
overtime funding for Customs inspectors and agents assigned to the 
battle against terrorism, and the support given to our Air and Marine 
units to patrol our airspace and our coastal waters. This prompt 
congressional response allowed Customs to secure our borders quickly in 
the face of an immediate threat.
Looking ahead: Three Core Areas of Counter-Terrorist Response
    Since the implementation of the Level 1 alert and the emergence of 
a clear new mission priority, we have identified three primary areas of 
focus in our efforts to protect America from international terrorism. 
They are: (1) border security; (2) the disruption and dismantling of 
terrorist financing networks; and (3) the monitoring of strategic 
exports. Customs is actively engaged and is playing a leading role in 
each of these areas of our national counter-terrorist response.
                            border security
    First and foremost is the critical job of border security, and our 
mission to prevent individuals and items that may pose a threat to the 
United States from crossing our borders. This includes stopping and 
seizing terrorists, terrorist weapons and weapons of mass destruction 
that could be used in an attack on American soil. The actions we have 
taken to date--our Level 1 alert, the mobilization of inspectors to the 
northern border, and the deployment of additional inspection technology 
to our borders since September 11--have all been directed at this goal.
    At the same time, our ports of entry are the vehicles by which 
lawful international trade and travel enters the U.S. Accordingly, we 
must ensure that our anti-terrorism efforts do not slow legitimate 
international commerce and travel, for the health of the U.S. economy 
depends on the timely movement of goods and people into the U.S.
    Customs is focusing on several initiatives because there is no 
single, key component of a strategy designed to increase security and 
facilitate trade. Instead, such a strategy involves a combination of 
factors: (A) expanding advance information on people and goods and 
improving targeting systems; (B) fostering initiatives that ``push the 
border outwards'' and extend our security perimeter; (C) developing 
industry partnerships to protect trade; (D) strengthening northern 
border security through our partnership with Canada; (E) enhancing 
information-sharing and cooperation with Mexico on our southern border; 
(F) protecting ocean-going sea containers, a vital artery of global 
trade; (G) deploying state-of-the-art inspection technology; and (H) 
increasing staff positions for border security.
    As a first, fundamental step in coordinating these various 
initiatives, I established a new Office of Anti-Terrorism within the 
agency. I appointed an experienced security expert and senior military 
leader to head that office, who reports directly to me.
    The Director of the Office of Anti-Terrorism is also helping to 
coordinate Customs' role within our national security architecture, 
with the Office of Homeland Security, our fellow border inspection 
agencies such as the Immigration and Naturalization Service and the 
U.S. Coast Guard, and other government entities. This cooperation is 
essential to ensure that we are effectively responding to the threat of 
terrorism and to our other mission priorities. In addition, effective 
coordination by all the government partners involved in counter-
terrorism will help to relieve the strain that each of our agencies, 
individually, may face.
The Key Role of Advance Information and Targeting
    Better targeting will be achieved not only through new equipment 
but also by improving the quality and the quantity of advance 
information we receive from airlines, shippers, and businesses. Having 
such information allows us to do a much more effective job of sifting 
out the potential threats from the vast flow of legitimate 
international trade and travel that Customs processes every day. 
Indeed, good information is the crux of effective targeting, and we 
have already taken steps to ensure that Customs receives more of it.
    As part of our immediate response to September 11, we moved quickly 
to make available more information on arriving air passengers into the 
United States. We promptly sought, and the Congress promptly enacted, 
legislation that made the submission of data on incoming passengers to 
Customs' Advanced Passenger Information System, or ``APIS,'' mandatory 
for all airlines. That law was passed last November as part of the 
Aviation Security Bill. Let me take this opportunity to thank the 
members here for their support of that bill. I told those airlines that 
initially balked at submitting APIS data to comply with the new 
regulations, which took effect in December, or face 100 percent 
questioning and inspection of all people and luggage disembarking from 
their flights. Not surprisingly, nearly all the airlines came around 
quickly and began supplying Customs with the needed information, even 
before the law took effect.
    On February 18, 2002, Under Title 19, section 1436 of the United 
States Code, a civil monetary penalty was put into place against the 
pilot of any commercial passenger aircraft that fails to transmit APIS 
data. The penalties range from $5,000--$10,000 for each violation. For 
habitual violators, Customs has the authority to revoke landing rights, 
and we will for any airlines that seek to defy the new law. In all 
cases, we are committed to working with our partners in the airline 
industry toward achieving the mutual benefits of timely APIS reporting.
    In allocating funds from the fiscal year 2002 Supplemental and 
fiscal year 2003 budget, Customs has dedicated more than $49 million to 
upgrade and expand the Advance Passenger Information System (APIS). 
With this funding, the APIS will be able to collect and process advance 
information on all commercial passengers entering and exiting the 
United States. In addition, the APIS will be transformed into a real-
time system that will run advance passenger information against law 
enforcement databases on a passenger-by-passenger basis and will issue 
board/no board recommendations to international carriers.
    Securing the legislative mandate for APIS data represented a strong 
start in Customs' efforts to improve targeting with more advance 
information. However, we would also like to expand that mandate to 
cover shipments of goods entering the U.S. Currently, the submission of 
advance information on most trade entering the country is done on a 
voluntary basis. This information is not always complete or accurate. 
And it is not necessarily provided before cargo departs from the 
foreign port for the U.S.
    Customs already collects a large amount of advance information on 
incoming shipments. In fact, we receive this information on 98 percent 
of the containers that land on our shores, thanks to a system known as 
the Automated Manifest System, or AMS. Customs has developed an 
extensive database of information on the shipping industry, its 
patterns, and all who participate in it through the manifests that 
every shipper is required to submit.
    Using a targeting program known as the Automated Targeting System, 
we can sort through the vast AMS database and pick up anomalies and 
``red flags.'' Whatever deviates from the norm or is otherwise viewed 
as ``high-risk'' is scrutinized at the port of entry. This system has 
functioned as Customs' main method of picking the needles out of the 
haystacks, and it has served us well.
    But this system could be improved. We need mandatory and accurate 
data in a form we prescribe. But even with those enhancements, if we 
select a container for inspection by x-ray technology at the port of 
entry on the suspicion that it contains a weapon of mass destruction, 
by that time it could be too late. And that is why we also need 
shippers and importers to provide more complete information up-front in 
the import process, before those goods leave their last foreign port.
    S. 1214, which has passed the Senate, would make the filing of 
electronic transmission cargo manifest information in advance of port 
entry or clearance mandatory. For Customs, this would increase the 
amount and timeliness of information we can input into our targeting 
systems, thereby enhancing our ability to spot the red flags. We will 
continue to work with the Congress to secure much broader manifest 
advance information, not only for inbound cargo but for outbound trade, 
for outbound air passengers, and for inbound and outbound land and sea 
passengers.
    Finally, to enhance our information-gathering abilities in our 
targeting of goods and people, I established the Office of Border 
Security at Customs to develop more sophisticated anti-terrorism 
targeting techniques. I have allocated almost $10 million over the next 
2 years to provide the necessary computer equipment and permanent 
staffing for the office.
``Pushing Security Beyond Our Physical Borders''
    In approaching our primary mission of border security, I believe 
that Customs must also do everything possible to ``push security beyond 
our physical borders''--that is, to expand our perimeter of security 
away from our national boundaries and towards foreign points of 
departure. In other words, we can no longer afford to think of ``the 
border'' merely as a physical line separating one nation from another. 
We must also now think of it in terms of the actions we can undertake 
with our foreign partners and with industry to pre-screen people and 
goods before they reach the U.S.
    The concept of ``pushing security beyond our physical borders'' 
focuses on building and reinforcing security layers against the 
terrorist threat, beginning with our immediate borders. The ultimate 
aims of this concept are to allow U.S. Customs more time to react to 
potential threats--to stop threats before they reach us--and to 
expedite the flow of low-risk commerce across our borders.
The Critical Role of the Trade Community
    Any effort to ``pushing security beyond our physical borders'' must 
include the direct involvement of the trade community. In November, I 
proposed a new Customs Trade Partnership Against Terrorism to the trade 
community at a Customs-Trade Symposium I hosted. I am pleased to tell 
you that we are entering into partnership with some of the biggest U.S. 
importers. This Customs-Trade partnership will vastly improve security 
along the entire supply chain, from the factory floor, to foreign 
vendors, to our land borders and seaports. ``C-TPAT,'' as its acronym 
is known, builds on past, successful security models between Customs 
and the trade that were designed to prevent commercial shipments from 
being used to smuggle illegal drugs. The good news is that we already 
have much of the security template in place to protect trade from being 
exploited by terrorists. Our challenge now is to apply that to as broad 
a range of the trade community as possible.
    In working with importers in the battle against terrorism, we are 
looking at such criteria as where their goods originated; the physical 
security and integrity of their overseas plants and those of their 
foreign suppliers; the background of their personnel; the means by 
which they transport goods; and those whom they have chosen to 
transport their goods into our country. We are examining the security 
practices of their freight transporters, and the routes their shipments 
travel. We are also reaffirming to importers the importance of ``know 
your customer,'' and we are assessing the overall ``air-tightness'' of 
their supply chains. Every single link in that chain will be made more 
secure against the terrorist threat.
    At the same time, Customs will provide incentives to companies who 
partner with us to improve our national security against the terrorist 
threat. Those companies that adopt or have a program that meets 
security standards will be given the ``fast lane'' through border 
crossings, and through seaports and other ports of entry. We are 
working on initiatives now to make that happen.
    The benefits of the C-TPAT are threefold. First, the security of 
the U.S. against the terrorist threat will be increased with respect to 
shipments made by trade partners. Second, the volume of commerce that 
will need to be targeted and examined by the Customs Service will be 
reduced, thereby allowing us to concentrate our resources on high-risk 
shipments. Third, the U.S. economy will benefit because trade partners 
will be able to move goods into the U.S. more expeditiously and with 
less cost. Accordingly, I have allocated more than $11 million in 
combined fiscal year 2002 and fiscal year 2003 funding for the 
technology and staffing necessary to begin implementing this critical 
initiative.
    The C-TPAT is also key part of our efforts to better secure our 
northern border with Canada. U.S. Customs and the Canadian Customs and 
Revenue Agency are working closely together to implement systems and 
programs that will both enhance security and at the same time allow for 
the free flow of commerce between our two countries. The C-TPAT is a 
core plank in the 30-point Secure and Smart Border Action Plan, which 
was part of the Smart Border Declaration signed in December 2001 by 
Homeland Security Director Tom Ridge and Deputy Prime Minister John 
Manley.
    Under the Ridge/Manley plan, the United States and Canada are 
attempting to harmonize commercial processing between the two 
countries. The Canadian and U.S. Governments have been working 
independently on systems designed to increase security of cargo and 
help sort low risk shipments from high risk ones. The U.S. Customs 
program, C-TPAT, and the Canadian Customs program, the Customs self-
assessment program (CSA), are both designed to achieve the dual 
objectives of greater security and faster processing for low risk 
shipments. Some questions remain, however, as to the extent of security 
that should be required for shipments to qualify for low risk status. 
Discussions are ongoing between the two Governments to resolve the few 
remaining security-related questions. The U.S. Customs Service is 
optimistic that the remaining issues will be quickly settled.
Strengthening our Northern Border and our Partnership with Canada
    Recently, I met with the Commissioner of Canada Customs, the 
Commissioner of the U.S. Immigration and Naturalization Service, and 
the Deputy Minister for Citizenship and Immigration Canada to continue 
implementing the Ridge/Manley plan. We agreed on many action items and 
made substantial progress on others. This was the seventh meeting in 5 
months between myself and Canada Customs Commissioner Rob Wright. I 
will continue this ongoing and productive dialog next month when I meet 
again with Commissioner Wright.
    In addition to harmonizing the standards of our respective industry 
partnerships, our talks are aimed broadly at expanding our security 
perimeter outward from our national borders. We are focusing on 
initiatives to improve information exchange and adopt benchmarked 
security measures. This will help us to expand our mutual border and 
reduce the terrorist threat to the North American continent, and it 
will expedite the flow of trade.
    The Smart Border Declaration focuses on four primary areas: the 
secure flow of people; the secure flow of goods; investments in common 
technology and infrastructure to expedite trade and minimize threats; 
and coordination and information sharing to defend our mutual border. 
An action plan put together to advance the Smart Border Declaration 
includes initiatives that will allow us to do more prescreening of 
people and goods entering the U.S. from Canada, and vice-versa, far in 
advance of their arrival at the border.
    Part of that plan includes placing U.S. Customs and Canadian 
Customs personnel in each other's ports to help in the targeting and 
pre-screening of cargo that arrives in one country and is headed to the 
other. To implement this initiative, I have directed that U.S. Customs 
inspectors be stationed in the ports of Vancouver, Halifax, and 
Montreal to assist in the targeting and pre-screening of cargo that 
arrives there and is destined for the U.S. That is happening as we 
speak. Likewise, Canada Customs will soon be stationing inspectors at 
U.S. ports such as Seattle and Newark. I have set aside approximately 
$2.4 million in fiscal year 2002 and 2003 funding to place Customs 
inspectors in Canada to enhance our targeting abilities.
    Using funding from fiscal year 2003, I have allocated almost $6 
million to expand a NEXUS-like program to high-volume ports of entry 
along the Northern Border. The NEXUS program, which is being piloted in 
Port Huron, allows low-risk Canadian and U.S. residents to travel 
across the border with minimal customs or immigration processing by 
either country. Like the growth of the C-TPAT, the expansion of a 
NEXUS-like program will improve security by identifying low risk 
travelers and by allowing the Customs Service to focus its targeting 
and inspection resources on people about whom it knows relatively 
little.
    Even with the implementation of these types of initiatives, the 
lack of certain infrastructure at the Northern Border would still be a 
significant impediment to enhancing security. As you know, before 
September 11, many of the low-volume POEs were closed for a portion of 
each day with nothing more than an orange cone to prevent someone from 
making an unauthorized crossing into the U.S. Since September 11, these 
low-volume POEs have been staffed 247 with two inspectors per 
shift to prevent such unauthorized crossings.
    Over the longer term, the Customs Service could provide a 
comparable level of security for less cost by permanently ``hardening'' 
these low-volume POEs. Such hardening would include installing physical 
barriers, sensors, and monitoring devices at the low-volume POEs to 
prevent and detect unauthorized crossings. Accordingly, I have 
allocated $41 million to harden the low-volume POEs during fiscal year 
2002 and fiscal year 2003.
    Providing comparable security at the low-volume POEs would also 
include developing a mobile response capability to respond to 
unauthorized crossings. Indeed, such a capability could and should also 
respond to unauthorized crossings between the POEs. The principal 
benefit of developing such a combined response capability would be that 
it would allow agencies to pool existing resources and air assets, 
including helicopters. The Customs Service and the INS have agreed to 
launch the combined mobile response concept by establishing two teams 
at locations along the Northern Border. I have allocated approximately 
$10 million to fund the Customs Service's contribution to these two 
pilot projects during the remainder of fiscal year 2002 and in fiscal 
year 2003.
    U.S. and Canada Customs will also integrate our systems for 
intelligence and information gathering to improve our mutual targeting 
abilities. We will engage in a broad range of information exchange, 
including APIS and trade data.
Mexico
    We are also engaged in implementing the U.S.-Mexico Border 
Partnership Action Plan. This 22-point plan was signed by Secretary of 
State Colin Powell during President Bush's 21-22 March trip to 
Monterrey, Mexico. The action plan outlines specific measures that will 
be taken to ensure a modern border that assures the secure flow of 
people and goods. Customs is the lead agency for eight of the 22 action 
items. Specifically, we are focusing on information sharing about goods 
and people, provision of Mexican APIS information; a possible joint 
system for processing rail shipments; shared border technology; and the 
assembly of a joint investigative task force to deter trade fraud.
The Container Security Initiative
    In addition to meeting part of the goals of the Ridge/Manley 
declaration, the placement of Customs inspectors in Canada is a first 
step in another core area of our efforts to ``push the border 
outwards,'' and that is implementation of the Container Security 
Initiative, or CSI. I proposed the CSI this January to address the 
vulnerability of cargo containers to the smuggling of terrorists and 
terrorist weapons.
    Ocean-going sea containers represent a vital artery of global 
commerce. Over 200 million containers move between the world's major 
seaports each year. Forty-six percent of the total value of all imports 
received into the United States annually arrives by sea container. That 
percentage is higher for other countries that are even more dependent 
upon the use of seaports for international trade.
    The sheer volume of sea container traffic and the multitude of 
opportunities it presents for use by terrorists are alarming. And the 
threat is by no means farfetched. Some of you may recall that last 
October, Italian authorities found a suspected Al Qaeda operative 
locked inside a shipping container bound for Canada. Inside the 
container were a bed and bathroom for the journey to Halifax, as well 
as airport maps, airport security passes and an airplane mechanic's 
certificate.
    Of ever-greater concern are the possibilities that international 
terrorists such as Al Qaeda could smuggle a crude nuclear device in one 
of the more than fifty thousand containers that arrive in the U.S. each 
day. One can only imagine the devastation of a small nuclear explosion 
at one of our seaports.
    Such an event would have a massive impact upon global trade and the 
global economy. Even a 2-week shutdown of global sea container traffic 
would be devastating, costing billions. But the shutdown would, in all 
likelihood, be much longer, as Governments struggled to figure out how 
to build a security system that could find the other deadly needles in 
the massive haystack of global trade.
    Obviously, such a shutdown would also greatly impact the American 
economy, sending the prices of major imported products spiraling 
upwards. Cities and seaports dependent upon sea container trade would 
be crippled, as business would dry up--resulting in massive layoffs.
    We must do everything possible to prevent this scenario from 
happening. For that reason, I have proposed a ``Container Security 
Strategy'' to protect the use of ocean-going sea containers in 
international trade. The core elements of that strategy are the 
following:
  --Establish criteria for identifying high-risk containers;
  --Pre-screen containers before they are shipped to the U.S.;
  --Use technology to pre-screen high risk containers; and
  --Develop and use smart and secure containers.
    The initial phase of the Container Security Strategy would focus on 
the top ten largest foreign seaports or ``mega-ports'' that are 
responsible for shipping the greatest number of sea containers to the 
U.S. We have identified these ten ports, which combined account for 
nearly half (49 percent) of all oceangoing sea containers arriving in 
the U.S. each year.
    Working with these ten ports, I want to build a common security 
regime for the processing of sea containers. I want to see more pre-
screening of cargo that is bound for the United States done overseas, 
at the port of origin or the port of transshipment, rather than at the 
port of entry in the U.S. For example, we should know all there is to 
know about a container that arrives in Rotterdam and is destined for 
the U.S. before that container even departs from the country of origin 
for the Netherlands. And if an anomaly appears, we should inspect it at 
that port, the outbound port--the port of origin, not the port of 
destination.
    Again, I would stress the importance of advance information to 
achieve this level of pre-screening. The sooner in the importation 
process we can get that information from the shipper or carrier, the 
better. Ideally, we would like to have complete manifest information in 
electronic form the moment cargo leaves the factory, warehouse, or 
loading dock abroad en route to its final destination.
The Importance of Technology
    Outbound inspections of containers at the mega-ports will also be 
enhanced by making the latest x-ray inspection machines and radiation 
detectors available to or required by all who participate in the 
Container Security Strategy. The use of inspection technology is a 
major asset in our current efforts to inspect cargo coming inbound to 
our ports of entry, both in terms of our ability to expedite trade and 
to detect security breaches in containerized cargo. I am referring to 
devices such as mobile, truck and seaport container x-ray systems that 
obviate the need for costly, time-consuming physical inspection of 
containers and provide us a picture of what is inside the container.
    Thanks to the 2002 Terrorism Supplemental, Customs has been able to 
acquire more non-intrusive technology to protect America. With this 
funding, we will deploy 16 Mobile VACIS systems, 64 Handheld Acoustic 
Inspection Systems, 172 Portal Radiation Detectors, 8 Tool Trucks, and 
128 Isotope Identifiers to the Northern Border with Canada. We will 
also deploy 20 Mobile VACIS, provide 4 VACIS upgrades, and supply 10 
Tool Trucks to enhance security at our seaports. The use of this 
technology will greatly enhance security as well as our capacity to 
speed the flow of commerce through our ports.
    Other technology we are exploring includes a crane-mounted 
radiation detection system to detect radiological materials in 
containers. This system would supplement the four thousand radiation 
pagers currently in use by Customs officers. We're also moving ahead on 
the development of electronic seals that would alert us to cargo 
tampering while in transit.
Staffing
    As important as our efforts to build international partnerships and 
acquire technology are in thwarting international terrorism, I must 
also stress the essential human element involved in a sound border 
security strategy. The most important component of Customs success in 
protecting American lives and the American economy lies in the men and 
women who work directly on our Nation's frontlines. I am referring 
specifically to the requirement for an adequate number of Customs 
inspectors, and canine enforcement officers at the border to meet our 
security and trade facilitation mission.
    One need only recall that it was a Customs inspector, Diana Dean, 
who in December 1999 stopped an Algerian terrorist bomber from crossing 
into the United States from Canada with a trunk load of powerful 
explosives in his car. His mission, as we now know, was to blow up Los 
Angeles International Airport.
    Inspector Dean relied on nothing but her Customs training to pick 
up on Ahmed Ressam's nervous behavior, his unusual travel itinerary, 
and his evasive responses to her questions. And thanks to her skill and 
professionalism, and the skill and professionalism of her fellow 
inspectors at Port Angeles, Ressam was arrested and a deadly terrorist 
conspiracy to do great harm to American lives was foiled.
    In the near term, a substantial increase in inspectors is necessary 
to maintain our level one alert status while decreasing the 
extraordinary amounts of overtime being worked by Customs inspectors. 
It is also critical in ensuring the two inspectors per shift 
requirement for officer safety and for phasing-out increased levels of 
National Guard support. To actually increase security beyond that 
provided in our Level 1 alert status and facilitate trade, additional 
inspectors are required to conduct targeting analyses, operate 
additional non-intrusive inspection equipment, staff all available 
lanes, question more people, and perform additional physical 
inspections while quickly processing an increasing volume of commercial 
and passenger traffic.
    Thanks to funding from the fiscal year 2002 Terrorism Supplemental, 
immediate help is on the way. Over the remainder of fiscal year 2002, 
Customs will be bringing on 543 new inspectors to support northern 
border security and to enhance maritime security at the nation's 
seaports. And with funding in our fiscal year 2003 budget, Customs is 
hoping to hire an additional 472 inspectors to bolster these areas over 
the course of the next fiscal year.
                    anti-terrorist money laundering
    Staffing is also critical for Customs on the investigative front in 
the war on terrorism. To bolster our immediate investigative efforts 
with respect to anti-terrorist money laundering, northern border 
security, maritime security at our ports, the investigation of 
strategic exports, I have allocated funding from the fiscal year 2002 
supplemental to hire 363 special agents and 80 additional investigative 
support personnel. Agents will be assigned as needed to these priority 
areas. In addition, I have designated funding from our 2003 budget for 
the hiring of fifty more special agents to assist with these 
activities.
Operation Green Quest
    In accordance with the President's mandate to identify, disrupt and 
dismantle terrorist financing networks, the Secretary of the Treasury 
established Operation Green Quest, a joint investigative team led by 
U.S. Customs and supported by the IRS, Secret Service, Treasury's 
Office of Foreign Asset Control (OFAC) and other Treasury Department 
bureaus, as well as the FBI and the Department of Justice.
    Operation Green Quest is based in Washington at Customs 
Headquarters and is led by a Senior Customs Supervisory Special Agent. 
The Green Quest team also includes a dedicated staff of field agents 
based in New York. These agents are highly trained and experienced in 
anti-money laundering techniques, the result of their extensive work in 
Operation El Dorado, a longstanding, Customs-led investigation into the 
laundering of illicit drug proceeds by major narcotics-smuggling 
organizations. Now, they are turning that expertise to the war on 
terrorism.
    I am pleased to report that so far, actions involving Operation 
Green Quest have led to the seizure of approximately $4.3 million in 
suspected terrorist assets and 12 arrests. Included in this was the 
disruption of a major middle-eastern money transfer network known as 
Al-Barrakaat, which had been tied to terrorist groups. But we are by no 
means resting on these successes. Work to trace sources of terrorist 
financing is ongoing under Operation Green Quest, and it will continue 
until, working with our law enforcement colleagues from the Treasury 
Department, the IRS, and the Department of Justice, we have starved 
terrorist groups of the funding they need to survive.
Operation Oasis
    In addition, Customs began Operation Oasis, a terrorist-related 
outbound currency initiative, on October 10, 2001. This national 
operation is directed at identifying, detecting, and halting the 
illegal exportation of unreported currency to terrorist entities. As of 
March 1, 2002, Operation Oasis has resulted in 253 currency seizures, 
totaling nearly $9.4 million, and 6 arrests related to violations of 
currency reporting requirements. Most importantly, these seizures have 
generated dozens of leads that have been passed on to Operation Green 
Quest agents. Operation Green Quest staff, in turn, have shared 
investigative leads with frontline inspectors monitoring movements of 
illegal outbound cash.
                    monitoring of strategic exports
    We must work diligently to close the avenues for terrorist funding, 
and we must also deprive terrorist groups of the weapons and strategic 
materials they need to carry out their activities. The third major area 
in which we will focus our counter-terrorist efforts is strategic 
export control. We are working to prevent international terrorist 
groups from obtaining sensitive U.S. technology, weapons and equipment 
that could be used in a terrorist attack on America and its people.
Operation Shield America
    The capstone of this effort is Operation Shield America, a Customs-
led initiative that also involves the Department of Commerce in working 
directly with American companies to prevent these types of strategic 
items from getting out of our country and into the wrong hands.
    Since the inception of Operation Shield America, Customs agents 
have visited approximately 1,000 companies in the United States. These 
companies were selected for visits because they manufacture or sell 
items that may be sought by terrorists or State sponsors of terrorism. 
During these visits, Customs agents have shared information about 
specific products that these firms manufacture or sell that may be 
sought by terrorists. Customs agents have also passed out information 
about Operation Shield America and encouraged these companies to report 
attempts to illegally acquire or export such materials. In many areas, 
Customs agents have coordinated with local FBI, Commerce Department, 
and Defense Department officials prior to their visits. Commerce 
Department officials have also accompanied Customs agents on many of 
their visits to U.S. companies. Operating abroad, several Customs 
Attache Offices have begun reaching out to foreign law enforcement 
counterparts to help raise awareness among businesses in their nations.
         safeguarding the economy; improving the flow of trade
Building a Better System of Trade
    While Customs is providing security at our borders, we do not want 
to choke off the flow of commerce to achieve security. We must be 
careful not to sacrifice our openness as a society. America's strength 
as a nation derives from its open society and its open economy. And 
these should not be allowed to fall victim to terrorism.
    I believe that with the right level of industry partnership and the 
right combination of resources, we can succeed not only in protecting 
legitimate trade from being used by terrorists, we can actually build a 
better, faster, more productive system of trade facilitation for the 
U.S. economy. And I believe this is an important and worthy goal to 
strive for--if, from the devastation of ``9-11,'' we can succeed in 
constructing a system that thwarts the terrorists, and at the same time 
facilitates and improves the movement of legitimate business and trade, 
faster and more efficiently than before September 11.
    One of my goals when President Bush selected me last May to be 
Commissioner was to build a strong U.S. Customs Service that listens to 
the trade community, an agency that considers the needs of business as 
part of deciding how we do business. And this remains my goal. But this 
objective must now be viewed against the backdrop of the terrorist 
threat to our nation. And that threat is continuing and it is real. It 
is a threat not just to harm and kill American citizens; it is a threat 
to harm the American economy. Al Qaeda and its associated terrorist 
organizations are on the run but they are intent on striking back, and 
on damaging our economy. For that reason, we must not let down our 
guard.
The Office of Trade Relations
    I have been very impressed with the level of communication between 
Customs and the trade community on these and other major issues. There 
are very few other Fderal agencies in which this level of communication 
exists between government and industry. I want to promote that 
communication, especially now during these challenging times. That is 
the main reason I revamped the Office of the Trade Ombudsman at Customs 
and renamed it the Office of Trade Relations. I wanted there to be a 
central point through which the trade community could convey issues to 
me, especially the broad issues of how we do business together, and how 
we improve the security of our country against the terrorist threat.
    That involves more than just the specific complaints of a 
particular member of the trade community, complaints that the Office of 
Trade Relations will continue to address. It must also focus on the 
proposals and solutions to issues impacting the long-term relationship 
between Customs and the trade, and the security challenges we both 
face. I also wanted the office to communicate Customs' issues and 
concerns to the trade community. In short, I wanted and I continue to 
want more dialogue.
Trade and Security Benefits of the C-TPAT
    One of the top priorities of the Office of Trade Relations is to 
continue developing and adding companies to the Customs Trade 
Partnership Against Terrorism. The promotion of trade and the 
protection of our country should go hand-in-hand. Customs cannot 
succeed in protecting our country without the help and the 
participation of the business community--without partnering with the 
trade.
    Our goal under the C-TPAT is nothing less than to work with 
importers, transporters, brokers and others in the trade community to 
protect every aspect of the supply chain against the terrorist threat--
from the foreign loading dock, to transportation of goods, to the port 
of entry in the U.S. No one knows those systems better than the 
companies that oversee them, and what it will take to safeguard those 
systems against potential terrorist use--against the concealment of 
terrorist weapon of mass destruction at some point along the supply 
chain.
    Through the C-TPAT, through our efforts to build a common security 
framework with our NAFTA partners Canada and Mexico, and through 
initiatives such as the Container Security Strategy, I believe we can 
make vast strides not only towards ensuring our defenses against a 
terrorist threat coming via commercial trade--we can actually build a 
better system for the processing of international trade. We have an 
opportunity not only to protect America through these initiatives, but 
to build a better system for trade facilitation.
Improving Internal Processes
    Internally, I have also issued several challenges to Customs 
departments that play a key role in our relations with the trade 
community. I have asked these departments to focus on, streamline and 
improve various processes.
    First and foremost, these include our Office of Regulations and 
Rulings (OR&R), and specifically the time it takes for Customs to issue 
commercial rulings. I believe the current delays are unacceptable. I 
want to dramatically shorten the time it takes for Customs to issue 
commercial rulings, to no more than 90 days. I outlined this as a top 
priority to OR&R and I expect to see progress very shortly.
    I have also challenged our Office of Strategic Trade and our 
Regulatory Audit Division to move forward with the focused assessment 
process, which will enhance trade security and compliance. And, I have 
challenged our Office of Field Operations to dramatically improve 
uniformity in trade processing. I want to eliminate disparate treatment 
of goods between different ports of entry in the U.S.
               the automated commercial environment (ace)
Importance of ACE to trade facilitation and Counter-terrorism
    Still, Mr. Chairman, no discussion of a successful strategy to 
protect America and its economy in the 21st century would be complete 
without consideration of the central importance of new automation to 
the mission of the U.S. Customs Service.
    That system, the Automated Commercial Environment (ACE), is an 
important project for Customs and an important project for the business 
community. It is an important project for our country and for the 
future of global trade. It should, if done properly, reform the way 
Customs does business with the trade community. It should also greatly 
assist Customs in the advance collection of information for the 
targeting of high-risk cargo to better address the terrorist threat. 
And in doing so, it will help us to expedite the vast majority of low-
risk trade.
    The successful and timely design, implementation and funding of ACE 
is a priority of the U.S. Customs Service. It is one of my top 
priorities as Commissioner. I believe that ACE is so important to our 
country's security and the future of trade facilitation that I have set 
a goal that the system be completed within 4 years, and I have 
instructed our Office of Information Technology to plan for such a 
schedule.
    Increasing Administration and congressional support for ACE in 
Customs' recent budget requests has been essential to the development 
of the new system. As you know, Customs received $130 million for ACE 
in fiscal year 2001 and $300 million in fiscal year 2002. That funding 
has allowed us to establish the fundamental design framework for ACE 
and to begin developing user requirements for the new system, in 
concert with our prime contractor, the e-Customs partnership led by 
IBM.
Update on ACE
    Since April 2001, Customs, the e-Customs Partnership, the 
international trade community, and other Federal agencies whose 
regulations are enforced by Customs have worked to develop requirements 
for the ACE system. This collaborative effort has:
  --Defined the enterprise architecture to support and enhance trade 
        compliance, and set the framework for future integration of 
        Customs enforcement and administrative mission areas.
  --Defined ``Desired Business Results'' and their linkages to Customs 
        Strategic Intents. These set the baseline for development and 
        measurement of the system's performance.
  --Provided the foundation for full import-export views of trade flows 
        and web-enabled exchange of commercial data.
  --Validated the business benefits of ACE and estimated their value.
  --Established a robust technical architecture that will enable 
        Customs to take advantage of new technology, including 
        commercially available software components, in modernizing the 
        commercial, enforcement, and business systems.
    As I stated earlier, ACE will not only replace our existing 
automated system and functionality--it will transform the way Customs 
does business. ACE will enable Customs to process and monitor import 
and export shipments and related trade activity more efficiently 
through account versus individual transactions. It will enable Customs 
to release cargo more efficiently by integrating international law 
enforcement intelligence, commercial intelligence, and data mining 
results to focus our efforts on high-risk importers and accounts.
    In developing ACE requirements and plans, Customs continues to 
review system requirements, concepts, and technology to take advantage 
of global customs ``best practices,'' advances in web development, 
wireless computing, and supply chain technology. Moreover, as the 
nation reviews its homeland security priorities, Customs will continue 
to research and analyze emerging national security requirements as they 
develop for possible integration with ACE.
    I want to thank the Congress, and in particular the members of this 
Subcommittee, for their past support of ACE, and acknowledge the 
Administration for providing the $313 million contained in Customs' 
fiscal year 2003 budget request. This level of funding will allow us to 
keep pace with our 4-year time frame for completion and, most 
importantly, begin to deliver on the first installment of ACE benefits 
to the trade community.
Sustaining ACS
    As Commissioner, I will continue to focus on the sound management 
and implementation of ACE. However, at the same time, Customs must also 
take care to maintain its existing system of automation, the Automated 
Commercial System (ACS), until ACE is fully brought ``on-line.'' 
Critical ACS ``life support'' funds from our fiscal year 2002 budget 
and fiscal year 2003 request have been and will continue to be invested 
in infrastructure upgrades to improve ACS performance, reliability and 
availability to both the trade and Customs field users.
    As you know, Customs was provided $122 million for ACS ``life 
support'' in fiscal years 2001 and 2002. This funding is being used 
systematically to address the major structural weaknesses in the 
information technology infrastructure that supports ACS. As a result of 
this investment, there are no longer ACS brownouts occurring in the 
data center, user response time has improved, and ACS availability has 
been expanded. In addition, Customs 15-year-old communications network 
has been substantially replaced with a modern system.
    Customs fiscal year 2003 budget request again includes $122 million 
in ACS life support. That funding will be used to continue upgrades on 
data center processing capabilities, network capacity, and the support 
structure to enable ACS to process increased trade volumes. It will 
also go towards enhancing an information technology security program 
that will enhance the system's response to a higher threat level.
                  other core mission responsibilities
Drug Interdiction
    In accordance with the President's direction, since September 11 
the U.S. Customs Service has made the defense against terrorism our 
highest priority. At the same time, we remain firmly committed to our 
other, core law enforcement responsibilities, first and foremost the 
protection of our nation from illegal drugs.
    I believe that our counter-terrorism and counter-narcotics missions 
are not mutually exclusive. One does not necessarily come at the 
expense of the other. There is an undeniable nexus between drug 
trafficking and terrorism. We have seen that in Colombia, where the 
FARC has channeled funds from its protection of illegal drug 
manufacturing into its terrorist campaign to disrupt and destabilize 
Colombia's legitimate government. We have seen it in Afghanistan, where 
the Taliban harbored the terrorist murderers of September 11 and their 
leadership, supporting their activities and their own repressive regime 
through the heroin trade. And, there are indications that Middle 
Eastern terrorist organizations are engaged in drug trafficking and 
other crimes in the U.S. to support terrorist activities.
    The models and lessons U.S. Customs has developed in our battle 
against international drug trafficking organizations can and will help 
us in the fight against international terrorist organizations. This has 
been evidenced so far in the results achieved by the highly capable 
field agents of Operation Green Quest, our lead anti-terrorist money 
laundering investigation. These agents, who are on detail from 
Operation El Dorado, an extremely successful, Customs-led drug money 
laundering investigation, have applied their knowledge and experience 
of drug money laundering techniques effectively in the effort to deny 
terrorists the financing they need to conduct their operations.
    In this and many other respects, Customs' new mission focus to 
prevent terrorists or the implements of terror from crossing our 
borders is a natural outgrowth of our interdiction role. The two 
functions are interrelated, and increased attention to the terrorist 
threat will likely enhance our drug-fighting capabilities. As we add 
staffing on our borders, acquire more inspection technology, conduct 
more questioning of travelers, and carry out more inspections of 
passengers and goods in response to the terrorist threat, it should 
come as no surprise that drug seizures will increase as well.
    Indeed, it is thanks to its interdiction success that the Customs 
Service has the knowledge, the experience, and the tools to serve as a 
critical deterrent to terrorists who would attempt to target America. 
But it would be a grave mistake for the drug traffickers and other 
criminals to misinterpret our focus on terrorism as a weakening of 
resolve on other fronts. If anything, we will make life even more 
miserable for drug smugglers as we intensify our overall presence along 
America's borders. Our heightened state of security along America's 
borders will strengthen, not weaken, our counter-drug mission. So far, 
the evidence we have seen confirms this.
    Soon after implementation of our Level 1 alert, Customs witnessed a 
dramatic decline in drug seizures. We believe that drug traffickers 
reacted to the heightened level of security along our land borders by 
witholding shipments until the Level 1 alert subsided.
    That alert did not subside. But the pressure on the smugglers to 
bring their illicit goods to market became too great to bear. Not only 
did our drug seizures begin to rise once again a few weeks after 
September 11--they started to increase dramatically from the same 
period a year earlier. In fact, the overall amount of narcotics seized 
by Customs in October, the month immediately following the terrorist 
attacks, was up about 30 percent from the same month in previous year. 
Even more impressive, the total quantity of drug seizures for the first 
quarter of fiscal year 2002 were up dramatically in all major 
categories compared to the first quarter of fiscal year 2001: 
marijuana, up 19 percent; cocaine, up 60 percent; and heroin, up over 
135 percent. Meanwhile, the total number of drug seizures climbed 17 
percent.
    Efforts to strengthen our borders through the deployment of 
additional manpower and non-intrusive technology equipment are expected 
to further enhance Customs counterdrug successes. In addition, Customs 
continues to play a significant role in counterdrug programs such as 
the Organized Crime Drug Enforcement Task Forces, High Intensity Drug 
Trafficking Area enforcement teams, and the Special Operations Division 
of the U.S. Department of Justice.
    Furthermore, although intelligence resources and assets have been 
redirected to border security and counter-terrorist missions, Customs 
retains a highly active Counterdrug Intelligence Program. The agency's 
Tactical Intelligence Center is focused entirely on drug intelligence 
priorities and the processing of national level intelligence. It is 
also continuing to monitor and report on Eastern Pacific and Caribbean 
drug transportation movements.
    Examples of successes against drug smuggling since September 11, 
2001 include:
  --September 26, Palm Beach, Florida: As part of an ongoing joint 
        operation, and with the assistance of Customs' air unit, 
        Customs Special Agents and local law enforcement intercepted a 
        suspicious vessel coming from Grand Bahamas and seized 2,210 
        pounds of marijuana.
  --October 23 and 24, Falcon Heights, Texas: Customs Special Agents, 
        working together with the Customs air branch and the Border 
        Patrol, seized 2,644 pounds of marijuana in a 24-hour period as 
        a result of investigative leads regarding smuggling activity 
        along the banks of the Rio Grande.
  --November 21, Puerto Rico: Customs air and marine officers, with the 
        assistance of other law enforcement entities, intercepted a 33-
        foot speed boat several miles offshore that was transporting 
        about 2,000 pounds of cocaine.
  --November 28, Nogales, Arizona: Customs agents seized 956 pounds of 
        cocaine after developing information about a home that was 
        being used to facilitate a drug smuggling enterprise.
  --October-December 2001, El Paso, West Texas and New Mexico: During 
        the first quarter of fiscal year 2002, Customs Inspectors, 
        Special Agents and Canine Enforcement Officers performing 
        antiterrorism operations seized 86,603 pounds of marijuana, 
        cocaine, and heroin, compared to 47,910 during the same period 
        last year.
  --January 2002, New York: Operation Wire Cutter, a major 2\1/2\ year 
        drug money laundering investigation, was conducted with the 
        assistance of the Drug Enforcement Administration and Colombian 
        law enforcement. As I noted earlier in my statement, Customs 
        agents based at the World Trade Center in New York continued to 
        pursue this case despite the destruction of their offices in 
        the September 11 terrorist attack. Their efforts resulted in 
        the dismantling of a ring of Colombian money brokers 
        responsible in recent years for laundering an estimated 
        hundreds of millions of dollars in illicit drug proceeds. This 
        investigation was groundbreaking in that, for the first time, 
        Customs and Colombian law enforcement collaborated to trace the 
        entire cycle of the conversion of narcotics proceeds, from cash 
        pick-ups in the U.S. to the laundering of those funds in 
        Colombia.
    Despite the dedication of investigative resources to the fight 
against terrorism, there has been no substantial reduction in the time 
our special agents have devoted to drug investigations. Before 
September 11, Customs had 1,475 agents cross-designated by the DEA to 
conduct narcotics investigations under our Title 21 authority. I have 
no intention of reducing that number. We will continue to work 
effectively with the DEA to investigate drug traffickers and we will 
continue our strong drug interdiction efforts.
    Clearly, our Level 1 alert is having the collateral effect of 
increasing our drug seizures. It is also likely to effect drug 
smuggling trends in other ways. We are anticipating those trends, and 
we will react to them quickly. That includes deploying an active Air 
and Marine presence in the Eastern Pacific and the Caribbean, routes 
the drug smugglers will turn to as we choke off their access to land 
border crossings. Although we have redirected our P-3 Advanced Early 
Warning (AEW) aircraft to homeland security, we continue to fly air 
assets in support of counterdrug operations in the transit and arrival 
zones.
    As you also know, before September 11 our AEWs flew a substantial 
portion of their missions in the Source Zone for narcotics. It was 
because of the tragic shoot-down over Peru of a missionary flight by 
host country forces last April 20, not September 11, that those flights 
and all others conducted by U.S. agencies in the Source Zone were 
suspended. Thus, the events of September 11 have not diverted our AEW 
assets as much as might otherwise be the case. In addition, we 
anticipate that the deployment of new P-3 AEWs and crews since the 
shoot-down incident will help us to balance future demands for our air 
assets in the source as well as the transit and arrival zones.
    Air and Marine Interdiction efforts continue to result in 
interdiction of drug smugglers in the Bahamas and Northern Mexico, 
where smuggling activity remains robust. In Mexico, Customs continues 
to cooperate with the Government of Mexico under Operation Halcon. 
Operation Halcon is a cooperative initiative that teams Customs and 
Mexican enforcement personnel aboard Customs aircraft based in Mexico. 
Since September 11, Operation Halcon has resulted in the seizure of 
approximately 11,000 kilograms of marijuana and close to 900 kilograms 
of cocaine.
    In order for Customs' Air and Marine Interdiction Division (AMID) 
to continue to play a strong and effective role in the national 
counterdrug effort, I believe that modernization of existing assets is 
essential. In addition, as Commissioner, one of my priorities is to 
ensure that AMID's mission goals are reviewed and reassessed with 
frequency and consistency to maximize results.
    We are also actively engaged on the personnel front, particularly 
with respect to retaining a skilled and talented pilot workforce. 
During the past 2 years, a 10 percent retention bonus has been in 
effect for Customs pilots, and a streamlined pilot recruitment and 
selection process was put in place. Customs also increased the P-3 
pilot career ladder to GS-14, and identified non-P-3 Customs pilots 
eligible to be trained to fly P-3s. We will continue retention pay at 
the rate of 10 percent for all pilots through fiscal year 2002, and 
maintain our efforts to streamline the recruitment, selection, and 
background investigation clearance processes.
    In addition, the Customs Service has made substantial progress in 
modernizing its marine program. Marine program staffing has increased 
from 65 Marine Enforcement Officers (MEOs) in November 1999 to 77 MEOs 
in February 2002. An additional 22 officers who have accepted positions 
will soon join the agency.
    Replacement of aging ``open ocean interceptors'' is the number one 
equipment procurement priority of the Marine program and is proceeding 
well. Eight interceptors have been obtained through the sale and/or 
exchange of excess vessels. Fiscal year 2002 appropriations of $9.3 
million will allow for the replacement of the remaining interceptors in 
the current inventory (with $6.4 million coming from the $35 million 
allocated for the Western Hemisphere Drug Elimination Act funds, as 
outlined in the fiscal year 2002 budget). Funds from the sale and 
exchange of aging ``open ocean interceptors'' will be used to replace 
aging utility vessels.
    As directed by Congress, the Customs Service continues to consider 
a wide range of options for basing and deploying its interceptor 
vessels in the most effective and economical way. In June 2001, the Air 
and Marine Interdiction Division conducted a performance-based 
assessment of the Air and Marine program and then developed a 
redeployment strategy in response to those findings. Approximately 90-
percent of the redeployment is complete. Customs is currently exploring 
the option of using mobile support vessels to provide for on-station 
mission support, supplies, maintenance, and personnel needs in support 
of long-term offshore drug interdiction efforts.
Other Enforcement Priorities
    Mr. Chairman, as you know the enforcement mission of the U.S. 
Customs Service extends well beyond drug interdiction to include: 
Internet child pornography and cybercrime; forced child and prison 
labor; violations of Intellectual Property Rights; illegal textile 
transshipment; tobacco smuggling; international auto theft; and other 
criminal activities related to our border mission. Customs will 
continue to actively pursue and fund priorities in each of these areas 
in fiscal year 2003.
    In fact, one of our most well-publicized cases in 2001 involved the 
dismantling of a despicable ring of child pornographers operating over 
the Internet from Russia. Under Operation Blue Orchid, Customs agents 
from our CyberCrimes Center in Fairfax, Virginia and our Moscow attache 
office worked closely with Russian authorities to identify and arrest 
both the proprietors of the pornographic site and their customers, many 
of whom were located in the U.S. That Operation also resulted in the 
identification of the young victims of the ring and their subsequent 
rescue from further abuse.
    Despite our focus on counter-terrorism, Customs has achieved 
noteworthy successes in other, critical areas of our enforcement work. 
To mention just a few, since September 11, Customs has also managed to 
shut down a major stolen luxury car smuggling ring operating out of New 
York; dismantle a highly sophisticated internet piracy network known as 
``Warez'' that was stealing and distributing billions of dollars worth 
of software; and secure the largest seizure ever of pirated computer 
software, over $100 million worth of fraudulent merchandise.
    These successes testify to the diversity of threats Customs must 
contend with and the skill of our people in protecting America, on all 
fronts. I realize that with the added strain of September 11, balancing 
our traditional enforcement priorities with counter-terrorism is a 
difficult challenge. Yet it is one our employees have proven this 
agency can meet. Protecting our citizens and our communities from 
illegal drugs and other criminal threats was a core responsibility of 
the U.S. Customs Service before September 11. And it remains at the 
heart of our mission after September 11 as well.
                                closing
    Mr. Chairman, members of the Subcommittee, I have outlined a broad 
array of initiatives today that, with your assistance, will help the 
U.S. Customs Service to protect America from a terrorist threat while 
fulfilling our traditional trade and enforcement mission. Make no 
mistake, Customs faces some very great challenges in balancing its 
established mission priorities with the war on terrorism--perhaps the 
greatest challenges in its long history of service to the American 
people. But I am fully confident that, with the continued support of 
the President, the Treasury Department, and the Congress, Customs will 
succeed in meeting the great demands placed upon it, as it has done 
throughout two centuries of change and challenge in our Nation.
    Doing so will require a highly coordinated and concerted effort to 
integrate Customs' strengths within the national strategy for Homeland 
Security. That effort is well underway and is producing marked results, 
as I have testified today. The funding provided to Customs by the 
Administration and the Congress in the fiscal year 2002 Terrorism 
Supplemental has enabled our agency to begin a profound and 
unprecedented transformation to become a leading force against 
international terrorism, while at the same time allowing us to protect 
and promote the vital flow of commerce and our system of international 
trade. It is a role that, as the guardian of our Nation's borders, we 
are called upon by tradition and by modern-day responsibilities to 
play. With your support for Customs' 2003 budget request, we will be 
able to build upon these successes, and continue our efforts to defend 
America's health, liberty and prosperity at this momentous time for our 
Nation.
    Thank you again for this opportunity to testify. I would be happy 
to answer any questions you might have.

                           FORCED CHILD LABOR

    Senator Dorgan. Mr. Commissioner, thank you very much. When 
I met with you in my office I asked if you could provide me a 
report on two provisions that we included in last year's 
appropriations bill. One is the forced child labor funding. We 
added funding to that activity in Customs. I will ask if you 
would provide me and the committee members with an analysis of 
what has been done with the funding for the enforcement with 
respect to forced child labor issues.
    Second, we included money for an intellectual property 
rights center that is dealing with counterfeiting and various 
things. We would like to get a report from the Customs Service 
also on the implementation of that and the use of those funds 
and the progress that is being made.

                   SEA CONTAINER SECURITY INITIATIVE

    Let me turn to the container area just for a moment. The 
Container Security Initiative, I indicated that when I heard 
that you were going to do this, I was pleased, because I think 
this is a significant threat to our country. There is such a 
lack of inspection of containers coming in. And we understand 
that it takes only one weapon of mass destruction in one 
container at one port to cause massive, massive damage in our 
country.
    You, I think, mentioned did you say 5.6 million containers 
per year?
    Mr. Bonner. 5.7 million last year, and so it is around 6 
million per year.
    Senator Dorgan. And if two-thirds of those come from 20, 30 
ports?
    Mr. Bonner. They originate in or come through those 20 
ports. So if you think of Singapore, some of those are 
originating, being trucked down from Malaysia to Singapore. 
Some of them are literally coming from Pakistan and other areas 
and then on-loaded, transhipped through Singapore. Singapore, 
for example, would be a real choke point in terms of a lot of 
sea container traffic.
    Senator Dorgan. It is probably not something we can do, to 
inspect 100 percent of all containers coming into this country. 
When you talk about two-thirds of nearly 6 million containers 
going through 20 ports, I understand that there are ways to 
work with other governments to pre-clear certain shippers. 
There are ways to deal with it at the point of origin? Also, 
here in the United States.
    But if you talk about 6 million with 20 points representing 
two-thirds of the traffic, that means 2 million containers are 
not from those 20 ports. And so you have got a couple of 
million containers that we also have to worry about. And as I 
said, only one container containing one weapon of mass 
destruction can wipe out a city.
    So this is a very important issue. Speaking as one member 
of this subcommittee, I am very anxious to work with you on 
aggressive and robust funding for this initiative because I 
think we are talking about a lot of things, Immigration, Border 
Patrol, Customs, Homeland Security, so many different facets of 
protection for our country. I think this issue is critically 
important.
    You, I am sure, read the story about the fellow from the 
Middle East who had packed himself in a container, along with a 
GPS, a computer, a heater, a water supply, and he was shipping 
himself to Canada. And he was apprehended, but it describes the 
great, great difficulty we have in dealing with this container 
traffic.
    Without asking a question about that, let me just tell you 
that I think you are on the right track and I want to be 
helpful and work with you on that.

                  NATIONAL GUARD ASSISTANCE TO CUSTOMS

    Let me ask a couple of other quick questions. We are 
supplementing some resources at the ports of entry with the 
National Guard, but there is some concern that the National 
Guard are going up to these areas, working with your Customs 
agents and others, and the National Guard is not armed. Yet, 
they are up there in full uniform. Do you know what the factors 
were behind the decision not to arm the National Guard? Were 
you involved in that?
    Mr. Bonner. We made the initial request of the Department 
of Defense in late October. It went over to the Treasury 
Department and was submitted in early November, our request for 
National Guard. We were very specific. We had done an analysis. 
We wanted 626 National Guard to provide some relief to what 
were, and still are, some extraordinarily hard-working U.S. 
Customs inspectors at our borders who are working extraordinary 
amounts of overtime. They have been working far more than 
normal, Mr. Chairman, since September 11, to maintain the 24-
by-7-by-2 security at our ports of entry, and also to make sure 
that we have lanes, including commercial lanes, open for longer 
periods of time.
    My position, by the way, has never been that the National 
Guard should be unarmed. Essentially, after several months, 
after funding issues had been taken care of, we received from 
the Department of Defense an MOA, a memorandum of agreement, 
that they provided to us in which they were saying we were 
getting the Guard, and that they were going to be unarmed.
    My own view is that we have never taken the position that 
the Guard should be unarmed, and frankly there are some 
locations in which it would be certainly preferable that the 
Guard be armed.
    We were prepared, we have indicated to the DOD going back 
to November and December, that we were prepared to provide the 
training, both in terms of use of force of policy, and in terms 
of the training with some sort of a sidearm pistol, a nine 
millimeter pistol. And for whatever reason, essentially to get 
the Guard, we had a memorandum of agreement that they would not 
be armed.
    Now we can use, at the large commercial ports and 
warehouses and things like that, we can certainly use the Guard 
and are using the Guard for appropriate purposes where they do 
not need to be armed. But in my judgment it would be 
preferable, certainly at the remote ports of entry, and also 
the other locations, that they be armed.
    So that is my position on the subject matter. We just 
yesterday had a further discussion with the appropriate 
representatives of the Department of Defense and I think their 
position now is to simply--and by the way, we already have 
these Guards and it is for 179 days. Now their position, in 
midstream, is that they have made some analyses of the number 
of Guard that they think need to be armed, that appeared to pay 
little or no attention to the Customs Service's analysis of 
where we need Guard and where we need them to be armed.
    So we are following up promptly and as expeditiously as 
possible with DOD to get this resolved, to identify those 
members of the Guard that frankly, do need to be armed, and 
then taking the steps--and Customs will absorb the cost of 
this--to send them for what is going to be perhaps as many as a 
10-day training course in the use of force policy and weapons 
training.
    The sad part of this is that this is not the time to be 
doing it. This should have been done before the Guard were ever 
deployed. But we are working on the issue.
    Senator Dorgan. First of all, thank you for being candid 
about it. It may get you in some hot water in one corner or 
another, but I think it is an important issue here. The 
National Guardsmen and women, I think feel strongly about this 
issue, being sent to in some cases pretty remote places in full 
military uniform with a security role but being told, by the 
way you cannot carry a weapon. It is just an inexplicable 
decision.
    I do not know when we are going to get a decision. We have 
appealed that and asked DOD to take a look at that issue. From 
your discussion, apparently there are active discussions and we 
are expecting some sort of decision.
    Mr. Gurule, do you agree with Commissioner Bonner?
    Mr. Gurule. Yes. I was just going to add, I spoke with 
General George Casey yesterday on this issue. There was 
actually a meeting that was held yesterday between DOD 
officials and Customs officials. I think that we are close to 
resolving the matter and he certainly seemed anxious to resolve 
it as quickly as possible. So I think we are very close to 
having this behind us.
    Again, as the Commissioner stated, it is unfortunate that 
it has taken this long, but I think we are close to resolving 
it.
    Senator Dorgan. Can you describe close? Is it days or is it 
weeks?
    Mr. Gurule. It is hard to say. My sense, from the 
conversation that I had with General Casey, is that we are 
literally days away from resolving it. I think it is that 
close. And I certainly sense that there is a strong willingness 
on the General's part to move as quickly and as expeditiously 
towards resolving it.
    And I think the spirit of cooperation here is very strong, 
so I am optimistic.

                      PROPOSED COBRA FEE INCREASE

    Senator Dorgan. Let me just ask one additional question and 
then I will turn to Senator Campbell.
    This administration, just like the past administration, has 
recommended a user fee of sorts that would be used to fund a 
portion of the Customs Service. The Administration says that 
the Customs Service is actually receiving an increase in its 
budget from 2002 to 2003. That is based largely on the $250 
million proposal for a user fee.
    We have not embraced the user fee under the previous 
administration, under the Clinton administration. I doubt very 
much whether we will this year. If we do not, what will we do 
about funding here? In order to have a user fee, you would have 
to work with the authorizing committee and have it authorized 
by July 1st. Is that work underway, Mr. Gurule?
    Mr. Gurule. Well, OMB and the Treasury General Counsel's 
Office have been engaged in extensive discussions on the 
legislation that would be needed to affect the change. It is my 
understanding that it is in the final stages. Again, when I say 
final stages, within a few days of being resolved, the language 
to be submitted to the Hill for consideration. So we are very 
close to having the language up here to authorize the user fee.
    Senator Dorgan. Do you believe Congress would enact that?
    Mr. Gurule. I do not know. I cannot speculate. The theory, 
as you know, underlying the proposal with respect to the user 
fee was that the user fee was established back in 1985. It has 
not been changed, has not been increased in the last 17 years.
    I have not done the math but I would suspect that if we 
took the user fee and tied it to the rate of inflation, we 
could justify going from $5 to $11 with respect to just 
inflation and related costs incurred in conducting these 
inspections.
    And then finally I would add that post September 11, I 
believe that we are seeing more scrutiny, close scrutiny of 
international passengers. And therefore, there is increased 
costs that are being incurred, as well.
    Senator Dorgan. I understand that, but the point I was 
trying to make is the Clinton administration could not sell it 
here, and I do not believe the Bush administration can. If you 
cannot, then you are $250 million short. And the question is 
where will we come up with that shortage? Any ideas?
    Mr. Gurule. Well, if the Congress rejects the COBRA fee, 
and I am certainly hopeful that it will not, but if it rejects 
it then we will need to meet and work closely with Congress to 
see ways in which we might be able to fill the gap that is 
created in the absence of such a fee. I would welcome the 
opportunity to work with you and your staff to that end.
    Senator Dorgan. Senator Campbell?
    Senator Campbell. Thank you, Mr. Chairman.
    Before I ask Mr. Bonner a couple of questions, let me 
congratulate Mr. Gurule on some of his recent staff additions. 
I speak with some authority, Mr. Chairman, because Mike 
Russell, who is sitting behind him, was my deputy chief of 
staff over 5 years. I still find myself, when I am in trouble, 
saying where is Mike, where is Mike? He is now doing a fine job 
for Mr. Gurule.
    Mr. Gurule. Absolutely.
    Senator Campbell. He was my loss and the Administration's 
gain.
    Let me also make a comment on the so-called user fee. We 
have dealt with these user fees under different names for years 
and years. I can remember 15 years ago, on the House side, when 
we had the tourism caucus, when we were trying to just increase 
tourism by adding some kind of a fee that could be called a 
landing fee or some kind of a fee. And it absolutely fell on 
its face then because of opposition from the tourism industry.
    I do not think we are in any better shape now when we talk 
about adding fees for people that want to come to the United 
States.

                       SEA CONTAINER INSPECTIONS

    Mr. Bonner, I am really interested in the numbers expressed 
on these containers, and I do not know much about these 
containers, and math is not my long suit either. But it appears 
there is probably about 15,000 per day coming into the United 
States roughly, 15,000 or 16,000 containers a day.
    Mr. Bonner. That is about right.
    Senator Campbell. You mentioned that the inspections now 
are based on high risk, did I understand you to say that?
    Mr. Bonner. Yes.
    Senator Campbell. How do you identify high risk? Location 
or intelligence or something?
    Mr. Bonner. Obviously, any time you have specific tactical 
intelligence, that is the best thing. But to be perfectly blunt 
about it, we do not get a lot of tactical intelligence that 
says you ought to take a look at x container coming in on x 
vessel.
    What you do, Senator, is first of all Customs has a very 
significant volume of trade information in its databases. It 
also collects, right now on a voluntary basis, advance manifest 
information that is provided to us. By the way, it is 
incomplete, it is not adequate in my opinion.
    Senator Campbell. It could be counterfeit, and so on.
    Mr. Bonner. But nonetheless, we do get a very large amount 
of information. And we essentially, using targeting principles 
and rules, we have developed and are getting more and more 
sophisticated in developing a rules-based targeting methodology 
which allows us to identify containers that are high risk.
    By high risk I mean those at potential risk for terrorist 
threat.
    By the way, I do not think it is perfect. It is not perfect 
because we are not getting complete information. We need 
complete information and if the Congress makes it mandatory 
that Customs be provided with complete manifest information, 
this will assist us. But we do have a lot of information.
    And so we make judgments that are based upon a risk 
targeting methodology as to which containers we should inspect. 
That is number one. That is our general approach to sorting out 
high risk from low risk.
    Senator Campbell. Out of those 15,000 or 16,000 a day, what 
percent are actually inspected?
    Mr. Bonner. I would say you are probably talking about 
maybe 2 to 3 percent that are inspected as posing a potential 
risk.
    Senator Campbell. You are primarily inspecting for some 
potential terrorist threat. But I was wondering, has your 
inspections had a spinoff of finding increased smuggled goods 
or counterfeit goods or so on that you have always been 
concerned with?
    Mr. Bonner. Let me distinguish two things here. We were 
initially talking about sea containers, but we are also using 
this same methodology in terms of, for example, commercial 
trucks that are crossing our border and so forth.
    So there, by the way, the Canadian border, I just want you 
to know we are actually inspecting, in some way or another, a 
significantly higher percentage than 2 to 3 percent.
    But going back to your question, yes, there has been, by 
virtue of increased scrutiny and increased inspections, there 
has been a significant increase in the seizure, for example, of 
illegal drugs coming into the country. A lot of that has been 
at the southwest border because, as you know Senator, the 
estimates are 65 to 70 percent of all of the illegal drugs that 
are smuggled into the United States come across the border with 
Mexico.
    Senator Campbell. Have you found any more people, as 
Senator Dorgan suggested about that one guy that snuck in in a 
container.
    Mr. Bonner. That was an individual that was actually on his 
way from Egypt through Genoa, Italy to Halifax, Canada. I think 
he was originating in Port Sayeed, Egypt and, by the way, very 
troubling, he had an air mechanics certificate and some other 
identification on him. He never reached the United States.
    In the broadest sense, of course, the inspection technology 
that we are using can detect a number of anomalies, illegal 
drugs, terrorist weapons, and it is certainly capable of 
detecting individuals that might be concealed either in a 
tractor-trailer truck or in a sea container.
    Senator Campbell. I have seen some of those gizmos that can 
measure heart rates inside of a container. I have seen them 
used.
    Mr. Bonner. Again there have been instances in which sea 
containers have been used to--at least we have some evidence--
where they have been used to transport people. I am not saying 
terrorists. And we certainly have images, x-ray images of, for 
example, train cars coming across from Mexico that have 
individuals in them. This is something that you pick up on the 
non-intrusive inspection technology, the large x-ray and gamma 
ray machines that can image these containers.
    So yes, leaving aside the radiation detection devices that 
we have that we are also using, but the same kind of imaging 
technology, in my judgment, is increasing the numbers of 
seizures of illegal drugs that are coming into the United 
States.

              POST-SEPTEMBER 11 BORDER CROSSING WAIT TIMES

    Senator Campbell. Let me ask you about impeding the flow of 
trade. I do not know much about containers but I know a little 
bit about the trucking industry. I was told by a number of 
truckers that travel from Canada to the United States that, for 
quite a while after 9/11, there was 24 hours or more wait at 
the border while being inspected. Do you know if there is still 
a huge wait like that? Or have we increased the speed?
    Mr. Bonner. I know exactly what the wait times are, 
Senator, because one of the things I did even before I was 
confirmed as the Commissioner of Customs, I think on or about 
September 13, is I directed the U.S. Customs Service to start 
measuring with exactitude what the wait times were for a truck 
to come across the U.S. border. The reason that I did that was 
that we were experiencing what were 10 to 12 hour wait times to 
cross into Michigan, into Buffalo, New York, and some other 
points on the border.
    So not only are we measuring these wait times, but we take 
two snapshots, 8:00 a.m. and 4:00 p.m. every day at all the 
major ports of entry, both on the northern border and the 
southern border with Mexico. They are posted on the U.S. 
Customs website, which is www.customs.gov, and have been since 
a few days after September 11.
    So if you want to know what wait times are for commercial 
trucks, and it also goes for passenger vehicles, you can go to 
that site. So I know, actually I track this if not on a daily 
basis, at least every week. I look at the wait times. And I can 
tell you, Senator, that while there were 10 to 12 hour wait 
times essentially in the week after September 11, that through 
a combination of efforts by U.S. Customs, with the trade, and 
with getting some National Guard deployed, by TDY-ing, 
temporary duty assignments, for Customs inspectors, to man more 
of the lanes more often, and some other measures, we got the 
wait times down, by about September 17, to what were pretty 
close to pre-September 11 levels.
    Senator Campbell. I am just looking at a chart here that 
indicates in some places not more than 10 minutes delay or some 
places no delay, some places 20 minutes. That is not bad.
    Mr. Bonner. It is not bad, and it is as good, by the way, 
in most places--there are some exceptions here, by the way, 
that we need to work on that are not commercial truck traffic 
so much as POV or privately owned vehicle traffic.

              CUSTOMS TRADE PARTNERSHIP AGAINST TERRORISM

    Senator Campbell. Let me ask you another couple of 
questions on containers. You mentioned working with the 
industry on inspecting the containers. Does that mean industry 
sometimes inspects their own containers? Or is that always done 
with Federal agents, too?
    Mr. Bonner. Well, it is our responsibility to certainly use 
our authority to inspect any containers that we think have 
contraband or pose a risk. But what we have done with the 
Customs Trade Partnership Against Terrorism is----
    Senator Campbell. I do not have too much time.
    Mr. Bonner. I will try to put it in a nutshell. It is 
essentially to use the leverage of major U.S. importers to 
increase the security, not just----
    Senator Campbell. You do that at point of origin, rather 
than here then, do you not?
    Mr. Bonner. Point of origin, yes. The origin of the foreign 
manufacturer to increase the security along the supply chain.
    But that does not mean that we stop doing inspections. It 
just means that it adds another layer, if you will, of security 
with respect to goods, containers and cargo coming into the 
United States.
    Senator Campbell. Thank you. Thank you, Mr. Chairman.
    Senator Dorgan. Senator Reed?
    Senator Reed. Thank you, Mr. Chairman, and thank you 
gentleman for your testimony.
    Commissioner Bonner, it is good to hear that you are 
increasing the number of personnel across the northern border 
because that is a major access point to the United States. But 
I also sympathize with your general comment about the need for 
additional personnel for Customs Service. Indeed, in my home 
State of Rhode Island, we are one person short of our full 
complement of 12 people. That has been the case since the end 
of the year. I hope not only can you fill up the northern 
border, but also other places around the country that need 
additional Customs officers for the very reasons you pointed 
out so well in your testimony.

                    CUSTOMS AUTOMATION MODERNIZATION

    Let me ask you a question with respect to the Automated 
Commercial Environment. How well is that going, which 
represents a major effort to increase the efficiency and 
effectiveness of the Service and replace the old ACS system?
    Mr. Bonner. This is, of course, a very, very important 
procurement project at the U.S. Customs Service, and which had 
started somewhat before my arrival and my confirmation on 
September 19 last year.
    But number one, I want this committee to know that this is 
one of my highest priorities, the successful design, 
implementation, and the funding necessary to design and 
implement ACE in a timely manner. It is an incredibly important 
system because it does hold the potential, and if we do it 
right we will reform the way that the U.S. Customs Service does 
business with the trade. It also will significantly add to our 
ability to perform our security function against the terrorist 
threat by getting ACE implemented.
    Where it stands right now is that before I arrived, there 
was a contract entered into with the E-Customs Partnership, 
which is a consortium of companies led by IBM, to do the design 
and the development of ACE, working closely with and being 
overseen by U.S. Customs. In fact, this whole process is also 
being overseen by the Office of Management and Budget and GAO 
and this Committee, rightly so. It is a big project and it is 
an expensive project.
    We have just gotten approval, and I want to thank this 
Committee, for the second expenditure spending plan. A few 
weeks ago when I met, as I do on an almost monthly basis, with 
the executive steering committee for the ACE project, we 
approved and put forward the third spending plan, which is 
making its way to this Appropriations Committee, but which is 
right now somewhere between Treasury and OMB.
    In any event, we believe that we will start receiving 
deliverables, the first release of deliverables, under the ACE 
system by, I believe, this coming fall. So right now, I would 
say we are making reasonably good progress toward getting ACE 
designed and beginning now, the implementation phase and 
starting to roll out the deliverables.
    As you know, this is being done in phases. At the current 
level of funding, we should be able to complete the 
implementation of the ACE system and get off the old ACS life 
support system within 5 years. I am looking at seeing if there 
is a way, without materially in any way increasing the risk to 
ACE and its development, of actually completing the ACE project 
within 4 years. That is being discussed right now. If, in fact, 
we conclude that it can be completed within 4 years, then the 
question is what kind of funding implications that would have.
    I am not at a point to discuss that further with this 
Committee. I chatted briefly with the Chairman about this last 
Monday, but as soon as I have formulated my own conclusions and 
discussed those appropriately within the executive branch, if 
we think this can be done, I would look forward to coming over 
and briefing not just the staff, but the members of this 
committee as to how we might do that and what would be the 
funding implications.
    Senator Reed. If I may, a quick follow up. Did the events 
of September 11 and all of the heightened security issues cause 
you or the architects of the system to look again at whether or 
not the system design is the right one for the new security 
needs? And if you did, do you foresee any changes in the 
system?
    Mr. Bonner. We certainly are, and we are looking at the 
possibility of seeing if we cannot push forward certain things 
that would help us with respect to security issues. That is 
being looked at, to see if we can do that.
    Certainly, I mean if the system were in place now it would 
be of immense benefit to the U.S. Customs Service in being able 
to do even more sophisticated targeting and analysis of the 
type that I was talking about with Senator Campbell. So we want 
to see if there are some things, without again putting the 
system or its development at risk, that could be done to push--
there are a couple of items that might be pushed forward that 
would be particularly beneficial in terms of better dealing 
with the security issue and the security threat.

                            JEWELRY MARKING

    Senator Reed. Thank you. One final point, if I may, we all 
have industries in our home States that are vital. The jewelry 
industry has a long time been a vital, not only economic but 
cultural and social force in Rhode Island. For many, many years 
now I have been trying to give them a level playing field by 
suggesting legislation which would require indelible markings 
on foreign jewelry, the major form of competition. Today there 
are requirements of some type of non-permanent marking, piece 
of paper, et cetera, which mysteriously disappear.
    I am wondering what the Customs Service perspective might 
be on this matter? I think it is something that Senator 
Campbell might be familiar with since Indian jewelry requires a 
permanent indelible mark, which I think is very appropriate. Do 
you have any thoughts? Or could you get back to us?
    Mr. Bonner. You know, I would be happy to get back to you 
on it. I must say, as I sit here right now, I have not given 
that detailed thought. And I would want to make sure that any 
system we have is one that Customs can----
    Senator Campbell. If the senator would yield on that 
specific point? Years ago, when Bill Richardson was in the 
House, we tried to put an amendment in the trade bill to make 
indelible stamping of metal. Several national groups, including 
the National Jewelers Association, opposed it and we could not 
get the thing passed.
    Everybody wants some protection, but if it bites into their 
bottom line profit, sometimes the line gets blurred.
    Senator Reed. If you could get back to me, I would 
appreciate it, Mr. Commissioner. Thank you, Mr. Chairman, thank 
you Senator Campbell, for your comments.

                    ARMING NATIONAL GUARD DETAILEES

    Senator Dorgan. Thank you, Senator Reed. Mr. Bonner, two 
other areas.
    I just looked at an April 9th memorandum from the 
Department of Defense on this issue of arming the National 
Guard and I wanted to just share this with you. This is 
recommended to the chairman of the JCS that 411 soldiers be 
armed, 337 on the northern border, 74 on the southern border it 
appears. SECAR recommended approval, also. Forwarded to J-5 on 
March 22 for coordination with lead agencies. I assume that 
includes yours.
    When approved by the lead agencies, it will be forwarded to 
the Secretary of Defense for approval. Upon approval by the 
Secretary of Defense, both MOAs will need to be amended before 
arming can occur. It appears we are at least 8 weeks away from 
arming our soldiers at the earliest. That is dated April 9th.
    Does that conform to what you are hearing?
    Mr. Gurule. I think the reason for the delay is that there 
is going to have to be a training period. We are talking about 
the decision, when we would have a decision resolved on this 
issue. And my sense is that that is shortly to occur.
    But after that decision is made, then there is still the 
training issue that needs to be resolved. So it will be some 
additional time before they are actually armed at the border 
because they need this additional training requirement.
    Senator Dorgan. You are talking about 10 days training, 
right? I mean, the problem is this starts on March 2 and it 
looks like you are talking the potential of mid-June. It is 
sort of frustrating because I think the Commissioner indicated, 
and many of us feel as well, some of these soldiers should not 
have been deployed without arms. And as weeks and weeks and 
weeks go by, I think it is inappropriate to have to wait this 
long for an answer.
    Mr. Gurule. Again, I do not think the issue is that 
difficult, so I am surprised that they are referring to this in 
an 8 week time frame. I do not think the issue is that 
difficult to resolve. The training is not that long. So I am 
not sure what other factors are being weighed into the equation 
here that is extending this for such a long time.
    Senator Dorgan. I am not sure this even contemplates a 
training time. I think it contemplates a decisionmaking time. 
It talks about when it goes to the Secretary of Defense, 
dealing with lead agencies, then goes to SecDef, SecDef 
approved, both MOAs need to be amended.
    I mean, I suspect this is probably just kind of a 
bureaucratic slowdown here.
    Mr. Bonner. As I said, Mr. Chairman, they are available to 
Customs only for 179 days. And my full intention, as I told DOD 
all along, is to recruit, hire, train and deploy the new 
Customs inspectors to replace the Guard, because I only have 
the funding for 6 months anyway. So that is the problem we are 
into now. By the time they approve all of this, it does not 
make sense to take them away for 10 days and train them because 
they are only going to have another month or so left on their 
service. It was not done in an orderly way.
    And second, the determination as to which Guard need to be 
armed is essentially a unilateral determination by DOD. All we 
are saying is here are the ones we need armed. It is not 411, 
actually it is quite fewer than that who need to be armed. Let 
us get them trained. I think we can probably get a training 
program put in place and I am going to take this out of my own 
budget, get the travel money to get them to FLETC or wherever 
we need to put them to get them trained and redeployed.
    The DOD proposal does not take into consideration that--we 
are the ones that requested this and we are the ones that are 
actually paying for it. Now granted, OMB has been helpful here 
to Customs on the budget, but the DOD does not take into 
account first of all, where we want them, and second which 
Guard we think need to be armed. At this point it does not make 
sense to, I do not think, to arm as many as they want. We are 
using some of them--actually, in this film you saw we are using 
some of them in situations at major commercial ports where 
there are a lot of Customs inspectors around who are armed, and 
we probably do not need them armed at this juncture in those 
locations.
    But we certainly need them armed at remote ports of entry 
where they, along with one other Customs inspector, are 
essentially standing sentry at our border.
    Senator Dorgan. When did you alert DOD to the fact that you 
felt that this certain group should be armed? About what 
timeframe?
    Mr. Bonner. You know, the problem is--the evolution of 
this, frankly it has taken so long. But let me just say, I am 
going back to the discussions that we were having back in 
December with DOD. And in those discussions, we were proposing 
the training program for armed Guard that we would have, we 
would put together the training program, that we would be 
putting on the training for them.
    And somehow, I honestly do not know Mr. Chairman, but 
somehow or another, as this evolved, and it was taking so long, 
we were presented with a memorandum of agreement. At that 
point, I thought we should just get the Guard and move on with 
life. But it was always our view that either all of the Guard 
would be armed, or at least some of the Guard where it made 
sense to have them armed would be armed. It was not our 
decision to have them all unarmed.
    Senator Dorgan. You made that recommendation early and were 
overruled by the DOD, who determined the conditions under which 
they would be deployed; is that right?
    Mr. Bonner. I think that is a fair way of characterizing 
it. You have to know that there were all sorts of other issues 
going on that were making this an excruciating process, in 
terms of the delay in the negotiation.

                       MEXICAN LONG HAUL TRUCKING

    Senator Dorgan. Let me ask one other quick item. I have 
been told, it has not been made public yet, but I have been 
told the Administration is prepared to proceed with a June 30 
decision point for allowing Mexican long haul trucks to come 
into this country. Many of us will have great heartburn about 
that, because I do not think anybody is ready for it. Certainly 
not DOT, certainly not the people who are engaged in 
inspections, and so on. And I think that will pose a danger on 
America's roads.
    But tell me when the decision is made to allow Mexican long 
haul trucks to come into this country, what impact will that 
have on Customs? And is Customs ready?
    Mr. Bonner. I think we are ready for it. There are some 
issues here that probably are beyond my province that have to 
do with safety of trucks and drivers and that sort of thing. We 
are working, by the way, with the Department of Transportation 
and Federal Highway Administration to do everything we 
reasonably can to assist them with being in a position to 
satisfy themselves that the Mexican trucks that would be going 
past the 20 mile zone are safe and all of that.
    I honestly think, Mr. Chairman, in terms of the 
inspectional issues, the only issue I see--first of all, I 
think we are ready for it when it happens because it is 
essentially the same tractor-trailer truck that is coming 
across. It is just not going back right away empty. Some of 
them would be continuing on into the highway system of the 
United States.
    But I do not see it as, for example, significantly 
increasing in any way the numbers of tractor-trailer trucks 
and/or the numbers that we would need to screen and inspect.
    Senator Dorgan. Had you heard of the June 30 proposal? In 
your discussions with DOT are they talking about a date?
    Mr. Bonner. I have heard that--I did not know whether it 
was a firm date or a fixed date, but I knew that they were 
trying to work toward being in a position so that they were 
able to certify the tractor-trailer trucks coming in from 
Mexico sometime in June. But I do not know that I have actually 
seen, whether that was some specific legislation or regulation, 
or what the exact driver of that timetable was.
    Senator Dorgan. But this issue is more for DOT, because I 
think you allow that quantity of Mexican trucks to come in and 
long haul without nearly the capability to inspect, and there 
is not the capability to inspect. And with massive problems, 
lack of log books, lack of the requirements on Mexican drivers 
that exist here, I mean a whole series of problems, we are 
going to run into real serious safety issues on our highways.
    That is an issue I will pursue more with DOT, but I was 
curious about what you had been doing.

                     ADDITIONAL COMMITTEE QUESTIONS

    Mr. Commissioner, thank you for testifying today. We look 
forward to working with you. Please tell the men and women of 
the Customs Service that we admire what they have done. 
September 11 underscored again their value to this country and 
the importance of having secure borders and their contribution 
to making those borders secure.
    [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 Byron L. Dorgan

                          customs tax increase
    Question. The Administration is claiming that the Customs Service 
fiscal year 2003 budget will receive an increase from fiscal year 2002. 
This is largely based on the Administration's proposal for a tax 
increase to cover $250 million of homeland security efforts. It is my 
understanding that this user fee must be authorized by July 1, 2002 to 
begin accruing the total $250 million.
    Are you working with the authorizing committees to pass this 
proposal? If not, who is responsible in the Administration for pursuing 
this legislation?
    Answer. We have had discussions with the House and Senate 
authorizing committees and expect to continue working with them when 
the legislation is finalized.
    Question. What plans do you have to cover the $250 million 
shortfall if the legislation is not enacted?
    Answer. Given that Customs must address its existing labor costs 
prior to embarking on new recruitments, it is essential that the COBRA 
fee increase be enacted for the programs supported by the 
Administration's budget request to achieve success. The allocation of 
the fee increase would not be restricted to any aspect of that 
mission.. The Administration will soon send a legislative proposal for 
a COBRA fee increase to the House Committee on Ways and Means and the 
Senate Committee on Finance. The Administration is willing to work with 
the Congress to ensure that the fee increase gets enacted because it is 
essential to the successful accomplishment of Customs overall mission. 
Consequently, the Administration has not contemplated an operating 
approach for Customs based on resources that are $250 million less than 
the total availability assumed in the budget request. If the fee 
increase is not enacted, the Administration is committed to funding 
discretionary spending within the total submitted in the President's 
Budget and would work with this Committee to fashion acceptable trade-
offs among all the important domestic spending priorities.
    Question. What effect will this have on the Customs mission if this 
``tax increase'' is not implemented?
    Answer. As noted, the Administration is keenly aware that the 
funding associated with the fee increase is essential to the successful 
accomplishment of Customs overall mission. Consequently, the 
Administration has not contemplated an operating approach for Customs 
based on resources that are $250 million less than the total 
availability assumed in the budget.
                          joint border agency
    Question. It is my understanding that the Administration is moving 
closer to Governor Ridge's proposal that would combine the Customs 
Service in a joint border agency with other agencies such as the 
Immigration and Naturalization Service (INS) under the Department of 
Justice.
    Given the INS's poor record and the most recent blunder of sending 
approval letters for student visas of two of the terrorists from 
September 11th, is it the most appropriate thing to combine these 
agencies at this time?
    Answer. The U.S. Customs Service is committed to protecting the 
security of our Nation's borders and will continue to do so through 
enhanced programs aimed to deter and detect terrorists or implements of 
terrorism from entering the U.S. The U.S. Customs supports and is 
prepared to comply with any direction from the Administration designed 
to enhance overall border security.
    Question. Do you support Governor Ridge in his efforts to create a 
joint border agency and how would the revenue generating 
responsibilities of the Customs Service fit in with such a plan?
    Answer. As stated, Customs supports and is prepared to comply with 
any direction from the Administration designed to enhance overall 
border security. Governor Ridge has observed Customs border security 
operations first hand, and Customs is working with the Office of 
Homeland Security on a number of initiatives directed toward enhancing 
border security and supporting trade facilitation.
    Question. What is the President's timeline for making a decision on 
this proposal?
    Answer. Customs is not aware of a Presidential timeline for making 
a decision on this proposal. (Response reflects pre-June 6 Presidential 
announcement.)
              business strategy adjustment and pay parity
    Question. Secretary O'Neill is requiring that all agencies incur a 
Business Strategy Adjustment. He feels that every agency can find 
savings, but all those we asked were absent any ideas that wouldn't 
affect mission-related activities. He proposed something similar in 
fiscal year 2002, but this Subcommittee restored the funds for law 
enforcement agencies. In fiscal year 2003, the BSA for Customs totals 
$18,377,000. To reach parity to the military 4.1 percent from the 
President's request of 2.6 percent, it will cost Customs $15,115,000.
    What savings do you recommend to cover the proposed $18.377 million 
business strategy adjustment?
    Answer. Savings will be accomplished through an enterprise approach 
toward administrative services and functions that will create synergies 
within the Treasury Department and lead to economies of scale. Customs 
will work with main Treasury and other Treasury Bureaus to identify 
areas in which cost savings can be achieved. These areas could include 
but are not limited to reengineering the drawback process, implementing 
CD-ROM EEO Training, conducting EEO investigations at the Treasury 
Bureau level, and establishing a corporate approach to Treasury 
Acquisitions.
    Question. What would be the affect on your agency if forced to 
absorb the business strategy adjustment and a 1.5 percent pay raise?
    Answer. Customs would try to achieve even more cost savings using 
the enterprise approach mentioned in Question S-USCS7. Regardless of 
the types of management efficiencies, how they are achieved, and how 
successful they are, Customs will not compromise the security of the 
United States.
                            usa patriot act
    Question. This law authorizes the tripling of INS and Customs 
personnel from fiscal year 2001 levels along the Northern Border. 
Assuming the President's fiscal year 2003 budget is implemented, there 
is still a hiring shortfall of 1261 Inspectors and 355 Agents under 
Customs, while the shortfall for INS is significantly lower. I estimate 
that Customs will need an additional $188 million to reach this goal. 
INS is short only 447 Inspectors and 280 Border Patrol Agent to reach 
the goal of tripling its personnel.
    Would the tripling of staff from fiscal year 2001 levels fill the 
necessary holes in staffing the Northern Border to place you at optimal 
levels? Please detail what you would need to be at optimal levels along 
the Northern Border and separately along the Southwest Border.
    Answer. We believe that if Northern Border Inspector staffing were 
tripled from fiscal year 2001 levels, coupled with appropriate 
hardening of low volume ports and installation of electronic 
surveillance equipment and Non-Intrusive Inspection Equipment (NII), 
Customs Inspector staffing would be adequate.
    Southern Border Inspector staffing maintained at existing baseline 
levels, combined with additional staffing provided for in the fiscal 
year 2002 Emergency Supplemental and fiscal year 2003 funding requests, 
is sufficient for efficient and effective operations at the border. The 
Southern Border has been hardened over the past several years due to 
the ongoing contraband threat.
                  container security initiative (csi)
    Question. Commissioner Bonner has been stressing the need to push 
out our borders away from the conventional border. CSI is designed to 
place Customs inspectors and agents in offices abroad to secure 
containerized cargo entering the U.S. at the 10 largest mega-ports (50 
percent of all cargo to the U.S. enters through these 10 ports).
    Why is this important?
    Answer. The U.S. Customs Container Security Initiative (CSI), 
proposed by Commissioner Bonner in a January 17, 2002, speech given at 
the Center for Strategic and International Studies, would secure an 
indispensable, but vulnerable, link in the chain of global trade: the 
oceangoing sea container. Ensuring the security of the maritime trade 
system is essential, given that approximately 90 percent of the world's 
cargo moves by container.
    Each year, more than 16 million containers arrive in the United 
States by ship, truck, and rail. In 2001, U.S. Customs processed more 
than 214,000 vessels and 5.7 million sea containers. A proactive stance 
by Customs in screening sea containers before they reach the United 
States will significantly contribute to the agency's overall efforts to 
secure the borders against dangers that might be introduced through 
commercial traffic. A key goal of the CSI is to identify potential 
high-risk shipments at the earliest point in the supply chain, thus 
helping to protect the global maritime trading system.
    Osama bin Laden and the Al Qaeda terrorist network have vowed to 
cripple the U.S. and world economy. More than half of all goods that 
enter the United States arrive by oceangoing cargo containers.
    Question. What are the ramifications and complications of 
stationing Customs Agents and Inspectors in foreign ports?
    Answer. The ramifications and complications of deploying CSI teams 
overseas vary from port to port because each situation is completely 
different (e.g., ownership of the ports, relevant government agencies 
involved, the private sector, legal/regulatory issues, etc.)
    Several reoccurring issues have been raised during discussions with 
foreign representatives such as sovereignty, port risk assessments, 
data sharing, container inspection procedures, and reciprocity. As our 
foreign partners gain a better understanding of our intentions under 
the CSI program and how we want to work with them, these issues do not 
elevate to insurmountable problems.
    Also, we are coordinating with domestic agencies to answer foreign 
representatives' potential questions. We are working out a response 
process in the event a weapon of mass destruction is found in a CSI-
participating port. We are working with closely with USCS' Office of 
Anti-Terrorism to coordinate our efforts with the Department of State 
and its Foreign Emergency Support Team. Feeding off the Department of 
Energy's Second Line of Defense Program we expect to send DOE teams to 
potential ports to assess the host nation's ability to address this 
issue.
    Question. Are there jurisdictional or safety issues? What 
conditions or constraints do you face?
    Answer. The implementation of the Container Security Initiative 
(CSI) is not expected to encounter any jurisdictional issues. U.S. 
Customs officers stationed in foreign ports will be instructed to defer 
to their host country counterparts with regard to the actual inspection 
of containers. Host country inspectors will inspect the containers 
previously identified as potentially high-risk. U.S. officers will 
witness the inspections and ensure that any targeted containers have 
been adequately screened prior to their clearance for the United 
States.
    The safety issues and potential conditions and restraints are 
addressed in the above answer. We are coordinating with domestic 
agencies to answer foreign representatives' potential questions 
regarding safety issues.
    Question. What will full implementation of the CSI program cost? 
What time frame? What are the costs of a pilot project? In which Ports 
would a pilot be most likely?
    Answer. We anticipate full implementation of CSI would cost 
approximately $63 million for the start-up year using standard costs 
for overseas positions and estimates for establishing a new office. 
Second year costs would be approximately $35 million. The estimated 
timeframe to reach full CSI implementation is January 2004. The average 
cost of a pilot project is $800,000. U.S. Customs has already 
established CSI teams in Vancouver, Montreal, and Halifax, Canada. All 
three sites rely on current resources. Our next step is to pilot CSI in 
one port in Europe and one port in Asia. Following the establishment of 
the initial pilots, U.S. Customs will incrementally work with the 
Treasury Department and OMB to deploy teams in the world's top 20 
megaports as well as other strategic locations. The typical 
configuration of a team would include two inspectors, one special 
agent, and one intelligence analyst. Of course, this configuration may 
vary from port to port.
                             port security
    Question. During last week's full Committee Homeland Security 
hearings, we focused on port security. Witnesses highlighted the 
challenges regarding port security. One issue concerns identifying 
which Federal entity is responsible for the ports. One witness stated 
that the Department of Transportation and the U.S. Customs Service both 
claim control.
    Commissioner Bonner, please state for the record, who is 
responsible for containers entering the U.S. through these ports? Who 
is responsible for security at the port itself?
    Answer. Various Federal, State, and local agencies share the 
responsibility for security at seaports, including the Customs Service 
and the Coast Guard. However, the ultimate responsibility for seaports 
rests with the states, which charter seaports within their territories. 
Port authorities act on behalf of State or local governments and 
operate some marine terminals while private sector tenants of the port 
authority run others.
    The Customs Service is the entity responsible for the security of 
containers entering the United States. Customs is the lead Federal law 
enforcement agency in the screening, examination and release of 
commercial conveyances, persons, and cargo entering the United States 
and a key stakeholder in the seaport security arena. Customs enforces 
hundreds of laws for dozens of different Federal agencies at our 
nation's air, land and seaports of entry.
    Customs authority extends to the examination of cargo at both ends 
of the transport chain and Customs is equipped with the infrastructure, 
personnel, inspection equipment and computer systems to target, screen, 
examine and process cargo shipments entering the United States through 
our nation's seaports.
    In general, State or local municipalities and terminal authorities 
govern most seaport facilities in the United States. These facilities 
are used to facilitate the movement of not only international shipments 
that are imported or exported, but also facilitate the movement of 
domestic cargo shipments that move between U.S. ports. As a result of 
the multiple roles our nation's seaports play in the overall 
international and domestic economies, there are multiple Federal 
agencies with interests in seaport security. Customs is a key Federal 
stakeholder in seaport security because Customs regulates the key 
entities (shippers, carriers, importers, brokers, etc.) which are 
involved in the importation/exportation of goods into and out of the 
United States.
    Question. Also, please illustrate your relationship with the U.S. 
Coast Guard and other Federal, State and local entities at these ports. 
Who is tasked with what responsibilities?
    Answer. At the national level, the Customs Service and the 
Department of Transportation (DOT) have been collaborating in a joint 
Container Working Group (CWG) initiative that is focused on improving 
the security of sea containers entering the United States. The U.S. 
Coast Guard is one of many DOT sub-agencies represented on the CWG. 
Additionally, Customs also works closely with the U.S. Coast Guard to 
address seaport security issues through the Marine Transportation 
System (MTS) and the Marine Transportation System National Advisory 
Committee (MTSNAC), and promotes Customs best-practice security 
standards through the U.S. Coast Guard at the International Maritime 
Organization (IMO).
    On a local level, Customs is the lead Federal law enforcement 
agency in the screening, examination and release of commercial 
conveyances, persons, and cargo entering the United States and is a key 
stakeholder in the seaport security arena.
    Customs authority extends to the examination of cargo at both ends 
of the transport chain. Customs is equipped with the infrastructure, 
personnel, inspection equipment and computer systems to target, screen, 
examine and process cargo shipments entering the United States through 
our nation's seaports. Customs is a key Federal stakeholder in sea port 
security because Customs regulates the key entities (shippers, 
carriers, importers, brokers, etc.) which are involved in the movement 
of goods into and out of the United States.
    Customs enforces hundreds of laws for dozens of different Federal 
agencies. Additionally, Customs participates in Port Safety Committees 
and coordinates enforcement activity with the proper Federal, State and 
local entities, including the U.S. Coast Guard when necessary.
                             national guard
    Question. The National Guard has been assigned to augment security 
at the border and at Ports of Entry during on and off-hours after 9/11. 
Critically, these troops are UNARMED. (Customs instituted a Level 1 
alert wherein all Ports of Entry are manned 247 by at least 
two people. This applied even to those border crossings, which have set 
hours of operation, traditionally left unmanned). The National Guard 
became dependant on the law enforcement officers of Customs and INS to 
protect them. A decision to reverse the policy of not arming the 
National Guard along the border is currently pending in DOD.
    What were the factors behind the decision not to arm the National 
Guard along our borders, especially given that they are armed at our 
airports and at posts with the Capitol Police?
    Answer. The Memorandum of Agreement (MOA) between the Department of 
the Treasury and the Department of Defense (DOD) calls for DOD 
personnel assigned to U.S. Customs to be unarmed for a number of 
reasons. One reason is to avoid giving the appearance that the U.S. 
government is militarizing its borders. Additionally, DOD personnel 
will only be used to support very low-risk missions and will always be 
under the immediate supervision of an armed Customs Inspector who can 
provide force protection in the rare event it becomes necessary. 
Furthermore, not arming DOD personnel helps minimize the possibility of 
a use of force incident. Last, these additional DOD resources are being 
utilized in a manner that is consistent with DOD support already in 
place and also serving in an unarmed capacity.
    DOD personnel assigned to U.S. Customs are detailed to our agency 
under Title 10 USC. Title 10 soldiers are under the direction of the 
President of the United States, and are funded by the Federal 
Government. Therefore, the agreement to not arm the DOD soldiers 
assigned to U.S. Customs was made between the Customs Service and the 
DOD. On the other hand, the DOD personnel assigned to major airports 
and the Capitol Police are detailed to those entities under Title 32 
USC. Title 32 soldiers are under the direction of the State governors, 
remain under the control of the States' Adjutant Generals, and receive 
funding from their respective States. Therefore, the decision to arm 
the soldiers assigned to major airports and the Capitol Police was made 
among the respective States' governors, Adjutant Generals, and the 
individual departments/agencies.
    Question. What is the status of reversing this decision?
    Answer. On April 12, 2002, the DOD requested to renegotiate the MOA 
between our agencies, with the intent of selectively arming Title 10 
DOD personnel assigned to the Customs Service. In an effort to 
streamline the renegotiating process, Customs and DOD officials met at 
the Pentagon on April 17, 2002, to discuss issues related to arming 
Title 10 personnel. The DOD is currently drafting the proposed language 
changes to the existing MOA, which will be forwarded to U.S. Customs 
for consideration upon completion. Although the proposed changes have 
not officially been agreed to at this time, the Customs Service has 
orally agreed with DOD to arm the Title 10 personnel assigned to the 
Northern Border locations. Both agencies have established this 
renegotiating process as a very high priority. Every effort is being 
made to ensure that the necessary changes are made and implemented as 
soon as possible.
                      overtime cap for inspectors
    Question. The USA Patriot Act lifted the overtime cap for INS 
inspectors, but not for Customs. It is my understanding that Customs 
did not ask for a similar provision because the Commissioner has the 
authority to waive the cap upon special request. When visiting Ports of 
Entry along the Northern Border, the overtime cap was a top concern of 
many inspectors.
    The USA Patriot Act lifted the overtime cap for INS inspectors, but 
not for Customs. It is my understanding that Customs did not ask for a 
similar provision because the Commissioner has the authority to waive 
the cap upon special request. When visiting Ports of Entry along the 
Northern Border, the overtime cap was a top concern of many inspectors.
    You detail in your prepared statement that inspectors are working 
12 to 16 hour days, 6 and 7 days a week. Why did you not request 
lifting the caps through the Patriot Act, and do you require such a 
provision at this time?
    Answer. We do not require such a provision at this time. 19 U.S.C. 
Section 267 (c) (1) authorizes the Commissioner of Customs to grant a 
waiver of the statutory overtime cap to individual Customs officers. As 
of April 26, 2002, I have granted overtime waivers to 94 inspectors for 
fiscal year 2002.
    Officers working 12 to 16 hour days, 6 and 7 days a week are more 
an issue of available labor at certain locations than a cap waiver 
issue for Customs.
                        cobra user fee shortfall
    Question. Customs collects nine different user fees covering 
services provided to the traveling public and trade community. These 
COBRA fees reimburse the Salaries and Expenses account to address 
overtime, benefits, salaries, and equipment, etc. COBRA receipts for 
fiscal year 2002 are $35 million below fiscal year 2001 collections, 
due primarily to a drop in air passenger travel. Treasury did not 
request any funding in the Administration's recently released fiscal 
year 2002 Supplemental Request (of 3/21). However, it should be noted 
that the Administration proposes $35 million for INS to make up for the 
``significant decline in international air travel to the United States 
and an equally significant decline in projected immigration user fee 
revenue.''
    Please provide your understanding of why the Administration 
requested funding for an INS shortfall in receipts from user fees and 
nothing similar for Customs.
    Answer. This question regarding INS funding is best answered by the 
Office of Management and Budget.
    Question. COBRA authorization expires 9/30/03. What efforts are 
being made to address this?
    Answer. The fiscal year 2003 budget does not reflect a specific 
Administration position on extension of the COBRA fee, in either its 
existing or proposed form, beyond fiscal year 2003. The Administration 
will address this during the fiscal year 2004 budget cycle.
    Question. The Administration is proposing an increase to COBRA user 
fees to cover an estimated $250 million of homeland security needs. 
With the drop in collections and the sunset of COBRA at the end of 
fiscal year 2003, how do you envision the future and purpose of this 
user fee?
    Answer. The Administration plans to address the future of COBRA 
during the fiscal year 2004 budget cycle.
                              ace funding
    Question. You have expressed interest in completing ACE--the 
Customs trade processing system--within a four year timeframe. The 
Subcommittee strongly supports ACE and we have added funds to previous 
budgets to keep the program on track. I am pleased that the 
Administration now also seems to be supportive of the program.
    How much is needed in additional funds in the next three years to 
accomplish this goal?
    Answer. Customs has performed an analysis of the benefits and risks 
of a 4 versus 5-year plan, and is discussing with the Department and 
OMB pursuing the 4-year ACE schedule (ending March 2006). We are 
currently formulating the funding requirements for the President's 
fiscal year 2004 Budget and the Modernization Executive Steering 
Committee is considering the assumptions upon which the 4-year funding 
requirements are based.
    Question. How much additional funding would be required in fiscal 
year 2003?
    Answer. None
    Question. Given the past experience with the IRS and its wasting of 
millions of dollars on its earlier, failed systems modernization 
program, are you concerned at all about moving too fast?
    Answer. Customs goal to complete ACE in 4-years (ending March 2006) 
is undergoing careful analysis. We believe that the benefits outweigh 
the risks. The members of the Modernization Executive Steering 
Committee (which includes representatives from the Treasury Department, 
OMB, GAO and the trade) considered this issue when briefed on April 24, 
2002. In the post-September 11 era, we are maintaining a determined yet 
measured approach to putting ACE capabilities to work on America's 
borders as soon as it is feasible.
    ACE, like every development program, has a set of inherent risks 
that are generally dictated by inter-related variables including 
technical complexity, schedule, cost, and impact to the organization, 
among others. The decision to proceed with a 4-year schedule is based 
on not only the risk analysis, but also tangible factors including 
benefits to Participating Government Agencies (PGA) that have yet to be 
quantified, positive impacts on national anti-terrorism and border 
security efforts, and the incremental development that will be 
undertaken by the Customs Modernization Office (CMO).
    The incremental development is extremely important as it provides 
tremendous management leverage to facilitate mid-course corrections, as 
necessary, throughout the development of ACE. This strategy will help 
ensure that ACE meets the goals of the Customs Service and PGAs in a 
manner that maximizes lifecycle benefit while remaining within planned 
acquisition cost.
    A more detailed risk analysis is being sent to Senators Dorgan and 
Campbell via separate correspondence.
                           forced child labor
    Question. Over the past three fiscal years, Customs received Forced 
Child Labor (FCL) funding for initiatives to combat the illegal 
importation of goods produced with forced or indentured child labor. 
With this funding, Customs opened overseas offices in Brazil and the 
Philippines. The State Department has also approved the establishment 
of an office in New Delhi. Approval is being sought for Dubai and 
another site in Africa. Staffing was also increased in Pretoria and 
Moscow and backfilled in Beijing. Three overseas symposia were offered 
in Thailand, Germany and Panama, as well as two in the U.S. There are 
32 open FCL investigations. Customs' focus to combat FCL is through (a) 
Foreign government training (b) International outreach and symposia and 
(c) International investigations at the source.
    How successful is this multi-tiered approach in addressing Forced 
Child Labor?
    Answer. The multi-tiered approach to addressing Forced Child Labor 
(FCL) has been successful in ensuring that the relevant foreign 
government entities, non-governmental organizations and U.S. Embassies 
are informed on the mission of the Customs Forced Child Labor program. 
In those offices where the FCL program has been established for at 
least two or more years, our officers have often been successful in 
gaining access to factories which export goods to the United States to 
determine if Forced Child Labor is used in the manufacture of goods. 
For example, the Customs Attache Office in Bangkok has had two FCL 
dedicated agents since 1999. After successfully establishing an 
international outreach program in their Area of Responsibility (AOR), 
the Bangkok office has now been able to conduct several factory visits 
in their AOR. In the last year they have visited 67 factories that 
export goods to the United States with no findings of forced child 
labor. Our offices in Panama and Uruguay have been able to accomplish 
similar access for site visits in some countries in their AOR as well.
    The multi-tiered outreach approach with foreign governmental 
entities has also been effective in enlisting the support of foreign 
governments in the FCL issue. For example, the Customs Attache Panama 
Office has been able to cultivate support from politicians in the 
Panamanian National Assembly and Ministry of Labor in tackling this 
issue in Panama.
    The success of tackling the issue of Forced Child Labor on a multi-
layered front comes from the fact that this issue can only be addressed 
by focusing on all the entities that play a role in this issue from the 
relevant foreign ministries to Non-Governmental Organizations. Our 
overseas offices with FCL responsibilities have been vigorously 
utilizing this approach to this issue.
    Question. What more could you do, or do you intend to do 
internationally to address FCL?
    Answer. At the international level, the U.S. Customs Service plans 
on opening a Customs Attache Office in India in July 2002 to address 
FCL issues in South Asia. Customs is also seeking approval from the 
Department of State to establish a presence in Dubai, United Arab 
Emirates and Nairobi, Kenya to address FCL issues in the Middle East 
and East Africa respectively. Customs plans to add an additional 
Special Agent to address FCL issues in our current Customs Attache 
Offices in Moscow, Russia and Pretoria, South Africa. In addition, we 
are back-filling an existing Agent vacancy in Beijing, China to support 
the FCL program.
    Customs will also be providing formalized FCL enforcement training 
to foreign officials based on a training plan that has been devised to 
focus on how foreign governments can assist Customs in tackling Forced 
Child Labor. This training will further enhance the international 
outreach programs that have already been performed in those countries 
suspected of having FCL problems.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

                          commissioner bonner
    Question. Mr. Bonner, as you are probably aware, the Senate 
Appropriations Committee has begun a series of hearings on homeland 
security. The first sessions were held last week, and included two 
witnesses who spoke about port security. Dr. Stephen E. Flynn of the 
Council on Foreign Relations in New York spoke about the need for 
security checks before shipment containers reach our shores. Admiral 
Richard Larrabee of the Port Authority of New York and New Jersey 
echoed that observation and spoke of Operation Safe Commerce as an 
example of a private-public partnership. It was interesting that none 
of the witnesses even mentioned the ongoing Customs efforts to pre-
screen containers at the international mega-ports--the Container 
Security Initiative.
    Please tell us more about the Customs Container Security 
Initiative. Where are you concentrating your current efforts? Are U.S. 
port officials and others involved in port security aware of this 
initiative?
    Answer. The U.S. Customs Container Security Initiative (CSI), which 
I proposed in a January 17, 2002, speech given at the Center for 
Strategic and International Studies, will enhance the security of an 
indispensable, but vulnerable, link in the chain of global trade: the 
oceangoing sea container. Ensuring the security of the maritime trade 
system is essential, given that approximately 90 percent of the world's 
cargo moves by container.
    Each year, more than 16 million containers arrive in the United 
States by ship, truck, and rail. In 2001, U.S. Customs processed more 
than 214,000 vessels and 5.7 million sea containers. A proactive stance 
by Customs in screening sea containers before they reach the United 
States will significantly contribute to the agency's overall efforts to 
secure the borders against dangers that might be introduced through 
commercial traffic.
    The Container Security Initiative consists of four core elements. 
These are: (1) establishing security criteria to identify high-risk 
containers; (2) pre-screening those containers identified as high-risk 
before they arrive at U.S. ports; (3) using technology to quickly pre-
screen high-risk containers; and (4) developing and using smart and 
secure containers. The fundamental objective of the CSI is first to 
engage the ports that send highest volumes of container traffic into 
the United States, as well as the governments in these locations, in a 
way that will facilitate detection of potential problems at their 
earliest possible opportunity.
    As a first step, U.S. Customs has identified the top 20 ``mega-
ports'' that send containers to the United States, and has entered into 
discussions with the governments in these locations to solicit their 
participation in the CSI. These locations were identified based on 
their volume of sea container traffic destined for the U.S.; however, 
the CSI program will not be restricted to only these locations. Risk 
assessments and trade analysis play an important part in future 
deployments, and increased security measures are vital to the 
operations of any port in today's environment.
    U.S. Customs has undertaken an extensive outreach program to bring 
CSI to the public's attention. Briefings have been provided to numerous 
groups including the trade, Congressional offices, other government 
agencies, the press, and associations such as the American Association 
of Port Authorities which I addressed on March 19, 2002.
    TOP TWENTY MEGA-PORTS: Hong Kong; Antwerp; Shanghai; Nagoya; 
Singapore; LaHavre; Kaohsiung; Hamburg; Rotterdam; La Spezia; Pusan; 
Felixstowe; Bremerhaven; Algeciras; Tokyo; Kobe; Genoa; Yokohama; 
Yantian and Laem Chabang.
    Mr. Bonner, there has been some discussion at the Customs Service 
and throughout the trade industry about escalating the development of 
the Automated Commercial Environment or ACE project. As you know, we 
have some concerns about the added risks inherent in this idea, 
especially considering that the General Accounting Office has 
consistently identified agency management control weaknesses, which 
have not yet been fully addressed.
    Question. What is the status of a decision to reduce the ACE 
project schedule from 5 to 4 years? What steps have been or will be 
taken to address the management control weaknesses cited by GAO?
    Answer. Based on an analysis of the benefits and risks of a 4 
versus 5-year plan, Customs is discussing with the Department and OMB 
pursuing the 4-year schedule (ending March 2006). This issue was 
considered by the members of the Modernization Executive Steering 
Committee when briefed on April 24. Customs has taken, and will 
continue to take, prudent steps to address the risks associated with 
the Modernization Program. This includes actions to address concerns of 
the Committee and useful recommendations provided by the General 
Accounting Office (GAO). A more detailed response of actions taken is 
being sent to you and Senator Dorgan via separate correspondence. Key 
actions are highlighted below:
  --Tasked e-Customs Partnership (e-CP) to update and extend the 
        existing enterprise architecture to provide the requisite 
        design content, consistency, and integration across the full 
        scope of the Customs business areas. Enterprise architecture 
        certification is scheduled for June 2002.
  --Developed a new, expanded organizational structure that doubles the 
        size of the Customs Modernization Office (CMO). Positions are 
        being filled now.
  --Completed 75 percent of the software acquisition controls that span 
        the Software Engineering Institute's entire Software 
        Acquisition Capability Maturity Model (CMM).
  --Continued to focus first on the most critical plans, processes and 
        procedures across all CMM Key Process Areas.
  --Employed the use of both an independent government cost estimator 
        and software tools that enable reliable cost estimation 
        process.
  --Identified the inherent risks of the 4-year approach, analyzed the 
        potential impacts, and briefed the Modernization Executive 
        Steering Committee.
  --Employed risk management procedures that conform to Software 
        Engineering Institute standards to mitigate program risks.
    I am told that a Customs COBRA fee advisory committee was created 
in 1999 to advise the Customs Commissioner on issues related to the 
performance of the inspectional services of the Customs Service. The 
membership is to include representatives from airline, cruise ship, and 
other transportation industries who may be subject to COBRA fees. The 
meetings are intended to be a forum for discussions about the proper 
number and deployment of inspectors, the level of fees, and the 
appropriateness of any proposed fees. Mr. Bonner, the fiscal year 2003 
budget request again includes a proposal to increase the COBRA fees for 
airline and cruise vessel passengers. This proposal has landed with the 
same resounding thud as earlier efforts by the previous Administration, 
in part because the travel industry does not believe it is necessary.
    Question. Why hasn't the Customs COBRA Fee Advisory Committee been 
actually established? After all, if you can convince the industry 
committee members that an increase is warranted, even a modest 
inflationary increase, the battle has been won.
    Answer. By enactment of the Miscellaneous Trade and Technical 
Corrections Act of 1999, (Public Law 106-36), section 13031 of the 
Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 (19 
U.S.C. 58c) was amended to direct the Commissioner of Customs to 
establish an advisory committee whose membership shall consist of 
representatives from the airline, cruise ship, and other transportation 
industries who may be subject to fees under 19 U.S.C. 58c. The Customs 
Service has published three separate Federal Register Notices 
soliciting applications for this committee. The first two Federal 
Register Notices only produced applicants from four of the seven 
eligible COBRA user fee sectors. After publication of the third Notice, 
five applicants were tentatively selected.
    Notification letters to the selectees will be mailed by the first 
week in May 2002.
    Along those lines, the fiscal year 2003 budget request assumes the 
increase in these fees to the tune of almost $250 million which would 
be used to augment funds appropriated by Congress for operations of the 
Customs Service. Let us assume for a moment that Congress refuses to 
increase those COBRA fees, which is not a stretch of the imagination, 
and that we do not have sufficient funds to simply appropriate that 
amount.
    Question. What steps will you be forced to take if your operating 
budget is, in effect, reduced by $250 million?
    Answer. We expect the fee increase to be enacted because it is 
essential to the successful accomplishment of Customs overall mission. 
The Administration would work with this Committee to fashion acceptable 
trade-offs among all the domestic spending priorities in order to 
accommodate Customs' requirements if the fee increase were not enacted.
    Mr. Bonner, every Federal agency faces normal attrition, either by 
retirements or resignations, and those positions must be refilled. In 
the case of the Customs Service, this recruitment effort is further 
complicated by the need to fill additional positions authorized and 
funded by Congress. I am told that you hope to hire 1,244 Inspectors 
and 731 Special Agents this year, and your fiscal year 2003 request 
contains funding for even more positions next year. While I completely 
understand the need for more Inspectors and Special Agents, this is a 
huge recruitment undertaking.
    Question. What is the status of your fiscal year 2002 hiring plan? 
How many applications are currently in the pipeline? Most importantly, 
how do you compete with other Federal law enforcement agencies, 
including the Transportation Security Administration, for the small 
pool of qualified potential employees?
    Answer. We are making excellent progress in hiring against our 
fiscal year 2002 hiring plan. We have filled 57 percent of our 
positions and expect to meet all of our hiring objectives.

        Hiring                                          Customs Officers
Hiring Plan (includes projected attrition)........................ 1,955
Hired to Date.....................................................   854
Cleared Pre-Employment & Scheduled for Training...................   269
Remaining to be Hired.............................................   832

    We currently have an applicant pipeline of 3,000 Inspectors and 
1,000 Agents who are pending pre-employment (medical, drug screening, 
and background investigation). They will fill our remaining positions 
for this year and be available for fiscal year 2003 hiring needs.
    However, there has been a recent increase in the number of Customs 
employees who have transferred to the Transportation Security 
Administration (TSA). Seventy employees already have transferred to TSA 
this fiscal year. TSA offers a higher career ladder (GS-13 vs. GS-9 for 
Inspectors) and law enforcement retirement (wanted by most Inspectors). 
If losses continue at this rate, this will be the first time we have 
had problems in retaining Inspectors. (Our normal attrition rate for 
inspectors is 4 percent--half of which are retirements.)

                          SUBCOMMITTEE RECESS

    Mr. Bonner. Thank you, Mr. Chairman.
    Senator Dorgan. This hearing is recessed.
    [Whereupon, at 3:40 p.m., Thursday, April 18, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]










  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003

                              ----------                              


                       WEDNESDAY, APRIL 24, 2002

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 1:35 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan, Reed, Campbell, and DeWine.

                   EXECUTIVE OFFICE OF THE PRESIDENT

                 Office of National Drug Control Policy

STATEMENT OF JOHN P. WALTERS, DIRECTOR
ACCOMPANIED BY MICHELE C. MARX, DIRECTOR, FINANCIAL MANAGEMENT

                            OPENING REMARKS

    Senator Dorgan. I call the hearing to order. This is the 
Subcommittee on Treasury and General Government Appropriations 
here in the Senate, and good afternoon, Mr. Director. We are 
pleased that you are here.
    This is the first time that you have testified before our 
subcommittee. Myself and Senator Campbell and a couple of other 
colleagues who will be joining us welcome you.
    The purpose of this hearing is to discuss the fiscal year 
2003 budget request for the Office of National Drug Control 
Policy and to discuss your agency's jurisdiction over our 
national drug control programs. I look forward to working with 
you and supporting the necessary programs that will have the 
greatest effect on our Nation to deter the use, promotion, 
production, and the importation of drugs. And I know that my 
colleagues on the subcommittee share that view.
    I want to make a couple of observations as we begin. I will 
not make a lengthy statement here, but I will put a statement 
in the record.
    I support and am interested in interdiction efforts, 
interdiction efforts that are successful and help us interdict 
the supply of drugs that come in. But I am also very concerned 
about and very supportive of efforts to provide drug treatment 
that is essential for those who are addicted to drugs. Those 
who are addicted to drugs will find a supply somewhere at some 
price, and they will find a way to pay for it, if necessary 
through a life of crime.
    Regrettably, our country has spent much more energy and 
effort to interdict than it has providing treatment. We ought 
to start, just as a starting point, with everybody who is 
incarcerated. Those in law enforcement tell me that there are 
two functions with respect to incarceration. You take a look at 
guns and drugs, and you will find an attachment to most people 
who are put behind bars to either guns or drugs. And especially 
with respect to drugs, we have the capability for those that we 
have incarcerated to treat them and allow them to leave 
incarceration free of the drug addiction. Turning someone back 
on to the streets with an addiction to drugs turns them back to 
a life of crime.
    It is almost unforgivable, in my judgment, for someone to 
be addicted to drugs in our country and not able to find a slot 
in a treatment center with which they can get treated. And that 
exists around this country today, and we have people walking 
America's streets and having this terrible addiction and unable 
to find access to get treatment for it. So we must, even as we 
talk about all these other issues, which I support, we must pay 
much, much more attention to drug treatment than we have paid 
in the past, and we ought to start especially with those that 
we are incarcerating because we have the capability to address 
all of those issues at the Federal, State, and local level.
    I also want to mention that we have embarked on this 
experiment of spending hundreds of millions of dollars on 
television commercials to try especially to convince America's 
youth not to take drugs. And we want to spend a lot of time 
analyzing the effects of that. Has it been successful or hasn't 
it?
    We know that television advertising can have a profound 
impact on behavior. We know that. Everyone knows that. That is 
why people pay a massive amount of money to put a 30-second ad 
on during the Super Bowl, for example. They know it has an 
impact.
    Does it have an impact, can it have an impact, has it had 
an impact with respect to convincing young people that they 
ought not experiment with drugs?
    I think the jury is still out on that. I think that we have 
had some analysis that is encouraging, some that it really 
doesn't give us much of a road map here on what has happened. 
So I want to visit with you about that as well.
    But the media campaign, the National Youth Media Campaign 
has been something that I have supported, Senator Campbell has 
supported, but let's take a hard look at what we are getting 
for that and exactly how we continue it, if we continue it. I 
know the authorizers are taking a look at that as well at this 
point.
    But we welcome you here. I know you have assumed this role 
with an attitude of wanting to provide great public service and 
having an impact on what is happening with respect to drugs in 
our country. And we pledge to you that we want to help you in 
that mission. Our job as appropriators is to use the public's 
money wisely. We have limited money and unlimited wants, and 
our job is to economize in a way that provides the best 
investment possible for the American taxpayer.

                           PREPARED STATEMENT

    Investing in your agency is one part of that, and we want 
to do it in the most effective way possible as well. So we will 
need your guidance and help in order to accomplish that. Thank 
you for being here.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Good Afternoon, Mr. Director. This is your first time testifying 
before our subcommittee, and we welcome you here today. The purpose of 
this hearing is to discuss the fiscal year 2003 budget request for the 
Office of National Drug Control Policy and to discuss your agency's 
jurisdiction over our national drug control programs. I look forward to 
working with you on supporting the necessary programs that will have 
the greatest affect on our nation to deter the use, promotion, 
production, and importation of drugs.
    As you know from our meeting prior to your confirmation, I believe 
the issue of drug treatment is critically important. In December 2001, 
I wrote a letter to Acting Director Jurith on how much weight should be 
given to drug treatment issues in developing this Administration's 
first National Drug Control Strategy. Drug treatment is a necessary and 
vital component of our drug control strategy yet in recent years, the 
lack of facilities and options have left people who need treatment out 
in the cold. I was encouraged to see the commitment of both your agency 
and the Administration to this effort in the National Drug Control 
Strategy that was released in February.
    We must not lose sight that this is a long term investment and 
commitment which we are making to close the gap on drug treatment. The 
$224.2 million increase for substance abuse programs provided in the 
fiscal year 2003 budget request is a step in the right direction. I 
agree with many of your insights and ideas detailed in the National 
Drug Control Strategy and will continue to be supportive of any effort 
to increase drug treatment programs.
    A crucial component of drug treatment resides within our criminal 
populations. This sector of the population should be one on which we 
have the most effect with regard to substance use. I commend the Bureau 
of Prisons for continuing its efforts to serve as a model system for 
many states and localities and for frequently modifying their ideas on 
how to tackle this growing problem. I am concerned that the $7 million 
increase to the Residential Substance Abuse Treatment Program (RSAT) 
under the Department of Justice is not nearly enough to begin this 
effort on a state level. As I stated in my letter, ``The National Drug 
Control Strategy should include a comprehensive budget and plan to 
test, treat, and monitor every person within the criminal justice 
system. This plan should incorporate Federal, State, and local prison 
systems.'' I am hopeful that in your capacity as Director of the Office 
of National Drug Control Policy, you will increase funding 
substantially for these programs and expand existing pilot projects in 
next year's budget submission.
    Another area I would like to focus on is the National Youth Media 
Campaign. I understand that efforts are underway to reauthorize the 
campaign. My staff has been working with the Senate Judiciary 
Committee, representing the views of the appropriations Subcommittee 
responsible for funding the campaign. As you know, there continues to 
be enormous scrutiny over the Campaign, and with good reason. I look 
forward to viewing some of the new commercials you brought with you 
today and I understand that we will have an opportunity to see the 
commercials specifically tailored to targeting the use of ecstasy by 
our youth. This was something I felt very strongly about in the fiscal 
year 2002 budget process and I remain concerned about the increased use 
of this and similar club drugs.
    Given the strain on our budget, it will be a difficult year for our 
appropriations bill. In the past, it has always been difficult to 
provide sufficient funding for the media campaign and this year will be 
no different. To that extent, you have an obligation to spend this 
money wisely and prove to this Subcommittee and to the American public 
that this investment is worthwhile. When you aired commercials linking 
terrorism to drug use during the Super bowl and the Olympics, two of 
the highest premium commercial air times, many people were concerned 
about the decision. I am hopeful that you can provide this Subcommittee 
with data on why you chose to spend media campaign on these spots and 
evidence of the impact/effect of those advertisements.
    Finally, in the fiscal year 2002 budget submission, the 
Administration proposed the creation of the Parents for a Drug Free 
Future Program. ONDCP requested $5 million for this program, but never 
provided my staff with sufficient information on how you planned to 
spend the money. There may have been good intentions behind the concept 
of this program, but I remain concerned when the Administration 
requests funds for a program without providing a detailed plan to 
Congress on allocating the funds. This was precisely the reason that 
Congress chose not to fund this program. Not surprisingly, the 
Administration is requesting this program during fiscal year 2003 
through the Corporation for National and Community Service. This agency 
falls under the jurisdiction of another subcommittee; however, my staff 
informs me that they are having similar issues with getting more 
information on the proposal. It concerns me greatly that there seems to 
be no change in the Administration's practices, and even greater 
concern that they have tried to circumvent this Subcommittee.
    We welcome you here this afternoon and look forward to your 
testimony. But first, let me turn to my Ranking Member, Senator 
Campbell, for any remarks he wishes to make.

    Senator Dorgan. Now let me call on the ranking member, 
Senator Campbell.

              STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell. Thank you, Mr. Chairman. Just a short 
statement. I will include my prepared statement in the record.
    I agree totally with the chairman. I think we have made 
some really big mistakes on our so-called war on crime, and 
maybe that is our fault as elected officials. We put so much 
emphasis on incarceration. I guess it helps you get elected if 
you talk tough on crime and talk to everybody about how you are 
going to put the bad guys away and make them break rocks 
forever and that kind of thing. But it is very foolish on our 
part because we don't put enough resources towards either 
education or trying to recover people that could be recovered.
    Years ago, I was a volunteer police counselor in Folsom 
Prison and talked to a number of people, and I was absolutely 
convinced, after I came out of that experience, that if you 
don't do something about rehabilitation--and we don't--you just 
end up with a larger and larger and larger turnover of the same 
prisoners. I believe we have something like a 72 percent now of 
repeat offender, and an awful lot of them have something to do 
with alcohol or drugs. So I absolutely agree with the chairman 
that we are not putting enough emphasis towards parts of the 
war on crime and too much maybe on the other.
    We have done an awful lot from the standpoint of education 
with the ONDCP, and I have to tell you that--you haven't been 
with us in past years, but we have gotten some really 
questionable results. I believe we spent something like $930 
million in the last 5 years on a national ad campaign to get 
youngsters away from drugs. And the result is not encouraging 
to me. In addition to that, how the money was spent bothered 
both the chairman and me. When I was the chairman and he was 
ranking, we felt we were completely left out of the loop on how 
the millions and millions of dollars were spent in the face of 
what we had sort of agreed to years ago when Senator Kohl and I 
were on the committee. And we were worried at that time that if 
we provided all that Federal money without some very, very 
careful oversight, it would become sort of a cash cow for all 
of the television stations, all of the networks, and magazines 
as well.
    In some respects I think it did, we began to see them trade 
time for money rather than actually take the ads out, which was 
what the ad campaign was originally designed for. So I have 
some questions about that, too.
    I think these other programs are just doing terrific. I 
followed HIDTA very carefully and the growth of HIDTA, and I 
visit the HIDTA outlets in different cities, in Denver and some 
of the other ones. And as near as I can tell, that coordinating 
effect it had with local, State, and Federal law enforcement 
agencies has really done a lot of good.

                           PREPARED STATEMENT

    Another program that I am just a big supporter of is the 
Counterdrug Technology Assessment Center, CTAC. I have been to 
three, I guess, seminars where the Federal agents demonstrated 
the kinds of things local police departments who do not have 
the operation money or the research money or the development 
money to build the different kinds of highly skilled apparatus 
that the Federal Government already has. I have seen how much 
that can help the local communities when they get them. And I 
think we have transferred around, oh, I don't know, 3,000 or 
3,500 pieces of equipment to local police departments through 
that program. I think it is just a terrific program.
    So, in any event, thank you for calling this hearing, Mr. 
Chairman, and I look forward to asking a few questions as we 
have the time.
    [The statement follows:]

         Prepared Statement of Senator Ben Nighthorse Campbell

    Thank you, Mr. Chairman. I am looking forward to this afternoon's 
hearing. I know that our witness has time constraints, so I will keep 
this short.
    The Office of National Drug Control Policy was created to oversee 
and coordinate this Ntion's efforts to reduce illegal drug use. There 
have been both successful and not-so-successful periods during the past 
13 years of ONDCP'S Existence. It is my hope that fiscal year 2003 will 
be a successful year.
    This subcommittee provides funding to ONDCP through four separate 
accounts:
  --Salaries and expenses.--Which funds the oversight and coordination 
        function.
  --Counterdrug technology assessment center.--Which provides needed 
        technology to State and local Law Enforcement agencies.
  --High intensity Drug Trafficking areas.--Which are designed to 
        reduce Drug trafficking in specified high-risk areas.
  --And the special forfeiture fund.--Which, among other things, funds 
        the anti-drug national media campaignthis year we have been 
        asked to.
    Provide a total of $523,588,000 for these accounts, over $457 
million of which would go to the HIDTA program and the anti-drug 
campaign.
    That is a lot of money. It is our job to make sure that we provide 
the funds required for these necessary programs without crossing the 
line to wasting taxpayers' money. And, Director Walters, it is your job 
to make sure we have the information necessary to make difficult 
funding decisions

                           PREPARED STATEMENT

    Senator Dorgan. Thank you, Senator Campbell.
    Senator DeWine, do you have a statement?
    Senator DeWine. No opening statement. I will actually have 
an opening statement submitted for the record.
    Senator Dorgan. All right.
    [The statement follows:]

               Prepared Statement of Senator Mike DeWine

    Good afternoon. Thank you, John, for taking the time to talk to us 
about the national drug control budget and your efforts to stop drug 
use, heal America's drug users, and reduce drug demand.
    I know you are well aware of how seriously I take the drug problem 
and how committed I am to helping America fight against illegal drug 
use. The illicit drug trade is all-pervasive, threatening our children 
here at home and bolstering terrorist groups abroad. That is why, as I 
have said repeatedly in the past, to combat illicit drugs in this 
country, we need a balanced, comprehensive anti-drug strategy.
    The first step in this balanced strategy is achieved by eradicating 
drugs at their source. In doing this, we can take an important step 
toward reducing domestic supply and demand. Right here in our own 
hemisphere, the Revolutionary Armed Forces of Colombia, or FARC, 
receives $300 million a year from drug sales. And, Colombia's right-
wing paramilitaries get 40-70 percent of their income from the illegal 
drug trade. These groups use drug profits to carry out murder, 
kidnappings, and extortion on a routine, if not daily, basis. Since 
1990, 73 Americans have been taken hostage in Colombia. Since 1995, 12 
have been murdered.
    I look forward to working with you to help solve these problems--to 
help stop the flow of drugs at their source, well before they can ever 
reach our streets. I am pleased to see that your budget includes $731 
million for Plan Colombia and the Andean Counterdrug Initiative. 
Funding for this effort will help achieve our mutual objectives of 
strengthening democracy, eliminating drug trafficking, and enforcing 
the rule of law.
    I read your op-ed supporting renewal of the Andean Trade Preference 
Act (ATPA). I completely agree with your assertions that letting the 
ATPA lapse threatens our regional security, and that our goal should be 
to create an environment in which legitimate industry can thrive. For 
us to be reliable partners with the countries of the Andean Region, we 
must pass this critical piece of legislation as soon as possible.
    As I said already, the drug war has many fronts and we must take 
special care to address our problems here at home. We all know that 
prevention, education, and treatment programs help reduce drug demand. 
Your Drug Control Strategy supports these initiatives and indicates a 
commitment to achieving a sustained reduction in drug use in the United 
States. I support your efforts to focus on programs that work and to 
set new goals--a 10 percent reduction in current drug use over 2 years 
and a 25 percent reduction over 5 years. The President's support has 
been encouraging, and the budget includes the resources necessary to 
achieve these goals. I look forward to hearing more about it today.
    I am particularly pleased to see the $644 million in funding for 
the Safe and Drug-Free Schools Program. Over the years, Senator Dodd 
and I have fought to continue and improve this vital program, which 
provides funds to over 97 percent of our school districts nationwide to 
keep schools safe and drug-free. I also support your request for $9.4 
million in additional funding for the Drug-Free Communities Program. 
This program works hand-in-hand with the Drug-Free Schools Program and 
requires schools to implement proven, science-based prevention programs 
to reduce and prevent drug and alcohol use. Your leadership and 
coordination will be pivotal to the success of these two programs. 
Already, you have taken a leadership role in your new media campaign 
focusing on where the money spent on drugs actually goes--to 
terrorists, for example. It is imperative that we educate our children 
and the public about the evils and dangers of drug use. You have taken 
a very positive step with this new media campaign, and your website is 
fantastic. You are doing some very good work.
    Thank you again for being here today. I look forward to hearing 
your testimony.

    Senator Dorgan. Mr Director, thank you very much for being 
with us. We will include your entire statement as a part of the 
permanent record, and we will ask you to summarize. Since this 
hearing was scheduled, Secretary Powell has scheduled a 
briefing for members of the Senate, so we will perhaps be 
somewhat shorter in this hearing than we would otherwise. But 
we want to have a good discussion with you about your agency 
and the direction it is taking, and so why don't you proceed to 
summarize your testimony. Your entire testimony will be made a 
part of the permanent record.

                      STATEMENT OF JOHN P. WALTERS

    Mr. Walters. Thank you, Mr. Chairman, Ranking Member 
Campbell, and Senator DeWine. I am pleased to be here. I 
appreciate the opportunity to talk about our fiscal year 2003 
budget and to review some of the programs with you. I look 
forward to continuing to work with each of you. I had an 
opportunity prior to taking office during the confirmation 
process to visit with you briefly, and I appreciate the time 
you gave me at that point. As I am still in the beginning of my 
term of office as director, I look forward to continuing those 
discussions, here and afterwards.
    I am joined by Michele Marx, who is our Director of 
Financial Management, to help with any questions you have that 
may not be answerable by me at this point. So I will call on 
her, if you do not mind.
    Just to summarize the high points and then to follow the 
issues that you want to pursue, we are requesting a total of 
$523.1 million in the four accounts that make up the budget of 
the Office of National Drug Control Policy. In Salaries and 
Expenses, we are requesting $25.5 million to support 116 FTE 
and 30 nonreimbursable detailees, as well as some conference 
activity, the clearinghouse that we are responsible for, and 
some policy research.
    As you know, the President's request is part of the 
consolidated appropriation request for the Executive Office of 
the President. We have broken this out to help the Committee in 
doing its work.
    Let me just summarize the highlights of----
    Senator Dorgan. I just would point out, as you know, the 
committee has not supported the consolidated budget, and we 
intend not to. I can't speak for the entire committee, but I 
expect that the committee will again intend not to do that this 
year. So we appreciate your breaking it out, and we will break 
it out even further for you in the future.
    Mr. Walters. I understand.

                COUNTERDRUG TECHNOLOGY ASSESSMENT CENTER

    Let me start with the Counterdrug Technology Assessment 
Center. We are requesting $40 million for the research and 
development part of that effort and the Technology Transfer 
Program. This supports, as you know, both demand and supply 
reduction activities. Demand reduction activities, for example, 
include neuro-imaging technology, medical instrumentation at 
medical research institutions, and in this current fiscal year, 
$2 million to begin a brain-imaging system at the University of 
North Dakota.
    Supply reduction activities include improving non-intrusive 
inspection technologies, strengthening law enforcement 
capabilities in such things as wireless communications-
interoperability, such as the Test Bed Project at Lakewood, 
Colorado.
    Since fiscal year 1998, the Technology Transfer Program has 
delivered a total of 4,750 pieces of equipment to over 3,800 
State and local law enforcement agencies. We agree this is a 
good use of the Federal Government's ability to translate 
technology into usable devices and make them available to local 
and State officials who can use them. They sometimes are hard-
pressed and find these items very valuable.

                NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN

    The second area I would like to talk about that you 
referred to is the National Youth Anti-Drug Media Campaign. We 
are requesting $180 million to allow the Campaign to continue 
the national multimedia paid advertisement campaign to its two 
target audiences: parents and adults who influence young 
people, and young people themselves.
    During the past year, the Campaign, according to the 
research we have, reached 90 percent of America's youth at 
least four times a week. Ninety percent of youth and parents 
recall seeing or hearing anti-drug ads at least once per week.
    The last evaluation report released in October, 2001 
provided data collected from the first three collection periods 
or waves. It was retrospective to the first half of last year. 
We are beginning to see some changes in attitudes among youth, 
and we saw some decline in past-month use since the Campaign's 
start in the target age group of 12- and 13-year-olds. For 
example, past-month marijuana use among 12- and 13-year-olds 
decreased from 1.8 percent to 0.7 percent between the beginning 
and the third period of evaluation.
    The next evaluation report, which is crucial because it 
covers the full implementation of the whole program for the 
first time and addresses the last half of 2001, is due next 
month. So we are weeks away from that report, which we will, of 
course, share with you as soon as we get it.
    The pro-bono match component of this program has been 
successful. From January 1998 through September 2002, total 
value is projected to reach $659 million. The Campaign has also 
been pursuing actively corporate involvement in the plan, and 
my written statement includes a list of some of the 
corporations that have been quite forward-leaning in their 
assistance to the Campaign in a variety of areas.
    In response to the terrorist attacks of last September, the 
Campaign mobilized to educate the public on what has long been 
recognized as the link between terror and funding from 
trafficking in drugs. We did the most extensive process of 
focus-group testing for what became the final ads that have now 
been aired, beginning with release during the Super Bowl, and 
found them to be some of the most powerful ever tested in both 
their affect on young people, young adults, and parents, in 
both encouraging parents to talk to young people, but also in 
discouraging--or creating attitudes that would discourage 
tendencies to use drugs.
    We will have the results of that part of the Campaign in 
the evaluation report that will be due, for the first half of 
this year, in the fall of this year.
    Also, as you know, our multicultural and subcultural and 
language parts, especially foreign language, or language 
adaptations of the Campaign are delivered to target audiences. 
$38 million worth of drug prevention messages have gone in this 
venue annually. The Campaign has just completed the 
Government's first Native American anti-drug TV ads along with 
a print complement and will be launched in the next several 
weeks in targeted markets.
    Pursuant to the report language for fiscal year 2002, the 
Campaign is allocating $5 million for Ecstasy advertising 
directed toward youth, which will appear on youth-oriented 
network programs. With your permission, I have two examples of 
these two ads that are only 30 seconds, I promise. I know 
everybody loves their own videotapes, but since this is an 
expensive program and I know you are concerned, I thought you 
might want to see the ones that are about to be released in the 
two areas you are interested.
    Mr. Walters. We are committed to reauthorizing the Media 
Campaign and will be sending language that we are working to 
get both bipartisan and bicameral support for to Congress and 
have its introduction shortly.
    Let me just mention a couple of the other programs that I 
know you have been interested in and that make up our request.

               THE DRUG-FREE COMMUNITIES SUPPORT PROGRAM

    The Drug-Free Communities Support Program, we are 
requesting $60 million to expand the program. It now supports 
463 communities in 50 States. We have also tried to expand this 
program to all communities. Approximately 25 grants have been 
awarded to communities with predominantly Native American and 
Alaskan populations. Reauthorization of this program included 
the creation of a National Coalition Institute to provide 
scientific and technical support to the coalitions. The 
Institute will help local coalitions measure outcomes in their 
work and improve overall performance.

                          ANTI-DOPING EFFORTS

    The United States Anti-Doping Agency and the World Anti-
Doping Agency have requested $1 million to support research and 
administrative initiatives, educational programs, and efforts 
to inform athletes of the rules governing the use of 
performance-enhancing substances, and $800,000 to pay U.S. dues 
for the World Anti-Doping Agency that coordinates efforts in 
sports and with intergovernmental organizations, public 
authorities, and athletes, respectfully.

             COUNTERDRUG INTELLIGENCE EXECUTIVE SECRETARIES

    Our Counterdrug Intelligence Executive Secretariat is 
requesting $6 million to support approximately 30 reimbursable 
detailees to continue improving intelligence architecture. The 
ONDCP is completing an overall review as a part of the review 
directed by the President of all counterdrug programs, and we 
are working with the Counterdrug Intelligence Executive 
Secretariat to both complete and hopefully implement the 
results of that review.

                     NATIONAL DRUG COURT INITIATIVE

    For the National Drug Court Institute, we have requested $1 
million to continue expanding the Drug Court Training Program, 
to convene special advisory groups to develop criteria for new 
disciplines, and to develop a national community probation 
initiative and expand the Institute's research library 
resources.

                    PERFORMANCE MEASURES DEVELOPMENT

    In the area of performance measures development, we are 
requesting $2 million to develop and implement data sources for 
performance measurement and management. ONDCP is committed to 
management by results. We have started at the top. The National 
Drug Control Strategy released by the President in February 
sets the goal for this Nation of reducing drug use amoung 
teenagers and adults by 10 percent in 2 years and by 25 percent 
in 5 years. The President, I believe, took the bold step of 
making his administration politically accountable in the period 
with bold and aggressive, but I think achievable goals. We 
intend to build that into all other program structures using 
ourselves as an example.

              NATIONAL ALLIANCE FOR MODEL STATE DRUG LAWS

    For the National Alliance for Model State Drug Laws, we 
have requested $500,000 to enable the alliance to encourage 
States to implement laws, policies, and regulations that will 
help reduce drug use.

                 HIGH INTENSITY DRUG TRAFFICKING AREAS

    For the HIDTA program, we have requested $206,350,000 to 
enable the HIDTAs to coordinate efforts to reduce the 
production, manufacture, distribution, and transport of drugs 
and to assist in money-laundering investigations.
    We are requesting $2.1 million of the total to continue 
auditing services and implement data collection systems. ONDCP 
is conducting a review to ensure that HIDTAs are targeted and 
results driven. In regard to the $20 million that Congress 
added to the Administration's request for fiscal year 2001 in 
discretionary funds, we plan to transfer $5 million to the 
Department of Defense for National Guard counterdrugs efforts 
that are supported largely by many in the field. This is a high 
priority to maintain current operational levels and will not 
affect current funding for existing HIDTAs. ONDCP will allocate 
the remaining $15 million based on program priorities, 
including intelligence operations, information technology, 
infrastructure, training, money-laundering initiatives, and 
communications interoperability.

                      FEDERAL DRUG CONTROL BUDGET

    Finally, I will just mention what is in the National Drug 
Control Strategy. We announced our intention to begin the 
discussion with the goal of next year reorganizing the way in 
which we present the drug control budget. I was in Government 
before working on this issue all the way back in the Reagan 
administration. I know that for very good reasons the budget 
has tried to be a measure of what the drug problem costs the 
Federal Government, the many things that various programs have 
as expenses, as well as those that are targeted on supply and 
demand.
    What has happened in that time, though, is we have 
accumulated many programs in this budget that we do not manage, 
and we would like to focus our resources on the programs that 
are directly targeted on reducing supply and demand. So we have 
a proposal there, a preliminary proposal, to focus the arraying 
and presentation of the budget on real programs that cross-walk 
directly with the President's Budget and will for the first 
time allow us to use results-based evaluations to drive money 
to programs that work, not only within supply and demand 
categories, but across supply and demand categories.

                           PREPARED STATEMENT

    I know many of us have talked about shifting money to 
programs of higher priority. This would be the first time that 
this office would actually have the structural ability to do 
that in an effective and concrete way. I have worked closely 
with Director Daniels, and we intend to try to employ this this 
time around in the budget process. But we announced it ahead of 
time so that we could have conversations with yourselves, 
people in the agencies, and others as we implement this 
program.
    That is my summary of ONDCP's fiscal year 2003 budget 
request. I would be happy to answer questions about specifics.
    [The statement follows:]

                 Prepared Statement of John P. Walters

                              introduction
    Chairman Dorgan, Ranking Member Campbell, and distinguished members 
of the Subcommittee: I am pleased to appear before you today to discuss 
the fiscal year 2003 budget request for the Office of National Drug 
Control Policy (ONDCP). I want to thank the Subcommittee for its strong 
bipartisan commitment to our shared national goal of reducing drug use 
in America, especially among our youth. This Subcommittee provides 
critical funding to support ONDCP's programmatic, policy, and budget 
development functions.
    Your support of ONDCP's $523.1 million budget request permits ONDCP 
to continue fulfilling our unique dual mission of serving as the 
President's primary Executive Branch support for counter-drug policy 
and program oversight while simultaneously managing our own diverse 
programmatic responsibilities to achieve measurable results. ONDCP 
takes seriously its primary statutory charge to develop national drug 
control policy and a supporting budget; coordinate and oversee the 
implementation of that policy and budget; and evaluate drug control 
programs to ensure that our efforts are coordinated and focused on 
obtaining measurable results. In addition to our policy role, ONDCP has 
become increasingly responsible for managing and evaluating four key 
programs: the National Youth Anti-Drug Media Campaign, the Drug-Free 
Communities Program, the High Intensity Drug Trafficking Areas Program 
(HIDTA), and the Counterdrug Technology Assessment Center (CTAC).
    In addition to setting forth ONDCP's fiscal year 2003 Budget 
Request, this statement includes brief updates on the President's 
National Drug Control Strategy, the consolidated fiscal year 2003 
national drug control budget request, and current drug use trends.
             the president's national drug control strategy
    As you know, developing an effective and comprehensive drug control 
strategy and supporting budget is a complex challenge. I am confident, 
however, that our nation is prepared to meet this challenge. Upon 
assuming the office of Director of National Drug Control Policy last 
December, I began conducting an in-depth review of existing policies 
and program priorities. The first phase of that review culminated in 
the National Drug Control Strategy released by President Bush on 
February 12. At this release, the President reiterated his commitment 
to combat drug use and emphatically stated that reducing drug use is at 
the center of our national agenda. I welcome the subcommittee's 
involvement as we continue to review our approach and will continue to 
ask for your guidance as we implement policies and programs to make our 
nation a safer and healthier place in which to live and to raise our 
families.
    The fundamental elements of effective drug control policy are 
consistent with common sense. We are committed to mobilizing our 
nation's efforts along three major themes:
    Stopping Use Before it Starts.--We are using parents, educational 
institutions, the media, and community action to prevent young people 
from experimenting with drugs in the first instance and from starting 
on the path that all too often leads to addiction, crime, and personal 
and familial destruction.
    Healing America's Drug Users.--We are placing a strong emphasis on 
drug treatment. The President has made a historic commitment of $1.6 
billion over 5 years in increased treatment funding. We will work to 
deploy these resources to areas and populations that need it most and 
provide more effective outreach to the chronically addicted drug using 
population.
    Disrupting the Market.--We are readjusting our efforts in supply 
reduction based on market principles. We will identify and target 
strategic vulnerabilities in the business of drug trafficking. We will 
attack the drugs, money and corrupt financial institutions, precursor 
chemicals, key managers and individuals, crops, key transit routes, and 
key communication links that facilitate drug trafficking.
    This Strategy places a heavy emphasis on obtaining measurable 
results and providing accountability to the American people, to 
Congress, and to our international partners. We will measure our 
success against the national goals of achieving a 10 percent reduction 
in teenage and adult current drug use over the next 2 years, and a 25 
percent reduction in current drug use, nationally, over the next 5 
years, as reported by the National Household Survey on Drug Abuse 
(NHSDA). The Strategy recognizes that entities with counterdrug 
responsibilities have not worked as effectively as they should. 
Consistent with the goals of the President's Management Agenda, it is 
our task to encourage and enable these entities to enhance their 
performance. Good government demands it, and it is our responsibility 
to future generations to ensure it. Finally, in the past, our ability 
to manage counter-drug programs has been complicated by the methods 
used to calculate the national drug control budget. The Administration 
is developing a new way to report the national drug control budget that 
will be readily identifiable and will reflect policy and management 
decisions guiding our counter-drug efforts (see discussion on page 7).
         assessing the extent of the drug problem in our nation
    The Administration is committed to using science, research, and 
performance management to direct our drug policy decisions. This 
informed decision-making process will enable us to accomplish our goal 
of reducing drug use in America. Everyone who cares about the drug 
issue knows that our nation's drug problem is not a recent phenomenon. 
Unfortunately, drug use among our nation's youth has remained at 
unacceptably high levels for most of the past decade. Sadly, illicit 
drug use has once again become all too acceptable among our young 
people. This acceptance threatens to reverberate for years to come in 
areas as disparate as crime rates, higher education, economic 
competitiveness, and cohesiveness of community and family. For all 
these reasons, it is incumbent on us to do all we can to empower 
individuals to say ``no'' to drug use. The following is a snapshot of 
the state of drug use in our country and the enormous harmful 
consequences it inflicts upon our society:
    Overall Trends.--According to the NHSDA, in 2000, 6.3 percent of 
the household population aged 12 and older (14.0 million persons) were 
``current'' or past month users of an illicit drug, a level that was 
unchanged from 1999. Three of four current users (10.7 million) 
reported using marijuana, either alone or in combination with other 
drugs. Trend data prior to 1999 are not directly comparable to these 
numbers because a new methodology to improve and expand the survey was 
implemented in 1999. Nevertheless, historical data show that drug use 
peaked in 1979, when 25 million people (or 14.1 percent of the 
population) used illegal drugs.
    Adult Trends.--According to the NHSDA, current drug use among 
adults--aged 18 or older--remained statistically unchanged between 1999 
and 2000, at 5.8 percent and 5.9 percent, respectively. Four out of ten 
report having tried an illicit drug in their lifetime.
    Youth Trends.--Drug use among 12-17 year olds also remained 
relatively unchanged--9.8 percent in 1999 and 9.7 percent in 2000. 
According to NHSDA, in 2000, 7.2 percent were current marijuana users, 
and about one in four youth (26.9 percent) have tried an illicit drug 
in their lifetime. The school-based Monitoring the Future study shows 
that among 8th graders, 11.7 percent reported past-month (current) use 
of any illicit drugs in 2001, lower than the 1996 peak of 14.6 percent. 
Among 10th graders, 22.7 percent reported current drug use in 2001, 
relatively stable in recent years and down slightly from the 1996 peak 
of 23.2 percent. For 12 graders, 25.7 percent reported current drug use 
in 2001, also relatively stable compared to the decade's peak of 26.2 
percent recorded 1997. We are concerned that every day in 1999 (the 
latest year for which data are available), more than 3,800 young people 
tried marijuana for the first time, 1,800 tried hallucinogens, and 
about 1,700 tried inhalants. Every day over the same period, over 8,000 
youths first used alcohol.
    Consequences of Drug Use.--There were 19,102 deaths as a result of 
drug-induced causes in 1999, a slight drop from the 20,227 deaths in 
1998. In 2000, there were 601,563 drug-related emergency room episodes 
in the United States. This is an increase of 16 percent over the 
518,800 episodes reported for 1994. Episodes including cocaine remain 
at their historic highs; in 2000 there were 174,881 mentions of 
cocaine, an increase of 22 percent since 1994.
    Drug Consumption and Expenditure Estimates.--Americans spent over 
$64 billion on illegal drugs in 2000. Most of the expenditure was for 
cocaine ($35 billion), followed by marijuana ($10.5 billion) and heroin 
($10 billion). The amount of cocaine consumed in the United States has 
been declining over the past 10 years, from over 440 metric tons in 
1990 to 260 metric tons in 2000. Heroin consumption has been stable at 
13 to 14 metric tons per year, over the past 5 years.
    Drug Availability.--Though overall coca cultivation decreased 
between 1995 and 2000, a 25 percent increase in Colombia resulted in an 
overall 18 percent increase in overall Andean Coca production in 2001. 
The primary coca cultivation country is now Colombia, which accounts 
for 580 metric tons, or 75 percent of the potential production. This 
compares with 1995, where Colombia's potential production was less than 
25 percent of world production. In 1995, Peru contributed 50 percent of 
the total potential production. DEA's Heroin Signature Program, which 
chemically analyzes heroin seizures, suggests that Colombia is the 
source of over 60 percent of the heroin entering the United States and 
Mexico is the source of an additional 20 percent.
    Drug Seizures.--Worldwide cocaine seizures, over the past 5 years, 
have averaged 280 metric tons (an average of 28 percent of the 
potential production). Those seizures are distributed equally among 
three components: (1) South America, (2) in transit to the U.S. market, 
and (3) domestic United States, which includes seizures at and within 
the United States border. Each of those components contributes to 30 
percent of worldwide seizures. The remaining 10 percent are from 
seizures in overseas markets. Seizures in transit to United States 
markets have been rising (reaching 110 metric tons in 2001), while 
seizures at the border have fallen (down to 34 metric tons in 2001), 
suggesting that we are removing drugs farther from our borders. Federal 
cocaine seizures have varied between 100 to 130 metric tons over the 
past 5 years. Federal heroin seizures have been averaging 1,500 
kilograms annually, but exceeded 1,600 kilograms in 2000. Federal 
seizures of marijuana, which occur primarily at the Southwest border, 
have increased annually about 20 percent for the past 5 years. In 2000, 
these seizures exceeded 1,200 metric tons. Federal seizures of 
methamphetamine rose dramatically in the late 1990s, and exceeded 3,300 
kilograms in 2000. The number of clandestine methamphetamine labs 
destroyed is projected to exceed 7,000 when the 2001 figures are 
finalized. This compares with fewer than 4,000 labs destroyed in 1998.
    It is all too obvious that despite our best efforts, too many 
Americans are using drugs. Too many of our young people are using drugs 
at a very early age. Too many of our citizens are addicted. The drug 
trade is too prosperous. These statistics make abundantly clear that 
achieving our goals will be a tremendous challenge. We are heartened 
that Americans will never acquiesce to those who believe there is 
nothing more we can do to reduce drug use--that we should be satisfied 
with the status quo. We will meet this challenge by uniting as a nation 
to begin the long and complex task of stopping use among youth before 
it starts, transforming drug users back to health, and disrupting drug 
markets to reduce the flow of illegal drugs into our country.
     the consolidated fiscal year 2003 national drug control budget
    The President's fiscal year 2003 Budget presents a balanced 
approach for drug control programs, fully supporting the National Drug 
Control Strategy. In fiscal year 2003, critical initiatives 
significantly expand the Administration's commitment to drug treatment, 
support essential drug prevention programs targeting youth, and 
continue assistance to our partners in the Andean region. As reflected 
in the following table, the President's fiscal year 2003 request for 
aggregate national drug control funding and the drug-related functions 
of Executive departments and agencies constituting the total is an 
estimated $19.2 billion, an increase of $356.9 million (+1.9 percent) 
over the fiscal year 2002 enacted level of $18.8 billion.


    The President's fiscal year 2003 Budget Request puts the necessary 
resources behind our commitment to reduce drug use in the near term. 
The following are key budget highlights that will contribute to our 
shared effort to stop drug use before it starts:
  --Safe and Drug-Free Schools and Communities Program: $644 million 
        ($634.8 million drug-related).--The budget continues funding 
        for this school-based drug and violence prevention program 
        aimed at young people, level funding the state grants program. 
        To improve evaluation and better direct program activities in 
        fiscal year 2003, ONDCP will work with the Department of 
        Education to develop a useful evaluation plan that will provide 
        the data needed to impose program accountability, while 
        alerting schools to problem areas.
  --National Youth Anti-Drug Media Campaign: $180 million.--The Media 
        Campaign uses multi-media advertising and public communications 
        strategies aimed at youth and parents to promote anti-drug 
        attitudes and behavior. The campaign is a comprehensive 
        national effort that integrates paid advertising at national 
        and local levels with public information outreach through a 
        network of public and private partnerships to amplify and 
        provide local context for campaign messages.
  --Drug-Free Communities Support Program: $60 million.--This ONDCP 
        program provides assistance to community groups on forming and 
        sustaining effective community and anti-drug coalitions that 
        fight the use of illegal drugs, alcohol, and tobacco by youth. 
        Further, the President's request includes $2 million for the 
        National Community Anti-Drug Coalition Institute. The Institute 
        will provide education, training, and technical assistance for 
        coalition leaders and community teams to enable coalitions to 
        evaluate their own performance.
  --Parents Drug Corps Program: +$5 million.--This new 
        initiative, funded through the Corporation for National and 
        Community Service, will encourage parents to help children stay 
        drug-free by training them in drug prevention skills and 
        methods.
    The President's fiscal year 2003 Budget builds upon the significant 
bipartisan interest we enjoy in expanding our nation's commitment to 
effective drug treatment programs and research. We are proud to be 
associated with the President's historic commitment of providing $1.6 
billion over 5 years to increase funding for treatment. We look forward 
to working with the Department of Health and Human Services to 
implement this commitment in such a way that the resources are targeted 
to areas and populations with the greatest need. This Administration is 
committed to going beyond merely providing additional funding for drug 
treatment. We will seek to achieve a greater understanding of addiction 
and of the types of programs that prove effective, as well as to foster 
a climate where drug users are empowered to take an active, responsible 
role in their recovery. The following are key highlights that will 
begin an unprecedented effort to heal America's drug users:
  --Targeted Capacity Expansion (TCE) Program: +$109 million.--This 
        additional funding will help to expand the Treatment TCE 
        program, which is designed to support a rapid, strategic 
        response to emerging trends in substance use. Included in this 
        proposal is $50 million to be used for a new component of the 
        TCE program. This new component will be structured to reserve 
        funding for state-level competitions, weighted according to 
        each state's need for treatment services.
  --Substance Abuse Prevention and Treatment (SAPT) Block Grant: 
        +$60 million ($43 million drug-related).--This 
        increase in the SAPT Block Grant will provide additional 
        funding to states for treatment and prevention services. States 
        use these funds to extend treatment services to pregnant women, 
        women with dependent children, and racial and ethnic 
        minorities.
  --Residential Substance Abuse Treatment (RSAT): +$7 
        million.--This enhancement will expand total funding for the 
        RSAT program to $77 million in fiscal year 2003. The RSAT 
        program is a formula grant that distributes funds to states to 
        support drug and alcohol treatment in state corrections 
        facilities.
  --Drug Courts: +$2 million.--These additional resources 
        will expand total funding for the Drug Courts program to $52 
        million in fiscal year 2003. This program provides alternatives 
        to incarceration by using the coercive power of the court to 
        force abstinence and alter behavior through a combination of 
        escalating sanctions, mandatory drug testing, treatment, and 
        strong aftercare programs.
    The President's fiscal year 2003 Budget enhances our ability to 
protect our borders and cooperate fully in the international effort to 
combat drug trafficking. The following key highlights will enable us to 
disrupt the market at home and at the source:
  --Andean Counterdrug Initiative (ACI): $731 million.--The fiscal year 
        2003 Budget includes an increase of $106 million over funding 
        enacted for the ACI account in fiscal year 2002 for Colombia, 
        Peru, Bolivia, Ecuador, Brazil, Venezuela, and Panama. This 
        fiscal year 2003 request includes resources to continue 
        enforcement, border control, coca and poppy eradication, 
        alternative development, institution building, and 
        administration of justice and human rights programs. For 
        Colombia, the fiscal year 2003 funding will be used for several 
        broad categories including: operations and maintenance of air 
        assets provided with Plan Colombia supplemental funding; 
        Colombian National Police and Army counternarcotics Brigade 
        operational support; and herbicide application programs. The 
        additional funding requested will support USAID-implemented 
        humanitarian, social, economic and alternative development 
        programs, support for vulnerable groups, and resources for 
        justice sector reform projects.
  --Deepwater Project: +$500 million.--This proposal continues to 
        support the United States Coast Guard's Deepwater Project. The 
        Deepwater Project focuses on the re-capitalization and 
        modernization of the Coast Guard's assets including sensors and 
        communications equipment for the aging deepwater cutters, 
        aircraft and command centers. Although only a portion of this 
        initiative is related to drug control, the re-capitalization of 
        these assets will enhance the Coast Guard's ability to conduct 
        counterdrug activities.
  --Border Control and Enforcement: +$76.3 million ($11.4 million drug-
        related).--This enhancement for the Border Patrol includes 
        hiring an additional 570 agents to enforce national borders and 
        to combat international drug trafficking. For the new Border 
        Patrol Agents, a portion of their time will involve drug 
        control activities.
  --Southwest Border Prosecutor Initiative: $50 million.--The 
        President's 2003 Budget maintains funding of $50 million for 
        the Southwest Border Prosecutor Initiative. This initiative 
        provides critical support to counties along the Southwest 
        Border for the costs of detaining and prosecuting drug cases 
        referred to them by U.S. Attorneys.
Restructuring the National Drug Control Budget
    The President has instructed the Federal Government to manage by 
results. Effectively managing the Federal drug control program, which 
involves coordinating the work of more than 50 national drug control 
program agencies, presents unique problems that require creative 
solutions. Previously, our ability to manage anti-drug programs has 
been complicated by the methods used to calculate the drug control 
budget. The national drug control budget presented in the Strategy each 
year does not represent actual managed dollars. With a few exceptions, 
the dollars reported are not reflected as line items in the President's 
budget or in appropriations acts. Instead, they reflect percentages of 
total appropriations for agencies and programs, with a number of 
different methods used to estimate the portion of the funds dedicated 
to drug control.
    Recent independent analyses commissioned by ONDCP, as well as 
ongoing, required reviews by Inspectors General, have identified 
weaknesses in the methodologies agencies use to measure spending 
related to drug control. These reviews are unambiguous; we need to 
reform the National Drug Control Budget. The Administration is 
developing a new way to report the drug budget, based on the following 
guidelines:
  --All funding items displayed in the drug budget should be readily 
        identifiable line items in the President's Budget or agency 
        budget justifications; and
  --The budget presentation should be simplified by eliminating several 
        supporting agencies from the drug budget tabulation. Only 
        agencies with a primary demand reduction or supply reduction 
        mission should be displayed in the drug budget. Agencies with 
        no, or little, direct involvement in drug control would be 
        excluded from the revised drug budget presentation.
    Furthermore, the budget presentation has historically included 
costs that are a consequence of drug use rather than expenditures aimed 
at reducing drug use. As these costs do not reflect judgments about 
drug policy, they would be excluded from the National Drug Control 
Budget. ONDCP, however, will continue to report these costs as part of 
the biennial report, Economic Costs to Society of Drug Abuse.
    This proposal will enable the Administration, Congress, and the 
general public to distinguish between funding for drug control efforts 
and funding for the consequences of drug use. While this presentational 
change will decrease the amount of funding attributed to the National 
Drug Control Budget, it will not negatively affect the total size of 
our Federal drug control efforts. In fact, this restructuring will 
improve our ability to manage those efforts by enabling policymakers to 
focus on managing programs genuinely directed at reducing drug use. The 
President's fiscal year 2004 Budget will implement the proposed changes 
to the National Drug Control Budget.
                ondcp's fiscal year 2003 budget request
    ONDCP is requesting $523.1 million in budget authority for fiscal 
year 2003. ONDCP requested $519.1 million for fiscal year 2002. The 
fiscal year 2002 enacted level is $533.313 million. The budget request 
reflects four program accounts: Salaries and Expenses; the Counterdrug 
Technology Assessment Center (CTAC); the Special Forfeiture Fund; and 
the High Intensity Drug Trafficking Areas (HIDTA) program.
Salaries and Expenses: $25.458 million
    For fiscal year 2003, ONDCP is requesting $25.458 million for 
salaries and expenses to support 115 Full-Time Equivalents (FTEs) and 
30 non-reimbursable detailees. ONDCP requested $25.1 million for fiscal 
year 2002. The fiscal year 2002 enacted level is $25.263 million. This 
request is essential if ONDCP is to carry out its policy, budget, and 
programmatic responsibilities in a manner consistent with achieving 
measurable results. Major expenses include:
  --$24.108 million to provide compensation and benefits for all 
        authorized FTEs including a full complement of Executive Level 
        (EX) positions; contract services; rental payments to the 
        General Services Administration; travel and transportation; 
        communications and utilities; and equipment.
  --$1.35 million to continue and expand ONDCP's policy research 
        program. For the past 10 years, ONDCP has conducted a program 
        of research and produced a series of studies and reports on key 
        policy issues surrounding drug demand and supply, law 
        enforcement, and consequences of drug use. With each round of 
        funding, ONDCP seeks to expand and improve the methodology used 
        in producing these studies and reports to improve the precision 
        and accuracy of the resulting estimates.
    As you know, the President requested funds for this account in the 
consolidated appropriation for the Executive Office of the President. 
The preceding discussion is included only to facilitate the work of the 
Appropriations Committees.
Counterdrug Technology Assessment Center: $40.0 million
    For fiscal year 2003, ONDCP is requesting $40 million to support 
the Counterdrug Technology Assessment Center (CTAC). ONDCP requested 
$40 million for fiscal year 2002. The fiscal year 2002 enacted level is 
$42.3 million. The aggregate request includes funding for two distinct 
components: Research and Development ($18 million) and the Technology 
Transfer program ($22 million).
    Research and Development.--Concerning demand reduction, CTAC's 
work, in conjunction with the National Institute on Drug Abuse (NIDA), 
to expand the understanding of substance abuse and addition is 
producing some of the most scientifically significant developments we 
have seen in this field. These funds enable CTAC to sponsor advanced 
neuroimaging technology, medical instrumentation, and facilities at 
leading academic medical research institutions. In order to receive 
CTAC sponsorship, research facilities must agree to use the equipment 
to concentrate on drug abuse research and commit to train other 
professionals who will continue to advance the body of knowledge on the 
scientific aspects of substance abuse. Deploying proven or promising 
technologies for imaging the human brain activity of a subject on drugs 
is providing invaluable data and dramatically increasing our 
understanding of the short- and long-term effect of drugs on the human 
brain. Finally, this program supports developing and evaluating 
therapeutic drugs for treating addiction with minimal physical side 
effects.
    By the end of fiscal year 2003, 12 of the nation's leading 
substance abuse research institutions will have benefited from CTAC's 
program. World-class medical expert teams at Massachusetts General 
Hospital, Emory University, the University of Pennsylvania, Harvard 
University, McLean Hospital, the University of Colorado, Oregon Health 
Science University, and UCLA have benefited. In most cases, their 
leading-edge drug abuse research efforts are sponsored by grants from 
NIDA. Two new centers will be started to advance our understanding of 
the genetics and phenotypes of the addicted brain.
    It is time for these facilities be linked to form a central 
information exchange allowing the transfer and sharing of images, data, 
and research findings over a substance abuse research data backbone. 
This data exchange backbone will make it possible for scientific 
advances, achieved by individual applications of technology, to benefit 
all of the nation's premier substance abuse research teams and 
accelerate the rate at which research can progress.
    Concerning supply reduction, CTAC R&D concentrates on high priority 
scientific and technological needs of local, State, and Federal law 
enforcement agencies. These efforts improve capabilities for conducting 
non-intrusive inspection of cargo and containers for illegal drugs and 
strengthen law enforcement capabilities to combat drug-related crime 
and violence. Tactical tools are under development to improve 
capabilities to intercept and process drug-related criminal 
communications and to improve law enforcement capabilities to 
communicate with each other. Advanced tactical repeaters and phone 
intercept systems developed under CTAC funding are being evaluated in 
the field by Federal, State, and local law enforcement agencies in the 
New York City and Baltimore/Washington areas.
    CTAC also sponsors technology testbeds. Last August in the 
metropolitan Denver area, the wireless communications interoperability 
testbed project demonstrated the interoperability of radios used by the 
U.S. Customs Service, Drug Enforcement Administration, Lakewood Police 
Department, Front Range Task Force and the Aurora Police Department. 
Since the August 2001 demonstration hosted by the Lakewood Police 
Department, the system has been used on a regular basis. By this 
summer, a Colorado-wide capability will be demonstrated to law 
enforcement agencies from across the country. This model allows state 
and local police to continue using their existing radios inter-
connected through off-the-shelf interoperable communications systems. 
The system used in Colorado is being added to the Technology Transfer 
Program this year. In fiscal year 2003, CTAC plans to continue to 
develop near-term improvements to law enforcement communications 
interoperability and management of investigative data. These 
capabilities assist in preventing, thwarting and prosecuting drug-
related crimes, as well as terrorist activities.
    Technology Transfer Program.--The Technology Transfer Program (TTP) 
provides technologies developed with Federal funding directly to state 
and local law enforcement agencies that may otherwise be unable to 
benefit from the developments due to limited budgets or lack of 
technological expertise. CTAC utilizes technology testbeds to test and 
evaluate new items before they are included in the program. The TTP is 
unique because it provides hands-on training and support with the 
delivery of the equipment to each recipient. The periodic follow-up 
evaluations (at 90, 180, and 270 days) assures proper employment of the 
technologies and helps the TTP to assess the effectiveness of both the 
program as a whole and the individual technologies transferred.
    The $79.498 million appropriated since the TTP began in fiscal year 
1998 has made possible the delivery of 4,750 pieces of equipment to 
over 3,800 state and local law enforcement agencies (as of April 15, 
2002). During fiscal year 2003, the requested appropriation will allow 
the transfer of much-needed technology to more than 1,200 state and 
local law enforcement agencies across the country. By the end of fiscal 
year 2003, TTP deliveries will have been made to over one-fourth of the 
18,500 sheriffs and police departments across the nation.
Special Forfeiture Fund: $251.3 million
    ONDCP's fiscal year 2003 budget requests $251.3 million for the 
Special Forfeiture Fund. ONDCP requested $247.6 million for fiscal year 
2002. The fiscal year 2002 enacted level is $239.4 million. This 
account provides funds to a diverse group of ongoing programs: the 
National Youth Anti-Drug Media Campaign, the Drug-Free Communities 
Program, the United States Anti-Doping Agency, the Counterdrug 
Intelligence Executive Secretariat, the National Drug Court Institute, 
and the National Alliance for Model State Drug Laws. Furthermore, this 
account contains a request for two new initiatives: Performance 
Measures Development and World Anti-Doping Agency (WADA) Membership 
Dues.
The National Youth Anti-Drug Media Campaign: $180 million
    For fiscal year 2003, ONDCP is requesting $180 million for the 
National Youth Anti-Drug Media Campaign. ONDCP requested $185 million 
for fiscal year 2002. The fiscal year 2002 enacted level is $180 
million. The Media Campaign uses multi-media advertising and public 
communications strategies aimed at youth and parents to promote anti-
drug attitudes and behavior. The Campaign is a comprehensive national 
effort that integrates paid advertising at national and local levels 
with public information outreach through a network of public and 
private partnerships.
    Clearly, the goal of the Campaign is to reduce drug use among 
youth. A statistically significant decline was found in past month 
marijuana use among 12- to 13-year olds from 1.8 percent to 0.7 percent 
between Waves 1 and 3. For 14- to 15-year-olds, however, there was a 
statistically significant increase in past month use from 2.1 percent 
in Wave 1 to 5.6 percent in Wave 3.
    During the past year, the Campaign reached 90 percent of America's 
youth at least four times a week in multiple languages to various 
ethnic groups. A multi-cultural sub-set of the Campaign delivers $38 
million worth of drug prevention messages annually to diverse 
audiences, making it one of the largest multicultural communications 
efforts ever launched by the Federal Government, and rivaling that of 
most corporate efforts. The Campaign has just completed development of 
the government's first-ever Native American anti-drug television ads 
which, along with a strong print ad complement, are set to be launched 
soon in targeted markets.
    In addition to its primary effort against youth drug use, the Media 
Campaign also developed and, through its partnership with the Ad 
Council, operates a national multi-media public service advertising 
campaign promoting community anti-drug coalitions. The campaign seeks 
to expand community involvement against drugs by demonstrating the 
positive effect coalitions can have in their own communities.
    Paid anti-drug advertising placed in key television and radio time 
slots and high readership publications is the foundation of the 
Campaign. An integrated advertising program focused on specific 
Campaign themes and messages is running nationally and in 102 local 
U.S. markets (through more than 2,250 media outlets nationwide during a 
5-year period). One unique aspect of the Campaign is that Congress 
mandated that media accepting advertisements must match the Campaign's 
purchases with an equal value of public service in the form of public 
service advertising time or space, or other activities related to youth 
drug use prevention. The Campaign has exceeded this ambitious ``pro-
bono match'' goal. For the period beginning January 1998 through 
September 2002, the total value of the pro-bono match is projected to 
reach $659 million. The pro-bono match was negotiated using paid media 
valued at $614 million, and includes ``in-kind'' corporate 
contributions of $72 million, bringing the total value of the Anti-Drug 
Media Campaign to over $1.3 billion. Most of the match (86 percent) was 
PSAs. Eligible PSAs aid in drug prevention by encouraging activities 
such as mentoring, greater parental involvement, after-school programs, 
and other nationally relevant youth-related issues.
    The Campaign is uniquely positioned to educate American youth and 
parents about the link between drug money and terror in the United 
States and around the world. In the aftermath of the terror attack of 
September 11, we realized that few Americans knew of the link between 
money spent for drugs and the support of terrorist organizations like 
Al Qaeda and the FARC. Twelve of the 28 international terrorist 
organizations recognized by the State Department engage in drug 
trafficking, and many other drug trafficking organizations engage in 
widespread acts of terror--kidnapping, torture, bombings, and the 
murder of innocents.
    We subjected the ad concepts to an unprecedented level of testing 
to assure their effectiveness with target audiences. The ads were 
exposed to more than 1,300 individuals in 20 cities across the country. 
Youth that participated in the testing found that the ads significantly 
reduced their intent to use drugs in the future. Parents said the 
information gave them timely new information to use in talking to their 
children about drugs.
    As the Subcommittee is aware, ONDCP launched the new ads during the 
Super Bowl program and they are still in use. Our anti-terror 
television, newspaper, and magazine ads are running currently and will 
continue through June.
    The ads have generated a large response from across the country. 
Viewers are directed to www.theantidrug.com, which is the Campaign's 
parenting Web site, where traffic surged after the ads were introduced. 
From the ads' launch on February 3 through February 27, page views on 
the site rose more than 21 percent. Visitors to the site doubled from 
an average 125,000 per month to 250,000, and the time spent at the site 
by visitors rose from an average 6 minutes to 10 minutes. During the 
same Feb. 3-Feb. 27 period, 1,282 parents signed up to receive a weekly 
parenting tips email.
    ONDCP's fiscal year 2003 request will also support continued public 
communications outreach which builds on and complements the advertising 
component. Significant efforts under this ``non-advertising'' component 
include a public information campaign that directly supports our 
advertising messages and builds credibility for the Campaign, a robust 
partnership initiative that expands the collective communications 
output of the Campaign by building relationships with a wide range of 
private sector media organizations and nonprofit organizations 
committed to the goals of the Campaign.
    The Campaign makes extensive use of interactive media. The outreach 
component operates a family of Campaign Websites--the two most 
important of which are ``Freevibe.com'', our youth site, and 
``www.theantidrug.com'', our parents site. The growth and popularity of 
the Internet, particularly among the nation's youth, enabled the 
Campaign to achieve more than 1.2 billion match impressions on as many 
as 50 consumer Web sites, including America Online. The efforts have 
led to more than 40.7 million page views on the Media Campaign Web 
sites, as of February 2002.
    To further leverage the appropriated dollars allocated to the 
Campaign, ONDCP is pursuing aggressively a corporate participation 
plan. Pursuant to fiscal year 2002 report language, ONDCP submitted to 
the Committee (on February 11) a report summarizing the Media 
Campaign's corporate participation program, including its evolution, 
value to the Campaign, accomplishments to date, and promise for the 
future. This report focuses primarily on the corporate participation 
effort that was initiated four months ago to recruit and engage 
America's businesses in the Media Campaign. It also describes how 
corporate participation fits within the context of overall private 
sector involvement in the Campaign.
    Evaluation Component.--The evaluation of Phase III is designed to 
determine the extent to which changes in drug abuse-related knowledge, 
attitudes, beliefs, and behaviors can be attributed to exposure to the 
Campaign. Thus far, the evaluation has detected increases in awareness 
and some positive changes in perceptions and attitudes toward drugs. 
The parent findings are particularly positive, indicating changes in 
behavior among parents--slightly ahead of the expected timeframe of 2 
to 3 years for behavioral change.
    The Campaign has successfully exposed its target audience to anti-
drug ads. Ninety percent of youth and parents recall seeing or hearing 
some form of general anti-drug advertising at least once per month. For 
recall of specific Campaign ads, 83 percent of youth recall seeing at 
least one of the Campaign ads in the past 2 months, and 44 percent of 
parents recall seeing at least one of the parent-targeted ads in the 
past 2 months. Furthermore, a key aspect of the Phase III Campaign is 
the introduction of the branding concept to both youth and parent 
messages: about 60 percent of 12- to 18-year-olds recalled the youth 
brand, and about 46 percent of parents recalled the parent branding 
phrases. Parents are becoming more involved in addressing drugs with 
their children. Building on positive findings reported in the second 
semi-annual evaluation report, there was an increase in parent reports 
for four of five key outcomes, including talking to their children 
about drugs and monitoring their behavior. The most significant 
increases are among those with the highest levels of exposure to the 
Campaign ads.
    Recognizing that the funds are authorized to be appropriated to the 
Campaign through fiscal year 2002, ONDCP is committed to reauthorizing 
this program. With the support of members from both houses, we hope a 
reauthorization measure will be introduced in the next month.
The Drug-Free Communities Support Program: $60 million
    For fiscal year 2003, ONDCP is requesting $60.0 million for the 
Drug-Free Communities Support Program (DFCSP). ONDCP requested $50.6 
million for fiscal year 2002. The fiscal year 2002 enacted level is 
$50.6 million. The Administration is pleased that Congress recently 
reauthorized this program from fiscal year 2003 through fiscal year 
2007.
    The DFCSP provides matching Federal grants directly to local 
community anti-drug coalitions to improve or expand their efforts to 
prevent substance use among children (including the underage use of 
alcohol and tobacco). The DFCSP truly serves communities throughout our 
nation, currently supporting 463 communities located in all fifty 
States, Puerto Rico, the U.S. Virgin Islands, and the District of 
Columbia. Furthermore, approximately twenty-five of the grants have 
been awarded to communities with predominately Native American and 
Native Alaskan populations. We anticipate awarding approximately 70 
additional grants during the fiscal year 2002 grant cycle (September, 
2002).
    Of the total $60.0 million ONDCP is requesting for this program, 
approximately $54.4 million will be granted directly to community anti-
drug coalitions. We anticipate awarding approximately 166 new grants 
and approximately 12 mentoring grants in fiscal year 2003, bringing the 
cumulative 6-year total to more than 700 grants awarded to over 600 
community anti-drug coalitions.\1\ The Drug-Free Communities 
Reauthorization Act of 2001 (Public Law 107-82) requires grant 
recipients to match their Federal grant funds with other non-Federal 
sources of support, including cash and in-kind contributions. 
Coalitions competing for new awards after completing their initial 5-
years of eligibility must meet an increased threshold for matching 
funds as a condition of eligibility for further awards.
---------------------------------------------------------------------------
    \1\ A number of community coalitions that received their initial 
award in fiscal year 1998 have completed the 5-year period of 
eligibility contemplated under the original DFCSP authorization. As the 
reauthorization permits these coalitions to reapply as a ``new'' 
grantee at the completion of the initial 5-year period, some coalitions 
will begin receiving their second ``new'' award in fiscal year 2003.
---------------------------------------------------------------------------
    ONDCP policy provides that grantees may receive a maximum award of 
$100,000 for years 1, 2, and 3, and $75,000 for years 4 and 5. The 
rationale for the funding reduction in years 4 and 5 is to encourage 
the coalitions to become less reliant on Federal funds and more self-
sufficient. The statutorily-created Advisory Commission has informed 
the ONDCP Director that this formulation is the most equitable and has 
the greatest chance of securing the long-term success of the 
coalitions.
    Of the total $60.0 million request, $2.0 million, the maximum 
authorized amount, is to award a grant to support a National Community 
Anti-Drug Coalition Institute. The DFCSP Reauthorization Act requires 
ONDCP to award a grant to a national nonprofit organization that 
represents, provides technical assistance and training to, and provides 
expertise and broad national-level experience in, community anti-drug 
coalitions. ONDCP is working with the Center for Substance Abuse 
Prevention to create an Interagency Agreement for them to administer 
this grant. We anticipate awarding this initial grant in fiscal year 
2002.
    Of the total $60.0 million request, only $3.6 million will support 
``administrative costs.'' These activities include grants management 
and program evaluation, and program administration. We anticipate 
allocating $3.28 million to OJJDP for grants management and evaluation, 
up to $120,000 for grant management costs associated with the National 
Coalition Institute, and $200,000 to support the DFCSP Program 
Administrator and the Advisory Commission on Drug Free Communities.
United States Anti-Doping Agency: $1 million.
    For fiscal year 2003, ONDCP is requesting $1.0 million to support 
the United States Anti-Doping Agency (USADA). ONDCP requested $3.0 
million for fiscal year 2002. The fiscal year 2002 enacted level is 
$4.8 million. ONDCP is proposing fiscal year 2003 appropriation 
language to allow ONDCP to transfer the entire amount of funds to the 
USADA without restrictions on the type of transfer. This will ensure 
that the Federal Government can provide appropriate financial oversight 
and ensure accountability for these funds.
    Now that the Salt Lake Games are concluded, the $1 million request 
would support research and administrative initiatives, educational 
programs, and efforts to inform athletes of the rules governing the use 
of performance enhancing substances, and the ethics of doping and its 
harmful health effects. Furthermore, USADA is developing an out of 
competition program that will occur during the off years of the Olympic 
and PanAm games.
Counterdrug Intelligence Executive Secretariat: $6 million
    For fiscal year 2003, ONDCP is requesting $6.0 million for the 
administration and operations of the Counterdrug Intelligence Executive 
Secretariat (CDX). ONDCP requested $3.0 million for fiscal year 2002. 
The fiscal year 2002 enacted level is $3.0 million. The General 
Counterdrug Intelligence Plan (GCIP) created the CDX to implement the 
recommendations contained it. The GCIP originally contemplated a staff 
of approximately 35 people for the CDX. Current funding at $3 million 
can support only 5 management/administrative staff and limited 
substantive work to achieve GCIP action items. Of the total request, 
$1.8 million will support existing administrative staff and continuing 
efforts to complete GCIP action items. The remaining $4.2 million will 
support approximately 30 reimbursable detailees from other Federal 
agencies. This increase is necessary as participating agencies have 
been unable to provide the number of non-reimbursable detailees 
necessary to ensure sufficient support to the CDX.
    A fully-staffed CDX will continue to improve our nation's 
counterdrug intelligence architecture by enhancing information sharing, 
operational coordination, and technical connectivity among Federal 
counterdrug components and their State and local law enforcement 
counterparts. CDX has reached a staff level of 16 (5 management and 
administrative staff, plus 11 full-time non-reimbursed professional 
detailees). Efforts are underway to address nearly all of the 73 action 
items. Approximately 33 percent have been completed, substantial 
progress has been made on approximately 30 percent, and some progress 
has been made on approximately 30 percent. Additionally, the member 
agencies have referred 16 interagency intelligence coordination or 
policy issues to the senior Counterdrug Intelligence Coordinating Group 
(CDICG) for review.
National Drug Court Institute: $1 million.
    For fiscal year 2003, ONDCP is requesting $1.0 million for the 
National Drug Court Institute (NDCI). ONDCP requested $1.0 million for 
fiscal year 2002. The fiscal year 2002 enacted level is $1.0 million. 
The NDCI's research program requires these funds to continue the 
expansion of its drug court training program for practitioners, to 
convene special advisory groups to develop curricula in new 
disciplines, to develop a national community probation initiative, and 
to expand and update the Institute's video instruction library.
    Research conducted by the National Center on Addiction and 
Substance Abuse, Columbia University, June 1998, demonstrates that drug 
courts provide more comprehensive and closer supervision of the drug-
using offender than other forms of community supervision. Drug courts 
have been tremendously successful in creating a comprehensive and 
coordinated environment among the criminal justice and public health 
systems and the community in which they operate. Furthermore, 
individuals graduating from a drug court have lower rates of additional 
criminal behavior and/or recidivism. In contrast to the traditional 
``revolving door'' approach, drug courts provide an effective solution 
to drug addiction and drug-related crime through the innovative use of 
and sanctions and incentives, comprehensive supervision, drug testing, 
and judicial monitoring. Defendants who complete the program either 
have their charges dismissed (in a diversion or pre-plea model) or have 
their probation sentences reduced (in a post-plea model). Drug courts 
provide closer, more comprehensive supervision and much more frequent 
drug testing and monitoring during the program than other forms of 
community supervision.
    To date, there are over 1,100 drug courts operating in the 
community or are in various planning stages across the nation. These 
include approximately 167 juvenile courts and 37 family courts. Since 
their inception, almost 230,000 people have enrolled in drug court 
programs and almost 75,000 have graduated. For fiscal year 2003, the 
Department of Justice is requesting $52 million for the Drug Court 
Program, an all-time high.
Performance Measures Development: $2 million
    For fiscal year 2003, ONDCP is requesting $2.0 million for 
Performance Measures Development. This is a new initiative; no funds 
were requested or appropriated for fiscal year 2002. ONDCP will use the 
requested funding to develop and implement data sources for performance 
measurement and management for counterdrug programs government-wide. 
Many measures are currently lacking or inadequate for informing policy 
decisions. Over the past 4 years, ONDCP identified such shortfalls in 
its annual Performance Measures of Effectiveness report, and described 
efforts through its Data Subcommittee to address these limitations. 
Additionally, last year, the results of the ONDCP-funded study from the 
National Research Council containing a review and recommendations on 
drug policy research were released. Both of these activities have 
highlighted, among other topics, (a) the need for improvement in 
estimates of the price and purity of illegal drugs, (b) the supply of 
drugs flowing to the United States, and the amount of drugs consumed in 
the United States; (c) evaluations of the effectiveness of prevention, 
treatment, and law enforcement programs; and (d) empirical study of 
drug markets. ONDCP will lead an interagency effort to address these 
research and data issues. As a result of this effort, ONDCP will make 
use of data generated to improve and refine program performance and 
consider new initiatives.
World Anti-Doping Agency Membership Dues: $0.8 million
    For fiscal year 2003, ONDCP is requesting $0.8 million for World 
Anti-Doping Agency (WADA) Membership Dues. This is a new initiative; no 
funds were requested or appropriated for fiscal year 2002. WADA's 
mission is to promote and coordinate the effort against doping in sport 
at the international level. To accomplish this task, WADA cooperates 
with intergovernmental organizations, governments, public authorities, 
athletes, and other public and private bodies working against doping in 
sport. Furthermore, WADA coordinates a comprehensive anti-doping 
program, including out-of-competition controls.
    The requested funds represent full membership dues for the United 
States in the WADA. The dues assessment is formula driven. The 
International Olympic Committee (IOC) pays fifty percent of the costs 
associated with WADA; participating governments and other agencies 
(which are divided into six geographic regions) pay the remaining fifty 
percent. The Americas' region is responsible for a twenty-eight percent 
share of the governments' and other agencies' fifty percent. The United 
States and Canada each pay one-third of the twenty-eight percent share 
($0.8 million); the rest of the Americas pay the remaining one-third.
National Alliance for Model State Drug Laws: $0.5 million
    For fiscal year 2003, ONDCP is requesting $0.5 million for the 
National Alliance for Model State Drug Laws (NAMSDL). ONDCP requested 
$1.0 million for fiscal year 2002. The fiscal year 2002 enacted level 
is $1.0 million. These funds will enable the NAMSDL to encourage states 
to adopt and implement laws, policies, and regulations to reduce drug 
use and its adverse consequences. The funding reduction is in no way 
reflective of dissatisfaction with the MSDL. However, the ONDCP 
appropriation has been the NAMSDL's only source of support since fiscal 
year 1997, and we believe NAMSDL should become less reliant on Federal 
funds. We are working with NAMSDL to identify additional funding 
sources. This approach is consistent with the Administration's 
philosophy that Federal dollars should not necessarily be the only 
source of funding for a program in perpetuity; these limited resources 
should be used to leverage additional funds, thereby making the 
organization/program able to survive even if Federal funds are reduced 
or eliminated.
High Intensity Drug Trafficking Areas: $206.35 million
    For fiscal year 2003, ONDCP is requesting $206.35 million for the 
HIDTA program. ONDCP requested $206.35 million for fiscal year 2002. 
The fiscal year 2002 enacted level is $226.35 million.
    The ONDCP Director, in consultation with the Attorney General, 
Secretary of Treasury, heads of National Drug-Control Program agencies, 
and appropriate governors, designates the most critical regions in the 
United States as HIDTAs. The HIDTA Program enhances and helps 
coordinate efforts among State, local, and Federal law enforcement 
entities in 28 designated areas to reduce the production, 
manufacturing, distribution, transportation and chronic use of illegal 
drugs and its consequences, as well as the attendant money laundering 
of drug proceeds. Resources are allocated to link local, State, and 
Federal drug enforcement efforts and to optimize the investigative 
return on limited fiscal and personnel resources. ONDCP will work with 
all involved entities to ensure that HIDTA resources are properly 
targeted to offer maximum effectiveness. When HIDTA resources are 
appropriately targeted, drug law enforcement entities will have a 
greater chance of obtaining measurable results in their effort to 
disrupt the illegal drug market through cooperative investigations, 
intelligence sharing (coordinated at HIDTA Investigative Support 
Centers), and joint operations against drug-trafficking organizations.
    The philosophy underlying the HIDTA Program is to allow each region 
the flexibility to address its unique drug threat in an appropriately 
tailored manner. An Executive Board (the ``Board''), which consists of 
an equal number of local/State and Federal law enforcement agency 
leaders, is the governing body of each individual HIDTA. The Board 
develops and implements the HIDTA Threat Assessment, Strategy, and 
Initiatives, as well as the fiscal administration operations of the 
HIDTA. The Board hires a HIDTA Director to administer the day-to-day 
operations of the HIDTA, implement appropriate oversight controls, and 
remain in contact with ONDCP. In contrast to the administrative 
management functions, the participating law enforcement agencies 
maintain sole operational control of initiatives.
    The fiscal year 2003 HIDTA request includes $2.1 million to 
continue auditing services and associated activities, and at least $0.5 
million shall be used to develop and implement a data collection system 
to measure the performance of the HIDTA Program. ONDCP contracted with 
Klynveld, Peat, Marwick, Goerdeler (KPMG) to perform external financial 
audits on the HIDTA grantees and Federal agencies. Thus far, KPMG has 
conducted 13 full-scope audits and 16 limited-scope reviews. With 
regard to the 13 full-scope audits, the HIDTAs grantees received all 
unqualified ``clean'' opinions. With regard to the limited-scope 
audits, the HIDTAs grantees and Federal agencies received no major 
findings. In addition to issuing the final audit reports, KPMG will 
prepare a Best Practices Report which will be shared with all of the 
HIDTAs. Internally, ONDCP has begun a review process that includes on-
site visits to HIDTAs by ONDCP staff, as well as members from the 
Departments of Justice and Treasury. The on-site reviews help 
strengthen management at the individual HIDTAs and at ONDCP. To date, 
we have reviewed 13 HIDTAs and we plan to conduct an additional 5 to 6 
program reviews in fiscal year 2002 and an additional 5 to 6 in fiscal 
year 2003. The program reviews have proven beneficial to the HIDTAs and 
ONDCP as best practices are identified and shared.
    Concerning the allocation of the $20 million in fiscal year 2002 
funding, having obtained the concurrence of the Department of Defense, 
ONDCP will be transferring $5 million to the Department of Defense for 
National Guard counterdrug enforcement efforts. We believe that this 
transfer is a high priority to maintain current operational levels for 
the National Guard Bureau, and it will not affect current funding for 
existing HIDTAs. ONDCP will prioritize the remaining $15 million based 
on program priorities and other issues specific to the HIDTAs.
    Since January 1990, counties in the following 28 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; and 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); and 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); 
Central Valley California; Hawaii; New England (Connecticut, Maine, 
Massachusetts, New Hampshire, Rhode Island, and Vermont); Ohio; and 
Oregon (in 1999); and Northern Florida; and Nevada (in 2001). HIDTA 
designated counties comprise approximately 10 percent of United States 
counties; they are present in 41 States, Puerto Rico, the U.S. Virgin 
Islands, and the District of Columbia.
                               conclusion
    In announcing the release of the National Drug Control Strategy 
this February, President Bush stated the Administration's view that we 
need to have clear goals that can be measured, that we take 
responsibility for achieving them, and that we explain how we will meet 
them. The President's statement is worth quoting in this context: ``I 
told John [Walters] when he signed on, I'm the kind of fellow that 
likes to say, what are the results? I like to know, actually, are we 
making a difference? And so here's our goal, here's the goal by which 
we'll be measured--here's the goal which I'll be measured first, and 
then John will definitely be measured if I'm measured. I want to see a 
10 percent reduction in teenage and adult drug use over the next 2 
years, and a 25 percent reduction in drug use, nationally, over the 
next 5 years. Those are our goals. We understand we can't do it alone 
here in Washington. And that's why our approach is a community-based 
approach. That's why we recognize the true strength of the country is 
our people. And we know there's thousands of parents, thousands of 
educators, thousands of community activists, law enforcement officials, 
all anxious to come together to achieve this national strategy.''
    We look to this Subcommittee, and indeed the entire Congress, to 
provide bipartisan leadership and support in this effort.

                             MEDIA CAMPAIGN

    Senator Dorgan. Director Walters, thank you very much.
    Let me ask a couple of questions about the media campaign 
first. The information that I have says that, in fact, the goal 
of the media campaign is to reduce drug use among youth. You 
say a statistically significant decline was found in the past-
month marijuana use among 12- and 13-year-olds, from 1.8 
percent to 0.7 percent between waves one and three. For 14- to 
15-year-olds, however, there was a statistically significant 
increase in the past-month use from 2.1 percent in wave one to 
5.6 percent in wave three. That is nearly a doubling of the 14- 
to 15-year-olds.
    You indicate that the campaign during the past year reached 
90 percent of America's youth at least four times a week, and 
now those of us in politics understand about reach and gross 
rating points. And I think what you are saying here is that you 
have purchased enough points so that you expect that 90 percent 
of your target group has seen four messages a week.
    Mr. Walters. That may be a month, I think, but----
    Senator Dorgan. Is it a month?
    Mr. Walters. It is a week. I am sorry.
    Senator Dorgan. All right. So that is a pretty significant 
reach to your target audience, and, you know, we have been at 
this now some number of years, and this year we are talking 
about, what, $180 million again. That is a significant 
expenditure.
    Tell me, how can we know whether we are making a difference 
here? If 14- and 15-year-olds--I would expect 12- to 13-year-
olds last-month drug use, I am guessing that is probably 
marijuana in school or something--or I shouldn't say 
``school,'' but marijuana use has gone from 1.8 percent to 0.7 
percent. I assume that it is a very small number. The 14- to 
15-year-olds has gone from 2.1 to 5.6. That is more than 
doubled, and yet that comes at a time when the average 14- to 
15-year-old has seen four messages a week for a year's worth of 
messages in our media campaign.
    How do we reconcile that, and what does that say to you?
    Mr. Walters. First of all, I believe the only way to judge 
this Campaign is whether it reduces drug use. We have interim 
measures of awareness such as ``have you seen this and are you 
remembering contact with it.'' But my goal for this and other 
programs is reducing drug use. That is why the President set 
the goals. If we can not reduce drug use with either our supply 
or demand programs generally or individually, then my view is 
we have to make changes and support the programs that do.
    In regard to the Campaign, I think in fairness, from the 
look I have been able to have at it so far, there has been a 
lag, of course, in the period of the first appropriation to the 
full implementation of the plan. We are now, for the first 
time, going to get the evaluation in May to show us the first 
full 6 months of the fully implemented campaign on nationwide 
effects on drug use. I think that will be an important part of 
our ability to say whether or not it is working at an adequate 
level to justify the support it has been given.
    Senator Dorgan. Let me ask you a hypothetical about that. 
What if that shows pretty much what you have seen here? You 
talk about full implementation. This is a pretty significant 
implementation, the reach of targeted audience four times a 
week for a lengthy period of time, and what it shows is that 
your target audience is aware of the ads, but that 14- to 15-
year-olds, which is a pretty crucial area for us, it seems to 
me, have more than doubled in their last month's use of drugs.
    What if you discover that your first 6 months of full 
usage, as you describe it, shows exactly the same thing? What 
would that say to you?
    Mr. Walters. I think we have two choices in that regard. If 
it is working for younger kids, if it continues to show a 
relationship to working for younger kids, then I think that 
what you are seeing is at least part of the Campaign that is 
targeted on younger kids, either directly or through trying to 
influence parents, which is the other part of the target 
audience to reinforce these messages with young kids, which we 
know will have maximum effect, then we could say that part is 
working. The direction of the Campaign against older students 
needs to be changed, strengthened, or expanded.
    In fact, I have begun discussions with my staff saying that 
for years we have seen that, in fact, drug use doubles between 
junior high school and high school. If we have shown success in 
this age category, I think we have to do it across the board--
not just here but with things like the Drug-Free Schools 
Program and others--we need to do a better job in high school. 
We need to raise the awareness of people that we are losing the 
battle at the high school level. We know that we are trying to 
get kids not to experiment during their teenage years. We have 
had long, hard experience here. If they do not use drugs during 
their teenage years--the same is true of alcohol and 
cigarettes--they are unlikely to go on to use later on; and if 
they don't start experimenting, they will not go on to 
addiction.
    Our goal has to be to not only follow them in the early 
teenage years, but we have to provide an effective prevention 
effort throughout that whole period if we are going to be 
successful. But the good news is, if we are successful, that is 
the way to contain this problem for subsequent----
    Senator Dorgan. I agree with that, but the question that I 
am asking is: Is the media campaign successful? We are spending 
potentially $180 million again this year on it, and at some 
point, we are going to have to make a judgment. Are we just 
putting a lot of money out there, running a lot of commercials, 
and making kids more aware of the commercials, but, in fact, 
among 14- and 15-year-olds last month's drug use is doubling? 
Is there a point at which we say there is a much more effective 
way to spend that money?
    Mr. Walters. Yes, I agree with you entirely.
    Senator Dorgan. And what is that point?
    Mr. Walters. I think in fairness, the point will be 
probably in the next two evaluation rounds. If we do not see 
significant improvements in drug use, then we have to face the 
problem of is this a matter of restructuring or is this a 
matter of, for one reason or another, what seemed to be a good 
idea is not working.
    Senator Dorgan. Can I ask you, when you say a statistically 
significant decline was found in the past month of 12- to 13-
year-olds from 1.8 to 0.7 percent, what kind of polling is this 
or sampling? What kind of error rate exists with this sampling?
    Mr. Walters. I am not an expert on the statistics. We 
should probably provide you a full answer for the record. My 
understanding, though, is that the samples are--especially 
given the lower rates of use at that age group, the samples are 
relatively small. So a statistically significant change will 
have to be a larger change than it would be if we had a broader 
sample with more ability to have significant changes measured 
at smaller increments.
    That is significant. I believe that means it is 95 or 99 
percent certain. That is probably not an accident based on the 
statistics. But we should give you a complete answer for the 
record.
    Senator Dorgan. All right. I have some other questions, but 
let me turn to my colleagues. Senator Campbell?
    Senator Campbell. Thank you, Mr. Chairman. Let me also talk 
about the Anti-Drug Media Campaign. I think I have been 
concerned with it, as you have.
    I would like to first add that I like that second ad,--
about 10 percent of South Dakota are Indian people, and many 
youngsters we lose not from high-powered drugs like, you know, 
cocaine or something that is expensive. We lose them to paint 
and glue, canned heat, cold medicines, oven cleaners, I mean 
the stuff that just burns out their skull. It just gives them 
no future at all. And I would like to see some resources put 
there.
    But as the chairman mentioned, we put an awful lot of money 
in this ad campaign, and I am not altogether sure that we put 
it in the right places, because it seems to me you have 
mentioned targeting yourself a couple times, though, we have 
had some disagreement with your predecessor about who they are 
targeting and who is actually watching or viewing what it is.
    As an example, I understand we spent a great deal of money 
on the Super Bowl ads at roughly a million bucks a minute. I am 
not too sure how many 12-year-olds watch the Super Bowl. I am 
sure their dads all watch it, but I am not too sure how many of 
those youngsters watch it. So whether it is cost-effective or 
not, I don't know.
    But I know one thing. We are not targeting and we are not 
asking--we make too many decisions around here in the White 
House and the agencies about where we put the money without 
asking the people that are going to be affected.
    I just happened to notice, while you were speaking, a bunch 
of youngsters came in the back of the room, and we are always 
very pleased to see young people attend these hearings. But if 
I might, Mr. Chairman, I would like to ask the young people 
back there: What kind of magazines do you read? Do you read 
teen magazines, or People or some of those? Somebody just give 
me a type of magazine you read. Yes, you. Seventeen and People. 
And what is the third one? Sports Illustrated.
    Well, if young people are using those, it seems to me that 
that is where we ought to be taking out the ads. But last year, 
or perhaps it was the year before--I am sorry, I lose track. I 
have been around here too long. Your predecessor put a whole 
bunch of money into an ad campaign buying ads for teenagers 
U.S. News & World Report. And how many young people read U.S. 
News & World Report? There might be one once in a while, but 
that is a specialty magazine that tends to go to--you know, it 
might go to bankers or investment people or business people, 
but not many teenagers read that. It seemed to me it was just a 
terrific waste of money. What we ought to be doing is taking 
the word of young people like this saying what they are 
interested in reading and putting those adds in there. And we 
can't micromanage the agency from here, obviously, but somebody 
over there that is making the decisions, it seems to me, needs 
to find out who the heck they are trying to get to before they 
start signing contracts with high-powered magazine agencies and 
television media consultants and so on, because I think it is 
just not getting to a lot of young people. And as I understand 
the numbers, they support--the use of marijuana is going down. 
You said 12- and 13-year-olds, if I am not mistaken. But use of 
other drugs has gone up in other places. And yet we have spent 
930 million bucks.
    So I just want to pass that on. If you want an expert in 
what young people are reading, ask the experts, and that is the 
young people, not us or not somebody over at the White House or 
in the agency. Ask the young people what they are reading, and 
that, I would suggest, is where we ought to put our money, Mr. 
Walters.
    Now, let me go on to just a couple of other things.
    Mr. Walters. Could I address that issue?
    Senator Campbell. Yes, please do.
    Mr. Walters. I think it is important that we have a common 
understanding about what you want to have the program do.
    My understanding in part of the answer to the question is 
the decision was made when the Campaign started to divide the 
program into two target audiences. One was the young people, 
and I agree with you that ``U.S. News'' is not a good vehicle 
to reach young people. The other part of the program was 
parents, and to try to give the message with the information 
that they needed to talk to their children based on the 
research that if parents--I know parents sometimes feel they 
are not listened to, but parents are the biggest influence. 
They are the most important teacher; they are the biggest 
example. And the research has showed that if parents state 
clearly their sense of right and wrong in this area, it is the 
most powerful thing. So to have reinforcement of the message 
that is going directly to the kids with a message, that was 
targeted on parents to get them to talk to young people.
    Now, that is a technique. It may or may not work 
effectively. The initial research or the evaluation showed that 
there was both a greater engagement of parents on this, and 
there were children reporting greater engagement by parents to 
them talking about this. So it is bifurcated. But that may be 
part of the reason why you are seeing this in different places.
    Obviously, a children's ad should not be in ``U.S. News & 
World Report.'' I am not taking issue with that.
    On the Super Bowl, we did more focus group testing, on this 
ad than any other came on late in this process, but I made the 
decision to do the Super Bowl ads for the office. I personally 
watched the most extensive set of focus group tests that we did 
with parents and young people and saw the reaction to this. And 
the reason we used the Super Bowl, while it is expensive, it is 
a huge audience. It crosses all demographics that we are trying 
to reach better than any other single vehicle that we could 
find. And, in addition, it is the most watched program where 
parents watch with kids so we get reinforcement.
    Now, this concept is one thing. It cannot be the whole 
game, and I am not saying that I am an expert on media. But 
what I am saying is from what I heard, the reason we did that 
that way was, dollar per eyeball, we got a good bargain on 
that.
    But, again, I want to be clear. I agree with you entirely. 
I am not arguing, I am not equivocating. If this program 
through the evaluation we have, which is one of the most 
sophisticated ever constructed, to my knowledge, in a 
Government program, does not change patterns of drug use, all 
the good feelings, all the awards for ads, all the awareness 
that does not translate into changes in use does not matter. We 
will have to change what we do.
    Senator Campbell. Well, I am not an expert on a lot of 
things, and I am certainly not an expert on parenting with the 
new styles of communicating all the problems with your 
youngsters and dealing with them in some kind of a manner. I 
guess I am kind of old-fashioned. I have a youngster who is a 
grown man now, a very productive, hard-working, good citizen. 
When he was a young teenager, if I had caught him using drugs, 
I would have knocked the hell out of him. It is as simple as 
that. I guess I am old-fashioned, because I remember that is 
the way my dad did things. And sometimes I think that the new 
method of parenting doesn't get it done.
    Mr. Walters. I understand.
    Senator Campbell. But, in any event, there is another 
problem with that, too, and that is, sometimes the parents are 
drug users, as you know.
    Mr. Walters. Yes, I know.
    Senator Campbell. If they are, I don't know how we give the 
kids a chance if the parents are fooling around with the stuff.
    Let me go on, Mr. Chairman, just maybe a couple others. I 
am using too much time. Let me skip a couple of them.
    This new drug called Ecstasy, we carved out $5 million in 
the National Anti-Drug Media Campaign last year for that. How 
do you plan to spend that, if it is going to be directed 
specifically to Ecstasy?
    Mr. Walters. We have a series of ads. I showed one here. We 
have some also that are targeted----
    Senator Campbell. A general ad dealing with everything.
    Mr. Walters. Yes. And we are about to launch the actual 
showing of these ads in target markets. Because $5 million in 
the national advertising market is not a lot of money, although 
I am not saying I do not recognize it is substantial money we 
are going to try to use some target areas so that we get enough 
of a concentration that we can measure effect. If it works we 
will try to expand it.
    Senator Campbell. Okay. And one last question, I guess, Mr. 
Chairman, is: Why are we doing this at all? Because when I was 
the chairman of this subcommittee, in 1997, your predecessor 
requested funding for this National Media Campaign. It was 
supposed to be a 5-year effort. So basically what we are 
saying, now is that this is the 60 year. Where do we go from 
here?
    Are you working with an authorization committee to extend 
this, or are we?
    Mr. Walters. Yes. We will submit language with 
representatives in both chambers, bipartisan, to reauthorize 
the program. Now, again, we may reach an issue where you want 
to make changes, but unless we have an authorization there, we 
will not have the option of continuing. But that will be 
forthcoming in--I think next month is when we are going to be 
able to introduce it.
    Senator Campbell. Well, in closing, I just have to tell 
you, I really support any effort we can to educate youngsters 
about the dangers of it. I have a nephew that is 50 years old 
now, my nephew. When he was a youngster in high school, as a 
freshman and sophomore, he was a straight A student. He was on 
the wrestling team. He was in the band. Just a terrific kid. 
And somehow he got to fooling around with speed and something 
else; I have forgotten what it was now. Well, he is still in an 
institution, 50 years old. And he did something to himself that 
was not recoverable, and he has to be on medication all the 
time. If he goes off medication, he hallucinates, he gets 
violent, he does all kinds of things.
    When they let him go home, as long as he takes the 
medication, he is in pretty good shape. But if he doesn't, he 
ends up back in the institution in California. And that is his 
life, and that is what is going to be the rest of his life, 50 
years old, never have a family, never have children, never be 
able to enjoy the fruits of America, all the things that we do, 
because of a mistake he made when he was a youngster fooling 
around with the wrong kind of stuff. Oh, I know what it was, 
TCP? What is that stuff called?
    Mr. Walters. PCP.
    Senator Campbell. It is something, I guess, that alters 
your mind so that it doesn't grow back. And he did that, as I 
understand it, just a few times as sort of a dare with some 
other kids, and it has ruined his life. That is what has 
happened to our family.
    Mr. Walters. I think that is an important point, and I do 
not mean to take too much time. But I think it is important 
that you understand what we are trying to do or what I will try 
to do here.
    The discussion about the drug problem in general tends to 
lapse into a view that the drug problem is about 28-year-olds 
or 32-year-olds deciding to use drugs as a recreational 
activity. That is not what the drug problem is in America, and 
we cannot say that enough. It is about kids. It is about 
teenagers. If they do not start at that age, they are not going 
to be using drugs later on. It is about addiction when they 
start young and they start too young, and it is about damaged 
and destroyed lives through the use of those drugs.
    We need to do a better job with our teenagers. We believe 
we can do a better job and that we can help reduce the number 
of people who will go on to adulthoods of wrecked lives. But we 
are not going to do that by not making clear what the reality 
is here, what the danger is here, and that the process of 
addiction is a change in the human brain. The use of drugs is a 
preventable behavior. Addiction has characteristics of disease. 
It physically changes the brain.
    We are taking young people when their brains are in 
development, and we are damaging them, and we have difficulty 
many times bringing them back from that dependency. That is 
what this is really about. It has been distorted.
    The Media Campaign, may not work. We may want to change it. 
But I believe it was partly a response to the claims by a lot 
of parents and adults by saying the culture is against me. I am 
trying to do this at home, but all the messages coming from the 
media and the culture in too many situations are the wrong ones 
for my kids about drugs.
    This may not work. It is a bold experiment. It is risky. It 
is high visibility. It is a lot of money. But if we can do 
something to help create a better environment for the way 
parents and people in communities are trying to work this 
problem, I think it is worth the risk. But I want to repeat: I 
have no hesitation. If it does not work and I think we have a 
reliable evaluation, we will change it.
    Senator Campbell. Director Walters, I think we are on the 
same wavelength. Thank you.
    Thank you, Mr. Chairman.
    Senator Dorgan. Senator DeWine?
    Senator DeWine. Thank you, Mr. Chairman.
    Mr. Director, I want to continue on the ad issue, and I 
guess I come from this maybe a little different perspective, 
but maybe not so much.
    It seems to me that when you try to change the culture, as 
you pointed out--which I think is a good point. I think that is 
what we are trying to do, is try to change the culture, or at 
least attempt to do that. And when you try to reduce 
consumption, the demand side, there are many factors that go 
into that. And I think it is very difficult to pull out one 
thing that you are doing and isolate that and determine whether 
or not that is working. It seems to me you have to do a lot of 
things.
    It is sort of like, if I could reference a political 
campaign for my colleagues, you end up in a political campaign 
doing a lot of different things, and at the end of the day when 
election day is held, you are really not sure exactly what 
worked, but you either won or you lost. But you did a whole 
bunch of different things, and you hope a lot of them worked if 
you won.
    So I think it is difficult, very, very difficult to pull 
this one out and say this is responsible for a reduction or it 
is not responsible for a reduction.
    Now, having said that, let me ask you, who do you rely on 
to make the determination about what type ad, where the ad is 
placed, what the target is? And do those people who advise you 
in regard to that, who I assume are the advertising experts, 
also figure out some way of measuring the success or failure?
    Mr. Walters. Yes, there is a multi-part process that 
includes staff in my office, but then working with a panel of 
behavior-change experts that include child psychologists as 
well as advertising people, to measure whether particular ads 
or particular approaches are likely to be successful. So those 
are all screened, and then the buys are based on advice from 
advertising folks given the target audience and the nature of 
the particular item that message is being placed.
    I have begun to become more familiar with this. We do not 
want to have amateurs entirely; but, on the other hand, we also 
do not want to not be responsible for a large program. I have 
asked them to make sure that if I can not understand what is 
going on here, we better figure out how we can either make it 
understandable----
    Senator DeWine. But let me take an example, though. The 
determination of what specific age we are targeting, who makes 
that decision, and how is that made?
    Mr. Walters. There was a strategy conducted when the 
program started that we can provide you that was based on 
advice of prevention people in the field on where to start and 
what might be a target audience. As I said, I have directed a 
reconsideration of a part of that strategy to focus on older 
young people, high school age, basically because of the data 
that we have seen from the first part of the campaign where it 
may be working against the younger target audience, which has 
been a target. We have to give them credit for that. But we are 
not getting follow-through on the older kids where drug use 
starts to increase.
    Senator DeWine. You know, it would seem to me from what I 
know--I am new to this committee. I am not new to the issue. I 
have dealt with this for a long time. I don't pretend to be an 
expert. I don't think we have any experts. But it would seem to 
me that most of the information I have read and most of the 
people I have talked to would indicate that, like most other 
things in life, the earlier you are reaching someone, the 
better off that you are. And then you have to sustain that.
    So your problem is you have got to reach them young, and 
then you have got to keep reaching them and keep reaching them 
and keep reaching them.
    Mr. Walters. Yes.
    Senator DeWine. An example of a problem we have had--and 
you and I have talked about this--is the Drug-Free School 
Program. The problem with the Drug-Free School Program is not 
that a lot of the programs don't work--some of them don't work; 
but we have tried to correct that--but that we don't do it 
consistently. We don't have a K-12 program because there isn't 
enough money to do it.
    If you had a K-12 program, you would have a decent shot at 
maybe doing something. So it seems to me that that is the same 
problem that you are facing with a finite amount of money.
    My time is up, Mr. Chairman, but I just would say that I am 
not--I think this committee should have oversight. We should 
keep questioning you about how that money is spent. I know you 
are questioning the experts. But at least this member of the 
committee is not convinced that we shouldn't be spending money 
on advertising. If it is good enough to try to get Mike DeWine 
elected to the U.S. Senate and change people's minds, it seems 
to me--and we all do it. There isn't a one of us that doesn't 
do it. It seems to me that it is good enough--and it is good 
enough to do anything else in society, then it ought to play a 
part--it ought to play a part of our anti-drug strategy. It is 
not everything. But if you look at the total amount of 
dollars--the total amount of dollars, not what we give to you 
but the total amount of dollars in the Federal Government that 
we spend on anti-drug efforts, what we spend on advertising is 
a very small amount of money.
    Mr. Walters. I agree.
    Senator DeWine. Thank you, Mr. Chairman.
    Mr. Walters. I just want to be clear. The evaluation I am 
talking about is not to say what is happening with drug use 
globally and then hold only the Media Campaign, $180 million, 
out of more than $19 billion in the drug control budget 
requested for fiscal year 2003. The evaluation we have and we 
have been submitting to you is the state of the art, very 
sophisticated. It is expensive. But the goal was, since this 
was a very expensive campaign for the Federal Government to do, 
as much as possible to isolate the contribution the Campaign 
itself makes to these behavior changes. We are not citing 
generalized numbers. We are citing the numbers within the 
component of use that is part of the evaluation of the 
Campaign.
    Now, all these things are not perfect, but I have not heard 
anyone say that the evaluation for the campaign will not give 
us the best results and pretty reliable results at this point. 
We will see what they say.
    Senator Dorgan. Senator Reed?

                 HIGH INTENSITY DRUG TRAFFICKING AREAS

    Senator Reed. Thank you very much, Mr. Chairman.
    Thank you, Director Walters, for joining us today. Let me 
speak about the High Intensity Drug Trafficking Area Program. 
It is extremely popular with law enforcement officials in New 
England, and New England is somewhat unusual. It has a sixth 
State as part of its region, one of the larger concentrations 
of States. They would like more money. Last year, Congress put 
an additional $20 million to raise the total up to $226 
million, but this year the President's budget goes back to $206 
million. Why was the $20 million, which you are using already, 
lopped off the budget?
    Mr. Walters. I have been personally meeting with the HIDTA 
directors. I met with them when they assembled in Washington, 
actually right after I was confirmed, and I met with them more 
recently. I am personally visiting--and I intend to go to all 
the HIDTAs.
    I was actually in the ONDCP when this program was started 
back in the President's father's administration. The question 
with this program is how much additional value, given other 
forms of law enforcement support and other activities the 
Federal Government does, is appropriate.
    My own view is--and when I have talked to the HIDTA 
directors about it--if this program as it exists in some of the 
best HIDTAs, I think, that are out there that I have seen, can 
be used to build coordination, which it has, to target law 
enforcement resources on enforcement activities that make a 
difference, we are prepared in the course of the review to 
drive more dollars here.
    Now, this request got put together at the end of my coming, 
and I am not making an excuse. I defend the President's budget. 
But if the program simply provides an add-on in a competitive 
environment for budgets that actually should be placed in 
another program or put in another direction, we intend to do 
that. But my goal to the HIDTA directors is to tell them--
across the board we have talked about what works here as a 
criteria because, I think the greatest single thing--you talk 
about this as well as I do--that we face as a threat in the 
area of fighting the problem of drug abuse is cynicism that 
nothing works.
    I have asked them to not just talk about coping with the 
drug problem. Give me a plan in every program, demand and 
supply, including HIDTA, give me a plan using your resources, 
with your coordination, to reduce the problem in your area. We 
intend to attack the supply side as a market, and I have asked 
them to give me a plan to do that. The additional $20 million, 
with the exception of the $5 million of that that we have sent 
to support the shortfall for National Guard that many of the 
HIDTAs use, we have asked them to give us plans for directing 
their efforts and expanding their efforts in that direction of 
shrinking the problem.
    If we can get those kinds of proposals, we are prepared to 
support it as heavily as the results will warrant. But if it is 
going to cope with it--and I am not saying there are not 
valuable activities going on there--then I have to ask myself 
where are there opportunities to reduce the problem.
    Senator Reed. Well, I get very, very strong comments from 
law enforcement professionals, and they are in the field. They 
are the proverbial people on the front lines. And I think they 
have got a good sense of what works and what doesn't, and they 
go out of their way to tell me how important this is to New 
England. One aspect of HIDTA is the Investigative Support 
Center. That gets very good reviews, too, and I would urge you 
to make sure that this program is funded adequately.
    Mr. Walters. I understand.
    Senator Reed. There is another aspect of this up our way. 
Route 95 cuts right through the heart of New England. Last 
year, in our report, we directed your office to work with State 
law enforcement officials to combat interstate shipment of 
drugs in the New England region. I wonder if you could comment 
at all about any efforts that are underway or any specifics.
    Mr. Walters. I do not know the specific operations that are 
there. I will be happy to supply those for the record.
    Senator Reed. Thank you, Mr. Director.
    There is another aspect of the drug problem that has reared 
its ugly head in Rhode Island. Just recently, the first 
methamphetamine lab was discovered by Rhode Island law 
enforcement officials. This marks a new chapter and a very 
sinister chapter. Can you comment about your efforts to combat 
the meth trade up in New England?
    Mr. Walters. Yes. As you know, we have seen this problem 
essentially start at the West Coast and move east. I was just 
at the DEA Training center earlier this week looking at the 
training they are doing for State and local law enforcement 
officials to certify them. They essentially have to be 
certified as hazardous materials handlers in order to conduct 
enforcement operations and clean up sites. DEA has resources 
appropriated by Congress to help in cleaning up such sites.
    When I leave here today, I am going out to the Northwest to 
look at what has, unfortunately, a more mature meth problem in 
labs. We have used both parts of the HIDTA resources but other 
programs in coordination with DEA and other Federal agencies to 
go after this problem. We are continuing to look at ways, both 
in terms of controlling precursors but also in, of course, 
targeting the labs, to more effectively look after the issue. 
The diversion of things like pseudoephedrine off the licit 
market but in large quantities is obviously something that we 
can take a look at. When you get the small labs, which are 
essentially quantities you can go into larger discount stores 
and buy off the shelf, even if you have to use a couple of 
buyers because some of the stores have put in rules about how 
many packs of pseudoephedrine you can buy, that is a different 
problem.
    But it is a serious problem. It is a growing problem. We 
intend to both try to focus our law enforcement resources 
effectively. I think we are--in some cases, doing a better job 
of staying on top of it, but we are not where we need to be 
there.

                        PRESCRIPTION DRUG ABUSE

    Senator Reed. Thank you, Mr. Walters.
    I just want to raise two final issues that are unrelated, 
but give you a chance to comment on both, because the chairman 
is very kind about his time, and I am sure he has other 
questions.
    We often focus in terms of drug abuse will regard to 
illegal drugs, yet prescription drug abuse is becoming--not 
becoming, it is a critical problem. One of the marquee issues 
is OxyContin, which not only is being abused but people are 
breaking into drugstores and stealing it at gunpoint in some 
cases. That is one issue.
    The second issue is when you go into the juvenile justice 
system, you find very troubled youngsters, most of them with 
substance abuse problems. Here is literally a captive audience. 
You don't have to catch them watching the Super Bowl. You have 
got them. And yet it seems to me that we do just an absolutely 
deplorable job in trying to get them the type of support, 
assistance, and resources to cope and to get off this problem. 
And sometimes they leave those places worse than when they get 
in.
    So can you comment briefly on the issue of prescription 
drugs, your strategy to deal with that type of abuse? And, 
also, what are we doing with incarcerating youth in juvenile 
justice?
    Mr. Walters. On the diversion of--or the illicit use of 
prescription drugs, we have begun discussions. I have met with 
the Deputy FDA Commissioner and I have been in conversations 
with DEA. I have also conversations with one of the physicians 
that has been a leader in--Tennessee had an unusual 
concentration of a diversion problem, and I met with a 
professor there at Vanderbilt who was a leader in helping to 
create programs for physicians.
    There are two different problems here. Part of it is the 
criminal diversion of drugs through, you know, either stealing 
or the writing of criminal prescriptions knowingly. Another big 
problem, which OxyContin is part of that, is physicians simply 
not being careful or not being fully trained or not being aware 
of what to look for: people shopping from one physician to 
another to get multiple prescriptions; people being duped when 
they present the alleged needs for pain or other kinds of 
medication.
    They have created an educational program in Tennessee that 
has helped reduce the problem there. We are looking at ways 
that we could be a convener to do that more broadly at medical 
schools, with State licensing boards, because there is some 
education that could help reduce a substantial part of this 
problem.
    There also is a need for referral because some of this 
diversion is physicians writing prescriptions which are dubious 
to friends or colleagues or family members and themselves, 
frankly. So there needs to be kind of an intervention in the 
profession, but there also needs to be better education. And I 
think we can make some headway on this. It will probably take 
us a few months to get everything together to convene that. But 
I am hopeful that we can make a contribution here that will 
help some of that problem.
    The other part is tighter diversion controls, and we will 
look at that with FDA, DEA, and the State Agencies involved as 
well.
    On the treatment effort, no one knows how long you are 
going to be in these positions. You borrow them for a short 
time from the American people. But I would like to have--one of 
the results, I hope, of what our work can be removing the 
current sharp line in people's minds between the criminal 
justice system and the treatment system. I think criminal 
justice has been going in this direction where people have been 
leading and sorting people who have a dependency problem and 
using the resources and, frankly, the authority of the criminal 
justice system to get them treatment. We know if we start 
younger, we have better outcomes. We know that if we do this 
consistently and the longer people stay in treatment, the 
better off they are. We know that if we follow up with them and 
we provide a way of tying services that may be educational or 
employment services to them, including mental health services, 
we have better outcomes.
    The criminal justice system through diversion programs for 
youth and adults, drug courts, treatment in prisons, and 
follow-up can be a very important source. We are going to 
increase--the President has asked, as you probably know, to add 
$1.6 billion to Federal treatment spending over the next 5 
years. The Federal Government makes a big contribution. It is 
not the only contribution. I would like to see us continue to 
move in the direction of using the criminal justice system as a 
way of effectively providing both intake when people have 
problems and present themselves, but also as a kind of case 
management to give people who are not violent offenders, who 
are not hard-core criminals, and are not engaged in major 
trafficking the impetus they may need to get into treatment and 
to get into recovery and stay there.
    Our goal is to make people well. The criminal justice 
system is already an important intake point. I think there is 
actually a better story here than most people know. We need to 
make that clear. We need to reinforce it. I have asked my staff 
as a part of the review to see how rapidly we could contribute 
to an expansion of the drug court system and the system that 
provides treatment in prisons. We should have that review done 
to begin to shape the budget for the next fiscal year.
    Senator Reed. Well, thank you, Director Walters. I would 
suggest--and I know you are doing this--that in your analysis 
you come up with some dollar figures which might be very 
impressive in their size if we are going to really deal with 
this treatment problem throughout the country. But I commend 
you for that initiative, and I thank you.

                             DRUG TREATMENT

    Senator Dorgan. Senator Reed, thank you.
    Director Walters, is the $1.6 billion all new money?
    Mr. Walters. It would be all new money. It would be over 5 
years.
    Senator Dorgan. My understanding is that some of it in the 
2003 request is paid for by reductions in other treatment 
programs. I don't have the list of that, but I think it is 
important to understand when the administration says $1.6 
billion over 5 years, is this a commitment to new money or is 
it a commitment to rearrange old programs?
    Mr. Walters. It is a commitment to new money, and I will 
supply the detail for the record. There were some service-
providing programs that were consolidated and removed, but the 
net increase meets the President's commitment, and the 
reductions were not used--we did not rob Peter to pay Paul. I 
understand the point of the question.

                NATIONAL YOUTH ANTI-DRUG MEDIA CAMPAIGN

    Senator Dorgan. Now, let me go back to this issue of the 
media campaign because--I don't want to dwell too much on it. I 
am going to submit a series of questions to you in writing. 
But, you know, we would have expected at the end of 5 years to 
be able to say, yes, we did it and it worked, or we did it and 
it didn't work. We spend, what $500 million on your agency; 
almost $200 million of that is the media campaign, so it is a 
significant part of what we do.
    The question, I guess, is: Why after 5 years do we not have 
a pretty clear answer, yes, it worked or, no, it didn't work?
    Mr. Walters. I think there are two reasons for that at this 
point. One is there was a lag from the beginning of the program 
to when it got fully implemented.
    Two, the operating strategy, which, again, these are all 
best guesses of how this is going to work, was to provide 
messages both to parents and to young people that would first 
try to get them to change the way they think, and then there 
would be some lag between that process of re-analyzing the 
issue and then the actual change in behavior; that there would, 
in short, be a delay from first--it would not be watch one ad, 
do something different; that it would take some exposure and 
some time to create the environment.
    Now, again, that may be true. That may not be true. But 
what we will have in the period of the report that should be 
available next month and then the next 6-month review available 
in the fall is the first full implementation nationwide, and I 
think the first period of time such that, if this follows as 
predicted, the behavior change should be there.
    Now, it may be--and, again, I want to emphasize I agree 
with the premise of the question. It may be the Campaign either 
does not work or is not big enough to counter things, and then 
you have got to decide do you want to change it or do you want 
to put the money somewhere else.
    Senator Dorgan. But, you know, the behavior change isn't 
like breaking the sound barrier. I assume if it exists it is 
incremental. Over 5 years you ramp up, you have incremental 
change, and at the end of the full phase-in, you measure where 
that incremental change took you.
    My feeling is that if this were the private sector, after 5 
years you would decide whether you were making progress or not 
making progress. And when I say ``you,'' you have just recently 
arrived, but, you know, after--the anticipate was to spend 
close to $1 billion in a 5-year period and then hand it off to 
corporate sponsors and expect to be able, by the end of the 5 
years, to evaluate with what accomplishment did we spend this 
money.
    The only reason I am raising that issue is I know the 
authorizers will take a look at it, we in the Appropriations 
Committee will take a hard look as well, at whether this is an 
effective use of money, and whether there are other ways to use 
this money that might be more effective.
    Let me just also comment quickly, I think the record on 
drug treatment for those who are incarcerated in this country 
is abysmal. Most people who are incarcerated--we have well over 
94 or 95 percent of the people incarcerated are incarcerated by 
State and local governments. And I understand we have a 
different standard at the Federal level, although it is not 
perfect. But in most areas of State and local government, 
county jails, State penitentiaries and so on, a substantial 
portion of those in those incarceration facilities with drug 
addictions are not getting treatment and not getting effective 
treatment and are being released from incarceration with a drug 
issue unresolved.
    I think it requires a great deal of money to address that. 
I don't know how much, but addressing the drug problem also 
requires us to address that issue, I think, in a very 
aggressive way. And so I hope--based on your testimony, I know 
you will take a look at that.
    I am going to submit a series of questions to you because 
of Secretary Powell's briefing on his Middle East trip.
    Mr. Walters. Can I say one thing about that?
    Senator Dorgan. Yes, of course.
    Mr. Walters. I have made clear my own concern about our 
rigorous evaluation of the ad Campaign. But I also want to be 
fair to you in this opportunity about what I think from my 
experience the underlying factors are.
    The closest thing we have to the kind of research about 
attitude versus behavior in my experience over the long term 
has been something like the high school survey that was 
conducted for years that also measured both use and measured 
attitudes of disapproval and change. We always saw that 
attitudes about the danger of using drugs or disapproval were 
about a year to 18 months or 2 years ahead of the change in 
behavior. It would not be impossible--in fact, it is not 
unreasonable to expect that there would be a similar pattern 
here.
    But, again, we are guessing as to what is the most likely 
story of how these things work across a large population. Some 
individuals are going to be different. That is not to say that 
I do not think we have to be rigorous, and I understand exactly 
what you are saying. If it does not work, we are not going to 
continue funding it. And I understand the frustration with 
after 5 years and this amount of investment how much change do 
we see.
    We also know that there are important factors here that we 
have seen from the evaluation. An important factor in whether 
kids use is the percentage that say they have been presented 
with drugs through peers and others.
    So the Campaign will play a part, we will be able hopefully 
to measure that part, but we also have to hopefully empower 
parents and other adults in their lives to supervise young 
people. We cannot just have them watch ads and then inoculate 
them and dip them into a society which is otherwise not doing 
other parts of crucial activity here. So it has to be a part--
we will examine it as a part, but I understand what you are 
saying.
    Senator Dorgan. Well, you know, we used to raise horses, 
and we actually drove some horses with a buggy, and we used to 
use blinders on the horses from time to time, especially one of 
them that would shy at almost anything. And the blinders, of 
course, prohibit the horse from looking anywhere but ahead, 
straight ahead. The only reason I am raising these questions is 
we are moving straight ahead on this campaign. I resisted the 
attempt by those in the Senate 2 years ago to interrupt the 
campaign by saying that a much bigger problem in America's 
schools is the issue of alcohol and drinking, and let's take 
some of this money and move it to deal with that issue.
    And I was one of those who resisted that and said, no, we 
have embarked on a course here for 5 years to evaluate with 
what effect can we achieve a reduction in drug use and a change 
in behavior with respect to drugs among America's young people.
    As I said, if this were the private sector, my guess is 
they would have at this point been about the business of 
deciding does this make sense or doesn't it, do we continue it 
or don't we.
    We still have those who believe that we ought to be doing 
this with respect to teenage drinking, and I am very 
sympathetic to that, I must say. I mean, I think there are 
going to be far more kids in the next month killed by underage 
drinking than drugs. It doesn't suggest--I don't think this 
program has--I mean, I am really anxious to see the measurement 
of it. But I will bet everybody in this room knows of a young 
kid that is dead because of drunk driving. I have got several 
in my family that have been killed from drunk driving, loved 
ones and so on. And I think if you go to a school today and 
talk to these kids, you will discover the really big problem is 
somebody getting drunk and somebody else getting in a car and 
having three of them killed in an accident.
    So we will have those in Congress continue the effort to 
say this campaign is spending $1 billion on this issue and the 
issue in most high schools these days continues to be, as it 
has been for 50 years, that kids are not responsible with 
respect to alcohol. And a lot of our kids are dying because of 
it.
    Well, that took me off in a different discussion. Again, 
the reason that I think it is important that we discuss this, 
we are at the end of 5 years. This subcommittee doesn't have an 
unlimited quantity of money. We are going to do with the money 
that we have from the American taxpayer the most effective job 
possible to address a range of issues. We want to provide good 
funding for you so that you can do your job, and we have tried 
to work very cooperatively with your agency over time.
    Mr. Walters. I appreciate that.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Dorgan. So let me do this: There are other things I 
wanted to inquire about, but because of time I will forfeit 
that. But let me ask if you will submit to some questions in 
writing.
    Mr. Walters. Absolutely.
    [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 Byron L. Dorgan

                national youth anti-drug media campaign
    Question. Has ONDCP used media campaign funds for creative costs 
associated with producing advertisements? If so, how much and for which 
ads?
    Answer. Of the $658.1 million spent for paid advertising in the 
last 4 fiscal years, $3.4 million (0.5 percent) has been spent on 
creative labor costs. This was primarily for the production of internet 
creative materials, for ethnic, in-language advertising addressing 
important ``niche'' audiences, and for strategic brand development; 
create material that the Partnership for a Drug Free America was not 
able to produce.
    Question. In each year, how much of the media campaign allocation 
is used for media buys versus all other costs for producing 
advertisements?
    Answer. Advertising production is a small percentage of the overall 
advertising budget, which is primarily allocated for media buying. Over 
the last 4 fiscal years, 96 percent of the advertising budget was used 
to purchase time and space with 4 percent used for production costs 
(including creative labor). This compares favorably to private sector 
allocations which typically include 90 percent for time and space and 
10 percent for production. Production and media planning budgets have 
varied from year to year depending on the need to develop creative 
materials and when those materials were needed versus the cost of 
television and radio time. Additionally, the media-planning year runs 
from July to June, which crosses over calendar years.\1\
---------------------------------------------------------------------------
    \1\ Program Year July and June Historical Media spending is higher 
than CY spending as noted below due to FAR obligation requirements and 
budget allocation procedures.
---------------------------------------------------------------------------

                        [In millions of dollars]

                                                                        
1998/1999......................................................... 157.5
1999/2000......................................................... 143.0
2000/2001......................................................... 143.2
2001/2002......................................................... 140.0

    The following provides the calendar year commitments for media and 
production materials and labor, along with media budgets for the July 
through June plan years:

                     MEDIA AND PRODUCTION BUDGET FOR THE MEDIA CAMPAIGN CALENDAR YEAR BASIS
                                            [In millions of dollars]
----------------------------------------------------------------------------------------------------------------
                                                                                    Production
                           Fiscal year                              Media spend        spend       Percent/split
----------------------------------------------------------------------------------------------------------------
1999............................................................          $140.6            $6.8            95/5
2000............................................................           125.0             5.0            96/4
2001............................................................           134.0             4.0            97/3
2002............................................................       \1\ 130.0         \2\ 4.9           96/4
----------------------------------------------------------------------------------------------------------------
\1\ Budgeted.
\2\ Estimated.

    Questions. How is the $5 million for ecstasy targeting being spent?
    Answer. Fiscal year 2002 Conference report language directed the 
Campaign to allocate $5 million (out of the $180 million appropriated) 
``for advertising time and space specifically targeted at combating the 
drug Ecstasy.'' ONDCP intends to base this effort on anti-ecstasy 
television ads already developed by the Partnership for a Drug Free 
America. This anti-ecstasy advertising will be directed toward youth 
and will appear on popular youth-oriented network television programs.
    Question. What are the targeted media outlets and times?
    Answer. The ecstasy campaign will air on a variety of popular 
programs on the key networks that youth watch most, such as WB, MTV, 
UPN, ESPN, Fox, and Much Music. Programs may include shows such as WB's 
(``Seventh Heaven,'' ``Gilmore Girls,'' ``Dawson's Creek,''); UPN's 
(``The Hughleys,'' ``Wolf Lake,'' ``The Parkers''); MTV's (``Real 
World,'' ``WWF Heat''); Fox's (``Mad TV,'' ``Family Guy''); ESPN's 
Sports Center; and Much Music's (``Live at Much Music,'' ``Oven 
Fresh''). These programs air in primetime (8-11 p.m.) and late night 
(11:30 p.m.).
    The above schedule is based on ONDCP's April-June 2002 planned 
television schedule. Actual programs airing ecstasy advertising will 
vary depending upon availability and scheduling and will air between 
June and September 2002.
    Question. Why are you not continuing this effort in fiscal year 
2003?
    Answer. The Campaign is first and foremost a primary prevention 
effort and its focus must be on the primary entry-level drug, 
marijuana. We simply must respond to the fact that marijuana is the 
single most significant factor in overall drug use by America's youth.
    The Campaign focuses on primary prevention for three key reasons. 
First, primary prevention targets the underlying causes of drug use, 
and, therefore, has the greatest potential to reduce the scope of the 
problem over the long term. Second, over time, a primary prevention 
campaign will lessen the need for drug treatment services. And third, a 
media campaign has greater potential to affirm and reinforce the anti-
drug attitudes of youth who are not involved in drug use than to 
persuade experienced drug users to change their behavior.
    When we examine the most recent findings from the 2000 National 
Household Survey category of ``12-17 year old past 30-day use of all 
drugs,'' we find that marijuana accounts for the 9.7 percent reporting 
such use, approximately 75 percent of the total. This use is mostly by 
itself, but also to a smaller extent is in combination with other 
drugs. Therefore, as we look to focus our communications power against 
youth drug use, the most obvious entry point has to be marijuana.
    The communications challenge of this is significant. Of all illegal 
drugs, marijuana is clearly the drug about which youth attitudes are 
the softest and their parents attitudes are the most ambivalent. It 
should be clear that we cannot expect to make progress in youth drug 
use until we significantly reduce the use of marijuana, the 
preponderant drug of choice.
    To include a significant effort against ecstasy or any other 
specific drug, will drain funds from focussing on the primary issue of 
marijuana, fragment our messages, and result in a less effective and 
efficient program.
    Question. How will you monitor the effects of a targeted campaign?
    Answer. As the primary focus of the campaign is on illegal drugs in 
general and marijuana and inhalants specifically, the bulk of the 
advertising component and therefor the evaluation focus on related 
awareness, attitudes, and beliefs.
    As with the core Campaign, we use a range of tools to monitor the 
effects of our efforts. To ensure communications are strategically 
sound and grounded in behavioral science, communications are reviewed 
by our Behavior Change Expert Panel, by target audience specialists, 
and by PDFA's Creative Review Council. All communications are 
qualitatively tested in focus groups throughout the country to ensure 
the intended message is being clearly communicated and understood by 
our target audiences.
    Measures in the market include our on-going Advertising Tracking 
Study which tracks advertising awareness and related attitude and 
behavior change. Further, our regular focus group testing of 
advertising also provides us an opportunity to learn first hand the 
impact of our advertising in-market and provide us with insight into 
effects of targeted efforts. In addition we monitor the traffic to our 
various web-sites and the NCADI Clearinghouse activity.
    Question. How does the campaign intend to change with the 
alterations recognized in youth drug behavior?
    Answer. Based on the Westat Evaluation Report (May 2002), ONDCP is 
pursuing a number of changes to improve the effectiveness of the 
Campaign. First, ONDCP will become much more involved and at an earlier 
stage in the development of the messages of the Campaign. Second, ONDCP 
is changing the core target age of the Campaign from 11-14 years to 14-
16 years. Third, ONDCP is requiring that all television ads be tested 
twice before they are aired, first in concept form and second after 
they are produced, before target audiences in several cities. ONDCP 
will continue to work closely with Congress and key Campaign partners 
to ensure that the Campaign plays a significant role in our effort to 
achieve the President's goal of achieving a 10 percent reduction in 
teenage and adult drug use over the next 2 years, and a 25 percent 
reduction in drug use, nationally, over the next 5 years.
    Question. Why is the focus on marijuana, the most difficult drug to 
unsell and the drug with flat lined behavior studies?
    Answer. We focus on marijuana precisely because of its insidious 
nature as an entry-level drug that accounts for the majority of 
adolescent treatment episodes. Marijuana is the most prevalent drug of 
use for the Campaign's youth target (as well as for young adults and 
adults). If we are to produce a dramatic reduction in drug use overall, 
we must begin with marijuana.
    The Campaign leverages its communications power to produce maximum 
impact on youth and drugs. As the Media Campaign is a primary 
prevention campaign for youth, it focuses on the primary entry-level 
drug, marijuana. According to the NHSDA, in 2000, 6.3 percent of the 
household population aged 12 and older (14.0 million persons) were 
``current'' or past month users of an illicit drug, a level that was 
unchanged from 1999. Three of four current users (10.7 million) 
reported using marijuana, either alone or in combination with other 
drugs. More than 70 percent of the total ``Past 30-day drug use'' of 
12-17 year olds in 2001, which combines data on all types of drugs, is 
marijuana. The campaign's budget for media purchases is committed 
against this entry-level, primarily marijuana strategy.
    Question. Why are you not focusing on drugs that you can make 
stronger claims on the potential dangers?
    Answer. Marijuana is a dangerous drug and we can make strong claims 
on its potential dangers. We will attack the pervasive myth that 
marijuana is not addictive. A drug is addicting if it causes 
compulsive, often uncontrollable drug craving, seeking, and use, even 
in the face of negative health and social consequences. According to 
the National Institute on Drug Abuse (NIDA), marijuana meets these 
criteria. Moreover, treatment seeking for marijuana dependency has 
increased almost twofold over the past 10 years. Research findings 
suggest that marijuana dependence is more similar than dissimilar to 
other forms of drug dependence. In 1999, the Treatment Episode Data Set 
recorded more than 220,000 admissions for primary marijuana abuse to 
publicly funded substance abuse treatment, or 14 percent of the 1.6 
million admissions for alcohol or drug treatment in these facilities. 
Marijuana activates the same pleasure centers in the brain that are 
targeted by heroin, cocaine and alcohol. A Scripps Research Institute 
study reports the stress and anxiety associated with the long-term use 
of marijuana produces the same bio-chemical changes associated with the 
withdrawal from other drugs, blurring the distinction, according to the 
researcher, between what is considered hard and soft drugs because they 
all do the same thing.
    Well-funded and fully entrenched pro-marijuana interests have been 
at work for many years seeding their messages throughout our popular 
culture. However, no one of common sense will argue that marijuana use 
is appropriate for our adolescent youth. We will conduct our effort 
against marijuana by giving youth the facts in contexts they can 
identify with, exploding the myths, and allowing them to draw their own 
conclusions.
    Further, while claims against the stronger drugs' may seem easier 
to make, the rate of prevalence of these substances are dramatically 
lower than for marijuana use, suggesting that the potentially largest 
return for investment in an anti-drug campaign is in the area of 
marijuana.
    Question. Why do you wait until you reach a certain threshold to 
target a given drug? Why would you not attempt to get ahead of the 
curve? Isn't prevention a goal as well?
    Answer. Clearly, the Media Campaign is a drug prevention program 
primarily for youth, but the Campaign has finite resources, and 
therefore, focuses on the primary entry-level drug, marijuana. Primary 
prevention addresses all drugs. If the Campaign attempted to address 
all thrusts, we would be unlikely to achieve our goals.
                              parent corp
    Question. When Congress chose not to fund the fiscal year 2002 
initiative for lack of information, why are you repeating the same 
behavior?
    Answer. The President is requesting $5 million for this initiative 
within in the Corporation for National and Community Service's budget. 
The program will encourage parents to help children stay drug-free by 
training them in drug prevention skills and methods. It is my 
understanding that CNCS included a description of the program in its 
Congressional Budget Justification, but I would be pleased to continue 
working with CNCS to ensure that all relevant Subcommittees obtain all 
necessary information.
    Question. Why circumvent this subcommittee and place it under the 
Corporation for National & Community Service?
    Answer. The Administration's decision to request funding for this 
initiative is not intended to circumvent this Subcommittee. During the 
formulation of the President's fiscal year 2003 Budget Request, the 
Administration reached the conclusion that the CNCS would be the most 
appropriate agency to administer this program because of their 
extensive experience in community-based volunteer programs.
    Question. Do you have details to provide to this or any other 
subcommittee on how the $5 million will be disbursed?
    Answer. The President's request is for $5 million to make grants to 
national parents' organizations to train thousands of parents in 
communities nationwide in how to reduce drug use and form parent drug 
prevention groups. This effort will promote cooperation among national 
parent groups and enable them to have a significant impact by working 
through the network of community anti-drug coalitions nationwide and 
with other local and state anti-drug efforts.
    The Parent Drug Prevention Corps will provide an opportunity for 
parents of school-age children to give 2 years of service to their 
country to prevent drug use among children. Key parent leaders will be 
trained in all aspects of the drug problem in communities, including 
how to make their neighborhoods and schools safe and drug-free. The 
parent leaders will mobilize other parents in the community who have a 
few hours per week to volunteer in this effort.
    Parents are a key in the effort to prevent drug use by teenagers. 
Research has established that parents have a significant influence over 
a child's drug use. For this reason, many drug prevention efforts are 
targeted at sending messages and support to parents. The Parent Drug 
Prevention Corps is built on the notion that other parents are often in 
the best position to assist in delivering this message.
    In fiscal year 2003, CNCS anticipates making one or two national 
grants for this purpose. In turn, the grantee will support programs in 
50-75 communities. Approximately 10,000 parent volunteers are expected 
to be involved in this effort. Further, the grantees will share 
information and technical assistance with anti-drug use programs 
engaging parents as volunteers in other communities throughout the 
country.
                             drug treatment
    Question. With the drain on state budgets due to increased homeland 
security efforts and needs, many states are facing tough decisions 
about where to cut. Drug treatment in prisons could be a prime 
candidate. How will a $77 million program cover the entire country? Who 
gets left out and how can we help?
    Answer. This Subcommittee, and indeed, the entire Congress can help 
additional drug users obtain treatment by fully-funding the President's 
request expanding funding for treatment services by $1.6 billion over 5 
years.
    Concerning drug treatment in prisons, the Department of Justice's 
Residential Substance Abuse Treatment (RSAT) Program is not intended to 
provide all funding necessary for State prison drug treatment programs. 
Rather, the program supplements funding the individual States allocate 
for this purpose. The President's fiscal year 2003 request includes an 
additional $7 million (for a total of $77 million) for the RSAT Program 
to support treatment of an additional 2,572 offenders. The Corrections 
Program Office (CPO) estimates having resources in place to treat 
45,913 offenders. As programs mature and move through preparation, 
hiring and training stages to actually admitting clients and providing 
substance abuse treatment, CPO anticipates that the numbers of 
offenders treated will increase at a much slower rate than experienced 
during the early years of the program. In fiscal year 2002, RSAT 
program funds were first made available to support transitional 
substance abuse treatment services, which involve coordination between 
the correctional institutional treatment program and other human 
service and rehabilitation programs in the community. Funding these 
services may reduce the number of offenders able to receive treatment, 
but should reduce relapse and recidivism.
    Question. If the Administration is committed to increasing efforts 
in drug treatment, then how will drug treatment in prison be addressed 
in the out-years?
    Answer. As the Subcommittee is aware, the President has proposed an 
additional $1.6 billion over 5 years to expand drug treatment. ONDCP, 
with the participation of Federal demand reduction and drug control 
agencies, is now conducting a strategic review of all treatment and 
prevention programs and developing the strategic plan that will define 
next steps. This review will help inform the policy process as the 
Administration contemplates adjustments to the National Drug Control 
Strategy and potential budget initiatives for the President's fiscal 
year 2004 Budget Request.
    Question. Do you have data on the extent to which drug treatment 
programs operate in state correctional facilities?
    Answer. The RSAT Program provides formula grants to states to help 
them develop and implement residential substance abuse treatment 
programs that provide individual and group treatment activities for 
offenders in residential facilities operated by state correctional 
agencies. The Corrections Program Office (CPO), which administers this 
program, conducted technical assistance workshops and conferences on 
effective treatment programs and strategies to over 1,238 policymakers, 
correctional practitioners, and treatment practitioners. Also in 2001, 
39,718 offenders received treatment from 151 programs initiated or 
expanded with 2001 funds. In 2002, CPO estimates that 40,840 offenders 
will receive treatment from about 185 programs.
    Question. The President stated his commitment to add $1.6 billion 
to the drug treatment system over 5 years. In the fiscal year 2003 
budget request, not all of the increase is new money. In fact, some of 
it is paid for by reductions in other drug treatment programs. Will the 
Administration commit to adding new money to these programs to 
accurately account for a $1.6 billion increase?
    Answer. The Administration has launched a major new treatment 
initiative. In May 2001, the President committed to expanding funding 
for treatment services by $1.6 billion over 5 years. We are on track to 
meet the President's commitment with net increases in fiscal years 2002 
and 2003. We are fulfilling this commitment gradually. In fiscal year 
2002, an additional $95.4 million was provided to the Substance Abuse 
and Mental Health Services Administration (SAMHSA) to begin to fulfill 
this pledge. The Administration's fiscal year 2003 budget builds upon 
this increase with additional funding for SAMHSA. The Budget proposes a 
net +$127 million increase for the President's Drug Treatment 
Initiative to help narrow the gap between the number of people in need 
of drug treatment and the number getting it. The request includes a $60 
million (+4 percent) increase to the Substance Abuse Block Grant, a 
$109 million (+56 percent) increase to discretionary substance abuse 
treatment grants, and a $43 million (-45 percent) reduction in drug 
treatment research and demonstration grants. The request will support 
52,000 additional drug treatment slots.
    In addition, ONDCP has directed the major Departments and agencies 
involved in funding and support of drug treatment to provide clear and 
targeted input on what they will do to address the identified treatment 
need, including efficiencies that can be implemented to help available 
treatment funding support more and better treatment.
    It is clear that we need to expand treatment capacity. But simply 
expanding capacity nationwide will not ensure adequate support for 
locations or populations in greatest need, nor will it ensure increases 
in the kinds of treatment most needed. And broad increases are not 
enough to get people into needed treatment and help them see it through 
to completion. Addiction is a life-long challenge, requiring the 
sustained efforts of the drug user to stay drug free. Some will 
relapse, falling back into drug-taking behavior. As a society, we must 
continue to take an active role in supporting these individuals 
including providing appropriate, individualized treatment and follow-up 
support to maintain recovery. For those who accept responsibility and 
obtain treatment services, treatment can prove successful. Only by 
developing this broad-based continuum of services and resources can we 
provide the essential and life-saving assistance to those who need it.
                       drug free communities act
    Question. Do you intend on granting the $2 million for a National 
Community Anti-Drug Coalition Institute to the Community Anti-Drug 
Coalitions of America?
    Answer. As you know, the Reauthorization created a National 
Coalition Institute ($2 million authorized in fiscal years 2002 & 
2003). We have reserved $2 million for a grant award in late fiscal 
year 2002. Pursuant to Federal grant law and report language 
accompanying the Drug-Free Communities Support Program Reauthorization 
Act, the grant will be awarded through a competitive process. CSAP will 
award a grant to a national nonprofit organization with expertise and 
broad national-level experience in community anti-drug coalitions to 
provide technical assistance and training to community anti-drug 
coalitions.
                                 ______
                                 

                Questions Submitted by Senator Jack Reed

                    drug trafficking in new england
    Question. As you know, there is a great deal of concern about drug 
traffickers' increasing use of the interstate highway system in New 
England to distribute illegal drugs from urban centers to rural areas. 
This Subcommittee's fiscal year 2002 report directed your office to 
work with State law enforcement drug control task forces to combat 
interstate shipment of drugs in the region.
    Could you describe your efforts to address this problem and any 
progress you have made?
    Answer. We have worked to address this serious threat throughout 
the New England HIDTA. The most significant threat confronting the 
HIDTA is the transportation of drugs from sources of supply in New York 
to New England. Consequently, it is the major concentration of efforts 
for the NEHIDTA. The New England HIDTA recently completed its first 
year of operations and already is supported by representatives from 
over eighty Federal, State and local agencies.
    The New England HIDTA developed a cohesive and comprehensive 
program combining regional and state specific initiatives. The 
NEHIDTA's initiatives focus on reducing and disrupting the flow of 
drugs along the pipeline. To accomplish this, the HIDTA is coordinating 
thirteen initiatives in fiscal year 2002. These initiatives are 
organized into and support four (4) counter-drug subsystems, with each 
subsystem integral to the success of the HIDTA. Initiatives that were 
approved to implement the 2000 New England HIDTA Strategy include:
  --Southern New England HIDTA Task Force (CT)--this is a collocated 
        task force that is concentrating on mid-level to major 
        traffickers in the Fairfield county area of Connecticut and 
        will be comprised of Federal, State and local investigators in 
        Bridgeport, CT.
  --Southern New England Street Sweep Initiative (CT)--this is a multi-
        agency task force that targets violent narcotic traffickers in 
        the Fairfield and New Haven counties of Connecticut. This task 
        force will target those criminal groups whose activities 
        negatively impact quality of life issues in the neighborhoods 
        and communities in these counties.
  --Bradley Airport Transportation Group (CT)--this task force is led 
        by the Connecticut State Police, and is staffed by special 
        agents of the Drug Enforcement Administration and the U.S. 
        Customs Service. This interdiction task force will concentrate 
        on cargo shipments containing drugs and general airport 
        enforcement programs.
  --Northeast New England HIDTA Task Force (ME)--this task force is 
        located in Portland, ME and is a multi-agency, collocated task 
        force. This task force is targeting core and secondary heroin, 
        cocaine and crack cocaine criminal distribution organizations.
  --New England HIDTA Financial Task Force (MA)--this task force is led 
        by the U.S. Customs Service and the Internal Revenue Service, 
        Criminal Investigation Division. It is staffed with Customs and 
        IRS special agents, Massachusetts State Police and Boston 
        Police Department detectives. This task force is identifying, 
        investigating and prosecuting large scale money laundering 
        organizations in New England and internationally.
  --Greater Boston Task Force (MA)--led by the FBI, this multi-agency, 
        collocated task force will target mid to upper level criminal 
        organizations in the Greater Boston area. This initiative also 
        manages a smaller task force in Lawrence, Massachusetts.
  --Central Massachusetts Task Force (MA)--this task force is led by 
        the DEA and consists of Federal, State and local investigators 
        targeting widespread criminal organizations in Central 
        Massachusetts.
  --Northern New England HIDTA Task Force (NH)--established in 
        Manchester, New Hampshire this DEA led, collocated State, 
        Federal and local task force investigates core and secondary 
        drug distributors in Hillsborough County, New Hampshire.
  --Rhode Island HIDTA Task Force (RI)--the Rhode Island HIDTA Task 
        Force is an FBI led, multi-agency task force that is co-managed 
        by the FBI and Rhode Island State Police. This task force will 
        primarily target violators in the greater Providence, Rhode 
        Island area.
  --Providence County HIDTA Transportation Task Force (RI)--this task 
        force is DEA led and is working in the major rail, bus and 
        airport terminals, as well as cargo terminals and express 
        package delivery services. This interdiction task force was 
        established to intercept and seize illicit drugs and currency 
        derived from criminal activities.
  --Northern Vermont HIDTA Task Force (VT)--this DEA led, multi-agency 
        task force will concentrate its efforts in the greater 
        Burlington, VT area and will target mid to upper level criminal 
        organizations.
                     methamphetamine in new england
    Question. I understand that two weeks ago the first methamphetamine 
lab was discovered by law enforcement in Rhode Island.
    Given the significant crime and health concerns associated with use 
of this drug in other parts of the country, what plans do you have to 
address potential growth of the meth trade in New England?
    Answer. This past year OxyContin, MDMA (Ecstasy), hydroponic 
marijuana, and the methamphetamine precursors, ephedrine and 
pseudoephedrine, became significant and formidable threats for the New 
England HIDTA. In response, the HIDTA has brought together over 100 
Federal, State and local law enforcement and prosecution agencies; 
medical examiners; prevention and treatment professionals; health 
providers; emergency medical services; emergency room doctors and 
personnel and others to assist in the preparation of a comprehensive 
and inclusive strategy for heroin and the emerging methamphetamine/
precursor and other drug threats. HIDTA brought these professionals 
together to discuss the epidemic heroin problem and to establish 
cooperative and coordinated communications to assess the drug problem 
and provide recommendations. This was the first time professionals from 
all the different disciplines met and formed a strong cooperative 
coalition.
    The basic element of the strategy is to build a coalition of 
professionals and establish communication links that will provide a 
system to alert law enforcement, health providers, treatment and 
education and emergency services professionals and others with an 
``early warning system.'' A significant problem is obtaining timely, 
accurate, multi-source information/intelligence on emerging drug 
trends/epidemics and disseminating that information to law enforcement, 
education/prevention, emergency medical services, hospitals and others 
to ensure a timely, efficient, coordinated response. Our common goal is 
to save lives and ensure a thorough investigation and successful 
prosecution of the Drug Trafficking Organizations, distributors and 
violent criminals. When intelligence/information detects a new drug or 
trend or a drug problem that is reaching epidemic proportions, as is 
the case with heroin in New England, all disciplines will be alerted to 
immediately focus on the threat. This same system will be used to warn 
all the disciplines of new emerging drug threats as we are doing with 
methamphetamine. We have started to build a system using email 
addresses that will provide the basis for a more sophisticated alert 
system, if necessary.
    HIDTA participating agencies seized 3 clandestine methamphetamine 
laboratories in 3 months. Furthermore, NEHIDTA Task Forces are 
providing training courses for state and local law enforcement on the 
investigation of clandestine laboratories.
                national youth anti-drug media campaign
    Question. In your testimony you note that the National Youth Anti-
Drug Media Campaign integrates paid advertising at the national and 
local levels with public information outreach through a network of 
public and private partnerships to provide local context for campaign 
messages. How is the media campaign tailored to address issues of 
specific concern to New England? Who are your key partners in this 
effort?
    Answer. The media campaign is tailored to address issues of 
specific concern to New England via targeted media buys to key markets 
and areas in the region (markets are defined as Designated Marketing 
Areas/DMAs a standard media/population measurement).
    Examples of media placed in New England are as follows:
Maine (Portland-Auburn DMA)
    General Market.--Newspapers--Portland Press Herald Telegram, The 
Sun-Journal, Kennebec Journal; Spot Television: WGME, WMTW, WPXT, WCSH; 
Spot Radio: WJBQ-FM.
Vermont (Burlington DMA)
    General Market.--Newspapers: Burlington Free Press, Plattsburgh 
Press-Republican, Rutland Herald; Spot Television: WCAX, WPTZ, WVNY; 
Spot Radio: WXXX-FM.
    Multi-cultural.--African-American: WWBI (Syndicated TV).
Massachusetts (Boston DMA)
    General Market Newspapers.--Boston Globe, Worcester Telegram 
Gazette, The Boston Herald; Television: WLVI, Boston Interconnect 
(cable), WSBK; Radio: WBOT-FM, WJMN-FM.
    Multi-cultural.--The Boston DMA has a high concentration of African 
American and Hispanic teens and Parents. Media is strategically 
deployed to reach these key population groups; African American: Bay 
State Banner (Newspaper), WSBK, WLVI, WHDH (Syndicated TV); Asian: 
Boston Chinese News (Newspaper); Hispanic: TV--Univision WUNI, 
Telemundo WWDP, W32AY; Radio--WHAV, WRCA, WORC.
Worchester, MA Hispanic
    Radio--WKOX.
Connecticut (Hartford/New Haven DMA)
    General Market.--Newspapers: Hartford DMA--Hartford Courant, New 
Haven Register, Waterbury Republican-American, Manchester Journal 
Inquirer, New London Day, Meriden Record-Journal; New York DMA--
Connecticut Post, The Danbury News-Times, The Norwalk Hour, Stamford 
Advocate/Greenwich Times; Spot Television: WCTX, WTIC, WTXX; Spot 
Radio: WZMX-FM;
    Multi-cultural.--African American: WTXX, WCTX, WTNH (Syndicated 
TV); Hispanic: TV--Univision W47AD, Telemundo WRDM; Radio--WPRX, WRYM.
Rhode Island (Providence/New Bedford DMA)
    General Market.--Newspapers: Providence Journal Bulletin, The New 
Bedford Standard Times, Spot Television: WLWC, WNAC, WLNE; Spot Radio: 
WPRO-FM
    Multi-cultural.--African American: WLWC, COX--(Syndicated TV); 
Hispanic: TV--Telemundo WRIW; Radio--WRIB, WPMZ, WJYT.
    New Hampshire, which does not have its own DMA (Designated Market 
Area), receives Newspaper and Broadcast coverage from Boston with some 
additional spill from Portland.
    In addition several dozen community coalitions, and other local 
organizations and agencies routinely receive Campaign materials, 
newsletters, updates and e-mails from the Campaign.
    Importantly, several organizations in New England have benefited 
from the Campaign's Pro Bono Matching program, which has provided 
opportunities to deliver important public health/anti-drug messages at 
the local level at no cost. Working with American Advertising 
Federation (AAF), local New England coalitions were able to participate 
in the local television and local radio match activity. The local 
activity aired from April 2000 through January 2001. The following 
outlines the organizations and their match value (dollars are gross) 
and match units:

----------------------------------------------------------------------------------------------------------------
                          Organization                              Match value       Unites           Media
----------------------------------------------------------------------------------------------------------------
American Symphony Orchestra League-Boston.......................         $46,409              50         ( \1\ )
Cenikor Foundation-Boston.......................................          19,518              22         ( \1\ )
PDFA-Boston.....................................................          19,776              35         ( \1\ )
PDFA-New Hampshire..............................................          37,999              65         ( \2\ )
Rhode Island Dept. of Mental Health, Retardation & Hospitals....         787,832           3,957         ( \3\ )
                                                                 -----------------------------------------------
      TOTAL.....................................................         911,534           4,129  ..............
----------------------------------------------------------------------------------------------------------------
\1\ Spot TV.
\2\ Spot TV/Radio.
\3\ Spot Radio.

         substance among youths in the juvenile justice system
    Question. More than 2 million youth under the age of 18 are 
arrested each year, and more than 100,000 of these youth will be placed 
in juvenile detention and correction facilities on any day. Research 
indicates that approximately twenty percent of all youths who enter the 
juvenile justice system experience serious mental disorders, with a 
much higher percentage experiencing some level of mental health 
problems. Studies have consistently found the rate of mental disorders 
to be higher among the juvenile justice population than among youths in 
the general population. There is also a growing recognition that many 
of these youths--between 50 and 75 percent--have serious substance 
abuse problems.
    What is your strategy for addressing this problem? What steps can 
we implement to help these troubled youth break this destructive cycle?
    Answer. We must link public safety with public health in a 
systematic manner. We must intervene early, before problems have 
worsened to the point where intensive, specialized treatment is 
necessary. Working in concert, justice and public health agencies can 
establish a continuum of accountability and treatment for juvenile 
offenders with substance use disorders.
    The juvenile justice system should operate--in concert with other 
service systems--as a series of opportunities for intervention with 
offenders experiencing substance use disorders. Interventions should be 
carried out in a systematic manner and at the earliest possible 
opportunity to prevent entry into the juvenile justice system for those 
who can be safely diverted to community social service systems; to 
limit penetration into the juvenile justice system for nonviolent 
offenders through community justice interventions in concert with other 
social service systems; and to intervene with those who must be 
securely confined, through appropriate treatment and supervision, both 
during and after the period of confinement.
    Successful interventions are based on thorough assessments and 
maintained with structured case management. The National Drug Control 
Strategy has supported many effective efforts: the juvenile Breaking 
the Cycle program in Eugene, OR; the juvenile assessment centers in 
Miami and Tampa, FL; the juvenile justice/treatment network in Denver, 
CO; and juvenile drug courts and TASC programs to name a few.
    The most cost-effective interventions will take place before the 
juvenile breaks the law and before the juvenile becomes drug dependent. 
There is considerable evidence that brief interventions can be 
effective in helping drug users who are not yet dependent stop their 
use. ONDCP is working with Federal drug control agencies to incorporate 
brief interventions into a number of social settings, including 
schools, community prevention programs, child welfare programs, primary 
healthcare programs, and community policing.
    On a broader scale, the National Drug Control Strategy is designed 
to foster the active and skilled involvement of families, faith-based 
and community organizations, anti-drug coalitions, child welfare 
workers, civic groups, healthcare workers, and workplaces in delivering 
prevention and intervention programs, persuading drug users in need to 
seek help, and supporting their neighbors who are in recovery.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

                national youth anti-drug media campaign
    Question. Director Walters, last year this subcommittee carved out 
$5 million of the anti-drug national media campaign funding 
specifically for efforts to combat the drug ``Ecstasy''. Use of this 
prescription drug for illegal purposes has become a widespread problem 
in all areas of our country.
    What, exactly, are you doing to address this problem?
    Answer. Fiscal year 2002 Conference report language directed the 
Campaign to allocate $5 million (out of the $180 million appropriated) 
``for advertising time and space specifically targeted at combating the 
drug Ecstasy.'' ONDCP intends to base this effort on anti-ecstasy 
television ads already developed by the Partnership for a Drug Free 
America. This anti-ecstasy advertising will be directed toward youth 
and will appear on popular youth-oriented network television programs.
    Question. How do you plan to spend this $5 million?
    Answer. ONDCP intends to base this effort on anti-ecstasy 
television ads already developed by the Partnership for a Drug Free 
America. This anti-ecstasy advertising will be directed toward youth 
and will appear on popular youth-oriented network television programs.
    Question. I noticed the ONDCP ads during this year's Super Bowl 
game. Those spots are usually pretty expensive.
    Why did you decide to purchase time during the Super Bowl?
    Answer. We purchased time during the Super Bowl because we could 
reach a very large, diverse audience. In the aftermath of the terror 
attack of September 11, we realized that few Americans knew of the link 
between money spent for drugs and the support of terrorist 
organizations like Al Qaeda and the FARC. Twelve of the 28 
international terrorist organizations recognized by the State 
Department engage in drug trafficking, and many other drug trafficking 
organizations engage in widespread acts of terror--kidnapping, torture, 
bombings, and the murder of innocents.
    Question. Do you have any evidence that these ads actually reached 
your target audience?
    Answer. The ads have generated a large response from across the 
country. Viewers are directed to www.theantidrug.com, which is the 
Campaign's parenting Web site, where traffic surged after the ads were 
introduced. From the ads' launch on February 3 through February 27, 
page views on the site rose more than 21 percent. Visitors to the site 
doubled from an average 125,000 per month to 250,000, and the time 
spent at the site by visitors rose from an average 6 minutes to 10 
minutes. During the same Feb. 3-Feb. 27 period, 1, 282 parents signed 
up to receive a weekly parenting tips email. Wave 5 of the Evaluation 
Report will provide more details.
    Question. Director Walters, the ad which tied drug money to 
terrorism was very powerful. The question is, though, whether it had 
any impact upon your target audience.
    What were the reactions of your test audiences to this ad?
    Answer. We subjected the ad concepts to an unprecedented level of 
testing to assure their effectiveness with target audiences. The ads 
were exposed to more than 1,300 individuals in 20 cities across the 
country. Youth that participated in the testing found that the ads 
significantly reduced their intent to use drugs in the future (6 of 10 
youth said they would not use drugs if they knew about the link between 
drugs and terror). Parents said the information gave them timely new 
information to use in talking to their children about drugs.
    Question. Are you able to tell us whether this particular ad had 
any tangible results?
    Answer. Wave 5 of the NIDA/Westat evaluation will address the 
terrorism ads.
    Question. Director Walters, I was chairman of this subcommittee in 
1997 when your predecessor requested funding for an anti-drug national 
media campaign. It was described to us as a 5-year effort which would 
then be transitioned to a private sector responsibility. I have to tell 
you that I was concerned that once we started to fund this campaign, it 
would become a cash cow.
    Director Walters, we are now being asked to fund the 6 year of this 
5-year program. While we have all seen the ads and can appreciate the 
effort which went into producing them, there is little information to 
indicate that the $930 million we have provided so far has had a 
specific impact upon drug use by the youth of this country.
    Director Walters, why should we continue to fund this program?
    Answer. Admittedly, the latest evaluation of the Campaign has 
proved disappointing. While the ads aimed at parents are performing 
quite well, the ads aimed at teens appear not to have had any 
meaningful effect on their attitudes and decisions about drug use. We 
are committed to addressing the problems that have been identified and 
creating a more effective and robust Campaign. The President, Congress, 
and the American people rightly have high expectations for the 
Campaign, and it can be one of America's most important tools for 
addressing the national priority of reducing youth drug use.
    Therefore, we are implementing a number of changes, effective 
immediately:
  --Prior to being aired, all TV ads will undergo rigorous testing.
  --The age target for youth ads will be shifted from 12-13 year-olds 
        to 14-16 year-olds.
  --Sharper, more focused advertising will be created to ensure 
        effectiveness with youth, especially targeting the drug most 
        frequently abused by youth: marijuana.
  --ONDCP staff will become more directly involved in the message 
        development process.
    No initiative can break through pro-drug attitudes and reduce drug 
use without broad public support and strong efforts by parents, 
schools, and law enforcement. Although the evaluation has revealed 
serious shortcomings, the Campaign has been bolstered by local anti-
drug coalitions across the country joining the cause and building 
strong programs that protect local youth from the threat of drugs. New 
advertising prepared by the Ad Council supports these efforts. Further, 
a number of major corporations are joining the national effort to keep 
kids off drugs by delivering the Campaign's messages and resources to 
their employees and customers, adding to the chorus of parents, 
educators, and youth-serving groups already involved.
    It is also important to note that our hard-hitting drugs and 
terrorism ads, released during the Super Bowl, were not measured by 
this evaluation. These ads were among the most rigorously tested in the 
Campaign's history, and we are confident that they will have a positive 
impact on reducing youth drug use.
    ONDCP will continue to work closely with Congress and key Campaign 
partners to ensure that the Campaign plays a significant role in our 
effort to achieve the President's goal of achieving a 10 percent 
reduction in teenage and adult drug use over the next 2 years, and a 25 
percent reduction in drug use, nationally, over the next 5 years.
    With these changes, the Campaign will become much more effective 
with teens, and its influence with parents will grow even stronger. 
Therefore, we will continue to support the budget request of $180 
million in fiscal year 2003, and will seek Congressional 
reauthorization for the Media Campaign.
    Question. Does it need to be reauthorized by Congress?
    Answer. Yes. The Campaign is an important tool in reducing youth 
drug use to meet the goals of the National Drug Control Strategy. It 
should be reauthorized.
    Question. If so, what are you doing to secure that reauthorization?
    Answer. ONDCP is working with authorizing committees and individual 
members in both houses to prepare a reauthorization measure.
                  government-wide drug control efforts
    Question. Director Walters, the Office of National Drug Control 
Policy was created to oversee and coordinate government-wide drug 
control efforts. As you know, the Office of Homeland Security was 
created for a similar purpose with regard to homeland security efforts. 
The major difference, however, is that your office has been authorized 
by Congress and your duties and responsibilities and authority clearly 
outlined by statute.
    I would appreciate if you could give us a thumbnail sketch of how 
you carry out this coordination effort and what specific authorities 
you use.
    Answer. The President promulgates a National Drug Control Strategy 
and a supporting budget. ONDCP coordinates implementation of the 
Strategy within the Executive branch. ONDCP takes seriously its primary 
statutory charge to develop national drug control policy and a 
supporting budget; coordinate and oversee the implementation of that 
policy and budget; and evaluate drug control programs to ensure that 
our efforts are coordinated and focused on obtaining measurable 
results.
    ONDCP is effective in carrying out its coordination function when 
it works closely with other Federal Drug Control Departments and 
Agencies. ONDCP staff and senior policy officials remain in close 
contact with their interagency counterparts, as well as with Congress, 
state and local officials, international partners, and non-governmental 
organizations. This collaboration enables ONDCP to assist in developing 
a coordinated national drug control policy focused on obtaining 
measurable results. Specifically, ONDCP is taking a lead role in 
mobilizing our Nation's effort to achieve the President's goal of 
achieving a 10 percent reduction in teenage and adult current drug use 
over the next 2 years, and a 25 percent reduction in current drug use, 
nationally, over the next 5 years, as reported by the National 
Household Survey on Drug Abuse (NHSDA).
    Question. Do you tell other Federal Departments and agencies what 
they are expected to do and how much money they are expected to spend?
    Answer. Upon assuming the office of Director of National Drug 
Control Policy last December, I began conducting an in-depth review of 
existing policies and program priorities. The first phase of that 
review culminated in the National Drug Control Strategy released by 
President Bush on February 12th. At this release, the President 
reiterated his commitment to combat drug use and emphatically stated 
that reducing drug use is at the center of our national agenda. This 
Strategy places a heavy emphasis on obtaining measurable results and 
providing accountability to the American people, to Congress, and to 
our international partners.
    ONDCP's authorization statute requires that by July 1st of each 
year we issue funding guidance to Federal Drug Control Program 
Departments and Agencies for the next fiscal year and for subsequent 
outyears. This guidance highlights broad areas that the agencies should 
focus on as they formulate their budgets in order to implement 
adequately the Strategy. We rely on that guidance as the bench mark by 
which we judge if agency budgets are adequate during our review of 
budgets each summer and fall. Working collaboratively with the agencies 
during this process assists in ensuring the adequacy of the 
submissions.
    Question. What happens if they disagree with you?
    Answer. ONDCP's focus is to work closely with Federal Drug Control 
Program Departments and Agencies when developing budgets and policy to 
avoid disagreement. However, ONDCP recognizes that we possess statutory 
budget certification authorities that could be employed if absolutely 
necessary to ensure that budgets are adequate to implement the 
President's national drug control program.
    Question. Absent your statutory authority, would you be able to 
effectively coordinate this government-wide effort?
    Answer. Any coordinating entity is going to achieve the greatest 
results when it works collaboratively with its interagency partners. 
While the current statutory structure is effective for ONDCP, there are 
a number of models, depending on the specifics of the agency mission 
(including statutory or Executive Order), that would enable an agency 
to coordinate effectively government-wide efforts.
    Question. As you noted in your prepared testimony, the National 
Drug Control Strategy envisions a 10 percent reduction in teenage and 
adult current drug use over the next 2 years AND a 25 percent reduction 
over the next 5 years. Those are admirable goals and there are several 
departments and agencies which have a piece of the action.
    How do you define ``current use''?
    Answer. Current drug use is defined in the National Household 
Survey on Drug Abuse as using an illegal drug within the last 30 days.
    Question. What was the percentage of reduction in current drug use 
over the past 2 years?
    Answer. According to the National Household Survey on Drug Abuse 
(NHSDA), in 2000, 6.3 percent of the household population aged 12 and 
older (14.0 million persons) were ``current'' or past month users of an 
illicit drug, a level that was unchanged from 1999. Drug use among 12-
17 year olds also remained relatively unchanged--9.8 percent in 1999 
and 9.7 percent in 2000.
    Trend data prior to 1999 are not directly comparable to these 
numbers because a new methodology to improve and expand the survey was 
implemented in 1999. However, between 1996 and 1998, past month use of 
any illicit drug for the household population increased 4.6 percent for 
those aged 12 and older and 15 percent for those aged 12 to 17.
    We are confident that we can achieve the President's goal of 
reducing drug use by 10 percent over the next 2 years, as our nation 
achieved an 11 percent decrease in past month use between 1990 and 1992 
for the household population aged 12 and older and a 19 percent 
decrease for those aged 12-17.
    Question. Five Years?
    Answer. Trend data prior to 1999 are not directly comparable to 
current data because a new methodology to improve and expand the survey 
was implemented in 1999. However, according to the NHSDA between 1993 
and 1998, past month use of any illicit drug for the household 
population increased 11 percent for those aged 12 and older and 64 
percent for those aged 12 to 17.
    We are confident that we can achieve the President's goal of 
reducing drug use by 25 percent over the next 2 years, as our nation 
achieved a 42 percent decrease in past month use between 1985 and 1990 
for the household population aged 12 and older and a 50 percent 
decrease for those aged 12-17.
    Question. What, exactly, do you plan to do to coordinate efforts to 
reach these goals?
    Answer. The President's National Drug Control Strategy contains 
three principal objectives: stopping drug use before it starts, healing 
America's drug users, and disrupting the market. Each objective is 
described below in greater detail.
    Stopping Drug Use Before It Starts.--Every American can play an 
important role in the fight against illegal drugs through education and 
community action. In homes, schools, places of worship, the workplace, 
and civic and social organizations, Americans must set norms that 
reaffirm the values of responsibility and good citizenship while 
dismissing the notion that drug use is consistent with individual 
freedom. The National Drug Control Strategy ties national leadership 
with community-level action to help recreate the formula that helped 
America succeed against drugs in the past.
    Healing America's Drug Users.--The vast majority of the millions of 
people who need drug treatment are in denial about their addiction. 
Getting people into treatment--including programs that call upon the 
power of faith--will require us to create a new climate of 
``compassionate coercion,'' which begins with family, friends, 
employers, and the community. Compassionate coercion also uses the 
criminal justice system to get people into treatment. Americans must 
begin to confront drug use--and therefore drug users--honestly and 
directly. We must encourage those in need to enter and remain in drug 
treatment.
    Disrupting the Market.--The demand for drugs tends to vary with 
their price and availability. Disrupting this market relationship 
provides policymakers with a clear lever to reduce use. Domestically, 
attacking the economic basis of the drug trade involves cooperative, 
combined efforts of Federal, State, and local law enforcement.
    Question. If those goals are not met, who is to blame?
    Answer. In announcing the release of the National Drug Control 
Strategy this February, President Bush stated the Administration's view 
that we need to have clear goals that can be measured, accepted 
responsibility for achieving them, and explained how we would meet 
them. The President's statement is worth quoting in this context: ``I 
told John [Walters] when he signed on, I'm the kind of fellow that 
likes to say, what are the results? I like to know, actually, are we 
making a difference? And so here's our goal, here's the goal by which 
we'll be measured--here's the goal which I'll be measured first, and 
then John will definitely be measured if I'm measured. I want to see a 
10 percent reduction in teenage and adult drug use over the next 2 
years, and a 25 percent reduction in drug use, nationally, over the 
next 5 years. Those are our goals. We understand we can't do it alone 
here in Washington. And that's why our approach is a community-based 
approach. That's why we recognize the true strength of the country is 
our people. And we know there's thousands of parents, thousands of 
educators, thousands of community activists, law enforcement officials, 
all anxious to come together to achieve this national strategy.''
                                  ctac
    Question. One of my favorite programs under your jurisdiction is 
the Counterdrug Technology Assessment Center. I've seen first-hand how 
excited State and local law enforcement offices are about additional 
equipment from the Federal Government to make their jobs easier. I 
commend you, Director Walters, for requesting money to continue this 
program. And, as an aside, Mr. Chairman, we will be able to see some of 
this technology at the law enforcement tech display you have scheduled 
for April 30.
    The President's budget request includes $40 million for CTAC, of 
which $18 million is for research and development. That amount is 
divided between supply reduction--$4 million--and demand reduction--$14 
million.
    What technology is currently under development for supply 
reduction?
    Answer. CTAC's Research and Development (R&D) efforts concentrate 
on high priority scientific and technological needs of local, State, 
and Federal law enforcement agencies.
    Nonintrusive Inspection.--R&D projects for nonintrusive inspection 
capabilities are in the areas of chemical based sensors, selective 
breeding and olfactory studies of detector dogs, methods to make it 
harder to use anhydrous ammonia in the manufacture of methamphetamine, 
and a portable capability to detect drugs and contraband in shipboard 
liquid filled tanks.
    Tactical Technologies.--R&D projects for tactical technologies 
include advanced concepts to enhance capabilities in the areas of 
miniaturized covert tagging and tracking devices, case management 
tools, improved communications systems to share data across platforms, 
and communications interoperability technologies. Successful R&D 
projects become candidates for state and local agencies through the 
Technology Transfer Program (TTP).
    Test and Evaluation Support.--Technology testbeds have been 
established to develop a central architecture for all systems and 
equipment to work together. Items available under the TTP are being 
evaluated at the testbed located at the Navy's SPAWAR Systems Center 
located in San Diego, CA. Technology applications also are tested in 
several operational state and local settings before they are added to 
the TTP.
    Question. For demand reduction?
    Answer. CTAC's overall goal for R&D relating to demand reduction is 
to put the capability in place to generate and share neuroscientific 
data among those research scientists and to focus their research 
efforts on the prevention and treatment of drug abuse. To accelerate 
progress, each team will be linked to a central backbone/clearinghouse 
so that images, data and research findings can be shared. In addition 
CTAC funding stimulates technological advancements to support 
neuroscience, specifically to improve the performance characteristics 
of systems produced for imaging, to increase our understanding of the 
genetic and environmental risk and protective factors to prevent drug 
use.
    Advanced Brain Imaging Technology.--In conjunction with NIDA, 
leading academic and addiction research institutions receive funding to 
support medical instrumentation and facilities for research teams to 
focus their work on substance abuse prevention and treatment. The 
leading academic and addiction research institutions receiving this 
equipment have all agreed to concentrate on drug abuse research and 
train other professionals who will continue to advance our state of 
knowledge and to share their findings with other research teams across 
the country.
    Data collection systems.--CTAC funding is supporting an assessment 
of the effectiveness of drug treatment through the Drug Evaluation 
Network System (DENS). The database rich in detail on the profiles of 
2,000 patients enrolled in 21 treatment programs and an additional 29 
randomly selected treatment programs will provide a nationally 
representative sample for research and analysis. The new sites also 
support the Random Access Monitoring of Narcotics Abusers (RAMONA) to 
allow the size, characteristics, and geographic distribution of the 
``hardcore'' drug using population in the U.S. to be monitored over 
time.
    Question. Of the types of equipment currently available for 
transfer, please give us some examples of some that fall into each of 
these two categories.
    Answer. Congress created the TTP to provide technologies developed 
with Federal funding directly to state and local law enforcement 
agencies that may otherwise be unable to benefit from the developments 
due to limited budgets or lack of technological expertise. Therefore, 
demand reduction technologies are not available through the TTP.
    Some supply reduction oriented R&D projects will provide improved 
capabilities or additional options to systems currently in the TTP:
  --The wireless communications interoperability system was 
        demonstrated in Denver in August 2001. This system provides a 
        cost-effective option to enable the smaller state and local 
        agencies to continue to use their existing radios and still be 
        able to communicate with other agencies using different 
        communications systems.
  --Additional functionality, called CRYSTAL, will be available for the 
        AG-SMS tracking system currently in the TTP. This system links 
        criminal and background information derived from drug-related 
        investigations to geo-positional information in real-time. 
        CRYSTAL is being tested under operational conditions with the 
        Rockland County Narcotics Task Force (NY).
    Other R&D projects will be completed and considered for transition 
to the TTP
  --Solutions have been developed to the problem of intercepting 
        cellular phones operated in ``Push to Talk'' radio mode. 
        Testing is being conducted under operational conditions with 
        the Rockland County Narcotics Task Force and Westchester 
        District Attorney's Office (NY), the Baltimore Police 
        Department (MD), U.S Customs Service in El Paso (TX), and DEA 
        Technology Development Unit in Lorton (VA).
    Question. The largest part of the CTAC budget is for the technology 
transfer program--$22 million. I understand from staff that 3,255 
pieces of equipment have been distributed to 2,533 State and local 
agencies in the past 4 years.
    What kind of technology is provided to state and local agencies?
    Answer. There are 22 distinct technologies available under the 
program, with varying degrees of complexity and cost that allow state 
and local law enforcement entities of all sizes to take advantage of 
this program. The following are the available technologies: Air-Ground 
Surveillance Management System (AG-SMS); AIRNET32; Audio Surveillance 
System; Advanced Vehicle Tracking System (AVTS); Body Worn; Borderline 
System; Cellular-Based Surveillance System (CBSS); Drugwipes; LINCOLN 
Wiretap System; Mini-Buster Contraband Detector; Multimedia Processing 
System (MPS); Night Vision Kit; Pen-Link Analysis Software; PicoDAC; 
R3000 Navigator Telephone Surveillance System; Small Look; Suspect 
Pointer Index Network (SPIN); Thermal Imager--Handheld; Thermal 
Imager--Vehicle; Video Stabilization System; VisuaLinks Software; and 
Wireless Communications Interoperability.
    Question. What is the most expensive equipment, and how does CTAC 
determine who gets it?
    Answer. The wireless communications interoperability system is the 
most expensive item available under the TTP. These systems cost from 
$250,000 to $750,000, depending on the coverage required (citywide or 
statewide).
    Concerning how decisions are made on each application, Fort 
Huachuca, CTAC's contracting agent, receives the applications from the 
requesting entity and distributes them to teams of regional experts who 
evaluate the choices of the entities to make certain that they are 
appropriate. Priority is placed on a first-come first-served basis each 
fiscal year for each item contained in the program, with remainder 
carried over to next fiscal year.
    Question. What equipment is used the most?
    Answer. Due to the large volume of requests and the affordability/
utility of the technologies to any state or local law enforcement 
entity, the TTP provides more thermal imagers and mini-busters than any 
other technology.
                                 hidta
    Question. Director Walters, I am also interested in the High 
Intensity Drug Trafficking Areas program--called HIDTA. I am very 
familiar with this program and have spent time talking with folks at 
the Rocky Mountain HIDTA. The concept of a Federal/State/local 
partnership has worked extremely well to increase drug-related 
investigations and decrease the natural tension between these entities.
    Last year, Congress provided $20 million more than requested for 
the HIDTA program. Although we did not specify how you were to spend 
the money, we expected that each HIDTA program would provide 
justification for some additional funding and that ONDCP would consider 
applications for new HIDTAs.
    The fiscal year 2003 budget does not request the continuation of 
that additional $20 million. Given that there is no guarantee that 
Congress will again provide more than the budget request, distribution 
of those fiscal year 2002 funds becomes more difficult since the 
funding may not continue.
    What is the status of that $20 million?
    Answer. The National Guard (NG) is experiencing a funding situation 
in fiscal year 2002 that is causing NG members to be redirected away 
from counterdrug missions. A number of Senators and Representatives 
have written the Administration asking for assistance. Having obtained 
the concurrence of the DOD, ONDCP has transferred $5 million to the DOD 
for NG counterdrug enforcement efforts. This is a high priority to 
maintain current operational levels for the NG; it will not affect 
current funding for existing HIDTAs.
    ONDCP prioritized the remaining $15 million based on program 
priorities (the allocation is as follows).
  --Provide additional funding to bring the HIDTAs designated in 2001 
        (Nevada and Northern Florida) to $2.0 million. This funding 
        will enable the HIDTAs to make incremental progress on HIDTA 
        Program priorities related to combating their regional threat, 
        including intelligence/information sharing, training, and 
        communications interoperability.
  --Provide necessary funding to support the designation of additional 
        counties to existing HIDTAs. The following HIDTAs submitted 
        requests for discretionary funding to support the designation 
        of additional counties: Gulf Coast, Houston, Milwaukee, New 
        England, Northwest, Oregon, Rocky Mountain, and Southeast 
        Michigan. ONDCP currently is leading an interagency review to 
        determine which, if any, of these requests meet the statutory 
        criteria for designation. ONDCP anticipates a decision on 
        additional designations by July.
  --Enhance several HIDTA intelligence centers.
  --Enhance existing and fund new HIDTA training, community based 
        prevention, and law enforcement (including money laundering and 
        General Counterdrug Intelligence Plan) initiatives.
  --Provide $7.5 million in funding to a new initiative: the HIDTA 
        National Priority Targeting Project. This program will make 
        funds available to HIDTA initiatives that develop and conduct 
        investigations against major drug trafficking organizations 
        affiliated with National Priority Targets and meet the criteria 
        outlined within this Project. HIDTA funds will be used to 
        supplement, not supplant existing agency/program budgets.
    Question. What instructions have been given to the individual HIDTA 
programs with regard to applying for those funds?
    Answer. The National HIDTA Program Office informed the HIDTAs of 
the availability of the discretionary funding and the need to submit 
supplemental budget requests if they wanted to be eligible for funding. 
The individual HIDTAs are aware that the $20 million in fiscal year 
2002 is supplemental funding that has not been requested for fiscal 
year 2003.
    Question. A recent Montana newspaper article stated that the Rocky 
Mountain HIDTA will be expanded to include five counties in Montana, 
and that each of these counties will receive $100,000 a year to fight 
methamphetamine use and production.
    Is this report accurate?
    Answer. ONDCP is reviewing requests for additional counties to be 
designated as part of existing HIDTAs, including a request to designate 
several counties in Montana as part of the Rocky Mountain HIDTA.
    Question. If so, will the Rocky Mountain HIDTA be provided 
additional funds for this expansion?
    Answer. ONDCP has set aside $1.55 million to provide necessary 
funding to support the designation of additional counties to existing 
HIDTAs. The following HIDTAs submitted requests for discretionary 
funding to support the designation of additional counties: Gulf Coast, 
Houston, Milwaukee, New England, Northwest, Oregon, Rocky Mountain, and 
Southeast Michigan. ONDCP currently is leading an interagency review to 
determine which, if any, of these requests meet the statutory criteria 
for designation. ONDCP anticipates a decision on additional 
designations by July.
    Question. If additional funds are not provided, how will the 
expansion be funded?
    Answer. Whenever additional counties are designated as part of an 
existing HIDTA, there are two options for funding: (1) additional 
funding to the HIDTA or (2) the existing HIDTA reallocates from within 
existing resources.
    Question. Funding was provided last year to conduct outside audits 
of the various HIDTA programs. I understand that there have been 13 
full-scale audits so far, and that more are planned.
    What were the results of these audits?
    Answer. ONDCP contracted with KPMG to perform external financial 
audits on the HIDTA grantees and Federal agencies. Thus far, KPMG has 
conducted 13 full-scope audits and 16 limited-scope reviews. With 
regard to the 13 full-scope audits, the HIDTAs grantees received all 
unqualified ``clean'' opinions. With regard to the limited-scope 
audits, the HIDTA grantees and Federal agencies received no major 
findings. In addition to issuing the final audit reports, KPMG will 
prepare a Best Practices Report which we will share will all HIDTAs. 
The Best Practices Report will summarize the recommendations on how to 
improve grantees' internal controls and compliance requirements.
    Is the taxpayer money being spent wisely?
    Answer. Based on the audit results, we are confident that proper 
financial controls are in place. Implementation of the auditing 
recommendations will assure us that such confidence can continue.
    Question. What types of ``Best Practices'' have been discovered, 
and when will they be shared with all of the HIDTA programs?
    Answer. HIDTA Program Policy currently directs both internal and 
external reviews of the individual HIDTAs. These reviews, when coupled 
with ONDCP directed external audits ensure that the HIDTAs are operated 
in accordance with applicable directives. They also result in the 
identification of ``best practices'' that can be shared with all. As a 
result of this interagency policy review, a white paper will be 
published that includes information on the HIDTA Program. The Best 
Practices Report will summarize the recommendations on how to improve 
grantees' internal controls and compliance requirements. We expect to 
receive this Best Practices Report by the end of May. Once published, 
ONDCP would be pleased to provide that white paper to Congress.
    Question. I also understand that ONDCP has begun on-site visits to 
the various HIDTA programs to help strengthen management, and that you 
plan to share information on best practices.
    How do these on-site visits differ from the audits you mentioned 
before?
    Answer. The KPMG audits are financial audits of the HIDTA grantees 
and participating Federal agencies. Internally, ONDCP has begun a 
programmatic review process that includes on-site visits to HIDTAs by 
ONDCP staff, as well as staff from the Departments of Justice and 
Treasury. The on-site reviews help strengthen management at the 
individual HIDTAs and at ONDCP. To date, we have reviewed 13 HIDTAs and 
we plan to conduct an additional 5 to 6 program reviews in fiscal year 
2002 and an additional 5 to 6 in fiscal year 2003. The program reviews 
have proven beneficial to the HIDTAs and ONDCP as best practices are 
identified and shared.
    Question. What exactly are you looking for?
    Answer. The HIDTA Program Review Process addresses the following 
areas with regard to the individual HIDTAs:
  --Support of the National Drug Control Strategy by the strategies and 
        initiatives of the individual HIDTAs;
  --Effectiveness of the HIDTAs' efforts in accomplishing their 
        missions;
  --Efficiency in the use of HIDTA resources;
  --Accountability in the use of HIDTA resources; and
  --Compliance with ONDCP/HIDTA policies, program guidance, and 
        directives.
    The review process is conducted in three phases. Phase 1 consists 
of reviewing the Annual Report and the Strategy, Initiatives & Budget 
submitted by each HIDTA. Phase 2 consists of Internal Program Reviews 
conducted by the HIDTAs, with results forwarded to the National HIDTA 
Program Office. Phase 3 consists of On-Site Program Reviews conducted 
at the HIDTAs, coordinated by the National HIDTA Program Office.
    Question. Can you give us some examples of the best practices you 
have found?
    Answer. Best practices have been identified in the following areas:
  --Executive Board Involvement/Subcommittees;
  --HIDTA Memorandums of Understanding (MOUs) and Standard Operational 
        Plans/Policies (SOPs);
  --Property Accountability Systems;
  --Fiscal Tracking Methods;
  --HIDTA Facility Layouts; and
  --Intelligence Center Locations/Organization.
    Best practices are shared with HIDTAs during on-sites visits both 
informally and formally via recommendations, with recently designated 
HIDTAs, and at HIDTA Directors meetings. At the conclusion of this on-
site review cycle (June 2002), best practices observed during the first 
14 on-site reviews will be cataloged and distributed.
                  the united states anti-doping agency
    Question. Director Walters, last night it was my privilege to 
attend a dinner honoring the U.S. participants at the 2002 Winter 
Olympic Games which were held in Utah. As you know, I have been a 
strong supporter of the Games, and of the United States Anti-Doping 
Agency.
    USADA, as it is called, was created to oversee testing, education, 
research, and adjudication on behalf of our country's athletes 
competing in international sports events. They reach out to athletes to 
educate them on health issues and the ethics of competing fairly in 
sports.
    The fiscal year 2003 budget requests only $1 million for this 
important and valuable function. This is significantly less than what 
has been provided in the past.
    It is my understanding that USADA needs more than last year, not 
less, to continue their work and expand their message to athletes at 
the earliest stages of their involvement in sports.
    Why was the funding requested for this program significantly 
reduced from fiscal year 2002?
    Answer. Now that the Salt Lake Olympic and Paralympic Games are 
complete, less funding is required. The $1 million requested will 
support research and administrative initiatives, educational programs, 
and efforts to inform athletes of the rules governing the use of 
performance enhancing substances, and the ethics of doping and its 
harmful health effects.
                           general questions
    Question. How many Full-Time Equivalent positions are currently on 
board at ONDCP?
    Answer. As of May 30th, we have 111 FTE on-board.
    Question. When do you expect to be fully staffed?
    Answer. We expect to be fully-staffed by the end of July.
                 drug-free communities support program
    Question. The Drug-Free Communities Act established a cap on the 
administrative costs of that program. The cap was recently increased to 
6 percent as part of the Drug-Free Communities Act reauthorization.
    Is this sufficient?
    Answer. The new 6 percent ($3.6M) administrative cap is sufficient 
to ensure effective management of the current and expanded program. 
ONDCP signed a Memorandum of Understanding with the Department of 
Justice, Office of Juvenile Justice and Delinquency Prevention (OJJDP) 
in December for them to continue administering the grant award process.
    Question. How are you allocating the six percent?
    Answer. Of the total $60.0 million request, only $3.6 million will 
support ``administrative costs.'' These activities include grants 
management and program evaluation, and program administration. We 
anticipate allocating $3.28 million to OJJDP for grants management and 
evaluation, up to $120,000 for grant management costs associated with 
the National Coalition Institute, and $200,000 to support the DFCSP 
Program Administrator and the Advisory Commission on Drug Free 
Communities.
                                 ______
                                 

               Questions Submitted by Senator Mike DeWine

    Question. How will ONDCP work with the Department of Education to 
ensure that the uniform management information and reporting system 
required by the Safe and Drug Free Schools and Communities program can 
determine which school based prevention programs are effective?
    Answer. ONDCP began a policy and program review in March 2002, in 
which the Department of Education has been actively involved. The 
management information and reporting system is being addressed as part 
of that review. To date, the Department's efforts to get states to 
base-funding decisions on objective data and to implement research-
based programs have met with modest success. The Department reports 
that states and localities have increasingly emphasized research-based 
programs in response to the ``SDFSCA Principles of Effectiveness,'' 
which were incorporated into program regulations in 1998. However, only 
baseline data about program implementation are available to date.
    To move the program toward the outcome data needed to evaluate 
program effectiveness, ONDCP is supporting the Department's formal 
assessment of the extent and quality of the data collected at the local 
level regarding drug use and violence. The anticipated next step will 
be a large scale evaluation of SDFSC programs, based on student outcome 
data. In addition, ONDCP is working with the Department to incorporate 
uniform outcome measures into program reporting requirements.
    Question. Given ONDCP's overall coordinating role for drug policy, 
how will your office ensure that the Safe and Drug Free Schools 
Advisory Committee effectively administers the program?
    Answer. ONDCP began a policy and program review in March 2002, in 
which the Department of Education has been actively involved. The 
Advisory Committee is being addressed as part of that review and ONDCP 
anticipates that it will be operational by the end of the summer. The 
Department views the Committee as an opportunity to enhance interagency 
and intergovernmental collaboration.
    ONDCP will use its role as a key member of the Committee to ensure 
that the members are informed of opportunities for needed improvement 
in a number of significant areas, including: focusing the program on 
research-based approaches; using specific outcome indicators as the 
basis for program evaluation; assessing the quality of data at local 
level; preparing for a comprehensive evaluation of student outcome data 
on youth drug use and violence; incorporating student assistance as 
important prevention and intervention component of the program; and 
incorporating school drug testing as a component of deterrence in 
context of comprehensive prevention.

                          SUBCOMMITTEE RECESS

    Senator Dorgan. We look forward to continuing to work with 
you.
    This hearing is recessed.
    Mr. Walters. Thank you, Senator.
    [Whereupon, at 2:46 p.m., Wednesday, April 24, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]










  TREASURY AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 2003

                              ----------                              


                        WEDNESDAY, MAY 15, 2002

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 2:09 p.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Byron L. Dorgan (chairman) 
presiding.
    Present: Senators Dorgan and Campbell.

                       DEPARTMENT OF THE TREASURY

                        Internal Revenue Service

STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER

                            OPENING REMARKS

    Senator Dorgan. This hearing will come to order. This is 
the Subcommittee on the Appropriations Committee dealing with 
Treasury and General Government.
    This afternoon, we welcome Commissioner Rossotti for what I 
understand may be your last appearance before this 
Appropriations Subcommittee inasmuch as your term expires later 
this year. I think President Bush would be wise to appoint you 
to another term, but I understand that you have indicated that 
you are going back to the private sector. Let me thank you for 
the service that you have given this country.
    You took over the Internal Revenue Service when its 
reputation was at one of its lowest ebbs. There had been 
investigatory hearings by Congress on a range of issues and you 
undertook the responsibility to try to bring the Service into 
the 21st century. I think, although we are not there yet, you 
should be enormously proud of what you have accomplished so 
far. If you do leave at the end of this year, Commissioner, you 
will have left your successor with a stable foundation upon 
which he or she may build.
    I want to thank you also on a personal note from the 
standpoint of North Dakota. As you know, I have been working 
with you and have been concerned about a couple of things. One 
is the issue of taxpayer assistance, which is easier to get in 
urban areas and harder to get in rural areas and you have put 
together a model program in North Dakota extending taxpayer 
assistance to rural areas, for which I am grateful.
    And also, you have partnered with companies in North 
Dakota, particularly one company, to do processing of 
information services, which I think is a terrific thing to do. 
Rather than have centralized processing in the major cities, 
you are doing it around the country and that is beneficial to a 
range of interests, especially in North Dakota. The contracts 
that you have had there have benefitted Native Americans, have 
substantially benefitted people who are coming off the welfare 
programs, and so I want to thank you for what you are doing 
there.
    I think that we are going to have a vote very soon, and 
what I would like to do is try to make sure that we get this 
hearing in and have the opportunity to ask some questions, so I 
think I will recognize you, Commissioner, for your statement. 
Your entire statement will be made a part of the permanent 
record and you may summarize your statement. I am told that 
some of my colleagues will be here. We are having a vote on the 
floor right now. I just voted and rushed over. Why do you not 
begin, and if and when my colleagues show up, we will invite 
them to ask questions, as well.

                           PREPARED STATEMENT

    But again, Commissioner Rossotti, let me understate how 
much I appreciate your service. You have been the first of the 
professional tax administrators to be appointed to the IRS for 
a term certain and I think it is the right thing to do. It is a 
good way to deal with the head of our taxing agency and I think 
your term of service has been an extraordinary one.
    [The statement follows:]

             Prepared Statement of Senator Byron L. Dorgan

    Good Afternoon, Mr. Director. We welcome your appearance today to 
discuss the President's fiscal year 2003 budget request for the Office 
of Management and Budget. You may be getting tired of testifying before 
North Dakotans, but we appreciate your coming.
    This subcommittee is responsible for funding the operations of the 
Department of the Treasury and all of its agencies--such as the IRS and 
the Customs Service. This subcommittee is also responsible for funding 
the operation of your agency--the Office of Management and Budget--as 
well as all the other component agencies which make up the Executive 
Office of the President. It is also in this subcommittee's bill that we 
carry provisions affecting the operations of all Federal agencies. We 
will focus on some of those proposals today.
    It has been a few years since a Budget Director last appeared 
before this subcommittee. That is why we appreciate your willingness to 
appear today.
    Your task of assembling and producing the budget for the Federal 
government is not a task I envy or one to which I aspire. The 
government is an enormous entity to watch over and one can see how some 
smaller tasks might fall through the cracks. But when this happens, it 
gives one pause.
    For instance, this budget not only proposes to make a sweeping 
change in how the government funds a significant portion of the Federal 
retirement system, but it assumes Congressional approval of the 
proposal in the budget numbers submitted for each agency. Ordinarily, 
this type of change should be submitted to the appropriate authorizing 
committees for their consideration and action--then be taken up by the 
appropriators. But that is not the case this year when it comes to your 
proposal for treatment of retirement accruals. Nor is it the case for 
how you want the administration of the Federal worker's compensation 
account treated. The authorizers have the expertise on these matters. 
These proposals should have been submitted to them for their 
consideration and action, not to us. This troubles me.
    And your office appears to have had some difficulty getting the 
word out to all the agencies about these new proposals. During staff 
briefings with each of the more than 30 agencies funded in this bill, 
we learned that not every agency was aware of the new treatment of 
either the retirement accruals or the worker's compensation proposal or 
both. Some of them also did not get the word from your office about the 
proposed pay raise. Most were aware that pay disparity was proposed in 
the budget, but instead of planning on a 2.6 percent pay raise, some 
budgeted for a 3.9 percent pay increase or some other number in 
between. Their numbers did not add up, but were submitted as fact on 
February 4 when the budget was delivered.
    These might appear to be little problems, but to many of the 
smaller agencies we fund here, they make a big difference. That is why 
I was even more disturbed by some of the ``fact'' sheets your office 
produced and delivered to the media when the budget was released.
    In essence, your numbers did not add up. Your office claimed that 
the Treasury agencies were receiving big increases compared to last 
year when in fact most budgets dropped when actual dollars are 
compared. For instance, the document your people delivered trumpeted an 
overall 5.4 percent increase in funding for the Customs Service between 
fiscal year 2002 and fiscal year 2003 with an 18.4 percent increase for 
the salaries and expenses account alone. But when real dollars are 
compared, Customs funding for fiscal year 2003 is 9.1 percent below 
fiscal year 2002 levels. The same is true for the Federal Law 
Enforcement Training Center--which you claimed was receiving a 4.9 
percent increase, when in fact it faces a 14.6 percent decrease.
    The list goes on. Perhaps many of these agencies do not need huge 
budget increases. Perhaps cuts are justified. Perhaps Customs should 
have a year to pause and hire and deploy the people it needs at the 
borders before we require additional hiring.
    But the fact remains that all of these indicators give me reason 
for concern.
  --Asking appropriators to carry sweeping authorizing language is 
        putting the cart before the horse.
  --Not getting specific budget direction to every Federal agency is 
        more than careless.
  --And playing semantic games with the numbers casts a larger shadow 
        on the veracity of the budget requests.
  --Individually, they can be explained perhaps. But taken together 
        they are very troubling. This makes it even harder to support 
        requests which would further reduce the amount of information 
        already being provided to the Congress.
    But we will dig into these issues during the questioning rounds. We 
welcome you here this afternoon, but first let me turn to my Ranking 
Member, Senator Campbell, for any statement he would like to make.

    Senator Dorgan. Commissioner Rossotti, you may proceed.

                     STATEMENT OF CHARLES ROSSOTTI

    Mr. Rossotti. Thank you very much, Mr. Chairman, and let me 
also thank you for the support that you have given me and the 
agency, also for your comments, especially since I know that 
you were head of a agency yourself. I know that you really 
understand some of the challenges and also some of the things 
that we should be doing, so I really do appreciate your 
comments.
    I do think that we are improving our performance in the 
agency across the board and we are trying to do that by 
leveraging through better management and fundamental 
reengineering the resources that we have as opposed to just 
simply always asking for massive amounts of new resources. That 
is the theme that we are pursuing in this year's budget.
    Just to note a couple of things that, I think, show some of 
the progress we have made, we have certain surveys that track 
the public's view of our agency. There are two of them plotted 
on this chart. One of them goes back to the early 1980s by the 
Roper Starch organization, and as you can see, as you noted 
yourself, Mr. Chairman, our rating as viewed by the public 
really reached an unfortunate low point in the mid-1990s, and 
as you can also see, it has rebounded quite a bit. It is also 
shown in the red line University of Michigan survey.

                          PUBLIC RATING OF IRS

    I do not want to put too much emphasis on surveys, but I do 
think that the public's rating of how the IRS is doing its job 
is important for the health of the tax system. I do not think 
it is acceptable for the government agency that affects more 
Americans than any other agency to also be the lowest rated. So 
that was the mandate that we were given by RRA--one of them--
and I think that we are starting to deliver on that, although 
we certainly have a way to go.
    In terms of internal management, there was also a report 
that just came out today called the Federal Performance Project 
that was sponsored by George Washington University and 
Government Executive magazine. They do this elaborate analysis 
of all dimensions of management and we were just given a rating 
of B-minus, which is certainly not something we are satisfied 
with, except for the fact that the last time they did it, we 
were down in a C or C-minus, so I think the trend is coming up.
    There are a lot of things that are needed to be done to 
continue that trend. I think that one of them that helps us 
both on productivity and on customer satisfaction is electronic 
filing, electronic tax administration. We had a very nice 
result this year with 46 million returns filed electronically. 
We have a legislative proposal in the President's budget to 
help us move forward even more on that, which would extend the 
filing date for those who pay and file electronically until 
April 30. That has been passed by the House, and when it gets 
to the Senate, we hope that the Senate will give that favorable 
consideration.

                    FISCAL YEAR 2003 BUDGET REQUEST

    Now, turning to the budget request itself for 2003, it is 
for $10.4 billion and 101,000 full-time equivalent personnel, 
which is a $482 million increase. I want to point out this 
chart, which I think you also have copies of, shows what we are 
trying to do here, and I think we are succeeding, to deliver 
more bang for the buck. A simple way to look at that is that we 
are proposing that we would fund $259 million worth of 
programmatic increases, that is, direct tax administration for 
customer service and compliance. Most of that would be funded 
through internal improvement efficiencies and reallocation, 
such as electronic filing and other results of our 
modernization program, such that about 76 percent of the total 
programmatic increase would be self-funded and only requiring a 
quarter of that, roughly, in net appropriations from the 
Congress.
    I do need to point out, Mr. Chairman, that this approach 
will only work if the funds are actually appropriated for 
mandated items, such as pay raises and other legislative items 
which, frankly, has been a bit of a problem in the past.
    The other big part--really, the only other part of our 
request that is a programmatic increase is $58 million for the 
Business Systems Modernization Program, which in turn is the 
foundation for our future productivity increases, and I want to 
turn briefly to that program. We have in the last year begun to 
graduate from the planning phase into the delivery phase.
    As shown in the chart there in the green blocks, it shows 
that in 2001 and 2002, there are three critical building blocks 
that we plan to put in place. One of them we already have, 
which is our new telephone system to handle customer inquiries 
coming in by the telephone, which is our biggest single source 
of requests from taxpayers.

                       MODERNIZATION AND SECURITY

    This year, we plan to do two other big things. One is to 
move, for the first time, some of the records of taxpayers out 
of a 1960s tape-based system into a modern, reliable database, 
and the second one is to establish a security system that will 
reliably allow us to communicate and access data internally and 
externally.
    These things are very, very important and fundamental 
building blocks of the modernization program. Getting them in, 
getting these initial deliveries in is difficult and it is 
complex and it is risky, but it is also, I think, without 
question, something that when we succeed, will leave lasting 
value for the whole tax system. The lack of these building 
blocks has really been one of the fundamental millstones around 
the neck, if you will, of the IRS for many years.
    We are also addressing issues that have been raised by 
ourselves, as well as by GAO, in our capacity to manage this 
program going forward. There are weaknesses that have been 
identified in our ability to reliably predict schedules and to 
manage some of the configuration control as we put more and 
more systems into production. We are giving equal attention to 
fixing those as to delivering the specific deliverables.
    So to just sum it up, we think the 2003 budget request by 
the President does reflect our twin goals of delivering 
improved performance in the near term while modernizing to 
improve further in the future. We are attempting to do that to 
the maximum extent possible through internal reallocations and 
efficiency improvements and only requesting from the Congress 
what we believe is absolutely necessary.
    So that sums up our request, Mr. Chairman, and, of course, 
I am happy to answer your questions.
    Senator Dorgan. Commissioner Rossotti, thank you very much.
    We have been joined by my colleague, Senator Campbell. 
Senator Campbell, do you have an opening statement?

              STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

    Senator Campbell. I think, with your permission, I will 
just put my complete statement in the record since I arrived 
late, Mr. Chairman. I apologize for that. I was right over 
there on time to vote. How did you get here so quickly? You 
must have taken a fast train. But anyway, I do apologize for 
missing part of the Commissioner's statement.
    Let me just say one thing, and I am reading from the 
Government Executive magazine honoring your service as 
Commissioner, since you will soon be going back to private 
life. The article stated that, ``He,'' meaning Commissioner 
Rossotti, ``did not take the job for the vain glorious rush of 
policy making at higher levels but rather for the challenge of 
reforming the internal structure and management of an important 
institution in our government.'' I think that was really praise 
worthy. I think they hit it right on the button. When you do 
retire, you can retire knowing you did a job well done.
    I only heard you mention just in passing some group that 
gave you the measurement of a B-minus. Well, the college I was 
in, many of us would have aspired to be a B-minus.

                           PREPARED STATEMENT

    So, do not worry about the B-minus. I think that is 
considerably up from where the IRS was when you took the job, 
so thank you. Thank you, Mr. Chairman.
    Senator Dorgan. Senator Campbell, thank you very much.
    [The statement follows:]

         Prepared Statement of Senator Ben Nighthorse Campbell

    Thank you Chairman Dorgan. Good afternoon, and again, Welcome 
Commissioner Rossotti. My statement will be Brief. Commissioner 
Rossotti, it is a pleasure to have you appear before the Committee to 
express the needs, concerns and accomplishments of the Internal Revenue 
Service (IRS).
    Since your 5 year tenure will end later this year, I would like to 
thank you for doing a great job in reorganizing the IRS. The IRS has 
never been an agency with a lot of friends; in fact, the IRS may have 
been without any friends at all. But, as you move on to greener 
pastures, you will carry with you the accomplishments of:
  --Reorganizing the IRS by eliminating nearly 4,000 Jobs without a 
        reduction-in-force;
  --Receiving an ``Unqualified'' opinion on the financial statements 
        for both the revenue and administrative accounts from the GAO 
        for the past 2 year;
  --Aligning the IRS along business, rather than geographical units;
  --Business system modernization is moving from the planning to 
        implementation stages;
  --Transitioning of the old taxpayer records to a modern database;
  --Improving customer service and compliance; and
  --Providing better service for innocent spouse relief.
    There was a recent article in the ``Government Executive Magazine'' 
honoring your service as Commissioner. The article stated that ``he did 
not take the job for the vainglorious rush of policy-making at high 
levels, but rather for the challenge of reforming the internal 
structure and management of an important institution in our 
Government''. That was truly a praiseworthy article and I agree with 
the interpretation of your commitment and for that, I commend you for a 
job well done.
    The IRS is requesting $10.418 billion which is an increase of 4.1 
percent over fiscal year 2002. Of that amount, $1.676 billion is for 
information systems, $450 million for business systems modernization, 
$3.988 billion for tax law enforcement, $4.150 billion for processing, 
assistance and management and $154 million for the earned income tax 
credit compliance initiative.
    All of these accounts are really big ticket items and we understand 
the need for the IRS to be able to improve the timeliness and accuracy 
of IRS'S ability to interact with taxpayers.
    In the 2001 Tax filing season, there was noticeable improvement. A 
recent news release stated that the 2002 tax filing season was one for 
the record books. If these reports are correct then the IRS is moving 
forward in the right direction even though there is still a lot to be 
done.
    The final analysis is that taxpayers should always receive 
courteous, accurate and expeditious service and I will continue to lend 
you my support.
    Thank you Mr. Chairman.

                           FEDERAL PAY RAISE

    Senator Dorgan. Mr. Commissioner, the President's budget 
proposes a 2.6 percent pay adjustment for Federal civilian 
employees and a 4.1 percent pay adjustment for those in the 
military. There will be a discussion here in Congress about 
whether to provide pay parity for civilian employees in the 
military. If the Congress were to choose to provide Federal 
civilian employees the same pay increase or pay raise that the 
military were provided, what would that cost the Internal 
Revenue Service?
    Mr. Rossotti. We are estimating it would cost slightly in 
excess of $70 million, which is a very substantial amount for 
us. If you look at it compared to what I just showed you on the 
chart, it basically reverses most of the programmatic increases 
we were hoping to gain.
    So I would say--and, of course, last year, we had a 1 
percent difference, which was $40 million, and, of course, that 
continues into the following year. So together, if you add 
those two together, you are up over $110, $115 million.
    My recommendation, or, I guess it could be a plea to the 
Congress would be, certainly, it is in the Congress's 
prerogative to decide what the pay raise should be, but in an 
agency like the IRS, which is heavily dependent upon personnel, 
if the pay is made higher, that the Congress would appropriate 
the funding for it. Without that, what we are doing is really 
just undermining the rest of the program.

                          ABUSIVE TAX SHELTERS

    Senator Dorgan. Commissioner Rossotti, there are more and 
more stories that appear in our papers these days about abusive 
tax shelters and about tax advisors who tell corporations that 
they can go right up to the line, in some cases too close to 
the line, with respect to sheltering their income. I just came 
from a 4-hour hearing on the Enron Corporation. The Enron 
Corporation, I believe, was running something like 600 
subsidiaries out of a single post office box in the Cayman 
Islands.
    So how prepared is the Internal Revenue Service to attack 
these abusive tax shelters? Do you think you have a ghost of a 
chance to make a difference there? Are you dealing with it 
aggressively? Can you tell me about that?
    Mr. Rossotti. Yes, Mr. Chairman. First of all, let me just 
say that I think we have better than a ghost of a chance. I 
really think that we are very clearly focused on this. There 
are a variety of different kinds of tax avoidance devices. The 
kind that you were referring to tend to be used mainly by large 
corporations and a few----
    Senator Dorgan. They tend to be what?
    Mr. Rossotti. They tend to be used by mainly large 
corporations and very wealthy individuals. I call them the 
designer tax shelters. There are other kinds of tax avoidance 
devices for middle-income and other people, such as using 
credit cards to hide income and offshore accounts. We have, at 
the present time, I think, very clear strategies and focus on 
both of these kinds of devices.
    With respect to the corporate-type shelters, the key thing, 
I believe, that has been a problem for us up until now. We are 
starting to make some progress on getting disclosure on these 
shelters. We had a regulation----
    Senator Dorgan. What do you mean by getting disclosure?
    Mr. Rossotti. Well, finding out about them, finding out who 
is using them, which taxpayers are using them. They are complex 
and they can be very--corporate tax returns are very huge and 
sometimes we, just because of the time it takes to audit these 
returns, do not get--we are not as current as we would like to 
be on which years we are auditing. We can simply miss or too 
much time can go by before we find out which corporations are 
using which shelters, and that hurts us in terms of reversing 
improper use of shelters on the taxpayers' past returns. It 
also causes a delay in shutting these down for the future.
    I think we are making some real progress on that. We had an 
initial regulation that was issued which was not as well 
complied with as we would have liked. Recently, we had a 
disclosure initiative, and I can report to you that we have 
close to 1,000 taxpayers now that have come forward, corporate 
taxpayers, some individuals that have disclosed these returns. 
Treasury and the IRS worked together to come up with a 
proposal, which was outlined about a month ago, to require even 
more disclosure. Some of those would require legislation. Some 
of them can be done administratively.
    With disclosure, which we are now starting to get, and the 
Treasury's proposals implemented even more successfully, we 
will do two things. One is we will go back to the taxpayers 
that have used these in the past and require them to pay to the 
extent that they are verified to be actually abusive shelters, 
and then we will shut them down for the future.
    I think we are on the case. I do think we need the help of 
Congress to pass the additional request that the Treasury has 
submitted legislatively to ensure disclosure.
    Senator Dorgan. There is a study out of Florida which I 
have last year added some funds so that we will 
institutionalize that in a short period to provide some 
additional information----
    Mr. Rossotti. Right.

                            TRANSFER PRICING

    Senator Dorgan [continuing]. But they feel very strongly 
that we are losing $30 to $40 billion a year, and that actually 
is through price transfers or transfer pricing, as it is 
called, and they study these things and show that companies 
that have United States subsidiaries are buying and selling 
from themselves and charging prices like $50 for a piano, $7.60 
for a tractor tire, $15 for a toothbrush.
    They overprice or underprice a product in order to zero out 
any income in the United States, and, therefore, they pay no 
income tax in the United States. They do this through a 
sophisticated scheme called transfer pricing, and for you to 
get to the bottom of it, you have to take the equivalent of two 
plates of spaghetti and connect the ends of the spaghetti. It 
is impossible to do. I do not think you can do it. I do not 
think you are doing it.
    And yet, the Treasury Department, as a matter of policy, 
they look around and act moon-faced and say, gee, things are 
just great. They are not great. You need more resources and we 
need a different strategy. What we need is a formula-based 
system rather than the arms-length system. But you will be long 
gone and I will still be debating this, and I probably will not 
win, but I am not going to quit because that is also part of 
abusive sheltering of income. What the big interests do not 
pay, the little folks end up paying in income taxes. It was 
therapeutic for me to say that, and I will----
    Mr. Rossotti. The transfer pricing is one aspect, but I 
think more generally, the use of various international 
techniques, if you will, a variety of them try to move income 
outside the United States is part of the problem, without 
question.
    Senator Dorgan. Is inversion legal, corporate inversion, 
where a corporation renounces its U.S. citizenship, pays a few 
bucks to a tax haven, becomes a citizen of that tax haven, and 
calls its operations in this country a subsidiary and then 
plays around between itself and its subsidiary in the United 
States as a foreign corporation? You know that inversion is 
happening.
    Mr. Rossotti. Yes, I do.
    Senator Dorgan. Is it legal?
    Mr. Rossotti. Well, first of all, let me just be 
cautionary. I am not--this gets into one of the most highly 
technical areas of the law that there is, and----
    Senator Dorgan. Yes, but I am in the middle of it, so----
    Mr. Rossotti. I know, and----
    Senator Dorgan. It does not mean I understand it. I am just 
asking----
    Mr. Rossotti [continuing]. And I do not want to overstep my 
level of expertise.
    Senator Dorgan. Well, go ahead.
    Mr. Rossotti. As far as I know, there are techniques that 
make some of these kind of inversions legal under current law. 
That is what I have been advised. Now, there probably are a 
wide range of facts that affect any individual one, so you can 
never comment in general, but my understanding, as I have been 
advised, is that, for the most part, people are following the 
letter of the law and they do have the right to do this.
    I will say that some of these transactions are taxable when 
they do them, I do know that, so that it does require a payment 
of capital gains tax at the time the inversion is done. That is 
part of the law.
    But this is an extremely complex area and it really 
requires, I think, some careful analysis by the appropriate 
committees as well as Congress.

                          POST 9/11 SITUATION

    Senator Dorgan. Let me ask your judgment about it, though. 
Post-9/11, when we are fighting terrorism and so on and we have 
a company that says, you know what I would like to do? In order 
to save on our tax bill, I would like to renounce my American 
citizenship. What is your impression of that?
    Mr. Rossotti. Well, I think as a citizen, that is not an 
appealing thing for somebody to do. I am speaking as a personal 
matter. Our job in tax administration is to administer the laws 
as they exist. There are plenty of them that I do not 
particularly like, but I have made up my mind that I would take 
the oath of office and administer them as they were passed.
    Senator Dorgan. I understand. I am asking the question 
because I find it pretty outrageous, frankly. I mean, the issue 
of patriotism is an important issue in this country----
    Mr. Rossotti. I agree.
    Senator Dorgan [continuing]. And the companies that do an 
inversion and essentially renounce their U.S. citizenship, who 
are they going to call, the Bahamian navy when they are in 
trouble? I do not think so. I mean, the best they get to offer 
is a post office box in these countries. All right. But you are 
nearing the end of your term and you can say whatever you like.
    Mr. Rossotti. What I have said many times, and I think it 
is not just on inversions but any misuse of the law or skirting 
of the tax law by people that have access to very sophisticated 
tax advisors or devices that are promoted in any form to not 
pay taxes that they should be paying, I think is probably the 
worst thing that can happen as far as the tax system is 
concerned for the very reason that you say. Most people have to 
pay their taxes. Most people do pay their taxes.
    We hear this all the time, not only anecdotally, but just 
going out and talking to people out in the community. They say, 
why are you guys picking on the little guy? Why do you guys not 
go out and really get the people that are really abusing the 
system? I agree with that. It is just that, sometimes, people 
are using laws as opposed to abusing laws and we can only deal 
with the ones that are abusing the laws. Without legislation, 
we cannot deal with the ones that are using the laws as they 
exist on the books.
    Senator Dorgan. Mr. Commissioner, I have a series of 
questions I will submit to you.

                            CONTRACTING OUT

    One last question, and then I will call on my colleague. 
The Office of Management and Budget is proposing that every 
agency meet a contracting out quota, 5 percent of their 
commercial jobs in fiscal year 2002 and 10 percent in fiscal 
year 2003. You are in the middle of a major reorganization. I 
am wondering, do you think these arbitrary contracting out 
quotas are good? Are they a good tool at this point or are they 
restrictive and difficult?
    Mr. Rossotti. We are attempting to manage this process in a 
way that will be as constructive in terms of our real 
objectives as we can. I mean, it is a quota of those jobs that 
you designate as being potentially outsourceable. It is not the 
whole agency, and so what we have been trying to do is to be 
very careful, and we are putting significant effort into 
analyzing those things. There are some, frankly, the ones we 
have identified in the first 2 years are reasonable to look at 
for outsourcing and they are commercial activities, like 
distributing forms, for example. We have some distribution 
centers that distribute forms. That is something that can 
reasonably be done by an outside group.
    I think that as long as we can manage this in a way that is 
reasonably consistent with our objective for increased 
productivity without making them arbitrary, then I think we 
will be fine.
    Senator Dorgan. Senator Campbell?
    Senator Campbell. Thank you, Mr. Chairman.
    Let me ask a few simple questions that will not tax your 
level of expertise, although I do not think here in the Senate 
that is a problem, because we do it every day.
    The IRS is looking into the feasibility of outsourcing some 
of the collection process to private collection agencies. I 
think that is what Senator Dorgan alluded to. In that 1996 
pilot program, expenses were equal to the revenue generated 
and, therefore, you did not make any money. At least, that is 
what I figure. What can private debt collection agencies do 
differently this time to collect more than it is costing?
    Mr. Rossotti. That is exactly the issue we are studying, 
and I think it is a good illustration of how we are trying to 
handle this, responding back to the Chairman's question. We are 
not going forward and doing the same thing that was basically a 
failure in 1996. What we are doing is, as part of our 
modernization of collection process, which is one of our 
modernization processes, we have invited private sector 
companies in. Let me just say, I can only go so far in this 
because I have an ethical conflict here and a recusal, so I can 
only comment at a very general level on this subject.
    But the basic idea is that we have invited these people to 
look at the way the process works and to determine whether 
there would be a business case and what portion of the 
collection process we would do before we actually do a project 
and study it and actually outsource it. So that is the process 
that we are following.
    I think as an intelligent way to manage it, it is 
reasonable, because we are getting the input from people that 
are in the business of doing private sector debt collection. We 
have them actually look at the way it works in the Federal 
Government and determine if there is, in fact, some portion of 
the debt that could be profitably outsourced, before we go just 
jumping in and saying this is what we are going to do.
    Senator Campbell. How do you ensure privacy when you 
outsource?
    Mr. Rossotti. Well, that is one of--what we have given 
through the process of consulting, we have actually put out an 
RFI, which is a request for information, a definition. We asked 
them to respond, and one of the key things that the vendors are 
looking at and coming in to tell us about, and they are not 
telling me because I am recused from the process, but what they 
are telling our staff is how they would, if they did come in, 
meet a variety of things that are particular to the Federal 
situation and privacy is paramount. Taxpayer rights is another 
one. The Congress has passed a lot of taxpayer rights 
provisions that are part of the----

                            CONTRACTING OUT

    Senator Campbell. Do you have some way of monitoring that 
with companies that are outsourced?
    Mr. Rossotti. Well, we have not gotten down to that point 
yet, but what we are asking the companies that are thinking 
about doing this business is to tell us how or if they could 
comply with these requirements, such as privacy and taxpayer 
rights, and then how we would ensure compliance if we went 
forward.
    Let me mention one other point, Senator, and that is that 
this would require legislation. The issue of outsourcing, that 
particular outsourcing of debt collection, we have been advised 
by Counsel would have to come before the Congress. It would 
require legislation.
    Senator Campbell. What you did was a demonstration project.
    Mr. Rossotti. Right.

                          OFFERS-IN-COMPROMISE

    Senator Campbell. The offers in Compromise, I guess it is 
called, the OIC program, which includes collecting that which 
could be reasonably collected at the earliest time with the 
least cost, meaning avoiding a costly litigation, I assume, 
things of that nature, gives taxpayers a fresh start to let 
them voluntarily comply----
    Mr. Rossotti. Right.
    Senator Campbell [continuing]. What was the total amount 
collected through that program in fiscal year 2001?
    Mr. Rossotti. That is a number that I would have to get you 
for the record, Mr. Chairman. I do not think I have the exact 
number.
    Senator Campbell. Then maybe you could tell me how you 
measure the effect of this, of offers as a collection tool.
    Mr. Rossotti. What we do, and let me just preface this by 
saying this is a relatively new program, or it is not 
completely new, but it was dramatically expanded in RRA. I have 
to be honest and say we have been struggling with this 
program--I do not want to mislead anybody--to get it in an 
efficient state so that it will accomplish its objectives, and 
I do not think we are quite there yet, but I think we are 
getting close.
    What the basic idea of this program is and a measure of 
effectiveness is if a taxpayer is willing to pay but cannot pay 
the full amount of their debt, which happens, there are a lot 
of reasons why people can get behind----
    Senator Campbell. It is cheaper to take what you can get 
rather than putting them in jail and going through all the 
litigation or all that stuff.
    Mr. Rossotti. Exactly. Let us take what we can get, and 
that is measured by something that is called the reasonable 
collection potential, which is a calculation that we can go 
through with a taxpayer to determine, based on their income and 
their assets, how much they could pay. If that is less than the 
full amount, then we compromise. We settle on that, we wipe it 
off the books and they get a clean slate.
    The difficulty has been that we have gotten a huge upsurge 
of these offers since RRA was passed and we have gotten a 
backlog of them which we are now just starting to work down.
    The other thing that we have had difficulty with is 
figuring out how to efficiently calculate what this reasonable 
collection potential is and coming to a conclusion, and we have 
put a lot of work into that. We have now got two sites that are 
set up specially to do this, and we just recently, in the last 
few months, made some additional decisions about how we can 
streamline this process. We really expect--right now, we have 
an inventory of 103--I think it was about 100,000 claims of 
these in process and we hope to get that down to about 55,000 
by the end of this year, cut it in half.
    Senator Campbell. So you do not actually know if the costs 
of monitoring it and doing this has collected more revenue 
than----
    Mr. Rossotti. Oh, it would be collecting more revenue than 
it is costing, but I will have to get you--I can get you, in 
fact, the numbers. I just do not have them with me today.
    Senator Campbell. I know it works sometimes, because when I 
was a young man, long before politics, Mr. Chairman, that 
happened to me, not through any fault of mine, but the guy that 
prepared my tax returns missed it by about $20,000 and I was 
called down and told that I owed $20,000 and I did not have any 
money. I just told them, well, send me to jail because I did 
not have any money and needed a vacation anyway. But they 
worked something out so I would pay part of it and pay part of 
it on time and all that and it worked pretty good. So they got 
more out of me, so I imagine it works with other people the 
same way.
    Mr. Rossotti. There is no question. I was one of the great 
proponents of doing this. It is just that it turns out to be a 
little complex on a case-by-case basis to actually come to a 
conclusion as to what the right amount is and get it off the 
books. But there is no question about the value of the program.

                         TAX RESOLUTION ISSUES

    Senator Campbell. According to the 2001-2003 Wage and 
Investment Strategy and Program Plan, the IRS plans to hire and 
train tax resolution representatives to provide a greater range 
of services. They will be expected to assist taxpayers with 
claims for innocent spouse relief. Have you presently trained 
and deployed these people in field offices yet?
    Mr. Rossotti. We have. We have trained and deployed some of 
them. We did some of them in 2001 and some of them in 2002. The 
budget is, of course, the constraining factor as to how fast we 
do them, but we definitely have established the position. I can 
get you the numbers on how many. I do not have it right here 
with me. I can get the numbers----
    Senator Campbell. I would also be interested in knowing the 
results, too, if you have any.
    Mr. Rossotti. The results, I think, are already--although 
we do not have perfect measurements--I think, without question, 
the response we have gotten from the public is very positive, 
because if you remember, I think we came out to your district--
--
    Senator Campbell. You did. You talked to widowers, I 
remember, and a widow.
    Mr. Rossotti. And part of that was that there was no one 
that they could go to in person to get this problem resolved in 
one place, and that was the whole reason that we set these up. 
It is a new position in the IRS and I think it has a lot of 
value, and the idea is that someone can come in, make an 
appointment if they want to, and get one person to resolve 
their case.
    Senator Campbell. Instead of talking to a computer or a 
machine or something.
    Mr. Rossotti. Right----
    Senator Campbell. There are people in Colorado----
    Mr. Rossotti. We will get you the numbers on how many have 
been deployed so far.
    Senator Campbell. All right. Thank you. That trip you made 
to Colorado years ago, there are people that were in there that 
got a chance to talk to you personally about their problems. 
Some of them still come in the office and say how beneficial 
that was to them, how much it helped them.
    Mr. Rossotti. We learned a lot, too.

                      WALK IN TAXPAYER ASSISTANCE

    Senator Campbell. Thank you, Mr. Chairman.
    Senator Dorgan. Commissioner Rossotti, as I indicated, we 
will submit questions to you. One last point. As you know, last 
year, I added some money to the Inspector General's account and 
asked that he conduct an audit every second month of your walk-
in taxpayer assistance centers, and the reason I did that is I 
was at home late in the evening reading an Inspector General's 
report prior to a hearing and discovered that the report showed 
that of those who showed up at these walk-in taxpayer 
assistance areas around the country, 73 percent, I believe it 
was, either got the wrong answer or no answer. I was very angry 
about that and said that that cannot continue. So I put money 
in the Inspector General's account and asked that every second 
month, he do a similar investigation and report the results 
back to us.
    One such investigation has now been done. It shows marginal 
improvement. It is an improved situation, although still not 
anywhere near where you and I would want it to be. I am going 
to monitor that very closely all year. Every second month, I am 
going to get a report, an investigative report. I know you are 
working on this very hard.
    If you have a tax law and expect people to comply with it, 
if they seek out the Internal Revenue Service and ask for 
assistance and get the wrong answer or get no answer or get 
treated rudely, as happened in a couple of cases, it is exactly 
the wrong thing and it upsets me as a lawmaker and I know it 
upsets you as a Commissioner.
    I just wanted to underscore with you again how important 
that is to me. You and I have had several discussions about it 
and these investigations will be relentless over the 12 
months----
    Mr. Rossotti. I understand.
    Senator Dorgan [continuing]. And there is no way to escape 
them because they are in law, but I think it is good for you 
and good for us to have this done.
    Mr. Rossotti. We are using the results of those, as you 
know, very carefully, and we have been working closely with the 
IG. As I think we have discussed on some other occasions, 
getting the correct answers in tax law questions in the in-
person sites is one of the harder pieces of the puzzle, just 
because they are dispersed in 400 locations, 250 of them are 
small enough they do not even have a manager on site, and, of 
course, there is a wide range of questions that people can ask. 
So what we have done is quite a few different things to try to 
improve the quality, first of all, let me say, at two levels.
    The first level of quality is that people are treated 
properly regardless of the exact answer to the question. There 
is no excuse to have any level of failure in that area, and I 
think we did have some in the past. Very honestly, that 
particular part of the IRS was not given a lot of priority. As 
you can see from the report you have been given, we have 
largely, although not 100 percent, fixed that part of the 
problem. I think people, for the most part, are getting service 
and getting treated properly, and if there are isolated 
incidents where they are not, we are going to fix it.
    The next piece of it is to make sure that they not only are 
treated right and get an answer but that they do not get the 
wrong answer, that they get the right answer, and we have also 
made some progress on that. That is a harder problem because 
that involves technical questions and tax law training and 
repetitive work with employees to get the answers right.

                      TAXPAYER ASSISTANCE QUALITY

    I think we have some encouragement from what has happened 
on the telephone system because most of the people who contact 
us for tax law questions actually call by telephone. A few 
years back, we did not even have a measurement system for it, 
and when we did measure it, the results were no better than 
what you heard from the IG on the walk-in sites. This year, so 
far, on telephones, we are up to about an 83 percent correct 
response rate, which is still not as good as it should be, but 
it is way, way up from where it was.
    I think if you look at what percentage of the ones in the 
walk-in sites are correct now, they are probably down around 
the 60--of those that are answered, that it is probably around 
60, 65 percent or somewhere in there. So I think we clearly 
have a ways to go on both of these, but I think we are working 
on it very diligently.
    One of the things I would point out is structurally what we 
have done with the IRS so that it carries on is to have 
somebody that is in charge of it full time and that you know 
who they are and they are accountable for it.
    In the old IRS, these walk-in sites, there were 400 of 
them, they all reported to different people, they were an 
afterthought. We now have one chain of command. I know who--and 
I would be glad to introduce him to you if you would like to 
meet him--who is in charge of these walk-in sites, and then he 
has a few people under him. They work full time, every day, 
trying to make this better, and that will carry on year-after-
year-after-year. I think that is a fundamental structural 
change that we have today in the IRS that we did not have, and 
that is true of the other programs, too. The taxpayer phone 
service, there is somebody else in charge of that.

         PREPARED STATEMENT AND ADDITIONAL COMMITTEE QUESTIONS

    So at the very least, as time goes on, we are not going to 
forget about this. We are going to have people that are 
measured every month and every quarter on how well they are 
doing in delivering these services.
    Senator Dorgan. Mr. Commissioner, thank you very much for 
your testimony today.
    [The information follows:]

               Prepared Statement of Charles O. Rossotti

                             budget summary
    Mr. Chairman, I want to take this opportunity to thank the 
President and Treasury Secretary O'Neill for their continued support of 
our critical mission on behalf of the American people and our efforts 
to modernize the Internal Revenue Service.
    During this time of national sacrifice and resolve, I am most 
grateful for the funding contained in the proposed IRS budget. The 
President's fiscal year 2003 budget request of $10.418 billion for the 
IRS will enable us to stay the course we embarked upon more than 3 
years ago. We will be able to continue to make short-term improvements 
in service, compliance and efficiency as well as investments in our 
long-term Business Systems Modernization (BSM) program.
    Mr. Chairman, let me also express my gratitude to you and the 
Members of the Subcommittee. After careful review, you have 
consistently approved a level of funding consistent with the requests 
of the President. Moreover, you have expressed a growing confidence in 
our ability to better manage the BSM program in spite of the challenges 
we confront. This was clearly demonstrated last year when you released 
a full year of funding for BSM. We still have much work to do to meet 
the high standards and goals you set, but this tangible vote of 
confidence is most appreciated and we will endeavor to earn it every 
day.
                              introduction
    Mr. Chairman, 3 years after the passage of the IRS Restructuring 
and Reform Act of 1998 (RRA 98), we have developed and are carrying out 
a modernization program of short- and long-term improvements. They are 
designed to achieve the overall objectives of improved service, better 
treatment of taxpayers, more efficient and effective compliance and 
greater overall efficiency.
    We are proving that the long-standing problems at the IRS are not 
insolvable. We are gradually improving our performance across the 
board--not through massive infusions of new resources, but by 
leveraging our limited resources through better management and a 
fundamental reengineering of business processes. We have been able to 
reallocate precious resources and personnel to where they are needed 
most, such as improving customer service and stabilizing critical 
compliance activities.
    During fiscal year 2001, returns, payments and refunds were 
efficiently processed. The telephones were better answered. We tore 
down more barriers and added more incentives to electronic filing of 
returns and payment of taxes. More taxpayer problems are being solved 
in a telephone call or visit. We simplified some forms and regulations. 
We better administered RRA 98's taxpayer rights. We stabilized some key 
compliance activities. We worked to ease the burden of those affected 
by the September 11th terrorist attacks.
    However, if we look back on the progress we made in fiscal year 
2001, we also clearly see how far we still have to go. The IRS 
Oversight Board, the GAO and Treasury Inspector General for Tax 
Administration (TIGTA) have reported on numerous deficiencies. We still 
are not consistently providing service at a level that taxpayers expect 
or deserve. We still are not ensuring that everyone's neighbor or 
competitor is complying with the tax law and paying what he or she 
owes. We have many jobs that we must perform at higher quality and 
efficiency.
    There are no shortcuts to achieving our goals. The IRS' problems 
developed over a long period and are too widespread, deep and complex 
to yield to simple, quick remedies. We must carefully lay a foundation 
that will allow us to succeed in our rebuilding efforts. We have now 
restructured our organization, reducing management layers and achieving 
more customer focus and greater management accountability. We have 
developed and implemented a new set of balanced performance measures.
    Our biggest remaining task is to modernize all of our business 
processes using the appropriate and best technology. The real tangible 
benefits of modernization will materialize over the remainder of the 
decade in carefully planned and executed projects. The first of these 
were delivered this past year; taxpayers will see more in 2002.
    To ensure the success of IRS modernization, we must stay focused 
and committed to the intent of the Restructuring Act, making 
adjustments as necessary; but not losing sight of the goal which is to 
provide quality service and proper treatment to every taxpayer while 
collecting the taxes that are due under the law. The scope of the task 
ahead is still enormous but so is our resolve to finish the job we 
started in July 1998.
                       service improvements made
    We want to improve the entire way the IRS serves taxpayers--from 
filing and paying taxes to getting information and assistance to 
protecting their rights. More than the sum of its parts, the highly 
successful 2001 filing season continued to demonstrate how we can build 
on positive trends in service to taxpayers, especially as our major 
technology and organizational initiatives take effect.
    Indeed, a government-wide survey released in December 2001 
demonstrated improved customer satisfaction among individual taxpayers, 
especially among those who file their returns electronically. The IRS 
posted an 11 percent increase in satisfaction among all individual tax 
filers since 2000 and a 22 percent increase since 1999. It was the 
largest favorable gain of the 30 Federal agencies surveyed by the 
American Customer Satisfaction Index (ACSI) Survey. (Please see 
attached chart.)
Electronic Tax Administration (ETA)
    In 2001, a little more than 40 million taxpayers filed 
electronically--a 13 percent rise from last year. Since 1997, e-filing 
increased by 110 percent, and on-line filing grew by a staggering 1,700 
percent. Clearly, the value taxpayers receive from all our e-programs 
is one reason behind the growth. Faster refunds, positive 
acknowledgement of receipt and fewer errors that require time consuming 
letters and telephone calls to correct are key benefits to taxpayers.
    One of the important reasons for the strong showing in the ACSI 
survey was the very high satisfaction rate among electronic filers. It 
was 77.2 points--higher than the previous year and the third year in a 
row that e-file taxpayers expressed increased satisfaction.
    For the 2001 filing season, we added 23 additional forms to the 
1040-e-file program. And we achieved a major milestone in the 2002 
filing season--virtually all 1040 forms and schedules can be filed 
electronically and no paper signature document is required. We are also 
expanding the electronic payment options available to taxpayers by 
accepting credit cards to pay installment agreements and delinquent 
taxes. In addition, we are repeating a popular option from the 2001 
filing season. Taxpayers who need a filing extension can get one 
automatically by making a simple phone call.
    In 2001, we also better served the business community's ETA needs. 
In September we introduced EFTPS OnLine (Electronic Federal Tax Payment 
System), which allows businesses to enroll in the system, securely make 
Federal tax payments and check their electronic payment history over 
the Internet. And businesses can now file electronically their Form 941 
(Employers Quarterly Federal Tax Return), as well as Form 1065 
(Reporting Partnership Income) and Form 940 (Employers Annual Federal 
Unemployment Tax Return). Individual taxpayers who make quarterly 
estimated tax payments could also use the system, eliminating paper 
forms and receiving on-line access to payment history.
    Taxpayer use of our web site also smashed all records. Four years 
ago, irs.gov received 260 million hits. This year, we estimate that it 
will post 2.6 billion hits with more than 317 million forms and 
publications downloaded. It has also been helpful in alerting taxpayers 
to a number of scams that are being perpetrated upon them, such as the 
bogus slavery reparations scheme.
    In 2001, we also launched the Small Business and Self-Employed 
Community web page. It is dedicated to the needs of this important 
group of taxpayers who often confront more complex tax issues than 
those who have their taxes withheld by an employer. And we recently 
unveiled a revamped IRS web site that will eventually take us from 
being an information-only portal to a world-class transaction based 
gateway.
    The Administration also proposes in its budget submission ``an 
easy, no-cost option for taxpayers to file their tax return online.'' 
Unfortunately, there has been some confusion regarding this proposal. 
The Administration's proposal to give taxpayers the option to file 
their tax returns on-line without charge is based on two principles: no 
one should be forced to pay extra just to file his or her tax return 
tax, and the IRS should not get into the software business.
    In a statement issued on January 30, 2002, Treasury Secretary 
O'Neill stated, ``I don't intend for the IRS to get into the software 
business, but rather to open a constructive dialogue with those who 
already have established expertise in this field. In the end, this 
effort should come up with a better way to save time and money for both 
taxpayers and the government.'' The IRS totally concurs with the 
cooperative approach enunciated by the Secretary and we will follow it 
to the letter.
Telephone Service
    Many taxpayers prefer telephoning the IRS, and our inability to 
deliver this basic service contributed significantly to the public's 
lack of confidence in the IRS in the 1990s. During that time, up to 80 
percent of taxpayer calls were met with a busy signal, and according to 
Roper Surveys, the public's rating of the IRS declined to an all-time 
low in 1998.
    Since 1998, we provided extended hours of telephone service during 
the filing season. We also put on more assistors at peak hours, rather 
than just during normal business hours. Almost 108 million taxpayers 
called on one of our toll-free lines during fiscal year 2001. We 
received 76 million automated and Teletax calls, and our live assistors 
handled 32 million taxpayer calls. Our San Patricio, Puerto Rico call 
site became fully operational in 2001 and will greatly assist us in 
providing better access and service to Spanish-speaking taxpayers.
    Nearly all callers now have almost immediate access to automated 
services, although some callers are forced to wait longer to receive 
assistor service. For taxpayers who wanted to reach an assistor in the 
2001 filing season, the overall wait time was 5 minutes and they 
reached an assistor 63.9 percent of the time, which often required them 
to call back. During the summer, a very large volume of telephone calls 
related to the special advance refund reduced the average service to 
below the previous year. And this level of service is still 
unacceptable to both taxpayers and the IRS. We are using every method 
at our disposal, including modern technology, to address this problem.
    Once connected, taxpayers must get prompt, accurate and courteous 
answers to their account and tax questions. Here, too, we have made 
substantial progress towards providing better service to taxpayers. The 
telephone quality rates for tax law and tax account questions showed a 
marked improvement in fiscal year 2001. They were up to 75.1 percent 
and 69.1 percent respectively as compared to 73 percent and 60 percent 
over the same period last year. Although we would agree with the GAO's 
assessment that we have not yet attained a world class customer service 
level, we believe that we are on the right track to achieving that 
goal.
    To increase productivity and quality of service, we must give our 
employees the technology and tools they need to do their jobs at a high 
level. The first of the BSM projects, Customer Communications 2001 
(CC01), was deployed in July 2001. It improves the efficiency and 
effectiveness of our systems for receiving, routing and responding to 
millions of taxpayer telephone calls. CC01 helped us increase the total 
number of calls answered, which surged by 32 percent over the past year 
due in large measure to the advanced tax refund. We must also give our 
assistors specialized knowledge so they can better answer taxpayer 
questions about a very complex, difficult and changing Tax Code.
In-Person Service
    For those taxpayers who prefer to visit an IRS office, service is 
available at more than 400 locations nationwide. At many sites, in-
person service is offered on Saturdays during the filing season.
    In the past, the IRS did not place a high priority on what were 
called ``walk-in'' sites. The services offered at them were limited and 
often of poor quality. However, under our new Field Assistance concept 
of operations, we will better serve taxpayers at our taxpayer 
assistance centers. We will help them meet their filing and paying 
responsibilities including answering their tax law questions and 
providing forms and limited courtesy return preparation.
    Throughout the year, and at a variety of locations, we also 
schedule the highly acclaimed Problem Solving Days to resolve long-
standing taxpayer issues for those who cannot take advantage of weekday 
problem solving services.
    Problem Solving Days have an excellent track record. However, every 
day should be problem solving day at the IRS, not just three or four 
times a year. That means using a cross-functional approach to resolve 
most tax account issues with a single visit or phone call at any time 
throughout the year.
    To help us meet this need, we created a new job at the IRS, ``Tax 
Resolution Representative.'' These IRS employees will receive the 
training and authority to provide ``one-stop-service'' for a broad 
range of issues ranging from answering tax questions to resolving 
payment problems.
    Our Stakeholder Partnership, Education and Communications (SPEC) 
organization is also now working to energize the Volunteer Income Tax 
Assistance return preparation program. Last year, we worked with more 
than 18,000 volunteer sites across the country to assist an estimated 
4.3 million taxpayers wanting this service.
Burden Reduction
    We are also working to provide immediate and far-reaching burden 
relief. For example, in fiscal year 2001, we overhauled the old, 
complicated rules governing the required minimum distributions from 
individual retirement accounts. Also, millions of taxpayers are no 
longer required to file the 54-line Schedule D, ``Capital Gains and 
Losses.'' The ``checkbox'' burden reduction initiative, which enables 
taxpayers to authorize the IRS to discuss their returns with their paid 
preparers, also made a very strong showing in its inaugural year. In 
addition, we provided burden relief to small businesses through a 
number of initiatives, including permitting many of them to use the 
cash versus the accrual method of accounting.
    However, burden reduction goes beyond filing and payment issues. It 
also means helping taxpayers with the sometimes complex RRA 98's 
taxpayer rights provisions, such as the innocent spouse and offers in 
compromise programs and enhanced due process rules. We are still 
working very hard to administer these provisions better. However, along 
with some remaining management challenges, there have also been some 
successes.
    Faced with a mounting backlog of 40,000 innocent spouse claims, we 
took several steps to promote greater efficiency. The innocent spouse 
program was centralized at one location in Cincinnati and we provided 
the necessary staff to dig out from under the backlog. The Innocent 
Spouse Program is now operating at a reasonable level of service and 
efficiency.
    Burden reduction also means communicating with taxpayers in plain 
English. As part of our continuing effort to improve our correspondence 
to taxpayers, and following RRA 98's directions, the IRS began sending 
out this year six redesigned notices, including those dealing with math 
errors, balance due, overpayments and offsets. These notices affect 
both individual and business taxpayers. The new notices should reduce 
the number of times taxpayers need to contact the IRS, be easier to 
understand, and help resolve inquiries. We continue to redesign 24 
additional notices. We plan to release four of them in January 2002, 
seven in July 2002 and the remaining 13 in January 2003.
Advance Refund and September 11 Response
    Last year, the concept of service to taxpayers went far beyond what 
is normally expected of the IRS. Two events--the issuance of millions 
of advance refund checks and our response to the tragic events of 
September 11--demonstrated how we could provide service to taxpayers 
under extraordinary circumstances.
    For the advance refund, the IRS coordinated an unprecedented 
outreach to America's taxpayers, an intricate computer programming 
project, a flurry of news releases, an updated irs.gov site and 
additional assistors to handle record call volumes.
    Following the September 11 national tragedy, IRS and Treasury 
Department employees did their best to minimize the distraction of tax 
issues for the victims. By September 14, 3 days after the attack, we 
provided administrative relief to the victims in the form of extensions 
to file returns and pay taxes. We also suspended for 6 months many 
enforcement actions for the affected taxpayers. In addition, we 
established special toll-free numbers to answer any questions, and we 
set up a special disaster relief page on our web site.
    Before and after the terrorist attacks, the IRS' Tax Exempt/
Government Entities (TE/GE) Operating Division also helped educate the 
public on the legal requirements organizations must meet to qualify for 
tax-exempt charitable status.
    On September 18, we placed a new, easy-to-understand publication on 
our web site that provided information to assist the public to make use 
of charitable organizations. We also announced that we would speed 
processing of requests for tax-exempt status from new charities formed 
to assist the victims. Although we expedited the process, we did not 
lower our standards for new organizations applying for the tax-exempt 
status.
    In addition, we worked with the September 11 charities in getting 
donations to the victims' families. On November 16, we issued interim 
guidance that recognized the unique circumstances caused by the 
tragedy. We wanted to send a clear message that charitable groups that 
act in a reasonable and good-faith manner to help the victims would not 
endanger their tax-exempt status.
                   stemming the decline in compliance
    Our tax system depends on each person who is voluntarily meeting 
his or her tax obligation having confidence that his or her neighbor or 
competitor is also complying. However, we simply do not have the 
resources to resolve every case of non-compliance. We must apply our 
resources where non-compliance is greatest while still maintaining 
adequate coverage of all other areas. Our near term goal in 2001 was to 
stabilize the level of our key compliance activities while beginning to 
focus on the areas of greatest risk to our nation's tax system.
    After careful study we identified and are addressing four important 
areas of systematic non-compliance. They are: misuse of devices such as 
trusts and passthroughs to hide income; use of complex and abusive 
corporate tax shelters to reduce taxes improperly; failure to file and 
pay large accumulations of employment taxes; and erroneous refund 
claims.
    Although major and systematic areas of non-compliance are our top 
priority, it is also important that we use all available tools to 
detect, correct and deter non-compliance of all kinds. For example, in 
2002, the IRS will begin processing and matching K-1s reporting almost 
$700 million of income and importantly, reported losses on trusts and 
passthroughs.
    However, no matter how effectively we use our resources and new 
techniques to identify and prevent problems, some cases require 
intervention by IRS compliance personnel. Although 80 percent of the 
individual income is reported by third parties, the remaining 20 
percent, mainly business income, are not reported and often require in-
person auditing to verify. Also, business income, including that of 
passthrough corporations, partnerships and trusts can only be verified 
through auditing.
    Compliance activities began to stabilize in fiscal year 2001. The 
number of liens filed and levies issued increased by 49 percent and 103 
percent respectively over the previous year. Large corporate 
examinations and returns examined by correspondence increased by 27 
percent and 65 percent respectively. We also made 10 percent more 
determinations for innocent spouse cases and processed 40 percent more 
offers in compromise. However, the significant exception to achieving 
our compliance goals was our in-person examination rate, which declined 
about 20 percent.
    We also hired 568 Revenue Officers and 733 Revenue Agents in fiscal 
year 2001. This was the first time in 6 years that we were able to 
replenish these critical compliance positions. By stabilizing the 
number of compliance personnel, reengineering processes and setting 
clear goals, we believe that compliance activity levels will increase 
over the next 3 years. We will also be able to better identify and 
focus on key compliance problem areas. Research and other programs will 
support compliance operations. Taxpayer education, published guidance 
and pre-filing agreements will help us prevent compliance problems in 
the first place. However, compliance operations will not yet rise to 
the desired level of efficiency and effectiveness.
    In the long term, we will rely on our BSM program to increase the 
effectiveness and efficiency of these activities. Business Systems 
Modernization will enable us to increase coverage from audits and other 
income verification techniques with modest increases in staff. We also 
have the opportunity to allocate our compliance resources more 
efficiently, both in specific cases and around patterns of non-
compliance. And when intervention is necessary, we can use 
analytically-based techniques to assist in determining the appropriate 
action.
National Research Program
    Last month, the IRS proposed to reestablish a key component of its 
ongoing compliance effort to help ensure fairness for America's 
taxpayers. The National Research Program (NRP) is designed to 
accurately measure tax compliance while minimizing the need to contact 
taxpayers during the process.
    The NRP is developing innovative approaches to measure taxpayer 
compliance with the tax law. It will: (1) be far less intrusive and 
burdensome on taxpayers than previous compliance studies; (2) help the 
IRS build better compliance programs to more effectively catch tax 
cheating and help ensure all taxpayers pay a fair share; and (3) help 
reduce audits of taxpayers who filed an accurate return by at least 
15,000 tax returns a year.
    As part of ongoing compliance operations, NRP will focus on 
measuring three key areas of tax administration--filing compliance, 
payment compliance and reporting compliance. A key element involves 
measuring the accuracy of reporting information on tax returns. The IRS 
has overhauled the reporting component to minimize disruptions to 
taxpayers during the study.
    Ultimately, this project will help all taxpayers by giving the 
agency timely, accurate information about tax compliance. This 
information will allow the IRS to replace outdated audit formulas and 
develop compliance efforts directed toward the tax returns most likely 
to have errors, rather than those from honest taxpayers.
    In late fall of this year, the NRP will begin reviewing a small, 
statistically valid sample of individual returns from the 1040 family. 
The IRS will work closely with tax practitioners, Members of Congress 
and other key stakeholders to finalize the project.
   productivity through a quality work environment and modernization
    On January 30, 2001, the IRS Oversight Board approved the IRS 
Strategic Plan. It lays out how we will use our limited resources to 
achieve the greatest benefits in performance. Moreover, we will meet 
these goals while continuing to shrink in size relative to the economy. 
Indeed, we are planning most of our performance improvement from 
internal management improvements and modernization, not increased 
resources. Balanced measures in line with our strategic plan will have 
been rolled out to most of the new organization.
Business Systems Modernization Program
    Our Business Systems Modernization effort is the largest ever 
undertaken in the public or private sector. And more than updating our 
antiquated technology, the modernization program changes the entire way 
the IRS interacts and conducts business with taxpayers and 
stakeholders.
    Key to BSM's success is the Tax Administration/Internal Management 
Vision and Strategy (TAVS/IMVS). It provides a clear, integrated view 
of how the IRS should work in the future. In 2001, the IRS Executive 
Steering Committee also approved the Enterprise Architecture--a 
strategic view of the initiatives that are managed by BSM. It will 
enable us to design and build new business and technology projects that 
will be the backbone of the modernized IRS.
    The BSM program was officially inaugurated on June 28, 1999. In 2 
years, we graduated from strategic planning and systems design to 
business results. In fiscal year 2001, we put two projects into 
production, including the Customer Communications fiscal year 2001 
Project that greatly improves the efficiency and effectiveness of our 
systems for receiving, routing and responding to millions of taxpayer 
calls. We also deployed a commercial tax computation software package, 
the Customer Relationship Management Exam. It was sent to over 500 
revenue agents in our Large and Mid-Size Business (LMSB) operating 
division and allows them to make accurate tax assessments for complex 
tax calculations. It will provide time and resource savings for both 
taxpayers and the government. The feedback we have received from 
Revenue Agents on the software has been overwhelmingly positive. Copies 
of the software will be delivered to the rest of the LMSB revenue 
agents by the end of fiscal year 2002.
    In 2002, the BSM program will achieve two extremely important and 
difficult milestones. And they are both firsts: the first movement of 
records of some taxpayers out of the old 1960's tape-based system to a 
modern, reliable data base; and the first establishment of an IRS-wide 
security system providing both internal and external secure access and 
communications to IRS systems.
    These two deliveries represent two of the most essential and most 
difficult building blocks of the entire modernization program. Given 
the scale, complexity, and fragmentation of existing IRS systems, and 
the sensitivity of storing and accessing taxpayer data, it was not 
surprising that developing and deploying new IRS-wide systems for these 
two key components eluded the IRS for decades.
    The lack of these two essential components severely impeded the 
ability of the IRS to modernize its systems and imposed enormous risks 
and costs on the whole tax administration system. For this reason, 
achieving these two milestones will represent a tremendous success for 
the BSM program. And as BSM progresses, these two essential building 
blocks will continue to be enhanced and deployed on an ever-increasing 
scale until they eventually support the entire tax system.
    I want also to stress that due to its enormous size, complexity and 
sensitivity, the BSM Program involves considerable risk. However, the 
fact that risk exists does not mean that the program will fail. It 
means that the program could fail if the risks are not adequately 
identified and appropriate action taken to address them on a timely 
basis.
    We are actively identifying and managing the risks in BSM, and we 
have not hesitated to make changes in programs when necessary. There is 
a critical point to understand about managing risks in this program: 
making constant adjustments to plans is an indication that they are 
being addressed and managed. It is one of the hallmarks of a successful 
systems program.
                        stewardship & resources
    America's taxpayers, the Congress and the Administration expect us 
to be able to properly account for their money and property. I am very 
pleased to note that the GAO rendered an ``unqualified'' or clean 
opinion on the IRS' fiscal year 2001 Financial Statement for both the 
Revenue and Administrative accounts. This means that for the second 
year in a row, the IRS could properly account for $8.3 billion in 
appropriated funds; over $2 trillion in revenues collected; and over 
$190 billion in refunds. Having a tax agency that performs this task 
honestly and accurately is an enormous asset to our nation.
    Over the past 8 years, the IRS oversaw 500 million remittances 
without a major problem. However, in 2001, more than 70,000 taxpayer 
checks valued at $1.2 billion were determined to be missing at the 
Mellon Bank Pittsburgh Lockbox site. The Lockbox Program is a network 
of financial institutions that process taxpayer remittances for the 
IRS. Operated through an agreement with the Department of Treasury's 
Financial Management Service, the system helps accelerate the flow of 
funds to the Treasury.
    Once detected, we took swift action to alert potentially-affected 
taxpayers to the problems. More importantly, these taxpayers will not 
be penalized by what occurred. They will be made whole, and the 
Treasury will receive its funds. The incident, although isolated, will 
be used to improve procedures and prevent any such problem in the 
future.
                  challenges remain to quality service
    The IRS Oversight Board has stated that, ``service to taxpayers is 
inadequate'' and we do not take issue with their position. In spite of 
the short-terms gains we achieved, we are still not providing service 
to taxpayers at a level that they expect and deserve. The facts speak 
for themselves.
    We received 108 million telephone calls on our telephone lines, 
covering a very wide range of subject matter. The quality of that 
telephone service--while improving--is still not on a level with what 
taxpayers receive in the private sector. Treasury Secretary Paul 
O'Neill characterized it as ``unacceptable.'' He is correct.
    Not only must we continue to improve taxpayer access to our toll-
free lines, we must improve the accuracy of the response we give to tax 
law and account questions. Unfortunately, this problem is not confined 
to telephone assistance. We also have a steep learning curve at our 
taxpayer assistance centers. The GAO testified in April 2001 that 
``walk-in sites are continuing to provide poor tax law assistance.''
    We are not providing adequate service in other areas. For example, 
employers, particularly first-time employers, are often discouraged by 
the delays and difficulties in obtaining an Employer Identification 
Number (EIN).
    As previously noted, we are now administering RRA 98's 71 taxpayer 
rights provisions. Many of the provisions, such as innocent spouse 
protection, due process in collections and offers in compromise, would 
individually be considered major projects. Collectively, they represent 
a challenge of learning new ways of doing business for nearly every one 
of our 100,000 employees. And during this process, we encountered a 
number of problems and demands that we are still addressing.
    RRA 98 added requirements that lengthened the offer-in-compromise 
(OIC) process. Over the past few years, the OIC Program's over-age 
inventory continued to grow in spite of applying more resources. To 
improve quality, timeliness and efficiency, we centralized OIC 
processing at our Memphis and Brookhaven Service Centers. By using 
revised procedures at the new consolidated sites, we hope to streamline 
the processing of over 120,000 applications submitted each year.
    RRA 98's collection due process provisions also presented new 
challenges and have resulted in a backlog of cases. However, through 
the training of additional Appeals Officers in collection processes and 
procedures, we believe we will be able to clear up the case backlog in 
2002. Improved resource allocations, case development practices, better 
management, communications and technology should also provide for more 
efficiency, greater productivity and better results.
    It will take time, resources and management attention to solve the 
challenges that RRA 98 presents. However, our Strategic Plan squarely 
addresses these issues. More importantly, it improves our quality and 
productivity through modernization and reengineering of our technology 
and business practices with minimal increases in resources.
                   fiscal year 2003 resource request
    Mr. Chairman, the IRS budget request for fiscal year 2003 is 
$10.418 billion and full-time equivalent employment (FTE) of 101,080. 
The request is $482 million more than last year's $9.936 billion 
appropriation. The largest programmatic component of this increase is 
$259 million to enhance customer service and compliance, of which $196 
million will be funded through a redeployment of resources within our 
base budget.
    Overall as shown in the attached chart, the IRS is proposing to 
achieve $259 million in increased program resources and program 
delivery at a net requested increase of only $63 million. Therefore, 76 
percent of the improvement is being achieved by improved internal 
efficiency and redeployments.
    The funding increase request also maintains momentum in the IRS 
Business Systems Modernization projects with $58 million. The budget 
increase for fiscal year 2003 will allow us to fund these critical 
projects as they move from the planning and design phase to development 
and implementation. The remaining increase would fund pay raises, and 
inflation, $10 million for Tier B Projects (see p. 21) and adjustments 
for Homeland Security funds appropriated in fiscal year 2002.
    In addition, $39 million of the total increase is requested as part 
of a legislative proposal to change the accounting of pension and 
retiree benefits costs. Please note that although the increase of $39 
million is the incremental change from the fiscal year 2002 
appropriation (as adjusted), the actual increase to our fiscal year 
2002 base for this proposal will be $503 million. These costs are 
transfers of funds that were previously included in other agency 
budgets and do not represent any net increases in IRS programs.
    To help create a ``World Class Treasury Department,'' Secretary 
O'Neill challenged each bureau to review all programs on a continual 
basis and redirect resources to meet needs, rather than asking for 
funding increases. Budget and performance integration, as part of the 
President's Management Agenda, requires this kind of business review, 
with an emphasis on best results at the lowest total cost.
    Indeed, let me stress the process that underlies the fiscal year 
2003 request. For the first time, we fully integrated the development 
of our budget with the establishment of performance measures. First, we 
determined the highest priority resources needed to increase customer 
service and compliance. In addition, as part of the budget process, 
IRS' senior team conducted a review and prioritization of agency-wide 
needs for fiscal year 2003 and searched for the most efficient 
allocation of resources. The realignment of resources woven throughout 
the fiscal year 2003 budget comes through reengineering, efficiencies 
and investment in modernized systems. To this end, the review developed 
2,287 FTE that could be re-deployed to high priority areas in customer 
service and compliance.
                               operations
                    highest priority resource needs
Customer Service and Workload Increases (+1,595 FTE, $91M)
    In fiscal year 2003, the IRS must build on the gains it has made in 
customer service if we are to achieve our first strategic goal, ``top 
quality service to each taxpayer in every interaction.'' We are still 
not providing a consistent high level of service that taxpayers expect 
and deserve. We must continue to improve taxpayer access to our toll-
free telephone lines and the accuracy of the responses we give to tax 
law and account questions. We must continue to improve the service at 
our taxpayer assistance centers. We must further reduce taxpayer 
burden. We must continue to increase e-file options. We must better 
administer the RRA 98 taxpayer rights provisions. And we must give our 
employees the training and tools to meet these needs. The highlights of 
some of the following initiatives will help us meet our goals.
  --Increased Offer in Compromise (OIC) Cases.--This initiative is 
        designed to address the escalating OIC inventory by 
        centralizing and streamlining the processing. Cases sent to the 
        field will include all background financial data needed to 
        conduct the investigation, thereby reducing the amount of time 
        that revenue officers must spend on gathering this information.
  --Telephone Level of Service.--Taxpayers must still speak to live 
        assistors to answer tax law and account questions as well as 
        Automated Collection System (ACS) inquiries. Additional FTE are 
        necessary to address current demand and to meet taxpayers' 
        legitimate expectations that they receive service comparable to 
        what is offered by the best private sector companies.
  --Multi-Lingual ACS.--The Multi-Lingual Automated Collection Service 
        (ACS) will help meet taxpayer growing demands for timely, 
        accurate and efficient services in languages other than 
        English.
  --Improving Correspondence.--We are improving the clarity of our 
        communications with taxpayers through a redesign of 24 of our 
        notices over the next 2 years.
  --Filing Services.--We must continue to provide filing services--from 
        e-filing to submission processing to timeliness of refunds--and 
        handle a projected increase in the number of returns filed.
Enhanced Compliance Strategies (+1,857 FTE, $125 M)
    In 2001, we began to stabilize the long-term decline in compliance 
activities while beginning to focus effectively and efficiently on the 
four key areas of non-compliance and maintaining adequate coverage of 
other areas. However, we still must address a number of challenges. For 
example, from 1993 to 2001, the number of returns reporting adjusted 
gross income in excess of $100,000 grew by 163 percent. We must keep 
pace with this increase by expanding the number of these returns that 
are examined in IRS field and office programs. We must also tackle the 
$66 billion in our total potentially collectable inventory. And we must 
focus on the proliferation of tax scams ranging from sophisticated 
illegal offshore trust programs to the slavery reparations scheme being 
perpetrated upon African-Americans. The following are the highlights of 
our enhanced compliance strategies for fiscal year 2003. A detailed 
description can be found in our congressional justification.
  --Stabilize Audit Rates.--The IRS will devote resources to stop the 
        overall declining audit rates and will dedicate more resources 
        to auditing partnerships and other passthrough entities.
  --Abusive Trusts.-- Experts estimate that the revenue loss to our 
        nation due to abusive trusts could run into the tens of 
        billions of dollars. We now have a coordinated strategy to deal 
        with this growing problem using a full range of tools from 
        public education to civil and criminal enforcement against both 
        promoters and participants.
  --High-income Returns.--From 1993 to 2001, the number of returns over 
        $100,000 and $1 million dollars grew by 163 and 259 percent 
        respectively. However, IRS examination of these returns has not 
        kept pace and we must now narrow the gap.
  --Highest Priority Collection.--To address the mounting employment 
        and income tax gaps, the IRS will dedicate more resources to 
        high priority compliance and collection cases involving unpaid 
        employment taxes.
  --Fraud Referral.--Referrals and leads generated from the Lead 
        Development Centers and the Fraud Detection Centers will 
        produce more quality criminal investigations cases and help 
        ensure public confidence in the fairness of our of tax 
        administration system.
  --Automated Underreporter.--To improve voluntary reporting on 
        individual income tax returns, the Remote Automated 
        Underreporter Program will utilize a national rotational 
        inventory approach for case selection.
  --Employment Tax.--To combat non-compliance with employment tax laws, 
        the IRS will boost resources for legal source tax crime cases 
        with a special emphasis on emerging problems, such as the use 
        of temporary employment agencies/employee leasing agencies to 
        evade employment and income taxes.
  --Money Laundering.--IRS Criminal Investigation (CI) was delegated 
        primary investigative jurisdiction in all money laundering 
        investigations where the underlying conduct is a violation of 
        the income tax laws.
  --e-Crimes.--CI must continue to develop investigative knowledge and 
        techniques to keep pace with the growing number of e-crimes, 
        such as fraud and theft.
  --Criminal Tax Cases.--Continued development of a close relationship 
        between Chief Counsel Criminal Tax and CI will help to ensure 
        that legal errors in the investigative process are minimized 
        and the chances for successful prosecution are maximized.
Contract Services (+$44M)
    The IRS must also pay for a number of non-labor program increases, 
many of which are mandated by Executive Order or departmental 
regulations. For example, in response to concerns raised by GAO and 
TIGTA, we must provide for enhanced guard services at our submission 
processing and computer centers. In addition, we are requesting funding 
for physical security upgrades such as more secure gates and entrances, 
and barriers that can be raised and lowered. Other items include the 
Public Transportation Subsidy, which was increased from $65 to $100/
month.
  resources re-deployed through increased efficiency and productivity
    A combination of strategic redeployment of staff and labor saving 
programs will allow the IRS to improve its level of taxpayer service 
without commensurate increases in the number of FTE applied. Targeted 
improvement projects, such as Reengineering/Quality efforts and labor 
savings from e-file and e-Services can be reapplied to other high 
priority programs. Technology modernization programs will generate the 
bulk of the FTE savings.
Improvement Projects (Redeployment of 1,779 FTE, $107M)
    The IRS identified FTE redeployments from improvement projects that 
are expected to come to fruition in fiscal year 2003 and are 
highlighted below. The FTE will be reinvested to fund the top priority 
needs identified below:
  --Reengineering/Quality Improvements.--Reengineering and Quality 
        Improvement projects and programs will focus on redesigning 
        internal processes, policies, and procedures. Updating the 
        antiquated workload selection system will, for example, reduce/
        eliminate the substantial number of returns that are ordered, 
        classified, and never worked.
  --e-file.--In addition to the many taxpayer benefits, e-file also 
        provides clear cost savings and burden reductions for the IRS, 
        enabling us to redirect precious resources from processing to 
        customer service and compliance programs. In addition to 
        expanding electronic filing for individual taxpayers, the IRS 
        will promote the electronic filing of all business tax returns 
        in fiscal year 2003. Our ultimate goal is to convert all 
        business transactions with the IRS to fast, accurate, paper-
        free electronic methods. Through e-Services, we will also 
        provide to tax practitioners easy-to-use electronic products 
        and services.
  --Customer Relationship Management.--The funding for this project 
        will pay for training travel, operating travel and support 
        costs related to bringing IRS staff quickly up to speed on the 
        newly improved Corporate Tax Analysis software. The software's 
        main strengths are its capacity to do carryback/carryover 
        calculations for net operating losses (and other losses), the 
        interaction of losses and charitable contributions, alternative 
        minimum tax calculations and the foreign tax credit 
        calculations-- including carrybacks and carryforwards.
  --Information Technology Projects. Two projects are expected to begin 
        realizing savings in fiscal year 2003: the Employee Plan 
        Determination System Redesign (EDSR) and the Remittance 
        Transaction Register (RTR). EDSR is expected to reduce cycle 
        time and improve quality of determination letters. RTR is 
        projected to improve efficiency in submission processing by 
        providing all Lockbox payment information online soon after 
        receipt, reducing from 1 month to just 3 days response time for 
        reconciling payment information and responding to payment 
        information queries.
Workload Decreases (Redeployment of 508 FTE, $50.5M)
  --Reduced Field Innocent Spouse.--The initial high inventory of 
        Innocent Spouse cases is expected to decline to a point where 
        they can be processed without significant delays on our part. 
        Revenue Agents and Tax Auditor FTEs assigned to this program 
        will be re-deployed to address compliance in other areas.
  --Reduced Filing Season Support.--We will reduce the FTEs in the 
        Small Business and Self-Employed operating division planned for 
        customer service details.
  --Narcotics Program.--With redeployments realized from the narcotics 
        program realignment, 67 FTE will be used in the Fraud Referral 
        Program and 18 FTE will be used in the Money Laundering 
        Strategy Program.
  --Reduced Tax Court Cases.--The number of cases filed in the Tax 
        Court is declining. Emphasis on pre-filing resolution of cases 
        through programs such as Advance Pricing Agreements is also 
        expected to moderate increases in Tax Court litigation in the 
        future, as well as Refund and Appellate litigation.
Targeted Efficiency Improvements (Redeployment of $39M)
    Redeployment is expected from the Treasury's approach to better 
business practices to remove or reduce current efforts that do not have 
significant programmatic value. This is targeted to produce $39 million 
in redeployments.
                      maintain current operations
    The IRS is still a labor-intensive organization and a stable work 
force is critical to carrying out our mission. We must maintain current 
operations, protect the integrity of the tax filing season, oversee tax 
administration programs and continue to implement organizational 
modernization. To do so, the IRS must have the resources to pay for the 
inflationary costs associated with statutory pay and other mandatory 
increases described below .
  --Maintaining Current Services Level (+$295 M).--Needed to maintain 
        fiscal year 2002 program levels in fiscal year 2003 by funding 
        pay, benefits, and non-labor inflationary costs.
  --Within-Grade Increases (+$37M).--To cover the costs of within-grade 
        pay increases for on-board employees.
  --Homeland Security (+$10M).--For the enhanced security arrangements 
        required by the Homeland Security supplemental. These funds 
        were appropriated as a consequence of the September 11, 2001 
        terrorist attacks and other related security concerns.
  --Homeland Security Non-Recur (-$31M).--Funding in the amount of $31 
        million from the fiscal year 2002 will be non-recurred in the 
        fiscal year 2003 budget.
                  earned income tax credit initiatives
    In fiscal year 2003, funding requirements for the Earned Income Tax 
Credit (EITC) Compliance Initiative Appropriation are projected to be 
$154,346,000, an increase of $406,000 over the fiscal year 2002 funding 
level of $153,940,000. The FTE level of 2,353 is unchanged from fiscal 
year 2002.
    This appropriation provides for customer service and public 
outreach programs, enforcement activities and research efforts to 
reduce overclaims and erroneous filings associated with the EITC.
    business systems modernization and other information technology 
                                projects
    The IRS' antiquated computer systems do not efficiently or 
effectively serve America's taxpayers, nor meet today's business needs. 
They are one of the fundamental obstacles to providing consistent top-
quality service. Failing to modernize IRS's tax administration business 
systems would require a significant increase in resources to maintain 
the old legacy systems while not addressing their underlying 
deficiencies that will only worsen with time.
    Business Systems Modernization will update our antiquated 
technology and change the entire way the IRS interacts and conducts 
business with taxpayers and stakeholders. Indeed, we do not view 
systems modernization as a separate entity, but rather as one of the 
major ways we can achieve all of RRA 98's goals within realistic budget 
resources.
    Over the past 2 years, BSM graduated from strategic planning and 
systems design to business results. The successful deployment of 
Customer Communications 2001 and the ongoing roll-out, deployment and 
training for Customer Relationship Management Examination in 2001 
provided IRS front-line staff with the right tools to do their jobs 
more efficiently and effectively. Valuable lessons were learned as we 
developed and implemented these projects utilizing the rigorous 
management processes of the Enterprise Life Cycle, while at the same 
time ensuring that all BSM projects adhere to the Enterprise 
Architecture.
    The proposed IRS fiscal year 2003 budget provides continued funding 
for BSM and builds upon last year's achievements. For example, we will 
continue to phase in the deployment of the Customer Account Data Engine 
and move additional filers into the modernized system. The IRS will 
also greatly strengthen its core financial systems through the 
deployment of the first phase of the Integrated Financial System. These 
projects coupled with entire BSM portfolio will deliver on IRS' 
commitment to meet the nation's revenue collection needs and provide 
world class service to our taxpayers.
    I want to stress, Mr. Chairman, that we will continue to use a 
formal methodology to prioritize, approve, fund and evaluate our 
portfolio of BSM investments. This methodology enforces a documented, 
repeatable and measurable process for managing investments throughout 
their life cycle. Investment decisions are approved by the IRS Core 
Business System Executive Steering Committee, chaired by the 
Commissioner.
Fiscal year 2003 BSM Request
    The proposed $450 million fiscal year 2003 BSM budget request 
includes an increase of $58.4 million over last year's appropriation. 
Let me summarize the key BSM projects that are addressed in the funding 
request. A complete description of each can be found in our 
congressional justification.
            Customer Account Data Engine (CADE)
    CADE is the foundation for all of IRS' tax administration systems. 
It will replace the tape-based Master Files that currently contains the 
only authoritative information on all individual and business tax 
accounts. The IRS dependence on this 1960s Master File system today 
constitutes an insurmountable barrier to efficient service and 
compliance operations and is a very serious risk to the whole tax 
system.
    CADE will incrementally move individual filers from the 1960s tape 
system to a modernized database. CADE Individual Master File (IMF) will 
build the database that will replace the existing IMF processing 
systems. CADE will create applications for daily posting, settlement, 
maintenance, refunds processing and issue detection for taxpayer tax 
accounts and return data. The database and applications developed by 
CADE will also enable the development of subsequent modernized systems 
that improve customer service and compliance. Once implemented, 
modernized applications, such as Customer Account Management (CAM), 
will allow on-line posting of data in addition to daily batch 
processing.
    CADE will be deployed over time in five releases, each related to a 
specific taxpayer segment, phased in over a period of 6 years. At the 
conclusion of Release 5, CADE will have replaced IMF.
    Mr. Chairman, let me point out that due to a number of technical 
difficulties and schedule delays, Release 1 of CADE Production has been 
delayed by 6 months. We discovered in December 2001 a significant issue 
with Procurement of a Business Rules Engine (BRE). A key part of the 
overall CADE development strategy was predicated on the use of BRE 
software that would be used to generate some programming code. 
Unfortunately, the PRIME was unable to procure the BRE in time to be 
used in the development of Release 1 and we were forced to proceed 
using standard development language. We began mitigation on this 
situation.
    In addition to the technical difficulties, we encountered in late 
March 2002 an additional 1-month slippage to July 2002. We notified our 
Executive Steering Committee and Oversight Board of the problem and our 
corrective actions. The delay will provide time for the development, 
testing and implementation of the Release 1 pilot this summer. 
Currently, most of the software has been developed and testing has 
begun. Planning for production implementation in conjunction with the 
startup of the 2003 filing season has also started. The release will 
include both 1040EZ electronic and paper single refund filers--about 10 
million taxpayers. Therefore, based on this plan our most important 
business objective, which is to move the first block of taxpayers onto 
a new data base will be achieved.
            Integrated Financial System (IFS)
    IFS has three clear goals: (1) provide core financial capabilities 
and financial reporting; (2) meet Joint Financial Improvement Program 
requirements; and (3) provide an integrated framework for retirement of 
current financial systems.
    IFS will be accomplished in two releases, each representing a 
distinct usable segment. Release 1 will replace the Core Financial 
Systems (CFS) as defined by the Joint Financial Management Improvement 
Program (JFMIP). In addition to CFS, Release 1 will include budget 
formulation as well as implementation of a Cost Accounting System to 
allow the IRS to move into compliance with Statement of Federal 
Financial Accounting Standard Number 4. Release 1 creates a logical 
design for the core financial applications including Cost Accounting. 
The core financial applications consist of General Ledger (G/L), 
Accounts Payable (A/P), Accounts Receivable (A/R), Cost Management, 
Funds Management, Core Financial Management and Financial Reporting.
            Custodial Accounting Project (CAP)
    GAO identified the lack of an acceptable accounting system for the 
$2 trillion collected in tax revenue as one of the most significant 
material weaknesses in IRS' financial management. CAP will provide the 
IRS with the critical control and reporting capabilities mandated by 
Federal financial management laws.
    It will also support the appropriate custodial subledgers 
containing data from tax operations and help the IRS meet compliance 
issues with both the Federal Financial Management Improvement Act 
(FFMIA) and Federal mandates related to custodial revenue management. 
CAP will also help us to better manage, control and focus resources.
            Enterprise Data Warehouse (EDW)
    The ability of the IRS to make effective use of information about 
its operations is limited by the numerous fragmented databases that 
evolved over time. EDW provides the foundation for data mining and 
decision analytic tools. In addition, it enables risk-based analysis 
for case selection and provides the tools to report on IRS balanced 
performance measures.
e-Services
    The e-Services project will support our ability to meet the overall 
goal of conducting most transactions with taxpayers and their 
representatives in an electronic format, as required by RRA 1998. e-
Services will provide to third parties over the Internet the four most 
requested applications: electronic taxpayer identification number 
matching, electronic transcript delivery, disclosure authorization and 
Electronic Account Resolution. e-Services also directly supports the 
President's Management Agenda's government-wide initiative to expand 
electronic Government.
            Customer Account Management (CAM)
    The Customer Account Data Engine cannot be deployed beyond its 
initial limited releases without Customer Account Management. CAM 
allows us to go into CADE and update the data and will help taxpayers 
to receive timely and accurate responses to requests and inquiries.
    The CAM Individual Assistance and Self Assistance Operating Models 
will provide improved technology and business processes that will 
enable the IRS to: (1) better manage customer service functions; (2) 
maintain and utilize customer data to improve taxpayer interactions 
with the IRS; (3) provide comprehensive account and tax law assistance 
to taxpayers and practitioners; and (4) manage the case work flow of 
customer inquiries.
    Delivering customer assistance through a live IRS Customer Service 
Representative (CSR) is the Individual Assistance operating model's 
main function. In order to provide world-class service, CSRs must be 
equipped with the tools to access taxpayer information quickly and 
accurately in response to complex customer inquiries. Individual 
Assistance will provide this capability from a desktop information 
system.
    By being able to access and update comprehensive, current account 
information, CSRs will be able to respond quickly and accurately to 
customer inquiries. Workflow management tools and processes will also 
allow them to automatically inform relevant parties throughout the 
organization of actions taken on a particular customer's account and 
manage outstanding cases for follow-up work or to identify the status 
of an inquiry for a taxpayer.
    The CAM Self-Assistance operating model delivers many of the same 
capabilities. The main objective, however, is to provide taxpayers with 
the flexibility and convenience of accessing by telephone or the 
Internet on a 24/7 basis IRS-related information to resolve relatively 
simple inquiries.
            Filing and Payment Compliance (FPC)
    FPC is an end-to-end strategy to resolve collection issues quickly 
and fairly. Using industry best practices, it augments, refines and 
replaces existing processes and technology to enable the IRS to 
interact with taxpayers in a seamless and efficient manner. Protection 
of taxpayer rights is an important component of this strategy. The 
ultimate goals are to resolve all balance due cases above a minimum 
threshold, shorten the filing compliance lifecycle to ensure resolution 
before the next filing due date and shorten the payment compliance 
lifecycle to 6-months for non-enforcement cases.
            Information Technology Projects
    The Business Systems Modernization program is aimed at developing 
major, IRS -wide systems that are the underpinnings of overall tax 
administration. BSM also sets forth the enterprise architecture that 
defines required standards of equipment, software, communications and 
data. This program is not intended to meet every need for every 
business application in the IRS, even in the long term. However, by 
establishing a well-defined architecture, it assures that specific 
business applications developed for specific business purposes will 
operate consistently and use common equipment while meeting required 
standards, such as security.
    Through the strategic planning process, the IRS operating units 
identify specific business needs and prepare business cases for 
business applications that will not be met through the overall BSM 
process. There are many more projects with high returns than can 
possibly be funded. Therefore through the strategic planning process, 
these are then evaluated and those with the highest returns are 
selected. Many of the gains in performance projected in fiscal year 
2003 and fiscal year 2004 are enabled by these so-called Tier B 
projects. Tier B project implementation time is 2 to 3 years and the 
projects are monitored within the Business Performance Review process.
    The President's fiscal year 2003 budget includes a $10 million 
increase for Tier B projects beyond the fiscal year 2002 operating 
level of $39.8 million. They cut across the entire spectrum of IRS 
activities and functions. For example, Information Systems projects 
will support Criminal Investigation's activities by modernizing the 
equipment used to analyze forensic evidence. They will support the 
electronic filing of business forms and schedules and e-services will 
provide products and services to practitioner as well as the foundation 
for safe and secure electronic customer account management.
    Other projects will redesign and consolidate systems to support 
casework and the Taxpayer Advocate Service. Correspondence will be 
imaged and we will be able to convert existing collection systems to 
electronic case processing. The Employee Plan Determination System 
Redesign will also reduce cycle time and improve the quality of 
determination letters from our Tax Exempt and Government Entities 
operating division. The Remittance Transaction Register will improve 
submission processing efficiency by providing information payment 
online.
legislative proposals and proposed adjustments (no net increase in irs 
                               programs)
    The President's budget requests $503 million (a $39 million 
increase over the fiscal year 2002 appropriation as adjusted) for 
proposed legislative changes that change the accounting of certain 
pension and retiree benefit costs. These costs are transfers of funds 
that were previously included in other agency budgets and do not 
represent any net increases in IRS programs. The $39 million increase 
will be used as follows:
  --Federal Employees' Compensation Act (FECA) Surcharge (+$3M).--The 
        fiscal year 2003 President's Budget includes language in the 
        General Provisions of the Treasury-Postal Appropriations bill 
        to permit the Department of Labor to add an administrative 
        surcharge to the amount it charges each agency for its Federal 
        Employees' Compensation Act (FECA) benefits. Previously this 
        administrative cost was borne by the Department of Labor.
  --Legislative Proposal on Full Costing of Retirement and Health 
        Benefits(+$32M).--The budget also proposes legislation to 
        require agencies, beginning in fiscal year 2003, to pay the 
        full Government share of the accruing cost of retirement for 
        current CSRS, CIA and Foreign Service employees, and the Coast 
        Guard, Public Health Service and NOAA Commissioned Corps.
  --Inter-Departmental Reimbursements (+$5M).--This adjustment will 
        allow permanent transfers of funds from the General Services 
        Administration, the National Archives and Records 
        Administration and the Department of Agriculture for services 
        provided to IRS.
                               conclusion
    Mr. Chairman, in conclusion, the President's proposed fiscal year 
2003 budget for the IRS reflects the Administration's continued 
commitment to modernization of the agency. Moreover, it underscores 
that through new technology, improved management and reengineering our 
business practices, we can perform our mission efficiently and 
effectively with only limited increases in resources. Three years ago, 
the Restructuring Act set an important new direction for the IRS. 
Today, I firmly believe that the IRS is on the right track and this 
budget will help us stay the course. Thank you. 







             Questions Submitted by Senator Byron L. Dorgan

                      business strategy adjustment
    Question. Secretary O'Neill has mandated that each Treasury 
Department agency achieve a certain level of savings through what he 
refers to as a ``Business Strategy Adjustment.'' I understand that for 
the IRS this adjustment would amount to the IRS finding an additional 
$39 million in savings.
    How do you plan to meet this goal? What cuts in people, programs or 
service will you have to make?
    Answer. The IRS expects to meet this goal through improved business 
practices: more effective uses of human capital, better financial 
management practices, expanded applications of technology uses across 
the Department, and competitive sourcing of appropriate business 
efforts.
                 bi-monthly audits of irs walk-in sites
    Question. The first bi-monthly audit of IRS walk-in taxpayer 
assistance sites, issued last month by the Treasury Inspector General 
for Tax Administration as a result of funds we added to their budget, 
states that of the 84 visits made to 40 taxpayer assistance centers 
correct responses to questions posed were only received 46 percent of 
the time. The audit observes improvement in other areas such as 
courtesy of the IRS employees and cleanliness of the facility, but I am 
sure you will agree that getting an incorrect answer to a tax inquiry 
more than 50 percent of the time is still outrageous.
    What steps are you taking to improve the assistance provided to 
taxpayers at the assistance sites?
    Answer. Based on TIGTA's March and April visits to 37 TAC offices, 
we continue to show improvements in providing correct answers to tax 
law questions. However, we believe the statistics in the report do not 
reflect the accuracy of our answers. We disagreed with the TIGTA 
assertion that a referral to a publication is the same as providing an 
incorrect answer. We also disagree that referrals to publications 
should be included in computing the accuracy rate. The percentage of 
correct answers based on the March and April TAC visits, without 
counting referrals to a publication as incorrect, is around 65 percent 
as opposed to the 55 percent identified in the report. This is clearly 
an unacceptably low accuracy rate, and IRS is committed to make 
improvements.
    During early February we met with TIGTA representatives to review 
the results of the January audit. After that meeting, we conducted a 
series of meetings with executives and managers at all levels advising 
them of January accuracy rates, soliciting ideas to improve tax law 
responses, and establishing zero tolerance for unprofessional conduct 
and performance. We added a requirement for all technical employees in 
Taxpayer Assistance Centers to complete one hour of uninterrupted, 
self-directed learning time each week. This hour is dedicated to tax 
law issues in: earned income credit, dependent qualifications, 
education credits, social security income, pension income, capital 
gains, filing status, individual retirement accounts, child care 
credits, child tax credit, rate reduction credit, student loan 
interest, and itemized deductions. The technical employees used 
Publication 17, Your Federal Income Tax, as their primary study guide. 
To supplement self-directed learning time, we are obtaining additional 
training aids, publications, and compact discs. The aids will include 
practice scenarios on a wide range of tax law topics including those 
mentioned above. We are including in this initiative Small Business/
Self-Employed Division Employees assigned to work the customer service 
counter in Taxpayer Assistance Centers. We are also developing a 
training program, with some assistance from the North Dakota State 
University, that would allow remote access to electronic training.
                  aggressive audits of eitc recipients
    Question. Some Members have rightly expressed concern that, in a 
period when audits appear to be declining, the IRS is taking steps to 
aggressively increase the number of audits of EITC (earned income tax 
credit) recipients as opposed to taxpayers earning over $100,000 a 
year. I have seen reports that 1 in 50 EITC recipients are audited. 
This is about triple the rate of audits of taxpayers earning over 
$100,000. Secretary O'Neill blamed Congress for this increase in audits 
of EITC recipients.
    Do you think it is fair and just to audit aggressively the poor yet 
take a pass on auditing the rich?
    Answer. We audit EITC returns because IRS studies have found errors 
on nearly 50 percent of the returns filed.\1\ The Congress has 
appropriated specific funds to be used to improve EITC compliance. The 
funds are used to educate and assist taxpayers in determining if they 
are eligible for EITC, as well as funding examinations of those returns 
that appear to have claimed the EITC in error. During the 5-years the 
EITC appropriation for compliance, outreach, research, and educational 
efforts has been in effect, we protected and/or collected about $5 
billion in revenue from math error adjustments and compliance 
activities. However, noncompliance is still an issue. Our most recent 
study on compliance estimates that taxpayers overclaim up to $9 billion 
a year in EITC.
---------------------------------------------------------------------------
    \1\ Compliance Estimates for Earned Income Tax Credit Claimed on 
1999 Returns (February 28, 2002).
---------------------------------------------------------------------------
    Our Service Center Tax Examiners generally conduct EITC 
examinations by mail. This methodology differs significantly from the 
examinations that our Tax Auditors and Revenue agents conduct in our 
field offices. The examinations conducted in our field offices tend to 
be more complex and the scope of the examination is not limited to a 
few issues, as is the case with EITC examinations. Examinations our Tax 
Auditor/Revenue Agents perform in our field office are interviews with 
the taxpayer and/or his representative either in the IRS office or at a 
place of the taxpayer's choosing. This method tends to limit the number 
of examinations we can complete. In the service center, lower-salaried 
employees can work correspondence examinations and review documentation 
sent in by taxpayers on all shifts. Since this type of audit does not 
require person-to-person contact, more examinations can be started, 
worked, and closed.
    Our interaction with low-income taxpayers is not limited to audits; 
we also make taxpayers aware of tax benefits to which they may be 
entitled. We send notices when we receive tax returns that show the 
taxpayers might be eligible for the Earned Income Tax Credit. The 
notices allow the taxpayers to review the EITC eligibility criteria and 
determine to claim the EITC. We have also increased our number of 
partnerships with non-profit groups, faith-based organizations, and 
local governments to provide information about EITC and free tax return 
preparation. For example, the local governments in Chicago and Los 
Angeles have partnered with us to provide information to their citizens 
about EITC. They have partnered in turn with local non-profit groups to 
provide free tax preparation. Additionally, we have placed public 
service and paid radio and television ads about EITC from January 
through April 2002. These ads have run on network and cable television 
stations, and we have received a positive response from taxpayers and 
community organizations. These radio and television spots have provided 
information to individuals who may be eligible for EITC but who do not 
have a filing requirement. The ads reached a population that would not 
have any reason to contact us, and provided them the basic eligibility 
requirements for EITC. Also, we broadcast a thirty-minute paid 
television show about electronic filing that included EITC information 
on cable stations, including Telemundo (a Spanish television station). 
We undertook this effort based, in part, on research that reported 
Hispanic individuals are not claiming the EITC due to lack of 
knowledge.
    We are focusing significant resources on noncompliance in the high-
income population even though our systems and workload identification 
methodologies are limited by the age of our compliance data. We will 
continue to make the most informed resource allocation decisions 
possible, using all available compliance research information. We will 
supplement this information by conducting short-term targeted studies 
to help us select the best strategies for addressing identified areas 
of high compliance risk.
    As reflected in our strategic priorities for fiscal year 2003, we 
are refocusing our compliance resources to address issues with high-
income taxpayers:
  --In fiscal year 2002, we began matching Schedule K-1 information for 
        taxpayers who invest in partnerships, S-corporations, and 
        trusts. We are using this data on a limited basis to help 
        identify for examination taxpayers who underreport this income. 
        We plan to expand significantly the use of matched K-1 data 
        significantly in fiscal year 2003.
  --We plan to continue to address promoters of and investors in 
        illicit schemes designed to improperly eliminate or reduce tax 
        liabilities.
  --We plan to institute a program to address taxpayers with incomes 
        greater than $1 million who use flow-through entities to 
        structure transactions that mask or improperly reflect taxable 
        income.
    Through the National Research Program, we will begin to gather 
comprehensive compliance data for the first time since 1988. We intend 
to use this data to develop new cost-effective strategies for 
allocating our enforcement resources to improve the compliance of 
taxpayers in all income groups. In addition to ensuring a more 
efficient use of our resources, we expect that these strategies to 
reduce taxpayer burden associated with unnecessary audits.
    Question. Is the IRS performing sufficient audits and are you 
targeting the right groups for audits?
    Answer. To determine optimal audit rates, we must quantify the 
direct and indirect revenue effects of all enforcement and non-
enforcement activities. Unfortunately, our ability to quantify those 
effects is in its infancy. We have to overcome significant data and 
statistical problems. We cannot yet determine the administratively 
optimal audit rate, or more precisely, the optimal mix of audit rates.
    Nonetheless, we are very concerned that recent audit rates have 
been below what most everyone agrees would be optimal. As a result, 
taxpayers who timely meet all of their tax obligations bear an 
inordinate share of the overall tax burden. As a first step in 
increasing these audit rates, the President's Budget Initiative for 
fiscal year 2003 reallocates 635 FTEs for the examination of abusive 
trusts (400 FTEs) and high income returns (235 FTEs). More than 50 
percent of these FTEs result from redirecting Examination reengineering 
savings.
    Through the National Research Program, we will begin to gather 
comprehensive compliance data for the first time since 1988. This new 
data will allow us to update our workload selection formulas, develop 
new cost-effective strategies for improving compliance for all taxpayer 
segments, and more accurately allocate enforcement resources to areas 
of high compliance risk.
    We will continue to analyze our processes and identify ways to 
improve the efficiency and effectiveness of our examination programs. 
Traditionally, we developed field examination work plans by return type 
and activity code. Starting in fiscal year 2003, we will develop 
examination work plans around specific non-compliance issues including:
  --Understatement of business income
  --Abusive Tax Schemes (including Abusive Trusts, Off-shore Activity, 
        and Domestic Promotions)
  --Non-filing
  --Use of flow-through entities (Partnerships/S Corporations) by high 
        income taxpayers to create structured transactions designed to 
        reduce or eliminate tax liability.
    A key weakness of our current return selection process is the 
inability of Discriminant Function (DIF) to identify returns with a 
high potential for unreported income. Almost 60 percent of the gross 
individual income and employment tax gap for Small Business/Self-
Employed (SB/SE) taxpayers arises from the understatement of business 
income, due to the underreporting of gross receipts and the 
overstatement of business expenses. SB/SE and the Office of Research 
recently completed testing of new Unreported Income DIF formulas 
(UIDIF) they designed to identify returns with a high probability of 
unreported income. The higher the UIDIF score, the greater the 
probability of unreported income. The UIDIF formulas create a new work 
source for SB/SE field examination. We will begin using the UIDIF 
formulas on October 1, 2002.
    By the end of fiscal year 2003, we will have completed the 
reengineering of our SB/SE Examination processes. A key component of 
this effort involves enhancing our return selection system to reduce 
taxpayer burden by focusing our resources on the most non-compliant 
returns. It also introduces new inventory management practices and 
enhanced auditing techniques that will further improve the quality and 
timeliness of our examinations.
                     business systems modernization
    Question. Your budget requests an additional $450 million to 
continue your agency's systems modernization program. By the end of 
this year, the IRS--and the American taxpayer--will have invested 
nearly $1 billion in this modernization effort.
    What has the average taxpayer experienced as a result of this 
effort?
    Answer. Over the past 2 years, BSM graduated from strategic 
planning and systems design to business results. We have put several 
projects into production.
  --In fiscal year 2001, the Customer Communications fiscal year 2001 
        (CC01) Project was placed into operation. This project greatly 
        improved the efficiency and effectiveness of our systems for 
        receiving, routing, and responding to millions of taxpayer 
        calls. The project went ``live'' just in time for the issuance 
        of the advance tax refund notices and the resulting onslaught 
        of telephone calls. We successfully handled over 39,000 of 
        these calls during CCO1's busiest hour the first day of the 
        job. This new capability also helped us better route callers to 
        our 9/11-disaster hotline.
  --In fiscal year 2002, we are fully deploying a commercial tax 
        computation software package, the Customer Relationship 
        Management- Examination software. This software allows revenue 
        agents to quickly and accurately calculate tax assessments for 
        very complex tax scenarios, such as loss and credit carryback/
        carryforward, Alternative Minimum Tax, and Foreign Tax Credit. 
        It also allows them to effortlessly re-compute the tax 
        liability often required during the final stages of an 
        examination. This will save time for the taxpayer and the 
        government and increase accuracy. The software is a known and 
        respected tool used by the private sector (taxpayers, 
        accounting and legal firms.) We deployed the software and 
        provided training to 2,777 Revenue Agents in our Large and Mid-
        Sized Business Division. The remaining LMSB Revenue Agents will 
        receive the software and training by September 1, 2002
  --In fiscal year 2002, we implemented a new Internet-based service 
        that allows taxpayers who filed Form 1040, Form 1040-A or Form 
        1040-EZ and are due a refund to find out if we have processed 
        their tax returns and when we will mail or direct deposit their 
        refund. Taxpayers can also learn if a problem exists with their 
        refund, find steps to resolve problems, and see if their check 
        was returned to the IRS as undelivered. This new application is 
        available through the IRS web site 24-hours a day from anywhere 
        in the world. This capability marks the first time taxpayers 
        have been able to access their accounts directly through the 
        Internet in a secure environment. This web application, which 
        we expect to be fully operational for the 2003 filing season, 
        is a major step forward for IRS modernization. By the end of 
        July we have had over 500,000 inquiries. The management 
        information reports and on-line user-survey included with this 
        application reveal:
  --Over 85 percent of the taxpayers are satisfied with the ease of 
        this application.
  --10 percent of the IRS refund inquiries since deployment are coming 
        via the Internet.
  --95 percent of the users receive response within 5 seconds.
  --71 percent of users receive response within 1 second.
  --This summer we will begin the pilot stage of the Customer Account 
        Data Engine (CADE), using a modernized database. CADE will 
        create applications for daily posting, settlement, maintenance, 
        refunds processing, and issue detection for taxpayer tax 
        accounts and return data. With CADE, taxpayers will receive 
        faster refunds and our employees will have access to more 
        accurate data. Due to the size and complexity of the software 
        that analyzes and posts data onto the Master Files, and to 
        minimize the risk of potential problems, we will first move 
        simple accounts onto the CADE database, beginning with a subset 
        of Form 1040EZ filers. Access to timely, consistent, and 
        centralized corporate data is the key to modernization and CADE 
        is the implementation vehicle. The CADE pilot will ensure 
        readiness for the 2003-filing season. CADE will be deployed 
        over time in five releases, each related to a specific taxpayer 
        segment, phased in over a period of 6 years. At the conclusion 
        of Release 5, CADE will have replaced the Individual Master 
        Files. Subsequent releases of CADE will eventually replace the 
        Business Master Files and Non-Master Files.
  --Because of enhancements to our security and telecommunications 
        infrastructures, the e-services project will have its initial 
        release late in 2002, offering some web-based products to tax 
        practitioners who actively participate in the IRS e-file 
        program, such as self-filing registration. These web based 
        business products will encourage third parties to increase 
        their e-filing. In addition, these enhancements will allow IRS 
        to better manage its stakeholder relationships and conduct 
        marketing and educational outreach activities to integrate 
        information, coordinate activities, deliver service and measure 
        performance. The e-services project will allow practitioners 
        the ability to complete applications, submit disclosure 
        authorization requests, make taxpayer inquiries for notice and 
        account problems, verify taxpayer identification numbers (TIN 
        Matching), and request and receive taxpayer transcripts. It 
        will be easier for practitioners to transact business with the 
        IRS and to receive faster responses from us. E-services 
        functionality will be delivered in two releases, the first 
        scheduled for late 2002 and the second planned for the spring 
        of 2003.
    Question. If Congress appropriates these additional funds, what 
further enhancements to their service can they expect to see in the 
next year or two?
    Answer. See below:
  --In fiscal year 2003, we plan to launch an Internet EIN application 
        to provide a web-based opportunity for employers, tax 
        practitioners, and financial institutions to apply for and 
        receive a validated employer identification number (EIN) 
        directly from the IRS. This initiative will initially 
        complement and eventually reduce the number of paper, 
        facsimile, and telephonic requests for EINs. Businesses will be 
        able to log onto a secure, government website from their 
        office, bank, or state agency and file an electronic request 
        for an identification number. The IRS will initially issue an 
        EIN to the filer via the mail.
  --Over 5 years, releases of the CADE project will result in faster 
        refund processing and authoritative account data for 1040 
        returns filed on paper or electronically. The additional 
        funding will enable us to continue the buildout of the new 
        customer accounts data base (CADE) and ongoing retirement of 
        the Individual Master File. Hence, an increasing number of 
        taxpayers will receive refunds faster and improved customer 
        service.
  --The additional funds will also be directed toward design and 
        development work on a new customer service and e-filing 
        capabilities, although these projects will not deliver benefits 
        until they are implemented in fiscal year 2004
  --In addition to direct taxpayer benefits, a major portion of the BSM 
        Program is dedicated to improving our internal operational 
        effectiveness and remedying material weaknesses. These 
        improvements are necessary to meet the requirements of the 
        Federal Financial Management Improvement Act. For example:
    --The Custodial Account Project (CAP) will integrate taxpayer 
            account information with the general ledger and make it 
            accessible for analysis and reporting for the CFO. This 
            project will provide integrated, reliable, and timely tax 
            operations data to support evolving analytics, performance 
            measurement, and management information needs.
    --The IFS Project (Integrated Financial System) will implement a 
            commercial-off-the-shelf financial system for the general 
            ledger, accounts payable and receivable; funds management, 
            budget execution and formulation; cost management; 
            financial reporting; core financial management; and 
            property and asset management.
    --The HR Connect Project will pilot new human resources online 
            functionality, enabling self-service capability for many 
            routine HR transactions.
    These projects will significantly improve compliance with 
applicable Federal Financial management laws and standards and support 
to GAO audits.
                   impact of september 11 on the irs
    Question. The IRS was one of many Federal agencies directly 
affected by the tragic events of September 11. Many of your operations 
in New York were interrupted and Congress has appropriated over $38 
million to assist in the recovery efforts.
    How has the recovery effort gone? With so many critical records now 
contained on computers, what efforts are you undertaking to provide for 
systems back-up and redundancy in the event of a future incident along 
these lines? How secure are your systems from a terrorist or cyber 
attack?
    Answer. Following the catastrophic events of September 11, we moved 
quickly to repair and re-equip the offices destroyed in the WTC area 
for approximately 200 employees. We provided grief counseling for 
employees in the Manhattan area and other areas throughout the Nation. 
Enhanced physical security for all IRS buildings, which was put in 
place immediately following September 11, will continue to be a high 
priority, as will proper screening of all new employees. Following the 
September 11 attacks, we collaborated with other federal agencies to 
provide non-reimbursable related emergency assistance to taxpayers in 
the Manhattan area.
    The anthrax attacks impacting U.S. Post Offices and some Federal 
offices presented us with yet another challenge, since we process 
millions of pieces of mail during the first five months of each year. 
To protect our employees, and ensure that we can continue to respond 
timely to taxpayers, we conducted a Campus Security Readiness 
Initiative to help prepare campuses to safeguard against potential 
biologic attacks through the mail. This preventative program was multi-
organizational and included:
  --Redesign and construction to isolate campus mail handling 
        facilities
  --Review and update of disaster recovery, business resumption and 
        occupant emergency plans at every campus
  --Distribution of gloves, coats, and masks to campus mail workers
    We undertook a similar initiative to prevent and handle potential 
biological attacks at IRS field offices. As a result of these efforts, 
campuses reported a significant increase in the number of incidents 
involving suspicious activities during the filing season. However, the 
impact on tax processing operations was minimal, and we safely 
completed the tax filing season.
    The IRS has long maintained intense focus on protecting taxpayer 
information. We continue to take short and long-term actions to further 
protect our personnel, facilities, and information. However, we need 
more safeguards to fully address the threats inherent of increased 
terrorist activities within the U.S. We take a comprehensive approach 
to protecting our information systems, beginning with the physical 
security of key processing locations, careful screening of personnel, 
security within the information systems themselves, and internal 
reviews to ensure employees follow policies.
    To improve the security of IRS assets, we have:
  --Improved adequate backup capability to support core tax processing 
        recovery at IRS computing centers. The systems affected 
        represent the entire customer database for all operating units. 
        Our efforts are focused on real-time backup of these computer 
        center systems to provide improved disaster recovery 
        capability. We received funding to support this effort as part 
        of the special Congressional appropriation, and the project is 
        well underway. Procurements are scheduled for completion by 
        June 30, 2002, with full implementation of the backup 
        capability expected by December 31, 2002.
  --Increased guard services at IRS mission critical infrastructure 
        facilities. However, to adequately protect the facilities from 
        increased threats and risks, we may need additional guard 
        forces. An independent Guard Force Analysis, completed in 2001, 
        detailed additional requirements to adequately protect critical 
        facilities. We are re-validating this study to consider the 
        changes in the threat environment since September 11. If 
        necessary, we will reprogram to cover unanticipated fiscal year 
        2003 needs.
  --Taken or will soon take actions to further fortify physical 
        security in Computing Centers, including installing stronger 
        entrance protection, surveillance cameras or alarms, etc. The 
        National Critical Infrastructure Assurance Office designated 
        three IRS facilities as Critical Assets, necessitating these 
        upgrades. These upgrades will provide safeguards that are 
        commensurate with the increased threat. We will fortify high-
        risk facilities to better withstand the most common type of 
        terrorist attacks. This fortification includes strengthening 
        windows to either withstand blasts or minimize injuries as a 
        result of blasts.
  --Prioritized our major business processes. We are identifying the 
        vital records associated with critical processes and supporting 
        information systems to ensure we have adequate redundancy and 
        backups in place to continue our operations, including those 
        relying on paper records.
  --Focused efforts on improving our response and recovery processes by 
        implementing situation awareness and management centers in four 
        IRS locations. These centers contain information, 
        communications, and other decision support for emergency 
        situations.
  --Implemented a computer security incident response capability that 
        works with the IRS's information technology owners to monitor 
        IRS network and Internet activity 24 hours a day, seven days a 
        week.
  --Centralized the reporting of computer security and physical 
        security incidents to a single location. Events that threaten 
        the safety of personnel or interrupt business operations are 
        reported through this center and are immediately sent to an 
        executive who evaluates the threat and determines appropriate 
        actions.
  --Implemented a layered defense to protect our critical assets. That 
        is, we use various methods at different entry points to prevent 
        attacks to our systems or facilities.
  --Actively sought information regarding notices of hardware or 
        software vulnerabilities so we can take steps to implement 
        appropriate safeguards. We have an ongoing security awareness 
        program to remind our personnel of their security 
        responsibilities. We also significantly improved our virus 
        protection program over the last year and now manage it 
        centrally, which allows us to provide the latest virus 
        protection updates to computers connected to our network.
    We continue to aggressively identify and evaluate threats and 
vulnerabilities related to our personnel, facilities, and systems to 
prevent of mitigate any damage.
                           homeland security
    Question. Your budget request includes $10 million to annualize the 
costs for enhanced security arrangements associated with the Homeland 
Security Supplemental.
    What role does the IRS play in Homeland Security?
    Answer. The IRS's role is:
  --Maintaining taxpayers' confidence in government agencies and 
        continuing to collect and account for internal revenue critical 
        to running our government. We have several infrastructure 
        protection assets that are essential to the economic security 
        of the United States.
  --Assisting other federal law enforcement agencies in investigating 
        terrorists' financial activities and providing computer 
        forensic support when requested.
  --Supporting Homeland Security through the IRS Criminal Investigation 
        (CI) division's participation in the Federal Bureau of 
        Investigation's Joint Terrorism Task Forces (JTTF) and 
        ``Operation Green Quest,'' the Department of Treasury's 
        initiative to identify, disrupt, and dismantle terrorism 
        fundraising activities.
  --Providing IRS special agents to support security efforts at 
        important national events such as the UN 50 Celebration and the 
        Olympic Games.
    In the aftermath of the September 11 attacks, CI:
  --Assisted the FBI in the investigation of the attacks.
  --Detailed agents to the FBI's Financial Review Group and Strategic 
        Information Center (SIOC) to help evaluate financial 
        information.
  --Provided agents to assist in recovery efforts at the World Trade 
        Center and the Staten Island landfill where debris was examined 
        for evidence and to identify victims of the attack.
  --Helped the Office of Foreign Asset Control develop evidence to 
        block the bank accounts of Hawalas and other organizations used 
        by terrorists or suspected of engaging in terrorist fund 
        raising activities.
  --Helped protect employees and enhance security at Federal buildings 
        and IRS Service and Computing Centers.
  --Detailed 67 special agents to support the Federal Air Marshal 
        Program.
  --Assigned 205 special agents to enhance security at the Winter 
        Olympic Games.
  --In May 2001, CI purchased an exclusive license to update and 
        maintain the source code for the ILook Investigator computer 
        forensic software. ILook is a suite of software tools that 
        allows a computer forensic examiner to analyze and extract 
        files from images of seized computer hard disks and other 
        storage media. It is the most technically advanced computer 
        forensic analytic tool available today. Under the terms of the 
        license, CI is obligated to make ILook available free of charge 
        to other law enforcement agencies. (The license also prohibits 
        any sale or other commercial distribution of ILook outside the 
        law enforcement community.) In the last year, the use of ILook 
        within the law enforcement community has increased 
        dramatically. CI has approximately 5,000 licensees in over 
        thirty countries. ILook is in use in all of the Treasury law 
        enforcement bureaus and has been adopted as the primary 
        computer tool by the DOD Computer Forensic Laboratory, NASA, 
        and the FBI. Since September 11th, CI has established a strong 
        working relationship with the intelligence community, which is 
        using ILook to analyze computers seized in military and 
        intelligence agency operations overseas. Most of the computers 
        seized in recent terrorist-related investigations have been 
        analyzed using ILook. ILook has been designed to allow the 
        insertion of foreign language character sets so that documents 
        in Arabic, Farsi, several dialects of Chinese, and many other 
        languages can be searched and printed.
    Question. What is your relationship, and the IRS relationship, with 
Governor Ridge and the Office of Homeland Security?
    Answer. We do not have a direct relationship with the Office of 
Homeland Security (OHS). We support the OHS at the invitation of the 
Department of the Treasury. For example:
  --We worked with Treasury to respond to the Homeland Security 
        Advisory System (HSAS). We drafted protective measures 
        associated with the proposed HSAS levels that integrate our 
        physical security, incident management, or law enforcement 
        personnel's response to terrorist threats. We are awaiting the 
        final HSAS guidance before implementation.
  --We also worked with the OHS during a recent two-day conference, 
        hosted by the RAND Corporation, for law enforcement, first 
        responders, and health care professionals. During this 
        conference, we provided comments and recommendations about law 
        enforcement vulnerabilities within the area of economic crime.
  --On April 11, 2002, we provided to OHS an overview of CI's criminal 
        jurisdiction, investigative expertise, and a summary of efforts 
        to combat terrorism.
                  funding for cash transaction reports
    Question. Since September 11, tracking large cash transactions has 
become increasingly important to our national security. It is my 
understanding that the Currency Transaction Reports (CTRs) that 
document the transaction of large amounts of money by banks and other 
financial institutions are processed through the IRS Computing Center 
in Detroit. I am aware that there is concern within the IRS that there 
may not be sufficient funding in this fiscal year to continue the CTR 
processing at its current level of activity. Further, I am told that 
the fiscal year 2003 budget request may also not be adequate to process 
these documents. I consider this function of the IRS a very high 
priority and do not want to see any reduction in the processing of the 
CTRs.
    Please explain in detail whether there is adequate funding in this 
fiscal year to continue the processing of CTRs through the end of 
September without any reduction in the effort, and provide the 
Subcommittee with an estimate of the shortfall, if you predict there 
will be one.
    Answer. We do not expect a shortfall in funding to process CTRs in 
this fiscal year.
    Question. Also, please address whether the fiscal year 2003 budget 
request for this processing function will be adequate.
    Answer. At this time, we believe the fiscal year 2003 budget 
request will be adequate to maintain the basic level of service for 
this processing function.
                           contract with und
    Question. I am interested in knowing the status of the IRS 
workforce training initiative that will be implemented, in part, at the 
University of North Dakota (UND).
    Can you provide to the Subcommittee a description of the tasks to 
be performed, the timetable, the status of the contract with the 
University, the proposed overall budget and the portion of the budget 
that would be dedicated to the work conducted at UND?
    Answer. The task directs the contractor to develop a blended 
learning solution to train employees in our customer service telephone 
operations who respond to inquiries about account adjustments from 
individuals and businesses. The learning solution will combine web-
based, self-directed e-learning, classroom training and related 
instructional forms and resources as appropriate. We plan to award the 
contract by July 1, 2002, and to complete the tasks by the end of the 
calendar year. The overall budget for this effort is $1.2 million; we 
expect the University of North Dakota to receive at least $500,000 of 
the contract.
    Question. It is my understanding that the workforce training model 
being developed calls for the conversion of traditional instructional 
methods to an e-learning delivery platform. Do you feel that this is a 
model that could be replicated in other federal agencies?
    Answer. The contract is part of the IRS Enterprise E-Learning 
Strategy. The strategy supports the government-wide E-Government 
Strategy, announced by the Office of Management and Budget in February 
2002. OMB's ``E-Gov'' initiative involves twenty-four high-payoff 
initiatives to improve the efficiency and effectiveness of the federal 
government through the use of improved technology and includes ``E-
training'' as part of the strategy in support of the President's Human 
Capital initiative.
    The IRS, in coordination with the Department of the Treasury, is a 
member of the Training Technology Implementation Group at OPM. The IRS 
is partnering with Government On-Line (GO) Learn to meet our Learning 
Management System (LMS) and e-learning content development needs. We 
will be using the Specialized Technical and Technology Users Services 
(STATUS) contract at the Department of Transportation. IRS is also 
partnering with the Advanced Distributed Learning Co-op Lab (ADL CoLab) 
to establish standards and specifications for e-learning solutions that 
could be used governmentwide.
    Strategic Human Resource (SHR) developed criteria that considers 
the number of employees who would use the training, potential travel 
savings, portability and reusability across business units, and 
increases in productivity (reduced time spent in training to achieve 
the same level of competency) to maximize return on the E-Learning 
investment.
                                 ______
                                 

                Questions Submitted by Senator Jack Reed

    Question. Mr. Commissioner, many Federal agencies have been 
encouraged to work in an environment with less resources and less 
staffing, but still accomplish the same amount or even more work than 
in the past. It has been noted before that IRS staff has decreased 
significantly in recent years, while the number of tax returns has 
increased. How does the Service continue to expect to reconcile those 
two facts, while still maintaining its goal of higher customer 
satisfaction? Do you feel that the Service has an appropriate amount of 
staffing and other resources to continue to work to achieve this goal?
    Answer. There will always be far more potential work then can be 
handled regardless of how many resources are applied. But, we have re-
engineered our business practices and used technology to perform our 
mission more efficiently in line with the best private and public 
sector practices. Reengineering has also helped us to leverage 
resources against workload so we can achieve higher levels of service 
without significantly increasing staffing.
    Some of our other cost-saving initiatives include:
  --Reducing the number of Submission Processing centers as the number 
        of paper returns decrease and e-file returns increase.
  --Expanding our use of automated telephone service to address the 
        downstream impact of increased filings (increase in telephone 
        calls and correspondence inquiries).
  --Developing Internet applications that allow taxpayers to secure 
        information on-line. This effort will allow more customers to 
        receive service on basic inquiries without affecting our 
        resources. For example, the recently released Internet Refund 
        Fact of Filing (IRFOF) program allows taxpayers to determine 
        the status of their refund on-line. Resources that we would 
        have used to respond to this inquiry can now be reprogrammed to 
        work on other high priority programs.
  --Decreasing the number of tax returns prepared in our Taxpayer 
        Assistance Centers. In fiscal year 2002, we had a 10 percent 
        decline in demand for return preparation services. Our expanded 
        partnerships with volunteers in our Volunteer Income Tax 
        Assistance (VITA), Tax Counseling for the Elderly (TCE), and 
        English as a Second Language (ESL) programs have allowed us to 
        reprogram some of the resources we previously used to prepare 
        returns.
    In addition, we have developed partnerships with other external 
stakeholders who have communication channels in market segments with 
the highest compliance risks. This effort allows us to reach a much 
larger audience and deliver educational and informational messages to 
the market segment while having a minimal impact on our resources. For 
example, we recently provided briefings to representatives of the AMA, 
ADA and Construction Industry on Tax Schemes and Scams. By partnering 
with these representatives we are able to reach larger numbers of 
taxpayers through their newsletters.
    Question. Mr. Commissioner, there has also been some attention 
recently to efforts by some people to encourage individuals and small 
businesses not to pay taxes, based on the erroneous assumption that the 
Constitution does not mandate it. Do you think those efforts are 
catching on at all? What is the IRS doing to counteract these efforts? 
What other actions in the realm of enforcement does the IRS plan to 
emphasize in the coming year?
    Answer. The number of taxpayers using the classic Constitutional 
arguments of the 1st, 4th, 5th, 13th, 14th, and 16th Amendments have 
remained relatively stable. Newer arguments against taxation, such as 
the Internal Revenue Code (IRC) Section 861 argument that Americans are 
exempt from taxation on income earned within the United States, caught 
on during the late 1990's and we received substantial filings of Zero 
Tax cases.
    In fiscal year 2000, we created the Frivolous Return Unit (FRU) at 
the Ogden IRS campus to focus specifically on combating false and 
frivolous claims. The Frivolous Return Program (FRP) centralized the 
processing of these claims and has protected $3 billion of revenue for 
fiscal year 2001. It also developed nationwide employee training keyed 
to this problem.
    Other IRS activities to counteract these abuses include:
  --Identifying the promoters and the schemes through summonses of 
        records, audits of promoters, disclosure regulations, and 
        active analysis of leads from all sources
  --Identifying participating taxpayers by auditing promoter records, 
        screening tax returns, and matching of documents
  --Establishing an Abusive Tax Schemes Lead Development Center (LDC) 
        within the Small Business/Self-Employed Division to increase 
        our vigilance on web-promoted tax schemes. A key role of the 
        LDC is to conduct Internet research to identify and develop 
        potential Abusive Tax Scheme ``leads.'' The LDC began operating 
        in early April 2002. We anticipate the LDC will provide 
        significant new leads on abusive promoter cases and greatly 
        enhance those leads identified from traditional sources.
  --Providing specific warnings to the public and to potential 
        promoters through issuance of official notices and disclosure 
        regulations to the media, partnerships with practitioner and 
        business groups, and letters to potentially affected taxpayers
  --Linking our www.irs.gov web site to the Criminal Investigation 
        ``Tax Fraud Alerts'' page on the Treasury web site to alert 
        taxpayers and tax practitioners to tax scams and fraud schemes. 
        This site contains in one location a wealth of information on 
        these schemes, and case summaries of those convicted of 
        committing the crimes.
  --Taking enforcement action against promoters, including civil 
        injunctions, civil penalties, and criminal investigations. 
        Since last year, we have worked closely with our colleagues at 
        the Justice Department to establish a parallel approach where 
        we can seek civil injunctions while criminal actions are 
        proceeding. This will be a major breakthrough as promoters 
        often continue to operate while criminal investigations are 
        taking place.
  --Taking enforcement action against participating taxpayers, 
        including audits, civil penalties, and criminal investigations.
  --Taking action to measure the size of the problem and improve 
        identification methods for the future.
    Question. Mr. Commissioner, in my State of Rhode Island, we have 
had some very good feedback concerning the work of the Office of the 
Taxpayer Advocate. Are you satisfied with the work overall of the 
National Taxpayer Advocate? Do you see any room for improvement? Are 
their recommendations for legislative actions (such as for family 
status issues, joint and several liability, alternative minimum tax for 
individuals, etc.) outlined in their annual report being taken 
seriously by the IRS?
    Answer. I found the National Taxpayer Advocate's fiscal year 2001 
Annual Report to the Congress to be a comprehensive and thoughtful 
document that accurately portrays the problems taxpayers face in trying 
to comply with a complex tax code and receive quality service from the 
IRS. Last year's report identified tax code complexity as the top 
problem facing individual and business taxpayers. This year, the 
concept of tax complexity is incorporated into every aspect of the 
National Taxpayer Advocate's report. Of the top 5 ``Most Serious 
Problems Encountered by Taxpayers,'' three dealt with EITC eligibility 
and multiple definitions of ``qualifying child.'' We are devoting a 
great deal of attention and resources to both the service and 
complexity problems identified by the National Taxpayer Advocate.
    Question. Mr. Commissioner, about eighteen months ago you testified 
that you did not believe the IRS should get into the business of 
electronic tax preparation software, saying that this would erode the 
Voluntary Compliance system and would be a serious burden for IRS to 
assume. You testified that there was ``no gray area'' about that policy 
conclusion in your judgment. However, in a memorandum from the Office 
of Management and Budget in July 2001 to the heads of all executive 
agencies, they set forth their objective to have the federal government 
take on the function of providing ``automated tax preparation'' 
services over the Internet. Since the OMB proposal runs counter to the 
declared policy position taken by the IRS (through your earlier 
testimony), do you still hold the position you testified to in October 
2000?
    Answer. Yes. Although there has been much confusion, the Secretary 
of the Treasury and I have clarified the purpose of the EZ Tax Filing 
proposal (which is for private industry to offer free tax preparation 
and electronic filing options). We have stated publicly that the 
Department of the Treasury and the Internal Revenue Service have no 
intention of expanding their roles in the tax advisory or preparation 
business. As the Secretary of the Treasury stated in a January 30, 2002 
press release, ``The Department of the Treasury does not intend for the 
IRS to enter the software business but rather to work with established 
expertise in private industry.''
    The Administration proposed in its fiscal year 2003 budget 
submission ``an easy no cost option for taxpayers to file their tax 
returns on-line.'' Through the EZ Tax Filing initiative, the IRS is 
committed to partnering with private industry representatives who have 
proven expertise in the tax software business. The objectives of this 
initiative are to:
  --Assure access to a free and secure electronic preparation and 
        filing option for additional taxpayers, building on the free 
        electronic tax preparation and filing options available in the 
        commercial market today
  --Make tax return preparation and filing easier and reduce the burden 
        on individual taxpayers
  --Support the RRA98 goal of having 80 percent of Federal tax and 
        information returns filed electronically by the year 2007
  --Provide greater service and access to taxpayers
  --Implement the proposal in the President's fiscal year 2003 budget 
        to encourage further growth in electronic filing by providing 
        taxpayers the option to file their tax return on-line without 
        charge.
    We achieved a major milestone by receiving over 46 million 
electronically filed returns in 2002 with the assistance of the 
taxpayer professional community. However, we know we need to do much 
more to encourage the remaining taxpayers to file their tax returns 
electronically.
    Question. In declaring its objective to have the government begin 
offering ``automated tax preparation'' services to the public, the OMB 
has indicated that they wanted initially to cover all EZ tax returns 
the first year, and expand to take on the preparation of all income tax 
returns over a period of years going forward. What would be the total 
budgetary impact on the IRS of the OMB EZ Tax Filing proposal in its 
initial phase? What would be the ongoing budgetary costs in the out 
years as the program progresses and is expanded?
    Answer. The initial phase of the EZ Tax Filing initiative involves 
establishing a consortium web page on the IRS' web site (irs.gov) and 
Firstgov.gov that contains links to commercial web sites offering 
eligible taxpayers free electronic tax preparation and filing options. 
As a result, the budgetary impact of this initiative on the IRS for 
fiscal year 2003 will be minimal. If the consortium agreement between 
the IRS and industry remains consistent in future years, the budgetary 
impact for the IRS will remain low.
    Question. What is the current status of the OMB proposal for the 
government to provide ``automated tax preparation'' services?
    Answer. The Government and Industry recently completed a proposed 
agreement to offer a variety of free electronic tax preparation and 
filing options to a significant number of individual taxpayers. We will 
make these offerings available to taxpayers through a Government 
managed consortium web site located at irs.gov and Firstgov.gov. We 
anticipate that the web site will be available for Filing Season 2003.
                                 ______
                                 

         Questions Submitted by Senator Ben Nighthorse Campbell

                     business systems modernization
    Question. Will the IRS still need the entire $450 million to fund 
business systems modernization for fiscal year 2003? If yes, what 
assurance can the IRS provide us that the $450 million will be managed 
effectively?
    Answer. Yes, we need the full $450 million to continue the 
Modernization program and fund the necessary program management 
activities to improve business operations and improve delivery of 
services to taxpayers. $450 million would enable us to provide a 
reasonably balanced program that builds out essential infrastructure, 
delivers taxpayer value, improves internal operations, and is within 
our ability to manage and implement.
    Our oversight partners have noted steady progress in the overall 
management of the program. BSMO progress has been marked by significant 
improvements, adjustments, discipline, and our exceptionally open 
relationship with our oversight partners. In the 3 years since the 
program began, management processes have greatly matured and will 
continue to show progress as we gain more experience and continue to 
reexamine our commitments. We have addressed many of the 
recommendations made by GAO, such as prudently slowing some projects, 
and deferring new ones when management capacity is inadequate to 
proceed within acceptable risk.
    We believe we have good governance--Control Boards, Core Business 
Systems Executive Steering Committees and Sub Executive Councils, 
Advisory Councils, the IRS Oversight Board- and a foundation in place 
to ensure a planned, repeatable modernization process. The established 
financial controls, the discipline of the Enterprise Life Cycle, a 
defined architecture, the required compliance architecture, security 
certifications, and the controls on when projects should advance within 
their life cycle are our tools for managing the Modernization program.
    These controls and governance, and our own management judgment, 
ensure that we have adequate management capacity and an acceptable risk 
before starting future work. Valuable lessons have been learned as we 
have developed and implemented the modernization projects. Making 
adjustments to plans is an indication that the risks are being 
addressed and managed.
    We are improving the quality and rigor of our management processes. 
We have established plans and schedules to implement fully 
Configuration Management, Risk Management, quality assurance, and cost 
and schedule estimating processes, as well as recommendations in human 
capital management and other areas. BSMO has launched a performance 
management program this past year to both track the ongoing level of 
performance during a project's lifecycle (such as quality, timeliness, 
cost, and schedule compared to plans), and to look at value delivered 
after an application has been deployed and compare that to the business 
case. In addition to the dedicated staff assigned to these 
improvements, both the IRS and PRIME have appointed senior executives 
to coordinate within and across our respective organizations to ensure 
we give top priority to completing their implementation.
    We firmly believe that we are making progress on all our 
commitments; are leveraging our precious resources; and are managing 
the considerable risk inherent in a program of the enormous size, 
complexity, and sensitivity as BSM. We have not, and will not hesitate 
to make changes when necessary. However, it takes time to establish and 
mature processes, procedures, and management controls. Sufficient funds 
are essential to maintaining the momentum and the continuity of the 
program so the projects can continue in an orderly manner. The 
extensive executive involvement and reviews, oversight, governance, and 
management controls and processes in place will ensure the proper use 
of the funds.
    Question. How will the IRS assess accountability if it is not?
    Answer. The BSM Program has been steadily working on managing 
program and projects based on best practices in cost and schedule 
planning, configuration management, risk management, management 
progress reporting and acquisition management. We will adjust our plans 
as we mature and learn from this large and complex business systems 
modernization program. However, we feel the established best practices, 
coupled with our strong governance process, and the rigorous and 
documented life cycle, will strike the proper balance between 
delivering business value, building critical infrastructure, and 
ensuring control and effectiveness.
    Question. What is the PRIME's schedule for implementing mature 
processes and what is the IRS's plan for ensuring that this happens on 
schedule?
    Answer. The PRIME already has mature processes in place.
    The PRIME uses both the Software Engineering Institute's Software 
Acquisition Capability Maturity Model (SA-CMM) and the Software 
Engineering Capability Model (SW-CMM) to measure the maturity of its 
processes. The models provide a framework for measuring process 
maturity and providing a roadmap for improving how the PRIME conducts, 
develops and acquires software to modernize IRS business systems. The 
models include a series of key process areas that measure how a program 
is managed. They include defined practices applied to documentation, 
training, oversight, and evaluation throughout the life cycle of the 
project. The PRIME uses the SW-CMM as well as the SA-CMM to bring 
continuous improvement to how it develops, acquires, manages, delivers, 
and maintains software to improve IRS services to the taxpayer.
    Within this environment, the PRIME manages the development and 
acquisition of software development services that fit into the 
Enterprise Architecture 2.0 blueprint for IRS modernization and follow 
the defined series of development steps as defined by the Enterprise 
Life Cycle, a key CSC software development methodology modified for IRS 
requirements. PRIME management applies rigorous Process Management, 
Configuration Control, and Change Control to software as it proceeds 
throughout the Enterprise Life Cycle.
    In 1999, the CSC Civil Group became the first organization in the 
world to acquire SA CMM Level 2. In 2000, the CSC Civil Group was rated 
again at level 2. The PRIME participated and was singled out as being 
well on the way to a higher maturity level. In April 2002, the PRIME 
conducted a self-assessment and developed a Process Improvement Plan 
based on identified weaknesses. The PRIME is aggressively working to 
correct weaknesses. This self-assessment is for a Software Capability 
Evaluation in August. If successful in August, the PRIME will become 
the first organization in the world to acquire SA CMM Level 3. In 2001, 
the CSC Civil Group attained an SW-CMM level 4 rating, a significant 
accomplishment considering the size of the organization evaluated and 
the inherent difficulty in achieving that rating.
    The IRS has engaged the Software Engineering Institute (SEI) to 
lead a formal evaluation (Software Capability Evaluation or SCE) using 
the SA-CMM in August of this year to reassess. The formally chartered 
BSMO Process Improvement Management Steering Group (MSG) chaired by 
senior BSMO executives oversees PRIME's process assessment and 
improvement initiatives on a regular basis.
    Question. Until this is done, what steps is the IRS taking to 
mitigate the risk associated with the PRIME not having the processes in 
place?
    Answer. Because the PRIME already possesses mature processes in 
both software engineering and software acquisition, no specific risk 
mitigation actions are necessary. However, the PRIME's effective 
implementation and improvement of these processes and good acquisition 
oversight is a key tenet of IRS's management of the PRIME. Toward that 
end, the IRS is on a path to improve its acquisition management 
capabilities.
    The IRS is working to achieve a Software Acquisition Capability 
Maturity Model (SA-CMM) rating. IRS Business Systems Modernization's 
immediate goal is SA CMM Level 2. In addition, the IRS has 
institutionalized a number of very disciplined management processes 
applying SA-CMM principles to how we acquire the services of the PRIME, 
and subsequently how we manage ongoing activities during the life cycle 
of developing a new modernized capability for the IRS.
    The IRS uses a series of oversight bodies, including the Core 
Business Systems Executive and Sub-Executive Steering Committees, the 
Business Systems Modernization Configuration Control Board, the 
Business Systems Modernization Project Control Board and the BSMO 
Process Improvement Management Steering Group (MSG) to ensure we 
monitor and track the status of modernization initiatives and process 
improvement plans.
    And finally, as a result of a recent GAO report addressing IRS 
management weaknesses, the IRS has developed and is implementing a 
comprehensive action plan to address every weakness the GAO identified.
    If the August SCE identifies remaining weaknesses, we will require 
the PRIME to update its Process Improvement Plan to address them. We 
understand process improvement is a long term and ongoing task.
    Question. How many Tax Resolution Representatives (TRR) have you 
presently trained and deployed in the field offices?
    Answer. 1,409
    Question. What assurance does the IRS have that trained TRRs will 
be available to assist taxpayers with innocent spouse claims in all 
field locations?
    Answer. Based on projections from the Innocent Spouse Project 
Office sufficient work does not exist to warrant training the number of 
employees we originally contemplated for processing innocent spouse 
claims. Field Assistance will use TRRs already trained to work cases 
they receive. In the future, TRRs will encounter the Innocent Spouse 
Issue as they expand their duties to conduct office examinations. We 
will add a lesson on Innocent Spouse issues to TRR training. TRRs can 
also use a software application to perform accurate determinations on 
these claims.
    Question. What were the IRS's actual audit rates in fiscal year 
2001 for low-income, middle-income, and high-income non-business, self-
employed individual taxpayers?
    Answer. The fiscal year 2001 audit rates of self-employed 
individual taxpayers for examination and other compliance contacts 
(correspondence examination, in-person examination, and automated 
underreporter) was: 1.05 percent for income less than $25,000; 1.77 
percent for income from $25,000-$100,000; and 2.78 percent for income 
$100,000 and over. The overall rate was 1.83 percent.
    Question. What are the IRS's expected audit rates for fiscal year 
2002 for low-income, middle-income, and high-income non-business, self-
employed individual taxpayers?
    Answer. The fiscal year 2002 expected audit rate of self-employed 
individual taxpayers for examination and other compliance contacts 
(correspondence examination, in-person examination, and automated 
underreporter) is: 1.28 percent for income less than $25,000; 2.47 
percent for income from $25,000-$100,000; and 4.02 percent for income 
$100,000 and over. The overall rate is 2.54 percent.
    Question. How does the IRS measure the effectiveness of offers as a 
collection tool?
    Answer. Our critical performance measure is disposition of cases. 
Through April 2002, we disposed of 74,343 cases. This amount includes:
  --Accepted offers of 17,498;
  --Rejected offers of 8,685;
  --Returned offers of 26,160;
  --Unprocessable offers of 13,992, and;
  --Withdrawn and terminated offers of 8,008.
    The fiscal year 2002 goal for Offer in Compromise (OIC) 
dispositions is 142,500 cases.
    Two other effectiveness measures we use for OIC are the percentage 
of cases closed within 6 months and the quality of the cases, based on 
the following criteria:
  --Clarity of the taxpayer action
  --Timeliness of case action
  --Completion of financial analysis
  --Determination of an acceptable offer
  --Use of appropriate negotiation skills
  --Observation of taxpayer rights
    Through April 2002, 34 percent of the cases we handled in OIC were 
closed within 6 months. The fiscal year 2002 goal for timely processing 
is 67 percent. For the same period, the quality of the field OIC cases, 
as reviewed by our Collection Quality Measurement System (CQMS), was 
79.8 on a scale of 100. We have not set a fiscal year 2002 goal for OIC 
case quality.
    Question. What was the total amount of revenue collected through 
OIC in fiscal year 2001?
    Answer. For fiscal year 2001 we accepted OICs in the amount of $341 
million. Payment terms can extend past the remaining life of the 10-
year statutory period for collection. Some offers have collateral 
agreements that may require additional payments at an indefinite time 
and for an amount not yet determined (for example, the taxpayer will 
pay a percentage of future income over a specified dollar amount for 
the next 3 years). Our manual tracking reports show 95 percent of 
taxpayers who submit OICs comply with their payment terms. Therefore, 
of the $341 million offered, we expect to collect $324 million.
    Question. What were the total costs of the OIC program in fiscal 
year 2001, including staff hours spent by counsel, independent 
reviewers, managers and taxpayer advocate?
    Answer. In fiscal year 2001 we applied 1,138 Field FTEs plus 22 
FTEs for Independent Reviewers to the OIC program. Based on the average 
salary and benefit costs associated with OIC in the field and in the 
centralized sites, this translates into a cost of about $83.5 million. 
Staff hours for Counsel and Taxpayer Advocate are not recorded 
specifically for the OIC program and, therefore, are not included in 
the $83.5 million. Other costs we cannot quantify separately for OIC 
include form production, mailing, computer system maintenance, and 
software support.
    Question. How does IRS monitor taxpayer compliance with the terms 
of accepted offers?
    Answer. We enter follow-up dates for payments into our Automated 
Offer in Compromise system. Employees monitor this system to ensure 
taxpayers pay on time. If payments are not submitted, we contact the 
taxpayer. If the taxpayer fails to bring the payments up to date, the 
OIC is in default.
    We also monitor for timely filing of returns through a system that 
generates transcripts of account history. Again, if the taxpayer does 
not file a return on time, we contact him or her. If the taxpayer still 
does not file the return, the OIC is in default.
    These are both labor-intensive operations. We are enhancing our 
automated systems to reduce the administrative burden of these 
compliance checks.
    Question. How does the IRS monitor whether the quality of offer 
decisions is being adversely affected by its efforts to speed up the 
OIC processing?
    Answer. The IRS is developing a complete suite of balanced measures 
(business results, customer satisfaction, and employee satisfaction) 
for the OIC program. To ensure that we fully implement Balanced 
Measures for the OIC process, we monitor the quality of OIC field 
casework through the Collection Quality Measurement System (CQMS). We 
are also expanding this quality measurement to include the cases 
handled by the Centralized OIC sites. We also plan to study the 
effectiveness of process changes and associated cost benefit/risk of 
future changes made to the OIC process.
    Question. What steps, if any, is the IRS taking to reach delinquent 
taxpayers sooner so that taxpayers can resolve their tax debts before 
an offer becomes necessary and so that the IRS can improve it ability 
to collect past due taxes?
    Answer. We are using education programs to send key messages to 
taxpayers about collection alternatives, such as the installment 
agreement program. Through our expanded outreach efforts we have set up 
various partnership channels to assist taxpayers in timely complying 
with the tax laws. To better address those taxpayers who are likely to 
become delinquent, we have conducted research to profile various 
balance due and nonfiler market segments. This research, which is 
ongoing, provides an opportunity for us to determine the key 
demographic and compliance characteristics of these taxpayers and to 
facilitate tailored outreach methods and messages.
    In 2001 we issued a CD-ROM advising taxpayers of their rights and 
alternatives, including collection alternatives and alternative dispute 
resolution vehicles. In addition, we are redesigning our SB/SE website 
to provide information on collection alternatives. We are also 
developing new messages to emphasize the broad range of Collection 
options taxpayers should consider before contemplating an Offer in 
Compromise.

                         CONCLUSION OF HEARINGS

    Senator Dorgan. This subcommittee is recessed.
    [Whereupon, at 2:45 p.m., Wednesday May 15, the hearings 
were concluded, and the subcommittee was recessed, to reconvene 
subject to the call of the Chair.]



       LIST OF WITNESSES, COMMUNICATIONS, AND PREPARED STATEMENTS

                              ----------                              
                                                                   Page
Bond, Senator Christopher S., U.S. Senator from Missouri, 
  question submitted by..........................................    94
Bonner, Robert, Commissioner, U.S. Customs Service, Department of 
  the Treasury...................................................   193
    Opening remarks..............................................   197
    Prepared statement...........................................   200
Buckles, Bradley A, Director, Bureau of Alcohol, Tobacco and 
  Firearms, Department of the Treasury...........................   126
    Prepared statement...........................................   127
    Questions submitted....................................... 177, 187 

Campbell, Senator Ben Nighthorse, U.S. Senator from Colorado: 
   Prepared statements............................ 29, 56, 98, 241, 298 
   Questions submitted by....42, 93, 172, 176, 180, 183, 186, 233, 283, 333 
   Statements of...................................... 56, 98, 240, 297 

Daniels, Mitchell E., Jr., Director, Office of Management and Budget, Executive 
 Office of the President........................................... 53 
  Opening statement................................................ 56 
  Prepared statement............................................... 57 
DeWine, Senator Mike, U.S. Senator from Ohio: 
  Prepared statement.............................................. 242 
  Questions submitted by.......................................... 291 
Dorgan, Senator Byron L., U.S. Senator from North Dakota: 
  Prepared statements............................. 3, 54, 97, 239, 294 
  Questions submitted by........ 30, 74, 169, 173, 177, 181, 184, 226, 275, 323 

Gurulï¿½, James, Under Secretary for Enforcement, Office of Enforcement,
  Department of the Treasury....................................95, 193 
    Opening remarks.............................................99, 195
    Prepared statement...........................................   101
    Questions submitted to.......................................   169

Hackenberry, Paul, Acting Director, Federal Law Enforcement 
  Training Center, Department of the Treasury....................   152
    Prepared statement...........................................   154
    Questions submitted to.......................................   184

Institute of Makers of Explosives, prepared statement............   188

Kingman, Edward, Assistant Secretary for Management and Chief 
  Financial Officer, Office of the Secretary, Department of the 
  Treasury.......................................................     1

Landrieu, Senator Mary L., U.S. Senator from Louisiana, questions 
  submitted by...................................................    89

Marx, Michele C., Director, Financial Management, Office of 
  National Drug Control Policy, Executive Office of the President   237

O'Neill, Paul H., Secretary, Office of the Secretary, Department 
  of the Treasury................................................     1
    Prepared statement...........................................     7
    Statement of.................................................     4

Reed, Senator Jack, U.S. Senator from Rhode Island:
    Prepared statement...........................................     4
    Questions submitted by........................39, 92, 187, 279, 330 
    Statement of.................................................     4
Rossotti, Charles O., Commissioner, Internal Revenue Service, 
  Department of the Treasury.....................................   293
    Prepared statement...........................................   308
    Statement of.................................................   295

Sloan, James F., Director, Financial Crimes Enforcement Network, 
  Department of the Treasury.....................................   143
    Prepared statement...........................................   145
    Questions submitted to.......................................   181
Stafford, Brian L, Director, U.S. Secret Service, Department of 
  the Treasury...................................................   112
    Prepared statement...........................................   114
    Questions submitted to.......................................   173
Stevens, Senator Ted, U.S. Senator from Alaska, question 
  submitted by...................................................    94

Walters, John P., Director, Office of National Drug Control 
  Policy, Executive Office of the President......................   237
    Prepared statement...........................................   247
    Statement of.................................................   243










                             SUBJECT INDEX

                              ----------                              

                       DEPARTMENT OF THE TREASURY

                Bureau of Alcohol, Tobacco and Firearms

                                                                   Page
ATF:
    Accomplishments, fiscal year 2001............................   130
    Terrorism case examples......................................   129
Budget request, fiscal year 2003...............................127, 130
Bureau-wide initiatives..........................................   138
Collect the revenue due..........................................   136
Critical infrastructure projects.................................   140
Integrated violence reduction strategy (IVRS)/project safe 
  neighborhoods..................................................   131
President's management agenda....................................   141
Protect the public...............................................   137
Terrorism and homeland security..................................   126

                 Federal Law Enforcment Training Center

Additional committee questions...................................   169
Area site progress, Washington, D.C............................152, 157
Border agency consolidation......................................   187
Budget resources are inadequate for responsibilities.............   189
Business strategy adjustment....................163, 164, 168, 170, 174
Cheltenham facility..............................................   187
Cooperation with other Federal agencies..........................   167
Electronic crimes task force.....................................   174
Explosives permits...............................................   159
Facilities:
    Construction master plan.....................................   186
    Master plan study............................................   154
    Master plan/five year construction plan......................   158
Federal:
    Agency coordination, need for................................   191
    Air marshal training.........................................   165
Financial war on terrorism.......................................   169
Fiscal year 2002 achievements....................................   156
Fiscal year 2003:
    And the USA PATRIOT Act......................................   166
    Budget.......................................................   184
    Request....................................................152, 155
G.R.E.A.T. grant program.........................................   178
Gang resistance education and training program...................   163
Government Performance and Results Act (GPRA)....................   155
Gun show sales, background checks for............................   160
Increase in protective details...................................   162
Interest of the IME..............................................   189
Joint border agency..............................................   171
Maintenance and renovation request...............................   159
National:
    Instant criminal background check............................   161
    Special security events....................................175, 178
Office of Homeland Security..........................164, 171, 179, 184
Overtime.........................................................   162
Overview of operations...........................................   156
Protection of the U.S. currency..................................   174
Relocation, New York field office..............................163, 175
Research.........................................................   191
Rulemaking concerns--closing the import marking loophole.........   190
Rural law enforcement project....................................   187
Shortfalls to the budget.........................................   177
Staffing.........................................................   179
Strategic goals..................................................   190
Supplemental funding.............................................   178
Terrorist funding................................................   183
Training capacity for air marshals...............................   166
Transportation:
    Screener training............................................   166
    Security:
        Agency...................................................   186
        Training...............................................153, 158
Treasury counterterrorism fund...................................   170
Workforce retention:
    And workload balancing.......................................   162
    Annualization of new hires...................................   173
Workload:
    Growth.......................................................   153
    Increase.....................................................   152

                  Financial Crimes Enforcement Network

Accomplishments, fiscal year 2001................................   148
Bank Secrecy Act, administering the..............................   149
Budget request, fiscal year 2003.................................   147
Counterterrorism investigations..................................   143
Financial crime trends and patterns, identifying.................   149
FINCEN'S:
    Requlatory mission...........................................   144
    Top priority--supporting counter-terrorism investigations....   146
Fostering international cooperation..............................   150
Management support, strengthening................................   150
Money laundering, cooperative efforts to deter...................   147
Supporting the financial aspects of investigations...............   148
Technology, use of information...................................   144
USA PATRIOT Act..................................................   144
    Of 2001......................................................   146

                        Internal Revenue Service

Additional committee questions...................................   307
Budget request, fiscal year 2003.................................   296
Business:
    Strategy adjustment..........................................   323
    Systems modernization......................................325, 333
        And other information technology projects................   318
Challenges remain to quality service.............................   314
Contract with UND................................................   330
Contracting out................................................302, 303
Earned income tax credit initiatives.............................   317
EITC recipients, aggressive audits of............................   323
Federal pay raise................................................   298
Fiscal year 2003 resource request................................   314
Funding for cash transaction reports.............................   329
Highest priority resource needs..................................   315
Homeland security................................................   328
Impact of September 11 on the IRS................................   327
IRS:
    Public rating of.............................................   296
    Walk-in sites, bi-monthly audits of..........................   323
Legislative proposals and proposed adjustments (no net increase 
  in IRS programs)...............................................   320
Maintain current operations......................................   317
Modernization and security.......................................   297
Offers-in-compromise.............................................   304
Operations.......................................................   315
Post 9/11 situation..............................................   301
Productivity through a quality work environment and modernization   312
Resources re-deployed through increased efficiency and 
  productivity...................................................   316
Service improvements made........................................   309
Stemming the decline in compliance...............................   311
Stewardship & resources..........................................   313
Tax:
    Resolution issues............................................   305
    Shelters, abusive............................................   299
Taxpayer assistance:
    Quality......................................................   307
    Walk in......................................................   306
Transfer pricing.................................................   300

                         Office of Enforcement

Border security..................................................   101
Budget request, fiscal year 2003.................................    99
Combating money laundering.......................................   107
Countering narcotics.............................................   108
Disrupting and dismantling terrorist financing...................   102
Enforcement organization.........................................   110
Operation Green Quest............................................   100
President's management agenda....................................   109
Preventing terrorism and reducing violent crime..................   105
Reducing firearms violence.......................................   108
Strategic goals and performance measures.........................   110
Tariff and trade laws, enforcing.................................   109
2002 Winter Olympics.............................................   100

                        Office of the Secretary

Abusive tax practices............................................19, 24
Additional:
    Committee questions..........................................    30
    Funding requirements for FLETC...............................    26
Adequacy of ATF budget...........................................    23
ATF databases for firearms tracing, use of.......................40, 22
Automated commercial environment.................................41, 50
Business strategy adjustment.....................................30, 42
Cobra user fee:
    Increase proposal............................................    52
    Proposal.....................................................    30
Counterterrorism fund............................................    31
    Use of the...................................................    51
Cuban travel.....................................................    15
Customs Service spending plan....................................    51
Disclosure of enforcement actions................................    16
Earned income tax credit program.................................    36
Elimination of corrupt gun dealers...............................    41
Federal Law Enforcement Training Center requirements.............    34
Gang resistance education and training (G.R.E.A.T.)..............    50
Gun shows........................................................22, 39
Health of the American economy...................................    27
Information systems security.....................................    37
IRS:
    Customer service, compliance and workload initiative.........    49
    Resource requirements........................................    49
Joint border agency..............................................17, 31
Law enforcement resource requirements............................    32
Legislative proposal on retirement and health costs..............    13
Modernization and improvement of IRS systems.....................    42
National instant criminal background check system (NICS).........    21
NTIA narrowband mandate..........................................    32
OECD and tax havens..............................................    25
Office of Foreign Assets Control.................................    43
Policy for importation of firearms...............................23, 40
Progress of ACE modernization system.............................    23
Reaction to Immigration and Naturalization Service publicity.....    14
Secret Service workload balancing................................    33
Sporting gun firearms for importation, exclusion of..............    22
Tax shelters.....................................................    37
Tax-exempt bonds financing of recycling facilities...............    37
Trade deficit....................................................    29
Use of technology at the borders and ports of entry..............    35
Visiting Customs ports of entry..................................    35
Youth crime gun interdiction initiative program..................    50

                          U.S. Customs Service

ACE funding......................................................   231
Additional committee questions...................................   226
Anti-terrorist money laundering..................................   208
Arming National Guard detailees..................................   223
Automated commercial environment (ACE)...........................   210
Border security..................................................   202
Business strategy adjustment and pay parity......................   227
COBRA user fee shortfall.........................................   231
Container security initiative (CSI)..............................   228
Customs:
    Automation modernization.....................................   221
    Tax increase.................................................   226
    Trade partnership against terrorism..........................   221
Forced child labor.............................................214, 232
Jewelry marking..................................................   223
Joint border agency..............................................   227
Mexican long haul trucking.......................................   225
Monitoring of strategic exports..................................   208
National Guard...................................................   230
    Assistance to Customs........................................   215
Other core mission responsibilities..............................   211
Overtime cap for inspectors......................................   231
Port security....................................................   229
Post-September 11 border crossing wait times.....................   220
Proposed COBRA fee increase......................................   217
Safeguarding the economy; improving the flow of trade............   209
Sea container:
    Inspections..................................................   218
    Security initiative..........................................   215
U.S. Customs' top priority: counter-terrorism....................   201
USA PATRIOT Act..................................................   228

                          U.S. Secret Service

Acquisition, construction, improvements, and related expenses 
  (ACiRE)........................................................   115
Counterfeit United States currency...............................   113
Cyber-crime......................................................   113
Fiscal year 2003 appropriation request...........................   114
Forward edge program.............................................   113
Human resources and training.....................................   123
Investigative:
    Mission......................................................   112
    Program......................................................   116
Missing and exploited children...................................   113
Mission funding, Secret service..................................   112
National special security events.................................   112
Office of Protective Research....................................   121
Protective program...............................................   115
Salaries and expenses (S&E)......................................   114
Workload retention and workload balancing........................   114

                   EXECUTIVE OFFICE OF THE PRESIDENT

                    Office of Management and Budget

Additional committee questions...................................    74
Administration's pay policy......................................    61
Agriculture and payment limits...................................    87
Army Corps of Engineers..........................................    89
Border Security Agency...........................................    75
Capitol Hill, Ridge testifying on................................    83
Child care and adoption..........................................    90
Competitive sourcing.............................................    70
Consolidated Executive Office of the President appropriation.....    59
Corps of Engineers...............................................    86
Customs user fee.................................................    74
Defense..........................................................    88
Electronic government (E-Gov)....................................    59
EOP consolidation............................................65, 69, 72
Ergonomics.......................................................    93
    Rule.........................................................    68
Federal:
    Accounting Standards Board...................................    80
    Employees Compensation Act (FECA) proposal...................    66
    Retiree costs, full funding for..............................    58
Forest Service emergency firefighting funds......................    63
General Flowers..................................................    84
Government downsizing............................................    83
Government's human capital crisis................................    82
GREAT grant program..............................................    77
Homeland security................................................    60
    Funding......................................................    66
House budget resolution..........................................    68
Improving the current Federal budget.............................    91
Low-income home energy assistance program (LIHEAP)...............67, 92
Measuring performance and delivering results.....................    58
Office of:
    Financial Assets Control (OFAC)..............................    77
    Homeland Security........................................62, 75, 90
OMB:
    Budget.......................................................    58
    Representation account.......................................    78
Outsourcing Federal jobs.........................................    82
Pay parity.......................................................    76
President's management agenda....................................    81
Regulatory oversight.............................................    79
Renewables.......................................................    89
Risk analysis....................................................    84
Shared responsibilities with Congress............................    83
Small business loans, scoring of.................................    78
Transportation funding...........................................    87
Treasury counter terrorism fund..................................    77
Two-front war against terrorism..................................    57
U.S.:
    Corps of Engineers...........................................    71
    Customs Service..............................................    69
    Postal Service...............................................    65
Veterans.........................................................    85

                 Office of National Drug Control Policy

Additional committee questions...................................   274
Anti-doping efforts..............................................   245
Counterdrug:
    Intelligence executive secretaries...........................   245
    Technology Assessment Center...............................243, 286
Drug:
    Free Communities Act.........................................   279
    Problem in our Nation, assessing the extent of the...........   248
    Trafficking:
        Areas, high intensity....................................   268
        In New England...........................................   279
    Treatment..................................................271, 278
Drug-free communities support program..........................245, 291
Federal drug control budget......................................   246
Fiscal year 2003, national drug control budget, the consolidated.   249
General questions................................................   291
Government-wide drug control efforts.............................   284
High intensity drug trafficking areas (HIDTA)..................246, 288
Media campaign...................................................   259
Methamphetamine in New England...................................   280
National:
    Alliance for Model State Drug Laws...........................   246
    Drug court initiative........................................   245
    Youth Anti-Drug Media Campaign..............244, 272, 275, 281, 283
ONDCP's fiscal year 2003 budget request..........................   252
Parent Corp......................................................   277
Performance measures development.................................   246
Prescription drug abuse..........................................   270
President's national drug control strategy.......................   247
Substance among youths in the juvenile justice system............   282
United States Anti-Doping Agency.................................   290

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